Evaluation of the Achievements of the Land Act After Six Years 

POLITICAL ISSUES

Hungary has repeatedly postponed action to harmonize its land acquisition laws with EU law, largely because of public fears about foreign land ownership and competing domestic political interests. In the context of its EU accession bid, however, Hungary needs to trim its list of derogation requests as much as possible (it still has over 40 requests on the table), and land acquisition policy is one area in which it is entirely feasible for Hungary to come into compliance with EU law in the near term. Whereas other EU laws, such as those on environmental standards, will require major investments that are simply not immediately possible, it is domestic politics that have blocked revision of Hungary’s land acquisition policies. If Hungary can find a way to reconcile competing domestic political interests on land ownership policy, it will greatly improve its chances of gaining full EU membership by its accession target date.

Background 

A great deal of confusion prevails in Hungarian politics regarding the issue of land ownership. Consequently, political positions on the issue have not yet fully solidified. The two general points of agreement are: 

·        Hungarians should own Hungarian land, and

·        Land should be owned by farmers with agricultural experience who will live on or near their plots.

 Hungarians’ emotional attachment to their “sweet motherland” will need to be taken into account in any policy discussions concerning land ownership rights. The country is proud of its advantageous natural endowments—the long hours of sunshine and fertile soil that ensure good yields of most field crops.

Political Party Positions on Land Acquisition Policy[1] 

In fall 1997, the previous government coalition (Socialist–Free Democrat) introduced a bill that would allow domestic legal entities (including cooperatives and corporations) to acquire up to 300 hectares of land in Hungary. There was no mention of foreign ownership in the bill because a law that differentiated between foreign and domestic corporate entities would violate Hungary’s OECD commitments. It was clear that the bill would have to allow partial foreign ownership of land. 

In response, the four opposition parties (including the three that currently make up the government coalition), complemented by three agricultural interest groups (representing private farmers), initiated a referendum that asked the Hungarian people whether foreigners, either private persons or corporate entities, should be allowed either directly or indirectly to acquire land in Hungary. 

The coalition government argued that the government did not want to promote foreign ownership of Hungarian land and that the percentage of land that would have landed indirectly in “foreign hands” would have been insignificant.  The government noted that the bill included a safeguard clause to ensure that, should a corporation discontinue operation, no foreigners would get its land titles. 

The opposition’s referendum was eventually declared unconstitutional but, in the meantime, certain agricultural interest groups representing small farmers (led by MAGOSZ) started a wave of strikes, which caused the coalition government’s bill to remain pending until the new government came into power following the May 1998 elections. 

The new government has expressed its strong support for family farms and has argued that the Land Act of 1994 created an adequate legal framework to support such farming operations.
  
   

The FIDESZ-MPP / FKGP / MDF[2] Coalition Government

The three parties that have been in the government coalition since the political changes of 1989 have no major differences regarding land ownership. All three have opposed foreign ownership of Hungarian land.  They have also opposed agricultural production cooperatives and supported newly established business cooperatives.  

Political figures and groups within the coalition government that will affect the future of land policy debate in Hungary include the following:  

·         Dr. József Torgyán. Torgyán is the party leader of the Smallholders’ Party, as well as the Minister of Agriculture and Rural Development. Dr. Torgyán is famous for being very vocal and having strong opinions.  He has strongly opposed anything that reminds him of the former regime including the Hungarian Socialist Party as a whole, and the “old-style” cooperatives.  In keeping with the Smallholder Party’s traditional interest (that of protecting peasants of moderate wealth), Torgyán’s primary interest is to look out for small- and medium-size farms. On the land ownership issue, this has translated into an interest in maintaining current regulations, which, in his view, ensures that farmers will continue to be able to acquire property at low prices and also receive increasing government support. FIDESZ has assisted in this effort. 

·         FIDESZ. This is the most powerful party in the coalition. Because it wants to be able to claim accession as a success in the next election campaign (May 2002), it is concerned mainly with achieving accession by the target date (January 1, 2002) and under the most favorable terms.

Opposition Parties

Three opposition parties will also need to be considered in forming a consensus on land ownership policy in Hungary:

·         The Socialist Party. The most influential opposition party, the Socialist Party, does not support the ten-year derogation request for land policy (although initially, during its mandate in the past parliamentary cycle, it proposed the same policy). Socialist Party representatives have argued that agricultural income needs to grow to ensure that farmers will be able to acquire adequate land. Foreign pocket contracts, they argue, will not be discouraged by any form of administrative prohibition from buying land.  Socialists also fear that cooperatives are being negatively affected by the strong government preference granted to small farms.

·         The Alliance of Free Democrats. This party is concerned that a great deal of land is not owned by those who cultivate it.  Similar to the Socialist Party, it feels that the only way to do away with pocket contracts and other speculative activities is to eliminate the market incentives for such contracts. Free Democrats maintain that a 10-year transition period for land acquisition policy will only fuel the informal economy and postpone any real movement toward rectifying the system. The Free Democrats have called for actions based on economic rather than political considerations.  

·         The Justice and Life Party. This party strongly opposes foreign ownership of land. However because it has limited support, it is not a strong voice on the land ownership issue. (The party plays an important role only in some—generally the more isolated—regions of Hungary.)

Other Stakeholder Views 

Government Agencies

·         The Ministry of Foreign Affairs would like Hungary to accede to the EU without delay or obstruction. 

·         The Ministry of Justice has been working hard to bring the Hungarian legal system into compliance with Community law.

·         The Prime Minister wants Hungary to accede to the EU before the expiry of the mandate of the government.

·         The Ministry of Economics is concerned with increasing domestic agricultural production, as well as gaining access to the EU Internal Market as soon as possible. 

·         The Ministry of Finance has done a great deal to facilitate the free movement of capital.  It will oppose obstacles to capital movements even on the borderline of its activity.

·         The Ministry of Agriculture and Rural Development is vocal on land ownership issues and opposes foreign and corporate ownership of farmland.

Interest Groups

Two interest groups are important on this issue: 

·         MAGOSZ. This organization initiated the 1997 strike to protest foreign ownership of land. It now represents not just individual farmers but also newly founded business cooperatives. It is a strong supporter of the current government policy. MAGOSZ enjoys the support of the coalition government, and it has nearly 800 member organizations and 40,000 members. 

·         MOSZ. This alliance represents the interests of agricultural cooperatives and producers.  It has been in existence since 1967 and traditionally is an important and vocal group. Today it represents 1,450 agricultural co-operatives and 100 corporations (including stock holding companies, limited liability companies, etc.). MOSZ operates throughout the country through regional alliances; it functions legally as an “alliance of alliances.” The President of MOSZ, Mr. Tamás Nagy,[3] garners a great deal of media attention.

Processing Industry 

Current law has forced an artificial separation between food processing plants and farm producers.[4] However, because food processors need a reliable supply of agricultural products, many have begun leasing farmland and producing their own agricultural inputs in order to ensure that then can maintain full production at their plants. A large portion of the processing industry is foreign owned.

Hungarian Landowners 

Many of the individuals who received land as compensation would like to sell their land (if they have not already done so). These individuals are either not active in the agricultural sector or are retirement age, so arable land is not valuable to them. Yet because land sales prices are low, and because many potential buyers are either foreigners or Hungarian speculators, there is little incentive to sell.   

A functioning land market in which prices reflect the value of land would encourage these people to sell their land. It would also provide an infusion of capital into the agricultural sector because once land becomes valuable, it will become viable as collateral for loans needed to buy modern equipment. Currently, many farmers who actively cultivate their land are being forced to sell in order to raise needed capital. They then continue to farm their own land via lease agreements.

Hungarian Consumers 

As the price of land increases, Hungarian consumers will, in the long run, experience an increase in food prices.  Such price increases, however, are inevitable if Hungary is to join the European Union.

European Land Owners in Hungary

EU nationals who want to buy land in Hungary generally find a way to do so through pocket contracts.  It is estimated that five to eight percent of Hungarian farmland is already in foreign hands. However this reality is not likely to change the EU’s concern about Hungary’s land ownership policy, and Hungary’s derogation request on land policy, along with its 40 some other derogation requests, has been viewed as contrary to the country’s declared goal of fast accession.

RECOMMENDATION

EU accession will mean that Hungary cannot allow any form of discrimination between Hungarian and EU nationals.  It seems unlikely that the EU will agree to even a temporary derogation for our discriminatory land ownership policies. Moreover, such a derogation would only perpetuate the problems associated with our current policies on arable land ownership. 

Hungary needs to change its Arable Land Act in order to 1) bring Hungary into conformity with EU law, 2) ensure that the vast majority of Hungarian land remains in Hungarian hands, and 3) speed the development of an agricultural business sector that can compete with other EU food producers and processors. 

The ownership provisions of the Arable Land Act of 1994 should be amended as follows:

·         Land may only be purchased by private persons who, for at least three years prior to the acquisition, have had permanent or temporary residence and/or farmland in the settlement located nearest to the land to be acquired or within the 30-kilometer district in which the land is located.  Prospective owners shall be educated in agricultural production and shall be dependent on farm incomes.  

·         Business entities may only acquire land if they are able to show (to the local government) that farmland use is essential for their business activity.  In addition, such entities shall have at least one person among their owners or within their management that fulfills the qualification requirements prescribed for individual owners. 

·         The following parties in the following order will be given the right of preemption for arable land acquisitions:

1.  Lessee
2.  Owners of neighboring plots
3.  Private person registered as producer
4.  Legal entities

·         The upper limit on land acquisitions is 300 hectares. If the land to be acquired exceeds 300 hectares, authorization shall be required from the local government.  The local government shall consider the opinion of the county Agricultural Chamber in decisions on such authorization requests. 

The recommended amendments will accomplish the following:  

·        Speed the process of full EU accession by eliminating as many transition requests as possible. By modifying the Land Act to eliminate discrimination between Hungarians and nationals of EU member states, we will no longer need to maintain our derogation request on foreign land ownership. At the same time, we will come into compliance with our current bilateral commitments in the Europe Agreement. 

·        Support the interests of Hungary’s 1.5 million landowners. By modifying the Land Act, Hungary can encourage the development of a market for agricultural land, which will, in turn, increase sales prices of arable land and spur the development of mortgage based credit.  

·        Ensure that foreigners do not acquire undue amounts of Hungarian farmland. The modifications ensure that the number of foreigners who will be able to obtain land will be limited. Although foreigners will undoubtedly establish residencies in order to make themselves eligible to purchase land, the three-year residency requirement ensures that Hungarians who wish to purchase land will have time to do so before foreigners buy up an undue portion of land. The one caveat to this is that foreigners who have already purchased land via pocket contracts, may be able to satisfy the proposal’s requirements immediately. Overall, however, foreign pocket contractors and Hungarian speculators will have less opportunity to take advantage of land owners than they now have, and a small influx of foreign farmers may actually help offset Hungary’s declining agricultural population.   

·        Protect family farms. The proposal maintains the priority of private farmers over corporate entities, which fits with the current government policy of favoring family farming. And since the proposal makes agricultural education a requirement for acquisition, most speculators will be blocked from purchases.  Further, by allowing domestic legal entities to acquire land, the proposal advances the potential for land consolidation, but the upper limit on acquisition acreage will ensure that consolidation doesn’t happen so fast as to squeeze out family farms. 

·        Represent the interests of Hungarian farming organizations. Cooperatives will gain opportunities to purchase the land they farm (in most cases, land they owned during the Communist era). Currently, many cooperatives lease the land they farm, and they face the possibility of loosing their leases after each ten-year term.  Farming organizations, as owners, will be better motivated to make long-term investments.

·        Improve the efficiency and quality of agricultural production. Land consolidation and a functioning land market will help farmers increase production, which will be needed to respond to growing domestic demand (due to the growth of income levels) and to fuel the growth of Hungary’s food processing industry.  In the long-term, qualified foreign farmers are likely to make up for the decreasing number of Hungarian farmers.

STRATEGY 

In order to be able to make the proposed changes to the Arable Land Act and gain agreement from the EU that the changes meet EU policy requirements, we should pursue a two-track strategy: 

·         A domestic strategy aimed at building consensus and a common position within Hungary.

·         A negotiation strategy for presenting the changes to the EU.

Presumption

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