The influence of the “agricultural budget” on functioning and competitiveness of agriculture

The Polish accession to the EU resulted in fundamental changes, not only to the scale, but also the structure of support for agriculture. It should be stressed here, that the perspective of the “agricultural budget” includes the issue of support for rural development, which reaches beyond the limits of the agricultural sector.

As far as national spendings on agriculture are concerned, the increase was particularly large in 2004-2009, when the dynamic was greater than in the case of the entire national budget. A definite decrease was noted after 2009. To a large extent it is only apparent and it is related to the fact that before 2010, funds for agriculture included a loan for pre-financing of the CAP. The allocation of the amount in Bank Gospodarstwa Krajowego results in the fact that it is impossible to compare spendings on various purposes before and after 2010⁴.

A broader analysis of the national and the EU budgets allocated to support for agriculture and rural development in longer term shows that both the scale and structure of those expenses systematically change, and the direction is not always clearly marked. The phenomenon is similar in other countries, e.g. the USA.

Undoubtedly, important factors that determine such changes include the balance of forces among the policy makers, the condition of public finance, the general prosperity, trade agreements, and particularly, decisions taken by the WTO.

The structure and the scale of support is not without influence on agriculture and its competitiveness. An analysis of the impact of CAP funds on Polish economy and agriculture confirmed the findings of the research on previous programming periods⁵ and demonstrates that the greatest effect can be expected if the spendings on investment instruments increase⁶.

4 A. CzyĪewski, A. Matuszczak, Krajowy i unijny budĪet rolny dla Polski. Próba okreĞlenia proporcji, wspóázaleĪnoĞci oraz efektów dla sektora rolnego, [in:] A. CzyĪewski, A. Matuszczak, B. Wieliczko, Ocena projekcji budĪetowych UE dotyczących kolejnego okresu programowania w kontekĞcie Wspólnej Polityki Rolnej, Multi-Annual Programme 2011-2014, no. 11, IAFE-NRI, Warszawa 2011.

5 The review of those studies is included in the following chapters: 2. Oddziaáywanie Ğrodków UE na rozwój Polski, and 3. Ocena wpáywu Ğrodków WPR na rozwój Polski i sytuacjĊ polskiego rolnictwa, [in:] B. Wieliczko (ed.), Ocena wpáywu budĪetu rolnego Wspólnoty na lata

At the same time, the analysis of the structure of sources of additional funds for the Polish agriculture shows increasing importance of the public sector (which encompasses the national and the EU funds allocated to support for agriculture). In 2005-2013, its share grew from 28% to 65%, and it reached 66%

in 2010 (Fig. 5.1). This growth takes place at the expense of the importance of the operational sector, i.e. funds that are transferred to agriculture due to the sales of its products. Then again, the role of financial market sector remains insignificant.

Figure 5.1. Structure of sources of additional funds for Polish agriculture in 2005-2013 (%)

Green: market segment, red: public segment, blue: operational segment.

Source: own elaboration based on data: A. Kowalski (ed.), Analiza produkcyjno- -ekonomicznej sytuacji rolnictwa i gospodarki ĪywnoĞciowej w 2012 roku, IAFE-NRI, Warszawa 2013 and earlier.

The decreasing percentage of funds generated due to the operational segment of additional funds is a proof that the sector is increasingly dependent on public aid. It can be a reason for postponing the decision to implement innovative solutions or change the type or structure of production. What is more, the data concerning the use of payments in 2008 under the single payment system (the so-called SPS), which is applied primarily in the EU-15 countries,

2014-2020 na kondycjĊ finansową krajowego rolnictwa i caáą gospodarkĊ, Multi-Annual Programme 2011-2014, no. 81, IAFE-NRI, Warszawa 2013.

6 B. Rokicki, Ocena wpáywu “budĪetu rolnego” Wspólnoty na lata 2014-2020 na kondycjĊ finansową krajowego rolnictwa i caáą polską gospodarkĊ, [in:] B. Wieliczko (ed.), Ocena wpáywu budĪetu rolnego Wspólnoty na lata 2014-2020 na kondycjĊ finansową krajowego rolnictwa i caáą gospodarkĊ, Multi-Annual Programme 2011-2014, no. 81, IAFE-NRI, Warszawa 2013.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013

indicates that the average percentage of the funds used to cover current expenditure was 82%, and only 14% were invested⁷.

It should be stressed, however, that strong dependence of income on public aid is not exclusively a Polish phenomenon, but is also present throughout the EU. It could be said, that it is one of the characteristics of the so- -called European Agricultural Model⁸. At the same time, farmers declare that 62% of investments planned for 2014-2020 will be funded mainly from the farm income, large portion of which comes from direct payments⁹. Bank loans will be the leading funding source for 30% of planned investments, and investment support will fund only 4% (income from outside agriculture – 3%; other sources – 1%). It should be emphasised that the structure of main funding sources for planned investment depends on the type of projects, but most of the projects from all investment categories will be funded primarily by farm income, and investment support will be the primary funding source for 2-6% of investments.

As indicated by the research of V. Marconi et al.¹⁰, removal of investment support under rural development policy would negatively affect the investment level. It should be stressed, however, that not all investment aim primarily at increasing the competitiveness of a farm, which is proved by the fact that most of the respondents of a survey by M. Lefebvre et al. indicated that the expected result of the future investments will be improvement in working conditions on the farm¹¹. As far as direct payments are concerned, their nature, i.e. the fact that they are related with the production or not, does not affect the investment level¹². Simultaneously, those instruments do not force implementation of any

7 M. Lefebvre, K. de Cuyper, E. Loix, D. Viaggi, S. Gomez-y-Paloma, European farmers’

intentions to invest in 2014-2020: survey results, JRC Science and Policy Reports, Luxembourg 2014.

8 The specific nature of the European Agricultural Model has been described in detail in the following article: S. Kowalczyk, R. Sobiecki, Europejski Model Rolnictwa wobec wyzwaĔ globalnych, Problems of Agricultural Economics 2011, no. 4.

9 M. Lefebvre, K. de Cuyper, E. Loix, D. Viaggi, S. Gomez-y-Paloma, European farmers’

intentions..., op. cit., Fig. 15.

10 V. Marconi, D. Viaggi, M. Raggi, M. Lefebvre, S. Gomez-y-Paloma, A farm level model to evaluate the impact of the Common Agricultural Policy on EU farmers’ Investment decisions.

Paper delivered during the AIEAA seminar, 27 June 2014.

11 40% of the respondents selected this answer. Farmers could select any number of answers.

35% of the respondents stated that the purpose of the investment is improvement in production quality, and 25% stated that it is reduction in costs, which is directly linked to competitiveness in the traditional sense.

12 It is indicated e.g. by research findings presented in the following publications: 1. D. Viaggi, F. Bartolini, M. Puddu, M. Raggi, Farm/Household-Level Simulation Results of Testing Policy and Other Scenarios, Comparative Analysis of Factor Markets for Agriculture across the Member States, Working Paper 2013, no. 54; 2. G. Guastella, D. Moro, P. Sckokai, M. Veneziani, Simulation Results on the Impact of Changes in the Main EU Policy Tools on

measures that positively affect the competitiveness of farms that receive them.

The influence of budget spendings in the EU agriculture on competitiveness in the traditional sense is thus diverse. The main reason for this is their multi-channel impact, which is often self-contradictory.

5.3. Subsidies and finance. Sustainability and competitiveness of farms