„The challenge of enlargement for rural development, privatisation aspects and role of the rural

economy in the new member states”

THE NATIONAL LAND FUND

Some interconnections

Dr. Robert SebestyénNational Land Fund Management Organisation

Budapest/Hungary

„CAP Reform: entrepreneurial opportunities

in the enlarged EU”6th & 7th November, 2003

INTRODUCTION

Agenda 2000, the action programme of EU has set three main issues:

- reform of European policies,

- enlargement of the EU,

- financial framework for the period 2000-20006.

The reform of European policies involves:

- the common agricultural policy (CAP),

- the structural policy,

- the environment,

INTRODUCTION Reform of CAP has the proposal on rural development Main objective:

- introducing a sustainable and integrated rural deve- lopment policy, governed by single legal instru-

ments to ensure better coherence between rural development and the price and marketing policy of CAP relating to farming and conversion to other activities, with the aims (among others):

to improve agricultural holdings, to ensure fair and stable incomes for

farmers, to ensure that environment issues are

taken into account.

INTRODUCTION Improved agricultural holdings, ensured fair and

stable farm-income within the constraints of environment issues are the preliminary conditions of running sustainable farming.

In focus: the role of rural economy, privatisation of land and agricultural holdings, introducing

National Land Fund

and its role in helping to develop the conditions of sustainable farming in Hungary.

MAIN TOPICS The Hungarian agriculture, rural economy Privatisation in agriculture Structure of land-ownership, land-use and agricultural

holdings Incomes and profitable/sustainable farming in the

Hungarian agriculture National Land Fund (NLF) National Land Fund Management Organisation (NLFMO) Summary

HUNGARIAN AGRICULTURE,RURAL ECONOMY (2000)

DISTRIBUTION OF LAND AREA2000.

(thousand ha)

41

29

1411

1765

1114

4690

35126

92

ARABLEGARDENORCHARDVINEYARDGRASS, PASTUREFORESTREEDFISH-PONDUNCULTIVATED

HUNGARIAN AGRICULTURE,RURAL ECONOMY (2000)

Hungary has favourable geographical location for agriculture within the Carpathian Basin

Good growing conditions for wide range of agricultural products

5 million 854 thousand ha of utilised agricultural area

(63 % of total area [CC-12: 54 %, EU-15: 41 %, EU-27: 44 %])

Agriculture has long tradition in the history of Hungary Professionally well educated and skilled people in

managing positions at agricultural enterprises Agriculture sector shares 3,9 % of the GDP

[CC-12: 4,5 %; EU-15: 2,0 %; EU-27: 2,2 %]

HUNGARIAN AGRICULTURE,RURAL ECONOMY (2000)

Positive agricultural trade balance Agricultural trade has the share of 9,1 % of total export

and 3,7 % of total import Agricultural trade with EU has a share of less than 50 % 227 thousand people work in agriculture

(6 % of the total civilan employment [CC-12: 22,0 %; EU-15: 4,3 %; EU-27: 7,9 %])

Food expenditure(1998): 26,6 % of the total expenditure

[CC-12: 39,1 %; EU-15: 17,4 %; EU-27: 19,5 %]

PRIVATISATION IN AGRICULTURE

Privatisation in agriculture has been in progress since 1992 Based on to main pillars: land compensation, sale of

state farms (and restructuring collective farms) Land compensation started in 1992 with the goal of partial

restitution of agricultural land First stage of state farm privatisation started by the

transition into business associations (limited liability company, company limited) in 1992-1993

Shares (business quotas) have been sold without agricultural land in second stage

Privatised companies signed land-leasing contract with the owner Hungarian State

PRIVATISATION IN AGRICULTURE

The value of agricultural production and share of GDP declined in the transition and privatisation process

(1989-1991: 100 %, 1995: 70 %, 1999: 76 %) Number of land owners increased Agricultural land went through fragmentation (large scale

fields had been split between the old/new compensated owners)

Large number of private land owners were not able to start cultivating their land due to the lack of capital, knowledge (or in many cases of will)

Larger farmers/privatised farms having own and borrowed financial sources started leasing the land from the land owners facing additional costs of production

STRUCTURE OF LAND OWNERSHIP,LAND USE AND AGRICULTURA HOLDINGS

STRUCTURE OF LAND OWNERSHIP,LAND USE AND AGRICULTURA HOLDINGS

STRUCTURE OF LAND OWNERSHIP,LAND USE AND AGRICULTURAL HOLDINGS

Privatisation in agriculture generated wide range of diversity in legal status, size and ownership of holdings

There are nearly 1 million private holdings, average size of 4 ha (2000)

Small holders cultivate 60 % of the agricultural area Corporate farms (medium-, large-scale) have 40 % share

of cultivation

Private and corporate agricultural holdings in Hungary (2000)

Number of holdings

Distribution (%)

Acreage (1000 ha)

Distribution (%)

Avg. acreage (ha)

Total 966 916 100 6 448 100 6,7 Private holdings 958 534 99 3 834 60 4,0 Corporate farms 8 382 1 2 614 40 311,9

INCOMES AND PROFITABLE/SUSTAINABLE FARMINGING IN HUNGARY

Large numbers of individual farms do not have available land to earn appropriate income for profitable/sustainable farming, land consolidation has been essential need

Owners of these lands have been leaving the business by land-leasing or offering the land for sale on the market, or to the NATIONAL LAND FUND (NLF)

Number of individual farms by land size (thousands)

Land size (ha) 1991 1994 2000

0 - < 0,2 645 458 374 0,2 - < 0,5 412 345 204 0,5 – < 1,0 200 152 99 1,0 - < 10,0 138 225 232 10,0 – 100,0 1 22 49

100,0 - 0 0 2 Total 1396 1202 960

NATIONAL LAND FUND

NLF is part of the treasury assets Includes state owned agricultural land and forest of

changing quantity and location, except for land in protected nature conservation areas or planned to be subject to nature conservation

Cultivated land without identified owners or property administrators in charge

Cultivated land included in NLF by legal transactions

(purchase, inheritance, swap)

NATIONAL LAND FUND

1072 thousand ha of cultivated land included 404 thousand ha of agricultural land (arable, grassland,

garden, orchards, vineyard) 661 thousand ha of forest 7 thousand ha of other cultivated land (reed, fishpond) 7 % of total agricultural land 37 % of total forestland 14 % of the total cultivated land of Hungary Land-assets utilised in tenure (land-leasing) contracts

LEGAL BACKGROUND(Specific)

Act CXVI of 2001 on National Land Fund (amended in August, 2002 by Act XXIV.)

Defines the legal framework of setting up NLF and establishing the institutional background

Sets the purpose of land-assets being included in NLF, and main rules of utilisation of the land-assets

LEGAL BACKGROUND(Specific)

Decree 254/2002 (XII.13.) of the Government on detailed regulations of registration, management and utilisation of National Land Fund’s assets

Sets detailed rules of registration and valuation of land-assets

Regulates the utilisation (sale, tenure, swap) of land-assets Defines assessment methods of land-value for transactions

LEGAL BACKGROUND(Specific)

Resolution No. 482002(VII.19.) OGY of Parliament on Land Policy Guidelines

It is not a law Declares the most important land policy objectives of the

country Provides fundamentals of land-assets management and

utilisation carried out by NLF

LEGAL BACKGROUND(Specific)

Decree 255/2002. (XII.13.) of the Government on the purchase of cultivated land by State for life annuity

Particular regulation setting rules of purchasing lands for NLF from elderly people against paying life annuity

LEGAL BACKGROUND(General)

Act IV. of 1959 on Civil Code (general rules of acquisition ownership, tenure)

Act LV. of 1994 on Arable Land (specific rules of acquisition land-ownership, pre-emptiv rights of purchasing land and land-tenure, rules of utilisation and protection of arable land

Decree 16/2002. (II.18.) of the Government on detailed rules of pre-emptive rights in regards of purchasing land and land-tenure

THE PURPOSE OF NLF

Purposes are set by Act CXVI of 2001 on National Land Fund in accordance with Resolution No. 482002(VII.19.) OGY of Parliament on Land Policy Guidelines

State-owned land-assets included by NLF serve the following main purposes:

To promote establishing operational family farms and supporting qualified agricultural entrepreneurs to obtain land

Influencing land prices and land leasing-fees Supporting the improvement of farm structure in

accordance with rural development objectives

THE PURPOSE OF NLF

To provide agricultural land for voluntary swapping of land with the goal of promoting land ownership and farm structure appropriate for sustainable farming (sustainability!)

To exploit uncultivated agricultural land Promoting the retainment of plantation areas Swapping of land in flood areas and land located in the

flood-protected areas To provide land for special goals (social purpose,

education) Establishing supportive conditions for sustainable forest

management

INSTITUTIONAL BACKGROUND

The owner’s rights in respect of NLF are exercised on behalf of the Hungarian State by the Minister of agriculture and rural development through property administrator

Hungarian National Land Found Public Benefit Company (Kht.) was founded by the Minister on 1st of January,2002

National Land Fund Management Organisation (NLFMO)was established on 1st of August, 2002 and took over land-assets of NLF property administrator’s duty due to the amendment of Act CXVI. of 2001

INSTITUTIONAL BACKGROUND

NLFMO is an independent budgetary institution operating under the Minister’s supervision and managed by the Executive President

Financing resources: state budget, land-leasing fees, sales revenues earned by selling land

Activities are monitored by Controlling Committee and local land-assets utilisation committee in the villages

NLFMO is not an authority, can not be taken as part of public management

Tasks are carried out as being „landowner”, using market instrument within the framework of Civil Code

UTILISATION OF LAND-ASSETS

The ways of utilisation of land assets are determined Act CXVI of 2001 and Decree 254/2002 (XII.13.) of the Government

NLFMO utilise the land-assets by sale or lease within the frame of tender process

Preference shall be given to persons eligible by the conditions of Land Policy Guidelines, in case of equal offers

UTILISATION OF LAND-ASSETS

NLFMO can initiate land-swap or can enter into agreement of ownership transfer with landowners

Land-swapping transactions must ensure land consolidation, provide land for livestock farming, or implement important objectives of public interest

Utilisation activities have to be based on NFLMO land-assets utilisation plan

Contracts and agreements are subject of the Civil Code Pre-emptive rights of purchasing or leasing land have to be

taken into consideration Local land-assets utilisation committee has the right to

make comments in decision-making process of the tenders

SUMMARY Privatisation in agriculture is a complex proecess Split of land, fragmented structure of ownership of both

land and farm-assets can not provide the conditions of profitable and sustainable farming

Land consolidation is a basic instrument to restore appropriate structure of land use, ownership and profitable farming

National Land Fund (NLF) can be used to start the consolidation process with market instruments

National Land Fund Management Organisation (NLFMO) can initiate land market with reliable management of land assets allocated into NLF

www.nfa.hu

Sources:

1. Clemens, Fuchs: Agricultural Situation in the Candidate Countries/Country Report on Hungary (European Commission Directorate-General for Agriculture, July 2002)

2. György, Fenyő: State of Land Ownership and Land Utilization in Hungary (SD/FAO High Level Technical Seminar, 1-5 April 1997, Bertinoro/Italy)

3. Enikő, Kovács: Results and Experiences of TAMA, a Land Consolidation Project in Hungary (International Conference on Spatial Information for Sustainable Development, 2-5 October 2001, Nairobi/Kenya)

4. Kovács Gábor-Udovecz Gábor: Mezőgazdasági jövedelmek Magyarországon és az Európai Unióban [Incomes of Agricultural Holdings in Hungary and in the European Union] (KSH Statisztikai Szemle, Vol. 81. No. 8., August 2003, Budapest/Hungary)

5. KSH (Hungarian Central Statistical Office): Mezőgazdasági Statisztikai Évkönyv 2001 [Statistical Yearbook of Agriculture 2001](2002, Budapest/Hungary)

6. Philip M., Raup: The Role of Land Markets and Land Tenure in Determining Organisational Structures (OECD/Hubngarian Governmnet Seminar: „Agricultural Cooperatives and Emerging Farm Structures in Hungary”, 27-29 October, 1993)

7. Szabolcs, Bíró et all.: Land Fragmentation and Land Consolidation in the Agricultural Sector („Land Fragmentation and Land Consolidation in the CEEC: A Gate Towards Sustainable Rural Development in the New Millenium”, 25-28 February 2002, Munich/Germany)

8. Irén, Tassy: Land Management Challenges in the Private Sector in Hungary and Possible Solutions (FIG Commission 7th Annual Meeting, 18 June 1996, Budapest/Hungary)