Integrated strategy for Agricultural and
Rural Development in the Czech Republic
1
W ork i ng P a pe r S eri e s
Working Paper xx Work Package 11, January 2003
Integrated Strategy for Agricultural and Rural
Development in the Czech Republic )
DRAFT VERSION 6. März 2016
Tomas Ratinger
Tomas Doucha, Ivan Foltyn, Ladislav Jelinek, Kamila Koutna, Frantisek
Nohel, Jaroslav Prazan
Research Institute for Agricultural Economics, Prague
This Research Project is Financed by the EU Commission's 5th Framework Programme
(QLRT-1526):
Quality of Life and Management of Living Resources
Key Action 5 - Sustainable Agriculture, Fisheries and Forestry, and Integrated Development
of Rural Areas Including Mountain Areas
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
2
Executive Summary
The Czech republic is an industrial country with significant rural features. Predominantly rural
areas cover 91% of the country territory and 63% of the population. About 60% of rural areas
are relatively sparsely populated. However, the importance of agriculture in rural economy
has declined.
Economic and property rights reforms have resulted in a substantial reduction of agricultural
employment. During the period 1989-2001, the average number of employees in the sector
has dropped by more than two thirds. Because this process culminated in early 90ties, when
the industrial decline had not stared yet, the rest of the economy was able to absorb released
agricultural labour and no social tension appeared.
In the second of 1990s industry passed through a deep depression. The rural areas with
people commuting to urban (industrial) centres were hit severely by a rapid growth of
unemployment. The process of slow (year by year tiny), but long lasting migration out of
remote rural regions threatened their socio-economic-ecological sustainability. The area
having suffered the most significant structural difficulties (remote) accounted for a quarter of
the rural space.
The Czech government addressed the rural problem in several separate politics:

supporting improvement of important attributes of rural life which are not usually a
subject of business activities (such as culture, heritage renewal, improvement of
village appearance etc.)

enhancing development rural non-farm economy by supporting small and medium
enterprises.

promoting farming, particularly its role in preserving rural environment and landscape.
These policies without doubts generated benefits for rural areas, however, they had only
limited scope and have been loosing the synergy effect due to lack of co-ordination and
planning.
The analysis provided in the IDARA projects highlighted different roles of agriculture in
different types of rural areas and different needs for state assistance. In the rural areas
largely integrated in the national economy the socio-economic importance of agriculture has
declined, but farming has remained a key of land use. In the remote areas with more 10
percent of active population engaged in agriculture, farming has become a critical factor for
survival. The fact that these people do not commute to urban centres creates necessary
minimum demand for services. Farming population is usually significantly attached to local
environment and nature and carries cultural tradition, these characteristics contribute to the
stabilisation of rural areas. However, the nature conditions for agriculture are usually (but tot
necessary) worse in rural areas suffering structural difficulties than elsewhere. The research
confirmed a big gap in productivity and economic performance between farms in better and
less favoured areas.
The Czech agricultural and rural development policy has been challenged to harmonise with
the EU environment for almost a decade. This included structures of support, particularly,
common market organisations, and the standards for food safety, environmental pollution
and animal welfare. The pre-accession rural development programme – SAPARD
contributed to harmonise the scopes of the support and to build up (public) institutional
capacity for co-ordinating the future programmes.
With adopting CAP the agricultural sector performance will improve substantially. The sector
gross value added will rise by 67% due to higher prices. Direct payments will imply an
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
3
additional substantial improvement of income (NVA at FC by 162%). However, the gradual
increase of direct payments toward the 100 percent is likely to guide farmers in less efficient
production structures (decrease of GVA), although farmers will continue to be better off. This
increasing policy inefficiency will hardly be socially justifiable.
De-coupling of direct payments may allow both i) following the objective of protecting farmers
against income risk and ii) letting farmers seek for the (economically) optimal structure.
It is important how the improved income will be distributed; i.e. how much will be reinvested
in improving farm productivity, and how much will flow out of the sector in form of increased
rents and wages. It is likely that non-member capital holder of assets in co-operatives will
press managers to be paid off. In the other word, policy makers should be aware that there
are more stakeholders than only farmers who will spend effort to capture the benefit of the
CAP. Thus the resulting improvement of income of the rural population engaging in farming
will not necessary be as good as it might seem now.
The EU approach to the rural development is not entirely different from the current Czech
one. However, adopting the EU framework will substantially improve the integration of rural
development policies. The National Development Plan will outlines much of the overall
strategic context within which the objectives of and measures of the agricultural rural
development plans (HRDP and SOP) will become operational. Although the full integration in
implementation cannot be expected, the sector approach will be crossed at least to some
extent. The Rural development regulation implemented in the agricultural SOP recognises
support to farmers to diversify their activities in non-agricultural rural economy.
The Czech republic concluded the negotiation chapter on agriculture at the time when the
discussion about the future CAP culminated again. The general direction of CAP follows the
necessity to move away from being a sectoral policy which support farmers through
agricultural commodity markets, toward a territorially defined and more integrated policy
which contributes alongside other elements of public policy to the development of rural
areas. In the mid-term review of CAP, the changes aim to address food safety and quality, to
help farmers adapt to new standards and to promote animal welfare.
The Czech strategy for agricultural and rural development has to be built within the
framework of European agricultural and rural development policies and their envisaged
reforms. We understand that the adoption of the current common market regimes is
temporal, earlier or later it will undergo further reforms in which farmers will be exposed to
larger international competition. The desired new policy (or strategy) should be integrated in
several respects:

efficiency, environmental sustainability, consumer safety and rural development
should be balanced

distortions which have (or even will) over stimulated certain sectors should be
removed

attention will have to be paid to increasing farmers awareness of necessity of
changes

the support should be open to local people – farmers and non-farmers as well as
collectives like community organisations to create sustainable economic environment
in rural areas.
The strategy has four elements: market stabilisation, environmental and cultural landscape
contracts, food quality and safety and rural (non-agricultural) development
Market stabilisation (Agricultural income stabilisation)
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
4
Agricultural production is associated with relatively high degree of risk. This risk involves
dependence on weather and exposure to pests and diseases, high proportion of immobile
assets (land) which reduce freedom of manoeuvre, moderately long gestation period
involved in the production cycle. The general perception is that the scale of the problem of
risk management in relation to the capacity of businesses involved (farms) to act is such that
some public assistance is justified.
The current CAP provides market stabilisation through safety nets for the most important
commodities (cereals, beef and pork) based on clearly defined (triggering) rules. Thus the
basic mechanism for market stabilisation exists.
Gradual liberalisation of milk market will be welcome since the sector need to continue
improving efficiency and modernisation. Expanding the quota and lowering the support price
will provide a necessary degree of market stability for planning the investment on one hand
and it will also reduce the pressure on buying expensive quota when modernising and
expanding production.
The simulations have shown that the Czech beef sector will tend to be over-stimulated at
least shortly after accession. It will be not only the price but to large extent the headage
premiums. The Midterm review proposed reform may de-couple the incentive from beef, but
the already applied Czech environmental policy has (weakly) coupled environmental
payments to beef. The argumentation behind it rests in stimulating desired conversion of
arable land in grasslands and grasslands have to be utilised by cattle or sheep. The Czech
agri-environmental schemes may tend to continue in this direction after accession. The
policies fostering the beef sector will threaten the stability of the beef market. In short run the
Czech Ministry of Agriculture should open a discussion on the future of the beef sector and
advise farmers not to over react to incentives from the CAP. In the medium and long run, the
Czech republic should argue for lowering the support to beef in terms of price and direct
payments.
The accompanying measures to reducing the dairy and beef support should include the
expanded access to investment supports in order to promote modernisation (conditioned
also by animal welfare and environmental standards) and conversion from dairy beef to
specialised beef breeding.
Environmental and cultural landscape programmes
Agri-environmental policies should continue to be structured in three levels (legal obligations,
support to farming systems, support to specific environmental management), but the levels
should be more balanced.
The Czech republic belongs to countries which put strong emphasis on obligatory
environmental legislation. The current active Czech agri-environmental policy consists mainly
of measures supporting grassland maintenance, the package targeted to specific
environmental management practises is small (15% of the budget).
EU accession will expand the range of environmental measures which will enable to address
a much larger spectrum of environmental values. There are two directions in which the policy
should improve further:
1) the agri-environmental policy should not be designed and implemented without
assessing interrelation to the other policy directions; moreover, policy directions have
to complement each other;
2) the need fro horizontal co-ordination has to be recognised.
The Czech policy makers (the Ministry of Agriculture) have to be aware that some agrienvironmental measures may imply higher output of some commodities and it may affect the
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
5
commodity markets. The Czech republic should also argue for changing CAP in the way that
environmental and other rural development measures (particularly investment) can be
combined, and claim the mechanism to be developed that such a combined projects are
applied, assessed and implemented in an integrated way.
We argue that a number of environmental benefits require significant co-ordination (either
because they are so complex or spatial). Therefore, the policy should include support to
establishments of local/regional associations (round tables) which will invite local
stakeholders to develop an environmental management plan (e.g. for landscape
management or for conservation), to prepare a project or projects and to co-ordinate their
implementation. The associations should be regional or local, can resulted from public
administration initiative or from private/ NGO one. We would also suggest binding certain
environmental programmes to the existence of such a body.
To make it successful the environmental policy should pay attention to the knowledge base
of farmers and other agents engaging in it. Information dissemination, training and education
and extension should be an integral part (with a budget) of the policy. It can be mentioned
local/regional associations, it can be the public administration or other bodies (NGOs) who
take this role.
Quality and differentiation
It is recognised that it is becoming extremely difficult to compete on the globalised market.
The pressure from the other world market producers on reducing the protection in Europe is
high. It can be also shown that quite a large proportion of the support to farm income is paid
by consumers (24% in the CR, 49% in the EU). To continue earning the premium by the
European farmers the products should be differentiated and high quality. The quality involves
safety and the environmentally safe and animal welfare friendly way of production too.
In its Midterm review the Commission stresses that it is a fundamental obligation to
guarantee the safety of food to consumers both within and outside the EU, and this therefore
must be a continuous top priority for the CAP (European Commission 2002a).
The Czech republic already harmonised legislation with the European system for ensuring
food safety. There is still a lot of work on the way of its enforcement in practice. It has been
spelled many time that the Czech republic will have to continuously strengthen the capacity
to deal with food safety enforcement.
Guaranteeing that production meets consumer wishes in terms of quality is a dynamic
process between consumers and producers. The Czech policy should not underestimate the
concern of Czech consumers (although their income is substantially lower than in the current
members states) and include in the national plan measures encouraging farmers to
participate in quality assurance and certification schemes. Differentiation can be done on the
basis of organic farming or (on farm) processing locally specific products. To be it successful
a nation wide co-operation in distribution and promotion.
Generating employment in rural areas.
The analysis confirmed that there are significant differences in productivity and overall farm
performance between marginal and the other areas. This threatens that farmers will give up
farming and look for jobs elsewhere. The LFA compensations, which have already been
applied in the Czech republic and are a part of the EU Rural development regulation,
contribute to the stabilisation of rural settlement.
IDARA investigation concluded that farm diversification contributes not only to the
stabilisation of the business, but also to job creation or maintaining all year employment for
otherwise only seasonal labour. The success of diversification is not simple. Obtaining initial
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
6
capital is often difficult. Equally important seems to be networking. Relationships with other
companies provide means to diversify with little or no investment and a ready market for the
goods produced. Encouragement of such relationships could aid in promoting diversification.
However, the development process cannot rely on informal institutions - the formal ones
have to emerge. The Czech government should stimulate establishment of regional
development agencies (planning institutions) and emergence of regional advice agencies,
which will be a link between businesses and external environment.
All policy elements qualify for investment support. Formally, it can be allocated separately,
however, investment directions should integrate with the main policy elements and the
individual projects should be assessed in the context an integrated development plan.
Investment support should not only oriented on primary commercial activities, it should also
include primarily environmental or social activities. In spite of the support programme for
investment farmers as well as non-farming economic agents reported the difficulty with
getting bank credits. A top-level negotiation with banking sector should contribute to the
improvement of credit conditions. Rural development agency should be in the position to
agree a framework with banks for rural development projects. It can be also expected that if
investments a business plans fit to a solid development plan it will improve client and project
evaluations by the banks.
A particular issue is the direct income support. We argue that the direct income support for
corporate businesses is quite a non-standard approach. On one hand it is not clear who and
why should earn the benefit, on the other hand, there are sector problems, which need to be
solved. It is particularly “reform” indebtedness and insufficient replacement of outdated
assets. If payments are made digressive across the EU, than the Czech republic may claim
to being able to collect the difference between the initial and final levels of the payments in a
fund which will compensate “eligible (from restitution) owners” of agricultural assets who
decided not to participate in farming business and will assist modernising farms.
The beneficiaries of this approach will be current capital holders. Once the process (which
has to be defined precisely) of curing farms financial/capital position will be finished, the
resources will be transferred to the regular rural development funds (as it will be done in
modulation). The rest of the direct payment budget will be distributed in the standard decoupled direct payment way. It is obvious that such a solution will require further elaboration
and a broad discussion between policy makers and agricultural public.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
7
Table of contents
Executive Summary
2
1
Introduction
9
2
Rural Areas
9
3
2.1
General characteristics of rural areas
2.2
Rural areas during transition
12
2.3
Current (non-agricultural) rural development programmes
14
Agriculture
17
3.1
Land reforms, privatisation and structural development
3.1.1
Land reforms and privatisation
3.1.2
Structural development in the late 1990s
17
17
18
3.2
Agricultural output, trade and sector performance
3.2.1
Agricultural output
3.2.2
Price development and sector performance
3.2.3
Agricultural trade
21
21
25
27
3.3
29
Farm income and labour productivity
3.4
Agricultural policies
3.4.1
Changing priority areas during transition
3.4.2
Market support policies – Pillar I measures
3.4.3
Competitiveness enhancing policies
3.4.4
Policies addressing environmental and rural development problems –
agricultural
3.4.5
Pre-accession policies (adoption of acquis, SAPARD)
3.4.6
Conclusion on policies
4
9
Analysis of the current Situation and Impacts of EU accession.
30
30
32
33
34
35
36
38
4.1
Agriculture
4.1.1
Sector Analysis
4.1.2
Farm Level Analysis
4.1.3
Policy Implications
38
38
43
51
4.2
Rural Development
4.2.1
Assessment of the farm sector potential to contribute to rural development
4.2.2
Rural Development: Policies
4.2.3
Policy recommendations
51
51
63
68
5
Policy recommendations – a strategy
69
6
Appendix
74
7
Literature
76
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
8
List of Figures
Figure 1 Distribution of agricultural employment in rural areas.
11
Figure 2 Employment characteristics of rural areas
Figure 3 Employment structure and labour intensity
Figure 4 Shifts in the structure of crop products, 1989-2001
Figure 5 Development of livestock output, 1989-2001
Figure 6 Development of revenue in relation to price and output developments.
Figure 7 Terms of trade and the sector performance
Figure 8 Development of labour productivity and income per labour unit, 1995-2001
Figure 9 A development of the ratio between budget outlays for Pillar I and Pillar II
policies
Figure 10 Expected agricultural revenue in individual scenarios
Figure 11 Expected shifts in animal productions relative to the reference scenario
Figure 12 Changes in the crop structure relatively to the reference scenario
Figure 13 The changes in sector income according to the scenarios relatively to the
reference scenario
Figure 14 Labour and capital intensity in farm clusters
Figure 15 Financial viability of Czech farms
Figure 16 Farm performance in clusters
Figure 17 Frequency of the sources of household income between 1990 and 2000
Figure 18 Characteristics of selected regions
12
20
22
24
26
27
30
37
40
41
42
43
48
49
50
53
64
List of Tables
Table 1 Rural areas according to EUROSTAT definition
Table 2 Rural areas according to OECD definition
Table 3 Characteristics of rural areas
Table 4 Land tenancy structure
Table 5 Farm structure development, 1989-2000
Table 6 Land use comparison – the Czech republic, Germany and Austria, 1999
Table 7 The structure of Czech agricultural trade
Table 8 Agricultural trade in the processing level and territorial break down
Table 9 Czech agricultural policy outlays in the CAP break down
Table 10 Agri Environmental measures
Table 11 SAPARD measures and budget
Table 12 Policy variables in scenarios – the simulation year 2006
Table 13 Changes in production structure in respect to reference scenario.
Table 14 Structure and Representativeness of the FADN farm sample for the Czech
Republic
Table 15 Descriptive Statistics, Profitability Ratios, Czech FADN Sample, 1999
Table 16 Regional/local and national priority areas in rural development and rural
policy measures
Table 17 Results of model i-sim simulations for Czech agriculture to the year 2006
10
10
11
18
19
21
28
28
32
34
35
39
40
45
46
66
74
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
9
1 Introduction
The Czech society has passed through a turbulent transition from an authoritative regime
based on command economy to a democratic society based on market economy. On the
way social preferences as well as policy method have changed substantially. Although
agricultural output was big, due to inefficiencies in storing, processing and distribution food
supplies varied considerably in the pre-reform period. High agricultural intensity polluted
significantly the environment, however the priority of the regime rested in food selfsufficiency. As the state supported agriculture substantially, the rural agricultural population
enjoyed quite a high living standard. The reforms and market adjustment affected the levels
of food chain in different manners. The agricultural sector contracted and fragmented, but
large farms have survived. Food industry has had to modernise quickly and concentrate to
compete internationally. Food distribution has changed entirely; new multi-product outlets
emerged and have been wining the market fast. In spite of loosing low food prices,
consumers have benefited in many other respects. The quality and assortment of products
rose sharply in the middle of 1990s. By opening the economy and due to improvements in
distribution food supply has stabilised.
Important changes have happened in rural areas. Agriculture has not only reduced its
participation in the rural economy, and hence, its contribution to rural income, but
(necessary) has withdrawn from providing a lot of social services. Some rural areas were
affected seriously, and people have stared to migrate out.
In the end of the transitional process the country will join the European community. During
this integration process societal priorities and problem perceptions converged. Nowadays,
the Czech society as well as the European one has become concerned with the way its food
is produced, the quality, variety and safety of that food, the environmental effects of food
production and the balanced development
Objective of the strategy paper is to draw attention to particular issues in rural development,
like population stability, income and employment, the role of the farming sector in it and
options for integrating agricultural and rural policies in a coherent framework. All the
assessment and policy recommendation are done in the context of EU accession and
adoption of the Common Agricultural Policy.
2 Rural Areas
2.1
General characteristics of rural areas
There is not a unique concept of rurality. Although it is evident that rural areas differ from
urban centers in a number of features like life style and values recognized by their
inhabitants, nature environment or economic structures, for policy purposes rural is usually
conceived as a spatial/territorial concept. The OECD uses a simple definition of rural areas
for the purpose of making international comparisons of rural conditions trends (European
Commission 1997). The definition distinguishes two hierarchical levels of territorial unit: local
and regional. At local community level (NUTS 5), the OECD identifies rural areas as
communities with a population density below 150 inhabitants per square kilometre. At
regional level, the degree of rurality, is derived from the share of the region’s population living
in rural communities. Regions are grouped into three types, predominantly rural regions (with
over 50% of the population living in rural communities), significantly rural regions (15 to 50%)
and predominantly urban regions. Since the average population density of the Czech
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
10
republic is 129 people per km2, adopting the OECD definition would imply that rural areas
cover 99% of the country with 77% of the population.
Another territorial concept (used by EUROSTAT) is based on the identification of densely,
intermediary and sparsely populated zones. Rural areas might then be considered as
sparsely populated zones i.e. with the density smaller than 100 inhabitants per km2 or with
more than 100 inhabitants/km2 but with less than 50 thousand inhabitants in total. Applying
this concept on districts (“okres”, NUTS 4) the sparsely populated zones account for 62% of
the total country area and 30% of the population.
Table 1 Rural areas according to EUROSTAT definition
Sparsely populated
Intermediate
S+I
Sparsely – the share
S+I – the share
Total area
km2
48915
29586
78501
62%
99.5%
Population
3047150
4756526
7803676
30%
76%
Density
inhabitants/km2
62
161
99
Agricultural land
km2
25502
17066
215
60%
99.5%
Note: the threshold 100 inhabitants/ km2
Source: data - CSO, 2002, own calculation
There is a good reason to lower the threshold in the OECD definition to just 100
inabitants/km2, however the territorial extent of rural areas will change only slightly. The
benefit will rest in the relative decrease of predominantly rural areas to 91% of the country
territory and 63% of the population. The contrast between OECD and EUROSTAT definitions
is obvious if we compare the extent of sparsely populated zones and predominantly rural
areas. It can be shown that 62% of rural areas are sparsely populated.
Table 2 Rural areas according to OECD definition
Predominantly rural
Significantly rural
Rural
Total CZ
Total area
km2
71,909
6,703
78,611
78,866
Population
6,454,286
1,467,170
7,921,456
10,206,436
Density
inhab/ km2
90
219
101
129
Agricultural land
km2
38,754
3,891
42,645
42,770
Note: the threshold 100 inhab/ km2
Source: data - CSO, 2002, own calculation
For the purpose of policy analysis and recommendation it is useful to structure rural areas
further according to their degree of integration with the national economy (European
Commission 1997):
 integrated rural areas, with an employment basis in the secondary and tertiary
sectors, but with farming still being a key use of land. Facing potential threats to their
environmental, social and cultural heritage, some of these areas, relatively close to
big cities, risk becoming dwelling areas only and not working areas ("rurbanization");
others are developing in their own right;
 remote rural areas, with the lowest population densities, often the lowest incomes,
and an older population which depends heavily on agricultural employment.
 intermediate rural areas, being between integrated and remote areas.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
11
Figure 1 Distribution of agricultural employment in rural areas.
RAGRIEMP
8
6
4
Frequency
2
Std. Dev = 2.38
Mean = 7.6
N = 33.00
0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0 11.0 12.0
RAGRIEMP
Source: own calculation
To provide such a breakdown would require gathering a lot of information. For practical
reasons we have modified the rural integration concept and simplified the criteria just to the
share of agricultural employment1. Figure 1 illustrates the more or less symmetric distribution
of agricultural employment in rural areas around the mean. The breakeven points for the
integration classes have been set to 1/3 and 2/3 percentiles. About a half of the rural areas
can be regarded as integrated while the other half is divided almost equally between
intermediate and remote2 areas. Agricultural land is distributed in the similar way. Population
density grows with the degree of integration. The share of people over 60 increases slightly
toward remote regions.
Table 3 Characteristics of rural areas
Rural area
Total area
Integrated
Intermediate
Remote
km2
40193
20327
18091
Agricultural
land
km2
22138
10793
9714
Population
5300471
1561916
1059069
Population
density
inhab/ km2
132
77
59
Population
over 60
17.9%
18.2%
18.3%
Source: CSO data, own calculation
While agricultural employment declines with the degree of integration3 industrial employment
is stable, around 30% in each category. It indicates that there is similar access to jobs in
industry while the service sector is probably less developed in remote regions. It can be
1
It will be shown later that agricultural employment correlate (inversely) with the engagement of
population in services and availability of services.
2
The term remote should be understand as weaker in terms of economic and social integration.
3
by definition
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
12
confirmed also by scores4 of the access to services; the average score for remote areas is
significantly (90%) below the rural average, while for integrated it is significantly above
(17%). Unemployment increases with the degree of integration; the difference between the
remote and integrated areas is high - 3 percentage points. It ca be an effect of structural
adjustment in industry, of the willingness of people from the remote areas to accept lower
wages, or because it less socially acceptable to release people from their employment in less
integrated areas. The wage rate in integrated rural regions is equal to the national average,
however, there is a gap between integrated and remote regions (on average 8.5%) and
between integrated and intermediate regions (5.7%). It reflects both the differences in labour
productivity, and the effect of imperfect labour market due to transportation costs. On the
other hand, agricultural wage rates do not exhibit a similar gap, rather they are equal over
rural areas. In the result, wage/income disparity between agriculture and the rest of economy
increases with the integration of the rural area.
Figure 2 Employment characteristics of rural areas
40.0%
30.0%
20.0%
10.0%
0.0%
Integrated
AgriEmp
Intermediate
InduEmp
Remote
Unempl
Source: Data – Census 2001, CSO 2002, own calculation
Only 40 percent of integrated rural areas are sparsely populated zones, while it is 97 percent
for remote rural areas. Significantly rural areas are almost all integrated.
2.2
Rural areas during transition
There have been important new driving forces changing rural economies since the fall of
communist regime. The first and most pronounced changes happened in agriculture. The
abolishment of the most pre-November 1989 subsidies, market decline after liberalisation
(particularly for beef and milk), privatisation and following structural adjustments in
agriculture were behind it. Agricultural employment declined by 71,7 % during 90ties (Horska
2002). A significant part of farms had an important non-agricultural production (food
processing, construction and various small to medium industrial enterprises). During the
privatisation process most of the diversified productions separated and created their own
businesses (Horska 2002). Economic consequences of market decline led to necessary
structural adjustment and investment to more efficient technologies (especially in animal
production). Structural adjustment as a driving force, helped to release agricultural
employees who were either in retirement age or with low working ethic. Because this process
4
Using principal component method we created factor score variables: SERV relating to the
availability of post office, school and medical care in districts and INFRA relating to public water
supply and gas supply. Data source: CSO, 2000
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
13
had started in early 90ties when the rest of the economy was treated less severely other
industries were able to absorb released labour and no social tension appeared as a
consequence of agricultural reforms (Horska 2002).
Other industries experienced decline particularly in some regions later in the middle of
1990s. Then the rural areas with people commuting to urban (industrial) centres were
influenced heavily by a rapid growth of unemployment. Remote areas started to be affected
by slow but lasting decline of inhabitants who migrated to urban areas or at least more
integrated rural areas. Border regions with Slovakia experienced shed of people after the
separation, since they lost their jobs in Slovak industries (Ratinger, Krumalova, 2002). But
even in the central part of the country in the highlands the unemployment rate reached
almost 19 % in very remote villages in 1999 (Urad prace ve Zdare nad Sazavou 2000).
As privatisation progressed and the entry was opened to new entrepreneurs the business
structure has changed. Shifts in job opportunities followed the structural adjustment of the
economy. A decline of employment in large firms and an increase in small and medium
enterprises (SME) and in self-employment was common also in remote (and behind) regions
during 90ties (Spolecnost pro regionalni poradenstvi 1999). However, the initial sharp
increase of SME numbers slowed down in late 90ties and since that time the size structure of
enterprises has not been changing significantly (Spolecnost pro regionalni poradenstvi
1999). Inflow of FDI and state consolidation programmes helped the large businesses to
recover while SME suffered the restrictive policy of the Central Bank. Particularly, small
entrepreneurs lack enough capital to innovate or expand the businesses slowly loosing their
competitive position, (Spolecnost pro regionalni poradenstvi 1999). The government policy
failed to facilitate relevant business conditions for SME in the desired extent.
Decentralisation: Administration reforms – increasing role of local and regional authorities
Financially, the municipalities depended on district office, which distributed the budget till the
mid 90ties. The process was difficult and often perceived as unfair. The role of the district
authority decreased during the second half of 90ties and in 2000 the way of financial flows
changed substantially. Since that income of municipalities constitutes of income taxes of
inhabitants, taxes from buildings, the state support and taxes from businesses located in the
municipality. The last was initially set at the 100 % of tax collection, but appeared as
controversial and decreased to 30 % only later. Stepwise municipalities have become more
independent and for many of them it means significant economic improvement and increased
decision power.
Income from taxes constitutes the most important part of municipal budget. For example in
less developed areas like Zdar nad Sazavou district the tax collection constituted 45,3 % of
total municipalities income in 2000. It was 8 % below then national average, but the total per
capita income from taxes in district Zdar nad Sazavou reached only 60 % of the average per
capita municipal income from taxes. This shows indirectly regional disparities in terms of
economic activities.
The new way of financing municipal budgets have given opportunity to local governments to
think about incentives for enhancing entrepreneurship.
In addition to tax collections and direct transfers from the state budget municipalities got
larger or smaller subsidies from various ministries during the whole period (from 1990 till
now) but all of them were conditioned by co-financing which obviously was difficult under the
early financial regimes..
From administrational point of view most of the power concentrated in district centres and
only few in municipalities. The situation has substantially changed from the beginning of
2003. The districts as an administration level was abolished and the district offices were
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
14
closed down. Their roles have been distributed between the newly established region (“kraj”,
county, NUTS 3) and their elected representatives – the assembly and the regional council
(government) and selected municipalities. The coordination responsibility for regional
development rests on the regional administration, selected municipalities should be
administrative points spread across the region, enabling easy access of inhabitants to
offices. A danger of a frequent staff change after elections has sometimes been regarded as
disadvantage of the new public administration arrangement (district representatives were not
elected) but generally it is expected that the new system will soon settle down ensuring a
necessary level of stability.
Municipality representatives5 believe that the high degree of independency of municipalities
will not allow for big difficulties arising from the public administration reform.
In order to increase the power and budget to conduct a large investment or to sort out
development problem requiring larger (spatial) co-ordination municipalities gather together
creating associations – often called micro-regions. These associations act as NGOs. Their
number has increased since the middle of 1990s and has become very significant e.g. in the
case study sub-region – the (former) district Trebic – the number of micro-regions reached 8
in 2000, covering most of the district area.
2.3
Current (non-agricultural) rural development programmes
There is no integrated rural policy framework. Attributes of rural development are addressed
by policies of several ministries separately. The most influential is the Ministry of Regional
Development (MoRD), which is first of all responsible for coordinating regional policy. Its
policy scope addresses issues like rural infrastructure, rural heritage or village appearance.
Beside the MoRD at least six other ministries are involved in rural development: the Ministry
of Industry and Trade, the Ministry of Environment (and its State Fund for Environment), the
Ministry of Culture, Ministry of Agriculture, Ministry of Health and the Ministry of Labour and
Social Affairs. So far there was no regional approach to rural development. This is about to
change since the newly established regional governments will inevitably intervene rural
development policies.
Here we present two most developed rural policy measures (from the MoRD framework):
Village renewal and Support to small and medium enterprises (SME).
The village renewal programme was launched by the MoRD in 1991 and should facilitate
grass-root initiatives in rural areas. The idea was not to transfer enormous amount of
financial resources to cause substantial changes of rural areas, rather the objective has
always been to support small and medium projects for improving important attributes of rural
life which are not usually a subject of business activities (such as culture, heritage renewal,
improvement of village appearance etc.). The program has been very successful and has
helped to numerous municipalities to improve/renew village life. In addition, local
administrations have passed through important learning process which will be soon utilised
when they applies for EU funds.
Annual event - contest “Village of the year” document the ability of rural settlements to
improve their physical and social environment in the most aspects (culture, sport activities,
infrastructure, services, architecture etc.). Although the program has never focused directly
on business, facilitating attractiveness of the place and creating business conditions it
promoted local services and job opportunities.
5
municipality Telnice,
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
15
The program has following goals:
 maintenance, renewal and enforcement of local cultural and societal tradition, living
style, responsibility for local development,
 development of partnership between rural area and cities, next micro-regions and
partners villages on both sides of border,
 development of economy with utilisation of local resources and employment of local
people (development of agricultural and non-agricultural entrepreneurship, services,
local marketing and distribution, tourism etc.,
 conservation and renewal of look of the villages themselves, their organic links to
countryside, specific rural buildings, exclusive influence in countryside, renewal of
cultural heritage in countryside,
 improvement of public areas and buildings, improvement of public services, technical
infrastructure including technical facilities for environment protection, public transport,
renewal of traditional roads network including of alternative local transport,
 maintenance, renewal and efficient use of natural potential of agricultural countryside
tied to suitable organisation and use of land protecting natural and aesthetic values,
 maintenance and development of recreational and therapeutic function of
countryside.
The program is governed directly by the MoRD. To assist in choosing applications, regional
selection committees have been established. District offices (state administration at district
level) have played an important role in information dissemination. The program was
implemented on the whole Czech territory and about three quarters of all villages have
already participated.
The programme financial design allowed for grants covering 30-70 % of expenses of the
project, interest discount on bank loans, 70% subsidy on project developing education and
advisory/extension in rural areas, a subsidy up to 70 % of expenses of projects for integrated
rural micro-regions (villages associations). Program enabled combination with PHARE. The
budget given to this programme has varied considerably: for example it was EUR 6.6 millions
in 1997 and just EUR 1.6 millions in 2000.
The programme for SME is aimed at encouraging of business activities in rural areas with a
particular attention to rise employment opportunities. The Ministry of Regional Development
in co-operation with the Ministry of Trade and Industry introduced the programme 1996 (with
expected duration until 2004). The scheme includes four general (nation-wide) subprogrammes (GUARANTEE, CREDIT, MARKET and START) and four sub-programmes (
COMMUNITY, REGION, BORDER, OPERATION) for structurally afflicted and economically
weak regions (including Znojmo and Trebic). These regions comprise mostly rural areas with
low level of urbanisation, with less developed economic infrastructure, but with rather
preserved nature and environment. Most of the supports (51 %) are interest subsidies on
bank loans, guarantees for bank credit or interest free loans. The programme for SME does
not recognise grants. Financial transfers (interest subsidies, guarantees) are administrated
and operated by the Czech-Moravian Guarantee and Development Bank (CMGDB).
The programme has got four main objectives: i) to facilitate implementation of business plans
of SME, ii) to provide support to establishment and development of SME and strengthen their
market position, iii) to increase the rate of employment and enhance competitiveness of SME
on local and international markets, iv) to facilitate access to bank credit in economically weak
regions.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
16
The sub-programmes are specified to address one or more objectives in a consistent way
and are targeted to particular beneficiaries:

“Region” – is devoted to young entrepreneurs, who run businesses with less than 50
employees. Entrepreneur could get contribution up to 12% of interest payments in
‘structurally damaged’ regions and 7% in ‘economically weak’ regions. The condition
for beneficiary is to create at least two new jobs.

“Village” – is the only scheme for medium size businesses (up to 250 employees) in
small villages (up to 1999 inhabitants). Support could reach up to 6 percentage point
discount of the interest rate. The eligibility condition is to create at least one new job.

“Preference” – is targeted to small enterprises up to 25 employees (support in form of
decreased interest by 5 %). Total support could come up to 6 million of Crowns and
loan could last up to 6 years. The eligibility condition is to employ 2 additional people.

“Regeneration” – is targeted in small enterprises with less than 50 employees and
active in monumental preserve areas; contributes 3% towards interest payments;
conditional on the creation of two jobs.

“Operation” – is targeted to young entrepreneurs with less than 50 employees located
in small villages

“Border” – supported are small enterprises with less than 50 employees located close
to borders (Germany or Austria). Contributions could go up to 7% of interest
payments; conditional on the creation of two jobs.
The “Guarantee” scheme gives out guarantees for bank loans instead of collaterals which
small and medium entrepreneurs often lack.
Implementation process is relatively simple: applications are collected, evaluated and
approved as well as supports given out by the CMGDB
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
Applicant (SME)
Assessing own economic situation
and business priorities
Planning the project
Submitting the application
17
MoRD or MoIT
Deciding on budget
Collecting information on
the budget spent
Money from the
national budget
Report on financial
contribution
CMGDB
Collecting applications
Valuing the applicant & the project
Approval/rejection of the project
Monitoring
The programme is criticized for insufficient funding on one hand and for not paying attention
to monitoring and effectiveness and efficiency evaluation on the other hand.
3 Agriculture
3.1
Land reforms, privatisation and structural development
3.1.1 Land reforms and privatisation
The restitution process restored private ownership on about 70 – 75 % of the total
agricultural land (TAL) between 1991-1994. The land nationalised before 1948 remained in
state hands, but with the intention to be privatised (sold) later. The Land Fund was
established to deal with all the state land (18 % of the TAL6) and agricultural assets in 1994.
A small part of agricultural land is owned by municipalities and other organisations (including
agricultural cooperatives and companies). The private landowners can be broken down into
three groups: i) individual farmers, ii) capital owners (partners, shareholders, members) of
corporate farms (limited liability companies, joint stock companies, co-operatives), who lease
6
Based on the Land Law Nr. 229/91.about 1 619 thousands ha of agricultural and forestry
land were included in the restitution procedures by the end of 2001, of which the completed
restitution represents 1 269 thousands ha, the unrealised restitution with compensations
represents 120 thousands. ha and the unrealised restitution for non-compliance with legal
conditions represents 230 thousands. ha. Besides this, the Land Fund administered
769 thousands. ha of agricultural land at the end of 2001, remaining in the state ownership, of
which 753 thousands ha has been leased to farms.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
18
their land to the business, and iii) other owners, not participating in agricultural business, who
simply lease their land to farms.
Table 4 Land tenancy structure
Farm types
Own land
Individual farms under 50 ha
Individual farms over 50 ha
Legal entities (corporate farms)
Total
62%
13%
1%
8%
Leased land
the state
4%
36%
19%
21%
capital owners other owners
34%
51%
18%
63%
13%
58%
Source: Sample survey on farm structure, farm household income, Doucha, Jurica, Divila, 2001, Agro-Census
2000, CSO, 2001
A basic notion about the relationship between land ownership and land use can be obtained
from the survey carried by VUZE in 2000 (Doucha, Divila Jurica, 2001). If the survey results
are completed by the agricultural census 2000 we yield that no more than 300 thousand
hectares (8 % of the land included in the census) are owned by farms. The rest is leased
(Table 4). The share of own land is the highest in small individual farms (62%), rapidly
declining with the size of the farm. Individual farms with more than 500 hectares rent already
96 percent of the cultivated land. The importance of the category of capital owners leasing
their land to the business is moderate. From various surveys including those run under the
IDARA project (Chaplin et al, 2002) the influence of this group on the business decisionmaking seems to be negligible.
The discrepancy between the land ownership and the land usage, expressed in the
extremely high share (92 %) of leased land on farms, represents an important specific
feature of the present Czech agriculture, without an analogy in the EU-15 countries (the
relatively large share of leased land is in Great Britain and in Belgium, the EU-15 average is
about 40 %). This discrepancy, together with extremely large fields/operation blocks hiding
owners’ parcels and thus limiting the access to them, has hampered development of the land
market and restructuring of the agricultural sector.
The law enabling privatisation of 500 thousand hectares of state land was settled down in
1999, the privatisation process started in 2002. Only 9 thousands ha of agricultural land has
been privatised to December 2001. The conditions for the privatisation, especially conditions
related to hitherto tenants of state land, can significantly influence the farm structure
development. It is true particularly in regions, where privatised farms (privatised without land)
dominate.
3.1.2 Structural development in the late 1990s
The structure of land use and the farm structure have outstandingly changed since 1989
(Table 5). The present farm structure reveals an extreme dual character (see Table II.1.4):
5,2 % largest farms from the total number of 37 thousands farms (with land) uses 76,4 %
from the total acreage of agricultural land. To the contrary, the share of farms with the size
less than 10 ha amounts in number 58,2 %, but they use only 1,9 % from the total acreage of
agricultural land. Individual farms with more than 100 ha use more than 60 % from the total
acreage of agricultural land in the category of individual farms. The average size of Czech
farms (136 ha) is seven times bigger than the EU average (18.4 ha) and it still twice bigger
than the highest figure (69 hectares) of the UK.
19
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
Table 5 Farm structure development, 1989-2000
Land users
Farms - physical entities
Farms - legal entities
Ltd.
Joint stock
Coops
State farms
Farms - total
Other subjects
in 1989
No.
3,205
1,198
1,024
174
4,403
The share Avg. size
on TAL
0.4%
5
86.4%
3,098
61.1%
25.3%
86.8%
13.2%
2,561
6,259
847
AgroCensus 2000
No.
The share
on TAL
24,053
21.8%
2,587
62.7%
1,171
18.3%
519
18.2%
723
24.7%
26,640
84.5%
15.5%
Avg. size
39
1,036
669
1,502
1,465
136
Note: Agro-census criteria over 1 ha, or over 0.15 ha of special crops or with more than 1 livestock unit.
Source: MoA 1994, Agricultural Census 2000, CSO 2001
3.1.2.1 Assets and liabilities on farms
Capital intensity measured by the value of total assets per hectare of agricultural land is
varies amongst farms. In the class of individual farms (which usually emerged as new), the
capital intensity decreases with the size (from 72 thousand CZK/ha in farms under 50
hectares to less than half in farms over 300 hectares). Capital intensity of legal entities is just
constant over size categories, similar to the capital intensity of lower medium size individual
farms (50-100 hectares). Obviously, capital intensity is associated with farm specialisation,
medium size individual farms and corporate farms have usually mixed production, while large
individual farms tend to be crop oriented.
The development of capital intensity exhibits a slight increase in nominal terms, however it
vanishes if we look at real figures. Actually (according to the FADN figures), investment
activity stagnated between 1998 and 2000. In 2001, the value of agricultural investments
exceeds for the first time the figure of 1997. The annual change 2001/2000 amounted 20%
(at least for farms in the CSO survey i.e. over 20 employees, CSO 2002b).
The investment increased in all categories, the most significantly in machinery and transport
facilities (index 140,1) and significantly also in buildings and constructions (index 126,9).
Through realised investments the quality/structure of assets increased, having a positive
impact on the technological level in agriculture.
The investment activity responded undoubtedly to the increased state support (from
5 296 mil. CZK in 2000 to 6 369 mil. CZK in 2001). Particularly, the support allocated to
investment credits expanded in the structure of all supported credits: thus they represented
63 % in 2001, whilst only to 55 % in 2000. However, the higher investment activity in 2001
was also stimulated by the improvement of the financial situation (as a consequence higher
income supports).
However, the farm accountancy data (FADN, 1998-2001) reveal the high and unchanging
indebtedness of farms, three-generational in principle: (a) old (pre-reform) debts; (b)
transitional (reform) liabilities; (c) new bank credits (for financing investment). The transitional
liabilities still represent a significant part burden, particularly of co-operatives and limited
liability companies.
In the case of successors of state farms (often limited liability companies), the value of
privatised assets – according to a governmental decree – was adjusted to the “current”
market level, it means in turn, a cut of 52,4 % - 43 %, and the repayment period has been
extended up 30 years.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
20
Besides this, the state has gradually written off the interest free loans given to individual
farms in 1992 - 1993, which original total value amounted around 7 mld. CZK. For dealing
with transformation debts of cooperatives there was not enough consensus to settle down a
solution.
3.1.2.2 Employment in agriculture
Economic and property rights reforms have resulted in a substantial reduction of agricultural
employment. During the period 1989-2001, the average number of employees in the sector
(without related services and hunting) has dropped from 533 thousands to 156 thousands of
people, it means by 70,8 %. The most dynamic decline in employment was registered in the
early 1990s (by 24 % between 1991 and 1992). The share of agriculture on the total
employment decreased from 9,8 % in 1989 to only 3,4 % in 2001. During 1995 - 2001 the
employment decreased more significantly on corporate farms (legal entities) than on
individual farms (physical entities). However, labour intensity (measured by a number of men
per 100 hectares) of individual farms has remained significantly lower than labour intensity of
corporate forms. This is partly associated with less labour intensive crop orientation of
individual farms and partly with “social” difficulties to release excess labour form mainly cooperatives.
Figure 3 Employment structure and labour intensity
6.0
150000
men
4.0
100000
2.0
50000
0
men/100 hectare
200000
0.0
Individual
farms
Corporate
farms
Labour
Companies
Cooperatives
Total
Labour Intensity men/hectare
Source: MoA 2002
In the structure of agricultural labour, the share of hired workers (including the management,
having no capital stock in the farms) has grown since 19957. Their share grew up from 38 %
in 1995 to 66 % in 2001. In 2001, the working members of co-operatives (the self-employed
members) represented 20 % of agricultural labour , the self-employed individual farmers and
family members represented more than 12 %.
The share of labour in agriculture, hunting, forestry and fishery on the total number of
economically active population has converged to the average EU level (the CR 4,4 % in
20018, EU 4,5 % in 1999).
7
Source: Employment and unemployment in the CR according to results of the survey on
labour, the Czech Statistical Office, 2001.
8
Source: Labour statistics, the Czech Statistical Office 2001.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
3.2
21
Agricultural output, trade and sector performance
3.2.1 Agricultural output
The gross agricultural output (GAO) calculated at 1989 constant prices decreased by by 29,9
% during the period of 1989 - 2001. In the same period, the gross crop production decreased
by 20,8 %, and the gross livestock production even by 36,5 %. The rapid decline of the GAO
(particularly of the gross livestock production) in the early 1990s followed the drop in
consumer demand particularly for milk and meat and was also caused by the processes of
property reforms culminating that time. The dramatic market driven adjustment process has
been replaced by policy driven adjustment process since 1994. The policy has got a
framework implied by the WTO commitments of the Czech republic and EU accession target.
3.2.1.1 Changes in the structure of main market commodities in 1989 - 2001 – crop
production
The structure of cultivated area has gradually adjusted to the demand. The share of arable
land in the total area has been permanently, but not distinctly, decreasing (from 75 % in 1989
to 72 % in 2001). The area of set-aside has been increasing. After the introduction of
adequate supports in 2001, the area reached 115,6 thousands ha.
Table 6 Land use comparison – the Czech republic, Germany and Austria, 1999
The share of arable land
The share of cereals on arable land
Yields of cereals (t/hectare)
CR
72%
51%
4.4
Germany
69%
56%
6.7
Austria
41%
58%
5.9
Source: Eurostat - Agriculture, Statistical yearbook 2000, CSO - Statistical yearbook 2000
A comparison of the structure of land usage in the CR, Germany and Austria in 1999 shows
a slight difference of the share of arable land on TAL between the CR and Germany (just 3
percentage points) and a large difference in respect to Austria. The later difference can be
attributed to a high share of alpine agriculture and landscape in Austria. After 1990, the area
of cereals on arable land has declined on the level of about 50 %, as a consequence of
shrinking markets, the reduction of livestock and the outstanding growth of input prices. The
increase of the share of cereals in 1997 and 1998 (to more than 54 % of arable land) was a
reaction of producers to the low stocks due to the extreme exports in the marketing year
1995/96. Since 1999 the area has relatively stabilised at the level of about 52 % of arable
land., Small annual fluctuations has always depended on the possibilities to sell surpluses on
the world market and on the related governmental intervention (the State Fund for Market
Regulation, later the State Agricultural Intervention Fund) on the domestic market. Compared
with the both EU countries, the share of cereals in arable land is also lower in the CR (by
5,0 % compared with Germany and by 7,3 % compared with Austria. However, the average
yield of cereals is significantly lower in the CR (by 2,4 t/ha compared with Germany and by
1,6 t/ha compared with Austria). The average yield of cereals in the CR for the period of
1990 - 1999 is higher only by 0,02 t/ha than the average for the period of 1980 – 1989. It
indicates a large unused yield potentials in the Czech agriculture.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
22
Figure 4 Shifts in the structure of crop products, 1989-2001
2500
hectares
2000
1500
1000
500
0
1989
1994
Cereals
1996
1998
Oil seeds
1999
Potatoes
2000
2001
Sugar beet
Note: harvested areas
Source: MoA 2002
Oilseeds have become the second most important group of crops for a decade. They have
played a positive stabilisation role in the farm economy. Favourable market conditions
contributed to the enlargement of the sown area from 3,8 % in 1989 up to 14,2 % of arable
land in 2001. The producers have reacted to increasing consumption of vegetable oils and to
the state incentives for bio-fuel production.
The share of potatoes on arable land dropped to a half from 3,6 % in 1989 to 1,8 % in 2001.
The consumption of potatoes has been declining together with the improvement in their
processing (semi-finished and ready-made products) and with minimising feed consumption
(only waste potatoes are used as feeds).
The sugar beet and sugar markets were not regulated in the CR in the most of transitional
period – until 1999. The unregulated market exhibited instability and the economy of
producers declined. Relative low custom tariffs did not protected Czech producers against
subsidised exports of European competitors. The prices on the over supplied domestic
market went down rapidly even with little imports. The primary producers have reacted by the
reduction of the sugar beet area by more than the half – (1999), sugar processors
dramatically concentrated to just three main companies producing more than 90 per cent of
sugar. The market regime similar to the EU system, with quotas A,B, and C, including the
implementation of special custom measures, was introduced in 2000 the sector has
stabilised since that.
Formerly the hops production was an important sector generating good revenue and
improving the balance of Czech agricultural trade. Changes in the beer production
technology have been accompanied by changes in assortment demand for hops. The Czech
hop-growers reacted late losing both domestic and international market positions. A
reduction of the area of hop gardens followed during 1995 - 2000.
3.2.1.2 Changes in the structure of main market commodities in 1989 - 2001 –
livestock production
The dairy cows breeding, as the breeding of other categories of cattle, has passed through a
very turbulent restructuring since 1989, due to declining demand for commodities as beef
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
23
meat, milk and dairy products but increasing public concern about food safety, particularly in
the context of the incidence of dangerous diseases (e.g. BSE).
The milk production dropped from 4,9 mld. litres to 2,7 mld. litres during the period of
1989 - 2001, that was by 45 %. The number of dairy cows was reduced by 57,6 %
(from 1 247,6 thousands of heads to 529,1 thousands of heads) during this period. The
largest reduction in the number of heads and in the milk production occurred in–the first half
of 1990s. Since 1997 the milk production has stabilised on the level of 2,7 mld. litres, also in
response to the new supports for producers. While the number of dairy cows has still gone
down milk yields have risen respectively since 1997. Nowadays, the average milk yield
(5 589 l in 2001) is comparable with the EU level (the EU-15 average 5 688 l, Germany
5 851 l, Austria 4 595 lin 1999 9).
The number of dairy cows per 100 ha of agricultural land and the milk production in kg per
1 ha of agricultural land has converged to the EU-15 average, but the indicators have
remained substantially below the level of the neighbouring EU countries (in 1999: the density
in the CR 14 heads, in the EU-15 15,5 heads, in Germany 27,4 heads, in Austria 20,5 heads;
the milk production in the CR 675 kg, in the EU-15 896,5 kg, in Germany 1 640,5 kg, in
Austria 973,3 kg)10.
The ratio between purchased and produced milk declined since 1989 to 1996 (from 91,3 %
to 83,4 %) due to hygienic insufficiencies in the treatment and storage of milk on farms.
Since 1997 the ratio has improved to the level of 93,7 %, comparable with EU countries (in
1999: the EU-15 96 %, SRN 96 %, Austria without on farm sales 76 %11). The amount of
feed milk thus dropped from 385 mil. l in 1996 to 50 mil. l in 2001. About 0,3 kg of fodder
concentrates has been consumed to produce 1 l of milk during the whole reform period.
The Czech beef meat production has been continuously year by year decreasing since 1989.
The present production of beef meat (2000 and 2001) represents 40 % of the production in
1989. The main reason of this down slopped trend rests in the decrease of the domestic
consumption. The domestic consumption in 2001 was lower by 65 % compared with 1989
and during the same time the number of cattle decreased by 55 %. However, these trends in
the number of cattle and in the production stopped in the last two years 2000 – 2001 and a
further decrease is not expected.
9
Slovak, Czech, Hungarian … Agriculture in Comparison with EU countries. Research
Institute of Agricultural and Food Economics, Bratislava, Slovak Republic et al, 2001.
10
Slovak, Czech, Hungarian … Agriculture in Comparison with EU countries. Research
Institute of Agricultural and Food Economics, Bratislava, Slovak Republic et al, 2001. From the
same source issues a very low density of cattle per 100 ha of agricultural land in the CR compared
with the EU: in 1999 in CR 38,7 heads, in the EU-15 61,9 heads, in Germany 87,1 heads and in
Austria 63,7 heads.
11
Slovak, Czech, Hungarian … Agriculture in Comparison with EU countries. Research
Institute of Agricultural and Food Economics, Bratislava, Slovak Republic et al, 2001.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
24
Figure 5 Development of livestock output, 1989-2001
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
1989
1994
1996
Milk
Beef meat
1998
Pork meat
1999
Poultry meat
2000
2001
Eggs
Source: MoA, 2002
Based on a specific support applied since 1995, suckler cow breeding has expanded. The
number of suckler cows amounted 88 thousands heads in 2001.
Compared with the EU, the Czech beef meat production in kg per 1 ha of agricultural land is
significantly lower (the CR 2000 23,8 kg, the EU-15 1999 56,5 kg). A similar relationship can
be encountered in the consumption per capita (the CR 2000 10,7 kg, the EU-15 1999
20,4 kg)12.
Even the traditional production of pork meat has decreased since 1989, although not as
dramatically like in the case of beef meat. The 1989 production amounted to 778 thousands
t. LW compared with 584 thousands t LW in 2001. The main reason was also in the decline
of the domestic demand worsened by low competitiveness of pork met on the European and
World markets. The number of pigs and sows has fallen accordingly, in 2001 it represented
75 % of the 1989 figures, the domestic consumption declined by 22 % to 589 thousands t LW
over the same period. The pork meat production has stabilised during the last two years and
its further more significant decrease is not expected because the preference for pork meat of
Czech consumers has been growing.
The number of pigs per 100 ha of agricultural land in 1999 amounted to 129 heads, in
Germany 101,4 heads and in Austria 275,1 heads13.
During 1989 – 1994, the number of poultry (all categories) decreased by 23 %. The decrease
had stopped in 1994 and since then by 2001 the number of poultry gradually increased
nearly up to the 1989 level (32 mil. heads). However, the developments in the meat sector
and in the egg sector differed.
Initially, during 1989 – 1994, the poultry meat production dropped (as other meat) by 17 % to
165 000 t (LW). Since 1995, in accordance with the world trend, the poultry meat
consumption and production have risen. Compared with 1989, the poultry meat production
increased by 57 % up to 312 500 thousands t (LW) in 2001.
12
13
The Yearbook 2000 – Cattle breeding in the Czech Republic.
Slovak, Czech, Hungarian … Agriculture in Comparison with EU countries. Research
Institute of Agricultural and Food Economics, Bratislava, Slovak Republic et al, 2001.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
25
Since 1989 to 2001, the number of hens gradually declined by 26 % to 11 677 thousands
heads. In the same period - due to higher egg yields - the egg production declined only by
12 % to 3 190 million pieces. The average egg yield per year increased from 226 pieces in
1992 to 272,7 pieces in 2001.
3.2.1.3 The development of intermediate consumption of agricultural products
More than 50 % of the cattle breeding is still bound to arable land and to more favourable
areas. Moving cattle production to grassland, particularly in marginal areas has been a
primary task of restructuring in the livestock production since the beginning. This process has
occurred more resistant and therefore, the switch from intensive fattening to extensive
pastoral production has been relatively slow. However, the grassland area grew from
828,6 thousands ha in 1989 to 961,1 thousands ha in 2001 (by 16 %) and the area of forage
crops on arable land fell from 1 079,4 thousands ha to 672,6 thousands ha (by 37,7 %) in the
same period. The changes could be observed for feed grains too: especially due to the
reduction in the number of animals their intermediate consumption dropped by 19 % between
1989 and 2001). In general, production of fodder on arable land as well as grasslands has
extensified.
Compared with the neighbouring EU countries, the feed efficiency (feed consumption per a
unit of production) is not on average at a satisfactory level.
3.2.2 Price development and sector performance
The economic performance of the agricultural sector is a result of the development of
external conditions and internal structural changes. The Economic Accounts for Agriculture
(EAA)14 represent a consistent instrument for assessing the sector performance and allowing
at least a limited insight in the interplay of external and internal conditions. Being
standardised, EAA are also a suitable instrument for international comparison.
Output price is an important determinant of the sector revenue: first, multiplying given output
we yield the revenue, second, the agents through optimising their profit adjust the volume of
output accordingly. Four factors affect Czech farm gate prices: the elasticity of domestic
demand, world market prices, market support policies and the power of farmers in the
marketing chain. At the beginning of the transition real income came under the stress and
domestic demand for food has fallen dramatically (FAO, 1999). The real wage fell by 30
between 1989 and 1991, since that the real income has increased and within then years
exceeded the level of 1989 by 15 %. However, the demand for food has not recovered in the
original extent. Partly, because the relative price of food has remained high, partly due to
shifts in consumer preferences toward more processed, healthy and safe food (Brosig,
Ratinger, 1999). Thus the benefit of slowly increasing food prices have been earned by those
sectors adding value (the processing industry) and delivering food to consumers. Concerning
the former, the process of merging and acquisition of food processors stared shortly after
privatisation. The benefit from the economy of scale and inflow of the foreign capital enabled
substantial innovation. Concerning the later, food retailing experienced rapid concentration
during the last five years.
The overhang of supply put pressure on agricultural prices in early 1990s. The government
introduced policies to dispose surpluses and to deal with declining prices. With envisage EU
14
The Aggregate Agricultural Account for 1994 - 1997 was calculated by the RIAE according
to the then applied EU methodology. Since 1998, also after amendments of the EU methodology,
the competency for the calculation of the account has been transferred to the Czech Statistical
Office.
26
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
accession the policy instruments took the form of CAP. Intervention purchases and minimum
prices were introduced, border protection went up and later quotas for milk and sugar were
launched. Concentration in food processing and retailing sectors has led to a dramatic
decline of farmers’ power in the marketing chain. At least to some extent retailers and
processors have successfully transferred their transitional costs to the unconsolidated
farming sector (MoA, 2002). However, the main price pressure comes from constrained
households budget, which is passed quickly trough the vertically integrated marketing system
to farmers.
Figure 6 Development of revenue in relation to price and output developments.
1.500
1.400
1.300
Index to 1995
1.200
1.100
1.000
0.900
0.800
0.700
0.600
0.500
1995
1996
1997
1998
1999
2000
2001
Price of Final Crop Production
Price of Final Animal Production
Nominal Value of Final Crop Production
Nominal Value of Final Animal Production
Volume of Final Crop Production
Volume of Final Animal Production
Source: MoA, 2000, MoA 2001, MoA 2002
The aggregate price of animal products grew over 1995-2001, while the aggregate animal
output went down. Since the fall of production was more pronounced than the price increase,
the animal revenue (nominal value of the production) declined. Crop prices exhibited a
cyclical behaviour, however, the prices and the output went up during last three years, hence
the revenue as well.
27
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
1 .2 5
45000
1 .2
40000
1 .1 5
35000
GV A - CZK million
Index of the O/I ratio
Figure 7 Terms of trade and the sector performance
1 .1
1 .0 5
1
0 .9 5
0 .9
30000
25000
20000
15000
10000
1995 1996 1997 1998 1999 2000 2001
5000
0
T e r m s o f tr a d e
0 .9 5
1
1 .0 5
1 .1
1 .1 5
V a lu e ( In te r m e d ia te c o n s /F in a l o u tp u t)
T r e m s o f tr a d e
V o lu m e ( In te r m e d ia te c o n s /F in a l o u tp u t)
Note: Terms of trade – the ratio of input and output price indexes.
Source: MoA 2000, MoA 2001, MoA 2002
The decision-making of agricultural entrepreneurs and hence, the performance of the sector
depends upon the ration between input and output prices. The development of input prices
was unfavourable for agricultural producers during the all period 1989-2001. Since the output
price increase (if any) was rather modest, terms of trade also deteriorated over time.
A certain improvement could be noticed during the last two years (Figure 7). Gross value
added dropped sharply almost to a half (from 41 billions CZK to 24 billions CZK in nominal
terms) between 1996 and 1999, and recovered slightly during 2000 and 2002. Efficiency
measured by the ration of intermediate costs and revenue (value ratio) and deflated ratio
(volume ratio15) worsened until 1999 and 1998 respectively. The recent improvement of the
performance is notable. It can be associated with a stabilisation effect of the CAP like policy,
however, two year experience is not an enough solid base for a serious judgement.
3.2.3 Agricultural trade
The share of the agricultural trade on the total Czech foreign trade has been permanently
decreasing (the share of agricultural exports in the total Czech exports from 6,1% in 1996 to
3,9 % in 2001, adequately for imports from 7 % to 4,6 %).
The evaluation of the agricultural trade realised in the regime of a free circulation of goods16,
which has a decisive importance for the evaluation, shows that the average annual increase
of imports was higher than the average annual increase of exports in the given period of
1996 – 2001. In spite of the border protection, the balance of the agricultural trade in 2001
15
16
Note the similarity and difference with the total factor productivity index
The presented analysis considers the agricultural trade realised only in the regime of a
free circulation of goods. It represents exports/imports realised directly (exported/imported goods
allocated on the market of an importing country/domestic market, re-exports not excluded. It
means that exports/imports realised by „other custom regimes“ are excluded, In those regimes,
traded goods do not enter into the balances of importers (e.g. the so-called grading up trade). The
share of the agricultural exports realised in the regime of a free circulation of goods in the total
agricultural exports amounted to 78,7 % in 2001; adequately the share for imports amounted to
92,8 %.
28
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
was negative; the deficit reached 19,8 mld. CZK (i.e. 21,3 % of the total trade deficit). The
negative balance 2001 was higher by 2,5 mld. CZK compared with the negative balance
2000. However, the export/import ratio improved during the given period (from 60,6 % in
1996 to 71,4 % in 2001).
Table 7 The structure of Czech agricultural trade
Year
Total
EU
imports
exports
imports
exports
The share on the total agricultural trade (%)
1996
100%
100%
55%
37%
2001
100%
100%
51%
35%
Annual changes
1997/96 5%
7%
-2%
-1%
1998/97 1%
4%
3%
-6%
1999/98 3%
-1%
-2%
24%
2000/99 6%
20%
7%
14%
2001/00 5%
-1%
8%
-4%
Candidate countries Other countries
imports
exports
imports
exports
16%
22%
36%
41%
29%
26%
27%
23%
21%
15%
11%
8%
4%
8%
15%
-2%
22%
2%
10%
-11%
8%
2%
2%
15%
3%
-25%
26%
-1%
Source: VUZE,2002
During the whole period of 1996 – 2001 the EU was the main trade partner (Table 7), with
the share of 46 % on the Czech agricultural trade turnover. Nevertheless, the CR has
permanently been a net (agricultural) importer with respect to the EU. Rape seeds, beer and
dairy products represented the main export commodities to the EU in the period 1996-2001.
The mutual trade with processed products under the agreed trade concessions exhibited the
largest share on the total value of the turnover.
The acceptance of further measures for the liberalisation of the trade between the CR and
the EU, it means the implementation of the so-called “double zero option”, has exacerbated
the imbalance in the trade. In the period 7/1999 - 6/2002, the trade concessions were much
more utilised by the EU exporters than by the Czech ones. It held for the both categories of
the concessions, with and without quantity limits. In the given period, unlimited and tariff free
imports of agricultural products from the EU increased by 1163 mil. CZK whilst Czech
exports decreased by 27,6 mil. CZK.
The CEFTA countries represented the second main partner of the Czech republic in
agricultural trade. The CR was a net exporter during the whole period of 1996 – 2001, but
with exchange terms (the ration of the value of exports to the value of imports) slowly but
continuously deteriorated (decreased from 1.22 in 1996 to 1.14 in 2001). The trade with
other candidate countries was negligible, in spite of large concessions agreed with Estonia,
Lithuania and Latvia.
Table 8 Agricultural trade in the processing level and territorial break down
Processing level
2000 Raw materials
Medium processed
Highly processed
2001 Raw materials
Medium processed
Highly processed
Total
EU
Candidate
26%
25%
22%
17%
30%
31%
35%
18%
24%
33%
20%
31%
15%
26%
22%
9%
25%
30%
Other
countries
30%
34%
18%
9%
55%
36%
Note: Raw materials (cattle, cereals, rape seeds, fruits and vegetables hops), Medium processed products ( meat,
dried milk, butter, flour, malt, starch, sugar, oils), Highly processed products (cheese, sweets, pasta, bakeries,
beer, wine, lemonades, juices, distillates)
Source: Custom statistics
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
29
The assessment provided by a team of experts (FAO/TCP/CEH/8821) in 1999 on the data of
1997 and 1999 concluded that the competitiveness position (the share on exports) declined
with the level of processing. Looking at the figures of the Czech agricultural exports now,
gradual shifts toward more processed products can be observed (Table 8). Actually, raw
materials are represented particularly by exports of rapeseeds and hops, in some years also
by exports of cereals, whilst the share of live animals has dropped to less 2 %). The
representation of crop and livestock semi-processed products is more balanced:
commodities CN 0402 (milk and creams) show the important share (8,2 % and 10,3 % in
2000 and 2001, respectively); malt and sugar are the main export crop products. The
dominance of crop origin products appears again at the level of highly processed products.
This group consists specially of traditional products like beer and bakeries, but also of the
new ones – lemonades. From animal origin products it is only cheese with the notable share
of 4 %.
Considering the territorial break down, we receive different conclusions. A considerable part
of exports to the EU consists still of raw materials (33%), live cattle and rape seeds are the
most important commodities. Exports to the other territories rely on processed products.
Medium processed products have succeeded on the “other countries” markets. Highly
processed products acquired a similar share (one third) on the export to either terriotory.
The share of subsidised exports on the total value of the agricultural exports in the period of
1996 – 2001 ranged between 2,2 % (in 2000) to 4,04 % (in 1997). The total level of export
subsidies under the WTO commitments decreased from 5,9 mld. CZK to 4,3 mld. CZK during
the period of 1996 - 2000, withal the share of actually paid export subsidies on the total
export commitments has increased from 18,9 % in 1996 to 32,5 % in 2001 (VUZE, 2002).
3.3
Farm income and labour productivity
In market economy, farm income is supposed to result from farm economic performance.
However, the government has gradually introduced policies either compensating for
inefficiencies (compensating certain costs (green fuel) or paying premiums to certain outputs)
or even directly supporting farm incomes17 since 1997. Labour productivity (Gross value
added at market prices per a labour unit) declined considerably between 1995 and 1999. The
impact of this development in farm income was moderated by an increasing share of
subsidies on the Net value added at factor costs (Figure 8). Despite the recovery – labour
productivity grew sharply in 2000 and 2001 – the policy continued subsidising18 agriculture
increasingly. In 2001 NVA exceeded the average 1996-1996 by 10 percent in nominal terms,
but remain 18 percent below in real terms.
17
18
This category includes also disaster payments, which amount has grown since 1997, MoA, 2002
For calculating NVA at factor costs – subsidies were taken from MoA, 2002, table TB8.1/02, pp
159
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
30
Figure 8 Development of labour productivity and income per labour unit, 1995-2001
8.0
7.0
'000 EUR
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1995
1996
1997
GVA/AWU
1998
NVA/AWU
1999
2000
2001
Net Subsidies
Note: GVA – Gross value added at market prices, NVA Net value added at factor costs, AWU – annual work
units.
Source: MoA, 1997, MoA 2000, CSO 2002b,
Compared with the EU, farm income in the Czech republic (NVA at factor costs per 1 AWU)
is very low amounting less a quarter of the EU average, but only one ninth of the Belgian. .
Since the labour intensities of the Czech republic and the EU average are similar, the
difference in income per hectare is similar to the one per labour unit. This difference between
the Czech farm income and the EU one is given in large extent by substantially (twice) higher
market price support and direct payments and by the productivity gap (probably in smaller
extent).
3.4
Agricultural policies
3.4.1 Changing priority areas during transition
Agricultural policy represents a set of measures aimed at given goals in a given period.
Among these measures, the legislation for property transformation and for primary allocation
of capital had a priority at the beginning of the reform. Even though the legislation was
prevailingly settled down already in years 1991 - 1992, it has shown the long-term influence
on the sector development. Property reforms in agriculture took three main forms: Restitution
of land titles and rights to non-land assets; Distribution of property rights to assets of
cooperatives exceeding original membership deposits (transformation of cooperatives); Sale
of agricultural assets. Concerning the last form the privatisations of land and non-land assets
have gone their own ways. Thus while the privatisation of non-land assets culminated in
1994 – 1995 and has already been finished privatisation of the state land has just started.
The legislation and a few governmental degrees on its implementation from the early 1990s
triggered the process of farm restructuring which continued with some turbulence all over the
transitional period. The redistribution of assets, which included the non-farming and often
non-rural population, created liabilities with which agricultural entrepreneurs lacked capacity
to deal in large extent (Davidova, 2002). The policy addressed some of the issues (3.1.2.1)
late, the problem of assets of “eligible” persons in successor organisations of collective farms
has failed to be addressed at all.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
31
Box 1 Four phases of the Czech agricultural policy (1989-2002)
Phase 1 – Reform-liberal
(1990 - 1994);
Phase 2 – Stabilisation
(1995 - 1998);
Phase 3 – Revitalisation
(1998 - 2000);
Phase 4 – Adaptation
(after 2000).
Considering the agricultural policy in a narrower sense as a mix of support measures
concentrating on food production, land cultivation and farm income, it is possible to identify
the 4 phases of the policy in the period of 1990 – 2001:
During the Reform-liberal phase (1990-1994) land reforms and liberalisation of agricultural
market was launched. While the institutional environment (in terms of legislation and other
formal rules) innovated the organisation, particularly state administration descended from the
pre-reform period. Market liberalisation included radical abolishment of all direct and indirect
income supports and opening border to foreign competitors. However, the policy had to deal
with extreme surpluses soon. Market regulating policy was launched and Market regulation
fund established. Thus in contrast to the initial liberal position, barriers to trade were reintroduced. The investment supports for the establishment and stabilisation of new farms
started with grants, later was converted into interest free loans. In total, the level of supports
decreased by a half to 25% PSE comparing to the pre-reform period.
The stabilisation phase (1995 - 1998) is characterised by a gradual increase of direct
supports aiming at offsetting financial problems of farms. The second most important policy
objective of this phase was modernisation of farms. This objective was backed up by
relatively massive investment support in the form of interest subsidies and the state
guarantee to bank credits. The importance of the market price supports went down (partly
due to high world market prices, FAO, 1999) and the total level of supports declined to a half
compared with the foregoing phase (10 - 15 % PSE). The cost of stabilisation policy was paid
roughly 50 % to 50 % by consumers and tax-payers. The policy orientation on (farm income)
stabilisation was incorporated in the new Agricultural Law, settled down in 1997. It is also
important to remind that multi-functionality of agriculture was for the firs time officially
recognised.
The revitalisation phase (1998 - 2000) can also be market as the first pre-accession phase.
At the beginning of this phase, the government approved document: the Agricultural Preaccession Policy Agenda. The formal policy objective rested in improving competitiveness
and overall economic viability of farms, however corresponding measures did not differ from
those already launched in the previous phase. Rather the emphasis was put on reorientation
of farmers on non-market activities (e.g. grassland management). The measures of this sort
were primarily focused on improving farm income, but the environmental benefit was
considerable (Ratinger, Krumalova, 2002). Beside the above directions the policy started to
compensate “disasters” of any kind. One cannot assess it in other way as a certain form of
the direct income support. There are no doubts that “disasters” happened, but the problem
was that the policy turned to the position that it was government obligation to eliminate any
entrepreneurial risk. This character o the policy continued in the next phase. The total level of
supports represents about 20 % PSE on average. The privatisation of the state land started
in this phase.
The all pre-accession phase, and particularly its the second part -adaptation (after 2000) was
characterised by pushing legislative and institutional harmonisation with the EU forward and
by the effort to modify national measures to get closer to CAP.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
32
Another way how to structure the current Czech policy is to group measures according to
CAP pillars. It will enable as to assess the degree of similarity of the Czech national policy
and the CAP.
In principle, agriculture is supported by consumers and by tax-payers, and at the same time
supports from the side of consumers – except some years – prevails both in the Czech policy
and in the CAP. They range from 30 % to 75 % from the total expenditures of the Czech
policy in 1995 – 2001, and in the EU from 50 % to 60 %. Particularly the dimension of
supports from the side of consumers (reflecting the level of the protection of the domestic
markets, being 2-2,5 times higher in the EU compared with the CR) contributes to large
differences in the total level of supports expressed by the % PSE indicator. The value of %
PSE is permanently 2 – 3 times lower in the Czech agriculture compared with the level of
supports in the EU.
Table 9 Czech agricultural policy outlays in the CAP break down
1995
1996
1997
1998
1999
2000
2001
EUR Millions
Market price support
599
615
30
652
567
339
331
Pillar I
90
122
135
157
176
200
343
Direct input and output supports
41
45
46
73
91
100
159
Direct payments
Disaster payments
49
76
89
84
85
99
184
The share of applicable in the EU
45%
37%
34%
46%
52%
50%
46%
Pillar II
42
75
101
145
145
135
136
HRDP like measures
36
45
49
87
110
104
87
SOP like measures
6
30
52
59
35
32
49
The share of applicable in the EU
94%
96%
93%
95%
96%
94%
82%
Source: MoA 2002, own grouping
3.4.2 Market support policies – Pillar I measures
Pillar I measures, are such measures which aim at enhancing farm income by increasing
revenue from agricultural production or by reducing costs. Coupled direct payments would
belong to this group too, however the Czech policy has not applied them yet.
Market price support belongs to this category. Most of the effect has achieved by tariffs,
which protect the domestic market from cheaper imports. The active price support policy has
been implemented by the State Fund for Market Regulation (SFTR, established in 1993).
The operations of SFTR include intervention purchases and export supports (subsidies).
Most of the time the SFTR supported mainly milk (dairy products) and food wheat. However,
time from time the SFTR Board decided to intervene also other markets in order to foster the
price and balance of supply and demand, e.g. in 1997 and 1998, potatoes were included
under the scheme or pork in 1998 and 1999. In 2002, the SFTR was reorganised to fit better
to EU CAP scheme and renamed to the State Agricultural Intervention Fund (SZIF).
In 1999 and again in 2000 the government had to give up its effort to rise the price of milk
because of the insufficient budget for subsidising export. To cope with budget constraints,
the Ministry of Agriculture decided to introduction of a minimum price. The Ministry counted
with the delayed response in supply and the quota system was launched only half a year
later in Spring 2001.
Although GATT commitments outlined the framework/limits of the national agricultural policy,
till 1999 the policy was rather constrained by the budget than by the commitments. However,
in 1999 the government had to use an emergency procedure when it tried to save the
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
33
domestic sugar producers against the impact of declining sugar price at world market. The
government insisted on more solid solution rested in the introduction of quota system with
self-financing export support and the effective protection of the domestic market. Obviously,
rising tariffs requires negotiation within WTO.
The dairy cow premium was a measure adopted to stimulate productivity in the dairy sector.
Only those cows with the yield over 6000 litre per year were eligible for the premium. This
measure has had digressive tendency, it was reduced to a quarter in 2000. Almost at the
same time, an incentive to depart from dairy production toward beef production was
introduced. Over last 5 years the budget spent on this measure amounted 54 million EUR in
which effect the suckler cow herd increased to 88 thousand heads (MoA 2002). Beside the
premiums the policy recognised measures reducing costs of inputs. In 1998 the
compensation of the consumption tax on fuel was introduced.
Disaster payment can also be added to this category, since they compensate for the lost
revenue.
Most of the cost of market price support (about 19 billion CZK, 450 million EUR) 19 is born by
consumers. Thus the budget outlay consists of the other measures applied under the Pillar I.
The extreme increase of the outlay in 2001 was caused by large compensations for drought
provided in that year (in absolute and relative terms, the figure almost doubled and reached
46 % of the total Pillar I budget). What is urging, is the gradual increase of these payments
(Table 9)
3.4.3 Competitiveness enhancing policies
The Agricultural agenda issued in 1992 identified (short term) priority areas as restructuring
and reallocation of agricultural production, adjustment to market conditions and technical and
technological reconstruction and modernisation which can be regarded as fostering
competitiveness of agricultural production. A lack of financial capital was identified as the
main barrier to restructuring a modernisation. The early 1990s policy sought for a relevant
measure to deliver the capital to agricultural entrepreneurs; the attempts included investment
grants and interest free loans of the Ministry of Agriculture. Soon, the MoA recognised that it
had not enough capacity and funds and suitable financial regime for providing such a policy
on one hand, and that farmers only rarely used the banking sector for financing their
investments on the other hand. In 1994, the Ministry modified the policy: the support targeted
improving the access to bank credits by subsidising interests and issuing guarantee for
creditors was launched; the Support and Guarantee Fund for Agriculture and Forestry
(SGFAF) was founded, the institution providing both the subsidy and the guarantee. Between
1994 and 2001 the SGFAF gave out interest subsidies in the amount of CZK12.5 billions
(EUR 0.369 billions) which together with the guarantees supported agricultural investment of
CZK 38.9 billions (EUR 1.1 billions).
The criticism of investment supporting policy implemented by SGFAF concerns the fact that
the decision on project approval was to too large extent transferred to banking sector having
on other objective that earning profit from credits. Thus no specific objectives could be
achieved in investment.
Beside improving access to capital, the government supported improving access to markets
in three ways: a) supporting farmers self-organisations for marketing products, b) negotiating
concessions for Czech producers to get access to foreign markets and c) introducing
standards and norms (including organisational backup) to guarantee food safety and
19
the average 1995-2002
34
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
environmental friendly production. The a) and c) have also been included in SAPARD and
will definitely continue after EU accession. Concessions will be replaced by single market.
3.4.4 Policies addressing environmental and rural development problems –
agricultural
Currently, there are two groups of measures of the Ministry of Agriculture addressing directly
or indirectly rural problems: i) compensating costs of achieving the benefit and ii) investment
supports. The first group of measures include stabilisation of agricultural settlement in less
favoured areas and promoting farming practices sensitive to environment and landscape.
The objective of compensation in less favoured areas is to stabilise farm income and thus to
encourage farmers to stay in the region. The compensations are allocated only to grasslands
and accompanied by cross compliance for grassland management. This arrangement aimed
at two goals: giving incentive for excluding land from intensive arable agriculture, stimulating
landscape (and biodiversity) management. Agri-environmental measures are primarily aimed
at achieving environmental benefit.
Overview of measures (or groups of measures) focused to landscape and environmental
issues (CZK millions) – under the Ministry of Agriculture
Table 10 Agri Environmental measures
LFA compensations and Agrienvironmental measures
Measure
Transformation of
arable land into
grassland
Aforestation
Renewal of vineyards,
hop-gardens and
orchards
Maintenance of farmland and landscape
Ecological agriculture
Bee-keeping
Support of breeding
beef-cattle and sheep
Biological protection
of crops
1997
2124
1998
3659
1999
4559
2000
4460
2001
3699
Aim of measure
Restructuring of agricultural
(plant) production, grassing of
arable land – land protection
Restructuring of agricultural
(plant) production, afforestation of
agricultural land
To preserve alternative source of
income
Extent of implementation
All agricultural area eligible,
payment differentiated: LFA and
non-LFA
All agricultural area eligible,
payment differentiated: LFA and
non-LFA
All agricultural area eligible
In the year 1994 and 1995
measure was intended only for
grasslands, since 1996 extended
to all agricultural land. Since 2001
it has been replaced by LFA
payments.
The system is introduced
according to IFOAM
All agricultural area eligible,
payment differentiated: LFA and
non-LFA
Prevent of decrease of bees
numbers
Expansion of breeding of animals
needed for landscape
management.
Substitute of chemical protection
of crops, mostly greenhouses,
orchards and vineyards
All agricultural area eligible,
payment differentiated: LFA and
non-LFA
All agricultural area eligible
Mainly in LFA areas.
All agricultural area eligible
35
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
Liming
Improvement of soil reaction
(liming of soils up to pH 5,5)
Ponds cleaning and
ecological network
creation
Removal of mud from ponds
(renewal of water capacity) and
planting of tree green belts
All agricultural area eligible,
payment differentiated: LFA and
non-LFA
Nation wide
All agri-environmental measures have been implemented by the regional office of the
Ministry of Agriculture (nowadays Agricultural Agencies of MoA). The budget increased
substantially in 1998 and has been more or less stable since that. However, the measures
varied in specification of actions year from year as well as administrative requirements.
There has been indirect environmental benefit form the investment supporting programmes;
modernisation has explicitly (legally) required and implicitly included technologies sensitive to
environment. Beside general agricultural investment, the means of SGFAF has been
modestly available to promote diversifying activities of farms (like processing, agro-tourism
etc.) not reaching 1 % of the total support provided.
3.4.5 Pre-accession policies (adoption of acquis, SAPARD)
Purpose of the creation and implementation of SAPARD was to facilitate growth of capacities
in Czech Republic to adopt Aquis Communitaire, efficiently fulfil goals of CAP and utilise
corresponding funds after EU accession.
The main aims of the SAPARD programme of the Czech Republic for the period 2000-2006
included (SAPARD MoA 2002):
 to strengthen the competitiveness of agriculture and food processing industry,
 focusing on aquis-related investments in the field of hygiene and quality standards
and animal welfare to achieve sustainable rural development, including opening up
new local employment opportunities to help counter rural de-population
 to ensure the full potential of the programme is reached, notably by providing new
types of vocational training and technical assistance.(European Commission,
Directorate General for Agriculture 2000(a))
Ten measures were devised under these three priorities; they are shown below with their
percentage allocation of the total budget.
Table 11 SAPARD measures and budget
Measures
Increasing the competitiveness of agriculture
1.1 Investment in agricultural holdings
1.2 Improving processing and marketing of agriculture
and fishery products
1.3 Improving structures for quality control, quality of
foodstuffs and consumer protection
1.4 Land improvement and reparcelling
Sustainable development of rural areas
2.1a Renovation and development of villages
20[1]
Total
cost20 (m)
EU(m)
contribution
% of total
exp.
66.27
67.91
24.85
25.47
15.8%
16.2%
36.73
13.77
8.8%
41.34
31.01
19.7%
21.88
16.41
10.4%
the total cost is comprised of National contributions, EU contributions and private
contributions.
36
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
2.1b Rural infrastructure
2.2 Development and diversification of economic
activities, providing for alternative income
2.3 Agricultural production methods designed to protect
the environment and maintain the countryside
Technical support
3.1 Improvement of vocational training
3.2 Technical assistance
total
10.94
66.08
8.21
24.78
5.2%
15.8%
6.11
4.58
2.9%
4.41
2.15
323.83
3.31
1.61
154.00
2.1%
1.0%
100%
Source:(European Commission, Directorate General for Agriculture 2000(a); Commission,European 2000(b))
SAPARD measures focused on land consolidation and rural development (measure 2 above)
will be primarily applied in associations of neighbouring villages, so called rural microregions, and communities with wider action (Czech Ministry for Regional Development,
Ministry for Agriculture 2000)
The rural development programme builds on existing strengths, such as the existence of
unique and specific regional products and traditional crafts and well organised micro-regional
rural communities on one hand, but taking into account current weaknesses on the other
hand. These include poor infrastructure in rural areas compared with urban areas, and
insufficient level of conformity to EU standards in certain agricultural sectors, as well as a
prevalence of low profitability of farm businesses. (Commission, European 2000(b))
After the first year of SAPARD running it is expected the budget will be fully used during the
second year (2003). The project applications slightly exceeded budged in the fist year.
According to interviews with SAPARD Agency representatives there is enough capacity to
fulfil the goals of SAPARD. However, it will not necessary be sufficient for implementation of
the Sector Operational Programme (SOP) which is expected to be more diverse in measures
and with bigger budget. There are 60 people in the central SAPARD Agency and the other
60 in regional offices. The numbers shall rise but not significantly after the accession.
Concerning the implementation the agency preliminary assessment indicates that spreading
information, co-operation with banks and overall performance of regional offices developed
positively and contributed to the success of the programme. On the other hand, the system
of SAPARD advisors, who were supposed to assist applicants to prepare credible proposals,
have appeared to be malfunctioning with advisors insufficiently experienced and educated. In
the effect, a significant proportion of projects proposals was of poor quality. Even the better
proposals lacked progressive business ideas.
Transfer of experiences from SAPARD implementation to newly prepared SOP is an
important issue.
3.4.6 Conclusion on policies
Pillar II: structural supports (HRDP, SAPARD, SOP), amounting on average in the CR to
17,1 % of the total supports during 1995 - 2001. Pillar III: general services, amounting in
average in the CR to 12,3 % of the total supports during 1995 - 2001. Particularly interesting
is the development of the rate between Pillar I and Pillar II budgets (Figure 9). We can
observe a U shaped curve, indicating that the adjustment of policies following the GATT
agreement resulted in a balance between Pillar I and Pillar II spending in 1998, while preaccession policies have fostered Pillar I spending21.
21
Note that Pillar 1 includes disaster compensations regarded as green box measures.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
37
Figure 9 A development of the ratio between budget outlays for Pillar I and Pillar II policies
3.0
PillarI/PillarII ratio
2.5
2.0
1.5
1.0
0.5
0.0
1995
1996
1997
1998
1999
2000
2001
Regardless the presented distinctive phases, the Czech agricultural policies have exhibited
common features too:
 a relative low level of supports given by budgetary limits (the Czech Republic has
permanently belonged to countries with the low level of agricultural supports);
 the instability, time inconsistency of the policy, especially in respect to supports for
providing public goods (e.g. environmental qualities, etc.);
 the tendency for direct income supports for farms, even not on a regular or systematic
base: e.g. massive and partly ad hoc flat compensations (for drought, for floods, as
the “green fuel”, etc.);
 the centralised implementation of the policy, without adoption of regional approaches.
Although not all current measures are compatible with the CAP (18 % of the Czech Pillar I, 8
% of the the Pillar II and 15 % of general services, altogether 16 % of all supports) the
accession will not be a big change in orientation of farmers. The biggest pressure is being
imposed on the state administration to develop and provide an institutional framework in
compliance with EU requirements to the time of entry.
The institutional preparation of the CR on EU accession and on the harmonisation with the
CAP, measured by the level of the harmonisation of the agricultural legislation and
institutions with the CAP, outstandingly accelerated during the last few years. However, the
latest evaluation of the European Commission (October 2002), pointed out a couple of
remaining tasks:
 completion of the veterinary legislation;
 completion of the full harmonisation of the market organisations for selected
commodities (milk, sugar, etc.) ;
 improvement of the functioning of the Paying Agency (PA), completion of IACS and
its full integration into the work of PA;
 finishing of the harmonisation of information systems;
 accelerating building up institutional capacities for the protection of market,
consumers and environment, including custom office operation with regard to the
third countries;
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
38
 sorting out the status and operations of the Support and Guarantee Fund for
Agriculture and Forestry (SGFAF) after accession.
4 Analysis of the current Situation and Impacts of EU accession.
4.1
Agriculture
4.1.1 Sector Analysis
At many places we pointed out the link between agriculture and rural development, however,
the policies have tended to be separated for long time. To built an integrated policy for rural
development requires analysing possible development of the agricultural sector, particularly
in respect to expected changes of agricultural “production oriented” policies (Pillar I). The
questions relevant to rural development are: “how much income is agriculture able to offer to
rural population”, “how much of the rural resources will be deployed in agricultural
production”. Not all issues can be satisfactorily answered a sector model. The use of
resources like labour and capital would require a general equilibrium approach. Therefore, in
the sector modelling we concentrated on two main issues: income from agricultural (food and
fibre) activities and the land use.
4.1.1.1 Characteristics of the i-sim model
The sector model i-sim is a partial equilibrium, comparative static model based on economic
accounts for agriculture. i-sim was has been developed for simulating economic impacts of
EU accession on agriculture in candidate countries. i-sim is based on the CAP-SIM22 system
(W ITZKE, VERHOUK, ZINTL, 2001), which was designed for a quantitative assessment of
conceivable CAP scenarios for EU policy makers. It allows an important degree of
comparability between assessments of policy scenarios in the EU and in the candidate
countries and the future full integration in the CAP-SIM system.
The driving force of a simulation is maximisation of producers’ surplus while searching for
market equilibrium (for either directly marketed agricultural products or processed products).
The model recognises exogenous variables, control or policy variables and endogenous
variables. World market prices and macro-economic assumptions are exogenous variables.
Since the model assumes fixed technology, yields belong amongst exogenous variables.
Domestic market and producers’ prices are endogenous, as well as activity levels (areas,
herds, outputs), revenues and input demands are endogenous. Control/policy variables
represent policy instruments adopted in scenarios. Market relationships are defined by
supply and demand functions and market clearance equations. Obviously, elasticities are
crucial for well functioning the model. They are calibrated on the base year data, corrected
from the literature.
The model database is built upon the economic accounts for agriculture for the year 1998.
Beside others it contains balances of production and use and commodity cost structures for
the given year.
4.1.1.2 Exogenous variables – general sector and macro-economic assumptions
22
Formerly: MFSS99
39
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
Model simulation requires predictions/ assumptions on exogenous variables. This information
was obtained from different sources – specialised crop and livestock research institutes, the
Czech National Bank (CNB), governmental predictions etc.
The assumptions on the production intensity (yields per hectare, livestock productivity, i.e.
milk yielding capacity, daily gains of fattening animals, egg laying etc.), on costs (direct
costs, wages and salaries, depreciation, rental and interest values) and on the exchange rate
were taken from the study on the impact of EU accession on Czech agriculture, carried out
by VUZE for the Governmental Council of Social and Economic Strategies (RASES) (VUZE,
2002). Technological progress is incorporated in the assumption of 1.5% yield increase
annually. Development of all costs, except wages, follows inflation (CPI) prediction of the
central bank (CNB) i.e. 4.9% annually.
Up to 2006, agricultural wages will grow at the same rate (8.5% annually) as the average
wages in the national economy (i.e. rapider than the inflation rate). The (dis)parity rate
between the agricultural wage and the average is supposed to remain constant. The land
prices are supposed to rise of 30 percent (comparing to 2000) after accession.
The prediction of world prices is based on FAPRI and OECD projections.
4.1.1.3 Scenarios (policy variables)
The analysis of future policies starts with preparing and running a reference scenario. The
policy variables are set as in the base year. Thus, the reference run represents changes in
model results (production levels, land use and income) just due to changed exogenous
variables to the predicted level in simulation year. The reference scenario can also be
regarded as non-accession scenario with prolonged current policies.
Two of the three accession scenarios relate to the debated accession conditions (the EU
position from the mid of 2002 and the Czech position from the same time). The last scenario
refers to actual conclusions in Copenhagen in December 2002. The simulation horizon was
set to 2006. A rough description of policy variable setting in scenarios is given in Table 12.
Table 12 Policy variables in scenarios – the simulation year 2006
Item
Type of the
Unit
policy variable
EU proposal
Czech
position
Copenhagen
agreement
Base area
Direct payments
Area
2254
2401
2254
Historical yield t/ha
hectare
4.18
4.20
4.20
Payment
EUR/t
22
63
32
Suckler Cow
Ceiling
heads
61
230
90
Bulls
Ceiling
heads
235
305
244
Payment
EUR/head
195
296
195
Milk
Quota
‘000t
2533
3100
2738
Sugar A+B
Quota
‘000 t
455
505
455
Quotas
Source: EC 2002, MoA 2002c, MoA 2003
4.1.1.4 Analysis of simulation results
Most of the debates amongst the agricultural public in the Czech republic have concerned
the effect of negotiation positions on farm gross income. Anticipating it we have assumed
40
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
that farmers will tend to maximise gross income rather than profit or net income in short term
– i.e. from the accession (in 2004) up to 2006.
Figure 10 Expected agricultural revenue in individual scenarios
6000
5000
4000
3000
2000
1000
0
Base year
Reference
EU proposal
Crop Production
Czech
position
Copenhagen
conculusions
Animal Production
Detailed results of model simulations are shown in Table 17 in the Appendix.
Production structure
Evidently, adopting the CAP will increase agricultural revenue in either scenario (Figure 10).
It will bring with it changes in production structure too. First of all the ratio between crop and
livestock revenues will change significantly (from 42%:58%. in the reference scenario to
35%:65% in the accession scenarios). However in quantitative terms the shifts will differ in
the accession scenarios (Table 13); the EU proposal will imply expansion of the crop
production by 6 percent, while the livestock output will not really increase. the Czech position
is much more favourable for the livestock production, the expansion of 11 percent might be
expected, the crop output will decline by 2 percent; the Copenhagen conclusions will
promote a slight increase of both the crop and livestock production by 2 and 4 percent
respectively. This is to large extent due to direct payments and quotas, which will lead to
different production mixes (as they did when simulating scenarios). This is also reflected by
different increases of crop and livestock prices, while the overall increase (in respect to the
reference scenario) is 24 percent in the all three accession scenarios (Table 13).
Table 13 Changes in production structure in respect to reference scenario.
Scenario
EU proposal
Czech position
Copenhagen
conclusion
Quantity index
Crop
Livestock
1.06
1.00
0.98
1.11
1.02
1.04
Overall
1.02
1.07
1.03
Price index
Crop
1.04
1.15
1.08
Livestock
1.36
1.29
1.33
Overall
1.24
1.24
1.24
Note: Fischer indexes
The expected increase of livestock revenue is much higher (at least 50%) than of the crop
one (about 10%) after accession. The most pronounced jump is will occur in the beef sector,
this because beef prices are expected to rise sharply (by 95%). Even the more pronounced
increase is calculated for the Czech position scenario since the headage payments are at
100% level and the eligibility ceiling is the largest. The number of fattening bulls will rise by
70, 73 and 67 percent in the accession scenarios. Suckler cows eligible for the premium are
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
41
at their ceilings in the EU proposal and Copenhagen conclusions scenarios. The optimum
number of suckler cows remained below the ceiling by 100 thousand heads in the Czech
position scenario. The increase in beef production (not followed by the same increase of
domestic consumption) will cause the surplus of beef (necessary to export) rising eight times.
The diary sector development is limited by quotas. The revenue would drop by 3.7 percent if
the EU proposal was adopted. The Czech position would imply a growth of milk production
by 17 percent, the Copenhagen terms will cause just a moderate increase of 4 percent. Pork
and poultry results are affected by the assumption of the development of EU prices. These
are assumed to be roughly 30 percent above the world prices. Since in the reference
scenario the domestic (Czech) price is not exceeding the world price significantly (due to the
overhang of supply) the price difference between the reference scenario and the accession
scenarios is also around 30 percent. The response of pork and poultry producers to higher
prices will result in a growth of revenue by 75 and 60 percent respectively.
Figure 11 Expected shifts in animal productions relative to the reference scenario
250%
200%
150%
100%
50%
0%
-50%
Animal
Production
Beef
EU proposal
Pork
Czech position
Poultry
Milk
Copenhagen conculusions
Land use and crop production
The model takes into account only 74 percent of TAL; twenty percent is supposed to be used
non-commercially (it relates to results of agricultural census in 1995 and 2000, and 6 percent
are supposed to be set aside. Most of this uncounted area is supposed to recruit from arable
land. The flexibility is given to the model to convert arable land in grasslands and vice versa.
the resulting area of grasslands is area used for feeding animals (cattle), hence, no effect of
agri environmental measures is considered. In the reference run, grasslands account 30
percent of the model agricultural area. Only the suckler cow sub-sector is bound to
grasslands. Thus the area of grassland depends on the number of suckler cows and moves
in the accord with the ceilings on suckler cows numbers. The share of grasslands amounts
for only 23 percent in the EU proposal scenario where the number of suckler cows is the
lowest (only 61 thousand). Despite the full rate of direct payments in the Czech position,
producing beef yields higher return per hectare and the area of grasslands returns to the
reference level. The suckler cows ceiling of 90 thousand heads in the Copenhagen
conclusions will imply the area of grasslands amounting 26 percent of the model agricultural
area.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
42
Figure 12 Changes in the crop structure relatively to the reference scenario
30%
25%
20%
15%
10%
5%
0%
-5%
EU proposal
Czech position
Copenhagen conculusions
-10%
Cereals
Oilseeds
Other Arable Crops
Vegetables/Fruits/Prennials
The crop structure on arable land (including perennial crops) varies only moderately. The
sown area of oilseed will increase in the all three accession scenarios. This increase is high
in relative terms (27%, 15%, 27%), but in absolute terms it represents only 30-60 thousand
hectares. Cereals compete with beef production and spite of full direct payments, the cereal
area is the lowest in the Czech position scenario.
The sector income
Both sector income and sector efficiency will improve substantially after accession (Figure
13). However, higher direct payments will guide farmers in less efficient production
structures. Gross value added at market prices (GVA) is the highest (an increase by 80%) in
the EU proposal scenario in which subsidies (mainly direct payments) increase three times
against the reference scenario. In the remaining accession scenarios GVA increases at the
similar rate - by 67 percent (subsidies rise 7 and 4 times). In contrast, the income, net value
added at factor costs (NVA at FC) will be the highest in the Czech position scenario. NVA at
FC will more than tripled in comparison to the reference run, mainly to the sharp increase of
direct payments. The amount of subsidies will jump 7 times and will reach the share of 36 %
on NVA at FC. The EU proposal and the Copenhagen conclusions scenarios give very
similar improvements of net value added at factor cost, while subsidies will rise more in the
Copenhagen one. Obviously, policy efficiency is lower in the Copenhagen conclusion than in
the former EU proposal, unless other objectives are followed. The other objective can for
example rest in reducing farmers’ risk when they seek for the optimal structure.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
43
Figure 13 The changes in sector income according to the scenarios relatively to the reference
scenario
300%
800%
600%
400%
Subsidies
Value added
200%
100%
200%
0%
0%
EU proposal
GVA
Czech position
NVA at FC
Copenhagen
conculusions
Subsidies
4.1.2 Farm Level Analysis
4.1.2.1 The organisation and efficiency debate
At the outset of transition, Czech collectivised agriculture was widely perceived to be
inefficient (Csaki and Lerman, 1996). On the basis of theoretical arguments concerning the
superior efficiency of family farming (Schmitt, 1991), many predicted the disappearance of
co-operatives and other large collectivised farms, as variations in productivity would lead to a
wholesale transfer to individual farming. Others (Gorton and Davidova, 2002) have argued
that the superiority of individual farming has been overstated and that the capacity of other
structures of production to be efficient has been underestimated. Empirical evidence on
changing farm structures in the region indicates that the co-operative sector's share of total
agricultural area (TAA) has shrunk, but the complete collapse of co-operative farming has not
occurred (3.1.2).
Arguments for the superiority of family farms over other organisational types in agricultural
production have been based on the need to minimise both production and transaction costs.
As the costs of supervision and monitoring of hired labour in agriculture can be high, it has
been claimed that family farms are a superior organisational form as they minimise
transaction costs (Schmitt, 1993). Focusing on collectivised agriculture in the centrally
planned economies, Schmitt (1993) adds to this argument the principal-agent problem in
producer co-operatives where the members can vote out the manager so that there can be
disincentives for the manager to monitor workers. Since 1989, the Czech Republic has
witnessed a growth in individual farming but not a rapid transformation to a predominance of
family farms envisaged by some (Beckmann, 1996). By 1999, individual farms, including
part-time farming, managed just over 20 per cent of TAA; the rest was managed by corporate
farms.
Three previous studies (Hughes, 2000, Mathijs and Swinnen, 2000, Curtiss, 2000) on farm
performance in the Czech Republic have sought to identify the determinants of variations in
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
44
efficiency, investigating principally the role of size and organisational type. They have,
however, found mixed support for the propositions drawn from the literature.
The pattern of increase in average productivity, reflecting scale efficiencies followed by
diseconomies of scale at higher farm sizes, is present with economies of scale for arable
farming up to 750 ha. Arable farms under 150 ha are regarded as significantly less efficient in
all three studies. These studies on data for the mid-1990s point to small farms in the Czech
Republic being relatively less efficient than in several other CEECs (Hughes, 2000).
Both Hughes (2000) and Mathijs and Swinnen (2000) found that individual private farms
were significantly more productive than corporate farms for livestock farming but not crop
production. Curtiss's (2000) analysis of crop production in the Czech Republic found that cooperatives performed better for wheat and rapeseed cultivation compared to individual farms
but that the latter were superior with regard to sugar beet production. It therefore appears
that arguments that co-operatives or other forms of corporate farming are inherently less
efficient, for all types of farming, compared to family farms are misplaced. Even for
commodities or types of farming where the average corporate farm is less productive than
the average family farm, one still sees some co-operatives and companies which are on the
frontier or registering high TFP scores (Hughes, 2000; Mathijs and Vranken, 1999). It
appears that at least some corporate farms can solve the internal governance problems
alluded to in the literature, or that there are some types of farming for which such problems
are less severe. The lack of clear evidence of the superiority of one organisational form
could also be due to the fact that with the progress of transition factors other than the
organisational form, e.g. technology or agri-environmental conditions, have increased in
importance with regard to shaping farm performance. For this reason the approach taken
here is to identify clusters of farms and to consider the performance of different clusters
without focusing exclusively on groups formed by one particular organisational form. The
procedure of clustering is detailed below.
4.1.2.2 Data and the approach
Data from the Czech Republic's FADN for 1999 were utilised. The Czech sample is surveyed
annually in March and included about 1,087 agricultural enterprises of physical and legal
persons (Table 14). After checking out 264 farms with poor (inconsistent) records, the
sample analysed included 823 farms. Table 14 compares the characteristics of the individual
and corporate farms included in the FADN sample (the 823 useable records for 1999)
against returns from the Czech Republic's agricultural census. In the Czech Republic there
are two main legal types of individual undertaking in agriculture: (a) trade law farmers,
subjected to business regulations (Trade Law) like other full liability businesses and (b) solely
operating farmers, with less strict regulations. Comparing the FADN sample with returns from
the agricultural census, the former is biased to larger individual farms (in both the trade law
and solely operating categories). For example, the average size of individual farms in the
FADN sample is 134 ha compared against 18 ha in the agricultural census. Comparing the
average size of co-operatives and joint stock companies, there are not significant differences
although the mean size of limited liability companies in the FADN sample is larger than that
recorded in the census.
The data for each farm in the sample contained total revenue and five cost items: total labour
costs for hired labour including social insurance contributions, intermediate consumption
(working capital), land rent, interest, and depreciation. In addition, land and labour were also
given in physical units, hectares and annual work units respectively. Labour was sub-divided
into hired and family input. Land area was given as a total and rented.
45
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
For the purposes of this analysis family labour was valued at regional farm unit labour costs
(farms in FADN are classified in 76 administrative regions). The variation in the regional
labour costs is between 1,681 EUR and 3,900 EUR per year.23 In order to calculate the
regional rent that is applied to the owned land, the agri-environmental regions were used as
they better reflect the differences in land quality. The variation in rent is from 6 to 30 EUR
per ha.
According to the regional conditions for farming, the Czech Republic is divided into five agrienvironmental regions, notionally called the maize region, sugar beet region, cereal region,
potato region, and mountainous-forage region (Hughes 2000). The most favourable for
arable agriculture is the maize region and they are listed in a descending order.
Table 14 Structure and Representativeness of the FADN farm sample for the Czech Republic
Individual Farms
Total
Not identified legal
form
Trade Law Farmers
Solely Operating
Farmer
Other
Corporate Farms
Total
Ltd
Joint Stock
Co-ops
State organisations
Other
Czech Republic
Total
Agrocensus (2000)
Number Agricultural Average
Land
area
53 460 962 325
18
FADN Sample (1999)
Number
Agricultural Average
Land
area
513
68741
134
18 098
26 908
1
3 384
31 721
68 772
863 870
20
27
11
502
4248
64493
386
128
257
3 027
2 775
2 680 843
11
886
310
473120
1526
1 479
621
746
105
75
56 487
795 359
779 732
1 059 453
38 997
7 007
3 643 168
538
1 256
1 420
371
93
64
61
95
154
65499
166165
241456
1074
1749
1568
823
541 861
658
Source: Czech statistical office, Agrocensus, 2000, own calculations
In order to investigate the common features of farms with different financial and structural
characteristics, cluster analysis was employed as it is suitable for defining groups of objects,
with the maximum homogeneity within the groups while having maximum heterogeneity
between the groups (Hair et al., 1998).
Structural characteristics/variables included: i) measures of size: total labour measured in
annual work units, total output including the net current subsidies, total assets, and the
utilised agricultural area; ii) two measures of specialisation: Herfindal index and the share of
crop output; iii) two measures of the degree of intensification: the amount of land per annual
work unit (AWU) with larger scores indicating lower levels of intensification, the quantity of
depreciation per annual work unit, in which case higher values are used as proxies that there
is more capital per worker employed; iv) two variables to account for the degree of
dependence on direct subsidies: total net current subsidies and the percentage of the value
23
For all conversion purposes the average exchange rate for 1999 was applied, 36.8862
CZK/EUR.
46
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
of output derived from direct subsidies; v) two variables to account for the use of paid primary
factors, the percentage of rented land, and the percentage of paid labour, vi) standard
financial ratios: debt to assets ratio and leverage. To these continuous variables, two sets of
dummy variables were added. The first one related to farm type, the other one to agrienvironmental region.
To reduce the number of structural variables and also to work with uncorrelated set of
characteristic factor analysis, the method of principal component with varimax rotation was
used. For the assessment of farm performance 6 indicators were used, the total factor
productivity index, four profitability ratios and financial stress ratio.
Box 2 Farm performance indicators24
TFP – Tornqvist-Theil total factor productivity index
Profitability ratios
CRS - Cost/(Revenue + Subsidy) ratio
CR – Cost/Revenue ratio
P_CB - Cost at opportunity factor costs/Revenue ratio (P_CB)
S_CB – Opportunity costs/ Opportunity Revenues (SCB)
Financial stress – (Rents and interests)/ Gross Value Added ratio
Other Financial indicators
Indebtedness - Total liabilities/Total assets ratio
Leverage – total liabilities/Net worth
4.1.2.3 Results of the performance assessment
The most striking feature of the overall profitability results is the low level of farm returns
(Table 15). The majority of farms are unprofitable under the three ratios. Out of 823 farms,
662 were loss making (80.4 per cent) applying the P_CB measure. In general, less than a
quarter of UAA and labour input were within profitable farms, and they produced between 21
and 28 per cent of the total agricultural output in 1999 (the percentage varies with the
measure).
Table 15 Descriptive Statistics, Profitability Ratios, Czech FADN Sample, 1999
Max
Min
Average
Standard Deviation
No of profitable farms
No of loss making farms
% of profitable farms
% of sample UAA in profitable farms
% of sample output in profitable farms
% of sample labour input in profitable
farms
P_CB
4.938
0.442
1.227
0.376
161
662
20
17
21
16
Source: Davidova et al. 2002
24
for detail definitions see Davidova et al. 2002
C_R
3.593
0.423
1.089
0.307
309
514
38
19
23
17
C_R s
3.614
0.423
1.006
0.250
399
424
48
26
28
22
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
47
An analysis of covariance (ANCOVA) for the 1999 TFP index as well as profitability ratios
indicated that structural characteristics like size (measured in terms of total assets), agrienvironmental region and degree of specialisation are significant determinants of farm
productivity (Table 10). When these variables are controlled for, the farm type (legal form) is
not significant. Individual farms have the highest standard deviation in TFP scores. Small
farms specialisation in crop production (with assets up to 81,000 EUR) had above average
TFP scores in 1999, while small, mixed farms (weighted to livestock) were characterised by
relatively low productivity. It appears that individual farms are better in crop production than
in livestock, which is in contrast to some previous findings (Mathijs and Swinnen, 2000).
A seven-cluster solution was obtained. The main characteristics of the clusters can be
identified as follows:
Cluster 1: Large individual farms mainly located in the sugar beet production region plus a
small number located in the maize region. Overall, the farms in this cluster operate in
favourable agri-environmental conditions. Farms are relatively small in relation to all size
measures when compared to the average for the sample, but they are rather large for
individual farms in the Czech Republic. The farms in the cluster have clear specialisation in
crop production, accounting for 76 per cent of the gross output. These farms have the
highest values for the quantity of land and capital per unit of labour. They appear to be the
most capitalised farms in the sample. They use some paid factors although the percentage
of rented land (67.8) and paid labour (28.2) is relatively small compared to the sample
average.
Cluster 2: Smaller Individual farms, located in the cereal production region. Compared
to Cluster 1, these farms operate in poorer agri-environmental conditions. These are the
smallest farms in the sample and they are far smaller than the individual farms in Cluster 1,
particularly as gross output and total assets are concerned. According to these two size
indicators, farms in Cluster 2 are less than a half of the farm size in Cluster 1. Farms in this
group present some degree of specialisation in crop production but to a lesser extent than
farms in Cluster 1. They use more labour per units of land and capital than farms in Cluster 1
Cluster 3: Limited liability companies situated mostly in the sugar beet and cereal
production regions. These are large farms utilising mostly rented (state) land and hired
labour. They are not specialised. The ratios reflecting land and capital per annual work unit
are slightly better than for co-operatives but still much lower than those for individual farms in
Clusters 1 and 2.
Cluster 4: Production co-operatives located in the sugar beet and cereal production
regions. Overall, the agri-environmental conditions for the farms in this cluster are
favourable. These are large farms, operating an average area of 1,510 ha, with the majority
of the land rented and a dependence on hired labour. They are not specialised. The land and
capital per annual work unit are below the averages recorded for individual farms in Cluster 1
and 2.
Cluster 5: Joint-stock companies located in the sugar beet and cereal regions. They
operate in relatively good agri-environmental conditions. These are the largest farms in the
sample, operating on average more than 2,000 ha. Like the co-operatives and limited liability
companies, they rent the vast majority of the land they farm and use hired labour. Farms in
Cluster 5 show some specialisation in livestock production, but still 43 per cent of the value
of gross output is generated by crops. These are the farms with the lowest capital intensity
in the sample and the lowest acreage per annual work unit.
Cluster 6: Farms situated in the potato region (Other LFA, O-LFA). These are individual
farms (55 per cent) and production co-operatives (34 per cent). In contrast to the previous 3
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
48
clusters, agri-environmental circumstances rather than organisation form define the cluster.
The potato region is an upland area with poor soil fertility and presents unfavourable
conditions for arable farming. The farms in this cluster are not specialised and their gross
revenue is derived almost equally from crop and livestock production. The cluster is
comprised of a mixture of large corporate and small individual farms and the values for
rented land and hired labour reflect this mix. Production is not capital intensive.
Cluster 7: All the farms from the mountainous region (M-LFA). Most of them are
individual farms (65 per cent) or limited liability companies (17.5 per cent). These farms
operate in the worst agri-environmental conditions in the Czech Republic. Not surprisingly for
mountainous farms, they are specialised in livestock production. The farms in this cluster are
quite extensive; they have large values of land per unit of labour and are near the sample
average for capital per unit of labour.
The first observation from the cluster formation is that there are clearly distinguished better
and worse agri-environmental conditions, and that the management form is important
characteristic of farms in better conditions.
The difference in labour and capital intensity between farm types is quite large (Figure 14).
The ratio of labour units per 100 hectares is substantially lower for individual farms (Clusters
1 and 2) than for corporate farms (Clusters 3, 4 and 5). The high figure for co-operatives (and
joint-stock companies) is consistent with some theoretical propositions that due to their cooperative principles of voting production co-operatives have difficulties in restructuring and
shedding labour when many members contribute labour. Capital intensity per hundred
hectares follows the pattern of labour intensity, there is less difference between individual
and corporate farming. In turn, capital intensity in terms of total assets per a labour unit is
much higher (30-40 %) in individual farms. Farms in less favoured areas deploy labour and
capital at the average rate.
6.0
140
5.0
120
4.0
100
80
3.0
60
2.0
40
1.0
20
0
AWU 100 hectare
160
0.0
In
d
F1
(1
64
ha
)
In
dF
2(
95
ha
)
Lt
d(
10
89
ha
C
)
oo
ps
(1
51
1h
Jo
a)
in
tS
t.(
20
08
ha
O
)
-L
FA
(6
74
ha
)
M
-L
FA
(5
53
ha
)
'000 EUR per AWU, per 100 hectare
Figure 14 Labour and capital intensity in farm clusters
Average area, hectare
Assets/AWU
AWU/100ha
Assets/100 hectare
Source: Davidova et al. 2002
Indebtedness of farms varies considerably (Figure 15). The debt to assets ratio is particularly
worrying for limited liability companies and co-operatives. The limited liability farms are the
most indebted within the sample. Their financial situation is however shaped by their
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
49
outstanding liabilities to the state for acquiring assets from former state farms. As limited
liability companies pay little interest on state loans, they have limited financial stress.
Referring to our description of the recent situation (3.1.2.1) there was a kind of writing off of
these debts through devaluation of former state assets in 2001. It decreased the liability to
state, hence the value of total liabilities one side, but lowered the value of total assets on the
other hand. Our estimation is that the debt to assets ratio could drop by 10-20 percentage
points for this category. The indebtedness of co-operatives is the second worst in the
sample. This is, however, due to the way this organisational form was established during the
reform process. Producer co-operatives in the Czech Republic have mainly non-bank longterm liabilities that can be referred to as ‘reform debts’. These are liabilities to owners of cooperative assets who received shares during the land reform process but decided not to farm
individually and left them within the co-operative without becoming members. However, the
co-operatives have not yet repaid these debts. This is reflected in relatively low financial
stress, measured by the ratio of rents and interest payments to the gross value added, which
is no higher than the values for the individual farms in Cluster 1. The level of bank credits in
respect to total assets is not high in any cluster. Actually, it is rather low. This is consistent
with the overall complain that the access to bank credits is difficult. From the interviews we
learned that farms carrying “reform” debts are not regarded as credible borrowers and that
smaller farmers are considered as too small and risky partner for the banking sector. Overall
financial stress (caused by borrowed capital) is low – it is the highest for joint stock
companies, but not critical. However, if we take in the context of profitability – as result and
labour intensity, as organisation we see that farms are in actual financial stress, caused
mainly to high share of compensations of labour on the value added (3.3).
Figure 15 Financial viability of Czech farms
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
IndF1
IndF2
Ltd
Coops
DebToAs
BankToAs
JointSt.
O-LFA
M-LFA
FinStress
Source: Davidova et al. 2002
The level of support increases with worsening natural conditions. The share of subsidies on
the gross income (revenue plus subsidies) was three-four times higher in mountain regions
than in the other clusters. On average, the share of subsidies on gross income is not high ( in
other than mountain regions it is between 4 and 6 percent), but since the gross value added
is narrow, the resulting income/profitability depend to large extent on subsidies (3.3).
Individual farms from the first cluster did the best in terms of the performance results
achieved. The mean TFP score for the cluster is slightly above 1. On average, farms are
profitable according to two of the profitability ratios, Cost-Revenue without subsidies and
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
50
Cost-Revenue with subsidies. Despite that farms in Cluster 1 are sensitive to the valuation of
own resources at shadow costs, as they employ a great deal of own labour and land, they
still have relatively low the Private Cost-Benefit ratio (comparable to Cooperatives, Cluster
4).
The performance of individual farms in Cluster 2 is weak, although the profitability ratios are
sound if factors are not valued at opportunity costs. The total factor productivity index is
below one, and P_CP and S_CB ratios are the worst of the non-LFA clusters. The stark
contrast in performance compared to Cluster 1 exemplifies the great variations that exist
between individual farms in the Czech Republic.
Figure 16 Farm performance in clusters
1.600
20%
1.500
1.400
15%
1.300
1.200
10%
1.100
1.000
5%
0.900
0.800
0%
IndF1
IndF2
ltd
Coops
JointSt.
O-LFA
SubsSh
TFP index
Cost (Revenue+Subsidy) ratio
Cost Revenue ratio
P_CB ratio
S_CB ratio
M-LFA
Note: Productivity, better performance if TFP >1,
Profitability indicators, profitable if the ratios are below 1. Differences in performance significant at 0.01 using,
ANOVA for individual indicators and MANOVA for all.
Source: Davidova et al. 2002
The producer co-operatives (Cluster 4) have the highest productivity in the sample but they
are unprofitable according to all the ratios. However, on average their profitability is not far
from the break-even point, particularly on Cost-Revenue with subsidies ratio
The companies (Clusters 3 and 5) perform similarly. They both exhibit average productivity,
but are unprofitable according to all four profitability ratios.
Farm productivity deteriorates quickly with worsening agri-environmental conditions. So does
the profitability. Despite significant transfers, the average profitability was still the lowest in
the mountainous cluster. It can be also well that in 1999 most of farms were under the
conversion to beef cattle and pastoral production, having just cost but producing little. The
Report on the State of Czech Agriculture in 2001, (MoA 2002) indicated that net value added
in mountain LFA was still below the national average, but the gap had narrowed.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
51
4.1.3 Policy Implications
Both the sector performance and the sector efficiency will improve substantially after the
Czech republic joins the EU and adopts CAP. The sector gross value added will rise due to
higher prices (on average of 24 % than it would be if the CR stayed aside). Direct payments
will imply an additional substantial improvement of income (NVA at FC). However, the
gradual increase of direct payments toward the 100 percent is likely to guide farmers in less
efficient production structures (decrease of GVA), although farmers will continue to be better
off. This increasing policy inefficiency will hardly be social justifiable, unless other objectives
are followed.
De-coupling of direct payments may allow both i) following the objective of protecting farmers
against income risk and ii) letting farmers seek for the (economically) optimal structure.
Adopting CAP will improve farm profitability without doubts. The fact that most of the price
increase will meet livestock products implies that the advantage of specialized crop
producers may be reduce or entirely offset. It may help framers in less favoured areas too,
since they are significantly specialized in livestock production, and particularly in beef. On the
other hand higher prices and direct payments may shelter inefficiencies and the variation in
farm productivity may remain large. It is a question how much of increased income will be
reinvested in improving farm productivity, and how much will flow out of the sector in form of
increased rents and wages. Production co-operatives will certainly be exposed to higher
press of non-member capital holder to be compensated if the sector income has improved. In
the other word, policy makers should be aware that there are more stakeholders than only
farmers who will spend effort to capture at least a bit of the benefit from the CAP. Thus the
resulting improvement of income of the rural population engaging in farming will not
necessary be as good as it might seem now.
4.2
Rural Development
4.2.1 Assessment of the farm sector potential to contribute to rural
development
Historically, agriculture and its ancillary support were central economic activities, the
dominant resource users and the primary sources of income in rural areas. However, the role
of agriculture changed in the last century and it has been ever changing over the present
century. Obviously, agriculture and rural areas were at a different level of development
compared to west Europe and central and eastern Europe. The secular decline of agriculture
in the total economy, in terms of agricultural output and workforce in national economy
coupled with major changes in the social and economic orientations of increasing numbers of
its population, has left only a minority of rural communities revolving around farming.
The fact that agricultural has several roles in addition to the production of agricultural goods
and food is widely recognised. There is no doubt that the time when farmers were expected
to produce mainly agricultural commodities to ensure sufficient food supply is far away. In
contemporary times, it is internationally recognised that agriculture plays an important role for
the environment, the rural landscape and also for rural development. However, it would be
misleading to state that only the farm sector itself is able to contribute significantly to rural
development, employment in rural areas and increasing the standard of living in these areas.
4.2.1.1 Farm diversification
Individual farms or plots occupied less than 0,4 per cent of the total agricultural area. These
farms employed about 2000 people (those who had only one job or full-time job in
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
52
agriculture). Therefore, the private sector played an insignificant role in the pre-reform period,
so non-agricultural diversification was, in practise, an unknown term. Concerning cooperatives, they had some freedom with regard to their non-agricultural enterprises. Income
generated through these activities could be retained by the farm. State farms did not have
this flexibility. Therefore, collective farms had more developed non-agricultural activities than
state farms. According to OECD, non-agricultural activities accounted for 20 per cent of
market production and 50 per cent of profits on collective farms.
During the transformation process, numerous non-agricultural enterprises broke away from
the state and collective farms. These enterprises were privatised so that the employees
engaged in these enterprises were partly responsible for the rapid decline in agricultural
employment during transformation process.
The early expectation that land and other farm asset privatisation would stimulate the
creation of many commercial family farms, similar to those prevalent in Western European
countries, has not been realised. Some of the owners reclaimed only part of their land (about
2 ha) from the collective in order to form an individual farm. In these cases, the owners are
often pluriactive, earning their main income from a non-agricultural activity or off-farm jobs.
Some of the small individual farmers who started during the reforms are dependent on social
benefits (mostly pensions, unemployment benefits, etc.). Those people who had land
restituted from the former collectives had the option to enter agriculture or to rent out the
land. Therefore, some of these persons diversified into agriculture during the reforms.
However, since not all farmers had an agricultural education or experience some of the
newly established farms later ceased and rented the land back to the production co-ops or
to other companies.
Farm income and diversification
The current question which this part of the strategy paper is trying to answer is “How
diversification of farm agents may contribute to rural development and which constraints and
weaknesses need to be overcome to stabilise declining rural areas in terms of employment
and income availability”. It is widely recognised (and already stated above) that agriculture
no longer plays a key role neither at national level nor in many rural (regional) areas.
53
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
Figure 17 Frequency of the sources of household income between 1990 and 2000
160
140
120
100
80
60
40
20
0
Farming
Agr. paid
employment
Non-agric. paid
employment
Diversified
enterprises
Income source
Subsidies
1990
Unearned
income
1995
2000
Source: Chaplin et al. 2002
It is generally recognised today that there is a wide discrepancy between producer and
consumer price trends resulting in a low profitability in general. On the other hand, it was
found that one of the main determinants of farm performance is the agri-environmental
region to which a farm belongs in the Czech Republic. Diversification of income portfolio
seems to be one possible solution for many farmers faced by low farm productivity,
profitability and income. In addition, diversification is seen as a potential driver for rural
development. This is largely because diversification by enterprise creation can increase the
incomes of agricultural households or businesses and also may create jobs for other rural
dwellers. Increased incomes of agricultural households or businesses may aid in rural
development in that a proportion of this income is likely to be spent within the locality,
thereby, helping to drive the local economy. However, it would be misleading to state that
allocation of farmers` resources outside the farm sector would be able to resolve the issue of
farm income and the changing role of agriculture in the rural economy. Inevitably, most of the
activities have only minority importance individually when compared with conventional
agricultural production. However, their potential range and diversity means they could have
considerable significance in aggregate, especially in certain locations or among particular
sizes and types of farm holding. Simultaneously, the whole strategy is based on the
assumption that different types of farms and companies express various ranges of
performance and productivity and as such they require specific solutions and attitudes. Even
if the proportion of farm and off-farm income is varied significantly over the legal forms and
sizes in the Czech Republic, agricultural families with off-farm income have become an
important part of the agricultural population.
Figure 17 shows the frequencies of the sources of total household income. The next subsection deals with the main results obtained from the survey and case studies undertaken
where just two paragraphs are concerned with farm incomes.
Results obtained from the survey and case studies
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
54
The original owners or their heirs gained back land and other property in the restitution.
Some of these owners moved into agriculture and not only from the agricultural sector but
even from entirely different branches. The survey discovered that 25% of farm households
moved into agriculture and the most influential factor seems to be related to gaining land
during the land reform. It is clear that this phenomenon has had a positive effect, for
experience gained in different branches enlarges possibilities for diversification.
The sample consisted of 102 corporate farms of which 37 were co-operatives, 24 joint-stock
companies and 41 limited liability companies. In 2000 there were 158 diversified enterprises
recorded, provided that a farm can maintain more than one enterprise. In 1990 there were
only 81 enterprises recorded in the sample thus the frequency of diversification through the
creation of enterprises has increased over the period 1990-2000. In 2000, farming was
responsible for generating 65 per cent of total household income in the survey sample. The
number of respondents for non-agricultural activity rose during the period from 49 in 1995 to
56 in 2000, showing an increase in the number of diversified farms (see graph 1). Diversified
enterprises have created jobs on 21 corporate farms giving rise to 219 full-time jobs and 10
part-time jobs. Most employees were recruited locally (about 3/4), the rest were recruited
regionally. These numbers correspond the hypothesis that diversification supports regional
employment.
The research found out that a greater increase of diversified enterprises occurred between
1990 and 1995 than 1995-2000. It is not surprising when we realise that in the first half of the
last decade many market segments were not occupied, therefore, it was easier to enter the
market then than now. On the contrary, managers were lacking experience in running
business under the new market conditions and due to this fact some enterprises were
terminated. It is important to mention that farms finished their business activity when it
became non-profitable. The main reasons were a decrease in demand, intensifying
competition and changes in demand preferences.
The survey revealed that 71% corporate farms have their origin in a former co-operative.
Founders of these successors often worked in the previous collective and are mostly
members of the management and the board of directors. Managers suggest new diversified
activities and submit a business plan almost in all cases. Approving procedures are
dependent on legal forms. The board of directors approve or reject suggestions in joint stock
companies and co-operatives, the group of owners make decisions in limited liability
companies. Economic criteria are the most relevant during the decision making process.
It is necessary to emphasise the fact that almost every farm surveyed concentrated primarily
on farming. Ninety-three percent of labour was allocated to agricultural activity and this
activity also accounted for on average 87 percent of total revenue in 2000. Managers focus
on farming preferentially (as for their time allocation and effort) and their objective is to make
agricultural activity profitable. But this aim is not met in many cases, therefore, the revenue
from non-agricultural activity makes an essential contribution to the viability of the whole
farm.
The corporate farms indicated that the most important reasons for diversifying were to
generate additional income and a need to smooth income.
More options are available for farm households to diversify their revenues. Besides income
from agricultural core activities, the farm households also have an opportunity to generate
income from non-agricultural on-farm enterprises and off-farm enterprises. Members of
households can also be engaged in off-farm employment (we distinguish between
agricultural and non-agricultural employment). Governmental and private transfers account
for another quite considerable part of household revenue.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
55
The survey revealed that during the period 1990-2000 there has been increase in income
from farming. There have also been significant increases in governmental transfers and they
account for the second most important revenue item. In the mentioned period of time there
has also been an increase in income from non-agricultural on-farm and off-farm enterprises.
On the contrary, agricultural and non-agricultural paid employment was declining, with
agricultural paid employment to a greater extent. This is probably due to the persons ceasing
to be employed in state farms and collectives and having begun to farm their own land
obtained during the reform process. Governmental and private transfers have both increased
in frequency with governmental transfers to a greater extent.
The survey found out that diversifiers tend to have low levels of unearned income, high
general education, smaller farms and younger heads of households. It was confirmed that
higher general education and lower unearned income considerably increase the likelihood of
gaining off-farm jobs and also has a positive effect on the creation of on-farm and off-farm
businesses. As far as the government transfers are concerned, there is a negative
correlation (it means that propensity to diversification declines with higher income).
The main reasons for diversification (for households) have been generating additional
income and the need to smooth income. Off-farm employment was motivated mostly by the
opportunity of off-farm work and for the purpose of generating additional income. Again it has
been confirmed that revenue instability from agriculture compels households to look for other
sources of income. Economic criteria play a key role in terms of decision making about
diversification.
Out of the 217 household farms surveyed (registered and unregistered), there were 120
diversified enterprises recorded, with farm households able to have more than one
enterprise. Diversification created 18 full-time jobs and 3 part-time jobs on 8 farms. On 5
farms, the jobs were taken by family members who either performed non-essential farm work
or preferred non-agricultural to farm work. Where new employees were recruited, they were
mostly recruited locally.
An important finding has been that successful diversification is closely related to the
entrepreneurs’ marketing knowledge and experiences gained. In other words, businesses
which have been successful were based on customer demand and their founders have had
sufficient skills in the running the business. A good business idea and experience on the field
were behind the success. The quality of goods and services plays the relevant role as well.
The selling or leasing of buildings and land to other persons and companies for business
purposes has occurred on 53 occasions. These businesses have resulted in the creation of
1, 024 full-time jobs. Such businesses have created more employment then diversified
enterprises. However, the research has uncovered weaknesses of this business as well. The
lessees of buildings and land (prevailingly firms from non-agricultural sectors) often recruit
new employees locally. If the lessee goes out of business or decides to leave the premises,
recruited employees become unemployed. Unfortunately, we found out that it is generally
more and more difficult to find a new lessee because there are surpluses of premises for
lease and companies tend to move from rural areas to bigger towns. Some of the managers
claimed that nowadays the time taken to find a new tenant could be more than one year.
Similarly, jobs were also created in 14 cases (resulting in total of 60 full-time jobs and one
part-time job) by business development which occurred on farm land or buildings which had
been leased out or sold by agricultural households. Compared to corporate farms this
suggests that corporate farms are more likely to diversify through business development.
The most common cases were empty premises which were used for animal production
before and for which now managers look for another usage.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
56
The following paragraph is related to the identification of strengths, weaknesses, threats and
opportunities which are related to non-agricultural diversification of farms and companies.
A. Strengths

Surplus of production factors – the development of the farm sector has brought about
a different farm structure after 1989. The decline of animal production was more
significant than the decline of crop production. As a result some outbuildings
designed for livestock breeding are operating under-capacity. The survey has proved
that there is some surplus production capacity (mainly building, stores, etc.).
Basically, these building may be either sold or rented out (which does not require
large investments) or renovated them (which is, however, more demanding).

Diversification as a stabiliser of revenue – it was found that diversified income plays a
significant role in the financial management of companies which diversified.
Diversified income is considered to be income which, in some cases, supports
agricultural production. Thus, it is not surprising that management (farmers) of
diversified enterprises are open to undertaking these activities in years to come, if
these enterprises are profitable.

Positive perception of diversification – both managers and household farmers have a
positive view of diversification. They perceive that diversification is for progressive
farmers and, on the other hand, most respondents strongly disagree that it indicates
poor farming skills.

Human capital on the individual farms – about 25 per cent of farmers worked outside
agriculture before entering it as an individual farmer. Since these people gained some
knowledge and experience beforehand, they may be likely to start new nonagricultural activities.
B. Weaknesses

Lack of capital – it was proved that a lack of capital is a problem when starting a
diversified enterprise . Individual farmers have confirmed (as well as the corporate
farms) that their propensity to diversify might increase if financial supports (seeding
money, loan guarantees, tax exemption, etc.) are available. Using cluster analysis, it
was found that 67 per cent of the sub-sample of non-enterprise diversifiers find lack
of financial capital to be an impediment. Taking legal form into consideration, cooperatives seem to be the most influenced by this because of their transformation
debts dating back to the early 90s. On the other hand, individual farms may be
disadvantaged when asking for a loan because of their relatively small revenues
which make these farms unstable in terms of revenues (profitability) and thus,
handicapped.

Concentrating on agriculture – corporate farms indicated that the main reason for not
diversifying (taking up off-farm employment in case of members of households) was a
desire to concentrate on farming and, for households, a lack of time for diversified
activities. As cluster analysis revealed, these farmers typically have larger farms. A
commitment to agriculture, causing a reluctance to diversify income is difficult to
change. In fact, there is a positive relationship between concentration on farming and
farm size and, on the other hand, a negative correlation between concentration on
agriculture and a prospect to diversify.

Lack of professional knowledge and experience with running the business outside the
farm sector – it was confirmed that farmers and managers have a positive perception
of diversification (as already stated), however, they are aware of limitations in human
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
57
capital (managers` knowledge). More than half of all managers have agricultural
university education and only 1 per cent non-agricultural university education. There
are groups of households in which low education of their members is an impediment
in taking on a new job. On the other hand, higher education is positively correlated
with diversification on farm. It can be stated that knowledge of managers or individual
farmers in the field e.g. marketing, quality management, etc. are still lacking.
C. Threats

Low attractiveness of agriculture – the income disparity between the national
economy and the agricultural sector has made the sector unattractive particularly, for
young and educated people. This is a problem, amongst others, of management of
companies which have to look for prospective workers in order to replace those who
are going to retire soon.

Competitive pressure – with respect to future EU accession the market conditions are
likely to become less liberal in terms of competitive pressure. Under these conditions
both farms and companies will have to adjust (structural adjustment) their businesses
if they are to survive. The more intensive pressure on improving managers’
knowledge and skills is expected which is likely to influence further diversified
enterprises.

Negative correlation between farm revenues and diversification – obviously, farmers
want to have profitable agricultural enterprises. If they are profitable, their willingness
to diversify is likely to go down. Corporate farms were able to indicate a negative
effect of agricultural support policies on diversification. Therefore, it would be
reasonable to expect decreasing propensity to diversify in the next years with respect
to EU accession and supposed farm income stabilisation.

Regional unemployment – it was identified to be a significant constraint in taking up
off-farm jobs in particular for lower educated family members. Slightly more then 30
per cent of those household members who do not take off-farm jobs were
discouraged by high regional unemployment.

Remoteness and public transport – even these aspects were not proved to be
important impediments in diversification in general; in some cases the respondents
identified remoteness as a pressing issue, which requires a search for possible
solutions.
D. Opportunities

Increasing Attractiveness of Agri-tourism

Production of local-specified products

Production of renewable resource energy, waste recycle

Utilisation of IT Development in rural areas
4.2.1.2 Factors hampering undertaking in non-agricultural rural economy
Human capital as a relevant factor of successful diversification
Appropriate knowledge and skills appear, among others, to be key in determining the
success of an enterprise. Proper utilisation of human capital in a company is a necessary
condition for successful strategy implementation. In case of co-operatives, the initiatives for
diversification usually came from the members of management who had already managed
the former original collective. It appeared that these persons played a key role in successful
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
58
transformation due to their “strong” position not only in co-operatives but also in a village
itself where they had been living and thus, were well-known there. It seems that managers’
“strong” positions are also very important in newly established companies where they took up
positions in the management team and on the board of directors as well. They also often
have great influence over the shareholders because of their large shareholdings. In one joint
stock company analysed members of the management team are the same people as those
acting as the members of board of directors. Thus, plans are proposed and approved by the
same people. However, this is not only the case for joint stock companies but also for cooperatives where some of managers are also on the board of directors. In some cases,
managers have the greatest shareholdings. This may result in more fluent decision-making
on one side and, on the other hand the lack of control over the management may result in
the company following objectives which are in favour of the management and not necessarily
in favour of the owners.
From the diversification point of view, it is necessary to state that in general it is managers
who are generating idea to diversify and starting diversified enterprises. In addition to the
cases where diversified enterprises have failed, managers are generally positive in respect to
their attitudes towards diversification. However, the executive bodies of companies have the
power to approve or reject their decisions.
With respect to decision-making within the management team and executives bodies (board
of directors, supervision committee), there were no observed constraints which might have a
negative influence on diversification.
The above stated facts can be supported by the fall in interest of shareholders in participating
in decision-making demonstrated by a decrease in attendance at annual general meetings
(AGMs). The reasons explaining a lack of interest are mostly that: due to their low
shareholdings their votes are insignificant; most of shareholders/members live away from the
villages where AGMs are held, making the journey costly; low dividends (rents) gained.
These factors have brought about a lack of interest on the part of members.
So, it was identified that decision-making within a company as a whole is relatively
complicated in co-operatives where it is seen to be a possible constraint to further
development (it might be defined as “everybody wants to make-decision but nobody is willing
to take the responsibility”). It is less complicated in JSCs and even less so in LLCs where
the decision-making process rests in the hands of the owners which is advantageous to
simple and fast decision making.
As already mentioned, most of the current managers had the same roles in the former coops and therefore have appropriate skills and knowledge for running diversified enterprises.
This may create an incentive for at least considering running a non-agricultural business.
However, their previous experience of running businesses was gained under different
economic conditions with low exposure to economic forces in a planned economy. Looking
at owners, there is a lack of interest on the part of minor shareholders and members,
resulting in poor effort in both agricultural and non-agricultural production process and a
shortage of proposals regarding new ideas. According to the managers, it is rare for new
ideas or suggestions to be generated by both shareholders/members and employees. The
lack of ideas from employees may be partly explained by the fact, that on average, 90 per
cent of farms paid a fixed wage and only 10 per cent a wage dependent on profit. Only
approximately 40 per cent of members or shareholders provide labour so that only a few
have an incentive to generate ideas which may retain jobs, while all would have an incentive
to increase their dividends. Finally, it can be concluded that contemporary human capital in
corporate farms does not seem to be in favour of further business development.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
59
Unfortunately, the age structure (which might be further developed) of the labour force
supports this conclusion.
Case studies in individual farms have indicated that successful diversification is achieved
due to the marketing knowledge and the experience of farm household members. The
farmers who were interviewed for the case studies identified the utilisation of market
opportunities along with good skills to be important for success along with providing high
quality goods or services.
Availability of human capital for diversification
It is necessary to state that diversification occurred mainly as a result of surplus resources
(surplus of capital or surplus of labour) together with the identification of a market
opportunity. However, surplus of labour appeared to be a controversial factor in
diversification. Even if a surplus of labour existed in most of the companies analysed,
according to the managers a lack of specialists (in some cases blue-collar workers as well)
has been identified as a constraint to the development of further agricultural and nonagricultural activities. In one company a manager confirmed this fact by saying: “In the case
where we would like to diversify by starting a new activity there are no qualified people
available at all in our company”. This situation is intensified when a company is situated near
a large town. The explanation rests in the greater flexibility in the labour market of more
density populated regions where higher incomes are often gained. It can be stated, in fact,
that majority of surveyed companies regard the problem of unskilled employees as a
pressing issue.
Another key issue (on a national level as well) is the very low interest of young people to
work in the agricultural sector. Young people tend to be more open to a change and to be
more willing to adapt new methods of agricultural production and may be more open or
willing to diversify. The survey indicated that younger heads of household were more likely to
diversify which is an indicates that more young people in the agricultural sector could be
advantageous for promoting diversification. Services provided by agricultural employment
agencies were not tending to be used by corporate farms due to the poor work ethic of the
potential workers.
Generally it can be concluded that there is not a lack of labour in agricultural companies but
rather the quality of employees which managers complain about most. Also unwillingness of
young people and specialists to be engaged in the farming sector impedes higher
participation in diversified activities. Thus, policy measures should be focused also on
training managers in setting up new businesses, market evaluation, and similar. The
question remaining is whether specialists would enter this sector without improving income
disparity between agriculture and other sectors in national economy.
With regard to human capital on individual farms there was mixed evidence of a lack of
skilled and experienced labour force. Of the households participating in the semi-structured
interviews, the wine producer had some labour provided by a local elderly lady who had the
necessary enological experience and experienced no difficulties in finding labour for his
contracting and arable enterprise. On the other hand, the garden centre owner, expressed
difficulties in finding Czech staff which were adequate for his needs and had resorted to
employing Ukrainians whom he felt worked harder. Those with the smallest farms were most
likely to indicate insufficient knowledge and skills to be important in business development.
The need for education and training of agricultural and rural labour force
People living in rural areas are met with a variety of challenges, yet for farmers these
challenges are very special. For them it means departing from traditional ways of thinking
and behaving. Over the last twelve years, increasingly there is a demand for individuals to
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
60
creatively formulate, decide, and act independently. The analysis of changes taking place in
agriculture and rural areas in the Czech Republic and the search for solutions inevitably
reveal that education and training (not only for diversification) have a special task to fulfil. So
traditional patterns of farmers` thinking should be expanded to include comprehensive and
network thinking, co-operative behaviour, orientation towards the future, taking the initiative
and acting independently.
Looking on the influence of general education on diversification, it was found that general
education was significant and positive in its effect for off-farm employment alone and in
combination with diversified enterprises. As it was identified by multinomial regression, the
odds of adopting off-farm employment alone or in combination with a diversified enterprise
increase by 12 per cent when education is increased by one level, i.e. primary to high school,
high school to university. However, agricultural education was not found to play positive
effect on diversification.
Therefore, education and training oriented toward the future for agricultural agents should be
designed in a broader term in order to:

Make farmers be aware that they must adjust to creative changes and that in order to
secure their future they must not resist these changes

Inform people living in rural areas of the opportunities for development facing rural
regions, in order promote a regional identity

Encourage individuals to structure their present situation for the future, so that the are
able to cope with tasks which wait them.

Acquaint farmers with the idea that they must design a flexible, entrepreneur culture
oriented toward action.

Promote positive thinking which strengthens solidarity in agriculture and cultivate it as
a work ethic.
Lack of financial capital as a further fundamental constraint
The financial aspect of diversification was analysed deeply in order to give insight into the
relevant issue affecting significantly all farming businesses. It was found that the most
important initiatives for encouraging diversification were seed money for business start-up,
loan guarantees, tax exemptions for new non-agricultural businesses and availability of low
cost finance. Taking into account that companies want to concentrate primarily on
agricultural production, then the question remaining is whether the incentives stated above
are the most appropriate. This is because if company is going to make an investment than it
is more likely to invest in inputs for agricultural production which may be fixed (as in the case
of buildings) or variable (such as seeds etc) rather than into diversified activities. Therefore,
financial stimuli should be fixed to non-agricultural production.
The survey in farm households indicated that a lack of capital was a constraint in starting a
diversified enterprise for 67% of households who had not diversified in this way. The effect of
capital as a constraint was further suggested by the proportion of households which indicated
that the provision of seed-money for businesses start-up would encourage them to diversify
(69%).
So, a lack of financial capital appeared to be one of the most distinctive impediments in
diversification and a particular policies should take into account how supports of agriculture
might effect (positively or negatively) the non-agricultural enterprises. The most popular
remedy in the survey was that of seed-money for business start-up. However, conditions
should be imposed such as a business plan, evidence of a market for goods or services and
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
61
relevant experience in order for households to receive such funds. We do this in order to
secure that such funds are used only in projects, which show viability. Otherwise these funds
would support businesses which survive for only a short period making these valuable
resources inefficient.
Incentive in the form of grants for creating of a new job would also be helpful. However, there
must be very strict rules in order to avoid misuse of government money. Case studies of
corporate farms indicated that some firms may lay-off their employees in order to re-employ
them on receipt of government grants. This is done deceitfully with the aim of ‘creating’ more
jobs. For example, a joint stock company which was interviewed laid-off all 7 of its
employees, so that it could claim to create 15 jobs in order to receive government funding. Of
these positions, 7 were taken by the employees who were previously laid-off with only 8 jobs
being created in reality.
About 90 per cent of total income is generated by core agricultural business and more labour
(and managerial effort as well) is devoted to agricultural (93 per cent of labour) than nonagricultural activities (7 per cent). Looking at in-house training, agricultural training is more
widespread than non-agricultural, which confirmed the fact, already mentioned, that the focus
is on activities in agricultural. That means farming remains the primary activity in all corporate
farms regardless of whether they are diversified. The objectives of companies were defined
mostly as maintaining agricultural production, indicating the minor role played by
diversification. This finding seems to be a bit controversial since the whole agricultural sector
is considered to be unattractive in comparison to running a non-agricultural business. On the
contrary, the primary focus on farming is the case in the Czech farming sector. This may be
explained by the necessary initial large investment in production capacity. This commitment
to agriculture indicates that agricultural price support is likely to have negative effect on the
willingness to diversify. Considering the fact that direct payments would amount up to 55 %
of the current EU level after the Czech Republic join EU then there is reasonable to expect
that income from agriculture activities (and thus household income) would increase resulting
in a diminished prospect to diversify.
Other impediment which was found to affect the access of farmers to the funds and capital
was bank attitudes. Farmers and managers surveyed have marked that agriculture as a
sector not attracting financial institutions at all which make further constraints for farmers
having to use the best effort (higher than if they come from another sector) to get a loan.
Transformation debts are obviously very clear problem which is very intensively perceived by
banks, in particular in the case of co-ops or joint stock companies transformed from the
former co-ops.
4.2.1.1.1. External (institutional) environment
Successful diversification in corporate farms is, among others, dependent on a market for the
products or services offered by companies. The diversified enterprises which were inherited
from former co-ops did not face market conditions when they were initiated. Problems are
now being generated in ensuring the survival of these enterprises that they face competition.
Over the past decade, many such diversified enterprises have collapsed due to managers
lacking the knowledge and skills required to operate in a market economy. In most cases
the businesses were shut down due to the prevailing economic conditions resulting in
becoming loss making, having a low level of efficiency and losing customers.
With regard to enterprises set up after 1990 not all of them survived. Meanwhile, new
diversified enterprises have been established. The case studies have also found that
informal communication is playing a very important role in the business sector.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
62
The case studies indicated the importance of networking to diversification. Examples of this
are a co-operative with an emissions testing station which has a tacit agreement with a local
MoT testing station whereby, the MoT testing station will send clients requiring the service to
the emissions testing enterprise and vice versa. A joint stock company obtained a contract
with an Italian plastics company through a contact with a former manager of a plastics
production enterprise who had switched firms. The same joint-stock company had diversified
into concrete brick and tile production after a relative of one of the managers offered
appropriate machinery for sale to the company. A limited liability company diversified into the
production of engine parts for an engine part company through the managers’ connections
with the director of the engine part company who lived in a neighbouring village. The engine
part company both trains employees for and leases machinery to the limited liability
company. Such liaisons between companies as that of the engine part company and the
plastics production company are beneficial for encouraging diversification since in these
cases staff have been trained for the corporate farms and machinery has been leased to
them. This has the advantage of reducing the investments required in starting the enterprise,
added to which, a market has already been developed for them. Relationships with other
companies can provide means to diversify with little or no investment and a ready market for
the goods produced. Encouragement of such relationships could aid in promoting
diversification. However, this does have some disadvantages as found in motor part
production, in that the diversified enterprise has no direct control over the market so that
there is a certain dependency on the partner company which at times has led to temporary
halts in production.
The establishment of (new) regional advice agencies (on the NUTS IV) might help at least in
part, to solve the situation described above. These could provide potential enterprises
(obviously not only those which are diversified enterprises) with relevant information about
the market, potential demand for goods and services, consumers, what is to be done for
attractiveness of a business, etc. There is a need, in certain cases, to replace some informal
communicational channels by formal communication channels. The role of the regional
advice agencies would lie also in project processing (not necessary free of charge) as it
appeared to be difficult task for many managers and farmers as well. The agencies would be
a link between businesses and external environment. Their obligations would lie, in brief, in
the following activities:

monitoring the business development in region, collecting information, providing updated information,

support with project processing

support with obtaining the funds

promotion of business opportunities, programmes available, etc.
With regard to formal institutions affecting diversification, the SAPARD plan in particular
promotes diversification through institutions. At NUTS II level there are eight regional offices
of the SAPARD agency, which perform payment and implementation functions. At regional
level (NUTS III) administrations are responsible for the formation and implementation of
regional development strategies. Co-ordination also occurs between the activities of central
government in the region and the activities of the municipalities within the region. Rural
development projects of the SAPARD plan are implemented at the level of rural micro
regions which lie between the NUTS IV and NUTS V levels. A legal entity known as a Local
Association of Municipalities and Towns is formed which develops long-term sustainable
development strategies for the micro-regions which are co-ordinated with the regional (NUTS
III) and cohesion strategy (NUTS II). This institutional structure facilitates implementation of
rural development strategies in that at the micro-region level, implementation is closer to the
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
63
ground and therefore should be more accessible to potential recipients of funding such as
potential diversifiers. Capital constraints to diversification having been noted, it would be
hoped that such an implementation strategy would aid in overcoming this constraints for
diversifiers wishing to obtain SAPARD funds.
4.2.2 Rural Development: Policies
4.2.2.1 Rural policy solutions
The agricultural sector is inevitably situated in rural space since agricultural land is inevitably
part of the countryside. While the ability of farming to provide rural employment directly or
indirectly (through upstream and downstream sectors) has declined, the other roles have
importantly increased. First of all, people engaged in agriculture contribute to the stabilisation
of rural settlement. The fact that these people do not commute to urban centres creates
necessary minimum demand for services (shops, medical care, even school etc.) in (central)
villages. The nature of their work also contributes to being attached to local environment, and
so the tendency to migrate out of the region is low (this is particularly the case of male
population, Horska, Spesna, 1999). Maintained settlement will also continue to carry cultural
traditions. Second, as the participation of rural population in agriculture has declined, also in
subsistence or hobby farming, there has appeared increasing need for landscape
management. Since the landscape has been cultivated for centuries, there is an urging need
to continue cultivating the land, however, might be in a different way. Beside the stabilisation
the agricultural sector has also potential to diversify activities in into non-agricultural
economies (4.2.1.1). It has become apparent even in a transitional country like the Czech
republic, that policies promoting only agricultural production are insufficient to promote these
“rural” roles of agriculture. It implies (and has already been approved) that achieving
provision of social desirable benefits in the rural space requires proper incentives for farmers.
It is also evident that farmers are not the only actors and stakeholder in the countryside,
therefore, incentives from the agricultural package have to be framed in consistent rural
development policies.
Rural problem is horizontal – it is about the horizontal coordination in the rural space.
Success of any rural policy depends on
1) how far the incentives (measures) of given policy are co-ordinated with measures of
the other policies;
2) how far it also stimulates co-operation of actors/stakeholders at the very local level.
From this point of view, institutions co-ordinating implementation or participating in coordination are very essential and critical. The rural problem is usually recognised when it has
lasted for log time, thus the local capacities are already lacking (people migrated out of the
region, the infrastructure eroded, traditions vanished, enthusiasms and commitment
evaporated). Then there is no simplistic and fast solution, policies have to start from
grassroots with organising local people and systematically building human and social capital.
4.2.2.2 Critical socio-economic problems in rural areas
In the framework of the IDARA project three case studies on rural development problems
and rural institutions were carried out. Three very rural regions (at the NUTS 4 level) were
chosen from the South-East region (NUTS 2), the area where the survey on farm
diversification was conducted. The South-east region belongs to historically well developed
area due to trade roads (North-South and East-West) passed through it. Merchants settled
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
64
down along these roads and founded a number of (today) small towns. The region suffered
establishment of a border between the Czech republic and Austria after 1918, the pre war
tension on this border in 1937/1938, the expel of German population after 1945 and the
consequent inflow of people who were not attached to the region (it holds particularly to the
sub-region Znojmo from the case study). Despite industrialisation, the farming sector has
remained an important provider of employment in these regions, participation of the active
population in agriculture exceeds 10 percent (in 2000). Because of poor soil, agriculture is
oriented on livestock in the Trebic and Zdar nad Sazavou sub-regions, while it is mainly
production of cereals, fruits, vegetables and wine which dominates in the Znojmo sub-region.
Figure 18 Characteristics of selected regions
Area (km2)
Population
Rurality, integration
Agri-environmental
conditions
Agricultural employment
(2000)
Unemployment
Wage level in respect to
the national average
Infrastructure
Services
Trebic
1518, hilly
117630
Predominantly rural,
sparsely populated,
remote
marginal, potato region
10%
Zdar nad Sazavou
1671, mountainous
125701
Predominantly rural,
sparsely populated,
remote
marginal, potato and
mountainous region
10%
Znojmo
1636, plain
114106
Predominantly rural,
sparsely populated,
remote
good, corn and cereal
region, vineyards
11%
11.5%
6% below
7.2%
7% below
13.5%
9% below
Good
Poorly accessible
Good
Poorly accessible
Good
Poorly accessible
Source: Except Agricultural employment which is taken from the Agricultural Census 2000, CSO 2001, all data
relate to 1999, CSO 2001
The case-studies provided information on critical socio economic problems. Unemployment
dominated as the highest socio-economic priority for all three regions, although the level in
Zdar na Sazavou is slightly below the national average. Then followed the declining local
transport network and poor local availability of basic services (shops, medical care, school,
post office). Particularly highlighted were out-migration of educated and skilled population
and miss-match between available jobs and education/skill of the local population. The
interlinkage is obvious. Nationalisation of the industry after 1948, wiped out small and
medium entrepreneurs. The industry founded during the communist time often followed other
objectives (like increasing share of workers on the local population) than efficiency and
integration in the national economy. Thus structural adjustment following reforms resulted in
declining industries located in these regions (e.g. shoe industry in Trebic, heavy industry
Zdar nad Sazavou). Some local food processing plants have not survived the process of
concentration and have been closed down (in the effect no food processing plant is situated
in the “agricultural” region Znojmo, except wine makers). A particular development problem
has arisen in the area surrounding the nuclear power station in Dalesice (sub-region Trebic),
where for safety reasons the industrial investment is restricted. The decay of the industry has
been followed by an increase of unemployment, the number of daily commuters has gone
down and a number of transport services have been cancelled. Thus people looking for jobs
elsewhere have stared to leave remote villages and the services moved with them.
All respondents emphasised the linkage to investment, which was regarded as critically low
in these regions. The problem with investment is complex: on one side there is probably not
enough entrepreneurship in the region, access to capital (bank credits) might be (or was)
difficult, but on the other side, there has never been satisfactory regional planning. The
districts were too small and so little authorised to provide such a planning and co-ordination.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
65
The interviewees were sceptical to the effectiveness of regional planning if it was not
sufficiently backed up by financial means, rather they sought the advantage in having foreign
investors in the region. The unemployment rate was substantially lower in Zdar nad Sazavou,
the region with a relatively high level of FDI, than in the other two regions, where FDI was
low.
Also an access or directly the presence of national transport corridors (motorways, main
railways) in the region was perceived as important factor for the development – the motorway
D1 passes through the region Zdar nad Sazavou and it was regarded as an
advantage/opportunity for the development, while the absence of such an access to the
national transport network in Trebic and and Znojmo underlined their remoteness and feeling
of marginalisation.
As pointed out the case study sub-regions are rich on historical sites (some of them of really
Europe wide significance), which richness gives them a strong potential for tourism.
However, to attract tourists requires coordination of a number of factors and actors
(accommodation, tourist routs, cyclo-routes, guiding materials, local information centres,
access to information centres in large tourist centres, links and co-operation with travel
agencies, maintenance of historical objects, etc.). Obviously, the micro region is the lowest
level for co-operation, but a strategy and co-ordination at the regional level is necessary. A
lot of complains appeared not about the absence of tourist services, but about their poor
quality
Box 3 SWOT analysis of rural development (in remote areas)
Strengths
Weaknesses
Clean environment, nature values, plenty of
historical sites, relatively good infrastructure.
Lot of industry has gone, lack of job
opportunities, education/skill miss-match,
weak local transport network, insufficient local
Access to national and international transport
availability of services.
corridors.
Weak local and regional co-ordination of the
development.
Opportunities
Threats
FDI and cross border co-operation
programmes, ecological farming
Further decline of “traditional” industries, lack
of entrepreneurship, insufficient social capital
and xenophobia of local people.
Source: IDARA, 2002
The interviewees form the case study sub-regions were aware of the value of their relatively
clean (industrially unpolluted) environment which they were confident should give them
advantages in may aspects of development. First of all it should be tourism and ecological
agriculture. The officers from the Znojmo district believed that the National Park Podyji has a
potential to attract tourist, however, it is likely to have limits because of restrictions in national
parks.
The officers from the districts Trebic and Znojmo recognised the need to see the
development in the context of the border with Austria. There is potential of Austrian tourists
coming for shorter or longer holidays to the sub-regions, but there is also potential for
undertaking of Austrian citizens and cross border co-operation in the development. However,
the later too are hampered by irrelevant xenophobia of Czech people living along the
Austrian and German border.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
66
4.2.2.3 Institutional capacity for rural development policy
Table 16 summarises the rural development priorities that were identified at the regional/local
level (in the case-studies) and compares them the national priorities (as specified in the
current National Development Plan and SAPARD Plans). In addition we included the existing
rural development measures in the last column. The priorities identified at the regional/local
level fits with those specified in the national programmes. However, it is important to note
that not all priority areas have been addressed by concrete measures yet.
Unemployment or in the dynamic terms the decline in employment and low/declining
economic activity are regarded as the most sever problems in rural areas to which the policy
should give the highest priority. The current policy addresses unemployment to some extent
directly by supporting investment generating jobs. However, (rural) unemployment results not
only from the low economic activity in the region but also from the miss-match between
required and available skill of labour and conditions for people to travel to their work.
Moreover, economic activity in a region responds to the national economic context on one
hand and local/regional conditions which may simulate or hamper the business. This is not
only the complex issue: the development of tourism requires large coordination, as well as
sustainable resource management. Therefore, a regional institution understanding the
complexity of development and local specificity of conditions, gathering information, planning
and coordinating activities is urgently needed. To which extent is such institution present or
to which extent the other institutions carried its work was a subject of investigations in the
IDARA project.
Table 16 Regional/local and national priority areas in rural development and rural policy
measures
Locally identified priorities
(Case studies)
Unemployment
Local transport infrastructure
Local availability of services
Attracting investment incl. FDI
Education, qualification missmatch
Depopulation and ageing
population
Tourism
Sustainable agriculture
Rural Policy Priorities (the
national level)
National Development Plan
Sector Operation Plan
Horizontal Rural Development
Plan
Village renewal: preservation
of cultural heritage;
improvement of technical and
civic infrastructure; provision of
services; rural tourism
Enhancing employment –
development of SME.
Increasing competitiveness of
agriculture and processing
industries;
Improving rural environment,
particularly in relation to
agriculture;
Enhancing the adaptation
capabilities of rural areas.
Currently applied rural policy
measures
Village renewal programme.
Support to the development of
SME
LFA compensations and agrienvironmental programmes
SAPARD (rural measures)
Renovation and development
of villages; Rural infrastructure;
Increasing competitiveness of
agriculture and processing
industries ,Diversification for
alternative income;
Environmentally friendly
agriculture.
Cross-border co-operation
NDP – National Development Plan
The institutional arrangements for Rural Development in its broadest sense consist of a wide
variety of bodies and agencies ranging from government departments to community and
voluntary groups. In the Czech republic t includes the MoA and its Agricultural and SAPARD
agencies situated to districts, the MoRD department for rural policies, regional governments,
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
67
district authorities (abolished), farmers associations (e.g. Agrarian chamber, Association of
individual farmers), environmental NGOs etc. The level of awareness of the public
administration about the rural development policy varied with the level of the institution.
There was good information amongst the officers in ministries and in the regional
government, but very little at the local level. In general, the interviewees were most familiar
with the Czech village renewal scheme, the Phare programme for institution building and the
agricultural support policies. The least known policies were the support to SME, and the
SAPARD and ISPA programmes. Most of the officers and economic agents at the very local
level did not have any deep knowledge of the programmes, except hearing the name, neither
took part in their implementation. Surprisingly, the knowledge of the PHARE programmes for
cross border cooperation (CBC and INTERREG) was very poor in the both border regions
Trebic and Znojmo.
The evaluation of the programmes by the actors varied again with the position of the actor.
People from the Ministry of Agriculture and the Ministry of Regional Development regarded
the policies as adequate. The officers from the MioA were particularly confident that policies
promoting agricultural development would solve most of the problems of rural areas.
The regional authorities understood the complexity of rural development better and argued
that a more integrated approach was needed. They emphasised that the policy priorities
were often different to the regional needs if measured by the budget available to address
them. The regional authorities claimed greater decentralisation and application of the
subsidiary principle.
The mayors liked the village renewal programme, in particular, because of its direct and
measurable benefit for the village. However, they complained about frequently (almost
annually) changing objectives/priorities of the programme and the programme budget. Thus
necessary degree of time consistency, so important for planning has never been achieved.
From the point of view of the financial scheme applied at the time of interviews the main
problem with many programmes was the co-financing requirement. The bureaucratic nature
of the application procedure was also perceived as discouraging.
The low participation by non-farming local actors (entrepreneurs) was evidently given by their
low information.
The SAPARD programme was not launched at the time of interviews. The notion about the
success/problems of its implementation was obtained only from the central and regional
SAPARD Agencies. They considered the programmes as adequate to the actual interest and
ability of rural farming and non-farming agents. The accompanying measures like
dissemination of information about the programme and training of advisors were regarded as
essential for the success of the programme. The officers pointed out that when the
programme was at full scale (as the horizontal and sector programmes) then the
accompanying measures would have to be strengthened. Also certain directions ought to be
more focused (backed up) e.g. support of tourism and attraction of inward investment. The
learning process associated with the development and implementation of SAPARD was
regarded as very beneficial.
All the listed aspects or opinions of actors in the current programmes for rural development
(like low awareness and participation of local actors, problems with co-financing, perception
of administrative demands) refer to a lack of regional co-ordination and planning. Actually no
institution played a role of the regional co-ordinator. The low number of applications for
tourism projects in the SAPARD programme witnesses for it too. The absence or only little
developed extension service (aimed at assisting farmers not only to prepare a project but
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
68
also to submit application) is behind a low occurrence of really innovative projects25. Thus
local entrepreneurs are finding it difficult to develop a reasonable business plan and far more
difficult to include it in the region development framework. The facts that a business plan fits
to certain social objectives strengthen its justification for public support.
4.2.2.4 The potential role of EU rural development policy in the Czech Republic
The identified disadvantages of the Czech set of rural development programmes rest not
only in a missing framework which may integrate them and allow a synergy effect, but also in
the fact that the approach is strictly sectoral i.e. agricultural programmes are not fully
available for non-farming population and the programme for SME is not fully available for
farmers. The Czech programmes also suffers time inconsistency in terms of objectives,
conditions and budgets. Most of the national programmes have never been discussed with
public, information spreading has been poor, monitoring missing and evaluations have rarely
included more than checking financial statements. According to our investigation the actualpractical benefit of the programmes is visible in the rural space. However, little feedback has
been asked by policy makers to improve programmes’ design and implementation
procedures.
The EU approach to the rural development is not entirely different from the current Czech
one. However, adopting the EU rural development policies will substantially improve the
integration. The National Development Plan will outlines much of the overall strategic context
within which the objectives of and measures of the agricultural rural development plans
(HRDP and SOP) will become operational. The full integration in implementation cannot be
expected. Nevertheless, the sector approach will be escaped at least to some extent in
agriculture. The Rural development regulation (EC1257/1999) implemented in the
agricultural SOP recognises support to farmers to diversify their activities in non-agricultural
rural economy.
The fixed (six year) planning period will improve time consistency of programmes. The
obligatory public discussion will reduce at least some tensions between policy designers,
implementing bodies and those who are intended beneficiaries. Further, EU funds by
providing grants will make the support more attractive for farmers. The rules of their
implementation require involvement of both sides in deeper analysis of investment and/or
new business actions before they started. Monitoring will improve assurance that programme
objectives are followed and achieved. Evaluation will help decision makers to judge about
programmes (and projects) effectiveness and efficiency.
From this point of view it will be important
 to co-ordinate priorities in the Sector Operational Plan and the Rural Development
Plan
 to invest in building administrational capacities to be able to implement, monitor and
evaluate rural development policies stemming from the EU framework (utilise
SAPARD experience) .
4.2.3 Policy recommendations
The preceding analysis suggests that the policy areas that need to be addressed to further
the aims of rural development, in particular the reduction of rural poverty and sustainable
development, include:
25
Pointed out in the interview with the central office of the SAPARD agency December, 2002.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
69
 Job creation – through education and training, inward investment, and SME support.
 Local development planning – through animation of the local population and
increased participation; and the preservation of local characteristics and production of
local specialities.
 Promotion of social inclusion and improved access to services.
 The policy design and implementation procedure will require rising vertical and
horizontal co-ordination.
5 Policy recommendations – a strategy
The Czech republic concluded the negotiation chapter on agriculture at the time when the
discussion about the future CAP culminated again. The general direction of CAP reform is
clear: agricultural policy must continue to move away from being a sectoral policy which
support farmers through agricultural commodity markets, toward a territorially defined and
more integrated policy which contributes alongside other elements of public policy to the
development of rural areas26. McShary reform cutting market prices support and introducing
direct income compensations was the first step on this way. The Agenda 2000 reforms
followed; alongside the market measures and the elements of a competitive European
agriculture, the varied needs of the rural space were also recognised, together with the
expectations of today’s society and environmental requirements. The reforms resulted in the
new Rural Development Regulation (RDR) adopted at the Berlin summit in 1999, now known
as the Pillar II of the Common Agricultural Policy. As an essential part of the European
agricultural model, it aims to put in place a consistent and lasting framework for guaranteeing
the future of rural areas and promoting the maintenance and creation of employment. In the
mid-term review of CAP, in July 2002, the changes aim to address food safety and quality, to
help farmers adapt to new standards and to promote animal welfare. This objective should
be achieved through a system of single income payment per farm27 conditional on
compliance with statutory environmental, food safety and animal health and welfare
standards.
Taking into account the above analysis of the current Czech agricultural and rural situation
and policy and the current CAP even in the scale for candidate countries the conclusion must
be that the situation of farmers and rural areas will improve significantly shortly after
accession. Farm income will grow up due to the Pillar I policies, rural areas will benefit due to
large budget and more coherent framework for rural development (Pillar II). However, it is
necessary to remind that 40 percent of the farm income (the Net Value Added at Factor
Costs) increase will be due to higher prices which in turn means that it will go in expense of
Czech consumers. Also the sudden jump in subsidies (direct payments) and then their
gradual increase might well be a disincentive to continue restructuring. Price increase can
still foster improving technical efficiency, however direct payments will prevent reallocation of
resources toward economically efficient producers. Moreover, direct payments coupled to
beef production will stimulate expansion of the beef sector to the extent, which will not be
economically justifiable.
On the other hand, Czech consumer will benefit from standardisation and food safety
requirements. The Czech agriculture will be largely exposed to the European debate about
food quality and safety and about its interrelation to environment and nature.
26
This is actually the argumentation of CARPE, European Commission, 1997
27
based on historical payments and integrating all existing payments from various schemes
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
70
It is obvious that the Czech strategy for agricultural and rural development has to be built
within the framework of European agricultural and rural development policies and their
envisaged reforms. We understand that the adoption of the current Common market regimes
(CMO) is temporal, earlier or later the CMO will undergo further reforms in which farmers will
be exposed to larger international competition. The desired new policy (or strategy) should
be integrated in several respects:

efficiency, environmental sustainability, consumer safety and rural development
should be balanced

distortions which have (or even will) over stimulated certain sectors should be
removed (this is not necessary only through CMOs it can be a result of an
environmental measure too)

attention will have to be paid to increasing farmers awareness of necessity of
changes

the support should be open to local people – farmers and non-farmers as well as
collectives like community organisations to create sustainable economic environment
in rural areas.
The strategy has four elements: market stabilisation, environmental and cultural landscape
contracts, food quality and safety and rural (non-agricultural) development
Market stabilisation (Agricultural income stabilisation)
Agricultural production is associated with relatively high degree of risk. This risk involves
dependence on weather and exposure to pests and diseases, high proportion of immobile
assets (land) which reduce freedom of manoeuvre, moderately long gestation period
involved in the production cycle. Generally, due to the complexity of risk attributes,
agricultural producers (even large) have insufficient resources and information to manage
risk. Despite increasing degree of vertical integration there is no evidence that the risk is
equally spread along the food chain. Thus, these are usually farmers who are exposed to
bearing costs of market depressions in the end. The general perception is that the scale of
the problem of risk management in relation to the capacity of businesses involved (farms) to
act is such that some public assistance is justified (European Commission 1997).
The Czech current intervention scheme provides a safety net for cereals and irregularly for
various commodities (e.g. potatoes, 1998, 1999, pork 1998,1999, hops 1999). Since there
has not been a rule binding the intervention purchases and price to a certain critical level, the
final decision on commodities, quantity to be purchased and price has resulted from the
interplay of the pressure of agricultural lobby and the state budget availability. Most of the
other commodities are protected through border measure, milk and sugar have a price
support with a quota regime. This will change with joining the EU. The current CAP provides
market stabilisation through safety nets for the most important commodities (cereals, beef
and pork) based on clearly defined (triggering) rules. Thus the basic mechanism for market
stabilisation exists.
To our opinion gradual liberalisation of milk market will be welcome since the sector need to
continue improving efficiency and modernisation. Expanding the quota and lowering the
support price will be the option suitable for the Czech producers. It will guarantee a
necessary degree of market stability for planning the investment on one hand and it will also
reduce the pressure on buying expensive quota when modernising and expanding
production.
Particularly beef enjoys quite a high degree of protection in the EU. As the simulations have
shown the Czech beef sector will tend to be over-stimulated at least shortly after accession.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
71
It will be not only the price but to large extent the payments paid per a head of cattle 28. The
Midterm review proposed reform may de-couple the incentive from beef, but the already
applied Czech environmental policy has (weakly) coupled environmental payments to beef29.
The argumentation behind it rests in stimulating desired conversion of arable land in
grasslands and grassland have to be utilised by cattle or sheep. The Czech agrienvironmental schemes may tend to continue in this direction after accession.
The model simulations have shown that even without taking into account environmental
incentives the beef sector will generate significant surpluses (30% of the production). The
question is to which extent these surpluses can be absorbed within the European common
market. In any case, the policies fostering the beef sector will threaten the stability of the beef
market. In short run the Czech Ministry of Agriculture should open a discussion on the future
of the beef sector and advise farmers not to over react to incentives from the CAP. In the
medium and long run, the Czech republic should argue for lowering the support to beef in
terms of price and direct payments.
The accompanying measures to phasing out sheltering inefficiencies in the dairy and cattle
sub-sectors by high prices and premiums should include the access to investment support in
order to promote modernisation (conditioned also by animal welfare and environmental
standards) and conversion from dairy beef to specialised beef breeding.
Environmental and cultural landscape programmes
Agri-environmental policies are often structured in three levels (tiers). At the base level (Tier
0) are conditions which farmers and all land managers must respect (without payment). The
middle level (Tier 1) is directed to farming systems, which provide high natural value. The
upper level (Tier 2) focuses on specific environmental management practices. It is often
argued (European Commission, 1997) that the distinction between the Tier 0 and the other
two rests in the delineation of property rights: in Tier 0 property rights to a “basic” set of
environmental attributes reside with the society, while in the other two property rights are with
landowners or farmers and the environmental values have to be purchased. This concept
has been criticised as being simply historically founded (Bromley, Hodge, 1999); equally well
may function an alternative concept when property rights to all environmental attributes
reside with the community/ society.
Concerning the Tier 0 the Czech republic belongs to countries which put strong emphasis on
obligatory environmental legislation. The current active Czech agri-environmental policy
consists mainly of Tier 1 measures, the package targeted to specific environmental
management practises is small (15% of the budget). First of all the policy has promoted the
farming system based on grazing grasslands (or harvesting hay and feeding livestock)
arguing that it has the most capacity to provide high natural value 30. The corresponding
policy measure rests in flat rate area payment bound to grass to be grazed or mowed –
conditioned on a minimum livestock unit.
EU accession will expand the range of environmental measures and the Tier 2 measure –
more targeted environmental practices will expand. The benefit of addressing a much larger
spectrum of environmental values is obvious. It will hand by hand with opening a public
28
Suckler cow premium, bull premium etc.
29
The condition of a minimum livestock unit (in which cattle or sheep have to participate) per
hectare for getting LFA payment, support to pastoral agriculture, support to ecological beef.
30
In the contrast if grasslands were to be abandoned.
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
72
debate on balancing all three levels of agri-environmental policy. This debate can be
regarded as another benefit EU accession.
There are two directions in which the policy should improve:
3) the agri-environmental policy should not be designed and implemented without
assessing interrelation to the other policy directions; moreover, policy directions have
to complement each other;
4) the need fro horizontal co-ordination has to be recognised.
Concerning the first point, the policy of Tier 1 (support to certain farming systems) cannot be
de-coupled of production on one hand, there might be a need to complement a certain agrenvironmental practice/ operation with investment on the other hand. The Czech republic –
the Ministry of Agriculture has to be aware when preparing the scheme that some agrienvironmental measures may imply higher output of some commodities and it may affect the
commodity markets. The Czech republic should also argue for changing CAP in the way that
environmental and other rural development measures (particularly investment) can be
combined, and claim the mechanism to be developed that such a combined projects are
applied, assessed and implemented in an integrated way.
We argue that a number of environmental benefits require significant co-ordination (either
because they are so complex or spatial). Therefore, the policy should include support to
establishments of local/regional associations (round tables) which will invite local
stakeholders to develop an environmental management plan (e.g. for landscape
management or for conservation), to prepare a project or projects and to co-ordinate their
implementation. The associations should be regional or local, can resulted from public
administration initiative or from private/ NGO one. We would also suggest binding certain
environmental programmes to the existence of such a body.
To make it successful the environmental policy should pay attention to the knowledge base
of farmers and other agents engaging in it. Information dissemination, training and education
and extension should be an integral part (with a budget) of the policy. It can be mentioned
local/regional associations, it can be the public administration or other bodies (NGOs) who
take this role.
Quality and differentiation
It is recognised that it is becoming extremely difficult to compete on the globalised market.
The pressure from the other world market producers on reducing the protection in Europe is
high. It can be also shown that quite a large proportion of the support to farm income is paid
by consumers (24% in the CR, 49% in the EU). To continue earning the premium by the
European farmers the products should be differentiated and high quality. The quality involves
safety and the environmentally safe and animal welfare friendly way of production too.
In its Midterm review the Commission stresses that it is a fundamental obligation to
guarantee the safety of food to consumers both within and outside the EU, and this therefore
must be a continuous top priority for the CAP (European Commission 2002a).
The Czech republic already harmonised legislation with the European system for ensuring
food safety (testing of animals, traceability, removal of specified risk materials, maximum
residue levels for pesticide, etc.). There is still a lot of work on the way of its enforcement in
practice. It has been spelled many time that the Czech republic will have to continuously
strengthen the capacity to deal with food safety enforcement (European Commission,
2002b).
Concerning the quality issue, however, there remains a gap between the preference for
quality that consumers express and the way they behave in the marketplace (European
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
73
Commission, 2002a). Guaranteeing that production meets consumer wishes in terms of
quality is therefore a dynamic process between consumers and producers. The Czech policy
should not underestimate the concern of Czech consumers (although their income is
substantially lower than in the current members states) and include in the national plan
measures encouraging farmers to participate in quality assurance and certification schemes.
Differentiation can be done on the basis of organic farming or (on farm) processing locally
specific products. While the former will require a nation wide co-operation in distribution and
promotion, the success of the later one will rely on communication with local/regional
consumers and on local/regional planning for tourism. A shift to differentiated and higher
quality production will offers benefits to farmers in terms of income and work quality.
Incentives for using farm resources in rural economy – generating employment in rural areas.
The analysis confirmed that there are significant differences in productivity and overall farm
performance between marginal and the other areas. This threatens that farmers will give up
farming and look for jobs elsewhere. However, it its socially desirable to keep agricultural
activities in these regions and maintain thus rural settlements and infrastructure. The LFA
compensations, which have already been applied in the Czech republic and are a part of the
EU Rural development regulation, contribute to the stabilisation of rural settlement.
The current Czech agricultural policy has not included diversification of farm activities in the
rural non-agricultural economy in its support scheme. It was SAPARD which first time paid
attention to this development direction. This program option will continue after accession.
IDARA investigation concluded that farm diversification contributes not only to the
stabilisation of the business, but it also contributes to job creation or maintaining all year
employment for otherwise only seasonal labour. The success of diversification is not simple.
Obtaining initial capital is often difficult. Equally important seems to be networking.
Relationships with other companies provide means to diversify with little or no investment
and a ready market for the goods produced. Encouragement of such relationships could aid
in promoting diversification. However, the development process cannot rely on informal
institutions - the formal ones have to emerge. The Czech government should stimulate
establishment of regional development agencies (RDA) or re-construction of the current ones
which will be responsible for planning and co-ordinating development (at the NUTS 2 or 3
level). The Czech government or regional governments should support emergence of
regional advice agencies, which will be a link between businesses and external environment.
The advice agencies can operate at lover than regional (NUTS 2 or 3) level. Their obligations
would lie in the following activities:

monitoring the business development in region, collecting information, providing updated information, co-operating with the RDA

support with project processing

support with obtaining the funds

promotion of business opportunities, programmes available, etc.
Rural development should be on the agenda of RDA. Thus RDA should co-ordinate with
institutions for agri-environmental (conservation) co-operation.
All policy elements qualify for investment support. Formally, it can be allocated separately,
however, investment directions should integrate with the main policy elements and the
individual projects should be assessed in the context an integrated development plan.
Investment support should not only oriented on primary commercial activities, it should also
include primarily environmental or social activities. In spite of the support programme for
investment – the Support and Guarantee Fund for Agriculture and Forestry, Czech-Moravian
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
74
Guarantee and Development Bank, SAPARD scheme – farmers as well as non-farming
economic agents reported the difficulty with getting bank credits. Investment programme
designers and the regional development planners should investigate and be aware where the
problem rests. Also a top-level negotiation with banking sector should contribute to the
improvement of conditions on both sides – creditors and grantors. RDA should be in the
position to agree a framework with banks for rural development projects. It can be also
expected that if investments a business plans fit to a solid development plan it will improve
client and project evaluations by the banks.
A particular issue is the direct income support. The odd effect of the current CAP direct
payments in the beef sector has been explained. However, payments coupled to
commodities seem to be still better explainable and allocable than the decoupled one in the
context of large-scale (corporate) farm business. Once de-coupled from the commodity
production the payment will just be added to the Net Value Added - rewarding factors (land,
labour, capital, management). How the payment will be distributed it will depend on the
power of owners of factors.
If managers are more powerful than owners then the payment will either cover ineffciencies
or the managers may tend to transfer it to their own pocket. The power of land owners
depends on land tenancy, lease contracts, fragmentation of ownership structure, restrictions
or duties associated with land use etc. It will be also important if decoupled payments are still
bound to the area. The power of shareholders/members will depend on concentration of
shares. It is likely that the power of members of co-operatives will be weaker than in limited
liability companies or in joint stock companies. The power of labour will depend on the
internal organisation of farm business and the “perfection” of labour market. It is important to
take into account a combination of influences – some capital owners are land owners or
employees, some landowners are employees, some managers will be both capital and land
owners.
We argue that the direct income support for corporate businesses is quite a non-standard
approach. On one hand it is not clear who will benefit from them, on the other hand, there are
problems, which need to be solved. It is particularly “reform” indebtedness and insufficient
replacement of outdated assets. If payments are made digressive across the EU, than the
Czech republic may claim to being able to collect the difference between the initial and final
levels of the payments in a fund which
i)
will compensate “eligible (restituted) owners” of agricultural assets who
decided not to participate in farming business and
ii)
will assist modernising farms.
The beneficiaries of this approach will be current capital holders. Once the process (which
has to be defined precisely) of curing farms financial/capital position will be finished, the
resources will be transferred to the regular rural development funds (as it will be done in
modulation). The rest of the direct payment budget will be distributed in the standard decoupled direct payment way. It is obvious that such a solution will require further elaboration
and a broad discussion between policy makers and agricultural public.
6 Appendix
Table 17 Results of model i-sim simulations for Czech agriculture to the year 2006
Parameter
Unit
Commodities - production levels
Base year Reference EU
proposal
Czech
position
Copenhagen
conclusion
75
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
Crop commodities
Soft wheat
Barley
Maize
Other cereals
Potatoes
Sugar beet
Rape
Sunflower
Soya beans and other
oilseeds
Vegetables
Fruits
Other final crops products
Other fodder
Arable land
Grass land
Agricultural land
Agricultural land - model
Fallow land
Set-aside
Agricultural land - CR
Animal commodities
Dairy cows
Bulls
Calves fattening
Suckler cows
Pigs
Laying hens
Poultry (without laying
hens)
EAA - indicators
Gross value
Fertiliser and other inputs
specific for plant
production
General cost item
Fodder aggregate - input
Gross value added at
market
prices
Deprecation
Net value added at
market prices
Subsidies
Taxes linked to factor use
Net value added at factor
costs
Wages
Rent paid
Interest paid
Entrepreneurial income
ths. ha
ths. ha
ths. ha
ths. ha
ths. ha
ths. ha
ths. ha
ths. ha
ths. ha
869
612
37
164
72
87
246
14
10
876
647
37
166
72
85
232
14
10
983
697
41
186
76
77
291
16
12
879
614
36
170
72
85
263
14
12
943
667
39
180
75
76
280
15
12
ths. ha
ths. ha
ths. ha
ths. ha
ths. ha
ths. ha
ths. ha
ths. ha
ths. ha
ths. ha
ths. ha
34
22
14
11
2,192
950
3,142
4,032
890
248
4,280
34
23
14
11
2,222
964
3,186
4,032
846
248
4,280
37
25
15
11
2,466
720
3,186
4,032
846
248
4,280
32
22
13
10
2,222
964
3,186
4,032
846
248
4,280
35
24
15
11
2,371
815
3,186
4,032
846
248
4,280
ths. hds
ths. hds
ths. hds
ths. hds
ths. hds
ths. hds
ths. hds
590
351
30
47
4,047
12,057
16,248
517
295
24
130
4,759
11,875
15,218
422
503
27
61
6,076
11,969
19,588
517
513
31
130
6,045
11,932
19,545
456
495
27
90
6,064
11,954
19,570
mio EUR
mio EUR
3,174
337
3,741
481
4,821
485
5,349
488
4,994
485
mio EUR
mio EUR
mio EUR
790
1,478
569
1,075
1,587
599
1,159
1,410
1,767
1,181
2,471
1,209
1,166
1,817
1,526
mio EUR
mio EUR
207
362
216
383
216
1,551
216
993
216
1,310
mio EUR
mio EUR
mio EUR
102
105
359
504
105
782
320
105
1,767
743
105
1,631
413
105
1,618
mio EUR
mio EUR
mio EUR
mio EUR
454
44
11
-149
679
48
12
44
732
51
13
970
746
52
13
820
737
52
13
817
76
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
Gross income
mio EUR
3,276
4,245
5,142
6,091
5,407
7 Literature
Bromley, D., and I. Hodge. (1990). Private property rights and presumptive policy
entitlements: reconsidering the premises of rural policy. European Review of
Agricultural Economics 17: 197-214.
Doucha T., Divila, E. Jurica, A, (2001) Results of the survey on farms in Sout-East region.
Vysledky setreni v zemdelskych podnicich v Jihovychodnim regionu. (in Czech)
Zemedelska Ekonomika, Praha
European Commission (1997) Towards a Common Agricultural and Rural Policy for Europe,
European Economy, No. 5
European Commission (2002a) Mid-Term Review of the Common Agricultural Policy
COM(2002) 394
European Commission (2002b) Regular report on the Czech republic progress towards
accession, SEC(2002) 1402
CSO (2002a) Agro-Census 2000, Part 1 and Part 2, Czech Statistical Office, Praha
CSO (2002b) Statistical Yearbook 2001, Czech Statistical Office, Praha
CSO (2001) Statistical Yearbook 2000, Czech Statistical Office, Praha
Davidova, S.,Gorton, M., Ratinger, T., Zawalinska, K, Iraizoz, B, Kovács, B. and Mizo, T.
(2002): Aa Analysis of Competitivenes at the Farm Level in the CEECs. Idara
Working Paper 2/11, Wye, January 2002
Horska, H, Spesna, D (1999) Socio-economic position of rural women. VUZE working paper
series, No. 59, Praha, 88 p
Horska, H et. all (2002). Ucetnictvi, dane a pravo v zemedelstvi (Accounting, tax and
legislation in agriculture (journal), IV, No. 1.
IDARA (2002) Identification of the critical socio-economic problems facing rural CEEC – and
policy proposals, IDARA Deliverable 10, Galway
MoA (2002) The Report on the state of Czech Agriculture in 2001. In Czech: Zpráva o stavu
zemedelstvi za rok 2001“,Ministry of Agriculture Praha, 225 p.
MoA (2001) The Report on the state of Czech Agriculture in 2000. In Czech: Zpráva o stavu
zemedelstvi za rok 2001“, Ministry of Agriculture, Praha, 214 p.
MoA (2000) The Report on the state of Czech Agriculture in 1999. In Czech: Zpráva o stavu
zemedelstvi za rok 2001“,Ministry of Agriculture Praha, 156 p.
MoA (1999) The Report on the state of Czech Agriculture in 1998. In Czech: Zpráva o stavu
zemedelstvi za rok 2001“,Ministry of Agriculture Praha, 105 p.
Ratinger, T., Krumalova V. (2002) Provision of Environmental Goods on Potentially
Abandoned Land – the Case of the White Carpathian Protected Landscape Area.
Discussion paper No. 6, 2002, HU Berlin, 18 p
Integrated strategy for Agricultural and
Rural Development in the Czech Republic
77
Ratinger, T., and E. Rabinowicz. 1997. Changes in farming structures in the Czech Republic
as a result of land reform and privatisation. Pages 42-65 in A. Buckwell, E. Mathijs.
and J.F.M. Swinnen (eds.) Agricultural privatization, land reform and farm
restructuring in Central Europe. Ashgate, Avebury.
Spolecnost pro regionalni poradenstvi (1999). Strategie rozvoje Jihlavskeho kraje, SWOT
analyza okresu Zdar nad Sazavou, Brno.