The Decoupling of Farm Programs: Revisiting the Wealth Effect

Abstract

Recent reforms of agricultural policies in developed countries have introduced direct payments as replacements for traditional production‐enhancing instruments. Whereas these new instruments can, in principle, influence production through several channels, current empirical studies show no significant impact on production; direct payments mainly increase land values. In this article, we revisit the evaluation of the coupling effects passing through the wealth of agricultural households. The initial wealth of these agents, while mainly being in the form of land asset holding, is always assumed to be fixed. To the contrary, we show theoretically and through an empirical simulation exercise that once the impact of farm programs on initial wealth is properly accounted for, the measure of the coupling effects is not as negligible as found in previous studies.

Assessing the Impacts of Pillar 1 and 2 Subsidies on TFP in French Crop Farms

“…Sckokai and Moro, 2009), and land (e.g. Féménia et al. , 2010) decisions among many other topics and highlights several transmission channels (e.g.…”

Agricultural Cooperative Management and Policy

“…Chau and Gorter (2005) proved that decoupled payments provide the opportunity to some agricultural holdings to remain in business, without being able to gain profits, by using part of these payments to cover production costs. A different approach regarding managing practices of farms is mentioned by Femenia et al (2010). According to this, the single payment scheme encourages a prosperity effect which diversifies farmers' attitude towards risk, which leads to production responses.…”

The Impact of an EU–US Transatlantic Trade and Investment Partnership Agreement on Biofuel and Feedstock Markets

“…Farm policies in the US and EU have reduced their distorting impact on world markets and farmers' decisions at the margin. They have known, and mostly small, effects on exit decisions, credit constraints and risk‐taking (Bureau and Gohin, ; Féménia et al ., ; Viaggi et al ., ; and Bhaskar and Beghin, , for a review). Farm policies remain sizeable in terms of the implicit transfers to farmers, and are relatively larger in the EU than in the US as a share of farm receipts.…”