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The role of agriculture in the economy and society1
The role of agriculture in the economy and society: Group discussion and a commentary

The role of agriculture in the economy and society1

by Rolf Moehler

1 Paper presented at the Seminar on Beliefs and Values Underlying Agricultural Policies, Lake Balaton, Hungary, September 19-23, 1996.

The history of the Common Agricultural Policy (CAP) can be seen as the history of attempts to limit the cost of support. But the need for support has only been questioned recently. Not surprisingly, justifications change over time. But it would be wrong to see in agricultural support only the work of an influential political lobby. As the opinion poll of Eurobarometer in 1988 has shown the population at large in the European Community is in its majority prepared to reserve a particular treatment to agriculture. As long as the cost of this policy appears to be manageable, the public is prepared to see agriculture not as an economic activity like many others.

The CAP has even an added value for European integration. The CAP has played a crucial role in European integration from the very beginning. As the CAP is intervening in the markets, it had an integrating effect which has gone much beyond agriculture. The market organizations created under the CAP were not only the first regulations of the Community with legally binding effect on the citizens of the member states, they gave also the European Commission wide-ranging responsibilities in managing the policy. Thus, the CAP became the blue-print for the way European integration works. Its techniques have been applied in many other areas of Community policy.

The following text tries to trace the values which are attached to agriculture from the beginning of the CAP until today. Against this background an attempt is made to assess the situation in the CEFTA countries (Poland, Czech and Slovak Republics, Hungary, Slovenia) too.

The changing role of agriculture in the economy

To illustrate the changes agriculture has undergone two sets of figures may be useful. The Stresa Conference in 1958 worked on the basis that employment in agriculture on average in the six original member states was 25 percent, whereas its contribution to GDP did not go beyond 14 percent. The respective figures for the Community of 15 in 1994 are 5.7 percent and 2.5 percent. A fraction of the workforce in the 1950s is now producing a much higher quantity of food. It is well known that this is due to technical progress through mechanisation, better seed and breeding qualities, better resource management etc. It is, however, surprising to note that this tremendous technical and economic development has certainly led to a change in values considered important, but not to a reversal of attitude towards agriculture.

The early days of the CAP

Already the report submitted by the heads of delegations to the six Foreign Ministers in April 1956, the so-called Spaak-Report, suggested a special treatment for agriculture. The reasons were the particular social structure around the family farm, the volatility of production, low elasticity of demand and differences in yields, input-prices and revenues between the different regions.

The five objectives of the CAP as laid down in Article 39 of the Rome Treaty2 deal with the farmer and the consumer i.e., the society at large. The farmer is expected to increase his productivity and thus his standard of living, whereas the consumer can rely on sufficient supplies at reasonable prices. Stability of the market is thought to benefit both, the producer and the consumer.

2 European Union, selected instruments taken from the Treaties, Book 1, Volume 1, published by the Office for Official Publications of the European Communities, Luxembourg, 1995, p. 151.

These objectives are broad enough to cover a more market oriented as well as a more interventionist policy. Therefore, Article 39 in its second paragraph gives some references for the elaboration of a common agricultural policy. The particular nature of agricultural activity which results from the social structure of agriculture and from structural and natural disparities between the various agricultural regions should be taken into account. However, the text does not forget to mention that agriculture "constitutes a sector closely linked with the economy as a whole." 3 In Article 40 the Treaty rules out any discrimination among farmers or consumers within the Community. Although this does not preclude treating farmers in different situations differently, the provision lent support to the belief that the farming community is a homogeneous group of mainly family farmers.

3 Ibid.

It is interesting to note that the 'specificity' of agriculture which played such a central role in the development of the CAP is not linked to climatic factors but to the place of agriculture in society and to regional disparities.

At the Stresa-Conference5 in 1958, which laid the basis for the development of the CAP, Ministers of the six original member states stressed the importance of the fanning population for social stability. The family farm was recognised unanimously as the way to provide this stability. Mr. Houdet, the then French Minister was the most outspoken when he said that the State has to ensure that all farmers enjoy the appropriate income and their proper place in the economy and in society. The then-Commission President Walter Hallstein mentioned independence and freedom based on the ownership of his farm as the particular virtues of the European farmer. Judging from the speeches made and the reports submitted, employment in agriculture was not a major concern.

5 Dokumente der Landwirtschaftskonferenz der Mitgliedstaaten der Europaischen Wirtschaftsgemeinschaft in Stres vom 3. bis 12. Juli 1958, published by Publication Service of the European Communities. Luxembourg 1959 (document 2116/1/59/5).

It was widely recognised that increase of productivity would lead to a diminishing workforce in agriculture. Depopulation of rural areas in France was mentioned, but not by the French Minister. Nobody, except the Belgian representative, mentioned the most basic task of the farmer, i.e., providing food for society. This, however, should not mislead us. It was not mentioned because it was so self-evident.

In post-war Europe the awareness that farmers produce an essential ingredient of life, namely food, was very strong. Despite industrialisation and urbanisation in Europe since the middle of the last century, the feeling that farmers had a special role in society as providers of food was wide-spread before the Second World War. The scarcity of supplies during the war could only enhance this feeling.

But there was even more to it. Rural life and thus the farmer had a symbolic value for all those who felt uncomfortable with or hostile to modernisation of society triggered by industrialisation and urbanisation. This is a recurrent feature of European civilisation which can already be found during the Roman Empire.

Summing up there were mainly three reasons justifying a specific appreciation of agricultural activity:

· the farmer is producing the most basic goods for human livelihood;

· the farmer is providing social stability through his hard work and the particular structure of the rural society;

· the farmer is, in his production, subject to the volatility of weather conditions.

The Community dimension added a fourth reason which became very powerful over time:

· the regional disparities which the Community was supposed to overcome.

These four aspects and the ingredient of cultural nostalgia ensured a particular place for the farmer in society. As the farmer is ensuring the livelihood of society, society has to ensure the farmer's livelihood. In addition he was still representing the good old times, when European countries were basically rural societies.

In such a specific relationship between farmer and society economic efficiency is not the overwhelming consideration for agricultural policy although it is present in Article 39 of the Treaty, which sees increasing productivity as the main vehicle for growth of income.

The implementation of the objectives of the CAP

Title II of the Treaty on the European Community does not rule out the option of meeting the objectives and other requirements of Article 39 by a mere co-ordination of agricultural policies pursued by the member states. This reflects the variety of support systems which existed in the 1950s in the different member states. But soon it became obvious that a common market for agricultural products could not function without a common policy. In order to enable free circulation of agricultural product, the support system had to be a uniform Community wide system. It was logical to finance such a system from Community and not member states resources and to establish a common import regime which in any case was called for by the requirements of a common commercial policy. In such a way the three fundamental principles of the CAP came to life: the common market, financial solidarity and Community preference.

The market organizations for all main production sectors which were created during the first 10 years of Community existence were, not surprisingly, biased towards stabilising markets and increasing the income of farmers which did not flow exclusively from increase of productivity. The consumer had to pay higher prices than world market prices, but he did not complain very much. In some member states prices even fell in comparison with the situation before the market organizations came into effect (e.g., for cereals in Germany). But the prices of food-stuff became less and less relevant when the general income level increased and the share of food in household expenditure diminished. At the same time the offer of food in terms of variety of products and quality improved considerably.

Despite relatively high market prices the traditional structures changed. Employment in agriculture fell with increasing mechanisation and the average size of exploitations increased. But this did not affect the essence of the traditional family farm.

The family farm can be small or big, as long as it provides the livelihood for a family. But a farm will not provide the livelihood for the family if it is not a profitable undertaking. The term 'family farm' implies, however, that the farm is more than an opportunity to make money. The added value is the attachment to the traditional values: attachment to the land, keeping the farm in the family for generations, active involvement of the farmer and his family in the running of the farm. In the Community of six member states there were not many which could not be considered as family farms because the owners lived elsewhere. There were, of course, considerable differences in the size of the exploitations. But in all the six member states the relatively small family farm was predominant. This did not change fundamentally with the enlargements in 1973, 1981 and 1986. Membership of Britain increased the number of large holdings but this was somewhat counterbalanced by the rather small Greek and Portuguese farms, Denmark, Spain and Ireland being in the middle.

The family farm as the main type of Community farming and the flexibility this concept allowed, made it possible to treat farmers in the same way irrespective of differences in the size of the exploitation and income, in climatic conditions, etc. A notable exception was the additional support which farmers in mountainous and less favoured areas received.

From hindsight the 1960s were a good time for the CAP when most of the market organizations were completed, had there not been the Mansholt Plan8. In its Memorandum on the Reform of Agriculture in the European Economic Community of December 1968, the Commission sought to deal with two problems which had arisen: emerging surpluses and the falling back of income growth in agriculture compared with the rest of the economy. The Memorandum talks about an explosive situation. It fears that the surpluses will undermine support for agriculture in society and that the growing disparity between farm and non-farm income will erode the contribution of agriculture to social stability. Unfortunately, the Memorandum with its proposals for reduction of arable areas and cow herds triggered the explosion: a very hostile reaction of the farming community. Not all was lost, however: The Mansholt Plan was the beginning of a structural policy on the Community level.

8 Memorandum sur la reforme de l'agriculture dans la Communaute Europeene, Communication de la Commission des Communautes Européennes, document COM (68) 1000, Brussels 1968.

The watershed of the 1980s

Even without a Mansholt Plan Community agriculture was moving in the direction the plan had indicated, but much more slowly, of course. Going slow was possible because the British market opened up in 1973. Furthermore, the first oil-shock in 1972 increased world wide demand for agricultural products. But things were changing at the beginning of the 1980s and public perception of agriculture, too.

The second oil shock and the resulting world recession in 1979 made the bell ring for agriculture in the European Community. Ever increasing production which was met with shrinking demand led to huge stocks. These stocks could only be kept and disposed of with high costs. Around 70 percent of the Community budget went into agricultural support. Newspapers started to write about butter and beef mountains and wine lakes. The impression that something was wrong with the CAP spread.

Agriculture also came under attack because of its negative impact on the environment due to the application of pesticides and fertilisers. Sympathy for farmers did not evaporate and the perception that the farmer was entitled to support did not wane. But support was more and more considered excessive and the budgetary implications unbearable.

This shift in public attitude led to a number of measures to redress the situation in the 1980s, including the establishment of milk quotas in 1984 and the stabilisation measures in 1988. The basic problems, however, were only addressed in the reform of 1992 which allowed the completion of the Uruguay Round Trade Negotiations within the General Agreement on Tariffs and Trade (GATT) at the end of 1993. During the GATT-negotiations agriculture came for the. first time under massive pressure from industry to reform the CAP. As a satisfactory result for agriculture was a pre-condition for an overall deal, agriculture had to move. This does not mean that the 1992 reform was triggered only by the Uruguay Round, but it put additional pressure on agriculture to accept the reform of the CAP. At the same time, farmers realised that they had to respond to the increasing concern about the environment if they wanted to see continuing support by society. They also felt the need to respond to the increasing concern of consumers about the quality and safety of food.

This development is reflected in the initiatives the Commission took in order to reform the CAP. The Reflection Paper9 which the Commission published in December 1980 follows still traditional thinking. It cites among the positive aspects the consumer's security of supply at stable prices, the progress in agricultural techniques and the contribution of agricultural exports to the balance of trade. But it is worried about the budgetary consequences of production surpluses and regional disparities in benefits derived from the CAP.

9 Reflexions sur la politique agricole commune, Communication de la Commission au Conseil, Bulletin des Communautes Europeennes, Supplement 6/80, Office des publications officielles des Communautes Europeennes, Luxembourg, 1981.

The Green Book of 198510 on Perspectives for the CAP tries a new approach. It seeks to limit production increases by adjusting the mechanisms of the CAP without questioning the need for support. The Green Book still mentions food security as an important asset of the CAP but it puts less emphasis on the claim that agriculture is an essential element of social stability in general, it focuses instead on the social stability of rural areas. The attitude towards the protection of the environment is somewhat ambiguous reflecting changes of perception. The Green Book stresses the crucial role of agriculture for preserving the natural landscape and the environment but at the same time calls upon farmers to pay more attention to the environment. For the first time the perspective of agriculture providing raw materials for industry is set out in detail. On labour the Green Book wants to keep a substantial part of the workforce in agriculture, but it also recognises the need for increasing productivity further.

10 Perspectives for the Common Agricultural Policy (Green Paper), Communication of the Commission of the European Communities to the Council, document COM(85) 333 final, Brussels, 1985.

The systematic promotion of rural development on Community level has been one of the achievements of the reform launched in 1985. Since the reform of the so-called structural funds (regional fund, social fund, agricultural guidance fund) in 1988, the promotion of rural development is one of the objectives of structural policy (the so-called 5b programme11). Further restructuring of Community agriculture will inevitably lead to a loss of population in rural areas. This may lead in certain regions to such a low level of population density that essential infrastructure and services cannot be maintained, resulting in the need to address this problem by strengthening rural development. In this context, it is recognised that agricultural activity is essential but not sufficient to keep rural areas economically viable.

11 Community Structural Funds 1994-1999, Revised Regulations and Comments, August 1993, Commission of the European Communities, Brussels, Luxembourg, 1993.

The Basic Paper on the Future Development of the CAP, 12 which the Commission submitted in February 1991 and which was the basis for the 1992 Reform, confirmed the role of agriculture in society as defined in 1985. But it pursued a new approach in order to tackle the surplus problem. It put an end to unlimited support for unlimited quantities of production in the cereal, oilseeds and beef sectors. Intervention prices were reduced and farmers were compensated for the income loss by direct payments linked to past production. In order to control supply, direct payment for cereal and oilseeds areas were made subject to set-aside requirements or limited to 90 animals per farm, and a stocking ratio of 2.5 livestock units per hectare in the beef sector.

12 The future development of the CAP - Basic Paper of the Commission, Communication of the Commission of the European Communities to the Council, document COM (91) 100 final, Brussels 1991.

The Eurobarometer of 1988

These developments were supported by public opinion. In 1987, the European Commission within its public opinion poll scheme conducted a survey on the attitude of the citizens of the Community towards agriculture which was published in 1988. One of the main results was that a majority of the population in each member state wanted the public authorities to support agriculture and felt that agricultural expenditure was not too high. The main reason given was the contribution of agriculture to the protection of the environment and to the preservation of the countryside. It was felt that the CAP prevents whole regions of Europe from becoming depopulated and deserted.

Strong support was expressed for healthier food. The majority in most member states supported production for non-food use. But it also became clear that the majority did not like surplus production and felt that support should go only to those who need it.

The perspective of the 1990s

It is fair to assume that depending on overall growth the share of agriculture in GDP will further shrink. The same will happen with employment in agriculture. But these parameters are already fallacious when assessing the weight of agriculture in the economy, and even less so in society.

In economic terms, the impact of agriculture is much larger than the share in GDP suggests if one includes the up-stream and down-stream sectors. In society at large support for agriculture is still not challenged in principle as long as expenditure is kept under control and surplus production can be avoided. In his Agricultural Report 1996,13 published in April, the German Federal Minister of Agriculture cites secure supply of high-quality food-stuffs and renewable resources, environmental conservation, animal welfare, a well-tended landscape and pretty villages as the main reasons that society should support agriculture. By the same token, he stresses the need for agriculture to be not only "environmentally friendly" but also "efficient, competitive, market oriented." His colleagues in the Council of Ministers would broadly agree with this statement, with the exception perhaps of the British and Swedish Minister. But even the British and Swedish Farmers' Union would be able to subscribe to the German Ministers statement. When comparing the statement with the situation in the 1950s and 1960s similarities and differences appear.

13 Agrabericht der Bundersregierung 1996, published by the Federal Ministry of Food, Agriculture and Forestry, Bonn 1996, foreword by the Minister.

Food security has a different meaning. The European Community is a leading agricultural producer, exporter and importer. The negotiations of the Uruguay Round have brought home to a wider public that food security of the EC would not be at risk if it produced less. Therefore, the emphasis is shifting to the quality of food-stuff although the value added by high quality is in many cases not the work of the farmer. Under these circumstances the role of agriculture in maintaining the environment and providing the basis for rural development becomes more important.

Historically speaking, agriculture's role in the protection of the environment is ambiguous. Agriculture has been preserving and polluting the environment. Concern about the environment was already in people's minds before 1992, but the reform tried a new and more systematic approach in three ways:

· the reduction in price support was to be an incentive to more extensive farming by making massive use of inputs less profitable;

· the set-aside requirement for crops and the stocking ratio for bovine animals should enhance the favourable impact on the environment;

· a programme authorising payments for specific measures favourable to the environment.

But the new approach goes further than a mere prevention of pollution. European landscape is the result of centuries of human endeavour, not the least of the work by farmers. Thus, by cultivating the land, the farmer becomes the steward of the landscape in the European Union. In promoting and supporting this activity, the CAP responds to the expectations of the public at large.

But the farmer cannot preserve the landscape when rural areas are deserted. In the 1960s and 1970s the reduction of the number of people employed in agriculture was widely accepted as the inevitable consequence of higher productivity and higher income for those remaining in agriculture. It was only in 1988, when reform of the CAP was tried by means of so-called stabilisers, that the ensuing problem for the rural areas which may become deserted was clearly recognised. The 1992 reform gave a new push. Budgetary outlets for the promotion of rural development were increased. They are at the order of 1 billion Ecu/year now. A new programme 'Leader' was launched, which builds on local initiatives. It covers all areas, not only agricultural ones, but is particularly strong in agricultural areas.

Interestingly, the German Minister of Agriculture also mentions supply of renewable resources and animal welfare as contributions by agriculture which justify a special treatment.14 Both are in a wider sense related to the protection of the environment. Production of renewable resources helps to slow down the depletion of non-renewable resources. The reference to animal welfare tries to distinguish the German farmer from so-called 'industrial' methods as applied in feed-lots or 'egg-factories'. Animal welfare is, however, not a major concern in all the member states. Therefore, I doubt that it is an argument which can be used in all of the Community.

14 Ibid.

Further adjustments ahead?

Despite the 1992 CAP reform and its emphasis on a more market oriented approach to agricultural support, fanning is still not considered a normal commercial activity. This assessment is likely to change at least for those farms which are commercially viable and shed the mantle of the family farm. The fact mat there are commercially viable farms in most member states which could compete under world market conditions is not common knowledge. But this is likely to change, mainly for two reasons:

· After the 1992 reform the budget transfers are much more visible and are substantial for farms with large crop areas. The sums involved will raise questions about their justification, in particular for big farms.

· Many East German exploitations which have been created after the down-fall of communism have a chance to become commercially profitable enterprises. These are large farms, specialising in crops with 1,000 to 3,000 hectares. It is significant that many of these exploitations are set up as incorporated companies. According to the Agricultural Report 1996 of the German government the average size is 1.721 ha and they cover 60 percent of the agricultural area and 80 percent of the herds in the new Bundesländer. It is interesting to note in this context that the Minister for Agriculture of Saxony, which is part of Eastern Germany, pleaded on January 9, 1997 for a reduction of market price support, for the elimination of supply control measures and for increased exports. This is not the view held by the Federal Government in Germany.

Since the public realises that there is a dichotomy between a commercially viable sector and the less competitive farms, support will not disappear, but it is likely to be more focused on the weaker part of the agricultural population as the Eurobarometer of 1988 has already indicated. With a commercially viable fanning sector becoming more visible, the attitude of the public to agriculture is bound to change at least towards this part of Community agriculture.

In its agricultural strategy paper on further enlargement of the European Union in December 1995, the Commission have come to the conclusion that a continuation of the 1992 reform is inevitable. This conclusion is not so much motivated by the perspective of future membership of Central and Eastern European (CEE) countries but by the dynamics of CAP and of Community agriculture. The results of the Uruguay Round will lead Community agriculture into an impasse if it does not become more competitive; i.e., be able to export without export subsidies. It is by no means sure that the competitive farmers will no longer use the weaker ones as justification for support which benefits all, but the chances that the CAP will rather differentiate in the future have never been better.

The situation in the Central European Free Trade Association (CEFTA) countries

Ten countries of Central and Eastern Europe have applied for membership to the European Union: the five CEFTA-countries (Poland, Czech Republic, Slovak Republic, Hungary, Slovenia), Romania, Bulgaria and the three Baltic states. For the purpose of this paper it appears preferable to focus on the CEFTA-countries, which show a certain similarity as far as the starting point of transition and the achievements of reform are concerned. Two of the Balkan States, Romania and Bulgaria, although keen to carry forward the transition process, are in a somewhat different situation.

In the CEFTA countries the share of agriculture in GDP is not particularly high, varying between 6.4 percent for Hungary and 3.3 percent for the Czech Republic, with an average of 5.5 percent. The share of employment in agriculture is relatively high with the exception of the Czech and Slovak Republics. For Poland the figure is above 25 percent, for Hungary and Slovenia above 10 percent. The share of food in household expenditure is relatively high in all the five countries. It is still too early for an assessment of the structure of agriculture which will emerge from privatisation. In Poland and Slovenia a significant part of small private holdings have survived communism. Privatisation of land has made considerable progress in all of these countries. The emergence of a dichotomy between small farms and large farms is already obvious in Poland, and similar developments can be seen in other CEFTA countries, too. This suggests that in all these countries, after overcoming the difficulties of transition, at least part of the agricultural sector could be commercially viable.

Of course, this does not depend on the size of the farm only. Access to advanced technology, rural credit, management capabilities and a market oriented environment will also be crucial. For example, in the down-stream sector despite privatisation oligopolistic structures are still a problem.

There are two obstacles to grant or to increase support for agriculture: the relatively high share of food in household expenditure and budgetary constraints. Despite these powerful brakes support is increasing. The latest report of the OECD shows that in particular Hungary and Poland have increased support in PSE terms and that the Czech Republic is already at that level. Comparison of agricultural price levels in these countries with the price levels in the EC show that these prices are much closer to the EC level than the general income level. Whereas prices for main commodities in 1994 in these countries were roughly between 70 percent and 50 percent of the EC level, the wage level was only 20 percent of the EC, and GDP per capita on a purchasing power parity basis around one third of the EC level. Slovenia has even higher prices than the EC.

The attractiveness of the CAP is not sufficient to explain these phenomena. It is not only the political pressure by parties under the influence of fanning interests. It is, as well, the acceptance by society that farming deserves particular treatment.

What is the 'added value' of agriculture which justifies this treatment? The importance of agriculture for food security is a traditional feature of agriculture's appreciation in society. COMECON was certainly not well suited to put this image of agriculture into question. Food self-sufficiency was an official objective of government policies during that period. The positive contribution of agriculture to the trade balance is for the countries concerned certainly a more rational way to approach the matter of food security. Given the relatively high level of unemployment in most of the CEFTA-countries, there is concern that restructuring of agriculture may aggravate the employment situation. Thus, the situation in CEFTA-countries is similar to the situation in the European Community in the 1950s and 1960s but for the employment situation. Rural development appears to be seen mainly under the employment aspect whereas the positive role of agriculture for the protection of the environment is hardly perceived. The farming population is seen as a stable part of society, in particular, where the part of employment in agriculture is still high.


What beliefs and values does the evolution of the CAP reflect ?

Over the last forty years five main beliefs, each attaching a specific value to agricultural activity, have shaped the CAP:

· the basic conviction that agriculture is essential to provide food security;

· the belief that agriculture has a specific contribution to make to the stability of society;

· the awareness that landscape in Europe is to a large extent the result of farmers' work over centuries;

· the recognition that agriculture is crucial for the preservation of the environment;

· the belief that the farming community is a homogeneous group, mainly composed of family farmers.

From the outset the CAP was, if not conceived, certainly implemented in such a way that it stimulated production and increased the income of farmers by means of higher production and prices. Thus it reflected a widespread belief in society that agriculture had to provide food security and social stability. When the CAP started, food scarcity during the war and the post-war period was still a vivid memory, and the ordeal of dictatorship and war had sharpened the desire for social stability. Of course, since the 1950s there was never any threat to food security in Western Europe. But there was a deep seated concern about food security and the oilseeds embargo applied by the US in 1972 did nothing to alleviate it. Only the surplus production of the 1980s dealt a severe blow to the idea that the CAP was essential to guarantee food security. Increasing and massive exports had no obvious link to food security in Europe either. The feeling that food security was perhaps less pressing when the self sufficiency ratio for all the basic products was above 100 grew. It also became obvious that this way of ensuring food security was very costly, indeed. But this does not mean that the concern for food security has become obsolete. European farmers will have to feed the European Union citizens in the future, and there is concern about global food security. But, food security is no longer the shining Grail to which people pay tribute.

The early CAP reflected the concern for social stability, too. Farmers had been traditionally conservative and were considered to be a pillar of societal stability. The CAP responded by providing a framework for agricultural activity and a price level above world market prices, which ought to ensure a fair standard of living in accordance with the objectives of the CAP as laid down in Article 39 of the Treaty. Over time, market price support was supplemented by support for structural improvements and for mountainous and less-favoured areas. In the 1950s the share of persons employed in agriculture in the original six member states of the European Community was rather high, on average higher than today in most of the countries of Central and Eastern Europe wanting to join the EU. Therefore, a stable farming community was an essential factor of social stability. But the contribution of the farming community to social stability diminished over time with a decreasing number of farmers. Farmers, at least in continental Europe, are still an important factor for rural areas and rural societies, but their role in society as a whole recedes.

The CAP-reforms of 1988 and 1992 reflect a shift of beliefs away from food security and social stability as agriculture's main service to society towards the value of agriculture in preserving the landscape and the environment. The reformed CAP makes support dependent on supply control in various ways, hardly a sign for concern about food security. Support price reductions are still compensated by direct payments. But as time goes by, these direct payments may be considered as an income support which will come under scrutiny, in particular in time of sluggish growth. Farmers will have to compete with other sectors of society for scarce budget resources. In such a debate their contribution to social stability will carry less weight than in the past. Will the new beliefs that agriculture is essential to preserve the countryside and the environment protect the direct payments?

Europeans were always attached to their countryside. Despite the attractions of urban life the negative side of urbanisation, like noise, air pollution, traffic congestion, has even reinforced this attachment. There was also never any doubt that Europe was largely shaped by the work of European farmers. There is a new growing awareness that this countryside may be in danger when agriculture recedes further. This puts agriculture in the position of providing a 'public good'. It may be questioned whether agriculture is indispensable for preserving the European landscape. Keeping the countryside could be the work of specialised companies which are not interested in agricultural production. But that is not accepted, neither by farmers nor by the public at large. To the contrary, as farming alone under modem conditions can no longer keep rural societies alive, support for non-agricultural activities is increasingly being granted under programmes for the development of rural areas. However, the role of the farmer as the steward of the countryside is likely to weaken further the case for production and price support.

It may appear somewhat surprising that European agriculture has managed to jump on the band-wagon called 'protection of the environment'. For a long time agriculture has been perceived as a threat to environment, particularly under the CAP. The high support level was considered as an incentive to intensive agriculture. Today the CAP is promoting extensive agriculture by methods reducing or eliminating the negative impact of agricultural activity. Thus the support provided enables agriculture in the European Union to qualify as protector of the environment. An even stronger contribution to the preservation of the environment is the production of renewable resources which would replace unrenewable resources as is the case when biomass replaces petrol. The shift in beliefs, however, will have its impact on the kind of support if not on its size. The more an environmental value is attached to agriculture, the more extensive forms of agriculture will be favoured and supported. This again is likely to weaken further the case for production support.

An issue which is stirring up a lot of controversy is differentiation among farmers. The debate started because of the question of how additional direct payments to compensate for further price cuts can be financed under existing budget guidelines. But the debate has a wider perspective: it is linked to the question whether farmers of future member states from Central and Eastern Europe should benefit from direct payments which were the result of prior reductions these farmers have never seen. The CAP does not differentiate much between farmers or regions. It is obvious that in a single market price support has to be uniform across the Union. As direct payments introduced by the 1992 reform compensate for price reductions, the amounts could be seen as income support. Income levels vary between farmers and regions. The focus on preservation of the landscape and the environment as the main justification for support will reinforce the trend towards differentiation among regions, which is already present in the application of the programme to promote agricultural activity protecting the environment. The 1988 CAP reform included an income aid scheme, which was optional for member states. But member states were reluctant to use the programme because it was complicated and blurred the line between agricultural support and welfare. Therefore, differentiation which is likely to increase, will avoid the appearance of welfare payments. An indirect way to deal with differences in income would be to use criteria related to the size of the exploitation. Such an approach may alleviate but will not solve the problem of what to pay to the farmers of future member states. Differentiation based on income levels may have to be accepted eventually.

The role of agriculture in the economy and society: Group discussion and a commentary

by Jerzy Wilkin

Agriculture is that kind of activity which joins labour, land or soil, live animals, plants, solar energy and so on; and the Minister of Agriculture is the Minister of the Beginning of Life. So people who are involved with that kind of activity are involved in something special.

Attitudes towards agriculture change in relation to the level of development. In less developed countries there is a tendency to treat agriculture as normal life, as a regular or common type of activity. In highly developed countries, where only a small fraction of the people are employed in agriculture, there is a tendency to treat agriculture in a special way. Poland is between these two extremes so there is not the tendency to treat farmers as people chosen by God. This attitude is changing toward that held in Western Europe.

Assessing the role of agriculture

It is interesting that the importance of agriculture in the economy in the six original member states in the late 1950s appears statistically very similar to Poland today in terms of agricultural employment as a share of total employment and the contribution of agriculture as a share of the total economy. That would mean that we are about 40 years back in development. I do not think so. It is a special situation, but times are different now from what they were in 1958, or slightly later, and changes are coming much more quickly. I think that closing the gap will take less time than it would have 40 years ago. But still it will take a lot. We observe in my country a kind of acceleration of development. It goes beyond my expectations. It is much faster than I expected five or six years ago, including in agriculture. Changes in the structure, area, size of the holdings, and so on, are occurring much faster than any predictions. So I hope it will not take 40 years to catch the train, but less.

I remember the first statements of the Deputy Prime Minister Leszek Balcerowicz, who was also the main author of economic reforms in Poland. It was at the start of his term at the end of 1989. He was asked by somebody about agriculture.

If somebody would come to me and ask for special preferential credits for agriculture, or for any special treatment of agriculture, I would resign immediately. There is no reason to treat agriculture as a special part of the economy. Mining and ore extracting industries are in a terrible situation, construction industries, also. Why not treat construction industries or extracting industries in the same way, as a special case also?

His statements are those of a free market economist. He believes each sector of the economy should be treated the same, no preferences. Market forces should determine the situation of each sector. In the beginning, it was a widely-announced and popular policy. During the first one and one-half years it was in force, from 1990 to the middle of 1991, we did not have an agricultural policy. For one and one-half years there was no agricultural policy because there were only macro-economic policies. People like Mr. Leszek Balcerowicz accept some forms of macro-economic policy, but not sectoral policies. They simply hate those kinds of policies. The preference for macroeconomic policy - or free market policy - reflects the belief that a free market has advantages over a more controlled approach to managing the economy.

Specificity is the starting point for extra treatment of agriculture. If you believe agriculture is a special part of the economy that deserves special treatment, many believe you can start resolving Poland's problems. If this is true, others argue, this special treatment for agriculture may not be available for other parts of the economy. The problem of Specificity of agriculture or any one sector becomes a problem of political/economic resolution. If you say that there is Specificity in agriculture, it means that there are some values that are not attributed to other sectors, and you have to define those values.

Beliefs and values: the role of agriculture in society

The Specificity of agriculture absorbs the attention of many people in Poland. Why is it important? The reasons or beliefs attached to its importance vary.

In Western Europe there is a focus on rural life and its symbolic values for all who felt uncomfortable with the hostile modernisation of society triggered by industrialisation and urbanisation. I think that rural life is becoming attractive for highly developed countries.

In countries less developed, rural life means backwardness. It is something to be ashamed of. For example, Marx was very hostile in his attitude towards peasants. You may remember that he wrote about peasants or the rural life "as stupidity which should be absolutely destroyed. It should be transformed into industrial or socialist type production. The peasant economy and rural life are full of backwardness, stupidity" and so on. Since Marx was very popular in socialist countries for political reasons, rural life, traditional family values, individual holdings and all these things were viewed by Marxists as something old fashioned that should be modernised. So there is a legacy of the communist ideology - at least in the minds of people. It is quite idiotic.

Beliefs justifying a special role for agriculture

In the European Community several reasons are given to justify specific appreciation of agricultural activity:

· The farmer is producing the most basic goods for human livelihood.

· The farmer is providing social stability through his hard work and the particular structure of the rural society.

· The farmer's livelihood is subject to the volatility of weather conditions.

In general, I agree with them and they are very common in the countries of Central Europe. In Poland there is the tendency to add elements that stem from our history and past experiences. For example, our peasants are proud that they produce not only basic products, necessary for life, but also, that they have played a special role in fighting for freedom. There is a saying on all the flags and banners of the Peasant Party: 'Feed and protect.'

Also, the Catholic church is deeply rooted in the rural areas. Our peasants are 99 percent Catholic. One of the famous figures in the history of the Polish church. Cardinal S. Wyszynski wrote several papers about the role of peasants strengthening Poland. In one of several papers about the roles of peasants stressing that the territory of Poland shifted several times, he wrote that where peasants speak Polish the nation is rooted in the soil. The nation is where the peasant is on the soil. This is often presented as a special value of farming and peasants.

A fourth reason used to justify the special treatment of agriculture is regional disparities. Regional disparities link with something that is called social justice. Income differences and also differences in the level of infrastructure development mean that the people do not have the same access to the basic services, to the basic achievements of the civilisation. It is unjust. To change this disparity means to bring social justice to life. So it is important and worth stressing that rural policy and agricultural policy may add a special factor to the idea of social justice. It is becoming important in constructing rural policy in Poland and in other post-communist countries because during the last six years this disparity is growing very, very quickly. Looking at the differences in local income in gminas (gmina - the smallest administrative area or unit -similar to a county in the US), according to the latest surveys, the 10 percent (or 295) gminas having the highest incomes compared with the 10 percent (or 295) with the lowest, have per capita income ten times as high. This is a problem. Regional disparities do not exist only in the European Community, they have become a problem in Central Europe too.

The role of economic efficiency - then and now

Interestingly, the values that are basic values for Common Agricultural Policy (CAP) and the European Community, a common market, financial solidarity and community preference, are the same values used to justify socialist integration like the COMECON (Council for Mutual Economic Assistance). But in socialist countries it was not implemented, as we know. In the case of the European Community, the progress is quite good, but the goals not fully achieved.

The idea of raising farmers' incomes is a very important part of the CAP and the general agricultural policy in the community. There is a statement in Moehler's paper that in the fast years of European Community (EC) existence, "policy was aimed at increasing the incomes of farmers that did not flow exclusively from the increase of productivity."

As we know, the productivity has grown faster than the incomes of farmers in the Community during the last 25 years. Of course, there was income support in the community, but the money that was pumped into agriculture helped farmers to increase productivity tremendously. European agriculture is a great success in terms of productivity. This is an important issue in Poland, the Czech Republic, Hungary and so on, and will be for the next few years because they cannot pump money into agriculture to increase productivity. They start from a very low point in productivity. The difference between the productivity of Western European agriculture and Central and Eastern European agriculture will be there for many years. Addressing the productivity problem is becoming a number one goal for agricultural policy in Poland and in other countries. To increase productivity in agriculture is combined usually with competitiveness in agriculture. So the emphasis is on productivity plus competitiveness.

The relationship between the farmer and society

The role of prices of food-stuffs in agricultural products becomes less relevant when the general income level increases and the share of food in household expenditures decreases. It is only at 15 percent of household spending in Western Europe, but in practice in Central Europe it is closer to 40 percent. So it is still a very sensitive element. The price of food is politically and economically a very important and very sensitive issue. The mass media is criticising the behaviour and demands of farmers' organizations by pointing out that agriculture and food products constitute about 40 percent of total spending in Polish households. When you increase prices, there will be inflation - a problem for so many families. There is a different perspective on this issue among farmers and consumers.

The family farm

The Role of Agriculture in the Economy and Society makes the point that despite all the development in Western European agriculture, it has not affected the essence of the traditional family farm. The family farms have changed a lot, but still there are mostly family farms, and there is something stable in the farms. This is confirmed by the experience of the post-communist countries. Even during the communist period, that the essence of the farm survived even in some countries where collectivisation was predominant. There were small household plots that represented the essence of the farm. This is difficult for general historians, economists or rural sociologists to understand.

In market economies added value is so important because added value is the measure of productivity. In the family farms added value is an attachment to the traditional values. It is true for peasant farms, of course, Russian economist A.V. Chayanov presented one of the best analyses of the peasant economy in literature, when he stressed the point that in the peasant farm you cannot create activity as a business firm creates routine activity. Profit is not the main goal; there is no maximisation of profit. There are some other very important goals from day to day. I think that added value is something additional to traditional values in family farms, especially peasant farms. It is not the same in commercial farms, especially those with hired labour.

Poland, it must be recognised, during the socialist period, was an exception, in the sense that they kept a significant peasant agriculture. Poland with its agriculture structure, was really unique in the centre of the east European environment. The development in all other places was quite different. In Bulgaria it was extreme. While it was not so extreme in Hungary where the private agriculture survived in the form of household plots. But the tradition of family farming was virtually destroyed everywhere, except Poland. It is a question whether it is possible to have a revival of these family farms or not. That is one of the crucial issues, what is happening with the farming structure, apart from Poland. Some contend Poland was a very interesting case because Poland kept the fragmented family farm, and did not let this agriculture develop.

Hungarian agriculture, for example, became much more efficient with the large-scale cooperative structure than the Polish one because, at least in the Hungarian structure, there was a scope for managerial independence. There was a quasi-market working. They could invest. They were free. While in Poland that structure was frozen, more or less. That is why Poland inherited an undeveloped agricultural structure.15

15 This commentary about agriculture in other East European countries occurred during discussions at the Lake Balaton seminar in September 1996.

What is happening right now? Many experts believe family fanning in the Western European way, will be the major way of fanning in Central and Eastern Europe. The family farm is coming back in a few countries, surprisingly, in the Baltics, where there are few people and a lot of land. However, not in the Czech Republic, nor in Hungary, nor in Slovakia do you see the family farm. Albania is China. What happened in Albania is the Chinese way and cannot be compared with the rest. This is very important to Western Europe's underlying values.

The polarisation of agrarian structure

Since the fall of communism some big farms are emerging in East Germany, the former Democratic German Republic (DGR). There is also an area in Western Poland that was within German boundaries before the war. Now, after the collapse of state farms, there is a growing number of really big farms. I remember from the report of the agency responsible for state sector restructuring and transformation that during the first five years of its operation more than 3,000 farms have emerged with an average size of over 500 hectares. Some of them have 1,000 or 1,500 hectares. These are very big farms. Why is this important? Because it causes a change in the attitude of the people towards agriculture. They ask why should we support agriculture and agricultural producers, especially those who have 1,000 hectares and are becoming like owners of latifundia.16 This is a contradiction of their concept of fanning as an area occupied by family farms, small and medium sized farms.

16 A Spanish term describing a large agricultural estate.

The picture of agriculture is changing because of the emergence of such big farms. It causes political discussion even in parliamentary circles. It is a proposal, and I hope it will be overcome, to accept legal regulation about the upper size limits for the family farms. First, there is a need to define what a family farm is. How should government policy treat such farms? Should such farms have preferential treatment? Because the peasant party is a very strong party, the second largest in the parliament, and also the ruling party, together with the post-communist party, they can approve this proposal in the parliament. They have a majority, but there is some controversy within the party. For example, one of the leading figures in the peasant party, the Minister of Agriculture, is an owner of a very big, bigger than average, farm in Poland. His sons also have quite big farms. So there is a conflict of interests - also among the communists. There are some former directors of the state farms who now operate private farms with 2,000 - 3,000 hectares.

They are very good managers and can operate such farms. From my point of view as a scholar, I can say that any form of codification or stating in a legal document that such and such entity is a real family farm - or is not a family farm - is conceptually very difficult. This is one result from the emergence of a new kind of farm in Central Europe, the same as those in East Germany. It is a part of the problem that is called polarisation of the agrarian structure. All countries in Central and Eastern Europe have experienced this polarisation. On one side we had a large number of small farms with two hectares, for example, and the number of the farms is relatively stable. We also have a growing number of very big farms. But the number of farms in between those with six, seven or eight hectares is declining. They are all small or big. I remember in one of the American publications the saying, "Get big, or get out." It was very popular. It is becoming the same in Poland. You should get bigger, especially to face the competition in European agriculture. It contributes to the problem of social justice, social and economic policy, etc. Maybe we have the beginning of the strengthening of a bimodal agricultural system in Central Europe.

New concerns and shifting values

In the European Community the farming community has a hostile reaction to programmes that reduce arable areas. There is also a hostile reaction in Central Europe, but we have idle land, not because of government programmes, but because of the collapse of the state or co-operative farms.

It is a shame for the economic policy in Poland that 39 percent of the land that was in the state farms is not cultivated at the moment because of problems with land transfer. According to the last record that I read, there were 4.2 million hectares, or 20 percent of the total arable land, in state farms. One-third of those 4.2 million hectares, or nine percent of the total land, is still not cultivated because the state farms collapsed, and the new operators have not entered yet because of many problems, legal, financial and so on.

The next point in Moehler's paper deals with the new values for agricultural policies. Such values as food safety, quality of food and environment are well known. Some people add ethics to that - ethics associated with agricultural production.

During the VIII European Congress of Agricultural Economics in Edinburgh, L. Mahe presented an interesting paper17 on the new protectionism driven by problems of ethics, environment and so on. New values are behind the agricultural, food and protectionism policies. Environment is becoming a very important aspect. There is progress in Central Europe in that one of the achievements of the last five or six years is the reduction in pollution. Sometime the reduction is 40 percent or 50 percent because of several reasons, but mostly because of the closing of the most polluting factories. Public awareness of the environmental problem is growing.

17 Mahe, Louis, New protectionism in International Trade - A European Perspective and the Role of the CAP, Plenary Paper, VIII Congress of European Association of Agricultural Economists, Edinburgh, September 3-7, 1996.

Food safety and quality

The food safety is a new problem and it is becoming popularised. For example, some of our producers started to use food safety as an argument against the importation of goods. Farmers argue that imported goods have some chemical ingredients, and so on; therefore, "Buy Polish products - they are safer because they are produced in a more natural way."

Environment and productivity

When you compare the old major values and goals, for CAP and for programmes in Central Europe, I think that the list will be the same, but the emphasis will differ. In first place would be productivity and competitiveness. For example, food security is regarded as one of the important aspects, but because of the liberalisation of trade, it is not so important as it was some years ago. Preserving the natural landscape and environment is included, but is not considered as important as productivity. I think we have a unique chance to avoid some of the mistakes in development that were present in Western Europe and to combine productivity with preserving the landscape and the environment. It is one of the lessons we should learn from the Western countries.

Promoting rural development

There is a shift from agricultural policy to rural policy in my country. In 1994, some government documents were presented about rural policy and the need to shift from agricultural policy to rural policy. This shift may portend new functions for agriculture. Rural development policy is discussed as multi-functional in rural areas, but agriculture is also multi-functional - essentially it is combining the functions for rural areas and agriculture. In the document presented by the Council of Europe, called the European Charter for Rural Areas, significantly distressed rural areas will be treated in completely new ways. We should appreciate rural areas and present agriculture as not a producer of agricultural good, but as a source of multi-functional activity. It is changing both in Western Europe and in Central Europe.

Economic shock therapy for agriculture

The Organization for Economic Co-operation and Development (OECD) reports increased support in terms of Producer Subsidy Equivalents (PSEs) in Poland, Hungary and the Czech Republic. There is an important story about the PSEs. In the last three or four years it was presented in some reports that at the end of the socialist period (1988, for example), PSE in Poland was about 28 percent. It was lower than in the European Community, but it was high. In 1990 and 1991, it dramatically dropped to minus 18 percent. And in the next two years, increased to between 13 and 15 percent. Relatively speaking, it is not high. It is higher in Hungary and probably higher in the Czech Republic.

The issue is not how high PSE is; it is the sharp change from 28 to minus 18, which caused farmers to demand increased protection, to do something. It was a part of the shock therapy - and shock therapy is not a good therapy. It produced negative consequences because the attitude of farmers towards liberalisation, a market economy, had shifted during the first years from one position to its opposite.

At the end of the socialist period the peasants or the leaders of the peasants supported the idea of a market economy. They thought that they could survive and develop with the new market environment. For the peasant the difficulties of the first years were a shock for them - especially because of the shock therapy, shock liberalisation, including the opening of the borders for any kind of activity, almost no tariffs, no border protection and also no support from the government. Government support declined, in real terms, five times in two years. So that is the problem of the transitional economy.

What is the added value agriculture provides that justifies this special treatment? For me, the problem is how to measure that added value. It is so difficult to measure some reserves of the agricultural policy. There are some values agriculture provides - serving as a shock absorber. It plays such a role in my country. There were several cases in which agriculture played such a stabilising role, as well as the role of shock absorber. The role of agriculture is probably less important for highly developed countries, but for countries where 20 to 25 percent of the people live from agriculture, it could serve as a shock absorber.

It is difficult to measure other aspects of the added value regarding the protection of landscape or environment. In Edinburgh a paper was presented on how to arrange contracts with farmers. When you have contracts, you must monitor the contracts. What is the contract? The farmer will protect the natural landscape, and we will pay him some money. Agricultural policy is becoming more complicated, in my opinion, because of the new values and new goals for agricultural policy.

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