ERC/02/6





TWENTY-THIRD FAO REGIONAL CONFERENCE FOR EUROPE

NICOSIA, CYPRUS, 29-31 MAY 2002

Agenda Item 8

THE STATE OF FOOD AND AGRICULTURE IN THE REGION


Table of contents


I. SUMMARY

II. INTRODUCTORY NOTE

III. RECENT DEVELOPMENTS IN POVERTY IN THE REGION

IV. AGRICULTURAL AND FOOD POLICY DEVELOPMENTS IN 2000-2002
A. Agenda 2000 reforms begin
B. EU enlargement and agriculture: EU Commission CAP enlargement proposal unveiled in 2002
C. Establishment of the European Food Safety Authority

V. AGRICULTURAL PRODUCTION TRENDS 1996-2001
A. Cereals
B. Oilseeds
C. Animal inventories and livestock output
Cattle and beef
Pigmeat sector
Poultrymeat sector
Milk

VI. CONCLUSIONS AND PERSPECTIVES


1. Since the start of the reforms in the early 1990s, the number of people below national poverty lines in the European transition economies has increased quite substantially. By the mid-1990s, 28.1 million people lived below national poverty lines in ten Central and Eastern European Countries (CEECs) plus Moldova. By 1998, 20.7 million people in the transition economies lived on US$2 or less per day. Poverty in the region has been caused mainly by the structural changes in employment and income that have accompanied reform, and by local conflicts and natural disasters. War and conflict in former Yugoslavia, Azerbaijan, Armenia, Georgia, Moldova and the Russian Federation caused massive displacement of population and disrupted normal agriculture. In these cases, food aid was crucial for preventing huge decreases in food intake and for containing incidences of malnutrition.

2. Starting in 1999 and 2000, however, economic growth and political stability began to change the outlook for the transition economies. The transition countries as a whole have had robust economic growth since 1999 and the forecast for 2002 is also positive. By early 2002, the Federal Republic of Yugoslavia (including Kosovo province) and the FYR of Macedonia were more politically stable, the era of emergency humanitarian aid was coming to an end, and the region was able to address the challenges of rehabilitation. In 2001, as a result of particularly good harvests, cereal production increased in Europe by 6 percent. Excellent weather conditions and expanded area in Eastern Europe caused cereal production to rise by 35 percent. Cereal production increased in the Caucasus countries and Moldova by over 30 percent as well.

3. The turnaround in growth, the end to major conflicts in the region and good harvests in countries (particularly the Caucasus), where agriculture accounts for a considerable portion of GDP, have considerably brightened the outlook for poverty reduction in the long term. However, these immediate changes should not be expected to alleviate poverty built up over more than a decade. Poverty reduction in the transition economies is not only a matter of economic growth, as most growth takes place in the informal, newly formed and small to medium enterprise sector. Poverty is, to a significant extent structural and related to a set of persisting social and economic circumstances, which makes it more resistant to alleviation merely by policies which enhance economic growth. World Bank surveys, conducted in the late 1990s, have shown that residents of rural areas were at a higher risk of poverty than those in urban areas.1 Thus, growth in agricultural production and related non-farm activities in rural areas can be a significant force in reducing poverty in the European transition economies.

4. Three policy developments of the past three years have important implications for future poverty reduction and growth in rural areas in the EU-accession countries. First, implementation of the Agenda 2000 reforms of the Common Agricultural Policy (CAP) began in 2000 and will continue through 2006. Just as important, EU intervention prices have fallen considerably over the last three years (in US dollar terms) as a result of Euro depreciation vis--vis the US dollar. Decreases in intervention prices under Agenda 2000 and Euro depreciation have the effect of bringing EU cereal prices in line with international prices, reducing the dangers of surplus production and allowing for unsubsidized exports. Second, negotiations on the agricultural chapter for EU-accession countries have received new impetus with the publishing of the Commission’s proposal on how the CAP will apply to accession countries. The proposal includes plentiful resources for rural development after accession and continuous increases in direct payments for accession-country farmers until 2013. Third, the EU Council of Agricultural Ministers adopted a Regulation to establish an independent European Food Safety Authority (EFSA).
5. These policy developments affect the long term outlook for agricultural production in Europe and poverty reduction in accession-country rural areas. But they address important issues that have clouded the outlook for European agriculture in the past two years. Agenda 2000 reforms and Euro depreciation reduce the dangers of surplus production caused by European commodity prices which are higher than world prices. The EC proposal clarifies the framework under which accession countries can expect to enter the European Union in 2004. The establishment of the EFSA addresses the concerns of European consumers about the safety of the food they consume, a topic of great interest after the problems caused by Bovine spongiform encephalopathy (BSE) and foot and mouth disease in the past two years.
6. By clarifying the road ahead, these policies provide a clearer framework for agricultural and rural development, and thus rural poverty reduction, in the accession countries through 2013. The Agenda 2000 reforms and the Euro devaluation, by reducing intervention prices and thus the necessity of export subsidies, brighten the picture for exports of accession country farmers, since subsidized exports are limited by WTO commitments. The proposal for extension of the CAP to accession countries includes ample funds for rural development after accession which should also improve the outlook for East European farmers and rural inhabitants. The establishment of a European Food Safety Authority could be quite important for the prospects of the European livestock industry, if it increases consumer confidence in the safety of livestock products in Europe.

7. This paper presents an overview of the food and agriculture situation in Europe in 2000 and the beginning of 2001. Since the subject and the region are quite broad, the document is not intended to be exhaustive. On several occasions, to make the document shorter, developments are exemplified by selected representative countries only, while the remaining country cases are not presented. The paper covers the European countries that are FAO members. In this context, the CIS-4 refers to Armenia, Azerbaijan, Georgia and the Republic of Moldova only. The Central and Eastern European Countries (CEECs) include Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia, the Former Yugoslav Republic of Macedonia and the Federal Republic of Yugoslavia. Eastern Europe includes all of the CEEC countries except the three Baltic countries. The Baltic countries refer to Estonia, Latvia and Lithuania. The CEECs and the CIS-4 are often referred to as “countries in transition”, in order to underline their transformation from centrally planned to market economies, which has had substantial implications for the performance of agriculture and food security.

8. During the transition, the share of population below national poverty lines has increased in Central and Eastern Europe and the CIS-4. In the mid-1990s, 28.1 million people lived below national poverty lines in ten CEECs plus Moldova, an increase of 3.9 million since the end of 1980s. They include 8.1 million in Central Europe, 13.5 million in Romania, 1.3 million in Bulgaria, 2.3 million in the Baltic States and 2.9 million in Moldova (EBRD, 1999). Along with these increases in relative poverty, i.e., increases in the portion of the population below poverty lines set by national governments, came similar increases in the portion of the population below absolute measures of income poverty. The percent of population in the transition countries of Europe and Central Asia living on less than US$2 per day rose from 4 percent in 1987 to 21 percent in 1998 (World Bank, 2001).

9. However, the past three years have seen quite positive developments affecting the poverty and food security situation in both the countries of Central and Eastern Europe as well as the
CIS-4. First, there has been a political stabilization in the countries of former Yugoslavia. Second, marketing year 2001-02 saw bumper harvests in the region. Third, the region as a whole has now seen three consencutive years of robust growth and the outlook for growth in 2002 is also positive. These developments have allowed for the substantial phasing out of food aid in the region.2

10. Despite the positive overall developments of the past three years, the considerable increases in poverty in the past ten years cannot be expected to fall rapidly. One of the reasons is the nature of poverty in the region. Poverty reduction in the transition economies is not only a matter of economic growth, as most growth takes place in the informal, newly formed and small to medium enterprise sector. Poverty is first a problem of vulnerable social groups, such as the aged, ethnic minorities, Internally Displaced Persons (IDPs), urban unemployed and large families. Conflict, ethnic problems, and an aging population (in some countries) cause these problems to persist. Poverty is also a problem of those who have remained in the larger former state enterprises. These enterprises, though privatized, are capital poor, uncompetitive and debt ridden. Temporary unemployment and low wages in these industries is one of the main sources of poverty. Poverty is also a problem of state employees, who are paid quite low salaries. In sum, poverty is, to a significant extent, structural and related to a set of persisting social and economic circumstances. This makes it more resistant to alleviation merely by policies which enhance economic growth.

11. The Federal Republic of Yugoslavia (FRY) is a good example of the poverty problem in the region. The FRY has emerged from a state of acute economic crisis after the conflict over Kosovo and several successive years of economic sanctions. In early 2000, some 900,000 vulnerable people, including refugees and economically and socially deprived people in Serbia (excluding the Kosovo Province) were receiving humanitarian food relief from the World Food Programme. That number will be cut to 174,000 by June 2002 (WFP, 2002). In the Kosovo Provinces, despite a recovery in agricultural production in 2001-02, limited purchasing power amongst both rural and urban population, combined with the urgent needs for non-food essentials remain a problem. Throughout early 2000 about 1,000,000 people received food assistance in the Province. By the end of 2001 that number had been reduced to about 100,000 (WFP, 2001). Yet in 2001 there were still nearly 400,000 refugees in Yugoslavia, primarily from Bosnia and Croatia, over 50 percent of which were unemployed (WFP, 2002).

12. Bulgaria has had GDP growth above 2 percent per year since 1998. Despite this positive picture, some estimates indicate that 21 percent of the Bulgarian population is living in absolute poverty (below US$ 1 per day), while at least 17 percent of the population is unable to meet their daily minimum dietary energy consumption needs (UNDP Bulgaria, 2002). A breakdown of poverty in the country shows that poverty rates in rural areas are higher than in urban towns and cities. Poverty also has an ethnic dimension, with higher rates of impoverishment found among Roma and Turks. 25 percent of Bulgaria's poor come from ethnic minorities, and of those two-thirds are of Roma origin. The share of food expenses in household budgets for all types of households was high and stable. More than one third of the households included in a sample survey indicated that they had produced more than 50 percent of the food at home (UNDP, 1999). Home produced food is an important food source for vulnerable households.

13. Though Romania had robust GDP growth in the mid-1990s, the economy suffered a significant setback from 1997 to 1999, shrinking by 13 percent. Negative growth drove the national poverty rate up from 19.9 percent in 1996 to 44 percent in 2000 (Catalin, 2001). In Romania, the magnitude and severity of poverty is greater in rural areas. According to the World Bank, 3.8 million poor are living in the country’s rural areas. The consumption gap measuring the consumption of poor people below the poverty line has been 27 percent in rural versus 24 percent in urban areas (World Bank/National Commission for Statistics). Most of the rural inhabitants depend on the land for their living. The poor rural households follow low-risk, low-return production strategies. The periods of GDP growth in Romania showed that even a short-lived growth was able to push millions of people out of poverty. As a result, the strategy pursued is the resumption of growth and rural development measures.

14. Agriculture accounts for nearly a quarter of GDP in Azerbaijan, so increases in agricultural production have a significant effect on GDP growth. Food production in Azerbaijan has been expanding since 1997 due to good growing conditions, financial stability and fundamental market oriented reforms, however it is still nearly 20 percent below its 1990 level. The country has good agricultural potential, but, in the short term, production is constrained by a depletion of soil fertility, a critical shortage of rural credit, inadequate infrastructure and the need to rehabilitate the irrigation and drainage systems. Following trade liberalisation, any shortfall in domestic supply is offset by imports. A further cause of concern is the low purchasing power of most of the population (8 million). Expenditures on food account for 70 percent of total expenditures of the most vulnerable households. In recent years, the number of vulnerable people has declined, but there are still some 860,000 IDPs and refugees, mainly as a result of the still unresolved issue of Nagorno Karabakh. In all, nearly 500,000 persons, half from the displaced community, are still in need of humanitarian assistance. The WFP has been providing humanitarian assistance to Azerbaijan since 1993. WFP is continuing to support 485,000 beneficiaries through the three year Protracted Relief and Recovery Operation (PRRO) which started in July 1999.

15. In Georgia, GDP has been growing quite consistently since 1995, but agricultural production growth has been uneven, due to drought in 1998 and 2000. In Georgia, just as in Azerbaijan, the agricultural share in GDP is comparatively large, 36 percent in 1999. Therefore, agricultural growth can be expected to have a significant effect on overall GDP growth. However, crop yields vary substantially in Georgia, from year to year, depending on the weather, lack of proper irrigation, fertilizer application and other inputs. The agricultural sector remains depressed and stagnant in a low-input low-output farming as access to markets and resources are limited.

16. Armenia has also had consistent GDP growth since 1994. However, agriculture has been plagued by drought in the past few years and, as a result, growth has been uneven. As in the other transition economies, poverty reduction in Armenia is not only a matter of economic growth, but a problem of vulnerable social groups, such as IDPs, the aged, urban unemployed, large families and those who have remained in the larger former state enterprises.

17. Three principle policies of the past two years promise to affect poverty within the East European accession countries in the future. Of the transition countries considered in this paper, the accession countries are perhaps in a better situation. However, they still account for more than a third of those under national poverty lines in the CEECs and Moldova. First, the Agenda 2000 reform began operating in the arable crop sector in marketing year 2000-01. By affecting relative prices, these reforms have already caused changes in areas sown to cereals and oilseeds. Starting in 2005-06 reforms under Agenda 2000 will also begin to change incentives in the dairy sector as well. Just as important, EU intervention prices have fallen considerably over the last three years (in US dollar terms) as a result of Euro depreciation vis--vis the US dollar. Decreases in intervention prices under Agenda 2000 and Euro depreciation have the effect of bringing EU cereal prices in line with international prices, reducing the dangers of surplus production and allowing for unsubsidized exports. Since subsidized exports are limited by WTO commitments, these changes will allow East European farmers greater freedom to continue exports after accession. Second, agricultural negotiations between the EU and accession countries have taken a sizeable step forward with the publication of the Commission’s proposal for extending the Common Agricultural Policy to EU accession countries. The Commission hopes to close the agricultural chapter negotiations with most of the accession countries by the end of 2002, making way for accession in 2004. If accession takes place along these lines, the main parameters of agricultural policies in the accession countries at least through 2013 are now known, though subject to further CAP reforms that may occur. The proposal includes plentiful resources for rural development after accession and continuous increases in direct payments for accession-country farmers until 2013. Third, the Council of Agricultural Ministers adopted a regulation setting up the European Food Safety Authority (EFSA) and a new framework for the EU food law. The EFSA is to be an independent advisory body, separate from European Community institutions, though funded by the EU. The decision to set up such a body, though without an immediate effect on food production, is a significant step in restoring consumer confidence in European food for the future. It therefore may bolster future demand, particularly for livestock products.

A. Agenda 2000 reforms begin

18. The aim of the Agenda 2000 reforms, approved by the European Council in Berlin in March 1999, is to extend the 1992 reform by replacing price support measures with direct aid payments and outlining a consistent rural development policy. The package covered in varying degrees the dairy, beef, arable crop and wine sectors, in addition to establishing parameters for rural development. According to Agenda 2000, dairy reform is to begin in 2005-06, though some production quota increases for Italy, Spain and Ireland came into force in 2000-01. According to the dairy reform, a 1.5 percent increase in production quotas and a corresponding 15 percent cut in intervention prices will be made in three stages. For the beef sector, intervention prices are being cut by 20 percent in three stages. In cereals, intervention prices are being reduced by 15 percent in two stages. Cuts in intervention prices are to be partially compensated through increases in direct payments. Oilseed compensatory payments are being cut in three stages, equaling those of cereals by marketing year 2002-03.

19. Implementation of the Agenda 2000 reform in the arable crop sector began on 1 July 2000. The cereal intervention price was then reduced by 7.5 percent, followed by another 7.5 percent decrease starting on 1 July 2001. A final reduction in the cereal intervention price may be applied, if warranted by the market situation. The purpose of these price decreases were to bring EU cereal prices more in line with international market prices. As partial compensation for intervention price cuts, compensatory payments per ton of production increased, starting in 2000-01. Oilseed compensatory payments were reduced gradually to 63 euros per metric ton by 2002-03, the same as for cereals. This large decrease in oilseed payments decreased the profitability of oilseeds, and contributed to a shift of oilseed area into grain area in 2000-01 and 2001-02 (Figure 1).
FIGURE 1 – Cereal and oilseed area harvested in EU

Undisplayed GraphicSource: FAO database.

20. Despite the Agenda 2000 reforms, support to farmers in the EU countries is still quite a bit higher than those in CEECs. Producer support estimates (PSEs) measure market price support and various direct payments provided to farmers through agricultural policies. The PSE can be expressed in monetary terms by country or commodity or as a ratio of gross farm receipts, including budgetary support, as a percentage. Figure 2 presents the level of percentage PSE for the agricultural sector as a whole in selected CEECs and the EU in the past few years. With the increases in direct payments outlined under the EC proposed extension of the CAP, East European farmers can expect PSEs to rise toward EU levels until 2013, while EU levels may continue to fall depending on future CAP reform decisions.

FIGURE 2 - Producer support estimate

Undisplayed GraphicSource: OECD
B. EU enlargement and agriculture: EU Commission CAP
enlargement proposal unveiled in 2002

21. EU enlargement has acquired new impetus over the past year. The EU Commission has now (as of 30 January 2002) published its proposal on how to extend the CAP to the accession countries. The key points in the Commission’s proposal are: (i) a ten-year transition period for direct payments to be gradually increased so as to equal those in the EU-15, (ii) substantial funding for rural development measures, (iii) new member countries already providing direct aid will be able to top-up EU payments with national funds and (iv) data from 1995-1999 are to be used to establish supply management instruments such as production quotas, arable crop base areas and beef premium ceilings. The proposal is now to be discussed by the Member States in the Council, which is to approve a common position by June 2002. Final negotiations with the 10 accession countries can then start, and are expected to finish by the end of 2002. Ten Central and Eastern European countries are expected to join the EU in 2004: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. In addition, the EU is continuing to negotiate with Bulgaria and Romania on accession.

22. Agriculture is the largest and one of the most difficult negotiation chapters in accession. The primary emphasis of preparations for accession for agriculture is on the candidate country’s ability to implement the “acquis communautaire”, the set of laws regulating the agriculture and food sector. Negotiations on the agriculture chapter were opened with Cyprus, Czech Republic, Estonia, Hungary, Poland and Slovenia in June 2000. Negotiations with Latvia, Lithuania and Slovakia followed in June 2001 and with Malta in December 2001. Bulgaria and Romania have presented their opening positions for agriculture, but the negotiating chapter has not yet been opened. Negotiations on agriculture have not been closed with any country. Three outstanding issues of contention with applicant countries can be identified.

23. First, the CEECs cannot comply fully with the EU’s health and hygiene standards during the short period prior to accession. For example, Poland has asked for a transition period of up to four years during which it can upgrade its slaughterhouses, dairies and processing plants. There are similar requests from other applicant countries.

24. Second, the level of production quotas is expected to be a difficult issue. For example, in their position papers, Hungary and the Czech Republic request milk quotas higher than the current production; and Slovenia asked for all quotas to be above the current production levels. However, as in the case of milk, if the EU continues with price support, quotas for the new members must be close to their current level of production in order to prevent non-exportable surpluses and an overshooting of WTO commitments for an enlarged EU.

25. Third, the most difficult issue is the application of the direct payments. The EU would prefer to avoid the extension of full direct payments defined under Agenda 2000 to the new members in order to avoid the budget burden that would be created by such an extension. By the beginning of 2000 there were signs that the EU might take a more flexible position regarding direct payments, giving farmers in the new member states some aid upon accession, while fully harmonizing the system of payments for the long run.

C. Establishment of the European Food Safety Authority

26. On 21 January 2002, the EU Council of Agricultural Ministers adopted a Regulation to establish an independent European Food Safety Authority (EFSA) and a new framework for the EU food law. In order to implement this Regulation, an Executive Director and Management Board must now be appointed by the Council. The EFSA could then start operation, perhaps as early as the autumn of 2002. The establishment of EFSA could assist in improving food safety in Europe, a topic of great interest after the problems caused by BSE and foot and mouth disease in the past two years.
27. The EFSA is to be an independent advisory body, separate from European Community institutions, though funded by the EU, with six main functions: independent scientific opinions (at the request of the Commission, Member States, national food bodies or the European Parliament); advice on technical food issues to underpin policy and legislation in the areas of food safety and nutrition, animal health and welfare and plant health; collection and analysis of data on dietary patterns, exposure and risks, for monitoring food safety in the EU; identification of emerging risks; day to day operation of a rapid alert system covering food and feed; and a clear communication role to inform the public on matters within its mandate. In addition, the EFSA is to be assisted by an Advisory Forum, composed of fifteen representatives from competent bodies in the Member States, e.g., national food agencies. The Authority is also to be advised by a number of scientific panels composed of independent scientific experts appointed by the Management Board.
28. These policy developments address important issues that have clouded the outlook for European agriculture in the past two years. Agenda 2000 reforms and Euro depreciation reduce the dangers of surplus production caused by European commodity prices which are higher than world prices. The EC proposal clarifies the framework under which accession countries can expect to enter the European Union in 2004. And the establishment of the EFSA addresses the concerns of European consumers about the safety of the food they consume, a topic of great interest after the problems caused by BSE and foot and mouth disease in the past two years.
The following section presents agricultural production performance, including 2001 data, production trends over the 1997-2001 period for cereals, oilseeds, animal stock and livestock output.
A. Cereals

29. During the period 1997-2001, cereal production (in metric tons) in Europe increased steadily, with an average annual rate of 1.9 percent increase. In the EU, cereal production actually fell slightly by 0.5 percent per year, but in Eastern Europe cereal production rose by 3.2 percent per year. In 2001, FAO’s latest estimate for the European region’s cereal production is up by 11.1 percent. Again, EU cereal production decreased in 2001 by 6.5 percent and East European cereal production increased over the previous year by 34 percent. The European region’s aggregate wheat production rose by 9.4 percent in 2001, while that of coarse grains rose by over 12.8 percent. Once again, these increases were due exclusively to increases in Eastern Europe. In the EU countries, wheat production fell by nearly 13 percent and coarse grain production was virtually unchanged over the previous year. But in Eastern Europe wheat production rose by near 27 percent and coarse grain production by nearly 39.4 percent.

30. In the CIS-4, cereal production from 1997-2001 rose at a rapid rate of 6.5 percent per year, while in 2001 production rose by 32.6 percent. Last year’s increase was driven to a great degree by an incredible jump in wheat production in Georgia of 242 percent. Forecasts point towards an increase in wheat production in the CIS-4 and CEECs, while EU area seems to be facing a consistent decrease.

31. These divergent movements in production were partly driven by divergent movements in area planted and harvested. In the EU the harvested area for cereals in the past 5 years has fallen by approximately 0.1 percent per year, while in Eastern Europe it has risen by nearly 1 percent per year. In the CIS-4, harvested area for cereals has risen by 2.7 percent per year for the past 5 years.

FIGURE 3 - Wheat yields

Undisplayed GraphicSource: FAO database.

32. The EU has traditionally been a large (10 to 20 million tons) net grain exporter. Despite falling production over the past 5 years, net exports of wheat and coarse grains have risen from 1998 to 2000 because of a large increase in production in 2000 and falling consumption connected with falling animal inventories. Eastern Europe usually exports up to 5 million tons of grain per year. Net exports fell in 2000 to under 1 million tons due to a large fall in production. The CIS-4 usually import about 1 million tons of grain per year. In 2000, net imports increased by 1.2 million tons due to a fall in production. Net cereal imports into the CIS-4 totalled 1.8 million tons in 2000.

FIGURE 4 - Cereal net exports

Undisplayed GraphicSource: FAO database.

B. Oilseeds

33. Oilcrop production has been rising at an annual rate of over 2 percent per year in both the EU and Eastern Europe since 1996. With stable area in both regions, production increases have come through increased yields. But 2000 and 2001 have reversed this upward trend. The Agenda 2000 reform, by reducing compensatory payments for oilcrops in the past two years, has induced EU farmers to take area out of oilcrops. In 2000, area in oilcrops in the EU fell by 7 percent and in 2001 by 1 percent. Area under oilcrops also fell in Eastern European countries, where factors contributing to lower plantings included: (a) the shift, in a number of countries, from production-related support to direct income payment on a per-ha basis; (b) an overall trend towards reduced protection of producers caused by lower import tariffs and fewer import restrictions for oilseeds (meant to favour consumers and crushers); and (c) in some cases, increased market access for imported seeds as a result of the WTO-induced conversion of non-tariff barriers into tariff rate quotas.

34. Area under sunflower has been decreasing by nearly 5 percent per year in both the EU and Eastern Europe since 1996. Production has nearly followed this trend, since there has been little yield changes in both regions over this period. Rapeseed production has done much better, increasing by over 14 percent per year in Eastern Europe and 4.4 percent per year in the EU bewteen 1996 and 2001. Most of these production increases have come from increases in area, though yields have increased at nearly 5 percent per year in Eastern Europe and 1 percent in the EU in this period. Government support to the development of bio-diesel applications (primarily using rapeseed oil) contributed to this expansion in area in both the EU and some Eastern European countries.

35. Rapeseed and sunflowerseed are important crops in the CEECs. Eastern European countries produce about 2 to 3 million tons of each per year. In the past three years the three Baltic countries have increased production of rapeseed from under 50 thousand (1997) to 137 thousand tons (2001); granting to the sector of increased import protection has contributed to this development. Oilcrop yields in the CEECs are still substantially below those in the EU, with the exception of sunflower. In several CEECs, sunflower is the main oilseed crop.

FIGURE 5 - Rapeseed yields

Undisplayed GraphicSource: FAO database.

36. Production of sunflower seed in the CIS-4 is concentrated in Moldova, which produces 200 to 300 thousand tons of sunflowerseeds per year. Production of sunflower has been increasing in Moldova from 157 thousand tons in 1994 to 329 thousand in 2001. Georgia is a minor producer of sunflowerseeds, producing about 42 thousand tons in 2001.

C. Animal inventories and livestock output

37. Meat production in Europe decreased by 1.4 percent in 2001, while milk production increased by 0.3 percent. Beef and pigmeat production continued their decline in 2001, while poultry meat production increased slightly. Animal disease outbreaks contributed to the decline in the EU output in 2000 and 2001 while continued restructuring in the meat industry in East European countries are reflected in a decline in beef, pigmeat and lamb and mutton production, with a rise in poultry production. In the CIS-4, meat production has been declining throughout the 1990s. However, production increased dramatically in 2001 (by 24 percent), driven largely by increases in beef, lamb, pigmeat and poultry production in Azerbaijan.

Cattle and beef sector

38. The European beef industry has been under pressure since the mid-1990s, with herds declining at an annual rate of approximately 3.6 percent (1996 to 2001). The EU has now seen two BSE crises, the latest of which broke out in the fall of 2000. Spring 2001 saw an outbreak of foot and mouth disease particularly in Great Britain and the Netherlands. To deal with the crises, the European Commission implemented massive cull schemes, including the Purchase for Destruction scheme. In total, these schemes culled a bit less than 2 percent of EU cattle inventories. As a result of culling, livestock inventories in the EU are now less than in 2000. Recovery of inventories is not expected in 2002, though the overall impact of the BSE and FMD crises of 2000 and 2001 is less than at first expected.

39. In almost all the CEECs there has been a long term decline in herds in the 1990s. In 2001 this decline continued with a fall of 1.4 percent. The main producers are the Czech Republic, Poland, Romania and Federal Republic of Yugoslavia, with Poland witnessing the most substantial drop in beef output in 2001 (-11 percent). Only in Bulgaria, Slovenia and the Former Yugoslav Republic of Macedonia in 2001 was the number of cattle higher than in 1995. In Croatia, Czech Republic and Federal Republic of Yugoslavia, cattle numbers began recovering in 2001. Of the regions covered here, only the CIS-4 has shown an increase in cattle herds since 1996, with an annual increase of near 1 percent per year.

40. While the EU continued its position as a net exporter of beef in 2001, the BSE/FMD crisis and market closures around the world reduced its net export position significantly. In addition, high prices for meats other than beef in the EU, as a result of food safety concerns, led to declines in exports of all meats, resulting in a one-third drop in its net meat export position. The CIS-4 have been importing small quantities of beef in the 1990s—0 to 20 thousand tons. The Baltic countries, however, have been exporting beef consistently in the late 1990s, and in 2000 exported 20 thousand tons. These data do not include trade in live animals, which are particularly important for CEEC exports to the EU. The commodity breakdown of agrifood trade flows between the CEECs and the EU shows that the main export items for the CEECs were live animals and meat, accounting for 25 percent by 1997. (European Commission, 1999).

FIGURE 6 - Trade net exports: total meat

Undisplayed Graphic Source: FAO database.

41. Exports of live animals and meat to the EU require that countries meet stringent quality and safety standards. Most of the companies in the economies in transition do not meet these standards. This is why the countries that presented their position papers for accession negotiations in agriculture asked for longer transitional periods to adjust to EU standards. In the meantime, their inability to meet these standards constrains the region’s immediate trade opportunities with the EU.

Pigmeat sector

42. Pigmeat production in the EU increased by 1 percent annually, during 1996-2001. Denmark, France, Germany, the Netherlands and Spain continue to be the major EU producers, with significant portions of Danish and Dutch production oriented towards third-country export markets. Pigmeat production in Eastern Europe contracted by 3.3 percent annually from 1996 to 2001, mainly driven by Poland, its main producer. In the remaining CEECs, 2001 output was generally below the 1995 level, with the important exceptions of Croatia, Albania and Romania. Pigmeat production also decreased in the CIS-4 by 4.9 percent per year between 1996 and 2001.

43. Pigmeat is the most produced and consumed meat in Eastern Europe, more so than in the rest of Europe. In the CIS-4 pigmeat production is quite low, because of the extremely low production and consumption in Azerbaijan and Armenia. In 2001 production in both Eastern Europe and the CIS-4 fell by 5.5 and 2.4 percent respectively.

Poultrymeat sector

44. Poultry meat production has been a consistent bright spot in a general picture of long term decline of livestock production in Europe. Poultry production has expanded by an average 0.7 percent in the EU and 4.2 percent in Eastern Europe since 1996. This is despite some demand slowdown from the dioxin contamination problem in animal feed, which disrupted exports from Belgium and neighbouring countries in 1999. Nevertheless, European poultry per caput supply has been growing dynamically and it has increased from 14.6 kg/capita in 1994 to 15.1 kg/capita in 1999. The share of poultrymeat production in total meat production has been growing both in the EU, but particularly in Eastern Europe. Since 1994 the portion of poultrymeat production in the EU has grown from 23 to 24 percent, while in Eastern Europe it has grown from 18 to 27 percent. The main producers in Eastern Europe are Hungary, Romania, Poland and Czech Republic. In the CIS-4 poultrymeat production has not taken off the way it has in Eastern Europe. There the portion of poultry production remained constant at 14 percent from 1994 to 2001.

45. Eastern European countries have managed to maintain their position as net exporters over the past few years (Figure 7), despite market disruptions in their major market, Russia, while the CIS-4 countries have continued to be net importers.

FIGURE 7 - Poultrymeat net exports

Undisplayed GraphicSource: FAO database.
Milk

46. From 1996-2001 production of milk in Europe changed little, as a result of limits imposed on production growth in all western European countries. In eastern Europe, production rose marginally between 1996 and 2001. In the East European countries Poland is the main producer, with a share of total output of 40 percent. The other main producers are Romania and Czech Republic. The milk production situation in the East European countries is varied. In several East European countries, milk production has been growing since 1996. These include the FYR of Macedonia, Slovenia, Romania, Poland, Hungary and Bulgaria. However, in other East European countries milk production has fallen, most noticeably in Bosnia and Herzegovina, Albania, Yugoslavia and Czech Republic. Milk production in the CIS-4 countries has been increasing since 1996 at a rate of 1.5 percent per year, due to consistent increases in Georgia and Armenia. Moldovan production has fallen during this period at a rate of 4.3 percent per year. In 2001, however, milk production in Moldova rose by 4.4 percent, that in Armenia by 6.6 percent, while production in the other CIS-4 countries fell. The net result was a small increase in production in 2001 for the CIS-4 of 1.5 percent.

47. Dairy products are a large export item both from the EU and Eastern European countries. The CIS-4 countries are net importers of dairy, while dairy products are also an important export from the Baltic countries, particularly Latvia. Figure 8 illustrates the changes in net exports from the EU, Eastern Europe and the Baltic countries from 1998 to 2000.


FIGURE 8 - Dairy product net exports


Undisplayed GraphicSource: FAO Database.

48. Though poverty levels in the FAO European region are, on average, comparatively low compared to the poorest parts of the developing world, there is significant poverty in the European region, particularly in the CIS-4 and the Balkan countries. In the mid-1990s, 28.1 million people lived below national poverty lines in ten CEECs plus Moldova. These include 8.1 million in Central Europe, 13.5 million in Romania, 1.3 million in Bulgaria, 2.3 million in the Baltic States and 2.9 million in Moldova (EBRD, 1999). Poverty headcounts for the CIS-4 countries are more difficult to calculate, because some of the governments of the region have not agreed on poverty lines. The turnaround in growth since 1999, the end to major conflicts in the region and good harvests in countries (particularly the Caucasus) where agriculture accounts for a considerable portion of GDP, have considerably brightened the outlook for poverty reduction in the long term.

49. These recent changes should not be expected to alleviate poverty built up over more than a decade immediately. Poverty reduction in the transition economies is not only a matter of economic growth, because most growth takes place in the informal, newly formed and small to medium enterprise sector. Poverty is to a significant extent structural and related to a set of persisting social and economic circumstances, which makes it more resistant to alleviation merely by policies which enhance economic growth. World Bank surveys, conducted in the late 1990s, have shown that residents of rural areas were at a higher risk of poverty than those in urban areas.3 Thus, growth in agricultural production and related non-farm activities in rural areas can be a significant force in reducing poverty in the European transition economies.

50. The agricultural policy changes of the past two years identified in this document bode quite well for the portion of rural residents in poverty in the European accession countries. Though this is the minority of the poor in the transition economies, the poor in these countries still represent about one third of those in the 10 CEECs and Moldova. The Agenda 2000 CAP reforms and the depreciation of the Euro have reduced EU intervention prices to levels much closer to those in Eastern Europe. For instance, in April 1999 the EU intervention wheat price was 70 percent above the Hungarian producer price. By April 2000, the difference was only 29 percent, and the Polish wheat price was considerably above the EU intervention price. There have been similar changes in the prices for beef, pork and feed grains (Cochrane, 2001). If such prices, which are more in line with international prices, continue to prevail, European farmers in the expanded EU will have greater freedom to export without exceeding WTO subsidized export limits. The European Commission’s proposal on how the CAP will apply to accession countries includes plentiful resources for rural development after accession and continuous increases in direct payments for accession-country farmers until 2013. These changes may be expected to at least partly address poverty in rural areas in the accession countries. Last, the European Food Safety Authority (EFSA) may be expected to reassure consumers as to the safety of food in Europe, perhaps having a positive effect on demand for livestock products in the future.

51. Rising direct payments and funds for rural development will most likely raise yields and contribute to technical improvements in East European agriculture after accession. Certainly, many East European farms and processors even now face significant problems in reaching EU sanitary, quality and other standards. The combination of strict standards (even with transition periods) and rural development funds may be expected to reinforce a trend toward concentration and modernization already visible in the East European livestock sector (Cochrane, 2002). These trends may allow considerable potential for increases in livestock production in East European countries after accession. If similar movements toward modernization and concentration take place in crop sectors, there may be considerable potential for increased production in them as well.

REFERENCES

1 World Bank. 2000. Making Transition Work for Everyone: Poverty and Inequality in Europe and Central Asia (Washington, D.C.: World Bank). The exceptions to this generalization were the Czech Republic, Ukraine and Armenia. No figures were available for the Slovak Republic, Uzbekistan or Slovenia.

2 Despite these positive developments, 2001 was not without conflict in the region. Conflict in the FYR of Macedonia created large numbers of internally displaced persons and households that lost livelihoods due to ethnic violence. The impact of the refugee crisis on food supply and food prices was small due to the timely assistance of the international community.

3 World Bank. 2000. Making Transition Work for Everyone: Poverty and Inequality in Europe and Central Asia (Washington, D.C.: World Bank). The exceptions to this generalization were the Czech Republic, Ukraine and Armenia. No figures were available for the Slovak Republic, Uzbekistan or Slovenia.