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agriculture and environment

A dynamic European agricultural and agri-foodstuffs sector

Pierre Antoine BARTHELEMY, Claude VIDAL (Eurostat)

Over the last 26 years, gross value added (GVA) in the agricultural sector has increased more sharply in the European Union than in the United States and Japan. This increase has been even more marked in the agri-foodstuffs sector. Despite a generally negative trend in constant-value prices, the agricultural and agri-foodstuffs sector has been able to meet the challenges of an enlarged single market and an expanding world market. The EU has remained a net importer of agricultural products (animal and crop products) and has become a net exporter of agri-foodstuffs since 1989.

An increase in the GVA of the agricultural sector but a reduction in its share of GDP

Europe has seen GVA at market prices for agricultural products increase by a factor of 4.5 between 1970 and 1986 and by a factor of 1.2 between 1986 and 1996. By 1996 it had increased to ECU 145 billion, thus exceeding, since 1986, that of the United States. These results must be qualified for several reasons: GVA is expressed at current prices; the size of the EU has changed over this period with the accession of new countries in 1973, 1981, 1986 and 1995; and, lastly, European prices are higher than American prices.

The increase in the GVA of the agricultural sector in Europe is however more the result of volume than price.  This has been especially true since the middle of the 1980s when prices tended to stagnate.  Over the same period, productivity per hectare continued to increase.  The rise in GVA in 1982 was attributable to a substantial increase in the volume of production, whilst the rise in 1989 related to an increase in the price of animal products on world markets.  The United States saw similar trends in 1982 and 1989.  The decline in GVA recorded between 1991 and 1993 was linked to the reform of the Common Agricultural Policy, which tightened control on the factors of production (particularly by setting aside arable land) and substantially reduced intervention prices (cereals) (Figure 1).  This reform was accompanied by direct subsidies to producers in order to offset the fall in intervention prices.  Thus, the proportion of direct subsidies in net income from agricultural activity was 37% in 1997 compared with 20% in 1992.

Since 1980, the average annual rate of increase in GVA has been 2%, for intermediate consumption it has been 3 %.  The increase in GVA is closely linked to an increase in volumes produced, which in turn has led to the use of greater quantities of inputs.

In relative terms, agriculture, forestry and fishing have seen their share of GDP in the EU decrease over the last 26 years, falling from 6% in 1970, to 3% in 1986 and to 2% in 1996.  This trend is closely linked with the rapid development of new branches of activity, particularly market services, which have grown in relative terms.  Over the same reference period, the decrease was greater in Japan than in the EU.  The United States presents a less clear picture, though the trend has tended to be downwards.  For all three areas, the decline was particularly noticeable between 1973 and 1980 (Figure 2).

Marked disparities within the European Union

In absolute terms, the highest GVA for agricultural products in 1996 was achieved by France (ECU 28 billion) and Italy (ECU 27 billion), which together make up 38% of GVA in the EU for this sector.  This is explained by the large volume of production (particularly in France) and the high value-added of agricultural products (particularly of Mediterranean-type produce in Italy).  The greatest increase in GVA between 1970 and 1996 was recorded in the Netherlands, where agricultural activity increased more than fivefold.  Over the last ten years, the greatest increase was in Greece, with GVA rising by a factor of 1.6 (Table 1).

On the other hand, expressing GVA in ECU per inhabitant gives figures for Greece, Denmark and Ireland which are more than double the Community average, whilst those for France and Italy are barely above it (Figure 3).  Greece is quite different from the other Member States in that GVA for agricultural products accounts for 14% of GDP, i.e. more than six times the Community average.

Income from agricultural activity is growing, but at a rate below that of the other sectors

Income from agricultural activity, i.e. the compensation of the factors of production (capital and labour), can be estimated using agricultural GVA per agricultural job. 

Between 1983 and 1996, agricultural GVA per agricultural job increased at an average annual rate of 4% (3% when jobs are expressed in AWUs), as a combined result of a sharp increase in GVA and a reduction in the number of agricultural jobs.  There are wide variations in agricultural GVA per agricultural job within the EU.  Denmark and the Netherlands, with their high value-added intensive agricultural activity, record very high levels of GVA per job (Figure 4 and Figure 5).

A joint analysis of GVA and employment shows the intersectoral parity of incomes (Figure 6).  Intersectoral parity exists when the gross value added (GVA) of the agricultural sector per agricultural job is equivalent to gross domestic product (GDP) per job.  In the agricultural sector, GVA per agricultural job has been systematically lower than the average of all the sectors combined.  One of the reasons for this is the size of the agricultural labour force and particularly the scale of part-time employment.  Although agricultural productivity may not be very high, in certain regions of the EU agriculture is a key sector in maintaining employment levels ("see Changes in agricultural employment").

Denmark, however, is an exception, with a unitary parity index. The lowest parity levels (index lower than 0.4) are those of Austria, Portugal, Germany and Luxembourg. This means that for these four countries, there is a considerable income disparity between the agricultural sector and the other sectors.

The dynamism of the European agri-foodstuffs sector

In recent years the agri-foodstuffs sector in Europe has seen much more sustained activity than the agricultural sector. GVA at market prices for the European agri-foodstuffs sector increased sixfold between 1970 and 1986 and doubled between 1986 and 1996. The two significant increases seen in 1973 and 1986 were the result of two enlargements of the Union. However, this sharp increase in absolute terms corresponds to a fall-off in value as a percentage of GDP (3% in 1996 compared with 4% in 1970 and 1986). There are many reasons which explain this rapid development, namely:

  • the establishment of major food groups, injecting economic dynamism into the sector;
  • the changes which have taken place in marketing methods, with the development of large-scale distribution;
  • the profound change in the lifestyle of consumers, who have become ever more demanding in terms of product quality and choice;
  • the expansion and globalisation of international markets (Figure 7).
The same few countries leading the agricultural and agri-foodstuffs sector

In 1996 the highest GVAs in the agri-foodstuffs sector were in Germany (ECU 43 billion), the United Kingdom (ECU 34 billion), France (ECU 33 billion), Italy (ECU 23 billion ) and Spain (ECU 19 billion). These five countries account for over 80% of the wealth produced in this sector in Europe. The same five countries are also the leading agricultural producers, although the order of ranking is different. Since 1970, Luxembourg, France and the Netherlands have made dynamic progress, recording above-average growth. The agri-foodstuffs sector in France is therefore not only of substantial importance to the national economy, it is also a leading growth sector. When GVA is considered on a per capita basis, Denmark leads the other Member States, followed by Ireland, Belgium and the Netherlands (Figure 8 and Table 1).

A joint analysis of the shares of agriculture and agri-foodstuffs in total GVA clearly shows that these two sectors are very important for the economy of Portugal, Ireland and Greece. The agri-foodstuffs sector is more developed in Portugal, whereas Greece and, to a lesser extent, Ireland are more orientated towards agriculture. The United Kingdom, Belgium and Germany are more geared towards processing than towards production (Figure 9).

The European Union remains a net importer

The EU occupies a prime position in the world markets for agricultural and food products. Over recent years the volume of trade in unprocessed and processed products has seen a sharp increase (Box 1).  The EU internal market remains limited and these products have to find new openings in a strictly regulated world market. Intra-Community exports and imports represent 76% and 65% respectively of total trade.

The trade balance for these products is negative. This can be attributed to the high deficit in trade in unprocessed products (ECU 17.5 billion of exports compared with ECU 29.6 billion of imports).  On the other hand, the balance in processed products has moved increasingly to the EU's favour (Figure 10).  In 1997, exports reached ECU 1.2 billion, with imports at ECU 0.2 billion.  Between 1989 and 1997, exports of processed agricultural products increased by a factor of 17 and imports by 6.

Analysing this trade by product shows that the main net exports of the EU are beverages - mainly wine - and, to a lesser extent, dairy products, cereal-based preparations and, lastly, meat and offal.  On the other hand, the EU is a net importer of fruit and vegetables - amongst others, bananas and tropical fruit which are not produced in the EU - and of other tropical crops such as coffee, tea, cocoa and spices.

Varying trade balances among Member States

As far as trade in 1997 in unprocessed and processed products is concerned, the EU can be divided into two groups:

  • countries with a high trade surplus: the Netherlands 1, due to a large extent to exports of live plants and flowers; France with exports of beverages; and Denmark with exports of meat and offal; 
  • countries with a high trade deficit: Germany and the United Kingdom, with a very high demand for fruit and vegetables; and Italy, with imports of meat and offal.

The Netherlands (ECU 17.6 billion) and France (ECU 15.3 billion) are the largest exporters of unprocessed and processed products.  Total imports exceed ECU 10 billion for four countries: Germany (ECU 18.1 billion), followed by the United Kingdom (ECU 12.4 billion), France (ECU 11.2 billion) and Italy (ECU 10.5 billion) (Figure 11 and Table 2).

Towards an overall European agricultural policy incorporating environmental concerns and rural development

There is a broad concensus among agricultural and environmental economists that, as a general rule, the existance of a European agricultural policy which guarantees high prices over decades has contributed to the intensification and specialisation of agricultural production.  The result has been negative effects on the environment, the landscape and the quality of produce, inter alia. 

The reform of the CAP in 1992 marked a point of no return. The fixed prices for cereals and beef  and veal were reduced and administrative guarantees of unlimited markets for agricultural produce were reduced or even eliminated, for example in the case of oil seeds, protein crops or beef.  This trend continued with the reform of the organisation of the common market for fruit and vegetables and olive oil. This change in the CAP had two different effects on farmers' behaviour: one, an increase in 'reasoned agriculture' and the other, an intensification of production. Thus a more rational use of pesticides and fertilizers was seen.  Use of inputs fell at first following the reduction in prices and the feeling of uncertainty in the agricultural world after the reform, but increased again when world and Community prices started to rise. It is still too early to see the effect of the change in price trends recorded in 1998 and 1999 on use of inputs.

The reform of the CAP in 1992 also encouraged the production of renewable raw materials for non food uses (bio-fuels, starch….), in particular on set aside land.  In the same way, the use of biomass to produce energy represents a diversification for farmers and contributes to the creation  of new jobs in rural areas. Among the measures which have potentially beneficial effects on the environment should be counted also the setting aside of land, whether voluntary or obligatory, if the system is properly managed.

Moreover, the reduction in cereal prices made intensive livestock rearing in cereal zones more attractive, and reduced the advantages of regions close to the ports.  These regions had benefited from a certain logistic advantage, because of their privileged access to animal feedstuffs imported from third countries, thanks to an unbalanced protection tariff, to the detriment of cereals.

On the other hand, other elements of the 1992 reform had a negative effect on the environment. Sometimes this was the direct responsibility of measures adopted at Community level, and sometimes was due to the way in which Member States used the existing room for manoeuvre.  A good example of the first was the extension of cereal aid to silage maize; this was not proposed by the Commission but decided by the European Agriculture Ministers. This gave an added comparative advantage to intensive cattle rearing, particularly dairy cows, to the detriment of extensive livestock rearing.

Premiums for beef and veal are a second example of decisions by the Council differing from the proposals of the Commission.  The Commission proposed that the special premiums for male bovines and suckler cows, excluding heifers, should be restricted by setting maximum stocking limits 2. These are generally in extensive holdings and their meat does not have any problem finding a market. The final decision was to extend these premiums to the first two livestock units (LU) per hectare of the holding while continuing to exclude heifers, i.e. penalising extensive stock breeders. To compensate somewhat for this, an additional premium for extensification was introduced, for farms with less than 1.4 LU per hectare.

The 1992 reform of the CAP introduced, at European level, support measures in favour of agri-environmental actions to promote more environmentally-friendly production methods.  In this way incentives relating to:

  • agricultural production methods compatible with environmental protection requirements - Council Regulation No 2078/92 (Box 2),
  • the Community aid scheme for forestry measures in agriculture (Council Regulation No 2080/92), 

have, despite limited budgetary resources, enabled organic farming to be promoted, involving 1% of all agricultural holdings in the EU (EU 15) in 1996, and more than half a million hectares to be reafforested in four years. The reduction in guaranteed prices did not produce a dramatic drop in farmers incomes, as predicted by many opponents of the reform.  Net individual agricultural income increased by 4.1% per annum between 1992 and 1996 3 (Source : Agricultural accounts), for the following reasons:

  • direct compensatory aid provided for this effect;
  • a high capacity of adaptation to change shown by farmers;
  • world prices were maintained. Levies on wheat and durum wheat exports even had to be imposed several times during the 1995/96 and 1996/97 marketing period to ensure a sufficient supply for the internal market;
  • a sharper than anticipated increase in cereal consumption in animal feed;
  • currency devaluations which affected a number of Member States.

One can therefore conclude that from the point of view of the environment, the 1992 CAP reform represented a step in the right direction, even if several provisions had the opposite effect. In any event, it is now necessary to make more active progress towards the integration of environmental aspects and of sustainable development in the CAP. 

It should not be forgotten that in terms of land occupation and landscape, European farmers manage and maintain 44% of the European area as Utilised Agricultural Area (UAA), and if the other areas that they own or rent are taken into account, they manage more than half of the European territory.  Agriculture must therefore in no way be restricted to the sole function of economic production and the 2% of EU's GDP that it represents.  Moreover, it has become more widespread for farmers to exercise other activities, with 15% of them (EU 15) employed part-time on their holding in 1997.  New activities are emerging, thus creating sources of additional income.  Agri-tourism and the processing of agricultural products on the farm have been developing for a number of years.

The proposals contained in the European Commission's Agenda 2000 confirm this orientation. Price reductions, reduction in intervention guarantees, increase in direct aid, modulation of aforesaid aid, strengthening of environmental obligations on agricultural producers, on one hand, and of positive agri-environmental measures on the other, rural development, make up the various instruments which, together, are intended to build a more coherent and effective integration strategy. 


1 The large flow of agricultural products through the port of Rotterdam may, however, affect a true assessment of trade.
2 Less-favoured areas : 1.4 U.G.B. per ha of fodder surface;
Other areas : 2 U.G.B. per ha of fodder surface.
3 This is an average result. It is linked to a sharp reduction in the number of agricultural holdings and varies greatly from one type of farming to another and from one Member State to another.


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