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CHAPTER 1 - INTRODUCTION

1.1 EU accession

On 1 May 2004, ten new member countries joined the existing 15 members of the EU (EU-15) in the biggest single enlargement of the EU to date. The new members comprise the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia (referred to as the AC-10). The Accession Treaty was formerly signed on 16 April 2003 in Athens, following completion of the negotiations in Copenhagen in December 2002. At present it is planned that, provided they meet the necessary criteria, Bulgaria and Romania should join the EU in January 2007. However, at this time Turkey’s application for membership has been deferred indefinitely.

Of the AC-10, eight (CZ, EE, HU, LV, LT, PL, SK, SL) are geographically Central and Eastern European Countries (CEECs), as are Bulgaria and Romania, all formerly part of the communist soviet block. Since 1990, these countries (referred to collectively as the CEECs-10) have undergone many socio-political and economic changes in their transitions from socialist central planning to democracy and a market economy. In contrast, Malta and Cyprus are relatively small islands in the Mediterranean with very different histories and economies. Due to their greater size and hence larger market presence, this report will concentrate mainly on the CEECs-10 states, with data for Cyprus and Malta included where appropriate, for instance in tabulated data and overall summary values.

Table 1.1: Economic statistics for EU Accession Countries, 2002

Country	Population (1,000s)	Land area (1,000 ha)	GDP (€ billion)	GDP per capita in PPS
Cyprus	680	930	11	17,360
Czech Republic	10,220	7,890	78	15,280
Estonia	1,360	4,520	7	10,020
Hungary	9,870	9,300	69	13,420
Latvia	2,340	6,460	9	8,460
Lithuania	3,450	6,530	15	9,410
Malta	400	30	4	16,620
Poland	38,240	31,270	202	9,550
Slovakia	5,390	4,900	26	11,330
Slovenia	1,990	2,030	23	17,710
AC-10	73,930	73,860	444	11,320
Bulgaria	7,900	11,100	15*	5,940
Romania	22,300	23,840	45*	6,080
EU-15	377,790	323,430	9,169	24,060

Source: adapted from Eurostat, 2003, *2001.
PPS= Purchasing power standards indicate the national currency units needed to purchase the same basket of goods and services, allowing comparisons of purchasing power per capita between countries.

The AC-10 brings about an increase in population of the EU of almost 20% (from 378 million to 452 million) and an overall increase in gross domestic product (GDP) of nearly 5% (from €9,170 billion to €9,610 billion) based on figures for 2002 – see Table 1.1. In comparison, the US population was 291.4 million and the US had a GDP equivalent to €11,080 billion in 2002. Approximately 80% of the population increase and 65.6% of the increase in land area are accounted for by just three of the AC-10: Poland, Hungary and the Czech Republic making these countries the most important of the new members. The future accession of Bulgaria and Romania will bring a further significant enlargement with the move from EU-25 to EU-27 increasing land area by an additional 9% and population by a further 7%. Hence, by 2007 the EU-27 population should be in the region of at least 482 million, with a GDP of €9,670 billion.

Accession of the AC-10 brings an additional 4 million farmers to join the 7 million farmers in the EU-15 and creates a total internal market of 450 million consumers. It is predicted that the purchasing power of the 75 million new consumers from the AC-10 will grow at double the rate of those in the common market of the EU-15 countries. Based on comparisons of GDP per capita represented as purchasing power standards (see Table 1.1) growth in purchasing power of the AC-10 increased by nearly 13% in the period 2001 to 2002 compared with just under 4% growth for the EU-15.

Figure 1.1: Comparative farm animal populations for EU-25 member states and the US

Source: Eurostat, USDA.

The new member states (NMS) add approximately 38 million hectares of utilised agricultural area, a 30% increase on 130 million hectares of the EU 15. However, due to the lower intensity of farming in much of CEE, the agricultural production in the EU-25 will have increased by 10–20% for most products. Compared with the US (see Figure 1.1), the EU-25 now has a cattle herd approaching the same size (EU-25: 88 million cattle vs. US: 97 million cattle) but milk production is approximately 68% higher (EU-25: 130 million tonnes vs. US: 77.5 million tonnes). The EU-25 pig herd (154 million pigs) is approximately 2.5 times bigger than that of the US and sheep numbers (at 90 million sheep) are considerably larger (US: 6.7 million sheep) reflecting the relatively low consumption of sheep products in the US. Consequently, the enlarged EU has great potential for competitive agricultural production and reforms to the EU Common Agricultural Policy (CAP) detailed in Chapter 2 are intended to help the NMS modernise their farming sectors to produce sustainable and competitive agriculture.

When new countries join the EU, they must adopt the ‘acquis communautaire’, the body of legislation and rules that apply to EU members. Accession countries had a variety of agricultural policies and systems, and joining the EU has necessitated changes in agricultural practices in order to integrate with the EU. Examples would include the privatisation of state farms and adoption of EU quality control procedures in food production. EU legislation to be complied with includes directives covering the movement of animals and animal products, and standards controlling the production and use of veterinary pharmaceutical and biological products. The EU has funded various programs to help the accession countries prepare for the changes. These include the IPSA and SAPARD programmes. IPSA (Instrument for Structural Policies for Pre-Accession) supported infrastructure projects in transportation and the environment. SAPARD (Special Accession Program for Agriculture and Rural Development) was intended to support sustainable agricultural and rural development in the pre-accession period, helping to modernise the agricultural sector. However, the programme involved 50% co-funding, and farmers have had difficulties gaining access to farm-aid funds due to bureaucratic problems, complex forms and the requirement for payments to be met and then claimed back later.

1.2 Agricultural sector

In terms of employment, land use and share of GDP, agriculture plays a more important role in many of the AC-12 members than in the pre-existing EU-15, particularly in Lithuania, Poland, Slovenia, Estonia, Bulgaria and Romania (see Figure 1.2). In the Czech Republic, Hungary and Slovakia, agriculture is less important, employing only about 7% of the population nationally as these countries are more highly industrialised.

Poland is the biggest agricultural producer of the AC-10, with an agricultural output worth €5 billion (2.5% of GDP). In the other new members, agriculture contributes between 1.2% (Czech Republic) and 3.8% (Cyprus) of GDP. In Bulgaria and Romania, agriculture plays a more prominent part in the economy, accounting for at least 10% of GDP (see Figure 1.2). The balance between animals and crops in agricultural production varies between the CEECs with animal production accounting for over 60% of agricultural output in Estonia, approximately 50% in Poland but only about one third in Romania.

There is higher employment in agriculture in the accession countries, with approximately 13.4% employment in this sector in the AC-10, compared to 4.0% in the EU-15. For comparison, employment in agriculture also stands at 4.0% in Japan but only 2.4% in the US. However, amongst CEECs there is far more subsistence and semi-subsistence farming than in the EU-15. In Bulgaria and Romania, subsistence farming remains very important and their current meat and dairy production and processing would not be very competitive in the single European market.

Figure 1.2: Social and economic importance of agriculture¹, 2002

Sources:  Eurostat, FAO, 2003
Notes: ¹Agriculture includes forestry, hunting & fishing.

CEE agriculture has been highly labour intensive, generally with low yields. Wages are low, average incomes in the AC-10 are approximately 50% below that of the EU-15. Land is relatively cheap while inputs such as feed and fertiliser are relatively costly, and capital is expensive and hard to obtain.

The CEECs tend to have lower wages in the countryside than in urban areas, with capital cities often having the highest average wages. Farm income is expected to increase somewhat after accession as product prices rise nearer to those of the EU-15 and direct payments are made from the CAP. In some rural regions, communities are extremely poor, especially in Romania, Bulgaria and Latvia. Agricultural workers tend to be particularly poorly paid, earning less than the average wage. In Bulgaria and Romania, farm workers earned as little as €80 per month in 2001–2002. It is anticipated that following accession there will be a gradual increase in wages, and higher income growth is predicted for the AC-10, thus narrowing the current income gap compared with the EU-15.
A rise in land prices is also predicted, which will probably reduce the number of people working on the land and there will be a general move towards more mechanised and intensive farming. There may be a move away from pasture grazing of cattle to greater feed input. If rural infrastructure and incomes improve, markets for agricultural produce are likely to grow, to be met both by local production and by import of high value added products from the EU-15, eg dairy products and lean pork.

1.3 Farm size

At present, most of the CEECs have a dichotomy in the structure of farming with a polarisation towards some very large farms and many very small holdings of only a few hectares, often subsistence or part-time farms. The farm structure is particularly fragmented in Poland, Latvia and Slovenia. In 2003, there were 9.2 million farms in the CEECs-10, 82% of which were under 5 ha, and thus accounting for only 27% of the cultivated land. The frequency of very small farms ranged from 97% in Bulgaria to 42% in Latvia. Such farms are often too small for the use of large machinery, which would also be beyond the farmer’s financial means. Many of the smaller farms cannot provide sufficient income for the household and other jobs or social security support are required to top up income. While some of the smallest holdings are unlikely to survive long term, others may enlarge and become commercially successful. It is anticipated that over the next few years there will be a trend towards a reduction in the number of the smallest farms and a move towards larger farms. Intensification has enabled development of commercially successful pig or poultry production enterprises on some farms with a small land base.

At the other end of the scale, 63,000 enterprises (1% of the total number of holdings) are larger than 50 hectares and are responsible for 38% of the area cultivated in the CEECs-10. These are mainly large-scale commercial companies and co-operatives. 15% of the farms in the CEECs-10 have 5–20 ha and only 2% have 20–50 ha. It is considered that these holdings have a better chance of future economic viability, especially those over 20 ha.

Farm size has been influenced by differences in the method of privatisation within the CEECs at the beginning of the post-communist transition period, and later by other socio-economic factors. For example, in the absence of other local employment, people were more likely to farm the small amounts of land they were allotted.

Farm ownership is also variable because of past changes. In some countries state ownership of farms is not allowed, while in others it has persisted at a very low level since privatisation, some being breeding or research institutions. Of the CEECs-10, there are only small numbers of state farms in Slovakia, Lithuania, Latvia and Estonia and their importance is expected to fall further in the future as privatisation continues. Individually held farms, including household plots, are so numerous that they account for a large percentage of the agricultural land in many CEECs, at least 85% in Poland, Romania, Slovenia and Latvia. Commercial companies, and in some countries ‘modern’ co-operatives, farm a relatively large share of the land (50–75%), especially in Slovakia, Bulgaria, the Czech Republic and Hungary, although in some CEECs only individuals have been permitted to own land and commercial organisations have to lease it.

In contrast to the high availability of land and cheap labour in the CEECs, capital is much harder to obtain. Farms in Poland, Hungary and the Czech Republic generally have more capital than those in Slovakia, Lithuania and Estonia. Average farm sales per hectare, assessed in 2000 or 2001, were highest in Hungary, at 1,013 Euro/ha. Sales were approximately three quarters of this value in Poland and the Czech Republic, but lower in the other CEECs-10, being only 347 Euro/ha in Latvia.

1.4 The animal health and nutrition sector in the region

The animal health and nutrition market in the 10 countries profiled in this report was worth €244 million in 2003, as detailed in Table 1.2 below. Poland is by far the largest market, and accounts for almost one third of the total. Poland, Hungary and Czech Republic together account for two thirds of the regional market. Individual country profiles are presented in Chapters 3–12.