Review of agricultural policies. Romania

238 Pages·2000·3.675 MB·English

by  OECD

«
AGRICULTURE AND FOOD
Review of Agricultural Policies
ROMANIA
Review of Agricultural
This study of Romania’s agricultural policies analyses developments from the dramatic events of
Policies
December 1989 to the present day preparations for accession to the European Union. The Review
evaluates key structural issues and examines emerging policy developments in agricultural reform. It
includes detailed estimates of support to agriculture, using the OECD’s Producer and Consumer
Support Estimates (PSEs/CSEs). A special assessment measures the environmental performance of
ROMANIA
Romanian agriculture, including the nitrogen balance, against OECD-developed environmental
indicators.
The report concludes that a key priority for Romania is to remove constraints that impede the flow of
labour from agriculture into activities with a higher value added. Increasing the economic efficiency of
the food chain as a whole is essential to enhance Romania’s competitiveness and improve the terms
AGRICULTURE AND FOOD
of trade for agricultural producers during the run-up to its EU accession and thereafter. For
policy-makers, researchers and businesses involved in agriculture and agro-food policies, markets
and trade, in Central and Eastern Europe as well as in transition countries more widely, this review is
essential reading. It will remain an indispensable reference for many years ahead.
Other Reviews of Agricultural Policies:
Russian Federation (1998)
Slovak Republic (1997)
Estonia (1996)
Latvia (1996)
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Lithuania (1996)
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Czech Republic (1995) v
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Poland (1995)
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Hungary (1994)
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Review of
Agricultural Policies
ROMANIA
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
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Publié en français sous le titre:
EXAMEN DES POLITIQUES AGRICOLES
ROUMANIE
© OECD 2000
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FOREWORD
Agriculture in Romania is a sector of considerable potential – but not under current structural condi-
tions. Employing some 36% of the working population and contributing 15.9% to GDP in 1999, agriculture
is economically more important than in any other country in central and eastern Europe except Albania.
But its role as an occupational and social buffer has resulted in low labour productivity and hidden unem-
ployment, seriously impeding structural adjustment and modernisation of the agricultural sector and
blocking its development in line with comparative advantage. Despite natural conditions conducive to
thriving agricultural production and abundant farm labour, Romania has become a net agro-food importer
during the transition period.
In this comprehensive review of Romanian agricultural policies during the transition period
from1989 until 1999, the OECD analyses the development of the agricultural sector and, in close collab-
oration with Romanian experts, draws conclusions to help Romanian agricultural policy-makers shape
their medium- and long-term reform strategy. Fundamental changes are called for at both the farm level,
especially in terms of land consolidation, as well as in the uncompetitive agroprocessing sector. Govern-
ment policy should be targeted at developing market infrastructure, market transparency and price
information systems. Establishing a viable financial institutional framework is a critical challenge. More
attention needs to be paid to environmental issues. A supportive, stable and consistent macroeconomic
and institutional framework is indispensable to make these changes feasible.
This study of Romania’s agricultural policies, undertaken in the framework of the programme of the
OECD’s Centre for co-operation with Non-Members, was made possible through voluntary contributions
from France and the Netherlands. Andrzej Kwiecinski of the OECD’s Directorate for Food, Agriculture and
Fisheries led the study with major contributions from Olga Melyukhina and Claude Nenert. Substantial
input was provided by Romanian experts, including Dinu Deaconescu, Cristina Esanu, Dinu Gavrilescu,
Daniela Giurca, Mirela Rusali, Camelia Serbanescu and Luiza Toma from the Institute of Agricultural
Economics and Jacqueline Leonte from the Ministry of Agriculture and Food. The Review benefited from
the co-operation of Dutch experts led by Huib Silvis from the Agricultural Economics Research Institute
in The Hague as well as from reading and comments by the Romanian experts from the Ministry of
Agriculture and Food and from the Ministry of Industry and Commerce. Technical and secretarial assis-
tance was provided by Anita Lari.
The study was reviewed in a roundtable with Romanian officials and experts in Bucharest in
February2000. Subsequently Romanian agricultural policies were examined by the OECD’s Committee
for Agriculture, meeting in an informal session in April 2000 and bringing together policy-makers from
Romania and the OECD Member countries. The report is published under the responsibility of the
Secretary-General of the OECD.
Gérard Viatte Eric Burgeat
Director Director
Directorate for Food, Agriculture and Fisheries Centre for co-operation with Non-Members
3
© OECD 2000
TABLE OF CONTENTS
SUMMARY AND CONCLUSIONS....................................................................................................................................... 9
A. The economic and agricultural environment.............................................................................................................. 10
B. International trade relations......................................................................................................................................... 12
C. Agro-food restructuring.................................................................................................................................................. 15
D. Agricultural policies........................................................................................................................................................ 18
E. Support to agriculture.................................................................................................................................................... 23
F. Conclusions and policy recommendations................................................................................................................. 26
Part I. ECONOMIC AND AGRICULTURAL ENVIRONMENT...................................................................................... 29
A. General aspects.............................................................................................................................................................. 29
B. Agricultural situation...................................................................................................................................................... 38
Part II. AGRO-FOOD FOREIGN TRADE......................................................................................................................... 59
A. Trade flows....................................................................................................................................................................... 59
B. Trade relations................................................................................................................................................................ 67
Part III. PRIVATISATION AND STRUCTURAL CHANGE IN THE AGRO-FOOD SECTOR........................................ 75
A. Land ownership in Romania–historical overview..................................................................................................... 75
B. The process of land and agrarian reform..................................................................................................................... 77
C. Privatisation in the upstream and downstream sectors............................................................................................ 85
Part IV. AGRICULTURAL AND FOOD POLICY OBJECTIVES AND MEASURES....................................................... 97
A. Agricultural policy framework........................................................................................................................................ 97
B. Price and income support measures............................................................................................................................ 101
C. Foreign trade measures................................................................................................................................................. 119
D. Reduction of input costs................................................................................................................................................ 124
E. Infrastructural measures................................................................................................................................................ 135
F. Rural development policy............................................................................................................................................. 143
G. Social measures.............................................................................................................................................................. 144
H. Environmental measures............................................................................................................................................... 145
I. Consumer measures....................................................................................................................................................... 147
J. Overall budgetary outlays on agro-food policies....................................................................................................... 148
Part V. EVALUATION OF SUPPORT TO AGRICULTURE............................................................................................ 153
A. Aggregate results............................................................................................................................................................ 154
B. Exchange rate sensitivity............................................................................................................................................... 157
C. Decomposition analysis of support.............................................................................................................................. 158
D. Analysis of support by commodity............................................................................................................................... 162
Annex I. ENVIRONMENTAL PERFORMANCE OF ROMANIAN AGRICULTURE DURING THE TRANSITION:
SELECTED ENVIRONMENTAL INDICATORS.................................................................................................... 169
A. Introduction..................................................................................................................................................................... 169
B. Total and agricultural land use...................................................................................................................................... 169
C. Nutrient use..................................................................................................................................................................... 172
D. Pesticide use................................................................................................................................................................... 176
E. Water use......................................................................................................................................................................... 176
F. Soil quality....................................................................................................................................................................... 179 5
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REVIEW OF AGRICULTURAL POLICIES: ROMANIA
G. Water quality.................................................................................................................................................................... 181
H. Organic farming................................................................................................................................................................ 182
I. Agri-environmental expenditures................................................................................................................................. 182
J. Conclusions...................................................................................................................................................................... 183
Annex II. ASSISTANCE TO ROMANIAN AGRICULTURE..................................................................................................... 184
Introduction............................................................................................................................................................................ 184
A. Concepts and Methodology........................................................................................................................................... 184
B. Estimation of Romanian PSEs and CSEs from 1986 to 1999....................................................................................... 188
TABLES FOR CALCULATION OF ESTIMATES OF SUPPORT TO AGRICULTURE – DEFINITIONS AND SOURCES..... 193
BIBLIOGRAPHY...................................................................................................................................................................... 235
List of Boxes
I.1. The Public Management System of Romania (as of end 1999)............................................................................. 31
II.1. Institutional Framework for European Integration................................................................................................. 68
II.2. The European Commission’s conclusions on Romanian agriculture and agricultural policy............................ 70
III.1. Organisation and management of collective and state farms.............................................................................. 77
III.2. Legal framework for the dismantling of the collective and state farms............................................................... 79
III.3. Privatisation of pig and poultry state farms............................................................................................................ 81
III.4. AgroFam Holding, Ialomita County.......................................................................................................................... 84
III.5. Privatisation in the upstream sector........................................................................................................................ 89
III.6. Privatisation of Romcereal......................................................................................................................................... 92
IV.1. Banca Agricola and its role in providing credit to the agro-food system............................................................ 126
IV.2. Voucher programme in 1997-1998............................................................................................................................ 133
IV.3. Legislative and institutional framework related to protection of natural resources in agriculture................. 147
V.1. Definitions of the OECD indicators of support....................................................................................................... 153
V.2. Transfer efficiency in agricultural support policies................................................................................................ 157
Annexes
I.1. The OECD soil surface nitrogen balance................................................................................................................. 174
I.2. Major soil erosion impacts from agricultural activities in Romania..................................................................... 180
II.1. Classification of policy measures included in the OECD indicators of support................................................. 185
II.2. Transfers associated with market price support..................................................................................................... 189
List of Tables
I.1. Selected macroeconomic indicators, 1989-1999..................................................................................................... 33
I.2. The structure of GDP at current prices, 1990-1998................................................................................................. 34
I.3. Structure of employment, 1990-1998....................................................................................................................... 35
I.4. Share of agro-food sector in the economy, 1988-1998........................................................................................... 39
I.5. Price indices, 1991-1998............................................................................................................................................. 40
I.6. Changes in gross agricultural output (GAO), 1989-1998........................................................................................ 42
I.7. Crops: sown areas, 1988-1999.................................................................................................................................... 44
I.8. Production of major crops, 1988-1999...................................................................................................................... 44
I.9. Animal numbers, 1988-2000...................................................................................................................................... 45
I.10. Production of basic animal products, 1988-1999.................................................................................................... 46
I.11. Rural population and agricultural employment, 1990-1998.................................................................................. 46
I.12. Agricultural employment by farm ownership type, 1985-1997............................................................................. 47
I.13. Agricultural employment by occupational status................................................................................................... 48
I.14. Agricultural employment by age group................................................................................................................... 48
I.15. Nominal average monthly salaries 1990-1997, in Lei............................................................................................. 49
I.16. Nominal monthly average incomes in households, 1997-1998............................................................................ 49
I.17. Fleet of tractors and agricultural machinery in Romania, 1989-1999................................................................... 50
I.18. Food industry output, 1989-1999.............................................................................................................................. 52
I.19. Food consumption pattern, 1980-1998.................................................................................................................... 53
II.1. Agricultural trade, 1986-1999..................................................................................................................................... 59
II.2. The share of net agro-food imports in total value of agricultural production in Romania, 1989-1998............ 61
6 II.3. The share of net imports of selected agricultural products in total domestic use in Romania, 1989-1998.... 61
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TABLE OF CONTENTS
II.4. Agro-food imports by group of products and main suppliers in 1998................................................................ 63
II.5. Tariff rate quotas within Romanian UR commitments........................................................................................... 72
II.6. Romanian export UR commitments........................................................................................................................ 73
III.1. Agricultural land ownership pattern in Romania, 1989......................................................................................... 77
III.2. Structure of agricultural land in private ownership, 1993-1999........................................................................... 82
III.3. Privatisation of food processing enterprises (total numbers, November 1999)................................................ 90
III.4. The share of private processors in total market supplies of selected food products
between 1992 and 1998............................................................................................................................................ 91
III.5. Food retail marketing (billion Lei, current prices)................................................................................................ 93
IV.1. Price support payments in 1990-1998..................................................................................................................... 102
IV.2. Government fixed prices for main crop products in 1989-1996, Lei per kg....................................................... 103
IV.3. Government fixed prices for main livestock products in 1989-1996................................................................... 103
IV.4. Grain area, yield and production............................................................................................................................ 107
IV.5. Maize: procurement, peasant market and average producer prices.................................................................. 108
IV.6. Wheat and rye: procurement, peasant market and average producer prices................................................... 109
IV.7. Oilseed area, yield and production........................................................................................................................ 110
IV.8. Sunflower: procurement, peasant market and average producer prices........................................................... 110
IV.9. Sugarbeet area, yield and production.................................................................................................................... 111
IV.10. Sugarbeet: procurement, peasant market and average producer prices.......................................................... 111
IV.11. Potato area, yield and production........................................................................................................................... 112
IV.12. Potatoes: procurement, peasant market and average producer prices............................................................. 112
IV.13. Fruits and vegetables area, yield and production................................................................................................ 113
IV.14. Pig inventories and pigmeat production................................................................................................................ 114
IV.15. Pigmeat: procurement, peasant market and average producer prices.............................................................. 114
IV.16. Poultry inventories and poultrymeat and egg production................................................................................... 115
IV.17. Poultry: procurement, peasant market and average producer prices................................................................ 116
IV.18. Eggs: procurement, peasant market and average producer prices.................................................................... 116
IV.19. Cattle inventories and beef and veal production................................................................................................. 117
IV.20. Beef and veal: procurement, peasant market and average producer prices.................................................... 117
IV.21. Cow inventories and milk production..................................................................................................................... 118
IV.22. Milk: procurement, peasant market and average producer prices..................................................................... 119
IV.23. MFN import tariffs for basic agro-food products in Romania, per cent.............................................................. 121
IV.24. Non-tariff export measures for agricultural and food products, 1991-1998........................................................ 123
IV.25. Annual preferential credit allocations to agro-food sector, billion Lei............................................................... 125
IV.26. Estimated transfers to agro-food sector associated with preferential interest rates
and debt forgiveness, billion Lei............................................................................................................................ 129
IV.27. Composition of input subsidy in 1986-1990, per cent.......................................................................................... 131
IV.28. Composition of input subsidy in 1991-1999........................................................................................................... 131
IV.29. Romanian system of standards before and after 1990.......................................................................................... 139
IV.30. Composition of budgetary transfers to agro-food sector in 1986-1990, per cent.............................................. 148
IV.31. Budgetary and quasi-fiscal transfers to agro-food sector in 1991-1999 General indicators, billion Lei......... 149
IV.32. Composition of budgetary transfers to agro-food sector in 1991-1999, per cent............................................. 151
V.1. Aggregate percentage PSEs and CSEs for Romania, 1986-1999........................................................................... 154
V.2. Official and adjusted exchange rates, Lei/US$.................................................................................................................... 158
V.3. Composition of support to agricultural sector in Romania, per cent.................................................................. 159
V.4. Composition of food consumer support in Romania, per cent............................................................................ 160
V.5. Distribution of total value of PSE by specific commodities, per cent................................................................ 160
V.6. Romanian percentage PSE, by commodity............................................................................................................ 162
V.7. Romanian percentage CSE, by commodity............................................................................................................ 163
Annexes
I.1. Conversion of land to and from agriculture............................................................................................................ 170
I.2. Agricultural land use................................................................................................................................................. 172
I.3. Water supply by user categories............................................................................................................................. 177
I.4. Agricultural water abstractions................................................................................................................................. 177
I.5. Water prices by water use, 1997.............................................................................................................................. 177
I.6. Soil depletion factors and the size of affected agricultural area, 1992 and 1997.............................................. 179
I.7. Soil erosion vulnerability of agricultural land........................................................................................................ 180 7
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REVIEW OF AGRICULTURAL POLICIES: ROMANIA
I.8. Soil erosion intensity of agricultural land................................................................................................................ 180
I.9. Erosion by land use.................................................................................................................................................... 181
I.10. Surface water quality.................................................................................................................................................. 181
I.11. Condition of main waste water treatment plants in 1997...................................................................................... 182
I.12. Environmental expenditures.................................................................................................................................... 183
I.13. Structure of agricultural environmental expenditures........................................................................................... 183
List of Graphs
I.1. Gross domestic product in transition countries in 1998........................................................................................ 34
I.2. Share of agriculture in GDP, 1997.............................................................................................................................. 39
I.3. Price relationship, 1990-1998.................................................................................................................................... 41
I.4. Agricultural output/input price index ratio, 1990-1998.......................................................................................... 41
I.5. Gross agricultural output, 1990-1998........................................................................................................................ 42
I.6. Production development of some agricultural products in Romania, 1988-1999.............................................. 43
I.7. Share of agriculture in total employment, 1997...................................................................................................... 47
I.8. Chemical fertiliser use (active substance Kg/ha) 1988-1998................................................................................. 51
II.1. Romania’s agro-food trade balance by product group, 1986-1998....................................................................... 60
II.2. Romania’s agro-food imports by regions in 1998................................................................................................... 62
II.3. Romania’s agro-food exports by regions in 1998.................................................................................................... 62
II.4. Main suppliers of agro-food products to Romania, 1998....................................................................................... 63
II.5. Main export markets for Romanian agro-food products, 1998.............................................................................. 64
II.6. Romania’s agro-food imports by product group, 1986-1998................................................................................. 65
II.7. Romania’s main agro-food imports in 1998............................................................................................................. 65
II.8. Romania’s main agro-food exports in 1998.............................................................................................................. 66
II.9. Romania’s agro-food exports by product group, 1986-1998.................................................................................. 67
III.1. Farm structures in Romania: shares in total agricultural land in 1989 and 1999................................................ 82
III.1. The state managed distribution system under Communism............................................................................... 86
IV.1. Producer wheat price................................................................................................................................................. 106
IV.2. Producer pork price.................................................................................................................................................... 106
IV.3. Producer poultry price............................................................................................................................................... 106
IV.4. Producer milk price.................................................................................................................................................... 106
IV.5. Distribution of price support payments by specific products, mid 1993-1996.................................................. 107
IV.6. Fixed interest rates under preferential short-term credit, commercial rates and CPI...................................... 128
IV.7. Shares of budgetary and quasi-fiscal transfers in the total transfers to agro-food sector................................ 150
IV.8. Composition of budgetary transfers to agro-food sector...................................................................................... 151
V.1. PSEs by country and OECD average, 1986-1999..................................................................................................... 155
V.2. Total support estimate by country, EU and OECD average 1999......................................................................... 156
V.3. PSEs for Romania at ajusted and official exchange rates...................................................................................... 158
V.4. Composition of support in Romania, 1990-1999..................................................................................................... 159
V.5. Percentage PSE for crops and livestock, 1986-1999............................................................................................... 161
V.6. Romanian percentage PSE in 1999, by commodity................................................................................................ 162
Annexes
I.1. Structure of total land use in Romania, 1995-1997 average.................................................................................. 169
I.2. Net changes in total land use, 1985-1989 to 1995-1997......................................................................................... 170
I.3. Afforestation in Romania........................................................................................................................................... 171
I.4. Structure of agricultural land, 1995-1997 average................................................................................................... 171
I.5. Net change in agricultural land, 1985-1987 to 1995-1997....................................................................................... 172
I.6. Romania’s agricultural nitrogen balance estimate, 1985-1997.............................................................................. 173
I.7. Nitrogen balance estimates for Romania and selected OECD countries........................................................... 175
I.8. Romania: trends in agricultural nitrogen balance, inputs and crop uptake, 1995-1998.................................... 175
I.9. Pesticide consumption.............................................................................................................................................. 176
I.10. Area provided with irrigation facilities and actually irrigated area...................................................................... 178
I.11. Share of main crops in the total area under irrigation in 1997.............................................................................. 178
II.1. Exported commodities.............................................................................................................................................. 189
II.2. Imported commodities.............................................................................................................................................. 189
8 II.3. Measurement of the margin between farm gate and frontier............................................................................... 191
© OECD 2000
SUMMARY AND CONCLUSIONS
The dramatic events of December 1989 symbolise the beginning of Romania’s return to a democratic
and market-oriented system. The first post-communist governments adopted a gradual approach to
reforms, which resulted in their fragility, in unequal progress in reforming different sectors of the economy
and in structural imbalances. While agriculture has been largely privatised, upstream and downstream sec-
tors have not been restructured and, for the most part, remained until recently in state ownership.
Small-scale farming operates on the majority of agricultural land, but the marketing system has been ori-
ented toward servicing large-scale farms. Given the declining production on state owned farms, small farms’
weak integration into markets, and an inefficient food processing sector, Romania is a net importer of
agro-food products, despite soil and climatic conditions conducive for agricultural production and abun-
dant farm labour. Since 1997, the Romanian government, with the support of international institutions, has
made efforts to correct some of these imbalances. But not until the end of 1998, when facing the need for
balance-of-payments support from the IMF, did the government adopt an anti-crisis programme which
accelerated structural reforms, including in the agro-food sector.
In a deteriorating employment situation agriculture acts as a buffer in labour markets, absorbing 36%
of total employment. However, this role imposes substantial economic and social costs on rural areas, as it
impedes necessary structural adjustment in agriculture by freezing the highly fragmented land ownership
pattern and compounds the problems of low incomes and disguised unemployment in rural areas. It also
increases the political pressure on governments to address the symptoms of the structural problems
through subsidies and market distorting interventions. The key priority in Romania is to develop a policy
targeted at removing constraints that impede the flow of labour from agriculture into activities with higher
value added, and thus the growth of employment, incomes, and welfare in rural areas. Within a framework
of general economic liberalisation and reforms, such a strategy could include investment in rural infrastruc-
ture and education, and the stimulation of rural non-farming activities/enterprises. Such a strategy will be
costly and will not bring immediate results, but would address the causes rather than symptoms of agricul-
tural sector inefficiencies.
A stable macroeconomic and institutional framework is essential to agricultural reform in Romania, but
the progress in macroeconomic stability achieved over the last three years has not yet been satisfactory. To
complement and strengthen macroeconomic reforms, policies aimed at removing market inefficiencies, set-
ting up adequate rural finance institutions, establishing the necessary market infrastructure to link produc-
ers with consumers, and fostering transparency in policy implementation are still needed in Romania. The
1997 price and trade liberalisation measures were a move towards less distorted markets, and this momen-
tum should not be lost if more progress in the restructuring and competitiveness of the agro-food sector is
to be achieved.
The level of government support for agriculture fluctuated between 1986 and 1999, but indicates that
over the whole period under study Romanian producers were subsidised. In particular, the percentage Total
Support Estimate (TSE) was high in 1999 at 5% of GDP, compared to the OECD and EU averages at below
2%. Such a high percentage TSE indicates that for a relatively poor country with a large agricultural sector,
as in Romania’s case, the cost of agricultural support related to a low GDP is very high.
In December 1999 the European Union invited Romania to launch accession negotiations, together
with several other CEEC. To face future competition within the European single market, Romania would
benefit from adopting open-trade and low price distorting support policies in order to assist and encourage
greater agro-food sector competitiveness. Placing greater emphasis on improving the economic efficiency
of the whole food chain would enhance its competitiveness and improve the terms of trade for agricultural
producers during the period prior to EU accession and thereafter.
9
© OECD 2000