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Agriculture: PwC study: Farmers work on the 6th farming area in EU, but productivity is low
Improving the dimension of farm exploitations, the increase of their capitalization degree, the increase of the farmers’ professional training or the reduction of fiscal evasion are some solutions for improving productivity in the farming sector in Romania, according to a PwC study.
The PwC analysis shows that Romania is one of the European countries with the highest farming potential, as it has the 6th biggest farming area used in EU countries, but faced with low profitability, due to several factors. In 2013 Romania had a used farming area of 13.9 million ha, after France (29 million ha), Spain (23.6 million ha), Great Britain (17.3 million ha), Germany (16.7 million ha) and Poland (14.4 million ha), but bigger than that of Italy (13.1 million ha), Hungary (5.3 million ha) or Bulgaria (5.1 million ha).
60% of Romania’s farming area (8.2 million ha) is tilling land, and two thirds of this area are used for cereals. That is why Romania is one of the largest ten cereal exporters in the world (9th in the world for wheat and 6ths for corn exports).
Although most of the cultivated area is used for cereals, they generate less than 25% of the value of overall farm production (142 billion euros in 2015).
The share of agriculture in GDP has dropped constantly in the last 20 years, from 22.6% in 1993 to less than 5% of GDP in 2015. This drop came on the background of the structural transformation of Romanian economy, from a mostly industrial-agrarian economy, to one based mainly on services. Although the contribution of agriculture to GDP is dropping, Romania continues to have the highest share of farming sector in GDP structure of all EU countries, 3.5 times higher than the European average. Moreover, at 2014 level, agriculture engaged 27.3% of Romania’s active population, 6 times higher than the European average of 4.4%.
The share of labour force in Romania’s agriculture was in 2014 closer to that recorded in 1992, although the share of agriculture in GDP dropped over 4 times in that period, with important efficiency losses. Practically, gross added value per person working in agriculture was 18% of the EU average in 2013, but the situation is more alarming if we consider West European countries. Gross added value generated by a person working in agriculture in Romania is 7% of the one generated in France and 9% of that generated in Spain.
About 85% of overall labour force in agriculture works in personal farms. By contrast the average share of unemployed workers from the farming sector in EU is 72%, and in some states even lower (Spain -50%, France - 63.1%, Germany -55.8%).
Romania’s profitability is below the European average by 37.1% for wheat and 49.3% for corn, Romania being exceeded by many countries from Central and Eastern Europe for this chapter.
Low profitability in cereal production limits the volume, value and contribution to GDP of the annual cereal yield. There are several factors which explain this low profit, among which fragmentation of farm exploitations, the farmers’ training level, the low level of capitalization in agriculture and high fiscal evasion.
About 75% of farms in Romania are under 2 hectares and the share of farms under 10 ha is 98% of total and 39% of the used farming area. At the opposite pole, farms over 100 ha represent only 0.5% of the overall number, but they exploit 49% of the farming area. In contrast with the other European states, the segment of average farms, between 10 and 100 ha, is weakly represented in Romania.
Labour force in the Romanian farming area presents an inadequate training level, compared to that of other European states. Thus, according to EC data, 96.4% of Romanian farmers declared they had accumulated knowledge in the farming area based on practical experience, compared to 70.9% of farmers at EU level. The Romanian farmers’ training level is below that of the new members like Hungary and Poland, where 17.9% and 47.8% of farmers had formal basic and complete training in the field of agriculture.
Romania is last but one in EU in point of farm capitalization. Technological equipment of farms are rudimentary. Less than 2% of farms in Romania have at least a tractor.
Another problem is the lack of access to needed infrastructure, such as liquid fuel. All EU countries, including Hungary and Bulgaria, have reached 100% coverage of farming areas with infrastructure of liquid fuel, while in Romania coverage is only 56%.
Romania is behind other European countries for irrigation systems, when draught frequently affects over 50% of farming land but only 12% of this land has viable irrigation.
Romania is behind other EU member states in point of framers’ expenses for plant protection products, another factor which affects profitability in agriculture.
Romania is last but one in EU for expenses from the state budget for agriculture. Most investments in agriculture in Romania come from programs like the National Program for Rural Development or Joint Farming Policy which are financed mostly with European money, the PwC study shows.
Agriculture is also affected by the black market labour phenomenon.
The productivity of Romanian agriculture should be improved by registering properties in the national cadastre system, the improvement of granting subsidies for small farms, stimulating farm association, introducing a minimal commercial dimension and fiscal measures. Another solution is increasing the degree of capitalization for farms by facilitating the farmers access to credits by mechanisms guaranteeing farming credit, stimulating the use of irrigations systems and their modernization, facilitating access to relevant European and national funds.