Direct Payment Schemes Research Articles

Potential of Tambo Dam implementation as a flood control measure

AbstractRecent climate change has resulted in severe and frequent natural disasters globally, prompting the need for adaptation to these events. As an adaptation measure, disaster prevention and mitigation using natural processes and mechanisms (or ‘green infrastructure’) have become widely recognized in many countries. Ecosystem‐based disaster risk reduction has been promoted in Japan since 2015. The ‘Tambo Dam’, a flood mitigation project using paddy fields in which the authors have participated, has the potential to become one of the most extensive forms of green infrastructure in Japan. This study outlines the runoff control mechanisms of Tambo Dams, demonstrates their effectiveness in reducing flood damage at the watershed scale, and discusses two key factors for successful sustainable efforts: the design of appropriate runoff control equipment and administrative schemes that support incentives for the efforts of farmers. The results indicated that Tambo Dam implementation represented a crucial strategy for managing agricultural resources. The functionality of paddy fields could be preserved by managing them as Tambo Dams. This approach not only contributes to flood control but also ensures a swift return to rice cultivation during emergencies. Moreover, establishing a system akin to the Tambo Dam initiative of Mitsuke City, supported by the ‘Direct Payment Scheme for Multifunctional Activities’ for maintenance and management, could ensure the feasibility of Tambo Dam implementation.

Coordination schemes for resource reallocation and patient transfer in hospital alliance models

AbstractIn many countries, healthcare systems encounter the issue of imbalance between supply and demand in a hierarchical structure. The comprehensive hospitals, which possess more high‐quality resources, are often overwhelmed, while their counterparts, community hospitals, are often idle. To address this imbalance issue, certain payment schemes are generally considered effective in motivating comprehensive hospitals to divert patients downstream via resource transfer. In addition to two particular payment schemes, namely, patient payment (PP) and fee‐for‐capacity (FFC), this study also considers two hospital alliance models, the government‐led (GL‐type) and the hospital‐forged (HF‐type) alliance, for effectively overcoming the imbalance issue. Compared to the HF‐type alliance, in which each community hospital determines the price paid to the comprehensive hospital for transferring resources, the GL‐type alliance requires the payment price to be set by the regulator. Methodologically, this study devises a three‐stage sequential game to characterize the dynamics among the various entities, such as the regulator, the comprehensive hospital, the community hospitals, and the patients. Equilibrium results, in terms of the capacity sinking rate and patient transfer rate, are derived, and scheme and alliance performances are evaluated using various measurements, such as patient utility, and hospital and social welfare. We find that a direct payment scheme (FFC) under a centralized alliance model (GL‐type alliance) is more effective for both making decisions (about the patient transfer rate, capacity sinking rate, and payment price) and the performances (of each hospital's welfare, patient welfare, the waiting time per patient, and social welfare). Furthermore, our study examines the impacts of the alliance scale and finds that social welfare is first decreasing and then increasing with alliance scale. Therefore, it is suggested to establish either a one‐to‐one hospital alliance (consisting of a comprehensive and a community hospital) or a large‐scale (e.g., a comprehensive and 10 community hospitals) hospital alliance.

Impact of direct payments and non-financial support on smallholder income from environmentally friendly agriculture in Tohoku region, Japan

In the face of climate-related challenges in agriculture, Japan's ‘Direct Payment for Environmentally Friendly Farming’ policy stands as a proactive effort to incentivize sustainable practices among smallholder farmers. This study evaluates the policy's impact on smallholder farmers' net farm income within the Tohoku Region, employing a propensity score matching (PSM) methodology to analyze survey data encompassing household-specific attributes and engagement with the policy. Our results indicate that participation in the direct payment scheme enhances farmer income, averting an estimated reduction of 125 thousand JPY per annum. While direct payments demonstrated a positive effect on smallholder income, our findings surprisingly revealed that skill training, a key non-financial support, had a negligible impact on household earnings. The findings highlight the policy's efficacy in promoting practices that decrease reliance on chemical inputs and increase organic farming, thereby contributing to carbon emissions mitigation. Notably, our analysis suggests that subsidies directed towards integrating renewable energy on farms may have a less immediate financial impact compared to other forms of support. This research underscores the complex interplay between agricultural subsidies, environmental sustainability, and farmer income, revealing that direct financial incentives are pivotal in fostering climate-conscious agricultural practices among smallholders.

Simulation of the impacts of the proposed direct payment scheme - The case of the Czech Republic

The draft Strategic plan of the Common Agricultural Policy (CAP) for the Czech Republic has provoked the displeasure of many entrepreneurs in agriculture due to the redistributive payments, to which 23% of the total volume of direct payments will be directed instead of the originally planned 10%. According to the creators of the Strategic plan, this should support the fairer distribution of payments, respecting the benefits arising from the scale of production of large companies. Critics of the plan claim that operating subsidies are already degressive and fear an adverse impact on medium-sized companies, which, given the structure of the companies in the Czech Republic, will affect a large part of agriculture. This article aims to identify the farm size for which direct payments will be reduced and the likely degree of the impact on the farm economy. Our results suggest that the new payment system will lead to a reduction in direct payments for farms larger than 313 ha and, from a farm size of 873 ha, direct payments will fall below 85% of the average, which may cover around 50% of the agricultural land in the Czech Republic.

Analysis on Income and Income Distributional Effects of the Public Direct Payment System

The purpose of this research is to examine the income and income distributional effects of the public direct payment system that was newly introduced in 2020. The major findings are as follows. First, in terms of income effects under price uncertainty, the results from the Monte Carlo simulation for rice agriculture support that the public direct payment system has positive effects on farm income if the market price is maintained at 176, 515 won/80kg or higher. In the meanwhile, both expected income and income stability of rice farmers were decreased compared to the previous direct payment program. Second, the analysis of the Gini coefficients for paddy fields show that the public direct payment system has positive effects on income distribution, although to a lesser extent than the previous direct payment scheme. On the other hand, in the case of upland fields, positive results were obtained showing that the public direct payment system leads to a higher income distributional effects than the former counterpart.

The cost of farmers’ administrative burdens due to cross-compliance obligations

Administrative burdens are transaction costs due to administrative activities conducted solely because of regulation requirements. Since the shift from market support to cross-compliance-based direct payments, farmers increasingly complain about substantial administrative burdens related to the direct payment scheme. Using data from a survey among 100 Swiss farmers, group comparisons and regression analyses revealed significant differences in working time requirements to meet cross-compliance information obligations across farm types. Dairy producers need significantly more working time than crop producers. The age and education of farmers were not found to affect time requirements. Applying the standard cost model, administrative burdens for all Swiss farmers were estimated to be 136 Mio CHF in 2018 and about 5% of the budget spent on direct payments was needed to cover these costs. Policy measures to reduce administrative burdens should focus on specialized dairy producers, which contribute 37% to the sectoral costs.

Less‐favoured‐area payments, farmland abandonment and farm size: evidence from hilly and mountainous areas in Japan*

A direct payment (DP) scheme for hilly and mountfainous areas has been in place in Japan since 2000. This scheme’s objective is to fill the gap in production costs between these less favourable areas and other agricultural locations and prevent abandoned farmland from increasing. Eligible rural communities decide whether to receive DPs, and half of the DP allocation in communities with DPs is distributed for collaborative community activities, with the remaining half allocated directly to farmers. We apply a difference‐in‐differences approach to examine the effect of these payments on farmland use. Using a large farm‐level panel data set from before and after the payments were initiated, we employ a causal framework of analysis with a treatment group and two alternative control groups. We find that the payments led to a slowdown in the increase of abandoned farmland among surviving farms. Moreover, the payments have a marginal positive effect on the operated farm size of surviving farmers. The results imply that direct payment schemes in less‐favoured areas play a key role in maintaining farmland.

Regional differentiation of direct support for farmers in Poland as exemplified by selected regions

The objective of this study was to measure the dispersion of the unit level of support, paid under the direct payment scheme, among voivodeships with a similar average agricultural holding size, and to identify the reasons for this dispersion. It begins with a description of the shape of the direct payments scheme in Poland. The paper further presents and analyses the results of the measurement of dispersion of support as part of the direct payment scheme between voivodeships with no significant differences in the sizes of agricultural holdings. It has been shown that this dispersion is a result of the differences in the structure of support absorbed by farmers in individual regions. The measurement of the support level is the average aid amount per unit of agricultural area and the average aid amount per one beneficiary. The source material used in this paper was the data from the Polish paying agency responsible for direct payments made to farmers, i.e. the Agency for Restructuring and Modernisation of Agriculture. The reference period of the study is 2018. As three voivodeships with the most similar average farm size were selected, the study covered Łódzkie, Śląskie and Lubelskie Voivodeships. The analysis was performed with the use of descriptive statistics methods. The data was visualised with the use of pie and bar charts, and a choropleth map. It was found that the instrument with a particularly strong potential for the impact on support level in absolute terms (per one holding) and relative terms (per 1 hectare of agricultural land in a holding) is the so called voluntary coupled support. With this instrument, European Union Member States can adjust the distribution of funds between individual regions, reducing the strength of a relationship between the volume of support absorbed by individual regions and their abundance in agricultural land. The intention of such actions may be to compensate for social inequalities or to stimulate growth in peripheral areas.

EVALUATION OF DIRECT PAYMENT IMPORTANCE ON CROP PRODUCTION FROM EUROPEAN UNION FUNDS – AN EXAMPLE OF THE BARCIN COMMUNE

Poland became a member of the European Union upon the Accession Treaty of 1 May 2004. As a result, the objective was to include domestic agricultural producers in the direct payment scheme and other rural development and agricultural support instruments functioning in successive financial frameworks executed as part of the Common Agricultural Policy (CAP) of the European Union. The aim of the present study has been to evaluate the importance of direct payments on crop production from EU funds in the opinion of farmers of the Barcin commune (the Kujawsko-Pomorskie Province). The level of satisfaction with the crop production payments received, what the funds from the payments are used for and the expectations of the farmers in terms of the payments were investigated. The study involved the use of the survey method, a survey questionnaire carried out in 2014, which included 100 farmers. Results have shown that direct payments were appreciated by farmers who allocated the funds to meet current needs and investment purposes. The payments have enhanced the respondents’ produce quality and provided additional technical equipment on the farm. An increase in agricultural income due to European Union funds has encouraged farmers to remain in the farming profession in the future.

Fit for the task? Integration of biodiversity policy into the post-2020 Common Agricultural Policy: Illustration on the case of Slovenia

In the European Union (EU), the Common Agricultural Policy (CAP) is considered to be the critical public policy in terms of both impacts and funds dedicated to nature conservation, yet the goal of halting biodiversity loss in the EU remains elusive. The present paper examines the degree of biodiversity policy integration into the CAP and the quality of policy programming in a selected EU Member State in the 2014–2020 period. We use a heuristic model combining an assessment of biodiversity policy integration and a program theory analysis of the policy’s logic model. In addition, the elaboration of the logic model for other agricultural policy objectives, relevance and potential effects of measures and allocation of budgetary funds are evaluated for comparative purposes.The program logic model was found to be only loosely defined for most objectives of Slovenian agricultural policy. At the strategic level, the integration of biodiversity policy is limited to instruments that remunerate above-standard farming practices, investments and payments to areas with natural constraints. In contrast, the inclusion and consistency of biodiversity conservation in instruments supporting standard practices (e.g. direct payment schemes) is addressed only to a limited extent. Given their design and implementation, fewer than 10 % of relevant measures were judged to have strong or significant potential effects and will thus probably only partly meet the policy objectives. Finally, biodiversity conservation (estimated 5% of the total agricultural policy budget), as well as other environmental objectives (22–23 %), have a significantly lower priority than income- and production-related objectives (54–60 %).The future CAP should include adequate safeguards and incentives to improve the quality of programming and integration of biodiversity policy, particularly since an increasing emphasis is given to decision-making at the national level. However, although the post-2020 CAP programming system could, in principle, be seen as a step forward, there remains a high risk of underperformance in the field of biodiversity conservation in the EU Member States.

Impacts of the EU's Common Agricultural Policy “Greening” Reform on Agricultural Development, Biodiversity, and Ecosystem Services

AbstractThe EU's Common Agricultural Policy (CAP) has had limited success in mitigating agriculture's environmental degradation. In this paper we simulate the impacts of the 2013 “greening” reform on biodiversity and ecosystem services in environmentally contrasting landscapes. We do this by integrating an agent‐based model of structural change with spatial ecological production functions, and show that the reform will likely fail to deliver substantial environmental benefits. Our study implies that greening measures need to be tailored to local conditions and priorities, to generate environmental improvements. Such spatial targeting of measures is though incompatible with the design of a common direct payments scheme.

Analysis of the Effects of Direct Payment Subsidies for Environmentally-Friendly Agriculture on Income of Rice Farmers in Shiga, Japan

This study will determine the economic effects of direct payment subsidies for Environmentally-Friendly Agriculture on income of rice farmers in Shiga Prefecture, Japan. It will specifically aim to: (1) analyze the effect of reduced chemical and fertilizer use on income and (2) come up with policy recommendation related to the implementation of direct payment subsidy. Environmentally-friendly agriculture has been promoted for over two decades as a response to the environmental challenges brought by climate change and biological loss. The Japanese government has endeavored to seek appropriate policies which reflect various environmentally-friendly farming practices such as organic farming and reduction of chemicals and fertilizers. The agro-environmental policy in Shiga is one of the earliest and most advanced in Japan. It aims to promote environmentally-friendly agriculture among farmers and to engage various stakeholders to protect the environment using the “Kodawari” slogan for Lake Biwa conservation and eco-farming. Rice as a staple food in Japan, this study will seek to address the notion that output and income of rice farmers receiving direct payment subsidies for agricultural inputs has not increased as evidenced by the study conducted by Kim (2014). In addition, chemical input is higher in Japan than most developed countries, this study will also aim to disprove the findings from the study conducted by Masuda (2016) that the current level of direct payment subsidy has only resulted to economic disadvantages in output for smaller environmental advantages. This study will contribute to the literature by analyzing an unexplored mandate of the direct payment scheme, particularly on the reduced use of chemicals and fertilizers, by explicitly determining the economic effects of the said program on income to determine how the gains from environmentally-friendly agriculture influence farmer’s decision to produce.Keywords: rice, direct payment subsidy, environmentally-friendly agriculture, income.

German Farmers’ Perspectives on Direct Payments in the Common Agricultural Policy

SummaryAfter several reforms of the Common Agricultural Policy and gradual liberalisation, direct payments that serve to stabilise farm incomes remain highly pertinent for EU farmers in that they continue to contribute a high share of total farm income. This was also reflected in our survey of German farmers’ perspectives on direct payments, which showed the importance that these payments play in their financial situation. However, several economists have pointed to the lack of justification for poorly targeted direct payments in achieving societal goals, namely the delivery of valued public goods. In particular, the surveyed German farmers also recognised societal disapproval of the direct payment scheme. However, without direct payments, an accelerated structural change in German agriculture is very likely, leading to larger, less diversified farms and more intensive farming; which contrasts with the expectations of the German society for the agriculture sector. As German tax payers contribute substantially to financing the CAP, societal approval in terms of animal welfare and environmental services should receive greater priority in the direct payment scheme. The latter could be achieved by a well‐aimed targeting of direct payments, providing compensation for farmers producing agri‐environmental public goods and/or clearly contributing to improved animal welfare.

In a Search for Equity: Do Direct Payments under the Common Agricultural Policy Induce Convergence in the European Union?

The European Union (EU) is an integrated alliance of equally treated Member States sharing mutual values, legal principles and markets. Close cooperation, deep integration and convergence are the major priorities for the EU. Anyway, these principles are not always reflected in the EU-wide policies which are implemented through financial support mechanisms. The direct payments financial support mechanism under the Common Agricultural Policy, the main instrument for promoting convergence in development of Member States’ agricultural sectors and rural sustainability, faces critique for failing to meet its objectives. One of the major deficiencies of the direct payments scheme is that it allocates more resources to already developed agricultural sectors of the older Member States and less resources to developing ones thus increasing the divergence among the Member States. The aim of this paper is to suggest new mechanisms for direct payment funds redistribution across the EU Member States which are based on the methodological principles that would more precisely correspond to the aims of convergence, transparency and fair redistribution. The results show that, regardless of the method chosen (to support more or less effective agricultural sectors of EU Member States), the proposed methodology lowers differences in direct payment rates among the EU Member States by two-fold. This ensures correspondence to the goal of convergence within the EU.

German farmers’ acceptance of subsidized insurance associated with reduced direct payments

PurposeThe outstanding reform of the Common Agriculture Policy allows for changes regarding its most criticized component, the direct payment scheme. The purpose of this paper is to investigate farmers’ acceptance of subsidized whole farm income insurance (WFI) and single-crop, multi-peril revenue insurance (RI) that are associated with a reduction of direct payments.Design/methodology/approachBy applying a generalized multinomial logit model on data of a discrete choice experiment, German farmers’ preferences, expressed as their willingness to pay (WTP), for WFI and RI are revealed.FindingsThe results show a positive WTP for WFI and RI. The average farmer has a higher WTP for WFI than for RI. By increasing the coverage level, the negative influence of a reduction of direct payments on WTP for insurance can be compensated. Individual risk attitude and assessed importance of direct payments for the farm business show a statistically significant influence on the WTP.Practical implicationsThe results suggest that, even if direct payments were abolished in order to subsidize WFI or RI, German farmers’ WTP for both insurance products would remain positive. However, to finally assess whether subsidizing insurance is the right means of providing public support, it is necessary to assess whether farmers’ WTP meets the costs for such an insurance scheme.Originality/valueTo the authors’ knowledge, this is the first study investigating German farmers’ WTP for WFI and RI using an experimental approach by explicitly considering the partial to complete replacement of direct payments by subsidized insurance.

Assessing the effectiveness of Japan's community-based direct payment scheme for hilly and mountainous areas

The Japanese government introduced a direct payment scheme (DPS) for hilly and mountainous areas (HMAs) in 2000, with the aim of preventing further farmland abandonment in HMAs and compensating the farmers working in such disadvantaged regions for their costly production. Rural community members decide whether to participate in the DPS after taking account of its economic consequences. Using counterfactual-based empirical evaluation methods, we measure the extent to which a rural policy goal in Japan, namely the prevention of farmland abandonment, is achieved at the community level under the DPS framework. The pre-matching differences in the ratios of farmland abandonment, based on cross-sectional and longitudinal data, do not initially provide evidence to support the DPS's effectiveness or “additionality”. However, when confounding factors are considered, our estimation results lend strong support to the view that the DPS deters farmland abandonment. The most important driver of additionality is that the DPS targets communities with higher threat of farmland abandonment, which helps to prevent adverse participant selection from occurring. This can be supported by a rational inference that the DPS effectiveness would have been modest if farmlands on flat slopes were eligible for subsidization.

Policy Evaluation of Direct Payment Scheme for Hilly and Mountainous Areas

Policy Evaluation of Direct Payment Scheme for Hilly and Mountainous Areas

The CAP 2013 reform of direct payments: redistributive effects and impacts on farm income concentration in Italy

The Common Agricultural Policy has traditionally provided support to farm incomes via direct payments under the Single Payment Scheme. This article analyzes whether the reform of the SPS will decrease the concentration of direct payments and evaluates the effect of the new direct payment scheme on the redistribution of farm incomes. The decomposition of the Gini coefficient allows analysis of the evolution of farm income and direct payment distributions in Italy from 2014 to 2020, and empirical results based on the Italian Farm Accountancy Data Network show that the CAP 2013 reform is expected to decrease the concentration of direct payments. However, the reform is also expected to limit the reduction in farm income inequality due to the adoption of a partial convergence model (the so-called “tunnel” model) instead of a total convergence model as well as, more generally, the increasing share of farm income that is dependent on increased market exposure, leading to higher risks of price volatility and increasing pressure on income.

A Policy Evaluation of the Direct Payment Scheme for Collective Stewardship of Common Property Resources in Japan

The extent to which Payments for Environmental/Ecosystem Services (PES) programs help to promote collective stewardship of common property resources (CPRs) has been gaining attention among scholars and practitioners. One of the main concerns related to collective arrangements is that a crowding-out effect is likely to emerge when the external intervention dominates over self-determination and self-esteem of PES participants. By contrast, when participants perceive the intervention to be supportive of existing efforts, it “crowds in” intrinsic motivation. We test this contested hypothesis using prefectural data from Japan's Census of Agriculture and Forestry. In order to set up a viable quasi-experimental policy evaluation, we employ a propensity score matching approach. Our empirical result suggests that financial incentives can have a positive causal effect on collective stewardship of CPRs. This means that the potential crowding-out effect, if any, is not so profound as to expunge additional extrinsic motivation provided by the government's direct payments. Another important finding is that pre-existing social cohesiveness at the community level serves as a facilitator for PES participation. It should be noted, however, that the degree of cohesiveness in rural communities is largely a byproduct of historical experience that lies outside the immediate control of the government.

Direct and Indirect Economic Incentives to Mitigate Nitrogen Surpluses: A Sensitivity Analysis

The reduction of nitrogen (N) surplus is an ongoing topic in the agri-environmental policies of many countries in the developed world. The introduction of N balance estimation in agricultural sector models is therefore pertinent and requires an interdisciplinary approach. We extended the agent based agricultural sector model SWISSland with an N farm gate balance estimation to pre-evaluate the introduction of a levy on N inputs, particularly a levy on fertilizer and imported concentrates, on N surplus reduction in the Swiss agriculture. The model was based on the Swiss farm accountancy data network (FADN) for 3,000 farms. The model’s ability to represent the N balance was assessed by conducting a structured full factorial sensitivity analysis. The sensitivity analysis revealed the possibility to switch to organic farming and the hectare based payments for ensuring food security as key parameters with the largest influence on the modelled N surplus. The evaluation of N input levy scenarios suggested that an introduction of a tax of 800% of N price will reduce the N surplus by 10% indicating a price elasticity of -0.03. The sensitivity analysis and the results from the levy scenarios suggest that indirect instruments, such as optimizing the direct payments scheme, should be considered rather than direct instruments for an effective N surpluses mitigation in Swiss agriculture.