Vol. 12 No. 2 (2023)
Original Research Article

Subsidies and the income inequality in the Hungarian wine sector

PDF
  • Imre Ferto,
  • Stefan Bojnec
Imre Ferto
Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences
Stefan Bojnec
University of Primorska, Koper
DOI: https://doi.org/10.36253/wep-14091

Published 2023-12-31

Keywords

  • income inequality,
  • off-farm income,
  • market income,
  • subsidies,
  • wine farms,
  • Gini decomposition
    • ...More
    Less

How to Cite

Ferto, I., & Bojnec, S. (2023). Subsidies and the income inequality in the Hungarian wine sector. Wine Economics and Policy, 12(2), 3–14. https://doi.org/10.36253/wep-14091

Copyright (c) 2023 Imre Ferto, Stefan Bojnec

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Funding data

Abstract

The paper investigates the impact of different sources of income on wine farm total income inequality in Hungary using Farm Accountancy Data Network data for the period 2013-2019. The decomposition of the Gini coefficient is applied to focus on the impact of the Common Agricultural Policy (CAP) shift from market to government budgetary support on wine farm total income inequality. Off-farm income has a rather stable impact on wine farm total income inequality. CAP Pillar 1 subsidies have remained more important than CAP Pillar 2 subsidies, both in the structure of wine farm total income and in the reduction of wine farm total income inequality. The most striking finding is regarding a shift in wine farm market income from a negative (losses) to a positive (profit) value and its increasing role in wine farm total income inequalities. The 20% of the largest wine farms created from almost 90% to less than 80% of wine farm total incomes between 2013 and 2019, but during the same period their participation in CAP subsidy payments was reduced much more from more than 80% to around 60%. Subsidies from Pillars 1 and 2 were reduced, and wine market income increased wine farm total income inequality, while it remained constant for off-farm income. The wine farm market income has driven wine farm total income inequalities. This might strengthen because of the ongoing market selection process with the exit of less efficient and loss-making wine farms and the increasing role of surviving profitable wine farms. This market selection process can be related to managerial, entrepreneurial, and innovation activities based on the differentiation and segmentation of wine farm products and their market incomes.

PDF

References

  1. Mishra, A.; El-Osta, H.; Gillespie, J.M. Effect of agricultural policy on regional income inequality among farm households. J. Policy Model. 2009, 31, 325–340, doi:10.1016/j.jpolmod.2008.12.007.
  2. Ebadi, E.; Russ, J.; Zaveri, E. Fit for (re)purpose?: A New Look at the Spatial Distribution of Agricultural Subsidies. Policy Research Working Papers; 10414. World Bank, Washington, DC, 2023. http://hdl.handle.net/10986/39726.
  3. Espinosa, M.; Louhichi, K.; Perni, A.; Ciaian, P. EU‐wide impacts of the 2013 CAP direct payments reform: A farm‐level analysis. Appl. Econ. Perspect. Policy 2020, 42(4), 695–715, doi:10.1093/aepp/ppz021.
  4. Nitta, A.; Yamamoto, Y.; Kondo, K.; Sawauchi, D. Direct payments to Japanese farmers: do they reduce rice income inequality? Lessons for other Asian countries. J. Policy Model. 2020, 42, 968–981, doi:10.1016/j.jpolmod.2020.02.006.
  5. Moreddu, C. Distribution of support and income in agriculture. Paris: OECD Publishing, 2011. http://dx.doi.org/10.1787/5kgch21wkmbx-en (OECD Food, Agriculture and Fisheries Working Papers, No.46).
  6. Allanson, P. The redistributive effects of agricultural policy on Scottish farm incomes. J. Agric. Econ. 2006, 57(1), 117–128, doi:10.1111/j.1477-9552.2006.00035.x.
  7. Bojnec, Š.; Fertő, I. Do CAP subsidies stabilise farm income in Hungary and Slovenia? Agric. Econ.–Czech 2019, 65(3), 103–111, doi:10.17221/190/2018-AGRICECON.
  8. Gardner, L.B. Determinants of farm family income inequality. Am. J. Agric. Econ. 1969, 51(4), 753–769. doi:10.2307/1237772.
  9. Witzke von, H; Noleppa, S. Agricultural and Trade Policy Reform and Inequality: The Distributive Effects of Direct Payments to German Farmers under the EU’s New Common Agricultural Policy, Working Paper Series 79, Humboldt University of Berlin, Department of Agricultural Economics, 2007.
  10. Beluhova-Uzunova, R.; Atanasov, D.; Hristov, K. Analysis of direct payments distribution in Bulgarian agriculture. Trakia J. Sci. 2017, 15(1), 282–287, doi:10.15547/tjs.2017.s.01.051.
  11. Beluhova-Uzunova, R.; Atanasov, D.; Shiskova, M. Distribution of direct payments in Bulgaria – Policy lessons and prospects beyond 2020. Scientific Papers Series Management, Economic Engineering in Agriculture and Rural Development 2020, 20(2), 53–59.
  12. Szenteleki, K.; Ladányi, M.; Gaál, M.; Zanathy, G.; Bisztray, G. Climatic risk factors of central Hungarian grape growing regions. Appl. Ecol. Environ. Res. 2017, 10(1), 87–105.
  13. Mota, J.; Costa, R.; Moreira, A.; Serrão, S.; Costa, C. Competitiveness framework to support regional-level decision making in the wine industry: a systematic literature review. Wine Econ. Policy 2021, 10(2), 29–40, doi:10.36253/wep-10131.
  14. El Benni, N.; Finger, R. The effect of agricultural policy reforms on income inequality in Swiss agriculture—An analysis for valley, hill and mountain regions. J. Policy Model. 2013, 35(4), 638–651, doi:10.1016/j.jpolmod.2012.03.005.
  15. Tantari, A.; Pierangeli, F.; Cardillo, C. Assessing the impact of direct payments convergence on farm income inequality: The case of Italian farms. J. Int. Food Agribus. Mark. 2019, 31(4), 417–428, doi:10.1080/08974438.2019.1599761.
  16. Aristei, D.; Perugini, C. Preferences for redistribution and inequality in wellbeing across Europe. J. Policy Model. 2010, 32, 176–195, doi:10.1016/j.jpolmod.2010.02.001.
  17. Fragoso, R.; Marques, C.; Lucas, M.R.; Martins, M.B.; Jorge, R. The economic effects of Common Agricultural Policy on Mediterranean montado/dehesa ecosystem. J. Policy Model. 2011, 33, 311–327, doi:10.1016/j.jpolmod.2010.12.007.
  18. Keeney, M. The distributional impact of direct payments on Irish farm incomes. J. Agric. Econ. 2000, 51(2), 252–265, doi:10.1111/j.1477-9552.2000.tb01227.x.
  19. Severini, S.; Tantari, A. The effect of the EU farm payments policy and its recent reform on farm income inequality. J. Policy Model. 2013, 35(2), 212–227, doi:10.1016/j.jpolmod.2012.12.002.
  20. Severini, S.; Tantari, A. The impact of agricultural policy on farm income concentration: The case of regional implementation of the CAP direct payments in Italy. Agric. Econ. 2013, 44(3), 275–286, doi:10.1111/agec.12010.
  21. Severini, S.; Tantari, A. The distributional impact of agricultural policy tools on Italian farm household incomes. J. Policy Model. 2015, 37(1), 124–135, doi:10.1016/j.jpolmod.2015.01.004.
  22. Allanson, P.; Kasprzyk, K.; Barnes, A.P. Income mobility and income inequality in Scottish agriculture. J. Agric. Econ. 2017, 68(2), 471–493, doi:10.1111/1477-9552.12192.
  23. Allanson, P.; Rocchi, B. A comparative analysis of the redistributive effects of agricultural policy in Tuscany and Scotland. Review of Agricultural and Environmental Studies 2008, 86(1), 35–56, doi:10.22004/ag.econ.188544.
  24. El Benni, N.; Finger, R.; Mann, S.; Lehmann, B. The distributional effects of agricultural policy reforms in Switzerland. Agric. Econ.–Czech 2012, 58(11), 497–509, doi:10.17221/215/2011-AGRICECON.
  25. Ciliberti. S.; Frascarelli, A. The CAP 2013 reform of direct payments: redistributive effects and impacts on farm income concentration in Italy. Agric. Food Econ. 2018, 6(19), 1–18, doi:10.1186/s40100-018-0113-5.
  26. Hanson, A. Assessing the redistributive impact of the 2013 CAP reforms: an EU-wide panel study. Eur. Rev. Agric. Econ. 2021, 48(2), 338–361, doi:10.1093/erae/jbab006.
  27. Bojnec, Š.; Fertő, I. Farm household income inequality in Slovenia. Span. J. Agric. Res. 2019, 17(4), e0112, doi:10.5424/sjar/2019174-13996.
  28. European Commission. Agriculture and rural development: wine. Brussels: European Commission, 2022. https://agriculture.ec.europa.eu/farming/crop-productions-and-plant-based-products/wine_en.
  29. Pomarici, E.; Sardone, R. EU wine policy in the framework of the CAP: post-2020 challenges. Agric. Econ. 2020, 8(1), art. no. 17. https://doi.org/10.1186/s40100-020-00159-z.
  30. Mota, J.; Moreira, A.; Costa, R.; Serrão, S.; Pais-Magalhães, V.; Costa, C. Performance indicators to support firm-level decision-making in the wine industry: a systematic literature review. Int. J. Wine Bus. Res. 2020, 33(2), 217–237, doi:10.1108/IJWBR-06-2020-0027.
  31. Fertő, I.; Bojnec, Š.; Podruzsik, S. Do subsidies decrease the farm income inequality in Hungary? Agris On-line Pap. Econ. Inform. 2022, 14(2), 49–56, doi:10.7160/aol.2022.140204.
  32. Pomarici, E.; Sardone, R. Is a new EU wine policy coming? The unexpected role of the regulatory measures. Wine Econ. Policy. 2022, 11(2), 75–82. doi.org/10.36253/wep-13189.
  33. Raffinetti, E.; Siletti, E.; Vernizzi, A. Analyzing the effects of negative and non-negative values on income inequality: Evidence from the survey of household income and wealth of the Bank of Italy (2012). Soc. Indic. Res. 2017, 133(1), 185–207. doi.org/10.1007/s11205-016-1354-x.
  34. Jenkins, S.P.; van Kerm, P. Trends in income inequality, pro-poor income growth, and income mobility. Oxf. Econ. Pap. 2006, 58(3), 531–548, doi:10.1093/oep/gpl014.
  35. Mari, F. The representativeness of the Farm Accounting Data Network (FADN): some suggestions for its improvement. Statistical Working Papers, Eurostat. Luxembourg: Publications Office of the European Union, 2020. https://ec.europa.eu/eurostat/documents/3888793/11587938/KS-TC-20-009-EN-N.pdf/5b8712e2-89fe-cf63-043f-c56d03e96dbe?t=1607010930000.
  36. EC. Wine National Support Programs Expenditure up to 15 October 2020 (updated December 2020). Brussels, European Commission, 2020. https://agriculture.ec.europa.eu/system/files/2021-01/wine-national-support-programs-exp-15-10-2020_0.pdf
  37. Manero, A. The limitations of negative incomes in the Gini coefficient decomposition by source. Appl. Econ. Lett. 2017, 24(14), 977–981, doi:10.1080/13504851.2016.1245828.
  38. Černikova, R.; Žufan, P. Analysis of the wine production sector in the Czech Republic and Germany. Acta Universitatis 2004, 52(6), 19-26, doi:10.11118/actaun200452060019.
  39. Dressler, M. Innovation management of German wineries: from activity to capacity—an explorative multi-case survey. Wine Econ. Policy 2013, 2(1), 19–26, doi:10.1016/j.wep.2013.05.002.
  40. Williams, J.L. New initiatives in the Hungarian wine industry: Foreign innovation and investment. Int. J. Wine Mark. 1993, 5(2/3), 39–47, doi:10.1108/eb0086160.
  41. Enjolras, G.; Capitano, F.; Aubert, M.; Adinolfi, F. Direct payments, crop insurance and the volatility of farm income. Some evidence in France and in Italy, New Medit 2014, 13(1), 31–40, doi:10.22004/ag.econ.122478.
  42. Szolnoki, G.; Totth, G. A cross-cultural comparison of wine consumption and purchasing behaviour in Germany and Hungary. Wine Econ. Policy 2020, 9(1), 19–29, doi:10.14601/web-8053.
  43. Gal, P.; Jambor, A.; Kovacs, S. Regional determinants of Hungarian wine prices: The role of geographical indications, objective quality and individual reputation. Wine Econ. Policy 2021, 10(1), 119–132, doi:10.36253/wep-8880.
  44. Szivas, E. The development of wine tourism in Hungary. Int. J. Wine Mark. 1999, 11(2), 7–17, doi:10.1108/EB008692.
  45. Luptak, M.; Boda, D.; Szucs, G. Profitability and capital structure: An empirical study of France and Hungarian wine producers in 2004-2013. Bus. Syst. Res. 2016, 7(1), 89–103, doi:10.1515/bsrj-2016-0007.
  46. Goncharuk, A. Exploring the factors of efficiency in German and Ukrainian wineries. J. Wine Res. 2017, 28(4), 294–312, doi:10.1080/09571264.2017.1383888.
  47. Fertő, I.; Bojnec, Š. The common agricultural policy subsidies and the technical efficiency of Hungarian wine farms. Int. J. Wine Bus. Res. 2023. doi.org/10.1108/IJWBR-09-2022-0032.
  48. Severini, S.; Tantari, A. Which factors affect the distribution of direct payments among farmers in the EU Member States? Empirica 2014, 42(1), 25–48, doi:10.1007/s10663-013-9243-x.
  49. Hledik, E.; Harsanyi, D. Towards quality consumption: segmentation of the Hungarian wine market based on wine consumption and purchasing habits. Int. J. Wine Bus. Res. 2019, 31(4), 602–617, doi.org/10.1108/IJWBR-10-2018-0063.