Feature Story: Walking the line of tradition and change

Danish farmers look to the future and an ever-raising bar of consumer preferences

By Candace Krebs candacejk@aol.com

Jan 2000

Judging by what you read in the headlines, you might think that the average European farmer spends the bulk of his time demonstrating with other European farmers, marching down cobblestone streets with pitchfork in hand, dumping milk and grain along the way, chanting anti-biotech slogans and protesting cuts in farm subsidies.

But although there are indeed agricultural differences between the United States and the EU, from farm practices to ideology, there are also similarities. Farmers in the U.S. and in Europe are equally concerned about raising farm-gate prices and adding value to their products. Both sides aim to enhance their competitive advantages in the global market through the World Trade Organization negotiations.

The U.S. and Europe also share high standards of living, relatively high production costs, and high food quality standards. Both are also caught between the benefits of free trade in selling excess production and the drive to protect their farmers and rural economies from decline. Both the Europeans and Americans show concern about keeping farms small and in private hands, but the Europeans seem more determined.

Use of domestic subsidies is an on-going battleground between the two. Europeans are critical of the U.S.' record on subsidization since the 1996 Freedom to Farm program was adopted. "When one follows the agricultural policy debate in the U.S., one is left more and more in doubt as to what the U.S. position is really going to be at the end of the next WTO round," says Jens A. Munch, a representative of the European Commission. "Will the U.S. really be prepared to expose U.S. agriculture completely to world market forces?"

In the U.S. in 1998, federal payments accounted for just 6% of total cash receipts from farming, according to the USDA's Economic Research Service. A glimpse of rural Denmark might surprise U.S. farmers who think their European counterparts farm blissfully free of economic strife due to high subsidization levels. The subsidy levels are higher, but with World Trade Organization reforms, that is changing, and the challenges are growing.

Bjarne Krog, who farms west of Copenhagen, is an example. At his 263-acre diversified crop and livestock farm, he charges visiting fees ($2.85 U.S./person) to curious consumers, and operates a retail shop, offering some of his home-raised organic beef, milk and vegetables for sale straight off the farm. The rest of his organic commodities earn premiums of 10-20% over standard prices at delivery. He also operates a three-room bed-and-breakfast in his home. "We find it interesting to meet people from different places in the world, because we haven't got much time to travel," he says.

On this diversified farm, relatively large by European standards (the average farm in Denmark is only 110 acres), he makes roughly $22,000-$29,000 annually. And he admits that switching to organic farming five years ago actually cut his profits despite premium pricing. The average annual income of farmers in the U.S. and Denmark are similar at $55,000+, though the figure is misleading. In the U.S., only 11.8% of it comes from farm receipts. Likewise, the number of full-time farmers in Denmark continues to decline, and many now support their income with nonfarm jobs.

Danish farmers and agriculture leaders say EU subsidies represent about 10-20% of farm income, primarily for crop and cattle producers. In addition, Denmark receives a relatively high percentage of the total EU export subsidization, including subsidies on grain exports. Combined, Danish farmers receive over $1 billion annually from the EU (along with several million dollars in domestic farm support). Spread among 59,000 Danish farmers, that equals about $19,000 each.

As a rough comparison, total U.S. farm subsidies estimated for 1998 by USDA-ERS were $10.1 billion spread over 2 million farmers, or about $5,050 apiece. In 1999, U.S. farm-related subsidies are expected to exceed $20 billion, the highest ever.

Regardless of subsidization levels, the Danes and much of Europe are faced with astronomical production costs. The Danes pay as much as 75% of their income in various taxes, though educational and medical costs are free. In addition, stringent environmental regulations also boost expenses.

"We have environmental regulations stating that in order to have husbandry production you must have land available for distributing the manure," explains Neils Christian Jorgenson, public relations manager for the Danish Bacon and Meat Council. The first regulations were adopted 15 years ago but have been strengthened over the years. "Until a couple of years ago you could own or rent the land or just have a written agreement with neighbors to distribute the slurry. But the government is using regulations to put ceilings on development toward bigger and bigger units by stating that the more husbandry production you own, the more land you have to own."

The country's largest pig producer has 60,000 sows, but operations of 250-500 sows are much more common, he says. "One of the consequences of the new regulations, we have seen extremely high prices on land in some regions. Every time there is a piece of land for sale they are willing to pay almost any price, 3 or 4 times what they should be paying," he says.

One farmer on the island of Zealand (which includes Copenhagen) says area land was selling for $5,700 U.S./acre. While farmers complain that the controls are too expensive, it also serves a purpose, argues Gudrun Andreasen, public relations director for Danish Crown, Denmark's largest pork processor with 75-80% of production. "It gives us some forces when we are selling our products," she says, pointing out that Denmark sells to the U.S., Canada and Japan, some of the most discriminating buyers in the world. A country as small as Denmark can't expect to beat its competitors on price, she adds. "You have to be the best."

So while U.S. farmers are sold on lowering their production costs and increasing productivity, many European farmers who face restrictions on expansion tend to focus instead on how to get customers to pay more for their products, and how to please the pickiest foreign buyers, who often are willing to pay more to obtain specific qualities.

Biotech: profit ticket or consumer roadblock?

Despite its miniscule size, Denmark has about 3% of the world market for agricultural goods, including 33% of ham and bacon, 24% of pork, 16% of processed beef, and 32% of grass and clover seed.

While U.S. farmers see technology as the ticket to profitability, the Europeans see it as a dangerous roadblock to consumers. Their viewpoint seems to be substantiated by new GMO labeling requirements by Japan, Australia and New Zealand, which has forced companies like ADM to begin requiring segregation of GMO crops. The impact this will have on the efficiencies of U.S. farmers, grain handlers and the transportation system is yet to be seen, but could be substantial.

The Danes have no interest in using milk or growth-enhancing hormones, citing issues of animal welfare, food safety and consumer concern. They do appear to be more open to the use of some genetically modified plants, however.

"With GMOs, you can change the ways of producing," says Peter Gaemelke, a hog producer and president of the Danish Agriculture Council. "You can do it with less environmental chemicals and make production more safe and healthy. I would never say no to that. The problem is that at the moment the politicians in Europe have gone crazy and now are talking about a two or three year moratorium (on GMO development). We will be caught way back from your country, because you are just moving ahead."

Indeed, while responsive to consumers, Danish farmers and researchers do admit to fears of falling behind in technology. "We are saying 'no thank you' to technologies, but maybe we are also saying 'no thank you' to wealth," says Claus H. Andersen, a research scientist for DLF Trifolium, a Danish plant breeding company. "Policies in other countries are far more liberal and allow approval of things that would never be used in the EU. It's tough to compete."

Concerns about the use of technology increasingly drives the way Danish farmers market their production. Their interest in reaching consumers more directly is a similarity they share with their U.S. counterparts.

Co-op commonplace

The Danes are world-famous for their co-ops, which grew out of necessity following wars and economic hardships. In addition, the co-op model fits with the uniquely Scandinavian social policy of a middle ground between socialism and free enterprise. "It is part of the Danish people's soul," says Bent Juul Sorensen, president of the Federation of Danish Cooperatives. "It is so common you don't even think about it."

Whether the prominence and strength of the nation's cooperatives give Danish farmers a competitive advantage is unclear. Danish pork and dairy co-ops, which claim more than 95% of production, have been particularly effective at developing and branding new products and muscling out marketshare in international export markets (Grain cooperatives are less dominant with 50% of the business.) Co-ops have also streamlined transportation and distribution services to create cost savings for retailers.

The co-ops pay their board members a stipend comparable to other public boards. Once elected, directors receive significant training. The system appears to be a springboard for boosting farmers into prominent leadership positions in business and government circles. But it's not clear that consumers associate a large successful cooperative business with the individual farmers who are members. And some farmers, particularly the entreprenuerial ones, are restless.

While co-ops have merged and grown to achieve economies of scale, interest in small localized groups, similar to the new generation model, is evident. Direct marketing by individual farmers is also brimming.

Krog, the producer from Copenhagen mentioned earlier, started his own retail farm shop three years ago, and now plans on forming a cooperative venture with a few local farmers to process and sell their own organic milk. "We are working together, and we know it will work. We have better relations to the customers," he says.

But even in Europe, efforts to please consumers can be risky. For example, with the amount of organic milk approaching one-third of all Danish production, supply is now beginning to exceed demand and threaten price premiums. Increased expense goes into marketing and visibility. Consumers can also be unpredictable in their buying patterns, requiring a constant willingness to change.

Sorensen, the Danish cooperative leader, alludes to the tight rope European farmers are walking between tradition and convenience. "Many consumers want to see the farm production with their own eyes. They want to go to visit the farmer on Saturdays and see the cows or the pigs," Sorenson says. "But six days a week they have to go to the supermarket. The consumer is very busy and cannot go to the farm every day to buy milk, or other products."

Editor's note:

The next round of talks under the World Trade Organization are expected to last at least three years, maybe longer. From time to time during the new round of talks, Prairie Grains plans to take a closer look at some of the key global players involved in the negotiations, through wheat checkoff support by the Minnesota Wheat Research and Promotion Council. We'll talk with farmers and trade experts, and look at their ag trends. Hopefully, these insights and perspectives will help us to better understand those who are our competitors and customers—an important first step, a negotiations expert might say, in improving our own position in ag trade.

Our first stop: the European Union, and in particular, Denmark and the Netherlands. Candace Krebs, an Oklahoma-based freelance writer, focuses on Denmark, one of the smallest members of the EU in terms of size but substantial in terms of its agricultural contributions. Also in this issue, Prairie Grains editor Tracy Sayler looks at a Dutch farmer's turn toward partnering and processing to improve farm profits.