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Swiss agricultural reform 1992: from price support to direct payments Source: Federal Office for Agriculture, Berne
Source publication
Abstract The fundamental,reform of agricultural policy in 1992 shifted farm support from price and sales guarantees to direct payments that are condition al on the fulfillment of ecological and ethological standards. This article highlights the pillars of the Swiss direct payment,system and its incentive structure , outlines the different agricultu...
Contexts in source publication
Context 1
... payments play a key role in Swiss agricultural policy. After the reform in 1992 the concept of support was fundamentally changed. In fact a new system was adopted: price and sales guarantees were abolished. Price support has been gradually reduced (Fig. 2) whereas direct payments are specific incentives to remunerate farmers for services of public and common ...
Context 2
... natural resources, taking care of the landscape and encouraging decentralized settlement. The high acceptance of the new concept of agricultural policy allowed for the shift from price support to direct payments and has been carried out step by step. During the implementation period it was inevitable to increase the agricultural budget (see Fig. 2). Further reductions of the level of price support will give the opportunity to keep the budget within the limits of financial policy. A fundamental change of trade policy in the context of the WTO commitments or of a Swiss-EU FTA in the agri-food sector would increase the need to compensate farmers for income losses due to lower ...
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Citations
... In 1999, a referendum that initiated the greening and decoupling of agricultural policy led to steps by which price and sales guarantees were abolished and farmers had to comply with ecological standards to be eligible for direct payments. Furthermore, the first bilateral agreement with the European Union came into force in 2002 which brought about tariff reductions and the removal of technical barriers to trade (Jörin et al., 2006). Farm-level supports were divided into general and ecological direct payments. ...
Purpose
– The purpose of this study is to examine the effects of agricultural policy reform – specifically the change from market to direct payment support – on income variability of Swiss farming households. In addition, the observed heterogeneity in income risks across farms and time is explained in terms of farm and regional characteristics.
Design/methodology/approach
– Unbalanced farm‐level panel data of the Swiss farm accountancy network (FADN) are used to construct coefficients of variation of five‐year overlapping time intervals for total household income and gross farm revenues over the period 1992 to 2009. Linear fixed effect models are applied to measure the effect of specialization, off‐farm income, direct payments, farm size, and liquidity on the variability of gross farm revenues and household income in the valley, hill, and mountain regions.
Findings
– The switch from market‐based support to direct payments has decreased the variability of farm revenues and household income. The strong reliance on direct payments serves as insurance for most farmers and reduces both household income and revenue risk. Off‐farm income can be used by farmers to reduce household income risk but it increases revenue risk in the valley regions. In all of the regions considered, farm size has a positive effect on household income risk and a negative effect on revenue risk. A high degree of specialization increases both gross revenue and household income risk. Potential revenue insurance contracts should specify farmers' off‐farm employment, the degree of specialization, farm size, and regional specific risk profiles.
Originality/value
– This paper assesses the complementary effects of specific farm characteristics and risk management strategies with regard to both farm revenue and household income risk. Influences of agricultural policy changes on income risks are also empirically assessed at different spatial scales.
This study investigated how agricultural policy reforms, including market liberalization and market deregulation, have influenced gross revenue risk of Swiss dairy producers using farm-level panel data between 1990 and 2009. Based on detrended data, variance decomposition was applied to assess how output prices and yields contributed to revenue risk over 3 different periods: the whole period (1990-2009), the first decade (1990-1999), and the second decade (1999-2009). In addition, the effect of expected changes in animal-based support for roughage-consuming cattle and price volatility on revenue risk was evaluated using a simulation model. Prices were the main contributor to revenue risk, even if the importance of yield risk increased over time. Swiss dairy producers can profit from natural hedge but market deregulation and market liberalization have reduced the natural hedge at the farm level. An increase in price volatility would substantially increase revenue risk and would, together with the abandonment of direct payments, reduce the comparative advantage of dairy production for risk-averse decision makers. Depending on other available risk management strategies, price risk management instruments might be a valuable solution for Swiss dairy producers in the future.
