Is protection the solution for agriculture?

Farmers in many countries are being faced with the reduction or complete elimination of protection, be it in the form of subsidies or in the form of levies. Farmers and the farming community fear for their future. They fear that once protection is removed the traditional family farm will be destroyed forever.

Locally this very same debate continues to rage on. Should our agriculture continue to be heavily protected or should it be liberalised? Will foreign competition completely wipe out our agricultural sector or will it lead to a more efficient sector? These are the questions being asked, the questions to which many continue to seek answers.

The Maltese government has taken the decision to gradually liberalise the agricultural sector. The move in this direction is being somewhat opposed by most of the operators. Over the past months one can however detect that given the right information and assistance the initial outright opposition to liberalisation is somewhat waning.

Unfortunately, but predictably, the Malta Labour Party continues to maintain an opportunistic role, ready to promise anything as long as this will result in more votes leading to the throne of power.

Some months back the Leader of the Opposition declared that he will be informing the EU in writing that should the MLP be returned to power it would reintroduce the current level of protective levies. Whether he has actually written to the Commission to this effect is yet to be verified.

The Maltese agricultural sector

A total area of 12,000* hectares is being used for agricultural purposes, this from a possible 31,600 hectares which means that only some 38% of the land available is being used for agriculture. This is lower than the average share of cultivated land in the EU which stands at about 40.6%. Direct agricultural activity accounts for 2% of GDP which is on par with that of the EU. About 3,000 people are directly employed in agriculture and fisheries, corresponding to 1.9% of total employment. This is an extremely low figure when compared with the 4.3% found in the EU.

Malta's agricultural trade balance is negative. In 2000 agricultural trade had a share of 2.4% of total exports and 8.1% of total imports. Since 1996 the value of agricultural production has been decreasing steadily with crop production being the main activity.

Is protection providing the right environment for sustainable growth?

If a system is working well it should not be disrupted. Those in favour of retaining protection argue that this system has given local agriculture the opportunity to grow and it is only by continuing with the same system that the future of agriculture can be guaranteed.

There are those who even go as far as to claim that once all protection is removed our agricultural sector will be destroyed. However this, in our view, is a superficial argument that does not look at what is really happening on the ground.

For agriculture to have any kind of future at all it is essential that there are the people willing to work within the sector. The harsh reality of our agricultural sector is that it is dying a slow death. While this may seem to be a wild claim a quick look at the figures pertaining to the number of farmers within different age groups working in agriculture clearly demonstrate this.

The farming population is aging rapidly and no replacement by young farmers is taking place. This has been the trend for the past 10 years and it is clear that unless dramatic action is taken it is very unlikely to change.

The situation in the part-time farming sector is even more critical than in the full time sector where the decline is slightly less but nonethe- less also fatal. The collapse in the number of farmers both full time and part-time between the 20 and 29 age bracket is almost total, with that in the 30-39 age bracket being not far behind. Only 10.7% of the total farming population is under 40.

The decline of the agricultural sector is further highlighted by the decline in productivity since 1996. While the period 1990 to 1996 witnessed a noticeable increase the period 1996 to 2001 has continued to register a decline.

This has been accompanied by an increase in the negative trade balance for agricultural products. It is therefore obvious that a certain amount of import penetration is already taking place and in spite of high protective levies consumers are buying more foreign agricultural products than before.

While one may wax lyrical to one's heart's content about having fiducja that the Maltese agricultural sector can continue on its current course the facts we are quoting unequivocally show that without substantial changes in farming to make it a more attractive profession for younger people, Maltese agriculture will soon become a thing of the past.

Then what should one do? Will full liberalisation provide the solution? One can argue that Malta has its own particular circumstances but useful lessons can always be learnt from the experience of others. The experience of New Zealand in particular is interesting in that from one day to the next it passed from heavy subsidisation to complete liberalisation.

The New Zealand experience

In 1984 nearly 40% of the income of the average New Zealand farm came from government subsidies. A year later almost all these subsidies were removed. Almost 30 different production subsidies and export incentives were abolished in the New Zealand government's November 1984 budget. At that time the government was accused of abandoning the farming community. The impact on farmers did not fully bite until 1997.

Many farmers felt increased pressure due to falling commodity prices and the increase on farm costs. However the rapid transition to a market economy proved to be less daunting than expected. Early predictions of huge numbers of farmers walking off their land did not occur. Official predictions were that 8,000 farms would fail. In the end only 1% of the total number faced forced sale.

During the transition many farmers supplemented their incomes by diversifying into other areas such as farm tourism but in the main farmers just reduced costs and focused on producing higher value products which were profitable.

All investment decisions became subject to strict commercial and good-farming disciplines. When subsidies were removed farm expenditure was slashed as farmers spent only on absolute essentials and more efficient production methods were adopted.

Fifteen years after removing all subsidies the value of the economic activity in New Zealand's farm sector has grown by over 40%. Its contribution to the New Zealand economy has risen from 14.2% of GDP in 1986 to 16.6% in 2000. Economic growth in the agricultural sector has outpaced growth in the New Zealand economy as a whole.

The productivity of the sector improved by an annual average of 5.9% in comparison with the 1% during the period before the removal of subsidies. The removal of all protection in New Zealand has given birth to a vibrant, diversified and growing rural economy.

The way forward for Maltese agriculture

The European Movement (Malta) is not advocating an immediate full liberalisation of the agricultural sector. Indeed the particular circumstances within which Maltese agriculture operates must be taken into consideration. However it is clear that the current protective system is only contributing to the slow death of Maltese agriculture. The truth is that the current protective system is resulting in fewer farmers working less land and producing fewer products.

The signs of an ailing sector are there for all to see and have been there for a number of years. Let's face it, had it not been for EU membership little or nothing would have been done for the agricultural sector and the situation would have become more critical with each passing season.

Instead, over the past two years, we have witnessed intense discussions on the future of the sector and a whole rethink is taking place. Whereas previously policy decisions were just delivered from above, the different operators within the sector have been called upon to give their views and inputs about the future of their sector.

They might not all be fully satisfied with how the discussions have progressed but they are certainly far better than in previous years where they never had the opportunity to voice their views on the sector from which they earn their living.

We seem to have finally realised that unless we start to concentrate on some key products agriculture will continue to lose its appeal. Finally we seem to be realising that unless we focus on those products in which we are competitive agriculture will never become a profitable business.

Hence the decision to give certain products such as potatoes, tomatoes, vine growing and flowers, special attention. Assistance for these products should also be available under the rural development plan which is now said to be in its final stages. It would seem that we do have the potential to export these products and thus it is only logical that we start to seriously concentrate on producing them.

Along with these products one should also look into the viability of seriously developing an olive oil industry. From the initial efforts of one enterprising individual it seems that there also exists potential for this product.

This is not to say that we should abandon all the other agricultural products currently found within our local agricultural activity. Indeed activities such as the milk, pork and poultry industries must be maintained however some redimensioning might be required.

In this sense the European Movement (Malta) feels that the government's decision to provide assistance for a defined number of years to a number of different sectors within the agricultural sector makes sense. This will enable them to undertake the necessary restructuring while starting to operate within an increasingly liberalised environment. What is crucial is that the assistance is provided for a defined period and that the sectors involved do not become dependent on that assistance.

During this period operators will have to take key decisions with regards to the type of operation they want to run and what products they want to produce.

The agricultural sector is being called upon to depart from today's seemingly protected system to a more challenging one of open competition. This however should not be seen as a move that will lead to the downfall of the agricultural sector. Rather it should be seen as a move necessary for the long-term viability of the sector.

Just as with many other economic sectors of the country, maintaining the status quo is no longer viable. Now is the time to take the necessary bold steps to put agriculture on a sounder footing. Failing to do so or trying to maintain the current system will in effect lead to the death of the sector and that is something the country cannot afford.

* Agricultural situation in the candidate countries - country report on Malta, European Commission, Directorate-General for agriculture, July 2002.