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Institut für Agrarpolitik und Landwirtschaftliche Marktlehre

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Browsing Institut für Agrarpolitik und Landwirtschaftliche Marktlehre by Subject "Agricultural policy"

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    Ex-ante measurement of redistributive effects of agricultural policy in western Germany
    (2014) Deppermann, Jens Andre; Grethe, Harald
    In recent decades, agricultural support of the European Common Agricultural Policy (CAP) has increasingly shifted from market price support measures to budgetary payments. This development has made support more visible and has raised public attention to the distribution of support, which in turn increased political awareness of the topic. Simulation models are tools frequently used for the ex-ante analysis of policy reforms. In other scientific areas, e.g. poverty analysis or tax reform analysis, it is quite common to assess impacts of macroeconomic shocks on income distribution on a national scale by the application of behavioural ex-ante models and referring to the level of individual incomes. Similar tools for the measurement of impacts of sectoral or macroeconomic policies on the individual farm income level are less frequent for the agricultural sector and, apart from few exceptions, ex-ante studies of redistributive effects of agricultural policy are rare. Yet, in general, ex-ante policy impact analysis in the agricultural sector has a long tradition. The combination of models to jointly assess effects at different levels of aggregation and taking behavioural effects into account is very common. Most of the model chains, however, take farm groups or average farms into account rather than accounting for effects at the individual farm level. Some attempts have been made to combine macro or sectoral models with micro models, which incorporate the behaviour of individual farms. Such research, however, is often restricted to the analysis of certain types of farms. In general, ex-ante analyses of redistributive effects among individual farms on a supra-regional level in the sense of evaluating a counterfactual distribution of income with regard to a reference distribution of income including an assessment of progressivity or related concepts can hardly be found for the agricultural sector. Against this background, the main objective of this work is to develop a tool that is able to consistently assess impacts of agricultural policy on individual farm incomes, thereby building on existing modelling approaches and thus, taking behavioural effects into account for the ex-ante analysis of redistributive effects of agricultural policy. Subsequently, different liberalization scenarios are defined and a detailed analysis of redistributive effects is carried out for the western German agricultural sector by the application of methodologies borrowed from the field of tax progressivity analysis. Thereby, several contributions to the understanding of modelling inequality effects are made, methodologically as well as empirically. The modelling system consists of three layers. At the sectoral and the meso-level two previously developed large scale models are applied. The European Simulation Model (ESIM) is an agricultural sector model with a strong focus on the CAP. It depicts the world agricultural sector – though in different degrees of regional disaggregation – and quantifies effects of agricultural policy at the European and member state level. It is, however, unable to estimate intra-sectoral income changes at the farm level. The Farm Modelling Information System (FARMIS) is a more disaggregate model that depicts the German agricultural sector in great detail. It applies 628 homogenous farm groups and is used in the modelling chain to estimate impacts on the intra-sectoral distribution of income at the meso-level. The two models at the sectoral and meso-level are consistently linked via an iterative solution process. After convergence is achieved between ESIM and FARMIS, the integrated results are further processed in a micro model, estimating impacts at the individual farm level. The micro model has been developed for this study, is static in nature, and relies on the results of the meso-model. After changes in individual incomes are calculated as a first step by the modelling system for different scenarios, model results are analysed in a second step by the application of a methodology for the measurement of redistributive effects that was originally developed for the analysis of tax reforms. Based on the comparison and decomposition of relative and absolute Gini coefficients, detailed redistributive impacts of changes in agricultural policy are presented. For the analysis, scenario results for the year 2020 are evaluated relative to the income distribution of a reference scenario where the CAP is still in place in 2020. To account for different conceptual impacts of inequality analysis on results, the analysis is carried out at different aggregation levels, for different income classifications, and for income data generated in a static way in comparison to data generated by the modelling system. It can be stated that inequality effects are robust with regard to the conceptual differences tested for, at least in terms of the direction of inequality changes. All calculated liberalization scenarios lead to decreasing absolute income differences among western German farms in 2020 because high-income farms lose higher absolute amounts of money than small-income farms. Relative to their Baseline incomes, however, low-income farms tend to lose a higher share compared to high-income farms which leads to increasing relative inequality due to liberalization. Only one exemption from this pattern of results exists: if grouped results are disaggregated and total household income is considered instead of family farm income. In summary, this work provides an innovative combination and extension of different simulation models, which enables the ex-ante measurement of income changes for individual farms. This information in turn facilitates the measurement of redistributive effects in the agricultural sector taking behavioural effects into account.