[Publication] Support measures for farmers’ income in different Member States in the context of inflation and rising production costs

Background and purpose of the study

The study assesses how recent output and input price movements have affected agricultural incomes across the EU and individual Member States over the last decade and especially in the period 2020 to 2024.

The study examines how aggregate (i.e. national level) and farm-level incomes are measured in order to suggest improvements in this process that would facilitate swifter policy responses when required.

A range of policies currently used in the EU to support incomes, address income volatility and contribute to other objectives of the CAP are reviewed, identifying where policy interventions have occurred and where gaps remain.

Insights are provided on how to direct financial resources more efficiently to support farming incomes given the budgetary constraints that exist. Ultimately the report identifies and evaluates practical options for improving the timeliness, targeting and effectiveness of income support and risk-management instruments in EU agriculture.

What do economic data tell us about farm incomes in the EU?

Price and cost dynamics: Agricultural input prices rose sharply from 2021 onwards, creating an initial squeeze on farm margins. Output prices later increased in many sectors, but those price increases were not uniform in timing or magnitude. In 2023 output values fell in some sectors, while input costs remained elevated, leading to a significant drop in income in some parts of agriculture.

Heterogeneous impacts across Member States and sectors: Income developments differed markedly by sector, farm size and Member State. Real farm income declined across most Member States between 2022 and 2023, particularly in Estonia, Lithuania, Denmark, Hungary, and Ireland, driven mainly by developments on field crops and dairy farm systems. Income growth remained strongest in Belgium, the Netherlands, and Portugal, driven by horticulture, granivore, and permanent crop systems.

Distributional patterns: Income inequality remains pronounced: a small share of farms receive a large share of total farm income.

Role of policy support in incomes: The CAP budget, supplemented by national funds, contribute a substantial share of farm income (around one third on average across the EU). Support payments are largely fixed in nominal value. Recently the real value of these support payments has been eroded more quickly by higher inflation.

Key conclusions from the analysis:

Sustaining viable farm incomes will require the right balance between: (i) exposure to market output and input price developments, which are necessary so that the sector has a market orientation; and (ii) targeted income support which can ensure that the sector remains sustainable.

Key conclusions are:

• Farm incomes are more volatile now and remain sensitive to sudden input and output shocks.
• Structural factors (farm size, specialisation, location) are major drivers of income differences observed across the EU.
• Farmers are, and will continue to be, exposed to economic, climatic and geopolitical uncertainties.
• There is a need for policy mechanisms that protect both nominal and real farm income.
• The EU’s targeting of agricultural support has improved, as measures aimed at young farmers, small farms, and disadvantaged areas have emerged. A substantial share of the available support is still derived from the basic income support scheme.
• Voluntary coupled support and risk management tools contribute to sector-specific support and income stabilisation. Uptake of risk management instruments in the EU remains low. Implementation is challenging, due to limited availability (e.g. insurance schemes), limitations in data availability, administrative constraints and narrow farmer interest.
• Existing supports have mitigated some adverse effects on farm income, but are less effective when a rapid, targeted response is required or where uptake of risk instruments to mitigate farm income shocks is low.

• Better, timelier farm income data provision and broader farm household income measures would support more effective policy responses.

What measures are already in place to support farm incomes and what could be done differently?

Current instruments and their strengths/weaknesses:

• Direct payments – Basic income support (CAP Pillar I): These raise average farm incomes and provide a greater degree of predictability to income levels. They are simple to administer, but often poorly targeted to actual needs. Their fixed nominal value has been eroded by inflation, and they lack the flexibility to address income shocks. 
• Direct Payments – Eco Schemes (CAP Pillar I): These remunerate farmers on the basis of income foregone for achievement of environmental actions. Consequently, they offer weaker support to farm income than basic income support.
• Voluntary Coupled Support: This is useful in targeting support to vulnerable sectors, or to ensure the strategic supply of particular farm outputs. They can result in perverse incentives when schemes are not well designed.
• Risk-management tools (insurance, mutual funds, income stabilisation tools): These are useful in reducing risk exposure, but uptake of these instruments across the EU is low due to cost, administrative complexity, data gaps, imperfect instrument design and poor knowledge of how they operate.
• National crisis measures and state aid: These are effective for rapid crisis relief following adverse price or production shocks. These can also be made available to sectors which receive little other CAP supports (e.g. pigs, poultry). However, the application of these instruments is ad-hoc and subject to national fiscal constraints.
• Market interventions (price support, subsidies): These may stabilise farm incomes, but they can also be distortionary (influencing the level of production and international trade) and are therefore constrained by international trade rules.

How might policy evolve to deliver better outcomes?

Policy options for the future: What can be done to enhance the efficiency and targeting of income support? One possibility would be to continue the process of aligning payments more closely with farmers’ needs rather than associating payments with farm size. Expanding the effective use of risk management tools could further strengthen farmer resilience. Their adoption could be made more attractive through subsidisation, simpler administrative processes and better education and advisory support to help farmers understand them. Some form of indexation of support might be considered to protect its real value.

Complementing income support with measures that promote both sustainability and competitiveness will be essential to deliver long-term economic viability, environmental compliance and social sustainability. These will be essential requirements to ensure generational renewal in the sector so that it can deliver on all its objectives.

A total of 13 policy options have been evaluated on several criteria, namely, transfer efficiency, targeting efficiency and transaction costs. Direct payments score high on transfer efficiency but low on targeting, while counter‑cyclical payments and insurance better target adverse events, but imply higher transaction costs and limited uptake (often favouring larger farms).  Crisis reserves address deep losses or liquidity constraints, with relatively low public transaction costs.

Considerations in the content of the main areas of current policy debate

The targeting of CAP support needs to include a focus on the definition of an active farmer, how criteria to determine farm viability can be developed, and considerations relating to the capping of support. Policymakers could seek to improve targeting of support, by continuing to pivot away from farm-size based support instruments towards those that are better aligned with identifiable farmer needs.

The uptake of risk management tools could be made more attractive through increased subsidisation, simpler administrative processes and improved farmer education and advisory support. Financial support for some farmers may be necessary to allow them to engage in risk management practices and to allow them to make socially desirable (e.g. environmental or animal welfare) farm investment decisions.  Indexation of support would protect its real value.

Overall, a mixed package of policy instruments is required tailored to objectives, taking account of practical considerations in the delivery of support and distributional trade‑offs. Challenges that need to be addressed include practical verification, effective management of administrative burdens and the continuing need for monitoring and associated data provision to facilitate this.