Why no “Green Revolution” in new Member States?

 

Competitiveness and innovation in the agriculture of new Member States before EU accession can be assessed as relatively poor. In a part of the area, the situation even resembled the situation in developing countries. In the parts where a certain level of development was achieved, i.e. closer to the Central Europe part of EU, extreme structural deficits were perceived. There was an obvious need for a development policy that would support restructuring and enable a new development cycle of agriculture.

Strong RD funding for modernisation of farms

Comprehensive European resources from the pre-accession and accession rural development funds were thus of great help. The issue of raising competitiveness became one of the key priorities of the rural development programmes in the region, which account for 35 do 65 % of total funds per country. Comprehensive support programmes were formed, with support to capital investment to agricultural holdings and to the food processing industry as the prevailing measures. Direct support to innovation was not apparent, but some countries used the support for extension services and knowledge transfer.

Thus in the period from 2000 to 2012, the region received a strong financial injection of public funds for development and modernisation of agriculture. No precise calculation was made, but according to estimates, more than EUR 20 billion of EU and national funds were invested for these purposes. This is a huge investment which should contribute significantly to raising competitiveness in the entire agro-food chain.

Impact assessment of the policy is quite demanding: existing national evaluations are rather bureaucratic and do not go beyond simple descriptions of fund distribution and numbers of approved projects. Not many analyses of macroeconomic effects are available at the level of the entire region, only some partial analyses, which, however, expose problems in programming and implementing this policy.

Creating new landlords?

Funds go mostly to individual large projects in agricultural production and food industry, as well as to the purchase of agricultural mechanisation, which reaches a wider circle of beneficiaries. Large modernisation projects are mostly granted to large agricultural holdings (private individuals or companies) which are capable of meeting the demanding criteria for obtaining of funds. They usually involve building and comprehensive planning of stables, ecological facilities, bioenergy plants. Partly, the projects involve the replacement of old facilities, mostly for increasing the capacity, and for sanitary, environmental and animal welfare adaptation. In food industry, the projects mostly involve establishing of new plants to replace the old ones which fail to meet the hygiene and environmental standards.

Only rarely do the projects involve completely new approaches and innovation, but rather the transfer of the most recent technologies which already exist in Western Europe. Thus, the innovation element is not particularly present in agriculture, the technological innovation mostly comes from Western European industry and is usually adapted to the management of larger holdings.

A number of successful projects of this type can be found in new Member States, ranging from half a million to several million EUR worth of investment. If we disregard some cases of corruption and bad investments, these are mostly successful cases of establishing new economic infrastructure. Often, these holdings obtained several projects from EU funds, becoming their special preoccupation.

The fundamental question is how such an approach actually contributes to changing the structure and raising competitiveness. It probably involves around 3000-6000 agricultural holdings (in the whole region) or one per 20,000-30,000 ha of agricultural land and 40,000-60,000 of rural population (all very tentative estimates). These investments are very often unevenly distributed across regions.

Such an approach and extraordinary inflow of funds importantly contributes to raising the competitiveness of a few individual holdings, but not of agriculture at the aggregate level, neither does it significantly contribute to improving the welfare of the rural population. On the contrary, it widens the differences among the rural population: the EU funds creating a type of ‘new landlords’ who then tend to take ownership as well as the political initiative.

Policy makers are of course afraid of making wrong investments, and therefore prefer to give funds to those who are clearly capable of implementing the projects, in terms of the capital and substance. Although a new competitiveness ‘lever’ is established, some important goals of the rural development policy fail to be met.

Support for selling mechanisation and equipment

Otherwise, investment in equipment and mechanisation reaches a wider circle of beneficiaries. These applications are less demanding and public funds in fact contribute to the improvement of capital assets and help solve capital “malnutrition”, for these farms. These funds are much better accepted by producers, as they enable them to acquire modern equipment, in particular machinery (tractors, etc.). But also, the measures have certain weaknesses. They can be granted to everybody, regardless of the development perspective of holdings, although small and subsistence farms are excluded, because they are not able to provide their own funds or they are excluded by the planners. Often, farmers purchase very expensive equipment, which they thus get at very cheap prices, but they speculate that they will be able to sell it after the compulsory period expires. This pushes up the price of mechanisation, on the market.

Considering this, there are substantial deadweight losses in the distribution of public funds. Also these measures often have a concrete impact on individual holdings, but not so much raising their competitiveness, merely helping them stay on the market. Neither could it be claimed that these measures substantially improve the competitiveness of agro-food industry at the level of the state or region. The innovation element is also lacking, as it is mostly about the purchase of mechanisation produced by technology from elsewhere (even if the equipment and mechanisation is produced in new Member States).

No “green revolution”

Finally, the development of innovation and knowledge transfer in NMS seriously lags behind the new investment. It is not the priority of the EU funds, but entirely left to national financing. The whole region lacks a suitable infrastructure for the formation and transfer of knowledge and innovation development. The expected ‘green revolution’ did not happen after accession. Thanks to subsidies, incomes in agriculture improved, but the value-added did not increase, neither was there any significant break-through at the level of groups of producers and regions. The absence of national investment to innovation and knowledge transfer, which has further deteriorated since the beginning of the financial and economic crisis after 2007, is an important reason behind the lack of more integral development. Knowledge formation at the national level is weak, in some cases even weaker than before the transitional period. Although public extension services, which are meant to assist also smaller producers, exist, they are more engaged in assisting them to access public funds than contributing to technological and organisational development. To exaggerate a bit, these countries transposed from the Western Europe the democratic interest-lobbyist manner of organising agricultural interests, but almost completely failed to transpose a comparable European public system of knowledge transfer. There was also no systematic support from the European government or non-governmental organisations for these functions.

RD as only redistribution policy

The reasons for the current situation are multi-faceted and stem not only from the predominant methods and approaches to programming and implementation of rural development policy, but also from the general perception of agricultural policy measures, as well as competences and capacities of the human resources and institutions necessary for their efficient implementation.

The decision-makers and also the entire agricultural sector view rural development policy too much as a tool for the redistribution of funds in agriculture: only important in order to achieve the greatest possible absorption of the EU funds and satisfy well-organised interest groups. The quality aspect and the actual meeting of the strategic goals of rural development policy – at least by definition – only come second. The policy programmes are not based on real analysis of the situation and identification of problems. Often there are inadequate data and analytical bases to pursue such an approach. What is preferred is simple solutions which often stem from a merely bureaucratic transposition of solutions from other countries, and are not a result of a rational reflection and search for the best possible solution in a real-world environment. They do not take sufficiently into consideration the actual situation in a region and/or sector.

The production-based, partial approach prevails, instead of an integral economic approach. Programming is predominantly by administrative elites, which prioritise the needs of administration and fear of failure to meet the EU criteria over the search for ways to stimulate greater competitiveness. There is a critical lack of vision for a sustainable development of agriculture which would be based on an integrated view of the situation and its development opportunities.

Innovation as an important factor in competitiveness is usually not included in the spectrum of approaches. There are only rare cases of more sophisticated approaches based on the development of human resources and transfer of knowledge, and encompassing a wide range of beneficiaries.

The deficiencies in programming thus further lead to inefficient implementation of measures. Overcome by fear of failure to meet the EU criteria and of fraud; administrators design extremely complicated implementation systems which are not friendly to beneficiaries, but on the contrary, narrow the circle of applicants to those few beneficiaries who have sufficient funds and knowledge to respond to such complex calls for tender. Calls are fragmented by individual sectors and types of capital investment. The selection is usually bureaucratic-based, not based on a comprehensive assessment of the business idea and its realization, but merely on meeting numerous standard and pre-determined criteria.

The failures of impacts evaluation system

There are only a few cases of comprehensive and objective assessment of tenders which engage experts and specialists in various competitiveness issues. There is a lack of skilled human resources in the relevant ministries and paying agencies. There is a general deficit of broad and relevant agricultural-economic knowledge in civil society in these countries, which is necessary for comprehensively addressing development issues.  This is not only a problem in the public administration but also among the interest groups, extension and research institutions.

The entire system of programming and planning rural development policy lacks sophisticated and integral solutions and therefore falls victim of the poor quality of public administration, lack of capable human resources and the burden of absorption of EU funds. The European Commission is not of great help here. It is a part of the rigid administrative system. It is not viewed as an adviser but as the guardian of legitimacy. This is in a way understandable, but it often narrows the programme perspective and the potential measures by expecting RDPs to use already existing solutions and restrictions. It is sceptical about investment in both small and very large farms. It always targets the centre of the structure, the medium family farms which are, however, very rare in Central and Eastern Europe. By its approach, the European Commission no doubt contributes to the inefficiency of rural development policy in the new Member States, in terms of competitiveness. Its main goal is that the programmes are implemented and that the funds are used, in line with the legislation.

Although rural development policy has an extensive system of evaluations in line with the policy cycle theory, these are unfortunately only bureaucratic exercises. They are ordered by the ministries, which, of course, do not want to be criticised. Because of the complexity of the issues involved, these evaluations are very demanding and are beyond the scope of many of the companies dealing with them. As experience shows, there is no real cooperation between evaluation groups and the Commission, which could contribute to a better quality of programmes.

Finally, the perception and the concept of agricultural policy in these countries are, in many ways, quite specific. Apart from the countries with a relatively liberalist attitude to agriculture, such as the Czech Republic and Latvia, the protectionist attitude prevails in most other countries, placing an emphasis on production and national food security. What is usually seen as a societal problem is the poor exploitation of resources and low income situation of farmers. Environmental issues, which importantly affect perceptions of agricultural policy and its formation in Brussels, Berlin, Paris and London, are in this part of the Community largely seen more as an administrative burden than a public obligation. In most of these countries, the decision-makers and the public see the provision of a sufficient quantity of food for the domestic population as the essence of agricultural policy. Thus, competitiveness is not perceived as the key issue of agricultural policy. Although structural indicators of agriculture have been mostly trending upward since  accession, they still reveal the low value-added of agriculture, a lag behind in productivity, unused production potential, and growing negative social trends.

Poor public knowledge transfer system

The investment support system apparently at least works, but with certain problems of efficiency and real impacts. But the situation is more alarming as regards the promotion of innovation and knowledge transfer. Innovation is rarely present in the agricultural policy approach. Public systems of knowledge transfer only exist in outline, and their effects are questionable. This part of the agricultural infrastructure and policy is faced with lack of funds as well as a rather disrespectful attitude of decision makers towards investments in knowledge. Under-development of a public research and extension network significantly affects the efficiency of support aimed at raising competitiveness.

The problem in new Member States is not only the search for basic development solutions and their transfer, but also filling technological and organisational gaps. The institutions in the chain of knowledge lack funds and human resources. Potential young academics prefer to search for other types of employment as these professions are less attractive, not only financially but also in terms of status. Rather than engage in technological development, the developing agricultural science largely prefers to engage in basic research in applied biology and biotechnology, the sciences where national and international projects can be won but which are not directly useable in knowledge formation and transfer for agriculture.

Support for better policy: Commission working like OECD secretariat?

To be able to thoroughly reflect upon the situation and search for proper solutions, the Commission should establish services that would engage in constant monitoring of policies not only at the level of the Community but also at the level of individual Member States. They could have a similar function as, for instance, the OECD secretariat has for its members, which carries out constant and objective monitoring of agricultural policies (PSE calculations, dealing with certain issues). In addition, an institutional framework should be established in the form of committees, which would comprise  independent experts who would give their opinion on the policy and also monitor the situation. This could be a kind of advisory body for sustainable competitiveness (or for other issues of agricultural policy, e.g. environmental and territorial).

Moreover, the rural development programmes, evaluations and individual issues should be subject to proper expert reviews, not just the bureaucratic ones which prevail today. There is a need to educate and licence suitably qualified evaluators, who would then have an independent mandate and would assist the Commission in its assessment of whether to approve a certain programme. Also external experts would need to be included in the process of approving the programmes, who would provide their opinion and in this manner contribute to better quality programmes.

The European institutions should also adopt new guidelines on good practice in the area of raising competitiveness and in particular innovation. Implementation of these practices in member States should also be monitored and special bodies should give recommendations.

Recognition of the issue at the national level  

At the national level it should firstly be that competitiveness becomes the central issue of agricultural policy and that innovation and knowledge transfer gain importance. Furthermore, it should be reconsidered how to approach different groups of producers in terms of market size or capital power. Economic approaches should be pursued to a greater extent than currently. Licensing and special forms of education should be put in place for programming and evaluation projects.

In the area of extension services, rural development policy should support the formation of networks and workshops where producers of various types join together and, using modern communication approaches, search for concrete solutions for individual groups and cases. Support to extension services should constitute an important part of overall support. Even a compulsory share could be considered.

Special attention should be paid to the formation of more efficient research support for raising competitiveness and innovation. Rural development policy funds should be used to support the formation of demonstration centres, projects aimed at filling technological gaps, researching biological, mechanical and organisational progress, adapted initially to the situation in a concrete environment in a Member State. A lot could be achieved by a more efficient transfer of solutions from foreign environments which, however, need to be properly tested and adapted to the new environment. Public support to research and education institutions has multiplier effects. In the given economic situation and considering the social role of agriculture, this could not be achieved without support from the EU funds.

Also the national decision-makers should be convinced about this, as they still view income support as the main tool for raising competitiveness and pay less attention to support to restructuring and knowledge transfer.  An important contribution could also be made by the discussions and strategies adopted in the European Parliament and other European institutions.

Emil Erjavec

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  1. East ~ West; focus on food security vs. focus on competitiveness? | FoodPoliticsEU - May 23, 2012

    [...] is a summary of a blogpost titled ‘Why no ‘Green Revolution’ in new member states?’ on CAPreform.eu [...]