Analysis of the Main Issues Regarding the Public-Purpose Direct Payment Program
Published on 25 November 2019
Published by Economic Industrial Program Evaluation Division of the Budget Analysis Department
In order to address the issues incurred by the current direct payment scheme – such as a concentration on rice, biased toward large farm owners and triggering rice overproduction – while stabilizing farmers’ incomes and enhancing the public benefits of agriculture and the farmlands, the government has been pursuing reform of the Public-Purpose Direct Payment Program. The draft budget for the Public-Purpose Direct Payment Program in 2020 is 2.2 trillion won, an increase from that of previous years. As the WTO agricultural status enjoyed by Korea is likely to change from its current developing country status, farmers have increasingly called for the introduction of a Public-Purpose Direct Payment Program to stabilize their incomes. Against this backdrop, this report aimed to examine whether it would be effective to reform the direct payment scheme, which entails a budget increase.
First, in order to prevent confusion among farmers and to pursue the program without difficulty, it is necessary to rapidly decide on the details of the core elements of the Public-Purpose Direct Payment Program reform, which include the criteria regarding farmer status and size of an allowance, the area and unit price of direct payment per area as well as the obligation of adjusting the size of farming plots. Also, while a reform may appear to partially secure equity between rice and other items as well as in terms of income security of medium and small-sized farmers, it should be noted that costs over a single year and over the mid-to long-term may significantly increase depending on the changes made in payment brackets and in unit prices.
Second, with regard to relieving rice overproduction and configuring safety-nets in the market, given that rice has higher profitability and labor productivity compared to other crops and a high proportion of rice farmers are old-age subsistence farmers, the program should be implemented with the awareness that making the shift to other crops may not be easy. In addition, although a rice production adjustment scheme has been implemented three times to reassert balance in the supply-and-demand of rice, given that the trials have lacked significant outcomes, the option of modifying the program so that it can be led by the private sector should also be reviewed. Also, while the government plans to expand and implement a rice market isolation scheme to secure rice supply-and-demand upon the suspension of the Rice Income Compensation Payment Program, it should take a prudent approach by noting that market isolation including rice purchases and management is likely to entail a hefty price tag, and meticulously review whether a market isolation policy is regarded as an aggregate measurement of support (AMS).
Third, given that the proportion of leased farms among total farming land is on an increasing trend and the area of farming land owned by non-farmers is increasing, it is necessary to strengthen the criteria for farmers and farmland eligible for payment so that direct payments are given to farmers who are actually farming the land. Furthermore, considering that the percentage of the area monitored upon implementation of direct payments among the areas requested continues to drop from the 40% level, and that the incidence of wrongful receipt among the total number of direct payments is low, surveillance measures against wrongful receipt should be reinforced.
Fourth, in order to promote the public benefits of agriculture and farmland, farmer compliance with regulations on both their vocation and the environment should be strengthened, selective public-purpose direct payment schemes need to be expanded to include direct payments for environmental preservation and eco-friendly farming, and visible performance indicators should be developed along with a performance management system that enjoys the support of both farmers as well as the public.