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World Bank Document 35508 ECSSD Environmentally and Socially Sustainable Development Public Disclosure Authorized Working Paper No. 39 June 2005 ROMANIAN FOOD AND AGRICULTURE FROM A EUROPEAN PERSPECTIVE Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Csaba Csaki Holger Kray Contents List of Acronyms ...............................................................................................................................iv Acknowledgments..............................................................................................................................vi Executive Summary...........................................................................................................................vii Chapter 1 Agriculture and the Food Sector...................................................................................1 Chapter 2 The Policy Framework for Agriculture and Food ........................................................12 Chapter 3 Introducing the EU Common Agricultural Policy in Romania: Status and Impacts....26 Chapter 4 Land Tenure and Farm Structure..................................................................................61 Chapter 5 The Food Industry and Agro-processing......................................................................79 Chapter 6 Commodity and Factor Markets ...................................................................................89 Chapter 7 Developing Human Resources and Upgrading Institutions to Meet EU Standards .....134 Annexes Annex 1 Main Expenditures in the MAFRD Budget ..................................................................143 Annex 2A Introducing the EU Common Agricultural Policy in Romania: Modeling Methodology.................................................................................................................144 Annex 2B Introducing the EU Common Agricultural Policy in Romania: Selected Results........150 ii iii Acronyms Exchange rates €1 = lei 38,588 $1 = lei 34,095 ANCA National Agency for Agricultural Consulting ANCPI National Agency of Cadastre and Real Estate Publicity ARIS Romanian Agency for Foreign Investment ASAL World Bank Agricultural Sectoral Adjustment Loan CAP Common Agricultural Policy CEFTA Central European Free Trade Area CIS Commonwealth of Independent States CJCA Judets Centers for Agricultural Consultancy CLCA Local Centers for Agricultural Consultancy CNDP Compensatory National Direct Payments CPI Consumer Price Index EAGGF European Agricultural Guidance and Guarantee Fund EAFRD European Agricultural Fund for Rural Development EBRD European Bank for Reconstruction and Development EFTA European Free Trade Area ERP Effective Rate of Protection EU European Union EU-15 15 member states of the EU prior to 2004 accession round EU-25 25 member states of the EU after the 2004 accession round FDI Foreign Direct Investment FAO Food and Agriculture Organization of the United Nations FIAS fostele intreprinderi agricole de stat (state-owned farms after 1989) GAO Gross Agricultural Output GDP Gross Domestic Product GNP Gross National Product GVA Gross Value-Added IAS intreprinderi agricole de stat (state-owned farms before 1989) IACS Integrated Administration and Control System IEA International Energy Agency ISO International Organization for Standardization LFA Less Favored Areas LPIS Land Parcel Identification System MAFRD Ministry of Agriculture, Forests and Rural Development MAKIS Modernizing the Agricultural Knowledge and Information System MAFWE Ministry of Agriculture, Forests, Water and Environment (MAFWE) MEBO Management/Employee Buy-Outs NARS National Agricultural Research System NIS National Institute of Statistics NRDP National Rural Development Plan iv NRP Nominal Rate of Protection NGO Non-Governmental Organization NPAA National Program for the Adoption of the Acquis POF Private Ownership Fund ROL Romanian Lei SAPARD Special Accession Program for Agriculture and Rural Development SAPS Single Area Payment Scheme SDA State Domain Agency SEUROP Research Institute of Animal Production SFP Single Farm Payment SOF State Ownership Fund TIC Training and Information Center WTO World Trade Organization v Acknowledgments This study is a revised and expanded version of a background study on agriculture and rural development prepared in late 2003 as a contribution to the Romanian Country Economic Memorandum. The Romanian Ministry of Agriculture was the main counterpart for this study. The task was managed and led by Benoit Blarel. The study was prepared by Csaba Csaki and Holger Kray, supported by Cecilia Alexandri, Dinu Gavrilescu, Lucian Luca, and Camelia Serbanescu of the Romanian Institute of Agricultural Economics, in Bucharest. In the World Bank’s Bucharest office, Gabriel Ionita and Doina Petrescu coordinated and supported the study process. The authors gratefully acknowledge Irene Bomani’s effective assistance with the final editing and formatting of the study. Valuable input and comments were received from the EC Delegation to Romania, Pierre-Olivier Colleye, Valeriu Steriu, and the participants at a seminar on held in Bucharest May 23, 2005. vi Executive Summary Policymakers in Romania will need to make a series of important decisions in order to prepare the country for accession to the European Union and adoption of the EU Common Agricultural Policy (CAP) in 2007. This report identifies the key challenges and suggests possible options for meeting them. It focuses on four main issues: completing preparations for implementing the CAP, determining how best to structure the CAP direct payments, facilitating structural adjustment to increase competitiveness, and accelerating reforms in agro-processing, input supply, and marketing. 1. Completing Preparations for Implementing the Common Agricultural Policy To prepare for implementation of the CAP, Romania will need to create a competitive market with private and public institutions capable of meeting Common Market requirements and establishing institutions capable of administering the CAP that are compatible with those of the European Union. Increasing Competitiveness Agriculture policy in Romania has traditionally emphasized increasing production. As the country moves toward EU accession, this approach needs to be replaced with one that emphasizes increasing the sector’s competitiveness. Yields in both crop and livestock production are low in Romania, and the country’s agricultural labor productivity is by far the lowest in the region. Efficiency can be increased only by adopting policies that facilitate the structural reorganization of agriculture by allowing inefficient farms to close down (through effective early retirement schemes, for example) and removing obstacles to the expansion of new and more efficient farming units (by removing the bias against land leasing, for example). Adoption of the new policy framework and support system cannot wait until 2007. Instead, measures should be taken now, in order to facilitate the sector’s ability to adjust to the challenge of producing for the highly competitive EU market. Steps the government could consider taking include the following: · Quickly complete the most important pending transition tasks, such as privatizing land and creating functioning land markets. · Consolidate the small-scale farming sector by creating nonagricultural rural job opportunities that will reduce the agricultural work force and raise labor productivity. · Make more effective use of budgetary support to agriculture by refocusing support programs on enhancing efficiency rather than providing price support and export subsidies. · Integrate the various instruments of government intervention into a more consistent and predictable framework, by, among other things, providing a reliable orientation for farmers until the CAP goes into effect. · Create the institutions required to implement appropriate support policies after EU accession. vii · Clearly separate rural social measures (such as measures that reduce social tensions and provide social protection in rural areas) from major instruments aimed at improving efficiency and competitiveness. Creating Institutions and Regulatory Systems that are Compatible with those of the European Union Romania will have to implement the full acquis communautaire by the time it accedes to the European Union. This will involve establishing institutions capable of meeting Common Market requirements and of administering the CAP that are compatible with those of the European Union. Without timely implementation of an appropriate institutional framework, Romania will not be able to cope with the immense administrative task of implementing both pillars of the EU CAP (box 1), particularly the Single Area Payment System (SAPS) and the Compensatory National Direct Payment (CNDP) system. As the experiences of the new EU member states indicate, significant delays can create political tension and discredit the advantages of EU membership. Creating CAP–conforming institutions and training Box 1. The Pillars of the Common Agricultural Policy qualified staff represent EU spending on agriculture is channeled through the European Agricultural major challenges. Romania Guidance and Guarantee Fund (EAGGF). There are two main areas (pillars) of agricultural expenditure. has lagged in this area and remains well behind its Market and income support (Pillar 1) Market and income support measures include direct payments to farmers and second-wave accession market-related subsidies under the Common Market
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