18.05.2012

1. Target-oriented direct payments and their impact on income distribution on Swiss farms Anke Möhring, Gabriele Mack, Nadja El Benni 18.05.2012

2. Direct Payment Reforms - Switzerland Target-oriented direct-payments I Their impact on income distribution of Swiss farms

3. Direct Payment Reforms - Switzerland: Past Distributional Effect • The unequal distribution of household incomes in agriculture increased only to a moderate extent in Switzerland between 1990 and 2009. • Direct payments had an effect on the unequal distribution of household incomes: • Direct payments lead to an equal distribution of household income. • From 1999 onwards the unequal distribution of direct payments in the hill and mountain region rose more than in the plain region. Source: EL BENNI and FINGER, 2011 Target-oriented direct-payments I Their impact on income distribution of Swiss farms

4. Current Direct Payment Reform as of 2014 (“AP 14-17“) • Will the new direct payment system in Swiss agriculture likely to amplify the social differences? • Response with reference to the agent-based agricultural sector model “SWISSland“: • Forecasts up to 2017 • Analysis of income trends • Analysis of measures of distribution Target-oriented direct-payments I Their impact on income distribution of Swiss farms

5. SWISSland: Objectives • Instrument for political councelling in agriculture. • To illustrate • future income trends • structural change • To measure the heterogeneity of Swiss agriculture • Statements at individual farm level as well as at that of the agricultural sector Target-oriented direct-payments I Their impact on income distribution of Swiss farms

6. SWISSland: overview Agent population(approx. 3400 FADN farms) Original data Basic model data • Agent characteristics • Costsandservices • Capacity • Non-rational behaviour Modelling spatially neighbouring agents Model input / Resulting data • Model control (Java Repast) • Determine parcels for farms not included • Land market – area allocations • Alternative investments • Projection Agent optimisation PMP-based optimisation model(GAMS) • Model calculations • No. of years = number of iterations total population • No. of land parcels = No. iterations / agent Projection EconomicAccountsforAgriculture • Database (MySQL) • Organisation of all input and output data sets Model results Target-oriented direct-payments I Their impact on income distribution of Swiss farms

7. Current Direct Payment Reform: Assumed Price Trends Source: BLW and SILAS/Market Model

8. Current Direct Payment Reform: Outcome of Structural Change Hectarage per farm (ha of farmland) Annual Reduction in Farms in Percent Target-oriented direct-payments I Their impact on income distribution of Swiss farms

9. Current Direct Payment Reform:Individual farm incomes prior to reform (2008) Target-oriented direct-payments I Their impact on income distribution of Swiss farms

10. Current Direct Payment Reform:Individual farm income after reform (2017) Target-oriented direct-payments I Their impact on income distribution of Swiss farms

11. Measures of Distribution • Lorenz Curve • Shows the cumulative percentage values of the income achieved in comparison to the accumulated percentage of income recipients. • Gini-Coefficient (G) • Measures the relative distribution of inequality. 0 < G < 1 • Measures the area between the Lorenz Curve and the hypothetical line of absolutely equal distribution, expressed as a percentage of the maximum area under the line. Target-oriented direct-payments I Their impact on income distribution of Swiss farms

12. Current Direct Payment Reform:Lorenz Curve Results Household Incomes After reform (2017) Prior to reform (2008) plain hill mountain plain hill mountain % householdincome % householdincome % agricultural population % agricultural population Target-oriented direct-payments I Their impact on income distribution of Swiss farms

13. Current Direct Payment Reform:Results: Lorenz Curve Direct Payments After reform (2017) Prior to reform (2008) plain hill mountain plain hill mountain % direkt payments % direct payments % agricultural population % agricultural population Target-oriented direct-payments I Their impact on income distribution of Swiss farms

14. Current Direct Payment Reform:Results: Gini by farm size (plainregion) Die Verteilungswirkungen der Direktzahlungsreform im Berggebiet | Analyse der Heterogenität betrieblicher Auswirkungen

15. Current Direct Payment Reform:Results: Gini by farm size (hillregion) Die Verteilungswirkungen der Direktzahlungsreform im Berggebiet | Analyse der Heterogenität betrieblicher Auswirkungen

16. Current Direct Payment Reform:Results: Gini by farm size (mountainregion) Die Verteilungswirkungen der Direktzahlungsreform im Berggebiet | Analyse der Heterogenität betrieblicher Auswirkungen

17. Method Summary • The agent-based SWISSland Model: • Makes it possible to estimate political consequences at a sectoral level. • At the same time simulates the individual farm level and thus permits greater heterogeneity. • Utilises the wealth of information available from a wide range of data sources. • Can illustrate the trend of structural change. Target-oriented direct-payments I Their impact on income distribution of Swiss farms

18. Results Summary • The current direct payment reform is having a positive effect on individual farm incomes and on the structural change. • The current direct payment reform is neutral in terms of distribution policy. • There are no differences of the Ginis between the regions. Target-oriented direct-payments I Their impact on income distribution of Swiss farms