Why isn’t association attractive for farmers?

 Policy Brief no.14,June 2012

Authors: Lucian Luca, Alexandra Toderiță

The Romanian Center for European Policies is launching the study Why isn’t agricultural association attractive? EU funding for agricultural associations.

It has become a truism that a fragmented agriculture cannot be efficient on today’s global market and that a solution for this structural problem can be found in the development of association in rural areas. Due to historical causes and not only, cooperation in agriculture has a bad reputation in Romania. Still, in order to fully capitalize the development  potential offered by the Common Agricultural Policy during the new multiannual financial framework 2014-2020, the state must stimulate the association of agricultural producers. It has been stated by Commissioner Dacian Cioloș, by the national authorities, even the farmers agree.

Nevertheless, in practice things are more complicated. The current National Rural Development Program included a special measure supporting the establishment of producer groups: Measure 142. Only 1.2 % of the dedicated funds have been accessed. Although authorities were expecting about 1000 of these groups to be created, at present there are 40 groups working and 100 more are to be recognised.

 Meanwhile, the measure designed to support subsistence farms – Measure 141 – has  indirectly encouraged association, by granting a number of additional points to those who became members of producers groups.  With a 52% access rate, this measure is considered to be a relative success.

Measure 142 does not involve a selection procedure – all recognised groups may apply for financing. Still, very few producers actually do. In contrast, support for subsistence farms is granted on a competitive basis, and yet this measure is in far greater demand.

Why have policies destined to encourage association have such limited effect? The overall conclusion of the report is that the disparity between the Romanian reality and the design of this policy (inspired by Western countries) was too big, especially in terms of inclusion of agriculture in the formalized economy. This calls for broader public policies, which stretch beyond the sphere of the Ministry of Agriculture. The biggest problem is that in order to receive these funds,farmers must be included in the formalized/taxed economy.

It proves to be difficult, as they must face disloyal competition from producers who do not register their production and, most importantly, from importers who avoid paying taxes. Thus, by allowing tax evasion and encouragingthe  informal economy (e.g. through producer certificates), the Romanian state is dampening the NRDP’s association incentives.

Recommendations include:

  • Equal treatment in terms of legal and fiscal obligations for all producers;
  • The development of a simple taxation system for the profit obtained through agriculture, regardless of the legal form of organization (PFA, individual households, family associations etc.) in parallel with tax reduction;
  • Campaigns promoting successful models on the accessing of Measure 142;
  • Solving the excessively divided farmland ownership problem by the completion of the national cadastre;
  • The allocation of funds in the future PNDR for community facilitation activities.

This report was released Friday, June 22, during an event organized at the Romanian-American Foundation. The study is financed by the Romanian American Foundation in the preparation of the programme ”Rural Development through Entrepreneurship and Association’-a joint initiative of RAF, PACT,CIVITAS, FDSC, CMSC, CRPE and CEED.

The report is available, here.