WTF is going on with the Economy?!

WTF is going on with the Economy?! #119 - Why the farmers are striking

WTF Economy Editors February 13 2024 · 6 min read
blog-image

Over the past few weeks, agriculture workers across Europe have traded their fields, barns, and vineyards, for the streets of capitals across the continent. These protests have shut down major axes and thoroughfares as farmers express their deep frustration at policies that they say threaten their livelihoods and even way of life. 

 

For those of us not in the loop (ourselves included), these rallies can seem confusing, especially since farmers have a habit of demonstrating every few years. However, given the unprecedented size and scope of the protests, we wanted to take a deeper look into their grievances and see how it could impact all of us. 

 

The three factors sowing farmer angst

Different events and policies have converged right now for the European agricultural sector, which in turn triggered these protests.  Let’s quickly take a look at the three main ones growing their anger.  

 

1. Climate change and the fight against it are driving up costs 

Battling climate change has been one of the EU’s biggest priorities since its creation in the 1990s. Agriculture accounts for 14.3% of all greenhouse gas emissions in the EU despite being only 1.4% of the bloc’s entire GDP. It’s no surprise then that the EU and other member states have passed numerous laws and regulations to reduce greenhouse gasses in industrial farming. These include increasingly stricter rules on: 

 

  • Water management
  • Fertilizer types and consumption
  • Land usage
     

At the same time, climate change is adding unprecedented volatility for farmers. Weather is becoming more unpredictable with Europe facing extreme weather events like prolonged drought, record-breaking flooding, and warm winters. Farmers can’t grow crops with the reliability like they used to. For them, they’re looking for support from governments, both in terms of financial aid and regulatory relief, including allowing the use of politically-controversial genetically-modified crops (GMOs) that can thrive in harsh climates. Together, the combination of climate change and regulations to combat it increase costs for farmers, while eating into their profit margins.

 

2. Governments are shifting their financial strategies

The pandemic flipped the EU’s financial calculus on its head. Prior to 2020, governments around Europe and the EU itself put a focus on financial discipline. When the Coronavirus hit, policymakers swiftly abandoned that policy and instead embarked on an unprecedented period of fiscal stimulus.  Russia’s invasion of Ukraine further exacerbated this spending cycle as Europe had to quickly adjust to life without access to cheap fossil fuels.  

 

With those crises either fading or under control, politicians in Europe are trying to get spending back to pre-pandemic levels.  The agricultural sector receives  386 billion EUR of the EU’s current 1.21 Trillion EUR budget which countries disburse and sometimes augment. Some governments are looking to cut that amount, particularly when it comes to subsidies for farming equipment and materiel. For example, the German government wants to cut subsidies on dirty diesel fuel for farmers, who depend on it to power tractors and other machinery. However, farmers complain that there either aren’t sufficient electric vehicles to replace diesel or subsidies to adopt greener technology. Governments, though, have other priorities right now, given both agriculture’s small footprint (in Germany, for example, farming is only 1% of German GDP), and a rapidly changing global economy. 

 

3. Fears from free trade

As the world’s largest free trade bloc, the EU has bold ambitions to reduce trading costs with other countries and regions. European farmers have always been wary of these external agreements as they increase competition and reduce margins for agricultural goods. 

 

In 2019, the EU finalized an agreement for a free trade deal with MERCOSUR — which is a South American free trade bloc consisting of Argentina, Brazil, Paraguay and Uruguay.  This accord would lower or eliminate import and export barriers for producers on both sides of the Atlantic, including for agricultural products.  European farmers fear this deal will flood the continent with cheaper meats and produce from Latin America, which will harm or even destroy their business.  They point out that while the agreement removes trade barriers, it doesn’t hold agricultural producers in MERCOSUR to the same environmental standards that the EU requires of its local farmers, further damaging their competitiveness. 

 

The EU wants to ratify this deal as soon as possible, since it creates new markets for European exporters at a time when current ones like China are faltering. Farmers in the EU are determined to kill the agreement as-is, which is one of the reasons they took to the streets. 

 

At the sametime, farmers in Hungary and Poland are upset about an EU deal with Ukraine over grain imports. Russia’s invasion was disastrous for Ukrainian farmers who collectively produce and export the most wheat and sunflowers in Europe. As part of an aid agreement, the EU gave them an import exemption so they could sell their products to the bloc duty-free. Hungary and Poland both produce large quantities of wheat. While this deal was tolerated at the beginning of the conflict, the EU’s recent decision to extend the exemption infuriated farmers, leading to a blockade of the border between Ukraine and two of its EU neighbors

 

Get our newsletter delivered straight to your inbox. Sign up now.

 

The implications of the farmer protests

These three factors combined to create a ‘perfect storm’ of sorts for Europe; one that can touch all aspects of the European economy. 
 

  • Food costs could rise which increases inflation.  With farmers either producing less or even blocking distribution centers, food prices can likely climb. Policymakers are keenly aware of this possibility, particularly as they continue to battle inflation. Making matters worse is that prolonged drought in Southern Europe — where many European agricultural goods come from — is curtailing output. When there are less goods available and demand is high, prices go up. European politicians are no-doubt aware of what’s at stake. 

     
  • A free trade deal that’s beneficial to many other parts of the economy is at risk. The EU-MERCOSUR trade deal isn’t just about agriculture. The agreement covers nearly every industry and represents major export opportunities for Europe’s high-tech manufacturers. Pharmaceutical companies — one of Europe’s strong points — can enter into a growing market of over 270 million people. German manufacturers can replace shrinking business in China with South American buyers eager to develop their economy more. However, farm production could very well suffer. The farmers have been loud enough in the past weeks that national politicians are ready to put the trade deal on hold. In the EU, all member states must sign off on the agreement for it to become law. One country can torpedo it just by refusing to sign, which looks increasingly likely right now. 

     
  • EU elections are in the balance. This spring Europeans will go to the ballot to elect their European Members of Parliament for the next five years. Populist and reactionary politicians have been quick to exploit farmer angst, with some analysts predicting big gains for the far-right. If there is a populist split in the European Parliament with far-right and left parties gaining seats, it would throw a wrench into the EU’s current plans. That change in leadership and direction will ripple through to everything from free trade deals, to spending, to foreign relations. 

 

So where does that leave us? Unfortunately, there aren’t any easy answers here. Farmers have a collective number of grievances  — some more justified than others — and a dominating lobby. Yet, caving into each demand jeopardizes other, more important sectors of the European economy while harming our fights against climate change and inflation. Politicians will need to find a suitable balance between these competing factors sooner rather than later to keep Europe’s economy growing, competitive and sustainable. 

 

Get our newsletter delivered straight to your inbox. Sign up now.