Begegnungen
Schriftenreihe des Europa Institutes Budapest, Band 28:95–101.

FRIGYES NAGY

The Impact of the South-Eastern Enlargement of the EU on the Hungarian Agriculture

The socio-economic development of the European Union is characterised by enlargement and deepening. The extent of these tendencies is subject to continuous debate. It is a significant point of consideration that the member states should possess a stable economy. This is prescribed by macro-economic indicators (convergence criteria). Meeting these criteria is demanded of the acceding countries, too, and even set as a precondition to accession. This is particularly true for membership in the European Monetary Union. Presently Hungary has been making efforts to achieve those conditions.

Enlargement, however, is not only the desire of those intending to accede but it is increasingly in the interest of the member states, too. In the period of globalisation enlargement is a historical necessity because the competitiveness of the EU depends significantly on the size of its internal market. As contrasted to earlier ideas, the EU was suddenly and almost surprisingly enlarged by ten new members in 2004. Obviously differences between the various member states have increased. It seems plausible that the Union would prefer market expansion to convergence. In the case of Turkey it is obviously an important factor that this country has the second largest army of the NATO and it is a significant factor of security policy in this region.

Accession negotiations have been carried on in this spirit with the Southeast European countries: Romania and Bulgaria became members on 1 January 2007, Turkey and Croatia figure among the candidates, and there is a valid Association Agreement with Albania; and Bosnia-Herzegovina and Macedonia should not be forgotten either. The budgetary deficit of the newly independent Montenegro is only 1.8%, its rate of inflation is 1.9%, no wonder that it strives to obtain Union membership. Serbia’s budget has surpluses. Negotiations have not begun because the country is not co-operating with the International Tribunal of The Hague in extraditing war criminals.

The Significance of Agriculture in the Different Countries

These prospective member states represent free markets for Hungary, but inside the country they have to be seen as competitors. Would the level of their agricultural development endanger the interests of Hungarian agriculture? In what branches are we competitive and how should we adjust to the increasingly keen competition? Answering these questions is difficult because statistical data are available only with great lacunae. Professional literature currently deals primarily with political issues. Reference to problems of branches is made only in exceptional cases. The time has come to put professional questions into the foreground. Though topical antecedents are missing from the literature some macro-economic indicators provide opportunity for the study of the economic development of the given countries and to draw some conclusions. The EU statistics primarily deal with Bulgaria, Romania and Turkey.

The territory of the Balkans is 150 million hectares where 140 million people live. The internal market would be extended by a large number of consumers with the expected accessions thus enlarging its markets. The number of inhabitants in the given countries is taken account of in this context. The 2004 enlargement has brought along 70 million new consumers ’to the market’. The accession of Bulgaria, Romania and Turkey would altogether increase that figure by 100 million. As far as the per capita GDP is concerned, it can be seen that these are poorer countries. If the GDP of the EU–15 is taken for 100% the one in Bulgaria is only 24%, in Romania only 27%, and in Turkey only 23%. The consequence is that the per capita GDP average would drop on EU level, and even its 75% would fall, therefore several regions cannot obtain rural development funds since this index in their case would be above 75%. The proportion of those employed in agriculture is 26% in Bulgaria, 32% in Romania, 33% in Turkey, and 59% in Albania. This figure is around 5% in the EU as well as in Hungary.

The EU has also been the largest consumer potential up to now and new perspectives would emerge in the future with further enlargement. It is worth producing for the community of five hundred million consumers of the future EU, and prices can be formed for the large-series goods that may be competitive even if they approximate the lower world market prices and would not require export subsidy. In fact this is of vital interest for the agriculture of the EU and coincides with the ’rules of the game’ of world trade.

Studying the significance of agriculture it can be seen that this branch plays an important role in South-Eastern Europe: its share in the GDP is above 10%. In Bulgaria it is 16%, in Romania and Turkey it is 11%, in Albania it is over 25%. It is only a few per cent in the EU, but it cannot by far mean the devaluation of the agrarian world.

Issues of the Holding Structure

The structure of holdings and competitiveness are interrelated. Unfortunately the individual countries perform statistical groupings in entirely different ways; in addition, data supply is extremely deficient. The following data had to be collected from the internet. Their exactitude cannot be proved, and even then a rather rough image can be drafted on the basis of these figures. Yet they provide some help for orientation. Currently no meaningful data can be found about Croatia and the other candidate countries of the Balkans even on the homepage of the EU.

A fragmented structure of holdings is characteristic of every country. While the average size of holdings is 20 ha in the EU–15, it is 7.5 ha in Hungary, 15 ha in Turkey, but usually two thirds of the land is owned by farms of very small plots. The average size of holdings in the countries not listed here is below 4 ha, and in Croatia and Slovenia it is below 1 ha. As no information could be obtained about rented lands, unfortunately no conclusions could be drawn from the concentration of holdings about the concentration of land use, whereas this would be the more important indicator of competitiveness.

In Bulgaria there are about 760 thousand farms. One per cent of them is economic associations that are the successors of production co-operatives and state farms cultivating 80% of the arable land and produce on 536 hectares on average. Visibly we are facing here a rather high concentration of land ownership which may be a potentially serious competitor, particularly if they are able to introduce modern technologies by expediently exploiting EU resources. Seven hundred thousand farms, constituting 94% of all farms are smaller than 1 ha and are using 14% of the total land. They primarily produce for subsistence, but it should not be forgotten that many of them grow vegetables and fruits, and may be significant producers of goods even on smaller plots of land. The remaining 6% of land is cultivated by private farms with an average of 6.2 ha holding, and among them there are also numerous farms producing vegetables, fruits and grapes.

In the restitution process after the system change Romania restored the conditions following World War II. As a family could get maximum 5 ha of land at the time of the land reform, it could get back the same size of holding after the system change. This has its imprint on the current structure of holdings. There are altogether 3.9 million farms. Of this figure 1.2 million farms above the size of 3 ha own 74% of the land. There are 2.7 million farms of less than 3 ha, owning 26% of the land. But that figure includes 1.6 million farms with less than 1 ha, owning 6% of the total land. Thus farms of more than 3 ha, capable of commercial production represent 30%. The concentration of holdings has been vigorously in progress. The economic associations play a role in it which can purchase land even if they are in 100% foreign ownership. It should be remembered that 60% of the territory of Romania is suited for cultivation; it has ports at the Danube and at the sea which mean comparative advantage.

There are 3 million farms in Turkey. There are 180 thousand among them possessing more than 20 ha of land, totalling 6% of all. There are 2 million and 820 thousand farms of less than 20 ha, using 96% of the total cultivable land, and there are about 1 million and 590 thousand of them having less than 5 ha disposing over 6% of the total. Production has been dynamically growing on this huge area; hence it is a serious competitor for Hungary in several fields.

The Degree of Self-sufficiency

The member countries try to sell their surpluses in the single internal market. Therefore it is not pointless to find out whether Hungary as a net exporter would find itself facing the products of the new members? It should be noted that in certain cases the growth of the products of some branches shows dynamic increases in these countries while data reflect a static situation. Therefore they should be handled with reservations.

In Bulgaria there is a significant surplus production of vegetal goods. The degree of self-sufficiency in wheat is 159%, and 154% in maize, it is 224% in sunflower and 221% in oilseeds. Soybean is the only one of which they can produce only 60% of their needs. In the case of the products of animal husbandry the degree of self-sufficiency is 101% in pork and 110% in mutton, but it is only 77% in beef and 91% in poultry meat. Annually they export 20 thousand tons of mutton. Milk production is 3200 kg per lactation. No figures are available about surpluses of vegetables and fruits, but it is commonly known that Bulgaria is capable of significant exports in these fields.

Self-sufficiency in the case of Romania is 124% of wheat, 130% of maize, and 100% of sunflower. The figure about oilseeds is 98% and 86% of soybean. The level of self-sufficiency is 95% of beef, 99% of pork, 100% of mutton, and 99% of pigs. In this case data were available about milk too, saying that self-sufficiency is 100%. Currently Romania was given quota only for 60% of its milk production, presumably because of the low proportion of extra quality. As fodder can be produced cheap in Romania their production of pork and poultry meat may represent a strong competition for Hungary.

No indices of self-sufficiency could be found for Turkey. Yet some data allow for certain inferences. For instance, they grow wheat on ten million hectares, which means 20 million tons even if the average yield is only 2 t/ha. This may mean surpluses even if supplies have to be allocated to 70 million inhabitants.

The land-based subsidies start from 25% here too, but the reference yields are extremely low. As contrasted to the Dutch 6.7 t, to the Austrian 5.0 t, and the Hungarian 4.43 t it is 2.7 t in Bulgaria as well as in Romania. It means that if we set out from full subsidies, Romania would be entitled to receive 170 euros/ha as contrasted to the Hungarian 300 euros/ha.

Foreign Trade

It is commonly known about Bulgaria that similarly to Hungary it is a net exporter. Ten per cent of its total exports and 6% of its imports are agricultural and food industry products. Their annual grain export is 2 million tons.

Romania’s agricultural foreign trade is in deficit. Its exports are 0.337 billion and imports are 1.010 billion euros. The deficit of the foreign trade balance is enhanced by 0.337 billion euros by the agrarian sector. They need annually 2–3 million tons of wheat to be imported. Obviously they would strive to increase production and export.

Turkey is also a net exporter country. Its agricultural foreign trade shows a positive balance of 1.3 billion euros. The value of its exports is 4.2 billion, and of its imports is 2.9 billion euros. They import annually 4 million tons of maize and 1.2 million tons of sunflower seed. Their positive balance is 400 million USD in vegetables and export fruits to the value of USD 1.5 million. Dynamic growth can be observed in the export of vegetables, fruits, tobacco and seeds.

Accession from the perspective of the market may be regarded as advanced for Bulgaria and Romania, for they have a significant space of mobility towards the EU member countries customs-free duties or at low customs tariffs by their Association Agreements.

Twenty per cent of Hungary’s export is oriented to the Balkans and 6–8% of our imports come from there. It is primarily Croatia, Romania, Bosnia-Herzegovina that purchase mostly grain, meat products and sunflower seed, whereas Romania, Croatia and Serbia are remarkable in Hungary’s imports of fruits and of sweets industry products.

It should be pointed out that there is a significant inflow of foreign capital to Bulgaria and Romania, and the multinational companies can be found there almost without an exception.

Some Findings

Production as well as consumption has significantly decreased in Bulgaria and also in Romania after the system change, similarly to the other former socialist countries. A low level of consumption can be observed in the case of all the Balkan aspirants. Experience shows that significant growth can be expected in this field in the medium-term. The per capita consumption is also low in Turkey and the purchasing power is not strong. Therefore it would not be easy to acquire market positions, particularly if it is remembered that the other EU countries would also want to assert their offensive for gaining markets without which their calculations related to enlargement would not materialise.

There are 81 million hectares of arable land in the Balkans as against the 140 million hectares of the EU–15, which is a huge agrarian potential. Restitution for land was done by re-privatisation in Bulgaria and Romania, thus the land ownership conditions created by the land reform after World War II were preserved and are characterised by fragmentation and de-concentration. Dwarf holdings and farms settled for subsistence are in excess, which do not participate in commodity production and are not market actors. The competition of concentration as the motive force of success can be found in the background of market competition. In Hungary the concentration of land use shows an accelerating trend, which means competitive advantage in issuing larger quantities of homogeneous and lower-priced goods.

Unfortunately, no data are available about tenancy, though it could offer an image of the concentration of land use.

The agriculture of the countries under survey is characterised by the lack of capital. It is not indifferent how one can utilise the resources becoming available by EU membership. This also influences the changes of competitiveness. At the same time those countries have comparative advantages due to their river and maritime ports. Cheaper labour also means temporary advantage, particularly in vegetable and fruit production.

Agrarian policy is simple in these countries; the forms of subsidy are primarily manifest in subsidies accorded to prices and exports. The information systems are extremely deficient and unreliable. The latest data refer to the years 2002 and 2003. They hinder the clear vision of governments and their possibilities of movement. These countries set out at 25% for the land-based subsidies, thus they may reach the then 100% level of the EU by 2006.

The natural indices of animal husbandry also leave much to be desired, particularly in the field of plant health, animal health and the protection and welfare of animals. For this reason their possibilities in export markets may remain unutilised, whereas it would provide opportunity for us to push forward. The building of Union border posts also causes difficulty.

References

Avar László: Oldalpillantás a Balkánra (A Side View of the Balkans). Magyar Mezőgazdaság, 10 May 2006.

Glatz Ferenc: A Balkán-kutatás reneszánsza, 2005. (The Renaissance of Balkan Studies, 2005). Ezredforduló, 2006/1.

Juhász Imre: Törökország az EU-ba készül. (Turkey Prepares Itself for the EU). Magyar Mezőgazdaság, 23 August 2006.

Kádár Béla: Az EU külgazdasága. Délkelet-Európa és Magyarország. (The External Economy of the European Union, South-Eastern Europe and Hungary). Ezredforduló, 2006/1.

Somogyi Ferenc: Az EU keleti kiterjesztése és Magyarország (The Eastern Enlargement of the European Union and Hungary). Ezredforduló, 2006/1.