Cash chows

Why Germany keeps wiring billions to its farmers

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Land of milk and honey. Source: DPA

Jens Gerloff, a 54-year-old farmer, walks through his cornfield in the village of Teetz, a two-hour drive northwest of Berlin. Small brown plants barely reach his ankles. “Normally the corn would be this high,” he says, lifting his hand above his head. But a drought spell since April has destroyed his maize. “In principle, I would accept emergency aid,” Gerloff says.

Julia Klöckner, Germany’s agriculture minister, heard Gerloff’s call for help. In August, she promised farmers up to €340 million ($394 million) to cope with this summer’s drought and the payments have started flowing. Federal and state agencies will compensate half of the damages a farmer suffered.

The emergency aid will come on top of €11 billion German farmers already receive each year from the European Union and the German state (see chart below). This combination of emergency support and annual subsidies seems illogical. But it is the result of a decades-old system to support agricultural businesses in Germany and Europe. The upshot is that farmers, unlike other businesses, can use EU and German rules to mitigate their most obvious business risk. For them, that risk is the weather.

“Farm associations are widely considered one of the most successful lobby groups,” said Peter Feindt, a professor of agriculture and food policy at the Humboldt University in Berlin. “They have leverage because income support to farmers is a policy goal enshrined in European treaties.”

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The lush subsidies make farmers the biggest recipients of state financing in Germany and in the European Union, which doles out €59 billion each year. Much of this system dates back to the post-war era, when Europe wanted to secure domestic food supplies and guarantee farmers’ income. Over the years, other goals were added, such as promoting biodiversity, guaranteeing employment in the countryside and maintaining rural areas.

Emergency aid is also a result of lobbying and EU rules, which allow a government to support citizens or companies which suffer catastrophes. The producers of meat, milk and potatoes are seen as a crucial voting group, which gives them extra power. The state of Bavaria, which has just held elections and is home to around a third of Germany’s farmers, was one of the first backers of crisis aid over the summer. “By advocating for emergency aid, politicians secured support from an important constituency,” says Oliver Musshoff, an agricultural economist and professor at the Georg-August University in Göttingen.

But Europe, which has a reputation for statist economics, is not that different from countries considered to be market economies. The United States, for instance, has been directly funding the agricultural industry since 1929. Last year, US farmers received almost $40 billion in structural support, according to data from the club of industrialized countries, the OECD. This amounts to 9.9 percent of US farmers’ gross income, including the aid itself. In other countries, such as Japan, Norway and Switzerland, the percentage can top 50 percent.

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In Germany, there have been calls to reform the system – by tying the subsidies to environmental targets or funneling part of the money into a “bad weather” fund. But it is likely to remain in place without major changes. Proposals to cut the new agricultural budget, which runs from 2021 to 2027, by 15 percent quickly ran into opposition from lobby groups – and the governments of Germany and France.

Even some farmers feel uncomfortable with all the income support. That includes Gerloff north of Berlin. Although he welcomes the money (who wouldn’t?), he isn’t proud of having to rely on state subsidies. Some of his acquaintances joke about him. “It isn’t pretty to apply for the farmer’s version of welfare,” Gerloff said. He thinks the system is unjust, with big agricultural businesses using large sums of money to boost growth. “If a farming business is at risk of collapsing, it is not just related to the drought.” The available capital could distort competition, the farmer fears.

Gerloff is an honest man. But there’s little risk that the money he collects will dry up soon. This cash cow will be milked for years to come.

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Gilbert Kreijger is an editor with Handelsblatt Global. Felix Hackenbruch is an intern at German daily Tagesspiegel. Konrad Fischer, Simon Book, Isabella Escobedo and Christian Ramthun of business weekly WirtschaftsWoche, a sister publication of Handelsblatt, contributed to this article. To contact the author: kreijger@handelsblatt.com

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