Matthews, A. 2013. Promoting family farming: The European Union. GREAT Insights, Volume 3, Issue 1. December 2013 - January 2014.
Domestic and donor-driven development agendas for African agriculture are spurring smallholder family farming as a catalyst for food security and poverty reduction. Family farms are also the backbone of agriculture in the European Union, although the process of concentration has gone further than in Africa. European agricultural policy reforms now provide more options to promote sustainable family farms over the growth of larger holdings.
Large incorporated farms vs family farms
There are around 12 million farms in the European Union (EU) with an average size of 14.2 hectares. The vast majority of these farms are family farms which are operated as family-run businesses with the farm being passed down from generation to generation. One indication of the importance of family farming in the EU is that about three quarters (77.8 %) of the labour input in agriculture came from the holder or members of his/her family in 2010. For some countries, such as Ireland and Poland, the proportion is over 90%. Only in a few Member States (France, Czech Republic, Slovakia) did non-family labour account for the majority of the labour force in 2010.
Large incorporated farms operated mainly with wage labour exist. They are found in confined livestock enterprises and in the successors to the former state and collective farms in the countries of Central and Eastern Europe that previously had centrally-planned economies. But, apart from a few EU Member States, they account for a relatively small share of the area farmed or of agricultural output.
However, family farms operate at very different scales within the EU. On the one hand, there were a large number (5.7 million or almost half of all holdings) of very small farms (less than 2 hectares in size) that farmed a small proportion (2.5%) of the total land area used for farming in 2010. On the other end of the spectrum, a small number (2.7% of all holdings) of very large farms (over 100 hectares) farmed almost half (50.2%) of the farmland in the EU-28 in 2010.
The contrast is even more marked if the comparison is made in terms of the economic size of holdings. 5.5 million farms (44.6%) had a standard output below €2,000 in 2010 and were responsible for only 1.4% of total agricultural economic output. By contrast, the 1.9% of holdings that had a standard output in excess of €250,000 accounted for almost half (47.8%) of all agricultural economic output.
The overall number of farms is steadily declining as labour moves out of the agricultural sector making land available for consolidation. This land tends to be acquired by larger farms benefiting from economies of scale where the farmer often has a higher level of education and skills. Thus, the concentration of land use, and more particularly production, has increased over time.
There is strong political support for the maintenance of family farming in Europe. Family farming as a political objective refers to the sub-set of family-owned farms where the family provides the bulk of the labour, thus focusing on small and medium-sized farms. This is the interpretation of family farming which is used in the rest of this article. Family farms are seen as being better custodians of the countryside, ensuring more varied landscapes, more sustainable use of natural resources and better provision of public goods than larger farms. Larger farms are seen as more prone to specialisation and monocultures, to the removal of hedgerows and to unsustainable intensification. Smaller farms are also seen as playing an important role in supporting rural employment and maintaining the social fabric of rural areas, thus contributing to the objective of balanced territorial development.
Challenges faced by family farmers
However, family farms face particular challenges as the EU has modified its agricultural policy to lower the amount of consumer and taxpayer support transferred to agriculture and as farm prices in the EU are increasingly linked to world market prices. A major issue is access to land. In family farming structures, land is mainly passed on within the family, meaning that younger farmers must wait until their parents are willing to relinquish management control and pass on the farm to the next generation. With older farmers living longer, and with significant inducements for them to remain in farming and few incentives to leave, Europe’s farm workforce is gradually ageing, creating substantial barriers for new entrants. With the growing capital needs of agriculture, another issue for young farmers is access to capital which must all be supplied through credit. These two problems come together in the relatively very high land prices in Europe, in part due to the density of population and the demand from alternative land uses.
Another particular challenge for the EU concerns the future of the very large number of very small farms. Half of all farms are smaller than 2 hectares; 2.7 million of these farms are in Romania alone. Many of these may be characterised as semi-subsistence farms, meaning that more than 50% of their output is self-consumed; Eurostat has estimated that there were around 6 million such semi-subsistence farms in 2007. Their problems are low cash incomes and a high incidence of poverty. Frequently, these semi-subsistence farms are run by older farmers with low levels of general and agricultural education and less interested in innovation. From a production point of view, they represent a sub-optimal use of land and labour and make a poor contribution to rural growth. However, they can be important from a welfare point of view in reducing the risk of rural poverty by providing a basic minimum of household food security in countries which otherwise have relatively low levels of social safety nets.
Given the political salience of these issues, a wide range of policy measures has been pursued to support family farming in Europe. The measures adopted by Member States to influence structural change or to support family farming include land consolidation schemes to reduce farm fragmentation by land re-parcelling and amalgamation; land market regulations to regulate land sale and price; special agricultural taxation arrangements that favour family-owned businesses such as partial or total exemption from property, or inheritance taxes or social security taxes; and measures to facilitate access to farm credit or insurance. In addition, policy instruments at European level under the EU’s Common Agricultural Policy (CAP) influence structural change and the viability of family farms.
The Common Agricultural Policy
The EU’s CAP operates through two ‘pillars’. Pillar 1 is concerned with direct income aids and market management measures and accounts for about three-quarters of the CAP budget. The remaining quarter is accounted for by Pillar 2 which funds the rural development budget designed to encourage structural change in agriculture, to improve the environmental management of land, and to improve the quality of life in rural areas.
The substitution of direct payments for market price support allows the targeting of support to smaller farmers (market price support, by definition, benefits all farmers in proportion to their marketed output). However, there has been very limited targeting of support payments in the EU. In the recent political agreement which set the shape of the CAP for the next seven years, 2014-2020, a new option to target support to smaller farms (a ‘redistributive’ payment) has been introduced but Member States have the option to use it or not. Also, the possibility to reduce payments above a (rather high) threshold has been introduced but again, apart from a small mandatory reduction, any further degressivity is at the discretion of individual Member States.
The new rural development regulation in this political agreement does not explicitly mention family farms, yet family farming will benefit from many of its measures, including investment grant aid, aid to farmers in areas of natural constraints, funding of agri-environment measures and aid to form producer groups and to take part in other forms of collective action. There is also an optional element for Member States to subsidise risk management measures including insurance schemes. Additional funding is targeted in Pillar 1 to younger farmers (defined as those under 40 years old) in an attempt to loosen up the inter-generational transfer of holdings. As the problem lies more in the unwillingness of the older generation to exit farming and hand over their farm to their heir, the efficiency of this new measure in encouraging earlier transfers is doubtful, and there is likely to be a high degree of deadweight loss.
A ‘transitional’ measure to support semi-subsistence agricultural holdings undergoing restructuring was introduced in the rural development regulation following the accession of the Central and Eastern European Member States in 2004. Essentially, these farmers could be granted a flat-rate aid for a maximum period of five years provided they submitted a business plan. The purpose of the scheme was to encourage semi-subsistence farms to increase their engagement in commercial agriculture. Uptake of the scheme was below expectations in those Member States that introduced it. In part, this may reflect the nature of the scheme which might not have been well suited to the target population and to the restrictive rules surrounding eligibility. A more general critique is that the measure focused solely on supporting agricultural production when the ultimate objective should have been to assist the household to improve its income whether or not it was coming from agricultural or non-agricultural activities. This measure has not been renewed in the latest CAP reform; instead, a simplified scheme of lump-sum payments to small farmers funded under Pillar 1 has been introduced, although again this is optional for Member States.
Europe’s agricultural success is based on a family farm model where the key ingredients are well-functioning output and input markets, ready access to new technology supported by close contact with research and extension services, and well trained farmers. The policy issues related to EU farming structures are the socially-motivated goals to constrain the growth of very large farms in some Member States, to address the poverty and lack of employment opportunities on the very small farms in other Member States, and to make more flexible the inter-generational transfer of holdings among the remaining small and medium-sized family farms. Only some of these policies will have a resonance in Africa, with probably the most relevant being the issue of semi-subsistence farmers. Here, European experience suggests that the solution to the problem of low-income agriculture requires broadly-based rural development initiatives which create income-earning opportunities both in agriculture and non-agriculture rather than just a focus on agriculture alone.
Alan Matthews is Professor Emeritus of European Agricultural Policy at Trinity College Dublin.
This article was published in GREAT Insights Volume 3, Issue 1