A contrasted social situation

7Both sector-level and microeconomic data suggest that in structural terms the revenues of “professional” farmers are on average not lower compared to other sectors (Box 1). Their assets even turn out to be larger than those of the average household. But this finding needs to be put into perspective. First, there are very large sectoral disparities, which are only partially offset by households’ non-agricultural revenues. [5] Thus, numbers appear to be structurally low in the suckling cow and sheep sectors as well as in the field vegetables and non-AOC (Appellation d’origine contrôlée) winegrowing sectors. Large disparities also persist between specific groups of the population, such as indebted young people and retirees. Second, uncertainty and fluctuations in farmers’ income are a contributing factor to poor living conditions, as the importance of fixed costs and the debt level in the sector mean that low income periods rapidly translate into critical situations.

8Until 2015, France had opted for subsidies distributed according to individual historical references (based on payments received in the past). Thus, this long applied system amplified structural inequalities. The recent reform of the CAP necessitated switching to a flatrate system of subsidies based on surface areas, while leaving each Member State margin for manœuvre. [6] France, like seven other Member States, has chosen to increase subsidies for the first hectares, resulting in a reallocation of an increased budget fraction to small farms. The reform also aimed at shifting subsidies from the northern producers to those of Corsica, the South-East and the Massif Central. At the sectoral level, the reform directed financial support away from cereal farmers to extensive stock breeders with large land areas and to those not having prior historical references (winegrowers and market gardeners in particular). [7] Compared to the previous system of individual historical references, which was skewed from a social point of view, these reallocations improve the subsidies’ redistributive character. However, it remains that the surface area criteria is not a pertinent basis of allocation regarding any social objective.

Profit/earnings per employed person in various agricultural sectors, in thousands of euros 2014

Profit/earnings per employed person in various agricultural sectors, in thousands of euros 2014

Interpretation: Pre-tax profit/loss per non-waged worker in 2014 values.

Declining commercial performance

15At the commercial level, agriculture and the food-processing industry historically constitute strong points of the French economy. In fact, their aggregate balance displays a structural surplus, amounting to around 9.3 billion euros in 2014. [15] Despite considerable annual variation, linked to the cereal price in particular, this balance is almost equal to its level in 2000 when measured in current value. However, this apparent stability masks increasing disparities. Trade in French agricultural products and processed agrifoodstuffs grew more rapidly compared with the overall basket of goods, with regard to both exports (+3.3% per year on average in current values between 2000 and 2014, as against +1.5% for the overall basked of goods) and imports (+4.1%, as against +2.4%). At the same time, surpluses have become increasingly concentrated in three sectors (drinks–essentially wine and alcohol–, cereals –wheat and barley in particular– and dairy products –mostly cheese), which together contributed to a surplus of more than 20 billion euros in 2014. Conversely, there are large and increasing deficits in the meat, sea products and fruit and vegetables sectors, for which the combined trade deficit increased from 3.6 billion euros in 2000 to almost 10 billion euros in 2014 (moreover it should be emphasised that the livestock farming sector, which until recently showed a surplus, henceforth shows a considerable deficit). This increasing polarisation has been accompanied by considerable geographical redistribution; exports have been clearly more dynamic outside of the European Union than within it.

16In total, France’s commercial performance in agriculture and the food-processing industry appears mixed. France’s share in world exports decreased by around one third in the course of the period, falling from 7.0% in 2002 to 4.7% in 2014. [16] This loss of market share is to a large extent explained by a context in which demand growth mostly originated from emerging economies, which are not France’s traditional markets, and in which new competitors were established themselves. However, France’s commercial performance pales in comparison to Germany in particular, whose exports grew twice as fast (+ 6.6% per year on average), while its market share increased by more than 10%, exceeding that of France in 2007. Admittedly, German specialisation was initially more favourable in geographical and sectoral terms (Central Europe and processed dairy and meat products), but detailed calculations show that it accounts for a combined difference in export growth of around 20 percent for the period, [17] which only represents a fraction of the observed gap.

17German growth has its own causes (Box 2), but the comparison would hardly be more favourable with Spain or Austria, which maintained their world market share, or even with the Netherlands and Italy, whose loss of market share was half that of France. This may indeed be described as a far-reaching decline in market position, although loss of market share between 2000 and 2014 is the same in agriculture and the food-processing industry as in other sectors (one third in both cases): the problem therefore appears to be more “French” than specifically “agricultural”.

Reasons for under-performance

18Although poor performance in terms of foreign trade is not higher in agriculture than in other areas, the French agricultural sector has specific sources of ineffectiveness, with social and environmental consequences, which public policy should strive to correct. Bureau, Fontagné and Jean (2015) [18] put forward several explanatory factors summed up below.

19Agriculture in France remains dominated by small farms. Although, beyond a minimum threshold, size is not a decisive factor itself concerning farm performance, it is tending to become one due to the adoption of new farming practices and the observed development of large-scale operations in several countries. Specifically, this involves new techniques based upon sophisticated and highly computerised plant production equipment, and automation in animal production. Moreover, economies of scale are more obvious in primary processing industries, and the limited internationalisation of French food-processing groups (apart from sugar and a few other sectors) are a factor of weakness in an environment increasingly dominated by globalised companies.

20More restrictive regulations and higher labour costs are often considered by professional organisations to be a comparative disadvantage for France. It is difficult to draw the conclusion that there is a real imbalance to the detriment of French farmers at a regulatory level. However, there are very great differences in labour costs in sectors requiring very large workforces (fruit, vegetables) and in the primary processing of animal products, when compared with countries such as Germany, Spain, Italy, and even more so with Poland and North Africa.

21The apparent loss of impetus in productivity gains may be explained by numerous factors and lack of innovation cannot be ruled out. Agricultural producers’ training plays an essential role in an environment that demands increasingly advanced skills. This applies particularly in upstream production processes. In this regard, France’s results are mixed.

22Moreover, upstream-downstream relations are very unevenly organised, depending on the fields, and less well coordinated than in Northern Europe: although producers are in a strong position in certain well-organised upstream sectors (sugar, oilseed and protein crops), their position is much weaker in other fields (meat, vegetables and fruit).

23Finally, the non-price competitiveness strategies pursued in France, which consist of linking quality and geographical origin, are questionable. Indeed, they lack of clarity on export markets, in which consumers primarily recognise registered trademarks instead of registered designations of origin, and where positioning at the high end of the market cannot serve as an overall strategy when faced with aggressive competitors offering mid-range products (for example, the case of French wine competing with New World wines).

The new CAP enables choices

25Since the regulations of December 2013 and the delegated acts which appeared in 2014, the CAP has become more flexible in terms of choice, thus leaving the Member States considerable margins for adaptation. In France, the national adaptation of the CAP was materialised in the “Loi d’avenir” (“Act on the Future of Agriculture”) adopted in October 2014. Among the areas of flexibility allowed by European regulations, France chose a middle way regarding the majority of criteria, however with three distinct options. It is among the countries that have opted for “recoupling” aid. These are subsidies directly encouraging production. [19] Above all, France targeted subsidies coupled to livestock farming, which as a whole received a large amount of support in 2015, resulting from national trade-offs and new allocation procedures for subsidies falling under the “first pillar”. France has used the available margins to allocate payments to young farmers and to give priority to small farms. It thus opted for an additional premium for the first 52 hectares (to the detriment of the largest farms), although it did not choose to cap payments to large farms. Like all Member States, France was able to reallocate part of its budget between the first pillar of the CAP (principally direct income subsidies) and the second “rural development” pillar (which includes environmental subsidies in particular, see Box 3). It chose to transfer only 3% of budgets from the first to the second pillar, markedly less than the United Kingdom for example. [20]

26A clear difference emerges between Member States on how they used the margins of manœuvre within the CAP in order to direct their policy, particularly concerning “public goods”. Some Member States, such as Poland, used all available means in order to limit the “greening” of the CAP. Others, in particular the United Kingdom, made the opposite choice. France is in an intermediate position. In 2014, it only devoted 338 million euros to agro-environmental measures, less than 4% of direct subsidies granted to farmers. The implementation of environmental policies in France is often out of step with the declared ambitions. Since the 1990s, the Ministry of Agriculture has devoted large budgets to programmes aiming at controlling nitrate pollution, which have been described as ineffective by severe reports from the General Inspectorate of Finances (Inspection générale des Finances) and the Cour des Comptes [the French Supreme Audit Institution]. The last programme of this type has been less restrictive than its four predecessors in certain aspects (in particular regarding the spreading of effluents, eligible surface areas, etc.). The objectives of the Grenelle Environment Forum (Grenelle de l’environnement) [21] to reduce the use of plant protection products by 50% resulted in no more than simple awareness-raising measures, without any action concerning quantities or prices, leading to almost total failure of the “Ecophyto” plan (plan for reduction and control of the use of phytosanitary products). [22] The “Biodiversity Strategy” (Stratégie pour la biodiversité) adopted by France has not prevented a complicated but actually very permissive definition of ecological focus areas, supposed to ensure that a proportion of subsidies (“green payments”) are conditional upon the protection of the biodiversity. [23]

27Altogether the French application of the CAP has resulted in very considerable subsidy reallocation devoted to assisting stock breeders’ incomes. Recently, the emphasis has been refocused on small farms and agroecology, although the latter element has not really found concrete expression in budgetary terms. However, the fact remains that use of agricultural budgets in France too often resembles simple income subsidies, and that the long-term strategy of agricultural policy hesitates between a large number of objectives.

The piling up of ineffective and even conflicting tools

28Should environmental services be directly remunerated, or should subsidies aimed at other objectives be made conditional upon compliance with environmental criteria? Although economic analysis provides an unambiguous response in favour of the former option, it is the second which has been followed in Europe, resulting in high levels of undifferentiated payments, on the condition of a few general environmental measures. France contributed to this decision. Furthermore, like many other countries, in its national application it has ensured that almost all farmers are eligible for the new CAP “green payments” without any great change in practices. [24] The way in which environmental conditions are applied thus tends to drastically reduce its benefits, without reducing the administrative burden of their implementation.

29More broadly speaking, the lack of clear direction in agricultural policy results in measures whose effects cancel each other out. This is not specific to France; it is a weakness of the CAP that has resulted from the successive piling up of reforms constituting so many compromises, combined with seemingly lost overall vision. Current policies thus give rise to negative long-term effects: the volume of direct subsidies falling under the first pillar allows agricultural incomes to be maintained, but is ultimately capitalised in asset prices, as profits partly evaporate due to capital movement (purchases from retired persons, equalisation payments between joint heirs, etc.). These subsidies thus create entry barriers for young farmers. The measures introduced in order to help young people to set up a business try, in fact, to correct these distortions. Similarly, by guaranteeing a flow of income to producers, direct subsidies reduce the incentives to diversify production. They thus encourage specialisation, or even monoculture. But this kind of specialisation increases risk exposure in matters of price fluctuation and results in greater use of crop protection treatments than long-term and varied rotation of crops. The institution of a “green payment” on the condition of crop diversification is therefore a remedy to a problem that was to a large extent created by the initial policy. There are a large number of examples where policies have been created in order to address problems created by previous measures.

30In the face of the rapid deterioration of ecosystems, the administration argues in favour of agriculture that is both more intensive and ecological. The rhetoric poorly conceals the lack of real direction in economic and regulatory instruments. Agroecology, put forward in the recent Act on the Future of Agriculture, is a promising concept, which for a long time attracted little research. However, examples of agroecology resulting in highly productive results, while saving on chemical inputs, are often attributable to substantial substitution by labour. Yet, price ratios render this type of substitution difficult in France, unless total current subsidy budgets would be used to modify the relative costs of labour and intermediate inputs. Neither the recent CAP nor the Act on the Future of Agriculture provide for measures of this kind.

Placing natural capital at the centre of agricultural policy

33French agricultural policy needs to devote more attention to protecting its production capacity. From a long-term point of view, the deterioration of natural capital appears to be the most alarming factor. Indeed, it is often irreversible, and when this is not the case, prevention is generally easier than cure. Moreover, it risks giving rise to deferred costs that are potentially much higher than the short-term benefits. Although these costs may materialise far beyond agriculture itself, with regard to water quality and biodiversity for example, tomorrow’s farmers could be its principal victims. In future, competitiveness will be the result of good soil condition, ecosystems capable of providing productive services and ensuring the permanence and resilience of production. It is important to assert a strong will to protect natural resources by directing all action levers towards this objective. The idea that protection of the environment is a luxury in agriculture or that a “break from environmental constraints” might be needed should be clearly rejected.

34France can make greater use of its national margins of manœuvre and influence the European framework in this direction. At the national level, environmental policies need to move out of complex micro-management in order to focus on a combination of real taxation of negative externalities and results-based payments for positive externalities. Amenities should be remunerated rather than producers. Payments targeted in this way would be rather easily accessible to those farms often having low incomes and high employment levels (stockbreeding with suckling young). Therefore, giving priority to amenities does not conflict with redistributive objectives. Payments of this kind are not simple to implement. However, experiments of remunerating amenities based on performance-based conditions in several European countries provide serious possible courses of action (presence of certain species, water management). [25]

35Recommendation 1. Make the protection of natural capital a core focus of agricultural policy; target environmental performance more directly by replacing undifferentiated subsidies and environmental conditionality with remuneration of amenities. The latter could be differentiated geographically.

36In practice, these kind of policies presuppose remunerating “green” (ecosystems) and “blue” (water management) services more directly, in order to protect future production. Due to the difficulties inherent to effective and fair implementation of this kind of policies, the testing of performance-based payments, potentially through collective management, for example by means of new Economic and Ecological Interest Groupings (Groupements d’intérêt économique et écologique), would be a useful first step. Moreover, the specific natures of territories and climates require geographical differentiation both in terms of methods and objectives. On the long run, payments to farmers for environmental services should be considered an alternative to first pillar subsidies.

Creating the conditions for innovative agriculture

37France’s risk of falling behind in terms of innovation should not be underestimated. Synthetic biology and molecular genetics are among the major reservoirs of technical progress. New technologies enable acceleration of selection, with considerable implications in terms of nitrogen conversion efficiency and adaptation to climate change (new breeding technologies: genomic selection and production of alleles not involving transgenesis). Regulatory obstacles should not condemn France to be a passive observer of innovation, even if the risks need to be State controlled. Spatial information on practices and performances (localised mass data, collected by agricultural tools) is becoming a highly coveted strategic element. Current digital and biotechnology progress mainly supporting forms of agriculture damaging natural capital (for example, the emphasis placed upon glyphosate-resistant GMOs). Connecting these innovations with other paths which are more in line with biological regulations is an issue for public research. In order to succeed, public research needs to take an interest in production fields and systems neglected by the major private R&D operators, giving priority to sectors linked a global market in which it is easy to protect intellectual property (maize, soya and cotton). This presupposes providing the means to resist a foreign monopoly in varietal selection and, through the allocation of public funds, placing this research at the service of technical routes that are better integrated with ecosystems, at the service of adaptation to climate change and protection of natural capital.

38Recommendation 2. Increase research into new selection technologies aiming at placing them at the service of agricultural form in line with biological regulations and promoting open innovation (portals, open data).

39Modern agriculture requires a high level of qualification. Paradoxically, the most economical practices (organic, grassland systems, intercropping, etc.) in terms of chemical inputs are the most complex. Today, farmers therefore need to have the skills of engineers and managers. A technical leap is therefore needed in training. Agricultural vocational lycées (even if they no longer train mostly pupils intending to go into agricultural production) need to incorporate more advanced training. These institutions are small and dispersed over a wide area, but information technologies now enable considerable synergies. Digital technology requires heavy investment and should be a priority. While technology is undergoing rapid change, few farmers have the opportunity to undergo continuing vocational training. [26]

40Recommendation 3. Make the network of agricultural vocational lycées a pioneer in the teaching of digital technology. Enable more advanced continuing vocational training of farmers by using individual training leaves and drawing upon agricultural higher education in order to train high-level farm managers.

41In addition, it would be useful to help the training profession and agricultural technical institutes to develop consultancy independently of commercial interests and to reorganise State support to technical institutions in order to promote adaptation to new demands (risk management and cover, greening of practices, quality control, etc.). Finally, it would be appropriate to render the various different actors’ actions consistent in order to make this advice more cumulative and make up for poor access to consulting in certain regions and sectors. [27]

Supporting competitiveness

42At the international level, quality is above all sanitary and technical. In the food industry, reputation is above all based upon brand names. Although the Label Rouge quality assurance label and appellations of origin enable effective differentiation on the domestic market and on some neighbouring European countries’ markets, they lack clarity at the international level. The guarantee of quality ensured by the traceability of French products is a major asset. Although mass-marketing operators already use this sales argument abroad, the absence of collective strategies does not enable the various fields to benefit from its full advantage. Recent Chinese investments in dairies in France and exports of processed poultry products to the Middle East, despite higher prices than the competition, suggest that it is possible to collectively “sell” French sanitary excellence more effectively. Consumers throughout the world favour meats produced without antibiotics; [28] concerns about the increase of obesity are international. Steps need to be taken in order to ensure that the multiple sanitary, ethical and regulatory constraints imposed by European consumers are transformed into commercial assets.

43Recommendation 4. Help actors to jointly promote a small number of labels increasing the prestige of French products’ assets such as sanitary controls, full traceability, absence of antibiotics and growth enhancing products, respect for the environment and animal welfare.

44Current public policy hesitates between two objectives: there are great concerns about competitiveness loss, in particular in connection with the growing gap between France and its competitors in terms of organisations and technologies. But obstacles to an increase in size and the adoption of new technologies are created, in order to fight against the industrialisation of agriculture. However, industrial agriculture of this very kind is supported in the same manner as agriculture producing greater amenities. Ultimately, there is a risk of maintaining organisations that are intrinsically dependent upon public support, which will sooner or later dry up. At the same time falling back upon small-scale niche or local market-based farming would be a dead end at the national level and would leave the “high volume” market to imports. Furthermore, the fact of being environmentally friendly is too systematically seen as being associated with small-scale farming: in this respect, life-cycle analyses often yield unexpected results. The latter connection is not as direct as one might think, and it becomes increasingly less so with the high-precision farming techniques accessible to large, highly capitalised firms. In our view, farm surface area does not appear to be a pertinent criterion in the elaboration of public policies, and all the more so as it is not directly connected to job creation. It would be better to concentrate subsidies on real, duly-identified, externalities and public goods, and on policies directly targeting social objectives. Farming that does not produce these public goods is not a suitable candidate for public support, but refusing the establishment of larger scale organisations would exclude France from an almost universal movement.

45Recommendation 5. Prioritise criteria directly connected to externalities when calibrating targeting of subsidies and work in favour of reshaping policy in this regard at the European level. Do not penalise size increases of organisations a priori, if they do not give rise to negative externalities (management of effluents, management of biodiversity, etc.). Promote the sharing of means of production.

46Resource sharing is an alternative to the farm concentration. In this respect, the instruments of the collaborative digital economy and innovative legal structures deserve to be encouraged. More generally, the coexistence of different types of agriculture needs to be accepted –farming geared towards price, or based on appellation d’origine contrôlée (AOC) and farming remunerated by the production of public goods–, while using subsidies as a means of influencing organisations according to territories.

Revising the supporting instruments for farmers

47The growth of (coupled) public support for agriculture in emerging economies and in the United States alike leaves the European Union, which has abolished those forms of support inducing the greatest imbalances, in the position of a virtuous but somewhat forsaken leader. We should probably recognize this and consolidate our tools for the stabilisation of producers’ economic environment. Effective instruments still need to be put in place. Counter-cyclical subsidies send inaccurate price signals and would make it necessary to bring product-based aid back, since cycles are not in phase between the various agricultural sctors. They are no more a solution than insurance-based systems, which are potentially very costly: in spite of the arsenal of insurance-based and counter-cyclical tools, incomes of American farmers continue to fluctuate more than those of European producers, which are highly “stabilised” by direct subsidies. Crisis management tools at the European level are imperfect but France has not used all of them. [29] At the French level, priority should be given to tax adjustment tools for the smoothing out of economic fluctuations. Currently, some deductions (for investment in particular) give rise to ineffective tax optimisation practices and over-investment in equipment, which is often expensive to maintain. Postponement of fiscal charges for farmers facing unfavourable market conditions helps to face up to temporary occurrences, without creating a major risk of budgetary drift. At the European level, payments for public goods need to be positioned as a source of certain income, so that farmers incorporate them into their “portfolio” arbitration between certain and uncertain incomes.

48Recommendation 6. Give priority to tax adjustment, or even the postponement of loans and social security contributions over several years as a stabilisation tool at the national level. At the EU level, reduce the incentives for specialisation in a very small number of crops.

49Today subsidies appear to be such a central part of incomes that any sudden elimination, like that implemented in New Zealand, is neither possible nor desirable. However, this should not prevent reflection on their distributional properties. Although the subsidies actually provide income support, with a social component, their current distribution is not appropriate and surface area is an unsatisfactory criterion. It would be worth incorporating a clause into the very heart of the EU texts, according to which any individual should not receive payments from the public budget in excess of a social reference, to be defined per country, and unless these payments explicitly correspond to the remuneration of positive net provision of public goods (maintaining an open landscape in mountainous areas, protecting the diversity of landscapes and biotopes, etc.), which give rise to specific costs. [30]

50Recommendation 7. Take action at the EU level in order to progressively reduce surface area-based subsidies (“basic payments” and “green payments”) in favour of budgets targeting public goods and social objectives. Progress towards performance-based, contractual and nontransferable payments and cap individual payments that do not remunerate the production of public goods.

51Competitiveness, protection of the environment and support for incomes would no longer be conflicting objectives if farmers were considered producers of public goods and remunerated as such; and if “high-volume” producers were to develop technological and responsible farming. This presupposes revision of the mode of allocation of subsidies at the EU level, as well as implementation of policies with a long-term focus at the national level, such as an ambitious training and research policy and protection of natural capital.