Skepticism over farmers’ cooperative hinders productivity

Romania should have a good, if not great, agricultural year in 2013, according to the first official predictions, which is expected to translate into cereal production of between 18 and 19 million tons. While this is welcome news after last year’s drought, pundits and farmers alike agree that the output could be more than double this figure should productivity improve.

By Simona Bazavan

“How could Romania become a net exporter of agricultural products? This is a key question and the solutions are relatively simple but ultimately hard to accomplish (…) if one looks at the sector’s productivity,” said Achim Irimescu, secretary of state with the Ministry of Agriculture and Rural Development (MADR), last week during the How Can Agriculture become the Economy’s Star? conference.

Land fragmentation, limited financing, a reluctance to set up farmers’ associations or cooperatives, the lack of a coherent multiannual national strategy in the field, an absence of proper agricultural infrastructure and in many cases know-how and market understanding, as well as deeply entrenched tax evasion are the main issues which continue to impede Romania’s agricultural industry.

Low yields are still a problem for most of Romania’s farmers, given that a staggering majority – about 1.01 million farmers out of a whopping total of 1.09 million in the country – cultivates plots of land of up to ten hectares. Most of these farmers continue to practice subsistence agriculture with almost no chance of getting their produce on the shelves of modern retail networks or investing in upgrades.

At the other end of the spectrum, there are only about 13,000 farms in the country registered as companies, which usually also have the largest cultivated surfaces. These producers report far better yields than their smaller counterparts, comparable to the situation in Western Europe, suggesting that good performance is achievable under the right conditions.

A consequence of this unbalanced situation is that despite the much talked up huge agricultural potential, Romania remains to this day a net importer of food products. Ensuring self-sufficiency at least for basic foods is an objective for the MADR but Achim admits that so far the authorities have not managed to achieve this.

“The ministry’s objective is to support all producers, regardless of their size, but at this point it is a stretch to hope we will manage to get small producers to export as there are large players who don’t manage to do so,” he said. Small Romanian farmers aren’t able to get their produce on the shelves of local supermarkets, let alone aim for external markets, stressed the state secretary.

Strength in numbers

Getting farmers to set up associations or cooperatives is a solution to many problems, including that of low productivity, everyone seems to agree.

One of the first advantages of producers’ association is reduced costs of inputs due to collective negotiations. Nicolae Sitaru, owner of Elsit Com, which cultivates some 2,600 hectares of land, is part of a producers’ association in Ialomita County, which over the past seven years has been buying inputs as well insurance through the association. “This is something that helps us a lot. Actually we help one another to reduce costs. By organizing auctions for pesticides and seeds to which we invite all the large suppliers, we obtain very good prices. We recommend the same to others,” said the farmer.

Better negotiating power also helps when selling the produce, especially to large retail chains which have strict requirements regarding the quality and continuity of deliveries.

Associations are beneficial especially for small farmers for whom it is easier to become a profitable business when part of associations which sell value-added products. Such a business model proves especially efficient in times of crisis.

“I have often given the example of what is happening in the Belgian milk industry, where despite the crisis producers haven’t lost very much. Some 60-70 percent of the milk sold there comes from cooperatives,” said Achim. Producers are shareholders in the associations which also process the milk and handle the marketing, he explained.

Associations can grow into complex businesses where each member has a clearly defined role.

“In France, for example, a cooperative that has 1,400 employees manages to get its members the best prices for both inputs and products. In the end, the individual producer has to do only what he knows best and that is to cultivate the land. He doesn’t have to worry about what he should grow, for example, because the cooperative employs experts who provide access to the best information and technologies. In Romania, while farmers don’t form associations, we can’t talk about such consultancy or know-how,” said Achim.

However, despite these advantages, the cooperative model has not yet caught on locally. Sitaru says that one of the reasons for this is that most farmers associate any form of such organizations with the former communist cooperatives which were done by force. He urges the government to come up with a strategy to encourage associations, and while the official agrees that something must be done in this regard, so far no concrete plan has been announced.

Barbu Mihaescu of Mattig Management Partners has also suggested that the government support small producers looking to export by identifying some production sectors with development potential and helping set up business incubators in close relation with research centers or universities.

There are plenty of other such models that Romania could adopt from the experience of other countries but a will for change is required and once more a clear strategy.

The farmer’s perspective

The agriculture sector could easily become the star of the local economy should every local farmer be able to report a level of average yields which is realistic given the country’s weather and technological conditions, said Sitaru.

“Average yields of 4 to 5 tons per hectare for wheat should be achievable in Romania as well as yields of 3 tons for rape or sunflower and 8 to 9 tons for corn. And many of the large local farm owners, who are often badmouthed, report such yields,” he said. Should such average productions materialize, in a normal agricultural year Romania would enjoy cereal production of 40 to 45 million tons, more than double the projected figure this year, in the context of what should be a “very good” agricultural year, according to officials.

This level could be fairly easily achieved as soon as next year given relatively simple conditions, believes Sitaru. “In order to reach this we should have average farm investments of between EUR 1,500 and 2,000 for every cultivated hectare,” the farmer estimates. Yields are also highly dependent on the existing agriculture infrastructure. “I believe that when it comes to agricultural equipment there should be an average of at least one horsepower per hectare. This is not yet the case in Romania, while other countries have three or four times this figure,” he added.

In 2011, which was dubbed one of the best agricultural years in the last decade, Romania reported cereal production of close to 21 million tons, but Sitaru sees this as no reason to boast, as given the weather conditions, 40 to 45 million tons of cereals would have been a more appropriate level.

“A coherent strategy is required to reach this, but who do we have to come up with such a strategy? In 23 years we have had 23 different leaderships at the MADR. There is simply not enough time in a year to understand the reality of the sector, let alone come up with a coherent strategy. Continuity should have been somehow ensured,” said Sitaru.

As for why local produce such as fruit and vegetables do not make it onto local supermarket shelves, let alone external markets, Sitaru again blames the lack of infrastructure. It all boils down to the absence of basic warehouses where farmers could deposit their produce. “The farmer’s job is to cultivate. It no longer makes business sense, as it did some years ago, for the farmer to load his own car with produce and go and sell it at the market himself. Consider the price of diesel alone,” he said.

Other problems which prevent better crops include lack of financing available for producers, especially subsidies, which are not only lower than what other European farmers receive but are also received by farmers with considerable delays, complains Sitaru. The lack of political commitment to fight tax evasion and reluctance at EU level to allow the cultivation of genetically modified plants, which would allow far better hectare yields, are other hurdles, concluded the farmer.

simona.bazavan@business-review.ro

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