Agricultural Support Payments Research Articles

Identifying best practice in Less Favoured Area mixed livestock systems

CONTEXTThe ruminant livestock sector is under scrutiny for its contribution to greenhouse gas emissions. Less Favoured Areas (LFA) carry a large proportion of Europe's cattle and sheep ruminant population and is also characterised by variable economic and biophysical constraints. OBJECTIVEThis study aims to assess the heterogeneity in carbon emissions, resource usage and financial performance in a sample of mixed LFA livestock farms in Scotland. METHODSIndividual farm account data for 263 LFA cattle and sheep producers were augmented with emissions data over the period 2019–2020. Environmental impacts were estimated for each farm using emissions intensity and carbon productivity. Technical efficiency at the farm level (the rate of output to total inputs) was estimated using non-parametric data envelopment analysis. Financial resilience was measured through returns on assets to meet short-term liquidities. To manage the heterogeneity in these indicators Latent Profile Analysis (LPA) was employed. This allocates farms into separate groups, or profiles, representing different levels of environmental, resource efficiency and financial dimensions. To gain understanding of the drivers on membership of profiles we assess the impact of intensity and enterprise mix using multinomial logistic regression (MLN). RESULTS AND CONCLUSIONSThree profiles were identified within our sample which reflect different levels of performance; i) a best practice profile (23% of farms) have relatively low mean emissions intensities (22.3 kg CO2-eq./kg CW), high carbon productivity (£0.17 GVP/ kg CO2-eq.), high technical efficiencies and strong financial resilience; ii) a low resilience profile (31% of farms) which are the most economically fragile and susceptible to economic shocks, and iii) a high emissions profile (46% of farms) which have the lowest technical efficiencies and also the highest mean emissions intensities (31.9 kg CO2-eq./kg CW) and lowest carbon productivity (£0.10 GVP/ / kg CO2-eq.). The MLN identified that farms within the best practice profile will be more extensive compared to the other profiles. SIGNIFICANCELess Favoured Areas dominate global agricultural systems and they offer a more heterogenous picture compared to more intensive lowland or feedlot cattle systems. Agricultural support payments are changing to reward public goods. Our approach sets realistic thresholds for higher level performance across multiple dimensions that may merit higher payments if an outcomes-based payment scheme were adopted.

Evaluation of the European Green Deal Policy in the Context of Agricultural Support Payments in Latvia

The European Green Deal policy will significantly affect the resilience and development of agriculture, which will be determined by the 2021–2027 Common Agricultural Policy (CAP) reforms, entering into force in 2023. Therefore, the European Commission determines that at least 25% of the direct payments should be earmarked for eco-schemes, while 35% of the funding for rural development should be allocated to climate and environmental support measures. Support payments constitute a significant part of farmers’ income and guide their decision-making for production development. Therefore, the goal of the research was set by analysing the existing CAP support payment system in 2019 to determine the possible impact of the reform envisaged for 2023 on farms of various specialisations and sizes in Latvia. The analysis revealed that in Latvia in 2019, 83% of the total number of farms received support, the amount of the support was EUR 5616 per year per farm on average, and within the Single Area Payment Scheme (SAPS), the support was higher by 24%. Among the funding recipient farms, the support accounted for 28% of the farms’ income, calculated per 1 hectare. The detailed calculations carried out indicate that the possible base support payments as a result of the CAP 2023 reform are expected to be higher specifically in cattle breeding and dairy farming, which may contribute to even greater greenhouse gas (GHG) emissions in the future and thus reduce the likelihood of achieving the goals of the European Green Deal policy.

Spatial Targeting of Agricultural Support Measures: Indicator-Based Assessment of Coverages and Leakages

Agricultural support programs distribute payments to farms based on a diverse set of policy objectives. Adequate targeting of this support to priority areas is key to efficient and effective policy. We evaluated the targeting strategy of a national-level program in Mexico that distributed support based on seven criteria that prioritized poor smallholder farming communities at high risk of cropland failure. We used a series of logistic models to assess the coverage and leakage rates of the program’s targeting strategy and found rates of about 80 and 20 percent, respectively. We also found significant differences between the targeting priorities specified in program rules and the observed distribution of support measures. In general, the program favored arid and semi-arid regions at high risk of soil erosion but neglected smallholder farms in high-poverty regions with elevated rates of cropland failure. Our findings highlight the continued lack of financial support for smallholder agriculture in Mexico, despite program rules and priority statements that stress the vulnerability of this sector. This study also illustrates the important role of spatial targeting in better aligning agricultural support payments with stated policy priorities. This alignment is often overlooked in ex-post assessment, but it is critical for improving targeting precision, equity, and overall policy effectiveness.

Budgetary Impacts of Adding Agricultural Risk Management Programmes to the CAP

AbstractVolatile prices and income uncertainties are major issues for farmers, leading to a demand for policies that mitigate such risks. However, the budgetary consequences of risk management schemes are uncertain due to their dependence on market prices. Using an agricultural multi‐commodity market model, we evaluate the potential budgetary consequences of introducing two specific risk management schemes used in the United States into the European Union Common Agricultural Policy (CAP), namely the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programmes. Our analysis considers three sets of reference prices and stochastic uncertainty related to yields and macroeconomic conditions, resulting in a joint distribution of agricultural outputs and support payments. The results show that the payments from these two risk management schemes are sensitive to the reference prices triggering support and to the programme participation shares. In the most extreme stochastic simulations, support payments from the PLC programme reach €23 billion while support payments from the ARC programme reach €2.1 billion for the three crops considered (barley, wheat and maize).

Linkages between agricultural policies, productivity and environmental sustainability

Increasing sustainable productivity growth in the food and agriculture sector is a common goal of all OECD and G20 countries. At the same time, an important policy question for many governments is how the current set of agricultural policies affects both productivity growth and environmental performance of the sector. Despite the high relevance of this issue, empirical evidence on the effects of specific types of agricultural support policies on productivity and environmental sustainability is relatively scarce. The present paper seeks to reduce this gap by analyzing the impact of agricultural support policies on sustainable productivity. Drawing on observational data and configurational methods of analysis, our results show that countries achieve high sustainable productivity if livestock density is low and agricultural support payments are either not coupled to production or if such payments have environmental constraints attached.

Retirement Age Farmers’ Exit and Disinvestment from Farming

The aging of farmers in the US today coincides with fluctuating incomes resulting from recent market price volatility and policy changes. We evaluate how farmers’ retirement or exit, as well as their disinvestment from farming in preparation for retirement, are affected by economic and demographic factors. Exit and disinvestment are modeled as the outcome of intertemporal utility maximization, and farm-level data from the Census of Agriculture are used to estimate the probability of retirement-age farmers’ exit and disinvestment for the 1992-2012 period. The results show that farm size matters the most, with larger farms less likely to exit but more likely to disinvest and scale back, presumably to a new optimal size. Demographic factors such as gender, race, and age have statistically significant but relatively small impacts. Regional differences, the size of the non-farm economy, and opportunities to diversify income also affect exit. However, flow economic variables, such as current year return-on-assets and agricultural support payments, are not associated with exit and disinvestment. Given that US farmers are now facing significant income volatility, the findings point to a level of resilience. The results suggesting that current and recent income fluctuations are less likely to drive the exit of retirement age farmers have important policy implications.

Effects of reducing EU agricultural support payments on production and farm income in Finland

The budget for the Common Agricultural Policy (CAP) of the EU, and thus EU agricultural support payments, may be reduced from 2021. In this study we analyse the effects this may have in Finland using an economic model of Finnish agriculture accounting for structural changes in the dairy and beef sectors. Reducing the CAP budget by 20% would affect farm incomes by 20–25% in southern Finland while central and northern parts of the country, which are dependent on national payments coupled to dairy and beef production, would be less affected. Our results show that the milk and beef sectors throughout the country are still dependent on support payments coupled to production due to reduced real prices for agricultural products. Current policy schemes for southern Finland include coupled CAP payments but do not allow national payments. Any cuts in the CAP budget have significantly more negative effects in southern Finland compared to other regions.

Farm Capital Investment and Deviations from the Optimal Path

AbstractWe identify farms’ optimal investment path in capital assets and compare it with their actual investment to assess the direction and extent of deviation from the optimal investment. A probit model is further used to investigate the determinants of the probability that a farmer over‐ or under‐invests in capital assets. We use a panel dataset of Dutch dairy farms over the period 2003–2013, and find that most farms under‐invest in capital assets during the study period. Although the number of farms that had over‐invested in capital assets is relatively small, these farms account for the biggest share of total investment in capital assets. The probit results show that liquidity, agricultural support payments, age, land tenure and standard output size are important variables explaining the likelihood of over‐and under‐investment.

The Changing Structure of Agricultural Supports and the Causes of High Agricultural Supports: A Comparative Analysis for Turkey

Agricultural support payment is an important policy for the protection of agricultural sector. In terms of the ratio of agricultural support payments to GDP, Turkey is the country that has the highest agricultural supports among the OECD and the EU’s countries. This situation largely arises from the structural problems of the Turkish agricultural sector. In this framework, the reasons, which cause high agricultural support in Turkey, establish the subject of this study. Therefore, the data that belong to the OECD, EU and Turkey were taken into account and analyzed comparatively. At the end of the work it was revealed that, the main reasons of high agricultural supports which are implemented in Turkey are; agricultural employment, manufacturer’s level of income derived from agricultural activities, the feature of support and product-based support policies.

The capitalization of coupled and decoupled CAP payments into land rental rates

AbstractThis article explores the extent to which payments under the Common Agricultural Policy (CAP) are capitalized into land rents in Ireland with implications for the transfer efficiency of such payments, since subsidies may not benefit targeted recipients if they are capitalized into input prices. Capitalization in the years preceding and following the "decoupling" of agricultural support payments from agricultural production is explored. In the period prior to decoupling, direct support (Pillar 1) payments were highly capitalized into Irish agricultural rents (67–90 cents per euro of subsidies), while in the post‐decoupling period capitalization appears to have declined somewhat.

Decoupling direct payments: potential impacts of the 2014 farm bill on farm debt

Purpose – For over 20 years, decoupled agricultural support programs have played a large role in farm policy. The purpose of this paper is to investigate the effects of decoupled agricultural support payments on farm-level debt. Design/methodology/approach – A two-stage least squares model is used to estimate the impact of decoupled payments, farm production characteristics, demographics, regional risk factors, as well as cross-sectional and temporal fixed effects on farm debt, along with weather-related instrumental variables. Findings – Results indicate that a negative and statistically significant relationship exists between decoupled payments and farm debt. This study also provides evidence that research results not accounting for the endogenous relationship between acres operated and farm-level debt should be interpreted with caution. Research limitations/implications – The constantly changing sets of policy options provide a challenge in identifying the impact of a single policy, ceteris paribus. Therefore, one notable limitation is in extrapolating the results in this study to make implications on the elimination of the direct payments program, as part of the 2014 Farm Bill. Practical implications – This implies that farmers likely use annual decoupled payments to reduce their debt, potentially influencing their exposure to financial risks, capacity to withstand financial instability, and access to credit. The methodology used may establish a foundation for continued research that seeks to empirically identify and measure the complex interrelationships among agricultural public policies and farm-level financial measures. Social implications – Decoupled payment programs may indirectly influence debt decisions, which can influence production decisions in the long run. Originality/value – In order to accurately identify the impact of direct payment programs on farm debt levels, this study is the first of its kind to account for the endogenous relationship between production decisions and debt and use a large unbalanced panel of data available from the Agricultural Resource Management Survey.

US agricultural support programs and ethanol policies effects on farmland values and rental rates

Purpose – In recent years, prices for prime farmland have increased substantially, begging the question is the dramatic increase the result of a speculative bubble or consistent with market fundamentals with increases driven by increased global demand, low interest rates, and recent changes to US agricultural and energy policies. The purpose of this paper is to investigate the impacts of recent agricultural support policies and ethanol policies on farmland values and rental rates. Design/methodology/approach – Farm-level Agricultural Resource Management Survey data collected by the United States Department of Agriculture (USDA) between 1998 and 2008 as well as county-level data collected by the USDA, US Census Bureau, and Bureau of Economic Analysis are used to determine the impacts of recent agricultural support policies and ethanol policies on farmland values and rental rates, while controlling for parcel characteristics and urban pressure. Specifically, weighted ordinary least squares and two-stage least squares are used to investigate the impact of various governmental agricultural support policies, corn ethanol facilities location, and local corn ethanol production capacity on farmland values and rental rates. Findings – The results indicate that government payments, urban pressure, and the proximity of the parcel to an ethanol facility have a positive impact on both farmland values and rental rates. More specifically, parcels located in the same county as at least one corn ethanol facility are more valuable and command higher rental rates. In addition, county-level ethanol production capacity is positively associated with farmland values and rental rates. An inverse relationship between distance of the parcels from an ethanol facility and farmland values is also found; a similar result is found for rental rates. Research limitations/implications – The findings suggest that agricultural support payments and ethanol policies are capitalized into farmland values. These findings have important implications for the formulation of future farm policy. A limitation of the analyses is that farmland values are estimated by landowners; future research could utilize farmland transaction data to overcome potential biases generated by using landowner estimates. In addition, while our study period covers 11 years, future research could expand the time period further to analyze the effect of more recent agricultural and ethanol policies. Originality/value – This paper extends prior research pertaining to factors influencing farmland values and rental rates by also examining the proximity of the parcel to an operating ethanol facility using a unique data set.

The EU budget battle: Assessing the trade and welfare impacts of CAP budgetary reform

There is a paucity of quantitative impact assessments of the sectorial and macroeconomic impacts of CAP budget reform for EU member states. To fill this gap, the current study employs a sophisticated agricultural variant of the GTAP model to evaluate the recently agreed CAP spending limits for the financial period 2014–2020 as well as a more radical 50% cut to the CAP budget proposed by the UK government. The study incorporates methodological innovation in terms of the modelling of CAP budgetary mechanisms. Furthermore, official EU auditing statistics are employed to (i) greatly improve the existing representation of agricultural support payments in the GTAP benchmark data and (ii) implement a detailed contemporary CAP baseline for member states to capture both the decoupled/coupled split of support payments and the distribution of support across both ‘pillars’.In general, CAP expenditure cuts have muted impacts on EU and world agricultural markets; whereas changes in net transfer payments have implications for real income and macro trade balances in EU member states. This observation is particularly pertinent when assessing conciliatory reductions in the UK rebate in exchange for deeper CAP budget cuts.

Production Incentives from Static Decoupling: Land Use Exclusion Restrictions

AbstractMany agricultural support payments are based on past production with restrictions on how land may currently be used. When support payments to field crops are analyzed in a static framework, they do not directly impact current production decisions. However, over time, as relative profits change, these payments affect current output. The payments may keep land in less profitable production of program crops through restrictions prohibiting potentially more profitable endeavors such as cultivating fruits and vegetables. These payments have the potential to lead to production and trade distortions similar in magnitude to the distortions associated with direct production subsidies.

Pastoral commons use in Romania and the role of the Common Agricultural Policy

In comparison to many Western European countries, in Romania the use of common pastures remains widespread and is strongly linked to the predominance of subsistence and semi-subsistence farming in much of the country. The majority of permanent pasture in the country is under state or community ownership, and these areas are of high natural and cultural, as well as economic importance for Romania. Whilst traditional governance systems of the commons are still partly intact, or at least within living memory here, new institutions are forming in response to substantial changes in agriculture and rural life that have been occurring, particularly since Romania’s accession to the EU in 2007. We describe the changing role of common pastures for local communities in the case study region of Târnava Mare in Southern Transylvania, Romania. The number of active users here is decreasing, and those who have more animals are increasingly grazing their animals on long-term leased or private land, thus effectively no longer participating in the commons. This is encouraged by the current system of relatively low prices for agricultural products and EU agricultural support payments, which for smallholders and larger farmers alike are now a major factor in the financial viability of farming in Romania. The future of the commons in the study region will hinge on the success of the communities to self-organise and take advantage of the opportunities presented by the changing rural context of pastoral commons use.

Pastoral commons use in Romania and the role of the Common Agricultural Policy

In comparison to many Western European countries, in Romania the use of common pastures remains widespread and is strongly linked to the predominance of subsistence and semi-subsistence farming in much of the country. The majority of permanent pasture in the country is under state or community ownership, and these areas are of high natural and cultural, as well as economic importance for Romania. Whilst traditional governance systems of the commons are still partly intact, or at least within living memory here, new institutions are forming in response to substantial changes in agriculture and rural life that have been occurring, particularly since Romania’s accession to the EU in 2007. We describe the changing role of common pastures for local communities in the case study region of Târnava Mare in Southern Transylvania, Romania. The number of active users here is decreasing, and those who have more animals are increasingly grazing their animals on long-term leased or private land, thus effectively no longer participating in the commons. This is encouraged by the current system of relatively low prices for agricultural products and EU agricultural support payments, which for smallholders and larger farmers alike are now a major factor in the financial viability of farming in Romania. The future of the commons in the study region will hinge on the success of the communities to self-organise and take advantage of the opportunities presented by the changing rural context of pastoral commons use.

Decoupling of agricultural support payments: the impact on land market participation decisions

This paper analyses the impact of the recent decision by the European Union to ‘decouple’ agricultural support payments from agricultural production on Irish farmers' land market decisions. The land market participation decisions of Irish farmers are modelled using a dynamic probit model, while the extent of participation decisions is modelled using a dynamic tobit model. Decoupling does not appear to have significantly altered farmers' land market decisions. One likely explanation for this is the cross-compliance obligation for farmers to maintain land in a state fit for agricultural production in order to receive their full payments. , Oxford University Press.

Is Growth in Land‐based Wealth Sustaining Part‐time Farming? L’augmentation de la valeur du patrimoine foncier soutient‐ elle l’agriculture à temps partiel ? Fördert der Wohlstand durch Bodenwerterhöhung Nebenerwerbslandwirte?

SummaryIs Growth in Land‐based Wealth Sustaining Part‐time Farming?Small‐scale farm holdings in many EU countries have shown remarkable resilience in the face of declining real farm incomes and a widening gap between farm and non‐farm earnings. This article examines the extent to which favourable off‐farm labour market conditions coupled with growth in land values has contributed to the observed resilience of small‐scale family farms. Using Northern Ireland data, our analysis indicates that farm household behaviour is influenced not just by current farm income, but also expected capital asset returns. Increased wealth, associated with continuing land ownership, gives rise to the proposition that the link between off‐farm incomes, increased land values and remaining in farming may be associated with farmers pursuing wealth maximizing objectives, whilst still maintaining a rural way of life. In this context, the capitalization of agricultural support payments into land values, under successive CAP reforms, has encouraged farmers to hold land back from the market in expectation of future gains. In addition, preferential tax arrangements in the treatment of land also impede adjustment. Alongside increased wealth through land ownership the study confirms off‐farm sources of income and, in particular, income from off‐farm employment, as being of paramount importance in ensuring the sustainability of small farms.

Economics of Different Crop Rotations in New York

The 1996 Federal Agriculture and Improvement Act decouples support payments from acreage so grain producers must now devise rotations based on market prices. Economic analysis of rotation studies can identify profitable rotations. The objective of this study was to determine short-term economic consequences of three rotations: (i) continuous corn (Zea mays L.), (ii) soybean [Glycine max (L.) Merr.]-corn, and (iii) soybean-wheat/red clover (Triticum aestivum L./Trifolium praetense L.)-corn. Field-scale trials were conducted from 1993 to 1996 on four farms in New York, and participating farmers performed field operations. Rotated corn yielded greater (140 bulacre) than continuous corn (127 bulacre), whereas soybean and wheat yielded 47 and 55 bulacre, respectively. The soybean-corn rotation had greater net returns ($101/acre) than the continuous corn rotation ($78/acre), despite net returns of $54/acre for soybeans, because rotated corn had greater net returns (%149/acre) than continuous corn. Wheat had negative net returns (-$40/acre) so the soybean-wheat/clover-corn rotation had the lowest net return ($54/acre). Harvesting and marketing of wheat straw would increase net returns of the soybean-wheat/clover-corn rotation to $84/acre. Sensitivity analysis for an 800-acre farm indicated that a soybean-corn rotation had the greatest whole-farm return at 1987 to 1996 New York prices ($55 721). Continuous corn had the lowest whole-farm return ($16 848). With the decoupling of support payments from acreage, New York grain farmers should adopt the soybean-corn rotation to maximize profit. New York grain farmers who market the wheat straw should consider the inclusion of wheat/clover on some of the soybean-corn acreage because close to maximum profit can be achieved while reducing potential pest problems.

Effectiveness of farm policies on social and economic development in rural areas

A methodology for estimating the impact of agricultural support payments on both farm output and the wider economy at regional level is outlined and applied to one Scottish region. Using a Johansen-type model of the agriculture sector, the impact of support changes on agricultural output is forecast. A regional input-output matrix is derived and used to calculate income and employment multipliers for the main agricultural enterprises. Using these multipliers, forecasts of regional income and employment losses due to a partial reduction in agricultural support are made. Within the region, the spatial distribution of benefits is projected using a Gravity Model and mapped using a Geographic Information System.