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SAPARD REVIEWin Bulgaria, Czech Republic, Estonia,Hungary, Latvia, Poland and Romania

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IMPACT ANALYSIS OF THE AGRICULTUREAND RURAL DEVELOPMENT

SAPARD REVIEW2

COMPARATIVE STUDY ON THE SAPARD PROGRAMME - SEVEN POINTS OF VIEWSAPARD REVIEW IN BULGARIA, CZECH REPUBLIC, ESTONIA, HUNGARY, LATVIA, POLAND AND ROMANIA

Impact analysis of the agriculture and rural development

REPORT ON THE EFFECTIVENESS AND RELEVANCY OF INVESTMENT ACTIVITIES UNDER SAPARD IN BULGARIAIN ITS ROLE AS A PRE-ACCESSION FINANCIAL ASSISTANCE INSTRUMENTMiroslava Georgieva, Director of "Rural Development and Investments" DirectorateMinistry of Agriculture and Forestry, Bulgaria

NATIONAL REVIEW ON THE SAPARD PROGRAMME IN THE CZECH REPUBLICPetra Cerna, IUCN - The International Union for Nature Conservation Regional Office for Europe,European Union Liaison Unit, Belgium

SAPARD IN ESTONIADoris Matteus, chief specialist,Ministry of Agriculture of Estonia, market development bureau, Estonia, www.praxis.ee

PLANNING AND IMPLEMENTING THE SAPARD PROGRAMME IN HUNGARYKatalin Kovacs, ResearcherCentre for Regional Studies, Hungarian Academy of Sciences, Hungary, www.ceu.hu

SAPARD IN LATVIAJuris Hazners, Project ManagerAgricultural Marketing Promotion Center Latvian State Institute of Agrarian Economics, Latvia

NATIONAL REVIEW OF SAPARD PRE-ACCESSION ASSISTANCE IMPACT ON NATIONAL AGRICULTURE ANDRURAL DEVELOPMENT IN POLANDTomasz Grosse, Head of the projectInstitute of Public Affairs, Poland, www.isp.org.pl

NATIONAL REVIEW ON THE IMPLEMENTATION OF THE SAPARD PROGRAMME IN ROMANIAMarian Stoian , researcherCentre for rural assistance, Romania, http://www.rural-center.org; http://www.ruralnet.ro

Design and Layout: STRATEGMA Agencyhttp://www.strategma.bg

April 2005ISBN: 954-9506-17-7

EUROPEAN INSTITUTE FOUNDATION96, Rakovski str.Sofia 1000, Bulgariahttp://www.europeaninstitute.net

This publication is prepared withthe financial support of theOPEN SOCIETY INSTITUTE

3ÊÐÀÒÚÊ ÀÍÀËÈÇ ÍÀ ÂÚÇÄÅÉÑÒÂÈÅÒÎ ÂÚÐÕÓÇÅÌÅÄÅËÈÅÒÎ È ÑÅËÑÊÈÒÅ ÐÀÉÎÍÈIMPACT ANALYSIS OF THE AGRICULTUREAND RURAL DEVELOPMENT

TABLE OF CONTENTS

INTRODUCTION 4

BULGARIA 7

CZECH REPUBLIC 37

ESTONIA 81

HUNGARY 105

LATVIA 141

POLAND 175

ROMANIA 199

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SAPARD REVIEW4

INTRODUCTION

The purpose of the project "ComparativeReview of SAPARD Pre-Accession Assis-tance Impact on National Agriculture andRural Development in 5 New EU MemberStates (Czech Republic, Poland, Estonia,Latvia, Hungary) and 2 future EU memberstates (Bulgaria, Romania)", financed bythe Open Society Institute - Budapest, is toreview the implementation of theProgramme in seven Central and East Eu-ropean countries - the Czech Republic, Po-land, Estonia, Latvia, Hungary, Romaniaand Bulgaria.

SAPARD Programme is a special pre-ac-cession programme of the European Unionin the field of agriculture and developmentof rural areas aiming at assisting the coun-tries with a status of accession candidatesto manage their problems related to thestructural adjustment of their agriculturalsectors and rural areas as well as the intro-duction of acquis communautaire in relationto the Common Agriculture Policy (CAP).

Since the accession countries, except Ro-mania and Bulgaria, became in 2004 EUMember States, the European Institute con-cluded that the implementation of thisproject will provide the interested in thissubject parties with the opportunity to viewthe chronological events - successful andproblematic ones - at implementing theProgramme in the separate countries aswell as to benefit from the experience of theimplementation of the pre-accession aidprovided for the purpose of the active par-ticipation of the above countries into the

Common Agriculture Policy of the EuropeanUnion.

The experts engaged in the implementationof this project prepared reports assessingthe following aspects:

Coherence of the aims of the SAPARDProgramme with the aims of the NationalStrategies;

The effective implementation (distri-bution of responsibilities, managementand control), along with the effectivefunctioning of the monitoring systems;

The achievements of the Programmewith a view of the results;

The implementation of the commonand specific assessment criteria and in-dices.

The structure of the national reports is iden-tical and it is aiming to present:

An overall comparative assessment ofthe institutional impact of the implemen-tation of the SAPARD Programme and inparticular - to present its contribution tothe preparation of the correspondingcountry for the enforcement of theacquis communautaire;

Analysis of the positive impact of theimplementation of the SAPARDProgramme with a view to the introduc-tion of the acquis communautaire in thefield of the Common Agriculture Policyof the European Union.;

ABOUT PROJECT


Analysis of the role that the SAPARDProgramme played in the implementa-tion of the partnership schemes and theconsultative process, which includes thesocial and economic partners;

A profile of the beneficiaries of theprojects under of the SAPARDProgramme, along with the measuresthat are to be taken in order to improveand diversify this profile;

Analysis of how did the decentralizedmodel for the management of theSAPARD Programme assisted the ab-sorption of the EU resources for the de-velopment of the rural areas after firstperiod of EU membership;

Analysis of the good practices and theexperience gained from the operationsunder the SAPARD Programme withinthe range of the priorities for the corre-sponding areas of the state;

Analysis of how do the projects fi-nanced under the SAPARD Programmeimplemented EU sustainability and ecol-ogy requirements;

Analysis of the transparency and thepublic participation in the decision mak-ing process of the cofinancing institu-tions such as the European InvestmentBank;

How could the skills developed andthe experience gained be most effi-ciently implemented and how could spe-cial funds assisting the improvement of

the preparation of projects be estab-lished in order to benefit most from theEU aid streamed for the agriculture;

The published reports present the authors'opinion, regardless of the fact that they aredrawing on official sources of information,and thus they do not tend to be exhaustiveor seek the commitment of the EuropeanCommission.

SAPARD REVIEW6

EUROPEAN INSTITUTE, Bulgaria96, Rakovski str., Sofia 1000, BulgariaPhone: +359 2 988 64 10, fax: 359 2 988 64 11e-mail: [email protected]

INSTITUTE FOR EUROPEAN POLICY - EUROPEUM,Czech RepublicRytirska 31, Praha 1, 110 00Phone: +420 221 610 206 (207); fax: +420 221 610 204e-mail: [email protected]; www.europeum.org

CENTER FOR POLICY STUDIES - PRAXIS, EstoniaEstonia pst. 5a, Tallinn 10143Phone. 64 09 000; Fax 64 09 001e-mail: [email protected]; www.praxis.ee

CENTRE FOR POLICY STUDIES, HungaryCentral European UniversityH-1051 Budapest, Nador Street 9-11Phone: (36 1) 327 31 18; Fax: (36 1) 235 61 70e-mail: [email protected]; www.ceu.hu

CENTER FOR PUBLIC POLICY - PROVIDUS, LatviaAlberta 13, Riga LV-1010Phone.: + 371 703 92 51; Fax: + 371 703 92 44e-mail: [email protected]; www.politika.lv

INSTITUTE OF PUBLIC AFFAIRS, Polandul. Szpitalna 5 lok. 22, 00-031 WarszawaPhone: (48-22) 55 64 260; fax: (48-22) 55 64 262e-mail: [email protected]; www.isp.org.pl

CENTER FOR RURAL ASSISTANCE, Romania300543 Timisoara, P-ta Istria nr. 6,Phone: +40 256 49 24 93, 22 47 58; Fax: +40-256 22 14 69e-mail: [email protected]; www.rural-center.org

PARTNERS


TABLE OF CONTENTS

INTRODUCTION ...................................................................................................................................................................... 11

STRUCTURAL ANALYSIS OF THE EFFECTIVENESS AND RELEVANCY OF SAPARD IN BULGARIA .................................. 17

CONCLUSIONS AND RECOMMENDATIONS ........................................................................................................................ 33

RECOMMENDATIONS TO DEVELOP AND STRENGTHEN PARTNERSHIP ......................................................................... 35

LIST OF REFERENCES ............................................................................................................................................................. 36

SAPARD REVIEW10 BULGARIA

LIST OF ABBREVIATIONS

AFA Annual Financing Agreement

BTIC Bulgarian Trade and Industry Chamber

CAP Common Agricultural Policy

EAGGF European Agriculture Guarantee and Guidance Fund

EC European Commission

EIA Environment Impact Assessment

EU European Union

MAF Ministry of Agriculture and Forestry

MAFA Multi-Annual Financing Agreement

MC Monitoring Committee

ME Ministry of Economy

MEW Ministry of Environment and Waters

MF Ministry of Finance

MLSP Ministry of Labor and Social Policy

MRDPW Ministry of Regional Development and Public Works

NAAS National Agricultural Advisory Service

NARDP National agriculture and rural development plan

NEDP National Economic Development Plan

NGO Non-Governmental Organization

NPAA National Program for the Adoption of the Acquis

NPPQAS National Plant Protection, Quarantine and Agro-chemistry Service

NSI National Statistics Institute

NVS National Veterinary Service

RDID Rural Development and Investment Directorate

SA SAPARD Agency

SAPARD Special Accession Program for Agriculture and Rural Development

SFA State Fund "Agriculture"

SVSCS State Veterinary and Sanitary Control Service


INTRODUCTION

The report reviews in detail the key EU regulationson the pre-accession instruments SAPARD, ISPAand PHARE and compares the SAPARD Regulationwith Regulation EC 1257/1999 on the rural devel-opment in the member-states for the period 2000-2006. The comparative review leads to the conclu-sion that SAPARD appears as the only pre-acces-sion instrument that directly prepares the candi-date-countries to manage programs under theStructural Funds of the EC.

The results of the implementation of SAPARD inBulgaria were analyzed on the basis of the reportscompiled for the regular meetings of the BulgarianSAPARD Monitoring Committee, as well as on thebasis of the mid-term evaluation of the Program andthe annual SAPARD report of the European Com-mission.

With the adoption of Agenda 2000, the EU put for-ward a new strategy for its enlargement. The en-largement strategy was accompanied by the sign-ing of Accession Partnerships with the candidate-countries and was financially backed up by the es-tablishment of two new instruments - ISPA and SA-PARD.

The SAPARD implementation will cover the period2000-2006 and the annual financial envelope of theprogram allocated by the EC is 520 million euro forthe ten countries in transition: Bulgaria, Hungary,Poland, Czech Republic, Slovakia, Slovenia, Esto-nia, Lithuania, Latvia and Romania.

The basic regulation on SAPARD is the Council Reg-ulation (EC) 1268/1999 of June 21st, 1999 on theCommunity support to pre-accession measures foragriculture and rural development in the applicantcountries of central and eastern Europe in the pre-

accession period [referred to as the SAPARD Reg-ulation], as amended by Regulation (EC) 696/2003of April 14th, 2004.

In pursuance of article 11 of the SAPARD Regula-tion, the European Commission allocates the an-nual financial envelope under the Program amongthe applicant countries and communicates its de-cision to each applicant country on its allocation forthe seven-year program period. Article 7(3) of thesame Regulation points out that the allocationamong the applicant countries is made using ob-jective criteria:

Gross Domestic Product per capita in pur-chasing power;

Farming population;

Agricultural area;

Specific territorial situation.

The indicative annual allocation of funds among theapplicant countries under SAPARD was determinedby the annex to Decision of EC 1999/595 of July20th, 1999. The European Commission gave vary-ing weights to the objective criteria listed in theSAPARD Regulation. Thus, 90% of the funds wereallocated among countries using the two key crite-ria: agricultural area with weight of 65% and farm-ing population with weight of 35%. The resultantcountry allocations were modified for each countrydepending on the variance of its GDP in purchas-ing power from the average GDP of the ten coun-tries. The remaining 10% of the funds were allocat-ed on the basis of the specific territorial situations.

The annual allocations are in fixed year 1999 pricesand are given in the table below.

REPORT ON THE EFFECTIVENESS AND RELEVANCY OF INVESTMENT ACTIVITIESUNDER SAPARD IN BULGARIA IN ITS ROLE AS A PRE-ACCESSION FINANCIALASSISTANCE INSTRUMENT

Miroslava Georgieva,Director “Rural Development and Investments Directorate”

SAPARD REVIEW12

Annual allocation to the applicant countries participating under SAPARD

yrtnuoC )oruEni(noitacollA

yragnuH 00045083

aivtaL 00084812

ainevolS 0007336

airagluB 00042125

cilbupeRhcezC 00036022

ainauhtiL 00092892

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dnaloP 000386861

ainotsE 00073121

ainamoR 000636051

The indicative allocation of funds shows that Bul-garia was granted the third largest annual countryallocation after Poland and Romania to the tune of52 124 000 euro in 1999 prices. The concrete an-nual country allocation for each year of the 7-yearsprogram period is set in prices for the respectiveyear and is subject to the signing of Annual financ-ing agreements (AFA) between the EC and the can-didate-country. To the annual EU allocation eachapplicant country adds co-financing from nationalfunds in pursuance of the additionality principle. Itis a major principle of the Structural Funds that EUassistance should not substitute national aid butcomplement the efforts of the respective countryto assist certain sectors and/or regions.

The EU assistance plus the national co-financingform the public subsidy under the program.

The EU assistance under SAPARD investment mea-sures reaches 75% of the total public subsidy.

For investment projects, which generate rev-enue, the rate of the public subsidy reaches 50%of the total investment costs. 75% of the public

subsidies come from the EU assistance and 25%are national co-financing;

For investment projects, which do not gen-erate revenue, the rate of public subsidy reaches100% of the total investment costs. 75% of thepublic subsidies come from the EU assistanceand 25% are national co-financing.

In this respect Regulation 696/2003 introducedcertain amendments - in case of natural disastersin the SAPARD applicant countries, the share of EUassistance in the public subsidy may reach 85%, ifapplied with projects/measures for affected re-gions. The same regulation modified the conditionunder the Technical Assistance measure, allowingthe EU co-financing to reach 100% of the subsidy.

The main priorities of SAPARD, as pointed in theSAPARD Regulation, include assistance for the im-plementation of European legislation under the EUCommon Agricultural Policy and related policiesand for solving priority and specific problems in thesustainable transition of agriculture and rural areasin the applicant countries.

BULGARIA


For this purpose, the SAPARD Regulation requiresthat each applicant country prepare National Agri-culture and Rural Development Plan in accordancewith the programming principle used in the mem-ber-states for their rural development programs.The applicant countries were allowed to include upto 15 different measures in their plans. The eligiblemeasures were specified in the SAPARD Regula-tion. Most of these measures correspond to mea-sures applied in the member-states in pursuance

of Council Regulation 1257/1999 of May 17th, 1999on the support for rural development from the Eu-ropean Agriculture Guidance and Guarantee Fund(EAGGF), as amended by Council Regulation 1257/1999.

The table below lists the measures applied in themember-states that can also be implemented un-der SAPARD in the applicant countries.

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ymonocelarurotsecivrescisaB oN

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seitivitcalarutlucirgafonoitacifisreviD seY

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noitatseroffA oN

spuorgrecudorP seY

gnirutcurtsergniogrednusmrafecnetsisbus-imeS oN

SAPARD REVIEW14

Which, according to the EU regulations, are the mainpre-conditions for the start of the SAPARD imple-mentation in the applicant countries?

The two key pre-conditions were:

1.Preparation of a National Agriculture and Ru-ral Development Plan for the period 2000-2006based on the principles of the EU StructuralFunds;

2.Conferral of financial management to the ap-plicant country on a decentralized basis with ex-post controls by the EC. This follows the prin-ciple of financial management of the Guaranteesection of EAGGF and entails the accreditationof a SAPARD implementing and paying agency.

As pointed out in the first SAPARD annual report ofthe Commission, the preparations for the start ofSAPARD implementation aided the applicant coun-tries to acquire practical experience in the proce-dures and principles of the Structural Funds and ofthe rural development policy in the member-states.

The fulfillment of the key pre-conditions introducedthe principles of the Structural Funds in the follow-ing aspects:

1.The National Agriculture and Rural Develop-ment Plan was prepared by the competent au-thorities and submitted to the EC after compul-sory consultations with the socio-economicpartners at the national level. This introduced thepartnership principle, which is a core principlein the Structural Funds management system;

2.The National Agriculture and Rural Develop-ment Plan had to be reviewed by the EC STARCommittee, established in compliance withRegulation 1260/1999 (laying the main condi-tions for the management of the StructuralFunds) and consisting of member-state repre-sentatives. This enabled the applicant countries

to acquire experience in the functioning of thesystem;

3.The National Agriculture and Rural Develop-ment Plan is a multi-annual plan. This inducedthe applicant countries to acquire experience inthe management of multi-annual programs: howto check operational progress, to analyze effec-tiveness, and when needed, how to amend andcomplement the program. To conduct theseactivities in an efficient manner, the authoritiesneed an information/monitoring system, en-abling the analysis of statistical data as well asthe preparation of annual progress reports;

4.The obligatory establishment of a MonitoringCommittee enhanced the process of regularconsultation with the partners throughout theentire period of program implementation. At thesame time, it allows its members to gain practi-cal experience in the definition and analysis ofdata indicators to monitor progress;

5.The applicant countries had to conduct ex-ante and mid-term evaluations of the Programand their successful completion meant that theyhad gone far into their preparation to manageStructural Funds after the accession;

6.The conferral of management of SAPARDfunds through the accreditation of a SAPARDAgency was an important step forward in theaccession preparations because the countrygained experience in the setting up of financialcontrol systems compatible to those applied inthe member-state paying agencies. The aim wasto guarantee the implementation of clearly de-fined rules and responsibilities, transparency ofoperations and sound financial management ofCommunity assistance. Therefore, the applicantcountries acquired experience in the pre-acces-sion period in the development of the systems,needed to manage the Structural Funds pro-grams.

BULGARIA

ytilauqdooF yllaitrap,seY

sdradnatsytinummoChtiwecnailpmoC oN

ecnatsissalacinhceT seY


Bulgaria was the first country among the 10 appli-cant countries under SAPARD to meet the pre-con-ditions for the start of the Program implementation.The National Agriculture and Rural DevelopmentPlan for the period 2000-2006 was approved by theEC [following the positive review by the STAR Com-mittee on September 12th, 2000] with a decisiondated October 20th, 2000. The State Fund "Agri-culture" was accredited as the SAPARD Agency onMay 15th, 2001 after the EC took a decision to con-fer the management of the three main measures ofthe National Plan for Agriculture and Rural Devel-opment:

Measure 1.1. "Investments in agriculturalholdings";

Measure 1.2. "Improving the processing andmarketing of agricultural and fishery products";and

Measure 2.1. "Development and diversifica-tion of economic activities, providing for multipleactivities and alternative income".

The official start of the SAPARD implementation inBulgaria was set on June 1st, 2001 with the publi-cation in the State Gazette of the Ordinances forthe implementation of the above three measures.

With a decision of the EC dated August 14th, 2003the SAPARD Agency was granted conferral of man-agement for 7 other measures from the NationalAgriculture and Rural Development Plan:

Sub-Measure 1.2.1 "Wholesale markets";

Measure 1.4 "Forestry, afforestation of agri-cultural lands, investments in forestry holdings,processing and marketing of forestry products";

Measure 1.5 "Setting up producer groups";

Measure 2.2 "Renovation and development ofvillages, conservation of rural heritage and cul-tural traditions";

Measure 2.3 "Development and improvementof rural infrastructure";

Measure 3.1 "Improving vocational training";

Measure 4.1 "Technical assistance".

The implementation start of the above measureswas set with the publication in the State Gazette ofthe respective Ordinances. The preparations forconferral of management for the last two measuresfrom the National Plan - measure 1.6 "Water re-sources management" and measure 3.1 "Develop-ment of environment-friendly agricultural practic-es" - are in their final stages.

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,rebmevoNfodn229991

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Timeline of SAPARD in Bulgaria

SAPARD REVIEW16

The main regulatory act on the implementation ofSAPARD in Bulgaria is the Act on the ratification ofthe Multi-Annual Financing Agreement 2000-2006between the European Community and the Repub-lic of Bulgaria under the Special Accession Programfor Agriculture and Rural Development (adopted bythe National Assembly on February 9th, 2001 andpublished in the State Gazette on February 23rd,2001).

The Multi-Annual Financing Agreement (MAFA) laysthe main requirements for the management andcontrol of the SAPARD funds throughout the pro-gram period. MAFA is grounded in three basic prin-ciples:

Full decentralization of the management offunds through its conferral to a SAPARD Agencyin each of the applicant countries;

Signing of annual financing agreements, set-ting the respective annual allocations;

Application of the clearance-of-accounts pro-cedures of EAGGF-Guarantee section.

It must be emphasized that MAFA introduces cer-tain payment procedures that are similar to thoseunder the Structural Funds, as well as specific re-quirements for setting up a Monitoring Committee,for program evaluation and reporting of progressthat are also compatible with those of the Structur-al Funds.

The key units/institutions, engaged in the manage-ment and monitoring of SAPARD in accordance toMAFA, are listed in the following table:

BULGARIA

1002,yraurbeFfoht21 dengissi0002roftnemeergAgnicnaniFlaunnAehT

1002,yaMfoht51 nalPlanoitaNehtfoserusaem3rofycnegADRAPASehtottnemeganamlaicnaniffolarrefnocstnargCEehT

1002,enuJfots1 airagluBninoitatnemelpmiDRAPASehtfotratS

2002,yraurbeFfoht91 dengissi1002roftnemeergAgnicnaniFlaunnAehT

3002,lirpAfoht4 dengissi2002roftnemeergAgnicnaniFlaunnAehT

3002,yluJfodr32 dengissi3002roftnemeergAgnicnaniFlaunnAehT

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Regulatory and Administrative Framework


STRUCTURAL ANALYSIS OF THE EFFECTIVE-NESS AND RELEVANCY OF SAPARD INBULGARIA

Strategy for agriculture and rural develop-ment of Bulgaria in the period 2000-2006under the SAPARD, priority areas, mea-sures and eligible beneficiaries

The overall objective of the National Agriculture andRural Development Plan is the achievement of theobjectives of the Accession partnership and theNational program for adoption of the acquis com-munautaire.

Thus, in pursuance of the:

1)Accession partnership objectives;

2)Economic priorities laid down by the NationalProgram for adoption of the acquiscommunautaire;

3)Regulation 1268/1999, article 1(2) "Commu-nity support shall comply with the conditions laiddown in the framework of accession partner-ships and shall relate in particular to:

a)contributing to the implementation of theacquis communautaire concerning the com-mon agricultural policy and related policies;

b)solving priority and specific problems forthe sustainable adaptation of the agriculturalsector and rural areas in the applicant coun-tries."

4)The socio-economic conditions in the ruralareas of Bulgaria, their strengths and potential.

The following strategic objectives of the BulgarianNational Agriculture and Rural Development plan2000-2006 were defined:

1.Development of efficient and sustainable ag-ricultural production and competitive food pro-cessing sector through improved market andtechnological infrastructure and strategic in-vestment policies, ultimately aimed at reachingthe EU standards;

2.Sustainable rural development, consistentwith the best environmental practices, by pro-viding alternative employment opportunities,economic diversification, development and re-habilitation of infrastructure. This will lead to im-proved standards of living and will increase in-come and employment opportunities for ruralcommunities.

Both objectives aim at improving the rural economicand social conditions. They are also directly aimedat improving the farming structures and their mar-ket efficiency with a view to implementing the Com-munity acquis while creating employment oppor-tunities and raising living standards in the rural ar-eas.

The objectives follow the priorities specified in arti-cle 4.3 of Regulation 1268/1999, namely: "In theirplans, applicant countries shall ensure that priorityis given to measures to improve market efficiency,quality and health standards and measures to cre-ate new employment in rural areas, in compliance

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SAPARD REVIEW18

with the provisions on the protection of the envi-ronment".

The first strategic objective of the National Agricul-ture and Rural Development Plan is focused on thedevelopment of efficient and sustainable agricul-tural production and competitive food processingsector that is compliant with the EU standards.

The analysis of the strengths and weaknesses of theBulgarian agricultural production sector and ruralareas pointed out a number of internal and exter-nal structural problems faced in the transition of thecountry towards market-oriented economy. Thesecan be summarized as follows:

Fragmentation of the farming structures,leading to a huge number of semi-subsistencefarms;

Deteriorating condition of agricultural ma-chinery and equipment in the farms, leading tosubstantial losses, low productivity and low pro-duction quality;

Aging rural population, lacking skills andknowledge of modern farming managementand production methods;

Inadequate skills and capacity of primary pro-ducers to influence farm gate prices, resultingfrom the under-developed market infrastruc-ture, inadequate transparency of market infor-mation, lack of tradition in market cooperationand inadequate contracting opportunities - lackof long-term contracts between producers andprocessing entities, leading to price instability,insecure income and lack of stimuli for invest-ments in specific production activities (such ascreation of vineyards and orchards);

Lack of integrated and multi-sector ap-proach;

Lack of internal coordination and effective-ness;

Lack of sustainability and environment pro-tection;

Lack of partnership.

The strategy for the implementation of measuresunder objective 1 of the National Agriculture andRural Development Plan is based on improving theefficiency and competitiveness of primary agricul-tural production and of the food industry.

Sector scope of the strategy: the priority sectorswere selected following analyses at expert level andpublic discussions with the professional associa-tions. The core criteria for the selection of prioritysectors was the difficulty faced in the restructur-ing, their comparative advantages [evident in theirgood present or past export potential].

Special investment support had to be provided tomilk producers in order to improve the quality andmarketing of milk. Efforts had to be focused on theimprovement of livestock housing conditions, onthe hygiene of milking and milk storage, as well ason modern milk collection points and transport.

Another priority was related to the investment sup-port for perennials - apple, peach, cherry, berriesand rehabilitation of vineyards. The needed invest-ments in the latter are tremendous. The sector anal-ysis showed a deteriorating age structure of vinesand a drastic drop in areas planted with Bulgarianvine varieties. This means that substantial financialsupport has to be provided to rehabilitate this tra-ditionally competitive sector of Bulgarian agricul-ture.

During the development of the strategy special at-tention was devoted to the potential impact of themeasures under objective 1 on employment in therural areas.

According to the ex-ante evaluation of the NationalAgriculture and Rural Development Plan, it was likelythat the proposed combination of measures andinterventions would have a positive impact on ruralincome and on work conditions.

The increase in income and the improvement ofwork conditions would in turn affect the mainte-nance of rural employment and might slow downthe migration of young people from rural areas.

BULGARIA


The second objective of the National Agricultureand Rural Development Plan was focused on theachievement of sustainable development of ruralareas in line with the best environmental practices,through provision of alternative employment, diver-sification of economic activities and rehabilitationof rural infrastructure.

The rural areas have great resources that shouldspur development. In the past most basic servicesfor the population were available in the rural areas.However, at present the services sector in theseareas could not offer good quality and opportuni-ties and could not stem the outflow of people tolarger towns.

The compact villages populated with closely knitcommunities with strong traditions and identity,along with the well-developed [in the past] socialinfrastructure, need renovation and extension offacilities. The problems with the poorly maintained

and at times inexistent road network, sewerage andsanitation have to be solved. In certain areas ruralcommunities are also faced with problems in tele-communications and electricity supply. The over-coming of these problems could make these areasmore attractive in terms of fostering economic de-velopment.

Irrespective of the fact that there is an extensiveroad network, its poor maintenance in the past cou-ple of decades poses enormous obstacles to eco-nomic development of remote rural settlements -many of these settlements remain isolated from theregional centers. This makes them unattractive forthe business and for the younger generations.

The principle of sustainable rural develop-ment largely combines many of the other prin-ciples of development policy, such as: rationaluse of natural resources, conservation of ruralenvironment, rational and effective manage-

The achievement of the two strategic objectives had to come through 4 priority areas with 11 measures.

Priority area 1 - Improvement of the production, processing and marketing of agricultural and forestryproducts, as well as the processing and marketing of fishery products in compliance with the EU acquis,promotion of environment-friendly farming and environment protection

Priority area 2 - Integrated rural development aimed at protecting and strengthening rural economiesand communities

Priority area 3 - Investment in human resources

Priority area 4 - Technical assistance

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SAPARD REVIEW20

ment of forests, eliminating pollution sources,etc.

Program implementation results bymeasure

By February 2005 there were 1 909 projects ap-proved under the Program measures with a cumu-lative value of 768 878 208 Euro. Most of the ap-proved projects were under measure 1.1 "Invest-ments in agricultural holdings" - 1 324 projects, fol-lowed by measure 2.1 "Development and diversifi-

cation of economic activities" with 291 projects andmeasure 1.2 "Improving the processing and market-ing of agricultural and fishery products" with 238projects.

It is evident from the graphs below showing thenumber of approved projects, contracted funds andreimbursed projects that the up-take of SAPARDfunds has been going quite well. If at the beginningof the Program implementation the main problemwas insufficient number of applicants, then twoyears ahead of the Program end the main problem

BULGARIA

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1324

238

5

291

30 17 40

200

400

600

800

1000

1200

1400

Measure 1.1. Measure 1.2. Measure 1.4. Measure 2.1. Measure 2.2. Measure 2.3. Measure 4.1.

number of projects

Number of completed projects by measure until 31.12.2004

Database of approved projects, MAF.

Number of approved projects by measure until 28.02.2005

Database of approved projects, MAF.

607

131

1

102

10

100

200

300

400

500

600

700

Measure 1.1. Measure 1.2. Measure 1.4. Measure 2.1. Measure 4.1.

number of projects


Contracting of assistance under SAPARD (EU + national co-financing) until 28.02.2005according to the financial plan for 2000-2004 (in %)

Source: Database of approved projects, MAF

Contracting of SAPARD budget 2000 - 2006 by measure until 28.02.2005 forapproved projects


92,7%

74,0%

5,2% 5,2%

34,0%39,9 %

48,8 %

34,1 %

0

10

20

30

40

50

60

70

80

90

100

Measure 1.1. Measure 1.2. Measure 1.2.1. Measure 1.4. Measure 2.1. Measure 2.2. Measure 2.3. Measure 4.1.

% of the budget of each measure of SAPARD for 2000-2006

10099,9

99

100

Allocated subsidy (EU + national) for 2000-2004 according to the financial plan of SAPARD Contracted subsidy (EU + national co-financing)


appears to be the almost completely absorbedfunding under the main measures. The last graphpresents a comparison between the applicantcountries and indicates that Bulgaria has beenamong the most successful countries under theProgram.

Measure 1.1 "Investments in agricultural holdings"

Currently there are 1 324 projects approved underthe measure with cumulative value of 322 796 392Euro. Of these, two-thirds are projects of large agri-companies, while the rest are mostly of agriculturalcooperatives. Most of the approved projects involvepurchase of machinery and equipment and recon-struction of farm premises. 65% of the approvedprojects [some 760 projects] involve purchase oftractors, combine-harvesters and their implements.The achieved practical results differ from the initiallyplanned progress indicators. The greatest diver-gence exists in the milk production sector, whereproject applications are very few - hardly 28 ap-proved projects. The situation is much better in the"perennials" sectors - 343 approved projects and"cereals, oil seeds, vegetables, flowers" with 852approved projects. The number of projects from thelivestock breeding sub-sectors is below the expec-tations with just 117 approved projects. These sub-sectors are faced with heavy requirements for the

introduction of the EU standards. There are almostno approved projects from dairy farms. The small-er farmers have not been reached under SAPARDat all.

These latter results prompted special analysis of thecauses for the insufficient number of project fromthe milk production sector. Following the recom-mendations made in the analysis and the effort ofthe permanent working group on the measure, theMonitoring Committee decided to earmark a spe-cial budget solely for projects inthe milk produc-tion sector.

The investments assisted by the measure have hada positive effect on the competitiveness of benefi-ciaries, leading to lower production costs, lowerlosses during harvesting and higher yields. The in-vestments should also affect the management ofwaste products and water, and of manure, result-ing in increased efforts and awareness in terms ofenvironment protection in rural areas. With regardto the uneven interest in applying under the mea-sure sectors, the Monitoring Committee held dis-cussions at its 7th meeting in an attempt to boostapplications by farmers intending to reach compli-ance with the hygiene and veterinary conditions. Inorder to focus the effort on this issue, the Commit-tee decided that submission of applications for ag-

Source: general directorate "Agriculture", European Commission

Contracting of assistance by country as % of funds under the Annual Financing Agreements 2000-2003

113

105110

105101

115110

115

66

110

0

20

40

60

80

100

120

140

BG EE Sl LT LV CZ SK PO RO HU


Measure "Investments in agricultural holdings" - approved projects until 28.02.2005 and reim-bursed projects until 31.12.2004 by sector in Euro

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Source: Database on approved projects, MAF

ricultural machinery would be suspended as of July1st, 2004.

Additional information on the progress in the mea-sure implementation is given in the table below.

Measure 1.2 "Improving the processing and mar-keting of agricultural and fishery products"

The measure supports investments in one sub-measure "whole sale markets" and in five sectors:wine production, processing of fruit and vegetables,processing of milk and milk products, meat pro-cessing and production of meat products, process-ing of fish and production of fish products. Currentlythere are 238 approved projects under the measurewith cumulative investment value of 295 270 106Euro. The leading sectors in terms of approvedprojects are: "meat processing" with 91 approvedprojects, "processing of fruit and vegetables" with

62 projects and "wine production" with 39 projects.Thus, a pretty high percentage of the companiesactive in these sectors have approved projects un-der SAPARD.

According to the findings of the mid-term evalua-tion, the supported investments have had signifi-cant impact on the competitiveness of companies- 63% of beneficiaries have improved the quality oftheir products/production operations (in terms ofhygiene, introduction of ISO 9000 or the system forcontrol of critical points HACCP, introduction of Eu-ropean quality labels). More than one-third of thebeneficiaries have lowered their production costs,while 31% of them expect to increase their exports.All companies interviewed by the evaluators com-plied with the normative requirements for environ-ment protection, work hygiene and safety. In re-sponse to the rapid absorption of the budget underthe measure, amendments were introduced in theNational Agriculture and Rural Development Plan in


Measure "Improving the processing and marketing of agricultural and fishery products" - ap-proved projects until28.02.2005 and reimbursed projects until 31.12.2004 by sectors in Euro

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order to modify the project selection criteria underthe measure and give priority to investments in themilk and meat processing sectors, which face thestrictest hardest European standards.

Additional information on the progress in the mea-sure implementation is presented in the table be-low.

Measure 2.1 "Development and diversification ofeconomic activities, providing for multiple activitiesand alternative income"

Currently there are 291 approved projects under themeasure with cumulative value of 60 010 331 Euro.The projects are located in 54 different municipali-ties throughout Bulgaria. Almost half of the projectsare located in mountainous areas. The mid-termevaluation pointed at the fact that approved projectsare concentrated in a couple of the measure sec-tors: "rural tourism" with 102 approved projects,"wood processing, carpentry and bio-fuels" with 72projects, and lately [following a sharp increase inapplications] "bee-keeping" with 78 projects. Aswas noted in the mid-term evaluation, the increasein the maximum eligible project costs from 200 000

to 500 000 Euro has led to the approval of appli-cants from traditional tourist destinations which, al-though located in rural area, have well developedtourist sector. As a result of the mid-term evalua-tion recommendations and in order to adhere to themeasure objectives, the Monitoring Committee atits 7th meeting [and on the basis of in-depth analy-sis, discussions and consultations] decided that de-veloped tourist destinations, even located in ruralmunicipalities, would be excluded from the supportunder the rural tourism sector of the measure. Atthe same time the Committee decided that themaximum eligible project costs would be decreasedto 250 000 Euro.

Additional information on the measure implemen-tation progress is presented in the table below.

The progress, achieved in the implementation of themeasures accredited in 2003, can be summarizedas follows:


The interest among rural municipalities towardsapplications under measure 2.2 "Renovation anddevelopment of villages" and measure 2.3 "Devel-opment and improvement of rural infrastructure"has been strong. Hitherto, there are 47 approvedprojects of rural municipalities under the two mea-sures at a cumulative value of 100 million leva. Thismeans that the entire budget of the two measures[for the whole seven-year program period] hasbeen contracted. The approved municipalities,however, faced serious difficulties in the organiza-tion of the tender procedures to select contractorsfor the construction works. At its 8th meeting theMonitoring Committee discussed this issue anddecided that MAF, the SAPARD Agency and theNational Association of Municipalities in the Repub-lic of Bulgaria should analyze the causes for thedelays in tenders and offer action to remedy the sit-uation. It was noted that municipal administrations

have to be trained to apply the tender proceduresof the EC.

The number of applications under measure 1.4"Forestry, afforestation of agricultural lands, invest-ment in forestry holdings, processing and market-ing of forestry products" is too small, with only 5approved projects at present. Therefore the Moni-toring Committee at its 8th meeting decided totransfer a sizeable part of the measure budget toother measures with almost fully contracted bud-gets.

The most problematic measure is "Vocational train-ing", which is very important for the preparation offarmers in the pre-accession period. So far, therehas been no tender completed and no contractsigned with a training institution under the measure.The main difficulties include the cumbersome pro-

Source: Database on approved projects, MAF

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Measure 2.1 "Development and diversification of economic activities, providing for multipleactivities and alternative income" - approved projects until 28.02.2005 and reimbursed projects

until 31.12.2004 by sectors in Euro


cedures for approval of would-be trainees, whichprecede the tenders for training institutions. At itslast meeting the Monitoring Committee reviewedthis issue and decided to introduce changes in theprocedures. The same situation exists with the mea-sure "Setting up producer groups".

Amendments to NARDP

Since the start of the Program implementation theaccredited measures underwent modifications 3times. Each package of modifications was approvedby the Monitoring Committee and ultimately by theEuropean Commission. The first package of modi-fications was introduced in May 2002, the secondin May 2003 and the third and most significant inJuly 2004. The third package reflected the conclu-sions and recommendations of the mid-term eval-uation. The packages in 2002 and 2003 includedthe following key modifications:

Changes in the text of the measures in linewith the Multi-Annual Financing Agreement andthe harmonized Bulgarian legislation on envi-ronment protection;

Inclusion of new activities/sectors (rabbitbreeding under sector meat and sector egg andegg products under measure 1.1 and rabbitmeat processing under measure 1.2);

Increase in the maximum eligible projectcosts;

Inclusion of new type of investments in sec-tor milk and milk products under measure 1.2and in sector bee keeping under measure 2.1;

Changes in the geographic coverage of mea-sure 2.1.

The most significant modifications of the NationalAgriculture and Rural Development Plan were madeas a result of the report of the independent expertswho conducted the mid-term evaluation of SAPA-RD in Bulgaria - the modifications were reviewed atthe 6th and 7th meeting of the Monitoring Commit-tee, then by the EC STAR Committee on July 20th,

2004 and finally adopted by the EC with a decisiondated December 23rd, 2004.

The main modifications to the measures con-cerned:

Modification of the project selection cri-teria, giving priority to the adaptation of farmsand processing plants to the EU standards;

Limitation of the business plan prepara-tion costs, in accordance with the market con-ditions in Bulgaria, releasing more funds for in-vestments;

Introduction of monitoring indicators withrespect to the impact of projects on the envi-ronment;

Re-allocation of EU co-financing amongthe measures;

The re-allocation was made as a consequenceof the accession to the EU of some applicantcountries participating under SAPARD [on May1st, 2004 eight of the ten SAPARD applicantcountries joined the Union and presently onlyBulgaria and Romania implement SAPARD].With a Council Decision dated July 19th, 2004in pursuance of the road maps for Bulgaria andRomania, adopted in Copenhagen, Bulgariawas notified that the allocation of top-up EUfunds between Romania and Bulgaria would be70:30 [this follows the road map ratio of 70:30for the three pre-accession instrument ISPA,PHARE, SAPARD]. In the road map for Bulgariait was also specified that in the years 2004, 2005and 2006 the combined assistance to the coun-try under the three instruments would be in-creased by 20%, 30% and 40%, respectively.The re-allocation of the increase among theprograms for Bulgaria was done with a nationaldecision. The provided top-up funds for SAPA-RD necessitated the modification of the finan-cial tables of the National Plan for Agricultureand Rural Development and allocation of addi-tional funds to priority areas and measures.


Narrowing of the geographic coverage of as-sistance under measure 2.1 for the rural tour-ism sector.

Overall effectiveness and impact ofSAPARD

Contribution of the Program to the adaptation ofagriculture to the EU standards

According to data of the mid-term evaluation andto the views of NGOs, 66% of the beneficiary farm-ers follow the requirements on environmental pro-tection and their interest towards organic farminghas increased in the past three years. About 100small farmers [none of whom has yet applied un-der SAPARD] are already using organic farming. Atits 7th meeting the Monitoring Committee adopteda Code for the minimum environment protection,hygiene, animal welfare, veterinary and sanitary re-quirements. The Code became part of the assis-tance contract under the Program. In this way, allthe beneficiaries will be obliged to adhere to theserequirements and may be checked accordinglywithin five years after the completion of the project.

Among the processing companies the share ofthose complying with the EU environment protec-tion standards is quite high. In response to the har-monized legislation almost all companies haveplans for waste management, permit for dischargeof effluents, permit for water use, monitoring planand emergency plan. Almost all medium and largecompanies have local treatment facilities. Most ofthem also use gas instead of diesel. In 2003 theMinistry of Environment and Waters adopted Ordi-nance 62 of 13.03.03 introducing integrated per-mits for the companies/farms subject to obligatoryenvironment impact assessment under the Act onEnvironment Protection. The issuance of these per-mits will mean that their holders are fully compliantwith the EU environment protection standards.

According to official information from the State Vet-erinary and Sanitary Control Service about 85% ofthe foodstuffs produced in Bulgaria comply with thefood quality and safety standards, although some-times they are not produced by plants complyingwith the hygiene requirements of the EU.

Data ofthe State Veterinary and Sanitary ControlService shows that all slaughterhouses have creat-ed operating conditions compliant with the EU stan-dards. In addition, livestock is being marked, sub-jected to veterinary controls and the necessary im-munizations. Premises of larger farms are under-going rehabilitation to improve livestock housingconditions. To secure the improvement of workconditions in accordance with the EU requirements,MAF developed Guidelines for healthy and safework conditions in the entities operating in the Ag-riculture sector.

In the published White Paper, listing the companieswith good work safety practices, there are 602 en-tries. Of these, 6 companies were supported underSAPARD.

Contribution of the Program for building and im-proving the administrative capacity needed to im-plement the CAP-Rural development

The building and improvement of the administra-tive capacity needed to implement CAP and relat-ed EU policies were an overall objective of SAPA-RD. It has the following aspects:

Harmonization of legislation;

Training of the administrative personnel in theEU standards and procedures;

Building or improving capacity of institutions/agencies responsible for the management ofagriculture and rural development policies;

Improving transparency, shortening delays ofproject application processing and ensuring theappropriate selection procedures for beneficia-ries, including the national schemes;

Introduction of [the concept] of partnershipand the establishment of consultative processwith the economic and social partners in all as-pects of management of national and regionaldevelopment policies.

The EU PHARE program in Bulgaria in its early stag-es of assistance to the agricultural sector focused


on the ensuranceof food safety and later on sup-port for the privatization and restructuring of thesector. Then in 1997 the program started to pro-vide assistance to the alignment of the Bulgarianlegislation with that of the EU, strengthening of theadministrative capacity and institutional develop-ment. After 1998 the program enhanced its focuson the strengthening of the national and regionalcapacity of MAF and its agencies to harmonize andimplement the EU legislation. In 1998 under PHAREBulgaria could benefit from a Special PreparatoryProgram for the management of the EU StructuralFunds. A substantial part of that SPP was devotedto the preparation of the country to manage SAPA-RD. This support consisted in:

Twinning for the preparation of the NationalAgriculture and Rural Development Plan and forthe establishment of a SAPARD Agency, con-ducted together with the Ministry of Agricultureof Greece;

Pilot project for the region of Dobrich to as-sist cow milk producers, aimed at testing theSAPARD procedures;

Technical assistance for the preparation ofsectoral analyses for the formulation of SAPARDintervention strategy.

The successful start of SAPARD in Bulgaria wasproof of the effectiveness of the PHARE support forthe building of administrative capacity of MAF andthe SAPARD Agency.

The institutional development was also supportedunder other bilateral and international donor pro-grams.

Building or improving capacity of institutions/agen-cies responsible for the management of agricultureand rural development policies

As is pointed out in the mid-term evaluation of SA-PARD in Bulgaria, the capacity of the Rural Devel-opment and Investment Directorate and the SAPA-RD Agency [the two organizations responsible forthe program management] was quite satisfactory.

The mid-term evaluation report underlined that dur-ing the face-to-face interviews with experts from theSAPARD Agency [from its implementing and pay-ment departments at both central and regional lev-el] the evaluators registered a high degree of com-petency and knowledge of the EU rules, procedureand standards. The administrative capacity wasdeveloped through technical assistance, exchangeof experience, training and accumulation of practi-cal experience.

With regard to the SAPARD Agency the majority ofthe staff has been selected among young and mo-tivated candidates, who have then undergone in-tensive and continual training, including underPHARE projects. Since the start of Program imple-mentation the agency organized monthly, and lat-er bi-monthly, training courses and seminars for itspersonnel, including from regional and districtunits.

The agency staff also takes part in a continuouslearning program. It includes periodic short-termtraining, covering modifications in measure Ordi-nances, procedural issues and case studies.

The position of Bulgaria under chapter 7 "Agricul-ture" noted that due to the capacity built during theimplementation and payments of SAPARD, theagency should be the Paying agency for the fundsunder the CAP post-accession, including those forrural development.

The Rural Development and Investment Director-ate (RDID) of MAF was established at the end of1998 on the basis of a special task force for thepreparation of the National Agriculture and RuralDevelopment Plan under SAPARD. Presently, thedirectorate is responsible for the programming,monitoring, control and evaluation of SAPARD. Thedirectorate participates in the development of theNational Economic Development Plan and in theinternal coordination of operational programs un-der that plan. RDID has a staff of 26 experts, work-ing for three departments: "SAPARD Program", "In-vestment in rural areas" and "Agri-environment".

With regard to SAPARD department staff, most theexperts in it worked for the SAPARD task force,which was established through transfer of experts


from the PHARE management unit of MAF. The oth-er RDID experts were hired through competitiveprocedures and include economists, engineers andother specialists with high proficiency in the officialEC languages.

The RDID staff participated in a series of TAIEX train-ing seminars, held in the member-states, obtainedtechnical assistance under PHARE projects [includ-ing the above-cited twinning project with the GreekMinistry of Agriculture]. Technical assistance forinstitutional development was also provided to RDIDunder other bilateral and international donor pro-grams. The SAPARD department of RDID also car-ries out the functions of Secretariat to the Monitor-ing Committee. The Secretariat supports the workof the Monitoring Committee by preparing all ex-pert materials needed for the monitoring and im-plementation of the Program. The Secretariat is alsoresponsible for all technicalities related to the or-ganization of Committee meetings. The efforts ofthe Secretariat were assessed as excellent by themid-term evaluators in terms of timeliness and ofquality of the expert materials prepared, as well asin terms of organizational capabilities.

In accordance with chapter 21 "Regional policy andcoordination of Structural funds", RDID is designat-ed as the Managing Authority of the OperationalProgram for Agriculture and Rural Development.

The National Agricultural Advisory Service (NAAS)was set up in 1999 in order to enhance the provi-sion of extension and consultancy to rural areas.After the approval of the National Agriculture andRural Development Plan NAAS was entrusted withthe responsibility to assist the farmers in the prep-aration of SAPARD application documents. For thatpurpose the experts of NAAS underwent special-ized training, focused on the procedures for prep-aration of applications, especially of business plans.NAAS has a laboratory of 149 experts in its HQs,analytical laboratory and regional units.

At the local level MAF has over 260 municipal units.The units were set up in 2002 and their staff under-went training but has not yet been entrusted withspecific competencies under SAPARD and the EUprograms. The role of these units, having in mindtheir direct contact with farmers, could be en-

hanced under SAPARD, especially with regard toon-the-spot checks and publicity.

Development of partnership and establishment ofconsultation process with the social and economicpartners throughout the program cycle under SA-PARD

The SAPARD program was the only pre-accessioninstrument, which enabled Bulgaria to implementthe full scope of partnership within a program cyclesimilar to those under the Structural Funds. UnderSAPARD the authorities relied on the existing regu-latory framework to determine the relevant socio-economic partners, as well as attract other less for-mal partners that have cooperated with MAF dur-ing previous programs [this applies mostly with theprofessional associations from the agriculture andrural development sector]. Active representativesof NGOs were also involved as the program wentahead to enrich the initial scope of partners.

In accordance with MAFA, the SAPARD MonitoringCommittee was set up in Bulgaria to supervise pro-gram implementation in coordination with the Man-aging authority, the SAPARD Agency and the so-cio-economic partners. The Committee had to beestablished three months after the approval of theNational Agriculture and Rural Development Plan.The representatives of the European Commissionparticipate in the work of the Committee as mem-bers with advisory capacity. The Committee adoptsits own rules of procedure. The Committee at its firstmeeting adopts these rules. The chairperson of theCommittee is appointed by the Bulgarian side.

The SAPARD Monitoring Committee was set up byorder of the Minister of agriculture and forestry dat-ed January 10th, 2001. The Committee consists of28 people, divided into 3 groups - members withvoting rights, representatives of the EC and mem-bers with advisory capacity.

The members with voting rights are officials repre-senting MAF, the SAPARD Agency, Ministry of Fi-nance and other ministries, local authorities [Na-tional Association of Municipalities in the Republicof Bulgaria], farmer associations, environment pro-tection NGOs, official socio-economic partners (thetrade unions KNSB and Podkrepa, the Bulgarian


Trade and Industry Chamber and the Bulgarian In-dustrial Chamber).

The representatives of the EC participate in the workof the Committee in advisory capacity and repre-sent the official position of the European Commis-sion.

The members with advisory capacity include rep-resentatives of financial institutions (World Bank,European Bank for Reconstruction and Develop-ment, Association of Commercial Banks in Bulgar-ia).

The chairperson of the Monitoring Committee is aDeputy Minister of Agriculture and Forestry, whorepresents also the Managing Authority and theAgriculture sub-committee under PHARE, as wellas the Joint Monitoring Committee on the imple-mentation of PHARE, ISPA and SAPARD.

The work of the Committee is guided by Rules ofProcedure (prepared in compliance with the MAFAand EC Regulation 1260/1999), which specify thatthe Committee should monitor the effectivenessand quality of the Program implementation with aview to achieving its objectives.

In pursuance of the order setting up the Commit-tee its efforts are assisted by Secretariat - Rural De-velopment and Investment Directorate [SAPARDDept.]. The tasks and functions of the Secretariatare described in the Rules of Procedure.

As set out in Regulation 1260/1999, the Commit-tee meets at least twice each year. By December2004 the Bulgarian SAPARD Monitoring Commit-tee has held 8 meetings, which were instrumentalin the preparation of three major modification pack-ages of the National Agriculture and Rural Devel-opment Plan and in the adoption of various othermeasures aimed at streamlining and acceleratingthe absorption of the Program funds.

The Committee established as its auxiliary unitspermanent working groups covering all accreditedmeasures. The working groups include memberswith voting rights - representing professional asso-ciations and government agencies - and observ-ers, representing the units, responsible for the im-

plementation and monitoring of the Program. Theworking groups identify the problems with the im-plementation of the Program and devise solutionsfor them. The proposed solutions are then reviewedby the Committee itself, which can either adoptthem or reject them.

Setting up the necessarymechanism for monitor-ing and evaluation is a core part of the managementof the National Agriculture and Rural DevelopmentPlan as it provides feedback that facilitates the in-troduction of timely modifications to the plan.

So far, the Committee has adopted 2 Annual SA-PARD implementation reports, which were then ap-proved by the EC.

The conduct of a mid-term evaluation is importantas specified in the regulatory framework of theStructural Funds and of SAPARD. According toMAFA Bulgaria must ensure the implementation ofa mid-term evaluation which should assess the re-sults of the measure implementation, the relevan-cy of results with respect to the Program objectivesand the degree of achievement of these objectives.The evaluation also assesses the quality of the mon-itoring and of implementation procedures. The eval-uation is carried out by independent evaluatorshired in a competitive tender and funded under the"Technical assistance" measure. The mid-termevaluation had to be submitted to the EC not laterthan 31st of December 2003.

On the basis of the recommendations made in themid-term evaluation, which should be discussed bythe Managing Authority, the SAPARD Agency, theMonitoring Committee, the MA must notify the ECabout the corrective action taken on account ofthese recommendations.

In 2003 a mid-term evaluation of SAPARD was car-ried out in Bulgaria in pursuance of the StructuralFunds regulation and the MAFA. Unlike the ex-anteevaluation where the organizational and procure-ment responsibilities were entrusted wholly to MAFand the EC, under the mid-term evaluation the so-cio-economic partners were given greater role bothas member of the evaluation Steering Committee,and through their participation in the tender selec-tion commissions. The mid-term evaluation pro-


curement preparations started in late 2001, the pro-curement proceeded through 2002 and the con-tract with the evaluators was signed in mid-2003.The findings and the recommendations of the mid-term evaluation were reviewed by the MonitoringCommittee at its 6th meeting and by the permanentworking groups. At its 7th meeting the Committeedecided to amend the National Agriculture and Ru-ral Development Plan and the implementation pro-cedures in accordance with the evaluation recom-mendations. The modifications were then submit-ted to the EC STAR Committee, which reviewedthem on July 20th, 2004 and the modifications wereadopted with EC Decision dated 23rd of December2004.

The mid-term evaluation noted that with regard toworking rules and representation the permanentworking groups are relevant consultative bodieswhere the stakeholder could effectively contributeto the management and implementation of the Pro-gram and be informed about the progress achievedthereof. The group members received the agendaof each meeting and accompanying materials twoweeks in advance of the meeting. At the meetingprior to the discussions, the secretariat updated theparticipants on the progress achieved under theProgram with the help of the monitoring indicators.

However, the capacity of the various socio-eco-nomic partners to take on their role in the programimplementation is not uniform both with regard tothe Monitoring Committee members, and to per-manent group members. It must be noted that theprofessional associations in Bulgaria, as in most ofthe eastern European countries, are a very variedarray of organizations. Some of them are similar towestern European ones, which can effectively de-fend the interest of their sector [for example, asso-ciations in the food processing sectors], whereasothers have been created by a limited number offounding members with unclear (often limited inscope) representation and scope of work.

Although the criteria for representativeness of tradeunions are determined in the Labor Code, there areno criteria for the representativeness of profession-al associations and unions. Thus, all of them work-ing in sectors assisted under the Program were in-vited to the consultation process.

The mid-term evaluation noted that the principle ofpartnership, established during the preparation ofthe National Agriculture and Rural DevelopmentPlan, has been implemented throughout the pro-gram cycle of SAPARD. The partnership is laid outin written procedures regarding programming, im-plementation, monitoring and evaluation, which canalso be applied within the post-accession rural de-velopment programs. In 2003 MAF initiated aproject for the setting up of National rural networkthat should unite the efforts of all NGOs active inthe sectors agriculture, processing industry andrural areas under the Accession CommunicationStrategy. They should form a forum for rural devel-opment.

Synergy

The mid-term evaluation did not find any synergyarising from the implementation of SAPARD. Theevaluation found no proof of farmers and proces-sors uniting their effort to integrate production andprocessing. Nevertheless, the Program might in thefuture prompt the establishment of such integrat-ed projects. The SAPARD assistance to the pro-cessing sectors were front-loaded in the first yearsof the Program implementation as it was expectedthat the processing industry had better capacity tomobilize private investment and apply under theProgram. Thus, so far the modernization of the pro-cessing industry outstrips the modernization ofmachinery and equipment in the primary agricul-ture.

It could be expected that integration efforts be-tween sectors are more likely in the coming years.The milk processing, wine production and fruit andvegetable processing sectors depend heavily onthe availability of inputs on regional markets. There-fore, it could be expected that the supported ben-eficiaries from the processing sectors could stim-ulate the primary producers to invest in increasingthe quantity and in improving the quality of theiroutput. Experience gained so far shows that agri-cultural producers are uncertain about contractinglong-term arrangements, as they are different fromone another in terms of size of farm, stability of out-put quality, etc. An interesting phenomenon in thisrespect is the so-called "demonstration/pilot ef-fect" of SAPARD beneficiaries. The successful im-


plementation of a SAPARD-assisted project in a giv-en area stimulates the other adjacent farmers toapply under the Program. The establishment of acritical mass of comparatively modern and struc-turally homogenous farms may provide the pre-conditions for the unification of agricultural produc-ers leading to an increase in integration projects.

Access to credit

The access to credit and its price were identifiedduring the preparation of the National Agricultureand Rural Development Plan as factors that may lim-it applications under SAPARD and skew the supporttowards larger farmers and companies.

The underdeveloped system of agricultural creditis a problem that has been among the priorities ofagricultural policy since the beginning of the mar-ket transition. So far, no sustainable solution to thisproblem has been found - the operating farm cred-it schemes are of limited scope or are temporary.

The majority of the small and medium-sized farm-ers continue to experience difficulties in the accessto credit.

MAF and the SAPARD Agency committed substan-tial efforts trying to change the attitude of commer-cial banks towards farmers and companies withapproved projects under SAPARD. Since the begin-ning of the Program implementation, MAF and SFAinitiated negotiations with the commercial banksresulting in memoranda of understanding with over20 banks designed to facilitate the access to creditfor SAPARD applicants. To further ease the situa-tion, SFA allocated 50 million euro in 2003 to re-financing the commercial banks that have provid-ed credit to SAPARD applicants. The memorandaof understanding contained clauses on the reduc-tion of the price of credit [the interest rate for SA-PARD applicants was set at no more that 8.5% p.a.].The first banks, which signed memoranda with SFA,apparently had better understanding of the SAPA-RD philosophy and objectives and are most fre-quently cited as sources of credit to SAPARD ap-plicants. These banks, following the strict financialdiscipline principles as propagated by the Bulgari-an National Bank, accelerated the procedure forcredit claim assessment and had qualified person-

nel processing the claims of SAPARD applicants. In2003 MAF and SAPARD Agency jointly organized aseminar with the SAPARD beneficiaries to discussthe problems they faced in the implementation ofapproved projects. Representatives of the commer-cial banks were also present as the organizerssought to improve their understanding of the Pro-gram procedure and to improve the access of farm-ers of up-front credit. Given the importance of ac-cess to credit for the successful absorption of SA-PARD funds, it was decided during the programpreparation that the Monitoring Committee must beattended by representatives of the Association ofcommercial banks and of international financial in-stitutions.

The problematic access to credit for farmers hasbeen raised at all meetings of the Monitoring Com-mittee. The farmer associations proposed the es-tablishment of a credit guarantee fund. The issue isstill unresolved.

SFA proposed to the EC a credit scheme underwhich SFA would provide the needed up-front loansto farmers and companies with approved projectsunder SAPARD. The EC initially did not approve theproposed scheme as there was no mechanism de-veloped to assess the element of state aid underthe scheme, which might lead to risks of increasingthe rate of public support beyond the eligible one.Consequently, it turned out that such a scheme wasa good way to stimulate applications under SAPA-RD. The recently published report of the EuropeanCourt of Auditors on SAPARD points out the rele-vancy of the proposed scheme and that the EC wasnot right to turn it down. It has to be underscored,however, that as a result of the proposals by theBulgarian authorities and the conclusions of theEuropean Court of Auditors' report, the EC includ-ed in the last modifications of the SAPARD Regula-tion an option for the applicant countries to set upsuch schemes.


CONCLUSIONS AND RECOMMENDATIONS

As emphasized in the introduction of the report, thepre-accession instrument SAPARD assisted on adecentralized basis the applicant countries to man-age post-accession Structural Funds and especiallyto implement measures for rural development.

All the analyses of the agricultural policy of Bulgar-ia [done by the OECD, the World Bank, the FAO]noted that the National Agriculture and Rural De-velopment Plan 2000-2006 was the first attempt toformulate integrated policy for rural development,albeit with limited available financing. As a whole,SAPARD produced important results in Bulgaria inthe following aspects:

Completion of investments aimed at improv-ing the hygiene conditions and the animal wel-fare, the environment protection and the phy-to-sanitary conditions in compliance with the EUrequirements [investments, which would hard-ly be made without SAPARD assistance];

Encouragement of the overall investment pro-cess in agriculture;

Building awareness of European programs, ofthe importance and responsibility of institutions,involved in their management;

Accumulating precious experience by the ad-ministration in program management in view ofpreparing Bulgaria to effectively use the Struc-tural Funds and most notably the new EuropeanAgricultural Fund for Rural Development in theperiod 2007-2013;

Contribution to the establishment of partner-ship in all aspects of program management. Toa very high degree the success of SAPARD is dueto the existing dialogue, and credibility and part-nership with the professional associations, theNGOs, the local authorities and the business.

The short overview of the SAPARD implementationin Bulgaria shows that the needed administrativecapacity for programming, implementation, pay-ments, monitoring and evaluation has been creat-ed and will serve as the basis for the successful

accession of the country in this sector. The work ofthe Monitoring Committee shows that the compe-tent institutions have reacted on time to amendweaknesses. Despite the great progress achievedand the successes of implementation, certain rec-ommendations can be made to improve it.

Recommendations related to the implementationprocedures:

1.The managing institutions could use the lat-est amendments in the SAPARD Regulation toprovide up-front credit for farmers and compa-nies with approved projects under SAPARD.Such credit should be preferably provided onlyto small and medium-sized farmers/companieswho are denied proper bank credit;

2.The practice of the EC is to have the projectselection criteria published so that applicantscould find out whether their projects would meetthe criteria. The selection criteria were publishedon the MAF website, but as farmers have diffi-cult access to Internet, it is advisable to postthese criteria in the municipal units of MAF;

3.Increasing the role of social and economicpartners. The partners are involved in the pro-gramming and implementation of the Program.The effectiveness of their contribution can beimproved through additional training focused ontheir responsibilities in guaranteeing the trans-parency of procedures.

Recommendations to enhance publicity:

1.Despite the substantial efforts put into pub-licity campaigns it is necessary to focus themon the encouragement of all potential benefi-ciary groups. It is a fact that hitherto the appli-cants include mainly larger companies [as it iseasier for them to prepare projects], but this putsoff smaller potential applicants as the Programhas obtained the image of being "only for thebig". The focused publicity campaign is neededto overcome this perception;

2.The unavailability of sufficient promotionalprint materials is a weakness that precludes bet-ter understanding of eligibility criteria among


farmers. It is advisable to prepare guidelines forapplicants on the basis of the measure Ordi-nance. The funds of the "Technical assistance"measure could be used to finance such initia-tives. It is important to publicize the Code of mini-mum veterinary, sanitary, environment protec-tion, hygiene and animal welfare requirements.This must be done not only by MAF and theSAPARD Agency, but also by the National Vet-erinary Service and NPPQAS;

3.It is recommended that, in order to lower ap-plication preparation costs, a List of frequentlyasked questions should be posted on theInternet and then continuously updated;

4.The inadequate participation of small farmersunder SAPARD requires a more streamlined ap-proach to Program implementation. The agricul-tural advisory services and the municipal ser-vices of MAF must have not only promotionalmaterial but also the business plan and theguidelines for its preparation, as well as print-outs of the measure Ordinances. The experts inthese services should be trained in the provisionof consultancy for the application process . It isrecommended that these experts directly ap-proach the small farmers and try to motivatethem to apply under the program. Moreover, theNational Agricultural Advisory Service could alsocontribute in this aspect. The service has devel-oped standard business plans for 18 types ofinvestments, which have been circulated amongits regional units as well. This initiative could beextended to cover all eligible sectors under theProgram;

5.As is noted in the materials of the MonitoringCommittee meetings, the implementation ofmeasure 3.1 "Improving vocational training" re-quires a pro-active approach on behalf of imple-menting institutions. MAF and NAAS and thetraining institutions must initiate efforts to over-come the difficulties and to speed up the pro-cedures under the measure. A similar approachmust be applied to measure 1.5 "Setting up pro-ducer groups" with the active participation ofMAF regional units, especially the municipal ser-vices as well as the NGOs.

RECOMMENDATIONS TO DEVELOP ANDSTRENGTHEN PARTNERSHIP

The effective participation of partners requires clearand detailed framework for their representative-ness, for the mechanisms of their inclusion in theconsultation process and for the responsibilitiesand obligations of the partners in the programming,management, monitoring and evaluation of the pre-accession and later of the Structural Funds of theEC. To that end guidelines must be prepared for theinclusion of partners under the pre-accession in-struments and under the operational programs. Atpreset there are no rules on the representativenessand the transparency of NGO activities. The NGOrepresentatives in the permanent working groupsof the Monitoring Committee need training to im-prove their capacity in strategic planning. Experi-ence shows that they show interest in forwardingthe interests of their sub-sector without consider-ing the overall situation. A typical phenomenon isthe existence of many sector associations (some-times with more than 2 associations per sub-sec-tor). To this regard it is recommended that the re-sponsible institutions make active use of the "Tech-nical assistance" measure to organize training forthe members of the Monitoring Committee and itspermanent working groups. The consolidation ofthe NGOs in agriculture and rural areas must alsobe pursued. The first steps have been taken withMAF initiating the idea for a National rural network.Efforts in this direction must continue.

In conclusion it should be recommended to the ECto speed up the process of signing of Annual Finan-cial Agreements for 2005 and 2006 so that fundsare made available on time without delaying theimplementation of the Program at a time when farm-ers and the processing industry need substantialassistance to comply with the EU requirements. Itis also necessary to seek opportunities to get ad-ditional financing for SAPARD in pursuance of arti-cle 141 of the Resolution of the European Parliamenton the progress of Bulgaria towards accession,which calls the Council and the Commission to ex-plore the options for increasing pre-accession sup-port for Bulgaria after the signing of the AccessionTreaty.

1 (COM(2004)0657 - C6 - 0150/2004 - 2004/2183(INI))


LIST OF REFERENCES

European Council, Regulation 1260/1999 of June 21st, 1999 laying down general provisions on the Structural Funds.

European Council Regulation (EC) No 2222/2000 of 7 June 2000 laying down financial rules for the application of Council Regulation(EC) No 1268/1999 on (EAGGF).

European Council Regulation (EC) No 2759/1999 of 22 December 1999 laying down rules for the application of Council Regulation(EC) No 1268/1999 on Community support for pre-accession measures for agriculture and rural development in the applicant countriesof Central and Eastern Europe in the pre-accession period.

European Council Regulation (EC) No 1257/1999 of 17 May 1999 on support for rural development by the European AgriculturalGuidance and Guarantee Fund (EAGGF), amending and repealing certain Regulations.

European Council Regulation (EC) No 1266/1999 of 21 June 1999 on co-coordinating aid to the applicant countries in the frameworkof the pre-accession strategy.

European Council Regulation (EC) No 1268/1999 of 21 June 1999 on Community support for pre-accession measures for agricultureand rural development in the applicant countries of Central and Eastern Europe in the pre-accession period.

Csaki. C, Nash J., Fock A., Kray H., Food and Agriculture in Bulgaria: The Challenge of Preparing for EU Accession, World BankTechnical Papers, 2000.

European Commission, Agricultural Situation in the Candidate Countries - Country Report on Bulgaria, July 2002.

European Commission, Regular Report from the Commission on Bulgaria's Progress towards Accession, November 2004.

European Commission, SAPARD Annual Report 2001, 2002.

European Commission, SAPARD Annual Report 2002, 2003.

European Commission, The New Programming Period 2000-2006: The Ex-Ante Evaluation of the Structural Funds Interventions,Working Paper 2.

External Evaluation of the Integrated Development Project in the Dobrich Region under the Special Preparatory Programme for StructuralFunds in Bulgaria, Sofia 2001.

FAO, Strategy for Agricultural Development and Food Security in Bulgaria, Main Report, 1999.

Final Report, Project BG9810-01-01-0005 (SPP-IB/TA), Special Preparatory Programme for Structural Funds in Bulgaria - InstitutionBuilding, December 2001.

MAF Analyses of Applicability of CAP in Bulgaria - sectors "Meat", "Dairy", "Fish", "Fruit and Vegetables"," Wine", "Grain", AZA Institute,Bon, Germany, 2002.

MAF, National forestry policy and national strategy for sustainable development of the forestry sector 2003 - 2013, Sofia, 2003.

Meetings of the SAPARD Monitoring Committee - Minutes and reports, 2001-2004.

Multi-Annual Financing Agreement between the European Commission and the Republic of Bulgaria, 2000.

OECD, Bulgaria: Review of Agricultural Policies, Paris, 2000.

Republic of Bulgaria, National agriculture and rural development plan under SAPARD for the period 2000-2006

Republic of Bulgaria, MAF, Mid-term evaluation of SAPARD in the period 2000-2003

Republic of Bulgaria, National program for the adoption of the acquis, 1999.

Sustainable Agriculture in the Framework of Rural Development, High level Conference on EU Enlargement, Proceedings, March,2003, Sofia.

UNDP, National human development report, 2003.


TABLE OF CONTENTS

Executive summary .......................................................................................................................................................... 43

Introduction ............................................................................................................................................................................ 45

Framework analysis ................................................................................................................................................................ 49

Policy options ......................................................................................................................................................................... 72

Conclusions and policy recommendations ......................................................................................................................... 73

Operational Programme Multifunctional Agriculture and Rural Development ............................................................. 78

ANNEX I ................................................................................................................................................................................... 79

SAPARD REVIEW42 CZECH REPUBLIC


ARDP Agriculture and Rural Development Plan (SAPARD Plan)


DP Direct Payments

EAGGF European Agriculture Guidance and Guarantee Funds Guidance Funding

EU European Union


EIA Environmental Impact Assessment

HACCP Hazard Analysis and Critical Control Point

HRDP Horizontal Rural Development Plan

CHKO Protected Landscape Area

MAFA Multi-Annual Financing Agreement

MoA Ministry of Agriculture

MoE Ministry of Environment

MoF Ministry of Finance

MoFA Ministry of Foreign Affaires

MoLSA Ministry of Labour and Social Affaires

MRD Ministry of Regional Development

NDP National Development Programme/Plan

NSC National SAPARD Selection Committee

NUTS Nomenclature of Territorial Units for Statistics

NMC National SAPARD Monitoring Committee

OP RDMA Operational Programme Rural Development and Multifunctional Agriculture

RO SA Regional Offices of SAPARD Agency

SAPARD Special Accession Programme for Agriculture and Rural Development

SEUROP Common classification of carcasses

SME Small and medium sized company

SROP Common Regional Operational Programme

TSES Territorial System of Ecological Stability

SWOT Strengths and Weaknesses, Opportunities and Threats

SZIF State Agriculture Intervention Fund

VUZE Research Institute of Agricultural Economics


EXECUTIVE SUMMARY

As the launch of the SAPARD Programme was orig-inally planned for 2000, the first seminars in theframework of an information campaign dedicatedto final beneficiaries and administrators took partalready by the end of 1998. Nevertheless, due tothe uncompleted process of establishing of theSAPARD Agency (SA) postponed for 1 September2001, as well as to essential delay in the adoptionof the legislation, its launch had to be putt off until15 April, 2002. SA was directly subordinated to theMinistry of Agriculture (MoA) whereas the respon-sibility for the Programme implementation wasshared between the MoA and the Ministry of RuralDevelopment (MRD). Even though the publicitycampaign has been very successful and the pro-motion material was of high quality, many applicantswere obliged to find other sources of project financ-ing due to the delay in time between the promotionand the implementation.

Since no accreditation was attributed to the SA in2001, firstly, a consultation test round was carriedout by RO SA helping the applicants to elaboratetheir projects, secondly, in June 2001 the TEST Pro-gramme, fully financed from national sources, waslaunched by the MRD. Since 2002, 6 rounds for re-ceipt of applications under agricultural measuresand measures for rural development have beendeclared, as well as another 5 rounds in 2003 forthe measure on vocational training. The majority ofthe allocated funds were used for agricultural mea-sures while only one third of them were allocatedtorural development. The latter were exhausted inthe first three rounds. In December 2002, an ex-traordinary Flood Round was opened exclusively forthe farmers affected by the August floods. The suc-cess in the first round of the agricultural measureswas about 90%, whereas in the second round it wasjust 60% due to increasing competition. On the con-trary, the demand under the measures on rural de-velopment exceeded five times the volume of allo-cated funds, and the successfulness remained flatlyvery low. Furthermore, there was a systematic dif-

ference monitored in terms of the number of sub-mitted projects between counties with high level ofactivity, resulting from high share of agriculturalland, such as Southern Bohemia, and those with rel-atively low performance such as the industrialNorthern Bohemia. The allocated funds were 100%exhausted, and even an overcommitment of 15%was made.

As far as the agricultural measures under Priority 1are concerned, the strategy of MoA was to reduceas much as possible the scope of eligible expendi-tures in order to satisfy at least the crucial needs ofthis sector withthe limited budget. In general, theimplementation of Priority 1 turned out very effec-tive and efficient, the investments in agriculturalholdings led to increased quality of the products andthanks to the support the majority of the beneficia-ries are now in compliance with the EU standards.Positive effects werealso registered in terms ofmore rationalized use of production factors, im-proved product quality, decreased productioncosts and created jobs due to the support. Howev-er, the investments were focused more on theshort-term survival of the primary production in theperspective of the EU membership, than on a sus-tainable increase of competitiveness. Concerningthe measures on rural development (2.1, 2.2), theabsence of a tighter delimitation of eligibility expen-ditures resulted in an excess of applications, ofwhich only about 22% were approved. The supporthad very positive effects in terms of increased qual-ity of life for the local population, preservation ofthe rural heritage, creating of new jobs opportuni-ties and the development of existing SME, and thusthe sustainable development of rural areas. Never-theless, as only few projects for agri-tourism, re-gional non-agricultural products and production ofalternative energy sources have been supported,the financed projects have not attributed much tothe diversification of farm activities. Furthermore,under Priority 2 the measure 2.3 for agricultural en-vironmentally friendly production has been de-

NATIONAL REVIEW ON THE SAPARD PROGRAMME IN THE CZECH REPUBLIC

Petra CernaEUROPEUM - Institute for European policy

SAPARD REVIEW44

signed in a very complicated way in order to testspecific management practices, tailored to theneeds of each selected area. A considerably lowparticipation in some pilot areas resulted from thelack of experiences concerning the implementationof more complex land management among localauthorities and farmers. Since the potential scaleof agri-environmental activities in the Czech Repub-lic is quite large, it is not evident weather 5 pilot ar-eas projects could have provided sufficient experi-ence for implementing the HRDP. Finally, in theframework of the third priority, a measure on voca-tional training was implemented in 2003 by the In-stitute of Agricultural and Food Information. Due tothe relatively unfavourable conditions for trainingbodies, and the high administrative requirements,only half of the announced topics were covered.Nevertheless, the organized seminars were in gen-eral very successful. The last implemented measureon technical assistance for improvement of the Pro-gramme in terms of monitoring and evaluation con-tributed essentially, on one hand, to the facilitationof the Programme activities, and on the other handto a crosscutting approach that was missing, in par-ticular as regards the monitoring.

Regarding the small amount of funds allocated toSAPARD, the main role of the SAPARD Programmehas to been seen in the preparation for the set-upof the administrative system for the OperationalProgramme Rural Development and Multifunction-al Agriculture (OP RDMA), established on the basisof the SAPARD implementation system. After thetransition to structural funding, the impact of the im-plementation of the new CAP in the OP will be muchmore significant. The continuity of personnel, andhereby of transmission of the accumulated experi-ence and best practices was generally preservedon both levels, the regional as well the national ad-ministration. As of the 1st January 2004, the SA hasbeen transferred to the State Agricultural Interven-tion Fund (SZIF). The transfer of the SA to the SZIFwas preceded by the appointment of the ManagingAuthority for the OP RDMA and it was decided tomerge the former SAPARD Programme ManagingAuthority with this newly established department asof 1 July, 2003. The implementation of the agri-en-vironmental measure has helped essentially for thesetting up of the implementation of HRDP on thelevel of the programming document.

The Programme produced a wide range of positiveresults and impacts, such as increase in productiv-ity and more rational production, increase in in-come, improved quality of the products, positiveeffects on the animal welfare, improved working andhealth conditions, improved storage capacity, highnumber of created jobs, partial diversification of therural economy, improved competitiveness and in-creased activity of the existing SME. However, itturned out that the farmers who are inexperiencedin demanding public funds had been often discour-aged by the volume of information required forproject applications of any size. Thus in the case ofsmall-sized projects the volume of requirements didnot correspond to the risks associated with thegranting of aid. It turned out that the implementingsystem favoured systematically projects submittedby big agricultural co-operatives, whereas projectsof smaller operators whose technical level and hu-man resources do not meet the Programmes re-quirements, were missing. Furthermore, the unwill-ingness of banks to offer loans to private entrepre-neurs, especially in agriculture, was partially over-come in the course of the Programme implemen-tation. In spite of the fact that the measure for ruraldevelopment focused also on the start-up of newbusinesses and diversification of farmers' income,the realized diversification of farmer's activities, andthe rural tourism account for less than 10 % each.Concerning the Programmes administration, it wasorganized in compliance with the EU requirementsand turned out very effective. Nevertheless, thescoring system as well as the controls were focusedrather on administrative compliance and verifica-tion than on the quality criteria, and the administra-tive procedures were elaborated in a too compli-cated manner, often hindering effective implemen-tation. The co-operation with administrators at theregional level was assessed by the beneficiaries asexcellent, as opposed to the typical unwillingnessof state authorities, especially of the higher ones,to assume full responsibility and to communicatethe up-to-date conditions and rules that changedperpetually in the course of the Programme, to thebeneficiaries.

In conclusion, as the large processing holdings orcooperatives are narrowly specialized in large-scaleproduction, alternative income through extensionof farming activities had to be ensured by support-ing the SME. Therefore the administrative proce-

CZECH REPUBLIC


dure for small-scale projects should be simplifiedby introducing a simpler system in addition to thecurrent one. A very simple small project should beprovided as a model, also and the assessment ofthe financial health should be simplified, too. Fur-thermore, the state authorities should certify a cer-tain number of consultants, authorized for consul-tancy activities, in order to ensure the protection ofthe beneficiaries of public funds. To prevent theunnecessary excess of demand increasing the risksfor applicants and discouraging small operators,monitoring of the planned investment projects in theregions should be ensured in order to allow for de-signing of measures, betteraimed at the real region-al priorities. The scoring criteria should be focusedmore on the individual quality of projects than onthe maximum compliance with listed items in orderto avoid the prioritization of projects with lower mar-ginal utility. Moreover, the rural development shouldbe more interconnected with the diversification ofagricultural activities by means of a co-operationbetween mayors and farmers, and the projectsshould express the essential interest of the con-cerned municipalities in the implementation ofprojects improving the living conditions and the co-operation within microregions. More focus shouldalso be put on the bottom-up approach and the in-clusion of the rural dwellers and socio-economicpartners in the decision-making process, as well ason the improvement on the information dissemina-tion on agri-environmental issues.

INTRODUCTION

This report aims to describe and evaluate the de-velopment of the SAPARD Programme in the CzechRepublic (hereinafter the "Programme"), a specialEC pre-accession programme for agriculture andrural development, in order to provide a nationalreview of current achievements and deficiencies ofthe SAPARD operation in the Czech Republic. Thisreport has been elaborated for the European Insti-tute in Sofia via EUROPEUM, the Institute for Euro-pean Policy in Prague, in order to be presented be-fore an international conference titled "The SAPA-RD Programme - Effective EC Pre-accession Instru-ment: Comparative Review" to be held in Sofia in2005.

This report consists of Introduction, Frameworkanalysis divided in 4 main chapters, Policy options,Policy recommendations, Comments, List of mea-sures and List of acronyms. The first sub-chapterof the Framework analysis (3.1) gives an overviewof the context situation in the Czech agriculturalsector and the rural areas while the second sub-chapter (3.2) describes the diachronic develop-ment of the SAPARD Programme in the Czech Re-public. The third sub-chapter (3.3) is dedicated tothe implementation of the Programme, in particu-lar to the assessment of relevance and effective-ness of individual measures and to the presenta-tion of its current achievements and deficiencies.The fourth sub-chapter (3.4) presents the imple-menting structures of SA and analysis of the expe-riences achieved during the project administrationand control. Sub-chapter five (3.5) focuses on theusage of SAPARD's best lessons and practices forimplementing programmes of the EC structural as-sistance, as well as on the transformation of theSAPARD Paying Agency to the CAP Paying Agen-cy. A brief summary of conclusions and policy rec-ommendation is presented in last two chapters.

Problem statement

SAPARD is a special pre-accession programme inagriculture implemented in countries with the sta-tus of a candidate for accession to the EuropeanUnion. The use of this instrument should lead topractical implementation of the acquis communau-taire. It also aims to solve problems affecting theagricultural sector and rural areas in the candidatecountries. However, apart from the common imple-mentation of the acquis, these overall objectiveshave to be aligned with the national priorities. Thusthe national implementation solution based on aspecific selection of eligible measures, proposedin the framework of the (SAPARD) Council Regula-tion 1268/1999, may differ from one country to an-other in terms of operations carried out with prior-ity for the respective country sectors. By setting upthe SAPARD Programme, the Czech Republic, aswell as any eligible candidate country, faced withan essential problem: how to put together the short-term priorities linked to an operational, in-timeadoption of the acquis, representing for many hold-ings the only survival option of being in conformity

SAPARD REVIEW46

with the EU standards after the accession, and thelong-term adjustment of the agricultural sector andthe rural areas? Apart from maintaining this fragileequilibration between the short and long-term ob-jectives, the implementation of the SAPARD Pro-gramme should help switch to the setting up of anadministrative system for receiving funds related toagriculture after the EU accession. Therefore thisreport aims to assess the "Czech solution" not onlyin terms of the impact of projects, supported underSAPARD on national agriculture, but also in regardto the long-term objectives of the Common Agri-cultural Policy, placing more weight on the ruraldevelopment and the diversification of rural activi-ties that represent an alternative income in the ag-ricultural sector.

Research goal

In accordance with the Terms of Reference, theobjective of this report is to provide information onthe Programmes implementation and impacts, inparticular analysis of the consistency of the SAPA-RD strategy in terms of relevance, effectiveness andappropriateness of implementing arrangementsand structures, the monitoring system, initialachievements in terms of effectiveness and effi-ciency, as well as the application of common andprogramme-specific evaluation questions. Also tak-en into consideration are the compatibility of ac-tions, financed under SAPARD, with the EC strate-gy for sustainable development of rural areas, andthe environmental impact of implemented projects.This report aims also to assess the readiness of theCzech Republic to use the best practices learnedfrom SAPARD during the transition in order to drawaids from structural and non-structural agriculturalfunds (esp. the Guidance and Guarantee Sectionof EAGGF and FIFG). Based on the assessment ofabove-mentioned experiences achieved during theimplementation, this report aims to offer solutionsto improve the project preparation and thus the us-age of pre-accession funds and the EC structuralassistance to agriculture.

Thus the overall objectives of this report are:

to provide information on best practices andlessons learned in the Czech Republic to share

these experiences with other countries havingimplemented the SAPARD Programme;

to help the acceding countries to switch to thestructural funds for agriculture in the most ef-fective way on the basis of the experiencesgained by the new EU member states, notablyby the Czech Republic, during the implementa-tion of the SAPARD Programme;

to improve the usage of the EC pre-accessionfunds, more specifically SAPARD, regarding cur-rent objectives of the CAP towards rural devel-opment and sustainable agriculture.

Definition of terms

In this report the following terms are used:

Priority - a key strategic objective in relationto the respective sector based on the nationalpolicies. Under "Priority I", that is within the com-petence of the Ministry of Agriculture, fall mea-sures 1.1, 1.2, 1.3 and 1.4. The term "Priority II"is used for measures 2.1, 2.2 (within the com-petence of the Ministry of Regional Develop-ment) and 2.3 (within the competence of theMinistry of Agriculture). The term "Priority III" isused for measure 3.1 and 3.2, and is within thecompetence of the Ministry of Agriculture;

Measures - means and instruments designedto implement the objectives (priorities);

Relevance - justifiability of project objectivesin relation to the needs of the beneficiary and inrelation to the objectives of the measure;

Coherence - logical and orderly and consis-tent relation betweenmeasures;

Effectiveness - fulfillment of operational ob-jectives, accordance between produced out-puts and project objectives;

Efficiency - utility of investments with regardto its results and impacts;

Sustainability - duration of results and impacts

CZECH REPUBLIC


of the project output in the long-term perspec-tive;

SME - small (less than 50 employees) andmiddle-sized (less than 100 employees) enter-prises;

Large holdings - more than 100 employees.

Research methodology

The research methodology can be understood asa set of criteria and questions analyzed and an-swered on the basis of collected data.

It has to be stated that, due to relatively short timeperiod available for the preparation of this report,the scope of questions and problem fields had tobe reduced to several essential points.

Evaluation criteria

This report is based on the crosscutting evaluationcriteria set in the Terms Reference. These criteriaare :

Relevance;

Coherence;

Effectiveness;

Efficiency;

Sustainability.

(for the definitions see Chapter 2.3)

Evaluation questions

At the Programme level, as well as at the level ofindividual measures, this report focuses on the fol-lowing crosscutting and common evaluation ques-tions:

To what extent has the Czech SAPARDProgramme been in compliance with the ECStrategy for sustainable agriculture?

To what extent has the implementation ofprojects under the Programme prepared theagricultural sector and the rural economy for theimplementation of the acquis communautaire?

Has the implementation of projects in theframework of the Programme helped the agri-cultural sector (production and processing) ful-fill the Community standards, and to what ex-tent?

Has the Programme contributed to establishCAP administrative procedures at the adminis-tration level?

Has the implementation of projects, financedunder the Programme, contributed to any im-provement of the environment and to the envi-ronmental protection in the Czech Republic, andto what extent?

To what extent has the Programme contrib-uted to the diversification of the rural economy,more specifically to that of the agricultural ac-tivities in the rural areas?

Has the Programme contributed to thesustainability of the rural areas by creating newemployment opportunities, and to what extent?

Have the implementing arrangements been inaccord with the effects to be achieved?

Which were the main obstacles and difficul-ties from the point of view of the administration?

Which were the main obstacles and difficul-ties from the point of view of the beneficiaries?

How have the experiences gained during theProgramme implementation contributed to set-ting up the system of granting aid from struc-tural funds oriented to agriculture?

Sources of information

The questions resulting from the research goal andcorresponding to the Terms of References wereanswered on the basis of collected sources of both

SAPARD REVIEW48

qualitative and quantitative nature. The followingsources of information have been collected andanalyzed:

Secondary data sources

The secondary data sources consist of:

Ex-ante evaluation;

Midterm evaluation;

Annual reports;

National Monitoring Committee MeetingsMinutes;

Monitoring indicators produced by the MoA;

National Statistics of the Czech Statistical Of-fice;

Statistics of other EU member states;

SAPARD annual reports of the European Com-mission;

Agriculture and Rural Development Plan;

Operational Programme Rural DevelopmentMulticultural Agriculture;

Horizontal and Rural Development Plan;

Common Regional Operational Programme.

Primary data sources

Due to the lack of time only a representative groupof "key persons" related to the SAPARD Programmewas interviewed or answered a written question-naire, among them:

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CZECH REPUBLIC


On-the-spot visits

Thanks to the kind assitance of Ms. Eva Vlasakova,Head of Independent Managing Division for theSAPARD Programme in SZIF, I had the possibility tovisit, in the framework of my research, two of eightRegional Offices of the SAPARD Agency (RO SA)established on the NUTS II level of 8 regions2, name-ly the RO in Ceske Budejovice covering the South-West region, and the RO in Usti nad Labem cover-ing the Nort-West region of the Czech Republic.These two regional offices contrast each otherstrongly in terms of submitted applications, and inlevels of activity under the SAPARD programme. ROSA Ceske Budejovice has managed the Programmein counties showing a generally high level of activi-ty (Southern Bohemia, Pilsen) arising from its char-acter of a rural area with traditional social structures,high share of agriculture, processing industry andan extraordinary environmental potential for thedevelopment of tourism. On the contrary, RO SAcovers the north Czech counties with low activity,such as Karlovy Vary, Usti nad Labem, Liberec, hav-ing low share of arable land and agriculture in gen-eral, high share of less favoured areas, stagnatingor declining industry and high unemployment. Ineach region, I had the possibility to visit two imple-mented SAPARD projects.

In the county of Usti nad Labem I visited Bohusov-icka dairy that has implemented a project on theacquisition of a cottage cheese production facilityunder sub-measure 1.2.1 Modernisation of Tech-nologies (see Annex 1). Moreover, I visited a con-ventional agricultural farm "Najmr". This farm wasone of those struck by the floods in August of 2003,and it now has reconstructed housing capacity forcattle benefiting from sub-measure 1.1.1 on ani-mal welfare within the extraordinary "flood-round".

In the County of Ceske Budejovice I had the occa-sion to visit a project implemented within Priority IIon Rural Development that brought back to life anold local tradition of bobbin lace in a typical pictur-esque South-Czech village of 1300 inhabitants. Themunicipality was represented by its mayor Mr. Fran-tisek Kopacek, who has personally been involvedin two projects under sub-measure 2.1 a) Renova-tion and development of villages, and 2.1b) Devel-opment of rural infrastructure. The renovated vil-lageplace corresponds to the original idea to con-nect the traditional lacemaking with the develop-ment of tourism in the microregion. The secondproject I visited in the South-Czech region was aconstructed entertainment center in a small townof 6476 inhabitants Vodnany offering leisure timeactivities such as bowling, a discotheque, internet,a playground, a restaurant and accommodation.This center was financed under measure 2.2 ondevelopment and diversification of economic ac-tivities for revenue-generating projects.

FRAMEWORK ANALYSIS

Structural problems of the agricultural sec-tor and the rural areas

The Czech Republic has a total area of 76,866square meters, of which 92,3 % can be defined asrural. There are 2.988,550 inhabitants living in vil-lages, i.e. 29 %. Of the total population, 75,9 % livesin rural regions. The natural conditions for agricul-ture correspond to the European average; the soilis fertile and the climate is moderate, benefitingfrom the mutual penetration and mixing of oceanicand continental effects. Of the total territory of theCzech Republic, 28% of the agricultural land re-sources are below 500 m in elevation (above thesea level), about 8% between 500 m and 700 m,and only 3% of the agricultural land resources are

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2 RO SA Prague & Central Bohemia; RO SA Southwest; RO SA Northwest; RO SA Northeast;RO SA Southeast; RO SA Central Moravia; RO SA Moravia-Silesia

SAPARD REVIEW50

above 1,000 m. In some areas, however, the topog-raphy and elevation produce less favourable con-ditions. The 72% share of arable land is one of thehighest in Europe, whereas the grasslands, despitethe climatic conditions, make only 22,5% of the ag-ricultural land. Even though the share of the agri-cultural sector in the GDP (including fisheries andforestry) is fluctuating s after 1997 in the margin of4,50%, (4,51% in 2002), it is practically decreasingsince the beginning of the 90tes. Compared with1990, the gross agricultural output was 28 % lowerin 1997, with crop output down by 21 % and live-stock output down by 32%. The share of farmers inthe employment structure of the national economywas 3,4% in the year 2001. In 1998, the productionof foodstuffs and beverages accounted for 16.9 %of the overall processing industry output.

Since 1989, fundamental changes have taken placein the ownership, production structure and organi-zation of work in agriculture that focused until the90tes on the intensification of agricultural produc-tion. The latter was based on establishing large-sizeagricultural companies with total area of severalhundreds, and later even thousands of ha. At thebeginning of the transition period in the early nine-ties, the agricultural policy focused on the trans-formation of collective farms, the privatization ofstate farms and food enterprises and on the settle-ment of restitution claims. Since 1994, the agricul-tural policy has followed the goal of stabilizing andgradually developing the rural areas. However, al-most 50% of the enterprises have not remained vi-able for a long time. Nowadays, around 70% of theenterprises face serious financial difficulties due totheir high indebtedness and low liquidity. The cur-rent business structure in agriculture consists oftransformed agricultural cooperatives (29,3% in2000) and corporate farms (joint-stock - 21,6% ofthe arable land in 2000 - and limited liability com-panies - 21,7%), as well as of private farmers(23,5%). Even though the average size of the trans-formed cooperatives has been gradually decreas-ing and the areas of state companies have beendramatically limited, large agricultural holdings stillprevail in the Czech Republic: 60,81 % of the ara-ble land is cultivated by 1.148 agents (out of total56.487) with arable land of over 1.000 hectares.Despite the process of transformation, there is still

a large-size production character of farming incomparison with the European Union. Therefore thelow revenue and high indebtedness of the farms arethe main structural problems.

Another perturbing consequence of the large-scalefarming practices till 1989 is the destruction of fieldroads and natural barriers, the reduced ecologicalstability of the landscape, the devastation of agri-cultural soil funds by the erosion and by the loss ofbiodiversity. Besides, there is a need for consoli-dation of the new production and property struc-tures. The privatization of the agricultural landfarmed by former cooperatives has not been fin-ished yet and the property rights on land are notdetermined. The land ownership is significantlyfragmented. The major part of the arable land, morethan 3 400 000 hectares, is owned by physical per-sons or executives of joint-stock companies run-ning a farm (52%), while the state owns about 800000 hectares.

Concerning the situation in the rural areas, theCzech Republic is divided into 8 regions (NUTS II),14 counties (NUTS III), 77 districts (NUTS IV) and6.244 municipalities (NUTS V). Rural areas encom-pass 4,995 municipalities, i.e. 80% of the total 6,244municipalities. The large number of municipalitiesis a typical feature of the Czech Republic. 66,5 % ofthe population of the Czech Republic live in ruralareas, and it comprises 90,9 % of the total area.Moreover, new rural micro-regions have emergedthrough the voluntary association of villages to copewith their common problems. Besides Prague,which falls into Objective 2, the rest of the CzechRepublic can take advantage of the financing un-der Objective 1. In rural areas, especially in smallermunicipalities, we can register some negative de-mographic trends, negative migration rate, dispar-ity of income between the rural areas and the citiesetc. These structural problems have a negative im-pact on the labor market such as unemploymentdue to the lack of investments, and the lack of em-ployment in the agricultural sector. In considerationof the employment rate in agriculture in the ruralregions, the number of people employed in agri-culture shrank from 531 000 employees in farms in1989 to 156.000 in 2001, which represents a yearlydecrease of 5,2%. The impediments to this devel-

CZECH REPUBLIC


opment include insufficient and costly infrastruc-ture, low initial capital and poor availability of loansand guarantees.

Development of the SAPARD Programme

The relatively late official launch of the SAPARD Pro-gramme in the Czech Republic caused some realdifficulties. Even though it was planned for the be-ginning of the year 2000, it had to be considerablydelayed due to the uncompleted process of estab-lishing of the SAPARD Agency, and to the signifi-cant delay in the adoption of the respective legisla-tion, as both the EC, and the administration of theCzech Republic have considerably underestimat-ed the situation. The MAFA between the EC and theCzech Republic was not signed before the 5 of Feb-ruary, 2001. As of September 1, 2001 a higher lev-el of independence has been granted to the estab-lished SAPARD Agency that was directly subordi-nated to the MoA. The process of its accreditation3

started officially on March 26, 2001 whereas theofficial launch of the Programme had to wait for onemore year to be announced on April 15, 2002 -onthe date of the Commission Decision on conferringmanagement of aid to the SAPARD Agency4. More-over, the responsibility for the Programme imple-mentation is shared between MoA and MRD5. Asboth domains have completely different method-ologies, forms, and funding procedures, problemsoccurred in terms of harmonization of administra-tive systems and repartition of competencies be-tween these two ministries. Especially the latterdemanded a lot of energy of both parts during thepreparation of the Programme implementation.

With respect to the fact that the launching of theProgramme was originally planned for 2000, thefirst seminars devoted to the final beneficiaries tookpart already by the end of 1998. The Programme

was promoted centrally and regionally using a mixof mass and other media such as leaflets, bro-chures, seminars and exhibitions each year, espe-cially in the period 2001 to 2003. In 1999, about 100seminars were already organized for auditors, -rep-resentatives of the municipalities and farmers. Inaddition to that, web pages have been created pro-viding very precise information on the project plan,requirements on annexes and instructions to ap-plicants for financial aid from the SAPARD Pro-gramme6. Until the launch of the Programme on 15April 2002, the 5th edition of the publication on theSAPARD Programme "SAPARD Programme in theCzech republic" appeared. In the autumn of 2002,three TV programmes were broadcasted. Howev-er, according to the Mid-term evaluation about 80%of the beneficiaries heard about the Programmethrough other sources than mass media7. It has tobe also stressed that especially during the firstround for receipt of applications the RO SA orga-nized very flexibly in co-operation with the AgrarianChamber that is traditionally near to farmers addi-tional seminars with high attendance. In general, thepublicity campaign was very successful, the leaf-lets and materials were produced to a high qualityand provided very detailed information on eachmeasure. Nevertheless, regarding the time delaybetween promotion and implementation of the firstround, many potential beneficiaries, which hadcounted on the launch of the Programme in 2000,were pressed for time in terms of the start-up ofinvestments and had found other financial sourc-es. On the other hand, the early launch of the infor-mation campaign generated - high response rateof eligible applications requesting more funds thanwere available. In the case of the agricultural mea-sures, the demand has even increased in the fol-lowing rounds.

Regarding the fact that the accreditation has notyet been attributed in 2001, the Czech authoritieswere allowed to carry out preparatory work on mea-sures concerned withthe framework of the national

3 A temporary accreditation for the implementation of six measures: 1.1; 1.2; 1.3; 1.4; 2.1;2.2; 3.2 (for the measures see annex 1) was granted to the SAPARD Agency by the Compe-tent Authorizing Officer on the 29 of June 2001 and for that of the seventh measure 1.4 onthe 31 of January 2002. The management of aid on the implementing structure for the agri-environmental measure was conferred on February 19, 2003 and for the measure 2.3 onAugust 1, 2003 (Decision 2003/123/EC of 19 February, 2003) and that for the measure 3.1on August 1, 2003.4 Subject of Decision 2002/298/EC of 15 April 2002 were the above mentioned sevenmeasures out of nine, representing 95% of the funds.5 The rural development, traditionally in the competence of the ministries of agriculture, isin the Czech republic managed by the Ministry of Regional Development, a relatively younginstitution, established on 1 November, 1996.

6 These instructions were also published in 2002 in 4.000 copies followed by 7.000 cop-ies of leaflets for the measures 2.1, 2.2, 3.000 leaflets for the measures 1.1., 1.2, 1.3, 1.4and 5.000 leaflets for the measure 2.3 introduced within the first round for receipt of appli-cations.7 i.e. supplement dedicated to the SAPARD Programme published in professional press onagriculture and processing such as Zemedelec or Potravinarsky zpravodaj representing oneof the main information sources for farmers not being very accustomed to work with internet.

SAPARD REVIEW52

accreditation and under the national responsibility.Firstly, a so-called consultation round was launchedon 17 September, 2001, which had to continue tillthe Commission's decision on conferring the man-agement of aid on the SAPARD Agency. The appli-cations under the measures 1.1, 1.2, 1.3, 1.4, 2.1,2.2 were received for consultation without beingadministered. The applicants had the possibility toget their projects assessed for financial health andfeasibility by the administrators of RO SA, as wellas to consult in detail on the project elaboration.Secondly, in June 2001 the TEST Programme, fullyfinanced from national sources, was launched bythe Ministry of Regional Development in two indus-

trial regions with heavy structural problems Moravs-koslezsko (Ostravsko) and the North-West, basedon two national programmes. This pre-round al-lowed to verify the administrative procedures be-fore the launch of the Programm by accepting -project applications submitted by the municipali-ties and enterprises in order to meet the require-ments of the SAPARD measures 2.1 and 2.2. Afterthe launch of the Programme, 6 rounds for receiptof applications for aid from the SAPARD were de-clared - first, second and third in 2002 and fourth,fifth and sixth in 2003 - as well as 5 rounds in 2003for the measure 3.18. Generally, in all rounds the

8 1. round on measures 1.1, 1.2, 1.3, 1.4, 2.1, 2.2 from 15 April to 15 May 2002; 2. roundon measures 1.1, 1.2, 1.3, 1.4, 2.1, 2.2 from 25 September to 6 November 2002 on mea-sures ; 3. "flood round" on measures 1.1, 1.2., 2.1, 2.2 from 2 to 13 December 2002; 4.round on measure 2.3a) from 3 to 28 February 2003; 5. round on measures 1.1, 1.2, 1.3,1.4 from 9 to 30 April 2003; 6 round on measure 2.3b) from 1 to 12 September 2003Measure 3.1 (2003): 1. round from 7 to 22 April; 2. round from 26 May to 6 June; 3. roundfrom 8 to 24 July; 4. round from 10 to 17 September; 5 round from 13 to 20 October 2003

Figure 1: Total number of received and approved projects

Source: Ministry of Agriculture, 2003

CZECH REPUBLIC

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demand exceeded considerably the funds allocat-ed.

One third of the finances were allocated to ruraldevelopment, and already exhausted during thefirst three rounds. In December 2002, an extraor-dinary flood round was opened to the farmers af-fected by the August floods who were strugglingwith the lack of funds, limited availability of loansand unwillingness of the banks9. The criteria forsubmission of applications were not strict becausesome farmers had lost all documentation and couldnot prove their financial health. In the case of agri-

cultural measures under Priority 1 the number ofsubmitted applications increased with each round(except the 3. extraordinary flood round) whereasthe number of submitted applications under Prior-ity 2 on rural development was slightly decreasing.Accordingly, the successfulness in the first roundof agricultural measures was about 90% while in thesecond round it was just 60% because of the in-creasing competition in the course of the Pro-gramme due to the positive experience from the firstround. On the contrary, the demand under the mea-sures on rural development (2.1, 2.2), exceedingfive times the volume of allocated funds, decreased

9 As of August 12, 2002 the territory of the Czech Republic was acknowledged as affectedby a natural catastrophe and the floods were classified as "exceptional natural disaster" with3-5% decline of the Czech GDP. The Council Reg. 1268 was modified by Council Regulation(EC) No 696/2003 of April 14, 2003. Besides the funds allocated from the original budget,some funds were reallocated from the measures, which were accredited later and wherethere was no possibility to exhaust them (2.3, 3.1).

Figure 2: Submitted and approved projects by measures


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SAPARD REVIEW54

considerably after a high proportion of projects wasnot approved in the first round. However, the suc-cessfulness remained generally very low (20 till40%).

The financial effectiveness of the programme is veryhigh10 in view of the fact that there has been already

an over-commitment of 15% made on the basis ofthe current development of "mortality" of approvedprojects. In this manner, the Czech republic wasable to use the entire 100% of the Community co-financing funds.

The over-commitment of 15% was possible in theform of a transfer of commitments due to repeatedcontract withdrawals during the project implemen-tation by the beneficiaries whose priorities havechanged considerably after the accession of the

Czech republic to the EU, or in case of non-imple-mentation by the beneficiary due to bankruptcy,closing of production, shrinking sales etc. In thecase of exhausting of funds, the projects will be re-imbursed from national funds.

The analysis of regional distribution of project ap-plications and approvals shows that there was a sys-tematic difference in the number of projects sub-mitted between counties with high level of activitysuch as Central Bohemia, Southern Bohemia,Southern Moravia and Vysocina, representing ru-ral regions with high share of agriculture, stabilizedpopulation and traditional social structures, and

10 The total public funds allocated to the Czech republic from 2000 till 2003 are 123 169115 EUR, out of which 75%, the amount of 91 987 860 EUR, is the contribution of theCommunity. However, there are 17,313,663 EUR more commitments than budgeted, i.e.15% over-commitment, which is distributed with 64% to priority I and 43% to priority II,whereas priority III represents lower commitments than budgeted. The unused funds of theagri-environmental measure (2.3), which was not accredited before 2003, and those ofthe Priority 3 (3.1, 3.2) were reallocated mainly to the first two priorities, especially to themeasures on investments in agricultural holdings and partially to the Priority 2, namely to therenovation and development of villages. The total commitment is therefore continuouslydecreasing with the expected "mortality" of approved projects between 10-20%. The bal-ance of commitments should be achieved till the end of 2006. Between 2002 and 2003,funds were also reallocated for 86 projects not recommended in the previous rounds be-cause of the shortage of finance (measures 1.2, 2.1, 2.2).

Figure 3: Reimbursed amount in 2003 by specific measures

CZECH REPUBLIC

measure 2.2176 754 803

measure 2.110 848 449

measure 1.410 762 177

measure 1.31 564 345

measure 1.210 551 583

measure 1.110 158 363measure 3.2

3 921


those with relatively low performance in terms ofsubmitted projects such as Northern Bohemia (Kar-lovy Vary, Usti n. L., Liberec) and Moravia-SilesianCounty, having industrial character with low shareof agriculture and high unemployment rate.

Implementation of the SAPARD Programmein the Czech Republic

Agriculture and Rural Development Plan (SAPARDPlan)

The plan of the Czech Republic on the SAPARD Pro-gramme was approved as Agriculture and RuralDevelopment Programme with a Decision taken inaccordance with Article 4 (5) of Regulation (EC) No1268/1999 on October 26, 2000. Three prioritieshave been chosen in accordance with this Regula-tion: Increasing the competitiveness of agricultureand the processing industry, including the qualityand health standards, the requirements of Acquis;Sustainable development of rural areas focusing on

the environment and support to the diversificationof rural activities and income; and Conditions forfull utilization of the Programme supporting themeasures under the first two Priorities and the Pro-gramme implementation.

Relevance and effectiveness of measures

Priority 1 - Increasing the competitiveness of agri-culture and the processing industry

The agricultural measures were designed in orderto implement the acquis communautaire in the ar-eas where the implementation is too slow and itsfailure could have led to the non-compliance ofholdings with the requirements on standards andnorms after the accession to the EU. As the im-provement needs in this sector exceed consider-ably the funds allocated to the SAPARD Pro-gramme, it was decided to reduce significantly thescope of eligible expenditures under Priority 1 inorder to satisfy at least the thorniest needs.

Figure 4: Regional distribution of submitted and approved projects


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SAPARD REVIEW56

Within four application rounds 573 applications intotal were submitted in the framework of the firstmeasure on investments in agricultural holdings,

out of which 384 projects were selected, which rep-resents relatively high performance of about 60-70%. Regarding the relatively short implementationperiod, the effectiveness of all three sub-measureswas quite high11.

Measure 1.1 is very relevant in terms of sustainabil-ity of the primary sector12. There is particularly littleawareness of the required EU standards for animalwelfare, hygiene and the environment in the Czech

Republic that results in a poor implementation(1.1.1). There is also an urgent need for the im-provement of storage of fruit and vegetables in

terms of hygienic standards and modern storagetechnologies in order to increase the share of pri-mary producers (1.1.2), and that of a reconstruc-tion of slurry storage tanks in order to meet the re-quirements of the Nitrat-Directive 91/676/EEC till2006 (1.1.3).

Figure 5: Number of projects received and approved under the measure 1.1


11 Concerning sub-measure 1.1.1, 40%-60% of cattle housing and even 88% of sow hous-ing is not in compliance with the legislation of the Czech Republic, of which only 3% ofcattle housing (13,200 cattles) and 15% of sow housing (24,000 sows) were to recon-struct from the SAPARD Programme. The operational objective of giving support to 360-390 projects was reached by 62-67%, since resources have been committed to 242projects. By the end of 2003, projects were completed for a reconstruction of 88 896 m2of cattle stables and 79 798 m2 of sow stables. As for sub-measure 1.1.2, the requiredstorage capacity for fruits and vegetables to improve is 30,000 t for each of them, of which20% had to be covered from the SAPARD Programme. The objective was reached by 42%as 25,249 t were reconstructed. Regarding sub-measure 1.1.3, the operational objectivewas achieved by 44% .12 Council Regulation 1257/999, Chapter 1, Art. 4

CZECH REPUBLIC

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The second measure on processing and market-ing targeted also the development of the primarysector and the food industry through moderniza-tion of technologies and - support to regional prod-ucts. During the implementation period 329projects were selected, which indicates a relativelyhigh realization of 54 - 82 % of the operational ob-jective of 400-600 projects.

Even though the main shortcomings of all sectorsof the Czech processing industry remain old tech-nologies, non-compliance with the EU hygienicstandards, low quality of products and poor mar-keting, due to the limited funds available the mea-sure had to be restrained to the meat sector, ac-counting of the largest share of the revenues fromthe processing industry (23,6%), as well as to themilk and fish processing accounting of 14,9% and

0,6% of the revenues. The sub-measure on sup-port of the processing and marketing of regionalagricultural products13 had -very low activity interms of submitted projects (effectiveness 26%).The lack of interest in this measure results from arather complicated procedure of acknowledgementof the "regional affiliation" of the products persuad-ing the farmers to choose the common processingmethods.

The introduction of the SEUROP classification ofcarcasses and of the HACCP system within mea-sure 1.3 on improving the quality control and con-sumer protection was also highly relevant as itaimed at strengthening the competitiveness andthus the sustainable development of the foodstuffsector. The sub-measure concerning HACCP wasvery effective, in particular as far as the milk sec-tor14 is concerned, whereas the sub-measure intro-

Figure 6: Number of projects received and approved under -measure 1.2


13 The processing and marketing of non-agricultural products was covered by the measure2.2

14 This measure was limited to milk and meat sector. The effectivenes of the milk sector was100%, and of the red meat sector 42%. However, only 11 projects of 232 have beenselected for sub-measure 1.3.1.

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SAPARD REVIEW58

ducing the SEUROP system failed completely (ef-fectiveness 5%).

The lack of interest in the latter resulted on the onehand from a non-optimal timing of the Progammelaunch in view of the national effective legislation15,and on the other hand from the existence of a na-tional funding scheme covering 100% of the costsfor the purchasing of the SEUROP system, where-as the SAPARD programme offered just 50% of co-financing from public funds. Thus the majority of theproducers had during the implementation of theSAPARD Programme the SEUROP system alreadyin place and only a small number of producers who

intended to replace the current -system for aSEUROP system entered into the SAPARD Pro-gramme. Therefore the weak participation in thissubmeasure has had no consequences on the pre-paredness of the Czech producers for the EU mem-bership. However, regarding the low effectivenessthe introduction of the SEUROP system, financingby the designers of the SAPARD Programme seemsto be questionable.



15 Pursuant to the national legislation, Decree No. 147/1998 Coll., and the Council Directive98/83/EC, the food companies were obliged to introduce the HACCP systems as of 1 Janu-ary 2000. The SEUROP system of common carcass classification was introduced and gen-erally applicable since 2001. However, the legislation allowed the introduction of the sys-tem in the following two years. At the beginning of the year 2003, the State VeterinaryAdministration issued a regulation prescribing the veterinary and hygienic norms to be in-troduced in holdings until the end of the year, or otherwise they were in danger of closure.Some holdings did not follow this regulation and were closed.

CZECH REPUBLIC

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Under the measure 1.4 on land improvement andreparcelling 598 high quality projects were submit-ted by Land offices, of which 309 were selected inthree rounds of project submission.

The consolidation of property rights of tenant farm-ers on land parcels, the functional and spatialchanges of the parcels, their division or unification,the ensuring of their accessibility and the determi-nation of their borders should have been guaran-teed by the reparcelling process, which started inthe Czech Republic in 1991. However, this processhas not yet been accomplished. This has an impor-tant impact on the agricultural investment. The leas-ing is not stabilized and is usually signed for shorttime periods, which makes it very often impossiblefor the farmer to borrow or apply forfunds, in par-ticular to adhere the agri-environmental measures.Thus the measure 1.4 is very relevant and the ef-fectiveness of the implemented projects is satisfac-tory, especially in case of sub-measure 1.4.1 where

the measure was realized by 43%16. Thanks to thesupport, in some of the districts the reparcellingprocess has been accomplished while creating aunified digital card.

Measure 1.1, especially the projects implementedunder sub-measures 1.1.1 and 1.1.3, had signifi-cant environmental impact even though the prima-ry objective of the investments was not support toenvironmental farming. Measure 1.3 had a signifi-cant impact on the environment as it concernedhygienic norms. As for the measure 1.4, there is nosignificant evidence of direct effect on the environ-



16 The total sum allocated by the SAPARD Programme (2000-2006) covers 17,6% of thetotal needs for construction and renovation in the field of roads and landscape enhance-ment and protection (50,000 ha) in the Czech Republic. 21,579 hectares are expectedafter the projects dealing with implementing anti-erosion measures (43% of the operationalobjective). A threefold increase in the amount of field roads is expected after the imple-mentation of the projects (25,820 km). A minor part of this increase relates to the establish-ment of 46 km of bio-corridors. As for sub-measure 1.1.2, the SAPARD Programme covers12,3% of the total needs on digital mapping in the Czech Republic, of which the opera-tional objective of 86,000 ha has been reached only by 25%. However, the operationalobjectives have been fixed on the basis of funds assigned for the period 2000-2006 while- funds for 2000-2003 have been allocated in regard to the accession to the EU on May2004.

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SAPARD REVIEW60

ment; however, the more efficient transport of farminput and outputs thanks to the construction of newroads will confine thenegative impact on the envi-ronment. In general, the big agricultural holdingswere better prepared and reacted more flexibly(measure 1.1) than the processors, even though thelatter had muc better capacities to implement theprojects (measures 1.2 and 1.3). The procrastina-tion of food processing holdings that have not beenput under adequate pressure by the state was sig-nificant .

Priority 2 - Sustainable development of rural areas

In general it can be stated that the measures on ru-ral development (2.1, 2.2) under the competenceof the MRD were too wide-cut. This resulted from asubstantial difference between very exactly set upagricultural measures with tightly fixed eligible ex-

penditures under e Priority I on one hand, and wide-cut measures on rural development on the otherhand, allowing to finance a wide range of very het-erogeneous projects that entended from the pur-chase of a bus for the reconstruction of a historicalbuilding to the construction of a home for the aged.The absence of tighter delimitation of eligible ex-penditures resulted in an excess of applications, ofwhich only about 22% were approved. The devel-opment of villages and rural infrastructure, which isthe subject of measure 2.1, is highly relevant to theurgent needs of improving the competitiveness ofrural areas and of the rural infrastructure in theCzech Republic, as well as in terms of implementa-tion of the CAP17. In total, 704 projects were sub-mitted by the municipalities, the sole beneficiariesunder this measure, of which only 200 were ap-proved as the demand highly exceeded the allocat-ed funds.



17 Council Regulation 1257/1999, Chapter IX, Art. 33

CZECH REPUBLIC

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The majority of the projects supported old buildingrenovation and reconstruction and renovation ofrural infrastructure. Great accent was placed alsoon the multifunctionality of projects. However, ac-cording to the Mid-term evaluation the effective-ness cannot be assessed because no operationalobjectives have been identified. Furthermore, -measure 2.2 focusing on the development of ruralprivate businesses was also highly relevant regard-ing the national priority for support of the establish-ment and development of small and middle-sizedbusinesses (SME) and of the diversification of busi-ness activities in order to ensure sustainable de-velopment of rural areas, and overcome their de-population related to the decrease of agriculturalproduction. Nevertheless, the measure has beenfocused rather on the support to existing business-es, since of the147 projects approved under thismeasure, as much as 61% of funds were allocatedto the development of the existing SME.

The effectiveness is not very high regarding thenumber of projects expected by the SAPARD Plan18.This measure has been however very effective interms of job creation: 1,600 permanent jobs havebeen created, representing 80% of the operationalobjective set in the SAPARD Plan.

Under Priority 2 the measure 2.3 on agriculturalenvironmentally friendly production methods hasbeen implemented in 5 landscape-protected pilotareas with differences in geographical, natural andfarming factors19 in order to assure diversity of themanagement types. By implementing this measure,the state authorities aimed to gain experience withthe future implementation of the agri-environmen-tal programmes (HRDP). It was designed in a verycomplicated way in order to test specific manage-ment practices tailored to the needs of each select-ed area20. It needs emphasizing that this measurewas highly relevant to the main environmental



18 500-800 projects were expected (effectiveness = 21%), along with the creation of 2,000 permanent full-time jobs.19 Blanik - wet fertile meadows, Bile Karpaty - dry, semi-natural meadows, rich in species, Moravsky Kras - caves under intensive arable land, Litovelske Pomoravi- wetland meadows, Poodri -wet aluvial meadows rich in birds20 The LFA measure, which represents the highest share of allocated funds for HRDP, was not included in measure 2.3 because a functioning system has been already running in the CzechRepublic (national agri-environmental scheme 505).

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threats in the Czech Republic such as land aban-donment, changes of management, high share ofarable land and intensification of agricultural pro-duction. It was also coherent with Council Regula-tion (EC) 1257/199921. Even though there was - lackof support by the Ministry of Environment with re-spect to the delayed implementation of Natura 2000network, developed and designated under the Birdsand Habitats Directives, these directives have beenalready taken into consideration by the designersof the measure in some pilot areas (i.e. protectionof birds in Poodri). In total, 36 projects were ap-proved while - in only two of the pilot areas22 theoperational objective has been reached.

Priority 3 - Conditions for full utilization of the Pro-gramme

As for measure 3.1 on vocational training, theproject selection was done by the Institute of Agri-cultural and Food Information, a state allowanceorganization (beneficiary), which prepared calls forproposals for training activities provided by regis-tered educational entities. The measure was highlyrelevant because the financial support was intend-ed to contribute to the improvement of the knowl-edge and skills of farmers and foresters, and per-sons involved in other activities in the rural land-scape, as well as for quality experts. As the scopeof basic vocational themes announced under thismeasure by the Managing Authority covered andeven exceeded the whole scope of activities of theProgramme, it can be stated that this measure ishighly coherent with Priorities 1 and 2. Neverthe-less, in regard to its relatively late accreditation23

that delayed considerably the launch of the calls forproposals, and the implementation of projects itseffectiveness is not yet to be evaluated. Besides avery demanding tender procedure in terms of ad-ministrative requirements to be done in a very shorttime period, UZPI was bound by an EC Manual Callsfor Proposals prescribing a selection among at least3 candidates24 per each vocational theme. Havingin mind that the - conditions were not very stimu-

lating to the training bodies to enter into this mea-sure (the eligible expenditures covered only the run-ning costs25), almost half of the vocational topicsthemes were eliminated for lack of three availablequality projects - submitted for each topic. In total,34 contracts were concluded in 2003, of which 19have already been implemented. Nevertheless, theattendance of seminars was very high, in particularthe one just before the accession day of 1 May2004. This is evidence of big interest among the fi-nal beneficiaries. Moreover, the shortcomings interms of tender procedure have been to a greatextent removed in the OP RDMA on the basis of thisSAPARD experience. Nowadays, the applicants cansubmit only a frame offer in the first round, and theelaboration of a detailed project is not necessaryuntil the decision for acceptance of the offer.

Measure 3.2 on technical assistance is relevant asit covers the operational tasks of the Managing Au-thority related to monitoring and evaluation26. Eventhough the results of the implementation of thismeasure cannot be evaluated yet, it can be antici-pated in terms of its design that the operationalobjectives will be achieved. Monitoring activities onagri-environmental matters establishing referencebaseline situation for pilot projects to be imple-mented under measure 2.3 are highly relevant. Nev-ertheless, as regards the fact that no monitoring ac-tivities concerning other measures are covered un-der this measure, the quality of the monitoring sys-tem will be improved only in relation to measure 2.3.Also, the NMC meetings and annual reports27 arerelevant and indispensable activities for the Pro-gramme implementation. In terms of effectiveness,the annual reports are of high quality and providecomplex information on the Programme's imple-mentation. On the contrary, according to the Mid-term evaluation the utility of the project "Commu-nication Strategy for NGOs" is very low and unsat-isfactory and is focused on one restricted targetgroup in terms of recommendations. To conclude,the measure on technical assistance greatly con-tributes to the facilitation of the Programme imple-mentation. The design of this supporting measurehowever lacks - a cross-cutting approach.

21 The Czech Republic was allowed not to apply - Art. 23 of - Council Regulation (EC) 1257/1999 concerning the 5 years agri-environmental commitment. Thus - measure 2.3 providedthe faculty of four-year's, in few cases even of one-year agreements in accordance with thenational agri-environmental scheme.22 In Blanik pilot area, only one farmer adhered into the measure.23 On the 1 of August 200324 For projects from 9.670 EUR to 64.516 EUR

25 Only 12% of the project price has been allocated to - provider's costs.26 The two main issues and activities under this measure were: monitoring of the Programme(monitoring of agri-environmental measure 2.3, technical support to NMC meetings, elabo-ration of annual reports), as well as evaluation of the Programme.27 Three annual reports were prepared till 2004 for the years 2001, 2002 and 2003 (seewww.sapard.cz).

CZECH REPUBLIC


Assessment of achievements and deficiencies

The consultation round had already unfolded thetrends and deficiencies, which appeared - later inthe course of the normal rounds, such as high num-ber of quality projects for measure 1.4 on land im-provement and reparcelling by the state Land Reg-isters and, conversely, the lowest number of sub-mitted projects registered for the sub-measures onregional products and the SEUROP system. Thelack of well-elaborated projects resulted partiallyfrom the procrastination of farmers inexperiencedin demanding funds who did not take advantage ofthe free consultation service at their disposal. Thefarmers were also often discouraged by the volumeof information required to accompany an applica-tion for projects of any size. In order to ensure thatthe applicant would be able to implement theproject correctly, very costly annexes such as a fea-sibility study, a written undertaking of the bank togrant credit, indebtedness certificate, building li-cense were required by the state authorities togeth-er with the application submitted without any guar-antee of its selection28. On one hand, for the ad-ministration bodies it was not possible to requirethe annexes after the approbation of the project inorder to spare the unsuccessful applicants -unnec-essary costs. In case of their non-delivery, the com-mitted funds should have been reallocated, whichwould have demanded a new selection procedure.In the case of small-size projects the volume of re-quirements did not correspond to the risks associ-ated with the granting of aid.

The preliminaryround showed another very impor-tant disturbing tendency of predominant submis-sion of projects by big agricultural co-operatives,whereas the projects of smaller operators weremissing. There is a smallnumber of SME in theCzech Republic29 and their technical level and hu-man resources do not meet the programme?s re-quirements. Along with the lack of experiences andcapacities for elaborating a good project and ofavailable funds for financing professional consul-tancy30, the main obstacle was the economic insta-bility of the SME having lower chance to have ac-cess to bank credit as they were not able to pass

the rating process. Moreover, in accordance withthe scoring criteria for measures 1.1, 1.2, 1.3, largeand stable companies with long history got morepoints. The tendency to support more often alreadyestablished stable holdings was monitored also inthe case of measure 2.2 on development and di-versification of economic activities.

In general, the implementation of agricultural mea-sures has been very effective and efficient. Con-cerning its efficiency, animal welfare has been sig-nificantly improved in the farms that have investedunder sub-measures 1.1.1 and 1.1.3. Concerningthe hygienic norms, the quality of the producedproducts has increased considerably and 64,4% ofthe beneficiaries are in compliance with the EU stan-dards thanks to the support31. As for the process-ing and marketing measure, positive effects aremonitored in terms of more rationalized use of pro-duction factors, improved product quality, de-creased production costs and created job due tothe support. Nevertheless, it has to be stressed thatthe investments under these three measures werefocused on the short-term survival in the perspec-tive of the EU membership. The implementation ofthe acquis communautaire has however producedthe effects of sustainability by increasing the com-petitiveness of a considerable part of the Czech pro-ducers32 on the EU market. It has to be pointed outthat the amount allocated to sub-measure 1.3, aim-ing to enable the individual companies to meet therequirements for being listed in the A1 group (ableof export to the EU), did not corresponded to theestimated total funding needed by the Czech Re-

28 In accordance with the rules, the required annexes expired - three months after theirissuance so that in case of refusal of the application the applicants had to provide up-to-date certificates in order to participate in the next round of applications. This discouragedmany applicants.29 About 8.000 family farms.

30 Theoretically, all applicants should have been able to elaborate a project by themselvestaken the high quality consultation services of RO SA and the detailled plan and guidelinespublished on internet. However, the elaboration of a project is very demanding in terms oftime and human resources, which are not available to SME. The revenue regenerating projectsover 5 millions demanded a feasibility study that is very costly and must be preparedby aprofessional qualified third party. For revenue generating projects bellow EUR 138,900, abusiness plan, including a market study, was required31 In accordance with ARDP, in 2000 only 5 slaughtering establishments were approved forexports to the EU whereas of the remaining 284 highcapacity and 207 low-capacity estab-lishments, 70 and 120 respectively were supposed to meet EU requirements by 1 January2003. Despite the three-year transition period requested to improve hygienic conditions ofother establishments, 40 high-capacity establishments and 20% of the low-capacity estab-lishments were about to cease operating before the accession.. Of the 125 establishmentsproducing dairy products, 20 were approved for export to the EU in 2000, and a further51 were expected to meet the EU requirements by the time of accession. Nevertheless, 30establishments were expected to close down. A three-year transition period should allowanother 26 establishments to meet the EU requirement after the Accession. Concerning themeat sector, of a total of 1,023 such establishments 25% were about to close down beforethe date of the accession. Of the 40 poultry slaughterhouses, 10 met the EU requirements in2000, and another 16 were about to meet them by the time of the accession. 8 establish-ments were about to close down.32 It was envisaged that about 300 establishments would achieve status A1, and eventuallyA2 during the seven-year implementation period. The objective has been reached by 75%.

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public33. Regarding the small-scale character of theSAPARD Programme, its main role should be seenin the settinup of the administrative system for fund-ing from the structural funds after the accession,which is expected to have a greater impact on - allagricultural sectors in the near future.

Also the support under the rural development mea-sures has produced very positive effects in termsof increasing the quality of life for the local popula-tion, preservation of the rural heritage, creating newjobs opportunities and - development of the exist-ing SME, and therefore the sustainable develop-ment of rural areas. On the one hand, the scope ofeligible expenditures was too wide in view of the verylimited funding appropriated to rural developmentmeasures (1/3) and was not based on identifyingthe real, most urgent needs of the regions. On theother hand, the implementation of rural develop-ment measures helped to identify the most urgentneeds for the next programming period and the ECstructural assistance. Nevertheless, a certain dis-crepancy has been registered between the mea-sure level and the implementation level due to theunrestrained set-up of the measure. The financedprojects have not much attributed to the diversifi-cation of farm activities as only few projects on agri-tourism, regional non-agricultural products andproduction of alternative energy sources were sup-ported. The measure focused also on the start-upof new businesses and the diversification of farmincome whereas after the Programme implemen-tation the diversification of farmer's activities andrural tourism each account for less than 10 %. Thusthe traditional economic structure remained con-served. In general it can be stated that the Pro-gramme was to a very large extent in favour of the(partially larger) existing businesses, regardingboth the agricultural measures and the measureson rural development.

Concerning the agri-environmental measure, be-sides overlapping with the national agri-environ-mental scheme 505 leading to a low participationin some areas34, which should have been consid-ered when designing the measure, the low partici-

pation of farmers resulted from the lack of experi-ence with the application of more complex landmanagement among the local authorities and farm-ers. Nevertheless, irrespective of the fact that themain objective of measure 2.3 was to test the en-tire scope of future horizontal agri-environmentaltitles in small-scale areas by including specific lo-cal management, the potential scale of agri-envi-ronmental activities in the Czech Republic is quitelarge, and it is not evident whether 5 pilot areasprojects could have provided sufficient experiencefor HRDP.

Another important obstacle, the unwillingness ofbanks to offer loans to private entrepreneurs, es-pecially in agriculture, has been partially overcomein the course of the Programme as the banks tookinto consideration the profitability of the repaymentof onehalf of the credit35 right after the project real-ization. However, the banks should have been bet-ter prepared by the national SAPARD authoritiesbefore the launch of the Programme in order to takeinto account the guaranteed repayment of thefunds. Also in this concern the larger enterprisesare favoured in terms of the interval between claimand payment because they can afford to wait long-er for reimbursement of project costs in case ofdelayed payments. This problem has been evenmore relevant in OP RDMA: regarding the possibleinsolvency in the power of the state administration36,the clause on the 3-months term for reimburse-ment, laid down in the SAPARD Plan, has been ex-empted from OP RDMA.

To conclude, the main role of the SAPARD Pro-gramme should be seen in the preparation for theset-up of the administrative system for OP RDMA.Regarding the small amount of funds allocated toSAPARD it is difficult to quantify at this stage theconsequences that the Programme had on theCzech agriculture37, whereas the impact of the im-plementation of the new CAP in the OP will be much

33 The required investments were estimated at CZK EUR app. 55,560,000 whereas the fundsallocated to the measure 1.3 amounted 25,172,617. It was envisaged that about 300 es-tablishments would achieve status A1, and eventually A2 during the seven-year implemen-tation period. The objective has been reached by 75%.34 In Blanik area, at least 40% of eligible are of 110 ha should have been treated, while only1 farmer entered into the Programme (10 ha). In Bile Karpaty, the operational objective wasto implement agri-environmental measures on a surface of 400 ha of the total grass area of

6000 ha. The measure was implemented on 305 ha. In Moravsky Kras, the objective was tograss 170 ha and to implement the changed sowing process on the area of 150 ha. In Poodri,the maximal area to treat is 1800 ha and to grass is 340 ha of which on 230 ha theagrienvironmental measures have been implemented.35 The intervention rate for a revenue generating project is 50%, of wich 75% come from EUfunds and 25% from the national budget.36 Untilthe end of the year 2003, the EC had difficulties to allocate the funds for AFA 2001.The Czech Republic was obliged to reimburse the projects through its own national meansso that the payments were delayed by some 2 months.37 This will be the subject of the final evaluation of the SAPARD Programme, to be carried outafter the end of the Programme implemenation.

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stronger taking into account the high share of fundsallocated to investment in the agricultural holdingsand processing following the SAPARD Programme.Nevertheless, the tendency of the Czech govern-ment to favor the primary production is no longersustainable as the farmers should consider othersources of subsistance by means of diversificationof their agricultural activities. The first round of OPon the purchase of agricultural machines openedin 2004, showing that the demand exceeds consid-erably the allocated funds ,has also confirmed theexperience gained in the SAPARD Programme thatthe eligible expenditureshave to be tightly delimitat-ed in order to use the agri-cultural funds granted by theEC more effectively.

Implementing struc-tures and proceduresof the SAPARDProgramme

The structure of the SAPA-RD Agency

Pursuant to CommissionRegulation (EC) No. 1268/1999, a single SAPARDAgency has been estab-lished, responsible for bothSAPARD implementationand payments. Apart fromthe independent InternalAudit Division directly subor-dinated to the Director Gen-eral, there are three maindepartments, namely theManaging Authority Depart-ment, Department for Im-plementation and Controland Payments Department.The functions of authoriza-tion, payment and account-ing were separated in threesubdivisions of the Pay-ments Department, and theresponsibilities for project

approval, authorization and payments were not as-sumed by one administrator as it was required inthe MAFA. The Department for SAPARD ProgrammeImplementation and Control is divided into a Meth-odology Division, a Control Planning Division at thecentral level and Regional Offices Division manag-ing 7 regional offices at NUTS II level to ensure theProgrammes central controls planning and meth-odology. The projects were checked for complete-ness at the regional level38 and after approval by theRegional Selection Subcommittee handed over tothe central level for final selection by the National

The structure of the SAPARD Agency

External Relations Division

Analysis and IT Division

Internal Audit Division

Section of the Director General

Dept for SAPARD Programme Implementation and Control

Payments Department

Payment Authorisation Division

SAPARD Payment Division

Accounting Division

Methodology Division

Control Planning Division

Regional Offices Division

REGIONAL OFFICE OF SAPARD AGENCY

Director General Managing Authority

Department

Key:

Line management

Functional management

Departments of SAPARD Agency

Divisions within the Departments of SAPARD Agency

Regional Offices of SAPARD Agency (NUTS II)

Figure 11: Organization Chart of the SAPARD Agency

Source: Ministry of Agriculture, 200338 The total number of administrators in 7 RO SAwas 52 people from the MoA plus 14 from the MRD.

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SAPARD Selection Committee. At the final stage,the contracts are signed by the Director General.Except for the payments and preparation of con-tracts, the majority of the administrative tasks weredecentralized and the responsibility for them weretransferred to RO SA39. In accordance with theMAFA, separate bodies were established, namelya Managing Authority, Implementing Body, PayingAgency and Internal Audit Division. The tasks andresponsibilities related to the implementation of theSAPARD Programme are elaborated in great detailin the Operational Manual, an intern working docu-ment for all the staff involved in the Programme im-plementation, containing more than 1000 pagesand often hindering the administrative procedurerather than facilitating it.

In order to ensure the monitoring of the Pro-gramme, a National Monitoring Committee com-prising of 25 members (representatives of govern-mental and non-governmental institutions) hasbeen set up, together with eight Regional Monitor-ing Sub-Committees at the level of the NUTS II re-gions. In addition to the representatives of minis-tries participate in the NMC also rather representa-tives of associations and chambers40 related to theagricultural and food sector and having the right tovote. In the course of the Programme 7 meetings41

have been held dealing with themes and topics in-cluded in MAFA (in particular selection procedure,monitoring and overview of financial plan). The ab-sence of higher officials, sometimes exceeding onethird of the permanent members, made it impossi-ble to take decisions in certain instances. Duringthe second meeting of NMC a requirement was ex-pressed to invite the representatives of regionalmonitoring subcommittees to participate in themeetings. This improved the transfering of informa-tion from the national to the regional level . Further-more, a computer database was developed withgraduated access interconnecting the regional of-

fices with the central office. The latter has accessto data from all the regions, whereas the regionaloffices only have access to information on their ownregistered projects. Except for input and updatingof project data after completion of on the spot con-trols, the database also records financial commit-ments and payments from the SA and is capable ofreporting on the financial and physical outputs.

Project administration and control

Concerning the submission of applications, therewas massive project submission by farmers on thedeadline date and for the understaffed team of RO,especially in regions traditionally dealing with a highnumber of submitted applications, it created seri-ous difficulties . As the farmers brought all docu-ments on hard copies, the employees RO SA hadto input the data into the computer, which was verytime demanding. From the point of view of the ben-eficiaries, co-operation with the administrators atthe regional level has been assessed as excellent.RO SA provided information on how to elaborate theproject, helped to assess the financial health of theholdings of the beneficiaries, helped with the col-lection of all the necessary annexes. Without theirwilling attitude and this extraordinary service, whichwent beyond the obligatory office agenda42 morethan a half of the beneficiaries would not have gotthe grant. The source of this enthusiasm was theirawareness of the national interest to use up theavailable funds. Nevertheless, during the first tworounds the legal conditions (terms of submissionof application, notification, payments and reim-bursement) changed perpetually. This compound-ed the confusion of beneficiaries that were them-selves bound by obligations vis-a-vis the state. Thislegal gap is considered by the beneficiaries as un-preparedness of the state. It was the typical unwill-ingness of the state authorities, especially at thenational level, to assume full responsibility and tocommunicate the up-to-date conditions and rulesto the beneficiaries.

Regarding the limited funds allocated to SAPARD,three levels of project assessment were set in or-der to satisfy at least the best quality projects: eli-

42 Some RO SA managing a large territory covering more counties offered bytheir owninitiative one office day per week in the more distant counties in the office of theAgricultural agency (i.e. RO SA in Ceske Budejovice in Plzen) to facilitate the time-demanding consultation process to the farmers.

39 Exceptions: projects exceeding EUR 138,900 as well as projects involving more than oneregion had to be evaluated at the central level.40 Structure of NMC - members: MoA, MoF, NF, MoFA, MRD, MoE, MoLSA, director of theImplementation and Payment Control Dpt. of SA, director of Payment Dpt. of SA, Associa-tion of Cities and Municipalities of CR, Association for Rural Renewal, Chamber of Com-merce of CR, Food Chamber of CR, Managing and Coordination Committee, Association ofPrivate Agriculture of CR, Association of Young Farmers of CR, Association of Municipalityand Private Forests Owners in CR, Association of Agricultural Cooperatives and Societies,State Veterinary Administration, Czech Association for Nature Conservation, representativesof the EC in the role of advisors41 The meetings were held on: 10 May 2001, 5 December 2001, 24 April 2002, 23 Octo-ber 2002, 23 April 2003, 26 November 2003, 22 April 2004

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gibility criteria, scoring results and complementa-ry criteria. The fulfillment of the eligibility criteria wasan indispensable condition for the recommenda-tion of projects by the Regional Selection Sub-com-mittee for the next selection procedural steps whilethe scoring results determinated the ranking of theproject on the list of recommended projects. At thenational level it was necessary to set additional cri-teria in order to determine the granting of aid in caseof higher number of submitted projects, having thesame scoring results and coming from different re-gions. In this system, besides the degree of finan-cial health (the healthier, the better), which was al-ready scored, the crucial additional criterion forpassing the funding limit was the total amount ofdemanded public contribution financing43. Smallerprojects were generally preferred. This practiceshowed, firstly, at regional level the uselessness ofthe Regional Selection Sub-committees as theirrole was practically only to approve and to pass overthe list of projects scored by the subordinated ad-ministrators without having any real influence on theresults. Secondly, the weak point at the level of theNSC was the possibility of influencing the finalproject selection with regard to the regional affilia-tion of projects, as each voting of a commission al-lows for subjective argumentation.

Furthermore, it can be stated that the scoring sys-tem as well as the controls44 were focused on ad-ministrative compliance and verification rather thanon quality criteria. The control is concentrated onthe administrative, purely formal check of account-ing books and the project outcomes correspond-ing to the eligible expenditures disregarding thequality of its accomplishment45. Thus, in order toassure the required multifunctionality46 of projectson rural development, the project objectives reflectoften the selection criteria published on internet bythe Programme. Furthermore, for the purposes ofcontrols there were clear-cut and evident criteriafor agricultural measures, which could be answeredunambiguously with yes/no and did not allow anyinterpretation., Conversely, in the case of rural de-

velopment projects the rules designed by MRD hadto be interpreted by officers of MoA at the regionallevel, responsible for on the spot controls. Thus theco-operation of MoA with MMR at the regional lev-el was generally quite problematic. On the onehand, its administrators at the regional level exe-cuting the delegated tasks related to the assess-ment of the projects for rural development were in-dependent and were not subordinated to higherofficers of the RO SA. On the other hand, their ac-tions had consequences on the work of RO SA, i.e.on the planning of controls withinthe competenceof MoA.

To conclude, the Programme administration wasset up in compliance with the EU requirements andturned out very effective. However, the administra-tive procedures were too complicated and oftenhindering the effective implementation of the gen-erally very flexible staff.

Transition from the SAPARD Programme toEC funds oriented to agriculture

Transition to EC structural and non-structural as-sistance in agriculture

The SAPARD programme represents very preciousexperience of the transition to the structural fund-ing, especially for the OP RDMA, which was built onthe basis of its implementation system. The conti-nuity of personnel and hereby the transmission ofachieved experiences and best practices was pre-served on both levels, the regional and the nation-al. In the regional offices the staff executing theadministration of the SAPARD programme has keptits agenda till the completion of the implementa-tion of the SAPARD programme with the last ex-postcontrols in 2006 and has taken on the tasks relatedto the administration and to the controls of theprojects submitted in the framework of the RDMA.However, besides a very operational application ofthe best practices and lessons learned from SAPA-RD in the current funding system, a certain discon-tinuity has been also monitored in sharing experi-ence achieved in the SAPARD programme by somekey persons who switched from SAPARD to anoth-er agenda.

43 The percentage of demanded public contribution was already scored: one percentless, one point more.44 Interim controls are executed in 100% of the projects, while ex-post controls in 100%only for revenue generating projects. The project objective has to be fulfilled for at leastthree years. This exception to the rule of 5 years has been accredited by the EuropeanCommission.45 This concerns especially the measures on rural development.46 The scoring criteria were published on Internet and thus well known to the applicants.

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The SAPARD Programme featured more or less themeasures, which appear in the Operational Pro-gramme, with the exception of young farmers, for-estry and water management. The practices appliedin the SAPARD Programme represented the mainsource for the implementation of the OperationalProgramme. Nevertheless, there are some chang-es in the implementation system based on the de-ficiencies uncovered in the SAPARD Programme.The selection committees at the regional level andat the national level did not produce satisfactoryresults; therefore they were dissolved in the Oper-ational Programme and replaced by a mechanismof project scoring on the basis of clear and distinctscoring criteria. Moreover, the additional criteria forprojects with the same scoring level coming fromdifferent regions were introduced in the regularscoring system. While good financial health was anecessary selection criterion for the project admis-sibility in the SAPARD Programme without beingscored, in the first round of the Operational Pro-gramme it was scored (group A, B, C, D) and there-after it has played the key role of an additional cri-terion in case of shortage of funds. Regarding thenegative experience of last-minute application sub-missions by farmers, the second additional criteri-on introduced in the OP was an on-time applica-tion. The earlier the applicant has been registered,the better his score. The practice of attribution ofeach percent less of demanded public contributionproved successful and was reinforced by morefavourable conditions for young farmers and farm-ers running a farm in LFA. In such cases a farmercan get up to 15% of public contribution in addi-tion(5% young farmers, 10% LFA) and gain a bet-ter score by their deduction from the final increasedpercentage of aid. On the basis of the experiencesgained in the SAPARD Programme the control sys-tem has also been changed. With regard to the factthat ex-ante controls in 100% of the cases turnedout very time demanding, they are executed only inurgent cases47. The planning of controls was de-centralized and is now executed at the regional leveland submitted for control at the central level. More-over, in order to facilite the project submission tothe applicants of aid, the requirement for submis-sion of original documents was abandoned and re-placed by a declaration of honour

However there are some practices, which haveproved successful. In the SAPARD Programme theeconomic viability belonged to the eligible criteriawhereas in the OP it was scored and on the basis ofa special calculation that is not published, additionalpoints were attributed to projects with higher via-bility. However, this system favours again biggerholdings having available funds for financing an ex-pert on financial analysis. Therefore, an option hasbeen considered to revert back to the above-men-tioned SAPARD solution. Similarly, in the SAPARDProgramme it was set up in the regulations that thebeneficiary would be reimbursed within threemonths after the application. This had to be aban-doned in view of the insolvency of the Paying Au-thority, the National fund not receiving in time theco-financing contribution of the European Commis-sion. However, this causes big problems for thebeneficiaries having obligations to pay their provid-ers in time.

As fas as HRDP and SROP are concerned, the im-plementation of the SAPARD programme has beena very precious experience for the administrationin terms of getting used to the common mecha-nisms and rules of EC funding, such as the four-eyes-rule, audit, on-the-spot controls etc. The im-plementation of the agri-environmental measurehas greatly helped the setting up of the implemen-tation of HRDP on the level of programming docu-ment. However, as opposed to measure 2.3, theHRDP measures are implemented horizontally andthe applications are submitted yearly and once theyare in compliance with all requirements, they aregranted automatically. Except for the setting-up ofproducer groups and early retirement measures,the control is based more on measuring and rulesobservance than on the control for administrativecompliance and accountancy. The continuity withSAPARD has been maintained particularly on thelevel of trained staff. Concerning SROP, the imple-mentation of the rural development measure in theSAPARD Programme was significant, especially re-garding the identification of regional needs at thelevel of programming document and designing ofmeasures. Thus the experiences from the SAPARDmeasure 2. 1b) were used by laying the conditionsfor the SROP measure on rural infrastructure, to

47 Unlike the SAPARD Programme, the beneficiary can start the project implementationalready in the moment of registration and does not have to wait to sign the contract.

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which most funds have been allocated. Neverthe-less, the project selection procedure and the ad-ministration have been set up on a different basisand differ essentially from that of the OP based onthe SAPARD administrative procedures.

Transformation of the SAPARD Paying Agency intothe CAP Paying Agency

Originally, two agencies were planned in the CzechRepublic, one at the MoA, the other in the StateAgriculture Intervention Fund (SZIF). Finally, a de-cision about their unification has been taken. TheSA was transferred under SZIF as of the 1st Janu-ary 2004. This transfer was only an organizationalchange; the right and obligations of the SA arisingfrom the signed contracts remain unchanged. At thesame time, the activities of the employees and thenecessary competencies of the institutional struc-tures of the established CAP paying agency weretransformed. The RO SA became part of the region-al divisions of the fund but it remained within thecompetence of the SA. The former heads of the ROSA became regional heads of the Programme. Thetransfer of the SA to the SZIF was preceded by anappointment of a Managing Authority for the Oper-ational Programme RDMA and it was decided tomerge the former SAPARD Programme ManagingAuthority with this newly established department asof 1 July 2003. This new independent SAPARD Pro-gramme Managing Department was established asa coordination unit for the activities related to theimplementation of the Programme.

The former Department for SAPARD ProgrammeImplementation and Control has been transformedinto a Department for OP and SAPARD that is partof the Programming Body of SZIF. The former 7 ROSA have become part of the 7 regional departmentsof SZIF and are directly managed by the RegionalDepartments Body. As regards the methodology,its employees are still subordinated to the Indepen-dent Division for SAPARD Management that had re-placed the former division of director general of SA,as well as to the Department for OP and SAPARD48.

Apart from the OP and the SAPARD Department, theProgramming Body comprises also a Departmentfor HRDP and Direct Payments and System Sup-port Department for controls in the guarantee sec

sion, as well as OP and SAPARD Payment Division,are part of accounting and payments departmentsfor direct payments, HRDP, OP and SAPARD, fall-ing under the Economic Body of SZIF. The InternalAudit Department is directly subordinated to theDirector General of SZIF.

On the one hand, the transformation of the SAPA-RD Paying Agency was carried out very effectivelyusing the current functioning system of existingfunds and the established structures and mecha-nisms of the former SAPARD Agency, in particularas regards the OP RDMA. Besides the reorganiza-tion of the existing departments, an adjustment ofthe internal rules of the SA (Operational Manual)had to be made in order to adjust the system of in-ternal directives of SZIF. On the other hand, the staffof some key bodies such as the Managing Author-ity has changed, thus cutting partially the continu-ity of achieved experiences and the information flowtowards the co-operating bodies.

48 The Department for OP and SAPARD has four subordinated bodies: 1. GeneralMethodology Division, which was created bythe former Division for SAPARDMethodology and 3 regional methodists and has also taken over the OP methodology; 2.Division for OP and SAPARD Control Planning based on the former Control PlanningDivision in SA and responsible for OP controls planning; 3. OP Methodology Division (nocompetencies concerning SAPARD); 4. Payments Authorization Division that was createdby the former Payments Department of SA

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Figure 12: Organization Chart of SZIF


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POLICY OPTIONS

Regarding the agricultural market saturation andthe low economic profits with uncertain future, al-ternative incomes through extension of farming ac-tivities have to be ensured, for instance ecologicalfarming, processing and marketing of regionalproducts and ecotourism, in order to diversify thelocal economy. In the Czech Republic, the revenuegenerating activities alternative to the primary ag-ricultural production are very often SME, whereasthe large processing holdings or cooperatives arespecialized in large-scale production without anyalternative sources of income. Therefore a multi-sectoral programme should be created to supportthe development and establishment of small andmedium size businesses in the rural areas and toachieve a greater variety of non-production ruralactivities and therefore boost the appeal of ruralareas.

To ensure the access of the SME to funding oppor-tunities, the administrative procedure for small-scale projects must be simplified and introduced into complete the current one. There is a long set ofprocedures to be followed from the submission ofaid application to the granting decision . In view ofthe low risks associated with the submission ofsmall-scale projects, the requirements for provisionof information should be less strict and the projectelaboration should be simplified. A very simple smallproject49 should be provided as a model that couldbe elaborated by the beneficiary without costly pro-fessional advisory services. Moreover, the assess-ment of the financial health should also be simpli-fied. In this manner even applicants who might nothave the financial and human resources at their dis-posal to meet the Programme requirements or whowould decide that the cost and effort is not worth itcould participate.. This simplified system could beintroduced as a separate measure for small busi-nesses. Furthermore, the state authorities shouldcertify a certain number of consultants with autho-rization for consultancy activities and present themto the regions in order to ensure the quality of theconsultancy services. During the implementation ofthe SAPARD Programme in the Czech Republic, the

services provided by "professional" consultants dif-fered essentially in the degree of quality and theapplicants were subjects to unfair conditions set bythe consultancy companies. The state should en-sure the protection of the beneficiaries of publicfunds.

As far as the rural development is concerned, theidea of microregions should be supported more ef-fectively by ensuring greater coherence of the mea-sures. Firstly, a regional analysis should be elabo-rated in order to monitor the more concrete needsof the potential beneficiaries. It is clear that speak-ing of the rural development policy in the CzechRepublic, the needs of rural areas cannot andshould not be dictated from above. However, themonitoring of planned investment projects in theregions would allow the design of measures bet-tertargeted at real regional priorities. In this way, adecrease in the number of applicants would resultfrom any narrowing of the eligible costs and thusthe scope of potential beneficiaries would be limit-ed. As a result, a big number of applicants wouldbe spared from high costs without having a very lim-ited perspective of getting grants and thus the fundswould be allocated in the most efficient way. Sec-ondly, the scoring criteria should be focused moreon the individual quality of projects than on the max-imum compliance with listed items in order to avoidthe prioritization of projects with a lower marginalutility than the rejected projects . Thirdly, to improvethe usage of the EC pre-accession funds, and morespecifically the SAPARD Programme, which is a pre-accession instrument in agriculture, the rural de-velopment should be more interconnected with thediversification of agricultural activities by means ofco-operation of mayors with the farmers. The mu-nicipalities should be encouraged to co-operatewith farmers in the supply of regional agriculturalproducts and the farmers should be obliged to gettheir projects approved by town halls. Furthermore,the approval of a project demanded from all mu-nicipalities in one microregions should not be purelyformal, understood as quid pro quo, as it turned outin the course of the implementation of measure 2.2in the Czech Republic but should express seriousinterest of the concerned municipalities in the im-plementation of projects improving the living con-ditions and the interconnection within a microre-49 For small scale projects under 32,258 EUR.


gion. This should be secured through the individualquality of well-targeted projects improving the co-operation of municipalities that should be evaluat-ed on the basis of quality-focused evaluation crite-ria. Finally, more focus should be placed on the bot-tom-up approach and the inclusion of the ruraldwellers and socio-economic partners in the deci-sion-making process in order to ensure the sustain-ability of the development of rural areas.

It is also a key issue to strengthen the informationdissemination activities in order to increase the ad-hesion of the farmers to the agri-environmentalmeasure. To encourage the farmers to adopt amore extensive approach to farming in a more en-vironmentally sensitive way should be one of themain priorities to follow in a country with high de-gree of intensive approach and with big share ofarable land. This was not the case of the "Czechway" of implementation of the SAPARD Pro-grammes, as the state authorities have placed apriority on "classic" agricultural activities, structur-al adjustment and investment in processing andmarketing. Moreover, the measure was implement-ed rather late and part of the rather modest fundsallocated to this measure was reallocated to agri-cultural measures. However, the effectiveness ofthis measure depends on several factors, not onlyon the available funds but also on the degree ofcompetence of the stakeholders? and the farmers'awareness and willingness to participate. Thus theincreasing of funds earmarked for agri-environ-mental schemes should be preceded by increasedof awareness of the stakeholders of the profitabili-ty and sustainability of entering into this measure.This could be ensured by timelyimplementation ofthe measure on vocational training providing sem-inars on agri-environmental activities and the ECstrategy for sustainable agriculture.

CONCLUSIONS AND POLICY RECOMMEN-DATIONS

The SAPARD Programme revealed some very im-portant tendencies of the national policies on agri-culture and rural development and offered someways of improving the pre-accession aid in orderto assure compliance with the EC strategy for sus-tainable agriculture. In general, it turned out that

the Programme was focused on the support of theprimary production while favourising big agriculturaland processing holdings. Thus the strategy of theProgramme washighly relevant in terms of compli-ance of the agricultural sector with the acquis com-munautaire. In accordance with that, the majorityof funds were successfully allocated to the agricul-tural measures, whereas a minor part went to therural development. The implementation authoritiessucceeded to exhaust all the allocated funds andeven to exceed the commitments by 15% with thehelp of the chosen strategy. The Programme hasalso produced a wide range of results and impacts,such as increase in productivity and more rationalproduction, increase in income, improved qualityof products, positive effects on animal welfare, im-proved working and health conditions, improvedstorage capacity, high number of created jobs, par-tial diversification of the rural economy, improvedcompetitiveness and increased activity of existingSME. A direct positive environmental impact, as wellas positive side effects of the implemented projectshave been identified, especially under Priority 1.Nevertheless, in order to exhaust the allocatedfunds a short-term perspective was chosen whiletaking into consideration the accession of the CzechRepublic in the EU. In the long-term perspective thispolicy is however not sustainable with respect to theobjectives of the EC strategy for sustainable ruraldevelopment. The following recommendations arebased on the positive and negative experiencesgained during the implementation of the SAPARDProgramme.

More funds should be allocated and priorityshould be given to the diversification of agricul-tural activities and to activities related to tour-ism, creating an alternative source of income forrural areas. The operational objectives of activi-ties under this measure should be clearly speci-fied, a smaller target selected and the scope ofeligible expenditures narrowed in order to de-crease the excess of demand and thus to sparethe applicants from unnecessary expendituresand to decrease the risk they have to take;

Under the rural development measures, an in-strument should be included ordering as anintegratecondition co-operation between may-ors and farmers in order to involve the farmersinto the projects;


An increased focus should be placed onbranches of the foodstuff sector processing di-versified products, such as regional and ecologi-cal products. The design of the sub-measure forsupport to processing of regional productsshould offer more favourable conditions for po-tential processors in order to motivate them toenter into this sub-measure rather than tochoose conventional methods of processing;

Priority should also be given to the establish-ment of SME in order to diversify the spectrumof economic activities in rural areas;

The target groups should be defined in orderto allow access of SME to the funding. The sizeof the farm is to be taken into account while de-signing the scoring criteria;

A simpler application and appraisal system forsmall-sized projects demanding lower amountsof grant aid should be introduced with simpli-fied project plan and reduced volume of requiredinformation, as well as softer requirements con-cerning the financial health;

The required original documents to be sub-mitted together with the application (indebted-ness certificate etc.) should be replaced by adeclaration of honour;

The costs for technical and financial expertopinion directly related to the project (market-ing study, business plan, feasibility study, envi-ronmental impact assessment and costs forbookkeeping) should be included in the eligibleexpenditures as they represent a relatively highexpense item, in particular for SME.50

;

A regional analysis should be elaborated onthe basis of the needs of the local population in-volving local associations, economic partners,city halls and farmers. The focus should be onthe bottom-up approach;

50 In the Operational Programme RDMA these items are already included in the eligibleexpenditures.

51 In the case of measures on rural development, a feasibility study was obligatory for projectsover EUR 138,900, which is very costly and it seems that its content concerning possibleoverestimation of individual items in order to get the required minimum outcome was notreally controlled.

Better coherence between individual mea-sures should be ensured, especially as it con-cerns the horizontal environmental matters thatshould be an integral part of each individualmeasure;

The selection procedure should be carried outon the basis of "objective" selection criteria thatdo not allow subjective interpretation, as it wasin the case of setting up selection committees.The selection criteria should be based on theproject quality and not onlyon administrativecompliance. One of the additional criteria couldbe in-time application in order to facilitate thework of of the regional agencies;

The state authorities should protect the ben-eficiaries by assuring the quality and indepen-dence of the consultants. Furthermore, thefeasibilitystudies should be controlled by econo-mists in order to detects any inconsistencies inthe calculation51;

Banks should be informed about the benefitsof granting loans in due time before the launchof the Programme;

A higher priority should be given to the orga-nization of IT seminars for farmers in order to im-prove their access to information (internet) aswell as to ease the administrative burden of theregional administrators;

The dissemination of information on sustain-able agriculture should be improved andstrengthened because the sensibilization offarmers concerning environmental mattersleads to increased adherence to the agri-envi-ronmental measures;

The representatives of regions should partici-pate in the NMC and they should be given theright to vote in order to provide the regions withmore decision-making power.

SAPARD REVIEW74

Czech Republic: Characteristics of the area1

Year of reference: *

2002

GDP in USD per capita and year 6 822,0 Share of agriculture in the GDP (in %) 2,8

urban population NM

rural population NM

agricultural populationA 11 700

Per capita average income (EUR)

overallA 15 700 Population density (inhabitant/km2) 131 Migratory balance between rural and urban areas (net result, in thousand of people)

NA

urbanB 7 620 108 totalB 2 672 825

total NM rural of which farmers of which part-time

farmers NM

Population

totalB 10 292 933 urban NA

total NA rural

of which farmers NA Active population

totalC 4 825 100

urban NM

rural NM Unemployment rate (in %)

totalD 9,8 Share of female employment in the active population (in %)E 43,3 Share of people over 40 years in the active population (in %)F 39,4 * Data 2003 are not available. 1 Information of contextual tables (number 1, 2 and 3) is updated on an annual basis. When the data are not yet available, indicate the last available data and specify the year they refer to. 2 Rural population = population in communities of up to 1 999 inhabitants, urban population = population in communities of 2 000 inhabitants and over A Average monthly gross wages (CZK) - estimate. B Source: Census of people, houses and flats 2001, Czech statistical office (CSO) 2001. C Aggregate number of employees in the national economy . Source: Employment and unemployment in the Czech Republic in the 4th quarter of 2002. CSO 2003. D Towards 31.12.2002, Ministry of labour and Social Affairs 2003. E Aggregate number of female employees ih the domestic economy . Source: Employment and unemployment in the Czech Republic in the 4th quorter 2002. CSO 2003. F Aggregate share of employees above 45 year in the national economy . Source: Employment and unemployment in the Czech Republic in the 4th quorter 2002. CSO 2003. NA Not available NM Not monitored

CZECH REPUBLIC


Land use Year of

reference: 2002

ha % of UAA1 % of total Arable land 3 068 239 71,80 38,9%

Permanent crops 236 290 5,53 3,0% Permanent grassland and pastures

968 272 22,67 12,3%

UAA total 4 272 801 100,00 54,2%

Forests and other woodland 2 643 058 33,5%

Other uses 970 896 12,3%

TOTAL 7 886 755 100,0% 1 UAA: Utilised Agricultural Area Data 2003 are not available


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ANNEX I

List of measures

Measure 1.1 Investments in agriculturalhold-ings

1.1.1 Welfare

1.1.2 Reconstruction of Storage Capac-ities for Fruit and Vegetables

1.1.3 Storage Capacities for By-prod-ucts of Livestock Production

Measure 1.2 Improving the processing andmarketing of agricultural and fishery products

1.2.1 Modernization of Technologies

1.2.2 Support to Regional Products

Measure 1.3 Improving the structures for qual-ity control, for the quality of foodstuffs and forconsumer protection

1.3.1 SEUROP Classification of carcass-es

1.3.2 Assistance in the introduction of theHACCP

Measure 1.4 Land Improvement and Reparcel-ling

1.4.1 Construction and Renovation ofField Roads, Building the TSES and Anti-Ero-sion Measures

1.4.2 Land Surveying Work, New DigitalMapping, Land Surveying including Geometri-cal Plans in compliance with Act No 229/1191Coll.

Measure 2.1 Renovation and Development ofVillages and Rural Infrastructure

2.1 a) Renovation and Development ofVillages

2.1 b) Development of Rural Infrastruc-ture

Measure 2.2 Development and Diversification ofEconomic Activities, Providing for Multiple Activi-ties and Alternative Income

Measure 2.3 Agricultural production methodsdesigned to protect the environment and main-tain the countryside

2.3 a) Agricultural production methodsdesigned to protect the environment and main-tain the countryside

2.3 b) Cost of informing on agri-environ-mental measures

Measure 3.1 Improvement of vocational training

Measure 3.2 Technical Assistance


TABLE OF CONTENTS

Introduction ............................................................................................................................................................................ 85

The general context of SAPARD in Estonia ......................................................................................................................... 86

The SAPARD program in Estonia .......................................................................................................................................... 89

Summary and policy recommendations ........................................................................................................................... 101

ANEX 1 ................................................................................................................................................................................... 103

List of references ................................................................................................................................................................... 104

SAPARD REVIEW84 ESTONIA


ARIB Agriculture Registers and Information Board


CEEC Central and Eastern European Countries

EAGGF European Agriculture Guidance and Guarantee Fund


EU European Union

ISPA Accession Instrument for Structural Policies for Pre

MoA Ministry of Agriculture

NDP National Development Plan

OECD Organization of Economic Cooperation and Development

PA Paying Agency

PHARE Pologne, Hongrie, Assistance a la Restructuration Economique

RDP Rural Development Plan

SAPARD Special Accession Programme for Agriculture and Rural Development

SME Small and Medium Size Enterprises


INTRODUCTION

Estonia signed the Europe Agreement with the EUin June 1995. The Agreement entered into force inFebruary 1998 after being ratified by the Parlia-ments of the Member States, the European Parlia-ment and the Estonian Riigikogu [1]. With applyingto become a member of the European Union (theEU) Estonia took on an obligation to harmonize itspolicies and political instruments with those of theEU without any reservations. The 1999 activity planof the Government of the Republic for Estonian in-tegration in the EU envisaged the achievement ofaccession readiness by January 1st 2003 [2]. Theactual readiness to accede to the EU was achievedby January 1st 2004, in some areas directly beforeEstonia joined the EU on May 1st 2004. Thus, it tookaround six years for Estonia to implement the EUacquis communautaire.

In the context of the EU integration three aspectsof convergence can be discussed: nominal, realand institutional. The first of those aspects showsthe harmonization of price level with that of the EU,the second one, however, indicates the harmoni-zation of income level with the income level of theEU. Institutional convergence means first and fore-most taking over the EU legislation (acquiscommunautaire) [3].

Varblane et al have referred to the dangers in theEU integration process [4]: "… Estonia should avoidtaking on obligations that would bring along a fastrise in prices and therefore a decline in competi-tiveness. When the legislation harmonization pro-cess is carried out in a very short time, it puts a verybig additional costs on Estonian enterprises and itscompetitiveness might decrease considerably".

Next to environmental and social policies, agricul-tural policy is a sphere where the harmonization of

Estonian legislation and principles with those of theEU turns out to be particularly expensive and whereinvestments have to be made by the state as wellas the enterprises.

In order to achieve accession readiness of the can-didate states the European Commission worked outa strategy [5] which defined the short- and long-term goals of the acceding states in achieving ac-cession readiness and noted down the funds nec-essary for achieving these goals. The goals andfunds for agriculture and rural development wereincluded in EU SAPARD program.

SAPARD was a special accession program for agri-culture and rural development for Central and East-ern European countries (CEEC) the goal of whichwas to guarantee the sustainable development ofthe agricultural sector and rural areas of the candi-date countries and help to implement the Commu-nity legislation (acquis communautaire concerningthe common agricultural policy and the policiesconnected to it. Beside the ISPA and PHARE pro-grams it was one of the most important economicpolicy instruments in preparing for the EU easternenlargement.

The main goal of the present research is to evalu-ate to what extent SAPARD has fulfilled its purposein preparing the Estonian agricultural and rural de-velopment sector for accession to the EU by inves-tigating both the contribution of the SAPARD pro-gram to building up an efficient administration andits impact on Estonian agriculture and rural devel-opment.

The following tasks have been formulated in orderto achieve the purpose of the research:

1.To evaluate the transparency of the goals ofagricultural and rural development policies of

POGRAMME SAPARD - ESTONIA

Doris Matteusmarket development bureau, chief specialist

Ministry of Agriculture of Estonia,


Estonia and the EU and SAPARD program's rolein achieving this;

2.To show how Estonia has benefited fromimplementing the SAPARD program and to whatextent has it helped to achieve the goals of Es-tonian agricultural and rural development poli-cies;

3.To bring out the problems that came aboutduring the implementation of SAPARD andwhether and how it has been possible to removethem during transition to using EAGGF structuralfunds;

4.By analyzing the aforementioned aspects,make a proposal for improving the implementa-tion of Estonian agricultural and rural develop-ment policies.

The present research is based on comparativeanalyses of different documents and papers con-cerning the relevant matters: Estonian agriculturaland rural development policies, SAPARD.

According to the terms of reference, the researchfollows the structure presented below.

Chapter 2 briefly discusses the previous problemsand objectives regarding agriculture and rural de-velopment in Estonia and analyses the impact of theintegration process with the EU on their transfor-mation. The main problems faced by the new mem-ber states are also briefly reviewed in this chapter.

Chapter 3 contains an overview of the implementa-tion process of the SAPARD program in Estonia,analyses the impact of SAPARD on the relevant sec-tors and on the goals and means of agricultural andrural development policies. The administrativeframework of the program, including the implemen-tation costs, aspects concerning human resourcesand involvement of social partners, is also de-scribed and discussed. The chapter analyses theimpact of the SAPARD program on attaining theobjectives of the agricultural and rural developmentpolicies as well as the problems that have arisen andthe lessons learned in the process of implement-ing the program.

The overview was drawn up PRAXIS Centre for PolicyStudies experts currently employed by the Ministryof Agriculture of Estonia, Ms Doris Matteus, chiefspecialist of the bureau of market development, andMr Taavi Kuntu, the chief specialist of the bureau ofmarket analyses.

The present approach does not reflect the officialopinion of the Ministry of Agriculture.

THE GENERAL CONTEXT OF SAPARD INESTONIA

Estonian Agricultural and Rural Develop-ment Policies in the 1990s

After regaining independence, the Estonian govern-ment liberalized agricultural policies as part of theeconomic and social reforms, the purpose of whichwas to create a market-oriented, effective and in-ternationally competitive economy. In principle,agriculture was not regarded as "a special case"different from the other sectors. The main goals ofthe agricultural policies after regaining indepen-dence were:

supplying the population with national mainfood products;

developing farms and associations, restruc-turing and privatizing the processing industry;

developing less-developed rural areas;

stabilizing the market of national food prod-ucts. [6]

Some of these political goals were discussed againin 1995. The free trade principle was preserved but"only to the extent that it does not damage Esto-nian interests and its social welfare". At the sametime a proposal was made that the governmentshould specify the following goals for agriculturalpolicies [7]:

to guarantee the social environment and qual-ity of life for the rural population at the averagelevel for the country in order to preserve ruralsettlements and the vitality and development ofrural areas;


to supply the population with quality food ataffordable prices;

to support the development of competitivebusiness and market structures as well as eco-nomic relations.

The free trade principle was accepted, but it wasspecified that "the state tries to increase the effi-ciency of agriculture and achieve equality betweenthe income of agricultural producers and other sec-tors of economy".

Comparing the periods before and after the inde-pendence in terms of agricultural support granted,it can be seen that the level of support in Estoniabefore the independence was higher than the OECDaverage, but declined remarkably afterwards. Sincethen, the level of agricultural support in Estonia hasbeen lower than in other CEEC and OECD countries.[6]

Lower support to agriculture compared to the maintrade partners and the absence of import tariffs cre-ated unbalanced market conditions and made itdifficult for the Estonian food industry to competewith imported food products. On international mar-kets, Estonian agricultural products suffered mainlydue to the lack of quality products compatible withthe requirements of the market but also to the lackof market price support and adherence to freetrade.

Besides the abovementioned aspects, it should bepointed out that agricultural investments in the1990es were much lower in Estonia than in the EU.This caused a low quality of products and non-com-pliance with the EU requirements and led to lowcompetitiveness of the Estonian agricultural prod-ucts.

Regarding the social (rural development) aspects ofagricultural policies, it should be mentioned thatalthough agriculture traditionally has been one of themost important sectors in the Estonian economy, therelative share of agriculture in the overall economyhas declined since Estonia gained its independence.Both the contribution of agricultural output to GDP,and the share of agriculture in the total employment

have decreased significantly52.[8]

That caused high structural unemployment in ruralareas, which had an overall negative effect on therural societies: large number of social beneficiariesreduces the income basis of the local governmentsleading to a lower quality of the public services. Thismakes it difficult to attract investments and giveyounger people incentives for staying in the ruralareas. There are significant disparities between ur-ban and rural areas in Estonia underpinning the con-clusion that there is a significantly weaker socio-economic structure in the rural than in the urbanareas. [9]

In addition, poor quality of the basic educationalsystem, relatively low qualifications of the rural la-bor force and unsatisfactory level of infrastructureall contribute to low income in the rural areas. [10]

Therefore the liberal agricultural policy of Estoniain the beginning of the 90es had the following ef-fects on agriculture and rural development in Esto-nia:

1.Rapid structural changes in agricultural pro-duction and processing sectors: the productionwas concentrated into large, market-orientedenterprises and an almost ideal structure interms of efficiency was achieved;

2.Numerous problems concerning rural devel-opment and rural enterprises arose, question-ing the sustainability of Estonian rural develop-ment.

The need for support measures for agriculture wasacknowledged by the government and the politi-cians after the accession negotiations with the EUhad started and the conditions of the accessionwere formulated.

In 1993 the Agriculture and Rural Life Credit Fundwas established for granting loans at favourableterms to the development of agriculture and rurallife.

52 But these indicators are still above the EU average (author's remark)


In 1995 the Agricultural Market Organization Actwas adopted by the parliament. This legal act gath-ered together all the different (already implementedand to be implemented in the future) support mea-sures for agriculture and rural development.

The most important changes supporting agricultureand rural development started in 1997, after thecreation of the Regional Development Foundation.The financial support for agriculture and severalnational programs were funded from the state bud-get.

The measures mentioned above contained both el-ements of revenue- and development support,therefore bringing Estonian agricultural and ruraldevelopment policies closer to the Common Agri-cultural Policy of the EU.

At the end of the 1990es the following changes tookplace in the Estonian agricultural policy:

The number and interdisciplinarity of goalspursued by the policy increased. The goals ofthe agricultural policy were not consideredseparate from other policies anymore but as acomplex part of the economic system. It was re-alized that the achievement of the goals pursuedin agriculture is also connected to other policiessuch as the environmental policy, the food safetypolicy, the regional policy, and the rural devel-opment policy;

The agricultural policy priorities werechanged. More emphasis was put on support-ing rural development and not only the traditionalsectors of agriculture. It was realized that thesustainable development of agriculture does notdepend only on the efficiency of production butalso on the development of the living environ-ment as a whole.

An overview of the changes in the Estonian agricul-tural policies in the 1990es is given in annex 1.

Changes in the EU agricultural and rural de-velopment policy. The Estonian perspec-tive for the future

Of the expanded EU territory, 80-90% are rural ar-eas where about a half of the EU population lives.Despite the continuous decrease in the importanceof the primary sector in the recent years, agricul-ture and forestry are nevertheless the biggest us-ers of land in the EU member states. [13]

The accession of the 10 CEEC countries increasedthe proportion of rural areas, the people living thereand the agricultural sector involved in the EU poli-cies. Since the amount of money allocated by theEU to the CAP is limited, a choice has to be madewhat sectors/activities to support and which mea-sures are to be implemented.

The main objectives of the CAP are to promote:

A competitive agricultural sector without ex-cessive subsidy, while at the same time ensur-ing a fair standard of living for the agriculturalcommunity;

Safe production methods capable of supply-ing quality products;

Vibrant rural communities capable of gener-ating employment and opportunities;

An environmentally sustainable agriculturalproduction preserving the natural resources andnatural heritage;

A simple and transparent decision-makingprocess;

A clear connection between the public sectoraid to agriculture and the economic, social andenvironmental benefits produced by agriculture.

The importance of the measures that comply withthe wider interests of society is expected to increasein the future (for example, the agricultural measuresin relation to the environment).

The main source of the problems for the new mem-ber states is the obligation of taking over the exist-ing market organization. Apart from the fact that


implementing the CAP is expensive, Estonia has toconsider the following aspects/problems concern-ing the present situation:

The socio-economic situation in Estonia dif-fers greatly from that in the EU 15;

As a result of the lack of financial resources inthe past, Estonia is lagging behind the EU 15 andit is not realistic to overcome the differences ina short time period;

Before the accession, the measures regulat-ing the market of agricultural products were notimplemented in Estonia. No real experience ex-ists concerning the administration of such mea-sures;

Estonia was obliged to take over the institu-tional structure of the CAP, a structure that willbe significantly reformed in the near future. Tak-ing into account the reform of the CAP, Estoniahas the obligation to develop simultaneously themarket oriented institutions, and the institutionsnecessary for ensuring the sustainability of Es-tonian agriculture and rural development.

The main problems regarding the implementationof the CAP and the EU structural funds are as fol-lows for all the new EU member states:

Structural measures require co-financing bythe recipients of the subsidies, which might limitthe investments and the achievement of the de-sired goals;

As there is a need for investments in very manyareas, a choice has to be made between the sec-tors, activities and enterprises to be supported;

Since with the CAP reform a larger orientationto the market is pursued parallel with the devel-opment of rural areas, the question arises as tohow to achieve these goals simultaneously (in abalanced way).

The abovementioned aspects formed the back-ground of the implementation of the SAPARD pro-gram and can therefore be considered as the mainproblems the program was expected to solve or atleast help to solve.

THE SAPARD PROGRAM IN ESTONIA

The basis of SAPARD

SAPARD was a special pre-accession support pro-gram for agriculture and rural development. Thedesignated duration of the program was 2000 -2006. It was in fact the pre-accession analogue tothe rural development support granted in the EU.Most of the measures to be implemented underSAPARD are mentioned also in Council regulation1257/1999 on support for rural development fromthe EAGGF.

The official goals of the program, stated by the Eu-ropean Commission, were:

To create and fixate a framework for support-ing agriculture and rural development and ac-celerating the growth of the relevant sectors inthe pre-accession period;

To promote cooperation in order to be pre-pared for the implementation of the CAP and themeasures connected to CAP;

To resolve the specific structural problems ofthe agricultural and rural sectors.

The specific objectives of the SAPARD program in-volved encouraging investments into agriculturaland rural enterprises in order to bring them intocompliance with the relevant EU standards andstrengthen the institutions and administration in thecandidate countries in order to ensure the effec-tive implementation of the CAP after the accession.One of the main goals was to develop the payingagency for the implementation of the CAP.

The basis for the implementation of the SAPARDprogram was the Rural Development Plan (RDP),prepared by the candidate state.

The Estonian RDP identifies and analyses the prob-lems and disparities of Estonian agriculture and ru-ral areas compared to urban Estonia and to the Eu-ropean Union and defines on this basis the objec-tives, strategy and measures to be implementedwithin the framework of the SAPARD program. The


strengths, weaknesses, opportunities and threatsof Estonian rural development are summarized inthe RDP. The SWOT analysis constitutes the basisfor defining relevant objectives as well as prioritymeasures for SAPARD assistance.

The SWOT analysis focuses on the agricultural, for-estry and fishing sectors respectively, as well as theprocessing sector, the rural activities sector, infra-structure and the rural living environment. TheSWOT analysis points ata series of strengths of ru-ral Estonia but equally documents that rural areasface serious difficulties justifying the SAPARD as-sistance.

The lack of investments in both the primary and sec-ondary sectors implied:

Technologies in both the primary and second-ary sectors are rather outdated;

The quality of outputs and products does notmeet the EU requirements;

Income in the different sectors has been onthe decline;

Organizational shortcomings are obvious;

There is a shortage of adequate vocationaltraining;

Structural deficiencies are present (excessivenumber of producers).[9]

All these factors have resulted in a negative spiralwith low competitiveness on international marketsand a trend toward depopulation of rural areas andthereby threatening the very foundations of rurallife.

The SWOT analysis clearly demonstrated a need fornew impetus and a redefinition of the strategy forrural development in the context of, inter alia, theSAPARD program. Agricultural producers and pro-cessors needed to modernize the different sectorsthrough investments with a view to improve effi-ciency and quality and consequently secure a stableincome for rural inhabitants.

The rural development strategy was defined on thebasis of the description of the problems, dispari-ties and potential of Estonian agriculture and ruralareas. In addition, the lessons learned from previ-ous actions are taken into account to capitalize onprior experience. The logic of 'strategy formulation'is illustrated in the figure below.

Figure 1. The selection of SAPARD measures


In terms of administration, the RDP was preparedby the Ministry of Agriculture in cooperation withother state agencies and co-ordinated with variousnon-government institutions. Numerous back-ground investigations were conducted in the courseof the preparation of the RDP to identify the mainproblems in each sector. In addition, during thecourse of the preparation of the RDP, consultationmeetings were held with the principal socio-eco-nomic partners. Consultations were undertakenalso with other governmental departments, the sub-committees of the parliament, county and munici-pal governments etc.

The objectives of the program implementation , asstated in the Estonian RDP, were:

1.To improve the efficiency of agricultural pro-duction, bringing it into compliance with themarket requirements;

2.To provide conditions for sustainable rural de-velopment, to complete land reform and admin-istrative reform;

3.To contribute to the socio-economic and in-frastructure development of rural areas;

4.To ensure the development of a competitiveand efficient food processing industry.[9]

The four main measures to be applied under theRDP in order to achieve the abovementioned ob-jectives were formulated on the basis of the inves-tigations and consultations. These measures, whichare an integral part of the agricultural and rural de-velopment policy of Estonia, cover:

Investments in agricultural holdings (measure1);

Improving the processing and marketing ofagricultural and fishery products (measure 2);

Development and diversification of economicactivities (measure 3);

Development and the improvement of rural in-frastructure (measure 4).

It was planned that these measures were assistedby a technical assistance measure (measure 5), butsuch measure was never implemented.

The introduction of additional measures was alsoplanned at a later stage:

Renovation and development of villages(measure 6);

Agri-environment (measure 7);

Forestry (measure 8).

The measure for renovation and development of vil-lages was actually implemented; the other mea-sures concerning agri-environment and forestrywere never implemented in the framework ofSAPARD in Estonia.

The impact of SAPARD on relevant sectors

The beneficiaries

SAPARD was built on the model of the EU GuidanceSection of EAGGF directed primarily at developingsmaller and medium-sized enterprises in rural ar-eas. At the same time several restricting conditionsapplied for receiving investment aid:

The enterprise should have been active in thecorresponding field for at least one year (threeyears in the case of measure 2);

The enterprise was supposedto be economi-cally sustainable;

The allocation of support took place after mak-ing the investment.

These criteria guaranteed expedient use of the EUfunds but they had certain negative aspects. Theenterprises that were already existing and success-ful were given advantage in applying for investmentaids; the companies that were just starting or thatwere smaller had difficulties. Smaller enterpriseswere hindered by bureaucracy and by funding ac-cording to investment that required great monetaryexpenses from small companies in applying for


SAPARD investment aid. In the case of the agricul-tural production and processing sectors, this wasjustified, developing economically viable enter-prises in order to achieve competitiveness and ef-ficiency.

In addition to the aforementioned, the possibilitiesof the enterprises were influenced by environmentoutside SAPARD, as described in the second chap-ter of the research. Since Estonia had not imple-mented policies that stabilize and regulate agricul-tural markets, the producers and processors of ag-ricultural products were dependent on the situationon the world market. The instability of income de-creased the investment opportunities of primarilysmaller companies.

Another important factor that influenced the invest-ment opportunities of smaller companies was do-mestic competition. A questionnaire carried out bythe Ministry of Agriculture in 2003 among produc-ers of pork gave the following results:

Economically more viable53 were big, verticallyintegrated enterprises in foreign capital owner-ship, which had invested in the production pro-cess;

Economically in the most difficult situationwere SMEs who wanted to invest in the produc-tion process but who had neither adequatemeans for investments, nor the opportunities toget funds.

Competition in prices was offered to big en-terprises by old enterprises with morally andphysically obsolete production equipment whohad not invested in the production process andwho would go out of business after the acces-sion to the EU. Accession to the EU did forceold enterprises with depreciated equipment outof the market but during the pre-accession pe-riod they offered unequal competition to smallercompanies.

Thus it can be said that the SAPARD program (atleast as far as investment support measures for pro-ducers and processors are concerned) offeredsupport primarily to bigger enterprises. The con-

tribution of the program to the structural changesmight have been less than expected, or at least theimpact was different from the one expected. Thiswas justified in the case of agricultural productionand processing. Regarding the rural developmentmeasures, it is too early to evaluate their impact,as their goals and therefore also their impact wasmore social than economical.

The investments made within the framework ofSAPARD

The overall public support granted within the frame-work of the program during the years 2000-2003amounted to 68 million euros. Since in accordancewith the rules laid down in the SAPARD regulation,public aid may amount to no more than 50% of thetotal eligible expenditure, in total the sum of 143million euros were invested in agriculture and ruraldevelopment during the three years of SAPARD.[12]

The Community contribution comprised as a rule75% of the public funding - except for measure no.5 (technical assistance) where the rate of commu-nity support was 100%. This means that the commu-nity contribution for implementing the SAPARD pro-gram in Estonia added up to 51 million euros. Na-tional funding was 17 million euros, whereas theamount of private co-financing was 75 million euros.[12]

Table 1 gives an overview of the use of SAPARD.The largest amount of investments in the frameworkof SAPARD went to agricultural production (over52%), followed by the measures for improving theprocessing and marketing of agricultural products(26%) and for diversification of activities in the ru-ral areas (18%). In the framework of the existingmeasures of SAPARD during the period 2001-2003,basically all the money allocated for this period wasused up (99%).

It can be concluded from the analyses of the imple-mentation process, that there was a great interestand need for SAPARD in Estonia. In the framework ofmeasures 2 and 3 even more funds were used thanwas foreseen in the budget. This was possible be-cause there were unused funds in the framework ofmeasure 4 that were re-directed to other measures.

53 This was measured according to financial indicators, similarly to the SAPARD methodology


This decision was approved by the European Com-mission.

The biggest number of projects was received byARIB in the framework of measure 1 (table 2) that hadthe largest budget in the program. In the frameworkof other measures considerably less projects werereceived, which is nevertheless not a sign of lesserinterest towards these measures. For example, theaverage investment sum per project that was applied

for in the framework of measure 2 (investment aid forimproving the processing and marketing of agricul-tural products) was five times bigger than in theframework of the measure for agricultural produc-tion. This is mostly due to the fact that there are aconsiderably smaller number of enterprises activein the processing sector and the production is moreconcentrated. The industries also had more possi-bilities for co-financing the investments (better pos-sibilities to find external financial support etc.) and

tegduB stnemtsevnilautcA

stsocelbigilE troppuselbigilElatotfo%

tegdubstnemtsevnIrofdeilppa

tegdubehtfo%erusaemehtfo

stnemtsevnIdevorppa

tegdubehtfo%erusaemehtfo

1erusaeM 37732537 71897423 5,15 95557048 4,411 12572137 5,99

2erusaeM 56612963 82046481 9,52 21621894 9,431 74887383 9,301

3erusaeM 68635352 29614621 8,71 49949673 7,841 37415962 3,601

4erusaeM 0490324 0745112 0,3 1648824 4,101 1752433 0,97

6erusaeM 4175082 3923422 0,2 4515634 6,551 - -

LATOT 768177241 90973976 0,001 977632081 2,621 308608141 3,99

Source: ARIB

Table 1 - SPARD budget and use of funds 2001-2003 (mln. euros)

Table 2 - SAPARD approved projects and the investments made in 2001-2003

stcejorPtnemtsevnI

forebmuNstcejorpdettimbus

forebmuNstcejorpdevorppa

%fotnuomaegarevArofdeilppatnemtsevni

)oruE.nlm(

tnuomaegarevAtnemtsevnifo.nlm(devorppa

)orue

%

1erusaeM 0001 958 9,58 36348 20058 2,101

2erusaeM 031 19 0,07 964383 618124 1,011

3erusaeM 273 872 7,47 916101 54179 7,59

4erusaeM 811 59 5,08 03463 15153 8,69

6erusaeM 212 25402-

EGAREVA/LATOT 2381 3231 2,27 397021 355941 9,801

Source: ARIB


therefore the sum of the investments made per ap-plicant was considerably higher than in the case ofagricultural production.

The biggest number of projects approved was in theframework of measure 1: 859. Also, in the frame-work of measure 1 the number of projects approvedin comparison with the projects received was thebiggest: 86%. At the same time it should be em-phasized that in 2003 measures 2 and 3 exceededthe allocated budget, which logically decreased thenumber of applications approved (not all projectsthat were eligible for support were actually sup-ported, for example in the case of measure 2 theevaluation procedure was carried out and only thebest projects were supported).

Taking a closer look at the approved projects, it ap-pears that in the framework of measure 2 invest-ment projects with higher than average value werethe ones that received support (the average amountof investment approved was higher than the amount

of average investment applied for). It does not meanhowever that it is easier for food industry enter-prises to receive investment aids. Also, it is not pos-sible to extend this assumption to other SAPARDmeasures. Looking at the enterprises that receivedsupport more closely, the following can be broughtout: in the framework of measures 1 and 2 almostall the biggest enterprises producing and process-ing agricultural products in Estonia (within the sec-tors covered by SAPARD) applied for investment aidand received it. Considering also the limit of totalmaximum yearly support, the budget of the pro-gram was big enough to support both bigger andsmaller companies.

As was shown in table 1, the allocation of theplanned SAPARD funds by measures did not cor-respond to the interests of the applicants. For ex-ample, in the framework of SAPARD measures 2 and3 more support was requested than there werefunds available. Measure 4, on the other hand, was

Table 3 - Predicted and actual use of SAPARD support by sub-measures in 2001-2003

noitciderP laeR %

1erusaeM

noitcudorpkliM %02 %8 %21-

snrablaminA %03 %51 %51-

deesdnagnidaerpsrezilitrefcinagro,noitcetorpporCnoitagaporp

%01 %4 %6-

noitavitlucporC %03 %27 %24

noitcudorplarutlucirgafonoitacifisreviD %01 %0 %01-

2erusaeM

gnissecorpyriaD %04 %62 %41-

gnissecorptaeM %03 %25 %22

gnissecorphsiF %03 %32 %7-

3erusaeM

seitivitcadetalerdnamsiruotlaruR %03 %03 %0

seitivitcatfarcidnaH %02 %3 %71-

sesirpretneecivreS %01 %75 %74


underutilized. As appears from Table 3, there werealso differences between the predicted and actualuse of SAPARD among the sub-measures.

For example, in the dairy sector (which is consid-ered a priority sector for Estonia), the predictedsupport for dairy production was 20% of the totalfunds of measure 1 and the support for dairy pro-cessing 40% of the funds of measure 2. In fact, 8%and 26% respectively of the predicted sums wereused. As alternative sectors, the ones, which wereable to receive more support than predicted, wereplant production (+42% compared with the fore-cast) in the framework of the measure of investmentaids for agricultural production, and meat process-ing (+22% compared with the forecast) in the frame-work of investment aids for the food industry.

The SAPARD measure for diversification of activi-ties in rural areas should be considered separatelysince a large part of the support went to the pres-ervation of the existing jobs (service enterprise), toa lesser extent to diversification of activities in therural areas and to creating new jobs, except in thesphere of rural tourism.

Regarding the impact of SAPARD on the relevantsectors, the findings of the mid-term evaluation re-port of the program should also be taken into con-sideration. When makingthe analyses, the evalua-tor came to the conclusion that although there wasa relatively high extent of dead-weight present inthe implementation process of SAPARD, the pro-gram still provided added value in the following as-pects:

Through provision of investment that was suf-ficient to implement projects at the required levelfor the majority of these projects;

By diminishing the deterioration of businessperformance;

By working towards the addressing og spe-cific needs within the target sector. [19]

As concerns the food industries, the evaluation re-port of SAPARD indicated that the program contrib-uted significantly to bringing the sector into con-formity with the EU requirements. At the same timethe evaluator noted that regarding measure 2, theobjective of providing agricultural producers withbenefits had not met its targets.[19]

Conclusions

From the above the following conclusions about theselection of the measures can be made:

The main problem addressed through the pro-gram was the lack of investments both in the pri-mary and secondary sector;

The measures increasing the efficiency andcompetitiveness of agricultural holdings andprocessing plants were supplemented by themeasures aimed at solving the socio-economicproblems (also the ones arising from the struc-tural changes in the agricultural production andprocessing sectors) in rural areas.

The main conclusion about the impact of the mea-

Source: ARIB

gnimrafhsifdnahsifyarC %02 %7 %31-

sesirpretnellamsnignissecorpdooF %02 %3 %71-

4erusaeM

smetsysylppusyticirtcelE %02 %6 %41-

sdaorsseccA %03 %63 %6

egawesdnaylppusretaW %04 %85 %81

snoitacinummoceleT %01 %0 %01-


sures implemented in the framework of the SAPARDprogram, are the following:

The impact of the implementation of the se-lected measures was somewhat different fromthe one expected and foreseen in the RDP. Moresupport was granted to bigger and more suc-cessful enterprises than was foreseen;

In terms of influence on the relevant sectors,the program contributed significantly to bring-ing both the production and processing enter-prises into conformity with the EU requirements;

The implementation process was quite flex-ible. The administration was bureaucratic for theapplicant but for example the facts that unusedfunds under one measure were re-directed toother measures and the predicted division offunds between sub-measures was changed inorder to respond to the demand shows certainflexibility in terms of administration.

The impact of SAPARD on the Estonian ag-ricultural and Rural Development policies

Estonian policies

One of the main characteristics of Estonian agricul-tural policy in the 1990es was that even though thegoals of agricultural policy and rural developmentwere set, the means to achieve these goals werenot formulated. Only the accession process with theEU brought along changes in the former Estonianagricultural policy: the goals of agricultural policywere specified and the existence of means toachieve the desired goals was guaranteed.

It cannot be deduced from the above that SAPARDcould be in contravention of some objectives of theEstonian agricultural and rural development poli-cies. The spectrum of the agricultural and rural de-velopment policies of the EU was and is much widerthan that of Estonia. As a result of this, and of thestructure of SAPARD, Estonia had the possibility tochoose between different support measures ac-cording to its national preferences. This is con-firmed by the fact that Estonia started implement-ing the SAPARD program with a small number ofmeasures and concentrating on the spheres tradi-

tional for Estonia in agriculture and rural develop-ment. The problems of SAPARD did not arise fromthe objectives set up by the program so much asfrom its implementation.

Arising from the conception of SAPARD, the trans-parency of goals of Estonia and the EU in imple-menting the program has been achieved. SAPARDhas been built up on the model of the EU structuralfunds and includes the same support measures andschemes as, for example, the Guidance Section ofthe European Agricultural Guidance and Guaran-tee Fund.

The compatibility of the goals has been guaranteedin another way; though the implementation of theSAPARD program took place in a decentralized way,the control of the European Commission over thewhole process in its different levels was guaranteed.

The implementation of the program took placeaccording to the national Rural DevelopmentPlan that needed the approval of the EuropeanCommission;

The SAPARD implementation institutionneeded accreditation from the European Com-mission;

The implementation of SAPARD and the pro-cess of granting support was evaluated by theEuropean Commission;

For later amendments to SAPARD and itsadaptation to the circumstances of Estonia theagreement of the European Commission was re-quired.

From the perspective of the EU these are justifiedrequirements since besides the goals of agricultureand rural life the compatibility of the program withthe objectives of other EU policies is guaranteed,and the control over the use of funds allocated bythe EU is guaranteed.

Even though the goals of agricultural policy shouldat the same time involve real as well as institutionalaspects of convergence, in the activity plan of theGovernment of the Republic of Estonia in 1999 for


the Estonian integration with the EU [2] the connec-tion between the goals set and the means to achievethem was not always clearly understandable. We willillustrate the above with an example.

In the sphere of veterinary and food safety, the ac-tivity plan of the Government of the Republic set asa goal to "adopt, in accordance with the Food Act,as many implementation acts as possible" and"bring into force the majority of the regulations thatregulate the production and processing of food ofanimal origin so that it would be possible to startupdating the enterprises". Later, under the ruraldevelopment support measures, investment aidwas also mentioned, but there was no reference towhat was to be pursued by the harmonizationofenterprises, what was to be its effect on the busi-ness and how and to what extent the state supportsbusinessmen in fulfilling their obligations.

The SAPARD program granted funds to the agricul-tural and rural development sector to fulfill the ob-ligations arising from the take-over of acquiscommunautaire but also required co-financing fromEstonia and from the private sector. The EU fundedmost of the SAPARD projects only up to 37,5%.Thus, implementing the SAPARD program in thecandidate countries did not mean that the EU wouldpay for the accession readiness, but that it moti-vated the candidate countries and their enterprisesto mobilize in the pre-accession period. A biggerpart of the expenses connected to the accessionhad to be covered by the candidate country and itsenterprises.

Taking into consideration the agricultural policybackground, in the framework of which people op-erated in complete commercial freedom and non-intervention conditions, the SAPARD program wasstill a noteworthy milestone in the Estonian agricul-tural policy. In addition to the EU co-funding, theSAPARD program increased considerably the statesupport to the agricultural sector. Before the imple-mentation of the SAPARD program, different kindsof foreign support were also available to the Estonianagriculture and rural development - PHARE, WorldBank, bilateral agreements. However, those projectsdid not have as a goal to solve structural problemsof the agricultural and rural sector as a whole.

Between 2000-2003 Estonia spent 22,9 million eu-ros per year on average to support the agriculturaland rural development sector54 [11]. The SAPARDprogram added around the same amount to this,i.e. 22,7 million euros per year on average. The to-tal participation of the Estonian public sector in theSAPARD program comprised of 5,7 million eurosper year on average [12].

Since other support measures of agricultural andrural development were still in effect besidesSAPARD, the state support increased considerably.Thus, SAPARD brought along a quantitative as wellas qualitative leap in Estonian agricultural and ruraldevelopment policy: the goals were specified, newmeasures were implemented and additional finan-cial resources were allocated.

CAP

In the framework of the CAP, there has been a con-stant but slow reorientation from the agriculturalpolicies determining the market and agriculturalstructures to the policies influencing the structures.The proportions have so far been still strongly infavor of direct aids that constitute monetarily 65%of all EU agricultural subsidies. The subsidies fordeveloping rural areas constitute monetarily about16% of all agricultural subsidies. [14]

In the future, a continuous growth in the proportionof development measures in agriculture and ruraldevelopment is to be expected. As a result of the1999 reform ("Agenda 2000") different measuresto support rural development were introduced tothe CAP [15]. The 2003 reform added new mea-sures to the CAP to support rural development andallocate more funds - for example, a certain num-ber of rural development measures began to be fi-nanced from the funds of the first pillar of the CAP,i.e. market organization and direct aids [16].

Regarding the compliance between SAPARD andCAP in Estonia, the mid-term evaluator of theSAPARD program noted that with regard to gradu-ally adopting the EU CAP and its accompanyingmeasures, the RDP was in compliance with CAP andadopts the main principles of CAP.[19]54 Does not contain compensation for damage caused by weather conditions


Table 4 shows the achievement of the objectives ofthe SAPARD program, as assessed by the mid-termevaluator.

The main problem pointed out in the process ofmid-term evaluation was that, even though severalmeasures had an environmental dimension (mea-sures 1, 2 and 4), it was not clear how Estoniaplanned to prevent or remedy the environmentalproblems ensuing from an intensified and competi-tive Estonian agricultural sector. The RDP ad-dressed environmental protection issues in manydifferent ways. The main measures and sub-mea-sures concerning environmental issues, were: on-farm management (measure 1.1), manure storage(measure 1.2), crop protection, manure spreading(measure 1.3), waste collecting and treating in theprocessing plants (measure 2) and water supplyand sewage (measure 4.2).

Although the environmental issues were addressedunder several measures of the SAPARD program,during the mid-term evaluation it was concludedthat the total number of supported projects was toosmall to give a valid opinion. However, the com-pleted projects have contributed significantly tobringing the holdings into conformity with the EUstandards.[19]

The administrative framework of SAPARD

General background

In a larger context, parallels can be drawn betweenthe implementation of SAPARD and the reformscarried out in Estonia (CEEC countries in general).A transition from a totalitarian society to a demo-cratic one and from a planned economy to a capi-talist market economy took place faster than it waspossible to build up efficient state structures. Simi-lar processes took place also in implementingSAPARD: at first, taking over and implementing theSAPARD program was started and only then theadaptation of structures and procedures tookplace; learning was developed at the same time inthe course of all the activities.

The preparation and implementation of SAPARDtook place in a very short time period. The prepara-tion period started in 1999 and the substantivereadiness was achieved in 2001. The implementa-tion of SAPARD (acceptance of applications) be-gan in July 2001. [13]

During a relatively short period of time both the le-gal framework of SAPARD was developed and theadministration created. Almost immediately afterimplementing the SAPARD program, the prepara-tions began in order to implement the CAP and alsothe EU structural funds (EAGGF). This fact put aserious burden on the administration.

Table 4-The achievement of the objectives of the program

sevitcejbO sevitcejboehtfotnemeveihcA

gnirbdnanoitcudorplarutlucirgafoycneiciffeehtevorpmIUEehthtiwecnailpmocotnistcudorpdnanoitcudorplarutlucirgadnaPACUEehttpodayllaudargdnastnemeriuqertekramlanretni

.serusaemgniynapmocca

UEehthtiwecnailpmocotnitekramehtgnignirbsdragersA.tnellecxe-PACgnitpodadnastnemeriuqer

yrotcafsitas-ycneiciffeehtgnivorpmisdragersA

.erutlucirgafotnempolevedlacimonocerofsnoitidnocputesoT .yrotcafsitasnu-tnempolevederutcurtsarfnisdragersAyrotcafsitas-tnemyolpmenularutcurtsfoesaercedehtsdragersA

sdragersayrotcafsitasnutub,egnahclarutcurtsfonoitalernidoog()sbojwenfonoitaerceht

tnempolevederutcurtsarfnidnacimonoce-oicosehtotetubirtnoClarutcurtsdnaymonoceeldiehtesaerced,aeralarurehtfo

.tnemyolpmenu

dooffoytilibaevititepmocdnassenevitceffeehterucesoT.noitcudorp

.doog-ytilibaevititepmocehtsdragersAottrohsootsawdoirepemiteht,ssenevitceffeehtsdragersA

edulcnoc

Source: 19


The implementation of SAPARD was planned for2000-2006. In actual fact, the implementation tookplace in 2001-2003. Due to the short preparationtime, SAPARD started a year later than was origi-nally planned and ended in connection with the ac-cession to the EU on May 1st 2004.

It should be pointed out that the programming pe-riod for the programs like SAPARD in the EU is sixyears. In the case of Estonia and other new mem-ber states, the pre-accession SAPARD programbegan in 2001 and should have lasted until 2006,the end of the programming period. As the acces-sion of Estonia to the EU took place already in 2004,the shift from the pre-accession support programto the structural funds was extremely accelerated.All of the SAPARD measures foreseen in the RDPwere not yet implemented, when the preparationsand programming for the period 2004-2006started. This fact also placed a heavy burden on theadministration.

Effectiveness of the administration

Table 5 gives an overview of the implementation ofSAPARD in Estonia. It shows the activeness of ap-plying for SAPARD during its implementation. It ap-pears that using SAPARD became more attractiveyear by year.

The increase in the investment support applied forin the framework of SAPARD was not caused by anincrease in the investment needs of enterprises in2001-2002 but comes from the fact that both theadministration and the applicants of the subsidy

acquired more experience. For example, the har-monization of the Estonian veterinary and food hy-giene legislation to the EU requirements had alreadystarted before the implementation of the SAPARDprogram, which is why the enterprises were awareof their needs for investments.

The order of applying for SAPARD support was bu-reaucratic and included control mechanisms inte-grated by the EU. The projects of enterprises thatapplied for SAPARD support were evaluated ac-cording to the presented business plans, followingformal as well as substantive criteria. For present-ing missing documents or correcting mistakes acertain deadline was given.

However, the analyses of application procedures,carried out within the mid-term evaluation of theprogram, indicated that these were both effectiveand efficient. This was supported by the high satis-faction rate of the final beneficiaries. The evaluatorfound the staff of ARIB working efficiently.[19]

Parallel to the increase in the investment aid appliedfor in the framework of SAPARD, the number of ap-plications presented in 2001-2003, as well as theeffectiveness of the investment aid increased (table5). This can be explained by two circumstances:

1.Businessmen acquired experience in apply-ing for SAPARD support;

2.Professional project managers appeared whooffered their services for project preparation.

It should be mentioned that both the ex-ante, and

Table 5-Number of applications and investments applied for in 2001-2003 (mln euros)

1002 2002 3002

deveicersnoitacilppaforebmuN 842 624 8511

rofdeilppatnemtsevnilatoT 5,92 9,13 8,811

troppusrotcescilbuphcihwfo... 6,21 4,31 8,95

Source: 19


the mid-term evaluation reports of the programpoint out the need for more research and analysesas the basis for the selected measures, the sup-ported activities, the financial split between themeasures etc.

When talking about administrative ability, it must bepointed out (as was mentioned also by the mid-termevaluator of the program), that one of the indirectbenefits of SAPARD was the rise of knowledge andexperience in accounting and financial manage-ment of the beneficiaries (farmers). Before theSAPARD program only the best agricultural hold-ings had good accounting systems and used ex-ternal financing. Due to the requirements set forthby the program, most of them had to find externalfinancial support and improve the quality of ac-counting (in some cases switch from cash account-ing to accrual based accounting). [19]

The mid-term evaluator assessed the extent towhich the program contributed to establishing andimproving the implementation of the CAP objectivesand procedures at the administration level as ex-cellent: the legislative framework was establishedand the administrative staff became aware of therelevant EU rules and standards. [19]

Expenses

Building up the administration and control mecha-nisms in Estonia that would comply with the EU re-quirements was connected to serious expenses.Estonia did not implement any noteworthy mea-sures for developing the agricultural and rural lifesector in the pre-SAPARD period. For that reasonthe administration had to be built up from almostnothing and all the necessary investments had tobe made within a very short time.

In 1998, 6 people started preparing for SAPARD inthe Ministry of Agriculture [17]. In 2003 there weremore than 100 people involved in ARIB, created forthe administration of SAPARD [14]. The operationalcosts of ARIB increased in 2001-2003 from 1,7 mil-lion euros to 7,2 million euros [11]. The subsidiesincreased at the same time period from 7,9 millioneuros to 66,2 million euros [12].

The actual costs of implementing SAPARD are evenhigher since the aforementioned example does notinclude the expenses connected to the develop-ment of legislation, the capital costs connected tocreating implementation institutions or a great dealof the expenses connected to developing the hu-man capital (for example, training costs). The saidcosts were not financed by the EU at all, or werefinanced only to a certain extent in the frameworkof the PHARE program.

During the mid-term evaluation of SAPARD it wasconcluded that the costs of the SAPARD agency(ARIB) were in line with other relevant Estonianimplementation agencies' administrative costs, al-though being notably higher that the EuropeanCommission's relevant costs.[19]

Human resources

As it appeared in the study carried out by OU Self II[17], one of the most important problems turnedout to be the human capital deficit in the buildingup of SAPARD. Even though the management levelexisted - people who dealt with implementingSAPARD in Estonia from the very beginning - as theprocess developed, the lack of specialists whowould deal with the details of implementing SAPARDincreased.

In order for a specialist to be able to deal with thedetails of SAPARD, he or she also needs to be fa-miliar with the program in general. It was possibleto acquire the skills necessary during the prepara-tion period of SAPARD and this had to be done in avery short period of time. One of the hindrancesturned out to be the high mobility of labor force inthe Estonian public sector.

The Estonian public sector cannot always competewith the private sector in hiring specialists. Move-ment of employees from the public sector to theprivate sector is very frequent. The high mobility ofpeople hindered to a greater or lesser extent theimplementation of SAPARD in Estonia and is also aproblem in taking over NDP (since people withSAPARD experience have left). The pre-report ofaccrediting ARIB as a paying agency refers to thelack and weaknesses of human capital in Estonia.[18]


Involvement of social partners

As mentioned earlier, during the course of thepreparation of the RDP consulting meetings wereheld with the principal socio-economic partners.Consultations were undertaken also with other gov-ernmental departments, the sub-committees of theparliament, county and municipal governments etc.The mid-term evaluation of the program, however,revealed that the involvement of social partners andthe documenting of this process were not clearenough. During the interviews conducted by theevaluator, it was found that no defined practice ex-ists as to how social partners can follow the han-dling of raised questions and comments. The let-ters sent to the MoA by the social partners wereanswered, but the questions raised in letters or pro-posals were not listed in the Monitoring Committeemeetings and nor was a record of them kept in asystematic manner. [19]

Conclusion

Looking at the goal and structure of SAPARD, it ispossible to outline the following problems in theimplementation of the program. The implementa-tion of SAPARD:

Took place in a very short time period;

Was expensive;

Was bureaucratic;

Did not take into consideration all the aspectsof the EU policies.

Still the program contributed to the successfulimplementation of the EU structural funds and CAP,both by providing the administration with relevantexperience and knowledge in order to implementseveral new measures, and by giving the applicantthe experience necessary to fully benefit from theagricultural and rural development policies of theEU.

SUMMARY AND POLICY RECOMMENDA-TIONS

SAPARD is a special pre-accession aid program thatwas used to support Estonian rural areas and agri-culture with an average of EUR 22,6 mn a year. Aninstitution called ARIB was established to adminis-ter SAPARD's investment aid. ARIB was later ac-credited as an agency for the EU's CAP payments.

SAPARD was an indispensable instrument for de-veloping Estonian rural areas and agriculture andachieving compliance for the EU accession. Thepositive impact of SAPARD is mainly the reconcilia-tion of the Estonian rural sector with the EU regula-tions that took place simultaneously with the har-monization of the Estonian legislation with the EU'sacquis communautaire.

An institutional structure for implementation of CAPwas created that was not especially outlined amongthe goals of SAPARD but was at least as importantas the aid itself for reaching compliance in view ofthe EU accession. It can be concluded that SAPARDattained its object of institutional convergence andenabled Estonia to join the EU on May 1st 2004.

Numerous problems emerged while implementingSAPARD and switching to the EAGGF structuralfunds. Taking account of the different situation ofEstonian agriculture and rural sector compared tothe old member states and the fact that it is impos-sible for Estonia to adopt EU's market structurewithout drawbacks, it can be concluded thatSAPARD only partially solved the real convergenceproblem of the Estonian rural sector.

The starting position of the Estonian rural sectordiffers from that of the EU:

Problems related to agriculture: the access tocredit is low, the machinery is outdated, there ispoor access to markets and weak developmentof co-operative activities and land markets donot function properly. Further, the food process-ing industry is inefficient due to overcapacity andlack of machinery;

SAPARD REVIEW102

The problems related to the rural areas: over-all, the rural physical, economic and social in-frastructure is underdeveloped. Examples will bethe absence of representative organizations andnetworks, and the poor quality of roads, elec-tricity and housing. The incomes in the rural ar-eas are generally low, especially in agriculture,and are often related to a decline in agriculture.In addition, the overall level of education is low,meaning that there is a mismatch in the skills ofthe labor force, and the demand of enterprisesin rural areas. Also, the experience needed tostart up businesses is insufficient. The age-structure is generally unfavorable, a situationwhich is aggravated by out-migration of youngpeople. Finally, structural unemployment is per-sistent and alternative employment opportuni-ties are in short supply.

Since SAPARD pursued two (opposing) objectivesat the same time: to contribute to solving country-specific problems of the agricultural and rural de-velopment sector, and achieving institutional con-gruence, a transformation of agricultural and ruraldevelopment policies of the candidate countriestook place. Achieving institutional convergencestarted to dominateover the candidate country spe-cific problems.

As a result of the aforementioned, the EU candidatestates implemented only some of the possible sup-port measures. In Estonia the choice was made infavor of developing traditional agricultural sectorsand products, and at the same time providing con-ditions for sustainable rural development. As theadministration costs of SAPARD were borne by thecandidate countries themselves, relatively smallnumber of measures were adopted. This kind ofdevelopment resulted from the need to support thesector's social life and economics. Without supportthe agricultural production and processing sectors

would have been in difficulties in achieving acces-sion compliance.

In spite of the downsides of SAPARD, continuationof structural funds support to the Estonian rural sec-tor is of great importance. Due to the absence ofnotable rural sector support schemes in Estoniabefore SAPARD, the sector was market-oriented.Development was hindered by lack of investmentsin areas not profitable enough.

The positive impacts of SAPARD include:

Establishing the framework of supportingschemes and improving the development of therural sector;

Enhancing co-operation for applying cap andrelated activities;

Helping to meet the requirements of the EUaccession by investments in veterinary, food hy-giene, health protection, quality, animal protec-tion etc;

Reinforcing aid to and accelerating growth ofthe rural sector during the pre-accession period.

In conclusion, this brought along a situation whereenterprises in chosen sectors achieved institutionalconvergence (accession readiness) but substan-tial problems, such as competitiveness after acces-sion to the EU, remained unsolved. Thus, a changein the objectives of applying for investment aids canbe predicted in connection with implementing theEAGGF structural funds - a shift to increasing prod-uct development, specialization and effectivenessand improving environmental conditions whileachieving compliance with the EU requirements.Following from the above, it can be claimed that theobjectives of SAPARD were achieved only partly.

ESTONIA


AN

NEX

1


LIST OF REFERENCES

[1]-Euroopa Uhenduste ja nende liikmesriikide ning Eesti Vabariigi vaheline assotsieerumisleping (Euroopa Leping). Riigiteataja, RTII, 01.01.1995, 120.

[2]-Vabariigi Valitsuse tegevuskavad Eesti integreerimiseks Euroopa Liitu vahemikus 1999-2003 [http://www.mfa.ee/est/euro/kat_260/] 02.12.2004

[3]-Varblane, U. Euroopa Liiduga uhinemise moju konvergentsiprotsessile Eestis. Tartu Ulikool, Euroopa Kolledzi toimetised nr. 26,Tartu: 2004, 31 lk.

[4]-Varblane, U., Toming, K., Selliov, R., Riik, H., Tamm, D. Voimalikud majanduspoliitilised instrumendid Eesti pollumajandussaadusteja -toodete hindade uhtlustumiseks Euroopa Liidu hindadega. Tartu: 2001, 106 lk.

[5]-Pre-Accession Strategy [http://europa.eu.int/comm/enlargement/pas/index.htm] 02.12.2004

[6]-Review of Agricultural Policies: Estonia, OECD, Paris: 1996, 249 p.

[7]-Maamajanduse ulevaade 1995. Pollumajandusministeerium, Tallinn 1996, 128 lk.

[8]-Pollumajandus ja maaelu. Ulevaade 1998. Pollumajandusministeerium, Tallinn 1999, 142 lk.

[9]-Eesti Maaelu Arengukava 2000-2006 (SAPARD programm). Pollumajandusministeerium, Tallinn: 2000, 213 lk.

[10]-Johansson, H., Rabinowicz, E. Developing Integrated Policy for Rural and Regional Areas in the Baltic Countries. Seminar onAgriculture and Rural Incomes, Labour Mobility and Rural Development Policies in Estonia, Latvia and Lithuania, Tallinn: 2003, 15 p.

[11]-Riigieelarved 2000-2003 [http://www.fin.ee/?id=366] 10.12.2004

[12]-SAPARD aruanded 2001-2004 [http://web.pria.ee/SAPARD/Est/statistika.html] 12.12.2004

[13]-Rural development in the EU. MEMO/04/180. European Commission press release [http://europa.eu.int/rapid/pressReleasesAction.do?reference=MEMO/04/ 180&format=HTML&aged=0&language=EN&guiLanguage=en] 08.12.2004

[14]-Voneki, E. Zur Bewertung des Ungarischen SAPARD-Programs unter besonderer Berucksichtigung der Investitionen imMilchsektor. Institut fur Agrarentwicklung in Mittel- und Osteuropa. Discussion Paper No. 59, Halle: 2004, 32 p.

[15]-Europe?s Agenda 2000: Strengthening and widening the European Union [http://europa.eu.int/comm/agenda2000/index_en.htm] 08.12.2004

[16]-Bastiaansen, A. Rural Development Policy [http://www.respublica.ee/?id=6089] 05.12.2004

[17]-SAPARD naidisjuhtum. SELF II OU, Tartu: 2001, 44 lk.

[18]-Eel-akrediteerimise aruanne pollumajanduse registrite ja informatsiooni ameti valmisoleku kohta EAGGF garantii osa meetmeteja funktsioonide rakendamiseks. Ernst & Young Baltic AS, Tartu: 2004, 190 lk.

[19]-Mid-term evaluation of the SAPARD Program in Estonia. PricewaterhouseCoopers, 2003.


TABLE OF CONTENTS

Executive Summary .............................................................................................................................................................. 111

Introduction .......................................................................................................................................................................... 113

Framework analysis .............................................................................................................................................................. 116

Policy options ....................................................................................................................................................................... 133

Conclusions and policy recommendations ....................................................................................................................... 134

FIGURES .......... ......................................................................................................................................................... 136

SAPARD REVIEW110 HUNGARY


EXECUTIVE SUMMARY

SAPARD, as the forerunner of the Structural Funds,has fulfilled a real mission in Hungary with lots offconflicts, mistakes but also with lots of positive im-pacts. The development resources channelled toagriculture and rural areas, institution building aswell as experiences gained on submitting propos-als from the clients' point of view and processing,administering, selecting them on the side of theSAPARD Office have to be emphasized. Not only theapplication process, but the EU's harmonized sys-tem of operation, monitoring and financing was alsonew. The main tasks of SAPARD program includedprimarily the adoption of these potentials and skills,the changing of the application habits of the entre-preneurs, and promoting the EU's harmonizedmethods. Furthermore, the program drew the at-tention to several new considerations, values, ap-proaches, standards that were to be developed/metin a narrower sense (food quality and consumerprotection, animal welfare and health, working safe-ty and hygiene, environmental considerations, etc.).

The introduction of second pillar-measures wasalso very much SAPARD-related andconditioned.The EU policies considerably support-ed the new and weak rural development policy en-tering the battle field for scarce resources both inan abstract and in a very concrete way via their rep-resentatives taking part in open discussions (whichwere critical towards the exaggerations of rural de-velopment policy makers as well). Protecting one'sfavourable positions on the market of public funds,trying to keep away new actors thus preventing fur-

ther fragmentation of resources have to be under-stood as rather natural reactions of those "withinthe game", i.e. agricultural developers. The sameis true for the newcomers, rural developers who,relying on a loud media campaign around the bot-tom up planning exercise they initiated, tried tocounterbalance their weak position at that time.

To judge the result of the struggle of the two groupsis a difficult and highly subjective task, but the factthat rural developers managed to acquire that 36%of the SAPARD grant was allocated to cover sec-ond pillar type of investments in the SAPARD Plancan be evaluated as a good start. Rural developerswere also very efficient and successful in institu-tion building as well as in collecting experiences onthe basis of operating a semi-SAPARD supportscheme. However, during the course of events, in-tervening political decisions and its consequencesresulted in less then expected share of rural devel-opment grants within SAPARD, but the 31% rate ofthe final result is still not so bad. We can conclude,that directly and indirectly SAPARD was a majorvehicle of the introduction, approval and legitima-tion of rural development policy. Despite the hard-ships, this kind of "orientation role" of the SAPARDprogram undoubtedly represented one of its mostimportant impacts.

PLANNING AND IMPLEMENTING THE SAPARD PROGRAM IN HUNGARY

Dr. Katalin KovacsCentre for Regional Studies, Hungarian Academy of Sciences

Krisztina MagocsHungarian Public Company for Regional Development and Town Planning

Zsuzsanna BihariCentre for Regional Studies, Hungarian Academy of Sciences

SAPARD REVIEW112

The planned and realised shares of SAPARD measures are illustrated in the below table and figures:

serusaemniunemDRAPASnairagnuHehT dennalP dezilaeR

ssenevitceffetekramesaercniot 31,85 2,86

,sgnidlohlarutlucirganistnemtsevni- 64,82 3,83

dnalarutlucirgafognitekramdnagnissecorpehtfotnemevorpmi-,stcudorpyrehsif

35,02 9,92

,spuorgrecudorppugnittes- 53,7 0

gniniartlanoitacov- 97,1 0

stcepsanoitcetorplatnemnorivneehtnehtgnertsot 72,4 0

otdengisedsdohtemnoitcudorplarutlucirgafonoitanimessideht-edisyrtnuocehtniatniamdnatnemnorivneehttcetorp

72,4 0

saeralarurfonoitatpadaehtdnatnempolevedehtecnahneot 5,63 7,13

dnanoitcetorpdnasegallivfotnempoleveddnanoitavoner-,egatirehlarurfonoitavresnoc

60,9 7,8

rofgnidivorp,seitivitcacimonocefonoitacifisreviddnatnempoleved-emocnievitanretladnaseitivitcaelpitlum

64,51 7,0

erutcurtsarfnilarurfotnemevorpmidnatnempolevedeht- 89,11 3,22

HUNGARY

Source: SAPARD Plan + own calculations


Despite all the opposing approaches and convic-tions, there are some points where the two partiesare on the same or close to same platform laid downin the National Agricultural and Rural DevelopmentStrategy May 2004. They are as follows:

both parties accept that agriculture shouldbe sustainable and multifunctional servingbroader social needs;

relying on the favourable endowments offarming, export orientated, competitive farmsector, however, should be maintained andstrengthened on the basis of rationalization ofproduction and the appropriate utilization ofcombined (EU and national) funds;

environmental protection, animal welfare andhealth, food quality, etc. must be safeguarded;

a transparent, safe, accountable and stablesupport system should be operated.

As a learning program, SAPARD was functioningquite well although not to the required degree. Themost important shortcomings can be understoodas a consequence of the delay in real start whichfact was purely politics-driven. Regrettably, be-cause of the huge delay in the process, lessonscould not be used in the programming of NationalDevelopment Plan, more precisely when ARDOPwas compiled. Lacking appropriate experiences,the harsh debate restarted between rural and agri-cultural developers, the first version of ARDOP wasbiased towards first-pillar type of investments to anunacceptable degree that triggered open interven-tion from the Commission on the one hand, con-tributed to the unreasonable allocation of funds, onthe other hand. Therefore mistakes committed inSAPARD were repeated in ARDOP.

Another issue that should be raised is that of un-certainty and a lack of trust, which is rather naturalin the case of a completely new program in a com-pletely new arena that is the European Union. Poli-cy makers were not able to estimate the real ab-sorption capacities of the measures, trusted nei-ther new actors, such as smaller-scale entrepre-

neurs, nor the absorption capacity of new mea-sures, such as those aimed at rural development.These circumstances as well as the unequal powerrelations between old (agricultural) and new (ruraldevelopment) actors led to the biased allocation offunds in the SAPARD Plan, the preference order ofmeasures when accreditation was at stake, andwhen eligibility and assessment criteria were set.SAPARD did not take much in favour of agri-envi-ronment, beyond "gender blindness" this is one ofthe most important shortcomings of the Program,but fortunately enough a national support schemecompensated for the losses and the same functionwas secured by the operation of the Rural Devel-opment Fund.

Taking all this into account, SAPARD has broughtsignificant changes in the acquaintance of the Com-munity standards by the agricultural sector and bythe rural population, assisted institution building,provided the administration with appropriate expe-riences in processing and selecting applicationswhich were helpful and eased the implementationof "post-accession" tasks.

INTRODUCTION

Problem statement and research goals

Problem statements

When SAPARD appeared in 1999, it was thefirst concept that seriously challenged the tra-ditional practice of agricultural development inHungary;

o For various reasons to be detailed in thesecond chapter of this report, a battlefieldcame into being between the traditionalagrarian lobby, which was and remained infavour of large-scale farming, and a newwing of rural developers who stood for abroader, multi-sectoral understanding ofrural development. The chief actors of ruraldevelopment had previously been involvedin spatial and physical planning and variousrural studies, i.e. in fields differing from ag-riculture which fact contributed to the utterly


different approaches of the two groups: thetwo opposing parties missed the commonlanguage that could have allowed them tofind paths for a fruitful co-operation.

The struggle between the groups of agricul-tural and rural developers representing diver-gent approaches and concepts was and re-mained rather sharp from the beginning until theend, i.e. from the planning phase to the imple-menting phase of the SAPARD program;

o Strategy building commenced with theheading of the new Rural Development De-partment (hereafter: RDD) of the Ministry ofAgriculture (hereafter: MARD). One of theextension institutes responsible for co-or-dinating rural development policies was incharge of implementation (VATI) in co-op-eration with another extension institute(AKII) responsible mainly for implementingbackground research and advisory servicebacking agricultural, food industry and tradepolicies. Half a year after the start, still in1999, a shift in responsibility over SAPARDplanning took place: the department takingover the task of developing the country'sSAPARD Plan was the one traditionally incharge of creating development policies foragriculture. From this point the analyticalbackground studies and planning exercisecontinued in two workshops, the tasks weresplit between the staff of the agricultural re-search institute and that of rural develop-ers;

oRDD followed its own approach whenlaunched a planning procedure at grass-roots level in 1999. The aim of the RDD wasmany-fold:

- gathering information from rural areasabout the needs and necessary fields ofdevelopment and utilize it in the nation-al planning process;

- promoting area-based strategic plan-ning thus introducing the new approach(top-down -paradoxically enough);

- spreading knowledge about new ECpolicies and SAPARD in an effective waycoupled with capacity building;

- revitalise rural communities' visions to-wards their own future within a partner-ship procedure;

- reveal and strengthen local initiationsthat were to develop projects then ap-plications to SAPARD funds thus secur-ing the safe implementation of the pro-gram.

o Although the guideline for developing ru-ral development strategies did include ag-ricultural development as well, this initiativewas strongly criticized by the agriculturallobby. Criticism targeted the bottom upstrategic planning from micro-regional(NUTS IV) level through county and region-al levels (NUTS III an IV levels) to the nation-al plan whose accomplishment on the onehand was not in line with the strict deadlinesdictated by the Commission, and, on theother hand, lacked grassroots capacities.The new EU legislation, agricultural strate-gists argued, clearly presented the menu ofmeasures accession countries were eligibleto select from, which limited the scope ofany grassroots ambitions, and therefore theopponents did not see the function of theprocess either;

oThey, as well as Commission representa-tives, warned against "over-selling of SAPA-RD", raising too high expectations that couldnot be met;

oThe rather sharp differences in approach-es as well as the fight for the bigger slicesfrom the SAPARD cake lead to divergent in-stitutional building as well: RDD establishedits seven regional extension offices well be-


fore the idea of regional SAPARD officescame to the fore.

From retrospect, it seems to be evident thatthe two opposing approaches were not neces-sarily mutually exclusive. On the one hand, ag-ricultural assistance is of course needed aftera serious decline of the industry in a countrywhere agriculture had been part of the nationalpride. On the other hand, grassroots capacitybuilding as well as introducing participatoryspatial planning had also been an issue of greatimportance just not as part of a nation-widecampaign, more like a pilot program as in theEU;

However, it was also the SAPARD, which fi-nally and definitely proved to be the great pres-sure for sound development need in both direc-tions, coming from grassroots levels, i.e. agri-culture, its up streams and down streams indus-tries on the one hand, and various fields of ruraldevelopment, on the other hand. In certain cas-es, for example, when the plan had under-esti-mated needs, five times more support was re-quested than the allocated fund was. This iswhat happened with the measure of village re-newal during the spring of 2004 when thou-sands of applicants submitted their claims with-in four months. If anything, this should convincepolicy makers that a balanced strategy has tobe built in line with EU policies and in strong co-operation with the related national operationalprograms. (The great pressure for subsidies ofrural infrastructure and village renewal was dueto the lack of funding elsewhere.);

The fate of the SAPARD program was, unfor-tunately, influenced strongly by politics and pol-iticians as well, not in terms of the content butin terms of institution building. The actual min-ister's decision about the establishment of anindependent SAPARD office was taken so late,that the whole execution was put at risk. In ad-dition to this, the parliamentary election cam-paign in 2002 further slowed down the process,which almost resulted in a failure later on.

At the time this review of SAPARD experiences wasprepared, the very first final outputs of the programhave been published. According to the latest datathe Program has been implemented successfully:Hungary managed to spend the SAPARD fund allo-cated by the European Union, despite the hugedelay it witnessed in implementation between 2000and 2002, and subsequently till 2004. At the begin-ning of 2004 only 20 million Euro, less than onetenth of the allocated public funds had been com-mitted by contracts with successful applicants andhardly any project was completed. Four tenderingrounds took place during the one and a half yearsfrom the start (at the end of 2002) to the closure(30th April, 2004). The very last open tender withtwo new rural development measures opened forcompetition in February 2004 and closed twomonths later brought three times more applicationsthan in the previous year and two times more claimsthan the amount allocated to the entire program.

Due to this situation not many useful evaluationshave been available. Therefore authors of this re-view had to make rather serious efforts to analyzenew data available for the public. They, also, havebeen still impeded to include vast program resultsin their account that otherwise the realized projectswould have yielded to.

With the intention of providing a firm basis for com-parison, in the first chapter of the main part of thetext the paper continues to provide an overview ofHungarian peculiarities, then the focus shifts to theanalysis of results, experiences, missed and usedopportunities, lessons learnt from the SAPARD pro-gram and inbuilt in the new program-documents aswell as mistakes made once again. In other words,in addition to a certain kind of evaluation and broad-er impact assessment, the issue of continuity hasalso been raised.

Research goals

Research goals have been as follows:

to provide a brief overview about the pecu-liarities of the Hungarian SAPARD program;


to assess its implementation;

to summarize best and worst practices stem-ming from the content as well as institutionalsettings and implementation;

to provide policy recommendation on thebasis of research results.


Lacking the time and resources for realizing a gen-uine research on the topic, authors' opportunitieswere largely restricted to reviewing related litera-ture and various programming documents, reportsavailable at the SAPARD Agency / MARD, and a sec-ondary analysis of the existing research material.Two of such sources have been used for the presentanalysis, one of them is a set of information (tran-scribed interviews, minutes of focus group discus-sions) collected during the mid-term evaluation ofSAPARD55, the other stock of material (mainly in-terviews with key persons) was available from acomparative research (After the Accession), a jointproject of the Vienna Institute of Human Sciencesand the Central European University56.

As far as the genuine research activity is concerned,it is the full list of the successful applicants that hasbeen analyzed57 and two interviews have been con-ducted with high-ranking SAPARD officials.


Beyond the primary and secondary processing ofthe above-mentioned quantitative and qualitativematerial, authors relied on the following sources ofinformation:

The Mid-term Evaluation of SAPARD in Hun-gary for the period 2000-200358, December2003;

The Report of the State Audit Organizationon the Execution of the SAPARD Program, April2004;

Reports of the SAPARD Agency and the Man-aging Authority on the execution of the SAPA-RD program and Agricultural and Rural Devel-opment Operational Program (here in after AR-DOP), 2003-2004;

Minutes of the SAPARD Monitoring Commit-tee 2003-2004;

Reports of the Agricultural and Rural Devel-opment Agency (here in after ARDA) on the re-sults of monitoring activity 2004.

FRAMEWORK ANALYSIS

Agriculture and new rural developmentpolicy in the Hungarian context

The "Farm Problem" and the "Rural Problem" in thePre-Acceding Hungary

The farm problem

Describing the "farm problem" in Hungary wouldneed a rather long list of issues but all of these is-sues are somehow related to still ongoing farm re-structuring. The most important ones, however, areas follows:

an over-staffed and badly organised, there-fore still shrinking and changing large-scalecommercial farm sector providing roughly halfof the agricultural output;

a weak small-scale commercial farm sectorproviding some 10% of the production;

the low productivity and profitability of pro-duction equally characteristic to small-scaleand large-scale farms;55 From among the authors of the present report, Krisztina Magocs participated in mid-term

evaluation.56 Project leaders: Janos Matyas Kovacs and Violetta Zentai; from among the authors KatalinKovacs participated in this project57 We are thankful for the material, received from the SAPARD Agency, to Mrs Toth, Zsuzsa Pasztor(director), Mr. Gyula Szoke (head of the Monitoring Department) and Mr. Ferenc Guba.58 Agriconsulting Europe S.A was the leading partner of the consortium that prepared the report


capital access problems, the low level of netinvestments due to the ownership and land-lease rules (which do not allow foreigners andcorporations to buy agricultural land or leasewithin long-term contracts);

the extensification of production threateningwith the "latifundium scenario"59 as a short termresponse of large-scale actors to the emergingchallenges.

The high number (approx. 900 thousand) of plotsfarms producing partially for self-sufficiency andpartially for the market bridges "farm problems" and"rural problems" in the Hungarian context. It is aphenomenon that reflects major structural weak-nesses within agricultural production: semi-subsis-tence farms provide some 34-39% of the total ofagricultural production60, a very high proportion thatthreatens with major difficulties following the acces-sion for the lack of reliability and rational operationof this sector. The huge weight of dwarf farms, how-ever, is influenced by the lack of jobs outside agri-culture (i. e. the over-supply of non-agricultural la-bour) as much as job scarcity within agriculture. Thecomparative analysis of information provided byagricultural censuses of 1994 and 2000 reveals thatthe drop of population dealing with plot farming wasthe highest in the rapidly developing core region(within the capital city and its conurbation zone) andin those areas where the production and marketingof small-scale auxiliary farms had been heavily de-pendent on large-scale farms during the socialistera, therefore small scale farms could not make theshift towards independent operation.

The rural problem

The most important elements of the "rural prob-lems" resulting - among others - in the large num-ber of plot farms are as follows:

the lack of jobs on-farm and off-farm, whichreflects the weaknesses of the rural economyoutside the rapidly growing core areas;

the polarisation symptoms taking place in therural space originating in the regionalisation ofeconomic processes that brought about so-called luxury ghettos, the dwelling areas of themiddle-class and upper classes, within the met-ropolitan area and around the larger rural cen-tres on the one hand, and rural ghettos in theperipheries, on the other hand. In this latter,Roma population and marginalized social lay-ers and the elderly constitute the majoritygroups of rural communities. People in thesecommunities usually witness and are subject tolong-term exclusion from the labour market.The weight of the two poles is roughly balancedin terms of population coverage: approximate-ly 7% of the population live in highly developedsuburban villages and 6% in villages showingmarked segregation symptoms.61 The commonfeature of the "poles" is the drastic "de-cou-pling" of dwelling places and the places of work.On the positive pole, in the suburbs this doesnot generate real, existential hardships becauseurban centres provide job opportunities appro-priate both in terms of quantity and quality. Onthe negative pole "de-coupling" has signifiedthe vast disappearance of jobs locally as wellas in the urban centres available for the popu-lation concerned.

Seemingly, the "triad", meaning three major typesof rural areas such as suburban zones, peripheriesand in-between "classical" rural spaces, is more orless the same in Hungary as in the advanced coun-tries, with the exception of considerable differenc-es as far as the proportion of well-to-do and poorareas are concerned and the gravity of crisis at thenegative pole with marked social exclusion. Thepolarisation of the rural space clearly manifests theinadequacy of any non-territorial intervention sys-tem. The multi-sectoral character of rural crisis,however, makes also self-evident that it is a set ofspatially co-ordinated and co-operating policies,sectoral, rural and regional policies alike that canbe beneficial for rural spaces.

59 Pouliquen 2001:46.60 Pouliquen 2001:58 61 Kovacs and Koos 2003


"Old" and New rural policies in Hungary

Regional policy prior and following the systemchange 1990-1995

The basis of current regional (and rural) develop-ment policies is still the 1996 XXI. Act on RegionalDevelopment and Physical Planning, which cameinto effect on 5th June, 1996. This Act, as a frame-work, laid down the objectives and the authority ofParliament, of the government, of individual minis-tries and of the main policy-co-ordinating body, theNational Regional Development Council. The Actguarantees not only executive, but also co-ordinat-ing and decision-making duties to the regional ac-tors in the establishment of regional policy. The con-tent of the Act was greatly in line with the content ofthe National Regional Development Concept issuedin 199862. The disadvantaged target areas of region-al development policy were defined as follows: (i)areas underdeveloped by social and economic cri-teria, (ii) areas affected by changes in the industri-al structure, (iii) backward rural regions with an ag-ricultural character, (iv) areas not belonging to theabove categories, but facing prolonged, significantunemployment.

As opposed to the multi-sectoral regional develop-ment policy agricultural support policy was and re-mained centrally managed, purely sectoral policyaiming at increasing production competitiveness.The beneficiaries of the agricultural budget wereexclusively farmers and organisations dealing withagricultural production and food-processing. Thecontent of the support schemes covered purelyagricultural issues based on individual claims. Noemphasis was put on integrated programming andpartnership at any level.

When trying to identify the strengths of the post-socialist regional policy a multi-sectoral approachcoupled with partial decentralisation (the con-cerned fund was distributed partially at county lev-el) and institution building have to be highlighted. Itwas also spatially delineated, problem-oriented(see the target areas) and included crisis areas ofthe rural space, amongst others those with agricul-

tural dominance. Considering the weaknesses, thelack of safe monitoring system including the civicsector and the weak presence of the bottom-up andparticipatory approach in the planning-program-ming procedure need mentioning. However, thisspatial policy alone has not been able to claim greatachievements, simply because of the inappropri-ate funding that - regarding the strict funds sup-porting regional development policies - never ex-ceeded one per cent of the GDP.63

Setting up a New Policy Framework: Introducing RDPolicy

The parliamentary elections in 1998 brought aboutsubstantial changes in connection with the organi-sation of regional and rural development policiesformerly belonging under one and the same cate-gory. Within an overall reorganisation of ministries'responsibilities, (i) rural development policy, for thefirst time, had become detached from regional de-velopment polici, (ii) and they both were movedfrom the Ministry of Environmental and RegionalDevelopment to the Ministry of Agriculture and Re-gional Development (MARD)64. However, this solu-tion proved to be temporal: four years later the newpolitical turn swept regional development policyaway from MARD. It shifted under the umbrella ofthe Prime Minister's Office, whilst rural developmentpolicy, in line with EU standards, remained with theagricultural administration.

When trying to identify the most important charac-teristics of the new rural development policy we cansay that it showed a move towards an approachconcentrating more on (agricultural and cultural)resource management, agriculture-related andagri-environmental issues than prior rural develop-ment oriented regional policy did. The emphasishad been moved also from an exogenous develop-ment approach aimed at attracting resources fromoutside to a few-sectoral, endogenous develop-ment approach (preserving and revitalising intra-region resources). Such differences in emphasescan be analytically identified; however, no clear sep-

62 35/1998 (III. 20.) Parliamentary Resolution on the National Regional Development Concept

63 When much larger figures are mentioned, authors calculated with some single-sectoral in-vestment subsidies as well. Here the so-called Regional Development Fund is considered only.64 It is quite interesting that although the Hungarian name of the ministry included 'rural devel-opment', the official English translation put it as 'regional' between 1998-2002. Then, with thenew reorganisation, the discrepancy between the Hungarian and English expressions ceasedto exist.


aration of the goals and target areas of rural devel-opment policy from those of regional developmentpolicy was performed.

The lack of clear distinction between the two poli-cies became manifest during the SAPARD prepa-ration phase. The preparation work for SAPARDstarted at the beginning of 1999, right after the sep-arate unit, the Rural Department Development, wasset up in the Ministry of Agriculture and RegionalDevelopment. It was this new unit that took the mainresponsibility for creating Hungary's SAPARD Planthat time.

The SAPARD preparatory work

Preparation work for completing the country's SA-PARD Plan started at the end of 1998, as it wasmentioned above, under the heading of RDD, andafter a shift of responsibilities it continued in twogroups of experts. After the shift, during late springof 1999, a multi-layered spatial planning procedurewas launched by the RDD for various regional lev-els, i.e. micro-regional level (NUTS-IV), county-lev-el (NUTS-III), the level of the regions (NUTS-II) andfinally, the national level. It was advertised as a bot-tom-up process ensuring the inclusion of the indi-vidual development needs of rural micro-regions(roughly district level) and providing opportunitiesfor innovation and the implementation of tailor-made development programs. This multi-layeredplanning procedure represented a unique elementin Hungarian SAPARD preparations - other coun-tries did not opt for this solution. In decision-mak-ers' explanations two major factors emerged to un-derline the importance of this method: the bottom-up building of the whole procedure and revitalisingrural communities' visions towards their own futurewhilst building partnership relations. These goalsobviously reflected some relevant features of theEU LEADER program while filled the gap regionalpolicy left behind.

However, a rather paradoxical situation developedat the beginning of the SAPARD-related activities,which situation remained so until the end. Namely,that SAPARD was not appreciated to the extent itshould have deserved for the small amount of avail-able funds (5% of the total of the agricultural bud-

get), whilst at one and the same time, a harsh strug-gle prevailed between agricultural and rural devel-opers for these little resources. The latter group,the newcomers, wanted to enter the scene at a timewhen the cake that agricultural developers hadsliced exclusively for themselves so far was dimin-ishing compared to the needs they assessed. Whyto share scarce resources, they asked during thefight over the measures to be included in the Planas well as over the distribution of resources amongthe measures. The Rural Development Departmentnaturally fought for greater financial allocation forArt. 33 type measures of the 1257 EC law, whilstdepartments of traditional agriculture wanted to seeSAPARD as a minor supplement to the agriculturalbudget containing investments of purely agricultur-al type. Due to the traditions as well as some lobbyinterest the latter force was and still is a lot stron-ger. The ratio of Art. 33 measures in the original Plandid not exceed 36 percent of the total budget. RDDhad very few resources compared to the whole ag-ricultural budget, so SAPARD provided practicallythe only opportunity to introduce such measures inHungary.

Staying with the new rural development policy andgiving some deeper insight about the co-ordinatedplanning and programming process in the microregions that was probably the most peculiar ele-ment of Hungarian SAPARD preparation process itsmajor steps were as follows:

1.Situation analysis, data acquisition, data pro-cessing, SWOT analysis, future vision;

2.Preparation of strategic programmes, priori-ties, sub-programmes, packages of measures;

3.Operational programmes, outlined projects.

The major features of the two-year-long planningprocess can be described in the following way:

Design process was bottom up where thearea basis signified voluntary coalition betweenat least four settlements, although a lot of mi-cro-regions chose its partners from the officialstatistical micro-region;


The micro-regions were granted 100% cen-tral financial support;

The programming process was preceded byan intensive phase of training;

A centrally financed (co-financed)65 manage-ment system was created linked to the areasdeveloping rural development strategic pro-grams.

Altogether 150 programmes with 4500 actualproject plans were prepared in 195 micro-regions.The results of this planning and programming pro-cess were not taken into consideration in the prep-aration of the SAPARD Plan that had been approvedby Brussels authorities much earlier than the ac-complishment of the overall planning exercise. Theywere never implemented as such either. The mainresults of the procedure were as follows:

Improvement of local human capacity;

Growing involvement, slowly changing atti-tude;

Emerging horizontal and vertical communi-cation, partnership;

Some still active and viable local develop-ment groups.

To implement its policy, during the period 2000 to2002, RDD operated a funding scheme, the socalled Rural Development Support Scheme on thebasis of the financial resources allocated as nationalcontribution for implementing SAPARD rural devel-opment measures unused for the years concerned,because of the delay of the accreditation processto be expounded below. The measures were thesame as in the SAPARD Plan by purpose. Openingup this fund enabled the administration to gain ex-periences on the tendering process as well as onthe implementing and the control of the SAPARDrural development measures.

The operation of the fund was secured by the so-called Regional Rural Development Offices set inmotion in the seven regions. Twelve hundred ap-plications were accepted within this supportscheme. The total budget for these applicationsamounted to 44 400 000 Euro, of which the amountof the support totalled 22 000 000 Euro. The appli-cation procedures simulated the rules and proce-dures of SAPARD during implementation. When re-gional SAPARD offices started to operate, experi-ences gained from the operation of Rural Develop-ment Support Scheme were used to a less extentthan it should have been. Needless to say it had todo with the distinct operational network of the Re-gional Rural Development Offices of the RDD moreregarded as competitors than as co-operators ofthe SAPARD offices established more that a yearlater in the regions (not necessarily in the same ru-ral centre as Regional Rural Development Offices).

Institutional framework and proceduralbottlenecks, their background and theirimpacts

Institution building

In the beginning the very minimum amount of time,effort and funding was devoted to institutional build-ing. The political decision-makers of the MARD andthe government of that period failed to recognisethat SAPARD was a key programme for institutionaldevelopment in Hungary and for the country's ac-cession to the European Union. The programmingand accreditation process in Hungary was undulylong, which resulted in major delays. Analysing theinstitutional building process chronologically, at thebeginning, in 1999, Agricultural Intervention Cen-tre (hereinafter AIC), Paying Agency for nationalmarket support was regarded as the central SAPA-RD Office. AIC made some progress in preparingthe different tasks for accreditation that was to un-dertake in 2000.

The originally appointed organization for program-ming and implementing SAPARD was changed inMay 2000 by the decision of the Minister of MARD.According to this decision a completely new insti-tution (SAPARD Agency) had to be established. Thisdecision is considered as the principal reason for

65 MARD provided the so-called micro-regional managers with a relatively low salary that couldbe supplemented by the allied villages.


the delay in the whole accreditation procedure. Thenewly appointed president of the agency did nottake the advice provided by experts and did notunderstand fully the requirements either. For morethan one and a half year no progress was made insetting up the agency: the institutional frameworkcould not be set up, and no professional staff washired. This occurred despite all the warnings andadvice from the European Commission. Finally, thecentral office and the seven regional offices wereset up by the fall of 2002, but the long political driv-en lack of progress caused a two-year delay in ac-creditation.

Based on a Government decision the new Agricul-tural and Rural Development Agency (here in afterARDA) that was to become the chief administrationunit of CAP was formally established on the 1st Julyof 2003 through a merger of the existing Agricul-tural Intervention Centre and the SAPARD Agency.

When ARDA was born, one of its pillars, the SAPA-RD Agency had 275 staff members at its disposal.The seven regional offices employed 26 personseach on an average. In order to cope with the pre-dicted rise in the number of applications, person-nel of the Regional offices were increased propor-tionately to about 30-33 persons per office, follow-ing the transfer of proposal-evaluating activities ofthe Food Industry Department of MARD to regionallevel.

Despite of increasing the number of personnel, ac-cording to the State Audit Organization report ofApril 2004, the lack of appropriate human capaci-ties represented a most serious bottleneck in theoperation of the SAPARD Office. The same was con-cluded by the mid-term evaluation team in Decem-ber 2003. It was not only due to the insufficient num-ber of staff members, but it also had to do with thestaff's quality and stability. According to the mid-term evaluation the fluctuation of the personnel wasrather high in the regional offices, not withstandingthe fact that since its establishment, the SAPARDAgency has had five directors, the fifth is just goingto leave behind the Agency at the end of 2004. Thisturnover of directors and the ensuing instability hashelped neither the accreditation nor the implemen-tation of the process. A lack of teamwork and the

fluctuation of the management increased the un-certainty among the employees.

In the case of SAPARD, ARDA is not functioning asa paying agency. The National Fund within the Na-tional Treasury carries out this task. The CAP pay-ing agency has completely different tasks than thatof SAPARD. By joining the two institutions (SAPA-RD Agency and AIC) a huge institution was born withmore than a thousand people and with very hetero-geneous tasks. The management of such an insti-tution is hardly likely to be performed effectively.According to the director of the former SAPARDAgency, the Agency should have been kept inde-pendent. When the reorganisation had started, theSAPARD Agency just began to operate well, havinggreat number of applications to be processed. Bythe merger, the SAPARD Agency was losing valu-able human capacity when it was basically takenapart. Many of its functions became common withthe CAP Paying Agency. It significantly slowed downthe application processing procedure.

From the SAPARD point of view the merger was notfavourable at all. It took away human capacity,slowed down and made it difficult to hire people.Since in the Organisational and Operating Manualthe tasks connected to CAP Paying Agency and theaccompanying measures were not well separatedfrom those of SAPARD, the centre several times or-dered people in the regions working on SAPARD toswitch to work on other CAP issues. Therefore theHungarian case tells more about how not to trans-fer SAPARD Agency to CAP Paying Agency thangood examples would do.

If the two (actually three) tasks are carried out bythe same institution, the Organisation and Opera-tion Manual should clearly separate tasks and re-sponsibilities by functions and it should be madeclearly traceable.

The tendering procedure

When, eventually, the Agency was set up, to speedup the process, decision makers decided not to gofor the accreditation of the nine measures that theSAPARD Plan comprised, but initiated the accredi-tation of only three of these measures and, of


course, technical assistance. The table below illus-trates a title of the three measures accredited in thefall of 2002 as well as their original weight in theSAPARD Plan (altogether some 60%).

The deadline for submission of applications was 15November 2002, in the case of "Investment andImprovement of agricultural holdings", and 1 De-cember 2002 for the two other measures such as"Processing and marketing of agricultural and fish-ery products" and "Development and improvementof rural infrastructure"

Despite the short deadline and the complexity ofthe application form, an unexpected number of ap-plications totalling 1160 were submitted. Out of theapplications received, more than 50% were relatedto the development of rural infrastructure. The rel-atively low interest in the procurement of machin-ery was due in the main to

the complicated support conditions and;

a parallel and less trouble-making nationalsupport scheme for machinery

Each proposal from the pool of the first set of sub-mitted applications was given back to the applicantfor completion. The rate of the rejection of propos-als was very high, 57% as well. The extremely highrate of rejected applications increased the admin-istrative load, which was an important reason for thelengthy evaluation procedure and the slow imple-mentation of the programme.

According to the mid-term evaluators, the neces-sary information on the general eligibility criteria didnot meet the applicants' needs adequately. The cri-teria on the business plan assessment were nottransparent and well disclosed enough for the ap-plicants to see whether they were eligible or not.The complexity of the business plan was also anobstacle for potential applicants. This was especial-ly true in the case of small companies, which hadproblems in collecting all the necessary data andfigures required for business planning.

The scoring system that was applied after the gen-eral eligibility check was used to assess the busi-ness plan according to the measure-specific crite-ria set out in the SAPARD Plan. The criteria on eco-nomic viability, efficiency and effectivenessfavoured the larger and better performing compa-nies, which included the foreign-owned food-pro-cessing businesses. Application safeguarded thesystem from losing money through not supportingenterprises with high financial risk. Such fear of fail-ing projects excluded many applicants with poten-tially viable projects.

The evaluators concluded that due to the little num-ber of approved applications only of economic via-bility, efficacy efficiency and effectiveness criteriawere assessed. Since more budget was availablethan claims of the approved projects, the SAPARDPlan selection criteria were not be applied to scorethe projects. The evaluators agree with modifica-tions introduced in May 2003 to approve the eco-nomic viability and see a further review of the crite-ria necessary.

dnuortsrifehtnidetiderccaserusaemehtfoeltiT nalPehtnithgieW

sgnidlohlarutlucirgafotnemevorpmidnatnemtsevnI 64,82

stcudorpyrehsifdnalarutlucirgafognitekramdnagnissecorP 35,02

erutcurtsarfnilarurfotnemevorpmidnatnempoleveD 89,11

Source: NRDO


In May 2003 an amendment proposal of the Hun-garian administration was submitted to Brusselsthat was aimed at increasing the effectiveness ofthe program via the following steps:

Lifted the too strict assessment criteria ofeconomic eligibility;

Expanded the scope of final beneficiaries andclarified the conditions of economic viability incase of measure Investments in agriculturalholdings;

Increased the level of support by 10% (from30% to 40% in case of purchase of machines,from 40% to 50% in case of building develop-ment and other investment associated with ag-ricultural building development) and also themaximum amount of support per project in caseof measure Investments in agricultural holdings;

New ranking criteria was approved for mea-sure Investments in agricultural holdings;

Upper limit of support per project was in-creased in case of measure for Processing andmarketing of agricultural and fishery products;

Decision was made on launching three newmeasures, namely "Improvement of VocationalTraining", "Renovation and development of vil-lages and protection and conservation of ruralheritage", "Development and diversification ofeconomic activities, providing for multiple ac-tivities and alternative income".

The Star Committee approved the amendment re-quests of the Hungarian government in July 2003,thus the next round of tendering for the already ac-credited measures in September 2003 continuedaccording to the eased rules. The SAPARD Officealso committed itself to speeding up the adminis-tration and selection process (reducing from 90 to60 days). From among the suggested new mea-sures, "Improvement of Vocational Training" wasdropped, only the other two rural developmentmeasures were accredited late autumn. The lasttendering procedure was started as late as Febru-

ary 2004, preceded by a huge joint media campaignof three ministries (MARD, Ministry of EconomicAffairs, Ministry of Culture and Cultural Heritage).The result was a never experienced amount, almost6,000 applications, which generated enormousprocessing problems and the refusal of 6,000 pro-posals. (See Figure 1 and 3 in the Appendix)

The structure of the planned and imple-mented measures: the effected sectors

When assessing the impacts of SAPARD and theeffected sectors we have to be cautious. SAPARDwas a rather little fund representing some 5-6% ofthe MARD budget that inevitable limited its poten-tials. However, the most effected sectors can berelatively easily determined: that is

farm business via supported machinery andbuilding investments;

processing industry;

from among first-pillar type investments,

rural infrastructure;

o mainly road development investments;

o IT investments;

o investments to alternative waste watertreatment;

the built environment of rural areas

from among second-pillar type of support.

Altogether 2752 SAPARD applications were ap-proved and 264,2 Million Euro grants have been al-located via approved applications. 38,3% of thepublic funds went for farm investments, further 30%to support food industry. The latter measure's sharein the SAPARD cake reflects the increase of theproject ceiling secured by the 2003 amendment ofthe SAPARD Plan that affected the scope of eligi-ble applicants in the first measure (investments ofagricultural holdings) as well. These two changesinfluenced the further distortion of first-pillar type


of spending in Hungarian SAPARD program at theexpense of the rural development support.

The proportion of allocated second pillar funds ex-ceeded 31,7% out of which infrastructural invest-ments took the largest portion (22,3% of the totalallocated fund) followed by village renewal (8,7%of the fund total). (See Tables no. 1-4 and Figuresno 4-6 in the Appendix)

If we analyze the applications according to the typeof applicants, the picture varies measure by mea-sure. Figure 4 illustrates, that under the measurecalled "Investments in agricultural holdings" indi-vidual producers represented a majority in termsof the number of applicants (58%) but they man-aged to acquire only one quarter of SAPARD grantsunder this measure, whilst the opposite proportionscharacterized the company sector: 37,5% of theapplicants took the 64% of available funds. In caseof food processing individual entrepreneurs repre-sented an exception from the rule (see Figure 5),whilst among approved applications for rural devel-opment measures local governments reached thehighest rate (see Figure 6). Figures of Table 5 aretelling about the typical project size by applicants'groups: 21,4% of individual applicants in the low-est rate tenth took as few as 3,5% of the grants and1,3% highest rate applicants took 11%, whilst incase of limited liability companies the relevant fig-ures are: 3,1% : 0,1% and 14,4% : 48%.

Analysis of the how the SAPARD programcontributed to the smooth transition

SAPARD, as the forerunner of the Structural Funds,has fulfilled a real mission in Hungary with lots offconflicts, mistakes but also with lots of positive im-pacts. The development resources channelled toagriculture and rural areas, institution building aswell as experiences gained on submitting propos-als from the clients' point of view and processing,administering, selecting them on the side of theSAPARD Office have to be emphasized. Not only theapplication process, but the EU's harmonized sys-tem of operation, monitoring and financing was alsonew. The main tasks of SAPARD program includedprimarily the adoption of these, the changing of theapplication habits of the entrepreneurs, and pro-

moting the EU's harmonized methods. Further-more, the program drew the attention to several newconsiderations, values, approaches, standards thatwere to be developed/met in a narrower sense(food quality and consumer protection, animal wel-fare and health, working safety and hygiene, envi-ronmental considerations, etc.)

The introduction of second pillar-measures wasalso very much SAPARD-related andconditioned.The EU policies considerably support-ed the new and weak rural development policy en-tering the battle field for scarce resources both inan abstract and in a very concrete way via their rep-resentatives taking part in open discussions (whichwere critical towards the exaggerations of rural de-velopment policy makers as well). In addition to this,without SAPARD, without the resources allocatedto self-contribution during the "delay" period in2001-2002, the Hungarian Rural Development Fundcould not be operational, which was a major vehi-cle of the latter's approval and legitimation. Despitethe hardships, this kind of "orientation role" of theSAPARD program undoubtedly represented one ofits most important impacts.

As a learning program, SAPARD was functioningquite well although not to the required degree. Themost important shortcomings can be understoodas a consequence of the delay in real start whichfact was purely politics-driven. Regrettably, be-cause of the huge delay in the process, lessonscould not be used in the programming of NationalDevelopment Plan, more precisely when ARDOPwas compiled. Lacking appropriate experiences,the harsh debate restarted between rural and agri-cultural developers, the first version of ARDOP wasbiased towards first-pillar type of investments to anunacceptable degree that triggered open interven-tion from the Commission on the one hand, con-tributed to the unreasonable allocation of funds, onthe other hand. Therefore mistakes committed inSAPARD were repeated in ARDOP.

Another issue that should be raised is that of un-certainty and a lack of trust, which is rather naturalin the case of a completely new program in a com-pletely new arena that is the European Union. Poli-cy makers were not able to estimate the real ab-


sorption capacities of the measures, trusted nei-ther new actors, such as smaller-scale entrepre-neurs, nor the absorption capacity of new mea-sures, such as those aimed at rural development.These circumstances as well as the unequal powerrelations between old (agricultural) and new (ruraldevelopment) actors led to the biased allocation offunds in the SAPARD Plan, the preference order ofmeasures when accreditation was at stake, andwhen eligibility and assessment criteria were set.SAPARD did not take much in favour of agri-envi-ronment, beyond "gender blindness" this is one ofthe most important shortcomings of the Program,but fortunately enough a national support schemecompensated for the losses and the same functionwas secured by the operation of the Rural Devel-opment Fund.

Taking all this into account, SAPARD has broughtsignificant changes in the acquaintance of the Com-munity standards by the agricultural sector and bythe rural population, assisted institution building,provided the administration with appropriate expe-riences in processing and selecting applicationswhich were helpful and eased the implementationof "post-accession" tasks.

Thinking strategically: SAPARD aimed atsustainable agriculture

The requirements of sustainability and environmenthave emerged in political discourse as well as inprogram-creation since the change of regime. Theissue of sustainability and environment protectionwas investigated and elaborated upon in course ofthe pre-accession process in compliance with theconceptual framework and the related programmesof the EC. During the preparation of the SAPARDPlan the aspects of sustainability and environmentwere elaborated in accordance with three nationalprogrammes (Hungarian Agricultural, Regional andRural Development Strategy, the ComprehensiveDevelopment Plan of the Hungarian Economy, thePreliminary National Development Plan and TheNational Agri-Environmental Programme.)

It clearly turns out from the situation analysis andthe SWOT of the SAPARD Plan that the primary

problem of rural areas and agriculture is more of aneconomic and social than environmental charac-ter. Due to the lack of capital and low profitabilityagricultural production as well as the usage ofchemicals have significantly decreased. Owing tothese facts environmental sustainability did notbecome the major priority of SAPARD, which con-tributed to the fact that the relevant measures werenot accredited.

However, the environmental aspects as a kind of"horizontal" requirement, as a condition of the ap-proval of the projects played an essential role inmeasures generating investments. In the measure"Investments in agricultural holdings" one of theobjectives was to secure compliance with the re-spective EU standards such as food quality andsafety, environmental and animal health welfare.

Transparency and public participation

Before the pre-accession programmes started inHungary there had been no good practice of part-nership consultation, transparent decision makingprocedure as well as communicating the results ofsupport schemes through monitoring systems.

Partnership consultation as a compulsory elementof the programming procedure was quite unknownto MARD. As it was the first occasion to meet thisprocedure in practice, no good method was elabo-rated, as neither MARD nor the involved partnerswere prepared for such activities. From MARD'spoint of view it was difficult to share decision-mak-ing power with organisations that were having dif-ferent opinion on agricultural policy. On the otherhand, these organisations were not well prepared,were not aware of the legislative background ofSAPARD, so did not know the actual possibilitiesand obstacles caused by EU rules. Building part-nerships is a time consuming procedure and SA-PARD was the first step.

Operating a Monitoring Committee is also a newelement of the implementation of the agriculturalpolicy. It is a great tool to inform and have the rep-


resentatives of many parties involved in the deci-sion-making. At least the problems are open to amuch wider public then previously, and the monop-oly position of MARD has diminished to a certainextent. However, the processing and monitoringsystem has not yet been IT based without which itis hard to make any kind of activity transparent. Thehomepage of the SAPARD Agency has improvedconsiderably, making a great deal of useful infor-mation accessible to a wide public.

At the beginning of the implementation procedurethe communication between MARD Managing Au-thority (hereinafter MA) and the SAPARD Agencywas not satisfactory. No information on the opera-tion or program results made available to the MAas well as SAPARD Agency took over some deci-sions that should have been made by the relevantdepartment of MARD. This relation has significant-ly improved. There is frequent communication withand data supply for MARD. The attitude of SAPARDAgency has changed towards the wider public aswell. The protective attitude has changed towardsa more open and transparent operation. It might bedue to the less criticism towards the implementa-tion of the Programme as well as to some successalready achieved (within 12 months the commit-ments increased from 20 to 262 thousand Euro).

The development of skills, special fundsdesigned for better project preparation

There has been a lot done in Hungary for develop-ing skills aimed at better project preparation. Manyopportunities have been still available financed/or-ganised by various state administration units andmarket figures mainly for professionals or semi-professionals to get trained in proposal writing in-cluding the basic knowledge about the rules in theEuropean Union to access public funds. Most ofthese training courses are supported directly or in-directly from combined state and EU funds, there-fore clients do not have to cover full training fees.

However, most of the applicants do not submit aproposal every day of every week. For an ordinaryfarmer for example, efforts to acquire the relevantskills would need far too high investment costs cal-culated in time and money, notwithstanding the still

lacking knowledge based on practicing. As op-posed to our ordinary farmer, a specialist engag-ing in writing applications develop a stock of skills,knowledge and network s/he uses for realising highincome on the basis of approved applications. Themarket based proposal writing industry of consult-ants and consultancy companies that started toflourish right after the appearance of over-compli-cated SAPARD application forms was criticized butaccepted. The inevitable consequence of the ap-pearance of complicated application mechanismsis the "dead weight" effect favouring the big fish ingetting more discriminating the small fish lackingfinancial means as well as knowledge about theavailability of required services.

As remedies, some "managerial services" havebeen developed and maintained from state re-sources such as "village managers" (falugazdasz)providing some extension services aimed mainly atfulfilling administration tasks for MARD but also ad-vising farmers how to reach agricultural supportschemes and get direct payments. As it has beenmentioned in an earlier chapter, the Rural Devel-opment Department of MARD operated a so calledrural development manager network on micro-re-gional basis. Managers have been in charge of in-formation dissemination, networking and organis-ing useful events aimed at strengthening endoge-nous potential of the area and enhancing capaci-ties for rural and regional development. However, ifthey provide proposal-writing services, they usual-ly do it on market or semi-market bases.

Monitoring the results of the program: thecompliance of output-indicators with ECindicators on clean environment

The impact of any investment on environment hasto be approved by the relevant authorities. Howev-er, in the assessment of the projects there is notany criterion that takes into consideration the ex-tent of compliance SAPARD assistance contribut-ed to. Regarding environmental standards, no de-tailed impacts of the procedure such as improvedenergy balance of the holding, reduced noise orreduced waste water or waste water treated by anew sewage system have been assessed.


No indicators on this subject are collected in themonitoring system so it is hard to prepare any kindof analysis on the environmental impact of the SA-PARD Programme. Based on the questionnaires ofthe Mid-term Review the following conclusions canbe drawn:

Investment in agricultural holdings

In the case of pig keeping yards the most seriousproblem is meeting the environmental require-ments, since it is difficult to use the manure to im-prove the quality of soil at the current level of live-stock concentration, and because of the generaltechnology for the disposal of manure. In 11% ofthe pig keeping spaces studied, the disposal tech-nology is incomplete. The storage of farm manureis a problem for 25% of the yards in Hungary. From

the point of view of environment protection, manuretreatment and air pollution may cause problems inthe poultry yards.

There is not any satisfying solution for either ma-nure treatment or storage. In this sector, meetingthe animal protection requirements, especially therestrictions for coops means a more serious prob-lem. From environmental aspect, the main problemfor the cattle keeping yards is the treatment of ma-nure and of the liquid manure. The separation of liq-uid manure and rain requires a more considerableamount of investment costs in the future. In 12% ofthe cow barns the disposal of manure is done man-ually.

ytivitca/erusaeM stcejorpforebmuN

stsoC )oruEdnasuohtni(

latoT DRAPAS

noitcetorplatnemnorivnE 2 618 483

eraflewlaminA 1 001 04

erunammraF 32 8286 0023

stcejorplaretalloC 721 44054 2902

smrafwen 11 6965 4072

noitcurtsnocerlatot 27 02742 21511

ygolonhcetgnideerb 22 2176 0613

selbatswen 51 0476 0892

egnahcygolonhcet 7 2711 485

srehtO 24 2999 4674

latoT 591 67726 82392

Investments in agricultural holdings

Source: NRDO


By summarizing all this, it can be claimed that theSAPARD measures had a significant role in the im-provement of the environmental conditions. Mostof the businesses carried out such investments asa secondary goal either because these were con-ditional for their investments or because of thepressure of the new EU standards of operation.From the data processed it can be clearly seen thatthe change of environmental conditions will only bethe consequence of a technological development,while only a few entrepreneurs applied for directenvironmental investments.

Processing and marketing of agricultural products

During the pre-accession period the primary aimof development in the food industry was to ensurecompliance with the EU standards regarding envi-ronment, hygiene and food safety as well as to in-

crease the competitiveness in the single market.The Specific Sector Programmes provided a rea-sonable basis to outline development objectives,relevant areas and strategic priorities. Prior to theelaboration of the SAPARD Plan a guideline waselaborated within the framework of a PHARE projectordered by the Food Industry Department, MARDto assist the preparation of the development strat-egy for the food sector and to define the measuresand actions promoting its development and struc-tural adjustment. This measure was the only onedeveloped on the basis of thorough sector analy-sis.

sevitcejbo/erusaeM

stcejorpforebmuN )oruEdnasuohtni(stsoC

desseccA dehsiniF latoT DRAPAS

snoitalugerUEhtiwecnailpmoC

ytefasdoofdnaeneigyH 39 13 48506 23242

noitcetorplatnemnorivnE 53 8 25302 0418

tnemeganametsaW 6 4 2313 2521

egaweS 02 11 2359 2183

eraflewlaminA 3 1 8031 425

erusaemehtnihtiwrehtO 581 15 062101 40504

latoT 243 601 861691 86487

Environment-related expenditures of the measure of processing and marketing agricultural products

Source: NRDO


Development of rural infrastructure

The SAPARD Plan, among other things, identifiesthe following priority needs regarding rural infra-structure:

lack of waste-water treatment facilities insmall settlements (of less than 2000 inhabit-ants);

non existing or not effective energy supplyof agricultural enterprises.

In line with the priority needs the measure includesthe following fields of development:

development of energy supply for local busi-nesses;

construction of local waste water treatmentsystems using alternative technologies in set-tlements with a population of less than 2,000inhabitants.

The number of approved applications for wastewa-ter treatment facilities using alternative technolo-gies in small settlements was rather low (44). Thismay be attributed to the fact that the laws givinglegal standing to such system have only recentlybeen formulated. The other sub-measure that couldhave had positive effect on the environment is theenergy supply for enterprises. Despite of the factthat projects aiming at utilizing renewable energyresources were prioritized, not many of suchprojects were submitted, although two times moreapplications were approved within this sub-mea-sure (80 proposals) than in the case of waste watertreatment. As two thirds of the applications for bothsub-measures were submitted in the last round ofSpring 2004, nothing can be stated about the im-pacts of these investments.

There is a very low awareness of such technologiesin Hungary, not only for their novelty but also dueto the lengthy and difficult authorisation procedureand the strong lobbying power of the standardwastewater treatment systems with their inherenthigh cost. Another possible reason for submittinga low number of applications is that the cost of elab-

ytivitca/erusaeM stcejorpforebmuN

stsoC )oruEdnasuohtni(

latoT DRAPAS

ygolonhcetretaw-etsawevitanretlA 22 8286 4884

retaw-etsaW 22 8856 4464

ygreneelbaweneR 42 6332 6741

ygrenE 25 8473 0462

stcejorprehtO 194 04316 67844

latoT 116 04808 42585

Rural infrastructure

Source: NRDO


orating the necessary documentation is very highand must be pre-financed by the applicant. The typ-ical applicants for this type of project are munici-palities that are in need of financial resources andcannot take the risk of pre-financing the expensivearchitectural engineering.

Agri-environmental measures

The relevant measure was not implemented; thecurrent measures did not have significant impacton the protection of the environment.

All projects submitted are approved in compliancewith EU environmental standards by the respectiveenvironmental authority. The criteria used for scor-ing the projects are very much focused on the as-sessment of the financial performance indicatorsprovided in the business plan, and no criteria as-sess the extent to which the projects contribute tothe defined objectives of the programme such asimproving environmental conditions.

During the application process the applicants hadto have very detailed impact studies concerning theplanned investment attached to their proposals.Investments making significant impact on the envi-ronment have been scrutinised by the RegionalEnvironmental Authority. In general, low impact ofthe program can be forecasted because of the lowamount of the SAPARD aid compared to the mag-nitude of the problem.

To summarise: the impacts of SAPARD Programmeon environmental sustainability were insignificant.It is due to the following main reasons:

The SAPARD Plan could not concern environ-mental programmes such as National Agri-en-vironment Programme, Nitrate Action Pro-gramme, Natura 2000, Water Framework Direc-tive etc. on one hand because the EU directivesat that time were not compulsory to Hungary,on the other hand the national programmeswere not in the state of preparedness to be con-sidered;

emmargorptegraT

devorppAtnemyapPDRN*)3002(stnacilppaPEANforebmun:noitaluclaC

etar

)ah(aerasnoitacilppa

)meti(

troppusdnasuoht(

)oruEPDRNniah/oruE oruEdnasuohtnilatoT

tnemeganamtnemnorivne-irgAemmargorpcisab

65841 731 3311 861 4943

tegratgnimrafdetargetnIemmargorp

84031 1231 1681 733 9717

tegratgnimraflacigolocEemmargorp

75695 6311 5714 733 90122

tegratnoitasilitudnalssarGemmargorp

84398 2761 0443 621 65651

tegrattatibahdnalteWemmargorp

38961 001 225 162 5874

tegratemmargorpASE 04704 847 9854 112 53801

latoT 236432 4115 12751 85046

National Agri-Environment Program 2003

Source: MARD 2004


The measures that could have had effect onthe sustainable development of agriculture werenot implemented;

The content of the measures as well as theselection criteria of different projects did not putenough weight on the environmental sustain-ability of the different investments.

Best practices and lessons learned fromSAPARD operations for the respectivecountry sectors

Best practices

It is really difficult to mention any best practicesconcerning SAPARD Programme. Somehow eventhe good and effective actions did have some neg-ative consequences. The information campaignprior to the opening of the two new measures (vil-lage renewal and diversification) was a very well or-ganised joint activity carried out by ARDA, the Min-istry of National Cultural Heritage and the Ministryof Economy. The notoriety of the Programme, es-pecially the new development possibilities within thevillage renewal measure rose significantly country-wide. An enormous amount of applications was re-ceived within this measure showing the great de-mand for such support. On the contrary, the finan-cial resources available under this measure are farbehind the needs expressed in the applications

It means that every applicant had to be rejected oradvised to apply again under ARDOP. However, re-sources under ARDOP allocated to village renewalcovers only 3,5% of the applications already re-ceived under SAPARD. No available additional na-tional resources are and foreseen for such purposeuntil the resources of the new planning period(2007-13). This problem is essential taking into con-sideration that the preparation of a village renewalproject application costs quite some money, whichhas to be invested in advance. The project ownersare mostly municipalities of small settlements hav-ing major financial difficulties. By giving them hopeof development and not closing the application win-dow in time, although it was advised by ARDA, ba-sically worsened their financial situation instead ofsupporting them.

ARDA advised MARD in mid-February 2004 to claimadditional resources from the Commission, know-ing that other pre-accession countries were havingdifficulties to use up SAPARD funds. But this letterwas received in Brussels too late. Obviously, theanswer was that there was no possibility of reallo-cating pre-accession money to a member state;therefore Hungary should concentrate on the utili-sation of the funds available under ARDOP. Howev-er, the Commission allowed reallocating 80 millionEuro from the budget of the National DevelopmentPlan to ease the situation. 60 million Euro was de-voted to procurement of machinery while 20 mil-lion was provided for village renewal.

Lessons learnt

Experience concerning planning activities…

Due to the late start of the implementation of theSAPARD Programme there were hardly any quanti-fied results of any kind of assessments or evalua-tions available for the planners of the StructuralFund operational programmes, namely the Agricul-tural and Rural Development Operational Pro-gramme (hereinafter ARDOP). It means that fromthe planning point of view no data were available intime for the strategy development of the ARDOP.

The efficiency of communication among differentinstitutions as well as different departments ofMARD involved in the planning exercise of both pro-grammes has significantly improved based on theSAPARD experience. However, the same old argu-ment started between the agricultural strategistsand the rural developers on the distribution of theresources of the ARDOP with considerably lessfavourable conditions to rural development (thesuggested share of Art. 33 measures was around10 % of total budget, which is a lot lower than thatof in SAPARD). Still, it did not slow down the plan-ning procedure as much as it did in the case of SA-PARD. Planners recognised that late political deci-sion should not influence negatively the pace ofpreparation.

People involved in the planning of ARDOP weremostly the same as in the case of SAPARD, there-fore the planning and negotiating skills as well asknowledge on EU legislation that had been gath-


ered during the SAPARD planning exercise was ful-ly utilized. Unfortunately, a same kind of bipolar (ag-riculture versus rural development) planning prac-tice (embodied in two planning institutes the AKIIand VATI) continued during ARDOP planning insteadof establishing one strategic working unit respon-sible for the elaboration of the new plan with equalrepresentation of the development fields involved.

Experiences concerning institutional building…

As far as institutional arrangements are concerned,it has been proved that having an already more orless functional institution is a huge advantage com-pared to other operational programmes of Struc-tural Funds that started the accreditation processand the institutional development almost fromscratch.

Based on the lessons of SAPARD the applicationprocessing procedures and the organizationalstructure of implementation was rationalized to acertain extent.

Yet, parallel activities such as processing the veryhigh number of SAPARD applications received atthe end of the programme and at the same time re-organizing SAPARD Agency in order to increase itsefficiency as well as setting up for the implementa-tion of new measures (preparing call for proposals,setting up and introducing the new IT system etc.)of ARDOP caused a huge work overload which isstill not solved.

The merger of AIC and SAPARD Agency took placealso in the peak period. It caused major restructur-ing in the organization of the SAPARD Agency thathad been operating independently until that time.The reorganisation slowed down the processing ofSAPARD applications as well as the preparation forthe implementation of ARDOP. Basically, only thedepartment dealing with processing application re-mained the same. The other departments becamecommon with the ones dealing with direct paymentsand with the implementation of the accompanyingmeasures. The successor of the SAPARD Agencyin ARDA is one single directorate called Departmentfor Rural Development Supports. According to thehead of directorate ARDA became too large (1000

employees) so that it cannot be managed efficient-ly. The implementation of the three different typesof support (direct payments, accompanying mea-sures and the so called rural development mea-sures) requires quite different ways of operationmethods, thinking and human capacity. SAPARDAgency should have remained independent. Itwould have been more flexible in terms of reorga-nizing human capacity according to the actual work-load. On the contrary, in practice, as direct pay-ments and accompanying measures have a lotgreater financial importance than that of SAPARDand ARDOP, in addition the paying agency for theguarantee expenditures was established by thegeneral director of ARDA, therefore the human ca-pacities were concentrated on these fields.

The experiences of SAPARD could have been trans-ferred more efficiently to structural assistance if:

the implementation of the programme hadstarted in time so most of the money could havebeen already spent before the necessary set-ting up of implementing ARDOP;

in that case reasonable time could have beenspent on adjusting the organizational structureand the procedures to the lessons learnt as wellas to the new measures.

Experience concerning applicants…

As it has been mentioned in the previous chapters,the operation of the agricultural support schemesprior to SAPARD had been a lot simpler. Beneficia-ries had to learn to prepare applications fulfilling therequirements of the new system. Most of the appli-cants hired experts/companies having experiencein developing the unreasonably high standard busi-ness plans and filling in the application forms. Thehigh number of incomplete or rejected applications(in the first round 100% of the received applicationwas incomplete or needed certain modificationcausing huge amount of administrative extra work)indicated both the unnecessary complexity of theapplication forms as well as the low preparednessof applicants (and experts). The quality of applica-tions increased by the time of implementation.


SAPARD as a pre-accession programme is well ful-filling its function as a learning programme. Bothon the institutional part and on applicants' side theknowledge of European procedures and require-ments, rural projects, the practice of writing andevaluating applications has been widely spread dur-ing the last years. SAPARD was a useful instrumentto improve the level of private consulting services,too, which can result in well-based consulting ser-vices available for applicants during the implemen-tation of future development programmes. The Pro-gramme brings definitely positive effect on nation-al level decision-makers and executives by provid-ing them with the practice of partnership co-oper-ations and harmonised activities.

POLICY OPTIONS

Policy options do not signify free choices betweenabstract alternatives, they are very much deter-mined by the actual power-relations of the broaderarena of influential policies, among others WTO andEU policies, the situation of produce markets, do-mestic, single market of the European Union andthat of the globalized world market, economic situ-ation and existing structures, rural labour marketand the role of agriculture in that, the absorptioncapacities of the other branches of the economyand cities, etc.

In this context Hungarian policy makers have nothad a large room for manoeuvre. They had to ac-cept the fact that by the accession, certain normsand values, such as multi-functionality of agricul-ture, environmental-conscious production, foodquality standards, competition rules, equal oppor-tunity considerations should be strengthened orintroduced. They are also aware of the fact that theaccess to operational and development resourceswill be determined by EU policies, i.e. by the CAPand the structural funds (especially the combinedfund of EAGGF). Moreover, member states limitedthe budget available for the accession countries aswell as the rate of direct agricultural support, thetype of accompanying measures, the measure tai-lored to the needs of the accession countries (sup-port for semi-subsistence farms) and the menu ofinvestments, first and second pillar types equally.

Hungarian negotiators were heavily criticized, ofcourse, mainly by the opposition parties for notreaching more derogations during accession talks,particularly at the Copenhagen summit, where thephasing in system as well as the seven-year-longderogation for opening up the land market wereaccepted. The 30% top-up allowance narrowed theroom for manoeuvre of policy makers a lot, becauseit generated an extreme burden on the budgetaryresources of the agricultural administration. Thisdecision also weakened the position of new, ruraldevelopment policies, either those of accompany-ing measures comprised in the so called NationalRural Development Plan (hereinafter NRDP) fi-nanced from the Guaranty section of EAGGF or inthe Agricultural and Rural Development Operation-al Program, financed from the Guidance section ofthe same fund. The Copenhagen agreement al-lowed the re-orientation of funds allocated forNRDP to a certain extent to cover part of the top-up costs. On this legal basis the opportunity hasbeen used already at the expense of second pillartype of measures.

Under such circumstances, agricultural developers,whose convictions and interests are usually relat-ed to the large-farm lobby, feel the scarcity of re-sources and want more, larger slices from the sup-port cake and so do rural developers, obviouslyweaker in the policy battle. Despite all these oppos-ing approaches and convictions, there are somepoints where the two parties are on the same orclose to same platform laid down in the National Ag-ricultural and Rural Development Strategy May2004. They are as follows:

both parties accept that agriculture shouldbe sustainable and multifunctional servingbroader social needs;

relying on the favourable endowments offarming, export orientated, competitive farmsector, however, should be maintained andstrengthened on the basis of rationalization ofproduction and the appropriate utilization ofcombined (EU and national) funds;


environmental protection, animal welfare andhealth, food quality, etc. must be safeguarded;

a transparent, safe, accountable and stablesupport system should be operated.

Unfortunately, beyond these broad goals, the par-ties do still not seem to be ready to make compro-mises, form a consensual platform and go for com-mon strategic policy choices; those interested infirst pillar-type support strongly oppose any furtherallowance to be provided for second-pillar type de-velopments and vice versa. In addition to the op-posing platforms within the group of agricultural andrural development policy makers, the scarcity of co-operation with other related fields such as regionaldevelopment of rural areas is also has prevailed sofar. Fortunately enough there is a certain level ofwillingness to change these bad practices nowa-days when activities of the second national devel-opment plan started.

CONCLUSIONS AND POLICY RECOMMENDA-TIONS

The relevant conclusions of the Mid-TermReview

According to focus group discussions and thequestionnaire survey among stakeholders at na-tional level it can be concluded that the overall pro-gramming process was badly organised andcaused a lot of misunderstanding in the regions,sub-regions and counties and at national level.

In the identification of targets and priorities of theprogramme, there was both open and undisclosedlobbying by interest groups. There is a perceptionthat such lobbying played perhaps greater a role indecision-making than the one based on reachingconsensus with the social partners. There is also astrongly held belief that party politics of this periodplayed a significant role in the formulation of thedecisions made by the ministry.

The preparation of the programme was not trans-parent. It gave rise to a lot of conflicts, and for cer-tain it was not helped by the activities of the lobby-

ists who are believed to have operated at the levelof ministry departments engaged in the elaborationof certain part of the programmes.

In the course of programme preparation, there wasconflict between sector and branch interest. In an-swering the questionnaire it is the opinion of thepersons interviewed at national level, that the tar-gets and priorities of the programme only partly fulfilthe needs of the countryside and agriculture. A sim-ilar opinion prevails concerning the indicative finan-cial tables. Some interviewees expressed an opin-ion of the lack of an overall consistent strategy forthe future development of agriculture and rural ar-eas of Hungary. A cross-section of needs in agri-culture and rural areas was identified, but these arenot ranked with respect to the need or degree ofurgency.

The application processing procedure was unrea-sonably complicated and long and has beenchanged many times during operation. Informationon the business plan assessment was not accessi-ble for applicants for a long time, which resulted inthe submission of many applications that were noteligible. It caused unnecessary costs to applicantsas well as extra workload to the administration.

Policy recommendations

Regarding planning procedure

A more integrated approach with other relat-ed policies like regional development should beenforced. Avoiding overlapping among pro-grams is just a minimum requirement. Synergiceffect should be increased;

The strategic planning approach should bebased on an in depth analysis which assess theextent and level of urgency for identified needs;

Set up a strategic planning process in an ap-propriate institutionalized way for the program-ming process for Structural Funds for the peri-od 2007-2013.


Regarding institutional capacity

Continuous capacity building within agricul-tural administration at central and regional lev-els has been a pre-requisite for the effective im-plementation of the common agricultural poli-cy and rural development actions. The hetero-geneity of the different type of supports (directpayments, accompanying measures, structur-al measures) should be considered by the in-stitutional set-up. A clear distinction of functionsand relative independence should be given tothe institution implementing the structural typemeasures. It needs more knowledge and timefrom both the applicants' side as well as fromthe point of view of administration.

Regarding implementation

The existing advisory service as it is present-ly constituted cannot provide a quality cost ef-fective service for all potential applicants. Thedevelopment of a more complete service oper-ating through a much-expanded network is rec-ommended;

The quality of applications could be greatlyimproved through the dissemination of exam-ples of successful projects to potential appli-cants. These could act as benchmarks for fu-ture applications;

Closer involvement and preparation of thedifferent authorities involved in providing certi-fications could avoid delays and ease the ap-plication as well as the processing procedure;

Develop a tailor made business plan thattakes into account the type and size of theproject, beneficiaries, type of accounts requiredin the different types of enterprises and munic-ipalities. The "one size fits all" approach to busi-ness planning is not best practice;

The application forms as well as the admin-istration system should be comprehensive,user/client friendly and not overcomplicated inorder to avoid slow selection/decision-taking;

Government should encourage the closer in-volvement of banks and similar financial organ-isations. Arrangements with commercial banksto provide soft credit for applicants could beenacted by way of government subsidised in-terest rates.

Regarding rural development policy

Better assessment of needs of the rural ar-eas in co-operation with regional developmentpolicies that might lead to a more appropriatebudget allocation;

A greater degree of preferential treatmentshould be granted to small companies or hold-ings, which are located in areas lagging behind.The rural development policy should be moretarget-group oriented (a special attention paidto entrepreneurs, young farmers and/or otherrural groups);

Regarding the dead weight effect, consider-ation should be given as to how to deal with verysuccessful companies. Should they be exclud-ed from support generally? On the other handtheir leading function could encourage otherpotential companies to look at developments inthe fields of better market orientation/ exports/ innovative production. A stronger emphasisput on vertical and horizontal co-operation insupply and demand could support this devel-opment.


Figure 2 - Number of projects and SAPARD expenditure by measures

Figure 1 - Number of submitted applications

-

1 000

2 000

3 000

4 000

5 000

6 000

2002 2003 2004

Development and improvement of rural infrastructure

Development and diversification of economic activities and alternative income

Renovation and development of villages and protection and conservation of rural heritage

Investments in agricultural holdings

Processing and marketing of agricultural and fishery products

0

200

400

600

800

1000

1200

1400

1600

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10

20

30

40

50

60

70

80

90

100

110

Number of projects (item) SAPARD expenditure (million Euro)


Figure 3 - Rejected projects by justifications

Figure 4 - Distribution of applicants and funds under the measure „Invest-ments in agricultural holdings”

Source of data: NRDO

0

600

1200

1800

2400

3000

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cost total

0%

20%

40%

60%

80%

100%

Number of projects Costs total(million Euro) SAPARD grant (million Euro)

Small producers LLCs PLCs Co-operatives Other applicants


Figure 5 - Distribution of applicants and funds under the measure "Processingand marketing of agricultural and fishery products"

Figure 6 - Distribution of applicants and funds under rural development



0%

20%

40%

60%

80%

100%

Number of projects Costs total(million Euro) SAPARD grant (million Euro)

Small producers LLCs Other economic organisations The authorities Civil and religious organisations

0%

20

40

60

80

100

Number of Costs total (million SAPARD grant Euro

Small producers LLCs PLCs Co-operatives Other


Table1

The planned and realized weight of measures under the Hungarian SAPARDprogram


TABLE OF CONTENTS

Executive Summary .............................................................................................................................................................. 145

Introduction .......................................................................................................................................................................... 148

Problems ............................................................................................................................................................................... 150

SAPARD agencies ................................................................................................................................................................ 151

Other relevant institutions .................................................................................................................................................. 152

Recommendations ............................................................................................................................................................... 153

Total financial results of the Programme .......................................................................................................................... 155

Environmental impact .......................................................................................................................................................... 164

Banking and loan availability ............................................................................................................................................... 164

National policy...................................................................................................................................................................... 165

Evaluation of the Programme objectives and actual outcomes .................................................................................... 165


Capacities of the Latvian SAPARD agency ........................................................................................................................ 169

Appendix 1 ........................................................................................................................................................................... 170

Appendix 2 ........................................................................................................................................................................... 171

Appendix 3 ........................................................................................................................................................................... 172

Appendix 4 ........................................................................................................................................................................... 173

SAPARD REVIEW144 LATVIA


LAP Latvian Rural Development Programme

LLKC Latvian Agricultural Advisory and Extension Center

LAD Rural Support Service

LAF Rural Development Fund

LVAE Latvian State Institute of Agrarian Economics

Programme Latvian SAPARD Programme

LOSP Cooperation Board of Latvian Agricultural Organizations

EU European Union

VIS Management Information System

MoA Latvian Ministry of Agriculture

WTO World Trade Organization


EXECUTIVE SUMMARY

Latvian SAPARD Agricultural and rural de-velopment programme 2000-2006

An integrated, diverse and sustainable rural devel-opment in Latvia follows the guidelines specified inthe Latvian Rural Development Programme. Themain long-term objectives, stated in the pro-gramme, are:

Development of agriculture, forestry and fish-eries;

Promotion of entrepreneurship in rural areas;

Diversification of rural areas;

Environmental protection and preservation ofrural heritage ;

Improvement of the infrastructure;

Education and cultural aspects.

The Latvian Agricultural development policies arebased on the Law on Agriculture. The minimum an-nual national support to agriculture of 3% from thenational budget is provided by the Law. The law,along with the National Agricultural Support Pro-gramme, defines the legal basis of the NationalAgricultural Policy. The main areas of State supportare:

Land improvement;

Modernization of the agricultural production;

Improvement of the agricultural input quali-ty;

Production of high quality raw material forprocessing;

Development of non-traditional agricultureand support to rural development;

Funding of loan guarantees;

Certification of product origin and quality.

The main objective of the Policy is efficient agricul-tural production, able to integrate into the Europe-an common market and high quality products withthe conformity to the EU regulations. The under-takings necessary to reach the main objective are:

Maintaining the rural population numbers;

Providing the population with quality domes-tic foodstuffs;

Providing a competitive income level for thepersons employed in agriculture;

Preservation of rural landscape and rationaluse of natural resources.

Measures applied by the National policy supportare:

National State Support Programme provid-ing the co-financing, promotion of crediting andother direct payments;

Foreign trade policy, including trade liberal-ization, approximation of the domestic legalacts with the EU and WTO requirements;

Fiscal policy, including stable and lasting tax-ation policy, improvement of the loan availabil-ity and promotion of investments.

Rural development in Latvia is promoted by the in-volvement of the Ministry of Agriculture, Ministry of

SAPARD IN LATVIAJuris Hazners,

Project Manager,Agricultural Marketing Promotion CenterLatvian State Institute of Agrarian Economics

SAPARD REVIEW146

Environmental Protection and Regional Develop-ment, Ministry of Economics.

The main strategic objectives to be reached by theyear 2015 are:

Rationalization of the food processing sec-tor with a 70% share of large companies in thetotal output;

Growth in income of persons employed in ag-riculture to the national average;

Reaching the 6% level in the number of per-sons employed in agriculture;

Maintaining the necessary sustainable cropproduction, providing the basis for livestockproduction;

Provision of basic agricultural education lev-el for all agroindustry and farm business man-agers.

Forestry

Given the high level of environmental importanceof forests as part of the Latvian landscape, the ob-jectives are:

Restrictions on transforming the forest areas;

Maintaining the productivity and improve-ment of the forest areas;

Afforestation of marginal and agricultural landareas.

Fisheries

With the integration of the Latvian fisheries into theEU Common Fisheries Policy, the main objective ofNational policy is the provision of fish catch resourc-es for the Latvian fishing fleet, use of these resourc-es to a full extent and production of competitive fishproducts for domestic and international markets.The priorities are:

Full use of the national fishing quotas;

Long-term structural adjustments throughdevelopment of up-to-date and flexible fishingand fish processing technologies in the enter-prises which primarily process domestic fish re-sources, enabling the diversification of the prod-uct range and use of imported raw material;

Rationalization of the fishing and processingsectors by balancing the fish catch with thesales opportunities, especially in export mar-kets;

Compliance with the EU sanitary and hygienerequirements in all the fishing and processingenterprises.

Selection of measures

Prior to the Programme, the needs of agricultureand rural development were discussed with thepublic organizations, community self-governments,boards of industry associations, farmer's organiza-tions, grower's associations, district agriculturaldepartments and agicultural extension services.The questionnaires elaborated by the Ministry ofAgriculture were distributed to assess the most ap-propriate Programme measures. The respondentswere asked to select and prioritize 5 out of 14 (ex-clusive of technical assistance) measures proposedby EU Council Regulation. The summary broughtthe following results (in descending order):

1.Investments in agricultural holdings;

2.Development and diversification of econom-ic activities, providing for multiple activities andalternative income;

3.Development and improvement of rural infra-structure;

4.Improving the processing and marketing ofagricultural and fishery products;

5.Agricultural production methods designed toprotect the environment and maintain the coun-tryside;

LATVIA


6.Improvement of vocational training;

7.Forestry, including afforestation of agricultur-al areas, investments in forest holdings ownedby private forest owners, and processing andmarketing of forestry products;

8.Setting up producer groups;

9.Renovation and development of villages andthe protection and conservation of the rural her-itage;

10.Land improvement and reparcelling;

11.Improving the structures for quality, veteri-nary and plant health controls, for the quality offoodstuffs and for consumer protection;

12.Agricultural water resources management;

13.Setting up farm relief and farm managementservices;

14.Establishment and updating of land regis-ters.

Accreditation of measures

The Programme was approved in December 2001.The following measures were accredited and im-plemented:

Measure 1.1: " Modernization of agricultural ma-chinery, equipment and construction of buildings";

Measure 1.2: "Afforestation of agricultural areas";

Measure 2.1: "Improving the processing and mar-keting of agricultural and fishery products";

Measure 3.1: Development and diversification ofeconomic activities, providing alternative income";

Measure 4.1: "Improvement of the general rural in-frastructure".

Supporting measure 1: "Vocational training"

Similarly to other countries, Latvia had not accred-ited subprogrammes in all of the proposed mea-sures. The accepted measures were focused mainlyon bigger and less complex measures for agricul-ture and processing at the expense of rural devel-opment measures. Generally, Programme supportsthe most competitive applicants.

Objectives of the Programme

The overall objectives of the SAPARD Programmeare:

Implementation of the Acquis communau-taire with respect to the Common AgriculturalPolicy;

Competitive, developed and sustainable ag-riculture and rural environment.

To achieve this general goal, specific programmeobjectives are:

Increasing the competitiveness of agricultur-al production and the farm revenues;

Increasing the revenues of agroindustrialcompanies;

Increasing the competitiveness of the foodindustry and compliance with the EU require-ments;

Improvement of the rural infrastructure, mov-ing it closer to the urban standards;

Development of employment and diversify-ing of the employment structure in rural areas;

Promotion and development of environmen-tally friendly agricultural production methods;

The performance of the Programme was monitoredand evaluated by the following criteria:

Level of income in agriculture and rural ar-eas;

SAPARD REVIEW148

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kliM 95166471 99623812 80980212 93299162 43573391 99623812 37040732 19465422 93299162

kcotseviL 86324861 49907941 11432731 73025811 54282211 20274341 77581261 24731781 91699031

slaereC 4197326 91699031 73025811 0803378 45440601 82857421 58749551 58749551 20274341

raguSteeb

7598113 7598113 1330994 7945847 3214165 1330994 3214165 5071686 4197326

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Volumes and values of production conform-ing to the EU hygiene, quality, animal welfareand environmental standards;

Additional jobs created in the rural areas;

Number of rural population with access to im-proved rural infrastructure;

Number of new viable businesses;

Number of agricultural holdings with environ-mentally friendly farming methods.

INTRODUCTION

Problem statement

The Latvian food supply chain

The domestic food chain is permanently confront-ed with the need to adapt to the changing circum-stances due to several major reasons. First of all, theimpact of competition on a global marketplacegrows. As the production cycle for most agriculturalcommodities is relatively long, it is difficult to keepthe balance between the supply of raw material forprocessing and the declining consumer demand ofa particular processed product. The resultant ne-cessity for cost reduction is felt along the entire chainbackwards from retailers to processors, and ulti-mately, to primary producers, whose income andmargins are already low. New retail market entrantsand further retail market consolidation puts addi-tional pressure on the farm producers. Trying to of-

fer the lowest prices to the consumer, retailers andprocessors can easily increase the sourcing ofcheaper imported raw material and products. Theprincipal layout of the Latvian food supply chain withthe values of product flows is provided in Appendix1.

Farm producers

The Latvian farming sector is rather fragmented,with many smallholds still present on the market.Almost one half of the produced commodities isconsumed on the farm. The total agricultural salesto processors in the main sectors - meat, dairy, ce-reals and sugar beet, are not growing. After severalyears of growth in the total sales value, the year2003 saw a decline due to unfavorable producerprices in the main sectors.

Food processing

Food processing is an important part of the Latvianfood chain, as it purchases about 60% of the totalfarm output, and, in turn, provides about 60% ofthe total grocery retail supply. The existing level ofretail concentration has still left some selling pow-er to the manufacturers. However, the rather frag-mented major meat, dairy and bakery sectors willconsolidate and concentrate further in the nearestfuture in response to retail concentration. A ratherdistinctive sector is fish processing with almost 90%of the total output being exported. Total food man-ufacturing output has been stable for about fiveyears.

LATVIA


Food retailing

The last decade has witnessed considerable chang-es in the grocery retailing in Latvia with the growingprevalence of retail chains and improved logistics.The retail consolidation process is still continuing.The rise in concentration is mainly associated ei-ther with development through internal growth, orwith acquisitions. The retail concentration ratio CR4of 40% means retailers exert buying power over theprocessors and farm suppliers.

Food consumption

Per capita expenditures on food have stagnated oreven slightly declined over the second half of thenineties, while total expenses increased at the sametime in absolute value. Food expenditures surgedin this decade. Nevertheless, the share of expens-es on food in the total expenditures has declinedfrom 51% in 1996 to 35% in 2002. While the percapita consumption remains unchanged or slightly

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stcudorpgnilliM 32 15998081

stnemidnoc,eeffoc,atsaP 07 58749551

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SAPARD REVIEW150

growing, the continuously declining populationdoes not allow for significant overall food marketexpansion. Thus the total food market value is sta-ble. The number of retired persons with stable, yetrelatively low income, is increasing. Self-consump-tion still is high in almost all the main productgroups, especially fruits, berries and vegetables. Inrural areas, vegetables, milk, eggs and meat areconsumed on-farm.

PROBLEMS

The food supply chain concept has not been ad-dressed by Governmental Officials before the ac-ceptance of the LAP or the accreditation of the Pro-gramme measures. Apart from the necessity forassessing the rationalization within the food pro-cessing, a list of important questions remain to beanswered, which was not done either before theProgramme, or after the implementation:

What are the prospects of increasing the to-tal agricultural sales value after they have beenstagnant or declining for years?

How the food processing sectors will increasethe manufacturing output considering the grow-ing retailer buying power and only stable con-sumer demand?

What are the food export opportunities in thenew market environs?

Solving these problems would contribute substan-tially to the development of the agriculture and ru-ral regions.

Research goal

The purpose of the study is the following:

1.Evaluation of the Latvian SAPARD Programmeby means of the following qualitative and quan-titative indicators:

Consistency, effectiveness, implementa-tion and sustainability;

Conformity with the objectives stated inthe Latvian rural development programme.

2.Determination of the general necessary mod-ifications to the Programme;

3.Determination of the necessary measuresoutside the Programme;

4.Policy options for Latvian Rural Development.

Definition of terms

Justified expenses - project expenses in compli-ance with the list of investments, which are support-ed by the Programme, and are specified for sub-sectors within the each measure

Public financing - project expenses financed by theEU and the Latvian State

Approved project - project approved by LAD.

Project with a concluded agreement - approvedproject with a bi-lateral agreement between theapplicant and LAD.

Completed project - project endorsed by LAD forpublic financing.


The analysis of the implementation of measuresaccredited within the Latvian SAPARD Programmeis based upon the initial SWOT analysis of the cor-responding sector (agriculture, food processing,rural economics, rural infrastructure). Analysis ofthe measures is focused on the evaluation of theresults with respect to expected outcome in num-ber of applications, project financing, conformitywith the planned breakdown of the projects by spe-cific sectors within the measure, and overall impact.


The study is based on the following sources of in-formation:

Latvian SAPARD Programme;

LATVIA


Latvian Rural Development Plan;

Interim Report on Latvian SAPARD Pro-gramme by the Ministry of Agriculture;

SAPARD project information by LAD;

National Information Agencies;

Central Statistics Office;

Personal interviews with farmers, processors,officials, bankers, consultants.

SAPARD AGENCIES

The Ministry of Agriculture (MoA) as a Governinginstitution of the Programme was charged with re-sponsibility for the coordination and implementa-tion of the Programme as a whole. MoA as a Coor-dinator of the State Support (VPK) coordinated theplanning and monitoring of Phare, ISPA and SAPA-RD pre-accesion financial support projects. VPKcooperates with the Coordination Board of Inter-national Programmes.

The Rural Development Service (LAD) was accred-ited as Latvia's SAPARD agency. LAD is a public in-stitution subordinate to MoA. It comprises a Cen-tral Office and 9 regional Agricultural Departments.The Regional Agricultural Departments were re-sponsible for receiving and examining the applica-tions falling within measures 1.1, 1.2, 3.1 and 4.1.The Central Office administered the applications inmeasure 2.1 and the supporting measures 1 and 2.LAD provides the implementation of corrections tothe Programme after they have been approved byUK. LAD is also responsible for the secretariatefunction for UK.

The Monitoring Committee (UK) was established bythe Ministry of Agriculture after the approval of thelong-term financial agreement. UK is managed byan official appointed by MoA. UK reports to the Gen-eral Monitoring Committee. UK is responsible forthe efficiency and quality of the Programme imple-mentation and its main tasks are:

Monitoring of the compliance of the Pro-gramme with the physical and financial indica-tors specified in the Programme;

Overview of the progress in the achievementof specific support objectives;

Examination of the implementation results,especially in specific support measures;

Review and approval of the annual and finalProgramme implementation report prior to thesubmission of the report to the Commission;

Evaluation and approval of proposals for cor-rections in the Commission statement on the al-location of support ;

Submission of proposals for corrections orrevisions to the Ministry of Agriculture, promot-ing the achievement of the Programme objec-tives through improvement of the support man-agement.

The Committee has meetings at least twice a yearor more frequently upon necessity.

Institutions and number of officials represented inthe Committee:

European Commission (2);

Ministry of Agriculture (4);

LAD (1);

LOSP (5);

National Board of Fisheries (1);

Latvian Union of fisheries (1);

LLKC (1);

State Cultural Heritage Inspection (1);

SAPARD REVIEW152

Ministry of Regional Policy (1);

Ministry of Environment (1);

Ministry of Economics (1);

Ministry of Finance (2);

Ministry of Education and Science (1);

Ministry of Welfare (1);

Secretariate for Special Minister of Childrenand Family issues (1);

Latvian Nature Fund (1);

Latvian Union of Community Self-Govern-ments (1);

Latvian State Institute of Agrarian Econom-ics (1);

Food and Veterinary Service (1);

Latvian Tourism Development Agency (1);

European Integration Bureau (1);

Latvian Traders' Association (1).

The general layout of the administration of the Pro-gramme is provided in the Appendix 1.

OTHER RELEVANT INSTITUTIONS

Board of Cooperation for Latvian Agricultural Or-ganizations (LOSP)

LOSP was established and operates under the aus-pices of MoA. Any public nationwide organizationrelated to agriculture can apply for LOSP member-ship. LOSP regularly holds meetings with the MoAofficials , LAD and other Governmental institutions,including monthly meetings with the Minister ofAgriculture. Thus LOSP has a considerable influ-ence on the acceptance of the strategy policies and

overall development of Latvian Agriculture. LOSPis governed by a board of 24 members equally rep-resenting the Association of Agricultural Statutorycompanies, the Latvian Rural Support Association,the Farmers' Parliament, the Farmers' Federation,the Young Farmers Club, the Association of LatvianAgricultural Cooperatives, on the one side, and rep-resentatives of the production sector groups (meat,crops, dairy, fruits and vegetables, non-tradition-al), on the other. Every represented group or asso-ciation appoints two authorized members to theboard for 6 months on a rotation principle.

Latvian Agricultural Advisory and Extension Center(LLKC)

LLKC is a non-profit organization. The state owns a99% share in LLKC. The Federation of Latvian Farm-ers owns 1%. LLKC has a Central Office and 26 Of-fices in all the districts. LLKC has 6 departments:

Agriculture;

Accounting and finance;

Economics and rural development;

Extension;

Information;

Engineering.

LLKC provides the following services: business con-sulting, accounting, loan applications, project de-velopment, tax consulting, economics, engineer-ing and sector-specific consulting. LLKC organiz-es workshops and training courses. The cases ofelaboration of projects and business plans withoutoutside support were rare. About two third of theapplicants received training or advisory supportfrom the LLKC.

Rural Development Fund (LAF)

The objectives of the LAF have changed since itsestablishment in 1994. Initially, LAF provided short-and long-term loans to agrobusinesses. Since

LATVIA


1997, LAF provides only loan guarantees for agro-businesses to Latvian banks. LAF thus has facilitat-ed the access to the financing of investments infarm modernization and business efficiency, andstimulated the overall economic development inrural areas. Guarantees for loans from the EU struc-tural funds is seen as very important for future ruraldevelopment. LAF provided loan guarantees forabout 20% of all the projects in the Latvian Pro-gramme s. Besides agrobusinesses, LAF also sup-ports non-agricultural rural development projects.

RECOMMENDATIONS

Farmer organizations are represented in the UK onlyindirectly by the Board of Cooperation of Agricul-tural Organizations. The direct participation of theFarmer Council in the Monitoring Committee wouldprovide more transparency and closer follow-up ofthe important proceedings. The Latvian Chamberof Craftsmenship was not participating either. Theparticipation of organizations involved in environ-mental protection was insufficient.

Implementation of the Programme

Administrative procedures

Administrative procedures are an important factorwith influence on the Programme implementation.The procedures are complicated and involve heavybureaucracy when compared to similar pro-grammes. Generally, the application process for theProgramme support was too complicated to con-sider it successful, and it created problems to thecapacity of administrative institutions.

Publicity and the availability of information about theProgramme were adequate. The potential appli-cants get information mostly from LLKC or media.Workshops as a part of National Information Cam-paign, organized by Agricultural Advisory Center,contributed essentially to the release of compre-hensive information on the Programme. The role ofsuccessful applicants was important in encourag-ing other potential applicants through personal con-tacts. However, the full information package on thewebsite was only partly accessible because of the

rather limited Internet availability in rural areas. Atthe early stages of the Programme the establishedfrequency of quarterly application submissionscaused delays even up to a three months period forsome applicants. As the project development re-quires a package of references and certificates is-sued by various institutions, an unexpected delayin obtaining the documents could have causedmissing the submission deadline. Most referencesand certificates are valid for one month, so the pro-cedures had to be repeated. Also, the delay in build-ing construction works could cause additional ex-penses due to seasonality.

The training and support for potential applicantswas insufficient. Even large companies with veryprofessional staff at their disposal decided to applyfor outside assistance by hiring private consultan-cies for the preparation of applications. The Agri-cultural Advisory Center has certain consulting ad-vantages because of the lower price and compre-hensive knowledge of the Programme as an insti-tutional part of the Monitoring Committee. Definite-ly, lack of the necessary training at the early stagesof the Programme was a major failure.

The eligibility criteria were quite acceptable for themajority of the potential applicants, with the excep-tion of economic viability. However, the amount ofdocuments required to prove the eligibility wasabundant. The criteria in Latvia are more stringentthan in neighboring Baltic States because of theless efforts put in the negotiations with the Europe-an Commission under the time pressure. The re-quirement for the economic viability was not spe-cifically adjusted to the kind of entrepreneurshipand investment. As a result, part of the projects wassubject to more stringent requirements, while withrespect to others the requirements were too loose.The use of the 20% viability formula in the first yearsof the Programme was seen as too severe in caseswhere the applicant company has already had somepending loan liabilities. The fragmented structureof the Latvian agroindustries with large number ofsmall companies has formed the general attitudetowards the business strategy and planning. Thebusiness plan was not viewed as an important strat-egy guideline but only as a mandatory requirementfor receiving the support. Thus the business plan

SAPARD REVIEW154

was considered a burden or additional expendi-tures. This factor is seen behind the motivation ofmany companies submitting projects, which werenot appropriate for the business development, butwere compliant with the requirements for eligibilityfor support. Thus frequently companies made in-vestments in production facilitieswhile the lack ofavailable financial resourse later hindered the pro-duction process.

The evaluation of the projects in some cases wasdelayed due to the necessity to involve buildingconstruction experts or lawyers from other organi-zations, as the technical expertise of the officialsfrom LAD was not adequate. The administration ofthe Programme is generally considered moderate-ly complex. The overall implementation and moni-toring of the Programme took more time and ad-ministrative resources as initially planned. In cer-tain cases, unacceptable pressure was put on theofficials involved in the evaluation of the projects.The role of LAD as the sole responsible institutionis viewed positively. However, several weaknesseshave to be stressed. The extent of paperwork was arestraining factor for part of the potential applicants.The rather prolonged period of the project evalua-tion after the submission of applications was fre-quently contradictory to the project implementationschedules. The mandatory requirement for threeprice quotations was over-abundant, as the num-ber of potential suppliers was limited, especially inrural areas. Often suppliers refused to take part intenders, if they felt the opportunities to win werenegligible. A monopoly situation on the machineryand equipment market was creating difficulties tomake proper cost estimates. Seemingly, the low-est price lists contained the unforeseen additionalexpenses. The requests for additional information,especially for building construction projects, werehindered as suppliers were paid in advance and thuswere not interested in cooperating after havingbeen remunerated. The request for a statementfrom the Regional Environmental Department onthe environmental impact of the project in manycases was useless, especially with respect toprojects concerning only purchases of machineryand equipment. About two third of the approvedprojects were developed for application to the Pro-

gramme exclusively. None of the rejected projectswere otherwise realized.

Management information system (MIS) in effectinitially was based on MS Excel. The elaboration ofmore efficient system was started by the Ministryof Agriculture. Thus the possibilities of data input,processing, output and effective links to other rel-evant information sources were very limited. Elec-tronic requests for information and prompt answersto these requests were not possible. The systemwas not able to accumulate aggregate informationon applicants and projects. But the most importantflaw of the system was that such errors were noreliminated as wrong numbers were entered, and theinability to avoid the duplicate acceptance of thesame project, or application for virtually the sameproject under a different company name persist-ed. The system could not recognize the similar key-words, serial numbers of the equipment and ma-chinery involved, the same manager or address ofthe company. This system is also making post-eval-uation time consuming and does not allow the for-mation of a clear overview of the overall situation inthe Programme. The information from project ap-plications and final forms was regularly gatheredand submitted to UK. However, the summaries werenot convenient for prompt and accurate evaluationof the planned results and outcomes with respectto the various sectors. Thus the evaluation of theProgramme and its conclusions at the selectedstages was difficult.

Administrative expenses were relevant to theplanned amounts.

Recommendations

The role of the extension services should bestrengthened before the implementation of the Pro-gramme with respect to the availability of informa-tion to potential applicants and further training, andsupport for preparing the project. The criteria foreligibility should be worked out with respect toproject specificity in each accredited measure. Thecapacity of the SAPARD agency should be improvedby supporting the involvement of competent ex-perts on a daily rate basis or agreements with rele-vant institutions.

LATVIA


TOTAL FINANCIAL RESULTS OF THE PROGRAMME

Measure 1 Investments in Agricultural Holdings

Measure 1.1. Modernization of agricultural machinery, equipment and construction of buildings

Measure 1.2. Afforestation of agricultural areas

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292 182 11 922 11,2 10,0 01,1 50,1 00,1 31,1 65,0

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SAPARD REVIEW156

SWOT analysis

This measure is an important strategy priority of thewhole Programme. Although the minimum require-ments to holdings were not overly high and, in gen-eral, were adequate to farming areas and/or thenumber of livestock typical to small holdings, pre-dominantly a minority of potential applicants suc-ceeded. These holdings include the most devel-

oped farms with opportunities to get co-financingeven with temporary financial deficiencies and theassistance of professional consultancies for re-search and project development. The average sizeof the successful applicant farm exceeded the fourtimes national average . Such an outcome can beconsidered a failure, having in mind the Programmeshould have supported rural development equallyto the upgrading of the agricultural holdings. This

LATVIA

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is important, especially when taking into accountthe structure of the farms in the nearest future, withits predominance of smallholds that will be support-ing the subsistence of many inhabitants. The num-ber of dairy cows in more than 90% of the dairyfarms was insufficient to qualify for the Programme.Thus, the majority of the dairy farmers were keptout of the opportunity to expand their herds to me-dium size. The Latvian Programme emphasized therationalization of agricultural production at the ex-pense of rural development. Thus the large num-ber of small farms would hinder the proposed de-velopment of commercial farming. The outcome ofthis is an internal rationalization of the sector rath-er than any fundamental restructuring of the agri-culture. An inability to accredit and implement sub-programme 1.3 has to be considered a major fail-ure, as the subprogramme would have providedprecious contribution to the land consolidation andarea rationalization. The fragmented structure ofholdings, large number of land co-owners, incom-plete land registry, inconvenient location of someparts of the holdings are the main problems, whichstill exist. Domestic floriculture, which is facing thegrowing competition of imports mainly from theNetherlands, is categorized as non-traditional ag-riculture and thus growers are not eligible for Pro-gramme measure 1.1. Moreover, the majority ofgrower companies are located in urbanities, whilethe Programme supports exclusively rural holdings.

Financial results

The number of applications and the financing ofapproved projects did not correspond to the plan.Almost half of the projects were in cereal farmingwith investments in quality, cost reduction by tech-nology improvement, yield improvement, efficien-cy, working conditions and labor safety. The inter-est by specific sectors is motivated mainly by themarket demand for their produce and/or high or lowpurchasing price level prior to the application sub-mission period. About 70% of the projects were tar-geted at investments in machinery and equipment.

SAPARD REVIEW158

inputs by farmers should be considered as justifi-able expenses. Building construction project reg-ulations should include the option of using ownavailable human resources instead of expensive

Virtually all projects within measure 1.2 were in af-forestation of abandoned agricultural land. On theaverage, the involved areas make up to 40% of re-spective applicant's total land owned.

Recommendations: to avoid the concentration ofthe support in the large farm segment, the applica-tion procedures should be revised in favor of smallfarms. The option of qualified project preparation

LATVIA

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LATOT 309 628 376 83,33 39,51 59,11 42,42 01,11 23,8

Measure 1.1

Measure 1.2


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LATOT 292 182 201 02,2 01,1 28,0 63,0 81,0 27,31


contracted works. The implementation of subpro-gramme 1.3 has to be considered almost a precon-dition to the successful implementation of measure1.1, especially with respect to the Programme over-all objectives. Changes in the eligibility criteriashould be extended to urbanities, if necessary. Therelatively small-afforested area raises doubts aboutthe sustainability of future wood and timber re-sources, especially with forestry as an industry witha major share in the total Latvian exports.

The Latvian food-processing sector lacks efficientstrategic planning and human resources develop-ment. The education programmes in new productdevelopment, operational management and clientmanagement are insufficient. The introduction ofadvanced technologies is hindered by limited avail-ability of loans on acceptable terms. Dominatingworld trends with emphasis on quality and product

differentiation are suppressed by optimal use of re-sources and cost minimization. Small and mediumsized companies are not innovative and up-to-datemanagement and marketing methods are seldomintroduced. Investments in personnel training aresmall. Forming of vertically integrated food clusters,including several stages of the food supply chainfrom raw materials to finished products is viewedas a powerful tool for increasing the competitive-ness of the processing sector. Albeit the measure

includes improving the marketing of agricultural andfishery products, the supported projects did not in-clude important marketing activities. Thus, the po-tential benefits from the measure are not fully real-ized, because even the high quality value addedproduct is only one and not necessarily the mostimportant constituent of the successful productline. The minimum project size limit is rather low for

Measure 2.1 Improving the processing and marketing of agricultural and fishery productsSWOT analysis


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SAPARD REVIEW160

the upgrading and restructuring of the convention-al processing enterprises. At the same time, thespecific niche producers providing employment op-portunities in the regions need less investment. Thelimit for justified project expenses including fees forproject designers, engineers, consulting, feasibili-ty studies and licensing is too high, especially forlarge projects. Moreover, no maximum limit forthese expenses has been set.

FINANCIAL RESULTS

The majority of the projects fall within the meat,dairy and milling sectors. Financing in fish, and fruitand vegetable sectors lagged behind the plannedamounts. The situation in fish processing with rath-er unstable export markets made bankers cautious.The initially too high lower project financing limit,combined with the renovation not enclosed in thejustified expenses, prevented many smaller proces-sors from applying with projects for simple facilityupgrading. The extremely low interest in fruit andvegetable processing is closely connected with theinsufficient domestic raw material availability, whichis reflected in the results of measure 1.1

LATVIA

Recommendations: corrections to the measureare necessary, allowing to support the product mar-keting by enterprises, which have already receivedsupport to invest in production and processing. Atthe same time, the list of activities to be supportedby the measure should include innovation, newproduct development and human resources devel-opment. The minimum limit for the project shouldbe lowered for small-size niche or regional proces-sors. The limit for justified project expenses shouldbe set depending upon the project size (less per-centage points for large projects). The sectors withinsufficient domestic raw material supply should besupported by undertakings under measure 1.1.Moreover, the accreditation of the measure "Set-ting up producer groups" would allow to create avertically integrated cluster. For instance, a pro-posed cooperative of apple growers would get sup-port from two measures, improving the bargainingpower of the retailers by offering larger quantitieswith consistent quality and/or supplying the proces-sors in accordance with their specifications.

Financial results


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LATOT 141 501 84 94,33 76,61 15,21 46,01 60,5 97,3


The total number of submitted projects was appro-priate. The list of activities supported by the mea-sure is rather short and comprises rural tourism,craftmenship and non-traditional agriculture. Aboutone half of the projects were supporting rural tour-ism. However, the impact on increasing the employ-ment and diversifying the income was not consid-erable. The measure was basically targeted at small-scale farmers, whose opportunities to become thesmall or medium sized employers are weaker. Pre-dominantly big farm owners applied for support.

Financial results

The projects approved under the rural tourism sec-tor exceed by far the initially planned amounts. Theother sectors lag behind the expectations. The ru-ral tourism sector is growing fast, especially after

joining the EU. However, the number of beds in newplaces of lodging makes about 10% of the totalnumber of existing hotels. The proposed numberof guests staying at 18% of the total number is evenhigher. This raises serious doubt about the profit-ability of many companies, because the increasein the number of beds is not supported by a nation-al rural tourism promotion campaign. The appli-cants were not obliged to provide client attractionplans and methods. The growing land and real es-tate prices also contribute to the expansion of thesector. The rather low interest in the craft sectorreflects the concentration of craftsmen shops intowns, so they cannot apply. Moreover, the oppor-tunity to move the production to rural area makesthe access to raw material supply and sales outletsmore expensive.

Measure 3.1 Development and diversification of economic activities, providing alternative incomeSWOT analysis


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SAPARD REVIEW162

Measure 4.1. Improvement of general rural infrastructure / SWOT analysis

LATVIA

Recommendations

The option of making the measure more "flexible"should be considered by lifting any restrictions tothe supported activities and modifying the subpro-gramme by adjusting it to the regional factors. Re-gions with high unemployment rate should be con-sidered an utmost priority. The overly optimisticplans with respect to craftsmenship were clearly afailure even before the Programme, having in mind

the list of professions subject to eligibility. Almostall businesses are strongly oriented towards clients,who are predominantly found in the cities andtowns. Moving a business to a rural area means alsothe sources of involved raw material will be less ac-cessible. Starting a new business is hardly possi-ble, as all craftsmen should have their skills ap-proved by the Chamber of Craftsmenship, and cer-tainly it takes years spent on professional training.

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pihsnemstfarC 73 53 61 80,2 59,0 27,0 46,0 82,0 12,0

erutlucirgalanoitidart-noN 311 38 54 93,3 56,1 42,1 95,1 67,0 75,0

leufevitanretlA 03 72 41 06,1 57,0 75,0 16,0 72,0 12,0

secivreslacinhceT 78 77 16 10,3 24,1 60,1 53,2 40,1 87,0

LATOT 685 144 112 38,42 00,21 00,9 51,8 27,3 97,2


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The Latvian National Rural Development Policy ac-knowledges the broadening gap in the social andeconomic conditions between Riga and other re-gions. The lower living standards and economic dis-advantages of the residents of rural areas contrib-ute to the increasing migration of population to ur-ban areas. Investments in improvement of infra-structure and service level, which would promotealternative forms of entrepreneurship in rural areas,should be considered a priority within the Pro-gramme. Unfortunately, measure 4.1 was not prop-erly implemented. The necessity of transformingthe measure into a "public" subprogramme was as-sessed in the late stages of Programme. The chang-es in the measure, enabling community authoritiesto apply for the support were belated because ofprolonged preparation periods before the infra-

structure building construction projects. Hence,only projects developed prior to the Programmecould be supported by the measure. Nevertheless,the existing legislation is constraining the borrow-ing opportunities of community self-governments,wherefrom the co-financing possibilities are limit-ed.

Financial results

The majority of the projects were in local road con-struction and renovation. Lower amount of financ-ing in polder66 systems and electric supply wascaused by the later approval of these supportedactivities. The interest the in water supply sectorwould have been higher, if the renovation of the ex-isting systems had been initially supported.

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wenhcihwfo 23 33 71 815,0 423,0 342,0 131,0 960,0 050,0

devorpmihcihwfo 61 9 2 343,0 392,0 812,0 130,0 910,0 210,0

sdaorlacollaruR 701 29 71 760,4 262,3 544,2 393,0 781,0 341,0

wenhcihwfo 61 61 947,0 556,0 394,0

devorpmihcihwfo 19 67 71 213,3 416,2 959,1 393,0 781,0 341,0

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LATOT 371 051 83 122,5 631,4 001,3 865,0 182,0 602,0

66 Polder - a plot of land gained from the sea that usually is under the sea-level.

Recommendations

The proposed development of infrastructureprojects should be encouraged and supported be-fore the implementation of "public" subpro-grammes. Increased State support is necessary toself-governments to improve their ability of co-fi-nancing. The proposed decentralization of govern-mental institutions by locating them in rural areas

SAPARD REVIEW164

is impossible because of the high costs of moving,low level of accessibility in terms of communicationsand transport. Moreover, the opportunity to do thisbecomes even more unrealistic, taking the central-ization in health care and education systems byclosing small hospitals and village elementary andprimary schools.

ENVIRONMENTAL IMPACT

The accredited measures of the Latvian Programmehave an impact on soil, surface and undergroundwaters, air, biodiversity, rural landscape and natu-ral resources, noise level and waste management.Measure 1.2 has considerable impact on the rurallandscape, soil and biodiversity by afforestation ofabandoned and overgrown agricultural land. Mea-sure 2.1 has a major impact on the quality of sur-face waters through the improved management offood processing wastewater treatment. Measure4.1 would reduce the organic contamination of sur-face and underground waters thanks to the con-struction of wastewater treatment systems. Theimpact of measure 1.3 is insignificant . The supportmeasure 1 only has indirect impact by improving theknowledge on environmentally friendly farmingmethods.

The exclusion of the initially proposed measures 4.2and 5.1 reduces the positive potential impact of re-duction of indirect water contamination through thegradual reduction in the use of non-organic fertiliz-ers, increased biodiversity and soil improvement byusing more extensive and organic farming meth-ods and better water management in polder zones.The potential negative impact of the Programme isnot anticipated. Unfortunately, the important issueof wetlands has not been addressed at all in the Pro-gramme. Wetlands were destroyed due to an in-tense draining as part of the land amelioration. Theproblem of restoration of the original land condi-tions, especially in the currently abandoned agri-cultural land areas, has to be solved at least partlyas a pilot project.

BANKING AND LOAN AVAILABILITY

The limited availability of bank loans raises con-cerns. Generally, bankers rate risks in the agricul-tural sector as high. Many projects were grantedbank loans only after the Programme support hadbeen confirmed and/or guarantees form the RuralDevelopment Fund (LAF) had been given. Lack ofco-financing is one of the most important reasonswhy potential receivers of Programme support didnot apply. The most important general loan condi-tions set by the banks are understandable andtransparent business operations, positive develop-ment history, willingness to invest own money asco-financing, sufficient cash flow for the repaymentof obligations, sufficient loan security. Many appli-cants regarded the received support as once-for-all option, rather than incorporate the project into along-term development plan of the company, whichensures the achievement of the business objec-tives. This can be exemplified by the changes inbusiness ideas during the project preparation. Of-ten, the preparation of the applications was post-poned until the last minute. The emerged availabil-ity of funds prompted businesses to make invest-ments in purchasing production equipment fasterbefore the previous investments had started to be-come profitable. In certain cases even new projectswere initiated. Thus resources that should havebeen invested in liquid assets were directed towardsthe implementation of the next project, leading tocash flow difficulties. Unresolved ownership rightsover the land, on which construction is planned,makes the use of EU funds resources impossible.The refusal of small companies to use the expen-sive services of qualified accountants causes com-plications to the correct transferring of data into theapplication form and delays the submission of ap-plications. The unjustifiably high cost of construc-tion schedules for building projects raises suspicionin the applicant's desire to cover their own invest-ment share, so that a project is virtually financed byProgramme. The period from the project submis-sion to the concluding of a contract for support isrelatively lengthy. The time period when a project isunder review could stretch to three months or long-er, even if the application is submitted in time. Thelarge number of documents to be submitted takes

LATVIA


a lot of time because the statements of many insti-tutions are not always issued on the same day theyare requested. Some explanations regarding thecorrect filling of applications applicants comeacross when they are submitting their applications.Applicants have difficulties when conditions changejust before the deadline for projects submission,and the document file has been completed already. The evaluation process in accordance with theapproved procedures with close attention on for-mal details rather than the essence of a project doesnot allow the evaluation of the project in a broadersense. Compliance with the instructions, correctdefinition of the costs and correct filling of docu-ments do not necessarily always reflect the publicbenefits of a project, and, what is more important,the compliance with the overall objectives of theProgramme. Conformity with the formal require-ments is put before the viability of business ideas.

NATIONAL POLICY

The systematic approach and coordination hasbeen inadequate in the Latvian national policy withrespect to priorities in agriculture and rural devel-opment during the years of independence. The in-tegrated strategy for agriculture and rural develop-ment has not been formulated yet. The use of poli-cy measures is too centralized and lacks appropri-ate regional approach. Support measures were fre-quently modified and the implementation of respec-tive projects did not achieve the expected overallresults. The decision-making and evaluation of ap-plications were not fully transparent and reliable.Specific undertakings providing objective and ad-equate evaluation of the projects were not imple-mented. The amount of support to agriculture wasinsufficient and a relatively small number of poten-tial applicants received funding. The available na-tional support was not channeled to aa manageablenumber of priorities. Frequent changes in the eligi-bility criteria and regulations made even mid-termplanning difficult. Project applications were evalu-ated separately, and sometimes overlapping of ac-tivities and/or product types occurred. The individ-ual measures were sometimes controversial andinefficient, and support to a particular stage in thevertical product supply chain created pressure in

the following stages. Financing under the State sup-port measures was not monitored and the evalua-tion of national policies was difficult.

EVALUATION OF THE PROGRAMME OBJEC-TIVES AND ACTUAL OUTCOMES

Given the strategic objective to reach a 6%level of the number of persons employed in ag-riculture by 2015, and maintain the rural popu-lation numbers means to create at least 60,000new jobs in the rural areas. The total number ofnew jobs created under measure 3.1 does notexceed 900;

Rationalization of food processing with a 70%share of the large companies requires strate-gic approach in the selection of the companies.Instead, two small competing companies withsimilar products could successfully apply for thesupport.

Policy options

The theoretical background of the selection of mea-sures is not specified in the Latvian SAPARD plan.The set of selected measures shows the much moreimpact of involved parties' interests, than confor-mity with any clearly defined strategic priorities andneeds of the rural development sectors. A numberof development needs do not fall within the area ofProgramme support:

Support to small and medium enterprises inrural areas, not eligible for measure 3.1;

Increased investment in road communica-tions and public transportation in rural areas;

Increased share of internal investments re-distributed to rural areas;

Decentralization of the activities of govern-mental institutions and transferring them to ru-ral areas;

SAPARD REVIEW166

Increased investments in the improvement ofsocial services in community self governments;

Increased investments in the development ofefficient communications and transportationnetwork between rural areas and domestic/ex-port markets.

Measures 3.1 and 4.1 would have very limited im-pact on the overall rural development. In order topromote rural development, several options haveto be considered the state level:

Higher retirement pensions for those whohave resided and worked in rural areas;

Tax benefits/exemptions for newly estab-lished businesses in rural areas;

Lower value added tax on food products;

Salary bonuses for persons employed in ru-ral governmental institutions and public orga-nizations;

Redistribution of allocations from excise taxcollected to road renovation to the benefit ofrural roads;

More favorable redistribution of the statebudget to the benefit of rural self-governmentsand increasing of their borrowing capacities;

State support to rural infrastructure projects;

More stringent control and sanctions towardsthe state energy and communications monop-olies in cases of unequal treatment of rural cli-ents.


The evaluation of the results of the Programmeshould be viewed not only in terms of the achieve-ment of the Programme objectives but in a broadersense, too. The Programme was based on the Latvi-an Rural Development Plan and on the undertak-ings, which were falling within the accredited mea-sures. The involvement of the local and regionalpublic organizations as potential developers of thelocal projects in rural areas was almost non-exis-tent. The Rural Development Plan does not use theconcept of the food supply chain, which views agri-culture as a part of the whole chain and mainly as asupplier of raw material for the food processing. Thecompletely new market conditions after joining theEU were not reflected in the LAP. Inevitable chang-es in third country exports and removal of tradebarriers within the EU are the major factors, whichhave to be analyzed before the evaluation of futuretotal agricultural sales. The proposed decline in thenumber of workforce in agriculture from the exist-ing 16% to 6% in 2015 was not backed up with areasonable action plan to achieve this. The plandoes not contain an analysis and forecasts of thedevelopment of the rural tourism market, whichshould take place prior to a surge in the construc-tion of rural tourism outlets. Moreover, neither thepossible existing or anticipated structure (domes-tic or foreign), nor the volume (in terms of annualspending) for the tourist market has been provid-ed. The number and volume of the Programme in-frastructure projects is insufficient to promote therural tourism development.

LATVIA


Contribution of the Programme to the achievement of the LAP long-term objectives

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Evaluation of the Programme according to the criteria set before the implementation

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Evaluation of persistent needs


CAPACITIES OF THE LATVIAN SAPARDAGENCY

The first year of the Programme can be considereda basic development of the capacities necessaryfor the administration and implementation of the EUco-financing programmes. Given the notable dif-ferences between the National support schemesand the EU support programmes, the changes in-troduced by the Ministry of Agriculture have im-proved the support system policy and transformedit in accordance with the EU standards. The man-agement and administrative structures are adapt-ed to the implementation of various support pro-grammes conforming to the EU regulations. Inte-grated procedures for information and audit wereintroduced. Less developed regions are deter-mined using the criteria applied in the old EU mem-ber states. Other support programmes are target-ed towards increased efficiency, investments, di-versification of agricultural production, rural devel-opment, environmental issues, food quality andsafety. The cooperation between policy-making in-stitutions and public organizations has becomecloser, providing more transparency and an extend-ed basis for policy development and decision- mak-ing. The office premises of the involved agenciesand institutions are conforming to EU standards.

Notwithstanding the deficiencies in the Programmeimplementation, it has provided a major contribu-tion to increasing the institutional capacities of theProgramme Agency, given the complexity anduniqueness of the Support Programme. This capac-ity should be maintained and further improved.However, the bulk of the deficiencies lie within theregional and community levels. More active en-gagement of the officials and public rural organiza-tions in the Support Programmes will be necessary.


APPENDIX 1

Principal layout of the Latvian Food Supply Chain


APPENDIX 2

General layout of the SAPARD Programme administration


APPENDIX 3

Flow of documents for projects with the applications to regional LAD offices


APPENDIX 4

Flow of documents for projects with the applications to the Central LAD office


TABLE OF CONTENTS

Objectives ............................................................................................................................................................................. 179

Methodology ........................................................................................................................................................................ 179

Executive summary .............................................................................................................................................................. 180

SAPARD performance in Poland ........................................................................................................................................ 180

Organisation of SAPARD in Poland .................................................................................................................................... 189


Appendix - Relevant country background ....................................................................................................................... 194

List of references ................................................................................................................................................................. 196

SAPARD REVIEW178 POLAND


AFA Annual Financing Agreements

ARMA Agency for Restructuring and Modernisation of Agriculture - SAPARD agency in Poland


CSPRAAD Coherent Structural Policy for Rural Areas and Agriculture Development


EU European Union

HR Human Resources

MARD Ministry of Agriculture and Rural Development (in Poland)

NPAA National Programme for the Adoption of the Acquis

PLN Zloty, Polish national currency

RDP Rural Development Plan

SAPARD Programme Support for Accession Measures for Agriculture and RuralDevelopment Programme

SAPRO IT system for management of the SAPARD programm

SPO Sectoral Programme Operational, for example: Restructurising and modernisationof food sector and development of rural areas 2004 - 2006

Voivodeship Polish region


OBJECTIVES

Among the most significant research issues, thefollowing two should be listed: analysis of the pos-sibility to carry out the national agricultural policywithin the SAPARD framework, and the policy forrural development. Special attention was paid to theregional variations and possibilities for inclusion ofthe Programme under discussion in the country'sregional policy. Moreover, the objective of the anal-ysis was to investigate the usefulness of the SAPA-RD Programme in the process of implementationof ecological standards in the Polish agriculturesector, including the promotion of sustainable ag-riculture i.e. agriculture that combines the aims ofagricultural production with the respect for the en-vironment. At the same time, the SAPARD Pro-gramme was supposed to be a significant instru-ment for the preparation of Polish agriculture andagricultural processing for the accession to theEuropean Union. Due to the above, one of the ob-jectives of this analysis was to draw attention to thisaspect of the programme performance in Poland.This paper presents the analysis of the level of par-ticipation in the Programme. An institutional analy-sis has also been conducted in order to define itsfunctionality and effectiveness in the process ofimplementation of the SAPARD priorities.

METHODOLOGY

This paper was prepared on the basis of analysis ofavailable programme documents and documentsevaluating the performance of the SAPARD pro-gramme in Poland, as well as scientific papers andnumerous press publications.

EXECUTIVE SUMMARY

The SAPARD programme enjoyed great popularityamong the beneficiaries in Poland: farmers, agri-cultural entrepreneurs and local self-governments.

It resulted in notable profits in the field of adjust-ment of quality and sanitary norms of productionand agricultural processing to the requirements ofthe EU. The close perspective of the EU member-ship and the willingness to export food to the EUmarket encourage farmers and entrepreneurs touse SAPARD. Thanks to it, upon becoming a mem-ber of the EU, Poland became an important exporterof food and agricultural products to the EU mem-ber states. The success of the program was theabsorption of resources available from SAPARD. Ina relatively short period of time the organisationalsystem, needed to carry out the programme, wasestablished and a sufficient number of projectswere submitted enabling to use up the EU funds.

At the same time, it is difficult to evaluate highly theeffects of the programme on the process of carry-ing out the agricultural policy and rural develop-ment. It seems that delays in the programme per-formance contributed to a situation where the ad-ministration focuses on organising institutions incharge of the programme implementation and itspromotion among the potential beneficiaries. Thus,more attention was paid to the amount of spentfunds than to the substantive direction of the spend-ing, compatible with the political strategies of thegovernment. Consequently, the programme fi-nanced mainly big enterprises and agriculturalholdings, neglecting small and medium ones. It didnot affect the consolidation of small holdings either.Moreover, targeted assistance for young farmersand infrastructure for improvement of the situationof water management was insufficient. It increasedthe farmers' incomes, but it did not really contrib-ute to a decrease of unemployment in the rural ar-eas. An illustration of this way of absorption is theinappropriate monitoring system. It gathers too lit-tle useful information from the point of view of thecountry's agricultural policy and rural development.At the same time, it does not give precise informa-tion on the economic results of investments.

NATIONAL REVIEW OF SAPARD PRE-ACCESSION ASSISTANCE IMPACT ON NA-TIONAL AGRICULTURE AND RURAL DEVELOPMENT IN POLAND

Tomasz Grzegorz,Head of the project in Institute of Public Affairs


The organisational structure of SAPARD seems tobe excessively developed and multi-level. The im-plementation of the programme is strongly centra-lised and influenced by two central institutionswhose activities partially overlap - the Ministry ofAgriculture and Rural Development (MARD) and thecentral office of the Agency for Restructuring andModernisation of Agriculture (ARMA). Centralisa-tion and institutional development of the pro-gramme resulted not only in prolonged proceduresbut also in the necessity to employ additional offi-cials, who performed the same works. Moreover,too many detailed decisions concerning the organ-isational correction of the programme required ap-proval by the EC, which hindered the flexible imple-mentation of the programme in Poland. In the opin-ion of the questioned programme beneficiaries - themain problem in the SAPARD performance in Po-land were the complicated procedures and insuffi-cient own resources needed to co-finance theprojects. Officials approached some procedures intoo rigid a way, which made the impression that pro-cedures had considerable priority over the suc-cessful and timely accomplishment of the pro-gramme aims.

Despite a considerable delay in the commencementof the programme and its relatively complex organ-isational structure, the management of the pro-gramme on the central level was relatively smooth.Decisions on the transfer of unused financial re-sources to measures enjoying high popularity withbeneficiaries should be especially highly evaluat-ed. Also management of the programme on the re-gional level should be evaluated as satisfactory.However, monitoring of programme performanceconfirmed a low effectiveness level of the officials'work. The productivity of the ARMA regional branch-es was not improved by better work organisationor additional training for officials. It was only im-proved thanks to employing new staff. There areconsiderable differences in the effectiveness of in-dividual regional SAPARD agencies.

In Poland there are serious spatial differences re-lating to both the situation in agriculture, and therural areas. These differences are visible betweenindividual regions, as well as inside them. In spiteof the above, SAPARD as such does not focus on

regional and sub-regional orientation. Neither is itan instrument of regional development policy inPoland. Negligence of the program with respect toproviding support to the regional policy of the coun-try is linked with two basic factors. Firstly, when con-structing the programme, the necessity to orientmeasures regionally was neglected. Secondly, pro-vincial authorities were in fact excluded from themanagement of the programme under discussion.It is important to remember that these authoritiesare the main institutions in charge of regional de-velopment in Poland. Instead, the main functionsin the process of programme performance are per-formed by central and regional government admin-istration.

A special benefit resulting from SAPARD was theacquisition of experience of carrying out Europeandevelopment programmes in the field of agricultureand rural areas. Certainly, it will be beneficial in theprocess of using European funds within pro-grammes available after Poland's accession to theEU. However, it is not sure whether accession fundsfor agricultural policy and rural development areproperly used.

SAPARD PERFORMANCE IN POLAND

SAPARD Programme (Support for Accession Mea-sures for Agriculture and Rural Development) is apre-accession instrument in support of agricultur-al and rural development, offered to ten countriesapplying for membership in the EU. The SAPARDpreparatory works commenced in Poland in 1999,soon after the European Council had published aregulation on the discussed types of assistance inacceding countries67. Still in December of that year,the Polish party presented the first proposal of op-erational programme to be accepted by the Euro-pean Commission (EC)68. The EC accepted the Pro-gramme nearly one year later, in October 2000.Only then organisational works on the managementand implementation systems of the Programme in

67 The range of areas and issues covered by the programme, the ways of preparing the op-erational programme, time frame and rules for monitoring and evaluationof SAPARD are de-fined by Council Regulation (EC) No 1268/1999 of 21 June 1999 on the Community supportfor pre-accession measures for agriculture and rural development in the applicant countriesof Central and Eastern Europe in the pre-accession period.68 cf. SAPARD Operational Programme for Poland. The Ministry of Agriculture and Rural De-velopment, Warsaw 2002.


Poland commenced. The accreditation of the or-ganisational system by the European Commissionwas concluded as late as July 2002. There were treebasic reasons of this delay. Firstly, the slow pro-ceedings in the EC administration. Secondly, polit-ical changes in the top management staff of the SA-PARD agency (The Agency for Restructuring andModernisation of Agriculture - ARMA). Thirdly, high-ly complicated administrative system responsiblefor the implementation of SAPARD in Poland. Anumber of requirements, listed in the Multi-AnnualFinancing Agreement, and presented by represen-tatives of the European Commission during the so-called identifying missions conducted in Polandwere set on a very high level, often even higher thanin the case of the Member States. Due to a compli-cated organisational system its verification and ac-creditation by the EC were prolonged. Poland andthe EC signed four Annual Financing Agreements(AFA):

On 4th August 200469, the EC increased the amountof allocations for 2003 by ˆ 1 249 357. Thus, the to-tal resources earmarked by the EU to co-financeprojects carried out in Poland within the SAPARDProgramme from AFA 2000-2003 rose to ˆEuro 709409 786, coupled by national co-financing equal toEuro 236 234 919, altogether ˆ 945 644 705.

It is worth mentioning that, since in 2003 as manyas 4 198 applications for financial support within theframework of Measure 3 of SAPARD were submit-ted by local governments (communes and powiats),

the Ministry of Agriculture and Rural Development(MARD) undertook a series of actions whose ob-jective was to obtain additional financial resourcesto cover the costs of self-government infrastruc-tural investments. In March 2004 MARD submittedan application to the EC to be allowed to earmarkadditional ˆ Euro 375 mln within the Rural Develop-ment Plan (RDP)70 for carrying out SAPARDprojects. The EC consented to finance SAPARDmeasures using additional Euro ˆ 140 mln within theRDP framework, where ˆ 105 mln comes from EUresources and Euro ̂ 35 mln from national co-financ-ing. Due to the very limited interest in Measure 5that was of a piloting nature, in December 2003 adecision was taken to cancel this measure andtransfer its financial resources to other measures.Similarly , unused resources from the training Mea-sure 6 were transfered to Measure 3. A higher ex-change rate of calculating the EU resources statedin the Financing Agreements for 2002 and 2003 into

Polish ZLOTY was agreed with the EU. Thanks to theabove-mentioned actions, the total resources avail-able under Measure 3 rose to circa 444 444 444,euro which was higher than the amount initiallyearmarked for this measure by almost 200 000 000 euro. However, it has not enabled the imple-mentation of all projects submitted within this mea-sure. Thus, it was decided that the remaining appli-cations should be moved to the programme tar-geted at rural development, to be commenced after Poland's accession to the EU71.

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0002 92 ht 1002,hcraM 570075171

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Based on: Information on the performance of the SAPARD Programme following the data of 15 September 2004, ARMA 2004,Warsaw.

69 cf. Commission Regulation (EC) No 1419/2004

70 The Rural Development Plan is being carried out in Poland on the basis of CommissionRegulation (EC) No 447/2004 of 10 March 2004.71 SPO Restrukturyzacja i modernizacja sektora zywnosciowego oraz rozwoj obszarowwiejskich 2004-2006, Ministry of Agriculture and Rural Development, Warsaw 2004

SAPARD REVIEW182

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1erusaeMnI 8841 %20,611

2erusaeMnI 50541 %71,501

3erusaeMnI 5475 %35,241

4erusaeMnI 4445 %44,201

latoT 28172 %20,421


POLAND

In the case of SAPARD in Poland, the first four mea-sures were of basic financial significance. The oth-ers were of either piloting or training - organisationalnature and little financial significance. In order tofinance investments carried out within Measures1,2,3 and 4 of the SAPARD program from AFA 2000- 2003 resources (covering RDP and bank interests)as much as PLN 4 772 035 896 (circa 1 060 452421 euro) was spent, and this amount can be splitas follows:

The data subject to monitoring prove that in the ini-tial period of the SAPARD implementation, the pro-gramme did not enjoy much interest on the part ofthe prospective beneficiaries, especially in the caseof Measures 1 and 2. A far greater interest in theprogram, since the very beginning of its implemen-

tation, was expressed by the local self-govern-ments - beneficiaries of Measure 3. In the 2nd halfof 2003, a rapid increase in the number of applica-tions for financial support within the Measures 1,2and 3 was noted.

In accordance with the Agency for Restructuring andModernisation of Agriculture (ARMA) data from 15thSeptember 200472, the use of financial resourcesfrom the Financing Agreements for years 2000 -

2003 was as follows: 27 182 applications worth ofPLN 5 904 664 793.29 (circa 1 312 147 731 euro)were considered to be in line with the SAPARD pro-gramme. This number equals 124.02% of the totallimit on resources from AFA 2000 - 2003, including:

72 Based on: Information on the performance of SAPARD Programme following the data of 15September 2004, ARMA 2004, Warsaw.


ARMA concluded 24 397 contracts for financial as-sistance, total worth of PLN 4 803 301 464.4573 (cir-ca 1 067 400 325 euro). This amount accounts for100.66% of the joint limit of the AFA financial re-sources, RDP resources and interests, including:

ARMA has made 9 910 payments to the benefit ofrecipients. The sum of all the payments amounts toa total of PLN 1 382 947 218.34 (circa 307 321 604euro) accounting for 28.98%74 of the joint resourc-es covering the financial means from AFA 2000 -2003, and RDP as well as and interests, including:

The contracts signed before September 2004 infact used up the entire amount of financial meansavailable in the Programme (to the exclusion ofMeasure 4). So far as the settlement of paymentsand the number of contracted projects were de-

layed, the greatest delay was recorded within Mea-sure 4. Such a situation was brought about mainlyby the pro-longing of EC works connected with theaccreditation of this measure. In spite of the factthat works on the preparation of the Polish admin-istration to carry out the measures in question had

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2erusaeMnI 04731 %35.99

3erusaeMnI 1644 %54.301

4erusaeMnI 5584 %08.19

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latoT 0199 %89.82

73 This amount does not include savings that result from the performance of project betweenthe contracted amount and the amount of payment application.74 At an exchange rate fixed by the Council of Ministers' regulation on detailed scope and di-rections of measures as well as ways of carrying out the tasks of ARMA in the field of managingfinancial resources coming from EU funds (O.J. No 102, item 928 as amended)


lasted since 1999, the EC issued a decision to passthe management of Measure 4 on to Poland as lateas 14 November 2003. Thus the reception ofprojects from potential beneficiaries started in De-cember 2003.

Summing up the above-presented information, itis worth mentioning that the greatest interest in SA-PARD in Poland was on the part of the local author-ities that use investment funds earmarked for de-velopment of rural areas available under Measure3. This situation was more or less connected withthe best preparation of these beneficiaries for car-rying out such investments. Experience of partici-pation of local self-governments in other pre-ac-cession programmes, national programmes as wellas programmes connected with local and regionaldevelopment was the decisive factor. A great inter-est in the programme (mainly Measure 2) was dem-onstrated by the farmers, which was especially ev-ident by the number of submitted applications,.whereas least interested in the programme were theentrepreneurs (mainly Measure 1).

In terms of territorial distribution, the most activelocal self-governments were from Greater Poland(Wielkopolska), Masovia (Mazowsze), Lesser Po-land (Malopolska) and Sub-Carpathia (Podkarpa-cie). The least active in submitting applications werethe self-governments from Opole voivodeship(wojewodztwo opolskie), Western Pomerania (Za-chodnie Pomorze) and Lubusz voivodeship (woje-wodztwo lubuskie). The greatest interest in the Pro-gram was among farmers in Masovia, Greater Po-land, voivodeship of Lublin (wojewodztwo lubelskie)and voivodeship of Kielce (wojewodztwo swi-etokrzyskie). The most modest interest in the Pro-gram was among farmers living in Lubusz voivode-ship and Western Pomerania. Among the entrepre-neurs, the greatest interest in the Program was re-corded in Greater Poland and Masovia, while theweakest interest was in Opole voivodeship, Kielcevoivodeship and Lubusz voivodeship.

To sum up, it may be concluded on the basis of thenumber of submitted applications that the greatestinterest in the SAPARD Programme in Poland wasexpressed in rich regions characterised by well-developed agriculture and rural processing indus-

try, i.e. in Masovia and Greater Poland. Othervoivodeships outstanding in this respect were alsothe agricultural regions of Lublin voivodeship andKielce voivodeship. At the same time the least wasthe interest in the program on the part of beneficia-ries recorded in Opole voivodeship, Lubuszvoivodeship and Western Pomerania. These are re-gions situated in the western part of Poland that areconsidered to be economically better developedthan regions in the eastern part of the country.These regions also had some previous experienceof EU pre-accession funds. It might be the case thatsocial activity in these areas has been directed to-wards the implementation of other EU programmes,and not SAPARD.

In Poland there are considerable spatial differenc-es concerning both the situation in agriculture, andrural areas. These differences are visible betweenindividual regions, as well as inside them. In spiteof the above, SAPARD as such does not focus onregional and sub-regional orientation75. Neither isit an instrument of regional development policy inPoland. During the allocation of funds the specific-ity of individual voivodeships was almost neglect-ed. Some preference was given to less affluent re-gions having weaker infrastructure in rural areas.However, it was not the regional allocations thatdecided about the actual use of the assistance butthe initiative of beneficiaries on a national scale. Itsignificantly favored better-developed parts of thecountry. Consequently, the richest regions (Maso-via and Greater Poland voivodeship) considered tohave well-developed agriculture and, when com-pared with other regions of the country, relativelygood infrastructure, benefited from the SAPARDassistance.

It may be assumed that one of the reasons foradopting such a policy were delays in the pro-gramme performance and fear that too rigid region-al criteria will hinder the effective use of grantedfunds. It is worth noting that potentially, orientingSAPARD could have been strongly linked to regionaldevelopment, especially in rural and slower devel-oping areas. However, negligence of SAPARD in the

75 Cf. Mid-term evaluation of the SAPARD Programme in Poland for the implementation period2000-2003 (PL-7-05/00), REF.: EUROPEAID/114803/D/SV/PL, European Commission, SAPARDProgramme, 2003,p. 141.


process of supporting the country's regional policyis connected with two basic factors. Firstly, whenconstructing the programme, the necessity to ori-ent measures regionally was neglected. Secondly,provincial authorities were in fact excluded from themanagement of the programme under discussion.It is important to remember that these authoritiesare in Poland the main institutions in charge of re-gional development. Instead, the main functions inthe process of the programme were performed bythe central and regional government administration.Participation of provincial authorities in the pro-gramming of the SAPARD resources was exception-ally modest. Only some projects were consulted bythe regional steering committees. Thus the SAPA-RD programme was kept within the framework ofthe sectoral policy of the Ministry of Agriculture. Thispolicy is coordinated within the government frame-work and the local authorities are hardly able to con-trol it. Instead of benefiting from the occasion tostrengthen the regional policy, a framework wasestablished to encourage sectoral policy. Takingover the SAPARD management, the governmentadministration proved a successful attempt to cen-tralise the European regional development policyin the hands of the government's policy-makers76.

The influence on agricultural policy and ru-ral development in Poland

The Ministry of Agriculture and Rural Developmentprepared the Operational Programme SAPARD forPoland on the basis of two vital strategic docu-ments:

National Programme for the Adoption of theAcquis (NPAA) - all the measures within SAPA-RD relate to commitments resulting from NPAA,where the priorities for adjustment of the Polishagriculture and rural development were set. Theadjustment in question covers: establishmentand implementation of the Common AgriculturalPolicy (CAP) and rural development policy, lawharmonisation and harmonisation of veterinaryand phytosanitary administration structure;modernisation of milk, meat, fruit and vegeta-

ble processing sectors; ecological agricultureand preparation of institutions responsible forthe implementation of CAP;

Coherent Structural Policy for Rural Areasand Agricultural Development - a document ap-proved by the Council of Ministers in July 1999.It defines the aims of the national policy towardsrural areas and agriculture in the period 2000 -2010. The aims are defined on the basis of prob-lems identified in agriculture and rural sector,including escalation of supplying activities in theperiod prior to the declared readiness of Polandto join the EU in 2003.

The most important feature of the national agricul-tural budget is the definitely dominating position ofexpenditure on farmer pensions, amounting to al-most 80% of the total budget. Though the sole in-clusion of farmer pensions into the budget of ex-penditure on agriculture may be perceived as sth.unusual, such a ratio has a triple significance fromthe point of view of the SAPARD idea. Firstly, a con-siderable part of the population living in rural areasfunction separately from the reality of the marketeconomy because they are provided with freehealthcare and social insurance. Secondly, thesetransfers are mainly directed at elderly people.Thirdly, as little as 20% of the transfers from thebudget to the benefit of agriculture are spent ondevelopment and investment77. It means that thepolicy for agriculture and rural development is ob-viously under- invested when compared to socialmeasures.

The Polish agricultural and food industry is dualis-tic. There are farms and processing plants, whichare potentially very competitive. They will tend toabsorb most of the SAPARD assistance both be-cause of their size, and their ability to seek assis-tance. A large number of small enterprises also ex-ist, mainly managed by older traditional farmers andbusinesspersons. Thus, the basic direction of agri-cultural policy in Poland is to influence the consol-idation of the heavily fragmented rural areas and thecreation of bigger and stronger agricultural hold-ings characterized by a higher level of productivity.

76 J. Hausner, M. Marody (red.) - Jakosc rzadzenia: Polska blizej Unii Europejskiej? EU-moni-toring IV, Friedrich Ebert Stiftung, Malopolska Szkola Administracji Publicznej AE w Krakowie,Warsaw-Cracow 2000, p. 103-104.

77 See: A. Wos 2003, The Polish Agriculture and Food Sector, Instytut Ekonomiki Rolnictwa iGospodarki Zywnosciowej (IERGZ), Warsaw 2002.


Likewise, the country is trying to help small andmedium industrial enterprises oriented towardsagricultural production. Among other problems ofPolish agriculture, one should pay special attentionto the relatively low incomes from rural activities,especially in small family-run holdings. Other prob-lems are attempts to prevent young farmers fromleaving the country, as well as concealed unemploy-ment in certain rural areas. A serious structural chal-lenge is an attempt to influence the decrease in thenumber of people employed in agriculture and tomove the surplus of labor force towards agricultur-al processing and services. The next challenge isto increase incomes and productivity of agricultur-al sector and to decrease the average age of peo-ple employed in agriculture. Other difficulties inPolish agriculture include the introduction of qual-ity and ecological standards binding in the EU. Thisissue is connected with water management and aserious shortage of water in some parts of the coun-try. From the point of view of the rural developmentpolicy, urbanization of rural areas is of great impor-tance, as is the creation of infrastructural and ad-ministrative conditions for development of non-ag-ricultural activities.

There are two balanced priority axes in the SAPA-RD Operational programme for Poland, namely: (1)improvement in the efficiency of the Agro-food sec-tor and (2) improving the business conditions andjob creation.

The measures in priority axis 1 are:

Measure 1 Improving the processing andmarketing of Food and Fishery products, whichconsist of a scheme to support the processingof milk, meat, fish and fruit and vegetables. Ben-eficiaries include firms and producer groups;

Measure 2 Investments in agricultural hold-ings including the modernisation of milk andmeat production facilities on agricultural hold-ings, and a scheme for environmental protec-tion against the harmful effects of farming in-cluding manure handling and animal welfare. Afurther sub-measure encourages the diversifi-cation of agricultural production, as well as val-

ue- adding to agricultural products from the firststage of farm processing.

The measures in priority axis 2 are:

Measure 3 The development of rural infra-structure provides for the development of ba-sic infrastructure including roads, water supply,wastewater disposal, solid waste managementand the provision of renewable energy;

Measure 4 Diversification of economic activ-ities in rural areas providing for multiple activi-ties and alternative incomes covers aid for indi-vidual business projects outside conventionalfarming for both members of farming families,and rural (non-farm) entrepreneurs. In addition,support is available for the restoration of publictourist facilities.

Complementary measures include:

Measure 5, after some changes, is a pilotagro-environmental scheme in two geographi-cal areas;

Measure 6 Vocational training promotingstructural, agricultural and rural developmentthrough the enhancement of human capital inrural areas;

Measure 7 is for technical assistance, muchof which has been used to promote SAPARD andto provide relevant detailed information to pro-spective beneficiaries.

Within Measure 1, the most popular were theprojects concerning restructuringof processing andmarketing of products of animal origin. Entrepre-neurs are the least interested in sub-measures con-cerning fishery products processing. Among farm-ers within Measure 2 projects connected with theincrease in diversity of agricultural production en-joyed the greatest popularity. It was beneficial fromthe point of view of farmers since research provesthat under the Polish conditions it is diversified ag-ricultural holdings that generate the most profit. Thesecond best in the opinion of farmers were projects


concerned with the restructuring of milk produc-tion.

The poor state of rural infrastructure was a centralargument in favour of Measure 3 as is shown by avariety of indicators on the availability of roads, wa-ter supplies, drains and waste disposal facilities.The greatest popularity within this measure was en-joyed by projects oriented towards building localroads, water supply, and wastewater disposal inrural areas. Measure 4 addresses the problems ofrural development in a most direct way by provid-ing support to entrepreneurship for both the farm-er's families and for rural dwellers in general. Pub-lic investment in the development and restorationof tourist facilities was also promoted. The great-est popularity within this measure was enjoyed byprojects oriented towards job creation on farms.The poor situation in terms of social capital, espe-cially for farmer education and training, under-pinned Measure 6 while the severity of the unem-ployment and under-employment situation gavestrong evidence for employment creation measuresto be supported by Measure 4.

On the basis of monitoring and mid-term evalua-tion of the SAPARD performance in Poland78 it maybe concluded that the programme proved to be themost beneficial for big enterprises and big agricul-tural holdings. In the Program there were no sub-measures that would support small and mediumagricultural enterprises via a system of small grants.Moreover, it was economically strong holdings thatbenefited most since the system preferred agentscapable of assuming the burden of co-financingprojects from their own resources or bank creditsthat were able to substantiate their financial reliabil-ity. In the opinion of interviewed potential benefi-ciaries of the Programme, it was financing theprojects that posed the greatest difficulties forthose interested in participation in the Pro-gramme79. As a result the SAPARD Programme in-creased the competitiveness of the largest Polishagricultural enterprises and holdings, but only con-tributed to the restructurising of Polish agriculture

to a limited extent. This is why the authors of themid-term evaluation of the SAPARD conclude thatin Poland commercial considerations and profits ofindividual transactors clearly dominated over theaims of agricultural policy and rural development80.Such a situation resulted in difficulties with the eval-uation of the SAPARD results in Poland.

Additionally, neither the system of grading theprojects nor the system of gathering information inthe process of monitoring favoured aims crucial forthe implementation out of the above-mentionedgovernment policies. Evaluators are especially crit-ical about the possibilities of evaluating the eco-nomic profitability of an investment81. The monitor-ing system evaluates relatively well the amount ofspent funds and not the quality of the spending, i.e.compatibility with the intended economic and so-cial results82. In projects oriented towards infra-structure development in rural areas (Measure 3)the evaluation of economic effects of an investmentwas abandoned , which was the result of difficultiesand high time consumption of the preparation ofsuch analysis. Given the fact that there was a timepressure, the decision was justified. Simultaneouslyit limited the possibilities for evaluation of the con-ducted investment policy from the perspective ofrural areas. It is worth mentioning that an evalua-tion of this type was prepared in a very similar in-vestment programme financed from the funds ofthe World Bank, i.e. the Rural Development Pro-gramme. Moreover, mainly richer local authoritiesthat had sufficient financial means to cover theirown part of financing of a given investment83 par-ticipated in the SAPARD Programme. No specialsupporting system for local authorities with insuffi-cient financial means was created. This renderedparticipation in the programme impossible for manypoor rural local governments. Likewise, participa-tion of smaller and weaker holdings and process-ing establishments was limited, which may result ina decrease of possibilities to use the SAPARD Pro-gramme for pursuing the aims of rural developmentpolicy.

78 Cf. Mid-term evaluation of the SAPARD .79 Cf. Opinions of entrepreneurs, potential beneficiaries of the SAPARD Programme. Mea-sure 1. ARMA, Department of Analyses and Forecasts, Warsaw 2003; Opinions from agricul-tural counselling units and potential beneficiaries on the SAPARD programme. Measure 2.ARMA, Department of Analyses and Forecasts, Warsaw 2002.

80 Cf. Mid-term evaluation of the SAPARD ....., pp. 6-7, 12, 157-158, 16381 Ibidem, p. 159.82 Ibidem, pp. 163-16583 Annual Report on performance of the SAPARD programme in Poland in the period 17July 2002 - 31 December 2003,Ministry of Agriculture and Rural Development,Warsaw2004,p. 9.


The obtained information on the performance of theprogramme points out an increase in the incomesof both farmers and agricultural establishmentsparticipating in the programme by some 20%. How-ever, no data was gathered that would point at adecrease in unemployment level resulting from theprogramme performance. It is linked with the verylate commencement of Measure 4 and the limita-tion of financial resources initially earmarked for thiscomponent of the programme. Indices in the fieldof safety and work hygiene increased significantly.However no considerable improvement of animalwelfare was achieved. The programme brought alsovery limited results in the field of improvement ofenvironmental protection. The piloting programmeconcerning agricultural-environmental activities(Measure 5) was cancelled, which confirms the rel-atively low rank of this type of measures in the Pol-ish version of SAPARD. Projects directed at the in-crease in the level of groundwater and improve-ments of water management that may pose a threatto the harvest in some areas were not given priori-ty. Projects for farmers were in the majority of thecases directed at improvement of production effec-tiveness (circa 60%), whereas environmental pro-tection, as the main aim of a measure crops up aslittle as 13% of the projects submitted by farmers(Measure 2). The evaluation report confirmed thatinstitutions managing the programme in Poland didnot include the directive on environmental protec-tion in agricultural production84. Also, training tasksundertaken within the framework of Measure 6 weredirected mainly at information about the technicalside of the prepared applications and not, for ex-ample, on raising the ecological awareness of farm-ers and producers of agricultural products.

The success of the program was the great absorp-tion of resources available from SAPARD. Simulta-neously, it is difficult to evaluate highly the effectsof the programme on the performance of agricul-tural policy and rural development. It seems thatdelays in the Programme performance contribut-ed to the administration focusing on organising in-stitutions responsible for the programme imple-mentation and its promotion among the potentialbeneficiaries. In such a way, the amount of the spentfunds attracted more attention than the substan-

tive direction of the spending, compatible with thegovernment political strategies . Thus the pro-gramme financed mainly big enterprises and agri-cultural holdings, neglecting small and mediumones. Neither did it affect the consolidation of smallholdings. Moreover, its preferred focus on assis-tance for young farmers and infrastructure for im-provement of the situation of water managementwas insufficient. It increased the farmers' incomes,however it did not really contribute to a decrease inunemployment in the rural areas. The illustration ofthis way of absorption is the inappropriate monitor-ing system. It gathers too little useful informationfrom the point of view of the country's agriculturalpolicy and rural development. At the same time, itdoes not give precise information on the economicresults of investments.

One of the main aims of SAPARD in Poland was thepreparation for membership in the EU. This was re-lated mainly to the adoption of specific legal stan-dards related to the participation in the Europeanagricultural policy and rural development. The clearaim of Measure 1 was to promote the adoption ofthe acquis in view of the accession requirementsfor food processing companies. Likewise the adop-tion of the acquis for specialist animal farms was aclear target of Measure 2. The programme enjoyeda lot of interest on behalf of the beneficiaries, bothfarmers and agricultural entrepreneurs, and localself-governments. It brought advantages in the fieldof adjustment of quality and sanitary norms, as wellas agricultural processing, to the EU requirements.The close perspective of membership in the EU andwillingness to export food on the EU markets en-couraged farmers and entrepreneurs to use SAPA-RD. Thanks to this, upon becoming a member ofthe EU, Poland became an important exporter offood and agricultural products to the EU MemberStates.

A special benefit from SAPARD was acquiring ex-perience in the field of carrying out European de-velopment programmes in agriculture and in ruralareas. Certainly, it will be profitable in the case ofusing European funds in programmes available af-ter joining the EU. The substantive orientation ofSAPARD is included into two sectoral operationalmeasures: SPO Restructurising and modernisation

84 IPPC Directives (96/61/EC), cf. Mid-term evaluation of the SAPARD ... p. 153


of the food sector and development of rural areas2004 - 2006 and , to a smaller extent, SPO Fisheryand fishery product processing 2004 - 2006. Ex-perience gathered when performing the pre-acces-sion SAPARD programme may point at the poten-tial of high absorption of funds available after theaccession. It is worth noting that the preparation ofthe two sectoral programmes took place in a peri-od of very intensive implementation works for SA-PARD. The same institutions simultaneously had toprepare accession programmes and increase thepace of delayed SAPARD implementation. It mayinfluence limitations of possibilities to perform ag-ricultural policy and rural development in the firstperiod of the Polish membership in the EU.

ORGANISATION OF SAPARD IN POLAND

The Ministry of Agriculture and Rural Development(MARD) as the managing authority is responsiblefor the co-ordination and management of the pro-gramme. The design of the programme, the settingof the selection criteria and the levels of assistanceare the responsibility of the authority. The manag-ing authority also has the task of informing poten-tial beneficiaries about the programme althoughboth ARMA and the Ministry are involved in this pro-cess. The managing authority has the function ofcoordinating the whole programme and is assistedin this matter by expenditure reports from the Agen-cy on implemented projects on a daily basis.

The SAPARD agency (ARMA) plays a double role inthe SAPARD programme in Poland as both the im-plementation body and the paying agency. In addi-tion, it is also responsible for the bookkeeping andthe control of the payment process. Its headquar-ters are located in Warsaw, which is supported by16 regional offices situated in voivodeship cities.According to the rules in force on operational andphysical independence, the implementation andpayment functions of the Agency have been sepa-rated, i.e. they are carred out by different peopleand served by different computer systems. Twoseparate units have been established in the organ-isational structure of the SAPARD Agency, whichare: internal audit unit and the technical control unit.The last one is responsible for verifying the com-mitments and payments through inspections of the

beneficiary's investments. The implementation andalso part of the payment function of the SAPARDagency is delegated to its regional branches. Theyprepare reports on the registered projects for TheMinistry of Agriculture and Rural Development andARMA Headquarters in Warsaw. The activities re-lated to the authorisation of payments under Mea-sures 1 and 3, and the execution of payments forall measures are made by the ARMA central office.The authorisation of payments for Measure 2 ismade by the regional SAPARD offices.

There are two sorts of committees on the centraland regional level: steering and monitoring com-mittees, which assist the planning and supervisingof the SAPARD program in Poland. The NationalSteering Committee consists of representatives ofthe ministries competent for: economy, rural de-velopment, finance, labour, environment as well asthe European Integration Committee, branch or-ganisations, organisations of employers, marshalsof the voivodeships and experts. The foreseen re-sponsibilities consist of: recommendations on theproject ranking lists within Measure 1 and on thelist of activities for horizontal training; recommen-dations to the Ministry of Agriculture and Rural De-velopment on the regional distribution of financialsources (among voivodeships) under Measures 2,3 and 4 and according to the schemes and compo-nents of Measure 1. There are Regional SteeringCommittees in each of the 16 voivodeships (re-gions). They consist of the representatives of thelocal self-government, the regional self-govern-ment, the regional state administration, socio-eco-nomic partners, NGO's. The basic tasks of thesecommittees are: recommendations concerning thedistribution of financial resources among the par-ticular schemes and ranking lists (Measure 3 and4), recommendations on the merit and scope oftraining programmes addressed to the region(Measure 6). The marshal (representative of theregional self-government) is the chairperson of theregional committee. He is also responsible for theco-ordination of assistance programmes carriedout in the region.

There are 16 Monitoring Committees on the region-al level and a National Monitoring Committee oncentral level. There is partnership between the var-


ious interested government ministries and theelected regional self-government, and representa-tives of both districts and communes. Other bene-ficiaries and their representative organizations alsoparticipate, including NGO's active in rural areasand the environment, the National Council of Agri-cultural Chambers, representatives of agro foodand agricultural producers, and researchers andacademics. There are, in addition, non-votingmembers from ARMA and the European Commis-sion.

It should be stated that amongst the institutions in-volved in the SAPARD programme implementationin Poland the position of the 16 regional Monitor-ing Committees seems to be the weakest. It is par-ticularly strange that working contacts between theMonitoring and Steering Committees have not beenestablished, taking into account the complemen-tarity of their tasks. At present the Monitoring Com-mittees are not informed on a regular basis aboutthe physical results, neither about the meeting ofprogramme objectives but mainly about the quan-tity of applications at a particular stage of the pro-cedure and the absorption of financial sources.Beneficiaries are hardly represented in the Com-mittees. However, it has proved its ability to makechanges in the programme.

The division of responsibility amongst particular in-stitutions is reflected in the procedures for the al-location of resources within the programme in thefollowing way. The Ministry of Agriculture and RuralDevelopment plays the main role. It decides, basedon recommendations from the National SteeringCommittee, on the allocation of funds among theregions under Measures 1 and 2. In the case ofMeasure 3 proposals concerning the division of re-sources within the regional envelopes are transmit-ted by the MARD to the Regional Steering Commit-tees without preliminary distribution between par-ticular schemes. The Committees proposes the re-spective distribution. These proposals are then sentto the Agency for Restructuring and Modernisationof Agriculture. The Agency's President takes the fi-nal decision. The entire procedure is time-consum-ing, for each of the units involved takes its desig-nated time.

The organisational structure of SAPARD seems tobe excessively developed and multi-level. For ex-ample, on the voivodeship level there are two kindsof advisory committees, while one combining plan-ning and monitoring functions would be enough toensure social partnership in the regions. At thesame time, despite passing the main implementa-tion competences on to the 16 regional branchesof ARMA - some of the implementing decisions un-necessarily required authorisation from the Minis-try of Agriculture and Rural Development. For ex-ample, all payments for projects within Measure 3required the approval of central level officials. Itbrought about not only prolonged procedures butalso the necessity to employ additional officials atthe ARMA headquarters, who performed the sameworks as their colleagues in the regional branches.Moreover, too many detailed decisions concerningthe organisational correction of the programmerequired approval from the EC, which hindered theflexible implementation of the programme in Po-land. It encouraged the centralisation of the wholesystem and contributed to delays in the perfor-mance of individual measures. As a result of thosedelays, some stages of the measures were per-formed in a great hurry, which could negatively in-fluence the quality of performed projects and limit-ed the possibilities of directing individual measurestowards the country's policy aims. Additionally, im-proper timetable for submission of applications forindividual measures caused a serious mess, tooshort periods for collecting applications and lackof continuity in the process of accumulatingprojects.

In the opinion of the interviewed beneficiaries, themain problem in the performance of the SAPARDprogramme in Poland were the complicated pro-cedures85. An example of excessive organisationalcomplexity is the vast documentation required fromthe beneficiaries, especially business plans at-tached to the applications for Measures 1 and 2.Moreover, some procedures were approached intoo rigid a way, which produced the impression thatprocedures had considerable priority over the suc-

85 Opinions of entrepreneurs, potential beneficiaries of the SAPARD Programme. Measure 1.ARMA, Department of Analyses and Forecasts, Warsaw 2003; Opinions from agricultural coun-selling units and potential beneficiaries on the SAPARD programme. Measure 2. ARMA, De-partment of Analyses and Forecasts, Warsaw 2002.


cessful and timely accomplishment of the pro-gramme aims86. Moreover, some changes in theregulations issued by the Ministry of Agriculture andRural Development and concerning SAPARD intro-duced the necessity to fill in new documents, orga-nising additional training for beneficiaries, attend-ing numerous meetings with public officials etc.

Despite a significant delay in the commencementof the Programme, and its relatively complicatedorganisational structure, the programme manage-ment on the central level was conducted in quitesmoothly . Decisions on the transfer of unused fi-nancial resources to measures enjoying high pop-ularity with the beneficiaries should be especiallyhighly evaluated. Thanks to this, it was possible touse the majority of the resources granted by the EU.During the programme, some organisational cor-rections aiming at simplification of the proceduresor the required documentation were introduced,which naturally contributed to the improved perfor-mance efficiency of the SAPARD measures.

Furthermore, the programme management on theregional level should be evaluated as satisfactory,which is confirmed by a high level of contracts con-cluded with beneficiaries. However, the monitoringof programme performance confirmed a low effec-tiveness level of the work of officials. A better workorganisation or additional training did not improvethe productivity of ARMA regional branches for of-ficials. It was only improved thanks to employingnew staff. Research confirmed the improper HRmanagement of ARMA branches, which was provedby, among others, the fact that key staff is alwaysunder time pressure87. In the agency there are notenough people with proper qualifications and edu-cation. Moreover, there is a strong differentiationof efficiency of the individual regional SAPARDagency branches. Branches in Masovia (Ma-zowsze), Great Poland (Wielkopolska), Sub-Car-pathia (Podkarpacie) and voivodeship of Lodz(wojewodztwo lodzkie) are characterised by theirhighest efficiency. This is related to the great inter-est of beneficiaries in these regions. The least ef-fective officials' performance was in branches inWestern Pomerania (Zachodnie Pomorze), Opole

voivodeship and Silesia voivodeship (wojewodztwoslaskie)88. The frequent personnel changes at highmanagerial levels, resulting from strong politicalinvolvement of personal decisions in SAPARD agen-cies, were dysfunctional for the preparation of or-ganisational structures89.

In the initial period of the SAPARD implementation,a serious barrier was the lack of knowledge on theprogramme performance among the beneficiaries(especially farmers). However, this shortfall wascompensated later90. In the opinion polls respon-dents evaluated the information activities and train-ing of SAPARD91 more or less positively. However,the IT system (SAPRO) gathering information onSAPARD was strongly criticised. In the opinion ofthe respondents some of the collected informationwas irrelevant and this contributed to overloadingthe system, which results in its blocking and crash-ing down. Moreover, it unnecessarily absorbed toomuch of the officials' time. On the other hand, somerelevant information was missing. Some of thestored information was not used to generate reportsin the software. Another problem were difficultieswith correcting faulty information accumulated inthe system92.


The SAPARD programme enjoyed great popularitywith beneficiaries in Poland - farmers, agriculturalentrepreneurs and local self-governments. It result-ed in notable profits in the field of adjustment ofquality and sanitary norms of production and agri-cultural processing to the requirements of the EU.The close perspective of membership in the EU andthe willingness to export food onto EU market en-courage farmers and entrepreneurs to use SAPA-RD. Thanks to it, upon becoming a member of theEU, Poland became an important exporter of foodand agricultural products to EU member states. The

86 Cf. Mid-term evaluation of the SAPARD ...p. 10.87 Ibidem.... pp. 110,126

88 Ibidem.... pp. 8, 108-109, 148 - 149.89 An example of such decisions was a replacement of a number of directors from regionalARMA branches in the summer 2002, when the new president of this agency becameAleksander Bentkowski from the Polish People's Party90 Annual Report on Performance of SAPARD in Poland in the period 17 July 2002 - 31 De-cember 2003, Ministry of Agriculture and Rural Development, Warsaw 2004, pp. 53-5491 Cf. Mid-term evaluation of the SAPARD .... p. 161.92 Ibidem.... p. 9


success of the program is in the high absorption ofthe resources available from SAPARD. In a relative-ly short period of time, the organisational systemneeded to carry out the programme was estab-lished, and a sufficient number of projects weresubmitted enabling to use up the EU funds.

At the same time, it is difficult to evaluate highly theeffects of the programme on the process of carry-ing out the agricultural policy and rural develop-ment. It seems that delays in the programme per-formance contributed to a situation where the ad-ministration focused on organising institutions incharge of the programme implementation and itspromotion among potential beneficiaries. Thus, theamount of utilized funds got more attention than thesubstantive direction of the spending, compatiblewith the political strategies of the government. Con-sequently, the programme financed mainly big en-terprises and agricultural holdings, neglecting smalland medium ones. It also did not affect the consol-idation of small holdings. Moreover, it favoured in-sufficiently assistance for young farmers and infra-structure for improvement of the situation in watermanagement. It increased the farmers' incomes,however it did not really contribute to a decrease inunemployment in the rural areas. The illustration ofthis way of absorption is the inappropriate monitor-ing system. It gathers too little useful informationfrom the point of view of the country's agriculturalpolicy and rural development. At the same time, itdoes not provide precise information on the eco-nomic results of investments.

The organisational structure of SAPARD seems tobe excessively developed and multi-level. The pro-gramme performance is strongly centralised andinfluenced by the two central institutions whoseactivities partially overlap - the Ministry of Agricul-ture and Rural Development (MARD), and the cen-tral office of the Agency for Restructuring and Mod-ernisation of Agriculture (ARMA). The centralisationand institutional development of the programmeresulted not only in prolonged procedures but alsoin a necessity to employ additional officials, whoperformed the same works. Moreover, too manydetailed decisions concerning the organisationalcorrection of the programme required the approv-al of the EC, which hindered the flexible implemen-

tation of the programme in Poland. In the opinionof interviewed programme beneficiaries the mainproblem in the SAPARD performance in Polandwere the complicated procedures and the insuffi-cient own resources needed to co-finance projects.Officials approached some procedures in a too rigidway, which made the impression that the proce-dures had considerable priority over the success-ful and timely accomplishment of programme aims.

Despite a considerable delay in the commencementof the programme and its relatively complex organ-isational structure, the management of the pro-gramme on the central level was relatively smooth.Decisions on the transfer of unused financial re-sources to measures enjoying higher popularitywith beneficiaries should be especially highly eval-uated. Also, the programme management on theregional level should be evaluated as satisfactory.However, monitoring of the programme perfor-mance confirmed a low effectiveness level of theofficials' performance. The productivity of regionalARMA branches was not targeted by better workorganisation or additional training for officials. It wasonly improved thanks to employing new staff. Thereare considerable differences in the effectiveness ofindividual regional SAPARD agencies.

In Poland there are serious spatial differences re-lating to the situation in agriculture and rural areas.These differences are visible between individualregions, as well as inside them. Despite , SAPARDas such did not focus on regional and sub-regionalorientation. Neither was it an instrument of region-al development policy in Poland. The negligence ofthe program with respect to providing support tothe regional policy of the country is linked to twobasic factors. Firstly, when constructing the pro-gramme, the necessity to orient measures region-ally was neglected. Secondly, provincial authoritieswere in fact excluded from the management of theprogramme under discussion. It is important to re-member that in Poland these authorities are themain institutions in charge of regional development.Instead, the main functions in the process of pro-gramme performance were performed by centraland regional government administration.


A special benefit resulting from SAPARD was theacquisition of experience in carrying out Europeandevelopment programmes in the field of agricultureand rural areas. Certainly it will be beneficial in theprocess of using European funds within the pro-grammes available after Poland's accession to theEU. However, it is not sure whether the accessionfunds aiming at carrying out agricultural policy aimsand rural development were properly used. Experi-ence of SAPARD in Poland can and should be usedwhile programming resources earmarked for agri-cultural and rural development policy, carried outwith the help of the EU structural funds after 2006.Beyond doubts, simplification of the organisation-al system should be postulated, which means at thesame time reduction of the number of involved in-stitutions, in this - reduction of central institutionsinvolvement, simplification of programme and im-plementation procedures, and increase of the re-quired documentation. Monitoring system and ITsystems should also be changed. Changes shouldalso cover the building of programme priorities, or-ganisational and IT systems responsible for theirperformance - to direct them not only to the smoothabsorption of public funds but also to the efficientperformance of public policies. In this context it isespecially important to ensure a closer connectionbetween rural development policy and regional pol-icy. Some problems may result form the exclusionof tasks relating to agriculture and rural develop-ment policies planned by the EC in the period 2007- 2013 from EU cohesion policy93. Moreover, a prob-lem may emerge from the rules of establishing sin-gle-fund operational programmes on the regionallevel. Transfer of implementation of programmesrelating to rural development outside self-govern-ment authorities may turn out to be another draw-back.

It may seem that there are two basic conditions forclose connection of regional policy and rural de-velopment policy, carried out in Poland with the helpof the EU funds. Firstly, a programme carrying outrural development aims should be regionally orient-ed. In the case of leaving one operational pro-gramme on a national scale it implies the necessityto introduce more resource and instrument differ-

entiation due to the specificity of rural areas in indi-vidual voivodeships. Moreover, more flexible shap-ing of the programming on the regional level is worthconsidering the better allocation of resources ad-justed to intra-regional differentiation of rural areas.The furthest-reaching regional orientation would bethe inclusion of resources and priorities referringto rural development into the 16 regional operation-al programmes, planned in Poland for the period2007 - 2013. Secondly, rural area policy should notbe carried out by a government agency. It shouldbe transferred to the regional self-governments forimplementation. One of possible options in this di-rection would be the transfer of structures and bud-get resources from ARMA to the self-governments.Then it would be possible to close down the centraloffice of ARMA, which would limit the overlappingof some functions between the ARMA central of-fice and the Ministry of Agriculture.

The SAPARD programme resulted in notable prof-its in the field of adjustment of quality and sanitarynorms of production and agricultural processing tothe requirements of the EU. It is worth mentioningthat the SAPARD programme has only an addition-al and not a decisive significance for the improve-ment of the situation in Polish agriculture after theaccession to the EU. The success of the agricul-ture sector in Poland after the accession is directlylinked to the abolition of barriers for Polish foodexport to the EU and the competitiveness of Polishagricultural production in comparison with the EU15food prices. Polish meat was especially cheaper, soPolish export of pork and beef products to the EU15was tremendous. Profits and the incomes of bothfarmers and enterprises in the Polish meat sectorhave also increased substantially. However grainsector profits decreased, mainly because of thegrowing costs of production factors. Taking intoconsideration the results of the SAPARD pro-gramme and the first benefits of CAP in Poland, wecould conclude that the most beneficiary from theEU integration were the biggest agricultural hold-ings and firms, especially those with foreign capi-tal, specialised in meat production. Furthermore,the first benefits of the EU accession related tocompetitive prices are going to an end. The reasontherefore was the speediness of price convergencebetween Poland and the rest of the European Union.

93 A new partnership for cohesion. Convergence, Competitiveness, Cooperation. Third re-port on economic and social cohesion, 2004. European Commission, Brussels


The competitiveness of Polish agriculture in thelong-term perspective should be built on structuralreforms, mainly consolidation of small holdings andimprovement of productivity.

APPENDIX - RELEVANT COUNTRY BACK-GROUND

Processing of agricultural items in Poland

The food industry is a very important branch of thePolish economy. Its share in the industrial produc-tion reaches approx. 24% and is by approx. 9 per-centage points higher than in the European Unionas a whole, where it reaches 15% on average.Among the EU countries only Denmark (28%) andGreece (27%) have share of the food industry higherthan the Polish. Value added gross, made by thefood Polish industry (including drink and tobaccoindustry) equals 6 billion USD, which comprisesmore than 4% of the gross value added producedby the entire national economy and about 6% ofGNP. The Polish accession to the EU requires es-sential modernisation of the sector of agriculturalproducts processing, regarding hygienic and vet-erinary standards and environment protection. Itconcerns in particular dairy, meat and, though to alesser scale poultry sectors. Nowadays the requiredstandards are observed only by: 38 of the dairy, 60of the meat and 29 of the poultry processing plants(which manufacture A category). Further 2186 haveopportunities to adjust to the EU requirements be-fore 01.01.2004. (B1 cat.), and subsequent 466 arein the transitional period (B2 cat.). Those holdingthe EU export rights compose a small part of thegeneral number of plants (particularly meat anddairy) though their share in the overall productionpotential of each branch is significant. They repre-sent approx. 30% of the slaughter and 25 % of thepreserves production in meat, approx. 40 % in dairy,and more than 70 % in poultry industry. Regardingthe shortage of capital investment in the process-ing sector, activities aiming at the adjustment to theEU standards must be supported by public resourc-es. The basic condition for improving the competi-tiveness of Polish food processing is the continua-tion of the modernisation processes, especially thephases, in which the technological gap appears.

Investments must be related to modernisation ofthe technical infrastructure of processing plants, in-cluding energy, water and sewage management.For improvement of the processing competitive-ness the following activities are of great importance:

Application of modern systems of food qual-ity and stability of quality features in compliancewith ISO and HACCP;

Development of the integration of process-ing and raw materials producers in order to en-sure the appropriate qualities for specific pro-cessing methods;

Application of modern logistics, control,management and marketing systems;

Restructuring of storage subsidiaries, man-agement of reserves and distribution of readyproducts.

Characteristics of agricultural farms in Po-land

In 2001 in Poland there were 1885,8 thousand ag-ricultural farms with a size of above 1 ha, of which1884,2 thousand agricultural farms belonged to theprivate sector and 1,6 thousand to the public sec-tor. The average area of an agricultural farm in 2001amounted to 9,5 ha, of which 8,3 ha were arableland.

75% of the farms of 1 - 5 ha produced merely tosupply their individual needs and additional 3,8%of them do not run agricultural business (either per-manently or temporary). Those data show to howlittle extent small sized farms take part in the mar-ket supply. The areal structure of agricultural farmsin Poland is very diversified. The small sized farmsof 1 - 5 ha dominate the farms' structure, they com-pose 56% of all farms and use approx. 19% of thearable land. The farms of 5 - 10 ha are the largestgroup in Poland (24% of all farms) and cultivate 24%of the arable land. A decrease of the number andoverall area of arable land is noticeable in the farmsof both 5 - 10, and 10 - 15 ha. 2% of all the farmsbelong to the group of the area larger than 30 ha,


which jointly cultivate 19% of all the arable land inthe country. A particularly high increase of the num-ber and cultivated area (by 38,7 % in the years of1996 - 2000) is characteristic of the farms of 30 -50 ha. The technical condition and standard of stockand farm buildings are poor. About half of them werebuilt before 1960, i.e. 46 % of the cowsheds, 50 %of the piggeries, 44 % of the barns. Until 1996 15 %of the stock and farm buildings were modernised.The average capacity of a new stock building reach-es approx. 1200 m3, of which in individual building- 1000 m3. For several years now a tendency ofdecrease in the amount of production buildings inagriculture (mostly stock buildings) can be ob-served.

Infrastructure of agriculture and rural ar-eas in Poland

The underdeveloped technical infrastructure in thecountry is the most important barrier to the ruralareas development. The inappropriate level of ru-ral infrastructure development not only declines thestandard of living and farming, but also determinesthe weak attractiveness of the rural areas for inves-tors. In the years of 1990-2000 rural infrastructuredeveloped fast, especially with regard to telephoneservices, water and gas supply. Nevertheless, thereare big disproportions in the realisation of invest-ments of water supply and utilisation of sewage. In2000 1453,3 thousand (75%) of the householdswere connected to running water supply systemsbut only 292,4 thousand to sewage systems. In1999 in the rural areas there were 1704 sewagetreatment plants - 229 of the new ones were onlyactivated in 1999, of which 51 in Sub-Carpathiavoivodeship - those investments must be contin-ued in order to meet the EU requirements. In 200015,9% of the distributive gas network was in ruralareas - the highest number of gas receivers was inLesser Poland voivodship (187,6 thousand), thesmallest in Cuiavia and Pomerania voivodeship (3,0thousand). In the rural areas there are approx. 1118organised dumping sites of approx. 2183,3 ha jointarea, of which 842 have isolating screens and pos-sibilities for collecting drained water of the wholearea of 1008 ha. The dumping sites are used by only34,5% of the rural homesteads.

SAPARD REVIEW196

LIST OF REFERENCES

A new partnership for cohesion. Convergence, Competitiveness, Cooperation. Third report on economic and social cohesion, 2004.European Commission, Brussels.

Annual Report on performance of the SAPARD programme in Poland in the period 17 July 2002 - 31 December 2003., Ministry ofAgriculture and Rural Development, Warsaw 2004.

Council Regulation (EC) No 1268/1999 of 21 June 1999 on Community support for pre-accession measures for agriculture and ruraldevelopment in the applicant countries of central and eastern Europe in the pre-accession period.

J. Hausner, M. Marody (red.) - Jakosc rzadzenia: Polska blizej Unii Europejskiej? EU-monitoring IV, Friedrich Ebert Stiftung, MalopolskaSzkola Administracji Publicznej AE w Krakowie, Warsaw-Cracow 2000.

Information on the performance of SAPARD Programme following the data of 15 September 2004, ARMA 2004, Warsaw.

Mid-term evaluation of the SAPARD Programme in Poland for the implementation period 2000-2003 (PL-7-05/00), REF.: EUROPEAID/114803/D/SV/PL, European Commission, SAPARD Programme, 2003.

Opinions from agricultural counselling units and potential beneficiaries on the SAPARD programme. Measure 2. ARMA, Departmentof Analyses and Forecasts, Warsaw 2002.

Opinions of entrepreneurs, potential beneficiaries of the SAPARD Programme. Measure 1. ARMA, Department of Analyses andForecasts, Warsaw 2003

SAPARD Operational Programme for Poland. The Ministry of Agriculture and Rural Development, Warsaw 2002.

SPO Restrukturyzacja i modernizacja sektora zywnosciowego oraz rozwoj obszarow wiejskich 2004-2006, Ministry of Agriculture andRural Development, Warsaw 2004.

Wos 2003, The Polish Agriculture and Food Sector, Instytut Ekonomiki Rolnictwa i Gospodarki Zywnosciowej (IERGZ), Warsaw 2002.

http://www.arimr.gov.pl

http://europa.eu.int/comm/agriculture/index_en.htm

http://www.fapa.com.pl

http://www.minrol.gov.pl

POLAND


TABLE OF CONTENTS

Introduction .......................................................................................................................................................................... 203

SAPARD Program design and implementation in Romania ............................................................................................. 205

Objectives of the Program ................................................................................................................................................. 206

Financial Allocations ............................................................................................................................................................. 207

Rules related to the implementation of acquis ................................................................................................................ 209

Analyses of the Administrative set-up .............................................................................................................................. 209

General Constraints and specific constraints of SP in Romania ..................................................................................... 219

Institutional coherence and inter-institutional issues ...................................................................................................... 221

Environmental issues and the Acquis ................................................................................................................................ 221

Policy options ....................................................................................................................................................................... 221

Conclusions and recommendations ................................................................................................................................... 222

Conclusions and recommendations for the non-accredited measure - ex ante analyses ......................................... 224

Conclusion on the Administration ...................................................................................................................................... 225

Appendix 2 - Statistical data on the implemented measures ........................................................................................ 226

SAPARD REVIEW202 ROMANIA

LIST OF ACRONYMS

Acquis Acquis communautaire (the whole body of Community legislation)

AFA(s) Annual Financing Agreement(s)

ANCA National Agency for Agricultural Consulting

BRIPS Regional Offices of Implementation of SAPARD, part of SA

Central agency The central body of SA

EC Commission of the European Communities on behalf of the European Community

EU European Union

MA The Managing Authority

MAFA Multiannual Financing Agreement

MAFRD Ministry of Agriculture, Forestry and Rural Development (the current name and format ofthe ministry in charge with SPARD in Romania, it changed its name and structure severaltimes during the analyzed period but we use only the current name throughout the report)

MC The Monitoring Committee (MC)

Measure Domain of SAPARD program that address one problem identified in NPARD and it has beenallocated a certain amount of funds

MEI Ministry of European Integration

MPF Ministry of Public Finance

MTCT Ministry of Transport, Construction and Tourism (formerly)

MTE Mid Term Evaluation executed under SAPARD program by Kvistgaard Consult at the requestof NPARD

NPARD National Plan Agriculture and Rural Development

SA SAPARD Agency, the national authority responsible with financial and technicalimplementation of SAPARD Program

SME Small and medium size enterprises

SP SAPARD Program


INTRODUCTION

This report has been prepared by Marian Stoian(Initial Advisory SRL) subcontracted by the RuralCenter for the period 15 November 2004 -10January 2005. Beside raw data extracted frompublic sources, including the official RomanianSAPARD Agency, the current analysis is based onpaper research that included also Mid TermEvaluation (MTE) executed under the SAPARDprogram by Kvistgaard Consult.

The MTE research examined the first three years ofthe SAPARD Program in Romania and surveyed theperiod between December 2000 (the date when theEuropean Commision - EC approved the RomanianSAPARD) Program and 3th of June. The launch ofSAPARD in terms of submission and officialregistration of application forms of potentialbeneficiaries could begin at the Regional Officiesfor Impelemntation of the SAPARD Program -BRIPS).

Therefore the MTE covered only three measures ofthe implementation of the program. Also the currentresearch covers further 14 months of the SAPARDimplementation in Romania. During those monthstwo other measures were accredited andimplemented (agricultural holding investment anddevelopment, and diversification of economicactivities, multiple activities, alternative income)starting (meaning submission of application forms)in December 2003.

Problem Statement

Research Goal

The goal of this research was to review theeffectiveness and efficiency of the SAPARDProgram operations as an EC pre-accessioninstrument in the specific case of Romania.

Definition of Terms

The operational objectives of the Romanian reviewof SAPARD's pre-accession assistance impact onnational agriculture and rural development were:

to evaluate the initial achievements ofSAPARD in Romania in terms of efficiency andeffectiveness;

to evaluate the institutional impact of theSAPARD implementation as a way of preparingRomanian agriculture and rural areas in view ofthe Accession to the EC (implementation of theAcuquis Communautaire);

To evaluate the consistency of the SAPARDstrategy in terms of:

o Relevance (internal and external);

o Appropriateness and effectiveness of theimplementing arrangements (division ofresponsibilities, management, and control);

o Monitoring system (as a source ofinformation for evaluation and a tool formanagement).

Research Methodology

The methodology used for drawing the draft reportincluded:

Desk study of existing documents;

Focus interviews with decision employeesfrom SAPARD and other bodies involved in theimplementation of the program.

The desk research included:

NATIONAL REVIEW ON THE IMPLEMENTATION OF THE SAPARD PROGRAMMEIN ROMANIA

Marian Stoian,researcher of the Centre for rural assistance


In-depth desk research of the Programcontext, design, objectives and theirimportance - including MAFA;

In-depth research of MTE, its methodology,results, and conclusions;

In-depth research of the applicant guidelinesthat included applications form beneficiaries,business plan templates;

Research of mass media articles andopinions on SAPARD.

The evaluation methodology emulated the"Guidelines for the evaluation of rural developmentProgram supported by SAPARD".

The relevance and coherence aspects should resultin an assessment of the relevance of the objectivesof the project in relation to the needs and problemsof the beneficiary (internal relevance) and anassessment of the project in relation to theobjectives of the Program measures.

Effectiveness of the program in Romania consistsin the fulfilment of the project objectives.

Cost effectiveness is measuring the producedoutput in relation to the cost.

Efficiency is an assessment of the value and utilityof the results and impact, as compared to theinvestments involved.

Other important considerations on the instrumentsused for this report:

MTE results were considered very relevantregarding Measures 2.1 and Measures 1.1, as wellas Measures 4.1. MTE covered all projects selectedby the SAPARD Agency until July 2003. Theanalyses of measure 1.1 covered only projects untilmid 2003, so we extended the quantitativeresearch. We considered that most of the qualitativeconclusions of MTE on the above mentionedmeasures are still available, but amended some ofthem in accordance with the adjustments

implemented by the SAPARD Agency or changesin facts sheets of the projects in discussion.

Concerning Measures 3.1 and 3.4, the entire reportis formed mainly on desk research. We used alsoground experience gathered in previousconsultancy activities. We added informal interviewswith stakeholders - including decision makers at thelevel of the SAPARD agency, employees withexperience and working in key areas of the Agency,delegated bodies or other entities that interact orare indirectly involved in implementation of theprogram, project consulting or financing. Due to theshort span of time it was not possible to apply formalinterviews.

Most of the qualitative and quantitativeassessments for Measures 3.1 and 3.4 wereprepared exclusively taking into considerationselected projects (commitments of SAPARD) butnot payments disbursed as public information onthem . Due to the fact that officially the measureswere put into practice starting in December of 2003,and potential beneficiaries' applications werereceived by the Agency in a significant volume inthe beginning of the spring of 2004, we considerthat our approach used a relevant database.

Sources of Information

Data collection

The on-line data available on the SAPARDwebsite www.sapard.ro which included selectedprojects on each measure, non-selectedapplications including indications of eligibilitycriteria that were not answered by the projects;

MTE released in April 2004 and annexes withdata up to July 2003;

Press releases of involved institutions;

Informal interviews with stakeholders;

Data base collected by Info Rural project - aproject that aimed to inform the Romanianjournalist on the common agricultural policy;


Research or papers available on differentwebsites of different think tanks or mediaarticles and reports.

SAPARD PROGRAM DESIGN AND IMPLE-MENTATION IN ROMANIA

The EC approved the program for Romania inDecember 2000. Through the CommissionDecision Conferral of Management of Aid no. 638of 31 July 2002 the internal accreditation of theSAPARD Agency in Romania was made by theNational Fund within Ministry of Public Finance. Theeffective launch of the program - meaning theprocess of official submission and registration ofapplications - was on August 1st 2002.

Institutional framework:

SAPARD is a decentralized program. According toMAFA "The Program should be executed on adecentralized basis following a CommissionDecision conferring management of aid on anAgency in Romania taken in accordance with Article12 (2) of Council Regulation (EC) No 1266/1999 of21 June 1999 on coordinating aid to the applicantcountries in the framework of the pre-accessionstrategy and amending Regulation (EEC) No 3906/89".

The Competent Authority for the SAPARDprogram is the General-Directorate National Fundthat lies within the Ministry of Public Finance. Therole of the competent authority is to examine thestructures and procedures of the Agency withrespect to the administrative, accounting, payingand internal audit settlements. The main functionof the National Fund is to confer, monitor andwithdraw the accreditation of the SAPARD Agency.

SAPARD Agency (SA) is the national authorityresponsible for the financial and technicalimplementation of the SAPARD Program. TheSAPARD Agency was set up with the GovernmentEmergency Ordinance no. 142 / September 2000,approved on the basis of the Law no. 309/ 2001completed with Government Emergency Ordinance140/2000. The Agency has a central unit and eightregional implementation offices (BRIPS), the

regions being defined according to Law number151/1998 on the regional development in Romania.The SAPARD Agency is an autonomous publicinstitution with juridical power with the Ministry ofAgriculture, Food and Forests. There are eightregional BRIPS, quite evenly distributed, except forone that covers only Bucharest and one agriculturalcounty.

The Managing Authority (MA) of the SAPARDProgram was initially organized with the Ministry ofEuropean Integration (MEI), according toGovernment Decision No. 339/2001. It isresponsible for the coordination and reporting onprogram monitoring and assessment. Afterwardsthe managing authority was assigned to the Ministryof Public Finance (MPF) and finally it was grantedto the Ministry of Agriculture, Forestry and RuralDevelopment (MAFRD), the last one having suffereddifferent re-organizations and can be found underdifferent names.

The Monitoring Committee (MC) was establishedin accordance with the Prime-Minister's decisionno.271/2001, modified by Prime-Minister'sdecision No 279/2003 in order to ensure thesupervision, efficiency and quality of the programimplementation. It consists of representatives ofgovernmental institutions in charge of the fieldcovered by the program, social partners andobservers from the European Commission. The MCperiodically assesses the progress and authorizesadjustments to the Program based on input partlyfrom the MA secretariat, and partly from theSAPARD Agency.

As Certifying Body for the SAPARD program hasbeen assigned the Romanian Court of Accounts, incompliance with the Government EmergencyOrdinance no. 101/2001. Its main obligations coverthe external audit and certification of the annualaccounts of the SAPARD Agency.

Delegated bodies In order to implement measures1.1, 2.1, 3.4 and 3.1, the SAPARD Agencytransferred/shared part of its responsibilities to twodelegated bodies: the Directorate of RuralDevelopment within the MAFRD (Measures 1.1, 3.1,


3.4), and the Ministry of Transport, Constructionand Tourism (MTCT) for Measure 2.1. Thedelegated bodies were designated based on thetechnical expertise needed for the implementationof each measure. The experts from the MTCTbecame employees of the SAPARD Agency during2003 for the period of implementation of thecommitted projects under measure 2.1 in order toenhance the co-ordination and speed-up theprogram implementation.

Legal framework

The main body of specific regulation (internationalagreements) for the SAPARD Program in Romaniaconsists of:

Multiannual Financing Agreement (MAFA)between the Commission of the EuropeanCommunities on behalf of the EuropeanCommunity (EC) and Romania;

Annual Financing Agreement (AFAs) -suchagreements were signed for the years 2000,2001, 2002, and 2003.

OBJECTIVES OF THE PROGRAM

The overall objectives for the National PlanAgriculture and Rural Development (NPARD) are:

To contribute to the accession of Romaniato the European Union;

To ensure that Romanian agriculture isreinforced in order to be able to cope with theCommunity market competition pressure ;

To improve the living conditions of theeconomic agents in rural areas.

NPARD was developed by Romania and wasapproved by the Commission.

The Program classifies Romania's priorities forsustainable development of its rural areas intofour priority axes:

Priority 1: Improving the access to marketsand the competitiveness of agriculturalprocessed products;

Priority 2: Improving infrastructures for ruraldevelopment and agriculture;

Priority 3: Development of the rural economy;

Priority 4: Development of the humanresources.

In order to fulfill the general objectives and thepriorities, the following specific/strategic objectivesare defined:

Sustainable development of a competitiveagro-food sector through modernizing andimproving the processing, and marketing ofagricultural and fisheries products;

To increase the standards of living in ruralareas by improving and developing thenecessary infrastructures, and by defining andsetting up the good agricultural practice forsustainable agricultural and rural development;

To develop the rural economy by setting upand modernizing the fixed assets, for privateagricultural and forestry holdings, developingand diversifying the economic activities, in orderto maintain and/or create alternative/supplementary incomes and new jobs;

To develop the human resources byimproving the vocational training for farmersand owners of forestry lands, and by buildingand consolidating the institutional capacity.

The objectives are addressed through 11 selectedsupport measures, of which five measures areincluded in the current analysis (1.1, 2.1, 3.1., 3.4& 4.2) as they have been accredited and are beingimplemented. The selected measures are:

1.1 Processing and marketing of agriculturaland fisheries products


1.2 Improving the structures for quality,veterinary and plant-health controls, foodstuffsand consumer protection;

2.1 Development and improvement of ruralinfrastructure;

2.2 Management of water resources foragriculture ;

3.1 Investments in agricultural holdings;

3.2 Settingup producer groups;

3.3 Agro-environmental measures;

3.4 Development and diversification ofeconomic activities, multiple activities,alternative income;

3.5 Forestry;

4.1 Improving the vocational training;

4.2 Technical assistance;

The initial allocations for each measure and sub-measure are enclosed in Annex 1.

The implementation of the above measures startedin the following order: August 2002 - Measures 2.1and 1.1; December 2003 - Measures 3.1 and 3.4.

The ex-ante logic behind the schedule was to createthe badly needed infrastructure in rural areas inorder to stabilize the workforce and create basesfor investment, and on the other hand to createcompetitive agro-food businesses in order todetermine an increased demand for agriculturalproducts. Later measures 3.1 and 3.4 weredesigned to support the rural economy andsustainable development in order to be competitiveafter the adoption of the Acquis.

Problems with the logic: vocational training is aprerequisite for the applicants and the measure hasnot been implemented yet.

FINANCIAL ALLOCATIONS

The annual financial allocations were about Euro150m from EU funds, and were complemented bythe MFP so that the final annual budget wascomposed of 75% from EU funds and 25% fromRomanian funds.

Annex 1 presents details of the proposed annualallocation on each measure. The final allocation wassubject to alterations in accordance with theproposal of SA in order to meet the objectives ofthe program. The annual sums were modified by anindex reflecting the inflation of the euro so orderthat the initial projected sums remained unchangedin real terms.

Common eligibility criteria for measuresthat regard private applicants

Type of applicants:

The applicants had to be legal bodies with 100%private capital (commercial companies,cooperaratives). For measures 3.1 and 3.4 specialprivate economic entities were approved, such asnatural authorized persons - commerciallyregistered; business family association; agriculturalcompanies with a special registration; producergroups and special groups of farmers who are notlegal entities but are registered as associations.

The Romanian SAPARD regulation is much moreexigent than the MAFA agreement envisaged .Under MAFA the requirement was that the applicantentity should be at least 75% privately owned. The100% requirement was very good for theacceleration of privatization, but this it was not aspecific object of the Acquis. Therefore we considerthat the threshold should be lowered at least toinclude companies, in which the state still hasresidual stakes. Due to the Romanian law in somespecific cases the state became a minorityshareholder after the initial privatization when theinclusion of land property in the companies' balancesheets were not juridical cleared at the moment ofthe privatization. In all of the cases it is a transitoryprocess, but one that can delay a project withoutsolid argument vis-a-vis the program objectives.


Rules concerning losses or debts to the stateconsolidated budget:

The beneficiary should not have registeredlosses during the previous financial year (at thelaunch of the project it was about three yearsbefore) except for companies registered duringthat year;

The beneficiary should not have any debt topublic/administrative entities and theconsolidated state budget;

For investments in agricultural holdings it isthe most recent year, in which there were noregistered natural disasters was taken intoconsideration;

The applicant and the project must meet allthe eligibility criteria in order to be accepted forthe selection session.

Co-financing documents

The applicant must prove that it has the necessaryfunds to finance its share of eligible investments("financial resources which are stable and sufficientfor ensuring the continuity in the activity of hisorganization during the whole projectimplementation and to take part in this financing").The proof could be made through bank documentsthat certify that the applicant possesses the sum ina bank account, or a letter of credit confirmationissued by a registered bank. It is one of the mainelements that define the absorption capacity of theprivate beneficiaries for the SAPARD Program.

Other general conditions:

The applicant must be a Romanian registeredperson/entity;

The applicant has to be directly responsiblefor the management and implementation of theprogram;

The number of projects to be supported perapplicant shall not exceed 2 for each measure,

and each applicant can implement only one aproject at a time;

Ownership or legal possession and use (forat least 10 years) of the terrain forconstructions, and ownership of the assets tobe modernized/upgraded;

Documents that certify at least 5 years of rightto use agricultural terrain for Measure 3.1;

Access to basic infrastructure.

Location of the project within rural area(NUTS 5 level)

Regarding the above eligibility criteria the followingexception should be mentioned:

Investments are allowed in urban locationsbut only for improvement of existing capacitiesunder Measure 1.1, in view of the structure ofagro-food industry in Romania;

The rural areas for measures 3.1 and 3.4 wereextended to incorporate small towns that haverural characteristics or villages that are underthe administration of a town. An ordinancestates the criteria that the small town shouldmeet so that projects developed in the areacould apply for the SAPARD program support.In most of the cases it was about ruralcommunes that were transformed into towns(urban entities) only in order to have slightlyhigher budget allowances from the centralgovernment but were entrapped and could notqualify either for rural or urban financingprograms due to their characteristics;

For measure 2.1 it was accepted that ruraladministrative beneficiaries that had meanwhilebeen urbanized could continue theimplementation of the project, if at the date ofthe contracting with SA they were still rural.

Duration of the project

The projects shall be implemented for a maximumof 2 years from the date of signing of the contract


in order for the Program to respect the theoreticaln+2 implementation rule, where "n" is the year ofcommitted funds by the Commission. In the caseof Romania for part of the funds the rule wasamended to n+4 due to the delay between theallocation and the accreditation of SA.

RULES RELATED TO THE IMPLEMENTATIONOF ACQUIS

There are requirements for each measuredepending on the kind and dimension of theimplemented project that demand its compliancewith the national or EU regulation concerningenvironmental protection, sanitary, sanitary-veterinary or phyto-sanitary characteristics.

Eligible payment - rules

To be necessary for the project;

To be effectively used during the period ofthe financing contract except for paymentsdone in order to prepare the application (up to12% of the total eligible value);

To be officially recorded ;

To be specified in the respective fiche of eachmeasure ;

Non-eligible payments

Land costs;

Leasing costs except when the property istransferred to the beneficiary (in fact it isconsidered that only the final payment ofterminal value is eligible);

Operational costs; banking fees and similarcosts;

Taxes that can be redeemed (VAT) or are notpart of the general fiscal regime of Romania;

Costs that do not respect the origin rule ;

Marketing costs;

ANALYSES OF THE ADMINISTRATIVE SET-UP

Effectiveness

During the initial stages of the program the locationof the managing authority with the Ministry ofEuropean Integration (MEI) was supposed toharvest scale benefits from the administration ofother European programs. But we believe that thedecentralized nature of the program, as well as thestrict focus on agriculture and rural areas, made itmore suitable to be managed by MAFRD, as is thecase now.

The delegation of essential tasks of SAPARDagencies to external bodies unnecessarilyincreased the complexity of the program andhampered its smooth implementation. Inter-institutional communication is a plague that affectsthe Romanian bureaucracy. There is also a risk ofconflict deriving from the delegation of controlfunctions upward in the MAFDR hierarchy.

The complexity of the responsibilities and tasks isvery high. The geographical size of Romaniaimposes the necessity of the existence of eightBRIPS, but we believe that the local offices (atcounty level) of the delegated bodies isunnecessary, or at least could be limited to strictlytechnical consultation advisory work at the requestof BRIPS in very specific cases. Otherwise the 42local rural development offices of the MAFDRemployment scheme is a bit too elaborate . Fromfocus interviews with the beneficiaries it wasrevealed that in many cases the local ruraldevelopment offices do not understand thephilosophy of the program. Also, they takeprocedures in their literally form and do not makeefforts to harmonize the discrepancies amongdifferent bodies of MAFDR that are entitled to issuesupporting documents for the applications(especially under Measure 3.1). They also do nothave economic or juridical analytical capacity inspite of the fact that they have to perform the samelevel of control as BRIPS (conformity, eligibility), andthey do not pronounce only on technical issues.

However, the organization of work within theprogram meets the Commission requirements. Thedecentralization of the program administration from


the national level determined for the RomanianSAPARD procedures and the functioning schemeswere "more Catholic than the Pope" that imply lesseffectiveness and delays in implementations.

Implementing procedures

The operational manual contains over 600 pagesand is detailed to every directorate and delegatedbodies within SA. The operational manuals aredrawn up by the SA. The manuals elaborate in greatdetail all the steps, tasks and responsibilities relatedto the SAPARD implementation. The manuals areaudited and sometimes required to be amended byinternal audit department, external privateconsultant (one of the big four) and EC bodies. Weconsider that it is one of the best practice cases thathappened within the Romanian bureaucracy andcan be used to design not only the work of otherbodies involved in implementation of Europeanprojects but also in other Romanian institutions.

Stages of the SAPARD projects

Call for applications - done monthly for eachimplemented measure until the allocated fundsare completely exhausted;

Application writing (includes for most of theprojects application form, feasibility study,business plan and supporting documents).Projects under Euro 50,000 do not needfeasibility studies and business plans but only amemorandum to demonstrate the need forinvestment (elapsed time of at least 2 monthdue to the need for supporting documentation);

Conformity: the preliminary check ofdocumentation that is personally deposited bythe applicant's two representatives (a legal andtechnical one) and performed by BRIPS (if theproject does not conform, BRIPS still registersitand the applicant can come again two moretimes under the same call of application;

Eligibility evaluation: done base on papers byBRIPS and documents , and terrain inspectionsby delegate bodies;

Selection process - the eligible projects arescored and ranged and SA commits funds inreverse order from the best to the lowest score.Eligibility and selection process should beperformed within 60 days from the last day ofthe call of application. However, delays aresometimes registered when there has been alarge number of applications;

Contracting - the stage is performed within15 days from the announcement of the project;

Implementation and payments - maximumtwo years from the contracting until the last callfor payment is registered with BRIPS by theapplicant;

Monitoring period of five years.

The prospective beneficiaries hand over theirapplications to the relevant regional office (BRIPS)of SA. The documents are checked for conformity(completeness and accuracy) in the presence of theapplicant. If the conformity is positive, theapplication is sent to the relevant delegated bodiesfor eligibility checks at county level. The eligibilityis checked also through site visits by delegatedbodies. The eligibility is also checked by BRIPS. Theconclusions of BRIPS and the delegated bodiesshould be the same or otherwise the Directorate orEvaluation from the central agency decides on theoutcome. Afterwards, decision for support is takenand sent to the Selection and ContractingDirectorate. The General Director will sign thedecision and at a later stage will conclude acontract. If the decision is contested by theapplicant, the Directorate for Control and Antifraudwill solve the conflicts and take a decision. (Untilthe autumn of 2003, the above directorate solvedalso the discrepancies between BRIPS and localdelegated bodies; the procedure was changed inorder to avoid possible conflict of interest at thecontestations stage).

At all levels of decision-making the "four eyes"principle is put into practice.

It is worth mentioning that the procedures andmanual of operation are drawn in such a manner


and detail that has no precedent within theRomanian bureaucracy. Thus the possibility forcorruption during the implementation of theprogram is very much limited. We consider this abig step forward as compared to the Romanianbureaucracy, and also as compared to other pre-accession program implementation. However itpays a complexity cost, which impedes theeffectiveness of the program.

The timeframe for procedures of tender processingfor the SAPARD funding:

A minimum of 30 days is required for thepreparation and advertising of the tenderdossier;

60 days is the mandatory period set by theCommission between the opening and closingdates for such tenders;

60 days maximum to evaluate the tendersand award the contracts;

90 days maximum from payment claimantsand payments.

The Directorate for Internal Audit exerts 100%control of all steps from application to payment.Finally, the Control and Antifraud Directorate is incharge of the 5 year ex post controls and the casesof identified irregularities and complaints.

From observations, MTE and focus interviews it wasrevealed that sometimes the period of time elapsedbetween the application to the contractinghappened to be up to 6 month, far too long. In mostof the cases it was about implementing newmeasures, especially at the start of the program.Once the routines were formed for each measureand function, the process improved considerably.In some cases the problem is capacity ofabsorptions of beneficiaries in terms of capabilitiesof writing coherent and fully compliant applications.

Payments for the non-reimbursable financialsupport:

The SAPARD Program does not offer advancepayments, only reimburses the expenses alreadymade. The execution of the project is made out ofthe applicant's finance until the accordance ofSAPARD financing. The reimbursement is made onthe basis of a payment request/claimantaccompanied by the justifying documents (bills,contracts, payment orders, etc). The applicantsmay choose the number of portions of thereimbursement (5 modules for Measure 1.1 and2.1, 3 modules for 3.1 and 3.4 out of which the firstmodule covers 30% of the eligible value of theproject) that cover the entire eligible expenditureof the project. The reimbursements are made inmaximum 90 days from the submission of thepayment claim at BRIPS.

The situation has much improved in what isconcerning the 90 days limits for payments. Theaverage payment clearing of claims was 55 daysuntil July 2003 and decreased to around 30 days atthe end of 2004. The payment system have beenoverloaded with payment claims during August-November 2004, when all the funds allocated for2000 had to be absorbed in order that Romaniadoes not lose the EU co-financing. The reportsshowed Euro 85 millions payments until August 8th2004, and at the end of October 2004 the allocationfor year 2000 of more than Euro 204m have beencompletely absorbed. Such a fire test needed somedeployment of personnel from less active BRIPS tothe central agency and also created a routine.

Regarding the procedure of payment we considerthe requirement that the beneficiary should pay theentire amount of an invoice, and then wait for theSAPARD disbursement a big constraint in whatconcerns the capacity of absorption. During theimplementation ways were found to shorten thisperiod but we recommend a change in theprocedure: SAPARD should pay its part directly tothe supplier/contractor after the beneficiary madehis part of the payments. That could provide thesame level of security control. We take intoconsideration that in cases of new projects andsmaller ones the beneficiary must support the VATpayment - covering the SAPARD portion, too insome of the cases in spite of the special

SAPARD REVIEW212

arrangements that waivers the VAT payment forpublic support under the SAPARD program.

Nevertheless we consider that beside thequantitative results of the program implementationin Romania one has to pay much attention to thequalitative ones (creation of bureaucracy thatshould obey rules and regulations, and not politicalcommands). We consider that the institutionalcapacity is in danger of alteration in case ofrepeated push-ups in order to attain the moneyabsorption indicators.

Effectiveness of application of procedures

We consider the level of effectiveness of applicationof procedures satisfactory. Moreover, we haveconcluded a leap forward in the institutional buildingof bodies that can interact and respect the EU rulesand the best example for the Romanianbureaucracy.

The division of labor and responsibilities seem tobe too complicated therefore we think that basedon the gathered experience the manual ofoperations could be redesigned in order to smooththe implementation. The delegated bodiesburdened the operations under the SAPARDprogram. We believe that ways could be found torepeat the experience of internalizing their serviceswithin SA (like in the case of Measure 2.1), applyingresponsibilities separation(according to MAFA) inorder to have fewer discrepancies in the evaluationwork and implementation. We suspect that in somecases both BRIPS and the delegated bodies usedthe discrepancies among them as a method oftransferring the decision to the central SA. That wasdone in complex situations or in cases where localpressure of political or similar nature was put on aparticular project.

The administrative set up is not always fullytransparent. There are inevitable grey areas in theapplication guides that tend to be resolved oncesome decisions have been made as regardsparticular projects. This kind of "precedentsculture" is not publicly available on the website orother communication instruments. We must admitthat SAPARD's personnel is open to sharing such

information but we consider this kind ofclarifications (undertaken by the central SA) shouldbe made public once they were known to internalnetwork (BRIPS and delegated bodies).

The procedures and administrative practices are inaccordance with the demands of the EUCommission.

Cost effectiveness and efficiency

Based on the MTE evaluation and informalassessment we can affirm that the program is costeffective but we can not fully evaluate the entire costof the program structure as it is defused throughoutmuch more bureaucratic bodies than the SA. Thecost of the delegated bodies is very difficult tomeasure. But we conclude that the administrativecosts of the program are quite low due to the lowsalaries in Romania.

Personnel - Education and training

The number of full time staff in the Agency, includingBRIPS, was 6 in 2000, increased to 171 in 2003, andto more than 330 at the moment of drafting thecurrent report. The number of open positions ishigher. More than two third of the staff has highereducation .

It was noticed that an important number of staff leftthe agency for positions in the private business orin international organizations that offer bettersalaries. We suspect some of the key staff left theorganization due to the frequent change of theposition of General Director. With regard to theabove position we concluded that the generaldirector of SAPARD was changed very often (theaverage mandate was around one year). In no caseclear reason was announced - this function seemsto be quite political , as none of the directorsseemed the most qualified person available for thejob. Many of the lower rank directors seemed inmany of the cases more suitable for the job. We alsowitnessed that ad-interim general director becamethe full general director without being challengedduring the so-called competitive official selection.

ROMANIA


As concerns the staff payment, the salaries areabove the public employees on similar positionwithin ministries but still lower than morecompetitive ones offered by the private business.A more meritocratic payment scheme could beconceived in order to retain the best trained andqualified personnel (for example a person that isvery experienced in one field such as finance butworked exclusively for the private sector has noexperience or much lower one compared with acolleague much more inexperienced and educatedbut that worked exclusively for public bodies.

The education, experience and training of the keystaff responsible for the critical steps in theprocessing were adequate and very good in somecases. Most of them constitute a reliable pool ofqualification and can participate in other institutions'building such as the Payment Agency. We considerthat much more attention should be paid to thegeneral director's position to select the best personamong the existing or potential candidates.

Measure 1.1. Processing and marketing ofagricultural and fisheries products

The general objectives of the measure are toincrease the competitiveness of the Romanianagro-food businesses and to improve theefficiency, processing and marketing of agriculturaland fishery products, and the sector to comply withthe Acquis, to create and to maintain jobs.

Eligibility criteria:

Eligibility budget per projects: the minimumvalue of a project is Euro 30,000, the maximumeligible value of a project was set initially at EUR2,000,000 and was raised to 4,000,000 startingwith November 2004;

The public financial support of the programshould not exceed 50% in the case of sub-measures 1, 2, 3, 4 and 5, and 30% of the totaleligible expenditure for measures 6, 7 and 8.Starting with November for the primaryprocessing of cereals (sub-measure 6) the limitwas heightened to 50%;

Minimum capacities of production set foreach of the sub-measures;

Economic viability;

Criteria related to compliance of the existingcapacities with the national norms forenvironmental protection, hygiene and animalwelfare, and compliance of the project on theabove criteria with the EU rules.

The selection criteria: see Appendix 2 for Measure1.1.

Implementation results/analyses.

See appendix 2 Measure 1.1. table: Status ofapproved and rejected application as of September30th

From the scoring grill and application form we cannotice a slight inconsistency, as the documents forthe second selection criteria have to be attachedto the application, and therefore it does not makeany difference as a criteria for selection amongeligible projects.

The fourth criteria, in the case of sub-measure meatprocessing, was replaced by a criteria that selectsamong slaughter house/capacity in compliance tothe EU rules starting with November 2004.

The average scoring of the selected projects for theperiod under discussion and the submitted projectswas 56.9 points, the minimum scoring was 20 pointsand the maximum was 85 points. There were 37projects that indicated eligible budgets that passedover 1,9 mln Euro; 20 projects that have eligiblevalues between Euro1m and Euro1.9 m; 31 projectsthat are between Euro0.5m and less than Euro1m;and 34 projects less than 0,5 mn. Only one projectwas under the threshold of Euro 50,000 (the limitthat does not require a business plan and thereforedemonstration of economic viability)

9 projects from the top range of values are from milkprocessing, 20 are for meat processing, 5 are forwine producing capacities, and 1 is in the area offish products.


At the bottom of the range value we could notregister any correlation based on sub-measures.

To that we shall add that until the end of Septemberthere were no projects approved or rejected foroilseed or sugar producing capacity. Therefore wecan affirm there is a correlation between the share/percentage of public co-financing and the capacityfor absorption. There is also empirical evidence onlow deadweight of the program (the extent to whichthe program investments were to be made anyway).

The rejected projects targeted the same sub-measures where most of the beneficiaries appliedfor. With the exception of one project (cereals) mostof them were from the dairy and meat processingsectors.

The rejection (non-eligibility) criteria are related to:

Private co-financing documents;

The non economic viability of the project;

Non-compliance of the applicant with thenational norms in the field of environmentalprotection, hygiene and animal welfare or non-compliance of the project with the EU rules inthe same field;

Non-compliance with the criteria for financiallosses or debt of the consolidated state budget,non-compliance with the minimum productioncapacity required. Out of the 22 initial rejectedproject, at least 6 became eligible at a laterstage.

Measure 1.1 has special economic indicators thatare not entirely relevant for the evaluation by thelenders from the private sector (banks). They usedthe same incremental financial indicators that didnot create any problems for new investments butcould be difficult to reach by projects formodernization of existing capacity, especially if theydid not increase the production capacity. However,as most of the projects were related tomodernization/upgrading of existing capacity, wecan assume that there was no major problem formost of the applicants.

On the other hand there were poorly designed andnot relevant tables for business plans such as theF2 table ( cash flow of investment that is producedbased on the feasibility study and not on a technicalproject - a later stage - and therefore often differsfrom the contracted one). Also C7 - Table 1 (ahistory of economic indicators of the applicant) inthe business plan is wrongly designed but due tothe procedure the applicant must follow theinstructions and therefore the results are notrelevant.

The above mentioned mistakes are not of greatimportance but they are evidence of the bad sideof designing very tight procedures (very often lessqualified evaluators follow the instructions literallyand have no incentive or do not understand theneed for change. Due to the same interpretation ofthe law there is redundant information andoverlapping between the structure required in thefeasibility study and in business plan.

MTE evaluation revealed that most of theinvestments could not have been made without theSAPARD aid, thus meaning the low deadweighteffect.

The number of applications under measure 1.1 waslower than expected. The absorption capacity wasthe most important constraint.

Measure 2.1 Development And Improvement OfRural Infrastructure

This was by far the most successful measure in termof commitment of the funds. We will see that it wasdue to the greater absorption capacity as a resultof the fact that SAPARD supported 100% of theproject budget. This measure creates real pre-requisites for the accomplishment of otherdirections of SAPARD (diversification of theeconomic activities, processing and marketing ofagricultural products, investments in theagricultural holdings) because very often theexistence of a minimum infrastructure is a pre-requisite for the success of the project attributedto other measures.

The general objective of the measure is to improvethe actual situation of the infrastructure in rural


areas, to help to increase living and workingstandards, to help the population in the rural areasto remain there.

Specific objectives are:

Improvement of the access of inhabitantsliving in the rural localities to the public networkof village, county, and national roads, and to thenetwork of railways, as well as to the agriculturalholdings, tourists aims of national importanceor other economic objectives;

Increase the quality of the acces to the theeconomic, commercial and tourism activities bydeveloping the minimum infrastructure;

Improve the hygiene and sanitary conditions;

Improve the quality of the environment anddiminish the polluting sources;

Operational objectives:

Building and modernisation of roads andbridges of local interest;

Building and modernisation of the drinkingwater supply systems;

Building of sewage water networks andinvestments related to water purificationstations.

The program envisages support to 700 projectsover the entire period of implementation, of which300 road projects, 300 projects for drinking wateracces, 100 sewerage projects.

Financial provisions

The global amounts available for the Call for ProjectProposal M2.1-n/2000-D are: EURO < 150666667> distributed by the sub-measures.

Grants size

The minimum and maximum values of grants forindividual projects that could be financed by theProgramme are as follows:

Minimum eligible value for one project:100,000 EURO;

Maximum eligible value for one project:1,000,000 EURO.

Public contribution could reach 100% of the totalbudget.

Eligibility criteria

General

The project shall prove its functional andtechnical utility through an explanatorystatement and feasibility study;

During the execution of the works onlymaterials in accordance with the nationalregulations in force, as well as the nationallegislation and standards consistent with the EUlegislation shall be used; these materials mustcomply with the Decision of Governmentno.766/1997 and with Law no. 10/1995regarding the obligation of using materialsagreed by the law in force when executingworks;

The project shall be based on the proposedpriorities established through the GeneralUrbanisation Plan (GUP) and through the Planfor Structuring of Territory;

The legal status of the land where the work iscarried out must be public property;

The project's beneficiary is committed todesign the technical study 6 months from theapproval of the project at the latest;

Decision of the Local Council of the benefitingcommune with reference to the necessity of theinvestment;


Decision of the Local Council for providingthe maintenance expenditures;

Beneficiaries:

Local Councils of Romania's ruralcommunities;

Associations with legal statute between LocalCouncils of Romania's rural communities.

Relevance and coherence

The measure is regarded, according to MTE byseveral stakeholders, as the most relevant measurefor additional activites to be implemented due tothe current state of the rural infrastructure.

Effectiveness

The efeectiveness of the measure was very high.During the period august 1 - November 30, 20021354 applications were submitted (in the table it isresented as a breakdown of eligible projects).

It was by far the most successful measure in termsof absorption capacity. As a result for a year-longperiod of tune at the level of the mass media, theSAPARD Program seemed to be equal to Measure2.1. Most of the irregularities and conflicts ofinterest of SAPARD in Romania came fromimplementation of this measure.

For detailed results in terms of number of projectssee appendix 2

Regional/Geographical spread

The repartition among regions seems to beespecially influenced by the repartition among thecounties in the region. There are someconcentrations of projects in particular countiessuch as Suceava, Dambovita, Iasi, Bacau, Valcea,Neamt, Gorj. The only resulting correlation is thatthe western part of the country seemed to have alower number of projects than the Eastern andSouthern ones. The territorial spread of the numberof application and selected projects depended verymuch on the involvement of the local authorities at

the level of the county. It was in the power of localcouncils' co-ordination, authorities that controlledmuch of the advisory bodies in the area of publicworks. The above correlation came out also fromthe implementation of projects that suffered largeperiod of delays as compared to the programmedperiod. The involvement of the county and centralauthorities implied that all eligible projects that havenot been selected were later disbursed withapplication cost (feasibility studies) through specialallocation from the central administration for localcounties that were involved. The MTE evaluationalso confirmed "undocumented information onpolitical motives behind investments" andconcluded that the effectiveness of the Measuredepended very much on support (unlike any othermeasure involving private beneficiaries). "Almosttwo thirds of the investment would not have beenimplemented, if support was not available".

The geographical focus seems to be the lessaccepted eligibility criteria by the beneficiaries.

Except for the last two months of call forapplications, most of the selected projects werebased in first in first method. The short span of onlyone month per call for applications determined thatthe scoring was irrelevant for the projects that weresubmitted at the first calls.

Efficiency and utility

The average score for selected projects was 57points while the score for eligible projects was 53points. It is obvious that in the case of the otherMeasure the selection criteria are less important.Hence using scoring criteria for project selectionshould at all times be preferred to the "first come-first served" approach.

The average value of selected projects was aboveEuro 800,000 and therefore confirms the propensityof eligibility and selection criteria towards largerprojects.


Measure 3.1

Description

Measure 3.1 from NPARD is granting non-repayablefinancial support for investments in agriculturalholdings. The financial allocations were madethrough Government Decision 916/14.08.2003.The implementation of the measure started inDecember 2004.

General objectives

In the framework of this measure, financial supportshall be granted for investments in privateagricultural holdings, vegetal and livestockbreeding, for ensuring the rationalisation andreorientation of the production in order to increasethe quality of the products resulted from theapplication of competitive technologies, and whichmay also limit the pollution on the environment.

Specific objectives

To modernize the farming technologies andreduce the production costs;

To diversify production and improve thequality of agricultural products;

To improve the breed, the animal hygiene andwelfare conditions;

To diminish the production losses andincrease the efficiency of the agriculturalholdings;

To promote the diversification of agriculturalactivities in order to ensure a better use of thelabor force in agriculture;

To ensure better capitalization of theagriculture potential in each area;

To facilitate the transfer of agriculturalholdings to the young farmers;

To protect, preserve and improve the naturalenvironment, to ensure the restoring andpreservation of the soil quality;

To stimulate the competitiveness.

Eligibility criteria

Projects value: The total eligible value of a projectmust be within the frame of maximum 10.000 andminimum 500.000 Euro. The bottom limit has beenlowered to Euro 5000 since November 2004.

The selection criteria are presented in the Appendix

Effectiveness

The average public supported amount per projectis Euro 121,233 (in the middle of the range) thatsuggests well chosen upside limits. 30 of theprojects asked for the maximum allowed supportfunds and roughly 20 of the eligible applicationsasked for less than Eur 25,000 (the limit that allowsless paper works in the application). Most of themedia and talks with some farmers showed theirapplications were in the lower limits of up to EUR5000. This kind of low limits should lead to improvedindicators of the program, provided the advisoryactivity of public bodies such as ANCA (NationalAssociation for Agricultural Consulting) prepare amodel of applications for each sub-measure forsmall projects. The capacity to write eligibleapplications is very low at the level of (small) farmsand the consulting companies usually target aboveEur 100,000 of the eligible budgets of projects inorder to cover their expenses (87 projects of the120 analyzed above).

Two of the sub-measures for sheep/goats farmsand young muttons fattening farms were totallyneglected by the beneficiaries, and not a singleapplication was registered. Most of the projectscame from field crops (83 projects) and dairy cows/buffaloes farms (13 projects). Other sub-measuresthat were solicited for support funds for investmentswere greenhouse, poultry and pig farms. Theaverage score of the projects was 48,65 quite low.Due to the low demand for funds the first-come,first-served criteria works.


Eligibility and selection criteria.

Most of the rejected applications had not respectedthe following eligibility criteria:

EG 4 - lack of the ownership deed over theland, or of a leasing contract, concessioncontract or any other document justifying theright of using the land, and the ownership of realestate goods, according to the legislation inforce;

Non-compliance with the EU veterinary and/or phyto-sanitary and/or sanitary standards ofhygiene and animal welfare;

Non-compliance with the recommendeddimensions;

Lack of economic viability.

The EG4 criteria (ownership of the land, or theleasing contract) is very difficult to bedemonstrated, especially regarding the right to usefarming land for 5 years, as land ownership andcertificates of property were issues with a largedelay and therefore the very fragmented landownership was not able to be amassed in criticaldimensions. This makes the compliance with therequirement to register with various offices of theMAFDR (Agricultural registry) difficult. From It cameout some focus interviews that the AgriculturalRegistry procedures have not been very wellunderstood by their own employees or at least thats various disagreements exist between them andthe employees of the same Ministry that work forthe Directorate of Rural Development and representthe delegate bodies for Measure 3.1. Thisresembles a caricature of miss-communicationsbetween the different institutions involved in theimplementation of SAPARD.

Coherence issues

The minimum and maximum values for agriculturalholdings have been taken out, wherefrom therecommended dimensions. Thus therecommended dimension selection criteria will bemore relevant. We consider the selection criteria

quite relevant in the case of Measure 3.1. Theyinclude the land potential for various types offarming; existence of not very old equipment in theexploitation; recommended dimension of theprojects; projects implemented by young farmers;environmental friendly technologies.

There is high incoherence betweenthe selectioncriteria that encourage groups of producers. Thereare only a few such groups of producers, and themeasure that supports their establishment has isnot been implemented/accredited yet.

The specific objectives are reflected in the eligibilityor selection criteria.

Measure 3.4 - Development And Diversification OfEconomic Activities, Multiple Activities, AlternativeIncomes

This is the most eclectic measure in terms ofsupported activities and it was very important forthe preparation of rural Romania to attract nonrefundable support from the EU after the accessionas CAP is reforming and much of its budget that isnow used for direct subsidies should be transferredto rural development projects.

The general objective of Measure 3.4 is to supportthe creation and/or maintenance of employment,and to generate alternative incomes by diversifyingrural activities related to agriculture and forestrythrough rural tourism and other types of tourism inthe rural areas, aquaculture, breeding andprocessing of frogs and snails, traditionalhandicrafts, sericulture, bee keeping, processingof berries and bushes and medicinal and aromaticplants.

The specific objective is to diversify the agriculturaland forestry activities and to provide multipleactivities.

The operational objectives are:

To sustain the agricultural activities in therural areas through the provision of specificservices;


To sustain the rural tourism, forest tourismand ecological tourism;

To preserve and develop traditionalhandicraft activities;

To increase the alternative incomes andemployment opportunities of youths andwomen in rural areas;

To develop aqua-culture;

To develop bee keeping, sericulture,mushrooms, processing of berries and ofbushes and medicinal and aromatic plants,snails and frogs;

To support projects initiated by youth andwomen for all the above-mentioned activities.

Within this program projects of a total eligible valueof between 5.000 EURO - 200.000 EURO could befinanced. The degree of intervention for the projectis 50% private contribution and 50% publiccontribution.

Other activities include sericulture, bee keeping,mushrooms cultivation and processing, processingof fruit of berries and of bushes and medicinal andaromatic plants, snails and frogs.

For the financial allocation see Appendix 2 -measure 3.4

Specific eligibility criteria

In order to extend the scope of eligible applicants,applications from authorized natural persons andfamily association were accepted for all sub-measures, and non-profit associations werespecially created for the setting up and endowingof agricultural machinery circles.

Results

The most active sub-measure was rural tourismfollowed by the eclectic "other activities".Aquaculture and handicraft registered one projecteach.

Geographical results. The applications and theselected projects were concentrated in the Centraland North Eastern Regions due to the large numberof rural tourism projects and application comingfrom the two traditional counties for this kind ofactivity - Brasov and Suceava.

Coherence issues

The selection criteria favor diversifications, newinvestment or modernization on the same level(involving construction) projects submitted byyoung people; women and qualified persons (thesame incoherence regarding the vocational trainingmeasure) and encourage associations and notauthorized natural persons. We find Measure 3.4 tobe the most coherent measures in terms ofselection and eligibility criteria.

However, the geographical concentration of theprojects suggests that it contributed poorly to thecreation of clusters for economic diversification inrural areas. We have discovered a large deadweighteffect for the rural tourism sub-measure in thetraditional areas of Suceava and Brasov counties.For example in the case of the Brasov County thegreat majority of the projects are spread on amaximum of 30 km in an area very much visited byforeigners. This kind of project could have beendeveloped without public support. Nevertheless,the minimum level of comfort required for theinvestment is 3 flowers and restaurants, and therelated facilities of the supported hostels must obeythe sanitary and sanitary- veterinary and hygieneEU rules.

GENERAL CONSTRAINTS AND SPECIFICCONSTRAINTS OF SP IN ROMANIA

The absorption capacity it was outlined also by theMTE but only from the point of view of of thepotential beneficiaries private co-financing actualabilities. Given the above mentioned rejectioncriteria, we also think there was a lack of consultingcapacity at least at the start of the program.

Distribution of information: it is presumed thatcompanies that have business culture usuallyoperate or are intending to operate under measure1.1, but during the first stages of implementation it

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was revealed that most of them had not envisagedthe trouble of project management resources theyhave to deploy. Most of the efficient companies aremanaged usually by entrepreneurs, daring but notvery much used to long- term planned investments.

The exchange rate problem constraint: Currentlythe SAPARD contracts are concluded in the localcurrency instead of EUR, which puts an enormouscurrency risk on the lap of the beneficiary. Thematter is too complicated to come under the samesolution as the simple solution of contracts in EUROleaving the risk in the hand of the Romanian state.That is difficult to accept, as it seems that there aremany prohibiting regulations. On the other hand thecurrency evolution is no longer one way (ROLdevaluation) but due to the convergence game it isexpected that ROL should appreciate in the mediumterm. Nonetheless it is clear that some of thebeneficiaries covered exchange rate losses of upto 20% of the entire value of the project! We canexpect in a longer term perspective that theexchange rate risk would stay with the Romanianpublic authorities (MFP).

Historic indicators for private beneficiaries: At thelaunching of program in Romania, the requirementwas that potential private beneficiaries should nothave registered losses during the previous threeyears. The constraint was reduced later to theprevious year, unless it was the first year ofoperations. However, for measure 3.1 (farming) itwas stated that the beneficiary should have losesin the previous year, other than not registeredexceptional losses due to natural disasters.

Vocational training: It can be a problem related tothe qualification of potential beneficiaries (technicalrepresentatives) as the measure 4.1 "vocationaltraining" has not yet been implemented/accreditedand therefore the projects could be implementedbefore the so-called obligation for qualification. Wewill encounter projects that are fully implementedand the technical representatives will be too late orirrelevantly trained with a serious delay.

Financing issues:. The SAPARD Program does notoffer advance payments, only reimburses theexpenses already made.

SA advertises that it had concluded financialarrangements with banks for co-financing projects.As a matter of fact the SA's initial arrangements withsuch financial institutions were very ineffective andonly a bureaucratic task to be completed. In mostof the cases the credits granted to privatebeneficiaries were difficult to instruct andimplement as it was forbidden to guarantee suchcredits with the assets co-financed by the SAPARDagency. The provision is still in force and privatebeneficiaries have to come with other kind ofguarantees (real or personal) such as institutionalguarantors for SMEs or for rural areas.

We also have to mention the existence of a WorldBank project that provides a credit line for a partnerbank as part of the project, targeting also co-financing under SAPARD program. Only roughlyEuro 4mn have been used out of USD 80mn for suchkind of co-financing. Only three small banks areinvolved in the project despite the long list of banksthat have formal co-financing arrangements withSA. It seemed that the formalities and level ofdisclosure to the treasure bank of the program (aprivate multinational) influenced that lowimplication.

Concerning the public beneficiaries, most of theprojects under Measure 1.1 could be finilized onlyafter the government issued an ordinance thatguaranteed loans to such beneficiaries andtherefore the banks were able to contribute tointermediary financing of infrastructure projectsunder Measure 1.1. After the ordinance was issued,the projects' implementation speed increaseddramatically.

We believe that a similar ordinance can be drawn inorder to help private co-financing, especially forsmall projects.

Despite the provision saying that assets acquiredunder leasing contracts can be supported bySAPARD, the procedures make it impossible to usethis very popular way of financing in Romania. Onlya small part of the final value is recognized as eligibleby the SA, and only if the financing contract is forless than two years. In Romania only the financialleasing is very well developed. The law states thatthe leaser is forced to transfer the property of the

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asset at the end of the leasing period, and thereforewe think it appropriate to designschemes that allowthe use of this way of co-financing. The financialleasing was very important during the previous threeyears, as the credit institutions were more flexibleand open to risk taking. We are sure that theabsorption capacity would have increased verymuch, if such financing were used.

Guarantee funds. There are two institutions thatgrant guarantees for co-financing: The RomanianFund for Rural Credit Guarantee and the RomanianFund for SMEs Credit Guarantee. Being related toSAPARD, the first one is especially targetingprojects for Measures 3.1 and 3.4, and the last onetargets projects for Measure 1.1. They canguarantee up to roughly 75% of the principal of theloan. Despite the high cost, they contribute hugelyto the private absorption capacity for SAPARD.

INSTITUTIONAL COHERENCE AND INTER-INSTITUTIONAL ISSUES

The institutional capacity at the level of centralauthorities and especially the local ones other thanSAPARD was yet another constraint. SAPARDsigned protocols and formal agreements with mostof the central authorities in what concerns thedocumentation related to hygiene, animal welfare,standards etc. but the central bodies did not alwaysproperly communicate the protocol down the chain.The very fact that the SAPARD program contributeshugely to institutional building emerges here. Inspite of the delayed program start in Romania, andthe later adjustments to compensate for smalldivergences in the procedure at the level of theSAPRAD Agency in directly related institutions, itwas clear that the procedures of other independententities or state bodies has not achieved the samecontinuity. We can perceive a serious difference inthe actions at the level of delegate bodies. A proofof the above statement is the fact that theemployees involved in the technical evaluation atthe level of the MTCT were later transferred directlyto the SAPARD Agency in order to improve theefficiency of payments and project implementation.

We also need to mention the lack of vision of ANCA- the National Agency for Agricultural Consulting

that is the public financed body with the mostwidespread network of agricultural specialists.ANCA is very poorly involved in consultingactivitiesfor projects related to Measure 3.1. Weexpected that it was an opportunity for ANCA tocover areas that private consultants cannot due tolack of efficiency - small agricultural holdings. Theywere not capable of designing standard projects forsmall farms and MAFRD did not spot the possibilityof asking them to. It would have been a mutuallybeneficial involvement (ANCA could attractrevenues from consulting and SA could easily reachthe objectives of Measure 3.1).

ENVIRONMENTAL ISSUES AND THE ACQUIS

It is worth mentioning that the last protocols (datingfrom the last months of 2004) and formalagreements with environmental, sanitary andsanitary veterinary and phyto-sanitary bodiescontribute hugely to the implementation of theAcquis as it is clearly and comprehensivelydescribed in terms of the way and level ofinvolvement of such bodies in assuring that projectsco-financed by SAPARD are compliant with the EUstandards and harmonized regulations. They haveto give the private beneficiary a personalizedchecklist of all such provisions once they releasethe pre-authorizations paper (support documentsto the formal application to SA).

POLICY OPTIONS

Irrelevance of the selection criteria

We consider the selection criteria irrelevant, if thecalls for proposals are released monthly. There aretwo ways, in which the current state of affairs canbe modified. Extending the period of call forproposals of the SA to three months is an option,but we envision a possible constraint and delay ofabsorption of the funds. The other possibility couldbe a methodology that requires that the availablefunds to be allocated to each call of proposals (forexample the available financing to be spent for eachcall of proposals either equally or on otheralgorithm. I.e, if we have Euro 12.000.000 for aspecific measure, we can allocate 1m for eachmonthly call for proposals. If the Euro 1.000.000 forone specific month is not completely exhausted, we

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could transfer it to the next month. Thus we increasethe chance of quality competitiveness and betterrelevance of the selection criteria. Also, there couldbe a combination of the above-mentionedsolutions.

Overlapping institutions

We encourage the reduction of tasks of thedelegated bodies to the level of technical issuesonly or just for specific cases when the BRIPS lackthe corresponding expertise. We do not see theexpertise of MAFRD in the field of rural tourism forexample.

Guarantees for private co-financing

We advice on the creation of a special guaranteefund financed by the same SAPARD program ableto complement the existing guarantee structure thatwould equally cover guarantees to the private co-financing. The private beneficiary would pledge thepart of goods financed through own sources orcredits to such body and the institution would in turnguarantee to the creditors of the private beneficiary.In this way the public agencies could be assuredthat they can execute the project in case of breachof the contract (during the implementation and theconsequent 5 years of the contract) and thebeneficiary should not be deprived of its right to useits own sources of investment). We envisage atremendous increase in the absorption capacity ofthe private sector.

Communication of the program

Communication policy

We think the communication activity of the SAPARDProgram is pivotal for the success of the program.

But we can conclude that communication was oneof the worst parts of the program.

The lateness of the program launching for the finalbeneficiaries transformed the SAPARD Programand reduced the importance of the message themoment SAPARD became fully operational.Moreover, an important official of the program wasinvolved in a corruption scandal not related to

SAPARD but perceived by the press like a big stainon the Program.

The communication started to improve only in 2004.The communication strategy has a flaw in the factthat it does not stress the administrative innovation:i.e. the full decentralization of the Programimplementation.

The transparency towards stakeholders during theimplementation of the Measures could be assessedas better than in other cases of EU pre-accessionfunds. But it should be significantly improved,especially during the design period.

We believe that internal procedures of SAPARDagencies should be more transparent. We alsoconsider the publication of the internalrecommendations, derived from precedents, of theDirectorate for f Evaluation and Selection and of theContract Payment Directorate on a website.

CONCLUSIONS AND RECOMMENDATIONS

Measure 1.1

Relevant and coherent in relation to theobjectives;

Low effectiveness of the measure due to thedesign of eligibility and especially selectioncriteria; bureaucratic process; exchange ratefluctuation; low absorption capacity; low shareof public co-financing for some of the sub-measures;

Low deadweight effect but not completelyabsent;

Additionality: speed up of investments;

Supported investments contribute to theincrease of competitiveness of supportedindustry but the ability to compete on the EUintegrated market it still questionable.Introduction of the EU sanitary, veterinary andphyto-sanitary standards is a major step toward;

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Good effects on environmental protection;there is significant environmental focus;

Significant benefits for the administrativelevel.

Recommendations:

to elaborate a set of procedures that will allowthe guarantee of credits attracted by privatebeneficiaries, with part of the assets co-financed by SAPARD (the private half).

Measure 2.1

Relevant and coherent with the rural needs;

Highly effective;

High absorption capacity;

Prone to irregularities due to the lack of (needfor) beneficiary co-financing;

Low capacity of implementation due to bothpublic beneficiaries and sub-contractors;

High achievement of the objective -surpassed - probably due to poor ex-anteassessment of indicators;

The only measure that truly applied selectioncriteria and not only eligibility rules; but even inthis case the process of selection washampered by the short period of call forapplications (monthly);

Limited amount of funds.

Recommendations:

To increase the financial allocation forMeasure 2.2;

SA to be directly involved in the tenders forcontracting works and goods through thepersonnel part of the tender commission -

providing less opportunity for conflict ofinterests.

Measure 3.1

Relevant and coherent with the objective;

Increasing effectiveness;

Low absorption capacity for small farms;

Hampered by the complicated procedure ofregistering the use of land in more than onepoint; hampered by the unclear property of theland (due to the very small parcel of terrain andincipiency of the system of registration in someregions);

Very much helped by the alreadyimplemented projects from measure 1.1 - thedemand determined and contributed to thegeneration of projects;

Environmental criteria help only for thepreservation but contribute little to theimprovement of the environment;

Very effective for hygiene and animal welfareof the involved projects;

Very effective for increasing the productivity;

Better evaluation tool and application formand package using unitary methodology;

Poor coherence between financial indicators,even though some of them were quite relevant.There is also a visible improvement of theapproach as compared to the earlierimplemented measure 1.1;

Arbitrary limits of the minimum and upsidelimit for exploitation in the initial conditions. Thatreduced the number of projects for the firstrounds of applications. Afterwards this kind ofcriteria have been abandone;

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Very complicated procedure for smallprojects. The amount of the necessaryconsultancy work is quite high and thereforelarge project can afford it while small onescannot. The low involvement of the stateconsultant body in agriculture during the firstyear of implementation, a body that could havecontributed vastly for absorption of funds bysmall farms, was only compensated by largedairy processors, which acted as a hub ofconsultancy for small projects that couldgenerate raw material for them. That couldincrease the risk of irregularities in some cases(non-competition);

Hampered by the non-existence of "group ofproducers".

Recommendations:

See recommendation paragraph one fromMeasure 1.1;

Use of a less complicated procedure in thecase of projects involving exclusively theacquisition of machinery (extending the limitfrom Eur 50,000 to Euro 200,000).

Measure 3.4

Most coherent with and very relevant to theobjectives of the program and to thetransformation into PAC and rural developmentat the EU level;

Unbalanced allocation between the sub-measures as compared to the absorptioncapacity;

Very effective for part of the sub-measures,low effectiveness for others;

Low eligible maximum for individual projects;

Very popular with banking loans - SME'sdesks of banks are more likely to find ways toserve their clients and therefore they acted like

a catalyst for juridical and credit departmentsin order to develop procedures for co-financing;

Hampered by the non-implementation ofvocational training;

The selection criteria are only a formality inthe earlier period of implementation (except forthe last call), as in 1.1, 3.1 so long as the callsfor application are monthly and the availablesums for financing tresspass the eligibledemand.

Recommendations:

To transfer half of the funds from the sub-measure on other types of tourist activities torural tourism;

To lower the level of minimum classificationof eligible projects to two stars for zones, inwhich tourism is non-traditional;

To limit the deadweight effect throughselection criteria that give advantage to thecreation of clusters of tourism investments innew rural areas (where there is not yet asignificant level of investment in the field).

CONCLUSIONS AND RECOMMENDATIONSFOR THE NON-ACCREDITED MEASURE - EXANTE ANALYSES

Measure 1.2 Improving the structures for quality,veterinary and plant-health controls, foodstuffs andconsumer protection. It should be implemented assoon as possible in order to prepare the RomanianAgro-food industry for the EU competitiveness.There remain only three years to do that.

Measure 2.2 Management of water resources foragriculture. The sub-measure is overlapping with asimilar World Bank program. Due to the higheffectiveness and very high relevance of Measure2.1, we advise giving it up or significantly re-allocating the funds to Measure 2.1.

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Measure 3.2 Setting-up producer groups. It isextremely important to be very rapidlyimplemented. Already some of the sub-measuresof Measures 3.1 and Measure 3.4 are directlyrelated to it. As was unofficially reported, only 2 suchgroups of producers from the vegetable sector arefully registered with MAFDR. The PAC financing inthe vegetable sector could be done only throughsuch bodies and the measure is very relevant forthe competitiveness of this sub-sector ofagriculture.

Measure 3.5 Forestry - We consider the measurethe least relevant, especially in the field of forestryexploitation where the financing had a highdeadweight effect,

Measure 4.1 Improving vocational training Thelateness in the launching of the measure affectedvery much the coherence of the program and thecoherence of the implementation of measuresalready in progress targeting private beneficiaries.

CONCLUSION ON THE ADMINISTRATION

The administrative structures andarrangements created in order to implement theprogram are in accordance with the EUrequirements. The delegation of responsibilitiesand tasks has been done in accordance with theMAFA principles;

The general director of SAPARD was changedtoo often (the average mandate was around oneyear) and in no case a clear reason waspresented;

The regional bodies of the SAPARD Agency(BRIPS) need to increase their efficiency inorder to be delegated more power andresponsibilities in the implementation ofdifferent stages of the projects - such asprocessing payments;

Project controls are being implementedaccording to the letter of the manuals but webelieve that controls in accordance with thealgorithms that were included in the initialmanuals should continue to be used ;

The Monitoring Committee meets regularlybut ineffectively due to the non- relevantindicators, and the non-relevant data collection.

Recommendations:

The delegated bodies of the Ministry ofAgriculture need more training in order toaccomplish correctly their tasks and the bestsolution would be to be involved only in someconsultancy activity or at least to transfer theiremployees in charge with SAPARD to the SA(the technology part of the projects) and lesson the business evaluation;

The Monitoring Committee should open upto other stakeholders such as credit institutionsand the consultants' industry.

The National Payment and Intervention Agency andthe SAPARD Agency

The National Payment and Intervention Agency wasdesigned as a separate institution and itsestablishment started at the end of 2004. It isexpected and advisable that at a later stage thepersonnel of the SA will be transferred to theNational Payment and Intervention Agency due totheir large experience in administering EU co-financed funds in rural areas and agriculturalsectors. The experience in the decentralized modelof the SAPARD management can be transferredalso to the level of procedure design. We advice touse the Directorate of Technical Assistance ofSAPARD for such transfers.

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APPENDIX 2 - STATISTICAL DATA ON THEIMPLEMENTED MEASURES

Measure 1.1

The selection criteria:

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11 1 32,310.743.01 60,384.371.5 5 6

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slaereC6 8 1 86,352.409.4 04,672.174.1 0 8

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latoT - 22 34,099.832.331 29,720.806.56 73 691

Status of approved and rejected applications as ofSeptember 30th


Geographical repartition on regions and counties


Measure 2.1

Selection criteria

General


Specific

For the sub-measure roads in rural areas

For the sub-measure drinkable water supply fromthe centralised system in rural areas


For the sub-measure sewerage in rural areas

Financial allocations


Status of the approved and rejected application asof September 30th


Geographical spread of eligible projects


Measure 3.1

Selection criteria

The projects will be selected and evaluated according to the following criteria:

General

Specific

Vegetal farms production


* Projects, which do not observe the dimensions in Appendix 1 and/or are not included in the potentialarea in the Appendix 3, will scored 0.

Greenhouses

Farms for animal land poultry breeding


Financial allocations based on sectors and type ofsubmeasures


Status of absorption of the funds until September31 on each Sub-measure


Geographical Absorption of the funds until September 31.

Measure 3.4

Selection criteria

The project will be selected according to the following criteria:


Financial allocations

Status of results in terms of eligible and selectedprojects


Geographical absorption