The Agricultural Sector

The Agricultural Sector

Although agriculture's share of the economy declined steadily after World War II, agriculture continues to represent an important element of the economy because of its social and political significance. The Chamber of Agriculture remains on an equal level with the chambers of commerce and labor, although its members produce only a fraction of the GDP that industrial and commercial workers produce.

The Government Role

In Austria, as in most other Western countries, the government has played an important role in agriculture since the end of War World II. The government has concentrated on mitigating social, regional, economic, and even environmental consequences of the sector's decline, as well as delaying the decline itself.

Agricultural policy has been carried out with different objectives and with different laws and policies depending on the times. In the early postwar years, the most important objectives were survival and self-sufficiency. As a poor country, Austria needed to be able to feed itself if its population was to survive.

By the 1950s, however, the policy was changing to a more global perspective, while keeping intact the traditional form economy. The government wanted to protect domestic production, stabilize agricultural markets, protect farmers' incomes, and improve the sector's ability to compete in Austria and abroad. Increasingly, the government began to believe in the importance of maintaining rural society as an objective in its own right, for social reasons, and to protect the environment and encourage tourism. Because of these aims, agricultural policy, more than any other economic policy, reflects a mixture of economic and noneconomic objectives and concerns. The principal aim, however, is to preserve the existing number of farms as much as possible.

Within the structure of the social partnership, various organizations work to maintain farm incomes and thus farm existence, among them the Grain Board, the Dairy Board, and the Livestock and Meat Commission. These organizations set basic support prices, taking into account domestic costs and local supply and demand, with only weak linkages to world market prices.

The boards and commission use a variety of measures to achieve their broad purposes. Among these measures are import restrictions, such as border controls and entry controls--some of which may be bilaterally negotiated--and variable import duties. If import restrictions are not sufficient to maintain prices because of excess production, the surplus is exported at subsidized prices (with the subsidies usually coming from federal or provincial authorities). Authorities also apply production controls, such as sales quotas or limits, on the size and density of livestock holdings. Quotas exist for many different products, with the quotas usually fixed on the basis of past production. Price and quality controls and limits also exist, especially with respect to different prices for different grades of wheat or milk. The government can also pay direct income supplements, but these payments are generally restricted to certain mountain farming zones and other equally disadvantaged areas. Subsidies are mainly paid by the federal government but may in some instances be paid by provincial governments.

Because of the complex system of price supports and market access limitations, the exact share of subsidy costs to the government and to consumers is virtually impossible to calculate. Experts estimate that the total cost to the federal and other governments for agricultural and forestry support during the late 1980s was approximately S16 billion a year, a level that would have been roughly at the same level as that of many other Organisation for Economic Co-operation and Development (OECD) governments but slightly higher than the EC average.

The economic research institute Österreichisches Institut für Wirtschaftsforschung (WIFO) estimated after a major 1989 study that about 71 percent of the cost of agricultural support was borne by consumers in the form of higher prices, with the taxpayers carrying the remaining 29 percent through such different programs as direct and indirect federal and provincial subsidies or various kinds of market regulation.

Austria's decision to enter the EU will have certain effects on its agriculture and forestry. Support prices in Austria are higher than those set under the EU's Common Agricultural Policy (CAP), although the two systems are in many ways similar. Austrian government-borne subsidy costs are at about the same level as those in the EU, but consumer-borne subsidy costs are higher, so food prices in Austria average about 30 percent higher than those in the EU. Full integration into the EU will thus compel a number of adjustments in Austria. These adjustments may be even more severe if they become effective at the same time that some East European countries with lower production costs enter the EU. Much depends, of course, on any reforms that may take place in the CAP.

The Structure of Agriculture

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