The Swedish Agricultural Policy Reform of 1990: A Window of Opportunity for Structural Change in Policy Preferences

Swedish agricultural policy reform of 1990 constitutes a rare example of a very radical reform of agricultural policy. All internal market regulations were abolished. Farmers were offered only a modest and temporary compensation. Contrary to the reforms of the CAP, the reform was not caused by external pressures or a budgetary crisis. The paper aims at identifying driving forces behind the reform. The analysis is based on an eclectic approach focussing on legitimacy of the agricultural policy and on coalition formation in the parliament. Swedish politics in the post war period has been dominated by Social Democrats who do not rely on farm votes. However, Social Democrats were occasionally dependent on a support from a centrist agrarian party, which benefited farmers. Weakening of the strategic position of the agrarians due to changing co-operation pattern in late 80s constituted a window of opportunity for a reform of agricultural policy. Declining legitimacy was however, a major explanation why it was possible to reform the policy. Open and public debate on agricultural policy contributed considerably to the decline of the legitimacy. Even the Federation of Swedish Farmers accepted that agricultural policy had to be reformed. The clever organisation of the work on the reform and of the management of the process of arriving at the draft proposal have also contributed to the success. The reform was initiated by the Ministry of finance and managed by outsiders confirming that sectoral ministries will generally not be willing or able to run liberal trade policies. After joining the EU, Sweden became one of the most ardent critics of the CAP. This indicates that the reform of 1990 was not merely a result of favourable circumstances but that a long-term structural change in the societal preferences has taken place.Agricultural and Food Policy,

Modelling the Impact of Compulsory FMD Insurance

This paper compares two ways of financing the combating of Foot and Mouth Disease (FMD) in the EU and uses a simulation model to determine the welfare and production implications of the two systems. The two systems analysed are (i) financing by the tax payers, resembling the system currently in place, and (ii) a compulsory insurance scheme where all costs are converted into regionally differentiated insurance premiums that are paid by the producers. The analysis indicates that welfare gains may be realised by shifting from the former to the latter financing system.foot and mouth disease, insurance scheme, Risk and Uncertainty, D61, Q18,

Strukturomvandling och effektivitet i det svenska jordbruket

Denna studie undersöker hur det svenska lantbrukets struktur har utvecklats jämfört med ett antal konkurrentländer (Danmark, Finland, Tyskland och Storbritannien) samt hur stukturvariabler såsom företagsstorlek, specialisering, och entreprenörsverksamhet påverkar lantbrukets effektivitet. Resultaten visar att strukturomvandlingen har gått långsammare än i konkurrentländerna, även om utvecklingsdynamiken skiljer sig påtagligt mellan olika regioner och produktionsgrenar. Snabbast har strukturen förändrats för mjölk- och grisföretag, som också är de mest effektiva. Dessutom visar resultaten att hög specialisering ökar effektiviteten för grisgårdar och att ökad gårdsstorlek och entreprenörsaktiviteter ökar effektiviteten för alla produktionsgrenar

Agricultural Credit Market Institutions: A Comparison of Selected European Countries. Factor Markets Working Paper No. 33, January 2013

This paper describes and compares the institutional framework of the agricultural credit markets in selected European countries. The institutions can be both formal (rules, regulations, authorities and actors) and informal (norms, values and relations). They also interact and in situations where the formal institutions are weak, the informal ones increase in importance. The study is based on a questionnaire sent to agricultural financial experts in selected countries. The case studies show that credit regulations are typically general, with no specific regulations for the agricultural credit market. On the other hand, several countries support agricultural credit in various forms, implying that the governments do not perceive the general credit market to function in the case of agricultural firms. In a risk assessment, the most frequent reasons for rejecting a loan application are all linked to economic performance and the situation of the farmer. Personal characteristics, such as educational level or lack of experience, were generally perceived as less influential. Another interesting point when it comes to risk assessment is that in some countries the importance of asset-based lending compared with cash flow-based lending seems to differ when concerning a first-time applicant and when there is an application to extend a loan. To get an idea of the availability of credit, the loan-to-value (LTV) ratio was calculated, and it showed remarkably low values for Poland and Slovakia. For all the countries, the calculated value was lower than what the financial experts would have expected. This might imply credit rationing in agriculture in some of the countries studied. The financial experts all judged the possibility of an agricultural firm obtaining a loan as higher than that for other small rural firms, implying that the latter are also credit-rationed

Svenska nötköttsproducenter kan minska sina kostnader

Den svenska nötköttsproduktionen minskar och lönsamheten är låg. I denna studie undersöker vi hur mycket svenska nötköttsproducenter skulle kunna minska sina kostnader och hur olika egenskaper hos gårdarna påverkar effektiviteten i produktionen. Resultaten visar att: Svenska nötköttsproducenter kan minska sina rörliga kostnader med cirka 25 % i genomsnitt. Störst besparingar kan göras för foder, energi och djurhantering. Gårdar med god tillgång till bete är generellt mer effektiva. Beteshållning kan kräva en ökad arbetsinsats men denna kostnad vägs upp av lägre foderkostnader. Stora gårdar, mätt i ekonomiska termer, och specialiserade gårdar har större möjligheter till förbättringar än genomsnittet

Impacts of direct payments – lessons for CAP post-2020 from a quantitative analysis

In this report we aim to analyse the economic and environmental impacts of Pillar I direct payments, and to demonstrate alternative instruments that are better suited to achieve CAP objectives. The instruments—a targeted payment to land at risk of abandonment and a tax on mineral fertilisers—were selected on the basis of the Polluter Pays and Provider Gets Principles. We do this using two state‐of‐the‐art agricultural economic simulation models. The first model, CAPRI, is used to quantify the large‐scale or aggregate impacts for individual countries, the EU and the world. The other model, AgriPoliS, is used to quantify the fine‐scale or farm and field level impacts in a selection of contrasting agricultural regions, to consider the potential influence of the large spatial variability in agricultural and environmental conditions across the EU. The results show that direct payments are keeping more farms in the sector and more land in agricultural use than would otherwise be the case, and thus avoiding land abandonment, principally in marginal regions. Particularly the area of grassland is substantially higher, because it is generally less productive than arable land and hence more dependent on direct payments for keeping it in agricultural use. The magnitudes of the impacts of direct payments on land use therefore vary strongly across regions due to spatial variability in productivity: marginal regions with large areas of less productive land are heavily influenced by direct payments, while regions with large areas of relatively productive land are hardly affected, because this land would be farmed in any case. By keeping more farmers in the sector longer, direct payments are slowing structural change, which can hamper agricultural development. However the potential benefits of faster structural change vary considerably among our study regions. In relatively productive regions direct payments are hindering development, because too many farmers are staying in the sector and preventing the consolidation of land in larger farms, which would improve their competitiveness and increase farm profits. On the contrary, the mass departure of farms that is currently avoided, will not lead to the same general benefits in marginal regions. Instead of freed land being absorbed by remaining farms, large areas of relatively unproductive land are abandoned without payments. This land is unprofitable to maintain in agricultural land use, even if integrated into larger farms, because current market prices are too low to motivate farming it. Consequently direct payments pose a serious goal conflict: the avoidance of land abandonment on the one hand, which can have negative impacts on public goods, and restricting agricultural development on the other hand. Once again this goal conflict is rooted in the spatial variability of agricultural conditions in the EU. Maintaining extensively managed farmland, particularly semi‐natural pastures, is central for conservation of biodiversity and preservation of the cultural landscape. Therefore direct payments are contributing to the provisioning of these public goods, but principally in marginal areas. Further, abandonment of land can reduce its agricultural productivity due to erosion or afforestation. Thus, direct payments are contributing to food security by preserving the productive potential of land for the future, but only marginal land since relatively productive land is farmed in any case. Production of agricultural commodities is affected to a lesser degree by direct payments than land use per se. Nevertheless, food exports from the EU are higher and imports lower as a consequence of direct payments. However, the additional supply generated by direct payments also lowers output prices, which reduces the profitability of commodity production; thereby partially offsetting the additional revenues from direct payments. The higher agricultural output brought about by direct payments causes higher levels of environmentally damaging greenhouse‐gas emissions, nutrient surpluses and pesticide use. The higher greenhouse‐gas emissions for the EU are, to some extent, moderated by lower emissions in the rest of the world. Nevertheless, the net effect of direct payments is higher global emissions of greenhouse gases. The environmental impacts of higher nutrient surpluses and pesticide inputs are less conclusive, since these depend also on spatial factors, i.e., where the emissions occur. Although EU‐scale and regional emissions are higher due to direct payments, agricultural production is less intensive generally, on account of the lower output prices. Analysing the net effects of these two opposing forces requires additional biophysical modelling at relevant spatial scales, such as watersheds or landscapes, which is beyond the scope of this study. Pillar I direct payments generate a significant transfer of income to farmers and land owners who are not necessarily farmers; 40 billion euro annually. Of this transfer a substantial proportion goes to farmers in relatively productive regions and, further, to a minority of farmers that need them least. In relatively productive regions payments are not needed for continued agricultural production and preservation of farmland, but instead rather fuel higher land and rental prices, which hampers structural change. On the contrary, the need for support is greatest in marginal regions, because some form of payment to marginal land is needed to avoid its abandonment and the loss of associated public goods. Finally, the direct payments even come at the cost of lower market returns for farmers due to slower structural change (smaller and less competitive farms) and lower output prices (due to greater EU output). On the other hand the lower output prices lead to somewhat lower food prices, but at the greater cost of financing the direct payments. Our main conclusion is that Pillar I direct payments are generating serious goal conflicts due to spatial variability in conditions across the EU. On the one hand these payments are contributing to the provisioning of public goods by preserving marginal agricultural land. On the other hand they are hampering agricultural development, primarily in relatively productive regions. Payments to relatively productive land that would be farmed any way not only inflate land values (capitalisation) but also slow structural change, which are both likely to hinder agricultural development and hence the competitiveness of the EU on the global market. The direct payments also increase environmental pressure; by subsidising land use generally and the associated production, they are incapable of controlling environmentally damaging emissions, which is also in conflict with broad CAP objectives. The goal conflict arises because direct payments are universal, a payment principal that does not consider spatial variability in the EU and the associated trade‐offs in regard to development and environmental effectiveness. Our analysis considered two alternative policy instruments that have the potential to curb the identified goal conflicts associated with direct payments, by applying the Polluter Pays and Provider (of public goods) Gets Principles at appropriate spatial scales. Replacing direct payments with a payment targeted on marginal land (and associated public goods) prevents land abandonment at a lower cost, by avoiding payments to relatively productive land that is farmed in any case. This also allows surviving farms in regions with relatively productive land to compensate for lost direct payments through expansion and associated scale economies, as well as higher output prices. This instrument therefore finances the provisioning of public goods without adverse effects on development and the efficiency of agricultural production. The EU‐wide tax on mineral fertiliser demonstrates that this instrument has the potential to reduce nutrient surpluses. Since direct payments cause higher levels of polluting emissions, policy instruments targeting emissions at relevant spatial scales are needed to achieve cost‐effective abatement. Overall we find that Pillar I direct payments are not addressing the diversity of challenges facing European agriculture. In fact our quantitative analysis indicates that the potential for the current system to meet these challenges is seriously impaired by goal conflicts and spatial variability across the EU. A better policy requires that instruments are targeted on desired outcomes and designed according to sound principles, specifically the Polluter Pays and Provider Gets Principles. These principles would ensure that farmers are provided with appropriate incentives to i) generate public goods that otherwise would be underprovided; ii) mitigate environmentally damaging emissions at the lowest possible cost to society; and iii) continually strive to improve environmental performance. Such instruments are also fairer and promote a more competitive or viable agricultural sector by not obstructing structural change and hence agricultural development

Land, Labour and Capital Markets in European Agriculture: Diversity under a Common Policy. CEPS Paperback. October 2013

Well-functioning factor markets are an essential condition for the competitiveness and sustainable development of agriculture and rural areas. At the same time, the functioning of the factor markets themselves is influenced by changes in agriculture and the rural economy. Such changes can be the result of progress in technology, globalisation and European market integration, changing consumer preferences and shifts in policy. Changes in the Common Agricultural Policy (CAP) over the last decade have particularly affected the rural factor markets. This book analyses the functioning of factor markets for agriculture in the EU-27 and several candidate countries. Written by leading academics and policy analysts from various European countries, these chapters compare the different markets, their institutional framework, their impact on agricultural development and structural change, and their interaction with the CAP. As the first comparative study to cover rural factor markets in Europe, highlighting their diversity − despite the Common Agricultural Policy and an integrated single market − Land, Labour & Capital Markets in European Agriculture provides a timely and valuable source of information at a time of further CAP reform and the continuing transformation of the EU's rural areas

Agricultural Policies in the Eastern Europe - Will the Pattern Repeat Itself

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Cutting the Agricultural Price Pie: Power or Justice

Agricultural protection varies considerably among different commodities. To understand inter-industry protection within agriculture, the price-setting neotiation procedure involving producers and consumers. This type of price setting gives farmers an excellent opportunity to affect relative prices. The question is whether the stronger groups have used this situation to affect relative prices to their advantage. Four different price-setting principles are discussed in this paper: inertia, fairness, monopolistic price discrimination, and power. The model is tested by pooling cross-section (13 commodities) and time-series data (1973-83). Fairness and inertia together are the major explanation of the trend in relative prices at the negotiation level. In spite of their strong influence on the price-setting procedure, powerful groups are not missing the situation to their advantage. It is not possible for a farm organization to build its image on the notion of solidarity and at the same time exploit weaker groups. Neither is it possible for farmers to exploit consumers by behaving as price discriminating monopolists and keep the credibility of their organization intact