Difficulties of the Transition in Agriculture in the 1990 S

Difficulties of the Transition in Agriculture in Central Europe in the 1990’s

Katalin Takács-György Ph.D.

Agricultural University of Gödöllő, Hungary

Elhangzott előadás:

K. Takácsné György: Difficulties in Transition of Agriculture in Central Europe in the 1990s, presentation. August 8-11, 1999. Nashville, Tenessee, USA, “Farm to Table – Connecting Products, Communities and Consumers” Conference (AAEA Annual Meeteing)

EREDETI KÖZLÉS:

K. Takács-György: Difficulties of the Transition in Agriculture in Central Europe in the 1990’s. Magyar Internetes Agrárinformatikai Újság. http//miau.gau.hu/miau/25/szept.htlm 11p. ISSN 1419-1652

Difficulties of the Transition in Agriculture in Central Europe in the 1990’s

Katalin Takács-György Ph.D.

Agricultural University of Gödföllő, Hungary

Summary

In Central Europe in the 1990’s, the region experienced a socio-economic transformation, the effects of which will still be significantly felt in the years to come. Czech Republic, Poland, Hungary, Slovakia and Romania were in reality faced with serious economic hardships. Despite of the changes took place in the region, their agriculture represents a major employer and producer, accounting for a weighty share of GDP.

The most significant aspect of the transformation was the change in ownership. Nowadays it is characterised in the countries evaluated that after privatisation and reprivatisation most of agricultural land came to private hand, and high number of producers work on small farms, most of them couldn’t play there part well in crop production.

In the present and in the future small- and medium-sized producers gained a role in agricultural production in a system based on private property. For the countries evaluated it’s a great challenge of the future to establish such farm structure with the help of which they could be a real factor of economy and agriculture in Europe. To this it is necessary to develop agri-financing systems.

Given that in the majority of EU member states in the last ten years, a tendency toward concentration of farming has been growing stronger, this can be expected to manifest itself in the evaluated countries as well.

As the transformation of agriculture has not yet concluded, there are many tasks to organise agriculture, to keep agriculture’s role in the economy.

General economic factors and the role of agriculture in some Central European countries

In Central Europe in the 1990’s, the region experienced a socio-economic transformation, the effects of which will still be significantly felt in the years to come. By Central Europe, I mean here the Czech Republic, Poland, Hungary, Slovakia and Romania. It was characteristic of these countries that in the period preceding the change in systems, with the exception of the Polish and Romanian economies, despite seemingly acceptable levels of economic production, each country was in reality faced with serious economic hardships. In each country in the region, to varying but consistently significant degrees, agriculture represents a major employer and producer, accounting for a weighty share of GDP. In certain countries (among them, Hungary) the percentage of agricultural exports surpassed GDP-share levels of that even of non-COMECON[1] countries.

Table 1: Change in gross production of the region’s countries (as a change from the previous year)

Country / 1991 / 1992 / 1993 / 1994 / 1995 / Index 1989=100
Czech Rep. / -14.2 / -6.4 / 0.9 / 2.6 / 4.8 / 90.0
Poland / -7.0 / 2.6 / 3.8 / 5.2 / 7.0 / 105.0
Hungary / -11.9 / -3.0 / -0.6 / 2.9 / 1.5 / 88.0
Slovakia / -14.5 / -1.6 / -3.7 / 4.9 / 6.8 / 90.0
Romania / -12.9 / -12.2 / 1.3 / 3.0 / 5.4 / 88.0

source: Eurostat data

One of the sectors most affected by the changes of the 1990’s was the agricultural one. In the region, this is especially true of Hungary, where agriculture as a percentage of GDP from 1986 to 1989 surpassed 20%. GDP dropped in the 1990’s by 10.7-16.9%, of which, agriculture claimed a 7.2% share. The other countries in the region underwent a similar decrease. In 1995, agriculture as a percentage of GDP was 5% in the Czech Republic, 6.6% in Poland and 5.6% in Slovakia, while in 1996, it was 20.2% in Romania. It should be added that this decline in percentage took place at a time when, in each of the countries evaluated, there were significant declines in overall production. The socio-economic changes mentioned above took place according to the figures outlined in table one. The tendency of the change was for a significant drop in the period following transformation, followed by a slight increase which has still not equalled production levels of the last of the cold war years, 1989. Here, Poland can be considered an exception, in that its socio-economic and agricultural changes began in the beginning of the 1980’s, when it experienced the same drop in production. In this way, Poland’s agriculture did not follow the path of other regional economies. The liquidation of private ownership and violent collectivisation characteristic of the region did not take place there and, as a result, they did not have to suffer the pains of privatization or re-privatization.

In table 2 are presented some characteristic data for the countries evaluated.

Table 2: Area, population, gross domestic production and unemployment for 1998 of the evaluated countries

Area / Population / GDP / Unemploy-ment
sq. km. / in millions / USD per cap. / %
Czech Republic / 78,864 / 10.3 / 4,710 / 5.5
Poland / 312,685 / 38.6 / 3,503 / 10.5
Slovakia / 49,036 / 5.4 / 3,480 / 14.0
Romania / 237,500 / 22.6 / 1,780 / 9.3
Hungary / 93,030 / 10.1 / 4,415 / 9.2
EU (1996)
-highest, Luxembourg / 40,250
-lowest, Greece / 11,700
-highest, Finland / 14.7
-lowest, Luxembourg / 3.3

source: Eurostat data

The importance of agriculture in the countries evaluated is reflected in its high degree of providing employment. In the Hungarian example, as a percentage of active wage-earners in the economy, agriculture provided employment for 10.1% of the population (14.5% when including the food production industry) in 1993, which had fallen from 19.5% (23.5%) in 1980. This percentage declined further, as can be seen in the information below from 1993 in table three.

Table 3: Production area, agricultural production and agricultural employment levels, 1993

Production area / Agricultural production / Agricultural employment
million ha. / percentage of total area / million USD / % of GDP / thousand persons / percentage of total employment
Czech Republic / 4.3 / 54 / 871 / 3.3 / 271 / 5.6
Poland / 18.6 / 59 / 4648 / 6.3 / 3,661 / 25.6
Slovakia / 2.4 / 49 / 512 / 5.8 / 178 / 8.4
Romania / 14.7 / 62 / 4500 / 20.2 / 3,537 / 35.2
Hungary / 6.1 / 66 / 2068 / 6.4 / 392 / 10.1

source: Eurostat data

With transformation came a sharp rise in unemployment in the evaluated countries, as can be seen in table two. In Hungary in the first half of the 1990’s, unemployment passed 14.5%, while in certain regions in which agriculture was the main employer, this rate passed 25%. When combined, this indicates that the role of agriculture in a judgement of the Central European countries as regards their future will show a great deal of room for expansion. Because of the high sector percentage of agricultural production- which in EU countries was 2.5% in 1993, and exhibited a diminishing tendency in the United States as well, reaching 2.6% in 1987- and the fact that on average, 5.7% of total is the average agricultural sector employment rate in EU countries- it is clear that agriculture is more important to the Central European region’s economies than in EU member-states.

The process and result of the agricultural transformation in the evaluated region

The most significant aspect of the transformation was the change in ownership. I will deal with the change in ownership in those countries in which agricultural had and will more than likely continue to have a commanding role in the economy, even in the coming EU accession, which is expected to happen in the coming years.

Among the evaluated countries, in the Czech Republic, total reprivatisation of agricultural land, as well as the sale of all collectively-owned equipment, was carried out under the aegis of privatization by voucher. Slovakia followed the same system as did the Czech republic, and after the two separated in 1995, privatization proceeded by direct sale. Private agricultural land ownership stands at 15%, while 62.3% is under state ownership.

Poland

In the decade before transformation, private ownership of agricultural land was characteristic of Poland. In 1990, 76% of agricultural land was in private hands, 18.7% under state ownership, and 3.7% under cooperative ownership. By 1996, this had shifted slightly, to 82.1% in various private hands, 6.7% under state ownership and 2.7% in cooperative ownership. This percentage of private ownership and use of agricultural land was higher than in anywhere in Europe. Collectivization had always been low in Poland and private ownership high, albeit, not at high-quality production levels and farm efficiency. Agricultural capital and resources are characteristic of the system. In 1997, 3649 cooperatives were in operation in the country, of which, 469 were dairy-based, 285 dealt with bee-keeping and horticulture and 2402 were processing and sales cooperatives, while cash-crop production was carried out in 493 cooperatives. This structure can be considered classic European Union member-state structure, in which the agricultural sector is based on private farmers, but sales, processing and investment structures are capable of effectively representing their members’ and owners’ agricultural interests.

A high level of decentralization characterizes Poland’s agriculture today. Private farmers rent about 5% of their land from state enterprises. Family farms number 2,138,000, the average size of which is 7.1 ha.

Poland’s main agricultural problem is rooted in the evolution of its poor farm structure, as the average farm size - 7.1 ha - cannot ensure effective production, while the present economic situation will not allow individual private enterprises to produce enough for self-sufficiency. Also characteristic are, beside the poor efficiency of the system, low production potential for self-sufficiency, poor agricultural information systems and the lack of any established institutional support system for producers and farmers.

Table 4: Average size and distribution of family farms in Poland

Average farm size
ha. / distribution percentage
%
1.0-5.0 / 55.3
5.1-10.0 / 25.5
10.1-20.0 / 15.1
20.1-50.0 / 3.7
over 50.1 / 0.4

source: GUS, “Rocznik statystyczny,” Warsaw, 1998

Given the developmental opportunities facing them at this time, it can be stated that in the decades to come, growth of the number of those categorized as developing farms can be expected, from the 160-170,000 now in existence to 650-750,000 in 2010. These farms will be capable of running on their own capital, and will develop and expand, dealing in greater and greater degree with production and employment. The second element of this picture is that of family farms; for these, smaller production levels, use of suitable technology and, given a lack of market connections, production for local markets is characteristic. It is expected that the number of these will stabilize at around 350-400,000. The third aspect is that of stagnant, capital-poor farms, usually managed by elderly persons. These number some 1200-1300. The fourth category of private farms is that of the unproductive farm, with no potential for capital improvement and on the road to liquidation, having very low technology levels, depending on human power to produce mainly for subsistence. Some 300-350,00 farms can be thus classified.

In sum, the Polish agricultural sector can be classified as one of low production and efficiency levels, with some food products (wheat, sugar-beets, milk) being produced at self-sufficient levels, while agricultural imports remain high.

Romania

Romania’s situation can be considered a special case because, as has already been mentioned, it has the highest percentage of agricultural to total employment (35.2%), and agricultural production as percentage of GDP passes 20.2%. After the collectivization of earlier times, compensation has restored some 84% of land to private hands (compensation restored up to 10 hectares per person, divided between members and users of collective lands). At present, average farm size is 1.7 ha. and is usually parcelled into three or more sections. A large percentage (70%- 3.6 million producers) of land owners produce for private consumption. Landowners have no or very limited access to machines, thanks to the fact that machinery was not in collective hands, but in state machine stations. A lack of capital is characteristic. Further players in the Romanian agricultural market are remaining state farms (550 in 1995), agricultural cooperatives (4000) and those statistically classified as family farmers (11,500).

Farm structure can be classified in Romania in the following way:

• peasant farming based on draught and hand labor,
• farms producing part-time or as supplementary income,
• farm businesses employing farm workers, having good connections and information systems (having been developed by earlier farm managers),
• those farming as a way of life (full-time farmers),
• new farm cooperatives, which rent their land from owners using subsidies (accounting for 30% of production),
• grocery production farms working their own or rented lands in order to produce raw agricultural materials,
• ex-state farms, which have already made the change to farm cooperatives.

The main problems of Romanian agriculture- farms of overly-small size, high numbers, and splintered make-up, poor connections to producer organizations and rudimentary technology, can be accounted for by a lack of vertical integration and undeveloped market mechanisms. Another problem is that the average age of farm owners is over 50.

In conclusion, it can be taken as fact that Romanian agriculture in its present underdeveloped state cannot produce even basic foodstuffs on a self-sufficient level.

Hungary

As a result of the socio-economic transformation, Hungary has changed its farm structure and size. Before transformation, employment of an American-style (based on large-sizes and the use of highly productive machinery) cooperative system and state farming system, supplemented by home production, produced impressive results. In the areas of production and yields, Hungary achieved great successes in the 1980’s, sometimes out-producing EU member states. Efficiency is characteristic of the system, which for many years was the major bread-winner for the national economy.

The transformation of production collectives concomitant with privatization by recompensation and the returning of agricultural land and machinery to private hands began in the early 1990’s. From the once close to 1350 production collectives and 130 state farms liquidated and divided between private owners, there arose a structure of small farm ownership that is mainly involved in cash-crop production. Besides these should be included those termed as “forced farmers,” who, having lost employment but gained land, turned to farming as a livelihood.

Table 5: The number of officially recorded operating agricultural businesses in Hungary

Farm type / 1995 / 1996
Incorp. agri-enterprises / 3378 / 4008
-Ltd liability Cooperative / 3185 / 3805
-Joint-Stock Company / 179 / 191
Collective / 1965 / 1930
Misc. incorp. enterprises / 389 / 663
Collective to be liquid. / 33 / 29
Total incorp. businesses / 5675 / 6630
Unincorp. businesses / 2274 / 2876
- joint ventures / 91 / 103
- security ventures / 2183 / 2773
Misc. unincorp. businesses / 2 / 3
Suspended company forms / 136 / 130
Total unincorp. businesses / 2412 / 3009
Total coop. enterprises / 8177 / 9639
Various businesses / 18,288 / 22,682
Total businesses / 26,465 / 32,231
Total agri-prod. (1998 data)[2] / 950,000

In 1994, out of 3.5 million households, some 1,501,000 could be considered to be producing agriculturally. So-called “farm-sized households” declined significantly with the transformation, while the amount of land used by them increased greatly (cultivated land by some 33%). As a result of privatisation, some 95% of land came into private hands. The old and new owners rent out either their inherited lands or part of their lands to transformed collectives, farm businesses or the small but growing number of family farms.

In Hungary in the near future, it is expected that a growth in the number of family farms will be seen, as will a strengthening of their role in cash-crop production. The institutional support system for farming is now in the developmental stage, but cannot at present completely fulfil its role, and the agricultural institutional system itself is being pressed to develop. Hungarian farm structure will also depend in the future on a more receptive legal climate to land sales, which is not now a reality in Hungarian agriculture (farm businesses and foreigners cannot at present purchase land in agricultural use, and private persons cannot own more than 300 ha). Hungarian agricultural is also characterised by economic difficulties, in that a lack of capital and resources is characteristic. It must also be stated that in comparison to Romania or Poland, as regards financing of the sector, the same is characteristic relative to Hungary’s higher production levels and system development.

Characteristics of Central-European transformation

In evaluating the Central-European region’s socio-economic transformation, besides quantifiable comparisons and contrasts, we can also outline some of the advantages and disadvantages to be found in the countries of the region as regards their relationship with present partner countries.

Among the advantages are the following:

• due to the rapid socio-economic transformation, which hit the region as a shock, the countries were able to avoid the tendency accompanying slow and measured reform- the fear of new situations and the longing for the safer past- in the form of dissatisfaction and demonstrations (such as those which occurred when the EU wished to carry out CAP reform);
• economic changes brought about an upsurge of energy in both the traditional and new economic sectors, which was able to double the directions of activity occurring;
• due to the necessity of providing employment for agricultural production cooperatives (cooperatives and state farms), the function of these as an upholder of settlement operations was carried out in a relatively painless fashion;
• the number of those employed full-time in agriculture dropped greatly;
• due to the loss of markets (the collapse of COMECON) and the economic unviability of the eastern market, as well as the decrease in consumption domestically and loss of agricultural employment, the amount of shock to hit the agricultural sector was not as great as it would have been under the scenario of an unchanged production structure;
• a number of institutional elements normal in a market economy were established and achieved (production consultation, extension services, etc.).

Among the disadvantages are:

• as a result of the transformation, many jobs were lost, and agriculture was not capable- in spite of governmental efforts- to become an employer; indeed, many former agricultural employers were lost to the market;
• because of the character of the political transformation, solutions ignoring rational economic facts were devised, often despite the existence of such solutions in many developed countries;
• imbalances developed for the less-qualified agricultural employer on the employment market which are, more than likely, going to be present when the children of the employer are players on the market;
• changes in the structure of ownership harmed production effectiveness;
• due to the lack of capital, many burdens were levied on support and surfaced, as a result of which, various manifestations of this pressure appeared on the part of agricultural producers;
• due to the present level of farm structure and organization, it is very difficult to devise and implement any system fulfilling the demands of a system of quality assurance;
• agricultural information systems have fallen apart, and are still (to this day) not capable of providing current and valid information on the trends in the sector;
• market regulatory practices are still not capable of regulating production structure, which has caused price depressions in certain areas as a result of over-production;
• illegal hiring and employment has risen, causing the system of employees’ social security to collapse;
• the sector’s common and often unjustified exceptional taxation situation creates social tensions;
• supporting institutional systems- mainly in research- for the sector have been made much weaker, in many cases unjustifiably eliminating institutions;
• during the course of privatization, economic and mechanical resources (machinery, equipment and real estate) depreciated, while at the same time, due to a desire for greater levels of income, older, used and obsolete Eastern-European (mainly Soviet) equipment was sold at high prices;
• ownership rightswere uncertain for some years, which caused many problems in land use (management of natural resources, seeding sectors), and the amount of marginal (not maintained, fallow) land grew;
• the new owners of land allowedmany infrastructural elements (roads, irrigation channels, levies, various melioration devices, etc.) to decay, the effect of which on domestic waters has been felt in the past few years by farmers, and which has had to be dealt with by the agricultural authorities.

The role of agriculture in the future, and factors affecting emerging farm structure in the region