Impact of direct support on business income

Joeri Deuninck

August 2009

A first objective of the report was to study the dependence of the different types of businesses on the direct support within the context of Pillar I of the Common Agricultural Policy. A second, closely related objective was to conduct a first analysis of the impact on their viability should those direct payments stop.

Dependence on direct support, with the share of direct payments in the business income as an indicator, is related to both the amount of the direct payments and the amount of business income. Businesses with high direct payments and a low business income are extremely dependent on those direct payments. The direct payments and the percentage they represent in the business income are generally high for business types involving cattle (dairy cattle and/or beef cattle) and/or arable farming. In particular, the business types beef cattle and arable farming/beef cattle are highly dependent on direct payments. A significant part of these is made up of the suckler cow premium. The very high percentage of payments for the beef cattle business type is the result of a combination of high payments and a very low business income. The business types pig breeding and, especially, horticulture have traditionally received hardly any or no direct payments. Via producer organisations and the unique common market organisation (CMO) horticulturalists do receive payments, although these are not direct payments and the link to the formation of their income is less clear. Furthermore, via Pillar II of the Common Agricultural Policy there are payments for all business types. However, this fell outside the scope of the analyses in this report.

The differences between businesses when it comes to the percentage of payments are not only significant between different business types, but also within business types. The differences are biggest within the business types beef cattle, arable farming/beef cattle and arable farming, and smallest within the business types pig and dairy cattle breeding. In dairy cattle breeding these differences are caused by variations in business income. In arable farming and especially beef cattle, the amount of support is also important. Businesses with the highest amount of support generally have the lowest business income and are the smallest (number of ha and number of animals). In dairy cattle breeding they are also the least productive and the most extensive. In beef cattle breeding, in a number of cases the support is higher than the business income.

In all business types, even despite the support, a number of businesses with a very low or even negative business income have difficulties to survive. Even if the direct payments continue to exist unchanged, these businesses will have problems. This is part of a ‘normal’ structural evolution. If the direct payments disappear, this will put the viability of a larger number of businesses at risk. This is particularly the case for the business types beef cattle and arable farming/beef cattle. In addition, there is a significant decrease in the business income of business types dairy cattle and arable farming. This is not at all the case in horticulture and pig breeding, which have traditionally received hardly any or no direct payments.

A third objective of the report was to carry out an exploratory analysis to find out what the impact is of new policy options on the support payments and the business income within each business type. Two options were studied: a flat rate per ha and a set amount per company.

The impact on the support is bigger in the case of a set amount per company. In that case, there are clearer winners and losers than with a flat rate per ha. In both options horticulture ‘wins’, and, to a slightly lesser extent, so does pig breeding. In the case of a flat rate, the winners – within horticulture – are outdoor fruit growing and vegetable growing. At this moment the amount of support per ha (and per company) in these sectors is very low, although these businesses occupy quite a large area. In case of a set amount per company, all horticultural businesses win, not only outdoor fruit and vegetable growing but also ornamental plant cultivation and fruit and vegetables in greenhouses. Arable farming benefits a lot from a flat rate per ha, especially in absolute terms, but it loses (even more) in case of a set amount per company. In arable farming the support per ha initially is not as high as the support per company due to the large area involved.

Cattle breeding (dairy and/or beef cattle, whether or not combined with arable farming) would do far worse in either case (flat rate per ha and set amount per company). The loss is especially big in the case of a set amount per company. The size of the loss also depends on the fact whether the suckler cow premium is decoupled or not and included in the flat rate per ha or the amount per company. Dairy cattle breeding loses most if only payment entitlements are included, and hence the current suckler cow premium is maintained. Beef cattle breeding loses most if the suckler cow premium is also decoupled. If not, the loss is fairly limited.

The impact of both options (flat rate per ha and set amount per company) on the support in terms of percentage is generally bigger than the impact on the business income. In the case of a flat rate the benefit and loss per business type remains limited if the suckler cow premium is not included. Otherwise, the reduction in business income for beef cattle and, to a lesser extent, arable farming/beef cattle is considerable. In the case of a set amount per company the impact on the business income is significantly higher than in the case of a flat rate. The impact is especially high for beef cattle and arable farming/beef cattle if the suckler cow premium is incorporated into the set amount per company.

Despite all this, the fact is that even with a moderate impact per ‘average’ business type individual companies within that same business type can benefit or suffer a lot. In the case of a flat rate the support per ha before the flat rate determines whether a business gains or loses. The support per ha depends on the amount of support the company receives and the number of ha it has. In the case of a set amount per company only the amount of historical support determines whether a business gains or loses. That amount of support is related to the size of the company, especially in dairy cattle breeding.

Original version:

 

 

Deuninck J. (2009)
Impact van rechtstreekse steun op het bedrijfsinkomen
Departement Landbouw en Visserij, afdeling Monitoring en Studie, Brussel.

 


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