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

1. RURAL’EST‐SFER CONFERENCE 20 YEARS OF FARMING AND RURAL TRANSITION IN EASTERN EUROPE: WHAT HAVE WE LEARNED? A 20 (+2)..‐year search for coherence in agricultural policies from Romania* *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 Dijon, 20th-21st October 2011

2. 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

3. 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

4. Farms structure 2,000 6,000 1,766 1,800 1,686 5,168 5,000 1,600 1,400 4,180 4,000 1,200 1,000 3,000 800 2,018 2,000 600 300 400 1,000 924 650 230 251 200 70 5 10 333 10 7 0 0 < 1 ha 1- 5 ha 5 - 10 ha 10 - 20 ha 20 - 30 ha 30 - 50 ha 50 - 100 >100 ha ha Surface thousands ha No. of farms(thousands) Farms structure • 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

5. 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

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

7. The budget spent in agriculture and “the return” from trade 1990-1999 expressed in USD and 2000-2009 expressed in Euro

8. 20 years of metamorphosis in agriculture • Transition decade – towards market economy(the ’90s): • Wide objective, hesitant actions: the “stop and go”reforms • EU integration decade (after 2000): • Shaped objective, actions imposed by the objective, slow implementation: • “EU accession preparation” stage (2000-2006) • “EU integration difficulties” (after 2007)

9. Defining elements* of the Romanian agricultural policies in the last two decades * on a selective basis - those with the strongest impact

10. Volume and structure of subsidies in the decade of reforms Source: based on our processing of MAFRD data series

11. Volume and structure of subsidies in the decade of accession Source: based on our processing of MAFRD data series

12. The ’90s – the decade of reforms1990 – 1992 • Radical land reform • Objective – 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 chain • New owners due to the lack of resources – autarchic type of agriculture • Major decrease of production

13. The ’90s – the decade of reforms 1993-1996 Prudent approach of the free market challenges – interruption of reforms and strong state intervention • Objectives: stabilizing agricultural markets, ensuring food security, privatization, restructuring agricultural research • Effects: 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 farming • Land market – nonoperational • Despite dedicated support, competitiveness of the so-called “integrators” eroded • Decline in production

14. 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 modest • 1999 – certitude regarding the status of candidate state to EU accession – begins to influence the manner of approach in agricultural policy

15. 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

16. 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

17. 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 market • implementation of the Common Agricultural Policy • absorption 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 game • Competitiveness 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

18. 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 sector What will be the instruments? • The one allowed by the European framework • Specific 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 potential • Ensuring a decent standard of living for the rural population • Ensuring the welfare at decent costs for the consumer • Maintaining 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

19. 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 production • Organizing markets • Socio-professional policy: • Agricultural status as profession • Stimulation of multi-activity inthe rural area • Adequate 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

20. 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…..

21. 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 market • Success in 2011 only for cereals …..still need approval for meat, fruits and vegetables…… • Differentiate/progressive taxing by agricultural production sector / type of agricultural exploitation • Not political willingness for this type of measure

22. 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 fund • No 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 associate • No action …..

23. 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 production • Redesign 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

24. 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…

25. 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 it • To be active in the decision making of the future CAP, acting European for its national interest THANK YOU!