Distribution of farm subsidies: The French experience

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Distribution of farm subsidiesThe French
experience

• Pierre Boulanger
• Groupe dEconomie Mondiale
• Association of Swedish Chambers of Commerce
• The German Marshall Fund of the United States
• Groupe dEconomie Mondiale (GEM), Paris
• Brussels, 23 June 2009

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1. Introduction1.1. The agricultural policy
cycle (OECD, 2008)

• Formulation of policy objectives
• Evaluation of the performance of the current
  policy Adequate information on the cost and
  benefits Are the desired objectives achieved?
  Are some adjustments or a new policy needed?
• Establishing characteristics of adjustments or a
  new policy set
• Implementation
• Monitoring and evaluation
• Getting the process right removing obstacles to
  change
• ? Evaluation of the distribution of support in
  France

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1. Introduction1.2. Evolution and breakdown of
CAP budget France, 1992-2006, million euros
Data French MAP
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2. The unequal distribution issue in
France2.1. Preliminary considerations

• The September 2008 and April 2009 releases of
  nominative data on farm subsidies recipients are
  shedding some light on an unequal redistributive
  mechanism
• Individual data extraction from French MAF
  website done by Farmsubsidy.org
• 378,812 recipients of direct payments (Pillar 1)
• 133,839 recipients of rural development measures
  (Pillar 2)
• 16.5 of farms receive half of total direct
  payments
• No difference between Pillars I and II Gini
  coefficients of inequality for Pillar 1 (national
  average 0.524) and for Pillar 2 (national
  average 0.508) are roughly similar at the
  national level with a wide dispersion between
  départements (standard deviations 0.088 and
  0.061 respectively)

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2. The unequal distribution issue in
France2.2. Policy objectives and equity

• Equity is an important factor to ensure that
  public support goes to holdings which
  need/deserve it
• If the objective is to support farm income,
  equity matters
• If the objective is to pay for positive
  externality (or public goods / non-market
  commodities) generated by farm activities, equity
  matters less since the more externalities are
  provided, the more public support is deserved
• Present support tends to mainly be income
  support. It is based on yields (past price
  policy) and shows no significant redistribution
  between farm structures, sectors and geographic
  areas
• The historical decoupling model implemented in
  2006 has frozen the French allocation of
  support

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3. Empirical analysis of French distribution3.1.
Definitions

• Spearman and Pearson coefficients of correlation
  (not causality)
• -1 means perfect negative (inverse) correlation
• 0 means no correlation
• 1 means perfect positive correlation
• Data description (micro level, 2007, source
  French MAF)
• Data cover 92 French départements (exclude
  overseas départements, Seine-Saint-Denis, Val de
  Marne, Hauts-de-Seine and City of Paris)
• Pillar 1 subsidies per annual work unit (AWU)
  single farm payment, arable crop payment
  (including set-aside payment), suckler cow
  premium, slaughter premium, ewe and she-goat
  premium
• Pillar 2 subsidies (agri-environmental measures)
  per annual work unit (AWU) compensatory
  allowance for natural handicaps,
  agri-environmental grass premium, sustainable
  agriculture and territorial management contracts,
  other agri-environmental measures

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3. Empirical analysis of French distribution
3.2. The income support issue

• There is a positive correlation between Pillar 1
  support and
• labour productivity
• income evolution
• These correlations are negative for
  agri-environmental support

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3. Empirical analysis of French distribution
3.3. The concentration support issue

• There is a positive correlation between Pillar 1
  support and the share of holding larger than 100
  ha
• There is a negative correlation between Pillar 1
  support and the share of holding smaller than 20
  ha

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3. Empirical analysis of French distribution
3.4. Consistency in distribution of Pillar 2
agri-environmental measures and Pillar 1 direct
payments

• There is a negative correlation between the
  distribution of support under Pillars 1 and 2,
  especially single farm payments (SFPs) and arable
  crop payments
• But suckler cow and ewe and/or she-goat premium
  distribution is positively correlated with
  agri-environmental support

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3. Empirical analysis of French distribution
3.5. Main results

• Single Farm Payments influence market-commodity
  output
• Some Pillar 1 coupled subsidies follow a
  distribution path similar to agri-environmental
  ones suckler cow and ewe and/or she-goat
  premium. There are indirectly coupled to
  territories (handicap or mountainous areas,
  grassland)
• The dichotomy Pillar 1 / Pillar 2 results from
  historical and budgetary considerations, not from
  market / non-market commodity or broad-based /
  targeted policy considerations
• These results help to explain the French strategy
  as regards the 2008 CAP Health Check adjustments
  which should prepare the post 2013 CAP

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4. The redistribution issue within the Health
Check4.1. New tools, further flexibilities in
national/regional implementation

• Full decoupling for arable, hops, durum wheat,
  olive oil, energy crops payments (2010)
• Full decoupling for beef and veal (except
  suckler cow), nuts, seeds and protein crops
  (2012)
• "À la carte" reorientation tools
• Article 63 (-67) shifting funds within Pillar 1
  (redistribution of support from further
  decoupling)
• Article 68 (-72) shifting funds within Pillar 1
  (redistribution of up to 10 of national direct
  payment ceiling towards specific types of
  targeted measures)
• Compulsory increase in modulation shifting funds
  from Pillar 1 towards Pillar 2 (progressive
  increase up to 10, with one threshold 4 for
  payments over 300,000 euros)

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4. The redistribution issue within the Health
Check4.2. French options (March 2009)Deadline
for final (full) decision August 1, 2009

• Partial decoupling of suckler cow premium (25),
  full decoupling of present she-goat premium with
  the setting up of a new coupled and more valued
  premium (cf. below)
• Use of Article 63 (-67) new aids for productive
  grassland (700 million euros), potatoes and field
  vegetables (30 million euros), fodder (30 million
  euros)
• Modalities of SFPs' alteration are not closed
• Use of Article 68 (-72) sheep and goats (135
  million euros), milk in mountain areas (45
  million euros), durum wheat in traditional areas
  (8 million euros), suckling calves (4.6 million
  euros), proteaginous crops (40 million euros),
  maintenance of organic farming (50 million
  euros), risk management tools (140 million euros)
• Main shift of the budget towards grass-based
  livestock producers extensive, less-favoured
  area based and/or environment friendly farm
  holdings
• New coupling dimension and strategy

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5. Concluding remarksThe French strategy in the
context of policy reform

• The partial redistribution of support resulting
  from the Health Check shows that France is
  moving the future CAP will be different than the
  past broad-based one
• A re-legitimised CAP is a way to preserve direct
  payments (and related budgetary flow). As a
  result, France develops an hybrid historical
  model when attempting to renew with a strong
  Pillar 1 mostly through targeted subsidies (and
  not SFPs)
• France grants to Pillar 1 a rural development
  dimension (and magnifies related-responsibilities
  attributed to national authorities without
  bearing the co-funding principle)
• Many questions about the post 2013 CAP are still
  not answered starting with a new 27 Member
  States consensus on common objectives

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Thank you for your attention