Direct Payments Go Hand in Hand with Off-farm Employment

According to the international literature, direct payments influence the decision of farm managers to pursue off-farm employment. An Agroscope study looked into what this meant in the Swiss context.

Agroscope analysed whether and to what extent farm and farm-manager characteristics as well as direct payments had an effect on:

a) the likelihood of farm managers pursuing off-farm employment;

b) the number of working days devoted to the off-farm employment.

Off-farm employment is common

Around 50% of farm managers in Switzerland pursue off-farm employment. Between 2017 and 2019, they spent an average of around 64 working days a year on this work.

Both the likelihood of engaging in off-farm employment and the number of working days spent on this employment are higher for smaller farms, farms with a lower agricultural income and farms in the mountain region. Farm managers with specialised dairy farms and organic producers spend fewer working days on off-farm employment.

A high level of agricultural education means fewer days engaged in off-farm employment

A higher level of education, whether agricultural or non-agricultural, increases the likelihood of the farm manager pursuing off-farm employment. By contrast, farm managers with a high level of agricultural education devote significantly fewer working days to off-farm employment, whilst a non-agricultural education increases the number of working days devoted to off-farm employment.

Up to the age of around 43, the likelihood of farm managers pursuing off-farm employment increases; thereafter, the number of working days devoted to off-farm work decreases.

Direct payments increase the likelihood…

Direct payments show a substitution effect, i.e. the higher the direct payments per hectare, the more likely farm managers are to engage in off-farm employment. Since direct payments are coupled to utilised agricultural area rather than to production, they reduce the value of agricultural labour compared to price support, where an expansion of production had a direct impact on agricultural income. This decoupling causes the value of agricultural labour to fall and the appeal of off-farm employment to increase.

…but not the scope of off-farm employment

In contrast to the likelihood of opting for off-farm employment, the number of working days devoted to off-farm work is not correlated with direct payments. Hence, there is a positive correlation between direct payments and engagement in off-farm employment, but not with the scope of said employment.

Precarious income situation despite direct payments and off-farm employment

Sorted by total income per standard family labour unit, the direct payments disbursed for the bottom six income deciles are higher than agricultural income. In other words, income from agriculture is lower than the costs it incurs. In the bottom income decile the direct payments are actually higher than total income, i.e. the costs cannot even be covered by the income from the sideline. Moreover, because of the labour required on the farm, it is precisely these farms which would appear to have limited opportunities for improving their income via a sideline.

From an income perspective, a policy discussion is necessary

Three aspects of these findings are of interest for agricultural policy-makers:

1. If direct payments increasingly lead to the pursuit of off-farm employment by farm managers, they are not fully promoting a competitive and efficient agricultural sector (which is the aim of the law on direct payments), but are also promoting the sideline. Promotion of the sideline runs counter to the income-related objective set out in the law, viz., to promote especially competitive and efficient farms.
   
2. If generating off-farm income is a common and necessary strategy for farming families to achieve an adequate level of consumption, then agricultural policy should be aimed at the farming family’s household income rather than at its agricultural income. If this were the case, however, the key figures focusing on agricultural income (agricultural income, agricultural earnings per full-time family labour unit) would not be adequate for measuring the success of the income-policy objectives of agricultural policy.
   
3. The fact that many farm managers pursue off-farm employment might also be because farm growth, with its corresponding demand for labour on the farm, is not possible due to insufficient land being available. At the same time, direct payments are also being used to support farms whose agricultural income, or even total income, is lower than the disbursed direct payments. This slows down the structural change necessary for farm growth. This in turn raises the issue of the distribution of direct payments, and of whether all farms should continue to be supported by direct payments regardless of their economic situation.