Polish Agriculture and
the European Union
(written as a briefing paper addressed from the Agriculture Ministry
to the Prime Minister)
Part II: Issues in Agricultural
Reform
Polish
farms are undeniably one of our nation’s most valuable assets, and have
been throughout Poland’s long history. As we move into the next millennium,
however, the issue of agriculture has become a contentious one. Now
firmly on the path to joining the European Union, we must come to grips
with the many problems that plague Poland’s farms and farmers. These
problems have their roots in history – both the distant past and the more
recent decades of Communist rule.
Perhaps
the most obvious and pressing problem for Poland is the large size of its
agricultural sector. In an oft-cited and striking statistic, the
agricultural sector employs 27.4 percent of the working population – well
over four million people – and yet it accounts for only 6 percent of the
gross domestic product. Equally problematic, 54 percent of
Poland’s two million-plus farms are under 5 hectares, very small by West
European standards (the average EU farm is around 18 hectares ) and positively
Lilliputian when compared to the vast tracts of the United States.
Poland’s levels of agricultural employment are also large when compared
to our Central European neighbors – successful collectivization in Hungary
and the Czech Republic left them with 7 and 5 percent of total employment
in their agricultural sectors, respectively.
Our decidedly
un-modern situation is largely the result of historical forces. Like
Russia, much of Poland’s peasantry remained serfs until the 19th century,
most working small strips of land at a subsistence level. While the
Industrial Revolution in Western Europe forced a move towards larger farms
and encouraged large gains in efficiency, most of the land that is Poland
today was under Russian rule and lagged behind. Even as late as 1900
82 percent of the population lived off the land. After WWII,
Poland’s conservative peasants forced an exception to the Communist push
towards collectivized agriculture. 83 percent of Poland’s farms remained
in private hands throughout the Communist era; most collectives were in
western Poland, where large German estates were incorporated in the post-war
redrawing of Europe’s borders.
Many
of Poland’s farms today bear a strong resemblance to those of centuries
past, too small for tractors or other modern farming methods and worked
by single families. In the context of accession to the European Union,
however, we must remember that the composition of the agricultural sector
is far from uniform. Only half of Poland’s farms sell food they have
produced and three quarters provide partial or no support to their owners.
Most of these derive their income from full- and part-time jobs off the
farm or pensions. Thus the majority of the agricultural sector is
removed from the market. It is the significant task of preparing
the roughly 500,000 farms that provide the main source of income to their
owners and employees for entry into the EU that most concerns us.
The second
problem we face in readying the agricultural sector for entry into the
EU is its inefficiency. The farms themselves are often too small
to utilize modern techniques, and much of the machinery and equipment used
to improve efficiency in the West is designed for large farms. Even
farmers with large areas of land and a desire to modernize are hampered
by a lack of capital.
The greatest
barrier Polish farms face, however, is the low quality of the infrastructure.
According to an EU report, “Poland’s infrastructure for communications,
energy provision and transportation” – all critical for a modern, competitive
agricultural sector – “is obsolete, and requires urgent upgrading.”
Another element of infrastructure critical to helping Poland’s farmers
get their products on to world markets is food processing services.
The same report noted that “much remains to be done to reach EU standards
especially in basic processing such as slaughterhouses, liquid milk treatment
and grain milling.” Already in poor shape after decades of
central planning, there has been little spending on infrastructure in the
past ten years due both to a lack of government resources and an emphasis
on low government spending as part of “shock-therapy” economic and market
reforms.
A third
issue facing any efforts to reform the agricultural sector is the political
volatility of the issue. Highly organized and capable of rousing
public sentiment, farmers have staged several protests recently – some
violent – in reaction to subsidy cuts. The farm lobby has been instrumental
in passing a law banning the sale of farmland to foreigners for 18 years,
and the vocal protests of Polish farmers have helped push public support
for joining the EU below 50 percent for the first time.
Poles
are not the only ones increasingly ambivalent about the potential costs
of European Union expansion. Though the governments of the EU’s member
states remain firmly committed to including Poland and our Central European
neighbors, as the projected membership dates draw nearer and negotiations
intensify many of the EU’s concerns over the impact of Poland’s agricultural
sector are being voiced.
The first,
of course, is the fear that bringing down the borders to trade will flood
the EU market with cheaper Polish goods, undercutting the products of countries
with large farm sectors (France and Spain). The reality is the opposite.
Encouraged over the past ten years by the EU and other Western advisors,
Poland has maintained one of the least protective tariff regimes and some
of the lowest subsidy levels in Europe in order to strengthen its markets.
The result
of these policies has been an increase in market share for the agricultural
exports of the EU at the expense of Poland and our Central European neighbors,
which (with the exception of Hungary) run a deficit in agricultural trade
with the EU. Poland’s annual food trade deficit with the EU is a
staggering $500 million. As one Hungarian academic writes,
“in regard to agricultural adjustment and fears that have been expressed
about the future of the agricultural sector in the EU the question must
be: ‘Who is threatening whom and who is gaining?’ The [Central and East
European countries] do not threaten the EU, but, rather, the opposite is
the case.”
Indeed,
without an increase in subsidies, Poland’s farms are likely to be overwhelmed
by the EU’s heavily subsidized agricultural sector even without membership
in the EU. A totally open border without significant aid would be
catastrophic for Poland without serious subsidy reforms and reduction in
the EU.
For EU
farmers, of course, subsidies are a sacred cow. And for the governments
of EU member states, their farmers are equally untouchable; for its size,
the EU farm lobby is perhaps the most powerful and unreasonable political
force on the continent. The farm lobbies of key players – namely
France – and of smaller but still vital nations like Spain, Greece, Portugal
and Italy are unlikely to accept our entry without fighting for restrictions
or an extended transition period for the agricultural sector. And
since membership must be ratified by the parliaments of each existing member
state, the politically savvy and organized farm lobbies of the EU are likely
to be one of the toughest obstacles we must surmount on the way to full
membership.
The biggest
challenge for our counterparts at the negotiating table is the EU’s notorious
Common Agricultural Policy, or CAP. Ironically, our counterparts
at the EU level are probably almost as troubled by the CAP as we are.
Bureaucrats at the EU level have been fighting for years to reform or reduce
the CAP, which accounts for an astounding 40.7 billion euro a year, nearly
half the EU’s annual budget. The CAP originated early in the history
of the European Union as a way to help European (particularly French) farmers
rebuild and develop an independent agricultural sector. It developed
into a bloated system of price controls, high tariffs and purchase guarantees
that ensured farmers in the EU got far more than international market value
for their produce.
Brussels
knows the CAP need serious changes. Most analysts within the Union
acknowledge the many problems with the CAP that exist wholly separate from
expansion. The CAP’s most ardent critic calls it “the single most
idiotic system of economic mismanagement that the rich western countries
have ever devised.” A report on the state of agriculture in
the EU sums up a few of the problems the CAP creates:
...the current level of
prices in the Union is still too high for it to be able to take advantage
of [the] expansion of world markets... If this is not corrected, the consequences
are easy to predict: surpluses will appear again and stocks will start
to build up and create intolerable budget costs. The Union will gradually
lose its position on both the world and internal market, not only in agricultural
commodities but also in processed products. This would have detrimental
effects on employment as well...
Expansion,
of course, makes the CAP all the more problematic. The same report
notes that “enlargement makes the measures of market management and simplification
which have to be taken anyway within the present Union even more necessary.”
The necessity of reform in the face of expansion is obvious. With
the costs of subsidizing the inefficiencies of French and other European
Union farmers eating up half the EU’s budget, extending the same benefits
to the huge population of Polish farmers – or even to only the 500,000
farms that provide the main source of income to their owners and employers
– would be a crippling expense, even without considering the needs of the
other nations vying for membership alongside us.
A final
headache the CAP brings for the EU negotiators is the political ramifications
of failing to substantially reform the CAP prior to the accession of Poland
and her neighbors. On the one hand, we are unlikely to accept anything
less than full access to CAP funds if it still exists when we join the
Union. On the other, reform will be a hard sell for the member states
and their farm lobbies. The most striking facet of the situation,
of course, is that the rhetoric of the CAP’s defenders is so far from their
desires. The CAP is touted as a way to save Europe’s traditions and
protect the small family farmer. In a world where rhetoric was linked
to reality, the CAP would be a blessing for Poland -- after all, as noted
above, no country in Europe has more small farmers still doing things the
traditional way than we do.
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