Romanian Agricultural Sector in the Post-Communist Era

by Vichentie Milea

Traditionally, agriculture has been a very important part of the Romanian economic system. Even today it represents 20% of the national GDP and it employs over 36% of the population; as a result its economic performance is of great importance to the well being of the Romanian people and the financial affairs of the state. This essay will mention the changes and problems that have affected this sector since the fall of communism and try to offer some advice toward its improvement.

During the Communist era, the state controlled the vast majority of all arable land, and it was worked and overseen through the use of various cooperatives. The main agricultural products are wheat, corn, sugar beets, potatoes, grapes, milk, eggs and meat. After the 1989 Revolution land reverted back into the hands of the farmers, this being accomplished by the redistribution law passed in 1991 that privatized 81% of total available land. The three main types of agricultural enterprises existent in Romania right now are comprised of private farming companies, family associations and individual households. Until the present, private farming companies have exhibited poor performance as a result of bad managerial decisions, and seem to be declining in number and importance. On the other hand, family associations and individual households are expanding their holdings and exhibiting greater productivity. The size of private farms seems to follow a trend that divides the holdings into greater than 16 hectares (10,000 square meters) for market production and export, and 1 to 2 hectares which are subsistence farms.

While privatization is expected to increase productivity, this was not the case in the Romanian agricultural sector. Overall agricultural growth has stagnated at the level of the late 1980's and the farmers' standard of living has probably deteriorated. The main reasons for this include the overall macroeconomic instability present in Romania since the Revolution, the failure to privatize and regulate upward and downward linkages and the inability of farmers to acquire the financial resources necessary to run their farms. Coupled to these factors, labor supply is starting to create problems, as the younger generation prefers to move to urban centers than to remain on the family farm.

Since the fall of Communism, Romania has been plagued by an ever-increasing rate of inflation. As a result the price of the inputs necessary in agricultural processes has increased at a rate that is double the rate of foodstuff prices. Therefore farmers often cannot afford to buy such important items as fertilizers or fuel for machinery, further cutting down their productivity.

Inadequate upward and downward linkages provide additional hardships for Romanian farmers. Companies selling or leasing farm machinery are either still state controlled and therefore very ineffective or very big and able to collude and keep prices at unnatural high rates. When machinery is actually acquired, it is usually old and in need of repair, with spare parts nowhere to be found. Once the harvest is collected, it needs to be taken to a silo for storage; up to date these facilities have not been privatized and they operate in a manner that is counter productive to the interest of the farming community. Unlike the West where silos usually buy the product from the farmers, in Romania the farmer has to pay the silo for storage, further reducing his capability to manage his resources. Finally, at this time in Romania there exists only one major point of export of agricultural foodstuffs; this export terminal is under private hands but it enjoys a total monopoly which makes it able to charge high prices and provide poor service.

Privatization without the necessary accompanying financial help is bound to run into problems. Such was the case in Romania; in order to increase their productivity and to make farming a viable option, farmers need access to loans and other services such as insurance. This was not possible since loan rates during the 1990's have been plagued by high interest rates and short repayment terms, usually around five years. These factors are directly proportional to the degree of instability present in the country, as banks are unsure of what will come to pass in the future. The same is true for the insurance business which is corrupt and often does not provide full repayment. While the government has provided subsidies in the form of coupons usable to buy various agricultural inputs, they do not satisfy the needs of the farmers and may provide problems later on when trade liberalization comes into effect. An example of the effects of the lack of financial assistance is the decrease in the number or orchards and vineyards in the countryside. Since these specialized farming sectors require more capital intensive harvesting techniques, farmers were forced to abandon them and replant different, cheaper crops.

Lastly there is the problem of a projected labor shortage. Population growth rate is negative and is intensified by the emigration rate, while the young are moving into urban centers in search of a different life. Presently, farm owners fall in between the 40 and 60 age bracket and it seems to be climbing. Since machinery is still very rare and unreliable, cheap abundant labor force is a precondition for a successful farm.

In order to revitalize the agricultural sector, the Romanian government needs to stabilize the economy, eradicating the high inflation rate. This will lead to increasing financial options for farmers willing to expand their business. Once this is accomplished privatization and competitiveness must be emphasized and promoted in order to create a business atmosphere beneficial to the small producers. Concomitantly investment in the rural infrastructure will provide added incentives for the younger population to remain close to home and take over the farming enterprises of the family. They will bring new innovative ideas that will improve productivity while at the same time alleviate the population pressure in the urban areas. Once these policies are implemented, agricultural growth will become an important engine for the revitalization of the Romanian economy.

Davis, R. Junior and Angela Gaburici. The Economic Activity of Private Farms in Romania during Transition. Just how Competitive are they?



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