The first 50 agricultural producers own only 4% of the arable terrain

The significant potential of the Romanian agriculture, as also the increase of prices for the agricultural products at international level could maintain the increased interest of the foreign investors on this sector. Unfortunately, the divided structure of the agricultural surface represents an obstacle in drawing in new investments, affecting in the same time the work productivity.

During the last few years the prices for the agricultural products have recorded significant increases on the international markets. The reasons are given by the increase of demand for food through the growth of the inhabitants and living standard in Asia, increase of demand for bio fuel especially in USA and European Union, the severe weather conditions that cyclically reduce drastically the agricultural production in many countries.  On their turn, the deep structural changes that take place at global economy level, including the accelerated economic increases of China and India, have faithfully reflected in the evolutions of goods in stock exchange. Among these, the international price for grain has increased with almost 200% between 2001 and 2008, and in an analysis of the Research Department of BCR it is estimated that the ascendant trend could continue in the following years, although with a more modest rhythm, because the offer from agriculture changes slower in report with the evolution of demand.

“Romania has a privileged position from the point of view of the agricultural resources, Lucian Anghel, chief economist of BCR considers. And here I firstly make reference to the arable terrain, that represents 39,5% of the territory’s total surface. Only other five states from the world have a more comfortable position than Romania from this point of view”, he adds.

A market of 500 million consumers

The domestic agricultural sector is frequently regarded as the main beneficiary of Romania’s adhesion to the European Union. The opportunities derive from the important European funds that can be attracted within the common agricultural policy – about 7,5 billion euro in the period 2007-2013.But beyond the European funds, Lucian Anghel considers that the opportunities at local level can also derive from applying a more stable and more predictable regulation as a result of implementing the common agricultural policy with positive effects in what concerns the price stabilization.

As such, the complete revaluation of the advantages resulted from Romania’s join in the European Union could open new opportunities for the Romanian farmers that will able to supply a market of 500 million consumers. “Romania can become the third European agricultural power, after France and Germany, in the conditions of a good absorption of the European funds till 2013, of some direct foreign investments and of a certain governmental support”, the chief economist of BCR considers.

Low productivity

Romania is at the highest level from the entire European Union when it comes about using the workers on their own and using the familial non-remunerated workers in agriculture (about 3 million persons in 2005). The significant difference between Romania and the big European agricultural powers, such as France, Spain, it reflects the structure of the property in agriculture: the workers on their own that work their own land in Romania against the employees that work the land of other owners in other countries. The structure of the labour force, as also the reduced investments from agriculture have directed to a low productivity. The average crop per hectare for cereals is much under the European standards, only 40% of the average crop obtained by France, for instance. Moreover, the national economy level, the gross added value reported to one employee is the most reduced in the agricultural sector.  The reduced investments from the past, as also the reduced interest of the foreigners for this sector – purchasing land had also a significant speculative element – have determined the productivity to remain at a low level. The price for the agricultural terrain has increased five times during the last five years till the level of 1.000-3.500 euro/ha, but it still remains between 3 till seven times lower comparative with the European average. The estimations from the market in domain indicate that the increase tendency will dominate also in the following years.  The inadequate structure of this sector that is dominated by the big number of small subsistence farms with a reduced orientation towards the requests of the market and without eligibility for financing, has determined a quite low revaluation share of the well known agricultural potential. While the agricultural politics and the official institutions have formally carried on all the adhesion criteria to the European Union, the agricultural sector isn’t still ready to use efficiently the opportunities and to respond adequately to the new challenges.  

99,6% are individual agricultural exploitations  

At the moment there are over 4,2 million agricultural exploitations, and the weigh of the individual farms is dominant.  Of the total number of agricultural exploitations, 99,6% are individual agricultural exploitations while the associations and companies own just 0,4%. The concentration of the agricultural surfaces should be a priority in the rural environment, with a positive impact on profitability. The average surfaces are much under the European standards, being of 2,1 hectares for the individual agricultural exploitations and of  263 hectares for the exploitations owned by the companies and associations in 2005.  Only 29% of the agricultural exploitations correspond to the European standards, having a dimension of over 1 ESU (European Size Unit). One ESU represents the economic potential of an agricultural exploitation and it is the equivalent of 1.200 euro according to the European rules. This explains the low profitability of the Romanian agriculture and the limited capacity of drawing investments in a so divided structure.  Unlike Romania, the weight of the farms that have a dimension of at least 1 ESU represents 44% in Poland, 62% in the Czech Republic, 79% in Slovakia. About 50% of the agri-cultural terrain is at the moment used of about 4 million farms, meaning 98% of the total number of farms from Romania. About 80% of these companies are classified as subsistence exploitations; 45% have under one hectare and aren’t eligible for the most part of the European programs for support. “The existence of a significant blanket of population, that is  economically and socially vulnerable, and that faces difficulties in accomplishing the new set of European norms applicable to the Romanian agriculture, derives from a low level of taking advantage of the market opportunities in what concerns the commercialization of their own production”, the chief economist of BCR explains.    

Champions at dividing

The first 50 agricultural producers, including foreign companies, own and exploit only 4% of the arable terrain, the division level being the highest from Europe. Of those 9,4 million hectares of arable terrain about 7 million hectares could receive European financing, the rest of  2,4 million hectares being just subsistence exploitations.   The subventions received by the first 50 producers have totalized 34 million euro.“The actual situation, that is also the result of the delayed reform of property, it could change just as a result of a more consistent wave of acquisition of lands by the foreign investors”, Lucian Anghel considers. In a scenario that is based on a good level of absorption of the European funds (about 80%) and high direct foreign investments, Romania could double its average production of cereals per hectare till 2013-2015.

Revaluation of production, almost inexistent

The foreign financing is crucial for agriculture because the governmental support will be low during the next years, concomitantly with an increase of the pressures exercised on the public expenditures with a significant social component –allowances, education, health. Over 81% of the agricultural individual exploitations use more than half of the obtained production for their own consumption. The small farms are incapable to sell the vegetable and animal production in modern networks of retail trade. For being able to remediate this aspect, the governmental and European support is essential. “The macroeconomic implications would be major, in the future being possible to take place an increase of the living standard in the rural areas, and to continue the development of the food industry concomitantly with the decline of the import for agricultural products”, the chief economist of BCR ends.

Potential

The significant potential of increase of the Romanian agriculture is combined with an intense investment process supported by the budget transfers and by the expansion of the agricultural policies beyond the national boundaries, some companies being able to obtain credits with low interest rates and on long term for purchasing agricultural terrain in other EU countries. Most of the foreign investors which have decided to invest in the Romanian agriculture have oriented towards big surfaces of agricultural terrain, facing
some difficulties caused by the excessive division of the lots, as also by the bureaucratic process that makes more difficult the amalgamation of terrains. The foreign companies own at the moment over 300.000 hectares, over 3% of the arable terrain.