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Weekly UpdatesAbstract Structural change in agriculture, although often connected with social hardship of uncompetitive small-scale farms and a loss of tradition, is inevitable. It is the basis for successful rural development. We discuss whether early retirement schemes (ERS) are a good value for public money in terms of the necessary adaptations of the farming sector in the course of economic development, and if they are an option for the EU candidate country Croatia. In Croatia, the small scale farm structure leads to widely uncompetitive farms. A study on farmers' socioeconomic situation as well as actual and expected reactions to policy support is based on results of a household survey. The sample includes farm households from two Croatian regions: The peri-urban Zagreb county and the typically rural region of Bjelovar-Bilogora. Despite unfavourable economic conditions and insufficient farm incomes, rural people are often reluctant to give up farming. We present results on the age structure, income and production structure of farms and farmers' likely reactions on ERS. We discuss incentives which push farmers to leave the farming sector and ask in which direction farm families plan their future. We conclude with a synthesis of the theoretical advantages and disadvantages of early retirement schemes and link them with possible outcomes in the Croatian case.
Keywords Early retirement - Farm Structures- development * Croatia
JEL Q12 . Q18
Introduction
Structural change in rural areas is a consequent outcome of economic growth and a necessity for the development of rural areas. At the same time, it causes fear and comes with hardship for those who cannot adapt and will turn out as losers of a fast rural transformation. Early retirement schemes (ERS) address both issues by their two-fold objectives: ERS aim at an increased efficiency and structural adjustment in the agricultural sector by promoting a transfer of resources (such as land and production rights) from exiting farmers to those who continue farming and will use the resources more efficiently. The objective of equity is addressed when ERS provide income support to the targeted marginalized and uncompetitive elderly farmers.
We are interested in whether ERS are a good value for public money in terms of the necessary adaptations of the farming sector in the course of economic development. Thus, one objective of this paper is to present theoretical aspects and empirical findings with regard to the economic efficiency of ERS. Furthermore, we offer insights into the socioeconomic situation of farmers in Croatia based on a survey conducted in 2007. We specifically look at factors that are deemed important in terms of farm exit, as ERS could be an option for Croatian policy makers in their ongoing preparations for the planned EU accession. Finally, we link the outcomes of our literature review with some indicators from the Croatian case study.
Early Retirement Schemes in the EU
Economic theory provides two general rationales for policy intervention: correction of market failures and income redistribution. While government intervention in the case of market failures is generally done for reasons of economic efficiency, intervention in order to redistribute incomes between groups in the society is done for reasons of equity. An optimal policy design achieves a specific objective while keeping the impact on economic distortions low and ensuring efficiency in the allocation of resources.
The ERS of the European Union (EU) reflect both above mentioned rationales, efficiency and equity. They aim at structural change and competitiveness issues as well as specific social problems of elderly farmers and farm holding viability. The objectives of ERS in the EU can be summarized as follows (EC Council Regulation, No. 1257/1999):
* Improve the structure of the acreage and the competitiveness of farms.
* Increase the share of rural non-farm employment and improve living standards amongst the rural population.
* Encourage the replacement of older farmers by younger, better trained farmers who are capable of making the farms economically viable, profitable, bigger and hence, generally improve the situation on the given farm holding.
* Ensure an adequate income to those elderly farmers who decide to stop their farming operations.
* As a side effect, encourage a non-farming use of land if farming is unprofitable.
Hence, ERS particularly address efficiency issues by promoting a transfer of resources (such as land and production rights) from exiting farmers to those who continue farming. At the same time, ERS explicitly provide income support to the targeted marginalized and uncompetitive elderly farmers who, in many European countries, are disadvantaged compared to other jobholders in terms of their non existent or limited entitlement to pensions. Due to their age and often low education, elderly farmers usually have hardly any chance to enter alternative jobs and are therefore to a high degree, dependent on their farming activities.
General EU-Regulations on enhancing farm successions and improving farm structures can be traced back to statutory measures in the early 1970s. Regulations for specific ERS for farmers were first introduced in 1992 with the EEC Council Regulation No. 2079/1992, coming along as one of the accompanying measures in the so-called MacSharry Reform. In 1999, new regulations for ERS were set out in the Reform of the Agenda 2000, implemented by the EC Council Regulation No. 1257/1999, which carried on unchanged within the reforms of the so-called Luxembourg Decisions in 2003.
The implementation of an ERS never was and still is not mandatory for EU member states. If member states opt for the implementation of an ERS, a cofinancing by the EU can only take place if the binding EU regulations are followed. The current minimum requirements for member states who wish to introduce an ERS are set out in the articles 11 and 12 of EC Council Regulation No. 1257/1999. Article 11 of the regulation states that a person benefiting from early retirement shall:
* Stop all commercial farming activity definitively; he or she may, however, continue non-commercial farming and retain the use of the buildings.
* Be no less than 55 years old, but not yet of normal retirement age at the time of transfer.
* Have practiced farming for the 10 years preceding transfer.
Article 11 of the regulation also outlines the general requirements for the person to whom the land is transferred. It states that the transferee of a farm shall:
* Succeed the transferor as the head of the agricultural holding or take over all or part of the land released. The economic viability of the transferee's holding must be improved within a period and in compliance with conditions to be defined in terms, of in particular, the transferee's occupational skill and competence and the surface area and volume of work or income, according to the region and type of production.
* Possess adequate occupational skill and competence.
* Undertake to practice farming on the agricultural holding for no less than 5 years.
Article 12 of the regulation stipulates that the duration of the early retirement support should not exceed a total period of 15 years (10 years for a farm worker) and it should not go beyond the 75th birthday of a transferor (respectively beyond the normal retirement age of a worker). Finally, Article 12 also requires that the early retirement support should be paid as a supplement taking into account the amount of the national retirement pension. The maximum co-funded rates of pension are 15,000 [euro] per transferor per year and 150,000 [euro] total amount per transferor (respectively 3,500 [euro] per worker and year; 35,000 [euro] total amount per worker).
Since the introduction of specific ERS in the EU in 1992, ten member states have implemented the scheme up to 2003. Having structural as well as social objectives, the design of ERS vary from country to country, depending mainly on national policy priorities. Also the amounts of subsidies for retired farmers vary greatly between the member states (Bika 2007). In the following, we present selected results on ERS implementations under EEC Council Regulation No. 2079/1992 and EC Council Regulation No. 1257/1999.
In France, a variety of ERS regulations have been implemented in three successive periods. In the first period (1992-1994) the ERS was considered to have both structural and social objectives. 43,000 farmers participated, releasing 1.3 million hectares of land for farm enlargement. Despite its notable success in terms of participation and land released, the scheme was criticized for having an unfocused design and also for its little contribution to the promotion of new entrants to farming (which was an explicit objective of this ERS). These critics led to a more targeted but also more expensive second ERS in France. The level of uptake of this second ERS was relatively low (18,000 participants) which was attributed to the increased complexity of ERS rules as well as to the success of the first ERS in removing so many farmers from farming. In an evaluation of the second ERS, the impact of the scheme was modeled against the underlying trends in farmer retirement and the number of new entrants. The model revealed that the ERS had only short-time effects. Farmers took advantage of the ERS to bring forward their retirement decision which produced a few years in which the total number of persons leaving farming was above the long term trend. This was followed by a few years when the number of farmers that retired was below trend (an inherent effect of reducing the population of farmers at normal retirement age). After this, aggregate levels of retirement returned to trend again (Dauce et al. 1999). Thus, it seems as if the French ERS had no sustainable long-term effects (Brangeon et al. 1996; Dauce et al. 1999; DAF 2004).
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