EMPLOYMENT AND LABOUR EFFICIENCY IN EU AGRICULTURE, 2004

Lucyna Błażejczyk-Majka¹, Radosław Kala², Krzysztof Maciejewski^3
1 Institute of History, The Adam Mickiewicz University of Poznań, Poland
² Department of Mathematical and Statistical Methods, Poznań University of Life Sciences, Poland
³ Department of Product Ecology, The Poznań University of Economics, Poznań, Poland

ABSTRACT

Employment, next to labour efficiency, belongs to the most important economic indicators. In the paper the levels of these indicators are analyzed on the basis of regional data for the year of 2004, published within the FADN system. Four selected types of farms were included in the analysis, together with their economic size and nationality. Results obtained show the scale of disproportions between the old European Union members and the ten new member states, which indirectly facilitates the evaluation of the effects of the Common Agricultural Policy.

Key words: employment, labour efficiency, EU agriculture.

INTRODUCTION

Agriculture, due to its specific character, apart from laws of economics is also subjected to the action of natural and social factors. The latter are also connected with the interventionism of governments of individual states, affecting mainly changes in the employment level and profitability of this branch of economy. From the macroeconomic point of view the most important indicator is labour efficiency. Even high employment in agriculture does not necessarily mean a burden for economy if farmers obtain satisfactory incomes. Intensive changes, both in terms of employment and of labour efficiency in agriculture, occur first of all during the period of transformation [11]. A historical analysis of the integration process indicates that such a situation took place in the first years of membership of the new member countries in the European Union [3]. Therefore, it is interesting to compare the values of both these indicators for the ten new (i.e. admitted on May 1, 2004) and the fifteen older members of the European Union (EU). Such investigations constitute the base for the analysis of dynamics of changes in employment in agriculture and facilitate also an evaluation of the initial degree of integration of new member countries in terms of employment in agriculture and an assessment of the effects of reforms introduced within the framework of the Common Agricultural Policy (CAP) in the old fifteen member states.

Employment and labour efficiency in agriculture vary among individual countries or even neighbouring regions [8,10,2]. Geographical locations and agrometeorological conditions are of considerable importance in this respect [7,5], together with technological standard and the legal system [1]. The above mentioned economic indicators depend also on the specialization of farms and their economic size [2]. Macours and Swinnen [11,12] and [6] pointed also to the importance of such differentiating factors as liberalization of prices, reduction of subsidies, reorganization of farms, diversification of their initial capital levels and the scope of welfare and social benefits.

In the European Union the integration process consists first of all in free movement of right to property as well as goods and services. At the same time restrictions on migration processes are eliminated [13]. As a consequence, the technical change is introduced in agriculture, resulting in an improvement of labour efficiency. It is expected that following integration, thanks to the opening of borders and CAP, some barriers causing artificial retention of labour force in agriculture will be removed. As a consequence it is expected that, especially in agriculture of the new member states, employment levels will be balanced leading to improvement in labour efficiency.

The aim of the study was to indicate differences in the volume of employment and labour efficiency in EU agriculture with special emphasis on the situation in the new member countries. The analysis was based on economic indicators referring to agricultural regions of individual EU members, including four primary trends in agricultural activity and six economic sizes of farms. Investigations were conducted on the basis of statistical data publicized by the Farm Accounting Data Network (FADN), collected by the Centre for Agricultural Economics (CEA) in Brussels, which was established in stages following the expansion of the European Union. It guarantees sufficient degree of detail and reliability of collected data [2].

THE SCOPE OF STUDY

The FADN system is focused primarily on commercial farms, playing an essential role in the generation of added value in agriculture. These are the biggest farms, generating jointly at least 90% of Standard Gross Margin (SGM) in a given region or country. This value is defined as the surplus of value of output in a specific agricultural activity over the value of direct costs incurred under average production conditions for a given region. In order to eliminate the effect of changes in production caused e.g. by adverse weather conditions or fluctuation of prices for products and means of production, the FADN system gives mean values determined on the basis of annual data from three successive years.

The total value of SGM achieved in individual types of agricultural activity is the starting point for the determination of the economic size of each farm. It is expressed in European Size Units (ESU), with one unit corresponding to the equivalent of 1200 euro. The division of farms adopted within the FADN system according to the economic size of farms includes six classes. They are very small farms (XS), small (S), medium small (MS), medium large (ML), large (L) and very large (XL). These classes cover diverse farms, which in ESU units are determined by the following intervals: (0, 4), [4, 8), [8, 16), [16, 40), [40, 100), [100 and more).

Moreover, the shares of individual types of agricultural activity in the generation of the total value of SGM constitute the basis for the determination of the type of each farm. Depending on the adopted level of accuracy there are eight general types, seventeen basic types or 50 specific types. In order to emphasize differences the analysis was limited to farms representing four selected general types – specialist field crops, specialist permanent crops, specialist grazing livestock and mixed crops and livestock.

The general type of specialist field crops includes farms specializing in growing of cereal crops, oil and pulse crops, as well as other field crops. The second type covers farms specializing in the production of individual fruit species, including citrus fruit. The grazing livestock type covers farms specializing in rearing and breeding both beef and dairy cattle. This type includes also farms rearing and breeding sheep, goats and other animals kept in the grazing system. The last mixed type includes farms, which at the same time produce crops and animals in the grazing system. This also covers farms achieving income from the simultaneous keeping of many animal species and growing many plant species.

In order to assess and compare the effectiveness of labour including different sizes and types of farms, out of numerous characteristics supplied by the FADN system two basic statistics were selected, i.e. the value of standard gross margin and the volume of total labour. The former is expressed in ESU, while the latter in Annual Work Units (AWU), with one unit being an equivalent to 2200 labour hours annually.

The research was based on data from 2004 published by the FADN system. It facilitates the analysis in relation to all EU countries except Malta, for which respective statistics have not been published to date. Average farms representing individual EU regions, in the six aforementioned economic sizes as well in the four previously characterized agricultural types were adopted as basic economic units. As a consequence, a total of 877 such averaged farms, further also referred to as farms, were analyzed.

The distribution of averaged farms over the classes of economic sizes and agricultural types is presented in Table 1. The specialist field crops type is represented by 280 units, while the grazing livestock type - by 285 units. In terms of the economic size the most frequent are medium large (ML) and large (L) farms.

LABOUR EFFICIENCY

The ratio of value of standard gross margin (SGM) to the number of individuals employed full-time in the farm (AWU) was adopted as a measure of efficiency of labour. These efficiencies for individual farms varied considerably, as it is revealed by their empirical distribution presented in Fig. 1. This histogram with evidently the right hand side skewness suggests a log-normal distribution.

Diversification of farms, with respect to labour efficiency, results from the action of many factors, such as agricultural types or economic size of farms, mentioned above, but a considerable role is played also by agrometeorological conditions found in different regions of individual countries [5]. In order to visualize these dependencies the entire range of efficiency levels was divided into five classes, each covering 20% successive farms. These classes are defined by the following intervals (1.38, 7.90], (7.90, 14.81], (14.81, 24.95], (24.95, 43.09], (43.09, 101.13] and will be denoted by letters a - e, respectively. Next, in accordance with these classes all units were divided, taking into account four agricultural types and geographical affiliation of regions. The results of classification are presented in Table 2. On this basis it is clear that labour efficiency in agriculture in countries joining EU after May 1, 2004, was lower than in countries being older EU members. However, also in the group of the old members there are countries with higher and lower labour efficiency. In order to underline these differences in the further analysis three groups of countries were distinguished.

The first group (North) consists of northern countries: Great Britain (GB), Ireland (IRL), Sweden (S), Finland (FIN), Denmark (DK), Belgium (B), Holland (NL), Luxemburg (L), France (F), Germany (D), and Austria (A), i.e. countries with high or very high labour efficiency almost in all four types of agricultural activity. As many as 75% farms in this group of countries belong to the two highest efficiency ranges. Especially high labour efficiency is recorded for farms specializing in field crops and grazing livestock.

The second group (South) includes countries located in the south of Europe, i.e. Italy (I), Spain (E), Greece (GR) and Portugal (P). These are countries with varied labour efficiency – from very low to very high. In this group only 22% farms generate gross margin belonging to the two highest efficiency ranges. At the same time in this group the number of farms specializing in permanent crops is highest and the share of farms of mixed type is the lowest.

The third group (New) is composed of the new member countries, i.e. Cyprus (CY), Hungary (H), Slovenia (SLO), the Czech Republic (CZ), Slovakia (SK), Lithuania (LT), Latvia (LV), Estonia (EW) and Poland (PL). Labour efficiency in agriculture in this group, with one exception, does not exceed the average level and 55% farms are classified to the lowest interval of labour efficiency. In this group the share of farms specializing in permanent crops is especially low and at the same time the share of farms specializing in field crops is very high.

The distinguished groups of countries are characterized in Table 3, where the percentages of individual types of farms in their total number are presented. It may easily be seen that if in the North group the distribution of units is rather uniform with a majority of farms specializing in grazing livestock, then in the South group farms of the mixed type are in extreme minority. Such a distribution of farms confirms an obvious dependence between the trend in production and agricultural conditions resulting from the geographical location of countries. Thus, the South group is composed primarily of countries in which fruit and grape production predominates. Similar agricultural conditions are found in only several regions belonging to the North group.

In the New group the number of farms specializing in permanent crops is the smallest, while the number of farms growing mainly field crops is the highest. Such a structure of farms to a considerable degree is the secondary effect of collectivization processes in the Eastern Bloc countries after WWII. After the fall of the communist system it resulted usually in the transformation of state-owned farms into various forms of shareholder companies, running large area farms, which in turn enforced their extensification into field crops. It also should be stressed that in the new EU members only those farms are included in the classification which keep agricultural accountancy records, which in those countries, especially in smaller farms, is far from common. Moreover, these smallest farms usually specialize in more intensive types of production, i.e. connected with animal production or permanent crop cultivation.

COMPARISONS OF NORTH VS. SOUTH VS. NEW

In the sector of agriculture the dependence between the value of standard gross margin generated by one worker and employment level is hard to specify, as the number of individuals working in a single farm, in comparison to units from other sectors of economy, is relatively small. Nevertheless, some relations can be established taking into consideration types and economic size of farms. Mean values of employment (AWU) and labour efficiency (ESU/AWU) are presented in Table 4.

Based on Table 4 it may first of all be observed that – except for the biggest farms – employment level in the North group, irrespective of specialization, was the lowest. This observation is not surprising and is consistent with conclusions of Findeis [4] and Black at al. (2005). As it was additionally noted by Findeis [4], reduction of employment in developed countries occurs at a simultaneous relative increase in employment of hired labour, which means that the number of family farms is decreasing. Employment in farms from the South group was slightly higher. In turn, employment level in the New group was the highest. An especially high mean employment level was recorded for large farms (L) and exceptionally high in the group of very large ones (XL).

As to labour efficiency, expressed in the value of SGM per one employed worker, it can be noted that the highest efficiency is found for farms of the North group, while the lowest for farms representing the new EU members. Moreover, labour efficiency in each case increases along with an increase in economic size, although it occurs on a different scale for different types of farms. The smallest changes were recorded for farms in the New group.

The means of employment level and of labour efficiencies depending on the economical farm size, with the exception of the largest (XL) farms, where considerable variation of analyzed indicators was observed, are presented in Fig. 2. Due to empty subclasses in Table 4 or their very limited representation, a complete statistical comparison of employment level and labour efficiency for all combinations of country groups (North, South, New) and farm economic sizes (XS, S, MS, ML, L, XL) is not possible. Some results of such comparisons between the North and South groups and the South and New groups are contained in Table 5. They were expressed both in the form of differences and in per cent, in relation to the group of less effective units, giving the percentage of a decrease in employment and an increase in labour efficiency.

Fig. 2. Employment level and labour efficiency depending on the economic size for different types of farms and selected country groups; North, South, New

In view of these comparisons it can be stated that in farms specializing in the cultivation of permanent crops, there are no significant differences in employment between North and South groups. A similar conclusion may be drawn for medium-small (MS) farms specializing in grazing livestock. However, the employment level in bigger (ML, L) farms of mixed type or grazing animals was by approx. 18–19% higher in farms belonging to the South group than in farms belonging to the North group. In turn, in farms specializing in field crops, except for the not very representative (MS) class, employment in farms belonging to the South group was by approx. 15% higher than in those belonging to the North group.

Employment in farms of the new EU members in comparison to employment in the countries of the South group turned out to be significantly higher for all four types of farms, except for the smallest (XS) specializing in the cultivation of permanent crops. Employment in farms of the New group was higher by 28%, for medium-small (MS) mixed type farms, to 71% for large (L) farms specializing in grazing livestock. Moreover, it is easily seen that the larger a farm is, the bigger differences in employment appear, with the biggest drop in employment being recorded in animal farms. Such a situation may be connected indirectly with privatization processes in the Eastern Bloc countries, which enforced in the period of transformation the maintenance of a high employment level. This could also have been affected by other factors, such as e.g. differences in the mechanization level in this kind of production.

With respect to labour efficiency differences between farms of the North and South groups were not significant only in case of large (L) farms specializing in the cultivation of permanent crops, and medium-small (MS) farms specializing in rearing of grazing livestock. The other differences were statistically significant and expressed in per cents ranged from 30% to 37%, except for farms of the MS size specializing in the cultivation of field crops, in which the superiority of labour efficiency of the northern countries over the southern countries was as much as 89%. Differences in labour efficiency between farms of the South and New groups were all significant, except for small (S) farms representing the specialist field crops type. Expressed in per cents they ranged from 38% to 127%.

In conclusion, it needs to be stressed that in all cases which could be compared (with the exception of medium-small farms specializing in field crops) percentage differences in labour efficiency between farms representing the North and South groups were smaller than analogous differences between farms from the South and New groups. Such a relation may be indirectly connected with the effects of the Common Agricultural Policy. Namely, after the implementation of the Mac Sharry plan CAP was aiming at a reduction of intensity of agricultural production, first of all by increasing the importance of non-agricultural sources of income. Also the instruments applied within the framework of successive CAP reforms have been directed at a reduction of employment and an increase in labour efficiency. The effect of these actions seems to be confirmed by the observed marked reductions of disproportions in employment and labour efficiency.

CONCLUDING REMARKS

In the paper employment and labour efficiency in agriculture within the European Union are analyzed in reference to 2004, a year of the accession of ten new member states to EU. Apart from the group of the new member states, the other countries of EU were considered in terms of two groups, one including the northern countries, i.e. Great Britain (GB), Sweden (S), Finland (FIN), Denmark (DK), France (F), Germany (D), Holland (NL), Luxemburg (L), Austria (A) and Ireland (IRL), which are characterized by high or very high efficiency, and the other group, comprising Spain (E), Portugal (P), Greece (GR) and Italy (I), which exhibits high variation in the level of both these economic indicators.

Results obtained confirm that in 2004 the new member states were characterized by the lowest labour efficiency in all four types of farms as well as in all considered economic farm sizes. Such a situation was undoubtedly affected by many factors, one of them being a high employment level. The smallest differences in the mean employment level and labour efficiency in the new member countries in comparison to the southern EU countries were recorded in case of farms representing the specialist field crops type. Especially big differences were found between farms specializing in rearing of grazing livestock, which may be connected with the lower level of mechanization of this kind of production in the new member states.

Moreover, the established results show that differences in employment level and labour efficiency between farms of the new member countries and farms of southern EU countries were much greater than between farms representing the southern countries and northern ones. These disproportions in employment level and labour efficiency, manifested especially when taking into consideration farms types, can be seen as an effect of the Common Agricultural Policy, which has been in force for many years in the old EU members and was absent in the ten new EU members.

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Accepted for print: 21.08.2008

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