20. Januar 2011Der Effekt von Direktzahlungen auf die Einkommensverteilung1 122 nd EAAE-Seminar February 17 th 1Evidence-Based Agricultural and Rural Policy Making Distributional Effects of Direct Payments in Switzerland Paper presented at the 122 nd EAAE-Seminar in Ancona/Italy, 17 th -19 th 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.

11. November 2010Modul I – Forschungsfrage 1.22 Pre-reform -Farm household based support for farmers facing adverse production conditions First reform Introduction of area-based Direct Payments -Introduction of the first ecological direct payment program (IP) Second reform Abandonment of farm household based payments -All direct payments are based on a cross-compliance approach (IP became obligatory) 2 Agricultural policy changes in Switzerland 122 nd EAAE-Seminar February 17 th Evidence-Based Agricultural and Rural Policy Making Research question: How agricultural policy changes affected the income distribution within the Swiss farm population? Market support Focus on income level, what are the distributive effects

20. Januar 2011Der Effekt von Direktzahlungen auf die Einkommensverteilung3 Method 3 Gini coefficientPseudo-Gini coefficientGini elasticity How concentrated is the income within the population? How concentrated is the income from a specific income source with regard to the distribution of total household income ? On how much the Gini coefficient changes if the income from one specific source is increased by 1%? 0 = total equally distributed 1 = 1 household receives all of the income ) 0 the income from source k is mainly given to low (high) income farmers ) 0 increasing the income from source k by 1% decreases (increases) the Gini coefficient by x% 122 nd EAAE-Seminar February 17 th Evidence-Based Agricultural and Rural Policy Making cov: Covariancey: IncomeF(Y): Cumulative distribution functionµ: Mean income Stuart (1995)Lerman and Yitzhaki (1985)

20. Januar 2011Der Effekt von Direktzahlungen auf die Einkommensverteilung4 FADN data 1990 – 2009: weighted and trimmed 4 Data Number of observations per year MeanMinimumMaximum Sample Population nd EAAE-Seminar February 17 th Evidence-Based Agricultural and Rural Policy Making

20. Januar 2011Der Effekt von Direktzahlungen auf die Einkommensverteilung5 Gini coefficients How concentrated is the income within the population? A B A - Introduction of area- based payments B - Cross-compliance - Abandonment of farm household payments 122 nd EAAE-Seminar February 17 th Evidence-Based Agricultural and Rural Policy Making

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

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

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 8122 nd EAAE-Seminar February 17 th Evidence-Based Agricultural and Rural Policy Making

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! 9122 nd EAAE-Seminar February 17 th Evidence-Based Agricultural and Rural Policy Making

Thanks for your attention Discussion…Questions… 10

20. Januar 2011Der Effekt von Direktzahlungen auf die Einkommensverteilung11 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 Keeney, M. (2000): The Distributional Impact of Direct Payments on Irish Farm Incomes, Journal of Agricultural Economics 51(2), pp 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 Stuart, A. (1954): The Correlation Between Variate-Values and Ranks in Samples from a Continuous Distribution, British Journal of Statistical Psychology 7, pp 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 nd EAAE-Seminar February 17 th Evidence-Based Agricultural and Rural Policy Making