Italian Agricultural Sector

Italy Agriculture represents the lifeblood of any civilization -- we settled into communities for the purpose of growing crops and thereby making our lives easier. For most of the history of civilization, agriculture was the dominant form of economy. Wealth was measured in growing land, or in the number of animals owned. Even after the invention of money, agriculture remained a critical source of wealth.

In pre-Italy, the city states often gained wealth through trade, but in the countryside wealth remained related to agriculture, as food was the most important thing to most people. In the 20th century, food scarcity became rare, and agriculture diminished in importance -- nobody was truly worried where their next meal would come from, so other goods took on more value. Today in Italy, agriculture is worth 2% of the economy, or $3.6 billion, and it employs 3.9% of the labor force of the country, or just over $1 million people (CIA World Factbook, 2014).

Many forces have come to shape the Italian agriculture industry, including technological and political changes, and these forces will be explored in this paper. Brief History Though the region has been populated -- and wealthy -- for millennia, Italy as a modern nation-state only emerged in 1861, as the many city-states in the region merged under a common central government for the first time since the Roman Empire. The city state at that time may have generated wealth through trade, but they also controlled much of the agricultural land as well.

The new centralized government would eventually play a major role in setting agricultural policy, particularly after the Second World War, the modern democratic government was formed. Italy formally joined the European Union in 1999, a move that brought about further change to the country's agricultural sector. Crops An important point of background in discussing Italian agriculture is what crops the country grows. Italy has a diverse geography, ranging from the Alps in the north to the dry Mediterranean climate in the south.

The north half of the country, in general, is well-suited to agriculture and produces a diverse range of crops. Local food traditions dating from the city-state days have meant that Italy's crop diversity has remained strong, owing to the need to remain specialized. A good example of this is tomatoes -- the San Marzano tomato, as a base ingredient in proper Neopolitan pizza -- hails only from the slopes of Mt. Vesuvius. Many agriculture crops in Italy have similar local varietals and geographic constraints.

The major crops that drive the Italy economy are its multitude of fruits and vegetables, grapes, potatoes, sugar beets, soybeans, wheat, olive and dairy products (CIA World Factbook, 2014). Many of these are subsequently used in major food exports -- wine, olive oil, pasta, tomato sauces, and cheese. While most Italian regions produce wine and cheese, the fruits and vegetables are more abundant and diverse in the north, while olives are particularly abundant in the southern regions.

In some southern regions, such as Basilicata, Calabria and Molise, agriculture contributes over 20% of employment so is much more important than in the industrialized north (no author, 2014). The EU Since joining the EU, Italy has become subject to European regulations concerning agriculture. This has both opened up export markets within Europe, and subject the agriculture industry to new layer of bureaucracy. The EU also provides subsidies and programs in the name of rural development, and Italy has taken advantage of several of these.

Farming tends to be smaller-scale in Italy, in particular in the south, and these subsidies help maintain price floor that help small farmers maintain their farms profitably. These subsidies initially were focused more on northern product, but have since been expanded since Italy joined the EU to include things like olives, tomatoes and citrus (Ibid). The main EU program that has affected Italy is the Common Agricultural Policy, or CAP.

This program has created incentives for farmers to merge, because the price floors to consumers mean that more efficient farms will be able to extract higher profits. This works by way of removing normal market pricing mechanisms in favor of mandated pricing that can be applied across the entire continent. The smaller, family-run farms of the south in general have not benefitted as much from Italy joining the EU as the farms in the north have (Ibid).

Contributions to the Welfare of the Italian People As a result of EU policies that provide protections and encourage larger farms, the percentage of people engaged in agriculture has continued to drop. Incomes for those engaged in agriculture have increased in the north, as their operations are becoming more efficient. In the south, however, these changes have been less pronounced. Agriculture remains a small-scale family affair. This limits the upside of CAP pricing policies.

For many southern Italian families, agriculture remains the only viable source of income, as industrial development in the south is at a much lower level than it is in the north. As many more southerners are dependent on agriculture for their livelihoods, Italy's interest in terms of agriculture policies will often reflect those interests. Many people still need to be able to sell their crops for fair value. Structure There are different market structures for different crops.

In many instances, crops are grown and sold locally, and farmers can often sell these at markets or with minimal intermediary between them and the consumer. In the case of major crops, cooperatives are the typical model. Olive oil, grown mainly on smaller farms in the south, has a number of region cooperatives to help with marketing. Small producers are making oil that is difficult to differentiate, and its commodity nature makes it perfect for cooperatives.

Cooperatives have different routes to market -- they can package themselves, as many do, or sell to a wholesaler who will repackage the olive oil. This is often done for export markets, where the local cooperative labeling will have little resonance with the consumer (Vossen, 2000). Corporate agriculture is more common in the north, leveraging the CAP rules. Severini and Tantari have showed that the application of the CAP has spurred wave of consolidation among agricultural concerns in Italy.

The income within the Italian agricultural sector is highly concentrated, by it is possible that a system of direct payments to farmers under the CAP could begin to reduce this concentration of income. There is concern that direct payments remain too highly focused on specific regions, the north being generally a more significant recipient of these payments, which derive from the EU purchases of surplus product, more likely on the larger northern farms.

Another issue affecting the agricultural industry in the south of Italy is that land under cultivation is not necessarily dense enough to compete on the European market. It is reality with Italy's land under cultivation is insufficient to bring the country to a state of food self-sufficiency, so there was hope in joining the EU that better access to export markets would change this. A negative outcome, however, is that southern Italian farms are not efficient enough, and not concentrated enough, to compete with countries like Spain.

As a consequence, since Italy joined the European Union "the competitiveness of southern Italy's agriculture has decreased…Italian shares in fruit and vegetables production have declined while we record considerable improvements for Spain" (EU, 2014). Other Issues In addition to trade, there are two major other issue that threaten to reduce the viability of the Italian agricultural sector. In a sense, they are related. The first is climate change and the second is water.

The south is the biggest agricultural producer in Italy, and the Mediterranean region is facing an increasingly harsh climate as the result of climate change. Already, this region is characterized by winter rains and then a long dry period annually. If climate change reduces these rains, that puts the hydrological system of much of southern Italy at risk. Italy can expect temperature rise in all regions in the 21st century, but a reduction of rains in the south, which could alter agricultural patterns (Ventrella, 2006).

At a point when improved irrigation might be critical to the country improving its agricultural efficiency, there will be less water. Further, as so many people in the south depend on agriculture for their livelihoods, climate change represents a challenge to the populations in these regions. Note that these regions have historically faced challenges with respect to the climate, and have historically shown to be unable to handle rise in populations. Italian agriculture, because of climate change and the water situation, is considered to be fragile (Pontradolfi & Nizza, 2012).

Related to climate change, but always an issue in the south, rainfall and water availability is a critical issue that threatens the Italian agricultural industry. Much of irrigation in Italy comes from either surface water, sprinkler or drip irrigation (Ventrella, 2006). The EU has, in line with the Common Agricultural Policy, introduced measures to govern how water is used in agriculture. This is the Water Framework Directive, coming into force in 2000, right after Italy joined the EU.

The regulations have a stated objective of "better integration of natural resource management and economic activities" but to an extent this takes the issue of water management out of the hands of the actual farmers (Bartolini et al., 2010). Water is, they note, "one of the main factors affecting the economic, social and environmental performance of agriculture" (Ibid). Their analysis of different policy scenarios highlights the divergence of possible outcomes for the Italian agriculture industry and the need for sensitive response on the part of the different stakeholders.

There is also concern among the authors that developing a policy will take a long time, and in that time the optimal policy could change. There is reason to be skeptical that a framework can be developed that would bring about sustainable growth of the agriculture industry in Italy as current policy options are not working for the south and there is no evidence that anything proposed would work for the south either. There are also concerns with respect to the impact that water pollution is having in Italy.

Agriculture is the main polluter of water in the country (Massarutto, 1999) and much of this is in the north where intensive agricultural practices have improved yields, but at the cost of introducing more pollutants to the hydrological system. Surface sources of water are commonly used in the north, and for the most part underground resources are not. There is only limited use of groundwater in the south as well, so it is mainly surface water usage in the north that has resulted in pollution issues.

Thus, even the most economically-successful agricultural sectors in Italy are faced with challenges to their sustainability. Future of Italian Agriculture Italy is not self-sufficient in food, but its population growth appears to have stabilized in recent decades. The country is limited with respect to production of grains and meat in particular, and is a net importer of both. Italy does not export much of its northern production -- most fruit exports are citrus from the south, and tomatoes.

The south produces more export crops, where Italy is competing against other Mediterranean countries. The products of the north that are exported tend to be more specialized, and not products readily produced elsewhere in Europe. Italy has comparative advantage in things like salad greens, mushrooms, chestnuts and other small-money crops. Main exports tend to be agricultural products like wine, cheese, olive oil and pasta, where Italian agriculture product is processed domestically. There are markets around the world for these goods. The major markets are Europe and the United States.

It is not expected that there will be massive changes to Italian agriculture, but what changes are expected are generally not positive. There is no evidence, anecdotal or quantitative, to suggest that southern farmers are going to embrace modernization. Therefore, Italy will likely continue to lose market share in goods like olive oil and wine, where the country now must compete with other EU nations like Spain and Greece for the EU market, and with countries in North Africa and South America for share in the world market.

Italy had built a strong brand in some of these products, but cannot be cost-competitive with the low-efficiency model it is currently using. There are significant challenges in modernizing Italian agriculture. First, Italy is not generally in favor of factory farming. Indeed, during Italy's stewardship at the EU, organic agriculture has become a hot topic, and Italy champions this. The country has long valued its culinary traditions, and regional production of agricultural goods are part of that.

Pizza sauce can only be made from a specific type of local tomatoes; proper Genovese pesto only with a certain type of local garlic; etc. Italy therefore is pushing for more of a localized agriculture, which stands at odds with its decision to join the European Union in the first place. It is most likely that the decision to join the EU was more about industrial goods and other major economic drivers, and the downturn in Italian agriculture is the natural result of having to compete against highly-efficient competitors.

Thus, the future of Italian agriculture is.