Farm Payment Research Articles

Decoupled Farm Payments and Expectations for Base Updating

The degree to which U.S. farm programs are decoupled from production has been a central issue in recent trade disputes. Several authors have suggested producer expectations for base acreage and yield updating in future farm bills create an incentive to alter planting and input decisions. This article reports analysis of the subjective expectations of producers for base updating and an analysis of the effect these expectations have on producer willingness to accept a buyout of the right to update. On average, producers think the chances of updating in the next farm bill are about 40%, but less than 17% indicate adjusting acreage or yields in anticipation of updating.

UK Farming Post Reform

The 2003 reform of the Common Agricultural Policy largely replaced the European Union's production orientated system of price support with a decoupled, single farm payment (SFP) system that freed farmers to choose what to do with their land, be it crops, livestock or withdrawal from farming. The outcome is reductions in the levels of farm-gate prices and greater exposure to the vicissitudes of market forces. In justifying the reform, the authorities argued inter alia that a positive outcome would be the encouragement of a more market orientated and competitive farming industry. This paper examines the likelihood of this outcome for UK agriculture and how it might be achieved. The authors find the arguments that the reform will encourage extensive farming techniques, which will serve as the basis of a more market orientated industry unconvincing. We argue that the reform is more likely to achieve its objective of a more market orientated industry if the reform encourages farmers to collaborate in horizontal networks as user members of Farmer Controlled Businesses. Such businesses operate as vertical integrators and are particularly suited to developing a market orientation. The paper concludes by highlighting potential areas for further research that can aid an understanding of the marketing functions of Farmer Controlled Businesses and their influence on the economic returns to their user members.

Resilience and vulnerability in US farm policy: parsing the payment limitation debate

Since the New Deal era, the commodity title has been the major farm support program in US farm bills. Commodity programs have encouraged farmers to pursue specialized, monocultural, and input intensive production strategies that are increasingly viewed as unsustainable. Yet commodity programs remain politically resilient. As revealed in the farm payment limitation debate in the 2007 farm bill reauthorization process, political support for commodity programs is maintained through policy elasticity adaptations that combine new with old policy rationales. The recent extension of farm program support to producers of commodities that have not received benefits in the past poses a potential threat to existing commodity programs, as this legislation has institutionalized competition within production agriculture over the allocation and design of subsidies. This paper argues for renewed attention to the policy support mechanisms that undergird the conventional agrifood system in order to better understand alternative agrifood system possibilities and constraints.

Modelling CAP Decoupling in the EU: A Comparison of Selected Simulation Models and Results

AbstractThis article reviews ways of representing the effects of decoupling in the European Union (EU) on land allocation and production in eight selected simulation models (AGLINK, AG‐MEMOD, CAPRI, CAPSIM, ESIM, FAPRI, GOAL and GTAP). It then compares the simulated effects of decoupling and traces them back to the model specifications and parameter assumptions. In particular, roughage is not included in most models, so that changes in ruminant production are not necessarily consistent with the changes in fodder area. Models also differ in the extent to which they reflect the substitution possibilities in ruminant feeds.Notwithstanding the considerable differences in model types and specifications, all the studies considered here predict that as a result of decoupling, areas allocated to cereals (and silage maize) and beef and sheep production in the EU‐15 will decline, while fodder area will increase. Differences in the projections about pasture, oilseed and set‐aside areas can be attributed to different model or scenario specifications. The most important factor affecting the results is the extent to which the models assume that the Common Agricultural Policy (CAP) 2003 Reform (regarding Single Farm Payments) involves a substantial decoupling of support compared with the baseline (Agenda 2000) policy.

How the EU Single Farm Payment should be modelled: lump-sum transfers, area payments or… what else?

The 2003 Common Agricultural Policy (CAP) reform radically changes the way the European Union (EU) supports its agricultural sector by decoupling direct payments. Production is no longer required to get the payment attached to Single Farm Payment (SFP) entitlements. However, the new scheme maintains a specific link between payments and hectares; in addition, SFP entitlements can be exchanged among farmers. These features question the way SFP entitlements should be regarded, hence modelled, i.e., as lump-sum transfers, area payments or… something else. We develop a microeconomic analytical framework which shows that the answer crucially depends on the total number of entitlements which are initially made available relative to the number of hectares, more specifically the number of cultivated hectares in a zero support regime, the number of cultivated hectares in a policy support regime trough per-hectare direct aids, and the number of cultivated or idled hectares in a policy regime where support is granted through direct aids per hectare and production is not required.

Decoupled Farm Payments and the Role of Base Acreage and Yield Updating under Uncertainty

In the context of U.S. farm policy, this paper analyzes the effect that expectations about base acreage and yield updating in future policies have on a farmer's production decisions in the presence of price, yield and policy uncertainty. We consider a risk averse farmer producing a single crop whose income consists of market revenue and government payments. We consider two policy regimes. Decisions on acreage and fertilizer use made in the current policy regime are linked to government payments in the future policy regime through the possibility of a base acreage and yield update in the future regime. There is policy uncertainty about the possibility of the updates being allowed in the future. We combine stochastic dynamic programming with present value calculations to link current acreage and input use decisions to future program payments. The average optimal planted acreage and fertilizer use are increasing in the subjective probability of the future update. The estimated maximum percentage increase in the average optimal planted acreage is 6.25%. The estimated maximum percentage increase in the average yield, resulting from optimal fertilizer use is much smaller at 0.134%.

La nature économique du Droit à paiement unique

Le Droit à paiement unique, axe central du premier pilier de la PAC après la réforme Fischler de 2003, qui absorbe la plus grand partie du budget consacré à la PAC, ne peut pas avoir une nature hybride et indéterminée. L’article s’interroge sur la véritable nature économique du droit à paiement unique par rapport aux cinq objectifs qui semblaient lui être dévolus. À l’issue de l’analyse, le DPU est redéfini, accompagné de remarques pertinentes sur son efficacité économique et en terme de justice sociale.

Implications for food production, land use and rural development of the European Union’s Single Farm Payment: Indications from a survey of farmers’ intentions in Germany, Portugal and the UK

The 2003 reform of the European Union’s (EU) Common Agricultural Policy introduced a decoupled income support for farmers called the Single Farm Payment (SFP). Concerns were raised about possible future land use and production changes and their impact on rural communities. Here, such concerns are considered against the workings of the SFP in three EU Member States. Various quantitative studies that have determined the likely impact of the SFP within the EU and the study countries are reviewed. We present the results of a farm survey conducted in the study countries in which farmers’ responses to a decoupling scenario similar to the SFP were sought. We found that little short-term change was proposed in the three, rather different, study countries with only 30% of the farmers stating that they would alter their mix of farm activities. Furthermore, less than 30% of all respondents in each country would idle any land under decoupling. Of those who would adopt a new activity, the most popular choices were forestry, woodland and non-food crops.

The effects of offering a concentrate or grass silage based diet to twin-bearing ewes in late pregnancy on ewe and lamb performance

Approximately 75% of ewes are housed in Ireland for some portion of the winter, normally the late gestation period. This coincides with a large increase in dietary requirements, with 80% of lamb birth weight laid down in the final two months of gestation (Robinson, 1990) and also udder development during this period. Traditionally, these nutritional requirements were met by feeding grass silage ad libitum and supplementing with concentrates on a stepped rate with advancing pregnancy. With the introduction of the decoupled single farm payment and an ever-decreasing labour supply, sheep producers are looking for financially attractive, low labour alternatives and a concentrate based diet may be one such alternative. The objectives of this experiment were to compare an all concentrate diet supplemented with different fibre sources with the standard silage based diet supplemented with concentrates on feed intake, ewe performance and lamb growth to weaning.

RURAL DEVELOPMENT WHAT CAN ECONOMISTS DO ABOUT IT; EXPERIENCES FROM THE USA

The paper analyzes the policy goals, the policy leverage, the allocations to rural development and the new economics and added rationales about what can economics do for rural development, based on the USA experience. Paper ends with recommendations, including five principles for rural development programs: USDA-RD should take the lead for more interagency cooperation, rural development funds should move through the commercial banking system, not around it, farm payments should be shifted to rural development to support an orderly transition to a market-oriented farm sector, matching funding should be emphasized to leverage communities willing to invest in themselves, rural adjustment should be actively facilitated by mobilizing entire communities rather than by passive and piecemeal rural out-migration.

The Challenge of Decoupling Agricultural Support

The Challenge of Decoupling Agricultural SupportDecoupling agricultural support has become a central feature of reforms in most OECD countries due to international and domestic constraints. There is evidence that this movement can reduce economic inefficiencies and contribute to improving policy design. Not all the characteristics, however, of recent new support programmes, reduce their impact on production. Moving from price support to area payments and granting more freedom in the use of the supported resources makes programmes more decoupled, but making payments counter‐cyclical based on current production or market variables tends to exacerbate the production response of risk averse farmers. When all the effects are taken into consideration ‐ relative prices, risk and dynamic effects ‐ all agricultural support programmes have some impact on production and thus the degree of decoupling needs to be estimated empirically. Recent studies have expanded our scarce knowledge of these issues. They confirm the partial decoupling of area payments, like those in the EU after 1992, as well as the larger degree of decoupling that results from more production freedom, as in the Production Flexibility Contract payments in the US and the recent Single Farm Payment in the EU. But the total magnitude of the production effects depends on policy design and ‘size’, since high levels of partially decoupled support can have potentially significant effects on production.

Reducing fluxes of faecal indicator compliance parameters to bathing waters from diffuse agricultural sources: The Brighouse Bay study, Scotland

The European Water Framework Directive requires the integrated management of point and diffuse pollution to achieve ‘good’ water quality in ‘protected areas’. These include bathing waters, which are regulated using faecal indicator organisms as compliance parameters. Thus, for the first time, European regulators are faced with the control of faecal indicator fluxes from agricultural sources where these impact on bathing water compliance locations. Concurrently, reforms to the European Union (EU) Common Agricultural Policy offer scope for supporting on-farm measures producing environmental benefits through the new ‘single farm payments’ and the concept of ‘cross-compliance’. This paper reports the first UK study involving remedial measures, principally stream bank fencing, designed to reduce faecal indicator fluxes at the catchment scale. Considerable reduction in faecal indicator flux was observed, but this was insufficient to ensure bathing water compliance with either Directive 76/160/EEC standards or new health-evidence-based criteria proposed by WHO and the European Commission.

Reforming the WTO Legal Order for Agricultural Trade: Issues for European Rural Policy in the Doha Round

AbstractEuropean farm policy has undergone radical change in recent years, culminating in the Agenda 2000 reforms to the Common Agricultural Policy agreed in 1999 and then their Mid-Term Review in 2003. In particular, subsidy payments have been substantially ‘decoupled’ from production and switched decisively towards providing income support for farmers under a new ‘single farm payment’ scheme. These reforms have been predicated upon the need to win acceptance for Community farm subsidies in the Doha Round of WTO negotiations. This article examines the new law of the Common Agricultural Policy against the background of the domestic support reduction commitments contained in the 1994 Uruguay Round Agreement on Agriculture. It questions the extent to which the single farm payment scheme fulfils the requirements for ‘green box’ exemption from such commitments. Options for the re-negotiation of the Agreement on Agriculture are discussed, including measures to improve the justiciability of its terms and to exclude discriminatory and trade-distorting domestic support. The article also considers the implications of the recent WTO Appellate Body Decisions inUnited States—Subsidies on Upland Cotton and European Communities-Export Subsidies on Sugar. It concludes that the Community will have difficulty gaining acceptance for its reforms among WTO Members. Whatever the legitimacy of its subsidy regime within the framework of the current Agreement on Agriculture, the emergence of a strong negotiating position among developing countries, posited on opposition to the volume of farm support maintained by the Community and United States, may present even greater obstacles to the conclusion of a new Agreement on Agriculture in the Doha Round.

Agricultural Subsidies in Developed Countries: Impact on Global Welfare*

A considerable amount of criticism has been levied against the United States for the 2002 Farm Bill, which will be renewed in 2007. Many proposals have been put forward on what this new farm program should contain, as analysts are now more aware of the linkage between agricultural policy and international trade. According to Thompson, the new Farm Bill and future trade talks will have a significant impact on one another, whether they are on parallel tracks or a collision course. But it is not only U.S. farm policy that is facing criticism; European Union farm policy is under attack, as well. Having recently lost the World Trade Organization (WTO) challenge over cotton brought against it by Brazil, the U.S. government is acutely aware of the connection between agricultural policy and trade, and is attempting to reduce its budgetary outlay for agriculture with the 2007 Farm Bill. For example, from 2006 to 2010, the United States is considering reductions of (1) US$1.29 billion on all farm payments; (2) US$282 million for Step 2 of its cotton program; (3) US$1.09 million from shifts in its advance direct payments; and (4) US$821 million in the Conservation Security Program (Schuff). The United States reduced its total direct payments and overall subsidies beginning 1999, but they began rising again in 2003 (figure 1). Meanwhile, EU direct subsidies have trended upward since 1995 (figure 2). Also, U.S. and EU farmers enjoy hidden subsidies, as well. For instance, U.S. commodities, such as sugar, are protected through import quotas that require little direct monetary assistance from the federal government. The magnitude of

Strengths and Weaknesses of Crosscompliance in the CAP

Cross‐compliance has increasingly been used to integrate environmental considerations into the CAP. From 2005 it became compulsory for all Member States to ensure that recipients of Single Farm Payments adhered to Statutory Management Requirements (SMRs), stemming from 19 EU regulations and directives, and kept their whole agricultural holding in ‘Good Agricultural and Environmental Condition’ (GAEC), to be defined by Member States or regional authorities. The potential for cross‐compliance to enhance implementation of EU environmental legislation and reach a large area of farmland seems good, although there are some questions remaining over whether it will reach the agricultural land at most risk of environmental damage or with the highest nature value. In addition, farmers could react in several ways to exempt themselves or some area of their holding from cross‐compliance conditions. Member States or regional authorities have taken a variety of approaches to setting cross‐compliance standards, some of which seem minimal and vague. There is scope for the SMRs and GAEC to cover more environmental issues. Better guidance at EU level and increased communication could enhance implementation of cross‐compliance. Self‐audits, co‐operation with private assurance schemes or other methods of monitoring should be explored to maximise the efficiency and effectiveness of administrative efforts.

Assessing hygiene proficiency on organic and conventional pig farms regarding pork safety: A pilot study in Finland

Abstract A key element in the EU Common Agricultural Policy (CAP) will be a single farm payment system that is linked to compliance with rules on, for instance hygiene standards. However, there are no recommended methods for assessing the hygiene proficiency of pig production farms. The present study was undertaken to develop a method for this purpose. A first implementation was done on pilot scale; with a set of both conventional and organic pig farms (N = 15). Fifty hygiene-related factors were selected, especially with reference to the possible proliferation of enteric pathogens Listeria monocytogenes, Yersinia enterocolitica and Yersinia pseudotuberculosis. The factors were allocated into 8 evaluation categories: (1) general production management, (2) animal density, (3) the outdoor area for pigs, (4) pest and pet animals, (5) general hygiene in the piggery, (6) pen hygiene, (7) feed production hygiene, and (8) feeding hygiene. A farm questionnaire and a supplementary on-site observation form were devised, and one arbitrary scale of hygiene points assigned for each factor. In addition to the mailed questionnaires, one person subsequently visited all the farms, perused the questionnaire with the owners and completed the observation form. The hygiene scores of the farms in each evaluation category were compared both without weighting and with weighting based on expert opinions. The method proved to be feasible and applicable to different types of production.

Common agricultural policy reform and its effects on sheep and goat market and rare breeds conservation

In June 2003, the EU approved a very important reform of the CAP that will strongly affect the entire European agriculture. This paper analyses the major issues related to the effects of the evolution of the Common Agricultural Policy on the sheep and goat sectors, and especially the possible direct and indirect effects of the last reform in terms of accelerating or decelerating the loss of biodiversity due to the extinction of breeds. In fact, the single farm payment, fully or partly decoupled from any production, will include from 50% to 100% of the present amount of aid paid to sheep and goat breeders, according to decisions to be taken by each Member State. These decisions could deeply affect breeders’ economic interests in continuing to breed sheep and goats or not. On the other hand, new regulations will also allow Member States to introduce supplementary premium in case of transhumance, and/or for preserving rare breeds, and/or for promoting high-quality food products which could be obtained from these breeds. These policy tools, together with the increased amount of money available for rural development could balance, at least theoretically, negative effects due to the application of decoupled aid. On the other hand, previous experiences show that these tools have not been used with efficacy in order to preserve endangered breeds. Therefore, new attention and new procedure are suggested in order to overcome these limitation and to improve in situ preservation of rare breeds.

Livestock production post CAP reform: implications for the environment

AbstractOn 1 January 2005, the direct support schemes directed at UK livestock farmers as part of the Common Agricultural Policy (CAP) were replaced with a Single Farm Payment, decoupled from production. In practical term, this means that farmers now have freedom of choice over the particular farm enterprises they engage in since their income support is no longer dependent on their type of production. Farmer policy-response will be dependent on their previous dependence on the direct subsidies being replaced, which, as the paper shows, is considerable for UK livestock farmers. The paper suggests a dichotomous shift of farmer objective in the livestock sector in the future, with ‘environmental managers’ and ‘market managers’ focusing on different outputs. The outcome will be a significant down-sizing of the UK livestock sector but with probable net gains to the environment.

Livestock production post CAP reform: Implications for the environment

We now live in a Decoupled world. The direct support measures paid to farmers as part of the CAP Pillar 1 agricultural support, which paid them according to the number of livestock held or areas of crops grown, have been replaced by a Single Farm Payment (SFP). In the UK as a whole, these direct subsidy payments represented 77% of Total Income from Farming (TIFF) in 2004 and a large proportion of farmers would derive negative net farm incomes in the absence of them. In particular, livestock farmers appear to depend crucially on direct subsidies such as Suckler Cow Premium, Sheep Annual Premium and Beef Special Premium. The latest average position for LFA grazing livestock producers is that 188% of NFI is derived from subsidies and for lowland livestock producers the situation is even worse, at 259%. This suggests that if these subsidies were removed, Net farm Income would be negative and the business would be unsustainable.

Effect of a yeast culture (Yea-Sacc1026) on the performance of cereal fed beef cattle

The introduction of the Single Farm Payment support system sees a change from headage to area payments. The removal of the Beef Special Premium for steers is likely to see a move towards either 12-15 month intensive finishing systems or low input extensive grass based 24-30 month finishing systems. Late maturing breed type cattle reared on the latter system may however require a 2-3 month intensive finishing period to achieve adequate fat cover. With falling cereal prices there is increased interest in their use in beef cattle rations. Antibiotic based feed additives e.g., monensin sodium, have been successfully used for over 40 years to manipulate microbial activity and improve beef cattle performance. The use of monensin sodium will be banned from January 2006 and there is therefore a requirement to find alternative ‘natural’ products that can improve the efficiency of beef production with intensive cereal based rations. Yeast cultures are composed of yeast (Saccharomyces cerevisiae ) and the medium on which it was grown. These products are dried in a manner which preserves the fermenting activity of the yeast. It is suggested that production responses associated with the use of live yeast culture supplements in ruminants may be related to their stimulatory effects on specific groups of micro-organisms in the rumen. The objective of this study was to determine the effect of feeding a live yeast culture (Yea-Sacc1026) on the performance of cereal fed beef cattle.