Original publication: March 2016
Authors: Prof. dr. ir. Jan Douwe van der Ploeg, Prof. dott. Flaminia Ventura, Dott. Pierluigi Milone
Short link to this post: http://bit.ly/2HwTSKY

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.

Aim

This document discusses the process of structural change in the agricultural sectors of the western Member States (MS) of the European Union (EU). Conventional agro-political discourse and scientific theory (especially agricultural economics) generally understands structural change as being a uni-directional process that involves the gradual disappearance of small farms and an associated enlargement of large farms. This process is also understood as involving the continual replacement of labour by capital and technology. For decades the main focus of agricultural policies at both the national and supra-national levels has been to support and encourage structural change. At the same time structural change has generally been perceived to be an inevitable process and all the available statistical material from the Western MS seems to unambiguously support such an interpretation. This document challenges both the desirability and inevitability of structural change, as it is conventionally understood. It shows that agricultural development is, in reality, far more nuanced, and that policies that go beyond the dominant paradigm would help re-align the development of European agriculture so that it better meets societal needs.

Background

The analysis contained in this text focuses mainly, though far from exclusively, on structural change in Dutch agriculture. This is for three specific reasons. First, the Netherlands, together with Denmark, is generally thought to have one of the EU’s most modernized agricultural sectors. Here the process of structural change has been far more evident and runs far deeper than elsewhere and this allows us to clearly identify the benefits and costs, potentials and limits and strengths and weaknesses of such a process. Secondly, over the years a massive database of Dutch agriculture has been constructed; one that covers all farms and has a long term trajectory. It is known as the ‘mutation data base’ and it is unique in that it allows one to trace the development of single farms over long periods (the period used in this paper is 1980-2006). It is what is technically known as a constant data base: it follows farms through time. In this respect it differs fundamentally from the census data that are normally used to explore and understand the development of the agricultural sector on an aggregate basis. This difference allows us to confront the theoretical notion of structural change with empirical development trajectories. The analysis of the mutation data base sheds a completely new light on the assumed process of structural change. It shows that, while there is a sort of structural change, it occurs in a completely different way from what is normally assumed.

Thirdly by centring on the agricultural sector of one country (i.e. the Netherlands), more coherence can be introduced into the analysis than by ‘jumping’ from one country to another. This is especially important when the analysis shifts from the past and the present to the future and when making recommendations.

Nonetheless, we do not exclusively focus on the Netherlands. Abundant use is made of important theoretical contributions from the French school of thought and from Italian debates. Wherever needed, the empirical situation in the north-west of the EU (exemplified by the Netherlands) is supplemented with empirical data from Italy (exemplifying the Mediterranean situation). The authors of this document therefore believe that their findings are valid for the whole western part of the EU and possibly further.

Main findings

Growth is a highly differentiated phenomenon. Some farm enterprises may realize relatively modest growth, others may grow rapidly and others still may shrink. Sometimes growth is proportional to the (economic) size of the farm, in other situations it may be disproportionate. Growth may occur through a step-by-step process, or it might be realized as a one-time leap forward. Moreover, growth can follow different routes and therefore have an impact on different aspects of the farm. It is not automatically about acquiring more land or livestock and increasing output. The (economic) size of a farm may be enlarged, but it is also possible, for example, to develop the farm by increasing the value added produced by the farm while remaining at the same (economic) size. Or a farmer could reduce labour input while retaining the same economic size. And so forth.

Our empirical analysis shows growth does indeed occur over time and there is also shrinkage (in economic size and/or acreage) while some farms are completely deactivated. However, when we look at the different size classes of farms we find that these tendencies are not specifically, or narrowly, related to different size classes. It is true that some small farms do disappear, but this is also true of large farms: some of them also shrink or even close down altogether. The same thing is observed at the other end of the spectrum. Large farms may well grow further (as least some of them do), but a considerable number of small farms do so as well. Many small farms develop into medium-sized farms, and subsequently into large farms (a process that cannot be ‘captured’ from an analysis based on census data).

Thus we show that the real dynamics of the agricultural sector differ significantly from the uni-linearity assumed in the notion of structural change. It is true that on an aggregate level there is an increase in the average size of farms and a (gradual) disappearance of small farms. But translating this into a thesis that small farms will necessarily disappear as they are outcompeted and that large farms will expand further is a fallacy of the wrong level: what applies at one level (the sector as a whole) cannot be applied mechanically to another level (the individual farm enterprise). At the end of the day ‘structural change’ is the outcome of complex and partly contradictory but combined sub-processes, many of which are rather cyclical than uni-linear.

The consequence of this finding for agricultural policy and agro-political discourse is farreaching: Instead of centring agricultural (and rural) policies on large and expanding farm enterprises in the belief that small farms will inevitably disappear, small farms should be treated as a promising category, since many of them will be tomorrows’ medium or even large farms.

The promise of small farms becomes even more evident when the contribution that they make to the overall growth of the agricultural sector is taken into account. Our data show that small and medium farms make a far larger contribution to overall agricultural growth than large farms, by many times. To mainly, or only, stimulate and support large farms is a clear case of betting on the wrong horse.

The statistical analysis in this report, provided in section 3, is accompanied by two supporting arguments that integrate the quantitative findings into a wider set of qualitative considerations. In section 2 it is argued that the nature of growth processes can greatly differ. As such it is impossible to argue that considerable growth is better than modest growth (or vice versa). There is no simple yardstick. It depends on the activity system of which farming is part, just as it depends on the style and strategy of farming adopted.

Section 4 seeks to explain why growth is so highly differentiated. It argues that alongside an economic logic there is also a social logic and these two can operate in different directions. This social logic also explains why, time and again, new small (and sometimes highly innovative) small farms are created from scratch.

The fifth section synthesises these findings and arguments. It shows how complex and partly contradictory processes together shape the dynamics of the agricultural sector as a whole.

The sixth section discusses the consequences of the recent shift from markets that were previously protected to the current situation of highly globalized and deregulated markets. One of the consequences of this shift has been the introduction of new and previously unknown levels of volatility, which create an insecure trading environment. We argue that, in this new situation, it is the large and quickly expanding farms that are the most fragile, especially when they are grounded on credit. By contrast, relatively small farms, based on a self-owned and self-controlled resource base and managed according to a low-cost strategy, increasingly represent resilience.

Section 7 builds on this finding by arguing that such low-cost farms are in line with societal needs (providing goods and service that have recently become scarce, and hence valued by society). They create employment, have the potential to deliver good income levels, help reduce fossil fuel use and are better positioned to engage in the protection of landscapes and biodiversity.

This means, in agro-political terms, that rather than being positioned at the margins of agricultural policies, these farms should be put centre-stage. Regulatory schemes and subsidies should be redesigned to stimulate patterns of growth and development at farm level that differ from mere quantitative enlargement. Multifunctionality, quality production, on-farm processing, the construction of new markets that are ‘nested’ in new relations between producers and consumers and the (co-operative) protection of landscapes and biodiversity can all make important contributions.

Section 8 focuses on an emerging new form of accelerated growth that is actually highly disruptive: this is the creation of what are known as mega-farms. Such farms are emerging in both western and eastern MS as well as in the surrounding ‘periphery’: the Maghreb, Ukraine, etc. This is a new and aggressive trajectory centred around very large, wagelabour based, farm enterprises. This process poses a huge potential menace to family farming, which even today is the main characteristic of EU agriculture.

Recommendations

Finally, section 9 presents our recommendations. The main one is that agricultural growth and rural development need to be re-grounded on the vast majority of small and medium family farms. Instead of mainly supporting large, high-tech farm enterprises, agricultural policy should allow all farms the possibility to unfold and develop – especially when they are following a development path that is aligned with societal needs. This is in line with the European Parliament resolution of the 4th of February 2014 on the future of small agricultural holdings (P7_TA-PROV(2014)0066 (2013/2096(INI). We also argue that such a change implies rethinking the interrelations between Pillars 1 and 2 of the CAP: Pillar 1 needs to be integrated within, and redesigned according to, the rationale of Pillar 2. These general recommendations provide the basis for a range of more specific and detailed policy recommendations.

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

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