Who Receive Rural Development Measures in Hungary? Sándor Elek1, Imre Fertő2 and Csaba Forgács1

1 Who receive rural development measures in Hungary? Sándor Elek1, Imre Fertő2 and Csaba Forgács1 1 Corvinus University Budapest/Department of Agricultural Economics and Rural Development, associate professor, Budapest, Hungary 2 Institute of Economics, Hungarian Academy of Sciences, senior advisor, Budapest, Hungary Abstract— factors of producing profits are (a) efficient use of resources, and (b) access to subsidies. It is a challenge The paper investigates the selection mechanisms of for farms in new EU member states how to get more rural development policy using a survey among farmers subsidies under CAP. Pillar 2 gives possibility for in the Southern Great Plain region characterising by the high level of unemployment and strong agricultural farms to be involved in rural development measures background. We focus on the farmers social-economic strengthening rural economy. However, it is a key characteristics explaining of success of application for issue, especially for farms in regions of good rural development subsidies employing selection and agricultural potential, how to take the advantages of count models. Estimations show that the higher different EU support programs. Farms have to apply educated and older farmers more likely apply for rural for subsidies and applications have to go through an supports, whilst the share of less favoured land affects evaluation process. However the access to rural negatively on the application for subsidy. We found development supports is different from agricultural selection bias in the success of application. Results imply subsidy. While to get the latter one is more or less that farmers with less favoured land less likely receive, automatically, if farmers able to fulfil the eligibility whilst higher educated and older farmers more likely receive rural supports. Similarly, the share of less requirements. This is not true for rural development favoured area affects negatively for number of measures. To receive rural development supports is successful application both in terms of type and number more complicated procedure, including application, of subsidy evaluation and screening etc. Keywords— rural development measures, selection Although, literature on rural development policy is models, count models also rich (de Janvry et al. 2002), but until now there is no research how and who can receive these subsidies. These issues have also implications for the I. INTRODUCTION redistributive effects of rural development policy. This There is a wealth of literature on the effects of paper is the one of first step to fill this gap. More agricultural policy from various aspects (Gardner and specifically, the aim of the paper is to investigate the Rausser, 2002). The mainstream research has selection mechanisms of rural development policy identified the unintended consequences of agricultural using a survey among farmers in the Southern Great policy for a long time. Recently, the policy analysis Plain region. We focus on the following issues. Who emphasizes the equity and targeting as operational apply for rural development subsidies and who can criteria for policy evaluation (OECD, 1998). However receive rural development measures? The rest of the there is less attention on the redistributive aspects of paper is organized as follows. Section 2 provides a agricultural policy (Allanson, 2008). Literature on the brief description of the Southern Great Plain region CAP reform stresses the increasing role of second including some basic facts on the distribution of rural pillar during reform procedure. Common argument is development subsidies. Section 3 describes the survey that using rural development measures can avoid some design and the variables. The results are presented in unintended consequences of agricultural policy, section 4. The last section summarizes and offers some especially the increasing inequality within agricultural conclusions on the implications for the rural sector. Farms’ capability of income generation is the development policy in Hungary. basis for making new investments providing ground for increasing competitiveness of farming. Two major 12th Congress of the European Association of Agricultural Economists – EAAE 2008 2 II. GEOGRAPHICAL AND ECONOMICAL GDP (on PPS) which put the Southern Great Plain at CHARACTERISTICS OF THE SOUTHERN GREAT 242 out of the 254 regions comprising the EU. In the PLAIN REGION period between 1995 and 2003 the Southern Great Plain region had the lowest economic growth rate in Hungary. However differences in net average income The Southern Great Plain, the largest (NUTS2) are not as significant as the differences in GDP. The region in the country, is located in the South and net average income of workers employed in the South-east of Hungary. The region consists of three Southern Great Plain was 87% of the national average (NUTS3) counties (Bács-Kiskun, Békés, and in 2003. Csongrád), which include ten, eight and seven The migration margin was 1.1 per one thousand statistical micro-regions respectively [See Figure 1]. inhabitants. Previous decades were characterised by Fig 1: NUTS3 regions of Hungary from-village-to-city migration but this tendency has now reversed and the population of some villages has increased, particularly in the agglomeration of Kecskemét and that of Szeged. These urbanised villages function as specific suburban zones. The Southern Great Plain’s settlement structure comprises provincial cities, market towns and large villages surrounded by homesteads. The percentage of people living in small villages is very low (2.5%). Most of the population (44.7%) lives in large villages with 2 000-10 000 inhabitants, and in provincial cities/market towns (20 000-50 000 inhabitants). In certain sub-regions there are no settlements with more than 10 000 inhabitants. The region has the largest homestead system in Source: Central Statistical Office (KSH) Hungary. Following the regime change, people began Note: Dél-Alföld = Southern Great Plain moving to homesteads in certain parts of the region. Despite its declining share, agriculture is dominant According to a study of the Homokhátság micro- in the regional economy. Although, the Southern Great region, the main reason for families to move from the Plain accounts for only 9% of the total Gross cities to homesteads was their social status (social Domestic Product (GDP) of Hungary, it accounts for migration). Families tried to improve their status by 25% of the agricultural GDP. Agriculture’s share of means of agricultural production and having a cheaper the regional GDP was 15% in 1995, and 9% in 2002. homestead lifestyle. However, without expertise and About 62% (965 000 hectares) of the region’s arable the proper means of production, there is little chance land was cultivated by private holdings in 2000 (the of profitability, which could lower the families’ social year of the Agricultural Census). The Southern Great status further. Plain’s economic structure differs from the national The employment rate for people aged 15-64 in average, particularly in the agricultural and service Hungary (56.9% in 2005) corresponds with the sectors. Industry’s share in regional and national GVA average employment rate in the ten new member is about equal but regionally agriculture is over- states. However, it is significantly lower than the rate represented by 6.7%, and services are of 64% for EU-15. In 2004 the Southern Great Plain’s underrepresented by 5% compared to the national employment rate for those aged 15-64, was 47.3%, figures. compared to the national rate of 50.6%. In Hungary The per capita GDP for the Hungarian regions, with the low employment rate is not coupled with a high the exception of Central Hungary, achieved only 75% unemployment rate because of the high number of of EU average in 2002, the Southern Great Plain was disability pensioners who are under retirement age. at 40.4% of the EU average in terms of per capita 12th Congress of the European Association of Agricultural Economists – EAAE 2008 3 The region’s has a strong agricultural character the relationship with trade partners both on input and proportion of agricultural employment is the highest of output side. all regions. Besides this, the ratio of people involved Table 1 present summary statistics on the variables. in the sector in some way (e.g. part-time farming or Only 40 per cent of farmers apply for any type of seasonal work) is 21.7%, second highest in the country subsidies, whilst only 29 per cent of total farmers behind the Northern Great Plain. received support. Farmers get maximum three types of The proportion of the Southern Great Plain in subsidies; whilst the maximum number of support was agricultural subsidy is lower than in the agricultural six during the analysed period (after 2003). The GDP. In 2004-2006 this figure was 23 %. Similarly to average area of farms was 63.4 hectare, and the mean national situation, the bigger farms are area of less favoured land amounted to 22.4 hectare. overrepresented in the agricultural support. Whereas About two-thirds of farmers run the farm as family the bigger farms have lower proportion in agricultural farm, and the share of part-time farm was about 7 per structure of the Southern Great Plain, the total amount cent. of subsidy is lower than role of the region in the Hungarian agriculture. In 2004-2006 the farms over 50 Table 1 Descriptive statistics of variables ha had the 64% of agricultural subsidy in the region Std. N Mean Min Max and 71 % in Hungary. Meanwhile the proportion of Dev. farms over 50 ha in all farms which had subsidy was only 6,6 % in the region and 7,3 % in Hungary. Dependent variables Subsidies of farms have increased significantly after Apply for subsidy 267 0.40 0.49 0 1 2004. One could expect that large farms may have got Received subsidy 274 0.29 0.45 0 1 increasing share of supports during last years. Based Number of type of on survey data it will be tested whether this hypothesis received subsidy 274 0.35 0.60 0 3 can be justified or it should be rejected.

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