Policy proposals to boost Romanian farm

consolidation in the period 2014-2020*

Authors: Daniela Giurca, Luca Lucian,Cristina Cionga

* Based on a study developed in the project "Improving National Commission for Economic Forecast’s institutional capacity, assessment and design of macroeconomic policies related to economic convergence towards EU", cofinanced by the ESF trogh PODCA.

After two decades of market economy .. Romania .still

need farm consolidation

1. Convergence gap between Romania and the other EU MS

2. Farms bigger than 1 ESU in some EU MS

3. Modest yields and huge variantions of production in the last decade

4. The structure of production and agrofood trade deficit

5. Low farms endowment with machinery and technics;

6. Ageing of farmers (beneficiaries of DP) – key element for consolidation measures

7.Polarization of farms – very difficult to to diminish

Romania can be considered a special case among former communist countries in terms of agricultural transition to a market economy, because of the lack of coherent long-term and generally without dedicated land consolidation policies.

1.Convergence gap between Romania and the

other EU MS

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Romania Ungaria Polonia Bulgaria NSM-8

44.4%

6.1%

19.2%

9.7%14.0%

19.1%

5.5%10.1%

14.7%

9.0%

2001

2010

% of agricultural population engaged in agriculture

0

2

4

6

8

10

12

14

16

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

%

UE-27

Bulgaria

Romania

NSM-8

Polonia

Ungaria

% of agriculture&silviculture&fishery

in the total GVA

2.Farms over 1 ESU in some EU MS (Anchetele structurilor în ferme 2007, Eurostat)

ESU: European Economic Dimension Unit (1200 euro MBS) Numărul fermelor de peste 1 ESU(mii)

Supr. totală a fermelor de peste 1 ESU(mil. ha)

Suprafaţa medie a fermei(ha)

Ponderea nr. fermelor de 1-8 ESU (%)

Ponderea nr. fermelor de peste 100ESU (%)

Ponderea supr. exploatate de proprietari(%)

Bulgaria 117,8 2,9 24 90,4 1,4 17

Cehia 25,9 3,5 135 58,1 9,8 16

Germania 348,5 16,9 48 33,6 12,7 37

Franţa 491,1 27,4 56 23,6 16,9 25

Ungaria 140,8 4,1 29 79,4 1,6 37

Polonia 112,8 13,9 12 78,3 0,4 77

România 866,7 9,5 11 97,2 0,2 64

Slovacia 15,8 1,9 120 78,4 6,2 9

Regatul Unit 183,0 14,8 81 40,1 13,7 66

3. Modest yields and huge variations of production in the last decade

( Eurostat data)

4.The structure of production and agrofood trade deficit

(NIS data)

-3000

-2000

-1000

0

1000

2000

3000

4000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Mil

EUR

Deficit comercial

Ex UE

Ex terte

Im UE

Im terte

The agrifood trade dynamic ( current prices)

5. Low Romanian farms endowment with machinery and technics

(Eurostat - Statistics in focus, Agriculture and fisheris 10/2006, 42/2007, 60/2007)

% of farms bigger than 1 ESU – utilizing and owning 1 Tractor by size category ( 2005)

Sub 5 ha 5-20 ha 20-50 ha 50-100 ha Peste 100 ha Toate fermele

Franţa Utilizează tractor (%) 83,6 99,1 99,6 99,4 92,9

Deţin tractor (%) 70,7 95,6 97,2 97,0 85,9

Polonia Utilizează tractor (%) 89,4 98,1 99,6 99,0 95,2

Deţin tractor (%) 61,4 88,8 96,7 93,4 79,9

România Utilizează tractor (%) 68,6 73,9 75,1 71,5 69,9

Deţin tractor (%) 4,9 17,6 44,7 55,5 8,9

6.Agening of DP beneficiaries ..key element for consolidation measures

( APIA database)

The structure of DP beneficiaries by age %

The eligibile area for DP beneficiaries by age - ha

7. Farm polarization in Romania – very difficult to diminish

(date INS: RGA 2010)

The land consolidation potential in the period 2014-2020

data base used for estimation of the land consolidation “potential”:

the dynamics of the physical structure of holdings in the period 2002-2010 last years from the General Agricultural Census (GAC)

the databases of the Agency of Payments and Intervention in Agriculture (APIA) for the post-accession period (2007-2010) for the farms eligible for direct payments (over 1 ha with parcels over 0.3 ha).

Analyzing the data we can conclude…. the main resource of holdings with high consolidation potential is in

the size category 1-5 ha and 5-10 ha, accounting for 30% of the area eligible for payments (according to APIA data) and 34% of the utilized agricultural area, according to the GAC 2010 provisional data;

the farm owners’ old age perpetuates the operation structure rigidity in Romania. From the detailed analysis of APIA database, in the year 2010, only 1% of the eligible beneficiaries of direct payments were aged under 30 years and operated less than 100 thousand ha, while 58% of the beneficiaries of direct payments were over 60 years old and operated 2.3 million ha.

more than 87% of beneficiaries over 70 years old and 83% aged 60-70 years have farms of 1-5 ha. All these farmers operate 1.3 million ha.

In this situation, some variants should be found to release the land areas operated at a low productivity level, by providing alternative income opportunities to those who would quit the sector.

Post-2013 opportunities for the Romanian agriculture restructuring

Proposals for future CAP take into account local realities and structures of the 27 Member States and provide more flexibility to choose the right type of policy at national level:

The compulsory scheme for DP: Basic payment + greening payment (for farmers who apply

agricultural practices that are beneficial for the climate and the environment)

Payment to young farmers who initiate an agricultural business (up to 2% of the annual national ceiling); this support can be also completed by the rural development support measures; (5 years 25% from de basic DP up to 25 ha)

Voluntary schemes:

Payment to farmers from areas with natural constraints((up to 5% of the annual national ceiling)

A coupled support scheme (up to 5% of the annual national ceiling, with the possibility to exceed this in particular cases), for certain types of agricultural activities or for certain difficult agricultural systems that are very important from economic and/or social reasons. The support is provided if necessary in order to maintain the current production levels;

Compulsoy scheme for MS but voluntary for farmers: A simplified scheme for small farmers (up to 10% of the annual

national ceiling) 500 Euro/farm

Measures from Pillar 2Mesures for developing bussiness and farms :

Installing the young farmers (projects up to 70000 euro/farm); Developing small farms (projects up to 15000 euro/small

farm); Developimg of non- agricultural activities in the rurarl area; Compensatios for leaving de small farmer scheme (120% from

the amount received untill the end of financed period). Projects for investments (for young farmers the co-

financing is only 10%);Advisory services (1500 euro/consiliere/farm);Support for cooperation and producers groups;Support for insurance (cultures and livestock);Support for mutual fonds;Support trough the instruments for stabilizing the farmers

incomes;Suport for innovation .

Some measures of the "menu" offered in Pillar 2 and Pillar 1 can contribute to a more sustainable consolidation process, but that is not going to be enough, if not paralleled by national measures of the kind described below, measures requiring national budget funds allocated in the long run.

The possible structure of farms in 2020 (authors estimations based on above hypotesis)

Public Policy Proposals to Support Farm Consolidation

Proposal No. 1. 

A new farm consolidation strategy - built around the sub-measure that grants annual payments to the participants in the small-farm Scheme who transfer their farms to other farmers for good.

Accepting this proposal implies first of all an active stance on Romania’s part during the ongoing post-2013 CAP negotiations in terms of maintaining the provisions regarding the small-farm Scheme - and rural development, respectively - in the Regulation regarding direct payments. Once the proposal is approved, one should publicize the possibilities of accessing this Scheme (entries will be possible only in 2014) as well as exiting it (starting with 2015), for a compensation (received until 2020).

For the farmers utill 3 ha – annual payments 500 euro/farmer (not relatet to the area)

Exit from small farmer scheme – annual compensation 600 euro/farmer ( without a condition related to the farmer age).

Proposal No. 2.

As a complement to Proposal No. 1 and given the positive experience of the Life Annuity Program, which was aimed at the transfer of properties (and indirectly, of the farms) of up to 10 hectares:

the introduction of an exit scheme for farmers over 65 (as of 2015) who wish to renounce on agriculture, farmers who have between 3 and 10 hectares of owned farmland and receive direct aids (they are registered with APIA).

The compensation that these farmers would receive for having renounced the EU direct aids completely after having sold or rented out their land would be EUR 200 per hectare ( will be about the same amount like in the case of the small farmers) and would be granted for 5 years (therefore not for life, as in the case of the life annuity).

The difference from the mechanism described under Proposal No. 1 is that these sums will have to be paid from the state budget, since the measure is a state aid one.

Proposal No. 3 to facilitate the implementation of Proposals No. 1 and 2 and give

farmland management a wider scope of action:

establishing a rural management office with two main roles: implementing plot compacting programs and carrying out land market interventions for a re-orientation of farm structure.

The farmland compacting role could be carried out based on: Pillar 2 CAP support (a measure so far unused in Romania’s current National Rural Development Program) and would imply voluntary plot exchange programs, including cadastre measurements, property registrations, etc.

Land-market interventions based on the SAFER system – this require considerable budget funds in a first stage but they can be important in the medium term by the easy finding of recipients for the lands that have been transferred through the exit measures proposed above.

• If the office is allowed to exercise a pre-emption right, this can facilitate the young farmers’ establishment and discourage farmland speculation.

• The institution that could take over the implementation of this proposal is the ADS (the Romanian State Domains Agency), which could thus re-think the assignment of the lands that it owns, it could combine selling some of them with buying others, and would orient the structural changes of farms.

• While for the land compacting programs, the Agency will have to work with the ANCPI (the National Agency for Cadastre and Real Estate Publicity) for the land-market interventions, the co-operation will take place within the ADS.

• Thus the ADS – restructured in order to carry out that complex role – may play the part of coordinator of the farm compacting strategy.

Proposal No. 4. In order to provide the technical background and

make sure that the above measures are workable….

we suggest that the deadlocks generated by the non-registration of farms be solved by subsidizing the cadastre costs and reducing/removing the taxes on land transactions conducive to land compacting/grouping.

The measure can be funded by the state budget or possibly through international programs (loans).

Increase of GVA for agriculture as compared to the average years 2008-

2011(authors estimations)

Variantele de evoluţie a variabilelor rezultate din politicile de consolidare a exploataţiilor agricole în perioada 2013-2020

Pesimistic scenario

Neutral scenario Optimistic Scenario

Lands – farmers who renounced to the simplified small farmer scheme (Tho ha)

250 250 500

Lands – old farmers who renounced to farm trough state aid scheme Tho ha)

250 250 500

Lands “in rest” – used again for farming (Thou ha)

0 150 150

Non cultivated lands – reintroduced for farming (Thou ha)

0 150 150

% of GVA in agriculture in the period 2013-2020 as a result of implenting the above measures

2,9% 5,7% 8,6%