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Agriculture in Transition Countries and the European Model of Agriculture

 Andrea Arzeni, Roberto Esposti, Franco Sotte

Department of Economics – University of Ancona

World Bank – FRDV, Module 4Zadar, 25-27 October 2001

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The main objectives of this presentation are

the following:

Stressing the main new directions of the EU polices

for agricultural and rural development

Understanding the major issues of agriculture in

transition countries in this EU perspective

Approaching the local specific

constraints/opportunities within the EU instruments

European Commission - Agriculture Directorate-General - F3

OBJECTIVES

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The presentation is based on three parts:

The European Model of Agriculture (EMA) and the

Common Agricultural Policy (CAP)

Critical constraints in agricultural and rural

development in transition countries and respective

EU policies for applicant countries (SAPARD)

Hints on concrete programming for the two

counties

European Commission - Agriculture Directorate-General - F3

OVERVIEW

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The European Society has changed

Increase of income but demographic stagnation

Changes in food consumption behaviour– Less quantity and more quality– Typical products and food origin– Food safety issues

Non-food demand– Landscape and cultural heritage– Environmental safety– Non-food services (mostly common good)

THE EMA AND THE CAP

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The New Role Of Agriculture

Food Function: competitive agriculture on the world markets; reduction of the market support (Common Market Organisations: CMOs)

Environmental function: high quality agriculture also in terms of food safety and environmental safety

Rural function: maintaining the rural landscape and heritage in terms of cultural traditions of local communities

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E x t r

a - a

g r i c u l t u r e m a r k e t s e r v i c e s

E x t r a - a g r i c u l t u r e n o n - t r a d e

s e r

v i c

e s

The multifunctional agricultural (rural) firm

E x t r

a - a g

r i c u l t u r e p r o d u c t s

A g r i c u l t u r e s e r v i

c e

s

P r o c

e s s e d p r o d u c tsVeget.

productsAnimalprod.

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Defending and increasing the income and quality of life of farm families and rural population

Gaining higher acceptance by the European citizen by paying for the real non-market common goods: environmental and rural function

Becoming more easy and comprehensible and defining a clear distinction between what has to be decided in Brussels and what is on charge of the national and local institutions

Defining new instruments and institutions for increasing the CAP contribution to socio-economic cohesion among UE regions

The New Challenge for the Common Agricultural Policy (CAP)

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Agenda 2000 (1998) re-designed the CAP according to two main pillars: the market policy (CMOs); the rural development policy (the “second pillar”)

The CMOs are expected to increasingly reduce the price support while income is guaranteed by compensatory direct payments. The first pillar is still 90% of the FEOGA (UE fund for agriculture) expenditure

The second pillar is here focused: its share is expected to increase It is going to be promptly extented to CEECs (SAPARD) It is going to be re-nationalised

The two pillars of the CAP

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The second pillar of the CAP?

Total EAGGF (European Agricultural Guarantee and Guidance Fund) at 2006 (Milions of Euros):

After Agenda 2000CMOs 43.670Rural Development 4.940Pre-accession programmes 600Enlargement UE-6 3.900Total UE-21 53.110

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Total RD funding:

over 100 bio € for the period or 14.3 bio €/year

of about which half EU, half national source

of the EU part Guarantee amounts to 4.6 bio

€/year and Guidance to 2.5 bio €/year

European Commission - Agriculture Directorate-General - F3

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Total Public Expenditure (EAGGF - Gurantee, Public Costs & Top - up) for Rural Development, Mio. €

4774,302279,77

565,01

4627,12

2347,27

171,051875,34

626,44759,38

1783,67

864,50

1181,60792,39643,751717,96

987,19

10549,66

2696,37

18837,51

2534,72

16020,50

Investment in holdingsYoung FarmersTrainingEarly retirement LFA/AER Agri-Environmental Process & mkt agri products Afforestation of agri land Other forestry measures Land improvementReparcellingFarm relief & farm managementMarketing quality agri product Basic servicesRen & devt rural villages DiversificationManaging agri water resources InfrastructureTourism & craft activitiesProtecting the environmentRestoring agricultural productionFinancial engineeringevaluationOther (old, ongoing) measures

LFA

Agri-environment

E R

Aff.

old meas.

Process.-Marketing

Investm.holdings

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Critical aspects of RD in the accession

countries:

Some general considerations

The economic and institutional transformation

process in CEE has severely affected rural areas and

livelihood of rural people General and significant decline in output and employment in early stages In most CEECs the rural economy is lagging behind in recovery and employment creation

AGRICULTURAL IN TRANSITION COUNTRIES

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Critical aspects of RD in the accession

countries:

The main aspects

Main weaknesses identified in the various

SAPARD proposals by the accession

countries (dealt with later on): Weaknesses in the rural economy

Weaknesses in agriculture

..and Constraints to re-allocation of rural labour

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Weaknesses in the rural economy:

Low incomes

Out-migration of young people and ageing rural

population

Poor infrastructure

Low education level; lack of training for starting

businesses

High structural unemployment

Lacking capital for investments and start-up of

firms (credit market)

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Weaknesses in agriculture:

Differently from most Western European countries,

agriculture is still the main sector (especially for

employment) in most rural areas in the CEECs. The

main weaknesses are:

Farm structure: small farms with fragmented plots

(uncertain property rights)

Access to credit is difficult

Outdated farm technology (access to technical

change and appropriate skills)

Weak market access organisation for farm products

(associations, cooperatives, market institutions)

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Constraints in re-allocation of rural labour

Though agricultural structural weaknesses have still

to be tackled, the main challenge for most rural

economies in the CEECs is to reallocate labour

from agriculture to other sectors

During the first five years of transition, great

differences in agricultural employment decline around –50% in Czech Rep., Slovakia, Hungary, Estonia

significant increase in Romania, Lithuania, Bulgaria

in the middle (-10-20%): Poland, Slovenia, Latvia

However: Great differences among regions within CEECs

Be careful to numbers (especially unemployment figures)

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What happens to labour leaving agriculture:

Little and heterogeneous information on this. Consider

Czech Rep. (OECD):

Farm workers declined from 533.000 in 1989 to 201.000 in 1997

150.000 and 30.000 respectively concerned non-agricultural

activities

About 30% (120.000) of the decline (-332.000) is due to the

separation of non-agricultural activities from farms

Of the rest (212.000) about 50% retired

…about 45% transferred to other sectors (75% moving to urban

areas and 25% remaining in rural ones)

…about 5% became unemployed (mostly still in rural areas)

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Critical aspects in rural entrepreneurship:

• The figures on other CEECs, if available, can differ significantly

• In general terms, an higher proportion of workers originally

employed in state-collective farms became unemployed.

Why did they not take up an individual farm or another individual

business? The main constraints to self-employment refer to:

Human capital

Physical capital and finance

Market institutions

Policy environment

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EU RD policies and the SAPARD

programmes:

• All 10 accession countries have submitted a

proposal under the the Special Accession

Programme for Agriculture and Rural Development

(SAPARD) to the European Commission in the

spring of 2000

The purpose, here, is to provide some general

information about this instrument as a concrete

example of the application of EU RD policies to

transition countries

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Main characters of SAPARD:

SAPARD is an instrument to assist the applicant

countries of CEE in making structural

improvements to their agricultural and rural

environment in the period 2000-2006

SAPARD is also an exercise in practical

institutional building. Creating structures and

procedures which will be able also of facilitating

accession

Differently from other pre-accesion instruments

(PHARE-ISPA), under SAPARD the national

authorities assume entire responsibility through

fully “decentralised management”

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SAPARD programmes:

Support under SAPARD is to be granted on the basis of a

single agricultural and rural development 2000-2006 programme

per applicant country reflecting priorities established by national

authorities. Total Financial support from the Community amount

to over 0.5 bio €/year in the period 2000-2006

SAPARD programmes are to a large extend comparable with

Member States’ agricultural and rural development programmes:

the Commission co-finance the programmes

Before granting, a set of provisions covering aspects relevant to

the proper use and accountability of funds have to be negotiated

and agreed: Multi-annual Agreement between the Commission

and any country

…Establishing in each applicant country an Agency capable of

implementation of the SAPARD according to the agreement

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Actual content of SAPARD programmes:

Each national SAPARD proposals contains, among other

things, a list of weaknesses to be targeted

The plan is divided in 15 measures similar to those available

to EU Member States under the Community co-financed

agricultural and rural development programmes

Only few measures eligible in the Member States are not

eligible under SAPARD: setting-up of young farmers, early

retirement, less favoured areas

Three measures are dominant in most countries (69% of EU

funds): processing and marketing, investment in agricultural

holdings, investment in rural infrastructure

Two measures (setting up farm relief and farm management

services, establishing and updating land registers) have not

been included in any programme

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Some general lessons for initiatives in our two counties:

Consider the EU as a reference point We do not if and how the CMOs of the CAP will be

extended The SAPARD initiative indicates the direction Agricultural measures will be referred to a wider RD

strategy Instruments and measures can be many but they have

to be appropriately designed Practical institutional building is crucial at both national

and local level

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The hyerarchy of the regional vision: Axes/measures/actions

Axis – Measure

Action

Axis 2– Measure 2.1

Action 2.1.1 Action 2.1.3

– Measure 2.2 Axis 3

General orientation guideline

Intervention action Cluster

Intervention action(project sheet)

AGRICULTURAL/FISHERY PLANNING IN SIEBENIK-KNIN AND ZADAR

Objective of the working session: Identifing sector guidelines and actions through an excercise of partecipatory process

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Project proposal: structure

Project Proposal

1. Proposal2. Description3. Actors4. Features5. Prerequisites6. Indicators7. Linkages and

synergies

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PROJECT PROPOSAL (1)PROJECT PROPOSAL

PRIORITYMEASURE

ACTION

DESCRIPTIONBACKGROUND

OBJECTIVES

BENEFICIARIES

ACTIVITIES

OUTPUT

ACTORSINITIATOR

DECISION MAKERS

INVESTORS

PARTNER

CREATION OF A TRADEMARK FOR LOCAL PRODUCTS: HAM/CHEESETHE LOCAL TRADITION

IN HAM/CHEESE PRODUCTION

FITTING THE EU REGULATION FORTYPICAL PRODUCTS

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PROJECT PROPOSAL (2)

PROJECTS FEATURESDURATION

TARGET AREA

INNOVATION RELATED TOTHE AREA

PREREQUISITESHUMAN RESOURCES

INSTITUTIONAL

REGULATORY FRAMEWORK

INDICATORS

LINKAGES AND SYNERGIES

HILL-MOUTANIN AREAS WITHEXTENSIVE BREEDING

- MEASURES/ACTIONS ON RURAL TOURISM- ACTION ON IMPROVING AGRICULTURAL TECHNICAL CHANGE