Why farm subsidies are bad for young farmers

Today, in Brussels, the Commission is hosting a special day for European young farmers. The day is being billed as part of the consultation in the run-up to the CAP health check, after which this blog is named. What is unlikely to be discussed at the meeting are the very real reasons why the current system of farm subsidies are overwhelmingly bad for young farmers and new farmers seeking to make a start in agriculture in the European Union.

For a start, the principal effect of current blanket and untargeted farm subsidies is to increase the price of farm land, by as much as 40 per cent, by some estimates. This makes it up to 40 per cent for young farmers to buy or rent land. High land values are one of the main reasons why European farmers face higher costs than farmers elsewhere in the world. And it’s not just land that is more expensive. Farm equipment companies, agri-chemical companies and other suppliers drive up prices because they know their customers are getting handouts from the government.

Second, young dairy farmers have to buy or rent EU production quota. Unless in possession of sufficient quota, dairy farmers are not permitted to sell their milk. Third, farm subsidies cause over-production of many agricultural products in the European Union, which depresses prices, thus eroding farmer’s profit margins. Fourth, the new world in which farm subsidy entitlements are openly traded among farmers, with some sales to non-farmers (see a previous post on this blog) means it is quite possible that new entrants to farming will end up with ‘naked acres’, the term used to describe land which has been stripped of subsidy entitlements. These young farmers will face all the problems of making a living in the world of over-production, low prices and other distortions, without receiving any subsidies in return. Fifth, young farmers who want to adopt new green farm management techniques that improve biodiversity, landscape and reduce soil erosion and water pollution are more than likely to find that the government schemes which exist to pay for these new and positive land management projects are over-subscribed and chronically underfunded.

Ultimately, what many farmers gain from subsidies, they lose by facing lower prices and higher costs of doing business. This is particularly true for young farmers and new entrants who have to take out giant loans to buy land, and borrow more still if they want to ‘buy in’ to the subsidy game. Is it any wonder that the average age of European farmers far higher than in other sectors of the economy or that only 8 per cent of European farmers are younger than 35?

Will any of these issues be discussed at the Commission’s young farmers’ day? I hope so. You can follow proceedings live via a webcast.

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