Europe's Agriculture Sector Faces More Competition in the Future

8 MINS READAug 28, 2018 | 09:30 GMT
A farmer drives a tractor as he sows his field in a field near Bouloire north-western France on Aug. 21, 2018.

A farmer drives a tractor as he sows his field in a field near Bouloire, France on Aug. 21, 2018. Europe's agriculture lobbies have a history of being well-organized and extremely politically and economically influential.

  • Agricultural lobbies have historically been very active in Europe, often able to influence policy at the national and supranational level.
  • Yet the impact of European agricultural lobbies is dwindling, in no small part because of declining rural populations and the agricultural sector's declining contribution to the European Union's economy. 
  • In the coming years, Europe is likely to continue reducing farm subsidies and to become more open to including agriculture in free trade negotiations.
  • This will force farmers to adapt to a more competitive environment.

Protection of the agricultural sector has been a crucial policy for Europe's trade bloc since the 1960s. Agricultural lobbies are traditionally a formidable political force in the European Union, with the political leeway to influence policy-making both at the national and supranational level. However, their influence has waned in recent decades and will continue to do so in the future, due to structural factors including a decline in rural populations, the agriculture sector's smaller contributions to the European Union's economy and reforms to the Common Agricultural Policy. As a result, the European Union will become more and more willing to include agriculture in free trade agreements, which will force European farmers to find ways to adapt to a more competitive market.

The Big Picture

Agriculture is part of Europe's cultural DNA, and its powerful political influence is built right into the systems that make up the European Union. But the days of massive subsidies for European farmers may be numbered, as the bloc begins removing protections and offering more concessions in free trade agreements.

Agriculture's Valued Place in European Society

Europe's love affair with agricultural subsidies can be traced back to the birth of the European Economic Community (EEC), the European Union's predecessor, in 1957. After World War II devastated Europe and caused widespread hunger and poverty, the founders of the EEC were committed to ensuring that Europe could be self-sufficient when it came to food. The EEC also intended for subsidies to provide assistance to the rural populations of the bloc, which in the late 1950s represented around 40 percent of the population of France and Italy and roughly 30 percent of the population of Germany.

A Graph of Rural Population in EU As Compared to Total Population, 1960-2017

And so the Common Agricultural Policy, commonly known as CAP, was introduced in 1962. In its original form, the policy consisted of subsidies for farmers, import barriers and export incentives. At the time it was created, the CAP represented around 60 percent of the entire EU budget. And though critics argued that it was too expensive and did too much to protect European farmers, it has remained a vital component of the EU budget.

The prioritization of agriculture continued when the European Union itself was formed. The treaties that established the union specified that one of its goals was "to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture." And that language remains in place to this day. European culture places a high value on traditional, locally made, high-quality food, and respect for agriculture is built into European society at large and directly into the language of European Union's founding charters.

The Political Role of Agricultural Lobbies

Europe's agriculture lobbies have a history of being well-organized and extremely politically and economically influential. Farmers' organizations often focus their rhetoric on fostering a fear that opening Europe's agricultural and food markets could result in unsafe, low-quality foreign food. For example, the 2016 protests in Europe against the Transatlantic Trade and Investment Partnership with the United States focused on the discrepancies in U.S. and EU food safety standards, as well as the parties' differing viewpoints on genetically modified crops, pesticides and growth-promoting hormones.

A Chart showing EU Common Agricultural policy Expenditure

The electoral districts of many European countries are also designed in such a way that rural areas are overrepresented when compared to cities. Thus, national governments are often driven to protect agricultural workers in order to win their votes and avoid their ire. Local farmer groups in several EU countries regularly protest policies they find unappealing by taking to the streets to defend their interests. These demonstrations often block roads and railways, dump their products in public places or temporarily interrupt the supply of their products in order to generate economic disruptions and create visibility for their cause.

On the level of the European Union itself, there are several international agriculture lobbies that regularly send representatives to the union's main institutions. The most notable is COPA-COGECA, an umbrella organization that represents hundreds of different European agricultural groups. Lobbyists from these groups are very active in the European Commission and the European Parliament, often visiting these institutions and speaking directly with members.

A Sector in Decline

Despite the political prominence of European agriculture lobbies on a structural level, transformations across the Continent continue to challenge their impact.

Urbanization brings more people from rural areas to cities, and agriculture currently represents around 1.4 percent of the EU's GDP — half of what it was two decades ago. In countries such as Bulgaria, Romania and Greece, agriculture still accounts for a large chunk of economic activity, but the generalized trend across the Continent shows a decline in the sector's contribution to the economy. Its contribution to total EU employment levels has also declined: agriculture jobs have gone from representing 8 percent of EU employment in the early 1990s to just 4 percent at present.

A Graph of Agriculture as Part of EU GDP and Total Employment

As a result, agricultural lobbies exert less political sway in the European Union than they used to. Agricultural subsidies are one of the most sensitive topics in discussions around the EU multi-annual budget. Net contributors — most of which are in northern Europe — typically push for a reduction of subsidies, while net receivers — most of which are in Southern and Eastern Europe — push to protect their privileges.

But the general trend shows that those in favor of limiting subsidies have been winning out in recent years. The amount of the EU budget taken up by the CAP has dropped to less than 40 percent, and for decades the bloc's annual payments to farmers have fallen in absolute terms. The next EU budget proposed by the European Commission, which will be in place between 2021 and 2027, includes a 5 percent cut in CAP spending to free up resources for areas such as immigration and security. France and Spain have already protested this proposal, and the debate is far from over. Yet, the mere suggestion of cutting CAP resources so that the money can be used elsewhere is indicative of the European Union's evolving spending interests.

Agriculture in Free Trade Agreements

When negotiating free trade agreements with other countries, the European Union has traditionally been reluctant to allow foreign agricultural products into its domestic market. But over the past few years, it has shown greater willingness to include agriculture in free trade agreements. The agreement that the bloc signed with Canada in 2016, for example, lifted 94 percent of EU tariff lines on agricultural products and 96 percent of its tariffs on fish and seafood. The free trade agreement between the European Union and South Korea, which was provisionally applied in 2011 and formally ratified in 2015, eliminated tariffs on 98.7 percent agricultural products (though some specific products, such as rice, were excluded from the agreement). And, while less ambitious, the 2017 agreement between the European Union and Japan establishes that the bloc will progressively lift tariffs on 85 percent of agri-food products.

Of course, there are limits. For example, the agreement with Japan reduces but does not eliminate tariffs on products such as beef, and it retains quotas for some cheese products. Negotiations with South American trading bloc Mercosur have been delayed by disagreements over products such as beef, ethanol and sugar. And at a time when European agriculture is under pressure from more competitive producers like the United States, Brazil and Australia, the European Union will remain committed to protecting the geographic denominations connected to its exports of regional products, which convey sophistication and international prestige. (One example is the rule for "Parma ham" that establishes that countries with which the EU has an agreement can only use the term to describe ham made in certain regions of Italy.)

Looking to the Future

Overall, though, demographic and economic changes will result in the declining influence of agriculture lobbies in Europe in the coming years. The amount of money dedicated to the sector will decrease, as will the number of subsidies. And despite the protests of farming lobbies, the European Union will become increasingly willing to open its markets to foreign agricultural products in order to establish free trade agreements. As a result, European farmers will be under pressure to become more competitive. This may come in the form of — among other things — farmers reducing costs, improving the efficiency of their work or introducing more technology.

A Map of Agriculture as Contribution to European Countries National GDPs Over Time

Of course, there is only so far that this decline can go. While the continent has become considerably more urban in recent decades, around a quarter of the population of the EU still lives in rural areas. On average, agriculture still accounts for more than 4 percent of total employment in the bloc, while in Romania, Bulgaria, Greece and Poland it represents more than 10 percent of total employment.

So there is little chance that the European Union will ever completely abandon the interests of its agricultural sectors. But the demographic and economic realities of the twenty-first century will take their toll — especially on some of the most powerful EU members, including Germany — driving the European Union to become less protectionist about agriculture in the coming years.

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