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.     

Farm Poverty and Safety Nets

Farm families with incomes below the poverty line are far less likely than wealthier farmers to receive farm support payments. Using data from the 1989–2004 Current Population Survey, we find that poor farm families are also not participating in other assistance programs. Controlling for other factors, eligible farm families have substantially lower participation rates in the Food Stamp Program and in Medicaid than eligible nonfarm families. Removing farm safety net program payments would increase the number of farmers eligible for these programs but, in the absence of behavioral changes, would only lead to small increases in the number of recipients.     

Distortions to World Trade: Impacts on Agricultural Markets and Farm Incomes

The latest versions of the Global Trade Analysis Project database and the Linkage model of the global economy (projected to 2015) are used to estimate the impact of removing all merchandise trade distortions (including agricultural subsidies). Results suggest that a move to free merchandise trade would increase farm employment, the real value of agricultural output and exports, real returns to farm land and unskilled labor, and real net farm incomes in developing countries. This would occur despite the decline in international terms of trade for some developing countries that are net food importers or are enjoying preferential access to agricultural markets of high-income countries.     

The impact of decoupled payments on U.S. cropland values

An extensive literature has shown that various farm programs may influence the value of farmland, but other studies have not examined the cropland price effects of direct, or decoupled, payments separate from countercyclical payments. This study uses nationally representative confidential field‐level panel data with farmer‐reported per‐acre land values. We analyze the impact of decoupled and other farm program payments on farmland values. Using a fixed effects model and controlling for various factors that influence farmland values, we find that an additional dollar of decoupled payments has a large and statistically significant impact on farmland values of about $18 per acre. These results are comparable with similar studies undertaken in Europe.     

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.     

Farmer responses to changing risk aversion,enterprise variability and resource endowments

The focus of this article is on assessing how risk aversion, enterprise variability and resource endowments affect farm land‐use decisions and economic returns. A theoretical model of a two‐enterprise, two‐constraint farm is developed, and then, an empirical illustration for an Australian farm is provided. The methodology used builds on previous expected mean‐variance (EV) models by incorporating land and budget constraints. The Kuhn–Tucker conditions of the EV model are examined to highlight that changes in resource endowments have larger effects on economic returns, than do changes in risk aversion or enterprise gross margin variability. It was also found that combinations of enterprise mixes that do not use all available resources can produce higher economic returns, relative to some enterprise mixes that use all available resources.     

Government Payments and Farm Business Survival

Using farm-level panel data from recent U.S. Agricultural Censuses, this study examines how direct government payments influence the survival of farm businesses, paying particular attention to the differential effect of payments across farm-size categories. A Cox proportional hazards model is used to estimate the effect of government payments on the instantaneous probability of a farm business failure, controlling for farm and operator characteristics. Results indicate that an increase in government payments has a small but statistically significant negative effect on the rate of business failure, and the magnitude of this effect increases with farm size.     

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.     

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.     

Off‐Farm Work,Intensity of Government Payments,and Farm Exits: Evidence from a National Survey in the United States

The last three decades have witnessed the continued exit of households from primary agriculture in the United States, where the average annual gross exit rate has averaged 10% per year. Understanding exit behavior is one key to future farm structure, management of abandoned land, depopulation of rural areas, and agricultural policy, including government program payments. This study empirically estimates the determinants of exit decisions of farm households. Particular attention is given to the roles of intensity of government payments and off‐farm work decisions of farm couples in the exit decision. Using a large farm‐level survey and controlling for endogeneity, results indicate that farm households with reduced intensity of government payments are more likely to exit farming. Households where the operator spouse works off the farm are more likely to exit farming. Additionally, households with older farmers, with the farm operator and spouse raised on a farm, and households operating farms located in Northern Great Plains are more likely to exit farming.     

Assessing CAP Reform: Sensitivity of Modelling Decoupled Policies

The European Union reformed farm policy in June 2003 towards the decoupling of farm income support instruments. Available impact studies find that this reform reduces production incentives substantially for beef and to a lesser extent for arable crops. However, these studies assume that the previous reform, under Agenda 2000, already decoupled arable crop direct payments to a considerable extent, while beef premiums were linked more closely to production. Our main objective in this paper is to test the sensitivity of these results to this questionable modelling of Agenda 2000 direct payments, which neglects eligibility rules and land market imperfections. Our analysis reveals that the effects of the reform on both arable crop and beef production are always negative, however the Agenda 2000 direct payments are modelled. On the other hand, we show that, when the eligibility rules and land market imperfections are acknowledged, the production reducing effects may be much larger for arable crops than for beef. Policy implications of these results are noted.     

Passive farming and land development: A real options approach

The EU's farmers are no longer required to produce commodities to receive direct payments as long as they keep their land in good condition. Some believe this is bad for development because it encourages passive farming. We evaluate, using a real options approach, the implications of decoupled payments for the desirability and optimal timing of agricultural land development when considering sunk investment costs and uncertain future returns. We find that decoupled payments accelerate development while passive farming increases, by adding managerial flexibility, the value associated with land. We then use the Nash bargaining solution to identify the rental share to be paid for leasing land. We show that a deal for the lease of land can always be reached, but that the facility to use passive farming as an outside option allows landowners to extract policy rents, thereby undermining the potential for the Basic Payment Scheme to support tenant farmers’ incomes.     

Capitalisation of the SPS into Agricultural Land Rental Prices under Harmonisation of Payments

As the 2013 Reform of the Common Agricultural Policy (CAP) calls for the harmonisation of Single Payment Scheme (SPS) payments, we estimate the implications of this mandate on agricultural land rental rates over time as Germany began harmonising payments in 2010. Using Bavarian farm‐level panel data we find strong capitalisation effects that increase substantially in the years following 2009. On average, the marginal effect on rental rates of an additional SPS euro is 37 cents, growing over time to 53 cents as harmonisation develops.     

Stability of Farm Income and the Role of Nonfarm Income in U.S. Agriculture

This study measures the variability in real net farm income in the U.S. agricultural sector and per farm and determines if variability has diminished over 1933 to 1999. Second, the role of nonfarm income in reducing the variability in total farm household income is examined. Results indicate that the variability in real net farm income in the sector and at the farm level has not diminished and that nonfarm income has helped to reduce the variability in total farm household income.     

Are "Decoupled" Farm Program Payments Really Decoupled? An Empirical Evaluation

This analysis utilizes farm-level data to evaluate the extent to which U.S. farm program benefits, particularly direct payments, bring about distortions in production. The issue is important in WTO negotiations and in the debate over the distortionary effects of decoupled ("green-box") payments. Our results suggest that the distortions brought about by AMTA payments, though statistically significant in some cases, are very modest. Larger effects are implied for market loss assistance payments. Probit models suggest that AMTA payments do not influence the likelihood that agents will acquire more land. Our results are reinforced using an aggregate county-level acreage model.     

A New U.S. Farm Household Typology: Implications for Agricultural Policy

Changes in U.S. agriculture have yielded a diversity of farm types. These changes have extended beyond the farm business and into the farm household. The objective of this research is to motivate, develop, and discuss the policy implications of a new typology of U.S. farm households, which is based on household economic theory. Using the 2003 Agricultural Resource Management Survey and statistical analysis, the U.S. Farm Household Typology identifies six mutually exclusive groups of U.S. farm households. This typology is then compared to the current Economic Research Service Farm Typology and used to investigate the distribution of government payments.     

The Dynamics of Farm Incomes: Panel data analysis using the Farm Accounts Survey

This paper uses longitudinal information from the Scottish Farm Accounts Survey to explore the dynamics of Scottish farm incomes between 1988/89 and 1999/2000. Both the Net Farm Income and Cash Income of farms are considered. The results show high levels of income variability and income mobility within Scottish agriculture. Although exit rates from the lowest income groups remain relatively high even when spells of low income have lasted a number of years, there is evidence of farms with persistent low farm income and farms experiencing repeated spells of low‐income. Smaller farm size and having a farmer aged over 65 increase both the probability that a farm will fall into the lowest income group and the length of time spent in that income group. Further the results suggest that the impact of the post‐1997 agricultural recession on income mobility depended on the income status of the farm when the recession began.     

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.     

Understanding the Economic Factors Influencing Farm Policy Preferences

A survey conducted in Mississippi, Texas, Indiana, and Nebraska elicited producers' preferences for various farm policy changes. This permitted examination of the diversity of preferences that single-state studies have not allowed. Five policy choices, including deficiency payments, loan programs, crop insurance, export programs, and disaster payments were examined. Logit model results predicting producer preferences for each of the five dichotomous policy choices are reported. Explanatory variables based on expected utility theory such as risk aversion, price and yield variability, and price–yield correlation are significant in various models.     

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.