The effect of the EU farm payments policy and its recent reform on farm income inequality

Farm direct payments (DPs) have been the main instrument of the Common Agricultural Policy (CAP) to support farm income in the EU. This paper addresses the role of direct payments granted in the context of the market and income support policies and of rural development policies in the distribution of farm income among farmers. Using the Gini coefficient and its disaggregation, this study investigates the impact of DPs on farm income inequality among a large sample of farms in Italy. The analysis is developed at a national level but also considers the three main regions of Italy and three types of farming. The DPs are very concentrated but reduce farm income inequality. However, the recent CAP reform has weakened this latter positive characteristic. The results of the analysis suggest the need to avoid a drastic reduction in the level of DPs because this is expected to increase farm income concentration and any attempt to change their distribution should be welcome if it results in a reduction of farm income concentration. (C) 2012 Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.