A number of explanations have been given for this counter- intuitive finding. One is that CAP subsidies facilitate a process of investment and mechanisation which has substituted capital for labour and thus reduced the demand for labour on farms.
Another explanation is that most CAP supports go to larger farms enabling them to grow more rapidly at the expense of smaller farms. Because larger farms are less labour-intensive than smaller farms, this could be another reason why agricultural support is negatively associated with employment.
Given the family farm structure of much EU and Irish agriculture, the evolution of agricultural employment largely depends on the willingness of farmers' children to take over the family farm. One intriguing explanation hypothesises that the higher income farmers enjoy as a result of policy support allows them to invest more in the education of their children, but higher educational qualifications increase the probability that the children are no longer interested in taking over the family farm.
Despite the contradictory evidence, policy-makers are asking whether agricultural policy could do more, or be more effective, in contributing to job creation. Last year, the European Parliament passed a resolution on how the CAP could improve job creation in rural areas. This issue will also be raised in the Commission's Communication on modernising and simplifying the CAP, which is expected towards the end of this year.
Agricultural employment can be broadly defined to include not only direct employment in primary agriculture but also the indirect jobs supported in the upstream and downstream industries as well as through the spending of agricultural incomes.
One issue which must be emphasised in this debate is that jobs in agriculture should be created by improving the overall productivity of the sector rather than simply by redistributing jobs from other sectors of the economy.
Increasing support to farming may well lead to an increase in farm-related jobs, but the taxation needed to fund this support is likely to destroy jobs elsewhere in the economy. Providing preferential treatment to agriculture may result in higher agricultural employment, but the implied discrimination against other sectors will cost more in terms of lost jobs which might also be better-paying.
There may well be a desire to create or maintain agricultural jobs because these jobs are predominantly located in rural areas which may have limited alternative sources of employment. But while agriculture continues to be a major part of the local economy in some regions, it is increasingly the case that 'rural' is no longer synonymous with 'agriculture' and 'agriculture' is no longer synonymous with 'rural'.
In any case, it still makes more sense to focus on 'smart' agricultural supports and investment, which help farmers and local communities to overcome specific barriers and constraints to improving their productivity, rather than relying on generalised income support, which may or may not have a positive impact on agricultural employment.
Helping farmers to avoid or to cope with extremes of market price volatility can encourage agricultural investment by reducing risk. Preventing unfair practices where they occur and ensuring an equitable distribution of value added and risk along the food supply chain will also help to encourage agricultural growth.
Promoting innovation by supporting agricultural research and the diffusion of new ideas through knowledge transfer networks and operational groups makes absolute sense. Also, helping farmers to improve rural amenities and to provide public goods can add to local economic activity by attracting new residents or visitors to rural areas, or by creating service-based activities.
Exploring and supporting opportunities for renewable energy on farms is yet another example where sensible policy measures can support job creation.
At farm level, many of these activities are already supported through the Irish Rural Development Programme. However, funding remains an issue and this will become a more binding constraint after 2020 when the new CAP budget envelope is agreed.
If we really want to focus CAP spending on jobs, it will be important to prioritise these 'smart' support schemes in the coming negotiations.
Alan Matthews is Professor Emeritus of European Agricultural Policy at Trinity College Dublin
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