1 Access to Land and Politics of Scale: Potential Implications for Property Rights and Free Markets, for Land Ownership and Management, and for Agricultural Policy and the Rural Economy in Europe February 2020 Since 1989, a period of change unprecedented in eastern Europe since 1945 has combined with globalisation (to which the Communist bloc had in large measure been the major obstacle) and a major shift in the economies of scale in farming. Not only has this proved challenging to manage, but it has often acted as a catalyst for latent insecurities in the countryside. At the same time, restitution and privatisation policies, themselves often implemented only on a restricted scale, have left large areas of land under state control or management, which have then become the subject of policies and decisions whose even-handedness and transparency is frequently called into question. In reaction, a public debate, often conducted in emotive terms, has begun on a politics of scale, typically using ill-defined umbrella phrases such as ‘land grabbing’, which calls into question both the shape of future Agricultural Policy and the functioning of markets (and particularly the European Union Internal Market). This debate, which is loudest in the new Member States, who undertook to privatise state assets and open markets over varying transition periods in their Treaties of Accession to the European Union, has nevertheless sought to develop arguments based on discrete situations in western Europe and, in some cases (notably France), intervention policies based on the introduction of pre-emption rights. It is currently possible to discern two trends, the emergence in some new Member States of state reserves of agricultural land which then become the subject of political demands and favours, and a politics of micro-agriculture that is pursued in preference to diversification of the rural economy and can be used in some countries to shield the state reserve. At a fundamental level, this calls into question the intention, and perhaps even the capacity, of some new Member States, to complete the process of transition. Yet there is a serious danger that the problems of today are being addressed in the context of the world of yesterday, whereas the need is to develop a vibrant, sustainable and resilient rural economy in which the actors of the past will still have a valid, and validating, role in the future. European Landowner’s Organization asbl, Rue de Trèves 67, B - 1040 Brussels Tel: +32 (0) 2 234 30 00; Fax: +32 (0) 2 234 30 09 www.elo.org 2 Structure of Report I The Politics of Land Ownership, Agricultural Policy and Forestry II Land Law, the Market and Capitalisation of the Rural Economy III A Problematic History: Principles, Politics and Progress of Restitution IV The Politics of Scale: ‘Family’ farms, a tie to the land or multi-functionality? The Politics of Scale in marginal areas: Scotland The Politics of Scale in France V Diversification and Multi-functionality VI Conclusions and Recommendations: The integration of economy, environment and society I. The Politics of Land Ownership, Agricultural Policy and Forestry 1. Forms of ownership (proprietas in Roman law) go back far into Antiquity. Ownership provides the fundamental form of capital investment and, therefore, an essential means of capitalisation. The alternatives to private ownership as a source of capital for the rural economy are public spending (the taxpayer) or financial institutions (borrowing). Globalisation sets this in a new and wider context, alongside a need, greater than in the past, for the validation of locality. Nevertheless, a politics of scale has often sought to influence the functioning of the capital markets, restitution policy (in eastern Europe), intervention in land-management structures and agricultural policy itself in a way that has profound implications for the future of the European countryside. 2. Historical Background to Agricultural Policy The structure of ownership is only partially reflected in the structure of farms. While many farms are owner-occupied or family farms, others are owned by a landlord, often historically the local estate, and the farmer has a contractual right of occupation or tenancy. (In the UK, a tenancy may be governed by the terms of the Agricultural Holdings Act (1948), amended in 1986, or it may be a Farm Business Tenancy under the AHA 1995). In the case of owner-occupied farms, the capital value of the land and (usually) buildings is provided by the owner and/or the owner’s family, or must be supplied by borrowing. In the case of tenanted farms, much or most of the capital value of the land is provided by the landowner. Historically, the export of grain has been a crucial function of temperate, cereal-growing regions. In England, as early as the reign of Queen Elizabeth I, the Privy Council European Landowner’s Organization asbl, Rue de Trèves 67, B - 1040 Brussels Tel: +32 (0) 2 234 30 00; Fax: +32 (0) 2 234 30 09 www.elo.org 3 regulated permission to export grain through the county magistrates in order to try and balance the need for food security in bad years with the need for the grower to make a profit in good ones. In the late eighteenth century, the import and export of grain came to be regulated under Act of Parliament in accordance with the (internal) market price. Since the early nineteenth century, a number of states have had policies to support agriculture, and in the UK the Corn Laws performed this function from 1815-46 by keeping the price of grain at an artificially high level. However, free trade which followed the abolition of the corn laws subsequently produced its own problems with the agricultural depressions of the 1870s, 1890s and 1930s. Following World War II the British government introduced a system of deficiency payments, which continued until British accession to the EEC in 1973. The CAP, by contrast, was originally based on the mechanism of an intervention price which put a floor in the market, but which over time encouraged over-production. In the USA, agricultural support in the form of five-yearly Farm Bills dates from 1933. In Europe, the principal determining factors in the evolution of the CAP have included: the initial need to secure food supply; a structure of small (and in some countries often tenanted) farms generating its own socio-economic philosophy (reflected in post-war land reform in some European countries and represented in EU15 particularly by AHAs 1948 and 1986 in UK and by the SAFER (Sociétés d’Aménagement Foncier et d’Établissement Rural) in France); the problems of surpluses together with the Uruguay Round of GATT; the imbalance between East and West after 40 years of Communism; the preference for short-term supply-side measures (set-aside) followed by a switch to area-based payments, but accompanied with a failure to recognise the loss of biodiversity and combined with the failure to make Pillar 2 compulsory, and consequently a continuing policy emphasis on Agricultural Policy (latterly represented by area payments) as a policy primarily for agriculture rather than the wider rural economy and environment. Three general factors, none of them contemplated at the time of the land reforms of the first half of the twentieth century, have particularly affected small farms: Mechanisation and a reduction in the labour force. This has affected farms of all sizes since the introduction of the tractor and the reaper-binder, and its successor the combine harvester. The increasing size, and efficiency, of machinery, especially as used in arable agriculture, has significantly affected economies of scale. In particular, farm machinery has become much more expensive while covering a given area of ground much more quickly. This means that fixed costs have to be spread over a much European Landowner’s Organization asbl, Rue de Trèves 67, B - 1040 Brussels Tel: +32 (0) 2 234 30 00; Fax: +32 (0) 2 234 30 09 www.elo.org 4 wider area: otherwise the fixed costs per hectare must rise while at the same time the machinery resource is used for fewer days. Livestock and livestock systems (and especially cattle) are the largest source of GHG emissions from European agriculture (Annual European Union Greenhouse Gas Inventory, 1990-2017, and Inventory Report 2019, EEA, 2019). Methane emissions from enteric fermentation in cattle contributed 38 per cent of EU GHG emissions from agriculture in 2017 (the percentage rises to 55 per cent if a 20-year Global Warming Potential is applied), with a further 15 per cent coming from methane and nitrous oxide from manure management. A proportion of the nitrous oxide emissions from managed soils (contributing in all 30 per cent of emissions) is also attributable to the use of arable land for livestock feed. Historically, however, small farms have often relied on increasing stocking rates to bolster profitability, and this is exacerbated by intensive units, which have been an attractive route for farms to expand the business without increasing their area. The problems of smaller farms are thus a function of changing economies of scale, the need either to expand the size of the farm or find other ways to spread costs, the need to adopt new technologies and the need to reduce GHG emissions. Across Europe, the problems of new entrants to farming are of a significantly different order from even the recent past. The question of capitalisation is particularly relevant. Rented land made an important contribution in the former Communist countries in 2005, see Johann F.M. Swinnen and Liesbet Vranken, Land and EU Accession: Restrictions by New Member States on the Acquisition of Agricultural Real Estate (CEPS, 2009), Table 2, However, there is no longer a simple choice between ownership (perhaps financed by borrowing) and tenancy, or sole and cooperative trading, since farm partnerships and (particularly in response to changes in the size and cost of machinery), farm contracting agreements (where the owner bears the variable costs and profits are divisible with the contractor according to an agreed formula) are now widespread and offer much greater flexibility than tenancy or cooperative structures.