APPENDIX H

Farm Structures in Hungary 

The issue of farming structures is highly politicized. There has been a tendency to view cooperatives as “leftovers” of the former regime and, therefore, highly undesirable, even though large farms still provide the majority of agricultural export production and tend to be better equipped with more environmentally friendly technologies than smaller farms. Indeed, small, usually inefficient family farms produce almost exclusively for subsistence or local markets only, and not even all medium-sized family farms are part of the legal economy.  Many small and medium farms do not request and provide receipts or pay taxes, and local authorities find it hard to enforce any requirements related to, for instance, health or environmental protection.  Small, part-time farms do, however, carry an important social role in Hungary.

Hungary’s Cooperatives 

There are two kinds of cooperatives in Hungary.  The cooperatives inherited from the socialist system are agricultural production cooperatives. A new, emerging type are the so-called service cooperatives that perform supply, collection, marketing, processing and other services. The newly formed service cooperatives, since they were created by market forces (or in response to incentives provided by the government), generally reflect characteristics of their Western counterparts. The existence of agricultural production cooperatives continues to be questioned, although they still account for 24 percent of Hungarian farmland.[1] 

The primary distinctions between old socialist and Western-type cooperatives are self-governance and effective property rights.[2]  Entrepreneurship is typical in Western-type cooperatives, both at the member and cooperative levels. Hungarian agricultural production cooperatives often lack adequate incentives for entrepreneurship since profits are divided based on shares and not on the basis of labor. In too many cases, former socialist management structures have remained in control, which has added to farmers’ distrust of cooperative activity.  Many cooperatives also lack sufficient homogeneity to create common goals and efficient production systems. 

New agricultural production cooperatives are no longer being created. However, there is a great deal of work to be done to ensure that existing cooperatives are converted into economically productive units.  In order to homogenize membership, retired farmers and urban compensation heirs need to be offered attractive divestment incentives. The cooperatives’ role in providing employment and support for the elderly needs to be addressed. Nearly two-thirds of cooperative membership is now retirement-age.

The long-term survival of larger farms is expected. However, to ensure this survival after EU accession, the transformation that has already started will have to continue.  Cooperatives will need to be allowed to reorganize freely. 

It is little known that agricultural production cooperatives also exist in Western Europe.  A large number of cooperatives exist in northern Italy, and there are quite a few smaller cooperatives in France.  In the former East Germany, production cooperatives are, on average, 1,500 hectares apiece, and they cultivate 36 percent of all German farmland. Because these Western cooperatives enjoy EU common market benefits,[3] Hungary, too, should be able to ensure the existence of its agricultural production cooperatives, even after EU accession.

APPENDIX I

Special Accession Programme for Agriculture and Rural Development (SAPARD)[4]

The European Union established SAPARD in the Agenda 2000 framework to help accession candidates prepare to implement the Common Agricultural Policy and the single market. The instrument was designed to fund structural adjustment and rural development programs for a seven-year term.  The Commission assesses and approves projects proposed by applicants, and the Community will fund up to 75 percent of total public expenditure for approved projects. 

SAPARD funds cover, among other things:

·        Investment in agricultural holdings;

·        Diversification of economic activities to develop alternative sources of income;

·        Farm relief services and farm management services;

·        Land improvement and reparcelling; and

·        Development of land registration systems.

 Hungary has been allocated an annual amount of 38,054 million euros in SAPARD assistance until 2006.  Evaluation of the Hungarian program is expected to be completed by June, and the actual support is anticipated to be paid starting in October.  In the first half of the program, more than 60 percent of the funds are expected to be spent on restructuring of agricultural production. In the second half, regional development will be favored. 

APPENDIX J

Land Offices Computerization Project

In March 1992, a Land Offices Computerization Project was adopted as an EU PHARE supported priority program within Hungary’s Ministry of Agriculture. The project complemented overall reform of the land tenure system by developing a system for recording and tracking land ownership. As part of the project, technical assistance, supplies, and services were provided. Hungary has 19 county land offices, 115 district land offices, one capital land office (Budapest), and one capital district land office.  

Even with this support, however, Hungary did not finalize and publish a coherent national strategy for modernizing its land registration system until 1996, and this delay has seriously slowed the establishment and development of the land market.   

PHARE supported the Land Offices Project because of its importance to both agricultural reform and rural development in the short term. The overall importance of such program is, however, that it helps stimulate the development of a market economy. The PHARE report notes the absence of a land market in Hungary and the fact that the country has no institutions to handle land mortgages. The text points out that a revised and harmonized system of land regulation still needs to be established.  Moreover, in order to encourage inward direct foreign investment, the issue of foreign ownership will need to be considered.   

The Land Offices Project has yet to have an effect on the development of land and real estate markets, however, largely because Hungary still lacks the comprehensive kind of legal, administrative, and institutional framework needed for a functioning land market. Project evaluators have noted that the project was too focused on computerizing the land registration system and did not put enough effort into consideration of legal, institutional and managerial issues.  Other policy instruments and institutions that are lacking include financial institutions, valuation methodologies, and land use and development zoning.

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