The Role of the Common Agricultural Policy in Enhancing Farm Income: A Dynamic Panel Analysis Accounting for Farm Size in Italy

As a multi-objective policy, the EU Common Agricultural Policy continues to secure significant income support for farmers as one of the nine specific objectives. We estimate the income transfer efficiency of a broad set of pivotal policy measures, focusing on the effects of farm structure on income transfer efficiency. We use dynamic modelling, based on a micro-data panel of Italian farms for the period 2008–2014, allowing for endogeneity, simultaneity bias, and omitted variables. In line with previous studies and economic expectations, we find that decoupled direct payments provide the highest contribution to agricultural incomes, followed by agri-environmental payments and on-farm investment subsidies. Coupled payments have no significant impacts on farmers’ income. Generally, for all analysed Common Agricultural Policy measures, large farms benefit from greater transfer efficiency levels compared with medium and small farms. These differences among instruments and across farms suggest that policy-participation costs may play a pivotal role, together with the economic structure of farms, in determining the income transfer efficiency of CAP policies.     

The Effects of Direct Payments on Technical Efficiency of Irish Beef Farms: A Stochastic Frontier Analysis

The 2003 Mid‐Term Review of the CAP sought to refocus the EU's farm support policy to foster a more competitive and market‐orientated agricultural sector. The foundation of this reform comprised the introduction of decoupled payments to farmers, replacing the EU's previous system of supports that were directly linked to production of designated crops and livestock. This paper explores the effect of coupled payments and their subsequent replacement by decoupled support, on the technical efficiency of specialist beef farms in Ireland. Given the high reliance of beef farmers in Ireland on CAP payments, the decoupling of payments has been especially important for the sector. A stochastic production frontier is estimated using a panel dataset comprising detailed accountancy data for Irish beef farms between the years 2000 and 2013. Our results indicate that technical efficiency in the beef farming sector has been consistently poor, with an average efficiency score of only 0.53 during the period analysed. However, we found that direct income received in the form of coupled payments had a positive impact on farm efficiency, and that this positive effect was maintained after their replacement with decoupled income support.     

Young farmers’ support under the Common Agricultural Policy and sustainability of rural regions: Evidence from Lithuania

The present study examines the influence of young farmers’ support system including both direct payments for young farmers and rural development measures initiatives under the Common Agricultural Policy (CAP) on the sustainability of rural regions. The intentions and decisions taken by young farmers in Lithuania are analysed within the rural sustainability concept. The empirical analysis relies on the questionnaire survey. In order to disentangle the possible effects of the CAP support on the farming sustainability (as it is perceived by the young farmers), we consider payments for farm establishment and expansion along with support for advisory services. The results show that young farmers’ support system under the CAP has the strongest perceived effect on income support in Lithuania without significant differences across different groups of farmers. The effect on investments is significantly lower for crop farms if opposed to the other farming types. Still, the results also indicate that environmental awareness of Lithuanian farmers is rather low as the demand for such advisory services appeared to be relatively low. The relatively high demand for advisory services on the business plan preparation suggests low levels of business administration and marketing skills among the young farmers, which indicates the need for development of the social dimension.     

Assessing the Impact of Direct Payments Convergence on Farm Income Inequality: The Case of Italian Farms

Abstract

This paper investigates the effects of the convergence process of direct payments (DPs) on farm income inequality. The analysis uses the Gini coefficient concept and its decomposition on the FADN Italian sample in 2014 and 2019 to assess the impact of the DPs reform in Italy. Results of the analysis show that a marginal increase in direct payments will reduce income concentration. However, a shift of resources toward mountain areas could occur. The results of the analysis have some policy implications regarding the application of the convergence mechanism of the CAP in Italy: in fact, the convergence process leads to a redistribution of resources in favour of mountain areas. These results could feed the debate on the future of CAP direct payments after 2020, when the cut or, at least, the reduction of DPs could increase income concentration.     

Analysing Farm‐specific Payments for Norway using the Agrispace Model

Norway maintains a complex system of activity or type specific coupled payments which account for a large share of farm income. Most of the payment rates are negatively related to farm size and are higher in remote areas compared to central regions. We present and use a newly developed recursive‐dynamic multi‐commodity model (Agrispace) with CES production functions depicting regional farm clusters derived from the full farm population. Using this model, we simulate impacts of current and alternative subsidy policies on production, prices, input use, income and farm structural change. Mapping cluster results to each farm along with behavioural rules allows estimation of individual profits and farm exits. Our results indicate that, in the short run, the current policy regime seems to support the policy objective of maintaining a variety of farms in all parts of Norway. In the long run, farm structural change is less affected by a policy reform that leaves total support levels unchanged.     

Farm Type Effects of an EU‐wide Direct Payment Harmonisation

In this study, we analyse how three scenarios involving different levels of harmonisation of common agricultural policy (CAP) decoupled payments in the EU affect the distribution of farm income across regions and farm types. We use the farm type extension of the common agricultural policy impact (CAPRI) model, which captures farm heterogeneity across the EU. The first scenario (NUTS1) assumes uniform per‐hectare payments at the NUTS1 level. The second scenario (MS‐CONV) equalises the per‐hectare rates inside each Member State (MS) and partially harmonises the single payment scheme (SPS) across MS in line with the 2011 Commission proposal. The third scenario simulates a uniform per‐hectare payment at the EU level. Depending on the implementation of the SPS, the NUTS1 flat rate induces a substantial redistribution of payments across farm types and NUTS2 regions, particularly in regions that apply the historical SPS. The MS‐CONV and EU flat‐rate schemes have more significant impacts at the EU‐wide level. In the EU‐15, almost all farms lose payments from MS‐CONV and EU‐wide flat rates, whereas in the EU‐10, almost all farm types gain from these scenarios. Our conservative estimates indicate that the flat‐rate payments could redistribute up to €8.5 billion. Lower land rental costs partially offset the losses of farm income in the EU‐15 from payment redistribution. Land rents drop for all flat‐rate scenarios across most sectors and farm sizes in the EU‐15. In the less productive new MS, the landowners’ rental income is largely unaffected by the introduction of the flat rate.     

The Impact of Coupled and Decoupled Government Subsidies on Off-Farm Labor Participation of U.S. Farm Operators

With the 1996 Farm Act, the United States introduced payments that were designed to be "decoupled." Labor allocation choices are likely to be affected by receipt of payments, and income from off-farm jobs has been the major source of income for most farm households for sometime. This article examines whether the 1996 change has affected the off-farm labor participation of farm households. We conclude that the observed increase in off-farm participation of farm operators who received payments was not the result of the 1996 policy change. Government payments, whether coupled or decoupled, have a negative effect on off-farm labor participation.     

Welfare implications of reduced government subsidies to farm families: accounting for fringe benefits

In the past three decades, farm families have relied on government payments and off‐farm income to reduce income risk and increase total household income. Studies have shown that, as the income effect dominates, government payments tend to reduce off‐farm labor of farm operators and spouses. But that may not be true if one accounts for fringe benefits associated with off‐farm employment. Additionally, with looming budget deficits and the possibility of a reduction in decoupled government payments, farm families may be facing an altered economic environment. Our study addresses this issue by examining the links between government farm program payments and the ever‐important role of fringe benefits in the off‐farm employment of farm couples. Results from farm‐level data actually show that the marginal effect of government payments on hours worked off‐farm will decrease in magnitude when accounting for fringe benefits, ceteris paribus. These results support the notion that farm households’ welfare loss stemming from reduced decoupled payments may be overstated when models exclude fringe benefits from the estimation of off‐farm labor supply.     

Farm technical and environmental efficiency and subsidy redistribution in Ireland: A simulation approach of possible performance and equity effects

We investigate the relationship between EU Common Agricultural Policy environmental payments, and dairy and beef farm level competitiveness and environmental performance. We use an Irish panel of farm level financial data for the years 2000–2017 and apply stochastic frontier analysis. Our estimates identify a positive relationship between technical efficiency and the Green, Low-Carbon, Agri-Environment Scheme for dairy farms, in contrast with the negative relation identified for previous payments of this kind such as the Rural Environment Protection Scheme for both beef and dairy. We then simulate increases in the first type of environmental payments financed through reductions in decoupled payments. We use alternative scenarios for payment redistribution such as flat allocation, allocation to farms with low stocking rates or proportional reallocation of payments. We find that under the second scenario, marginal environmental gains can potentially be achieved for dairy farms. For beef farms, the proportional allocation performs best regarding environmental gains. We also find that under this scenario, the impacts on income inequality can be smoothed for both farm types.     

Effects of European Union agricultural policies on the sustainability of grazingland use in a typical Greek rural area

Recent changes in the Common Agricultural Policy (CAP) introduced different definitions regarding the eligibility of various types of land used by grazing animals. In particular, shrublands and other low-quality areas which have traditionally been used as grazinglands are now not eligible for European Union income support payments. Subject to these changes, a large part of livestock farms will be affected, being partially or fully deprived of EU income support. In addition to these policy-driven changes, pasture-fed livestock farms in Greece are faced with a unique system of grazingland allocation, as all grazing areas in the country are state-owned. These areas are allocated for a short period either directly to farmers who are permanent residents of the Municipalities or to other livestock farmers through an auction system, which does not take into account the grazing capacity thus bringing about environmental degradation. This paper investigates the effects of CAP changes and of this communal land allocation system based on the findings of a typological analysis. The study focuses on a typical Greek territory in terms of land uses, economic activities and sociodemographic developments. Data from a questionnaire survey are used to build a typology of local livestock farms in terms of their nutritional management and land use characteristics and then the profile of each type is investigated through the estimation of a Multinomial Logit Model where the dependent variable is the cluster participation. Three distinct types of farms (clusters) are determined. Cluster 1 includes traditional farms which rear sheep and goats and bovine for meat, which are highly dependent on grazingland uses and EU income support. Cluster 2 farms – mainly sheep and goat – have evolved a ‘double’ dependency on land in the form of grazingland but also of cropland for feedstuff production, which renders them more resilient to policy changes. Finally, Cluster 3 farms are intensive dairy cattle farms and use artificial (cultivated) privately-owned grazinglands and cropland for feedstuff production. Market-oriented measures are proposed for each type and suggestions for an integrated land use plan are made, including long-term leasing of land and the consideration of environmental criteria for land allocation, thus rendering farmers responsible for keeping their land in a good production state.     

The impact of agricultural policy on farm income concentration: the case of regional implementation of the CAP direct payments in Italy

One of the objectives of agricultural policy worldwide concerns the support of farm income. Common Agricultural Policy direct payments (DPs) are the main instruments to support farm income in the European Union. This article addresses their role in the concentration of farm income. This is done by calculating the Gini coefficient and its disaggregation in a large sample of Italian farms in the period between 2006 and 2007. Although this approach has been used to develop ex‐post analysis in previous studies, this article is innovative given that it is used here in an ex ante analysis aimed at evaluating the likely impact of a recent reform proposal. This latter requests changing the current model to a regional model of DPs application to make payment rates (i.e., payment per hectare) homogeneous among farms in the same region. The analysis shows that DPs and farm incomes are both very concentrated but that DPs allow for an income concentration reduction in Italian farms. The shift to a regional implementation reduces DPs concentration and, to a limited extent, farm income concentration. Of the considered regionalization scenarios, those that redistribute DPs among regions are the most effective in reducing concentration. The extension of the Gini considered approach to an ex ante setting seems effective because it provides insights that could feed the policy debate regarding the forthcoming reform.     

Effects of direct payments on rice income variability in Japan*

The effects of direct payments on rice income variability in Japan are analysed based on a balanced panel dataset of Japanese rice farms for 2012–2016. Firstly, the contribution of income components to rice income variability and the effects of a direct payment reduction are discussed by applying variance decomposition. Secondly, robust regression techniques are used to measure the correlation between direct payments and rice income variability. The originality of this paper is that it disaggregates the effects of payments using a regression analysis of the effects of direct payments on income variability for Japan. This contrasts with the existing literature on this topic, which has largely focused on European Union countries. This paper discusses to what degree the reduction in direct payments increases income variability. The results reveal that direct payments decrease Japanese rice income variability. Indeed, after controlling for various farm characteristics, we find a negative relationship between the amount of direct payments linked to rice production and rice income variability. Finally, the results suggest that reducing direct payments when the rice price is falling would increase rice income variability.     

Forest cover,development, and sustainability in Costa Rica: Can one policy fit all?

Forest Transition Theory offers the hope that global economic development can continue in tandem with forest recovery. Costa Rica has been lauded for its successful forest transition—once the fastest deforesting country in Central America, forests began to regrow in the 1980s and have had a steady trajectory of recovery since. This forest regrowth can be linked temporally to Costa Rican policies that have promoted tourism and discouraged small-scale agriculture. We use a case study from the Bellbird Biological Corridor (Corredor Biológico Pájaro Campana; CBPC), Costa Rica, combining remote sensing analysis with interviews and ethnography, to unravel the relationship between national policy, forest regrowth, and social-ecological sustainability. The forest cover change analysis between 1986 and 2014 indicates that, at the parcel-level, national policy has served to promote farm abandonment in favor of tourism and that this change has been critical to forest regrowth. However, these changes have occurred within a development framework that has created new social-ecological challenges that threaten future forest and economic sustainability. Examining the parcel-level impacts of the driving forces of landscape change highlights that forest cover is an insufficient proxy for conservation success, and conservation policy focused primarily on forest recovery may create new sustainability challenges.     

Brexit: How Will UK Agriculture Fare?

There is little doubt that Brexit would have significant implications for UK agriculture, a sector with strong trade links to the EU and strong reliance on CAP income support. This article reports preliminary results from employing a Computable General Equilibrium Model, a Partial Equilibrium Model and Farm Level Models to explore selected trade and domestic policy scenarios post‐Brexit. These allow for the estimation of changes in producer prices, production and farm incomes against a baseline scenario of continued EU membership. Under a Free Trade Agreement with the EU, agricultural impacts are relatively modest. By contrast, unilateral removal of import tariffs has significant negative impacts on prices, production and incomes. Adoption of the EU's WTO tariff schedule for all imports favours net importers (e.g. dairy) and harms net exporters (e.g. sheep). Given the strong dependence of most UK farms on direct payments, their removal worsens negative impacts of new trade arrangements and offsets positive impacts. Impacts vary across different types and sizes of farm, but also regionally. However, the period of adjustment to new trade and domestic policy conditions may prove very challenging for a large number of farm businesses.     

The heterogeneous farm‐level impact of the 2005 CAP‐first pillar reform: A multivalued treatment effect estimation

This article aims to evaluate the impact of the 2005 reform of the Common Agricultural Policy (CAP) on farm production choices as a treatment effect (TE). This impact is measured through alternative metrics of the short‐term changes of the output vector. The heterogeneity of the response to the reform is assessed by estimating both average and quantile TE. As this heterogeneous response may depend on the different farm‐level CAP support, a multivalued treatment approach is adopted and applied to treated units (i.e., supported farms). This approach is applied to a balanced panel of Italian FADN farms observed over years 2003–2007. Results show that the 2005 reform of the first pillar of the CAP actually had an impact in (re)orienting short‐term farm production choices but this response is largely heterogeneous and concentrated in the lower levels of support.     

The Distributional Impact of Direct Payments on Irish Farm Incomes

The objective of this paper is to analyse the distributional effects of the different income components of Irish farm income with a Gini comparison method and by disaggregating the overall Gini coefficient of income inequality by income source. Using individual farm data for 1992 and 1996, the impact on farm income distribution of the MacSharry CAP reform is assessed. In addition, the change in the Gini coefficient between these years is decomposed into the changes in the within‐source distribution of each income stream and the share of each income stream. The favourable movement in the Gini coefficient is found to be due to the introduction of direct payments, which target less well‐off farmers. Market income remains the single largest influence on deciding the income ranking of a farm while contributing less to total income than before.     

Farmers and their groves: Will cost inefficiency lead to land use change?

Increased forest areas and climate change mitigation are policy goals enhanced by expanding private forest ownership. This study shows transfer of land from farms owning forested acreage associated with low quality land and high production costs achieves such goals. Calculated cost efficiency scores show a large gap between the most and least efficient farms, and farms with forests are less cost efficient. Land reforestation through subsidy programs could replace income from agricultural production. We illustrate that farms from the applied FADN panel could reforest 45,000 hectares, binding about 0.5 mln tons of carbon annually without limiting food or feed supply.     

国有林场改革成效评价——职工获得感的统计分析

利用国有林场职工监测数据,基于物质维度和精神维度,从改革后职工自身的收益情况、职工对林场的整体评价、职工对林场管理方式的评价等方面,采用比较分析法和主成分分析法对国有林场改革职工获得感进行分析。研究结果表明:国有林场改革后职工获得感有所提升,改革进程与职工获得感呈强正相关性,改革促进了林场的可持续发展。但林场整体基础设施环境一般,场部相对较好,管护站点则较差。同时,在领导班子建设方面应注重自主、公平,仍需提高领导水平。     

Are farms in less favored areas less efficient?

This article investigates farm technical efficiency (TE) and the effect of heterogeneity on production among farms using the Slovenian Farm Accountancy Data Network sample of farms in the period 2007–2013. We model production technology with a random parameter model that allows us to examine both the direct effect of heterogeneity on production and the indirect effect through the interaction of unobserved heterogeneity with time and input variables. Additionally, we consider intersectoral heterogeneity among types of farming. Results confirm the importance of all these sources of heterogeneity. The second contribution of the article is that, in addition to using conventional statistical methods, we examine the differences between less favored area (LFA) and non‐LFA farms using matching techniques. Results indicate that there is only a minor and statistically nonsignificant difference in TE between these groups. However, the difference is highly significant in terms of heterogeneity and technology. In other words, results show that farms in LFAs are not more inefficient but rather use different, production–environment‐specific technologies. These findings call attention to the fact that omitting the effect of heterogeneity on production technology leads to biased TE estimates and, in turn, leads to potentially imperfect policy choices.     

Efficiency, subsidies, and environmental adaptation of animal farming under CAP

The purpose of this article is to model the interaction between the targets of the current Comman Agriculture Politic (CAP): environmental adaptation, subsidies, and efficiency of animal farming. To this end we first have to identify the production frontier and relative efficiency level for each animal‐oriented farm in the sample. The production frontier and efficiency index for each type of farm (assuming no specific production functions) are identified using Data Envelope Analysis (DEA) techniques. We then address the relationship between relative efficiency, farm size, and environmentally friendly behavior by carrying out a nonparametric regression of efficiency, on economic size, a proxy for the degree of environmental appropriateness, and regional dummies. Calculations of the efficiency of the farms including direct subsidies are compared with the counterfactual exercise in the case in which direct subsidies are not considered. Finally, we look for relations between subsidies and factors such as farm size, efficiency, and environmentally friendly behavior. One key result shows that, on average direct payments generally tend to increase efficiency. However, in most of the cases the mean efficiency decreases as the percentage of direct payments rises. Direct payments are found to be positively related to environmentally friendly production, at least in Germany. However, in general, the direct payment system is not sufficient to offset the fact that the less environmentally friendly farms as well as the larger farms are more efficient.