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OECD: Agricultural Review Has Praise For Bulgaria, Misgivings About Romania

The Paris-based Organization for Economic Cooperation and Development, the OECD, has recently reviewed agricultural reform in Bulgaria and Romania. While there is praise for Bulgaria, the organization says the slow pace of reform in Romania is a cause for concern. Our correspondent compares the findings and looks at what lessons Bulgaria's farm reform may hold for others in Central and Eastern Europe.

Prague, 16 January 2001 (RFE/RL) -- The Organization for Economic Cooperation and Development says Bulgaria's agriculture policies in the last four years have saved the sector from collapse.

In a survey released in Sofia today, the Paris-based OECD says Prime Minister Ivan Kostov's government has created a solid foundation for Bulgaria to make improvements in agriculture that are vital to its European Union membership bid.

The OECD notes that Bulgaria and Hungary are Eastern Europe's only net exporters of food. The organization attributes this to more open trade policies and to the elimination of price controls that previously kept most farmers from earning profits from their work

But the OECD says Bulgaria still faces tough challenges. Among them are the need to create a functioning market for land -- where private land can be easily bought and sold or used as collateral for agricultural loans. Another challenge involves restructuring and encouraging competition among companies that process the farmers' output so that farmers receive a fair market price for their products.

Two months ago, the OECD released a study on Romanian agriculture reform that was more critical. The organization cited the lack of an overall reform framework until 1997 as a key reason that Romania has become a net importer of food.

OECD agriculture expert Andrzej Kwiecinski tells RFE/RL that one problem facing Romania's private farmers is that they don't have access to the larger national market. Meanwhile, the links between state farms and food-processing companies are still very strong. Kwiecinski says:

"Small-scale farmers are, so far to a large extent, cut off from the [main domestic and foreign] markets. The only option for them is local markets -- which could offer the possibility to sell small quantities, but not to provide small-scale farmers with the chance to expand their activities and to become more efficient."

Private farmers in Bulgaria faced similar barriers in the mid-1990s, when either the state or nomenklatura business groups held monopoly control over food processing. Combined with the many restrictions on exporting at that time, private farmers had little choice but to sell their crops at prices that were far below international market prices.

In practice, Bulgaria's main food exporters before 1997 were private business groups with strong enough government connections to obtain export licenses.

Today's OECD report praises Kostov's government for tearing down some of the pillars of an agricultural sector that was, in effect, a system of nomenklatura feudalism. This was done mainly by liberalizing domestic food prices and abolishing the restrictive measures on exports.

The OECD credits the policies of Kostov's government for stabilizing Bulgaria's national economy and allowing a market infrastructure to develop in agriculture.

The OECD says another major advance for private Bulgarian farmers came in 1998 when laws were passed to establish a Western-style warehouse receipt system. Warehouse receipts help Western farmers get short-term credits for the seed, fuel, fertilizers and pesticides that they need through the growing season. Warehouse receipts are essential to free-market agriculture because they allow farmers to obtain loans by using grain they've stored at licensed warehouses as collateral.

The European Bank for Reconstruction and Development has committed about $100 million to a four-year program aimed at developing Bulgaria's warehouse grain receipt system. The EBRD has also praised the Kostov government for setting up the necessary legal framework and liberalizing the grain markets. Experts at the bank say lessons from this program could help neighboring countries improve the financial infrastructure of their own farming sectors.

Agricultural experts from the United States Agency for International Development (USAID) also agree a proper legal framework is essential to a successful warehouse receipt program. A USAID pilot program for warehouse receipts in Ukraine during the mid-1990s has been cancelled -- reportedly because too many traders used the forum merely as a meeting place and then conducted transactions on their own outside of the program.

In Romania, the OECD says one of the biggest reform tasks facing the new government is to create job opportunities for rural residents who are leaving agriculture. More than 35 percent of all jobs in Romania are in the agriculture sector, but this is expected to decline as the sector becomes more efficient.

Ironically, Romania's land privatization program has created a problem that is the opposite of the situation in Ukraine and Russia. Romanian farm plots are too small to be farmed efficiently. The OECD says the average plot size is about two hectares. The reason for this is because Romania land privatization was based on restitution to the owners (or descendents of owners) before nationalization in the 1940s.

Many Romanian landowners now are either leaving their fields fallow or are renting them to a few large farms that do not have any interest in protecting the long-term fertility of the soil.

In contrast, Kwiecinski says the average size of farms in Russia and Ukraine is several thousand hectares. Most farm workers in those countries have a paper coupon showing they have rights to a portion of land from their former state farms. But few can identify an actual plot of land that is theirs.

Further, the large collective state farms have been privatized only on paper. They've not been broken up into the ideally efficient size of 500 to 1,000 hectares. Nor has the management of most former state farms been changed.