Area-based Subsidies in the Odorhei Region of Romania

Andrea SÓLYOM

Sapientia University, Department of Social Sciences, Libertăţii Square, no. 1, Miercurea Ciuc, Harghita County, Romania, RO - 530104
andreasolyom@yahoo.com

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KEYWORDS:

area-based subsidies, Common Agricultural Policy, European Union, challenges

ABSTRACT

Since Romania has joined the European Union (2007), new types of agricultural subsidies were targeted at reforming rural development policies, streamlining grants, as well as rationalizing and diversifying agricultural systems.

The Harghita micro-region differs significantly from the European Union (EU) average in many aspects of agriculture. The share of agricultural land in the total land surface is about 1.5 times larger than the EU average; the workforce employed in agriculture is about five times larger, the mean size of a plot is one sixth of the size in the EU; and the contribution of agriculture to GDP is 3.5 times larger than the average in the European Union. At the same time, 29% of the agricultural centres and 20% of the agricultural workers of the EU are located in Romania (Eurostat, 2008). Romania is thus a key player in shaping the future of agriculture in Europe.

Country regions are facing multiple challenges. Some are demographic – low employment rate, low level of education, narrowing employment opportunities for women and youths; others are economic – low income, slow pace of development and a lack of skills both in areas of agriculture and food processing industries. The rapid improvement and modernization of agriculture in Europe will expectedly pose severe challenges for the poor regions. In the 15 original member states of the Union approximately two million full-time agricultural employees will leave their jobs by 2014. In the ten countries that joined the Union in 2004 the workforce expected to leave the industry is estimated at 1-2 million people, in addition to another 1-2 million in Bulgaria and Romania. Thus, about 5 million of expectedly unemployed people are hidden in the agriculture sector. In predominantly rural areas the biggest challenge is to avoid unemployment resulting from the lack of transferable skills and from low income rates. In such rural areas where agricultural employment is widely spread, the reform process design will profoundly impact the economic region’s development as an entity.

This study aims at assessing the level and the ways of using local subsidies and grants available to farmers in the Odorhei region of Romania. By contrasting the various settlements and micro-regions, I compare the size of farmland units and the number of farmers, to correlate them with the number and the amount of various regional subsidies that they have applied for and been granted.

In addition, I propose to study the impact of these grants within the agricultural context of the region. Applications for regional grants have shown close ties to local idiosyncrasies. Among these important factors is the particular demography of a settlement, its employment structure, the ratio of active and inactive inhabitants, the distribution of the active workforce among industry sectors, in addition to geographical characteristics: topography, soil quality, size of lots, number of livestock. About all these aspects recent information is scant and unorganized. I believe that by providing a solid assessment of the background of applications for and use of regional subsidies, a better foundation for their usefulness can be laid.

INTRODUCTION

Although agriculture has never been reduced to providing food alone, a policy stressing its multifunctionality started up only in the past decades, as the basis of a new European model of agriculture.

Since Romania joined the European Union (2007), new types of agricultural subsidies were targeted at reforming rural development policies, streamlining grants, as well as rationalizing and diversifying agricultural systems.

The Harghita micro-region differs significantly from the European Union (EU) average in many aspects of agriculture. The share of agricultural land in the total land surface is about 1.5 times larger than the EU average; the workforce employed in agriculture is about five times larger, the mean size of a plot is one sixth of the size in the EU; and the contribution of agriculture to GDP is 3.5 times larger as compared to the average in the European Union. At the same time, 29% of the agricultural centres and 20% of the agricultural workers of the EU are located in Romania (Eurostat, 2008). Romania is thus a key player in shaping the future of agriculture in Europe.

Agriculture also has a strategic position. On the one hand, every country is interested in providing a certain level of self-sufficiency from agricultural products; on the other hand, agriculture should assume tasks related to environment, society, and employment (eco-social services) (Ángyán, 2004).

Agriculture both endures and produces environmental damage, since it is responsible for 15% of greenhouse gas emissions (principally methane gas produced by animal husbandry).

The European Union ranks first in the world from the point of view of food export and import. On the one hand, it is aligned to the Rome Treaty norms; on the other hand, due to new challenges (e.g. the change in subsidies, consumers’ requests for healthy food) EU agricultural policy is in continuous change.

EU spends the most significant part of its budget on the Common Agricultural Policy (CAP). The agricultural lobby is powerful, the strategic position of CAP can be originated from political, social and economic factors and can be explained by the strategic position of agriculture, since it sustains a certain lifestyle and contributes to conserving rural characteristics.

Due to globalisation and to the challenges of EU enlargement, the value of agriculture and CAP has increased in the past few decades.

THE CONTEXT: CHALLENGES IN THE ENLARGED EU

The enlarged EU is confronted with different types of challenges: economic, social, environmental etc. This paper focuses only on the challenges of rural areas. There are problems related to human resources of rural settlements, and there are also economic and environmental issues.

A widespread human resources problem is the unfavourable demographic situation. The main part of European rural areas can be characterized by an old age structure. Romania is confronted with the same changes: in the past few decades the rural population grew old, while some areas have been affected by massive depopulation. The above mentioned problems are connected to other fields of social life in Romania: the lack of infrastructure, of local institutions and jobs. Another local problem related to human resources is the poor level of education and qualification needed in agriculture and the food processing industry (European Commission, 2006). From the point of view of equal opportunities there are threatened groups, such as women, youth and elderly people.

Examples of economic problems are the lower average income as compared to other sectors, lower employment rate, higher unemployment rate, and slower development of the third sector. The difference between incomes in agriculture as compared to other sectors has been huge in the past few years, as shown in Figure 1 below.

Figure 1: Income in agriculture and other sectors in EU, source: http://ec.europa.eu

The rapid improvement and modernization of agriculture in Europe will pose severe challenges for many regions. In the original 15 member states of the Union approximately two million full-time agricultural employees will leave their jobs by 2014. In the ten countries that joined the Union in 2004 the workforce expected to leave the industry is estimated at 1-2 million people, in addition to another 1-2 million in Bulgaria and Romania. Thus, about 5 million expectedly unemployed people are hidden in the agriculture sector. In predominantly rural areas the biggest challenge is to avoid unemployment resulting from the lack of transferable skills and from the low income rates. In such rural areas where agricultural employment is widely spread, the reform process design will profoundly impact the economic region’s development as an entity.

Theoretically CAP contributes more and more to preventing environmental damage (European Commission, 2007). The processes of greening, modulation and degression are the main reforms of CAP (Ángyán, 2004).

Practically the old models and instruments should be reviewed. One of the questions is to what extent can a set of procedures and tools elaborated for six member states be sustained in the case of 27. Challenges can be handled less and less efficiently at the member state level: cooperation and coordination are needed. Challenges also play a role in the reform of CAP: climate change, bioenergy, water management, biodiversity are fields where the EU is committed to prevention and conservation actions.

How will changes like suspension of dairy subsidies affect our region? On the one hand, the EU plans to provide compensation payments to underprivileged areas, such as mountainous regions; on the other hand, increasing added value can help farmers to find solutions for the situation after 2015, namely through the processing industry, and there is some good practice in Odorhei region for these types.

The area-based subsidy in 2008 was 61 euro per hectare, while in 2009 it reached 71 euro. Given a large land area, many livestock, poor quality of soil, or closeness to a protected area, the subsidies can reach – instead of the average 600 (3 hectares x 200 euro) – even 12000 euro per year in such special cases. Another issue concerns the purpose of the subsidy: to sustain traditional small family farms or to create big estates? The process of developing subsidy policies and also farmers’ decisions are shaped by economic constraints.

The National Rural Development Plan has been developed based on national land use proportions. Regional differences were not taken into consideration. As we can see in Fig 2 there are major differences between Romania and Harghita County from this point of view. The subsidy system affects mountainous regions negatively.

Figure 2: Structure of land in Romania in Central Region and in Harghita County

MATERIALS AND METHODS

In this study I assess the level and method by which farmers have been taking and propose to take advantage of local subsidies and grants available to them. By contrasting the various settlements and micro-regions, I compare the size of farmland units and the number of farmers, to correlate them with the number and amount of various regional subsidies that they have applied for and been granted.

In addition, I propose to study the impact of these grants in the agricultural context of the region. Applications for regional grants have shown close ties to local idiosyncrasies. Among these important factors is the particular demography of the settlement, its employment structure, the ratio of active and inactive inhabitants, the distribution of active workforce among industry sectors, in addition to geographical characteristics: topography, soil quality, size of lots, number of livestock. Of all these aspects recent information is scant and unorganized. I believe that by providing a solid assessment of the background of applications for and use of regional subsidies, a better foundation for their usefulness can be laid.

This paper is built on two empirical sources: statistical data about the municipalities available on the webpage of the National Institute of Statistics and results of a survey completed by the author in April-May 2010, focusing on the demographic and economic situation in Odorhei region.

RESULTS AND DISCUSSION

Before analyzing connections between local particularities and area-based subsidies, the paper will describe the situation of land subsidies in 2008 in Odorhei region. In Odorhei region there were 119943 eligible and 70071 subsidized hectares. Figure 3 and Figure 4 show the details of each municipality: quantity and proportion of eligible and subsidized lands.

Figure 3: Quantity of eligible and subsidized lands in Odorhei region

Figure 4: Proportion of subsidized lands compared to eligible ones

The number of claims in Odorhei region was 9308 in 2008, while the amount of subsidies reached 52.796.520 lei. Figures 5 and 6 show the number of claims and the amount of money received by each municipality.

Figure 5: Number of claimers

Figure 6: Amount of subsidies

In the next few sentences the Homorod – Rika – Târnava Leader region will be presented briefly. This is the area where this paper analyzed connections between local characteristics and land subsidies. 17 municipalities form the region. In the last ten years the population of the region decreased slowly from 45587 to 45094 inhabitants. The age structure shows that the area is strongly affected by ageing: 16% of the population are younger than 14 years, 57% are adults between 15 and 59 years, and 27% are above 60 years old.

In the past five years the employed population decreased by 1000 people. The region has a particular structure of economic sectors being a dominantly rural area: 66% of the active population work in agriculture, 19% in industry, 4% in trade and 11% in the services sector.

67% of the lands are agricultural and 33% represent forests, roads, bridges etc. 33% of the agricultural lands are used as arable lands, 31% as pastures and 36% as meadows.

In the region there are 830 companies, most of them being microenterprises.

In the last few years (mostly since 2007) 47 local development projects were implemented by the local authorities. The projects were mainly aimed at infrastructure development from Romanian public funds and the European Sapard program, the value of the investments was around 48 million lei.

Farmers from the Homorod – Rika – Târnava Leader region claimed subsidies for the 49,94% of the eligible lands in 2008, and they earned an average of 1,8 million lei per municipality.

There are connections between the demographic situation and the number of claims. The number of claimers grows with the number of inhabitants and the number of active people (Fig 7).

Figure 7: Connections between demographic characteristics and subsidies

Figure 8: Connections between agricultural characteristics and subsidies

As could be expected, the local characteristics of lands are strongly related to applications for subsidies. The more arable land and pasture a municipality possessed, the more claims for subsidies were made (Fig 8).

Figure 9 shows an interesting correlation between the amount of subsidies and local development. The number and the amount of subsidies grows with the amount of money spent by local authorities on infrastructural development in the past few years. This connection shows that a municipality’s economic viability seems to foster other developmental segments, too.

Figure 9: Connections between local development and subsidies

CONCLUSIONS

As expected, the quantity of eligible and subsidized lands, the number of claims and the amount of subsidies are strongly connected to certain local characteristics related to farming, such as: the number of inhabitants, the number of adults, the number of employees working in agriculture, the quantity of arable and agricultural land, the quantity of pasture.

However, it seems that area-based subsidies are not correlated with other local factors which determine economic life, such as the distribution of active population among other sectors, the number of companies, or civil society initiatives.

In order to find deeper explanations related to area-based subsidies, the author considers it important in a subsequent study to analyse the personal and family aspects, by unveiling human capital issues and stakeholders’ motivations.

REFERENCES

Ángyán József, 2004: Agrár-környezetgazdálkodás és vidékfejlesztés: az európai agrárfinanszírozás új útja, Agrárium 2004/4 (in Hungarian)

European Commission, 2006: Employment in rural areas: closing the jobs gap, Brussels, 21.12.2006, COM(2006) 857 final, http://ec.europa.eu/

European Commission, 2008: The Common Agricultural Policy explained, http://ec.europa.eu/agriculture

European Commission, 2007: Preparation for the "Health Check" of the CAP reform, Brussels, 20.11.2007, COM(2007) 722 final, http://eur-lex.europa.eu

Eurostat, 2008: Europe in figures, Eurostat yearbook 2008, Eurostat Statistical books