Promoting rural jobs through the CAP

In a previous post, I discussed trends in agricultural employment and the impact of CAP policies on these trends. I noted how policy-makers are asking whether EU agricultural policy could do more, or be more effective, in contributing to job creation. Last year the European Parliament passed a resolution on how the CAP could improve job creation in rural areas. The issue will also be raised in the Commission’s Communication on modernising and simplifying the CAP which is expected towards the end of this year.

In this post, I discuss the role that the CAP could play in promoting jobs. I confine myself to the question of job creation in agriculture and its related value chains as part of the rural economy. Some, though not all, rural areas face challenges in terms of low incomes, negative population growth, a lack of jobs and a high rate of unemployment. There are important synergies between the agricultural and rural economies; agriculture and its value chains remain an important contributor to rural employment in many rural regions, while a vibrant rural economy offers opportunities for off-farm employment which can help to sustain agricultural employment.

Addressing the broader challenges of rural areas must focus primarily on the non-farm sector because of its ability to absorb excess labour from agriculture. A very small share of the CAP budget is devoted to this – around 15% of Pillar 2 spending is allocated to the theme ‘social inclusion, poverty reduction and economic development’. Rural economic development is best fostered by general public investment (infrastructure), the location of public services (schools, hospitals, public agencies) and spatial development policies (industrial policy, regional policy). We focus here on the particular role that agricultural policy can play within this framework.

Agricultural policy will contribute to greater aggregate employment where it focuses on increasing the sector’s (and thus the overall economy’s) supply potential. Specifically, agricultural policy should focus on those areas where the sector’s supply potential is constrained by market failures; otherwise, there is a danger that public funding simply crowds out private funding. To focus on increasing agricultural (or rural) employment as an end in itself risks the mis-application of scarce public resources and a reduction in aggregate employment.

Support for jobs in farming is not an end in itself

This criticism can be directed at the European Parliament resolution on how the CAP can improve job creation in rural areas. It applauds Pillar 1 spending “since [it] prevents out-migration of small and family farms from the sector and maintains jobs in the agricultural sector”. It also called for the redirection of CAP payments to smaller farms, given the evidence that small farms are more labour-intensive than large farms. The inference is that this spending supports existing jobs, and that this implies a net increase in overall employment.

However, Pillar 1 spending at best redistributes aggregate employment between sectors but does not increase the overall level. Increasing support to farming may well lead to an increase in farm-related jobs, but the taxation needed to fund this support is likely to prevent job creation elsewhere in the economy. The implied discrimination against other sectors would cost more in terms of lost jobs which might also be better-paid, having in mind that labour on smaller farms is often underemployed, resulting in low average incomes.

A Swedish study estimated that it cost €27,500 on an annual basis to maintain one additional job in agriculture (Nordin 2014). Another study based on East German data could not identify any employment effects as a result of direct payments, payments to Areas facing Natural Constraints, or agri-environment payments, but found some evidence of positive employment effects from investment support. The authors concluded that investment aid of €1 million was required to create 20 jobs in the short run and 83 jobs in the longer run (Petrick and Zier 2012). Using agricultural policy to create jobs has a clear opportunity cost which must be factored into decision-making.

Subsidising employment in low-productivity agriculture is neither a sensible nor sustainable job-creation strategy. There may be good reasons to support small farms if they provide valued environmental services and other public goods, but this support should be targeted on these outputs regardless of the size of farm which provides them, and not on farms in a particular size group just because of their size.

It may also be the case that smallholders face a much higher incidence of rural poverty and deserve support for this reason. But agricultural policy is not well-designed to provide such income support in a targeted way. EU direct payments do not reach the smallest 2.5 million holdings, many of which are semi-subsistence farms, because of the minimum size thresholds for payments. In any case, many small farms have income from off-farm employment or social welfare pensions, and are not necessarily in need of income support simply because they are small.

Redistributing employment in favour of rural areas may still be a socially-desired objective if these areas have limited alternative sources of employment and there is a political commitment to secure a balanced territorial distribution of employment opportunities, or if job creation in rural areas helps to alleviate rural poverty. Then, the relevant question to ask is whether agricultural policy spending is the most effective way of addressing these objectives.

While agriculture continues to be a major part of the local economy in some regions, it is increasingly the case that “rural” is no longer synonymous with “agriculture”, and that “agriculture” is no longer synonymous with “rural”. In any case, it still makes more sense to focus on “smart” agricultural supports and investment which help farmers and local communities to overcome specific barriers and constraints to improving their productivity, rather than relying on generalised income support which may or may not have a positive impact on agricultural employment.

Looking forward to the CAP post 2020

‘Smart’ agricultural supports are those that help to improve the overall productivity of the sector rather than simply redistributing jobs from other sectors of the economy. The CAP can help to contribute towards the jobs objective where it helps to correct market failures which result in under-investment in the agro-food sector and the failure to take advantage of profitable opportunities.

Promoting innovation by supporting agricultural research and the diffusion of new ideas through knowledge transfer networks and operational groups is one example. Helping farmers to avoid or to cope with extremes of market price volatility is another. Preventing unfair practices where they occur and ensuring an equitable distribution of value added and risk along the food supply chain is yet another example.

Helping farmers to improve rural amenities and to provide public goods can add to local economic activity by attracting new residents or visitors to rural areas, or by creating service-based activities. Farms can be encouraged to promote higher value added activities, such as premium products which yield a higher return per unit of output (organic, geographical indications), on-farm processing, or non-agricultural diversification.

Exploring and supporting opportunities for renewable energy on farms is yet another example where sensible policy measures can support job creation. Overcoming credit market imperfections through the use of new financial instruments pioneered in cooperation with the European Investment Bank can play a growing role.

Many of these activities can already be supported under CAP rules today, although they are often constrained by funding limitations. If we want to focus CAP spending on jobs, it will be important to prioritise these “smart” support schemes in the coming negotiations on the future CAP.

Training and upskilling the agricultural workforce

Finally, attention should be paid not just to the number of agricultural jobs but also to the quality of those jobs and the skills of those who hold them. Farmers’ training levels are highly variable between Member States. Many farmers do not have the skills necessary to take advantage of the potential of the new opportunities created by innovation, provision of environmental services, diversification, and development of local services and bioenergy production. More needs to be done to promote the education, training and involvement of women and young people in agriculture.

There is a paradox that, on the one hand, observers regret the decline in the agricultural labour force and the number of farms, while on the other hand, farmers find it increasingly difficult to find people willing to work on farms.

Little attention is given in farm policy discussions to improving the conditions of employment for farm workers, including migrant workers. There is no requirement on beneficiaries of CAP direct payments to observe minimum standards in their treatment of agricultural workers, although under cross-compliance farmers are obliged to maintain minimum standards in their treatment of animals.

In the debate on UK agricultural policy after Brexit, the Environment Secretary Angela Leadsom has expressed the hope that Britain’s youth would take up the fruit-picking and farm-labouring jobs currently done by EU migrants. While legislation in this area is a national responsibility, we should consider whether the CAP could not do more to encourage better apprentice arrangements, upskilling and career development, and, ultimately, higher wages for those who do much of the actual work of food production.

This post was written by Alan Matthews

Photo credit: © Copyright Vieve Forward and licensed for reuse under a Creative Commons Licence.

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