Wednesday, April 11, 2012

FT: Romania’s farms: rising yields but plenty of room to improve

Romania’s bumper 2011 harvest confirms the country’s position as one of Europe’s leading agricultural producers. Yields have risen impressively, thanks in part to EU funding. But productivity remains low by European standards. The slumbering giant of Romanian agriculture is still performing well below its potential.

Overall cereal grain production rose 24.3 per cent to 20.78m tonnes in 2011, the national statistics office has said, as reported in the local press. Output of maize reached 11.6m tonnes and that of wheat 7.1m tonnes, making Romania Europe’s second and fifth largest producer of the crops, respectively.

Agriculture was an important driver of the economy last year, accounting for 0.7 points of Romania’s 2.5 per cent GDP growth and making up between 8 per cent and 10 per cent of overall GDP, according to Lucian Anghel, chief economist of Banca Comerciala Romana (BCR), the country’s biggest bank. Farming took up some of the slack from other sectors that have slowed, such as real estate.

Most reports have dwelled on the effects of good weather on swelling the crop. But Anghel points out that much of Europe enjoyed favourable weather conditions in 2011 and that Romania’s output growth was considerably higher than the EU average.

Stelian Fuia, agriculture minister, told beyondbrics that rising commodity prices and more effective delivery of subsidies were important factors. He notes that Romania has reduced the area of agricultural land not under cultivation from 3m to 1m hectares over recent years partly due to these incentives.

Romania has improved its absorption of crucial EU funding, which is being used to promote farm consolidation, upgrade rural infrastructure and construct processing facilities for agricultural produce. According to Fuia, the EU’s 2007-2013 funding package can be spent up until 2015; this far, absorption stands at 40 per cent and the minister is confident that the remainder of the cash can be allocated in the next three and a half years.

It will be needed. Growth may be eye-catching but it is from a low base. Yield in kilograms per hectare terms grew by around half last year – but only from 51 per cent of the EU average to 67 per cent, says Anghel. As a report published by BCR last year noted, productivity remains low due to a lack of investment in things like machinery and irrigation, a small skills base and fragmented land, in which many still operate as subsistence farmers and more produce only small surpluses. Subsidies have helped the sector’s revival but they remain low by European standards, at around €120-140 per hectare, whereas they are as much as €460-480 in the Netherlands (where costs are also admittedly high).

Anghel sees closing the output gap as both a challenge and an opportunity.

“Romanian agriculture is currently operating at only around half of its productivity potential, compared to leaders like France,” he told beyondbrics. “But that potential is huge. Romania has good land, a major port at Constanta, access to the Danube, and EU funding absorption can increase further. Our major cereal export markets include Syria, Saudi Arabia and Egypt, so we’re less vulnerable to the eurozone crisis.”

Fuia says that effective allocation of Union funds is a priority for the coming years, particularly to encourage farmers to integrate smallholdings into more efficient and productive larger farms and to encourage the young and skilled to move back to the countryside.

To this end, the minister has floated the possibility of establishing a land bank to aid consolidation and support young farmers. Local press reports have suggested that this could be a tactic to limit land ownership by foreigners through giving priority to Romanians. Fuia denies this and says he values the capital, knowledge and technology brought by foreign investors. Non-Romanian firms already own around 8.5 per cent of land under cultivation, including major players with tens of thousands of hectares. Fuia hopes that the government’s policies will make it easier for more Romanian farmers to reach the same scale and participate in their country’s resurgent agricultural sector.

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