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Historic, Archive Document Do not assume content reflects current scientific knowledge, policies, or practices. United States Agricultural Policie sijLij) Department of Agriculture ctr Economic and Performance Research ir Sen/ice Foreign Central and Eastern Agricultural Economic Report No. 247 Europe, 989-92 1 Nancy J. Cochrane Mark R. Lundell Robert B. Koopman Michele de Souza Jason M. Lamb Danielle Sremac The cover photo, ofCity Park Vajdahunyad Castle, Agricultural Museum, Budapest, is courtesy ofKepzomuveszeti Kiado. Photographer is Jaksity Laszlo. j ' National Agricultural Library NAL'Bitig 10301 Baltimore Blvd MD 20705-2351 Beltsville, Easy To Order Another Copy! It’s Just dial 1-800-999-6779. Toll free in the United States and Canada. Other areas, call 1-703-834-0125. Ask for Agricultural Policies and Performance in CentralandEastern Europe, 1989- 1992 (FAER-247). The cost is $12.00 per copy. Add 25 percent for shipping to foreign addresses (includes Canada). Charge your purchase to your Visa or MasterCard. Or send a check (made payable to ERS-NASS) to: ERS-NASS 341 Victory Drive Herndon, VA 22070 We’ll fill your order by first-class mail. Agricultural Policies and Performance in Central and Eastern Europe, 1989-92. By Nancy J. Cochrane, Robert B. Koopman, Jason M. Lamb, Mark R. Lundell, Michele de Souza, and Danielle Sremac. Agriculture and Trade Analysis Division, Economic Research Service,U.S.DepartmentofAgriculture. ForeignAgriculturalEconomicReport No. 247. Abstract Central and Eastern European agriculture underwent dramatic change during the last 3 years. The introduction ofmarket pricing, open borders, and increased freedom ofentry and exit for firms occurred without the institutional and legal structures necessary for a market economy. The effect of market reforms on agriculture exemplifies both the positive and negative effects of these changes. Many of the countries shifted from pre- reform tight agricultural supplies or outright shortages to post-reform surpluses. Farm financial performancehas been poor, as the termsoftradehaveturnedagainstagriculture. Land and asset ownership issues in the farm sector remain unresolved, leading to uncertainty for planting and production. Consumer demand for agricultural products is depressed due to the sudden rise in consumer prices, while nominal income growth has been restricted. Keywords: Privatization, CEE, demonopolization, unemployment, agricultural inputs Washington, DC 20005-4788 February 1993 Contents Summary iii General Economic Situation 1 Policy Reform in Central and Eastern Europe, 1989-92 4 Bulgaria 5 Czech and Slovak Federal Republic 10 Hungary 15 Poland 18 Romania 22 Yugoslavia 26 Central and Eastern European Trade Highlights and Developments 29 Shifting Trade Patterns 29 EC Association Agreements 30 U.S. Trade With CEE Countries 30 Commodity Market Highlights 36 Grains 36 Oilseeds 37 Beefand Veal 38 Pork 39 Poultry 40 Eggs 40 Dairy 40 Sugar 41 Cotton 41 Tobacco 42 Endnotes 43 Appendix Tables 45 ii Summary Central and Eastern European (CEE) agriculture underwent dramatic change during the last 3 years. The introduction ofmarket pricing, open borders, and increased freedom ofentry and exit for firms occurred without the institutional and legal structures necessary for a market economy. The effect ofmarket reforms on agriculture exemplifies both the positive and negative effects of these changes. On the positive side, many of the CEE countries shifted from pre-reform tight agricultural supplies or outright shortages to post-reform surpluses. Food availability and diversity have increased appreciably. Food prices have risen in nominal terms, but generally have lagged behind the overall inflation rate, reducing the prices ofmany food items relative to other goods and services. On the negative side, farm financial performance has been poor, as the terms of trade have turned against agriculture. Food price increases have been slower than the rate of inflation, while farm input prices equal or exceed the inflation rate. Many issues regarding land and asset ownership in the farm sector remain unresolved, leading to uncertainty for planting and production. Consumer demand for agricultural products is depressed due to the sudden rise in consumer prices, while nominal income growth has been restricted through wage/pension caps. In addition, where the farm sector previously enjoyed unlimited demand for its products, it now faces stiff competition from a wider array ofconsumer products. The problems faced by the CEE agricultural sector, while fully evident in 1991, did not have as large an impact on production in 1991 as might have been expected. Gross agricultural production in the region declined by 4.9 percent compared with 1990. Production levels in 1991 formost grains exceeded their 1986-90 averages, while many livestock and oilseed products fell below their 1986-90 levels. The main problem for most ofthe countries, however, appeared to be overproduction rather than underproduction. Declining domestic demand and disruption and stiffcompetition in foreign markets caused surpluses rather than shortages. These surpluses further depressed agricultural prices and exacerbated farm financial problems. In 1992, production for most commodities was expected to fall by even more than the 1991 decline. Domestic demand should stabilize. The declines in supply were expected to tighten internal market conditions during 1992, increasing agricultural prices and improving farm financial performance. Price fluctuations for CEE agricultural products could be wide over the next year or two. Normal fluctuations due to weather and product cycles are likely to be exacerbated by the lack of typical market institutions and rules, such as futures markets and well-established ownership and contract laws. The declines in domestic real prices of the last 2 years and the oversupply ofagricultural products have prompted many CEE countries to introduce interventionist domestic and trade policies. Policies introduced have included higher tariffs, import bans, credit subsidies, and direct price supports through intervention purchasing. This report summarizes some of the main policy and legal issues addressed by each country over the past 3 years. While progress in passing reform agendas appears rapid at times, false starts and missteps have been common. Progress varies widely by country, but the northern countries of Poland, Hungary, and the Czech and Slovak Federal Republic (CSFR) are much further along than the southern countries of Bulgaria, Romania, and Yugoslavia. Albania, though part of the CEE region, had insufficient data to include it in this report. tv Agricultural Policies and Performance in Central and Eastern Europe, 1989-92 Nancy Cochrane Mark R. Lundell J. Robert B. Koopman Michele de Souza Jason M. Lamb Danielle Sremac General Economic Situation While major economic indicators were depressed in 1991, CSFR were expecting lower inflation during 1992, many Central and Eastern European (CEE) countries ranging from 10 to 40 percent. looked forward to better conditions in 1992. Hungary’s gross domestic product (GDP) was expected to grow in Unemployment is one of the foremost problems facing 1992, leading the way for the northern CEE countries. CEE governments. Providing social services for a The southern CEE countries, on the other hand, are steadily increasing unemployed population is made more forecast to have continued declines in output as their difficult by shrinking budgets and increased social governments further restructure their economies. Output tensions. Unemployment, while historically low in in 1991 declined 12.3 percent in the CEE countries, while Central and Eastern Europe’s planned economies, started inflation varied from 550 percent (Bulgaria) to 36 percent to increase significantly during economic restructuring. (Hungary). Unemployment increased in every CEE Unemploymentjumped in 1991 from its low level of country in 1991. 1990. Only Romania reported an unemployment rate below 5 percent. Unemployment in the other five CEE During 1991, declines in GDP continued in Central and countries ranged from 6.3 percent in the CSFR to 19 Eastern Europe, although the decline in Hungary and percent in war-tom Yugoslavia (fig. 3). The CEE service Poland stabilized compared with 1990 (fig. 1). Romania sector in the major cities has been able to absorb many also experienced less of a decline in GDP in 1991 than in into the growing number of service-related businesses, but 1990, but this was likely the result ofa stall in the unemployment rates outside the major cities are much economic transformation process. After implementing higher. For example, in Budapest, the unemployment rate additional market-oriented policies, Bulgaria and the at the end of 1991 was only 2.6 percent, while the rate Czech and Slovak Federal Republic (CSFR) experienced for the whole of Hungary was 8.3 percent.1 (See declines in output during 1991. Yugoslavia’s lower endnotes, p. 43.) Unemployment in Bulgaria, the CSFR, GDP was due mainly to the civil war that has disrupted Hungary, and Romania increased substantially in 1991 its economy. after low unemployment (1-2 percent) in 1990. Inflation in 1991 increased in Bulgaria and Romania, as The 1991 current account deficit in Central and Eastern officials liberalized most prices in their economies. Europe was estimated at US$3.5 billion. Declining Inflation in Romania was expected to increase during production and a move to hard currency trade among the 1992 as more price liberalization measures were pursued. Council ofMutual Economic Assistance (CMEA) High inflation in Yugoslavia during 1991 was fueled in countries accounted for the growing deficit, up from part by the civil war in Croatia. Hungarian and Polish US$1.0 billion in 1990. The resulting hard currency officials stabilized inflation during 1991, as price deficit has in some countries curtailed ability to import liberalization measures were taken mainly in 1990. The needed inputs, and thus contributed to production CSFR also experienced a comparatively low rate of declines. The CEE account balance was positive in inflation during 1991 (fig. 2). Hungary, Poland, and the recent years. Hungary and Poland had a surplus in 1990 1 Figure 1--CEE growth of GDP, 1990-91 Figure 2-CEE consumer prices, 1990-91 With recovery expectedafter 1993 for the northern The removalofconsumersubsidies has causedprices CEEcountries, GDPshouldbegin to grow. to increase substantially. Bulgaria Bulgaria CSFR CSFR Hungary Hungary Poland Poland Romania Romania Yugoslavia Yugoslavia -30 -20 -10 o 10 0 100 200 300 400 500 600 700 Percentchange from previous year Percentchangefrom previousyear H B 1990 1991,estimated Source: WorldBank,PlanEcon,OrganizationforEconomicCooperation g Inflation,1990 g EstimatedInflation, 1991 andDevelopment(OECD) Source: WorldBank,OrganizationtorEconomicCooperationandDevelopment, ForeignBroadcastInformationService Figure 3-CEE unemployment, 1990-91 Figure 4—CEE hard currency current account balance CEEunemploymentwillcontinue to worsen Lowhardcurrencyreserves have constrainedsome as reforms continue. CEEcountries'ability to importneededinputs. Bulgaria CSFR Hungary Poland Romania Yugoslavia 0 5 10 15 20 25 Percent Billion U.S.dollars S I December 1990 December 1991 1990 1991 Source: ForeignBroadcastInformationService Source: PlanEcon 2