The Ministry of Agriculture and Rural Development (MADR) has published a draft medium and long-term strategy for the development of the Agribusiness sector for the period 2020-2030 which was developed with the support of the World Bank. This has been an ongoing request from the business environment and it is a welcome and necessary step in the further development of the Romanian agricultural sector.
The Land Registry Law has been amended, allowing the registration of agricultural assets and increasing the efficiency of consolidating agricultural lands or the setting up of guarantees for financing agricultural activities.
The absorption rate of APIA funds has been 88% of the total amount available for Romania (EUR 6.85 billion from a total of 7.79 billion). AFIR (The Agency for rural investment financing from FEADR.) disbursed EUR 6 billion, 74% from the total available funds of EUR 8.12 billion.
The decision to support young farmers in order for them to be eligible for EU funding (measure SM 6.1 from PNDR 2014-2020) is a welcome stimulant for the development and revival of rural life in Romania.
The agricultural sector has recently received more attention from the GOR. In the past it was regarded as the sole responsibility of the MADR. However, political leaders seem to have recently realised that agriculture is a key sector of the Romanian economy. The office of the Prime Minister and the MF have begun to show more interest in the needs of the agricultural sector.
If the agricultural sector is to further develop and increase its competitiveness several steps are required:
The Strategy for the medium and long term development of the Agribusiness sector is an analytical enumeration of all agriculture sub-sectors in Romania. It is an exhaustive text which correctly identifies and lists all the difficulties and issues faced by the agricultural sector. However, it does not put forward any clear and implementable solutions. The strategy also fails to identify the key sectors from a competitiveness point of view. The ultimate goal of a strategy should be the prioritisation of investments based on a detailed analysis because this increases transparency and predictability, which are important prerequisites for stimulating further investments.
The allocation of funds for the 2014-2020 programming period has been decided by the Government without consulting the private sector, the ultimate beneficiary of these funds. Consequently, it is not clear whether the 9.369 billion euro available have been allocated in the best possible manner.
The MADR should be more transparent in explaining the reasons and the arguments behind the current allocation of EU funding.
One of the key issues keeping development of the agribusiness sector from reaching its true potential is the lack of availability of finance, mainly due to the following:
A significant number of EU funded projects have been abandoned because of these issues.
Reducing the VAT rate for agricultural products has been an ongoing recommendation from the FIC. This would increase consumption and at the same time reduce fiscal evasion and create a level playing field for competitors in the sector. Aligning the VAT rate for foodstuffs to the European average of 4-7% would have positive effects on the Romania agribusiness sector making it more competitive on the internal market. The proposal below may have already been taken into consideration, however, at the date of this text we cannot anticipate the approval of such decision.
The FIC recommends the reduction of the VAT rate on agricultural products starting with fresh (perishable) ones. The MF should carry out an impact assessment to determine the ideal VAT rate for these products in Romania and the initial budgetary impact of such a reduction.
Romanian agriculture will never be competitive without significant investments in agriculture related infrastructure at national level especially in access roads for agricultural lands and modern irrigation systems. The last major investments in access roads were made before 1989. Investments are also needed to slow down the process of desertification which is significant in the south of Romania.
The National Plan for Rural Development 2014-2020 (PNDR) envisages EUR 435 million of investments in irrigation systems and EUR 237 million in access roads. This means less than EUR 100 million of investments per year in essential infrastructure.
FIC recommends that the allocation of funds to the PNDR should be reassessed.
The FIC recommends the development of the “Siret-Baragan” irrigation canal and also the restoration of existing irrigation systems with the objective of establishing a single national price for irrigation. Infrastructure investments not only increase competitiveness but are also a good source for jobs while the projects are under development.
In addition, the FIC recommends better transparency of the investment plan in order to improve predictability and long term planning by private operators. The infrastructure investments should be linked to a program encouraging private investments and/or public private partnerships.
Measures to stimulate the consolidation of agricultural land taken so far have not yielded the expected results. Agricultural land in Romania is still very fragmented, which hinders the development of large agricultural enterprises.
The FIC recommends better designed incentives for the consolidation of agricultural land. The GOR should support those farmers which decide to come together in associations and to develop the land for agricultural purposes in a consolidated manner.
The MADR has been considering developing a policy to prioritise APIA subsidies to land that is consolidated. The FIC believes this is a welcome idea and should be further developed and implemented.
The TTIP is designed to reduce trade barriers between the EU and the United States, including for agricultural products and investments. Romania has not been very active during the negotiations and the Government has not communicated on this issue with the private sector. Consequently, the TTIP’s effects on long term investments cannot be evaluated.
The GOR and the MADR should consult with the business community on the impact of the TTIP and draft a Romanian position to be shared with our European partners.
In the agriculture and food industry, certain objective factors determine competitiveness of and these are independent of political doctrine and objectives. Effective strategies for the sector are a critical to ensure predictability and to encourage much needed long term investment. Consequently, the fact that a different strategy is introduced after each election is harmful to the long term development of the sector.
The FIC recommends that all stakeholders and political actors should debate and agree on a long term pact for Romanian agriculture. Reaching a consensus will provide clarity for long term investments and, once achieved, political parties should refrain from modifying it.