The changing role of agriculture at the beginning of the 21st century

The population of the war and post-war generation knew perfectly well that efficient agriculture is one of the central living and economic foundations of a person. It has to ensure nutrition within national borders and to provide for crisis periods. For this reason, influencing agricultural policy in the past primarily pursued volume and quality objectives of production. 

The other services provided by the agriculture sector, in particular the important role of the labor market in terms of labor policy and environmental and spatial services, were taken for granted and received little attention in the political debate. In the meantime, we live in a European Union that pushes its borders ever further, thinking and planning in a national economic area has given way to a pan-European approach, the barriers to the world market are being gradually lowered, and the memories of times of distress, like the older ones Generations have experienced, have long ago faded.

Instead of the food security function, the multifunctionality of agriculture has come into the foreground of the discussion, especially when it comes to reasons for the maintenance and promotion of land management. The position of agriculture within the national economy has come into the discussion as a whole, which should even increase in accentuation, the more limited the available financial resources in the future will be. 

At the same time, agriculture is faced with the industry’s efforts to increase its influence, and it is being overshadowed by a complex system of legal requirements on the part of society or legislative bodies.

In the face of the many challenges posed partly by the rest of the economy, partly by world markets and international trade agreements, partly by society, i. For the citizens of their own country and the whole of the EU, and not least from the various legislative levels, agriculture is in a process that redefines its social and economic role. 

Additionally, peasant agriculture, as it has shaped the picture in most EU countries, has been affected in several ways and probably also in danger of losing its familiar face:

  • Agriculture is losing its traditionally claimed and previously granted special status by politics and society.
  • There is a structural change that overshadows everything that has been used and generally accepted.
  • The relationship to industry changes with the consequence that it can increase its influence on the agricultural production level.
  • The society wants to have a say in the question of what and with which production methods in agriculture is produced.

The special agricultural status

Their fundamental task of providing adequate food has always given agriculture a special reputation. However, essential features of agricultural production – living animals and plants as well as processes of natural growth – are different from manual and industrial production processes. This is the basis of the theory of the peculiarities of the agricultural sector, which in the past formed the basis for agricultural policy:

  • Production processes in agriculture take from several months to years, depending on the type of farm animals or plants. An immediate reaction to changing price and quantity constellations is therefore not possible.
  • The strong dependence of yields on natural factors, such as weather conditions, pest infestation, occurrence of plant and animal diseases, etc., leads to strong supply fluctuations from year to year.
  • In combination with the extremely low price elasticity of the demand for food, this results in disproportionately high fluctuations in producer prices unless market intervention is undertaken.
  • There is a lot of capital tied up in agriculture, especially in the soil. 

As the Federal Government’s agricultural policy report has documented for decades, farmers have been able to participate more or less in the general income trend, but an adequate return on equity has not been achieved.

The basic laws of agricultural policy saw the securing of nutrition as a decisive task of the agricultural economy. It was consequently the task of politics to create the conditions for a stable quantitative and qualitative production development. In view of this priority task and the “peculiarities” of agricultural production, an agricultural policy developed that pursued for decades a protectionist baseline. It kept prices for agricultural products at an artificially elevated level through measures of market intervention, quota provision and external protection, thereby operating income and, ultimately, structural policies for the entire agricultural sector and for rural areas.

Changed macroeconomic conditions (in particular surplus supply, open markets), but above all the pressure from the WTO negotiations, have caused a rethink in economic policy and forced a reorientation of agricultural policy. Today, liberal ideas, the idea of an aspired and functioning international competition and the need for market-oriented individual production planning while at the same time committing to a resource-friendly, sustainability-oriented, handling of soil, water, air and livestock dominate etc. 

Market mechanisms are overruled and producer prices are ultimately based on the given “administered” prices. Price fluctuations, which will be more pronounced in the future, increase the economic risks of agricultural production. It will now be up to the farmer himself to set up appropriate risk management. Perhaps the best known instrument is price hedging via the commodity futures exchange, but also the products of relevant insurance (such as crop failure insurance, minimum price insurance, etc.) may be considered. However, it is still not clear that the German insurance industry would aggressively approach this emerging market.

High tech in agriculture

Farming is currently in the midst of a leap that aims to be a modern high-tech agriculture. This leap is not always entirely voluntary, and various external constraints – legal requirements and contractual obligations – have given impetus and momentum to this process. The following lines are exemplified:

  • In terms of sustainability, the use of potentially polluting agricultural inputs should be limited. This applies above all to the quantities used and the application techniques for natural and chemically produced fertilizers and pesticides. Compliance with the relevant regulations must be documented accordingly.
  • In terms of animal welfare, optimal housing conditions must be ensured. At the same time, emissions into the air are to be limited to a large extent and feeding should be demanded across all stages of animal growth and performance in order to avoid nutrient surpluses in manure. In any case, the nutrient movements have to be balanced and documented.
  • For the purpose of traceability and quality assurance, in animal production, supply routes and processing steps (eg creating a feed mix) of feed, feed distribution, origin of animals, details of herd management, veterinary applications, distribution channels, etc.must be made from feed to animal through the whole chain ultimately even recorded and documented to the end user. In some cases traceability is required by law (feed) and partly it is part of a voluntary quality management, as provided for in quality assurance systems (in Germany, for example, the Q & S system).

The result is a considerable effort on data acquisition at all stages of agricultural work, a corresponding documentation of all recorded operations and the need for a cross-system networking of all collection, documentation and control tools to a total operating EDP. Ideally, it should also be able to generate from the recorded operations the company accounts and application data sets.To record and control the various processes, the agricultural engineering industry, in cooperation with relevant agricultural software houses, has developed products that go far beyond the previous control units and electronic planning aids – mostly technical isolated solutions: 

  • systems for GPS-controlled small-scale detection of soil;
  • systems for harvesting data;
  • systems for the estimation of the application rates of fertilizers and plant protection products; systems of individual animal identification for sensor-controlled feeding and animal monitoring; computer-controlled climate management in stables, etc.

In view of these innovations, agricultural production is taking on more and more features of production processes, which are common in the industry. This development of consistently monitored, documented, precisely controlled production processes that are precisely integrated into the overall operating environment is also made clear in the relevant technical terms such as “precision farming” and “precision livestock farming”. Most of the farmers are very technology-oriented, and the younger ones in particular are happy to use powerful systems to get their operations under control and, ultimately, to increase their efficiency. At specialist trade fairs such as the “Agritechnica”, relevant suppliers are attracting a great deal of attention, and specially established trade fairs such as the “Agricultural Computer Days” confirm this trend.

Structural change in agriculture

German agriculture has been familiar with the phenomenon of structural change for decades. As in most “historical” sectors of the economy, the number of farms is decreasing as average capacity, land use and herd sizes increase. From 1991 to 2003, the annual feed rate for agricultural holdings was 2.8%. Especially in the past year, the process of operating tasks obviously accelerated, the rate rose to 4%. The growth threshold is around 75 hectares of utilized agricultural area, which means that the number of holdings below this threshold decreases statistically, above this threshold increases are recorded.

Macroeconomically, the cause of the structural change so far was the development of price and income conditions, which made it difficult for farmers with insufficient operational resources to survive economically. Individually, other factors may be added, such as the age structure of the farming families and the presence and commitment of any farm successors. In the meantime, farms are turning into “food companies”. For them, in future – beginnings are already visible – a backdrop of legally prescribed or contractually defined specifications, for which there is only one practicable answer. 

This is the IT technical organization of the companies, which de facto no plant manager can escape. Farmers, who see no chance from age and education to work creatively with a farm EDP, are probably going to cut the sails in the face of this necessary process. Some of them have been able to manage so far that they meet the given requirements, e.g. the so-called livestock change notification (for cattle), have done by postcard instead of the Internet, so the already existing and the still in preparation legal requirements can not cope with such makeshift ways. 

The current need for advice is indeed huge. In order to provide at least partial relief, the associations, the machinery rings and contractors, agricultural consultants, specialized software companies, etc. try to provide farmers with appropriate IT service packages.

The previous structural change, caused by general economic pressures, has allowed alternative agricultural strategies, e.g. the focus on local or regional sales, often combined with direct marketing initiatives and the farm’s own food production. The switch to organic farming or the inclusion of certain niche productions also ensured survival with limited operational capacity. On the other hand, the now emerging compulsion to “EDV isiserung” will reach all operating modes. 

The agricultural companies will also come under pressure to act, which until now had developed good strategies to secure their operational existence through the operation of special markets.

All boils down to the fact that in the future there will be only two types of agricultural establishment: “modern” enterprises with EDP-based management pursuing a production and sales strategy trimmed on the world market, and equally “modern” enterprises, one of which pursue alternative production and sales strategies. Farms whose managers still want to complete the verification obligations and the entire administrative burden by hand will become extinct. There will not be a chance to escape the guidelines and requirements as a “food producer” for legal reasons alone.

Concentration of the agricultural industry

Agriculture, with its multitude of businesses, has always had a difficult time as a market partner of trade and industry in view of the unequal economic power relations. This situation has worsened from the perspective of agriculture. In many sectors of industry that are important for agriculture, international corporations (agricultural machinery, fertilizers, crop protection) shape the picture. 

Also, customer-side companies are currently undergoing a rapid process of forming large companies that are often active in several of the member countries. The slaughtering industry and the dairy industry are current examples. For example, in 2004, 49% of German pig slaughterhouses accounted for only four companies, in the Netherlands one company alone dominates with a share of 65% of the slaughterings in Denmark even with 90%. In view of such concentration developments on the upstream and downstream side, agriculture is in danger of losing even more market power.

The companies in the food trade are in demand across the EU, sometimes even for overseas sources, whereby suppliers who can deliver the defined qualities in the appropriate lot size in a timely manner come into play. And only those regions that have formed powerful organizations or businesses at the level of agricultural production and primary processing will still have market opportunities, given the high concentration of demand in the common EU market.

Integrated concepts

The possibility of traceability and quality assurance currently demanded by consumers and legislators in the European Union, as well as the endeavor of various retailers to guarantee consumers a certain quality standard, promotes the formation of so-called integrated chains. Such efforts can be observed especially in the meat sector. An attempt is made to integrate all stages involved in the production process into a binding set of rules. This may begin by determining the origins of the juveniles used, defining feeding regimes, specifying certain husbandry practices and aspects of herd management and regulating the modalities of the paragraph. 

An essential part of such concepts is the complete documentation. Alternative strategies to industry-initiated systems may involve farmers organizing in interconnected systems in order to be able to meet the required quality and traceability requirements. If the sale is also made jointly, they can, for example, act as a stronger negotiating partner than the slaughterhouse, who can offer the corresponding lots in marketable sizes.

Integrated concepts, especially those under the direction of slaughterhouses, are quite echoed in agriculture. On the one hand, the loss of influence on the part of agricultural managers can not be overlooked, and on the other hand, the participating farmers often miss the hoped-for better payout prices. It should be noted in this context that the quality assurance systems already in place, such as The Q & S system in Germany also ensures the desired quality assurance and traceability without agricultural companies binding themselves permanently and bindingly into an integrated system.