Begegnungen
Schriftenreihe des Europa Institutes Budapest, Band 28:89–94.
MÁRTON SZABÓ
The Agriculture of Macedonia – a Small Tiger or just a Cat?
Though the land area of Macedonia is relatively small, it had played a significant role in the food supply of the former Yugoslavia, and several Macedonian products are still to be found in the markets of the neighbouring countries. The topographical and climatic conditions of the country are highly variegated – experts often compare the country to a chess board –, which provides opportunity to cultivate several kinds of plants. Agricultural production has solid traditions. With regard to these circumstances it seems reasonable to ask whether it can be expected of Macedonia to conduct a successful agricultural offensive in the coming decade, and whether there would be a Macedonian success story.
The land area of Macedonia is 23 thousand km2, its population was 2 million 66 thousand in 2004, which is approximately one fourth or fifth of Hungary. The country is poor: in 2002 the per capita gross domestic product was USD 2429, which was only one fifth of the Slovene, one third of the Hungarian and half of the Croatian index. During the past years Macedonia received significant aid and support from the developed countries and primarily from the European Union.
It is a development of major political and economic significance that the country officially became a candidate for EU membership in December 2005. Thus, it has acquired a prestigious position next to Romania and Bulgaria whose accession is foreseen 2007, and to Croatia already conducting accession talks, taking precedence over Albania, Bosnia-Herzegovina and Serbia and Montenegro. It should be noted, however, that while earlier the candidate country status automatically entailed the opening of accession negotiations, this is not the case for Macedonia. As it was once wittily formulated, a new anteroom was invented for the country in Brussels.
The Agriculture of Macedonia
In line with the country’s lower level of development the proportion of agriculture in the production of the gross national product is still 10% per cent, though decreasing. In comparison: this index has dropped to 3–4% in Hungary during the recent years. According to official data 11% of the employees work in the agricultural sector, whereas this figure is only 5% in Hungary. If the self-sufficient farms were also considered, the Macedonian index would be even higher.
Individual farms cultivate 80% of the arable area with an average size of 2.4 hectares. A fragmented operational structure is even more dominant there than in Hungary, where only 40% of all the agricultural area is owned by individual farms of an average size of 3.5 hectares. In Macedonia economic associations, the successors of the former agro-combines operate on the remaining one fifth of the agricultural area. The standard of their cultivation lags far behind that of the private farms; the yields are often significantly lower. It should not be forgotten, however, that private cultivation had been continuous even in the period of socialism in Macedonia. At that time the size of private farms was limited to ten hectares, a far more ’liberal’ restriction than the 0.5 hectare in Hungary.
In contrast to most countries of the Central-Eastern European region, Macedonian agriculture did not experience any significant drop in production even in the years of transition. It has several reasons. A large part of the agricultural sector had not been privatised because of the survival of landed property and the related organisational and structural transformation did not take place either. Privatisation of the agro-combines representing a smaller part of the sector began relatively late, at the end of the 1990s, and was completed only recently. The proportion of exports was not as big as in the case of Hungary where the dissolution of the CMEA automatically meant the loss of a large part of the markets at once; Macedonian exports to the neighbouring countries mostly survived the 1990s. The fall in real incomes was also less significant than in most Central-Eastern European countries. Finally, the high share of subsistence farming with in the total food consumption is an important difference, and hence the production of the sector and this circle is less affected by macro-economic and market shocks.
The production structure of the Macedonian agriculture would not be an obstacle to EU accession. The country would not increase the surpluses of the Union except for wine and tobacco, and the small Macedonia may provide a small outlet for the surpluses causing a major problem in the Union.
There are branches of major significance as well as net exporters in the Macedonian agricultural structure. These include vegetable production (primarily tomato, pepper, cabbage) and fruits (mostly table grape, plum), as well as wine production, tobacco and sheep breeding (milk and meat).
Branches of relatively smaller significance in the products of which the country is not self-sufficient and hence requires continuous import are the following: cattle, pig and poultry, grain, oilseed and sugar beet production.
Agricultural Foreign Trade
As a result of Macedonia’s favourable compatibility with the agricultural structure of the Union the majority of food imports already comes from the EU, including meat, sugar and dairy products. Of the latter the significant export to Slovenia is worth mentioning. Poultry meat import from the USA is also significant.
Similarly, the main export market is also the European Union, primarily Germany (wine, tobacco) and Greece (mutton). Vegetable exports to Serbia and Montenegro are also significant.
Currently the country uses only a fragment of the opportunities in international trade, and the intensity of trade is low. Opportunities in exports have by far not been exploited. In 2004 agricultural export totalled only 210 million euros (hardly 7% of Hungarian agricultural exports), and the import was 331 million, the deficit of agricultural foreign trade was 121 million euros.
The international liberalisation of agricultural foreign trade represents a major test also for Macedonia that has traditionally conducted a rather protectionist trade policy. According to the WTO accord the level of agricultural import weighted by turnover should be reduced from 28 to 7% between 2002 and 2008.
The Stabilisation and Accession Agreement (SAA) concluded with the European Union sets no smaller requirement but the reduction of the average agrarian import customs level from 21 to 7% as well within the same time bracket of 2002 and 2008. Simultaneously Macedonia was granted rather significant customs cuts, and even was exempted of customs in the case of most products by the EU.
The Agreement signed with the EU handles individual agricultural products on the import side as follows:
– The import of goods produced in small quantities, the so-called non-sensitive products (tropical fruits, seed, live animals, etc.) has become customs-free in Macedonia;
– The country is not self-sufficient in the case of articles of medium sensitivity and requires significant quantities of import (vegetable oil, dairy products, etc.), where gradual customs reduction would be applied parallel to increasing customs quotas;
– For the so-called sensitive products (vegetables, fruits, wine, mutton, sugar, etc.) that are particularly important for agricultural incomes as well as products of surplus-producing branches customs reduction would begin only in the coming years, until then the current high, 30–60% protective customs tariffs would remain in place.
Finally, the complicated system of bilateral trade agreements concluded with the former Yugoslav republics as well as with other countries of the region (including even Ukraine and Moldova) in the recent years should be mentioned, which are expected to be replaced by a multilateral free trade agreement in 2007.
The Competitiveness of the Macedonian Agriculture
The Macedonian agriculture has several favourable characteristics. The most important ones are the following:
– Favourable climatic endowments;
– A mostly clean environment;
– A favourable geographical location: relatively close to the EU markets, along the European logistics corridors;
– Abundant and cheap labour;
– Skills and traditions in production (for example of vegetables and wine);
– The Macedonian foodstuffs are acknowledged and introduced to the markets of the neighbouring countries;
– The Macedonian consumers mostly favour domestic products as against the imported ones.
The ’list of faults’ of the Macedonian agriculture, however, is much longer. The following items are only the most important ones:
– Small-scale structure, in addition even small holdings may consist of several plots of land;
– Horizontal co-operation among the producers is weak, as a result of which the supply concentration is low and the bargaining position against the buyers is weak;
– Vertical coordination (contacts between producers – merchants – processors) is primitive; ad hoc market relations are typical, there is little permanent contact between producer and merchant/processor;
– The lack of organisation and information often results in excessive production (from one year to another many farmers start to deal with fashionable goods that produced a good income in the previous year);
– The contracts often cannot be enforced;
– Low productivity of labour;
– A significant number of farmers are unable to develop, they refuse to change the old-fashioned methods;
– Entrepreneurial thinking is missing;
– There is weak market orientation among the producers whose basic attitude is to produce and wait for the merchant to find them;
– The applied agro-technology is outdated in many places;
– Propagation material is of low quality;
– Less marketable species are grown (e. g.: apple, sour cherry);
– There is a particularly big lag in the so-called post-harvest activity (freezing, storing, sorting, classification, packaging) in the vegetable and fruit branch;
– Scarcity of capital (in respect of investments and working capital, too);
– The producers have hardly any access to loans;
– The general standards of products of international trade are hardly known and applied (for instance for vegetables and fruits);
– The level of subsidies is rather low (the sum total of agricultural subsidies corresponded to HUF six thousand million in 2005, whereas the producers got sixty times as much in Hungary);
– The agricultural administration is understaffed and of deficient preparedness, which is a bottleneck also from the perspective of getting prepared for accession;
– There is no market information system;
– The system of professional advisors operates poorly: it has few personnel, the technical equipment is deficient, and its activities are not market-oriented;
– The complicated and lengthy procedure of border crossing makes exporting difficult.
Which Agricultural Products Could Offer Chances
to Macedonia?
Generally speaking the following groups of products may offer opportunities in the domestic and external markets:
– Labour-intensive products (due to the low cost of wages);
– Foodstuffs of expanding demand;
– Products of relatively low excessive supply in the Union;
– Bio-products (making use of the clean environment and the fact that traditional agricultural production uses little input due to the limited resources, therefore a significant part of it can be regarded already as quasi bio-product).
Groups of products meeting the above requirements that are potentially competitive are the following:
– Certain fruits (berries – raspberry, mulberry, cranberry; sour cherry, table grapes);
– Certain vegetables (such as red sweet pepper processed for the ethnic markets of the EU, asparagus and other labour-intensive ’niche’ products);
– Sheep and goat products (dairy, meat);
– Wine;
– Bio products.
Policy of Support and Accession – Lessons from Hungary
One of the main tasks of agricultural policy in the accession process is to promote structural adjustment necessary to successful performance in the Union market, which has to be completed up to the date of accession. The accession of Hungary has had lessons in this field that should be considered by Macedonia, too.
The Hungarian agricultural policy continued the policy of subsidies aimed at returning losses up to the moment of accession though it was well known that it was to be terminated or at least reduced. The less competitive a branch was, the more subsidies were allocated to it, which could only be influenced by the lobbying strength of the various branches and the interest groups. Instead of subsidising the potentially competitive branches by supporting investment into vegetable and fruit production, by assisting producers’ sales organisations, or the building of producers’ stores for grain, and developing the transport infrastructure, subsidies were mostly granted to obviously not competitive branches after the accession: such as pig and poultry raising, milk production, and the production of cucumber for canning, of tomato, sweet corn and apple in the vegetable and fruit branch. Thus the producers were disoriented, the accession shock was not mitigated; on the contrary, it was significantly enhanced.
Whereas a rational policy of subsidies helps the potentially competitive branches to become truly competitive after the accession, and in the presumably not competitive branches it orients the producers and prepares the way for the weaker ones to withdraw by the gradual reduction of support according to a timetable announced in advance.
At present it is impossible to answer to the question whether the Macedonian agriculture is a small tiger or just a cat. The country undoubtedly has advantages by which it may cope with the sharp international competition with some of its products, but it is feared that there are insufficient resources to take these opportunities and time is also running short.