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Farm subsidies in the EU



Kirjoittanut: Felix Schwarz-Pajunen - tiimistä Crevio.

Esseen tyyppi: Yksilöessee / 2 esseepistettä.
Esseen arvioitu lukuaika on 5 minuuttia.

 

Farm subsidies in the EU

 

„But the truth of the matter is nearly every farm in Europe is running on subsidies and therefore doesn’t work as a business…” (Perkins 2022)

 

This comment by Richard Perkins, entrepreneur, farmer, and educator on regenerative farming, made me want to understand the situation of the conventional agricultural business in Europe better. How heavily do farms depend on subsidies and public support and is there a way to operate a farm without depending on subsidies like other businesses in the free market?

 

EU- budget and agriculture.

Agriculture is the largest individual segment of the EU budget. In 1970, 93% of the total EU budget was spent on the Common Agricultural Policy (CAP). Over the years this percentage decreased but kept being the largest individual segment. In the year 2020, it was 34.5% of the total EU budget which was around €59 billion.  While the percentage decreased the amount of money increased steadily. (Homolová, de Korte, Joosten 2022)  One reason why such a large percentage of the total EU budget is spent on agriculture is because the EU handles agricultural policy itself.  Meaning that, different than in many other sectors, the EU pays the funds directly instead having the member states pay it. (European Commission 2019)

 

What is the CAP?

The Common Agricultural Policy (CAP) is a fund of the European Union to support farmers and ensure food security in Europe.

The CAP is divided into two funds or pillars. Pillar one is the European Agricultural Guarantee Fund (EAGF) which mostly goes to the farmers income support. Pillar two is the European Agricultural Fund for Rural Development (EAFRD). This supports rural areas, climate action and management of natural resources. During the years 2021- 2027, each year roughly around €38 billion are spent on pillar one and around €12 billion are spent on pillar two. Meaning most of the money goes to farmers income support. (European Commission 2022)

 

Why do farmers get income support?

Farmers in the EU get income support for several reasons. To start with, the average income of farmers is far below the average of the rest of EU economy. In the years 2011-2016 the average income per family farm worker was about 40% of the EU average wage. This is an alarming figure and makes agriculture an unattractive field.

The European Commission states that these funds

“- function as a safety net and make farming more profitable.

– guarantee food security in Europe.

– assist them in the production of safe, healthy, and affordable food.

– reward farmers for delivering public goods not normally paid for by markets, such as taking care of the countryside and the environment” (European Commission 2022a)

Farmers income support is calculated by the hectares in cultivation and will only be granted if certain environmental, plant health and animal welfare standards are kept. This method of support “awards” bigger farmers over smaller farmers since they have more land in production.

The EU wants to keep high transparency with their funds and has a public register where it shows who got CAP funding. It is available for two years and shows how much funding a person or company got and breaks down which type of funding it was.

 

A sobering reality

“On average, over the last 10 years, income support represented nearly half of farmers’ income.” (European Commission 2022b)

In the year 2019 it was 22%. Farmers work very hard to produce around 40% of the average wage and depend on subsidies. This is sobering. It is understandable why there are very few people interested in farming as a career, let alone see it as a business opportunity. At the moment, only 11% of the total farm managers in the EU are under the age of 40 years old. This poses a challenge to the future of food security in Europe.

Starting a farm without a considerable amount of capital is very hard. The EU recognizes this and provides additional financial support for young farmer and startup grands for new farmers.

 

A word on the statistics

Millions of farms across the EU have been used to gather this data. Each farm differs in size, production method and what they produce, there are economic and climate differences in each of the countries and regions. The numbers used in this essay are averages from the EU and one cannot draw conclusions on the financial state of any specific farm.

In Finland subsidies account for 29% of the total farm yield. (Ruakavirasto 2022) This is not the same as a farmer’s income, which was mentioned above but it shows that also in Finland farms rely on subsidies.

 

Conclusion

Subsidies are very important to agriculture and food security in Europe. This is how things developed to be, but I wonder how it came to the point where food, one of the most fundamental things of life, has so little value that the producers need so much support. One obvious answer is that if food was more expensive there would be more poverty and hunger. Still, something in the current food system is not working out very well. One could argue it has to do with large supply chains since the producer gets only a small fraction of the what the end consumer pays.

In any case, to ensure food security, farming needs to be a fairly compensated profession. Subsidies are one effort to make that happen. Creative and innovative approaches to a farms business module are another way.

The initial reason I got interested in farming was when I saw innovative and business savvy farmers who show that farms can run like a “normal business”.  Richard Perkins, the person who’s quote I started this essay with is one of them. He continues to say “But the truth of the matter is nearly every farm in Europe is running on subsidies, and therefore doesn’t work as a business. So that in itself says a lot.  We are here (on his farm in rural Sweden) demonstrating  on very small scale, we are a 10-hectare farm (that is 25 acers) which wouldn’t be considered a farm in the modern context. But we can drive 4 salaries at Stockholm level out in the country doing meaningful work that’s enjoyable and supporting a lot of local families” (Perkins 2022)

Keys to his success are direct marketing (he sells directly to consumers instead of to stores) , quality products and using enterprises with low startup costs which pay return of their investment very quickly. He farms very intensively but also in a regenerative way, meaning he doesn’t exploit the soil but leaves it better than before. This type of farming requires skills which are not traditionally seen as part of farming, like for example marketing. Farms like his, which need comparatively low startup capital and are financially viable and independent can be another way to make farming more attractive and fairer for younger generations.

 

 

 

Resources

 

European Commission, 2019. The common agricultural policy, separating fact from fiction. 2. https://agriculture.ec.europa.eu/system/files/2019-05/cap-separating-facts-from-fiction_en_0.pdf

 

European Commission, 2022. Common agricultural policy funds. Read on 26.03.2023

https://agriculture.ec.europa.eu/common-agricultural-policy/financing-cap/cap-funds_en

 

European Commission, 2022a. Income support explained. Read on 26.03.2023

https://agriculture.ec.europa.eu/common-agricultural-policy/income-support/income-support-explained_en

 

European Commission, 2022b. Income support explained. Read on 26.03.2023

https://agriculture.ec.europa.eu/common-agricultural-policy/income-support/income-support-explained_en

 

Homolová, A & de Korte, L & Joosten, T. 2022. Agricultural millionaires and minimum wages: how European subsidy policy increases inequality. Read on 27.03.2023  https://www.ftm.eu/articles/european-agricultural-subsidy-farmers-billions?share=NlLxensNr54Ar81dZpwUZaAKyDXhWfeByqbEBzYRqaBtkcmhPr96CXY%2FfQJoK34%3D#miljonair

 

Perkins, R. https://www.instagram.com/p/CkvkLkkK3YC/ Seen 27.03.2023

 

Ruakavirasto, 2022. Finnish food authority as paying agency. Read on 26.03.2023

https://www.ruokavirasto.fi/en/about-us/what-is-the-finnish-food-authority/finnish-food-authority-as-paying-agency/

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