For the transition countries in Central and Eastern Europe as a whole, 1997 saw a positive rate of GDP growth for the first time since the beginning of the transition process.For the transition countries in Central and Eastern Europe43 as a whole, 1997 saw a positive rate of GDP growth for the first time since the beginning of the transition process, with a recorded rate of 1.7 percent compared with the -0.1 of 1996.44 In particular, the Russian Federation experienced its first positive rate of economic growth, although at a very modest rate of only 0.4 percent, while all other countries in the Commonwealth of Independent States (CIS) also recorded positive growth. The exceptions were Ukraine and Turkmenistan, where the contraction of the previous years continued, at a decelerating rate in the case of Ukraine, but very sharply in Turkmenistan.
The countries of Central and Eastern Europe and the Baltic transition countries45 expanded economic activity overall by 3.1 percent in 1997 compared with 3.6 percent in 1996 and 5.3 percent in 1995.46 The further deceleration of economic growth concealed uneven trends across countries. Among faster-reforming countries, GDP growth accelerated in Hungary, Poland and Slovenia and slowed down somewhat in Slovakia, while in the Czech Republic economic growth slowed for the second consecutive year, to a mere 1.2 percent. Economic performance continued to improve also in the Baltic republics of Estonia, Latvia and Lithuania, as it did in Croatia. In the other transition countries of southeastern Europe, opposite trends prevailed in economic performance, with a decline of about 7 percent in GDP in Albania, Bulgaria and Romania. In the latter two countries, however, such developments were strongly related to the initial impact of the more comprehensive reform measures finally being undertaken.
Rates of inflation seem to be moving down in many of the transition
countries, with improvements recorded in particular in Poland, Hungary,
the Baltic republics, the Russian Federation, Ukraine and most of the remaining
CIS countries. Inflation on the other hand increased very significantly
in Albania, Bulgaria and Romania and slightly, from an already high rate,
As for agricultural production, for the first time since 1989, FAO’s index of overall crop and livestock production for 1997 indicates a small increase, currently estimated to be 1 percent, in the transition countries as a whole. Behind the overall increase was a major increase of 8 to 9 percent in crop production, with cereal production in particular expanding by as much as 25 percent, while livestock production continued the downward trend that has characterized the entire transition process.
In the CIS countries, agricultural production went up significantly, particularly in Ukraine and somewhat less in the Russian Federation and Kazakhstan, mainly owing to significant increases in cereal production, while livestock production continued to contract. Varying degrees of increase were also recorded in Georgia, the Republic of Moldova, Tajikistan and Turkmenistan, while production declined in the remaining CIS republics. In the Baltic republics, agricultural output was still characterized by a stagnating or moderately declining trend in Estonia and Latvia, but there was a second consecutive year of expansion in Lithuania, largely resulting from a major recovery in cereal production.
In the Central and Eastern European countries, uneven trends also prevailed in agricultural output in 1997. A stagnant, or even slightly declining, net aggregate output was likewise the result of an important upswing in cereal output (by 23 percent in volume terms at the subregional level) and of further declining livestock production (by around 6 percent). Indeed, net agricultural output remained unchanged or declined from the previous year’s level in eight countries, with Poland registering a sizeable reduction of around 11 percent (also owing to adverse weather conditions). Romania, in turn, achieved a considerable increase of 10 percent in its cereal output. Higher cereal production was mainly based on better yields, particularly in Bulgaria and Romania (by 50 and 43 percent, respectively). Livestock herd rebuilding was interrupted and pork production in particular was affected by higher grain prices in 1996 and early 1997.
Diverging developments in real disposable incomes determined sometimes
contrasting shifts in food consumption patterns. Owing to the precarious
macroeconomic situation in southeastern Europe, the share of food in household
expenditure further increased to 54, 59 and 75 percent in Bulgaria, Romania
and Albania, respectively. This provoked food security problems at the
household level for the low-income strata of the population. While in these
countries more starchy products were consumed at the expense of animal
products, the opposite trend could be observed in the fast-reforming countries.
In the latter, the share of livestock products in total food consumption
increased and the share of food in the total expenditure of families declined.
With the privatization of agriculture, land fragmentation is becoming a problem, with agriculture often divided into a commercial and a subsistence sector.A significant positive development of 1997 in Central and Eastern Europe was that comprehensive structural reforms finally embraced the agrifood sector of the entire subregion. Privatization in agriculture was drawing towards its completion in several countries while making major progress in others, including Bulgaria. As a result of this process, land fragmentation has become a problem, with agriculture very often divided into a commercial and a subsistence sector. Key issues for further farm structural development include the speeding up of land registration and land legislation as a prerequisite for developing a leasing and land market, necessary for further structural rationalization. Such measures appear to be of critical importance, particularly in countries that are making efforts to improve their competitiveness and structural maturity in view of future accession to the EU.
Important progress was also made in the privatization of the upstream and downstream sectors in Albania, Bulgaria and Romania. In countries, where privatization was already well advanced in the food-processing and marketing sectors (e.g. in Hungary and Poland), food output patterns became more competitive, featuring a higher share of value-added products. In particular, FDI enhanced the domestic and export competitiveness of processed food items.48
Agrifood trade balances deteriorated in most Central and Eastern European countries in 1997 with the exception of Bulgaria and Hungary. In the latter, in spite of record levels of agrifood exports, their share in total exports declined slightly, as even stronger export performances were recorded by the rest of the domestic economy. Similar trends could be observed in some other countries in the subregion. Overall, however, agrifood exports continued to suffer from their underlying structural weakness, above all the high share of bulky primary products and relatively few value-added products.
Trends towards more strongly integrated agrifood sectors through trade further strengthened in 1997, both within Central and Eastern Europe and between this subregion and the EU. Further adjustments to the association agreements with the EU eliminated some earlier weaknesses. Following the Baltic Free Trade Agreement (which came into effect on 1 January 1997), agrifood trade of the three Baltic countries seemed to enter an expansionary phase already in the first year of its operation. The founding member countries of the Central European Free Trade Agreement (CEFTA ) – the Czech Republic, Hungary, Poland and Slovakia) – were joined by Slovenia in 1996 and by Romania in 1997, with Bulgaria as the next candidate for membership. However, the original objective of free trade in all agricultural products by 1998 had to be postponed to the year 2000. The reasons may be found in the underlying structural conditions, on the one hand, and in conflicting market policies, on the other. Several CEFTA countries are competing within the same subsectors but apply different levels of market support and export subsidization. Further harmonization of market and trade policies in the direction of less subsidization and more liberalization would appear to be necessary for further progress towards free trade in agricultural and food products in the subregion.
In a number of Central and Eastern European countries, agricultural policy discussions intensified in view of further integration with the EU.In a number of countries, agricultural policy discussions intensified in view of further future integration with the EU and with accession negotiations with some Central and Eastern European countries scheduled for an early start. Policy efforts were focusing on the harmonization of agrifood legislation in order to take over the EU’s policies and regulations, including the very significant veterinary and phytosanitary regulations.
In fast-reforming countries, the first export success of some subsectors has drawn attention to the importance of capital inflows, particularly FDI in the agrifood sector.Owing to very low investment activities during the last phase of the period of central planning, the agrifood sector of Central and Eastern Europe entered the new era with rather obsolete production and processing technology. On the other hand, after about eight years of restructuring and privatization in the fast-reforming countries, the first export success of some subsectors has now drawn attention to the importance of capital inflows in general, and FDI in the agrifood sector in particular.
Annual net capital flows into the Central and Eastern European and Baltic countries grew tenfold between 1992 and 1997 to $23.7 billion with an improving composition, both in terms of geographic distribution and types of capital inflow, since 1995. Alongside the fast-reforming countries, the new thrust in economic reforms has now stimulated more substantial net capital flows also towards Bulgaria, Romania, Slovenia and the Baltic states. As a further positive development, the share of FDI was increasing in the total from around 40 to 46 percent between 1994 and 1996.
Up to 1997, the share of the agrifood sector in total FDI ranged from about 8 percent in the Czech Republic to about 25 percent in Bulgaria. The corresponding shares for Poland, Lithuania and Romania were around 14, 16 and 17 percent, respectively. The bulk of FDI has been directed to the processing industries as well as to the marketing sector. On the other hand, restrictive legislation concerning foreign investments in agriculture has so far impeded FDI access to primary agriculture.
Concerning the geographic distribution of agrifood FDI, there are still large discrepancies between countries of the subregion, with Poland and Hungary occupying a leading position and Romania catching up recently. Notably, in Bulgaria the agrifood sector has so far been the main recipient of FDI. These differences are clearly a consequence of both the timing and firmness of market-oriented economic reforms in those countries as well as of the investment climate created for foreign investors. Early timing of reforms may indeed have been a decisive factor for obtaining foreign investment in the agrifood sector of Central and Eastern European countries, while at the same time some countries (e.g. Bulgaria, Hungary, Croatia and Poland) have offered a series of incentives to foreign investors, such as temporary tax exemptions, import tariff reductions and duty-free customs zones.
Still, the main incentive for foreign agrifood companies to invest may be found elsewhere. Indeed, available experience seems to indicate that foreign companies have been interested mainly by the prospect of capturing the domestic Central and Eastern European markets in view of their future expansion resulting from the expected medium-term economic recovery. So far, foreign investors have favoured subsectors with better prospects for increasing value-added production and that had not been adequately developed before. Thus, up to 1996, above all the subsectors of sugar and confectionery, milk and dairy products, beverages and vegetable oils as well as some others (e.g. tobacco industries) received the highest FDI inflows. In several cases, such as Hungary and Poland, processing companies are specializing in the domestic market with their new products.
Another main factor in attracting FDI is obviously the presence of a relatively well-qualified and low-cost labour force. Labour-intensive subsectors can thus be advantageously developed or established. For investors, these conditions also combine well with the prospect for several countries of future EU membership and their resulting access to the large EU market.
The main direct contribution of FDI in the agrifood sector has been to improve food processing and marketing, which is the overriding challenge in Central and Eastern Europe.The impact of FDI on the subsectors that have benefited from it has been significant. The main direct contribution of FDI in the agrifood sector has been above all to achieve qualitative improvements in food processing and marketing (allowing the output of more value-added products), which was indeed, and remains, the main challenge in the Central and Eastern European countries. Also, foreign investors have been essential in circumventing the problem of domestic capital shortage, while in the export-oriented sector they have helped to create export capacities and facilitated market access.
However, by establishing new quality standards in food supply, Central and Eastern European food industries have also provided new demand impulses to primary agriculture. In several cases, processors have established new vertical structures, both through buying in or by contractual ties. The impact exercised on quality and management aspects of agricultural operations has been considerable, and FDI has thus acted to further structural change in agriculture with a view to responding to actual market demand. In numerous cases, foreign investors have also transferred production expertise, thereby ensuring the introduction of improved techniques in raw material production that would otherwise not be accessible to producers.
In contrast to the positive effects on processing and, indirectly, on primary agriculture in sectors that have been the target of FDI, food-processing subsectors not benefiting from FDI have continued to struggle with technological obsoleteness, scarce finances and marketing difficulties, which has had a depressing impact on their agricultural supply base.
Productivity improvements induced by FDI have, however, led to job losses both within the companies subject to new investment efforts and in other weaker competitors.In spite of the obvious positive effect of FDI in terms of restructuring and development of the agrifood sector, there has been some concern about the short-term social impact in some countries. The direct and indirect productivity improvements induced by FDI have led to job losses both within the companies subject to new investment efforts and in other weaker competing ones. Also, owing to imperfect institutional arrangements and still imperfect competition, some investors have acquired quasi monopoly positions in some processing subsectors in some transition economies. More recently, such concerns have induced a more cautious policy approach both in privatization practices (e.g. voucher privatization, preferential shares) and in foreign investment policies (the imposition of some restrictions and conditions on FDI in agrifood) in some countries. Such measures, however, do not seem to have contributed to a sustainable solution to the main pressing issues of the agrifood sector as a whole, including the lack of capital, obsolete processing technology and difficult access to export markets.
With the advancing transition process, the structural weaknesses were soon aggravated by further stress factors such as declining agricultural incomes, growing rural unemployment and the discontinuation of social services by large-scale farms. In 1996, rural unemployment (affecting above all unskilled labour) ranged from 13 percent in Hungary to 50 percent in Bulgaria. In addition, the rural sector also had to absorb a part of the backflow of unemployed from urban and industrial areas in Albania, Bulgaria, Hungary, Poland and Romania. The situation has given rise to widespread subsistence farming and to an expanding informal economy. The new rural stress factors appeared first in the fast-reforming countries but quickly emerged also in other countries implementing structural reforms. The productivity gap between the agricultural sectors in Central and Eastern Europe and the EU suggests that further reductions in the agricultural labour force will occur in the coming years.
In some Central and Eastern European countries, this situation has brought increased awareness of the need to address the growing economic, social and environmental problems of rural areas with a more coherent package of measures. Nevertheless, the actual policy response to these issues has differed throughout the subregion, but in most countries, the (agricultural) sectoral approach has continued to dominate policy-thinking, implying that financial support for rural areas was still mainly concentrated on agricultural production while support to alternative income-producing activities was non-existent or negligible. There was little recognition of the fact that the complex problems of rural regions required a full-fledged policy approach addressing all important socio-economic, environmental and cultural aspects of regional and local development.
Available statistics on rural structures of Central and Eastern European countries already point to the need for such an integrated approach to rural development. Data from different years between 1990 and 1994 for the Czech Republic, Hungary, Slovenia and Slovakia show that, even in regions where the larger share of the population was living in rural communities (i.e. with fewer than 2 000 inhabitants), agriculture only provided employment for less than one-quarter of the active population. In Poland, the corresponding share was less than one-half in 1993.
There is an urgent need to steer away from a purely agricultural approach towards integrated development policies aimed at the entire rural economy and population.In the fast-reforming countries, the rapid downsizing of agriculture in terms of its GDP share and, above all, in total employment urgently calls for a reorientation of development policies away from a sheer agricultural approach towards integrated rural development policies aiming at the rest of the rural economy and population as well. The strong political influence of agricultural production lobbies in some countries supporting the partial interests of restructured large-scale farms did not seem to be helpful in this respect. On the other hand, important lessons from the experience of Western European countries clearly point to the undesired negative consequences of relying exclusively on a narrowly based “traditional” agricultural policy: high costs for taxpayers and consumers, one-sided support effects benefiting areas with the largest farms, overproduction, market distortions and environmental damage. By the mid-1990s, such consequences had already become apparent in some Central and Eastern European countries too.
In some fast-reforming countries, a distinction between rural policies and more narrow agricultural policies was slowly emerging in policy discussions and policy concepts by the mid-1990s (e.g. the programme for a “coherent rural development and renewal of villages” in Slovenia). In some countries (Poland and Slovakia) new central institutions were established for the coordination of rural development. However, in most cases a centralist “top down” approach still dominates, with a deficit in local participation and a lack of cooperating horizontal and vertical partnership linkages (rare exceptions include Slovenia). Reasons for this include inertia in the earlier practice for policy delivery and fund distribution and the relatively low level of economic development resulting in scarcity of local funds. Another major reason was the weakness of democratic and participatory institutions and the lack of entrepreneurship and creative skills at the local level.
In southeastern Europe, the need for adequate rural development policies is becoming especially urgent in the light of a particular situation that is emerging: owing to a rapid decline in industrial output, which is exceeding reductions in agricultural production, agriculture’s share in aggregate GDP and in total employment increased between 1989 and 1995. For the share of GDP, the percentage changes were from 32 to 55 in Albania and from 14 to 22 in Romania, while there was no change from the 11 percent recorded fomerly in Bulgaria. Relying on the new fragmented structure of landownership, agriculture’s buffer role seemed to be very marked: the percentage share of the sector in total employment shot up from 49 to 53 in Albania, from 18 to 22 in Bulgaria and from 28 to 36 in Romania. This should not, however, be interpreted as a sign of growing strength of the sector, but rather as the medium-term impact of a sluggish reform process involving these countries’ whole economies before 1995/96. The importance of designing integrated rural development policies in southeastern European countries cannot be overemphasized, since the magnitude of the labour force shifts that will occur from future adjustments in agrarian structures is expected to be even greater than in the fast-reforming countries.
The ongoing policy discussions with regard to appropriate rural development strategies in the reforming countries has shown that the specific situation of each of them requires specific policy approaches. Nevertheless, some basic prerequisites for a successful strategy in all Central and Eastern European countries are:
• the collection of basic information (statistical and other) about rural structures to ensure a correct understanding of the complex socio-economic, cultural and ecological problems involved;
• the development of specific strategies and programmes for individual regions;
• the establishment of a flexible form of institutional cooperation (including horizontal and vertical linkages) reflecting the multidisciplinary character of rural problems;
• efforts to achieve a high level of participation by local populations
and rural actors who should interact in partnership from the beginning
of the policy development process.
Overall, the Polish economy has made remarkable progress in the eight years since the beginning of the transition period. GDP growth in the last three years has been about 6 to 7 percent per annum, inflation dropped from triple-digit figures in 1990 to about 15 percent in 1997 and, overall, living standards have improved markedly.
In Poland, many people look forward to EU accession as a means to improve farmers’ incomes and to bring in funds for infrastructure improvements.Poland is among the five Central European countries designated as the first to accede to the EU. Consequently, domestic and trade policies are increasingly driven by the need to align with EU policies. Many Poles look forward to EU accession as a means to improve farmers’ incomes and to bring in funds for infrastructure improvements. However, the agricultural sector faces major challenges in meeting EU quality standards and there are also worries about increased competition from EU products.
The most important crop in Poland is wheat, followed by rye and rapeseed. Approximately 8 million to 9 million tonnes of wheat and 5 million to 6 million tonnes of rye are produced each year. The principal livestock product is pork, which accounts for 70 percent of the 2 million to 3 million tonnes of meat produced each year. Other important commodities include potatoes, vegetables and fruits, poultry and eggs, milk, cattle and sugarbeet. Principal exports are rapeseed, live cattle, processed meat, fruits and vegetables. The main imports are grains, meat, protein meal and cotton.
At least half of Poland’s farms produce mainly for self-consumption and many landowners are reluctant to sell because of a lack of alternative employment.Even during the period of central planning, Polish agriculture was dominated by more than 2 million private farms, averaging 5 ha in size. The private sector farmed about 80 percent of the agricultural land and produced almost the same percentage share of output. The process of consolidation since 1989 has been quite slow – the average farm size has increased to 8 ha. There is a growing class of commercially viable farms, but at least half the country’s farms still produce mainly for self-consumption. Land sales are legal but many landowners are reluctant to sell because of a lack of alternative employment.
Poland is a net agricultural importer, with agricultural products
accounting for approximately 11 percent of total imports and 10 percent
of total exports. The EU accounts for approximately 65 percent of Polish
trade of agricultural and food products, while the independent states of
the former Soviet Union account for about 19 percent of Polish trade, and
Hungary, the Czech Republic and Slovakia account for about a further 3
Average grain yields for the period 1991-95 were 10 percent below
the 1986-90 average. The low yields are in part the result of a declining
use of fertilizers and other chemicals, but Poland also suffered some extreme
weather conditions, with droughts in 1992 and 1994 and flooding in the
summer of 1997. However, despite the fall in real producer prices, area
planted to cereals changed very little.
Other principal crops grown in Poland include sugarbeet, potatoes and rapeseed. Of these, sugarbeet production has been on the rise in recent years, with production in 1997 estimated to be 16 million tonnes, up from 12 million in 1994. Production of potato, which continues to be a staple in the Polish diet and an important source of pig feed, is estimated to be 21 million tonnes in 1997. The output of rapeseed, the only major oilseed produced in Poland, has been quite variable since the beginning of the transition. During the second half of the 1980s, output averaged 1.3 million tonnes per year. From 1991 to 1997, output has fluctuated from a low of 450 000 tonnes to a high of 1.4 million tonnes, while area has fluctuated widely in response to changes in relative prices, and yields have been even more variable. With a lower use of inputs, rapeseed has been very vulnerable to extreme weather conditions. Half of the 1997 crop was lost, for example, as a result of winterkill.
As in all the transition economies, inventories of cattle and poultry plummeted immediately after the beginning of the transition. Producers were hit hard by a sudden deterioration in their terms of trade; prices of inputs rose to world market levels, while real output prices fell as a result of plummeting demand. Between 1990 and 1993, both cattle and poultry numbers declined by 24 percent. In contrast, there was not such a clear downward trend in the Polish pig sector; instead the sector has settled into a clearly defined pig cycle, responding rapidly to fluctuations in world grain prices. There is potential for long-term expansion but it is not yet clear by how much.
Poultry production is definitely on the road to recovery, and meat output per bird has risen significantly in the last two years. The sector has been able to respond rapidly to increased consumer demand. In part, this has been due to the shorter production cycle, which makes it easier to increase the numbers rapidly. Another reason is that, even before the beginning of the transition, procedures for contracts between poultry processors and private producers were well established, whereby processors would provide baby chicks and feed to producers and take delivery of the finished birds at a price established in advance.
Cattle numbers declined until 1996. Herds are still mainly dual-purpose dairy and beef, and the numbers are mainly influenced by developments in the dairy market. Cattle are also more difficult to raise on small farms.
While the agricultural production sector has been stagnant, there has been strong growth in the food-processing industry.While the agricultural production sector has been stagnant, there has been strong growth in the food-processing industry. Overall, output from the food-processing industry rose by 11 percent in 1997 and total growth between 1992 and 1997 was 65 percent. Meat and poultry processing, alcoholic beverage production and sugar and confectionery processing are growing particularly rapidly, and growth is expected to remain strong, fuelled to a large extent by foreign investment.
Curiously, meat consumption did not fall in the early years of
the transition, although it did in later years. There has been a steady
decrease in beef consumption and an accompanying rise in poultry consumption,
signifying a clear substitution of poultry meat, which is cheaper. Pork
consumption has fluctuated considerably in the transition period. Pork
is by far the preferred meat, but its prices have fluctuated more than
prices of other meats owing to the widely oscillating pig cycle.
After free prices and low border protection in the initial years of the transition, in 1992 guaranteed minimum prices were introduced for wheat, rye and dairy products, and border tariffs were raised for agricultural products.The principal government agency in charge of market intervention is the Agency for Agricultural Markets (AMA), which was established in the spring of 1990 with the mission to stabilize prices. Its primary function at that time was to stabilize commodity markets through intervention purchasing – buying up stocks when prices were falling and releasing them back on to the market when supplies were tight. Its role expanded in 1992 when it was given authority to set guaranteed minimum prices for wheat, rye and dairy products, which it supported through intervention purchasing. Since 1992 its role has expanded still further, and it is now involved in the management of the strategic reserve and providing preferential credit to grain producers and warehouses.
Currently, the AMA intervenes in grain markets in the following ways:
• Direct intervention purchasing, using funds provided by the state budget.
• Procurement through a network of authorized warehouses. The warehouse agrees to purchase wheat at the intervention price and, in return, the AMA provides guarantees for preferential credit to the warehouses. At the end of a three-month period, the AMA will purchase the grain at the intervention price plus storage, interest and handling.
• Advance payment to selected producers. Wheat producers who are willing to store wheat can receive an advance payment of 45 percent of the intervention price. Producers are obliged to leave their cereals in storage for three months. At the end of that period, they can either repay the advance plus interest in cash or forfeit 45 percent of the stored cereals to the agency and take back the remaining 55 percent, which they can either use on-farm or sell on the open market.
The role of the AMA in the Polish cereal market varies from year to year. In the 1997/98 marketing year, its role was quite significant. Total intervention purchases of cereals were 1.1 million tonnes, of which 836 000 tonnes were wheat. The AMA has been under considerable pressure this year because of falling world cereal prices and the generally poor quality of the 1997 crop, which led the agency to lower the quality standards usually imposed for intervention purchasing. Because of the continued softness of the market, the AMA will be forced to take possession of a large portion of the cereals placed in storage, and it therefore anticipates considerable difficulty in clearing out its stocks before the next harvest.
The AMA also sets and administers minimum prices for dairy products, carries out intervention purchasing of pork and sugar, and is periodically engaged in the import and export of these commodities – some exports of which have been subsidized. It does not directly engage in trade, but contracts with commercial companies to carry out the transactions on its behalf. In the early years of its existence, the AMA’s share in foreign trade of certain commodities was quite substantial; in recent years its share in foreign trade has been lower but it still has the authority to carry out foreign trade directly.
Intervention in the sugar market takes a different form. Under
the 1994 Sugar Industry Act, the Council of Ministers sets separate quotas
– quota A for domestic consumption, and quota B for subsidized exports
– and distributes these among the 76 processing plants in Poland. A minimum
wholesale price is established for sugar produced within these quotas.
The AMA carries out intervention purchasing when necessary to support this
price and also provides advance payments and credit guarantees to the processors
to assist them in procuring beet from producers.
Most input subsidies were eliminated in 1989 and their prices very quickly rose to world levels while real output prices fell.The period of central planning was characterized by an extensive array of input subsidies. However, most were eliminated in 1989 and, as a result, input prices very quickly rose to world levels while real output prices fell. In response to pressure from producers, the Agency for Restructuring and Modernizing Agriculture was created in 1992 to reduce input costs for farmers by granting credits at preferential interest rates. The agency seeks to encourage larger producers by limiting its assistance to those who can achieve certain minimum levels of production.
The Polish food-processing industry is now more than 90 percent privatized.The Polish food-processing industry, once dominated by state enterprises, is now more than 90 percent privatized. Thousands of small and medium-sized companies have emerged as a result. However, privatization is lagging in meat processing, which is only 60 percent privatized, and sugar plants, which are still mainly state-owned. Nevertheless, in spite of progress made in privatization, many food-processing enterprises still suffer from outdated technology, insufficient sanitation, high energy and labour costs and poor marketing and managerial skills.
Rural job creation programmes will be a priority use of EU structural funds when they become available.In this regard, agriculture is seen as one of the more problematic areas. Much of Poland’s agricultural and food output at present does not meet EU quality standards, and considerable investment will be needed to improve the situation. Moreover, in a single market, Polish products will have to compete on an equal basis with EU products in both the domestic and foreign markets, and recently Poland has suffered large deficits in its agricultural trade with EU countries. There are fears that a large number of Polish producers will not be able to compete.
A major obstacle to increasing the competitiveness of Polish agriculture is its fragmented farm structure and shortage of capital. There are around 2 million farms in Poland, the average size is now about 8 ha, up from 6 ha in 1990. The sector employs 27 percent of the country’s labour force but accounts for only 7.6 percent of GDP. Of the 2 million producers in Poland, only about 600 000 to 700 000 can be considered commercial producers and only these producers will be able to survive in a single market. Rural job creation programmes will thus be a priority for use of EU structural funds when they become available.
Accordingly, much of Poland’s support to its producers is designed to encourage the development of larger units that will be able to produce according to EU standards. The AMA cereal storage loans mentioned above are only available to those producers who can deliver minimum quantities, for instance. Support to livestock producers is also aimed at more commercially oriented producers. For example, the AMA carries out intervention purchasing of pigs, but plants authorized to purchase on behalf of the AMA must be licensed to export and must meet EU standards. Furthermore, all carcasses that are purchased must meet the top three grades within the EU grading system. Various other measures are being taken to induce producers to grow leaner pigs.
The biggest challenge is in the dairy sector, where quality is a more serious problem. On 1 January 1998, the government passed legislation that is compatible with EU regulations governing sanitary standards in the dairy industry.
Several contentious issues lie ahead in the negotiations. EU officials have taken the position that producers in Poland and other acceding countries should not be eligible for the compensatory payments that are now paid to EU farmers. Such a stand is based on the argument that these payments were intended to compensate producers for the loss of support resulting from recent reform of the Common Agricultural Policy (CAP) and that producers in new member countries should not be compensated for losses they never suffered. Central and Eastern European negotiators, on the other hand, argue that their producers should receive exactly the same support as current EU producers.
The costs and benefits of EU membership for Poland’s agriculture depend strongly on the future evolution of the CAP, some reform of which is inevitable.Studies have been conducted, both in and outside Poland, in an attempt to estimate the costs and benefits of EU accession on Polish agriculture. Analyses by the Polish Ministry of Agriculture project increases in income for producers of grain, milk and beef, but income declines for poultry and rapeseed producers, and no change for pork. However, other experts disagree, particularly with the pessimistic forecast for poultry. But the outcome depends strongly on the future evolution of the CAP. The unanimous opinion is that an enlarged EU will not be able to afford continuing support at current levels. Thus, some reform of the CAP is inevitable, but the exact form of the future CAP is not known at this stage.
On the other hand, there has been little analysis of the welfare
implications for consumers. Food prices will certainly rise; however, these
rises could be offset by increases in income. The multiplier effect of
the structural funds could be significant, yet there are fears that these
benefits will be unevenly distributed. There are already significant income
disparities between eastern and western Poland – unemployment in the eastern
regions is currently as high as 20 percent, and producers in these regions
will find it much more difficult to compete in an enlarged EU.
The economic transformation process has been somewhat smoother
for Hungary than for most of the other Central and Eastern European countries,
but its economic recovery began later and has been less strong than in
the case of Poland. As there had been some liberalization of prices before
1989, Hungary did not experience the huge jump in prices that occurred
in many countries and it also managed to avoid the dramatic changes in
farm structures that occurred in Bulgaria and Romania.
Although land has been privatized, most continues to be farmed by corporate or restructured cooperative farms and economies of scale have thus been preserved.
Although it slowed down considerably in 1995 and 1996, GDP growth in Hungary again accelerated in 1997. After an acceleration of inflation in 1994, Hungary introduced a stabilization programme in 1995 that was designed to tighten up the money supply. As a result, GDP grew by only 1.5 percent in 1995 and 1.3 percent in 1996, but bounced back to 4 percent in 1997. Real wages fell by 11 percent in 1995 and 5 percent in 1996, but also began to improve in 1997.
Hungary has retained its position as a net agricultural exporter and exports significant amounts of grain and livestock products. It managed more successfully than its neighbours to reorient its trade from the newly independent states to the West, with government intervention and export subsidies playing a major role.
Hungary is among the first five countries expected to join the
EU. In general, its agriculture will probably have an easier task adjusting
to EU standards than most. However, some experts are concerned that the
livestock sector, particularly pork, will have difficulty in competing
in an enlarged EU.
Between 1989 and 1995, overall agricultural output declined by about 32 percent, with most of that decline taking place in 1992 and 1993, but has since staged a partial recovery, with production having risen by 13 percent in 1996 to a level that was maintained in 1997. As prices of inputs rose to world levels, their use declined drastically and, as a result, average 1991-95 cereal yields dropped by 19 percent relative to the previous five-year period. Total cereal areas changed very little and total output fell by 20 percent.
At 14.2 million tonnes, in 1997 cereal production returned to the level of the late 1980s. However, this bumper crop came as a mixed blessing. Owing to wet weather during the harvest, the quality of the wheat crop was low and demand for it has therefore been quite low also. Maize was of a better quality, but Hungary had difficulty disposing of its surplus because of a saturated world market.
As was the case elsewhere in Eastern Europe, Hungary’s livestock sector declined drastically in the early years of the transition. Inventories of all species declined by 40 to 50 percent between 1990 and 1995. Pig numbers have begun picking up in 1996 and 1997. Within the poultry sector, chicken numbers have been flat but there has been an increase in turkeys.
Even with lower production, Hungary has maintained its position as a net agricultural exporter, since domestic demand fell at least as much as production. The largest exports in terms of value are livestock products, mainly pork and poultry. Hungary also exports live pigs and cattle and other exports include grains, fruits, vegetables and sunflowerseed. The largest category of agricultural imports is protein meal.
Hungary has managed almost completely to reorient its trade towards
the West. It has, however, not given up completely its former Soviet Union
markets. Currently 70 percent of Hungary’s overall foreign trade is with
countries of the Organisation for Economic Cooperation and Development
(OECD); 60 percent is with the EU. Before 1990, 60 percent of Hungary’s
trade was with the Council for Mutual Economic Assistance (CMEA). There
has been a particularly marked increase in meat and live animal exports
to the EU. With the help of foreign investment and government support,
entire subsectors, such as those of beef cattle and turkey, have developed
specifically for export.
The main instrument used to support prices is export subsidies, which are also administered by the Intervention Centre. The budget for export subsidies has been declining each year in compliance with WTO commitments: the total budget allocated for 1998 is 20 billion forints, for instance, whereas in 1995 export subsidies still totalled 50 billion forints. Since January 1997, these subsidies have been set on a per kilogram basis rather than, as previously, as a percentage of value. A total of 170 products are eligible for export subsidies, including live sheep and cattle, most kinds of meat, various types of processed meats and certain fruits and vegetables, both fresh and processed. Exporters who apply for export subsidies must demonstrate that they have paid the minimum price for the product. Certain products are also subject to export licensing, which is not always automatic. Products subject to export licensing include barley, sugarbeet, milling wheat, feed maize and goose liver. The system is expected to be abolished soon for barley and sugarbeet, but will continue for wheat and maize. Minimum prices must be established before the planting season. Quotas for export subsidies and licences are set at various times in the year and are based on projections of supply and demand.
Other types of market support are also provided. Cereal farmers can choose to store part of their production in a warehouse within the Public Warehouse System. They can receive a loan of 70 percent of the value of the cereal at a reduced interest rate and must leave the grain in storage for three to four months. At the end of that period, if the market is favourable, they can buy back the grain and pay the storage and interest, or they may leave the grain and receive the full price. But the minimum quantity that can be placed in storage under this programme is 500 tonnes. So far there is no system for pooling smaller quantities, so small producers do not benefit from this programme.
For livestock producers, the government introduced a system of target prices in July 1997. If the market price falls below this target by more than 6 forints per kg, a premium ranging from 4 to 12 forints is paid to the producers; if the price rises above the target by more than 6 forints, a premium is paid to the processor. But this support only applies for pigs slaughtered at plants applying EU standards and that meet the top three grades of the EU classification system. In addition, any Hungarian producer who trades in an ordinary sow for a pedigree can receive a subsidy of 30 percent of the value of the new sow. But the producer must be a member of the Breeders’ Association and must use boars or semen provided by this association. This subsidy is not attractive for small producers because these high-quality animals must be raised in good conditions, which entails higher production costs.
Additional measures of market support are introduced on an ad
hoc basis in response to developments in the market. Recently, for example,
following producer concerns over falling cereal and pig prices, the government
introduced additional subsidies for these products. These include a 30
forint per kg export subsidy for live pigs, a temporary increase in the
subsidies paid under the target price system described above and a special
subsidy for producers who sell wheat to feed mills and livestock farms.
Former owners who retained titles were able to get their land back directly, unless it was no longer available as agricultural land, in which case they could receive a comparable parcel. However, the Hungarian Government chose not to return land to those who lost title. Instead these former owners, along with cooperative members and employees who had never owned land, received compensation vouchers with which they could purchase land or other assets of state enterprises. The state and cooperative farms were required to set aside a certain portion of their land to make available through auction to those holding vouchers.
State farms and other state enterprises were converted to shareholding companies, and their shares were offered for sale. Cooperative farms had to restructure either into a shareholding company or into a true cooperative in which members had the right to elect the management and to withdraw their assets at any time.
The agricultural and food sector of Hungary is now nearly 100 percent privatized. The former cooperatives have been restructured in a variety of ways. Some are still cooperatives but are generally smaller than before 1990, as they have sold or liquidated unprofitable lines of production. Others have become shareholding companies; in many of these cases, the majority of shares are held by the managers of the former cooperatives.
Hungary’s land restitution process resulted in the development of both very small and very large farms with very few medium-sized units.Hungary’s land restitution process resulted in the development of both very small and very large farms with very few medium-sized units, a situation that has changed little since 1992. Production is divided almost evenly between large-scale corporate and cooperative farms and small private plots. The average plot of land acquired through the auctions was just 3.5 ha, and most new owners simply decided to lease their land back to the cooperatives. But 47 percent of arable land is operated by individual private producers and 29 percent by what the Central Statistical Office lists as “small” producers. In 1996, 56 percent of pigs and 67 percent of poultry were on such farms. In the same year, they produced 53 percent of total cereals, including 38 percent of wheat and 63 percent of maize, and they accounted for more than 80 percent of fruits and vegetables. Very little of this output enters the market, however, and what does, is sold locally in the peasant markets.
Consolidation of these farms is hampered by the continued lack
of a functioning land market. Under current Hungarian law, only individuals
may purchase land; commercial companies and cooperatives may only lease
land. Furthermore, an individual whose property is in the middle of a tract
of land farmed by a cooperative effectively has no choice of how to dispose
of the land but to lease it to the cooperative. The situation is even more
difficult because a number of landowners still do not have a permanent
Foreign investment has played a critical role in the development of Hungary’s food-processing sector with 30 percent of overall agribusiness in foreign ownership.The food-processing sector is entirely privatized. This has been achieved through both the sale of shares in the former state-owned companies and the startup of new companies. Foreign investment has played a critical role in the development of Hungary’s food-processing sector. Overall, the share of foreign ownership in Hungarian agribusiness is 30 percent, and it is more than 50 percent in the food and beverage industry. Some sectors of Hungary’s food-processing industry, such as vegetable oil and tobacco production, are 100 percent foreign-owned. The share of foreign ownership is nearly as high in other sectors: turkey production is 90 percent foreign-owned and meat processing is about 50 percent foreign-owned.
Privatization of the food industry, however, does not necessarily
translate into higher incomes for producers. There is concern on the part
of producers that, in some sectors, the state monopoly has simply been
replaced by a private monopoly. For example the entire vegetable oil industry
is controlled by a single firm, while poultry processing is dominated by
two large firms which control 90 percent of the market.
On the other hand, there are doubts about the livestock sector, particularly pig production. Hungary subsidizes both pork and poultry more than does the EU, which does not subsidize pork at all. The producer price for pork is currently higher in Hungary than in the EU, and it appears that Hungarian production costs are higher. Hungarian pork production lags behind EU production according to all technological indicators: mortality is higher, births per sow are lower and feed consumption per unit of liveweight gain is as much as 1 to 1.3 kg higher than in the EU. Most feed has an inadequate protein content, while protein meal must be imported and high transport costs raise the price.
Ministry experts believe that it is essential to improve these
indicators before accession to the EU, since Hungary will have to face
lower EU livestock prices. But the real question is whether Hungary’s comparative
advantage is in livestock production. It could be that Hungary’s true comparative
advantage lies rather in cereals and that it could well emerge as an important
supplier of the enlarged EU.
2 Excluding Egypt and the Libyan Arab Jamahiriya, which are not included in the IMF regional aggregate.
3 The remaining part of the section focuses on the African countries south of the Sahara, as the North African countries are discussed in more depth in the context of the regional review of the Near East and North Africa.
4 Union Economique et Monétaire Ouest-Africaine.
5 No estimates of GDP growth are provided for Liberia, Sierra Leone and Somalia.
6 Excluding South Africa.
7 For a discussion, see J.-P. Faguet. Decentralization and local government performance. Paper presented at the Technical Consultation on Decentralization, 16-18 December 1997, FAO, Rome.
8 D. Maxwell. 1994. The household logic of urban farming in Kampala. In IDRC, ed. Cities feeding people. Ottawa, Canada, IDRC.
9 The economic growth rates and projections in this section are based on AsDB. 1998. Asian Development Outlook. Manila.
10 Excluding the Democratic People’s Republic of Korea, for which an index of total agricultural production is not available.
11 Government of Malaysia, Economic Planning Unit. 1996. Seventh Malaysia Plan, 1996-2000. Kuala Lumpur, Percetakan Nasional Malaysia Berhad.
12 Per caput GDP for 1997 is estimated from a 1995 base GDP of $M 202.5 million at current prices using a 1996 growth rate of 8 percent and a 1997 growth rate of 7 percent (see Government of Malaysia, op. cit., note 11). The US dollar value of GDP per caput assumes an average annual exchange rate of $M 2.62.
13 World Bank. 1995. Social indicators of development. Washington, DC.
14 Government of Malaysia, Economic Planning Unit. 1971. Second Malaysia Plan, 1971-1975. Kuala Lumpur, Government Press.
15 Emerging market indicators. In The Economist, 18 April 1998.
16 Government of Malaysia, op. cit., note 11.
17 P. Waldman. 1998. Malaysia labors to handle crisis as foreign workers lose their jobs. Asian Wall Street Journal, 12 January, p.1.
18 Coconut and pepper are also included in Malaysia’s perennial crops but neither has much influence on Malaysia’s current agricultural development.
19 Malaysian Cocoa Board. 1997. Malaysian Cocoa Monitor, June, 6(1).
20 Bank Negara Malaysia. 1995. Annual Report. Kuala Lumpur, Percetakan Nasional Malaysia Berhad.
21 Government of Malaysia, Department of Statistics. 1995. Report on Household Expenditure Survey 1993/94. Kuala Lumpur, Percetakan Nasional Malaysia Berhad.
22 Unless otherwise specified, economic estimates and forecasts in this section are from the Economic Commission for Latin America and the Caribbean (ECLAC).
23 See FAO. 1994. New institutional arrangements for agricultural and rural development in the region; and FAO. 1993. Municipalidad rural, participación popular e instituciones en servicios de apoyo a pequeños agricultores en Latinoamérica. Rome.
24 P. Timmer. 1996. Food security strategies: the Asian experience. In IICA/Government of Costa Rica/FAO. Food policies within the context of Central America.
25 Excluding Afghanistan. Unless otherwise stated, all macroeconomic data in the present section are drawn from IMF. op. cit., note 1.
26 May 1995, United States President’s order prohibiting companies from trading with Iran; and August 1996, the D’Amato law imposing sanctions on non-United States companies investing in the Iranian hydrocarbons industry.
27 Central Bank data. Economist Intelligence Unit estimates state 3.6 percent.
28 1 750 Iranian rials (IR) per $1 for oil export receipts and imports of essential goods and services, debt-service payments and strategic imports for large projects; and IR 3 000 per $1 for non-oil export and service receipt and import payments other than in specified priority areas; the free “bazaar” currency market is tolerated, where the rial has fluctuated between IR 5 000 and 7 000 per $1 over the last two years.
29 Protein supply in the diet was 68 g and increased to 85.6 g over the 1987-1995 period – an annual growth rate of 6 percent. In 1995, the diet was estimated to be made up of 72 percent carbohydrates, 17.6 percent fat and 10.4 percent protein, while the desirable composition is 55 to 75 percent carbohydrates, 15 to 30 percent fat and 15 to 20 percent proteins. There is therefore a need to have the balance evolve towards about 10 percent fewer carbohydrates and about 10 percent more fats and proteins.
30 7.5 million ha of cultivated area plus 1.3 million ha of fallow land are classified as irrigated area.
31 Of the average 14 600 m3 consumed per irrigated hectare, only 4 600 m3 are effectively used by the cultivated crops.
32 Severe drought during 1996/97 affected production and required extraordinary imports of food. Only 10 million tonnes of wheat were produced in 1997 instead of the planned 12 million. In order to satisfy domestic requirements, the 1998/99 budget has allocated $2 billion for importing wheat (5 million tonnes), edible oils (800 000 tonnes), rice (800 000 tonnes), sugar (560 000 tonnes) and red meat.
33 During the First Plan, rice production increased at an annual rate of 4.6 percent, and oilseed production at a rate of 17.5 percent. In ten years, potato production has doubled.
34 These figures exclude producer subsidies on tractor services, credit and water under certain irrigation schemes as well as specific consumer subsidies handled by individual institutions for their staffs. Subsidies on oil and energy are also excluded.
35 The price of petrol for Iranian consumers is only 4 US cents per litre, and electricity is also strongly subsidized. About one-third of Iran’s oil production – more than 1 billion barrels per day – is consumed domestically.
36 Paragraph M of Note 19 to the Second Economic, Social and Cultural Development Plan Act.
37 In 1997 there were 5.8 trillion rials of food subsidies out of a budget of 315 trillion rials (source: World Food Summit follow-up, Iran’s report, 1998).
38 The average national production cost in the same period was 257 rials per kg for irrigated wheat and 309 rials per kg for rainfed wheat.
39 IMF data.
40 The subsidies regarding pesticides were definitely cut some years ago for environmental reasons, and those regarding fertilizers were reduced by half.
41 Articles A and B of the Agrarian Law.
42 602 000 ha of cultivable, state and pasturelands for 100 000 peasant families, and another 630 000 ha of temporary cultivated lands for 130 000 households.
43 For the purposes of this overview, the Central and Eastern European Countries include: Albania, Bosnia and Herzegovina, Bulgaria, the Czech Republic, Croatia, Hungary, Poland, Romania, Slovakia, Slovenia, The Former Yugoslav Republic of Macedonia and Yugoslavia.
44 All macroeconomic data in the present section are drawn from IMF. op.cit., note 1.
45 Estonia, Latvia and Lithuania.
46 These GDP aggregates from IMF include the Baltic Republics and the Republic of Moldova but exclude Bosnia and Herzegovina and Yugoslavia.
47 The focus in the remaining part of the overview is on the countries of Central and Eastern Europe. Agricultural reforms and issues in the Russian Federation were discussed in The State of Food and Agriculture 1997.
48 The role of FDI in developing the agrifood
sectors of the Central and Eastern European countries is discussed in more
detail in the next section