Original publication: March 2016
Authors: Research Institute of Agricultural Economics (AKI), Hungary: Szabolcs Biró, Gyula Dudás, Andrew Fieldsend, József Fogarasi, Eszter Hamza, Krisztina Miskó, Gyöngyi Kürthy, Norbert Potori, Katalin Rácz, Ildikó Tikász, Orsolya Tóth, Szabolcs Vágó, Edina Varga, Eszter Varga
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This study was published in the reference document of the Workshop on the “Effects of the structural changes on EU farming: How to better support the European model of agriculture of the 21st century with the CAP” of 14th March 2016, organised by the Committee on Agriculture and Rural Development (COMAGRI) and the Policy Department B (AGRI Research) of the European Parliament .

It is structured in three parts:

1. Farm structural change in Western Europe and the CAP.
2. Farm structural change in Central and Eastern Europe and the CAP.
3. Food value chain in the EU – How to improve it and strengthen the bargaining power of farmers.

Background
Structural Change in EU Farming: How Can the CAP Support a 21st Century European Model of Agriculture?

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Structural change in the agricultural sector of the European Union (EU) broadly trends towards fewer, larger and more capital-intensive farms, and a declining farming population of an increasing average age. Structural change, however, is a complex phenomenon which occurs at a different pace across the regions of the EU (EC, 2011a). The organisation, size and specialisations of agricultural holdings as well as their mix of production factors are important parameters for the designing of agricultural policies, therefore understanding their development and its drivers is of core importance for policy makers. This study on ‘The CAP faced with farm structural change in Central and Eastern Europe’ has been prepared for the Committee on Agriculture and Rural Development (COMAGRI) of the European Parliament within the frame of Procedure IP/B/AGRI/IC/2015-191.

Aim

The aim of this study has been to analyse the changes in farm structures in the postsocialist Central and Eastern Member States of the EU (EU-10) through the period since their accession to the EU, to explain the drivers of these changes, to evaluate the different development paths of these countries, and to outline future policy options to promote a more balanced territorial development within the EU. The research has been focused on achieving better understanding of farm dynamics and their implications for EU agricultural policy, as set out in the Terms of Reference.

For the analysis of structural changes in agriculture in the EU-10 Member States, the relevant literature was reviewed and EUROSTAT databases were used extensively. Trends in farm structures have been presented mainly through the changes in Common Agricultural Policy (CAP) context indicators retrieved from the 2005 and 2013 Farm Structure Survey (FSS) databases. Three basic physical and economic size categories of agricultural holdings have been defined and used in the analysis, which correspond to the farm structure indicators defined by the European Commission (EC). The FSS has important limitations, both at the country and the aggregated level, which have been explained and taken into account as far as possible in order to avoid misinterpretations.

Data from the Economic Accounts for Agriculture (EAA) were used to compare the economic size and efficiency of the agricultural sectors of the EU-10 and the EU-15. To show the differences in the application of investment support from EU Rural Development funds in the post-socialist countries, data from the Farm Accountancy Data Network (FADN) were used.

As the call explicitly referred to the EU-10, Croatia which also belongs to the post-socialist Central and Eastern European bloc of post-socialist countries but became an EU Member State only in 2013 was not included in the analysis. The EU-10 comprises of Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. Thus the EU-10 differs from the EU-12 (the classical typology for the New Member States until the accession of Croatia) in that it excludes Cyprus and Malta, which do not belong to the post-socialist Central and Eastern European block of Member States.

Overview of structural changes

In the EU-10, the number of farms declined by 27.7% in the period 2005-2013, compared to 24.1% in the EU-15, but in many of the EU-10 Member States, the changes were far more substantial. The concentration process in land use was more pronounced in the EU-10 than in the EU-15 during this period, with the proportion of large farms in the UAA increasing around twofold, while that of small farms decreased most rapidly.

Although family labour force in agriculture declined in the EU-10 during the period 2005-2013, it still represented around 90% of total regular farm labour force. About two thirds of this family labour force was still employed on small farms in 2013; however, their employment on medium-sized and large farms increased.

In 2013, the proportion of women in the regular farm labour force was higher in the EU-10 than in the EU-15. The distribution of female labour in agriculture between the farm size categories was more balanced in economic terms than in physical terms both in all EU-10 Member States and in the EU-15 on average.

The proportion of farm managers younger than 35 declined, while that of farm managers aged over 55 grew in the EU-10 during the period 2005-2013; however, the age structure improved on large farms due to the positive developments in Romania. Agricultural productivity in the EU-10 became closer to the EU-15 average as the result of the exit of less productive and/or inefficient farms, but the efficiency of production technologies still lags behind the EU-15. The post-socialist bloc became a net exporter not only of agricultural commodities but of primarily and secondary processed, higher value added goods as well.

Agricultural incomes grew faster in the EU-10 than in the EU-15, but are still lagging behind other sectors of the economy and this may further discourage young and skilled labour from entering agriculture. Agricultural production has been providing a significant share of household income on subsistence and semi-subsistence farms, thereby contributing to decreasing poverty as well as to slowing the process of land concentration. In most of the EU-10 Member States a growing proportion of farmers have been supplementing their incomes from other gainful activities in predominantly urban areas.

Minor restrictions on the land markets and land rental markets in most of the EU-10 Member States, together with relatively low land prices and rental fees compared to the EU-15 attracted both domestic and foreign investors to acquire ownership. Demand for agricultural land is expected to intensify and land concentration will accelerate.

In the post-socialist countries, development has focused on the modernisation and establishment of production resources and infrastructure, while investment in human capital has received less attention. The lack of human and financial capital, and of mutual trust, the high fragmentation of small farms, as well as the large size of the black market hamper collective actions. All these factors severely hinder the ability of farms in the EU-10 to adapt to economic, environmental and social challenges, and to manage appropriately the risks associated with these changes.

The introduction of EU direct payments has had a positive impact on farm incomes and the access to capital, and a negative impact on the intensity of labour use in the EU-10. These impacts have not been uniform across the regions due to the differences in unit amount of the payments, or across the businesses due to the differences in their physical size and specialisation. EU direct payments and market measures, along with market developments, have induced changes in agricultural production structures in the EU-10 Member States, and the decoupling of those payments has further accelerated the reduction in the intensity of labour use. By contrast, environmental and diversification measures applied in the national Rural Development Programmes (RDPs) have increased the labour demand of agricultural production, thereby placing a brake on structural change in agriculture.

During the period 2007-2013, social and gender-specific issues have received only modest attention in the RDPs of the EU-10 Member States. While the measures of Pillar II of the CAP supported the rejuvenation of the farming society in the EU-10, direct payments have contributed to maintaining the older generation in subsistence and semi-subsistence farming. Owing to demographics, large numbers of uneducated, elderly people can be expected to leave farming. This process will lead in the longer term to the proportional increase of specialised holdings with greater resources of human capital.

Policy recommendations

In the light of these processes a policy decision is needed on whether to continue applying the current system of direct payments and Rural Development after 2020, or whether there should be a comprehensive reform of the CAP. An effective policy intervention would reduce disparities between EU-15 and EU-10 agriculture. It is also important to enhance the capacity to absorb the available funds in the EU-10 at national, regional and local levels.

Direct payments have the potential to mitigate not just the differences between the regions but also the differences between agricultural sectors and farms. In the case of large farms the policy is well targeted in the direction of structural change; these farms can use concentrated sources of direct support for extending their operation, modernisation and for investment purposes. In the case of small farms, direct payments have rather had only an income supplement effect.

The structural change effect of direct payments could be intensified by providing for actual services, and by mitigating the imbalances in financial support between the regions and the businesses. For enhancing structural change the strengthening of the environmental and/or social aspects of farming of the ‘greening’ component may be considered, and Voluntary Coupled Support (VCS) could be focused indifferently on sectors creating employment opportunities, and even produce processed and consumed locally. The core of stimulating specialisation is the increase of productivity which can be expanded through the utilisation of economies of scale. Land concentration could accelerate structural change with the involvement of farmers, legal entities and citizen investors from the EU-15. This would result in farm structural change with more rapid land and rental price growth.

Rural Development has been targeting a more competitive farm structure and encouraging more efficient production with farm and infrastructure modernisation in order to speed up structural change. Large farms have benefited most from the development resources because the enhancing of competitiveness of small farms required resources in excess of their financing capacity, since labour productivity development would require a change to more intensive production and increasing the size of operation supplemented by considerable technical advancement. Quality of life measures can accelerate structural changes through off-farm diversification and also contribute to social sustainability.

Objectives of future Rural Development Policy could include enhanced value added, and more innovation and cooperation to facilitate further structural change. Support for R&D and innovation, and human capital development need to take into consideration the tension between further farm modernisation toward structural change and the employment demand of agriculture on the skilled labour force. Since the measures which were available under Pillar II encouraged the generational renewal and therefore improved demographics of farming between 2007 and 2013, they efficiently promoted the rejuvenation of the farmers’ society in the EU-10, therefore it is recommended to continue using these types of interventions.

By inducing structural changes in the EU-10, agriculture policy also has to consider the social welfare effects representing the achievements of the European model of agriculture. The risk of a major agricultural restructuring in the EU-10 is the loss of the living of a significant immobile population and the strengthening of further migration of younger and skilled generation to cities and abroad, leaving prolonged structural unemployment behind in the rural areas, with raising political tensions.

Finally, the quality of structural indicators needs to be improved in order to better support the designing, planning and implementation of agricultural policies.

Link to the full study: http://bit.ly/573-428

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