FAO Agricultural Development Economics Policy Brief, No. 30.

North Macedonia’s ambition to join the European Union (EU) makes it necessary to reform the agricultural sector, such that it aligns with the EU Common Agricultural Policy (CAP). This involves the “decoupling” of farm subsidies, i.e. a shift to payments that are not linked to area and production levels of specific commodities, livestock numbers, and input use. The decoupling of direct payments has significant impacts on production decisions, prices and therefore on farmer’s income. The study underlying this policy brief identifies five possible scenarios for North Macedonia to align their direct payment scheme with EU regulations and analyses the impact on farmer’s income. The results show that on average farmer’s income increases through the decoupling of direct payments in North Macedonia, with small farmers having a positive effect on income while bigger farmers experience a negative impact. To allow for a smooth alignment with the CAP in North Macedonia, a gradual phase-in of direct payments measures is recommended.