Is the influence of the farm lobby weakening?

 The Financial Times has a major article this morning on the CAP as discussions take place on the next iteration of the CAP.   And who is in charge as farm commissioner?  A farmer from Luxembourg who went to university in France.  The Grand Duchy is always seen as susceptible to French influence.

I reproduce some highlights from the article below but add some comments of my own in square brackets.

On May 1, decades of resistance by the agricultural lobby were broken when the trade deal Mercosur came into effect. Member states earlier voted narrowly to apply the pact, albeit with significant concessions to assuage the farmers and their powerful special-interest groups. European Commission president Ursula von der Leyen exercised her power to over-rule legal challenges to the deal to ensure it came into provisional force.

It was a moment that suggested the long-held power of the farmers could be weakening. Through political protection and heavy subsidies, European farming has been designed not only to secure food supplies but also to preserve a rural way of life.  [But the future of many rural areas may not be principally in farming but in tourism.  Better broadband connection is vital.]

The result is a sector that remains dominated by small family farms even as agriculture elsewhere in the world has consolidated and industrialised. But the Mercosur deal has shown that the model may be coming under strain, just as policymakers are debating the future of the subsidy regime that underpins it.   [But the deal has been watered down and took quarter of a century to negotiate].

Farming groups say trade deals and other reforms threaten Europe’s food security at a time of growing geopolitical risk and just as farmers come under even more pressure as the Gulf crisis forces up fuel and fertiliser prices.   [It’s a good time for farmers to bang the food security drum].

But supporters of reform to the system argue that Europe’s priority has to be competing in this new geopolitical world, rather than shielding farmers from market forces with a safety net of subsidies.

Some believe these heavy subsidies are slowing down market-driven restructuring that could replace failing family farms with more efficient, large-scale agribusinesses — as is happening already in parts of southern Europe. The impact on overall food production would be limited, they say.   [But the idea of the family farm has sentimental appeal to urban voters].

Smaller farms are also seen by industry groups as central to Europe’s rural identity. Organisations such as Italy’s biggest farm lobby Coldiretti argue that these holdings sustain not just local economies but landscapes, traditions and food cultures that define much of the continent.  [High quality foodstuffs are niche products that can command a price well above that commanded by commodities.  Many consumers are ‘foodies’ interested in cooking and provenance].

But some experts argue the risk to food security is overstated. Recent studies by the EU’s Joint Research Centre show that if the CAP were removed, agricultural production would only reduce by just over 5 per cent.

“Fertile good land is not going to be left idle if we don’t pay subsidies to farmers,” Alan Matthews, professor of European agricultural policy at Trinity College Dublin, told the Pink ‘Un. He says that to maximise food production and reduce subsidies, the EU needs bigger farms. But that goes against the grain of popular opinion and national culture.   [I have recently been working on a co-authored essay with him].

The current moment “raises interesting questions about whether family farming is the way to continue the structure in the future”, Matthews told the FT, “not only when farmers have to raise their crops but have to be accountants, they have to be vets and environmentalists and work drones and all this stuff. To expect anyone to be even medium level in all these skills is a little too much.”

Institutional investors move in

As many family farmers are selling up, institutional investors are moving in. Spain and Portugal, which already supply a large share of Europe’s fruit, vegetables and olive oil, have become a focal point, where many see an opportunity to expand and modernise farming.   Data from global real estate adviser CBRE shows more than €4.2bn was invested in Iberian agribusiness between 2022 and 2024, with institutional investors accounting for roughly half of that total.

“Until 10-15 years ago, the agricultural asset class wasn’t a prime consideration in investors’ portfolios,” Javier Uribarren, partner at Trifolium Farms told the leading business paper.  This business acquires and manages agricultural land on behalf of institutional investors across Iberia, focusing on permanent crops such as olives, almonds and citrus.

Increasingly, however, it has become more attractive as “an inflation hedge” and as “an asset that is uncorrelated from others” in a typical portfolio, he commented. The attraction is not just the land itself, but how the sector is changing. “There’s a natural consolidation of a sector that was very much driven by family ownership and that is the succession of family ownership into institutional investors, private equity, pension funds etc,” he added, explaining that farms are often too small to compete and in many cases there is no one to take them over.

 Investors are betting that bigger farms work better. “Everything that we do is mechanised,” Uribarren says. “Unless you have the necessary scale . . . it’s not profitable.” Larger operations can invest in irrigation, new planting systems and technology that smaller farms cannot afford.

This will make it easier for the EU to compete with more industrialised producers such as Brazil or Australia, where agriculture operates at greater scale and with fewer subsidies. But Europe’s farmers are unlikely to go down without a manure-slinging fight first.   [Expect more angry demonstrations in Brussels and member states].

 

It looks like a no brainer, but is it?

The latest phase in the debate about the future of agricultural policy in England is the call for a diversion of subsidies from large estates to smaller firms. It is easy to make both an intellectual and a populist case, but one also needs to consider countervailing arguments.

The Campaign to Protect Rural England (CPRE) argues that it is wrong to pay people more subsidy simply because they own more land: CPRE report It proposes that all farmers should receive a higher amount per hectare for the first 50 hectares they own but payments should reduce for the next 100 hectares and then continue to taper.

The CPRE argues, 'Good, resilient farming means cleaner water, less flooding and more carbon storage. It means abundant wildlife and rich soils that underpin beautiful countryside and assist efforts to tackle climate change. And it means a mix of farms more strongly connected to the local community.'

The countryside is, of course, more than an aesthetic asset to be enjoyed by urban populations, it is also a means of food production, although that food production needs to take into account environmental impacts. Particularly valued areas of countryside are designated as national parks, although even here farming contributes to their appearance.

The CPRE says that it is not engaging in 'big farm bashing', but size of farm is not necessarily related to how well farming is undertaken, although there is some evidence that larger farms tend to have higher animal welfare standards. Big estates can be well integrated into their local communities, not least as a significant source of employment.

Some of the payouts to big farms can be substantial, Last year, Farmcare Trading, the former Co-op farms bought by Wellcome Trust in 2014, received £1.7m. Beeswax Farming, owned by Sir James Dyson of bagless vacuum cleaner fame, received £1.4m. Blankney Estates in Lincolnshire got £1.1m. Lilburn Estates in Northumberland, owned by Duncan Davidson, founder of the house builder Persimmon, received £915,000. The Elveden Farms in Suffolk, owned the Earl of Iveagh and the Guinness family, received £915,000.

A recent report from Exeter University, commissioned by the Prince's Countryside Trust, argues that small family farms employ more people per acre (i.e., are less capital intensive), help sustain rural services and provide a wider variety of locally produced food. The number of such farms has fallen from 84,000 in 2000 to fewer than 67,000 in 2013.

What does one consider is how far competitiveness objectives should form part of any future policy. Large farms in countries such as France and Germany will continue to receive CAP subsidies, leaving English farms at a competitive disadvantage. The result could be more food requirements being met by imports and hence a decline in domestic food security.

What is clear is that the present level of subsidy to larger farms will not be affordable. However, a debate is needed about the priority given to different policy objectives, something that never really occurred with the CAP.

The future of small farms

The president of the Agricultural Economics Society, Steve Wiggins, has written some interesting reflections on this enduring topic in their latest newsletter which I reproduce below.

'Small-scale family farms remain an enduring feature of agriculture across the world, and especially so in the developing world. Some 418 million farms in the developing world, 95%, have less than five hectares, according to broad estimates made by FAO from (inadequate) surveys and censuses. What's more, in most developing countries the average holding size still tends to fall with each decadal census.

Debates over the productivity of small farms and their likely evolution go back to the nineteenth century if not before. The end of the peasantry has been repeatedly announced, yet reality has proved otherwise. Concerns that smallholdings could not be efficient and would never allow sufficient increases in production to sustain development were voiced in the 1950s and early 1960s; but laid to rest when the green revolution showed what could be achieved on the small farms of Asia. Analyses confirmed that many smallholders ran efficient farms and responded to price incentives. Indeed, diseconomies of scale were apparent, since small farms could manage labour better than larger scale farms.

But like Malthusian pessimism, doubts about small farms periodically resurface. The latest bout began around the turn of the new century, inspired by observations of the new supply chains run by supermarkets and exporters springing up across the developing world. Small farmers would be at a definitive disadvantage in these chains, since they could not meet the exacting demands for standard, high quality production, to strict timetables, in large lots and preferably certified and traceable.

Contemporary Asia, where only a small fraction of farms exceed five hectares, provides some insights into changes and likely future trajectories. Even in rural areas well connected to cities, where supply chains are modernising for staples and not just high-value produce, family farms persist. These farms are, however, increasingly differentiated, as a minority specialise in farming and intensify their production; while most farms provide some income for rural households that increasingly rely on non-farm activities and remittances from migrants.

This throws up two challenges. One, land markets need the flexibility to permit some concentration of holdings in larger operating units, while rural households that want to retain ownership, but lack the means or inclination to cultivate, can do so. At issue are small-scale transfers, perhaps temporary arrangements, with rentals, share-crops and loans predominating over outright sale. Tenure policy needs to facilitate these exchanges.

Two, if small farms are to prosper they need to find ways to overcome the failures that typically apply in markets for inputs and credit. That can be done, of course by the state, but the costs can be (ruinously) high. The alternative is to look to private and collective institutional innovations - contracting, farmer associations, local agencies and franchises for inputs and finance, etc. - to overcome current market shortcomings. A plethora of such initiatives can be seen, even if most operate at limited scale. The challenge then is to learn from these, to find working models - not pilots - that can be replicated or adapted to wider circumstances.

Get these two things right and we can hope to see a gentle transition as most smallholders gradually leave farming on their own terms, while allowing specialising smallholders to expand their holdings.'

One might add that many family farms in countries like the US and the UK have become successful large-scale enterprises but that was dependent on a number of factors including: (i) a facilitating legal framework on inheritance; (ii) good infrastructure to get products cheaply and quickly to markets; (iii) mechanisms to learn about and adopt technological innovations; (iv) ready availability of credit at realistic rates; (v) some government financial support for modernisation. No doubt one could add to this list.