AGRICULTURAL POLICY CHALLENGES IN THE GLOBALISATION PERIOD

Grzegorz Spychalski
Department of Economics, University of Agriculture in Szczecin, Poland

ABSTRACT

The article discusses the current challenges of world agricultural policy in the context of globalisation of economy. First there is a presentation of the preferences in agricultural production treatment coming from the natural and economic premises. Afterwards basic measures of food policy are described with special consideration of tax-payers money transfer to the farmers. Then one can find most important determinants of restructuring policy instruments in the national and world scale of intervention. Finally we could find some possible solutions in future deliberations regarding inevitable processes and public choice of the societies. Main thesis of the article states that there is a need of liberalisation and deregulation in agricultural policy to meet free-market rules and increase the efficiency of agri-enterprises.

Key words: agriculture, policy, globalization, state intervention.

Agriculture is a stepdaughter of the nature, but the beloved child of the governments
P. Samuelson

INTRODUCTION

One of the key problems of current economic policy is connected with agriculture. We have observed parallel processes in this particular sector using land and natural forces for the commercial purposes. The first is modernisation of farms raw materials and technology stimulating production efficiency increase and capital integration. As the consequence labour force in farming is decreased and less people is able to deliver more food for further processing. The second is permanent state intervention in the most developed countries and limitation of market rules in the main agricultural branches.

Common Agricultural Policy acting in the European Union uses so much Euro taxpayers budget that some countries decided to change priorities in financial policy. On the other hand individual farmers incomes are not satisfied and don’t fit the rule of equivalent wages in different economy branches. Global and national world institutions face the dilemma. How to introduce so much market into the agriculture as it possible with the consideration of farmers interest and all the rational factors supporting special positions of “green industry”.

At this same time main objective of the agricultural sector should be protected: producing adequate amount of the food in the structure and prices accepted by the consumers. The aim of this paper is to indicate the major determinants of agricultural policy in the aspect of the dilemma as well as describe author’s view of possible scenario in global strategy towards food producers.

PREMISES OF AGRICULTURAL POLICY AND ITS SHAPE

Agriculture as the special strategic type of production is characterised by several features treating as the premises for state intervention. One can describe them as follows:

1. Food is the special product. It is sold in fresh form and should be carefully protected during storage. Government must keep state reserves of food to ensure food independence.

2. From the market point of view most agricultural and food products have low value of income elasticity of demand that means its difficult to increase the sale of food in highly developed countries.

3. Agricultural production process implicates serious risk coming from natural factors influence and specific role of the land as basic production mean.

4. In agricultural enterprises (farms) we can observe the integration of the commercial activity and farmer household acting especially in the context of labour force using and the assets share.

5. As far as financial support is concerned the agriculture needs long-term credits availability because of the longer technological turnover and differences between expenditures and incomes(cash) of individual farms.

6. Agricultural production is spatially dispersed while the consumption is concentrated in the cities that causes logistic problems.

In these circumstances lots of governments decided to create set of measures facilitating operation of agricultural enterprises. From the beginning of 20^th century market regulations, subsidies and appropriate interventions have been introducing into the economic policy supporting farmers and their families. Modern developed systems spent about 240 billion of dollars for agricultural policy but tendencies of agricultural prices and budget support are still diverged (figure 1).

Apart from the total budget support important element of agricultural policy is the share of income coming from the tax-payers transfer to the farmers. It is described from the Producer Support Equivalent (PSE) equals percentage of farmers’ income coming from governmental sources (figure 2).

Main specific measures used in agricultural policy comprise:

• mechanism of minimal price for agricultural products guarantee by market intervention system and state reserves maintaining,

• trade policy instruments like import customs fees licences and import limitation and other importers obligations. Moreover export subsidies were implemented as one of most controversial measure of competition inhabitation,

• financial policy measures like tax reduction, preferences of credits for farmers or investment subsidies in many kinds of agribusiness activities,

• inland production protection by the governmental programmes and international promotion of country food products.

The European Union Common Agricultural Policy established in 1958 by Rome Treaty used all mentioned above instruments and became the symbol of state intervention model in agri-food sector. But after 30 years of experiences it occurred that the basic objectives had not been achieved.

Firstly there are still surpluses of key agricultural raw materials and market doesn’t play fundamental role in the farmers’ enterprises.

Secondly by supporting land owners incomes the real beneficiaries of direct payments seen to be only 20 % of total amount of farms. The rest 80 % do not benefit enough to receive equivalent profits from their farms.

Thirdly (maybe most important) the CAP did not enhance concentration process of agricultural assets and did not facilitate increase of competitiveness of European agriculture on the World Market.

Fourthly with the increase of food prices policy caused inflation rate growth and costs of living growth in whole Europe with the permanent increase of budget expenditures.

In that context European Union started to reform the CAP activity trying to implement new institutional framework and change some principles (figure 3).

These reforms can be represented by there main pillars:

1. Market stabilisation policy with more freedom in transactions and price determination.

2. Health security of all agri-food products by monitoring of whole food chain.

3. Policy of rural sustainable development connected with social and ecological aspects of economic activity.

In order to achieve the aims of reformed CAP new adjustment measures were implemented. Direct payments replaced price determination and funds for modernisation and production increase are gradually transferred into non-agricultural enterprises in the rural areas and to ecological and cultural “boxes” (figure 4).

According to that concept Europe is going to create Agricultural and Rural Policy in the new preliminary period 2007-2013 characterised by significant reduction of pure farming funds and transformation of market instruments into the structural ones.

CURRENT CHALLENGES

The most important determinant of agricultural policy is the globalisation in the economic world. World Trade Organisation (WTO) has become a forum for multilateral agreements regarding tariffs and customs taxed for all the international traded products. We observe nowadays Qatar round (millennium one) of the discussion and process of liberalisation meaning in the food trade. Active role in the negotiation play countries exporting lots of agricultural stuff integrated in CAIRNS group. These debates together with the changes of European Common Agricultural Policy should provide new relationships between major actors in the world market. As it shows figure 5 real reforms of world economic policy are to deliver new economic order about 2010.

According to the “Lisbon Strategy” of European Union near economic surroundings should be transformed with the use of four fundamental field activities.

The first one is the liberalisation and deregulation of economic systems. Common implementation of free-market rules is the first step connected with the limitation of state intervention in particular markets and national economies.

The second field comprises all the specific foundations in turnover freedom of main economic resources like labour, capital, services and goods in the national level as well as in international scale. Very important is the monopoly practice counteraction and promotion of multifunctional economic enterprises.

The third area regards the social insurance policy and employee guarantees unified in the European model. Unfortunately most of highly developed EU countries provide the sophisticated social security system based on the budget transfers to the households members. There is urgent need for replacement of this generation-agreement model by capital-oriented solutions. In this way, lots of tax-payers funds could be used individually and according to their preferences.

The four pillar of that reform is connected with the decentralisation of the economic policy as far as the regional authorise and local society’s competences are concerned. More decisions of public money spending should be made at the regional level. Local taxes, social expenditures and support programmes could be administered from the local communities’ institutions. Moreover regional activity is able to enhance entrepreneurship and innovation attitude among selected markets and many households.

From the global agricultural policy point of view we must take into consideration 50% of total population in the world living from agricultural products sale mainly in the poorest countries. As far as the richest part of the world will not stop the protection policy of their agricultural markets the nature-depended people will have problems. World Bank expertise estimates that liberalization of food trade is able to increase World Gross Product of 500 billions US dollars and therefore improve the level of living standards out of highly developed countries.

Moreover lots of agricultural policy measures should not be acceptable by the rules of market economy. Export subsidies clearly distort international competition of food producers because prices must represent system of technology and individual costs features.

Next consequence of current food policy is connected with the income effect of the farmers. While the direct payment depends on the farm size the biggest owners of land receive 75 percent of total producers support. It means that rather well operating agricultural enterprises still acquire additional money when the weaker ones miss the chance of development.

And last but not least negative aspect of modern policy regard the amount of total expenditures coming from the tax-payers and creating long-term obligation for the international community. It is always the public choice of the directions in public money spending and when 50 percent of the European Union budget goes to the 4 percent of the society other members of the community could be dissatisfied. None is able to predict how long that specific preference will last.

As far as all mentioned arguments are concerned there are some possible solutions changing world agriculture position and selected measures of economic policy.

First proposal concerns the liberalization of food trade and deregulation of national protection instruments what improves the total agricultural output and at the same time changes the structure of labour force involved in farming (Fig. 6).

As we see on the graph cheaper food producers will be able to extend their share in world market and receive more compensation from the consumers. On the other hand the dearest manufacturers will have to diminish their production and remove some employees from raw materials delivery.

The second concept is connected with the genetically modified organisms and biotechnological breakthrough in the food production. Common access to the new techniques and production measures is the best way of output increase. Important determinant of starvation limitation is the GMO implementation to the poorest countries and legal acceptance of these products not only in the United States but in European market as well.

Third proposal could be called the market one. It is necessary to improve the distribution systems in the agricultural products and in food processed output. Very important in that context is to organise institutional framework for wholesale trade in national and international level. Moreover we need to control food supply programmes in order to guarantee the efficiency of food aid. At the same time there is a need of quality monitoring in the whole agricultural and food chain from the field to the consumers’ table.

The fourth area of reform refers to the specific socioeconomic systems in particular national economies or in the international organisations. We can call it incorporation of the agriculture into the production and consumption models by creating set of relations between farms, rural households and other units. By this process rural areas can be transferred from monofunction reality into multifunction socio-economic system with the diversified companies and entrepreneurial society. This is a chance of being independent from specific agricultural markets fluctuations and rather low profitability of food raw materials production. That’s probably the most difficult challenge of the agricultural policy which involves every single institution and legal framework influencing agribusiness activities.

CONCLUSIONS

Globalisation is the inevitable process in the modern economy and social life. It is caused by the natural free-market consolidation and integration determined by the financial sector development and capital flows in the international market. Moreover many of the economic policy decisions are made in the world-scale organisations like World Trade Organisation, World Bank or International Monetary Fund and European Commission. It is high time to change their attitude to the agricultural policy according to current challenges and considering whole population interest. First global aim is to reduce lots of people starvation in the poorest countries of Africa and Asia. In that context agricultural policy should direct to the increase of food output in that part of the world and facilitate adequate distribution solutions for international trade.

Secondly, agriculture as the specific and strategic kind of sector should be treated with special care in the national economic policy. Many developed countries governments will continue their protection measures usage as the result of political choice. Moreover in some cases the instruments can help in maintaining the farmer profession existence to provide specific skills and the way of life.

Thirdly, agricultural enterprises and land owners apart from the production activity play the role of natural environment guards. Landscape, water and air quality depend on the green industry influence and air quality features impact on the whole society welfare. In that condition the rest of the community is obliged to pay for the rural areas conservation and transfer the price for clear environment for all of us.

REFERENCES

1. Buckwell A. et al. 1998. Towards Common Agricultural and Rural Policy for Europe (CARPE) reports and studies No 5 European Commission Brussels.

2. OECD Agricultural outlook 2003-2008. OECD reports 2003. New York, London.

3. Sznajder M. Próba diagnozy układu sił w œwiatowym rolnictwie a Runda Milenijna WTO [Attempt of diagnosis of power system in world agriculture and WTO Millennium Round], Ekonomista: 2/2001 [in Polish].

4. World Bank. Annual reports of Agriculture 2005. New York Publisher.

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