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25.06.2010 General posts
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Farm income support: much money, little evidence

The fragmentary evidence that is available suggests that, far from being a disadvantaged sector of society, EU farm households as a group have relatively high incomes compared to the rest of society. But the EU has abandoned earlier efforts to produce regular statistics of farm households’ total income – though this would be feasible at reasonable costs. Perhaps it is the fear of the light that worries the EU agricultural policymakers, writes Berkeley Hill, Professor Emeritus of Policy Analysis at the University of London.

Ever since the 1957 Treaty of Rome, a central objective of the EU’s Common Agricultural Policy (CAP) has been the achievement of “a fair standard of living for the agricultural community”. The most straightforward measurement approach would be to compare the incomes of agricultural households with the national average or to look at the numbers that fall below some poverty line. However, the EU has no system for measuring the incomes of farm households and is quite incapable of telling how many are (relatively) poor. Thus CAP policy decision-makers have always been blind where they need to see most. It is hardly surprising, then, that the CAP is highly inefficient at targeting those most in need and that its spending represents a disastrously inefficient use of public funds.

There is no shortage in the EU of measurements of the income from agricultural activity – that is, the production of goods deemed to be agricultural. But income from agriculture is not a satisfactory guide to the total income of farm families, and can be positively misleading when it comes to how many suffer from low incomes.

Results from the Income of the Agricultural Households Sector (IAHS) statistics that combined agricultural and non-agricultural income were published from 1992. However, only about half of the EU15 Member States used the intended methodology and many did not keep calculations up to date. Consequently, Eurostat suspended the IAHS statistics in 2002.

In 2003, a review by the European Court of Auditors concluded income statistics for household-firm units were needed. The Court recommended (later endorsed by the Council of Ministers) that a feasibility study should be undertaken of using a uniform approach across the EU. The total cost of supplying IAHS statistics covering all households where at least one member derived some entrepreneurial income from farming ranged from €22 million to €26 million.

These costs are tiny in comparison with potential gains from more efficient policy. The annual average Pillar I projected spend for the period 2007-13 is €47 billion. The OECD and others have pointed to the low transfer efficiency of previous support systems. If the better statistics led to a 1 per cent saving in Pillar I each year, this would be 19 times greater than even the top of the range of estimate produced by the feasibility exercise.

The case for spending the money on statistical improvements seems strong. However, Eurostat has not so far taken the 2007 feasibility study further, and there is no indication that anything is planned. So, despite the Court of Auditors’ view that such information was necessary for satisfactory monitoring of the performance of the CAP, it seems that for the foreseeable future major decisions will still be made in the dark.

But perhaps it is the fear of the light that worries the EU agricultural policymakers and their statisticians. Though there is a lack of comprehensive information, fragmentary evidence suggests that, far from being a disadvantaged sector of society, EU farm household as a group have relatively high incomes compared to the rest of society and are of even higher wealth. While no doubt some farm families suffer from occasional low incomes, and rather fewer from persistent low incomes, targeting support at them could produce a very different pattern of benefits from what we see at present, where the larger farms still command the vast majority of public spending. Greater transparency in pursuit of more efficient public policy could result in substantial private losses to these high-income farmers. Taking the argument a step further, in Member States where effective social welfare nets exist to help alleviate poverty, and this must apply most if not all, a clearer picture of the low income problem in agriculture brought about by improved household statistics might well trigger questions over why income support via the CAP is needed at all. Perhaps that is the spectre that the EU agricultural policy community is trying to avoid.

You can download a short paper on this issue written by Berkeley Hill here.