The Impact of Direct Payments on Farm Income Distribution.

Abstract

The switch in emphasis from market support systems in the 1992 CAP reform toward direct payments resulted in a dramatic increase in financial support terms, from £336.7 million in 1991 to £915.3 million in 1999 (current prices). The impact of this change in Irish agricultural policy was to increase substantially the dependency of farmers, with the exception of dairy farmers, on the ‘cheque in the post’ for a farm income. It is the impact of these changes on the distribution of farm income which is of concern in this study. In line with these policy changes the proportion of average family farm income derived from the market (as opposed to direct payments) decreased from 73.3 per cent in 1993 to 37.1 per cent in 1997. At the same time the corresponding proportions for direct payments increased from 26.7 per cent to 62.9 per cent. Analysis of the distribution of family farm income by deciles (based on FFI) and for all farms indicates a more equitable distribution of income between 1993 and 1997. This improvement in equity is attributed to the effects of direct payments on farm incomes. Analysis decomposing the individual effects of selected measures show that (i) the suckler cow premia, and (ii) the headage payments (Livestock headage payments in the Disadvantaged Areas) were the most effective measures in favouring income distribution equity. Cross compliance schemes (REPS and extensification) and the special beef premia had a more moderate effect in terms of equity while the arable aid payments contributed least to farm income equity. The market-derived income component had a high negative effect on equity of farm income distribution. The inclusion of a high proportion of dairy farmers among those with high farm incomes is a likely factor in this respect.