Agricultural economist in an interview
“The abolition of the agricultural diesel subsidy is overdue”
January 9, 2024, 8:50 a.m
The traffic light has partially cashed in on its planned subsidy cuts. But that doesn’t go far enough for farmers. In an interview, agricultural economist Balmann explains whether farmers are really being burdened disproportionately and why agricultural diesel subsidies are outdated.
ntv.de: The federal government has partially cashed in on its original cutback plans for agriculture. Are the currently planned cuts, as many farmers claim, really still a threat to the existence of companies?
Alfons Balmann: No, the current cutback plans do not threaten the existence of the companies. They are painful, but manageable in the long term. In the medium term, agriculture will have to find ways to adapt to this.
How do you explain the farmers’ dissatisfaction?
Prof. Dr. Alfons Balmann, Director of IAMO and Head of the Structural Change Department, Leibniz Institute for Agricultural Development in Transition Economies (IAMO), Halle (Saale) –
(Photo: picture alliance)
The current austerity plans alone do not justify the farmers’ dissatisfaction. The root causes of the protests lie deeper. Many farmers are unsettled. Other subsidies are also at risk. EU funding has already been reallocated. The requirements for farmers have been increased and will have to be increased further, particularly in the areas of climate protection, animal protection and biodiversity protection. This requires companies to make significant adjustments. Many companies will not be able to make these adjustments. A lot of investments are necessary. These are no longer worthwhile for certain company sizes today.
To what extent would the original plans of the traffic light coalition have burdened farms? Farmers’ Association President Joachim Rukwied estimates: one billion euros per year. Does the bill add up?
The number given by Farmers Association President Rukwied is correct. However, you have to see this in context. Agriculture receives many other subsidies. The agricultural diesel subsidies make up around 10 percent of what agriculture already receives in subsidies. They also corresponded to around 5 percent of the profits of an average business. Now, thanks to the cuts, that has actually been halved.
How do you rate the government’s proposals? Does it make sense to subsidize agricultural diesel?
The abolition of the agricultural diesel subsidy was long overdue. It hasn’t been possible to justify it really well for a long time. It tends to be harmful to the climate. State resources would now be better placed in other areas – for example, in supporting animal welfare measures or in financing effective climate protection.
What could a sensible reform of subsidies look like?
Current support has made agriculture dependent on subsidies. This results primarily from the fact that agricultural businesses have priced their subsidies, such as area aid, into lease agreements. This means that various agricultural businesses compete for agricultural land and drive up each other’s rental prices. Agricultural businesses must get to the point where they already plan for cuts in subsidies, which are inevitable, into their business decisions. For companies that are already uncompetitive, this can mean going out of business.
Supporters of the protests say: Farmers are being used disproportionately for the austerity package. Is that correct?
Agriculture is generally disproportionately burdened by savings plans, for example when it comes to: How big is the agricultural sector in Germany? It accounts for less than one percent of the gross domestic product. However, agriculture, for example, accounts for around 7.5 percent of greenhouse gas emissions. If you include the drained moors, it is responsible for almost 13 percent of the total. And in this respect it is plausible if, when taking climate protection measures, one cuts precisely those subsidies in agriculture that tend to have a harmful effect on the climate.
In the 2022/23 financial year, the average profit of agricultural businesses rose to a record level of 115,400 euros – an increase of 45 percent compared to the previous year. Shouldn’t the companies be able to cope with the cuts well?
The very good income situation in agriculture in recent years has helped many businesses to recover. In principle, they are able to buffer sudden subsidy cuts. However, this does not solve the problem that subsidy cuts must of course be bearable in the long term. This requires strategic measures at company level.
What could such measures look like?
Farmers should try to reduce their rental prices and reduce production areas that are particularly energy intensive. Of course, they may also have to consider: To what extent is the respective company still competitive? Many farms are afraid to initiate this change process. Because that will certainly also result in losers within agriculture.
Keyword farm deaths: To what extent do the announced cuts threaten the future of small businesses in particular?
The current cutback plans do not threaten the existence of even small businesses. A large part of the diesel subsidy goes to above-average large and above-average successful companies anyway. Smaller businesses, like organic businesses, only benefit disproportionately from diesel subsidies.
Do you think the protests on this scale are appropriate?
There is always a right to protest. However, the farmers’ association and the other protesting agricultural associations reacted very drastically to the cuts plans. And you also have to ask the associations: To what extent are they partly responsible for the current situation? On the one hand, because they failed to recognize in good time that there was a risk of a cut in agricultural diesel subsidies. And on the other hand, because the associations have not developed a strategy on how these funds, which have benefited agriculture in the past, can be redirected in a timely manner.
Juliane Kipper spoke to Alfons Balmann