One proposal in the Commission’s health check communication of 20 November 2007 is that the member states which still allocate farm subsidies on the basis of historic entitlements should move to the area average system in which allocations are the same across all hectares in a given geographical region. But it looks as though this change will be optional, according to a speech made by Commissioner Fischer Boel in Ireland on 29 January. Moreover, the flat rate system does nothing to address the striking inequalities between member states, which shows that on average, Dutch farmers get €1299 per hectare, while Portuguese farmers get just €88.
Expressing her own preference for regional average payments, she said that it would be up to member states to choose for themselves:
“As you know, there’s a section in the Health Check communication about flattening out the single farm payments that different farmers receive – in other words, reducing the differences between these payments. And I know that this has set a few alarm bells ringing in Ireland. Let me reassure you: this section of the Health Check is nothing to worry about. If you still want the ‘historical’ model of the Single Payment Scheme, you can still have the historical model.”
In the historic entitlement system, a farmer’s entitlements depend on the value of subsidies paid in the reference period, which is the average of 2000-2002. This can lead to striking differences between farms that are growing exactly the same crops or raising the same livestock because they are were different back in the reference period. Fischer Boel said she thought this was increasingly hard to justify:
“I think that, in the years to come, the public will find it hard to understand why Farmer X is paid more each year than Farmer Y just because of production decisions that he took 10 years earlier – or perhaps, because of decisions taken by his predecessor!”
It should be stressed that none of this would have any bearing on the huge differences in entitlements between member states. Calculations based on Commission figures on direct payments and agricultural area in 2006 are illustrative of the huge disparities. And they call it a common agricultural policy?
(1) The agricultural situation in the European Union (2006)
(2) EU budget 2006 – Financial Report
5 Replies to “Dutch farmers get most subsidy per hectare”
As a Dutch ag economist and a part-time farmer (or at least farm land owner) I wonder if this is a full analysis. Here are a few additional items to chew on:
* a Dutch farmer produces perhaps twice as much wheat as one in the Portugese Alentego. But that is of course only a historical jusitification.
* very good arable land in the ‘city-state’ of Holland cost now up to 60.000 euro, much more than in Portugal. Partly due to high demand from non-farm activities. So if you would like to see a flat area payment as a payment for landscape services you would probably need to pay more to get the same service in the Netherlands as in Portugal (try tendering)
* Dutch consumers are richer than the Portugese and their willingness to pay for landscape / environmental services is probably higher, so this leads to higher payments per ha.
* And some might argue that some of these Dutch polder landscapes are much more scarce from a biodiversity point of view than e.g. some other landscapes but that is probalby very subjective.
* If payments are decoupled (as some claim), such a difference needs not be a problem. Of course decoupling is never fully.
* the income taxes a Dutch farmer pays on those direct payments run up to 50%, In some other member states it is by definition zero. This of course could also mean that we pump money around: I pay 50% taxes to our Treasury, part of that goes to Brussels, they send the money back to our Ministry of Agriculture, that is paid out to me as a direct payment, etc. How about transfer efficiency?
* and finally, and most important: a Dutch arable farmer operates on a much smaller area than a Portugese arable farmer. So the amounts per ha that you put in your table give a very distorted picture of the safety net in income per person provided by the CAP.
I hope this makes the discussion a bit less distorted. That is not to say that I’m a fan of the CAP. My personal opinion is that it played a fantastic role in the creation of Europe and in the development of agriculture after the war, but that it now can be phased out. There is probably a need for income support for those with a low income, which can be arranged by national social security systems (and regional development between Member States). And there is a need for public procurement of landscape services (positive externalities of agriculture – negatives can be dealt with with environmental regulation) which can best be done in a targetted way by local government (who in Portugal knows how to instruct politicians to cater for the needs we have around Rotterdam and vice versa?). Misuse of both social security systems and local targetting / procurement can both be checked by current rules on state aid. Which leaves the question: how to get there in a ordered way in the next 10 years?
Thank you for your informative and cogently argued comment. I would never say that the single table I presented was a full analysis, and I agree with most of your points. I wonder about land values, are they in any way driven by subsidy entitlements? That question becomes rather vexed when it relates to decoupled supports, see this post by my colleague Alan Matthews.
I think the biggest determinant of the variation in the table is historic yields upon which the single farm payment is based. This is completely inconsistent with the two arguments that are made in favour of the SFP: income support and environmental stewardship. The problem is that the Agriculture Council is always unwilling to countenance any redistribution of the CAP budget among member states (it’s hard enough to agree changes that result in redistribution within member states, so we have ended up in a situation where the old, pre-reform pattern of entitlements has been maintained, albeit dressed up in a new language. This is ultimately political unsustainable and the mask is slipping. On this subject I refer you to an excellent study recently published by the European Parliament’s Budgetary Control Committee.
Thanks for the swift reply. Land values are of course (for us Ricardians) determined by subsidy levels. And as such the high land prices in Holland are also a result of high yields and high CAP prices.
With an eye to Alan’s post: the current landprice I quoted is without SFP. SFP’s are traded here with a very limited volume (we have naked land – to use Alan Buckwell’s expression) at 2 to 3 times the yearly SFP. That looks low but it is the result of the political risk of the health check and the fact that there are not much buyers. Farmers who enlarge their farm (with our small farms many think correctly we have an efficiency of scale problem compared to UK or East Germany) are borrowing to buy land, not to buy SFP. And farmers with too much money prefer state bonds in stead of a risky SFP. So SFP sell at a considerable discount compared to state bonds. Of course a change into the direction of a bond system along the lines of the old Danish proposal would be an option to increase their value.
I agree with you that the two arguments for SFP: income support and environmental stewardship (which we as consumers got for free in the past, why should we start paying, is it really so scarce everywhere?) are not in line with the historical distribution of payments over countries.
By the way the CAP has never been very common. The strangest example I always found the milk quota. Once the deal on introduction in 1984 was made, some ministers (NL, UK) turned home and made them fully tradable, which results in a huge windfall capital gain and over time enormous investments in intangible assets (quota), that will now evaporate, where others (France, Spain for instance) avoided a market regime for quota to a certain extent. Political economy I presume.
I don not understand Single Farm Payments at all!! If a farmer is gettin paid to pratically sit on his arse and do nothing with his land, why would he want to grow crops or raise cattle, he’s not going to get paid for it as SFP do not include production. Surely if you have a country full of SFP farmers, that country will be growing no food supplies?? How is that beneficial.. it sounds like national economic destruction to me!
Jon, at the risk of pointing out the obvious, a farmer can make more money by growing crops or raising animals and still keeping the SFP. The SFP is not like ‘set aside’ under which farmers were paid not to produce. SFP is paid regardless of production, you get the money if you produce but you also get it if you don’t. In most cases, it will be worth a farmer’s while to farm the land and sell the produce. Of course in some cases where the costs of farming are so high (seeds, fuel, labour etc) and the returns so low, the farmer could chose not to farm and still claim the SFP. But these cases are rare indeed.
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