Down on the Romanian farm

By bne IntelliNews November 17, 2011

bne -

On paper, Romania should be able to produce enough food to feed its 21m population four times over. In reality, it only produces enough to feed half of them.

While employing a quarter of workers, agriculture generated just 6% of GDP last year, half the contribution it made in 2004. Over the long term, around 5%, twice the EU average, would be about the right level, reckons Lucian Anghel, chief economist at BCR bank. But at the same time, the number of people working in the sector should be cut in half and output would need to stop falling so fast.

Nearly every scrap of land was used under the brutal Ceausescu regime, but since that collapsed in 1989 at least a quarter of the country's 12.5m hectares of arable soil have fallen derelict - some say more - while much of it is now in the hands of property speculators. Were this to be reversed, Romania's arable land area would match that of Poland and Spain, or about two-thirds of that of Europe's farming powerhouse, France.

But putting derelict land back under the plough is a formidable task. "Much of it is in a poor state, over-run with weeds and some is now turning to scrub," says farming consultant Stuart Meikle, a 48-year-old Brit based in Brasov, Transylvania. "It would be a massive investment to reclaim it. It will take more than a simple mowing or ploughing."

The plots thicken

What remains are largely subsistence smallholdings. Post-communist governments returned land to the descendants of those from whom it was seized. This was popular, but led to fragmentation, eliminating economies of scale and diluting farming expertise. "It was politically driven with no regard for land being the foundation of an agri-food industry," says Meikle.

Irrigation and drainage systems, which often depend on the cooperation of land owners to keep them operating, have fallen into disrepair. "Multiple owners have to agree on investing or maintaining this infrastructure. It has not happened and probably will not happen," says Meikle. Only around 3% of land is irrigated or drained as well as it was 20 years ago.

"Progress needs investment," says Meikle, "and investment needs consolidated and controlled areas of land." The farms as they are too small to supply the large volumes need by the recent influx of supermarkets, which largely stock imported food. There are very few success stories, "What would just be a normal farm elsewhere in the EU is seen as a major success."

A fiendishly complex system of grants set up a decade ago has also failed to reach farmers. Consequently, machinery and buildings are almost completely dilapidated. A simpler grant system like that of post-war Britain and Holland is needed, where a simple application procedure was backed up by a regime of rigorous on site inspection.

The paperwork associated with purchasing land is also prohibitively high, which discourages land consolidation. In some cases, the cost of paperwork can exceed the price being paid for the land itself. Banks, for the most part, have little interest in the sector. Higher taxes on uncultivated land could help get the market moving, BCR's Anghel says. A few big players have started to buy up Romanian land, among them foreign investors from Italy, the UK and Arab states. But there is a long way to go before the problem of fragmentation is overcome. Together, the land area of large, commercial-scale farms accounts for less than 10% of farmland. "There is a lot of room to improve that share," Anghel says.

Farmers also need to learn to cut costs by working together. Anghel admits that is tough for Romanians who come from the communist era and its forced collective system to accept, but says farmers need to overcome those negative associations and band together to gain critical mass. Otherwise, he argues, "It's very difficult to invest in fertilisers, tractors and so forth."

At the same time, there is little political appetite to turn the sector round. Even the Agriculture Minister Valeriu Tamaru says the decline in agriculture's economic importance is a positive sign that Romania is moving away from an inherently risky sector. Meikle begs to differ. "If the agri-food industries were working as they should, they would be the driver of the overall economy." Anghel agrees: "We should come back to base and the base is agriculture."

However, there's little chance of any immediate conversion to this point of view. In the run-up to elections next year, a politician mentioning agricultural reform would jeopardise his or her chances of winning the votes of the roughly 2m agricultural workers.

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