The two most important sectors of agriculture in Gozo are tomatoes for processing and dairy.The two most important sectors of agriculture in Gozo are tomatoes for processing and dairy.

In many ways, farmers in Gozo face the same challenges as farmers in Malta but the problem of double insularity causes added stress and financial cost. In fact, double insularity affects the movement of people, cost of imports and exports, and other economic activities which are of vital importance for the island’s quality of life and economic performance.

Gozo’s GDP per capita performance is affected by constraints on economic production and the ability to reap economies of scale, the lack of diversification of products, high transport costs, low attractiveness for investment opportunities, large public sector activity and a lack of absorption of technological capacities.

In Article 174 of the Treaty on the Functioning of the EU, the EU recognised that island regions, including Gozo, suffer from severe and permanent natural or demographic handicaps. In fact, during the 2007-2013 EU financial period, 10 per cent of the Maltese island’s allocation of the Structural Funds was aimed at addressing Gozo’s specific needs.

In theory this aid should have affected positively, albeit indirectly, agriculture in Gozo but as things stand, agriculture in Gozo (at least that segment which remains viable) is still heavily reliant on either state aid or Common Agriculture Policy funding or a combination of both, implying that agriculture in Gozo remains as vulnerable as it was on the date of accession. If anything, the degree of vulnerability has increased, particularly as state aid by way of the Special Market Policy Programme for Maltese agriculture has either expired or is drawing to a close.

It is not surprising, therefore, that young individuals are not as interested in farming as their forefathers. Only seven per cent of farmers are aged under 25. The National Office of Statistics last year revealed a rather dismal state of affairs: There were only 1,301 full-time farmers in Malta and Gozo. Of these, 61 per cent were aged over 45 and 32 per cent were between 25 and 44. On the plus side, there were 17,000 part-time farmers and one is yet to see how the Common Agriculture Policy scheme aimed at encouraging young persons (in addition to existing help, new farmers will receive an extra 25 per cent in income support for the first five years) to take up farming will work. With 51 per cent of all farmers in Malta and Gozo, whether full-time or part-time, working land smaller than one hectare in size, one can easily comprehend why young persons are not so keen to take up farming on a fulltime and professional basis.

In terms of economic activity, the two most important sectors of agriculture in Gozo are dairy and tomatoes for processing. The importance of these sectors dates back decades and today they rely to a significant degree on EU funds in the form of price subsidy for tomatoes and EU aid, based on entitlements, in the case of the dairy sector. This aid makes it possible for dairy farmers and tomato producers to cover part of their increasing costs of production and the good news is that this will be extended beyond 2013 with the voluntary coupled support. This should allow both sectors to remain competitive, at least till 2020 as long as costs do not exceed the revenue received by farmers inclusive of subsidy.

In the case of dairy farmers the main cost component in the production of milk is feed and for Gozitan farmers this involves an added cost due to the transportation of feed from Malta to Gozo. However, the main challenge is the vulnerability to international market prices for barley, maize and soya, key components of processed feed. State aid has partly compensated for the increase in prices but a longer-term solution is required at EU level with recognition being given to the peripheral status of the Maltese agriculture sector. Such status exists in the case of Finland and would allow for measures including state aid options to compensate for the added costs incurred by dairy farmers. Of course, this would require a robust negotiating position by the Maltese Government.

Dairy farmers in Gozo have invested very heavily and they would not have done so if they were not optimistic about their future. The dairy sector has not faced the same level of competition as in other sectors of agriculture, largely thanks to the measures taken jointly by the Koperattiva tal-Produtturi tal-Ħalib and the Malta Dairy Products immediately prior to and following accession. In fact, the dairy sector remains one of a few sectors in agriculture with a largely successful vertically-integrated system.

Nonetheless, vulnerability to price hikes in the grains sector, the need for ongoing quality control, as well as for continuous product innovation and research at Malta Dairy Products are the key challenges for this sector. Though one cannot exclude market penetration from European dairy processing plants for the supply of fresh milk to the Maltese islands, the dairy sector, despite its very unique challenges, remains highly efficient and competitive, while guaranteeing comparable returns to farmers.

Insofar as tomato production is concerned, at present and for the next programming period at least, this sector relies rather heavily on the combination of state and EU aid to cover costs of production and returns. Without the voluntary aid support, producers of tomatoes for processing would have to turn to other crops assuming a market for such produce were possible.

For the foreseeable future at least, tomatoes for processing remains an important source of agriculture income for Gozitan farmers and the exports by the leading tomato processor in Gozo of tomato-based products, sourced also from local produce, is evidence of the importance of this sector. It also shows that the current pricing regime inclusive of subsidy has helped to maintain export competitiveness of such products.

It should be noted that costs of production in agriculture are increasing due to compliance with environmental standards in line with the Nitrates Directive and other relevant regulations. These standards are beneficial to the Maltese islands as a whole but compliance comes at a cost. The added cost could result in lower quality production of all crops, including tomatoes for processing as producers attempt to reduce costs. Sacrificing quality, however, is a high-risk strategy as local tomato processing plants are facing stiff competition for their tomato-based products on the supermarket shelves.

In EU countries, like Italy and Spain, the production of tomatoes for processing can rely on large-scale production which helps to drive costs down.

This, of course, is impossible for the local processing plants and price subsidy is absolutely necessary for this sector to remain viable in the future.

Quite apart from the voluntary coupled support, the sector will also need support by way of technical advice to further improve quality and possibly yield, and further invest through the Modernisation of Farms scheme under the new Rural Development Fund. This applies for all sectors of agriculture in Gozo since investment in new production techniques is vital to help production cost over the medium and long-term. The onus, however, is on Gozitan farmers to consider, where possible, business ventures as a group and not individually given the average size of holdings in Gozo. This makes sense also in applying for EU funds. Despite its double insularity problem, agriculture in Gozo has been very resilient and evidence of this is the investment that has taken place in the dairy farms sited mainly in the outskirts of Xewkija as well as the processing plants for tomatoes for processing, wineries and mushroom production.

Agriculture has strong roots in the small communities of Gozo’s rural villages, and individuals take up farming because of these roots and the strong attachment to the heritage of farming. In some ways, it is akin to what we economists term ‘bequest motive’. The agriculture land passes from one generation to the next and this could almost guarantee the survival of agriculture in Gozo. It need not survive in its current shape or form, and I would anticipate that the number of full-time farmers will continue to fall.

However, this is, to some extent, immaterial as long as activity in farming remains. It may not yield the production levels we have been accustomed to, especially in the years immediately following accession, but the main objective is for agriculture in Gozo to complement Rural Development policy and measures; in other words, agriculture supporting environmental strategy and safeguarding the land for future generations.

Producing quality wine on small- scale holdings, as well as cheeselets or other artisanal products, fits perfectly in this strategy. Production does not need to be large-scale and the production of high-quality products means that a price premium can be justified. This is where EU funds in the next programming period could make a difference. Again, I emphasise the need for a strategy endorsed and supported by authorities, and the support need not be always financial. There is a strong case for the authorities in Malta and Gozo to review their technical support structures to support initiatives at a micro-level.

Technical support has largely concentrated on cross-compliance issues but small agri-business ventures also need technical assistance in organic farming, agriculture business management, and planning and agritourism.

Business ventures cannot be overambitious in view of the very obvious difficulties facing agriculture in Gozo, where the fragmentation of agriculture land and its double insularity will remain a formidable challenge (though the latter could be softened by the permanent link with Malta).

The lack of precipitation is another obvious difficulty and without adequate infrastructure, in particular alternatives sources of water, a serious rethink of where Gozo agriculture should be heading is required. Policy adjustment on the use of ground water and adding the economic cost of water to the cost of extraction would render crop production, including protected crop production, non-competitive and no amount of subsidy (assuming it were allowed which is not the case) could compensate for this.

In the future, EU funds will need to be directed towards supporting a strategy which not only complements the Rural Development measures but also the context and reality of Gozo agriculture. Ignoring this would result in a wasted opportunity for aligning Gozo’s agriculture to the new business reality that is emerging within the EU and beyond.

Philip von Brockdorff is the head of the Department of Economics at the University of Malta.

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