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Farmland exhibits multifunctionality by preventing flooding and soil erosion and providing social and cultural community comfort. All these functions are essential for sustainable rural development. However, the multifunctionality of farmland is decreasing worldwide because of an aging society, depopulation and income disparity between flat lands and hilly mountainous lands. Regarding the consequences of abandonment, abandonment is intimately linked with the wider issue of the stagnation of the rural economy. The direct payment policy for hilly mountainous land is aimed at restraining farmland abandonment through community-based activities. The panel data difference in differences (DID) estimator was employed to observe the effect of direct payments on the rate of restraining farmland abandonment at the municipality level of the Hokkaido prefecture in Japan for the period of 2005–2015. We estimated that the direct payment implementation provided a 2% effectiveness for restraining the increase in the rate of abandonment as the result of DID estimation. On the other hand, the age group of 65 years or older was negatively correlated with farmland abandonment, which contradicts the general understanding. Older farmers have relatively more interest in contributing to and preserving their community. Therefore, the direct payment can encourage them to participate more in their community preservation. From these results, we concluded that it is necessary to promote farmland consolidation to compensate for the lack of inheritors. In addition, providing direct payment for a well-organized community or active stakeholders can be an effective way of utilizing governmental budgets and sustaining rural development.

The Effect of Direct Payment on the Prevention of Farmland Abandonment: The Case of the Hokkaido Prefecture in Japan