| A Study on Enhancing the Direct Payment Schemes Based on Multi-Faceted Evaluation | |||
|---|---|---|---|
| Author | Rhew, Chanhee | ||
| Views | 48175 | Publication Date | 2017.02.17 |
| Original | |||
|
Research Background This study aims at suggesting guidelines for the current Direct Payment Schemes based on in-depth analysis and evaluation. Since introduced in 1997, the Schemes have become one of the most important agricultural programs in Korea, accounting for 14.7% of total agricultural and food budget in 2016. With constant modification, the Schemes, however, still have some challenges to be addressed imperatively. Special attention is paid to, among others, income effects, decoupling, and multifunctionality concerns. Research Methodology A number of research methodologies are employed including literature review, statistical and econometric analysis, ex-post evaluation based on within-sample forecasting, and field studies. Main data contain Farm Household Economy Surveys, Farm Registration D/B, and other various sources. Conclusion and Implication Income effect analysis results indicate that the Schemes implemented during 2003 through 2015 have increased total annual farm income by, on average, 1.8% (all farm types) ~ 4.3% (paddy rice farm). Arguably, the realized increment effects are way lower than initially anticipated. Return on Asset (ROA) and Operation Profit Margin (OPM) are utilized to measure to which extent the Schemes contribute to stabilize farm risk management. It is shown that the Scheme payments are in effect on farms whose sizes are less than 10ha. Also, the Schemes provide a safety net for small farms, especially those less than 1.5ha. However, they appear to deteriorate inter-farm and inter-commodity equity mainly due to the design (the larger the farm size, the more is paid). Ex-post evaluation with KREI-KASMO is carried out to identify if the Schemes (especially Fixed Rice Direct Payment (FRDP) and Variable Rice Direct Payment (VRDP)) are empirically (de)coupled and, if coupled, the degree they induce rice producers to increase production. Key finding are as follows: 1) Variable Rice Direct Payment is definitely coupled while Fixed Payment is not; 2) the effect of VRDP is rather limited; 3) adjusting Target Price condition in VRDP is expected to mitigate current rice over-supply problems and reduce the budget burden. With respect to multifunctionality, few studies have been carried out. Thus, this study attempts to answer “what is multifunctionality and its implication on the Direct Payment Schemes in Korean context?” It is worthwhile to note that the concept of multifunctionality is to be understood from a ‘normative’ approach and that the Schemes as fiscal/economic-incentive based means to address market failure. An empirical analysis is conducted with the Organic Farming Direct Payment to support the reasoning above. This study suggests several points to be considered in reforming the Schemes. First, the Schemes should be grounded on the notion of ‘rewards for the service and function including multifunctionality concerns provided by the agricultural sector on behalf of social welfare’ in place of previous loss compensation. That is, the Schemes should be re-designed. Secondly, in line with the first direction, more emphasis needs to be put on multifunctionality-related payments. With these payment schemes being prioritized, income support level should be increased to meet the end. At the same time, detailed cross-compliance rules need to be introduced to minimized potential negative externalities. Additionally, the scope and design of the Schemes should be streamlined to work more efficiently. Thirdly, it is imperative to address problems relevant to VRDP. Some alternatives can be considered, for instance, such as consolidating VRDP into FRDP, having VRDP be non-commodity specific, and adjusting Target Price. Fourthly, budget constraints need to be relaxed to facilitate some essential and required functions to be implemented. Lastly, a consensus among as many of interest groups as possible is to be reached. Researchers: Rhew ChanHee, Park Joonki, Kim Jongin, and Park Jiyeon Research Period: 2016. 1. ~ 2016. 10. E-mail address: chrhew@krei.re.kr |
|||