Support for agriculture

Allocations of agricultural and rural development subsidies grossed HUF 631,400

million in 2009, which was HUF 205,100 million (48%) more than in 2008.
Instead of long-term growth factors, the main contributors included ad hoc impacts
such as exchange rate gains, sugar subsidies and advance payments.
The funding structure of agricultural subsidies has changed since Hungarys EU
accession. The reduced amount of national funds has been counterbalanced by the
rising level of EU funds. While subsidies financed from national funds accounted
for 43% of the total support budget in 2007, this figure was only 26% in 2009.
The structure of subsidies has also undergone major changes. In fact, development
subsidies have substantially increased. SAPARD, ARDOP and the National Rural
Development Plan were introduced in 2004 to facilitate agricultural development
but in September 2007 the New Hungary Rural Development Programme
(NHRDP) replaced all former initiatives. Most subsidies were granted to aid
schemes such as agricultural environmental protection, purchases of machinery
and technological equipment, support for producer groups, support for farmers in
less favourable areas and support to increase the value of agricultural products.
The proportion of subsidies financed solely from national sources has been
decreasing year by year as support is no longer given for targets that do not comply
with the Common Agricultural Policy, and only allowances needed to settle
pending issues until 2011 are available. Certain support targets have been
continued in measures under the National Rural Development Plan, the
Agricultural and Rural Development Operational Programme and the New
Hungary Rural Development Programme. In 2009, more than 94% of subsidies
financed solely from national sources were paid under the Support for current
costs and income aid scheme. Support allocation facilitated, among other things,
the operation of the following main support arrangements:
supplementary single area payment (top-up);
animal welfare payments;
support for animal corpse removal and disposal to
improve animal hygiene safety;
national supplementary subsidies for sugar-beet
producers;
support for the interest rate of agricultural loans;
community agricultural marketing programmes, etc.
In 2009, direct EU support amounted to HUF 322,100 million, accounting for the
largest share of agricultural subsidies. The amounts of EU support disbursed under
the aid schemes listed below were as follows:
single area payment scheme (SAPS) HUF 228,700 million,

 agricultural market measures HUF 91,400 million, of which: separate sugar

subsidies HUF 61,200 million.
In 2009, the amount of agricultural payments increased by more than HUF 200,000
million compared with 2008.
The main causes of the increase were as follows:
The SAPS increase of HUF 64,000 million was caused by the automatic 10% rise
in 2009 (Hungary is to reach the maximum by 2013) and by the bringing forward
of year 2010 payments to 2009 (measures against the financial crisis).
As to the market measure increase of HUF 51,000 million, most of this amount
(over HUF 30,000 million) first became available in 2009 and was allocated for
payments to domestic sugarbeet producers and processing entities that decided to
terminate production as a result of the sugar market reforms which ended in 2008.
The NHRDP increase of almost HUF 100,000 million was due partly to the
residual amount of HUF 25,000 million allocated in 2008 but not paid until 2009
and partly to the EUs permission for the payment of co-financed subsidies despite
lower expenditure from Hungarys central budget. Furthermore, the 3-year
deadline set for NHRDP investment projects approved in 2007/2008 was about to
expire, driving many companies to launch their development efforts. The
weakening of the HUF due to the financial crisis was a great help for the marketing
measures and Hungarys NHRDP expenditure, given that the HUF equivalent of
the EUR support amount turned out to be HUF 45,000 million higher than planned.
The government spent this amount on financing the marketing measures and the
NHRDP.
In 2009, Hungary was the third largest net beneficiary of the EU budget. 36% of
the subsidies paid to Hungary were agricultural subsidies. Thus we received EUR
1,279.9 million in agricultural subsidies (ninth in EU ranking). This meant a
subsidy level of EUR 220.4/hectare.
Agriculture and natural environment
Over 60% of Hungarys area is subject to cultivation. Therefore cultivation
practices have to be subject to detailed regulation if we wish to make and/or
maintain positive changes in the environmental and natural conditions of the
country. Agriculture is not solely a production sector. In addition to its main
function (i.e. the production of food and basic materials), agriculture also has
environmental and social functions. It helps to preserve our natural/environmental
values and ensures the conditions for active life and livelihood in rural areas. This
is supported by the agri-environmental measures listed in Axis II of the New
Hungary Rural Development Programme (NHRDP). In addition to direct forms of

support, the indirect impacts of other forms of support (mostly investments) are
also important as they clearly contribute to the maintenance of the natural
environment. Among these, special attention should be paid to two measures aimed
at the modernization of animal holdings (organic manure treatment and complex
modernization) which play a major role in reducing nitrate pollution of water.
The agri-environmental measures create a framework for the coordination of tasks
related to the environment, nature, the production of basic food materials and rural
development. Therefore, under optimum conditions, the voluntary implementation
of the regulations by land users will help to maintain the functions of rural
landscapes and to preserve sensitive natural systems. 73.4% of agri-environmental
payments come from EAFRD (European Agricultural Fund for Rural
Development). In Hungary, the EAFRD budget is distributed by the NHRDP in
accordance with the latters priorities, focusing mostly on the following tasks:
Soil protection: mitigation of soil degradation processes (soil erosion,
acidification, compaction) through the application of various agro-technical
practices. Correcting the negative nutrient balance of soils with the use of
environmentally-friendly nutrient management.
Surface water and groundwater protection: protection of water bases,
improvement of water quality and reduction of possible pollution by facilitating
changes of land use and promoting environmentally-friendly nutrient management
and crop protection practices.
Nature conservation: expansion of the system of active nature conservation in
all branches of agricultural land use (arable land cultivation, grassland
management, plantations) by establishing and maintaining versatile and natural
habitats and by ensuring proper places for nutrition, reproduction and rest for the
animal and plant species that are considered valuable in terms of nature
conservation. The above tools used for the preservation and improvement of
biodiversity mostly serve the purpose of preserving and developing Natura 2000
areas.
Preservation of genetic stocks: special support for animal and plant species of
high genetic value, threatened with extinction/genetic erosion and considered
valuable for agricultural purposes in various farming systems.
Reduction of air pollution: through the use of farming practices and crops
requiring extensive cultivation and low external inputs, the schemes will contribute
to the reduction of harmful materials emitted by agriculture. The agrienvironmental measures (AEM) were announced under the NHRDP in 2009.
Certain former AEM schemes have been eliminated, such as the basic arable
farming scheme, the bee pastures scheme, the grassland management for corncrake
habitat development scheme and the extensive fishponds management scheme.
However, new schemes have been added, such as the wind and water erosion

scheme, the arable farming for wild goose and crane protection scheme, the arable
farming for red-footed falcon habitat development scheme and the traditional fruit
production scheme.
Privatization
In the agriculture of most Central European countries, unlike other sectors, land
restitution became a major form of privatization. In fact, in Hungary a mix of
restitution, land selling for compensation bonds, and some small redistribution of
land for employees of state farms and members of production cooperatives were
the methods chosen for land privatization. At the same time, in most countries
(including Hungary) the farm equipment fell into the possession of the present and
previous members of the cooperatives and their heirs. At the beginning of the
transition, the Hungarian Smallholders Party - being a part of the right-wing
coalition government - decided to recreate the smallholder agriculture which had
prevailed before post-war collectivization (Swinnen, 1997; Swinnen et al., 1997;
Csaki - Lerman, 1997). Its aim was to establish individual farmers on the Western
model and in this way gain more rural voters.
This policy led to the creation of millions of scattered parcels of land; such parcels
could not be mechanized, or only at great expense, and they could not be cultivated
productively. According to the Hungarian statistical data, after the new land
redistribution there were 1.8 million landowners among the 10 million inhabitants
of the country on the 8 million ha of agricultural and forest area, and the average
land area of each farm was 4.4 ha. Thousands of new owners emerged; some of
these were retired people, and some the heirs of former owners. The latter had not
been engaged in agriculture and most of them did not live in rural areas. Instead of
cultivating the land, they rented it to the corporate farms and individual farmers,
thus making the production of the latter even more expensive.
The dragging on of the privatization process, and its poor results, together
contributed to the decline of agriculture.
It is true that the injustice of forced collectivization had to be dealt with and private
ownership restored. However, better methods of land privatization (e.g. privatizing
it to the benefit of active members of production cooperatives and compensating
former owners in other ways) could have been found which would not have created
such an inefficient agricultural structure. The earlier collectivization, once it had
been completed, had also some advantages.
It created economies of scale, better possibilities for using machines, the
modernizing production, and the raising of productivity. Large size was not the
reason that these possibilities were not used sufficiently (or at all) under socialism.
Bureaucratic management, prescribed forms of organization, mistaken central
directives, targeted investment and production, lack of interest, and forced farm-

mergers which created excessively large farms were the relevant factors, which led
to the inefficiency of the cooperatives and state farms.
The land law
In 1994 a law was enacted which prohibited cooperative farms and companies and
foreigners from buying agricultural land. After the accession to the EU it became
clear that this legislation is in contradiction to the EU rules. The free movement of
capital was provided in the Treaty of Rome. EC Article 54 (3) (e) of the EC Treaty
provides that the Council and the Commission shall carry out their duty to enable a
national of any member-state to acquire and use land and buildings situated in the
territory of another member-state (van der Velde - Snyder, 1992). Access to
farmland by any natural or legal person in a member-state is an essential rule of the
CAP. Adapting to this rule could serve to strengthen the development of those large
corporate farms, which provide the bulk of agricultural products. Furthermore, it
could promote foreign direct investment into agriculture. Hungarian agriculture
lacks capital. Capital import by foreign farmers is a major possibility for
alleviating this situation.
Most of the food- processing industry and food chain-trade is already partly or
totally in the hands of foreign owners. Stronger large farms, strong agricultural
trade associations, and cooperation between family farms could create a better
bargaining position for agriculture in business deals with the trade chains and with
the food- processing industry. However, neither the cooperation among individual
farmers is enough strong in Hungary. Globalization has an everyday impact on the
whole world, on all countries and on all sectors of the economy. One has to strive
to use its advantages and avoid its drawbacks. However, most of the new accession
countries, among them Hungary, did not recognize the advantages.
SUMMARY
Hungarian agriculture was a prosperous sector of the economy prior to the
transition. The privatization of land and the loss of its major markets made it
vulnerable. Its production shrank, it became more extensive and profitability
decreased. Profitability improved only due to EU subsidies provided after the
accession. The food industry became dominated by transnational firms. However,
many of them have shut down their Hungarian branches recently, owing to other
orientations and changing EU rules. The agricultural trade balance is still positive
but the share of unprocessed products and grain is growing in the exports.
Earlier, animals and animal products, fresh and processed vegetables and fruits
made up the major part of exports. It is a promising sign that the concentration of
farm holdings is advancing. Large corporate and individual farms produce the bulk
of the traded products. Unfortunately, only rarely do small farms cooperate for the
sake of increasing their efficiency and trade opportunities. Hopefully, the lifting of

restrictions in the near future relating to the selling and buying of land will
promote concentration.
What matters in the development of agriculture is the search for sustainable
agricultural systems taking into account not only economic and social goals, but
also ecological ones. This task is a difficult enterprise because the goals often
exclude each other. On the one hand, one strives to achieve a high rate of
production efficiency growth, but on the other, there is a need to ensure just
distribution of income and to take into account environmental aspects when
making economic decisions. Identification of potential areas of conflict enables
one to seek a compromise as well as to pursue a relevant development policy and
design its instruments. One should also reject the notion that economic growth is
permanently linked to degradation of natural resources, while the lack of growth
equals preservation of these resources.
Modernisation of agriculture which aims only at increasing production efficiency,
if it is implemented in accordance with the principles of sustainable development,
will enable one to limit the unfavourable external effects. Development of
agriculture based on the industrial model encounters obstacles related to the
finiteness of natural resources and the capacity of the environment in terms of the
consequences of the anthropogenic impact. Another factor which limits the
industrial development model is the pressure to include external effects in the
economic calculations in agriculture alongside the rights of farm animals as well
as the social and cultural consequences, such as those related to the viability of
rural areas.