Q&A – How are farmers’ protests in Germany linked to climate policy?
Content
- What are the protests about?
- What do the subsidies in question consist of?
- How are they linked to climate policy?
- What’s the economic situation of the agricultural sector in Germany?
- What role do subsidies play?
- What sets the 2024 protest apart from earlier demonstrations?
What are the protests about?
The protests, planned and officially licensed in December last year, are opposing cuts to subsidies for fossil fuels in the farming sector, brought on by an emergency budget reshuffle by the government. A constitutional court ruling in November left the coalition of chancellor Olaf Scholz short of 60 billion euros in climate and transformation funding, meaning the three parties had to quickly agree on measures to save money to guarantee that priority projects can move forward. Cuts due to the reshuffling included an end to buyers premiums for electric cars, a rise in the national CO2 price in transport and heating, and smaller changes in many sectors, including diesel fuel and vehicle tax breaks in the farming sector.
While the government watered down its initial proposal for cutting subsidies to the sector, lobby groups insisted that the austerity plans still remained inacceptable. The head of the German Farmer’s Association (DBV), Joachim Rukwied, said the latest measures were merely “the straw that broke the camel’s back.” He argued that the agricultural sector had sought compromise with the government for years. Farmers' association AbL argued that the latest measures put a disproportionate burden on farms, which so far lack any meaningful alternatives to running much of their operations with fossil fuel-based machinery.
What do the subsidies in question consist of?
Farmers using diesel were able to have part of their energy taxes reimbursed at a rate of about 21 cents per litre of fuel. The average agricultural business received around 2,900 euros per year through the scheme, according to the agriculture ministry (BMEL), costing the government around 440 million euros per year. Another austerity measure targeting tax breaks for farming vehicles aimed to save a further 480 million euros per year. According to Germany’s Federal Motor Authority (KBA), there are about 450,000 agricultural vehicles registered in the country, which also includes the forestry and fishery sectors. With about 260,000 agricultural businesses in Germany, the average company owns roughly two vehicles eligible for tax breaks, said public broadcaster ARD. Cutting those subsidies therefore would have meant an additional burden of up to 5,000 euro for the average company. Total subsidies amounted to nearly 48,000 euros per company in the accounting year 2021/2022, some of which came from one-off pandemic support payments.
A revised compromise by the government now says that subsidies for diesel fuel should be only gradually by abolished by 2026, starting with a 40 percent rebate cut this year. Tax breaks for agriculture vehicles will not be cut at all, for the time being. However, the farming industry lobby rejected the changes, demanding that the subsidies remain fully in place. Agriculture minister Cem Özdemir from the Green Party had said he supports the farmers’ cause in principle, arguing that cuts should not come “in this intensity.” However, chancellor Olaf Scholz has said his government stands by its decision to implement the subsidy cuts in their amended form.
How are they linked to climate policy?
The subsidy cuts are directly linked to the government’s budget reshuffle. The cuts were necessary to unlock urgently needed funds for climate action projects, with environmentally harmful subsidies quickly becoming the focus. The Federal Environment Agency (UBA), as well as policymakers and NGOs, routinely called for the phase out of environmentally harmful subsidies before the budget crisis. Calculations by the UBA found such subsidies amounted to a total of 65 billion euros, with diesel tax rebates making up the largest chunk. With the government starting to target these often decades-old subsidies, the protests could be a harbinger of things to come. While cutting agricultural subsidies only affects the interests of one business group, a general subsidy cut on diesel would impact millions of citizens. Moreover, farmers say that the subsidy cuts come on top of a significant increase in Germany’s national price on CO2 emissions in the transport and heating sectors. This adds to their newly inflated expenses and places a disproportionately large burden on the agriculture industry, they said.
Changes in consumer behaviour, international competition, and pressure to make food production more sustainable have posed considerable challenges to many actors in the sector in the past years, a 2023 government report pointed out. A major factor are large fluctuations in income, which are linked to weather extremes fuelled by climate change, the report also found. The current government and also previous ones under former chancellor Angela Merkel have promised to initiate changes that reduce pressure on agricultural businesses. Minister Özdemir in 2022 said the government would strive to end the current culture of ‘junk prices for food’ and to better protect animals and the climate in the context of food production. In 2021, a commission set up by the previous government published a far-reaching set of recommendations for making the agricultural sector more sustainable and climate-friendly. Greenhouse gas emissions from the sector fell by around one quarter between 1990 and 2020, in large part due to the decrease in livestock numbers after German reunification.
What’s the economic situation of the agricultural sector in Germany?
About half of Germany’s land area is used for farming by the country’s roughly 262,000 agricultural businesses, said the BMEL. Agriculture contributed about 0.8 percent to the country’s GDP in 2021. About one million people are directly employed in the agricultural sector in Germany, equalling roughly two percent of the country’s workforce. They produced goods with a value of about 50 billion euros per year. Including linked industries, such as retailing or agricultural equipment, employment in the sector rises to 4.4 million people and the production value increases to 218 billion euros, the ministry explained.
As in many other countries, the farmin sector in Germany is composed of a wide range of businesses of varying sizes. These include small, family-owned businesses as well as large corporations employing thousands of farm workers that make Germany one of the world’s leading exporters of food products. According to the DBV, agricultural exports amounted to about 77 billion euros in 2021. However, average values may fail to adequately portray the situation for individual businesses and may not represent the economic situation of individual protest participants.
Despite some significant fluctuations in earnings and output in recent years, the profitability of Germany’s agricultural sector has generally increased in the past years. According to the Thünen-Institute for Agriculture, profits have increased above inflation over the past 15 years at a rate of 2.5 percent per annum. Revenues in the sector in the accounting year 2022/2023 have been extraordinarily high, wrote trade journal Agrar Heute in November last year. Based on calculations for businesses in the state of Hesse, Germany’s agricultural companies look back “at an absolute and unparalleled top result” with an average profit increase of 80 percent across all companies in 2023, if confirmed nationwide. The average profit per business was more than 132,000 euros, double the average value from the previous five years.
According to the state agency for agriculture in Hesse, the farming industry has been a clear beneficiary of price hikes caused by Russia’s war on Ukraine. Farmers were largely able to pass on increasing costs for livestock feed, fertiliser and other production factors to customers. A consolidation among producers has further improved profitability in the sector. The number of agricultural businesses has almost halved in the past 20 years, while the farmed area in the country has remained constant.
At the same time, however, smaller farms are disproportionately burdened by subsidy cuts. These are often focusing on regional food supply and usually apply organic and sustainable farming principles, which are politically desirable, but tend to decrease the profit per hectare. The total number of workers in the sector is dwindling each year. The average agricultural worker had an income of just under 33,000 euros in the accounting year 2020/2021.The number of agricultural businesses decreased at a rate of 1.3 percent between 2010 and 2020, meaning there were about 36,400 fewer farms registered at the end of that decade.
"German agriculture has had two very successful financial years as a result of food price increases," agricultural economist Alfons Balman told the Science Media Center. "Larger farms in particular, which receive the bulk of the diesel subsidy and also benefit accordingly from the motor vehicle tax exemption, are likely to be hit harder by additional income tax payments in 2024 than by the planned subsidy cuts due to their high profits." However, smaller businesses are significantly less profitable. They are given considerable incentives to continue operating, leading to enormous competitive pressure within the farming industry. This is reflected in enormous increases in purchase and lease prices for agricultural land, Balman said.
What role do subsidies play?
Subsidies and direct payments to farming companies account for “a significant part” of their revenue, said the agriculture ministry in its 2023 sector report. The largest share of subsidies is drawn from the EU’s vast agriculture direct support scheme, while the tax breaks for diesel fuel and other operating expenses account for the largest share of subsidies granted by the German government. Farmers also benefit from EU and state payments for the economic support of rural regions, as well as from state funded pension and insurance payments. Moreover, farmers are eligible for support for energy efficiency and storage projects.
EU payments are generally based on the land area owned by an agricultural business, and are to some extent tied to conditions around environmental protection, among other aspects. The Thünen-Institute for agriculture said that EU payments covered about 37 percent of the average company’s income. According to the BMEL’s 2023 report, the average farm received 27,000 euros through direct EU payments and another 20,500 euros from other sources. In total, almost half (48.5%) of the average business’s income came from subsidies.
However, the amended austerity plans do not threaten the existence of either large or small farms, as they correspond to only around five per cent of the subsidies and grants that the farms receive anyway, agricultural economist Balman said. Moreover, the German government has drafted a new set of subsidies that are supposed to support farmers in transitioning to more sustainable practices, and putting greater emphasis on environmental and animal protection.
What sets the 2024 protest apart from earlier demonstrations?
Protests by farmers and other business groups are not uncommon in Germany, and large-scale peaceful demonstrations have been carried out in the past under previous governments. However, the latest call for action by the country’s farming industry comes at a time when the German government is struggling to cope with a string of external and self-inflicted challenges. The protests also coincide with strikes in other sectors, including at the national railway company Deutsche Bahn, and by doctors, which together are disrupting everyday life in several areas at once. Against the backdrop of falling economic development in the past year, the Russian war on Ukraine, and the aftermath of the coronavirus pandemic, the government has expanded support programmes across many sectors in recent years.
Support programmes were implemented to cushion against the multiple compounding crises, and to push the country towards climate neutrality by expanding renewable power systems and decarbonising the economy – a key promise of Scholz’s coalition government. However, the constitutional court ruling in late 2023 disrupted a large chunk of the coalition’s funding plans and forced the government to find funds elsewhere in order to keep its most important projects running. Opposition parties have sought to capitalise on the government’s misguided funding structure, arguing that it shows the government is unable to reconcile its climate policy promises with proper budgeting. Moreover, the budget crisis follows on earlier procedural errors made by Scholz’s coalition in the past year, including on a highly controversial heating law which resulted in animated debates about the burden it put on citizens. Protests were led by the conservative CDU/CSU opposition, but also supported by the populist Free Voters* and the far-right AfD. The latter parties scored record results in the 2023 state elections, and are expected to gain more ground at the upcoming EU elections, as well as in the three more state elections coming up in eastern Germany.
Economy and climate action minister, Robert Habeck of the Green Party, warned against “fantasies of revolution” among far-right groups seeking to hijack the farmer’s protests after being targeted by a group of protesting farmers that forced him to cancel his return by boat from an island after a holiday trip. Media reports traced the illicit protest back to far-right activists linked to the AfD. Habeck called on a broad social debate about the future of German farming, urging citizens to resist attempts to undermine democratic procedures and legitimate protests. “We must not allow extremists to seize upon uncertainty,” said Habeck in a video message. “If gallows are put on tractors and tractors show up at private homes, a limit has been breached.”
*An earlier version of this Q&A erroneously swapped the Free Voters for the government coalition party Free Democrats (FDP).
