From "Reports on Agriculture", exercise book 1, April 2012

Food Security and Sustainable Productivity Growth

Report of the Scientific Advisory Board on Agricultural Policy of the Federal Ministry of Food, Agriculture and Consumer Protection (BMELV) – January 2012

By Jürgen Bauhus, Freiburg, Olaf Christen, Halle, Stephan Dabbert, Hohenheim, Matthias Gauly, Göttingen, Alois Heissenhuber, München, Jürgen Hess, Kassel, Folkhard Isermeyer, Braunschweig, Dieter Kirschke, Berlin, Uwe Latacz-Lohmann, Kiel, Annette Otte Gießen, Matin Qaim, Göttingen, Peter Michael Schmitz, Gießen, Achim Spiller, Göttingen, Albert Sundrum, Kassel, Peter Weingarten, Braunschweig

78. The widely held view that hunger is merely a distribution problem does not go far enough. Although improving fair distribution by means of suitable measures to combat poverty is essential for food security, awareness must be raised that there will be a serious volume problem on the global level in future because of dwindling resources. In this context politicians can and must play an important role through public communication.

79. At the present time global agriculture production can scarcely keep pace with the growth in demand which means that food prices are rising. The majority of impoverished people around the global suffer from rising prices which means that hunger and malnutrition are on the rise. In order to limit the longer term forecast increase in prices, the global demand trend must be curbed and the supply trend accelerated. To this end, diverse approaches must be pursued. There are no simple blueprints.

80. On the demand side, efforts should be made in industrial countries to considerably reduce the consumption of meat and other animal products. Public awareness-raising programmes must be introduced above all in schools. For various reasons the Scientific Advisory Board does not believe that a meat tax makes sense. It is, however, of the opinion that thought should be given to a measure in keeping with the times, VAT harmonisation for food and other goods and services. harmonisation of this kind would simplify the tax system and additional tax revenues could open up financial scope for other measures (including the cushioning of social hardship).

81. The consumption of meat and other animal products should not, however, be simply written off as "non-sustainable". In many developing countries the consumption level is still so low that a higher consumption of animal products could improve the supply of proteins and essential micronutrients. As developing countries account for the larger and growing proportion of the global population, the global consumption of animal products coupled with rising prosperity will continue to rise.

82. In order to successfully tackle the throw-away problem in industrial countries, it is necessary more particularly to increase social respect for food. This is partly a question of the price level (see above). What is even more important in the opinion of the Scientific Advisory Board are public awareness-raising and educational measures whereby these should be introduced first and foremost in kindergarten and schools. Furthermore, the Scientific Advisory Board recommends a review of the concept of the best-before date.

83. Given the spiralling scarcities, the Scientific Advisory Board once again reiterates its earlier recommendation of undertaking a fundamental change in bioenergy policy. The current subsidies, i.e. admixture ratios and feed-in tariffs, should be scaled back. Instead, greater emphasis should be placed in research and development on raising efficiency in bioenergy production. This is also to be recommended because biofuels coupled with rising crude oil prices will grow in importance even without any political support. Hence, resource-saving production is important in order to limit the negative impact on food security.

84. Even if all the opportunities for putting a brake on the rise in global demand could be exploited, it can be assumed that a major increase in global supply will be necessary. One important approach involves ensuring that a large proportion of the volume produced now actually reaches consumers. The major post-harvest food losses particularly in developing countries can be reduced by improving the local infrastructure for storage, transport and processing as well greater support for post-harvest technologies.

85. Agricultural production itself must also be increased. A possible expansion of arable land is often categorically ruled out in discussions. However, little is known about the economic, ecological and social cost-benefit ratios of agricultural expansion at different locations. Investments should at least be made in relevant research in order to improve the information base. Yet the expansion of the land area alone will scarcely be enough to bring about the necessary increase in production at ecologically acceptable costs. That’s why the Scientific Advisory Board sees sustainable productivity growth as a key goal. Sustainable productivity growth means that per output unit – measured at the end of the respective value chain – less of the overall bundle of natural resources is used. In this context, social aspects and issues of animal welfare must also be taken into account. The development of suitable assessment criteria for this goal is dependent on interdisciplinary research and should be assigned high priority. The previous partial approaches (e.g. carbon footprint) do not go far enough and may even be misleading.

86. Sustainable productivity growth calls for the use of scientific findings and greater promotion of agricultural research. From the angle of technological approaches, the Scientific Advisory Board advocates not leaving any technology out right from the very start. With a view to the goal of sustainable productivity growth, locally adapted production systems and value chains must be developed and implemented. In this context different technologies then compete on the basis of uniform assessment criteria. In many cases innovative combinations of different approaches can be highly promising.

87. The goal of locally adapted sustainable productivity growth must, in principle, apply everywhere both in industrial as well as in developing countries. Of course, there are reasons for paying particular attention to agricultural growth in developing countries (see below). Nonetheless, agriculture in Europe also plays an important role in global food security. Against the backdrop of global scarcities and very different levels of resources from region to region, goods should be produced where the scarce resources can be used most efficiently coupled with the internalisation of external effects. The goal of global food security should be anchored far more clearly in the EU’s Common Agriculture Policy and the actual policy should be oriented far more towards this goal.

88. Indiscriminate support of high versus low external input strategies is not productive. Depending on the location and initial situation, sustainable productivity growth may require more or fewer external inputs. Particularly in Africa intensification could make a major contribution to more efficient use of resources and this should be promoted through the creation of suitable framework conditions. Conversely, in Germany and Europe particularly in intensive animal husbandry there are sometimes considerable nutrient surpluses. The existing instruments for measuring the nutrient balance of holdings should be used in order to promote efficient holdings and impose restrictions on inefficient ones. In principle, efforts must be made both on the national and international levels to internalise external costs so that the price-driven incentives support sustainable development.

89. Polarised controversies about various technologies and agricultural forms of production are counterproductive because the actual goal of sustainable productivity growth is forgotten. Politicians and the media must play an important role here in order to ensure that public discussions are objective and not overheated. This also calls for courage to question popular views and to inject more reflection into the debate.

90. German agricultural research is competitive on the international stage and makes an important contribution to global food security. This German contribution should be further strengthened. Suitable support mechanisms, which guarantee efficient incorporation into the international research system, are available and could be further extended by BMELV programmes. Research should primarily be oriented towards the goal of sustainable productivity growth. It should cover the links between production systems and value chains and not focus solely on improving the individual components. German agricultural scientists can play an important role in the comprehensive, comparative sustainability assessment of important production systems at different locations around the globe. The Scientific Advisory Board particularly stresses the importance of this role when it comes to improving the scientific basis for further discussion processes and decisions. Specifically to this end BMELV could launch a funding and support programme within the framework of international research consortia.

91. Special attention should be paid to the smallholder sector in developing countries when it comes to public research support and development cooperation. It boasts major potential for sustainable productivity growth and faces major challenges regarding adjustments to climate change. The smallholder sector also constitutes the economic livelihood for many of the people who suffer from hunger and poverty around the world. Adjusted technologies can increase income, reduce poverty and improve access to food. Because of the difficult conditions and the, as yet, limited commercial potential, sustainable productivity growth in the smallholder sector cannot be achieved solely through private sector initiatives. Accompanying infrastructure measures, institutional innovations to improve market access and a reliable legal framework are dependent on political support. The role of women should be given special consideration in rural development programmes and further strengthened.

92. International agriculture trade can contribute to sustainable development and developing countries – in particular smallholders – should be placed in a position where they can benefit more from trade. A rigid self-sufficiency goal, like the one pursued by some developing countries, leads to the inefficient use of resources. Trade that is profitable for all sides is, however, dependent on transparent markets and a reliable trade system. Despite the gradual liberalisation of agriculture trade, the conditions for developing countries are frequently unfair. The agriculture and trade policy of rich countries should constantly be re-examined to ensure it is aligned with development policy goals. But the agriculture and trade policy of developing countries themselves should also be reformed and the ongoing discrimination of their agriculture, that can still be observed, should be dismantled. Environmental standards and sustainability issues should be anchored more securely in the regulatory framework of WTO in order to reduce external costs that are partly triggered by trade.

Political Strategy for Food Labelling

Joint Statement of the Scientific Advisory Boards on Consumer and Food Policy and on Agricultural Policy at the Federal Ministry of Food, Agriculture and Consumer Protection
September 2011

By J. Bauhus, Freiburg, T. Becker, Hohenheim, O. Christen, Halle, S. Dabbert, Hohenheim, U. Eberle, Hamburg, M. Gauly, Göttingen, U. Hansen, Hannover, A. Heißenhuber, München, J. Heß, Kassel, F. Isermeyer, Braunschweig, H. Jungermann, Berlin, D. Kirschke, Berlin, U. Latacz-Lohmann, Kiel, I.-U. Leonhäuser, Gießen, H.-W. Micklitz, San Domenico di Fiesole, A. Oehler, Bamberg, A. Otte Gießen, M.-B. Piorkowsky, Bonn, A. Ploeger, Kassel, M. Qaim,Göttingen, L. Reisch, Frederiksberg, P. M. Schmitz, Gießen, A. Spiller, ttingen, A. Stadler, Konstanz, C. Strünck, Siegen, A. Sundrum, Kassel, P. Weingarten, Braunschweig

Consumers in modern consumer societies are confronted with an abundance of largely similar products, especially in the food sector. They are usually completely unable to process the detailed, product-related information these products contain. In this context labels are an important information tool for consumers. They can bundle information and are thus used more often and at an earlier point in time than other information. They can play a key role when it come to trust-related properties of products or services, as consumers do not have a reliable alternative source of this information.

To contribute to consumers being able to make an informed decision, however, labels must be easy to understand, based on sound verified criteria and familiar to consumers. In addition to this, they must not be allowed to get lost in a flood of similar and sometimes ambiguous labels. With regard to the supplier side it is essential that labels provide a range of economic incentives to continually increase quality. So far these, challenges have not been sufficiently met by the agri-food industry and agri-food policy in Europe and Germany.

From the point of view of the Scientific Advisory Boards, what is required is a long-term, consistent food labelling strategy that is preferably coordinated throughout the EU and that is based on an integrated view of environmental, food, consumer and agricultural policy and that integrates food labelling in all its complexity, including the context of other instruments.

For important trust-related properties (health, environmental impact, social and animal welfare), which are becoming increasingly important for consumers, the Scientific Advisory Boards recommend an optional “umbrella” label showing the 4 above- mentioned labelling areas separately using a multi-level evaluation system. The umbrella label is intended to ensure easy recognition. The multi-level approach allows for differentiated evaluation and provides quality incentives for the suppliers. The focus (aggregation) on important labelling areas ensures a high amount of clarity, especially when terms are simultaneously protected by a ban on (misleading) associations. An overarching concept of this kind is only possible as a state-imposed or state-supported procedure. The Scientific Advisory Boards favour the latter but would like interest groups to be involved too. The animal welfare requirements for livestock offer especially good prerequisites for the testing of a multi-level label as described above.

Binary characteristics, such as ingredients, origin, the use of genetic engineering or nanotechnology, are not suitable for an umbrella label concept. For such cases, the recommendation provides a decision grid for classifying the respective labelling area. For specific terms such as “GM-free” or “from mountain farms”, the Scientific Advisory Boards recommend maintaining or introducing reserved terms that may only be used when legally defined conditions are met. At the same time, it should also be ensured in this area that terms are protected through a ban on (misleading) allusions. For private-sector labels, logos, references to testing or monitoring systems or specific advertising statements on the process quality, just as for state-imposed or state-supported labels, information should be made available at the point of sale or on the product packaging to enable the consumer to find further details on the system. It should be obligatory to state (e.g. on the internet) by whom the label is awarded and what the award criteria and the control process comprise. It is also necessary to ensure the independence of the inspectors and the control of the label providers (e.g. through accreditation), and to document this transparently. The observance or breach of legal minimum standards should generally not be communicated through a label.

Effects of investing in a biogas plant on overall risk for agricultural enterprises

By Ulla Kellner, Oliver Mußhoff and Daniel Wostbrock, Göttingen

As Germany now subsidizes biogas production with high and fixed feed-in prices for electricity, farmers have also started investing in biogas plants for methane production. This new branch is becoming more and more of a mainstay for farmers. In the past, researchers focused more on profitability and less on risk management aspects when analyzing this new branch in agriculture. Even when risk aspects have been analyzed, the analysis has been carried out using hypothetical data or in a single branch and not in a whole-farm context. This is therefore the first study that is based on data from real farms with crop production and hog finishing (including piglet breeding). Stochastic simulation is used for determining the risk effects. The results show that although biogas production offers fixed electricity prices, risk is very high due to fluctuating input prices for grain. In combination with crop production, a biogas plant has a risk-decreasing effect, but here the proportions of the plant and the amount of arable land on the farm must be compatible. In the case of a farmer who does hog finishing and produces biogas in combination with crop production, the risk rises because the biogas plant cash flow and the hog finishing cash flow (seem to) follow a similar development.

Impact of biogas production on the regional land lease market – Empirical study of five rural districts in Lower Saxony with high density of biogas plants

By Carsten H. Emmann and Ludwig Theuvsen, Göttingen

The study analyzes the effects of biogas production on the regional land lease market in five rural districts of Lower Saxony. The regions chosen for the study, which are characterized by a high density of biogas plants and to some extent also of animal husbandry, were the counties Celle, Soltau- Fallingbostel, Emsland, Rotenburg (Wümme) and Oldenburg. In the theoretical part in which the relationship between the biogas production and the price for leasing farmland was determined, it could be shown by use of functional income analysis that under the average market conditions in the 2006 to 2009 period an exemplary farm in the Soltau-Fallingbostel region was able to enjoy internal advantages and could realize a higher maximum willingness to pay for arable land by the addition of energy maize in its crop rotation. The empirical results from the five regions also underscore the high importance individual farmers place on biogas production in regard to the leasing market. The surveyed biogas farmers on average consider themselves as being fitter for the future, more successful and – due to the higher maximum willingness to pay for arable land – more competitive on regional land lease markets than other farmers. However, the survey also clearly pointed out that even in regions with a relatively high density of biogas plants as well as a stagnating or even decreasing animal population, the biogas production currently exerts an increasingly strong effect on the land lease market, which leads to increasing rents for arable land and crowding out on the land market. Therefore, the competitiveness of the regional food production can decline through the promotion of biogas production, since the rising costs of land use can increase the cost of individual farm growth as well as the production costs of food and forage.

Do rent adjustment clauses reduce risk for agricultural companies?

By Henning Hotopp and Oliver Mußhoff, Göttingen

Risk management is gaining more and more in importance in agriculture. Besides the classic instruments, new risk management instruments are increasingly being proposed or rediscovered. The latter also include the so-called rent adjustment clauses which on first sight seem to be an unusual risk management instrument. In contrast to conventional instruments, the fixed cost ‘rent payment’ is in this case intentionally made to fluctuate. We investigate the whole farm risk reduction potential of different types of rent adjustment clauses by means of a historical simulation. The risk reduction potential is measured by the standard deviation and the Value at Risk. Our results show that rent adjustment clauses can contribute to risk management in farms. However, the trade-off between the problem of moral hazard and the basis risk needs to be considered. Our proposal of a weather-index based rent adjustment clause seems to be a “good compromise”: If objectively measured weather data are used, the problem of moral hazard is completely eliminated, resulting in a clause that is, comparatively speaking, more cost-effective. At the same time, the risk reduction potential, especially that of precipitation-based clauses, is comparatively high.

Production and income situation in Polish agriculture after accession to the European Union

By Walenty Poczta, Karolina Pawlak and Wawrzyniec Czubak, Poznań

The aim of the paper is to assess the changes in the volume of production, agricultural income, productivity of resources and foreign trade in agri-food products in Poland after accession to the European Union in relation to the pre-accession period.

The process of Poland’s integration with the European Union has had a positive effect on an increase in the volume of agricultural output and income. The growth of income of the agricultural sector would not have been possible without a significant increase in the level of CAP subsidies, as well as increase in demand for Polish agri-food products and parallel increase in agricultural prices.

Significant improvement in production and economic situation of Polish agricultural sector resulted in developing of a group about 75-80 thousand farms that gain more than parity income level and make net investment. This group indicate the direction of changes of Polish agricultural sector but it is only 3 per cent of all agricultural farms in Poland. The problem of Polish agriculture is a very low labour productivity, that in 2008 was 3.5 times lower than in the EU-27.

After Poland’s joining to the Single European Market, the significance of the EU countries in Polish foreign trade in agri-food products increased. The share of the EU countries in Polish agri-food export rose from 51 per cent in the year preceding Poland’s accession to the EU to 80% in 2009. Import of agri-food products from the EU reached 70 per cent of total Polish import of this product group. It can be said that in addition to increase in the volume of agricultural income, multiplying the share in the Single European Market was the positive effect of Poland’s membership in the EU.

Key words: competitiveness, structure and organisation, agricultural output, agricultural income, subsidies, production factors, productivity of resources, agri-food products, export, import, intra-EU trade.

Entrepreneurial agriculture between market requirements and social expectations Report on the 51st Annual Conference of the German Society of Economic and Social Sciences in Agriculture (Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues - GEWISOLA) from 28 to 30 September 2011

By Alfons Balmann, Thomas Glauben, Michael Grings, Norbert Hirschauer,
Rebekka Honeit, Mira Lehberger and Peter Wagner, Halle (Saale)

Firms in the agricultural and food industries are facing changing market demands as well as increasingly differentiated societal expectations. The agricultural sciences are called on to help mitigate the conflict between these demands and expectations. This is why GEWISOLA, the German agricultural economists’ society, chose the theme of ”Entrepreneurial agriculture – meeting changed market demands and social requirements” as the focal topic of their 51st annual conference, September 28-30, 2011, in Halle (Saale). The conference was jointly organized by the Martin-Luther-University of Halle-Wittenberg, the Institute of Agricultural and Nutritional Sciences, and the Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO). A total of 36 papers and 23 poster presentations offered insights into a variety of topics linked to the overall theme of the conference. Both the opening and the closing plenary session were focused on the main topic of the conference from the point of view of politics, business, civil society, and science.

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