Distributional Effects of Direct Payments in Switzerland

20. Januar 2011 Der Effekt von Direktzahlungen auf die Einkommensverteilung 1122nd EAAE-Seminar February 17th 1Evidence-Based Agricultural and Rural Policy Making

Distributional Effects of Direct Payments in Switzerland

Paper presented at the 122nd EAAE-Seminar in Ancona/Italy, 17th-19th February 2011

by Nadja El Benni

El Benni, N., Mann, S., Lehmann, B. (2011): Distributional effects of direct payments in Switzerland, Paper presented at the 122nd EAAE Seminar, European Association of Agricultural Economists, February 17-18, 2011, Ancona, Italy.

11. November 2010 Modul I – Forschungsfrage 1.2 2

Pre-reform -Farm household based support for farmers facing adverse production conditions

First reform 1992-Introduction of area-based Direct Payments-Introduction of the first ecological direct payment program (IP)

Second reform 1999-Abandonment of farm household based payments-All direct payments are based on a cross-compliance approach (IP became obligatory)

2

Agricultural policy changes in Switzerland

122nd EAAE-Seminar February 17th Evidence-Based Agricultural and Rural Policy Making

Research question: How agricultural policy changes affected the income distribution within the Swiss farm population?

Market support

Focus on income level, what are the distributive effects

20. Januar 2011 Der Effekt von Direktzahlungen auf die Einkommensverteilung 3

Method

3

Gini coefficient Pseudo-Gini coefficient Gini elasticity

How concentrated is the income within the population?

How concentrated is the income from a specific income source with regard to the distribution of total household income ?

On how much the Gini coefficient changes if the income from one specific source is increased by 1%?

0 = total equally distributed1 = 1 household receives all of the income

< (>) 0 the income from source k is mainly given to low (high) income farmers

< (>) 0 increasing the income from source k by 1% decreases (increases) the Gini coefficient by x%

)(,cov2 YFyG

k

kk

YFyC

)(,cov2

)(

1GC

G kk

k


cov: Covariance y: Income F(Y): Cumulative distribution function µ: Mean income

Stuart (1995) Lerman and Yitzhaki (1985)


FADN data 1990 – 2009: weighted and trimmed

4

Data

Number of observations per year

Mean Minimum Maximum

Sample 3460 2259 4407

Population 52180 45520 60318



Gini coefficients 1990 - 2009

5

How concentrated is the income within the population?

AB A

- Introduction of area- based payments

B - Cross-compliance- Abandonment of farm household payments


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How concentrated is the income from a specific income source with respect to the distribution of total household income ?

Pseudo – Gini coefficients 1990 - 2009


7

On how much the Gini coefficient changes if the income from one specific source is increased by 1%?

Gini elasticities 1990 - 2009


Summary and conclusion (I)

The effect of farm and off-farm income on total household income distribution:

-Total household income is rather equally distributed within the Swiss farm population and did not change over time (1990: 0.21, 2009: 0.23)-Farm income is less equally distributed compared to total household income and inequality increased over time (1990: 0.27, 2009: 0.38) off-farm income decreases household income inequality-Off-farm income is unequally distributed but with decreasing trend

differences in off-farm employment opportunities an increasing number of farmers rely on off-farm income

-Compared to other countries farm income is rather equally distributed within the Swiss farm population

Irland 1996: 0.62 (Keeney, 2000)

USA 1991: 0.64 (El-Osta et al., 1995) Germany 2005: 0.54 (Von Witzke and Noleppa, 2007) Swiss agriculture structure: small-scaled (~17ha) no big and highly efficient

farms 8122nd EAAE-Seminar February 17th Evidence-Based Agricultural and Rural Policy Making

Summary and conclusion (II)

The effect of direct payments on total household income distribution:

-Since the introduction of area-based direct payments (1992), direct payments are more equally distributed. -Since direct payments are based on a cross-compliance and farm specific supports were abandoned (1999), direct payments became less equally distributed.

farm specific (income goals) area-based (national level income goals) cross-compliance and income goals?!

-Direct payments are increasingly distributed to farmers with in average higher household income levels

to a certain extent the distributional effects of market support policies are transferred to the “new” agricultural policy based on “decoupled” direct

payments the high share of direct payments on household income increases the

responsibility of policy makers regarding the income distribution!


Thanks for your attention

Discussion…Questions…

10


References

El-Osta H.S., Bernat, A., Ahearn, M.C. (1995): Regional Differences in the Contribution of Off-Farm Work to Income Inequality, Agricultural and Resource Economics Review 24(1), pp. 1-14.

Keeney, M. (2000): The Distributional Impact of Direct Payments on Irish Farm Incomes, Journal of Agricultural Economics 51(2), pp. 252-263.

Lerman, R.,I., Yitzhaki, S. (1985): Income Inequality Effects by Income Source: A New Approach and Applications to the United States, The Review of Economics and Statistics 67(1), pp.151-156.

Stuart, A. (1954): The Correlation Between Variate-Values and Ranks in Samples from a Continuous Distribution, British Journal of Statistical Psychology 7, pp.37-44.

Von Witzke, H., Noleppa, S. (2007): Agricultural and Trade Policy Reform and Inequality: The Distributive Effects of Direct Payments to German Farmers under the EU`s New Common Agricultural Policy, Working Paper Nr. 79/2007, Humboldt- University Berlin.


Distributional Effects of Direct Payments in Switzerland

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