interview
Farmers across the country are protesting against the abolition of discounted agricultural diesel. For agricultural economist Christian Henning, this is just the hook: it’s less about the cuts, but more about the big picture of agricultural policy.
Mister Henning, Farmers across Germany are protesting against austerity measures in the agricultural sector. Judging by the scale, you might think it was about their existence. But: How bad are things really for Germany’s farmers?
Very different. We have farmers with enormous adaptation problems, and those who are coping very well: The current protests are more about pent-up frustration about continuous mismanagement of agricultural policy than anger about the abolition of agricultural diesel by 2026. Because that is economically negligible.
The federal government has already reversed parts of the original cuts. What remains is the abolition of the discounted rate Agricultural diesel. What sums are we talking about here?
About 25 euros per hectare per year, well under five percent of the total costs per hectare. That’s not a lot of money for the federal government or for most farmers. So economics does not justify the emotional reactions. Especially not personal attacks like those against Robert Habeck, which can never be justified. Despite all the justified discontent, it is important to seek constructive political discourse in order to find common solutions.
But why are farmers fighting so vehemently against abolition?
As I said: It’s not just about agricultural diesel. That’s just the current hang-up, and it’s certainly annoying for some farmers. The point is that politicians, specifically the old and new federal governments, have so far failed to create adequate agricultural policy framework conditions that enable an effective transformation to sustainable agriculture. This is all the more unfortunate because this transformation represents a potential win-win situation for farmers and consumers.
What do you mean?
The aim of sustainable agriculture is to achieve the maximum possible amount of ecosystem services with the given natural resources. These include, for example, classic agricultural products such as grain and milk, but also ecological services such as biodiversity, water and climate protection. In order to achieve this, the right incentives must be set for companies.
And that doesn’t work?
No. The state sets bureaucratic requirements for special technologies, especially in organic farming. Such specifications are always inefficient because they block incentives or set them incorrectly.
In other words: the market must be liberalized…
Not necessarily. The market alone also leads to false incentives because important ecosystem services such as water and climate protection cannot be adequately rewarded via the market. We need political control mechanisms that translate social needs into correct incentives for farmers.
“Sustainable agriculture can and should be lucrative”
So it’s more politics than money that farmers are complaining about?
Yes, definitely. And yet, of course, there are also cases where the income is not enough and where the protest now comes more from this direction.
What does a farmer earn?
This is also very different. On average across all companies, we have a business income of around 46,000 euros per family worker. But you have to look closely: the lower quarter of agricultural businesses earn less than 14,000 euros, while the upper quarter earns more than 63,000 euros per family worker. What is important here is that agriculture is mostly just a sideline activity for the lower quarter, while highly innovative companies operate in the upper quarter.
That still sounds very satisfactory…
Yes, agriculture, and especially sustainable agriculture, can and should be lucrative and does not suffer from an income deficit across the board. The problem why some don’t get along lies more in the future. We are experiencing a dynamic structural change and the prospects are currently such that it is often no longer worthwhile to continue running the farm in the long term.
Why?
This is especially true when it comes to size. We currently have an average farm size of 68 hectares. However, this is by no means the size of the farm with which long-term, solid agriculture is conceivable under the given conditions. That’s more like 200 hectares. And this trend towards size means that we have churn rates of 2.5 to 3 percent of farms every year because farmers abandon them. But that’s just one point. What is much more important is that we need innovative agricultural policy solutions.
“Farmer protests are also directed against bureaucracy”
What do you mean?
One of the best confirmed results in economics is that the market demand for public goods – such as climate protection and biodiversity – does not correspond to the actual preference. We need political control mechanisms that translate social needs into correct incentives for farmers.
Farmers are also protesting about this. What would your solution look like?
Four points: effectiveness, efficiency, social justice and political feasibility. Politics is now crucial, especially in terms of effectiveness and efficiency, because it sets the framework for greenhouse gases and nitrate pollution. There is currently no such direct technical approach for biodiversity.
And something has to happen here?
Yes, the current bureaucratic requirements in this area – such as the promotion of organic farming – are an inefficient and ineffective approach because they block and misplace incentives for entrepreneurs. This is a legitimate criticism. In addition to political measures such as taxes, subsidies and special environmental support programs, tradable environmental certificates seem to me to be a more innovative political solution. These could be set up similarly to the ETS system for CO2 emissions.
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Source: Stern
