*an updated version of the presentation “A 20-year search for coherence in agricultural policies from Romania”

presented on 2009 and published in Jan. 2010 in the volume “Romania dupa douazeci de ani” coord. by R. Murea, V.

Boari, N. Vlas , edited by European Institute Publisher House

Authors: D. Cioloş, L.Luca, D.Giurca

A 20 (+2)..‐year search for coherence in agricultural policies from Romania*

Dijon, 20th-21st October 2011

RURAL’EST‐SFER CONFERENCE 20 YEARS OF FARMING AND RURAL TRANSITION IN EASTERN

EUROPE: WHAT HAVE WE LEARNED?

Main topic

A retrospective analysis of agricultural policies in the past 20 years

Reflection themes for the future national agricultural policy

...in the context of CAP post-2013

Romanian agricultural sector – the dynamics of the past 20 years

1989 Agriculture in GDP – 13.7% Population occupied in

agriculture – 27.5% Net agri-food exporter –

surplus 153 mil. USD 14.7 mil. ha of agricultural

land, out of which:on 28% - intensive

commercial agriculture: 411 State Agricultural

Farms with an average of 5000 ha

on 58% - extensive agriculture: 3776 Cooperative

Farms with an average of 2557 ha

2009 Agriculture in GDP – 6.7% Population occupied in

agriculture – 29.8% Net agri-food importer –

deficit 2141 mil. Euro 14.7 mil. ha of agricultural

land, out of which : 9.8 mil. ha eligible for CAP

support:12,000 farms -

intensive commercial agriculture (5.1 mil. ha)

1 million farms – extensive subsistence farming (3 mil. ha)

2 mil. ha uncultivated land

Farms structure

Farms structure

1,6861,766

300

705 10

710

650

4,180

2,018

924

333

5,168

251230

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

< 1 ha 1- 5 ha 5 - 10 ha 10 - 20 ha 20 - 30 ha 30 - 50 ha 50 - 100

ha

>100 ha

0

1,000

2,000

3,000

4,000

5,000

6,000

No. of farms(thousands)Surface thousands ha

Source –based on data processing of Farm Structure Survey -2007, NIS

According to provisional data on Agricultural Census NIS in 2010 :

•13.29 million ha are cultivated by 3.85 million farmers (14% less as compared with 2002)

•Average area farm is 3.45 ha as compared to 3.1 ha in 2002

The structure of farms eligible for SAPS - 2010

Large farms (1000 ha) - 1.1% of the total farms work efficiently around 52% of the total area eligible for payments

Small farms between 1-10 ha (around 1 million) - 93.5% of the total farms practice an extensive farming on 32% of the area eligible for support

Source: General Directorate of Agricultural Policy , MARD, according to data provided by PIAA

Wheat – area, yields, total production – dependent on weather

2154

,3

1460

,8 2281

,6

2412

,1

2480

,8

1781

,7 2408

,3

2019

,8

1675

,4

1940

,2 2546

,3

2297

,5

1735

,2

2295

,9

2476

2012

,6

1975

2110

,3

2148

,8

2018

,9

5473

,1

3206

,4

5314

,1

6135

,3 7666

,6

3143

,8

7156

,2

5181

,8

4661

,4

4434

,4

7735

,1

4421

2479

,1

7812

,4

7340

,7

5526

,2

3044

,5

7181

5202

,5

5720

,7

2541

21952329

2544

3090

1765

2971

2530

2782

2286

3038

1924

1429

3403

29652746

1541

3403

2421

2833

0

500

1000

1500

2000

2500

3000

3500

4000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

Kg

/ha

GRÂUDINAMICA SUPRAFEŢEI CULTIVATE, A PRODUCŢIEI TOTALE ŞI A PRODUCŢIEI MEDII LA HECTAR

Suprafaţa cultivată (mii ha) Producţia totală (mii t) Producţie medie (kg/ha)

Source: General Directorate for Agricultural Policies, MADR,based on NIS and MADR data

The budget spent in agriculture and “the return”

from trade

1990-1999 expressed in USD and 2000-2009 expressed in Euro

Source: own calculation based on NIS data and annual average exchange rate

20 years of metamorphosis in agriculture

Transition decade – towards market economy (the ’90s):Wide objective, hesitant actions: the “stop and

go” reformsEU integration decade (after 2000):

Shaped objective, actions imposed by the objective, slow implementation: “EU accession preparation” stage (2000-2006) “EU integration difficulties” (after 2007)

Defining elements* of the Romanian agricultural policies in the last two decades

Governments Structural policy

Price and tariff policy

Financial support Strategic vision

1990-1992 Land reform implementation

Low consumer prices, low protection

Consumer and state farm subsidies

Agriculture as social “buffer”

1993-1996 Development of integrators

Control of chains and protectionism

Support to production of industrial type

Reaching food self-sufficiency

1997-2000 Privatization of industrial agriculture

Internal and external liberalization

Orientation towards small farms, through the voucher scheme

Promoting the family farm

2001-2004 Running the EU Sapard Program

Stimulative prices, low protection

Support to production commercialization

Development of large farms

2005-2006 Farmer Program Getting closer to the EU price level

Double support, for investments and production

Development of family farm

2007-2009

2010 - 2011

First NRDP measuresNRDP measures adjusted

Common Market Organization

According to CAP, plus state aidNo old state aid support – just few measures

Accommodation to CAP institutions

* on a selective basis - those with the strongest impact

Volume and structure of subsidies in the decade of

reforms

Source: based on our processing of MAFRD data series

Volume and structure of subsidies in the decade of

accession

Source: based on our processing of MAFRD data series

The ’90s – the decade of reforms1990 – 1992

Radical land reformObjective – restoring agricultural land

ownership rights:Land reform – 1991 (in a first phase, restitution in kind

to former owners from 1945 within the limit of 10 ha and, later on, distribution of land to persons who didn’t own land but worked in cooperative farms or wanted to become farmers, from the land surplus

Effects: In 1992 over 4 mil. persons replaced the 5000

cooperative farms – radical change in the structure of agriculture towards a dual one: self-consumption and market oriented (major land fragmentation)

Increased trading costs on the entire chainNew owners due to the lack of resources – autarchic

type of agricultureMajor decrease of production

The ’90s – the decade of reforms

1993-1996Prudent approach of the free market challenges – interruption of reforms and strong state intervention Objectives: stabilizing agricultural markets, ensuring food security, privatization, restructuring agricultural researchEffects: Increased “duality in agriculture” through:

Creation of organizations with monopoly in the procurement of raw materials and services for agriculture, and with monopsony in the “collection” of products.

Subsidy and access to credit were granted through state controlled chains -“integrators”, using a combination of fixed prices and “queuing”- major competitive disadvantage for traders outside this system, especially for the private ones.

Main agricultural product chains – meat, milk and wheat – operated on the basis of fixed prices (regardless the season or country region, following the centralized economy model), whilst the rest of the chains were operating on the basis of the free market – strong market distortions

These political instruments excluded from the support schemes the small producers – who continued to practice an autarchic farmingLand market – nonoperationalDespite dedicated support, competitiveness of the so-called “integrators” erodedDecline in production

The ’90s – the decade of reforms

1997- 2000 Impending reform – shy liberalization and structural reforms

Objectives: liberalization of (fixed) prices, of tariff barriers, improvement of land market operation, speeding-up privatization, restructuring or liquidation of agricultural state farms, of those downstream (cereal storage) and upstream (mechanization, certified seeds production services), “equal conditions” for all agricultural producers (vouchers)

Effects: Financial support for agriculture (one of the highest in Eastern Europe, as global

amount) is spread to all producers, with no structural policy vision, but rather following an election-driven reasoning

State farms, with low profitability, are hindered by this massive liberalization policy, some of them go bankrupt, others are privatized at a very low market value, caused by the debts accumulated and low profitability

Privatization is made following a doubtful market logic - to some “agricultural specialist managers” or occasional “investors”, with capital from other sectors of the economy

Vertical integration occurs in certain sectors (some agricultural production units become the owners of agri-food processing units)

Sector competitiveness continues to be modest1999 – certitude regarding the status of candidate state to EU

accession – begins to influence the manner of approach in agricultural policy

The years 2000 – the decade of accession2001-2004

Towards the European model

Objective: preparing the accession to EU through adoption of the acquis communautaire, obtaining the status of market economy, supporting the commercial farms, consolidating farms

Effects: Finalizing the privatization process for agricultural farms with state

capital The first clarification regulated by law was to define the agricultural

exploitation (with the purpose to formally differentiate market oriented farms from households producing mainly for self-consumption) – in order to set the grounds for the financial support in agriculture dedicated to market oriented farms, to increase their competitiveness

The first agricultural and rural development structural program (SAPARD) is launched under the pressure of the European Commission

Towards the end of the period – an obvious structural change: no. of farms decreased with 5% in 2005 as compared to 2002 and the average size increased from 1.7 ha to 2.15 ha

The size of big farms increased – deeper gap between very big farms and small exploitation

Unblocking of land market and agricultural land trading

The years 2000 – the decade of accession2005-2006

Objective: EU accession, increase in competitiveness, CAP compatibility

Effects:First signs of a structural policy, through credit

programs for investments granted to market oriented family farms

Attention is being given to facilitate average size farmers’ access to bank loans for production and investments

The national strategic vision is diluted in the multi-annual European programs for supporting agricultural and rural development

The public policies to guide and support agriculture are overshadowed by the institutional construction efforts to manage the European funds for agriculture

Fulfillment of conditions to become a EU member state

The years 2000 – the decade of accession2007-2010 - accession’s success, integration’s difficulties

The success of accession, the difficulties of integration Objective:

increase in competitiveness on the single marketimplementation of the Common Agricultural Policyabsorption of European funds

Effects:The institutions compulsory to CAP management are getting

trained and develop “on the go”Farmers and producers learn “on the go” the news rules of the

CAP gameCompetitiveness decreases, the fight with the competition is

becoming more fierce on the milk, meat, finished products market

It emerges a need to elaborate a strategic projection on medium and long term for developing agriculture

Active implication in the CAP future cannot be done unless Romania knows what it wants, what and how it can do it

Opportunities from the “future’s reserve”

Coherent actions from the framework of the “Strategy for the development of Romanian agriculture on medium and long term”

Why a strategy for agriculture (why another one*)? Because: It has to be embraced by the entire political class It has to have continuity in implementation It has to provide the predictable framework in order to act European

in the national interest What will be the orientation?

 General objective on long term of the sectorWhat will be the instruments?

The one allowed by the European frameworkSpecific to the ideological & politic vision of the “Power”:☺,☺,☺,☺,☺,☺,

☺…☺… What the objectives might be? Almost the same …

Making the best use of the agricultural production’s potentialEnsuring a decent standard of living for the rural populationEnsuring the welfare at decent costs for the consumerMaintaining and making the best use of the agro-rural landscape

*Since the 1990 until now over 20 strategic documents were elaborated regarding the development of the agricultural and rural sector

Some reflection topics – 2009-2011

Land policy: continue the process of concentration and consolidation of land for increasing productivity in agriculture

Fiscal policy in agriculture:Reduction and elimination of “grey and black markets” for

the traded agricultural productionOrganizing markets

Socio-professional policy: Agricultural status as professionStimulation of multi-activity in the rural areaAdequate social, health and pension policy to take over part

of the purely social role of the current agricultural policies Policy to develop agricultural infrastructure for

production and collection-trading Irrigation system, services in agriculture, collection-trading

centers for primary production

Land policy: parcel concentration

Coercive / incentive measures for stimulating parcel concentration through the land market (tax on the agricultural land, notary taxes, succession policy, redefining the life annuity)In 2010-2011 – few legislative

proposals….but no finality….no political willigness

Measures to stimulate a voluntary regrouping of parcels/households (legal framework for productive associations, family associations, succession policy)The new Civil Code…provide some

clarity….but not enough…..

Fiscal policy in agriculture

Reversed taxing on the agri-food chain, compulsory accounting for all producers who trade all or part of their production on the organized marketSuccess in 2011 only for cereals …..still

need approval for meat, fruits and vegetables……

Differentiate/progressive taxing by agricultural production sector / type of agricultural exploitationNot political willingness for this type of

measure

Socio-professional policy in agriculture

Separate subsistence production from market oriented production. Define the professional status of the agricultural producer as liberal/independent activity; establish the calculation procedure for the contribution to the pension fund and health insurance fundNo action …..

State involvement in stetting-up the pension and health insurance funds in agriculture. Incentive measures for early retirement and for setting-up of young farmers in agricultural entrepreneurship activity, individually or as an associateNo action …..

Policy for developing infrastructure and agricultural services

Irrigation system based on economic profitability: basic infrastructure ensured by the state; maintenance of the basic infrastructure and the secondary structure in the responsibility of the water users associations; preferential credit policy for private investments in the irrigation system and in the system for collection-trading of primary agricultural productionRedesign of some measures from NRDF, assessing the

economic viability of irrigation systems, looking for public/private partnership for investment in basic infrastructure….Canal Siret Baragan

Developing the association/cooperative system for services in agriculture and for collection/trading of production. Stimulate local authorities/collectivities to set-up and maintain ambulant markets for the direct producers or for associated traders; stimulate the contract of « weekly costs » between companies’ syndicates and agricultural producers’ associations Still no action

Are still those objectives in line with CAP – reform?

The convergence of DP will have a slight positive impact but the intensity of support will remain for a long period of time high between MS …

The simplified scheme for small farmers – may complement the national policies and as well some measures from Pillar 2

Capping of direct payment might affect the structure of competitive farms…

Instead of conclusions

Romania must have a coherent vision on medium and long term in line with CAP reform:What it wants, what it can do and how can it do

itTo be active in the decision making of the future

CAP, acting European for its national interest

THANK YOU!