Observations on Central European Agriculture and Ag Policy

By Will Snell, Extension Professor
UK Economic & Policy Update

Class XI of the Kentucky Agricultural Leadership Program recently returned from an agricultural study tour of Austria, Slovakia, Poland, and the Czech Republic. These countries are approaching nearly thirty years of transition from a centrally planned economy under communist control to a capitalistic market-based economy.

The blue trail on the map shows the approximate journey of the KALP tour.

Despite the current challenges facing U.S. agriculture, most of the farms we visited in Central Europe did not appear overly concerned over the status of the current farm economy. These farms were very diversified in producing and marketing specific commodity traits and value-added foods, beverages, textiles, and energy and make it very clear that they were benefitting/surviving from farm subsidies from the European Union (EU) and premiums they are receiving from organic/non GMO production.

The EU consists of 28 nations with the United Kingdom currently proceeding to formally withdraw following the Brexit vote in June 2016. Historically much of the EU farm policy has centered on providing sufficient quantities of food for European consumers by offering direct subsidies to EU farmers. In recent years, there has been more of a focus on providing funding for farm infrastructure/rural development investments (similar to Kentucky’s Ag Development Board), focus on environmental issues, and protecting EU consumers (i.e. traceability and food safety).

The EU’s “farm bill” policy is called the Common Agricultural Policy (CAP), which is a seven-year commitment from the EU to provide support for farmers, rural communities, and consumers. The last set of reforms occurred in 2013, with policy debate already formulating ahead of the CAP renewal in 2020. Similar to the U.S. farm policy debate, there exists much discussion over the majority of payments being distributed to larger operations, benefits accruing to absentee landowners, vs producers, geographical disparities among regions (i.e., Eastern vs Western European nations), and the proper balance of benefits to farmers
versus addressing environmental issues.

Agricultural support from the EU has declined over the years, but still comprises nearly 40% of the EU budget. The farmers we visited realized that future EU support for agriculture would likely decline, but would remain an important component of EU agriculture. CAP supporters claim that EU policy allows a large majority of farms to survive in markets were local/regional food security is valued. Opponents argue that CAP provides a disproportionate amount of taxpayer funds to agriculture, inflates food prices, and has adverse effects on farmers in developing nations with limited government funds to assist producers.

Besides concerns over the future commitment of policymakers to support agriculture, the farmers we visited have many of the same concerns confronting U.S. farmers today including a declining supply of labor, increasing age of farmers, and misinformed consumers. These farms and agribusinesses are attempting to better understand a changing consumer base and adjusting production and management practices to meet growing niche markets. The farms and businesses we met with seemed to indicate they have moved beyond the GMO and climate change debate, with anticipation that animal welfare will become the next major
battle. It also appears that EU agriculture is moving to become more aggressive in developing trade agreements and business opportunities outside the EU, especially following recent U.S. trade policy actions.

Our visits to farms in this region indicated crop yields an livestock/dairy production were not as high as top managing U.S./Kentucky operations, but they were still impressive. Farm technology in many cases rivaled U.S. farms with most of these operations utilizing individual pieces of equipment over a much longer time horizon compared to most U.S. farms.

Structurally, the majority of farms in these nations are small farms that have absentee landowners. Active small farms are producing primarily for a local market, but depending mainly on off-farm income. However, an increasing number of farms with larger operations (thousands of acres) are prevalent, some renting from hundreds of small farms and consisting of board of directors for a company farm or organized as cooperative farms with hundreds of members.

Following the movement from a centrally-controlled economy to a free market economy, land was transferred to the original owners which often resulted in some reestablished farms consisting of multiple family owners possessing very small tracts of land (in many cases less than an acre). Over the years, these owners have held onto the land inducing significant transaction costs for active producers attempting to rent multiple tracts of land to benefit from the economies of scale and market opportunities evolving from larger operations. While the future of these land-holdings is uncertain, it appears that agriculture in these nations will be faced with significant land transfer issues among future generations as the number of active farmers continues to decline.