Direct Payment Measures, competitiveness, farm and rural area viability.

Abstract

Direct payments are recurring non-market transfers to farmers whether they are production related or not. There are three main types: (a) compensatory allowances (headage), (b) premia and (c) agri-environmental payments. In 1998 total payments amounted to £967.3 million, up from £158.4 million in 1992. The objectives of this study were to evaluate the effectiveness of these payments in maintaining farm units, their implications for farm efficiency and competitiveness and their impact on sustaining viable farm units and rural areas. Data from the National Farm Survey shows the average level of payment was £6,670 in 1997 but varied substantially by farm size. For instance, farms over 100 ha on average received £28,207 in contrast with £3,305 for farms between 10 and 20 ha. Similarly, the distribution of payments by different farm systems shows considerable variation with tillage farmers receiving £15,760 and cattle farms receiving less than £6,000. The most significant feature, however, is the extent of the dependency of farm incomes on direct payments. For instance, on tillage and drystock farms these payments represented close to, or even exceeded the family farm income earned. This means that the income from sales are just about sufficient to cover the costs of production; the cheque in the post being the farm income. Without direct payments large segments of the farm population would operate at a loss; a situation which obviously could not be sustained. The impact of direct payments on farm efficiency and competitiveness is not so clear cut. Analysis of 1996 NFS data shows that the response on cattle farms to increased levels of direct payments was to reduce farm output. However, in terms of farm practice the dominant response was to increase stock numbers and farm inputs, such as feed and fertiliser. This latter response can be taken as adjustments to ensure sufficient stock numbers to maximise the level of payments and not necessarily a contradiction of reduced output responses. For instance the dominant anticipated response to a decoupled payment system is a reduction in farm inputs and stock numbers, a response associated with the more progressive sector of farmers. Notwithstanding the present level of these payments it is clear that the viability of farm units on most small to medium-sized drystock farms can not be assured in a farm context only. Increasingly farmers and their spouses are opting for off-farm employment to supplement their household incomes and to sustain the viability of the family farm unit. Ultimately the optimum use of family labour which is marginal or surplus to farm activities, is deployment off the farm; this clearly has a positive influence on the viability of rural areas.