Agricultural subsidies in Poland. Blessing or curse?

by Mark Ordon agricultural subsidies in the top 21 food-producing countries reached an estimated $486 billion. To be absolutely clear, Poland is not the only country facing this particular dilemma. According to 2012 data from the Worldwatch Institute, agricultural subsidies in the top 21 food-producing countries reached an estimated $486 billion. At the same time, these countries produce nearly 80 percent of the global agricultural value added. Leading the group here is Asia, where China alone pays its farmers $165 billion a year. Lower, but still significant, contributions to farming are made by the European Union. The Common Agricultural Policy (CAP) which administers subsidies across all Member States spent $50 billion in 2011, a sum which made up about 44 percent of the EU budget that year. This does not include so-called price supports, a system which allows governments to keep crop prices artificially high, providing an additional benefit for farmers. Adding in that incentive, a total of $106 billion was spent on agriculture that year. [negative]"a Common Agricultural Policy is a must. But it needs to be a system that works effectively.[/negative] The most recent EU budget for the 2014-2020 time frame calls for €390 billion to subsidize European farming. The sum is visibly lower than what was spent in previous years, but still makes up a large chunk of what Brussels intends to spend altogether. In the end, though, is it all worth it? For one, Adam Koziołek, head of the Polskie Wydawnictwo Rolnicze publishing house, seems to think so. He feels that the EU needs an agricultural policy to assure a stable situation in the sector, a fact which has an enormous impact on food supply. Koziołek says he is often questioned about the feasibility of any agricultural support program, since it seems that farmers are always complaining no matter how much money is thrown at them. Wouldn’t it be better to simply let the supply-and-demand mechanisms of the free market work its magic, people ask? He explains that the creators of the European agricultural policy looked at the issue from a different viewpoint. Europe in the 1950s was far from self-sufficient in terms of food supply. The war-time famine on the continent and other disasters such as the potato famine in Ireland were still fresh in everybody’s mind. From this stemmed the idea to create the CAP, which was mainly intended to boost agricultural production on the continent. The project was an enormous success. But on the other hand, it did lead to surplus production – Europe was producing way too much food. Attempts to sell food products abroad had to be subsidized as well, as the rest of the world was able to produce food at a much lower cost. This in turn led to fundamental reforms in the CAP in the 1990s, which essentially aimed to reduce any excess. All this makes up today’s give-and-take agricultural policy which simply cannot be cut off. [big percent= "$390 bln"] out of the EU 2014-2020 budget will be spent to subsidize European farming[/big] The Loophole Issue Certain critics may agree, for the good of all in the European family, a Common Agricultural Policy is a must. But it needs to be a system that works effectively. Regretfully, that is not always the case. The cynical observer may also add that, especially in Poland, loopholes abound which can be and are in fact exploited. Marek Zagórski, head of the European Fund for the Development of Polish Rural Areas, stated that the procedures in place are improving. Yet, he does admit that there have been issues along the way. One of the first EU programs to help young Polish farmers involved a PLN 50,000 grant. “In the beginning, all you needed to do was own a hectare of land and be under 40 years of age to apply for EU aid. In addition, there was no obligation that, for example, you had to spend the sum on investment in your own farm,” he explained. The result? The Polish countryside was filled with brand new cars in a short time. Today the criteria have been tightened and include, for example, a degree in agricultural studies requirement. Yet the damage has been done. Due to the fact that the Polish authorities did not control the manner in which EU funds were spent, the country now faces an €80 million fine. But is it still worth it? Assuming that all the loopholes are nicely patched up, are agricultural subsidies still the most effective way to go? In general, most experts in Poland and the EU feel that the Common Agricultural Policy ensures food security across the continent. But on a global scale, many specialists warn that what they refer to as “costly and distortionary agricultural subsidies in Europe and the United States” may have damaging effects on the global food system. In an article published by the International Food Policy Research Institute (IFPRI), David Laborde, IFPRI senior research fellow, explains how pumping money into agriculture in highly developed areas such as the US or EU or in emerging countries like India or China is threatening global food security. “Food security,” he says, “is not just about producing more food. It’s also about raising incomes across the board, particularly for the poorest and most vulnerable members of society.” Yet, the policies applied in the US or Europe are protecting and enhancing the incomes of their farmers at the expense of fair market prices that would support the development of much poorer farmers in developing countries. These programs essentially help the American and European agriculture sectors outproduce their counterparts elsewhere, Laborde notes. They very simply do not take into account the fact that in an increasingly globalized market, “everyone is connected to everyone else.” In the long run, he concludes, other countries will introduce protectionist policies of their own, which in the end will lead to market and food price instability on a global level. Critical voices can be heard within the European Union itself which point out that the CAP ignores supply and demand mechanisms, which in particular lead to vast overproduction and waste of food. Others present statistics which show that while farmers represent 5.4 percent of the EU’s population and generate 1.6 percent of the Union’s GDP, they receive nearly half the budget in various subsidy programs. Finally, European taxpayers are hit twice by the CAP – once when their money is fed into the program and a second time when they pay artificially inflated prices at the supermarkets. But then, CAP supporters argue that the program does provide Europe with food security. Leaving the market to its own devices would lead to dependence on increased imports, a risky way to go in uncertain times. The CAP also encourages a more ecological and sustainable approach to agriculture. The latest amendment to the program for 2014-2020 foresees that about 30 percent of the support will depend on the fulfillment of a number of ecology-related requirements. From a domestic perspective, Koziołek feels that despite any bad press, farming support has been beneficial for Poland. The country has definitely reached a level of food security and the increasing efficiency of production has brought costs down. The cost of food now makes up 20 percent of an average monthly household budget compared to as much as 40 percent a few years back. [caption id="attachment_69881" align="alignright" width="225"] Image :shutterstock[/caption] It is therefore impossible to provide a simple “yes” or “no” to the Common Agricultural Policy. Despite the drawbacks, many analysts, even those against payouts to farmers, feel that simply scrapping subsidy programs could create protest and chaos. Indeed, it does seem a bit normal or at least expected that European farmers will receive aid to counterbalance the effects of the Russian embargo on food imports. In Poland, at least, the current benefits certainly outweigh any drawbacks. Even the newly appointed Polish Minister of Agriculture Marek Sawicki has already announced that one of his top priorities is to negotiate bigger EU handouts for Polish farmers.