9 August 2002

EU ENLARGEMENT MUST WORK FOR THEM TOO

Enlargement of the EU is

generally viewed with

apprehension by UK

farmers. But will it

automatically mean a

bright future for farmers in

east European countries?

Martin Orbach visited

three farmers in Hungary

to hear their story

THE EU has always been about securing long-term peace and stability among the warring tribes of Europe. But its also about the extension of a single market and integrating new member states into the Common Agriculture Policy.

The key points are generally about cost. How much will it cost and who is to pay for it?

Some alarming figures are bandied around. Hungary, out of a population of 10m, has 500,000 farmers. Britain by contrast has around 200,000 in 50m. The semi-subsistence sector in Hungary accounts for 35% of agricultural production, and in the Czech Republic 25%. Thats a long line of people with their hands out waiting for EU generosity.

But the latest statements from Brussels on enlargement paint a rather different picture. Direct aid (ie subsidies) will start at 25% of EU levels and increase to 35% by 2006. Rates of payment will be equalised by 2013.

At the same time national production quotas are being negotiated. Even allowing for bargaining positions, these do not appear to have been over-generous. Poland, for instance, has only been offered one-third of the beef quota it applied for.

The EU approach is to accompany integration with what it calls restructuring. Land prices in Hungary, for instance, are currently about a tenth of the EU average and productivity is at about the same level.

The idea is that over the transition period these differentials should gradually disappear. So by 2013 we should reach a point where there are similar levels of aid, productivity and operating costs throughout the EU.

In Hungary, a symbolic importance is attached to this return to the west. Eight years ago, Hungary became the first post-communist country to formally apply for membership. But as the small print becomes clear, is this faith beginning to weaken?

What does the typical Hungarian farmer think of it all?

Doesnt exist

Problem number one is that the typical Hungarian farmer doesnt exist. Or rather, there isnt a class of independent farmers here in the same way there is in the UK. This is a legacy of the way in which the land was nationalised under communism and maybe the way in which it is being privatised now.

Under communism land nationalisation took two main forms. The state farms were wholly owned by the government and were managed pretty much along corporate lines. They were prestige operations at the cutting-edge of communist technology. A large one might run to 17,000ha (42,000 acres), have its own agronomy and economics departments as well as a canteen and a surgery.

The co-operatives were rather different. The former landowners were (nominally, at least) shareholders in the co-operative. They were not prestigious and were mainly a way of maintaining production and full employment while removing every trace of private enterprise.

The State Farms were mainly sold off between 1990 and 1994 in the initial rush to privatisation. Many of these went straight into private ownership to be restructured along Western agri-business lines. It seems unlikely that a class of independent Hungarian farmers will emerge from here.

The co-ops were less easily disposed of in the first rush. Title to these lands has now been redistributed to the shareholders. Some have disbanded and some have struggled on, until stopped by bankruptcy in many cases. But it is via this route that a small class of independent farmers is beginning to emerge.

Hungary is currently going through a privatisation bonanza but Hungarians are crucially lacking in the wherewithal to invest. In the optimistic version of EU integration these countries will be tied into, and share in, the prosperity and security of the region as a whole.

But to make this a reality they desperately need a thriving stakeholder class of their own. Without it there is a real danger that these countries will end up, like Mexico, as satellite economies largely owned and operated by trans-national companies. In this case the hopes vested in the return to the west may turn sour.

A SUCCESS

STORY IN

ORGANICS

ISTVAN Nemeth is in many ways typical. He lives in the village of Rabcakapi near Sopron, up by the Austrian border. In the early 1990s Istvans job as an engineer disappeared when a huge public works project on the Danube was abandoned. His wife Erica also lost her job.

They both come from the village and were in the process of building a house there. They wanted to stay and through members of the family were able to put together a small amount of land, about 12ha (30 acres). Their first venture into chickens was unsuccessful but the chicken house they built is now used for grading and storing vegetables and is at the heart of a modest but thriving business.

They now farm about 70ha (170 acres) of land in a rotation of cereals and vegetables. Half they own and the rest is leased from other small landowners. They are hoping to buy 3ha (7 acres) of apple orchard this year.

The land is all converted to organic and 90% of what they produce is sold to the German company Hip which makes organic baby-food. A small amount is sold to organic manufacturers in Hungary for distribution to health-food shops.

Istvan and Erica are clearly doing well. They have built a new barn beyond the chicken shed in which stands a newish John Deere tractor, seed-drill, planter and irrigation equipment, a set up that would match that of many smaller organic growers in Britain.

Furthermore, under a new scheme for family farmers financed by the Hungarian government, they will have access to interest-free loans to purchase land and 35% grants for new equipment. The condition is that two members of the family work full-time in the business and they do not employ more than three full-time workers.

Istvan and Erica fit the bill as they are already employing three full-time women from the village. But labour is not as cheap or easily available as you might expect. As in Britain, the rural population is ageing and the low status of agricultural work has made it unattractive to young people.

BREAKING INTO THE FOOD CHAIN

ZOLTAN Horvath has not been so lucky. Like the Nemeths, unemployment drove him into farming. He was an electrician but now farms 70ha (170 acres) of arable land near the Slovakian border. It is an area of undulating hills and the soil is poorer.

His land came from the dissolution of the local co-operative. Some belongs to family members, some is rented from neighbours. Land is readily available in this area and a lot lies idle.

But Zoltans problem is investment. He has no buildings and only an old Russian tractor. He works the farm on his own and pays contractors for harvesting. His produce – cereals, lucerne, and some potatoes – goes into the domestic market through Hungarian companies. Prices are low and falling.

The Hungarian agri-food chain has suffered a double blow. The country lost more than 30% of its former markets with the collapse of the Soviet Union and the break-up of Comecon, the east European trading block. Its domestic market, too, is increasingly exposed to subsidised EU imports, particularly through the influx of high value-added manufactured products brought in by the west European retail giants, like Auchan and Tesco. These companies are now controlling a growing proportion of the Hungarian food-market.

Nearly all the fresh food sold in Tesco stores is sourced from Hungary but farmers like Zoltan cannot break into this supply chain because their equipment doesnt come up to EU standards.

The new scheme for Family Farms wont help much either. He cant put up the 25% down payment needed to qualify for the new machinery scheme and he doesnt think he could repay loans on land even at zero interest. So its foreign farming companies like the Dutch farm next door who are supplying the western retail stores.

SMALLER OPERATORS MAY BE SQUEEZED OUT

SOUTH of Budapest, is Robi Feth. Like the others, Robi has about 70ha (170 acres) of land of which some is his own and some is leased. Unlike the other two, Robi used to work for a co-operative. He and four others were the only ones out of 280 shareholders to reclaim the land to which they were entitled, in his case about 12ha (30 acres).

It took considerable courage. His wife lost her job with the co-operative and he was demoted. Eventually they could not be denied what was legally their due.

Their first harvest was a nightmare. The summer was dry, yields were poor and the revenue from the crop didnt cover the cost of hiring contractors to harvest it. In fact, for their first three years prices were so low that they didnt sell any of their maize. Instead they built up a pig unit to house ten sows. The pens are spacious and clean with wooden barriers for the piglets to run under and fresh straw in all the pens. Hes very proud of his breeding-stock. Although he complains about prices, the pig business is at least providing him with something to reinvest.

But he will need to keep on his toes. His pigs are sold to Hungarian merchants and end up in the traditional pork-butchers shops in the large permanent markets in the cities. At the moment, these are the markets where the vast majority of city-dwellers shop but it is these markets and their suppliers that are most threatened by the incursions of the western hypermarkets.

For the likelihood is that within a few years this kind of semi-intensive small unit will have been squeezed out by more efficient large-scale units organised along western lines and deploying the latest pig genetics.