Miklós Somai

The Hungarian Agriculture

and the EU

Sofia, 08.11.2004

What is it all about?

• Splendours and miseries of Hungarian agriculture - historical review

• EU-accession in details: bargaining process, conditions (historical references, quotas, DP)

• Perspectives (production, trade)

Gross agricultural output in Hungary between 1960-1990

0

50

100

150

200

250

Crop Livestock Agriculture Source: VARGA, Gyula: The Story of the Hungarian agriculture (STRATEK 2004)

Self-sufficiency in the 1980s

Grain, oilseeds 110-120 %

Fruits and vegetables 180-250 %

Wine 150-200 %

Vegetable oil 350-380 %

Beef, poultry-meat 190-200 %

Pork 135-140 %

Mutton 480-500 %

Elements of the success story

• Collectivisation - big entities (in 1960s, followed by mergers)

– 1.274 co-operatives -- with 3.800 ha (on average)

– 127 state farms -- with 6.100 ha (on average)

• Household farms (640.000) - vertical integration– original role: self-supplying, but they were to become market-oriented farms

with close relations with the co-operatives

• Auxiliary activities (at the beginning: processing of agricultural raw materials, on-field machine-works; later on: industrial niche products, services)

– growing number of agricultural workforce becoming redundant;

– political pressure on co-operatives to create jobs;

– industrial companies escaping from central wage control

by 1986

Multifunctional agriculture

Gross agricultural product in Hungary between 1990-2002 (1989=100)

0

20

40

60

80

100

120

crop livestock agriculture Source: VARGA, Gyula: The Story of the Hungarian agriculture (STRATEK 2004)

Producer price indices in Hungarian agriculture between 1950-2000 (previous year = 100)

0

20

40

60

80

100

120

140

160

180

crop livestock agriculture Source: VARGA, Gyula: The Story of the Hungarian agriculture (STRATEK 2004)

Elements of the failure

• Heritage of the past (reforms slowing down in the 1980s)

– keeping targeting quantity whilst market demand was changing

• Contraction of the markets (CMEA-market, internal market)

• Political mistakes (denying all that worked in the old system:

– subsidisation policy,

– vertical integration,

– role of the State farms and that of the co-operatives,

– property)

Weakened big entities, highly fragmented land ownership,

uncertainties, speculation

Eastern Enlargement

Circumstances of the Enlargement• EU-integration as a process (ever changing acquis)

– all comparisons with former enlargements are false

• Different challenges for the EU (economic situation [low spirit of all economic actors and especially that of politicians of the net contributors], state of development, population)

• Bargaining position– by and large the same conditions are offered to each candidates,

– attractiveness stemming from the size of the internal market and good relations with old colonies (true for GB, E but not for PL)

– one thing is sure: H and CEECs did nothing to modernise their agriculture but waited for accession to be helped with CAP’s money; Western politicians could not make up their mind to use their taxpayers money for reviving the competitors of their own producers.

Bargaining process

• Screening (1998-1999) revealing the level of law harmonisation and the abilities of the candidates to implement the “acquis communautaire”

• Hungarian Position paper (November 1999)• EU position paper (June 2000) - opening of negotiations• EU strategy paper (November 2000)• Issues Paper (January 2002) 10 new MS, transition, DP offered (!)

- 100 % DP could freeze structures and create social tensions in rural areas

• Brussels Summit (October 2002) - consensus on finances, - the budget of EAGGF Guarantee Fund frozen at 2006 level

• Copenhagen Summit (December 2002) - accession treaties

Standpoints

• Total acquis

• No need of transition period

• Quotas tailored to potential (i.e. late 1980s)

Hungary EU-15

• Official standpoint– implement. & inforce. of the acquis

– SAPARD (main harmonisation tool)

– trade liberalisation

• Informal standpoint– cheap enlargement

– status quo in EU-15 (market, pref.)

– future of new-members’agriculture

Tactical mistake:

- frightened everybody in EU-15

- strengthened the influence of experts who had ever warned of new MS agricultural potential

Conditions of the Accession

• DP, national top-up

• Quotas, references

• Rural development

Direct Payments

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013DP-EU (SAPS) 25 30 35 40 50 60 70 80 90 100DP-nat. (top-up) 30 30 30 30 30 30 30 20 10 0ΣDP 55 60 65 70 80 90 100 100 100 100Σ EU-support 43,75 47,5 51,25 55 62,5 70 77,5 85 92,5 100Σ support 66,25 70 73,75 77,5 85 92,5 100 100 100 100

DP-EU-15 = 100

Σ EU-support = 75 * DP-EU + 25 (relative burden of the EU compared to full-membership scenario)

Σ support = 75 * Σ DP + 25 (relative recipient situation of H-farmers compared to full-membership scenario)

Quotas & ReferencesSector Hungarian demand Accession Treaty

COP basic areaCOP average yield

3.65 M ha5.04 t/ha

3.49 M ha4,73 t/ha

Durum trad.Durum well-establ.

15.000 ha50.000 ha

2.500 ha4.305 ha

Sugar „A”-quotaSugar „B”-quotaIsoglucose „A”Isoglucose „B”

400.000 t80.000 t

130.000 t10.000 t

400.454 t1.328 t

127.627 t10.000 t

Special PremiumSuckler Cow Pr.Slaughter Pr. AdultSlaughter Pr. Calf

245.000300.000

}480.000

94.620117.000141.55994.439

Ewe Premium 1.500.000 1.146.000

Milk deliveriesMilk direct sales

2.600.000 t200.000 t

1.782.650 t164.630 t

RATIOS

New MS/EU-25 Hungary/New MS Hungary/EU-25Milk deliveries 12,51 10,61 1,33Milk direct sales 53,31 10,82 5,77Dried fodder (NGQ) 2,14 51,27 1,1Rice base area 0,74 100 0,74Tomatoes (processing treshold) 4,64 32,55 1,51Peaches (processing treshold) 0,564 52,88 0,298Pears (processing treshold) 0,986 98,94 0,976Durum wheat (traditional area) 0,27 28,79 0,078Durum wheat (well-established area) 11 47,72 5,25Arable crops base area 25,52 19 4,85Arable crops direct payments 19,25 25,65 4,94Slaughter premium (Adults) 14,97 4,12 0,65Slaughter premium (Calves) 31,62 6,81 2,15Special premium 15,41 6,6 0,86Suckler cow premium 6,3 16,06 1,01Ewe and goat premium 3,07 45,77 1,4Sugar "A" quota 19,21 14,16 2,72Sugar "B" quota 4,76 0,95 0,045Isoglucose "A" quota 43,23 67,15 29,03Isoglucose "B" quota 24,92 59,19 14,75

Rural Development in Hungary

EAGGF-Guarantee Fund(n+2)

EAGGF-OrientationFund

Outside Objective I. Regions In Objective I. Regions

I. Accompanying measures of CAP-1992- Early retirement,- Less favoured areas,- Agri-environment,- Afforestation of agr. Lands.

I/a New accompanying measures ofCAP-2003:- Food-quality- Meeting standards (environment,

public, plant and animal health,food security etc.)

- Animal welfare

II. Semi-subsistence farming

III. Old-SAPARD-regimes:- Setting up of Producer

Organisations,- Technical assistance.

I. Competitive raw-material production:- Investments on agricultural holdings,- Setting up of young farmers (<40),- Training,- Additional assistance for forestry,- Fishery.

II. Improving processing and marketingof agricultural products

III. Facilitating the development andstructural adjustment of rural areas:- Alternative employment,- Infrastructure dev.,- Basic services to rural entrepreneurs

and rural population,- Renovation of villages, protection of

heritage,- Leader+

Agricultural subsidies in Hungary between 2004-2006 (M €)2004 2005 2006

Producer subsidies:- EAGGF-Guarantee Fund (SAPS: 25, 30, 35 %)- Complementary National DP (30, 30, 30 %)

303364

364364

424364

Market subsidies:- EAGGF-Guarantee Fund (intervention, exportrefunds)

150 150 150

Rural development subsidies:- EAGGF-Guarantee Fund (“accompanying

measures”)- EAGGF-Orientation Fund (raw mat, processing-

marketing, rural areas)

120

80

200

110

214

128

Total: 1.107 1.188 1.280State aids (guideline, bloc-exemption, de minimis): ? ? ?

Perspectives

• Facts:

– Agri-food exp. 2004 I-VI.: -3 %

– Agri-food imp. 2004 I-VI.: +28 %

• Hopes ???– Arable crops (best position, but danger of extensive development)

– Meat production (efficiency shortcomings, increasing feed costs)

– Milk (cheap imports from other CEECs)

– Other products (opportunities for fruit&vegetables, wine)

– FDI (7+3 years derogation apropos of foreigners buying agr. land)

– Trade (weak transport infrastructure towards the export markets)

Conclusions

• Big market (EU-25 = 450 M inhab.)

• Stable regulation (not depending on national budget situation)

• Rural Dev. Money (850 M €/3y)

• Intervention (150 M€/year)

• Increasing DP (SAPS = 1.1 Bn €/3y)

• Improving profitability (+ 50-60% by Ministry’s calculations)

• Lack of capital

• Weak inclination to co-operate

• Lack of prof. knowledge• Underdev. after-production

activities (storage, wrapping, transport, marketing etc.)

• Lack of confidence (divided society, see figure)

• Scarce public security• Defencelessness of the

producers (oligopolies on both input and output markets)

Advantages Realities

Rising Polarisation of the Hungarian Society

poor rich

households

% Fortune

Contribution to public spending

overchargingundercharging

Fortune tax

alleviation