What are we to do with people “whose jobs and very way of life make little economic sense in an industry which has created such abundance”?
8. 29. 2012
Farming technologies in developed countries has been remarkably advanced during the post-war period, and now the domestic demand for foodstuffs in those economies are filled only by a small population of farmers with vast arable areas, chemicals and machines, and even genetically modified crops. Actually, according to The Economist (2005), the farming sector in the EU accounts for less than 2% of the entire workforce. Still, this figure might not be small enough because food stocks within the EU tend to be abundant, even too much about a few products like cereals and milk. This would not sound problematic if all the EU’s farmers were competitive enough to sell surplus products in the international food market, at least efficient so that they manage to earn their living by farming. In reality, however, the European rural economy consists not only of competitive farmers but also of inefficient and small-sized farmers, e.g., those who engage in mountain farming, and as The Economist (2005) says, the Common Agricultural Policy (CAP) costs over €40 billion a year, around 40% of the total EU budget, to support the rural economy. This essay answers two question raised from such an economic and political issue of the EU: first, why is that the EU supports farmers who contribute little to the food production even though the European community has even surplus foods; second, how these people should be treated in terms of the EU’s agricultural policy.
The first question is to be approached from two different points of view: an economic viewpoint, focusing on the market failure of agricultural products in the EU; and a political viewpoint, mentioning about farm lobbying in the EU. A primary incentive for the EU’s agricultural policy to support farmers is that they provide with a number of services which are not priced in the conventional market mechanism, namely so-called externalities. The Economist (2005) analyses well-protected French farmers due to their traditional performance in the country’s food culture deeply rooted in its history, such as regionally based gastronomy and country-widely held weekly street markets, and their environmental services to preserve beautiful bucolic scenery which promotes tourism in the rural region. On the other hand, another influential factor in the EU’s agricultural policymaking is participant countries’ political activities, typical one of which is farm lobbying. France’s biggest farm union, the FNSEA, has a powerful and nation-wide lobbying network ranging from local officers to parliamentarians; in fact, The Economist (2005) argues, 8.5% of senators of the country are farmers, while the country’s agriculture holds just 4% share of the workforce and 3% share of GDP. Overall, the economic grounds for the externalities performed by farmers justify the EU’s agricultural policy to support even inefficient and small-sized farms, and the political pressure from powerful farm lobbying organizations encourages or forces the politicians to implement the policy.
The answer to the second question is that if the EU’s agricultural policy really pursues the objective of evaluating the multifunctionality in agriculture, the present subsidizing scheme is not the best way. The EU’s farm aid scheme does not seem appropriate to put a price on the cultural and environmental performance farmers provide with, because the direct income support is based not on the performance value itself, but on what each farm has produced during a certain period in the past. Instead, the agricultural policy makers need to adjust the scheme so that the performance are properly estimated into the optimal size of payment for it. As an alternative, introducing concepts of environmental economics, for instance, travel cost estimation of bucolic scenery, might be useful. In addition, farmers themselves, those who make little economic sense in a country’s food production, also should switch their business basis to development and preservation of tourism resources. As The Economist (2005) mentions, upland farmers in marginal region, i.e. mountain farmers, already realize that farming alone would not feed them any more, and that combining it with other business which has synergistic effects altogether, just like the case of farming and tourism, is the only way to survive.
In conclusion, this essay focus on two questions about inefficient and small-sized farmers whose economic performance in a country’s food production are at a minimum level amongst the agricultural industry; one is why such farmers need to be protected within the present policy scheme; another is what alternatives are to be proposed from studying the problem of today’s European farm policy. The subsidies for farmers are justified with their cultural and environmental performance that is not priced in the market; however, the present policy does not seem to work well to estimate such external value. Therefore, the economic and social adaptation are required from both farmers’ and policy makers’ sides.
Reference
The Economist (2005). Europe’s farm follies, 10th December, pp. 25-27.
