The agricultural sector The politics of agricultural policy

 

The agricultural sector 

 

1- Share of the economy

Agriculture is an important sector in the Romanian economy, contributing between 7 and 10% of GDP, depending on the year and climatic conditions. Given the resources used, however, this is well below its potential contribution.

2- Working population

The agricultural population is large but ageing. It represents 28.2% of the working population in employment, 36% of whom are aged over 55. The gap between the contribution to GDP and the size of the agricultural population reflects a rural environment devoted almost exclusively to agriculture, with a level of labour intensiveness in line with the inadequacy of technical resources.

3- Breakdown of UAA

The Usable Agricultural Area in Romania is 14.7 million ha, with almost 9.42 million ha of arable land, 3.3 million ha of pasture, 220,000 ha of vines and vine nurseries, and 206,000 ha of orchards.

Arable land is located in the west, south, south-east and east of the country. The forests and meadows are concentrated in the Carpathians.

Based on the humus level, the basic indicator for soil fertility, 50.6% of soils have low or very low levels (2%) whilst 40.4% of soils have levels between 2 and 5%.

4- Organizational structure of farms

There are currently 4.3 million farms. Farm and land privatization is now practically complete. Following the fall of the Communist regime, the transitional government redistributed the agricultural land from the former cooperatives to small farmers. As a result, Romania’s rural landscape is characterized by a very large number of small farms, most of which operate on a subsistence basis: 80% of farms recorded (Source: PNDR). The average size of farms is 3.37 ha (Source: PNDR).

The former State-owned enterprises have been privatized and now represent the main core of large farms, which in some cases are tens of thousands of hectares in size. Between these two extremes are “medium-sized” farms of between 10 and 50 hectares, however these represent only 6% of the land.

The agricultural landscape is dominated by individual small farms, most of which do not operate on a commercial basis. The big, efficient farms, run either as commercial companies or associations and producing mainly cereals and industrial crops, are concentrated in three administrative areas (judets) in the south-east of the country, where the landscape is mainly plains and access to water for irrigation is easier.
 

 

 

5- Main areas of production

 

• Crop production
  

The production areas for the main crops are primarily located in regions where the soils have high productive potential.

Wheat is grown mainly on the western plain, the Danube plain, the Transylvanian plain (Centre) and the north-east of the country.

Maize is grown almost everywhere, except in the Carpathians, and particularly on the country’s western and southern plains. There are also good cultivation areas on the Transylvanian plain, in the south-east (around the Carpathians) and almost everywhere in the Moldavia region (in the east).

Sunflowers are grown mainly in the south and south-east of the country (chernozem-type soils).

 

• Animal production

The cattle population (2.8 million animals, primarily for dairy production) is concentrated in the north, the north-east and northern part of the southern plain, at the foot of the Carpathians.
As 75% of the livestock population is consumed by the households that produce it, pig farming is found almost everywhere. Only 1.5 million pigs are reared for industrial production.

The poultry sector is highly integrated (70% of poultry meat production is concentrated on around ten farms, covering the entire process from producing feed through to packaging the meat); in geographical terms, poultry farms are found primarily in the east and south of the country.

Main crop and livestock production
Crop production represents 64% of the UAA and over 60% of the value of agricultural production.
It is relatively undiversified. Three crops take up almost 60% of arable land:

- Maize (2,449,600 ha)
- Wheat (2,110,300 ha)
- Sunflowers (813,900 ha)

Yields and production volumes vary from one year to the next because of climatic conditions. As an example, the table below shows production volumes for the main crops in 2007 (when there was a drought) and 2008 (when harvests were good).
 

	Wheat	Maize	Barley	Sunflowers	Colza	Soya
2007	3 mill T	3,8 mill T	0,5 mill T	0,5 mill T	0,3 mill T	136,100 T
2008	7.2 mill T	7,8 mill T	1,2 mill T	1,16 mill T	0,6 mill T	90,600 T

Source: Ministry of Agriculture

 

Romania is also a major producer of potatoes: the country is the 3rd largest European producer after Germany and Poland.

It is the 6th largest wine producer in Europe. The main grape varieties cultivated are:
Whites: Feteasca Regala, Feteasca Alba, Grasa de Cotnari, Sauvignon Blanc, Riesling, Chardonnay.
Reds: Babeasca Neagra, Feteasca Neagra, Cabernet Sauvignon, Pinot Noir, Merlot.

The fruit and vegetable sector, despite its potential, is currently unable to meet domestic demand because of the lack of technical capability and organization. Fruit and vegetable production totals 5 million tonnes (45% for vegetables and 55% for fruit).

 

Animal production represents 38% of the value of agricultural production. Romania does not have a sufficiently robust beef production industry to meet the requirements of mass-market retailing. Livestock farming is mainly focused on pork, poultry and dairy production. Pork production levels are inadequate. Pork meat is the leading food product imported.

Dairy production is largely concentrated on small family farms throughout the country, in hilly and mountainous regions. The sector was relatively unaffected by the collectivization programmes of the Communist period. As a result, dairy production is currently still very fragmented, with 1.1 million farms with just 1 or 2 cows. Dairy yields are certainly increasing, but are still low compared with countries in Western Europe.

Cow’s milk represents over 90% of total milk production.

Following negotiations with the European Union, Romania has the right to produce 3.2 million tonnes of milk a year, of which 2 million tonnes are allocated to direct sales and 1.2 million tonnes for delivery to industrial dairies. The collection rate for milk is 22% of total production, or 1.1 billion kg. The high level of fragmentation in milk production makes collection particularly complex.

 

• Strengths and weaknesses of agricultural production

Performance in the agricultural sector currently falls short of its potential. The lack of competitiveness is reflected in low productivity and the worsening deficit in the balance of trade in the food processing industry from one year to the next.

Romanian agriculture is subject to some significant constraints, both structurally and because of the climate.

 

The main structural weaknesses in the agricultural sector are:

 

- The division of land into small units, which has resulted in a plethora of small subsistence farms. These occupy almost half the UAA and own half the livestock, and contribute to the overall decline in agricultural efficiency, offsetting the good results achieved by the large farms. Land consolidation is hindered by the absence of an active, transparent market;

 

- The human factor: as well as its significant share of the working population, the agricultural sector also has to face the fact that farmers as a group are ageing (particularly in the subsistence farming sector) and are inadequately trained. According to the National Rural Development Plan (PNDR), young farmers (under the age of 40) represent only 10% of the agricultural population and work only 10% of the UAA. By contrast, 43% of farmers are over retirement age (65) and work 31% of the UAA;

- Low levels of mechanization and obsolete equipment stocks;

- Inefficient irrigation systems with significant costs for the end consumer.
 

At the same time, Romanian agriculture has some undeniable advantages:

 

- Arable land with high production potential covering 64% of the UAA, i.e. 9.4 million ha, which could, according to estimates by those operating in the sector, could feed a population of 80 million inhabitants;

- A geographical position and maritime infrastructure that enable it to export easily;

- Potential for diversifying production;

- Labour costs still below Western averages.

 

• Romanian production of agricultural machinery

Industrial production of agricultural machinery in Romania is almost non-existent: only a few manufacturers still had any degree of national importance at the end of 2008. The largest manufacturers in 2005 were: Mecanica Ceahlau, Semanatoarea, MAT Craiova, Instring Bals, IMUM Medgidia, Mecanica Coldlea, Forma Botosani and Mecanica Marius.
Romania produces very little agricultural machinery; where it does, it is primarily ploughs, small tools for working the soil, a few towed maize harvesters, small-scale crop sprayers and irrigation equipment largely designed for small farms in the local market.

Local manufacturers suffer from a lack of investment capacity, are technologically backward to a significant degree and have few resources to reorganize the sector.
Romanian infrastructure also depends primarily on imports, the majority of them from the European Union. The market has been given a significant boost by the influx of European EAFRD funds through the National Rural Development Plan (PNDR). Operators in the country speak of a “high-potential market” that is set to “explode” over the next few years. It is also a market that is subject to the vagaries of the climate, however (people only buy when harvests are good), and in particular to the release of European funds, which happens in tranches, theoretically three times a year.

 

In general terms, Romanian equipment is old and 70% of it has exceeded its maximum period of wear. In addition, there is a significant lack of equipment. There is one tractor available for every 55 ha (compared with one for every 15.5 ha in France), and one combine harvester for every 103 ha.

 

According to the Ministry for Agriculture and Rural Development, this is an estimate of requirements to ensure that agriculture performs in line with European standards, i.e. all the necessary tasks would be completed at the right point and in minimal time. Conversely, there are no figures available for the requirements for other agricultural machinery.

Comment: France was the leading exporter of agricultural tools and seeds in 2002. It was then overtaken by Italy and has been outstripped by Germany since 2005. France retains a high level of expertise, however, in the production of this type of equipment. It has a large number of businesses likely to set up sales networks in Romania, particularly given that agricultural methods are similar in both countries; as a result, French equipment can very easily meet the needs of Romanian agriculture. There is still scope for this kind of equipment in Romania.
 

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The politics of agricultural policy 

 

1- Recent history

Since it joined the European Union, Romania has been eligible for European funding for modernization and to bring the country in line with other Member States. The aim of the European Union and the Romanian government is to provide the necessary funds to enable projects to be implemented and to develop various industries whilst preserving the attractiveness of the sector and local development. These measures have been laid down in a National Rural Development Plan (PNDR), which sets out the measures to be financed and their level of funding: The PNDR has a budget of 8 billion euros, 7.5 billion of which comes from the European Agricultural Fund for Rural Development (EAFRD), plus a contribution of 500,000 euros from the Romanian government for the period 2007-2013. Payments are made by the payment agencies, namely the APDRP (Payment Agency for Rural Development and Fishing) and the APIA (Payment Agency for Intervention and Direct Aid).

 

Outline of the PNDR

The PNDR sets out 3 objectives:

 

• Improve the competitiveness of agriculture and forestry through support for restructuring, development and innovation.
• Improve the environment and rural areas through support for land management.
• Improve the quality of life in rural environments and promote the diversification of economic activities.
   

The PNDR was officially launched on 11 March 2008 by the Prime Minister and the Minister of Agriculture.

 

The EAFRD can be used to finance activities related to the preparation, management, tracking, evaluation, provision of information and monitoring actions implemented in the context of rural development programmes (maximum 4% of the value of each plan). Similarly, there is a fixed amount for the creation and operation of a rural network made up of organizations and administrative authorities working in the area of rural development (the Ministry of Agriculture and Rural Development, the Network Support Unit, the National Coordination Committee and members of the network).

The PNDR applied to the agricultural sector

 

Before the PNDR
Before the PNDR, purchases and payments for agricultural equipment were made in cash. Few farms had sufficient liquidity to invest. In addition, banks and insurance companies were only just beginning to develop and therefore did not offer specific loans to farmers. As a result, farmers therefore significant difficulties in purchasing machinery and tended only to buy secondhand or cheap but inefficient equipment.
Between 2000 and 2006, grants were allocated through the SAPARD plan, which was replaced from 2008 onwards by EAFRD projects, annual funding for which is approximately five times higher.

 

The EAFRD

This provides investment funding for 40 to 70% of costs depending on the conditions for different farms. In order to make agriculture more efficient, there need to be fewer agricultural workers and easier access to more efficient equipment to improve profitability. The EAFRD provides a guarantee for a portion of the funding requirements for agricultural equipment.
Farmers working small areas of land, however, do not have the resources to purchase equipment. They prefer to repair the equipment they have on an ad hoc basis, because they do not have an overall view of repair costs in comparison with investing in new equipment.

The measure to modernize agricultural production comprises (area 1) three secondary measures:

 

• Farm modernization
• Modernization of processing of agricultural products
• Investments in village infrastructure

In time, these three measures should help to develop more competitive agriculture, create new jobs for former agricultural workers or farmers and develop infrastructure and local services in rural villages that often lack them.

 

Progress of the PNDR

By September 2009, over 15,000 applications had been filed, worth a total of EUR 9.17 billion. The number of projects selected was 9,400, valued at EUR 1.8 billion. To date, EUR 1.63 billion is estimated to have been committed, equating to over 3,000 applications accepted. Almost half the total has been committed to measure 322, “Village renovation and development, improvement of basic services for the rural economy and population, and improvement of rural heritage.” As regards measures to modernize farms (121) and the food industry (123), accepted projects account for 22% and 16% of the total amount committed, respectively.

 

CAP subsidies

Romania, like all new Member States, qualifies for simplified CAP subsidies. This is a per-hectare subsidy of 25% of the amount of the subsidies received in Western Europe (EUR 50.50 /ha in 2007, EUR 60.60 /ha in 2008). This amount will gradually increase until it reaches 100% of the subsidies of Western European countries in 2016. Following the “CAP Health Check”, however, Romania has the option of increasing direct subsidies per hectare through the national budget in order to reach the 100% level two years ahead of the provisions set out in the Accession Treaty.

 

2- Development projects

 

a - National projects

No projects currently identified

 

 

b- International projects: examples

 

1- Financed by the IFC

 

Construction of 10 piggeries and one feed grinding unit (August 2007)

 

• Status: Under evaluation
• Details of project: The IFC plans to grant a loan of EUR 25 million and a guarantee of up to EUR 4 million to the company Rupork for the construction of 10 piggeries (2,500 sows and annual production of 50,000 piglets) and a feed grinding unit in southern Romania in the provinces of Calaraci and Ialomita. The pigs will be fattened at 200 farms operating under contract. The cost of the project for Rupork is estimated at EUR 69 million, not including the cost of the contracts with farmers.
  
  The project sponsors are Javier Galan Otamendi, Andres Tejero and Javier Revuelta, representing the Spanish pig firm Granjas dos Hermanas. Other financial investors are expected to support the project. The project will have an impact on the transition by developing a modern pig production system in Romania that will make the most of the country’s advantages: a large agricultural area, favourable climate and potential surpluses of grains and oil-producing seeds (which account for 60% of production costs). Romania is currently a net importer of pig meat and uncompetitive compared with international and European producers.
  
  Granjas dos Hermanas would contribute superior genetics to the project along with its experience of feeding and rearing. New employees will be given extensive technical training and technical assistance will be provided to the 200 farmers under contract.
• Contracting entity: David Flitterman, financial advisor, Rupork S.L.,
• Total project cost: EUR 69 million
• Financing: International Finance Corporation (IFC)
• Amount of loan: EUR 25 million
• UBIFRANCE contact: Agnès Paulus, e-mail: agnes.paulus@ubifrance.fr

 

2 - Financed by the EC

 

Submission of the first agricultural projects eligible for European Union financing (August 2007)

 

• Status: In identification phase
• Details of project: Decebal Traian Remes, the Romanian Minister of Agriculture, presented the Rural National Development Plan (PNDR) for 2007-2013 in Constanta, on the basis of an allocation of EUR 8 billion of European funds over the period.
  
  According to the Romanian Ministry of Agriculture, those applying for funding would be able to start to submit projects during the second half of October 2007. Cornelia Harabagiu, junior minister at the Ministry of Agriculture and Rural Development, indicated that the programme’s main areas of focus were improving competitiveness, environmental quality and rural areas and pushing up the standard of living in rural areas.
• Contracting entity: Ministry of Agriculture and Rural Development
• Financing: European Commission - PHARE/ISPA/SAPARD
• UBIFRANCE contact: Agnès Paulus, e-mail: agnes.paulus@ubifrance.fr
   

3 - Financed by the EIB

 

SME financing (April 2009)

 

Status: Under evaluation

• Details of project: The EIB plans to grant a maximum loan of EUR 150 million to Banca Comerciala Romana SA to finance small and medium-sized SME projects in the following sectors: industry, agriculture, commercial services, tourism, health, education, energy and environmental protection.
• Contracting entity: Banca Comerciala Romana SA
• Financing: European Investment Bank (EIB)
• Amount of loan: EUR 150 million maximum
• UBIFRANCE contact: Agnes Paulus, email: agnes.paulus@ubifrance.fr
   

 

c - Bilateral projects

No projects currently identified

 

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