The role of the consumer in government subsidies

When I was still at school, I lived next to a farm, which was amazing. Tractors kept my sleepy neighborhood busy, the leftover blackberries were always an unexpected but welcome surprise, and sometimes me and my siblings were even invited to ride the horse. Those were good times. It all changed when my teacher told me about excessive fertilization, pesticide residues on vegetables, and methane emissions. The dung piles – ever so often an ode to my rural nose – now only reminded me of eutrophication and environmental degradation, and I started to wonder: Is it really worth the money to destroy our environment like that? As it turns out, the answer to this question is yes but for reasons that I would only later understand.

Growing older, I started to develop a certain cynicism toward farmers, but I did not bother one second trying to understand their perspective. In fact, many people today share a similar sentiment to what my former self so confidently believed in. Nowadays, European farmers increasingly report cases of agri-bashing, ranging from verbal abuse to demolition of equipment and even assault, as a result of growing health, environmental, and animal welfare concerns. It is to say that the anger is mostly directed at farming as a practice and not at the farmer him- or herself, who is seen in an overall positive light. In addition to enduring this public pressure, farmers also have to worry about their finances: The effort of German full-time farmers only amounts to a monthly gross wage of 2.452 Euros on average, which is about 1300 Euros less than the average income of a full time employee, not to mention high loans for farming machinery, exceptionally long working hours and no paid holiday. It does not surprise, therefore, that depression is a common illness in the farming business and that one in four farmers are at risk of developing burn-out.

The EU-based Common Agricultural Policy (CAP) is a subsidy program for farmers that aims, among other things, to mitigate the financial problems of farmers while enabling the farming industry to counteract their reputation as environmental destroyer: It supports them financially by direct payments while also giving out monetary rewards for implementing environmental measures. It is principally a good concept, even though we learned from Prof. Dr. Sebastian Lakner that there are many shortcomings to this program. Unfortunately, I strongly believe that CAP will fail catastrophically if lawmakers do not start to acknowledge the most important factor in agro-environment programs: the customer.

The findings of a survey of European consumers on attitudes toward sustainable food has revealed that some customers are quite hypocritical when it comes to food and environmental protection: Generally, two thirds of consumers state that they are willing to change their environmentally harmful eating habits. Interestingly, most consumers think that their government is not doing enough to promote food sustainability, which constitutes fruitful grounds for change. However, the analysis of the survey much more gives the impression that this sentiment is simply a lazy way of shifting the responsibility to somebody else. This takes many different shapes and forms:

• While a lot of people understand the adverse environmental effects that food consumption can have, many consumers underestimate the environmental impact of their own eating habits.
  

• More than half of the consumers do not want other people to tell them or decide for them what to eat and what not to eat.
  

• One in three consumers are not willing to eat less red meat and 56% of consumers are not willing to cut down on dairy.
  

• One in five consumers do not have enough time to eat more sustainably.
  

• 57% of consumers would like sustainability information on food labels to be compulsory while only 25% of consumers agree that less sustainable food should be taxed more.
  

• Only one in five consumers are willing to spend more money on sustainable food.

In short, many of the 1000 surveyed consumers in each of the 11 EU countries think that farmers should be given incentives and obligations in relation to sustainability and environmental food production. However, it does not seem like they want to sacrifice their own comfort for it.

This goes in accordance with a report on the reputation of German agriculture. On the one hand, the authors found that farmers in Germany have an excellent reputation. Farming is even seen as the most important job after doctors, and the public interest in farming-related issues is also generally high. On the other hand, the qualities that consumers demand from farmers heavily diverge from reality. For example, consumers wish to buy products that are made environmentally, sustainably, and ethically responsibly while not willing to pay more for it.

Thus, the current situation is probably best described by the Forbes journalist Gregory Unruh, who states that “[…] consumers and markets are unwilling to pay more for sustainability, but more than willing to punish when it is lacking.” With this in mind, I believe that any government subsidy won’t be much more than a drop in the ocean if consumers are not willing to play their part.

So, are farmers the root of our environmental problems? Of course not, and if anything, they are the victim of a system that demands everything from them but gives barely enough in return. You cannot have your cake and eat it, too. Environmental protection demands giving up on things and it is high time for us consumers to take a thorough look at ourselves and think about how we are currently consuming our food. Because the way we consume our food directly translates into how well farmers are able to produce it sustainably. Farmers cannot be the driving force behind the shift toward eco-friendly food production. It is us consumers that decide what food we eat. It is us consumers that decide what we are willing to pay for it. It is us consumers that decide if we appreciate our farmers or if we take them for granted. It is time for us to make the right decisions.

Author: Thomas Köhler, edited by Maria Kunle

Comments:

dnpatrice2001

Why do we still give money to farmers if consumers are the driving force of eco-friendly food production?

Consumers are facing multiple labels that prevent them making well-informed purchasing decisions. Actions need to be undertaken to strenghten the position of consumers within the supply chains.

1. Launching citizen engagement for the abolishment of gouvernement subsidies

2. Further developing integrative modelling approaches forthe assessment of the multifunctionality of agriculture

3. Developing innovative labels that highlight the level of public goods produced and thé trade-offs between environmental, social and economic footprint of products.

dnpatrice2001

A priori farmers are the victim of the current system, but by referring to an in-depth economic and political analysis, we may observe the opposite.

In 1990s, the EU removed Price support policies in order to comply with WTO market liberalisation principles, but at the same time and because of the weigth of lobbies on food production believed by introducing direct payments that rewarding farmers for environmental public goods they produce is the much better use of taxpayers' money than providing direct subsidy (European Commission (2013). Though, Price support policies and direct payments have the same effect on the agricultural markets and therefore the distorsions remain when Price support policies are replaced by direct payments. For example, it does not matter for a farmer to receive a market price of 105€ and 10€ of subsidies, that is 115€ or to get a market price of 115€. Similarly, it does not matter for a consumer to get a market price of 115€ or to pay a market price of 105€, but has to pay additional tax of 10€. So the authority has established the same incentive for producers and consumers. This untenable situation of subsidies is exascerbated by EU subsidies on bioenergy. In fact, the production of renewable energy from agricultural resources competes with food production for land, water and soil nutrients. The increased demand for energy crops may shift the allocation of land and other resources for the production of energy crops at the expense of food and thus affect the world market prices and the average crop prices in the European Union. Further, the incentives for the provision of environmental public goods promoted by the EU are based on obligations of means, not results. They are exposed to high transaction costs and free-rider problems. No transparent mechanisms exist to enable farmers to demonstrate their claims for eco-friendly food production and consumers to hold decision makers accountable for the use of the taxes they pay. The idea in which farmers are the victim of the current system has to be taken with caution. The analysis shows that the consumers are the ones to be considered as the victim of a system that uses their money to support agriculture, but does nothing in return to remove distortions on the demand side or compensate them for high food prices. By putting an explicit price on public goods, spurring farmers to find cost-effective ways to increase those public goods and conveying information to consumers who are making well-informed purchasing decisions, market-based approaches appear to be the right strategy to overcome the shortcomings of EU agri-environmental policies. The beauty of such a market-based system is that no central planner information on specific provision possibilities is required in order to achieve the cost-effective outcome. The market will work it out - which is the quintessence of market-based regulation.