Distributional Effects of Direct Payments in Switzerland

1. 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.

2. Agricultural policy changes in Switzerland 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) Market support Focus on income level, what are the distributive effects Research question: How agricultural policy changes affected the income distribution within the Swiss farm population? 122nd EAAE-Seminar February 17th Evidence-Based Agricultural and Rural Policy Making 2

3. Method Stuart (1995) Lerman and Yitzhaki (1985) 122nd EAAE-Seminar February 17th Evidence-Based Agricultural and Rural Policy Making 3

4. Data FADN data 1990 – 2009: weighted and trimmed 122nd EAAE-Seminar February 17th Evidence-Based Agricultural and Rural Policy Making 4

5. Gini coefficients 1990 - 2009 How concentrated is the income within the population? A B A - Introduction of area- based payments B - Cross-compliance - Abandonment of farm household payments 122nd EAAE-Seminar February 17th Evidence-Based Agricultural and Rural Policy Making 5

6. Pseudo – Gini coefficients 1990 - 2009 How concentrated is the income from a specific income source with respect to the distribution of total household income ? 122nd EAAE-Seminar February 17th Evidence-Based Agricultural and Rural Policy Making 6

7. Gini elasticities 1990 - 2009 On how much the Gini coefficient changes if the income from one specific source is increased by 1%? 122nd EAAE-Seminar February 17th Evidence-Based Agricultural and Rural Policy Making 7

8. 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 122nd EAAE-Seminar February 17th Evidence-Based Agricultural and Rural Policy Making 8

9. 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! 122nd EAAE-Seminar February 17th Evidence-Based Agricultural and Rural Policy Making 9

10. Discussion… Questions… Thanks for your attention 10

11. 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. 122nd EAAE-Seminar February 17th Evidence-Based Agricultural and Rural Policy Making 11