Cuts to German farmers’ diesel fuel subsidies largely justified – economists

In a parliamentary hearing, economists have largely backed the German government’s insistence on gradually phasing out subsidies for diesel fuel in agriculture, a measure farmers have protested against by blocking roads across the country during the past week. Economist Berthold Wigger told members of parliament that the current tax breaks for farming businesses for the fossil fuel are wrong from an “environmental, economic, regulatory, and distributive perspective.” Agriculture would neither be covered by the European emissions trading system (ETS) nor by the national CO2 price, meaning farmers are exempt from key climate action steering mechanisms. Agricultural economist Alfons Balmann said gradually losing access to cheaper diesel over several years would not pose an “existential threat” to farmers, as this so far benefits especially larger companies. Economist Friedrich Heinemann said farmers had a range of options to reduce costs for diesel themselves. “Even farmers’ associations have published many pages with suggestions for saving diesel fuel,” he said, arguing that higher prices would accelerate the adoption of saving practices. Moreover, subsidies would simultaneously increase the rent price for land, Heinemann added.

The German Farmers’ Association (DBV) representative at the hearing countered that some industries, for example dairy farms, require more diesel fuel than others to carry out their work and that switching to electric vehicles in many cases is not possible. Moreover, land prices are not going to fall anytime soon due to a constant increase in land use in all sectors, the representative argued. Economist Ludwig Theuvsen backed the association’s position, arguing that the diesel tax break could not be considered an environmentally damaging subsidy as long as there are no alternative engines available. He warned against making the job of farmers less attractive, as this would mean that young people decide to pursue other careers instead.

Farmer association AbL, meanwhile, proposed a compromise that would allow exemptions from the tax break roll-back for smaller farms, the Augsburger Allgemeine Zeitung reported. AbL head Josef Schmid said this would help to counter competitive imbalances in the market. Schmid argued that improving farmers’ negotiating position with large retailing groups would be a measure deserving more attention.