Income stability in the rural economy

Lámfalusi, Ibolya

Keywords: income, stability, instability, EU, rural economy

The creation of income stability in the rural economy is always an important aspiration of agricultural policy. For those that make their living from agriculture, the size and development of producers’ income determines the standard of living in farming. Comparing the Hungarian rural economy’s income stability indicators with those of other EU countries, it can be said that the situation of domestic farmers is rather unfavourable. Both the nominal value of income stability and the real value of income have developed unfavourably in the sector. Between 1998 and 2005, real income did not once reach 80% of the 1998 figure and in fact, in 2003 it was less than 50% of it.
Fundamentally, it is the balance of agricultural output that determines the income stability of agricultural production. Output already includes the effects of price and volume of which the former, that is income development, has the greater influence on stability. Output also includes the advantages and disadvantages stemming from sector diversification. The greater the degree of diversification, the more favourable the stability of the given county’s rural economy. The generally consistent growth in expenditure size has modified nominal income development, for the most part towards stability, while a rate of expansion in excess of output has made real income uncertain. Agricultural policy is, via subsidies, bound to mitigate primarily the unfavourable effects of expenditure. Hungary’s agricultural policy was unable to contribute to increased nominal income stability in the sector, which can primarily be linked to regulatory causes.
The realisation of income stability is a common function of producers and of agricultural policy. Increasing the bargaining power of producers’ associations, increasing sector diversification, and agricultural insurance are a few of the tools with which farmers can contribute to income stability. The task of agricultural policy is partly to promote the utilisation of opportunities and partly to increase income levels through development and income supplement subsidies. Regarding the latter, it is a positive step in terms of the future that according to the 2005 Committee Proceedings, income stability can be more or less guaranteed via the new system for divided payments. With the introduction of new, unified payments most producers will be able to count on a reliable basis for planning from 2013.

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