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For debate in the Standing Committee see Rule 47
Pour débat à la Commision permanente – Voir article 47 du Règlement
Doc. 8071
9 April 1998
Transition process of agriculture in the countries of central and eastern Europe
Report
Committee on Agriculture and Rural Development
Rapporteurs: Mr Wolfgang Behrendt, Germany, Socialist Group and
Mr Juhan Telgmaa, Estonia, European Democratic Group
Summary
With the changeover to a market economy, the central and east European countries have had to restructure their economy and particularly the agricultural sector, which is still important in most of those countries. To keep the agricultural sector competitive, the implementation of efficient policies and measures should be pursued (tenant farming, creation of a land market, development of co-operatives and of the agro-food industry, reinforcement of professional organisations and Chambers of Agriculture, development of rural areas, restructuring of rural banks and insurance schemes, intensification of international trade, supporting private investment, etc.).
In order to favour the economic development of central and east European countries, their agricultural and rural economy should be adapted, reinforced and diversified and East-West agricultural integration should be promoted. This report sets forth several concrete proposals in this respect.
I. Draft resolution
1. The Assembly is mindful of its previous Recommendation 1174 (1992) on pan-European co-operation in the field of agriculture and its Resolution 1039 (1994) on rural and agricultural reform in the new democracies of central and eastern Europe.
2. The Assembly also refers to the Third East-West Agricultural Forum, organised by the Committee on Agriculture and Rural Development (Berlin, 20 January 1996); to the European Conference on Rural Development (Cork, 7-9 November 1996), organised by the European Commission, and its Pan-European Parliamentary Conference on Rural Development (Bratislava, 5-6 May 1997), as well as to the declarations adopted at these two conferences.
3. The Assembly considers that the transition of the rural sector in central and east European countries is a priority essential to their economic and political stability. Privatisation, restructuring and intensification of trade must lead to prosperity for the rural economy of these countries.
4. The Assembly notes that:
i. although diversification of the rural economy will open up new avenues for the people living in the countryside, agriculture will always retain its central role;
ii. although the privatisation process in agriculture has made some positive progress in certain countries, it is encountering considerable difficulties in the region as a whole;
iii. restructuring, particularly in the case of farms, co-operatives and agri-business, requires an urgent effort in favour of an adjustment of agriculture and rural development and of the rural banking sector to the conditions of a market economy, first and foremost directed to the European Union internal market;
iv. the intensification of trade in agriculture and agri-business must play a major role in east-west integration.
5. The Assembly therefore invites the governments of the member states concerned and of the states whose parliaments have special guest status with the Assembly:
i. with the support of the public authorities, to implement a policy to facilitate the leasing of land and to regroup the excessively fragmented lands produced by mass privatisation, in order to allow farmers to concentrate their investments on production equipment and the improvement of their farms;
ii. to foster the emergence of an agricultural land market, inter alia by encouraging legislation on genuine private farmland ownership rights, establishing reliable land registry systems and helping to co-ordinate supply and demand for agricultural land;
iii. to foster the development of social protection and mutual insurance schemes in rural areas;
iv. to organise information meetings of the central and east European countries to compare the different national approaches to privatisation;
v. to strongly support the requirements of ecological agriculture and ensure that the future of rural areas is not left only to market forces;
vi. to modernise the agro-food industry in partnership with producers, bringing it into line with western standards in terms of quality, hygiene, veterinary care and phytosanitation;
vii. to set up networks of Chambers of Agriculture, with a view to rationalising and optimising all services to farmers;
viii. to establish programmes for an integrated development of rural areas, which take equal account of economic, ecological and social conditions and requirements and which build on the potential for endogenous development;
ix. to restructure the rural banking sector around the model of all-purpose co-operative banks, with a widespread network of branches in rural locations;
x. to set up or strengthen investment guarantee agencies and funds and to foster investment by improving economic and legal information and by making the legal and administrative procedures more straightforward;
xi. to develop international trade, continuing to support the market to a reasonable degree during the transitional period and by opening up internal markets, by eliminating intra-state trade barriers, by establishing local and regional markets and fostering interregional co-operation in Europe;
xii. to set up free-trade zones, along the lines of the Central European Free Trade Agreement, between the central and east European countries and eventually throughout the region in order to restore the traditional markets between those countries which existed before the changeover,
xiii. to develop the guarantees of international trade for the benefit of the central and east European countries and lay the foundations for agricultural commodity futures markets with a view to global risk management;
xiv. to facilitate the launching of joint ventures and favour small and medium-sized firms in rural areas;
xv. to link increased trade to the respect for social rights and environmental protection.
6. The Assembly invites the European Union to provide adequate funding to all the central and east European countries, and especially to the applicant countries, to support the transition process of their agriculture, paying particular attention to the agro-food sector and to the respect of the standards to be met in terms of food safety.
II. Explanatory memorandum by Mr Behrendt and Mr Telgmaa
Contents
1. Introduction
2. General considerations concerning certain CEEC
3. Privatisation
4. Restructuring
5. Intensification of trade
6. Conclusion
1. Introduction
Following the sudden changeover to the market economy, farmers in the states concerned were plunged into a recession. Since 1993, however, some of the countries of central and eastern Europe (CEEC) have managed to get back on course, hence 1995 saw an increase in gross agricultural production and the development of trading in agro-food products. In some others, however, production decreased. During this time 10 of these states applied for membership of the European Union (EU). This prospect of enlargement was welcomed by western Europe, although with legitimate circumspection. The Council of Europe, of which most of the states in the region are members, including Russia since 1996, is directly concerned by the major changes going on. Hence the Parliamentary Assembly's adoption of Recommendation 1174 (1992) on pan-European co-operation in the field of agriculture, and Resolution 1039 (1994) on rural and agricultural reform in the new democracies of central and eastern Europe.
The successful comeback and the emergence of a viable and competitive agricultural sector in the CEEC in an environment governed by the market will depend on the efficacy of national policies on structures and on international markets and trade, although aid in diverse forms from the international community will still remain relevant. In this context the Committee on Agriculture and Rural Development of the Parliamentary Assembly of the Council of Europe organised a 3rd East-West Agricultural Forum in Berlin in January 1996, in collaboration with the Federal Ministry of Food, Agriculture and Forestry of Germany and the Senate department of economy and technology of the Land of Berlin. In collaboration with the Slovak authorities, it then organised the Pan-European Parliamentary Conference on Rural Development, which was held in Bratislava in May 1997. This report is strictly in keeping with the subjects addressed at these major meetings: privatisation, restructuring and trade. It examines the situation in the region and sets forth a number of concrete proposals of a pragmatic nature.
2. General considerations concerning certain CEEC
Since it was not possible to examine the situation of all CEEC, which have very different and changing economic situations, and when only a few of them are candidates and negotiating their accession to the EU, reference will only be made, as examples, to those countries recently visited by the Committee on Agriculture and Rural Development.
In the framework of its activities, the Committee recently met in several Central and Eastern European countries (Slovakia, 5-6 May 1997; Lithuania-Latvia, 8-9 September 1997; Hungary, 30-31 October 1997) where it held exchanges of views with the Ministers of Agriculture and Chairmen of the relevant parliamentary committees.
A. Slovakia 1
Agriculture only contributes 4.7% to the GDP and represents 7% of total employment (1996). Gross agricultural output increased by 4% in 1996 and the overall financial situation of agriculture improved.
The Slovak agricultural policy is focused on four main policy objectives: food security, economic stability and a satisfactory level of incomes for the farming sector, countryside preservation and environmental function of agriculture, sustaining agriculture and rural population in less favoured areas.
The privatisation and restructuring process continued and almost all collective farms were transformed in co-operative farms (75% of land). Individual private farming remains marginal (5% of land). The privatisation of the food industry was almost completed.
Concerning financing, most of the loan finance and investment support for the farm sector was provided by the State Support Fund for Agriculture and the Food Industry (loans at low interest rate and loan financial guarantees). The State also finances direct payments. As far as support policies are concerned, price support measures could be mentioned for certain important agricultural products (milk, grains, meat), direct payments to less favoured areas (50% of the funds available) and input subsidies (compound feed components, seeds, fertilisers, etc.).
Slovakia remains a rural country (87% of the population live in rural areas covering 98% of the territory). Referring to the Minister of Agriculture, Mr Baco, Slovakia pays special attention to rural development and to a sustainable and harmonious development of agriculture (Policy Declaration of the Slovak government) and gives great importance to the protection of the environment and landscapes (Report on Optimisation of the Land Fund use). The Ministry also looks very carefully into the situation in disadvantaged regions. To improve co-ordination the Agency for the Promotion of Rural Development was created in 1995.
According to Mr Gasparovic, Speaker of the National Council of the Slovak Republic, the aims of Slovak agricultural policy are the sound management of the productive potential and human resources, to attenuate the negative consequences of the transition avoiding the destruction of capacities and the destabilisation of the agricultural market and the renewal of the factors of production. Moreover, Slovak agriculture will not be oriented towards the large scale production of basic foodstuffs, but towards market segments where Slovakia has certain advantages. As far as rural development is concerned, a diversification of activities in the countryside is envisaged (SMEs, tourism, arts and crafts, etc.).
B. Lithuania 2
Lithuania depends on the agricultural sector to a large extend. Land used for agriculture comprises around 54% of the territory. The sector of agriculture plays an important role in the economy of Lithuania (24% of labour force and 11% of GDP in 1996).
Agriculture and the food industry have undergone a radical reform since 1989. The restructuring and privatisation of the Lithuanian agricultural sector was carried out by returning land to the former owners (restitution) and by privatising the remaining property (up to 40% of farmland has already been privatised). State farms were transformed to co-operative companies and at the beginning of 1997 there were 196 000 individual farms and about 2,000 agricultural joint stock companies. The privatisation process affected nearly all the food processing enterprises, but the decline in agricultural production (the Gross Agricultural Product diminished by half from 1990 to 1995) caused difficulties to the agro-food industry.
According to Mr Knašis, Minister of Agriculture and Forestry, agriculture and forestry are among the priority sectors in Lithuania. The rural development policy is based on the following principles: maintenance of a viable agriculture, promotion of off-farm activities, improvement of rural infrastructure, building-up of a sustainable environment; achievement of a social and economic balance ; preservation and promotion of the traditional heritage and family farming, of local initiative and co-operative and creative approaches.
However, the main objective remains a rapid restructuring of agriculture (improvement of existing production, technological, organisational and administrative structures). Regional rural development schemes are also implemented as well as diversification of activities (ecological farming, rural tourism, etc.).
Another priority task is to provide an incentive to farmers, to educate their economy-minded consciousness and to improve their professional skills. For that purpose, the year 1991 saw the re-establishment of the Chamber of Agriculture and, in 1997, the Government approved the creation of a Rural Support Fund. A Forest Fund was also established.
However, according to Mr Stanikūnas, Deputy Minister of Agriculture and Forestry, one of the drawbacks of the reform is that the emerging farms are too small and often uncultivated. On the other hand, enterprises are undergoing a fast concentration process and their efficiency is growing. Important investments will be made in priority sectors of the agro-food industry (dairy, meat, grain processing industry). Livestock breeding and fisheries also need increasing their productivity. A Lithuanian Agricultural Foreign Trade Agency was set up in order to develop the export of agro-food products.
C. Latvia 3
In Latvia, agriculture remains an important activity. 59% of the land is agricultural land and 30% is used for forestry. In 1996, agriculture represented 9.6% of the GDP and 17% of the working population.
Since the early 90s, the agricultural policy has been oriented towards restructuring of the former economic system by developing land ownership (restitution and privatisation), family farm support and new agricultural market development. Land reform resulted in big collective farms transforming into a large number of comparatively small private farms, often unexploited.
The Ministry of Agriculture is currently paying its main attention to policy reform in agriculture and intending to develop standing market institutions. A price support policy is not envisaged. Support measures for agriculture are mainly directed towards solving the structural problems and enhancing rural development with two main aims: the development of an efficient agricultural production (agricultural development and technology up-grading, soil cultivation and agro-technical improvement, seed production and breeding, promotion of competitiveness) and the support to the development of new branches and farms (crediting enhancement, co-financing).
As far as the agricultural credit system is concerned, in 1993 an Agriculture Finance Institution was created, to finance the activities of private agricultural production enterprises and to provide credit to agro-food enterprises.
The agrarian reform in Latvia resulted in a land reform (in 1996 private farms covered 86% of arable land) and the privatisation of agricultural and food processing enterprises (mainly dairy, meat and grain processing).
According to Mr Rāvinš, Minister of Agriculture, particular attention should be drawn to rural development and the State should engage itself in alternative employment development promotion in rural areas (especially rural economy diversification, regional development, agricultural processing industries, environment protection). The Ministry of Environmental Protection and Regional Development was consequently instructed to elaborate a National Development Programme for Rural Areas.
D. Hungary 4
Since 1989, the importance of agriculture in the economy has declined sharply (6% of GDP in 1995 and 8% of employment in the agricultural sector). However, agricultural exports account for about a quarter of total exports and of agricultural production. 90% of agricultural land are already privately owned.
Agricultural support is provided through a system of minimum prices (grain, meat), budgetary support (particularly for irrigation) and border measures. The agro-food industry also benefits from the provision of capital grants, interest-rate support and export subsidies. The Government is currently undertaking a major review of its agricultural policies and is also elaborating a rural development programme. There are also direct payments for agri-environmental purposes (soil protection) and for less favoured areas (rural development).
Concerning rural development, budget subsidies and reduction of taxes are scheduled and a network of rural credit savings banks is being developed.
3. Privatisation
A. Processes set in motion and realities in the field
1. Variety of procedures set in motion
The transition from a centrally-planned to a market economy in the CEEC introduced the notion of the restoration of land ownership rights, inexorably paving the way for the reappropriation of land and placing farmers in a genuine situation of agrarian reform. The states concerned thus found themselves at the head of formidable real estate assets to be redistributed under the privatisation laws. There were several possible solutions for privatising state-run and collective farms. The land could be redistributed among the original owners and their heirs and those who had helped, by their work, to build up the operating capital, or alternatively among those who worked the land or wished to work it. Different countries adopted different solutions.
In Bulgaria, the Czech Republic, Estonia and Slovakia, they chose to acknowledge the rights of the former owners, verifying their claims as far as possible and restoring the land to its rightful owners; the members and employees of the huge former structures also benefited by the redistribution of the assets privatised. The operation consisted either in the physical restitution of the property, or, where this was not realistic, in the issue of privatisation vouchers by way of compensation. Sometimes the difficulty was verifying former ownership rights, partly because the land registers were very poorly kept and there were too few bodies in charge of examining and settling disputes.
Other countries, like Albania, Romania, Lithuania or Armenia, resorted to a form of mass privatisation, sharing out the land with or without taking previous ownership rights into account. In this manner each worker on a state or collective farm, as well as other categories from the rural environment, were granted a very small piece of land. Privatisation on such a massive scale certainly led to the virtual disappearance of collective farms in certain countries, the plots into which the land was divided were often extremely small.
In Hungary, Poland and Slovenia the problem was not so serious, in so far as family farms continued to exist during the communist era.
In some countries the land was generally distributed to the members and employees of the former state and collective farms, with no reinstatement of former owners, and no laws on private ownership of farm land. In Ukraine, Belarus and Moldova, the move towards privatisation is still lukewarm and slow. In Russia, the denationalisation of the land by distributing ownership deeds to unidentified pieces of land on large-scale farms amounted to privatisation of a purely theoretical nature.
Generally speaking, the privatisations in CEEC were started without any sound legislative basis. This basis was created simultaneously to the privatisation process, which made possible a great number of abuses.
2. Results
Privatisation is not as real in practice as the official reports seem to imply. On the one hand numerous obstacles have made privatisation very partial in scope. There are technical obstacles, such as the lack of reliable land registers; legal obstacles, such as the legal action taken by former owners whose ownership rights are not re-established; economic obstacles, in view of the lack of potential returns on investment in the sector; and political obstacles, through the action of pressure groups left over from the old regime and hostile to reform.
Where the legal basis for privatisation was grounded more on political ardour than on rational considerations, the reforms are still meeting many obstacles impeding their completion.
Where privatisation has gone ahead, the result is a variety of situations ranging from the excessive subdivision of land in certain countries, to the presence of huge farms which are still in place in spite of the change in their legal status. These two extreme types of unit, neither of which is economically viable, are not the kind of reform the region needs if its agricultural sector is to achieve lasting stability. The logical conclusion would appear to be that out-and-out liberalism does not appear to be compatible with the desired trend in agriculture in this transitional period. Perhaps certain countries made the mistake of trying to make too complete and sudden a break with certain practices of the centrally planned economy. To help with the changeover, sensible agricultural policies must now be adopted, with tools capable of implementing and managing privatisations in an efficient, pragmatic and transparent manner.
B. Implementing suitable agricultural policies
1. Promote tenant farming
The fragmentation of land ownership does not necessarily mean the fragmentation of management structures. In Hungary, for example, where the land has been sub-divided into small plots for ownership purposes, farms have not decreased in size accordingly. Most new owners or former owners whose land has been restored to them have not become farmers themselves, but have leased their lands to new co-operatives, or grouped them together into larger units. The leasing of farm land can therefore be one way of keeping farms economically viable by avoiding excessive fragmentation of the land. The opposite also occurs, when former owners whose ownership rights have been restored to them are determined to farm their mini-holdings come what may. This attitude is not hard to understand when one considers that for forty years the farmers were deprived of their ownership rights by a foreign power. The real problem, however, lies in the limited size of their farms, which are too small to be economically viable. Governments should therefore take this problem into account and introduce legislation to encourage the leasing of farm land. And where land is owned by the state, instead of selling it off piecemeal, the state should lease it to tenant farmers. The duration of farming leases should be long enough for it to be worth the farmer's while to make improvements to the farm. These long leases should be subsidised by the state as an incentive to farmers. The Forum in Berlin also highlighted the fact that farmers in the new German Länder were heavily indebted; another positive feature of state-supported tenant farming would be to decrease the burden of debt on farmers, who could concentrate their spending on improving the long-term productivity of their land instead of on its initial purchase.
The promotion of tenant farming should have as its main goal the definite possibility for the tenant who manages his farm efficiently to become an owner.
2. Favour the development of a real land market
a. Adopt legislation introducing genuine land ownership rights
This is a particularly sensitive question in these states, where the notion of private ownership of farm land has never existed. In Russia, for example, a tug-of-war is under way between the federal authorities and the social forces present; legislation has led to the development of a private economic sector, but the agrarian reform has encountered resistance from conservative social groups. Although the "privatisation" of the kolkhozy and the sovkhozy has been completed in form, there is still no hard and fast legislation on the private ownership of farm lands that would permit the development of a proper land market. Legislation should therefore make clear provision for the full private ownership (usus, fructus et abusus) of farm land.
b. Establish reliable land registry systems
Without an effective land registration system, foreign investment and long-term mortgages are virtually impossible. In market economies farmers often mortgage their land to finance improvements to plant and production tools. A suitable system could be developed based on those in operation in western Europe. But the efficacy of the system will depend not so much on principles as on proper technical and administrative organisation.
4. Restructuring
The restructuring effort should logically be waged on two fronts at once: farming and rural development. Here again, proper policies must be developed, with corresponding tools to implement them.
A. Restructuring agriculture
1. Farms
a. Regrouping fragmented land into units of a reasonable size (land consolidation)
Measures for land consolidation are needed to ensure that farmers have access to the necessary
land for efficient and viable farming
In those countries where privatisation has led to fragmented farming (Baltic States, Albania, Romania, etc.), undermining the stability of the farming sector, it may prove necessary to reverse the trend. In certain cases, a possible solution could be a policy to regroup the land by the free action of market forces. The logical result of this would be to increase the farms to an economically viable size. Tenants should be selected on the basis of competence and motivation and a sound financial project.
b. Continue to subdivide large farms
Many very large farms are still operating in spite of their inefficiency. Except in Bulgaria, and especially in Romania, their privatisation is a slow process; even in Poland, where 80% of the land already belonged to the peasants in the communist era, the hand-over of the large state-run farms to the private sector is taking a long time. Generally speaking, the plentiful equipment on these former state farms is now obsolete, and cannot be replaced in the normal way for lack of funds.
c. Encourage the sharing of farm equipment
Small-scale co-operatives (grouping together a few farmers) have proved their ability in western Europe to alleviate the high cost of agricultural machinery. It is a way of purchasing and pooling all sorts of agricultural machinery for use by the different partners without interfering with individual farming methods. Pooling such resources is also a way of modernising the equipment and democratising access to costly machinery, enabling farmers to keep up with changing market demands. The point here is to reduce the burden of debt on farmers and contribute to their financial stability.
2. Co-operatives
The fate that has befallen the co-operatives in this part of the world generally differs little from one place to another. The old collective production units were not restored but were either converted into units of a neo-collectivist type or into a more "western" style of new co-operative, where the parties involved are joint owners of the firm, at least in theory. It would appear that the co-operatives should concentrate, during the transition period, on the type of basic activities they do best: production, harvesting, initial processing.
The development and organisation of new models of co-operatives should be fostered by legislation and state support (land owners’ co-operatives for a better use of land, credit institutions, insurance schemes, etc.).
3. The agro-food industry
Efforts must be made in a spirit of partnership between the production sector (individual farmers and co-operatives) and the processing sector (the agro-food industry) to keep production in proportion with processing capacities. In other words, investments should be limited to the equipment necessary to deal with existing or reasonably predictable volumes, and to avoid unwieldy, inefficient structures. Advantage should be taken in this reform of the processing system to bring it into line with western standards of quality and hygiene, as well as with veterinary and phytosanitary standards. With the PHARE and TACIS programmes the EU is already contributing to this process, but should be able to contribute more in the food processing sector; other international organisations could also contribute to the development of agri-business in the CEEC.
4. Set up networks of Chambers of agriculture
The purpose of this is to rationalise the services which professional agricultural organisations propose to agricultural producers, in order to limit the number of structures and avoid unnecessary and costly duplications, which are too often found in the western systems, by establishing a single body in each region, run by professionals, to liase with the public authorities. The Chamber could act as spokesman for its members and defend the interests of their profession. This flexible and independent structure could also protect its members from state interference. The Chambers may also provide farmers with an opportunity to exert influence and pressures they would otherwise be unable to exert in terms of sheer numbers.
The Chambers should offer their members a whole range of services: farming techniques made easy, marketing and exporting, identification of non-food outlets for agricultural products (energy production, chemical industry), training in intelligent and environmentally-friendly farming, vocational training, farm management and accounting, documentation, legal advice.
Chambers would not be set up for each production branch, but for a specific geographical entity: the region. Every type of farm and every type of production must be grouped together, for the revival of agriculture requires solidarity, unity and multi-functionality within the regional framework. The agro-food industries should be fully-fledged members of the Chambers of agriculture. The large-scale farms should also be members. Finally, the Chambers should exist on two levels only: regional Chambers, in direct contact with the profession, covering each region, and one national Chamber. The creation of Chambers of agriculture should be initiated and, in the beginning, supported by the State.
B. Rural development
The foundations of integrated rural development in the CEEC
a. Potential
The great variety of landscapes in these regions may be highly influential in determining economic development trends in the rural world and contributing to the development of other activities such as "green" tourism, hunting, leisure activities and sports. In terms of access to these regions, two different zones may be distinguished. The western zone, comprising the countries stretching from the Baltic Sea to the Balkan peninsula, and the region to the south of the Black Sea, has a fairly well developed transport and communications infrastructure. The zone comprising the regions of central and eastern Russia from the White Sea and the Arctic Ocean to the Caspian Sea, on the other hand, has practically no communication networks or infrastructures outside the urban and industrial centres. Furthermore, in the neighbouring regions of Belarus and Ukraine, radioactive fallout from the Chernobyl disaster will remain a lasting handicap from the tourism point of view.
b. Prospects for the rural world
Until recently the values of the rural world were neglected by the authorities in the CEEC because industrialisation was their main political priority. The current transition to a market economy is the springboard which should, quite paradoxically, help to establish the principle that the functions of the rural world must be equivalent to the values of urban life.
The future of the rural world cannot and must not be left to market forces alone, which do not take into account the ecological and socio-cultural values and functions of the countryside. The European Charter for Rural Areas recommends that special attention be given to the CEEC undergoing transition and calls for specific measures in the context of European co-operation. Exemplary initiatives along the lines of the "Leader" programme of the EU or France's "Sustainable Development Plans" (PDD) could be encouraged.
C. Restructuring the rural banking sector
The banking sector in eastern Europe is passing through a difficult period of macroeconomic instability, high inflation and low profits. According to one speaker at the Forum in Berlin, banking in the region falls into four broad categories: competitive systems, in keeping with the market economy; co-operative banking systems closely linked to the state; systems where the financial institutions are run by the state; and inappropriate or broken-down banking systems.
The type of financial organisation best placed to cope with the needs of the sector would appear to be an all-purpose co-operative bank specialising in the needs of agriculture and the rural community. It could be organised on three levels, in the manner of the French Credit agricole: local, regional and national co-operative banks. It would be governed by the farmers and the rural inhabitants themselves.
The main priorities of such a co-operative bank would be: i. to develop a widespread network of branches within easy reach of all economic entities in rural areas; ii. to offer medium and long-term credit with appropriate interest rates to farmers; iii. to spread the risk of non-repayment of loans by diversifying the clientele through widespread coverage of all rural activities; iv. to apply to the international banks and organisations (World Bank, EBRD, EU, etc.) to open medium- and long-term credit lines from the outset; v. to attract depositors and savers to finance loans without the help of the state or the money market; vi. to propose a very wide range of financial products and services; vii. to set up loan guarantee funds and risk capital funds; viii. to give real power to the administrators from the farming and rural communities.
Since the present context seems to be more propitious to the leasing rather than the sale of land, the banking system should privilege the financing of production equipment over the purchase of land. The World Bank and the EBRD can contribute to this evolution of the rural banking sector.
D. Mutual insurance and social protection in rural areas
Governments should foster the development of mutual insurance schemes in rural areas offering two types of coverage: property and equipment on the one hand and sickness and retirement on the other. It is not considered advisable, however, at least during the transition period, to develop guarantee funds against agricultural disasters, which could rapidly become an extremely costly burden for the states in the region. The states should also make sure that social rights, particularly children's rights, are respected in the development of farming and agri-business.
5. Intensification of trade
The agro-food trade in the CEEC continues to develop. To facilitate harmonious integration into world trade, efforts should be made to analyse those obstacles which still remain and to propose concrete solutions.
A. Opening up the domestic markets
1. Any barriers which exist inside each country must be removed.
2. It is also essential to develop the still incipient local and regional markets so that they can serve as a real reference for the prices of agricultural produce.
3. Inter-regional co-operation in Europe can also be useful, along the lines of the pilot project for co-operation between Alsace and the region of Burgas (Bulgaria), under the patronage of the Parliamentary Assembly.
B. Developing international trade
1. Although agricultural production could be determined by market forces alone, certain realities must be taken into account in the economies of the countries undergoing transition. Price support of the type introduced by most of the CEEC to counteract the recession in farming is necessary in this transition period to stabilise prices and incomes in agriculture and to put the sector back on its feet. The support should not exceed certain limits, however, beyond which it would become unacceptable to consumers and to the agro-food industry, not to mention the risks of excess production of the kind that occurred under the Common Agricultural Policy (CAP) before the reform.
2. There also seems to be a need for inter-CEEC free-trade zones, along the lines of the Central European Free Trade Agreement (CEFTA), which is a major first step towards free trade and the integration of eastern European agriculture. The traditional markets between the CEEC should be revived. It is regrettable, however, that trade in agricultural products under the CEFTA accounts for less than 5% of overall trade between these countries. Assistance should also be provided to help crank the common agricultural market project of the Commonwealth of Independent States (CIS) into motion. The free-trade agreements concluded between the EU and the CEEC are still far off the real positive step needed for east-west integration.
3. Western countries, and especially the members of the EU, should establish fair trade policies with the CEEC, such as abolishing subsidised exports and lower quality standards for exported goods. Here it is a matter above all of reviving the traditional markets in central and east European States. This entails strengthening regional processing and marketing and guaranteeing the provision of sufficient amounts of healthy foodstuffs from regions for their populations. Funding for programmes of regional development in central and east European States should focus on these aspects. The cutting back of export refunds must be encouraged, in order to both effectively combat subsidy abuse and put the money saved towards an agriculture respecting the environment and animal welfare in these countries.
4. Another useful measure would be to facilitate the start-up of joint ventures in the CEEC. The market economy will not thrive in the region without the development of dynamic small- and medium-sized firms. External investment plays a vital role here by contributing technical know-how and management skills. Joint ventures are a simple and economic form of investment that gives the foreign investor immediate access to the domestic market through the local partner. The JOP Programme (the European Union's Joint Venture Programme) helps company managers in the European Union to develop joint ventures with partners in the CEEC. This programme could be improved, however, by opening it to all the states in the region and by making sure that it is as easy to use for businessmen in the CEEC as it is for western managers. The existing bilateral programmes between eastern and western countries are also to be encouraged.
5. Priority should be given to small- and medium-sized firms (SMF) over major groups and multinationals, and all domestic and foreign aid should be channelled exclusively into SMF. Firms on this smaller scale are more dynamic and therefore better at creating jobs and distributing wealth more evenly. Investment by multinational groups, as well as hindering the subdivision of excessively large farms, can contribute to the delocalisation of agricultural production and the destabilisation of world markets by turning the region into a mine of low-cost agricultural commodities, not to mention the negative effects on sustainable development in agriculture and on the environment.
6. Western Europe should develop its international trade guarantees for the benefit of the CEEC: export insurance of the COFACE type (Compagnie française d'assurance pour le commerce international), and "documentary credits", which are a form of full payment guarantee perfectly suited to the international environment.
7. The development of trade must go hand in hand with the protection of the environment. In these times of global trading, thought should be given to the real impact of the phenomenon. No thought is ever given in international trading operations to the impact on the environment of the pollution emitted by the different forms of transport used. It is undeniable that international trade flows and the resulting discharge of CO2 have a substantial impact on the environment. The disproportionate movement of traffic is strongly encouraged by low fuel prices in particular. The subject might be brought up at the renegotiation of the WTO.
C. Supporting private investment in the CEEC
1. Obstacles to investment
Foreign investors, motivated essentially by the huge potential and growth prospects of this market, are faced with the following main obstacles: i. macro-economic and political instability; ii. the great difficulty they have in gathering reliable statistics in the country on markets, government trends and legal matters; iii. the complexity of authorisation procedures; iv. long, drawn-out negotiations; v. the lack of infrastructures of various kinds (banks, communications, distribution); vi. incomplete legislation; vii. a judicial apparatus that is not able to enforce the law; viii. corruption, etc.
2. Guaranteeing investments
Finally, it is important to set up bodies and funds to guarantee investments, or to strengthen those which already exist, with appropriate funding by the state. One example mentioned at the Forum in Berlin was an agricultural loan guarantee fund (Hitelgarancia RT) set up in Hungary under the EU's PHARE programme. For a 1% fee paid by the farmer, it covers up to 50% of the risk. The countries of western Europe should also extend the range of their investment guarantee organisations to the CEEC. The idea is to guarantee investors against economic risks, that is to say, insolvency, followed by liquidation of the firm with loss of own funds.
On the other hand, farmers and the food processing industry must be protected from investors looking for short-term profits and leaving in their wake bankruptcies.
D. European Union
In this context of reform of agriculture in the CEEC, and in particular as far as applicant countries are concerned, the European Union must contribute to financing such reforms in order to help those countries to adapt their agricultural structures. The European Union has already foreseen an increase in aid within its pre-accession strategy. In addition to the funds allocated in the framework of the PHARE Programme (1.5 billion ECU a year), there will be a supplementary aid of 500 million ECU a year for agricultural development.
With its new instrument of the “accession partnership”, the European Union will put at the disposal of applicant CEEC all the means necessary to ease their adaptation to Community rules (PHARE, specific aid, co-financing operations with the EIB, the EBRD and the World Bank). In the agriculture sector, special attention should be drawn to the agro-food industry and to veterinary and phytosanitary controls.
However, notwithstanding the aid to be given to applicant countries to prepare them for their future accession, the other CEEC should not be neglected and they should benefit from any possible aid by European bodies and organisations. The Council of Europe, which counts most of the CEEC among its member countries, will continue to co-operate with them with all available means and endeavour to help those wishing to accede the European Union.
6. Conclusion
Farming, agri-business and the rural sector are vital to the future of the CEEC; they employ a great many people and contribute to the national economy in a proportion well in excess of farming activities in the west. The potential in agro-climatic, technical and human terms is real. Switching to a market economy is no easy matter, and the results vary. The different approaches to land privatisation have often led to excessive land fragmentation on the one hand, while elsewhere the vast former collective and state farms continue to exist under new legal guises. These two extremes are neither efficient nor viable. The restructuring efforts currently under way are clearly lacking in capital and in consistency, and this applies equally to farms, co-operatives and the agro-food industry. The food trade is in a growth phase, as partnership with the European Union increases and trade relations between the CEEC pick up again, but the investment climate remains chilly. Although the situation of agriculture differs greatly from one country to another, the difficulties they face in their transition to a market economy have much in common throughout the zone. In this general context, concrete measures could be envisaged in the framework of the agricultural policies already in progress, with appropriate structures to implement them. Boost agricultural economies, develop rural areas, promote east-west agricultural integration, such are the seeds of greater stability at every level in this important part of the world.
Reporting committee: Committee on Agriculture and Rural Development
Budgetary implications for the Assembly: none
Reference to committee: standing mandate; Order No. 472 (1992)
Draft resolution unanimously adopted by the committee on 20 March 1998.
Members of the committee: Mrs Johansson (Chairperson), MM. Seiler (Vice-Chairman), Figel (Vice-Chairman), MM. Aliko, Aylward, Bernardini, de Carolis, Carvalho, Chulakov, Čiupaila, Collavini, Eltz (Alternate: Radic), Etherington, Mrs Faldet, MM. Ghesquière, Ghimpu, Hadjidemetriou, Haraldsson, Hoejland, Hornung, Janowski (Alternate: Pawlak), Jeambrun (Alternate: Lesein), Kharitonov, Kiratlioglu, Kitov, Korkeaoja, van der Linden (Alternate: Woltjer), Mrs Loule, MM. Malvy, Musto, Penz, Pesek, Prusak, Regenwetter, Mrs Rugate, MM. Rupar, Sainz Garcia (Alternate: Gonzalez Laxe), Scheer (Alternate: Behrendt, Vice-Chairman), Steolea, Taylor, Telgmaa, Tripunovski, Vella
N.B. The names of those members present at the meeting are printed in italics.
Secretary to the committee: Mr Sixto.
1 - Agricultural policies in transition economies – Monitoring and evaluation; OECD, 1997.
- Pan-European Parliamentary Conference on Rural Development (Bratislava, 5-6 May 1997);
Council of Europe, 1997.
Meetings of the Committee of Agriculture and Rural Development in Vilnius and Riga
(AS/Agr (1997) 22.
Ib.
- Agricultural policies in OECD countries – Monitoring and evaluation 1997. OECD 1997.
- Meeting of the Committee on Agriculture and Rural Development in Budapest (30 October 1997)