WORLD BANK TECHNICAL PAPER NO. 470 la , Europe and Central Asia Environmentally and Socially Sustainable 'r Developinent Series Work in progress WTP470 for public discussion May 2000 Agricultural Support Policies in Transition Economies Edited by Alberto Valdis Recent World Bank Technical Papers No. 395 Saleth and Dinar, Satisfying Urban Thirst: Water Supply Augmentation and Pricing Policy in Hyderabad City, India No. 396 Kikeri, Privatization and Labor: What Happens to Workers When Governments Divest? No. 397 Lovei, Phasing Out Leadfrom Gasoline: Worldwide Experience and Policy Implications No. 398 Ayres, Anderson, and Hanrahan, Setting Prioritiesfor Environmental MAnagement: An Application to the Mining Sector in Bolivia No. 399 Kerf, Gray, Irwin, Levesque, Taylor, and Klein, Concessionsfor Infrastructure: A Guide to Their Design and Award No. 401 Benson and Clay, The Impact of Drought on Sub-Saharan African Economies: A Preliminary Examination No. 402 Dinar, Mendelsohn, Evenson, Parikh, Sanghi, Kumar, McKinsey, and Lonergan, Measuring the Impact of Climate Change on Indian Agriculture No. 403 Welch and Fremond, The Case-by-Case Approach to Privatization: Techniques and Examples No. 404 Stephenson, Donnay, Frolova, Melnick, and Worzala, Improving Women's Health Services in the Russian Federation: Results of a Pilot Project No. 405 Onorato, Fox, and Strongman, World Bank Group Assistancefor Minerals Sector Development and Reform in Member Countries No. 406 Milazzo, Subsidies in World Fisheries: A Reexamination No. 407 Wiens and Guadagni, Designing Rulesfor Demand-Driven Rural Investment Funds: The Latin American Experience No. 408 Donovan and Frank, Soil Fertility Management in Sub-Saharan Africa No. 409 Heggie and Vickers, Commercial Management and Financing of Roads No. 410 Sayeg, Successful Conversion to Unleaded Gasoline in Thailand No. 411 Calvo, Optionsfor Managing and Financing Rural Transport Infrastructure No. 413 Langford, Forster, and Malcolm, Toward a Financially Sustainable Irrigation System: Lessonsfrom the State of Victoria, Australia, 1984-1994 No. 414 Salman and Boisson de Chazoumes, International Watercourses: Enhancing Cooperation and Managing Conflict, Proceedings of a World Bank Seminar No. 415 Feitelson and Haddad, Identification of Joint Management Structuresfor Shared Aquifers: A Cooperative Palestinian-Israeli Effort No. 416 Miller and Reidinger, eds., Comprehensive River Basin Development: The Tennessee Valley Authority No. 417 Rutkowski, Welfare and the Labor Market in Poland: Social Policy during Economic Transition No. 418 Okidegbe and Associates, Agriculture Sector Programs: Sourcebook No. 420 Francis and others, Hard Lessons: Primary Schools, Community, and Social Capital in Nigeria No. 421 Gert Jan Bom, Robert Foster, Ebel Dijkstra, and Marja Tummers, Evaporative Air-Conditioning: Applications for Environmentally Friendly Cooling No. 422 Peter Quaak, Harrie Knoef, and Huber Stassen, Energyfrom Biomass: A Review of Combustion and Gasifica- tion Technologies No. 423 Energy Sector Unit, Europe and Central Asia Region, World Bank, Non-Payment in the Electricity Sector in Eastern Europe and the Former Soviet Union No. 424 Jaffee, ed., Southern African Agribusiness: Gaining through Regional Collaboration No. 425 Mohan, ed., Bibliography of Publications: Africa Region, 1993-98 No. 426 Rushbrook and Pugh, Solid Waste Landfills in Middle- and Lower-Income Countries: A Technical Guide to Planning, Design, and Operation No. 427 Mariho and Kemper, Institutional Frameworks in Successfu! Water Markets: Brazil, Spain, and Colorado, USA No. 428 C. Mark Blackden and Chitra Bhanu, Gender, Growth, and Poverty Reduction: Special Program of Assistance for Africa, 1998 Status Report on Poverty in Sub-Saharan Africa No. 429 Gary McMahon, Jose Luis Evia, Alberto Pasc6-Font, and Jose Miguel Sanchez, An Environmental Study of Artisanal, Small, and Medium Mining in Bolivia, Chile, and Peru No. 430 Maria Dakolias, Court Performance around the World: A Comparative Perspective No. 431 Severin Kodderitzsch, Reforms in Albanian Agriculture: Assessing a Sector in Transition (List continues on the inside back cover) WORLD BANK TECHNICAL PAPER NO. 470 Europe and CentralAsia Environmentally and Socially Sustainable Development Series Agricultural Support Policies in Transition Economies Edited by Alberto Valdes The World Bank Washington, D.C Copyright © 2000 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing May 2000 Technical Papers are published to communicate the results of the Bank's work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. The World Bank encourages dissemination of its work and will normally grant pernission promptly. Permission to photocopy items for internal or personal use, for the internal or personal use of specific clients, or for educational classroom use, is granted by the World Bank, provided that the appropriate fee is paid directly to Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, U.S.A., telephone 978-750-8400, fax 978-750-4470. Please contact the Copyright Clearance Center before photocopying items. For permission to reprint individual articles or chapters, please fax your request with complete information to the Republication Department, Copyright Clearance Center, fax 978-750-4470. All other queries on rights and licenses should be addressed to the World Bank at the address above or faxed to 202-522-2422. ISBN: 0-8213-4771-3 ISSN: 0253-7494 Alberto Valdes is a consultant to the Rural Development Department at the World Bank. Library of Congress Cataloging-in-Publication Data has been applied for. Contents Foreword .................................................................... v Abstract ................................................................... vi Preface .................................................................... vii Executive Summary .................................................................... ix Part I: Synthesis Report MEASURES OF AGRICULTURAL SUPPORT IN TRANSITION ECONOMIES: 1994-1997 A. Valdes ........1 Introduction ...................................................................1 The Approach ...................................................................2 Patterns of Intervention at the Commodity Level ...................................................................8 Aggregate Measures of Support ................................................................. 13 Who Gains, Who Pays, for Agricultural Support Policies? ....................................................... 16 Real Price Trends and Implications for Agricultural Profitability ............................................. 18 The Bottom Line ................................................................. 22 References .................................................................. 24 Appendix ................................................................. 25 Part II: Country Agricultural Policy Notes CHAPTER 1: RUSSIA E.Serova ................................................................. 29 Agriculture in the Russian Economy ................................................................. 29 Major Instruments of Agricultural Policy 1994-98 .................................................................. 30 Background Information on Calculations of Sectoral Protection and Taxation ........................ 41 Conclusions and Implications for Future Performance of the Sector ........................................ 46 CHAPTER 2: ROMANIA E. Tesluic ................................................................ 48 The Romanian Agricultural Sector .................................................................. 48 Agricultural Policy During Transition ................................................................. 49 Calculations of Aggregate Measures ................................................................. 55 Conclusion and Main Lessons ................................................................. 59 References ................................................................. 61 Appendix ................................................................. 62 iii CHAPTER 3: POLAND M Safin ............................................... 65 Overview on the Evolution of Farm Support Policies 1988-1997 ............................................. 65 The Extent and Impact of Production-Coupled Policy Interventions ........................................ 66 Production De-coupled and Overall Policy Interventions .................................................. 69 Notes for Support Measurement .................................................. 71 Looking Ahead .................................................. 72 References .................................................. 74 Appendix .................................................. 75 CHAPTER 4: BULGARIA H Gordon, N. Ivanova, N. Nikolov .................................................. 77 Early Transition Years .................................................. 77 Principal Intervention Mechanisms ............................................... 78 Main Assumptions for Calculation of Indicators .................................................. 81 Summary and Implications of Main Results .................................................. 83 References .................................................. 86 Appendix ............................................................ 87 CHAPTER 5: TURKEY H. Kasnakodlu, E. (7akmak .................................................. 91 Introduction .................................................. 91 Instruments of Agricultural Policy in Turkey .................................................. 91 Measurement of Support to Agriculture .................................................. 94 Transfers to Agriculture in Turkey and OECD Countries .................................................. 101 Distribution of the Benefits of Agricultural Support .................................................. 105 Distribution of the Burden of Agricultural Support .................................................. 113 References .................................................. 114 Appendix .................................................. 115 Part III: Data File .................................................... 121 iv Foreword The World Bank's Unit for Environmentally and Socially Sustainable Development sponsored the study upon which this report is based. The study examined agricultural price and trade interventions and the impacts these interventions had on farm incomes, consumer spending, and government budgets during the years 1994-1997 in several countries in the ECA region. We felt that the study would yield important data on the impact these interventions have in the affected countries and become an important resource for developing further World Bank assistance strategies for the region as a whole. It is our hope that this report will serve as a useful information resource for agricultural policy makers and other government officials in the region devoted to agricultural reform, as well as providing a tool for others engaged in further research on this important issue. Kevin Cleaver Director Environmentally and Socially Sustainable Development Unit Europe and Central Asia Region The World Bank v Abstract This report is based on a study which examined agricultural price and trade interventions, and their impact on farm income, consumers' real income, and the government budget for the period 1994-1997 in Bulgaria, Poland, Romania, Russia, and Ukraine. Germany and Turkey were also included in the study for comparative purposes. This report is intended for agricultural policy makers and other government officials in the countries involved, EU officials, World Bank and FAO staff, and others interested in agricultural reform in Europe and Central Asia. vi Preface This report presents the findings of a study prepared under the Regional Studies Program sponsored by the Environmentally and Socially Sustainable Rural Development Unit (ECSSD) of the Europe and Central Asia Regional Office (ECA) of the World Bank. The study examined agricultural price and trade interventions, and their impact on farm income, consumers' real income, and the government budget for the period 1994-1997 in Bulgaria, Poland, Romania, Russia, and Ukraine. Germany and Turkey were also included in the study for comparative purposes. Turkey was the only case where the measures of price intervention used were taken from the analysis by the OECD, and thus were not estimates expressive for this study. The Synthesis chapter, which presents the comparative analysis for the seven countries, is followed by five country notes describing and analyzing the experience in each country. I gratefully acknowledge the dedicated and efficient assistance of Guilherme Bastos, Claudia Ocana, and Natalie Olsen in different stages of this project, and the helpful comments from Karen Brooks, Laura Tuck, and Csaba Csaki on the synthesis report. A team of local collaborators in each country provided the basic data and initial estimates of several of the indicators. In Bulgaria - Henry Gordon (World Bank), Nedka Ivanova and Nikalay Nikolov (Soffia), in Poland - Waldemar Guba and Mariusz Safin (Warsaw), in Turkey - Haluk Kasnakoglu and Erol Carmak (Ankara), in Romania - Emil Tesliuc (Bucharest), in Russia - Eugenia Serova (Moscow), in Ukraine - Alberto Valdes for the period 1994-95 and David Sedik of the Center for Privatization and Economic Reform (Kiev) for the period 1996-97, and in Germany - Achim Fock (World Bank) and Guenter Peter (IAMO, Halle). Alberto Valdes (RDV) editor vii Executive Summary In the pre-reform period, agriculture was heavily subsidized in most central and eastern European countries (CEECs). Around 1989, most CEECs began to open up their markets, liberalize prices, and reduce subsidies, and the level of support provided to agriculture declined drastically. Although supportive of the general direction of economic reforms, some economists have been concerned that the resulting decline in profitability in farming, related to lower levels of support, concurrent with the implementation of major structural reforms, would slow the impetus for farm restructuring, in particular the drive for privatization of land as demanded by potential new farmers. This study concludes that some CEEC countries have been reintroducing direct and indirect support to the agricultural sector since approximately 1996, while others such as Romania, have not. In some cases, most notably Russia, the agricultural sector has been taxed less in recent years. The current structural transformations in the region have presented enormous challenges for the public and private sectors. It is clear that an important determinant of the "efficiency" of this transition is the ability to access relevant and reliable socio-economic data needed to guide public action during the reform process. The statistical basis for analytical work on agriculture in the transition economies studied is still weak, and the empirical work available to rigorously examine the major trends in agricultural support policies, assess their impact on producer's income, the government budget, and on consumer's welfare, is still very limited. We hope this study will go some way toward filling this gap. The study includes Bulgaria, Poland, Romania, Russia, and Ukraine in the years between 1994 and 1997. Germany and Turkey were included as comparators located at the border of the CEECs. At the beginning of this volume a synthesis of the multi-country investigation is presented and serves three purposes. First, it presents our own estimates of various agricultural support indicators for the period beginning in 1994 until 1997, roughly corresponding to the second and most recent phase of the reform period. Second, it presents an analysis of the impact of trade and price policy interventions and of government non-price-related subsidies on production incentives and on the net income of farmners. We examine how and to what extent governments in transition economies intervened to support agriculture, and through which policy instruments. Finally, it asks to what extent the economic environment prevailing in 1994-97 provided an appropriate and sound basis for adjustment towards a more internationally competitive agricultural sector. There are essentially two types of support policies directed towards agriculture. They are price interventions and direct government subsidies. Market-price support operates directly through price-related interventions of outputs and purchased inputs. This support derives from ix domestic price interventions (for example, minimum-price policy) supported by foreign trade barriers such as tariffs and quantitative restrictions (QRs) on both imports and exports. This intervention is reflected in the difference between the domestic and border price of a product of similar quality. This support, when positive, does not necessarily imply explicit government outlays, just as when negative, and referred to as taxation, does not necessarily imply fiscal revenues. The second type of support consists of government budget transfers or subsidies made by national as well as regional governments. These subsidies, including subsidies for capital investment, land improvements, direct payments and others, do not directly affect prices received or paid for by farmers. In this investigation three different indicators have been used to measure agricultural support in specific production activities in various studies in other regions. These include the nominal rate of protection (NRP), the effective rate of protection (ERP), and the effective rate of assistance (ERA). These indicators capture the direct affect of agricultural price policies on the agricultural sector itself, but do not take into account their effects on other sectors (such as on urban wages), or the repercussions of non-agricultural policies (such as high industrial protection) on the cost structure of agriculture. They also do not adjust for misalignments of the exchange rate. All three of these indicators can, however, be used to compare the levels of agricultural support across comrmodities, over time, and across countries. The analysis on protection coefficients is complemented by an analysis of: (a) trends in real domestic farm prices for the major commodities in each country, examining its implications for agricultural profitability, and (b) a decomposition analysis to explain the sources of domestic farrn price variability through time, where the variables considered include changes in border prices, in the real exchange rate, and in domestic trade policies. The report is structured in two parts. The first part (chapter 1) presents a synthesis of all results for all the countries studied. The second part presents a detailed discussion of the agricultural trade and price regime in each of the countries that prevailed in the period considered. A data file is available with the relevant annual data used for the analysis. The results reported in this study confirm that some CEECs have been re-introducing direct and indirect support to the agricultural sector. This trend is very clear between 1996 and 1997 for all countries studied except Romania. Turkey and Germany maintained high levels of output price protection over the years studied. The net transfers from output, input, and credit subsidies indicate that, relative to the size of the sector (agricultural GDP), the net effect of government support policies has been enormous. In some cases, government support has greatly increased sector income (by 63 percent in Ukraine in 1997) while in others, the transfer from agriculture has been extremely large (up to 36 percent of agricultural GDP in Bulgaria in 1997). Such high levels of income transfers are incompatible with both improved market orientation, efficient resource allocation within agriculture, and economy-wide growth. In these countries, fluctuations in the income of the agricultural sector have been largely determined by government policy, primarily through output price support, rather than by the sector's adjustment to market conditions. x Agricultural policy in transition economies remains unfocused and, as a result, fails to contribute to competitiveness in the sector, or to induce an increase in the flow of private investment into the sector. The significant instability of producer prices results in large fluctuations in producer income. Moreover, a large fraction of producer income is determined by government policy, primarily through output price support. The profile of incentives indicates a pattern of highly selective treatment, both helpful and harmful, of the various agricultural subsectors. In interpreting the significance of the results of protection indicators to understand the actual agricultural supply response and private investment behavior, readers should consider that: (a) incentive is only one of the various deterninants of supply response and, particularly for transition economies, institutional factors and developments in the rural factor markets (such as land and financial markets) are also critical; and (b) the Effective Rate of Protection is a more appropriate indicator than the Effective Rate of Assistance (or PSE in other studies) in that it captures more directly the effect of policies on the returns to farming in the various activities. While there may be no single story that characterizes trade and price interventions in transition economies, there are several important common elements. In all cases, we observe: * extraordinarily high levels of price intervention; * enormous implicit income transfers to and from farmers; • high selectivity among different activities; and - an extremely high year-to-year variability in real producer prices. The statistical base for analytical work on agricultural support in transition economies is weak and its interpretation is exceptionally complex. That impedes real access to the information that policy makers need. While part of this instability is exogenous, the impact of government price and trade policy in exacerbating price instability and creating additional uncertainty about returns in farming is striking. Ultimately, this instability will have a severe and adverse effect on private investment prospects in the sector. To facilitate and inform the policy debate at the country level, continuous monitoring needs to be done to document the net impact of agricultural price interventions on efficiency and income effects. The benefits of a more competitive sector are indisputable, including increased farm income, lower overall prices to consumers, a reduction in government expenditures (through the reduction in subsidies), and an improved position for gaining accession to the EU. Governments would do well to turn their attention away from price interventions in support of agriculture, and instead pursue programs that will increase the competitiveness of the sector, for example in providing public goods such as research and extension services, pushing for further reform in land markets, simplifying administrative procedures, supporting the development of market information systems, or devising grading systems that will improve the quality of goods produced. The private investment flows required to make agriculture more competitive are huge, xi which is why a proper incentive framework is so critical. Private investment will only be attracted to the sector if farming and agroprocessing is made profitable, guided by a credible and consistent policy framework that more fully integrates agriculture with international markets. xii Part I Synthesis Report MEASURES OF AGRICULTURAL SUPPORT IN TRANSITION ECONOMIES: 1994-1997 Alberto Valdes INTRODUCTION In the pre-reform period, agriculture was heavily subsidized in most central and eastern European countries (CEECs). Around 1989, most CEECs began to open up their markets, liberalize prices, and reduce subsidies, and the level of support provided to agriculture declined drastically. Although supportive of the general direction of economic reforms, some economists have been concerned that the resulting decline in profitability in farming, related to lower levels of support, simultaneous with the implementation of major structural reforms, would slow the impetus for farm restructuring, in particular the drive for privatization of land as demanded by potential new farmers. However, preliminary evidence from 1994-95 was emerging that some CEECs were re-introducing higher levels of support (Tangerman, 1996). This synthesis serves three purposes. First, we present our own estimates of various agricultural support indicators for the period beginning in 1994 until 1997, roughly corresponding to the second and most recent phase of the reform period. Second, we present an analysis of the impact of trade and price policy interventions and of government non-price- related subsidies on production incentives and on the net income of farmers. We examine how and to what extent governments in transition economies intervened to support agriculture, and through which policy instruments. Finally, we ask to what extent the economic environment prevailing in 1994-97 provided an appropriate and sound basis for adjustment towards a more internationally competitive agricultural sector. The current structural transformations have presented enormous challenges for the public and private sectors. It is clear that an important determinant of the "efficiency" of this transition is the ability to access relevant and reliable socio-economic data needed to guide public action during the reform process. The larger study on which this note is based covered the period 1994-97 and included Bulgaria, Poland, Romania, Russia, and Ukraine. We also included Germany and Turkey as comparators located at the border of the CEECs. Following a common format, local collaborators 2 A. Valdes in each country provided the basic data and initial estimates of several of the indicators. A refined and comprehensive version of this database is available from ECSSD at the World Bank. THE APPROACH The debate on agricultural support in transition economies has, in most cases, focused on the evolution of the terms of trade (prices received relative to prices paid) relative to a base period. Indications of deteriorating terms of trade against agriculture, one of which is the purchasing power of outputs relative to inputs (for example, the price of grain relative to the price of fertilizer) have been used to justify the need for agricultural subsidies in the region, just as they have been elsewhere in the world. However, relative prices such as these fail to capture the misalignments of policies and incentives in the base period. Moreover, the cornerstone of agricultural policy reform in countries all over the world is that prices paid by farmers for inputs, and the prices paid for their products, should be similar to the real value of those goods to the economy as a whole. That is, for products that can be traded internationally, they should pay and receive prices that are close to international prices for imports and exports (farm production), as well as for inputs and services. For this reason, we focused on the effect of prevailing policies in any given year relative to world prices of output and tradable inputs for that year. In addition, we examined the evolution of real producer prices during the 1994-97 period as a proxy for the changes in profitability in farming. To more fully understand the causes of evolution of real producer prices ("real" meaning farm prices deflated by the consumer price index), we broke down the (percentage) change in real producer prices into its three component parts: changes in border prices, changes in the real exchange rate, and that part of the fluctuations that could be attributed to changes in domestic price interventions. This approach provides rough estimates of the magnitude and direction of changes in these variables. There are essentially two types of support policies directed towards agriculture. They are price interventions and direct government subsidies. Market-price support operates directly through price-related interventions of outputs and purchased inputs. This support derives from domestic price interventions (for example, minimum-price policy) supported by foreign trade barriers such as tariffs and quantitative restrictions (QRs) on both imports and exports. This intervention is reflected in the difference between the domestic and border price of a product of similar quality. This support, when positive, does not necessarily imply explicit government outlays, just as when negative, and referred to as taxation, does not necessarily imply fiscal revenues. The second type of support consists of government budget transfers or subsidies made by national as well as regional governments. These subsidies, including subsidies for capital investment, land improvements, direct payments and others, do not directly affect prices received or paid for by farmers. Measures ofAgricultural Support in Transition Economies: 1994-1997 3 We looked at three different indicators that have been used to measure agricultural support in specific production activities in various studies in other regions'. These include the nominal rate of protection (NRP), the effective rate of protection (ERP), and the effective rate of assistance (ERA). These indicators capture the direct affect of agricultural price policies on the agricultural sector itself, but do not take into account their effects on other sectors (such as on urban wages), or the repercussions of non-agricultural policies (such as high industrial protection) on the cost structure of agriculture. They also do not adjust for misalignments of the exchange rate. All three of these indicators can, however, be used to compare the levels of agricultural support across commodities, over time, and across countries. The application of these indicators to transition economies raises some issues. One is whether to adjust for excessive margiris in marketing. Two, whether to adjust the indicators for exchange rate misalignment. Three, the lack of data on government expenditures on individual production activities at the commodity level. A high producer price/border price margin could be due to poor physical and institutional infrastructure, an uncompetitive agroprocessing industry, or the high intermediate transaction costs for traders due to erratic policy changes regarding QRs on imports or exports. Although they do not result from explicit government policies on agriculture, these high margins indirectly tax farmers by raising the cost of moving and processing domestic production. This indirect taxation could be interpreted as a policy failure that weakens competitiveness in upstream and downstream activities (Harley, 1996). Thus, it is important to distinguish between trade and price policies (which can be corrected quickly), and structural flaws in the market (which take longer to correct). For example, due to the high risks involved in exporting grains, Ukrainian traders charged very high margins on exports (20%) as compared to 10% in Hungary and 5% in more-developed countries. For our analysis, a portion of the traders' commission in Ukraine (10%) equal to the prevailing commission in Hungary was treated as an implicit tax on exporters. The Ukrainian traders' commission was a result of inefficiencies in the market structure and anti-export biases in public policy. Such differences can occur when, for example, the government controls the transportation system and gives priority to the transport of products purchased by state-owned enterprises. In doing so, they create uncertainty as to the time privately exported commodities will actually be delivered. To compensate for this uncertainty, traders will charge higher margins. The exchange rate is implicit in all our measures (it is used in comparing the domestic to the border prices), therefore a misalignment in the exchange rate can significantly affect our measures of the potential competitiveness of agricultural tradables. For example, in the case where the zloty or ruble loses against the dollar (devaluation), domestic farmers benefit as their revenues increase in local currency because farm trade is priced in dollars. However, if the ' Agricultural markets have been the preferred use of such indicators in part because one is dealing with commodities in which assuming substitutability between the domestic and foreign products is not unreasonable. This is less realistic for manufactured products. 4 A. Valdes farmer has debts linked to the dollar, part of the windfall from the devaluation is lost. In this study, rather than attempt to make adjustments for this misalignment, the exchange rate effect on producer prices is captured indirectly. Measuring government outlays is difficult since data on expenditures is usually available only at the sector level, not the commodity level. Furthermore using the central government's budget as a source for tracking government expenditures on agriculture presents several challenges. For example for Russia, on the one hand budgetary support to the credit-in-kind program appeared as a reduction in revenue, rather than an item of expenditure. Second, a portion of government support for agriculture also takes the form of mutual clearing of obligations (swaps of enterprise debts to the budget for past loans and budget debts to the enterprises for products delivered to the federal food fund. Third, in 1995-96 there were extra budgetary funds for agriculture (and mining) from a tax of 1.5% on gross revenues of enterprises in all sectors of the economy. For these and other reasons, the Ministry of Agriculture, Ministry of Finance, and the National Statistical Committee report different figures on government support to agriculture. In addition, we have data on government outlays, but are unable to differentiate whether these expenditures really represent income transfers to farmers, or if they in fact capture transfers to input suppliers, to the agroprocessing industry, or simply reflect the cost of an excessive bureaucracy. In what follows, I first present a brief description of the protection indicators used at the individual product level, and then provide a picture of the aggregate effects for the sector as a whole. DIRECT PRICE COMPARISON OF BORDER AND FARM PRICES: NOMINAL RATE OF PROTECTION (NRP) The nominal rate of protection (NRP) is the simplest and most widely used indicator, defined as the difference between the domestic and border prices at the prevailing nominal exchange rate, in most cases expressed as the "tariff equivalent" of tariffs and non-tariff barriers (or export taxes and subsidies)2. The NRPs were computed as follows: (i) The selected commodities were defined as either import-competing (in which case c.i.f. prices were used) or exportable (f.o.b. prices used) based on actual trade status. Shifts in trade status (from importable to exportable, or vice versa) were taken into account. 2One starts from the expression Pj = Pj*Eo(I +tj) where Pj, Pj*, Eo and tj represent the domestic price of good j, the border equivalent price ofj, the nominal exchange rate, and the tariff equivalent for j, respectively. The Nominal Protection Rate (NPR) for good j is NPRj = (Pj-Pj *Eo)/Pj *Eo = (Pj/Pj *Eo)- 1. Measures ofAgricultural Support in Transition Economies: 1994-1997 5 (ii) The border price was chosen based on the prevailing price at the time of year when most imports or exports of that commodity take place. This price depends on the quality and grade of the commodity analyzed, be it a product or input. The world price should refer to a commodity of a similar quality to that produced domestically. For example, reference prices for Poland were derived from actual border prices for the three main trading blocks: the European Union (western borders), CEFTA countries (southern borders) and the Former Soviet Union (eastern borders). An average reference price, weighted by the respective shares of trade going in each of the three trade directions, was then computed for each product. (iii) Identification of the point in the marketing channel from which domestic producer prices and corresponding border-price equivalents can be contrasted, such as price paid at the buying agency for wheat (usually the flour mill), or at the slaughter house for pigs, or at the milk processing plant. It is seldom the farm gate price. (iv) After the border price has been transformed into domestic currency, all costs relating to transport, storage, handling, loading, and marketing, as well as taxes and subsidies to trade in the commodity in question, must be subtracted from/added to the border price up to the point in the marketing channel where domestic and border prices are being compared. (v) In addition to adjusting for quality differences with the traded commodity, the marketing channel used in the sales transaction has to be defined (i.e. private cash market, state-owned procurement, and barter transactions). Procurement prices by state agencies might differ from market prices, and in some cases small farm production gets a different price. Which domestic price should one use? An example from Ukraine helps us understand one of the several reasons why different studies can generate different nominal rates of protection. The Ukrainian government played an important role in 1994-95 as the main purchaser of milling- quality wheat. Use of the state procurement price would not take into account the other qualities of wheat that were also produced but sold through other channels, nor could one reasonably estimate average barter prices. Moreover, payments by state agencies might be delayed by months while the delay in the private market would be much less. All contracts with state agencies involved the banking system, while private and barter transactions did not. Bank transactions (at least in 1996) were at a disadvantage because private bank accounts were controlled by the government, and the money in the accounts could be blocked if the firm or individual in question owed taxes or had not complied with the state agencies' contracts. For both reasons, the accepted price in cash or barter transactions could be significantly lower than the procurement prices. This has to be decided on a product-by-product basis for each country. One way of handling this would be to use a weighted average of the various prices for any one commodity in a given year. 6 A. Valdes MEASURING THE EFFECTS OF TRADE BARRIERS AND PRICE INTERVENTIONS ON VALUE ADDED: EFFECTIVE RATE OF PROTECTION (ERP) The effective rate of protection (ERP) measures the joint effects of trade barriers and price interventions on product and tradable inputs on value added (returns to primary factors, including land, labor, and capital) in a particular activity.3 Tradable inputs include agrochemicals, fuel, machinery, and equipment. For example, tariffs on imports of fertilizers and farm machinery represent implicit 'taxes' levied against the consumers of those inputs, in this case the farm sector. Or, we may see the opposite effect, such as in the Ukraine in 1995, when fertilizer exports were permitted only on the condition that the (mainly state-owned) fertilizer industry sold fertilizer to farmers at below the border price. The credit-in-kind program in Russia is another illustration of the complexity in determining the relevant fuel price interventions (see Chapter 1). In the absence of any trade restrictions or price interventions, the ERPs would be approximately equal to zero. If, as a result of domestic price and trade interventions, domestic returns to primary factors are less than those obtained on the international market, the ERPs would be negative, and if domestic returns to primary factors are greater than those obtained on the international market (such as for beef and sugar in western Europe), ERPs would be positive. An important attribute of the ERP approach is that it helps to capture interactions between farm activities. For example, in Germany the prevailing low level of protection of feedgrains (low NRPs) led to substantially high effective protection of meat production. The NRP on beef in Germany in 1997 was 109%, while the corresponding ERP was nearly 300%. That is, value added per ton at domestic prices was nearly three times the value added per ton at border price equivalents. For the same reason, the corresponding NRP for pig production in 1997 was 18%, while the corresponding effective protection was 37%. The calculation of effective rates of protection (ERPs) requires data on production costs, in order to estimate the share of the cost of inputs in producer price. Based on farm-cost data, the standard approach is to use the domestic input shares to compute the value added per unit at both domestic and border prices. But of course this fixed-coefficient approach does not account for the possibility of substitution among inputs due to price changes, and hence could overestimate the value added at world prices. This could happen because farmers could substitute higher- priced inputs for lower-priced ones if trade barriers on inputs were removed or lowered. For example, in Ukraine between 1991 and 1994, the price of fuel increased substantially relative to other inputs. It is not surprising therefore to observe that the share of fuel in the production cost of one ton of wheat, for example, was lowest in 1993. The share in costs of mineral fertilizers also decreased between 1991 and 1994. 3The efffective rate of protection can be defined as follows: EPRj= VAj - VAj*/VAj* = (VAj/VAj*)-l where VAj and VAj* represents value added at domestic and at border price equivalent, respectively. Measures ofAgricultural Support in Transition Economies: 1994-1997 7 In analyzing the cost of production for some countries, one should make a distinction between private small- and medium-sized farms and privatized (usually large) agricultural enterprises. Private farms usually have to rely on non-subsidized private input suppliers (or obtain some services from the large former state farms), while the agricultural enterprises are often better connected to the state supply system and have greater access to inputs and equipment at subsidized prices. In most transition countries, very little is known about the cost structure of private-sector small- and medium-sized farms. Moreover, the data on machinery use and estimates of the opportunity cost of machinery is not available for many activities in some of the selected countries. ADDING THE EFFECTS OF GOVERNMENT EXPENDITURES: EFFECTIVE RATE OF ASSISTANCE (ERA) The ERA is closely related to the effective rate of protection in that the focus is on the effect of the activity in question on value added, but in addition to price-related interventions, it also captures the effects of government expenditures on farm income.4 The calculation of effective rates of assistance requires data on government expenditures and credit subsidies. In some countries (such as Turkey and Ukraine) credit subsidies have become the main vehicle of public transfers to producers. For example in the Ukraine in 1993, because the annual inflation rate had reached four digits, but the fixed annual interest rate was less than one-tenth the inflation rate, subsidized credit resulted in substantial income transfers to borrowers. In 1994, inflation declined, but only about 33% of the real value of all loans was paid back. One must be careful in interpreting figures on credit subsidies as they affect farmer income. First, because most of the credit subsidies could have been allocated to the larger agricultural enterprises. Second, because the credit could have been given to input suppliers who only transferred part of it to farmers (estimated to be between 50-70% of the credit flows in the Ukraine). In actual computation, for credit that was repaid within the years, credit subsidies were measured as the interest rate differential between the actual lending rate for agriculture and the average prevailing lending rate in the economy (multiplied by actual credit flows). Credit that was not repaid was treated as a grant. A variant of the effective rate of assistance, the PSE, has been used extensively by the OECD in their monitoring programs and by GATT during the Uruguay Round of Multilateral Trade Negotiations. The PSE measures the amount of compensation that would be required to maintain producer's income when all forms of assistance are removed. It is calculated in two steps: first by quantifying the difference between domestic and border prices (as in the NRP 4 The effective rate of assistance, ERAj, can be defined as ERAj=(VAj-VAj*+NPSj)/VAj, where NPSj represents the total non-price support to commodity j. Conceptually, ERA is defined with respect to the value added at border prices, which means comparing the overall effect of current agricultural policies with a free-trade scenario. 8 A. Valdes above), and second by summing budgetary transfers to producers. The result of the two steps is then added together. In most cases the PSE is expressed as a ratio of the value of domestic production at domestic (or world) prices. The principal difference between the ERA and the PSE is that the ERA takes explicit account of the effect of trade policies on tradable inputs (as well as on output) and is expressed relative to value added rather than to the gross value of output. Commodity Coverage and Data Sources For each country, we selected approximately eight commodities, representative of the major import-competing and export products. The basic data used in the analysis was obtained directly from various domestic sources by the country collaborators, and presented in a standard format for comparison. Output-price support for the selected countries was measured for a specific basket of commodities that in most countries covered between 40-80 percent of the total value of agricultural production. Credit and other government subsidies are usually not reported on a commodity-specific basis, so we had to decide on a criterion for its allocation to the various activities. Net transfers are presented for the entire agricultural sector for Romania, Poland and Turkey, while for Ukraine and Bulgaria, net transfers cover only the commodities included in the study. Because we were also interested in the difference in the impact of agricultural policies among regions and between state and private-sector farms, an analysis of agricultural support by region and by farm size was made for Poland and Turkey (these are reported in greater detail in the country notes presented in the full study). The distinction by type of farms (private vs. quasi- state fanns) was examined for Romania and Ukraine, since some policy transfers are linked to specific commodities that are predominantly or exclusively produced by either state or private farms (for example, in Romania, pork and poultry are mainly produced by quasi-state farms and are heavily subsidized, while beef and milk, produced by small private farms, are taxed). PATTERNS OF INTERVENTION AT THE COMMODITY LEVEL Tables 1 and 2 present nominal and effective rates of protection for the principal importable and exportable commodities. Two findings on the nominal protection rates should be highlighted. One is that with few exceptions, the profile of NRPs reveals very high levels of price intervention, e.g. wide price differentials between domestic and border prices. NRPs (positive or negative) of 30% or more are common, and several commodities are subject to protection or taxation exceeding 40%. Bulgaria and Russia consistently taxed nearly all of the products analyzed. In contrast, Romania offered high levels of protection to most products, except milk. Measures ofAgricultural Support in Transition Economies: 1994-1997 9 Table 1. Producer-Border Price Comparison (NRPs), 1993-1997 Commodity a Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 1994 71 M 4 M -28 M 1995 40 M 22 -27 1996 -10 M 14 49 M 1997 -13 M 11 18 Maize 1993 1994 -43 M 32 -31 M 1995 -48 M 16 -40 M 1996 44 M 60 -31 M 1997 -40 M 32 -32 M Rye 1993 -1 M 1994 62 M -48 M 1995 61 M 28 M -31 M 1996 7 M 38 -25 M 1997 7 M 24 -24 M Wheat 1993 15 M 1994 -41 42 M -6 -46 M -49 1995 -46 10 M 27 M -7 -39 M -34 1996 -17 -15 M IM 5 -38 M -27 1997 37 -18 M 31M 13 -36 M -3 Potatoes 1993 68 1994 -60 M 1995 15 -30 M 1996 2 -13 M 1997 9 -28 Rapeseed 1993 27 1994 -7 M 1995 -16 M 12 1996 -12 M 3 1997 -11 M 10 Sunflower Seed 1993 1994 -26 -37 -68 1995 -27 -16 -24 1996 -8 -25 -14 1997 -32 -25 -24 Sugar 1993 33 1994 39 M -38 M -80 1995 35M 32 M -34 M -46 1996 48 M 21M -38 M 36 1997 49 M 21M -18 M 112 Beef/Cattle 1993 88 1994 -19 175 M -42 M 1995 -16 145 M 24 -14 M 1996 44 142 M 10 138 M -50 1997 -13 109 M 0 68 M -37 Pork 1993 21 M 1994 -20 -5 M 86 -33 M -17 1995 -12 -4 M 7 91 -10 M -19 1996 -13 9 M 0 80 13 M 6 1997 -1 18 M -2 37 -I M 20 Chicken 1993 1994 3 -5 M 86 M 1995 49 -7 M 32 M 1996 -4 -11 M 61 M 1997 -21 -9 M 29 M Milk 1993 -11 1994 -39 102 M -22 M -6 M 1995 -33 65 M -3 -38 M 24 M 1996 -54 66 M 8 -25 M 31 M 1 1997 -24 M 73 M 2 -25 M 40 M 48 a/ All commodities are exportable except those with M, indicating importable. (--) Extremely negative (++) Extremely positive Source: Own data 10 A. Valdes Table 2. Value Added at Domestic and Border Prices (ERPs) Commodity a Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 1994 143 M -29 M 1995 68 M -27 1996 -14 M -55 M 1997 -17 M 36 Maize 1993 1994 42 M 59 -32 M 1995 48 M 28 40 M 1996 44 M 96 -32 M 1997 -39 M 55 -34 M Rye 1993 -21 M 1994 105 M -50 M 1995 109 M 38 M -32 M 1996 9 M 72 -26 M 1997 9 M 21 -27 M Wheat 1993 20 M 1994 -39 67 M -6 -48 M -54 1995 -46 14 M 94 M 0 -40 M -47 1996 -14 -19 M 6M 25 -42 M -22 1997 44 -24 M 91M 20 -41 M 87 Potatoes 1993 + 1994 -60 M 1995 134 -30 M 1996 -4 -13 M 1997 8 -28 Rapeseed 1993 124 1994 -11 M 1995 -23 M 14 1996 -22 M 4 1997 -15 M 52 Sunflower Seed 1993 1994 -18 -39 -83 1995 -23 -15 -25 1996 2 -28 19 1997 -29 -31 -7 Sugar 1993 396 1994 50 M -39 M -75 1995 44 M 71 m -34 M ++ 1996 61 M 28NM -41 M 88 1997 62 M 79M -20 M 350 Beef/Cattle 1993 96 1994 -10 369 M -42 M 1995 12 308 M -32 -11 M 1996 -- 591 M -26 211 M 34 1997 41 353 M -58 83 M 96 Pork 1993 26 M 1994 -17 -20 M ++ -32 M 422 1995 15 -14 M -8 ++ -7 M 51 1996 -44 19 M -47 ++ 18 M -42 1997 -11 37 M -53 45 I M -51 Chicken 1993 1994 14 -31 M 314 M 1995 217 -28 M 58 M 1996 16 -17 M 177 M 1997 -33 -11 NM 30 M Milk 1993 1994 -50 198 M -35 M -4 M 1995 -29 108 M -27 -52 M 34 M 1996 -- 131 M 9 -44 M 45 M 6 1997 -59 M 147 M 5 -35 M 51 M 164 a/ All commodities are exportable except those with M, indicating importable. (--) Extremely negative (++) Extremely positive Source: Own data Measures ofAgricultural Support in Transition Economies: 1994-1997 11 Second, the data reveal a highly selective and discretionary treatment afforded to producers of certain products. In Poland in 1997, the NRPs ranged from a subsidy of 31% for wheat to taxation of 2% on pig meat production. In Russia, during 1997, NRPs ranged from 68%, for beef cattle, to -36% for sunflower seed. In Romania during 1997, the NRPs ranged from a subsidy of 37% for pig production to taxation of 25% on milk. This dispersion of NRPs represents an extraordinarily high degree of discrimination among the various activities. In order to determine the effect of interventions on farmer income and cropping patterns, we turn to the measure of effective rate of protection (see Table 2). One should bear in mind that the ERP estimates are rough approximations because the data obtained for this study, in particular data on the cost structure and on domestic border price comparisons, were not reliable enough to yield precise estimates. By using the same cost coefficients in computing value added at border and domestic prices, one does not adjust for the possibility of input substitution that might result when farmers substitute lower-priced inputs for higher-priced inputs as relative prices change due to policy reforms. As shown in Table 2, ERP values range from -83% to 96%, and in many cases, they exceed +/- 50%. These are incredibly high levels of intervention compared to those of most countries. Negative values occurred more frequently than expected (especially in Bulgaria and Ukraine before 1996). In Germany, the low NRP for feedgrains led to very high ERPs for meat production. Table 3 summarizes the effective rate of assistance (ERA) calculations by commodity, expressed as a percentage of the corresponding activity's value added. Among these countries, transfers made to producers of different crops vary greatly, and there is no single story that applies to all of these countries. Wheat producers in all countries received significant transfers from the government in 1997, except Russia, although prior to that, both Ukraine and Bulgaria heavily taxed them. Until 1995, Bulgaria and Russia were the countries that had consistently taxed mostly all commodities. On the other hand, Germany, Poland, and Romania have been consistently supporting most of the commodities during the four-year period. For example, in Germany, livestock products (in particular, pork) have been subject to more generous support than that provided to crops. The only commodity in Germany that has not been systematically supported is poultry. Although taxation on chicken producers shows a significant decreasing trend, in previous years, 25% of the value added by the poultry sector was taxed. It is interesting to observe that in Bulgaria, the government has increasingly supported the poultry sector, although the NRP figures show that the sector has been taxed in 1996 and 1997. In general, we observe a clear trend of increasing support for almost all commodities which used to be taxed and decreasing support for those that used to be supported. 12 A. Valdes Table 3: Income Transfers at the Product Level (ERA) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 1994 128 M -23 M 1995 121 M -17 1996 88 M -106 M 1997 73 M 37 Maize 1993 1994 -65 M 48 -24 M 1995 -84 M 34 -54 M 1996 -71 M 54 -32 M 1997 -61 M 41 43 M Rye 1993 -26 M 1994 101 M -79 M 1995 112 M 51 M -34 M 1996 76 M 55 -20 M 1997 69 M 36 -28 M Wheat 1993 17 M 1994 -54 92 M 18 -74 M -82 1995 -74 74 M 65M 30 -53 M -70 1996 -8 44 M 16M 69 -55 M -8 1997 31 39 M 61M 32 -60 M 78 Potatoes 1993 155 1994 -128 M 1995 99 -32 M 1996 7 -2 M 1997 18 -30 Rapeseed 1993 55 1994 200 M 1995 119 M 40 1996 242 M 28 1997 111 M 54 Sunflower Seed 1993 1994 -21 -39 490 1995 -29 -6 -31 1996 2 -20 36 1997 -35 -32 33 Sugar 1993 80 1994 28 M 41 NM -269 1995 26 M 85NM -38 M 123 1996 33 M 33 M -53 M 66 1997 32 M 56NM -17 M 109 Beef/Cattle 1993 49 1994 -8 103 M -40 M 1995 12 103M 89 5 M 1996 361 130NM 26 87 M 7 1997 -69 117 M -47 58 M -2 Pork 1993 21 M 1994 -17 -1 NM 207 -21 M 87 1995 15 5 M 45 167 7 M 30 1996 -67 25 M 85 170 34 M -95 1997 -12 35 M 49 36 12 M -178 Chicken 1993 1994 15 -27 M 101 M 1995 70 -25 M 46 M 1996 17 -7 M 79 M 1997 -49 0M 29 M Milk 1993 209 1994 -98 78 M 49 M 12 M 1995 -38 60 M -21 -101 M 39 M 1996 1002 65 M 17 -74NM 48 M 8 1997 -142 M 65 M 35 -51M 44 M 67 a/ All products are exportable except those labeled by an M, indicating an importable. Source: Own data Measures ofAgricultural Support in Transition Economies: 1994-1997 13 In Romania, the period of 1994-96 was characterized by producer-price subsidies of inefficient producers such as pig and poultry, varying taxation of cereals, and heavy taxation of milk production (to keep consumer prices low). Near-total control over transport, storage, processing, and finance by state agencies severely limited private-sector competition in agriculture. In 1997, subsidies were reduced, agricultural commodity prices and trade were liberalized. As discussed in the country note, the main causes of stagnation in production since then have been the failure to liberalize factor markets (most notably land), the postponement of the privatization of significant marketing chains, and the delay of privatization of state farms and grain storage. AGGREGATE MEASURES OF SUPPORT Whereas the previous tables provide a picture of income transfers at the product level, we now look at the aggregated transfers for our set of commodities, and in some cases for the whole sector. This aggregate value is the sum of all the output and input price-related transfers and non- price related government expenditures for that set of commodities, or for a country's agricultural sector, in a given year, expressed as a proportion of agricultural GDP. Total support (+) or tax (-) in output markets by country for the period 1994-97 is shown in column 1, Table 4. The very different experience across countries is remarkable. On the one hand, we observe consistently high (overall) protection in Turkey, Germany, and Poland, and to a lesser extent Romania. In contrast, one observes consistently high negative protection (what we refer to as taxation) in Bulgaria, Russia and Ukraine (except in 1997). The magnitudes of the income transfers were very high. In Poland and Turkey in 1995-1997, output price interventions increased gross agricultural income by between 9% and 17%, and by approximately 23%, respectively. The dominant instruments for transferring income from Bulgarian farmers were policies affecting output prices, typically in the form of explicit output taxation, which far outweighed the small positive transfers provided through input price and fiscal measures. Output price interventions reduced gross agricultural income in Bulgaria by 27 to 34%. In Russia, farm gate prices remain below international levels, however this price gap has been reducing over the years as a result of the economic reforms implemented. There are inevitable year-to-year fluctuations in these estimates due to world price fluctuations that are exogenous to domestic policies. However, the consistently high and positive values for Germany and Turkey (and to a lesser extent in Poland) and the high and negative values for Bulgaria are striking, and the magnitude of these transfers is very large relative to farm income. 14 A. Valdes Table 4. Government Support of Selected Commodities, as % of Agricultural GDP Commodity Year Output Price Input Price Non-price Total Transfers Transfers related Transfers Transfers (ERA) Bulgaria 1994 -44.8 10.5 4.0 -30.2 1995 -34.7 13.2 3.0 -18.5 1996 -42.1 7.5 3. -31.5 1997 -29.3 -9.3 2.4 -36.1 Poland 1993 31.8 -15.5 n.a. 16.3 1995 16.7 -14.0 8.7 11.4 1996 9.1 -8.1 9.9 10.9 1997 10.9 -3.3 10.8 18.4 Romania 1994 10.9 -4.8 6.2 12.3 1995 2.2 -2.4 5.0 4.8 1996 15.6 -9.2 5.1 11.5 1997 5.3 -4.4 2.5 3.4 Russia 1994 -59.8 2.1 19.5 -38.2 1995 -16.0 3.0 11.4 -1.6 1996 -5.2 2.9 12.8 10.6 1997 -7.4 2.1 8.8 3.4 Ukraine 1994 -99.8 39.4 12.4 -48.0 1995 -35.2 36.6 3.0 4.4 1996 -13.1 18.0 12.6 17.5 1997 11.6 24.9 26.1 62.6 Germany 1994 58.1 -7.6 29.0 79.4 1995 44.6 -5.0 28.3 67.9 1996 35.4 1.2 30.1 66.8 1997 38.5 1.6 27.8 67.9 Turkey 1994 15.0 3.0 17.0 35.0 1995 23.0 2.0 17.0 42.0 1996 24.0 3.0 7.0 34.0 Note: Commodities included for each country are as follows: Bulgaria: wheat, maize, sunflower seed, veal, pork, chicken, cow milk. Poland: wheat, rye, oilseed rape, sugar beet, potatoes, pig, cattle, and milk. Romania: wheat, feed barley and maize, pig meat, chicken, cow milk. Russia: barley, maize, rye, wheat, sunflower seeds, sugar, potatoes, beef, pork, and milk. Ukraine: wheat, sunflower seed, sugar beet, and pork. (Milk and beef added in 1996/97) Germany: wheat, barley, rye, sugar, rapeseed, beef, pork, chicken, milk. For Bulgaria, non-price transfers correspond to credit subsidies, and others non-price transfers. For Poland, non-price transfers correspond to credit subsidies, income tax differential treatment (grossing up for the selected group of commodities based on the value of production), and costs of the Agency of Agricultural Markets (AAM). For Romania and Ukraine, non-price transfers correspond to credit subsidies. For Germany, non-price transfers correspond to National Payments (fuel and credit subsidies, income compensations, and exchange rate compensations), and EU transfers (direct payments and input subsidies). Effective rate of assistance, expressed as percentage of agricultural GDP rather than as value of output, which is the standard definition in PSE calculations. The PSE usually does not adjust for input price interventions. n.a. Not available. source: Own data Measures ofAgricultural Support in Transition Economies: 1994-1997 15 Overall, the results reported in Table 4 confirm that some CEECs have been re- introducing levels of output-price support as the main policy instrument used to channel resources to the agricultural sector. This trend is very clear between 1996 and 1997 in most of the countries except Romania. In comparison, Turkey and Germany maintained high levels of output-price protection. The second column in Table 4 presents the relative contribution of input price transfers to total agricultural support. Note the extraordinarily high (positive) input-price transfers in Bulgaria and the Ukraine. The low values for Germany and Turkey indicate that their domestic prices for tradable inputs are close to the border-price equivalents. The negative values on input price support in Poland indicate that the domestic prices for inputs were considerably higher than border prices, resulting in a defacto tax on farming between 1993-1996 equivalent to anywhere between 8 to 16% of agricultural income. Non-price-related transfers, including credit subsidies, represented a smaller, but significant, share of agricultural GDP in each of the countries (except in Turkey and Germany, where they amounted to a subsidy equivalent to about 17% and 30% of farm income, respectively). The last column in Table 4 presents the total transfers, which are equal to the sum of the price- and non-price-related interventions in both output and input markets. This measure, which corresponds to the ERA at the sectoral level, represents an aggregate measure of support to the sector, expressed as a percentage of the sector's value added. The most important finding is the very high net-income transfers from the rest of the economy to the farm sector. With the exception of Bulgaria before 1997, agricultural support policy resulted in net- income transfers to agriculture that ranged from 54-65% of agricultural GDP in Germany, to 4- 9% in Romania. Turkey, for which we have a more detailed breakdown of transfers, provided average income transfers from agricultural support policies in 1996 of about US $1,000 per farmer, representing approximately 50% of farm income. In 1996, this was equivalent to about US $130 per hectare of agricultural land. The greatest change over that period occurred in the Ukraine, which, after taxing the equivalent of almost half of the sector's GDP in 1995, in 1997 provided net-income transfers equivalent to over 60% of agricultural GDP. In sum, a high proportion of the income of agricultural producers in nearly all of these countries has been largely determined by government policy, rather than by market forces. The situation in Russia deserves a special attention. As discussed in Chapter 1, after almost a decade into reforms and over a period in which Russia trade policies were quite liberal, farm gate prices remained depressed relative to international prices. This suggests that other factors beyond direct price intervention affect production incentives. Serious attention should be turned to identify measures that can include transmission of international prices. 16 A. Valdes WHO GAINS, WHO PAYS, FOR AGRICULTURAL SUPPORT POLICIES? The literature of welfare economics holds that the cost of agricultural support policies falls into three categories. These include the transfer of income from taxpayers to farmers (the fiscal cost), the consumer welfare loss due to higher food prices, and the efficiency losses that result from over-production. In some countries (those with higher border protection), most of the cost of protection is shifted from the treasury to the consumers, while in those with lower border protection, taxpayers absorb a high share of the cost. According to this literature, transfers from taxpayers and consumers to farmers involve a redistribution of income but are not real economic losses for society. However, as Johnson has pointed out (1991), income transfers could represent a real cost to society, and not merely comprise a one-for-one redistribution of transfers. Johnson concludes that for developed countries, the cost of farm policies to consumers was considerably greater than the increase in return to farm resources. Extending this analysis, economists have also attempted to account for the full effects of agricultural protection on wages and employment, and on the cost structure and returns in the nonagricultural economy. Several such studies show that the welfare cost of agricultural protection is many times greater than that indicated by an approach that restricts itself to only the agricultural sector effects.5 Future analysis of transition economies should attempt to capture these effects, giving attention to the welfare implications of current farm policies both within the sector and between agriculture and the rest of the economy. What are the effects on real income of the poor in urban areas and for the poorest farmers? How much does the country spend to transfer an additional $1 to a farmer? The concern is that the true cost of protection to agriculture could be far higher than is generally thought. As an illustration, we find that European beef farmers benefit from huge subsidies and tariff protection that costs Europeans about US $14.6 billion a year (The Economist, May 22, 1999). These issues could become increasingly relevant for transition economies today, as they increase their own levels of agricultural protection. On the fiscal side, most price and trade interventions affect government accounts, either by requiring the government to spend money, or by generating revenues (such as through import tariffs). The effects of some interventions, such as subsidies to agricultural inputs and production, or revenues from explicit border taxes, are obvious. The effect of others, such as price interventions, on state-owned enterprises, are more complex or are hidden. Whatever the nature of the interventions, they have a fiscal impact. These fiscal impacts will, in turn, influence agricultural policy. In our studies, only Turkey and Germany had sufficient data for deriving a detailed examination of the fiscal impact of agricultural support policies. In the case of Germany, aggregate transfers to agriculture represented between 30 and 37 percent of agricultural GDP 5 A brief discussion on the approach and results is presented in M. Schiff and A. Valdes (1998), "Agriculture and the Macroeconomy" World Bank Discussion Paper # 1997. Measures ofAgricultural Support in Transition Economies: 1994-1997 17 during 1995-97. Total payments included direct payments (set-aside and per hectare/head premiums), social policy costs, research expenditures, income compensation, and input subsidies. The interesting point here is that the government expenditure figure for agriculture is likely to be considerably higher than the actual additional income received by the farmer. In the country note on Turkey, the authors present an exceptionally detailed analysis of the fiscal impact of agricultural interventions, including a rigorous breakdown of expenditures and revenues. Agricultural support expenditures in Turkey are borne by a complex web of programs and agencies that extends well beyond the Ministry of Agriculture. These include not only the Ministry of Agriculture, but also the Ministry of Hydraulic Works, the Treasury (equity injections and duty losses to intervention agencies), state-owned enterprises that provide general services to the sector, the Agricultural Bank that provides concessional loans to farmers and cooperatives, the Central Bank in the form of loans, and many others. In the Turkish crops sector, support measures included domestic price support, augmented by restraints on imports (in the past), and high tariffs (in recent years). In the livestock sector, border measures have been the primary instrument used to support producer prices. Price controls and export taxes have been employed to protect consumers, and input subsidies and credit have been provided to farmers to improve yields and farmer income, and to counterbalance the implicit protection given to domestic input industries through border measures. No limits have been set on production or sales, other than some control over planted acreage of a few selected crops. In 1996, the total cost of transfers from Turkish consumers and taxpayers to agriculture (net of related budget revenues) amounted to approximately US $9.1 billion, or nearly 5% of GDP (as compared to 1.5% in OECD countries). Of this, US $7.0 billion resulted from the implicit taxation of consumers due to higher domestic prices. If one considers that agricultural income is not taxed in Turkey, the tax burden fell mainly on non-agricultural producers. Also, because of the significant (presumed) size of the untaxed and unrecorded economy functioning in Turkey, it could well be that the transfers to agriculture from taxpayers placed a relatively greater burden on middle- and lower-income groups than they did on higher income groups. It is equally important to note, however, that this US $9.1 billion of transfers overstates the net income received by farmers in Turkey. This is in part because not all government expenditures necessarily represent additional income to producers, and also because farmers, as households and consumers, faced higher food prices due to border protection on imported food. The study estimated that in 1996, the total food bill of agricultural producers was approximately $2.0 billion higher than what it would have been in the absence of protection, and agricultural producers, as consumers, actually paid about one-third of the agricultural support they received. 18 A. Valdes REAL PRICE TRENDS AND IMPLICATIONS FOR AGRICULTURAL PROFITABILITY As a proxy for tracking the evolution of agricultural profitability in the countries studied, we examined the trends in real prices faced by producers at the farm level during the period 1994-97. We looked not only at estimates of the year-to-year changes in real producer prices, but we also "decomposed" these changes in an attempt to quantify the relative impacts on these changes of the exchange rate, border prices, and trade and price interventions. Real producer prices were defined as the current domestic farm price deflated by the consumer price index. They represent one simple indicator that captures the evolution of the purchasing power of the price of a ton of a commodity. Annual changes in real producer prices are presented in Table 5. The data shows no apparent upward or downward trend for the group of countries. What the data does show, however, is the extraordinarily high year-to-year variability in real producer prices.6 In several cases a dramatic change in one year is frequently followed by a sharp change in the opposite direction in the following year (see for example wheat in Bulgaria, or maize in Romania and Russia). Take the case of Romania. In 1996 (the year of the presidential elections), real producer prices increased for every commodity, then fell significantly in 1997. Romanian maize producers experienced a fall in real wheat prices of 16% in 1995, followed by an increase of 54% in 1996 and a decrease of 53% in 1997. For the growing number of first-time private farmers, faced as they are with an underdeveloped financial sector and a rather opaque marketing system, this high price instability may have been a major hindrance to the farm restructuring process. The data also reveal a consistent decline in real producer prices in Ukraine, Poland, and Germany. Bulgaria, Romania, Russia and Ukraine have experienced large, year-to-year real producer price fluctuations. Poland's real prices have become increasingly stable in recent years (except those of wheat). In comparison, real producer prices in Germany have remained relatively stable during the same period. The decomposition of these large producer-price fluctuations through time allowed us to look at the relative contributions of changes in border price, changes in the (actual) real exchange rate, and changes in domestic price interventions (see Tables 6a and 6b). The approach (the methodology of which is discussed in Quiroz and Valdes, 1993), provides rough estimates of the magnitude and direction of the impacts of each of these factors. 6 There are situations where this definition of real producer prices would yield results significantly different than those obtained by the traditional output/input price ratios. For example, for Russia between 1994-97, input prices increased faster than the CPI index, and hence the increase in real producer prices would have been lower than that measured relative to the CPI index. Measures ofAgricultural Support in Transition Economies: 1994-1997 19 To interpret Tables 6a and 6b, let us examine the case of wheat and pork in Romania. The observed 13% fall in the real domestic price of wheat in Romania from 1996 to 1997 is the sum of the effect of a 10% decline in the border price, a 3% appreciation of the real exchange rate, and no effect from trade policies. In pig meat, the 12% decline in the real domestic price was due to 1% decline in border prices, a 3% appreciation of the exchange rate, and 8% attributed to lower border protection. The results for Poland and Ukraine suggest that the appreciation of the currency was a major factor explaining the decline in real producer prices observed during 1993/95 (1994/95 for Ukraine), and for the entire period studied. Declining real prices implies a reduction in competitiveness in domestic markets vis-A-vis the rest of the economy. When the phenomenon is due to exchange rate appreciation, it also implies an increase in the producer-price equivalent in foreign currency and thus lower competitiveness in world markets. The results for most countries suggest that changes in the exchange rate played a major role in determining real domestic prices. This was especially the case in Bulgaria, but is also evident in Poland (during the 1993-95 appreciation), the Ukraine, and Romania (during 1995-96). Agricultural protection will raise farm prices, but it does not guarantee that farmer's real income will not fall. The current situation of agriculture in some countries in Western Europe (such as Great Britain) shows that, in spite of the subsidies under the CAP regime in the European Union, agriculture is currently going through a prolonged cyclical downturn. According to recent estimates, real farm incomes (especially in the livestock sector) in the UK dropped sharply in the last two years (75% according to some estimates). The collapse of commodity prices following the Asian crisis is accentuated by the rising cost of hygiene and environmental regulations. Furthermore, as recently stated by the British National Farmers Union "subsidies help, but the value of compensation paid in ECU and now in Euro has been eaten away by the strong pound" (Financial Times, May 1999). It is striking that government policies have exacerbated price instability, as shown by the relatively high values observed for the trade policy variable (TP). 20 A. Valdes Table 5: Changes in Real Producer Prices, 1994-97 (% change over previous year) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1994/95 -9 -15 15 1995/96 0 60 102 1996/97 -7 -41 -11 1994/97 -15 -20 108 Maize 1994/95 10 16 -7 1995/96 26 54 40 1996/97 3 -53 -28 1994/97 43 -16 -7 Rye 1994/95 -12 -30 32 1995/96 0 33 67 1996/97 -5 -12 -16 1994/97 -17 -18 85 Wheat 1994/95 5 -8 -17 -18 49 -50 1995/96 79 3 35 35 44 -18 1996/97 -5 -10 -18 -26 -12 -9 1994/97 77 -15 -8 -17 87 -63 Potatoes 1994/95 32 59 1995/96 -26 2 1996/97 0 -19 1994/97 -3 32 Rapeseed 1994/95 -12 -12 1995/96 7 -12 1996/97 7 24 1994/97 1 4 Sunflower Seed 1994/95 -3 38 -10 1995/96 -5 -22 -53 1996/97 22 -11 -20 1994/97 13 -4 -66 Sugar 1994/95 -7 9 11 -9 1995/96 2 -6 8 10 1996/97 0 -10 -6 -7 1994/97 -5 -8 12 -6 Beef/Cattle 1994/95 56 -9 14 59 1995/96 -45 -13 -17 21 1996/97 86 1 -9 -11 -8 1994/97 59 -20 -13 71 Pork 1994/95 27 4 -21 3 49 -45 1995/96 -38 14 14 13 16 -17 1996/97 152 3 9 -25 3 7 1994/97 98 23 -2 -13 78 -51 Chicken 1994/95 5 -6 -6 1995/96 -22 0 16 1994/96 55 2 -16 1995/97 26 -4 -8 Milk 1994/95 16 -4 13 7 122 1995/96 -34 -6 -3 10 7 1994/96 55 -1 -1 -9 -5 6 1995/97 18 -11 8 7 125 Source: Own Data Measures ofAgricultural Support in Transition Economies: 1994-1997 21 Table 6a: Decomposition of Real Producer Prices for Wheat (% change) Country Period A pd A PW A RER A TP Bulgaria 1994/95 2 6 -8 4 1995/96 25 6 20 -I 1996/97 -2 -18 22 -6 1994/97 25 -6 34 -3 Poland 1993/95 -8 -14 -8 14 1995/96 13 28 -2 -13 1996/97 -9 -24 3 12 1993/97 -4 -10 -7 13 Romania 1994/95 -8 -6 -1 -1 1995/96 13 3 4 5 1996/97 -13 -13 -3 3 1994/97 -8 -16 0 8 Russia 1994/95 17 14 -4 7 1995/96 16 7 -2 11 1996/97 -6 -12 2 4 1994/97 27 9 -4 22 Ukraine 1994/95 -30 -5 -35 10 1995/96 -9 7 -20 4 1996/97 -4 -12 -5 12 1994/97 43 -10 -60 27 Germany 1994/95 -4 14 -5 -12 1995/96 1 11 3 -12 1996/97 -4 -10 6 -1 1994/97 -7 14 4 -26 Table 6b: Decomposition of Real Producer Prices for Pig Meat (% change) Country Period A Pd A Pw A RER A TP Bulgaria 1994/95 10 6 -8 12 1995/96 -21 -20 20 -21 1996/97 40 60 21 -41 1994/97 30 46 33 -50 Poland 1993/95 -10 -10 -8 8 1995/96 6 13 -2 -5 1996/97 4 2 3 -2 1993/97 -1 5 -7 1 Romania 1994/95 1 1 -1 1 1995/96 5 3 4 -3 1996/97 -12 2 -3 -12 1994/97 -6 7 0 -13 Russia 1994/95 17 11 -4 10 1995/96 6 4 -2 5 1996/97 1 0 2 0 1994/97 25 14 -4 15 Ukraine 1994/95 -26 1 -25 -1 1995/96 -8 -1 -19 12 1996/97 3 2 -5 5 1994/97 -31 2 -49 16 Germany 1994/95 2 6 -5 1 1995/96 6 -2 3 6 1996/97 1 -9 6 3 1994/97 9 -5 4 10 Note: Pd, Pw, and RER represent the domestic price, the border price, and the real exchange rate, respectively. Percent change is computed as difference of the logarithms (base 10). TP represents changes attributable to trade policies. Source: Own Data 22 A. Valdes THE BOTTOM LINE The results reported in this study confirm that some CEECs have% been re-introducing direct and indirect support to the agricultural sector. This trend is very clear between 1996 and 1997 for all countries studied except Romania. Turkey and Germany maintained high levels of output price protection over the years studied. The net transfers from output, input, and credit subsidies indicate that, relative to the size of the sector (agricultural GDP), the net effect of government support policies has been enormous. In some cases, government support has greatly increased sector income (by 63 percent in Ukraine in 1997) while in others, the transfer from agriculture has been extremely large (up to 36 percent of agricultural GDP in Bulgaria in 1997). Such high levels of income transfers are incompatible with both improved market orientation, efficient resource allocation within agriculture, and economy-wide growth. In these countries, fluctuations in the income of the agricultural sector have been largely determined by government policy, primarily through output price support, rather than by the sector's adjustment to market conditions. Agricultural policy in transition economies remains unfocused and, as a result, fails to contribute to competitiveness in the sector, or to induce an increase in the flow of private investment into the sector. The significant instability of producer prices results in large fluctuations in producer income. Moreover, a large fraction of producer income is determined by government policy, primarily through output price support. The profile of incentives indicates a pattern of highly selective treatment, both helpful and harmful, of the various agricultural subsectors. We hope this work will make a significant contribution to the better understanding of the policy framework as it affects the structure of producer incentives, and presents a methodology which can easily be applied for policy evaluation. However, its impact in the policy process would be greatly enhanced if this work could be followed up with a periodic update of the "protection" indicators (every two years or so). Given the variability of policy that we document, the policy changes desirable in the 1994-97 period may not be applicable three to four years later. This updating is perfectly feasible and not expensive. The recent experience with one country (Bulgaria) where indicators were updated applying the same methodology and using the database for 1994-97 as a starting point, indicates that this could be done at a cost of less than US $3,000 per country. In interpreting the significance of the results of protection indicators to understand the actual agricultural supply response and private investment behavior, readers should consider that: (a) incentive is only one of the various determinants of supply response and, particularly for transition economies, institutional factors and developments in the rural factor markets (such as land and financial markets) are also critical; and (b) the Effective Rate of Protection is a more appropriate indicator than the Effective Rate of Assistance (or PSE in other studies) in that it captures more directly the effect of policies on the returns to farming in the various activities. While there may be no single story that characterizes trade and price interventions in transition economies, there are several important common elements. In all cases, we observe: Measures ofAgricultural Support in Transition Economies: 1994-1997 23 • extraordinarily high levels of price intervention; X enormous implicit income transfers to and from farmers; * high selectivity among different activities; and • an extremely high year-to-year variability in real producer prices. The statistical base for analytical work on agricultural support in transition economiesis weak and its interpretation is exceptionaly complex. That impedes real access to the information that policy makers need. While part of this instability is exogenous, the impact of government price and trade policy in exacerbating price instability and creating additional uncertainty about returns in farming is striking. Ultimately, this instability will have a severe and adverse effect on private investment prospects in the sector. To facilitate and inform the policy debate at the country level, continuous monitoring needs to be done to document the net impact of agricultural price interventions on efficiency and income effects. The benefits of a more competitive sector are indisputable, including increased farm income, lower overall prices to consumers, a reduction in govermnent expenditures (through the reduction in subsidies), and an improved position for gaining accession to the EU. Governments would do well to turn their attention away from price interventions in support of agriculture, and instead pursue programs that will increase the competitiveness of the sector, for example in providing public goods such as research and extension services, pushing for further reform in land markets, simplifying administrative procedures, supporting the development of market information systems, or devising grading systems that will improve the quality of goods produced. The private investment flows required to make agriculture more competitive are huge, which is why a proper incentive framework is so critical. Private investment will only be attracted to the sector if farming and agroprocessing is made profitable, guided by a credible and consistent policy framework that more fully integrates agriculture with international markets. 24 A. Valdes REFERENCES Harley, Matthew. 1996. "Use of Producer Subsidy Equivalent as a Measurement of Support to Agriculture in Transition Economics," American Journal of Agriculture Economics, 78 (3): 799-804. Johnson, D. Gale. 1991. "World Agriculture in Disarray," St. Martin's Press, New York (chapter 10). OECD. 1997. Economic Surveys, Turkey, Paris. Quiroz, Jorge and Alberto Valdes. 1993. "Agricultural Incentives and International Competitiveness in Four African Countries: Government Interventions and Exogenous Shocks", in A. Valdes and K. Muir-Leresche, eds., Agricultural Policy Reforms and Regional Market Integration in Malawi, Zambia. and Zimbabwe, International Food Policy Research Institute. Schiff, Maurice and Alberto Valdes. 1998. "Agriculture and the Macroeconomy." The World Bank, Policy Research Workin,e Paper, 1967 (August). Tangerman, Stefan. 1996. "Implications of Alternative Options for Future Levels of Support for Agriculture in Central and Eastern Europe," American Journal of Agricultural Economics, 78 (3): 786-791. Measures ofAgricultural Support in Transition Economies: 1994-1997 25 Appendix: Disaggregation of Government Support to Agriculture (as % of agricultural GDP), 1993-97 Country Item 1994 1995 1996 1997 Bulgaria Output Transfers -44.8 -34.7 -42.1 -29.3 Input Transfers 10.5 13.2 7.5 -9.3 Credit Subsidies 1.7 0.5 0.0 0.0 Input Subsidies 0.0 0.7 1.6 1.7 Other Subsidies 2.3 1.8 1.6 0.7 Total Transfers -30.2 -18.5 -31.5 -36.1 Germany Output Transfers 58.1 44.6 35.4 38.5 Input Transfers -7.6 -5.0 1.2 1.6 Credit Subsidies 0.7 0.8 0.8 0.7 Input 2.6 2.4 2.2 2.2 Income Compensations 2.7 2.7 2.5 2.0 Compensation of Exchange Losses 0.5 0.4 Eu Transfers, Direct Payments 14.9 17.7 21.0 20.1 Eu Transfers, Input Subsidies 0.9 0.7 0.6 0.6 Eu Transfers, Producer Tax -1.1 -0.9 -0.9 -1.8 Other 8.3 5.0 3.3 3.6 Total Transfers 79.4 67.9 66.8 67.9 Poland Output Transfers 31.8 16.7 9.1 10.9 Input Transfers -15.5 -14.0 -8.1 -3.3 Credit Subsidies 2.1 3.4 4.2 Input Subsidies 0.5 0.6 0.6 Income Tax Differential Treatment 5.9 5.7 5.7 Parastatals 0.2 0.2 0.2 Total Transfers 16.3 11.4 10.9 18.4 Romania Output Transfers 10.9 2.2 15.6 5.3 Input Transfers -4.8 -2.4 -9.2 -4.4 Input Subsidies 5.0 3.8 4.2 1.8 Other 1.2 1.2 0.9 0.7 Total Transfers 12.3 4.8 11.5 3.4 Russia Output Transfers -96.7 -50.1 -19.8 -16.6 Input Transfers 2.1 3.0 2.9 2.1 Input Subsidies 9.7 6.2 8.0 4.3 Direct Payments 3.0 2.5 2.1 1.2 Other 6.8 2.8 2.7 3.4 Total Transfers -75.2 -35.7 -4.0 -5.7 Ukraine Output Transfers -99.8 -35.2 -13.1 11.6 Input Transfers 39.4 36.6 18.0 24.9 Credit Subsidies 11.3 2.5 2.2 2.8 Direct Payments 1.0 0.4 Other 10.4 23.3 Total Transfers -48.0 4.4 17.5 62.6 Notes: Other fiscal transfers in Romania include a voucher scheme, subsidies for calamities (in 1997), the Wheat Fund for the 1997 harvest, storage subsidies for wheat and financing of agricultural works (Fund and debts). Output price transfers are based on OECD estimates (which assume CSE transfers are equal to market price support transfers). Input subsidies include disaster payments, debt write-offs, direct payments, incentive premia, and general services and infrastructure provided by state-owned enterprises. Credit transfers through concessional loans by the agricultural bank (to farmers and ASCUs) and central bank. Includes expenditures on agriculture through the Ministry of Agriculture and Directorate of Rural Affairs (for current and investment costs, agricultural research, extension, and hydraulic works). Cost of market interventions by the Agency for Agricultural Markets (AAM) that stabilizes prices and sets a minimum price. Production de-coupled support is the sum of transfers through differential income tax treatment, and pension and health insurance support policies. Part II Country Agricultural Policy Notes CHAPTER 1: RUSSIA Eugenia Serova AGRICULTURE IN THE RUSSIAN ECONOMY Agriculture has declined in absolute terms and as a share of the Russian economy during the reform period. Gross agricultural output in constant prices has fallen about 35% since 1991. The economy in aggregate has declined even more, suggesting that agriculture has not fared as poorly as some other sectors, notably industry. Agriculture's share of GDP, however, is reported to have declined from about 15% at the outset of reforms to about 7% at present. The GDP share of the agricultural sector decreased mainly because relative prices changed in favor of the input sector. With price liberalization, input prices raised drastically. Index numbers of gross agricultural output are measured in constant prices. The index may be biased by distortions in the constant prices compared to a set of relative international prices. It will not, however, be affected in the short run by swings in domestic terms of trade for agricultural and other commodities and services. Movements in the real exchange rate or in sector or commodity specific relative prices can cause a change in agriculture's share of GDP separately from movements in an index of gross output. If agricultural prices fall relative to other prices in the economy, agriculture's share of GDP will decline even if output remains constant. If the shift in relative prices is sustained, it is likely to feed into production incentives, and to contribute to a decline in the index of gross output. In Russia over the period studied (1994-97), gross output was declining, the real exchange rate varied, and agricultural prices for input and output were subject to a number of pressures. Some of the factors influencing prices derived from imperfections in the chaotic Russian market environment. Others can be attributed to governmental policies adopted over the period. In this study we attempt a preliminary effort to measure the net effect of the various influences on producer prices to determine whether, on balance, Russian producers were assisted or taxed by the combined effects of the policies and the market environment. The implications of the study are important because they may provide insight into areas of priority for future policy reforms and public investment. Despite ambiguities in measurement of GDP and the contributions of various sectors, it is clear that labor productivity in agriculture is lower than in other sectors. Agriculture is reported to employ about 15% of the labor force, and this is greater than the sector's share of GDP, no matter what the precise measure of the latter turns out to be. Achievement of higher well being for rural people will depend on increased labor productivity in agriculture, as well as increased opportunities for employment in other areas. The record of international experience indicates that flows of investment and new 30 E. Serova technology needed to increase labor productivity in agriculture are impeded by factors that systematically depress producer prices. Thus a finding of substantial negative net protection (i.e., taxation) of agriculture would imply that present policies and market imperfections discriminate against rural people and their chances to build better lives. In contrast, a finding of positive net protection or subsidy for the sector as a whole, or for specific products, would imply that resources are being attracted into activities that may not be economically sustainable over the longer run. It was precisely this sort of shock that initiated the reform period in 1992, as agriculture faced the sudden withdrawal of high levels of subsidy and support provided in the late Soviet period. In such a case; that is, if agricultural support were found to have climbed back to significant positive levels after the shock of 1992, rural well- being, even if at present not particularly high, may be vulnerable to further shocks in the future. This finding would direct attention to causes of low factor productivity, and a search for remedial measures or programs of adjustment out of noncompetitive activities. Finally, a finding that neither price policy nor market performance penalizes agriculture, but that labor productivity is nonetheless low, would direct attention to demographic issues that may not require intervention, or to public investment in rural education and agricultural research to raise the productivity of young rural people. Thus policy makers seeking to promote sustainable growth in rural well-being can use an empirical understanding of the net impact of policies and market performance on incentives in agriculture to design strategies for rural growth. MAJOR INSTRUMENTS OF AGRICULTURAL POLICY 1994-98 A significant economic reform began in Russia in 1992 with the price liberalization. Consumer subsidies were removed, and the state monopoly on foreign trade was abolished. A degree of price regulation was retained at the federal and later the provincial levels, but the start toward allowing prices to influence economic decisions in agriculture was taken in 1992. Furthermore, restructuring of state and collective farms began, and measures were initiated toward privatization of marketing, processing, and input supply. The liberalization of prices and concomitant changes in the economy as a whole caused a severe drop in the purchasing power of the population, with immediate implications for demand for food, particularly livestock products. The impact of the drop in demand at the farm level was compounded by a simultaneous change in relative prices that sharply reduced farm profitability. Farms faced rapid decapitalization. The government's first interventions for the farn sector were thus framed in an effort to address the negative profitability in the livestock sector, and higher input costs in all sectors. These interventions took the form of direct price support for livestock breeders, input price subsidies and credit subsidies. They have been modified over the intervening years, and their applications have been erratic enough to induce considerable uncertainty, but they still remain in some form. Later innovations in policy included the "credit in kind" programs and leasing of equipment, which is essentially a program of payment in installments. As the budgetary pressure at the federal level increased over the years since 1992, state procurement of agricultural products at the federal level declined. Price regulation in the regions Chapter 1: Russia 31 lasted after its abolition at the federal level. Since 1993, authorities have implemented subsidy programs for the livestock sector, in part on a cost-sharing basis with the federal government. Regional governments tended at various time to impose restrictions on inter-regional trade, however federal government has not been able to halt this practice. Procurement at the provincial level is still significant, and at present the impact of regional governments on agricultural markets is greater than that of federal authorities. From the start of the reform trade policy received little attention from the agricultural producers or lobbyists initially. With the prevailing concern about purchasing power of consumers and the effort to contain the increase in food prices, import subsidies and export taxes prevailed for food items in the early period. By the end of 1993, agricultural managers began to be concerned about competition of importers on Russian markets. Pressures toward protection began, and were reflected in adoption of modest import tariffs in 1994. BASIC POLICY INSTRUMENTS The federal government has pursued its objectives for the agricultural sector with the following instruments: - Reductions in input cost; e.g., direct reimbursement to producers, payments for some inputs on an installment basis ("leasing") with implied credit subsidies, regulated prices and subsidies for some agricultural inputs; - product subsidies, mainly for livestock products; - subsidized and directed credit to agricultural producers (subsidized interest rate, privileged terms of credit, credit in kind financed by the government, debt restructuring and writing- off); * border protection, although at modest levels; - special procedures for privatization of processing and marketing entities in an effort to protect producers from monopsony power; * continued state procurements for food supply of certain consumers (army, northern territories, big cities, etc.), at a reduced but still significant level; * public investments. Interventions Affecting Farm-Gate Prices Dairy and livestock producers were first to feel the effects of reduced demand in spring of 1992. In response to their expressed difficulties, the government introduced budgetary subsidies in the form of direct payments. In 1993 these livestock subsidies were transferred to the regional level, and regions adopted differential approaches, some retaining the subsidies, and some phasing them out or reducing them. In 1995, attempts were made to establish minimum prices for grains and basic livestock products. Minimum prices were announced four times a year, but they remained below market prices, and thus had little impact on the level of prices. Prior to 1995, delays in payment were common. These delays, especially in 1992-1994, when average monthly inflation was approximately 25 percent, led to implicit taxation of 32 E. Serova agriculture: with the total nominal revenues of agricultural enterprises in 1992 at about 1 trillion R, these loses due to delayed payments were estimated at 600-700 billion R, and for 1993 - at 5 trillion R. In the following years the rate of inflation dropped and the scale of delayed payments also decreased. Wholesale Prices Russian producers have periodically pressured the government to use administrative and regulatory measures to reduce marketing margins and to increase the producer's share of the wholesale price. After the liberalization in 1992, price-setting boards were set up in many provinces with the support of local authorities. The boards aimed at achieving mutual agreement on procurement prices. They had little impact, however, and most were disbanded 2-3 years later7. On the federal level, the entire food-processing sector was pronounced a monopoly, and became subject to special procedures for privatization, according to which 51% of assets were to be allocated to local primary producing enterprises supplying the processors with raw materials. In addition, salaries of the managers of such plants came under administrative review. Processing plants were required to report to the local authorities on any changes in their costs of production. These administrative measures in aggregate appeared not to have much impact on margins, which continued to increase. Local shortages of supply, however, did affect margins, as processors absorbed lower margins in order to raise producer prices to stimulate supply and thereby raise their own capacity utilization. Retail Prices During the first two months after price liberalization in January 1992, the federal government regulated prices and mark-ups for wholesalers and retailers of milk, meat, bread, and some other foodstuffs. Prices for these products increased during the first two months threefold, while the total index of consumer prices in January-February, 1992 increased more than 500%. Regional (oblast) authorities could modify the federal list of regulated prices for foodstuffs (within product groups) or could offer consumer subsidies from the regional budget. After March 1992, regulatory powers for food passed to the regional authorities, with the partial exception of bread. Bread prices remained under federal control till the end of 1993. The federal government fixed prices for milling grain and the difference between the fixed price and actual grain purchase price was compensated to milling enterprises from the federal budget. According to estimates the flour subsidy in 1992-1993 cost as much as 900 billion R. In addition, processing margins for bread were limited to 15%. After the flour subsidies were removed in 1993, there was no food price regulation at the federal level. Regulation of food prices at the provincial level remained. Ulyanovsk and Nizhny Novgorod provinces, for example, represent two different approaches to regional food price regulation. In the former, regulation was strict, and in the latter, essentially liberal. Intervention 7The crisis of 1998 induced efforts to control both retail and wholesale prices in all territories of the Russian Federation. These efforts were not successful and regulations were soon lifted almost everywhere. Chapter 1: Russia 33 from regional authorities in general took the form of price ceilings and limits on marketing and processing margins, rather than providing direct subsidies for consumers. In some cities with a high degree of intervention, such as Ulyanovsk, Belgorod, and Voronezh, coupon rationing for food items was introduced temporarily. Variation in regional approaches to regulation of food prices and changes over time can be seen in Table 1.1, which shows the proportion of seventy sampled cities that had price controls for food. As shown in the table, the scope of price regulation declined over time, and milk and bread remained the most regulated products. Surveys suggest that regional price regulation had relatively little impact on the level of prices or the pace of change. For example, in Orel and Riazan' (both in the Central region of Russia) the cost of the set of 19 main foodstuffs was almost the same, although in Orel local authorities regulated prices for 11 commodities, while in Riazan' only two products were regulated. Provinces with greater intervention tended to have discontinuous jumps in prices when authorities adjusted levels upward, while provinces with lesser intervention had a smoother path of price increase. Table 1.1: Russia: Retail Food Price Regulation in the Regions, (Cities with price regulation as percent of 70 cities in the sample) 1993 1994 1995 1996 Ql Q2 Q3 Q4 Ql Q2 Q3 Q4 QI Q2 Q3 Q4 Ql Q2 Food, total 19.6 14.1 9.8 26.4 28.4 26.2 31.7 32.0 31.0 23.9 N/A 16.7 17.7 17.8 Meat & meat products 14.9 10.8 6.5 32.0 32.5 30.6 37.0 38.5 36.8 27.6 26.5 24.6 26.0 25.7 Fats 10.6 5.5 5.4 23.7 25.8 25.2 30.2 31.7 31.5 22.7 19.4 35.0 33.8 32.5 Dairy/cheese 24.4 16.8 12.4 37.0 44.0 42.2 52.6 51.9 51.0 40.6 39.3 37.3 37.9 38.3 Eggs 26.5 20.5 15.7 40.9 48.5 38.6 43.5 46.6 44.3 28.6 31.6 40.0 40.0 38.8 Sugar 33.3 23.5 13.9 34.1 34.9 32.6 42.0 40.5 35.9 27.8 20.9 26.0 25.0 25.0 Salt 21.9 12.1 7.8 28.0 30.3 28.0 35.1 30.5 28.2 27.8 18.4 N/A N/A N/A Wheat flour 23.5 12.1 7.0 37.9 38.6 39.4 41.2 44.3 43.5 30.1 33.2 N/A N/A N/A Bread 84.9 70.6 57.4 62.7 65.9 62.5 75.2 74.4 45.3 36.7 56.0 66.8 62.9 66.3 Vodka 37.9 23.5 18.3 43.9 52.8 47.7 56.5 55.0 53.4 40.6 21.9 12* 17* 17* Vegetable N/A N/A N/A 11.2 9.7 6.3 10.2 10.7 10.7 7.6 4.1 4.8 8.8 8.8 * all liquors N/A = not available Source: Data of the Center of Analysis of Economic Situation 34 E. Serova Table 1.2: Russia: Mechanisms of Retail Food Price Regulation at the Provincial Level (Pro ortion of localities app In the instrument as % of 70 cities in the sample) 1993 191994 1995 1996 Q4 Ql Q2 Q3 Q4 Ql Q2 Q3 Q2 Regulation of: (I) retail traders' mark-ups 54 61 65 65 68 74 81 74 68 (2) profit/costs ratio of processors N/A 5 6 7 6 6.3 6 16 N/A (1)&(2) 24 21 18 20 19 14 N/A 7.5 16 Local budget consumer subsidies N/A 3 3 2 1.1 1.2 1.8 3.3 6 Rationing and food stamps N/A N/A N/A N/A N/A N/A N/A 0.5 N/A Fixing of retail price ceilings N/A I 1 0.2 0.5 N/A N/A N/A 0.0 Source: Data of the Center of Analysis of Economic Situation N/A = not available Foreign Trade Measures With the dismantling of the state monopoly on foreign trade, market conditions influenced trade flows from an early date in the reforms. Trade in agricultural commodities, however, has been subject to several specific regulatory interventions during the reform period. In 1992, the government continued to regulate prices for imported agricultural and food items. About 36 items, including butter, cheese, milk powder, meat and meat products, vegetable oil, fruits and vegetables, sugar, flour, were subsidized on the domestic market. Most imported agricultural inputs (veterinary medicines, hybrid seeds, etc.) were sold to producers at prices lower than their international trading prices. Until the end of 1993, there was little protectionist pressure. Trade policy was formulated on the assumption that food would remain in high demand, an assumption deriving in part from the perpetual shortages of the Soviet era. Trade policy in the early period sought to prevent or impede exports of agricultural products and to subsidize imports in order to contain the rise in food prices after liberalization. After it became apparent that consumers could absorb the initial shock to food prices, export constraints eased and import subsidies were phased out, resulting in a largely liberal trade regime. In line with the trend toward greater price intervention at the regional, rather than federal level, trade interventions at the provincial level appeared, as well. In 1994-1995, regional customs duties were introduced in some territories in addition to nation-wide import tariffs. At the same time, a number of provinces restricted exports of farm produce and food products beyond the confines of regions. Regional trade barriers impeded the development of a common national market and generated a high level of price differentiation. These barriers diminished until 1998, but may have been reinstated after the August crisis of that year. Despite the liberalization of the economy in 1992 and abolition of the monopoly on foreign trade, the institution of what was called "special exporters" was preserved, especially for grain and oilseed exports. The special exporters were enterprises and organizations registered in the Ministry of Foreign Economic Relations and designated to play an important technical role in the arrangement of foreign trade transactions. Special exporters enjoyed wide-ranging custom preferences. This status was conferred upon trading organizations as well as some corporations, Chapter 1:- Russia 35 enterprises or regions. Thus the abolition of the state monopoly of trade can be considered to have been gradual, and the first stage was broadening of the special status to designated agents outside the state. In 1995, the status of special exporter was abolished. Export quotas and licensing remained in place in Russia until 1995, but the list of commodities under quotas and licensing shrank. Export duties for grain, sugar and other foodstuffs were removed in 1994. Export subsidies for transport of exported grain were introduced at that time, but they were never really applied. At the end of 1995, in response to a poor harvest, export duties for some cereals were reintroduced. Enforcement of these duties was lax because the customs union with Belorussia and Kazakhstan was established at essentially the same time, and so grain could move across these borders duty-free (mainly through the so called Belorussian "channel"). Pressures to restrict exports rose with the economic crisis of August 1998, and the poor harvest of that year. In the fall export licensing for sunflower seeds was re-established, and in January 1999 an export tax was imposed on this commodity. Table 1.3: Russia - Export Duties for Principal Food Items, % Date Date Date Date Date 07/01/92 11/01/93 07/25/94 09/01/95 04/01/96 Meat 20 0 0 0 0 Milk and dairy 20 0 0 0 0 Grain, total 20 10-25 10-25 7-17 0 Of which: durum wheat 20 25 25 17 0 Wheat 20 10 10 7 0 Maize 20 1 5 1 5 10 0 Oil seeds 20 10-15 10-15 7-10 0 Flour 20 10 10 7 0 Sugar beet 20 1 5 1 5 1 0 0 Vegetable oils 20 0 0 0 0 Butter 20 0 0 0 0 White su~ar 20 60OECU 0 0 0 Source: Corresponding Laws of the RF. As protectionist pressures rose in late 1993 and early 1994, the government adopted 15- 20% import tariffs for meat and dairy products and vegetable oil, 30% - for sugar and wool. Since that time the import duties have been changed several times. The August (1998) financial crisis and the fear of food shortages and rising prices brought reduction of import duties and VAT (from 20% to 1 0%) for basic foodstuffs. 36 E. Serova Table 1.4: Russia - Import Duties for Principal Food Items Since Since Since Since Since Since 03/15/94 07/01/95 05/15/96 01/01/97 02/01/98 10/10/98 Beef 8 15 15 1 5 15, but not 10, but not less than 0.2 less than ECU/kg 0.13 ECU/kg Poultry 20 25 30, but not 30, but not 30, but not 30, but not less than 0.3 less than 0.3 less than 0.3 less than 0.3 ECU/kg ECU/kg ECU/kg ECU/kg Milk and dairy 10-15 10-15 10-15 10-15 10-15 5 of which: 15 15 15 15 15, but not 15, but not cheeses less than 0.3 less than 0.3 ECU/kg ECU/kg Butter 15 20 20, but not 20, but not 20, but not 15, but not less than 0.3 less than 0.3 less than 0.3 less than ECU/kg ECU/kg ECU/kg 0.22 ECU/kg Grain I 1 5 5 5 5 Oil seeds 1 5-10 5-10 5-10 5-10 5-10 Vegetable Oils 0 15 15, but not 15, but not 15, but not 5, but not less than less than less than less than 0.09ECU/kg 0.09ECU/kg 0.09ECU/kg 0.03 ECU/kg Potatoes (not 25 25 25 25 25 25 seeds) Fruits 1-10 5-10 5-10 5-10 5-10 5-10 Raw sugar 1 1 1 1 I White sugar 20 25 25, but not 25, but not 25, but not less than less than less than 0.07 ECU/kg 0.07 ECU/kg 0.07 ECU/kg Source: Corresponding Laws of the RF. PRODUCTION SUBSIDIES Credit Nominal and real interest rates rose with the introduction of reforms after 1991. Agriculture under Soviet policies had been provided with ready access to subsidized credit and debt write-offs, and was unprepared for a transition to commercial financial relations. With the prevailing uncertainty in the Russian economy and due to the high inflation rate, credit became available only with very short repayment periods, and this further penalized the agricultural sector. In response, the Government introduced a system of preferential centralized credit for agriculture in 1992. The subsidized interest rate was 28% for agricultural enterprises and 8% for private farmers, when the commercial rate varied from 180% to 230%. In 1993, the special rate for private farners was removed, and all agricultural credit from the budget was offered at 28%. The crisis of seasonal credit in agriculture in the spring of 1995 led to the introduction of what was called credit-in-kind (tovarny credit). Firms providing fuel and lubricants were offered the opportunity to supply agriculture with inputs and to cancel an equivalent value of their tax obligations or other debts to the budget. Since agricultural producers were required to repay these debts at the end of the season, they essentially assumed the budgetary obligations of the fuel Chapter 1: Russia 37 suppliers in exchange for delivery of inputs. Agricultural enterprises participating in these programs were required to deliver their products to the state food reserves. Under this program, the oil companies assigned a value to the products delivered as credit-in-kind, and the assigned prices were reported to be significantly above market prices at the time. Surveys carried out in several regions suggested that the interest rate implicit in these transactions was as much as 120- 130% annually, which was less than the commercial interest rate at the time, but still higher than in past programs of subsidized credit. Under this program, farm enterprises were obligated to repay the implicit interest. The fuel suppliers rather than the budget captured the value of the interest, even though they did not finance the credit. As shown in Table 1.5, the implicit interest obligations that producers incurred through the credit-in-kind program for fuel may have been as high as 8 billion (redenominated) rubles. Alternatively viewed, through this program the Government imposed on agricultural producers interest obligations greater in aggregate than the total volume of the subsidized credit offered through the programs described above. Agricultural producers did benefit from the credit-in-kind programs, however, since many subsequently defaulted on the incurred obligations. Data in Table 1.5 show a remarkable increase in use of fuel and lubricants in agriculture after introduction of the credit-in-kind program. If the data are correct, use doubled between 1995 and 1996, suggesting that large volumes of fuel and lubricants may have been delivered through the program, and the subsequent disposition of these inputs is not clearly evident. The entities that lost most through the credit-in-kind programs were the regional governments (who provided guarantees for producers' obligations) and the federal budget. Regional governments subsequently defaulted on their guarantees through a process that continues to unfold, and so the federal budget ultimately financed much of the credit-in-kind program, thereby transferring resources to the fuel companies and to agricultural producers. In 1997 the credit-in-kind program was stopped at the federal level, but retained by major part of regional governments. Table 1.5: Russia - Fuel and Lubricants Provided Through the Credit-in-Kind Program _______ ____ _____________ ~~~1994 1995 1996 1997 Prices paid by farms OOORUR/t 242.00 962.00 1,317.00 1,573.00 Average export price OOORUR/t 246.31 687.59 937.71 978.89 Total costs in agriculture for fuel 000,000,000RUR 1,746.53 5,911.33 16,855.72 21,290.42 Total use in agriculture 000 t 7,217.07 6,144.83 12,798.57 13,534.91 Total use at export prices 000,000,000RUR 1,777.67 4,225.15 12,001.30 13,249.17 Subsidy(+), or implicit interest payment(-) 000,000,OOORUR 31.14 -1,686.18 -4,854.42 -8,041.25 Source: Own calculations based on Goskomstat and Customs data. Longer term credit for investment presents problems perhaps even more severe than those associated with short term credit. Initially the distribution of investment credits was handled through officially sanctioned programs, such as «Grain of Russia»>, «Sugar of Russia»), etc. The effectiveness of these programs was very low. At present, a competitive system is used to allocate governmental subsidies for medium-term investment credit. This mechanism incorporates participation of the commercial financial institutions, and hence the budget does not bear all the risk. The allocative mechanism, however, does not assure that budgetary funds go to activities with high national returns. The federal budget sometimes supports small projects of a regional or even local significance. 38 E. Serova A great deal of attention is now being paid to mortgage credit. At present, however, when land markets do not function and land values are severely depressed, mortgage finance for agriculture would have little practical application. Ample land, much of it of good quality, is available for redistribution essentially free of charge from the regional land funds, as shown in Table 1.6. Mortgage finance could develop in selected localities where land is in high demand and hence has significant value, such as in the peri-urban areas of Moscow and several parts of southern European Russia, but in vast areas of the rest of the country, mortgage finance is probably premature at this time. Table 1.6: Russia - Dynamics of the Regional Land Distribution Funds, Thousand Hectares Date Land belonging to the funds 01/02/1992 9,490 01/03/1993 6,636 01/03/1994 13,095 01/01/1995 13,758 01/01/1996 14,621 Source: Data of the Agrarian Institute Successive decisions to restructure debts of agricultural enterprises have undermined development of a system of rural financial institutions. In 1994-1995, roughly 21 trillion (21 billion redenominated) rubles (about 10% of total domestic state debt) were rescheduled under terms amounting to substantial write-off. This action sharply reduced any faith in the agricultural sector on the part of the commercial banking sector, and, furthermore, reinforced the expectation of enterprise managers that overdue financial obligations could be safely ignored. Because of the size of the write-off, it contributed to accelerating inflation, which subsequently redounded negatively upon the agricultural sector. Again in April 1996, the same 21 trillion (billion redenominated) rubles were further rescheduled, along with an additional 5 trillion (billion) rubles of debts for the credit-in-kind of 1995. Additional Input Subsidies Since 1992, when relative prices moved sharply against agriculture, the government has responded with various additional programs of subsidy for agricultural inputs. A range of input subsidies included: * fuel and lubricants; * natural gas and heating fuel; * fertilizers and chemicals; a electrical power for agricultural production; • minor subsidies, such as reduced rail tariffs for transport of animal feed, etc. Of those listed above, with the exception of the subsidies for fuel and lubricants already discussed, the most significant are subsidies for fertilizer. In this case, as with fuels, farm level prices rose with the introduction of the program, and may have exceeded export prices. The Chapter 1: Russia 39 additional charges can be considered the implicit interest rate that producers paid to finance deliver of fertilizer under the program. Table 1.7: Russia - Input Subsidies for Fertilizer .---.----...-.....----.-.------ _ _ _ 1994 1995 1996 1997 Price paid by farms OOORUR/t 134.4 460 1,063 1,002 Average national price OOORUR/t 209.9 608.7 751.2 758.7 Total use of fertilizers OOOt 2,146 1,487 1,473 1,539 Total costs of agriculture for fertilizers 000.000.OOORUR 288.4 684.0 1,565.8 1,542.1 Total use of fertilizers at national prices 000.000.OOORUR 450.4 905.1 1,106.5 1,167.6 Subsidy (+) or implicit interest ayrment (-) 000.000.OOORUR 162.0 221.1 -459.3 -374.4 Source: Own calculations based on Goskomstat and Customs data. In the beginning of 1994, the Government introduced a new program of support for purchase of agricultural machinery, under which enterprises could lease publicly owned machinery, thereby bypassing high costs of financing purchase of machinery. A special leasing fund was established with support of the federal budget, and Rosagrosnab (formerly state-owned supply agency for agriculture) was appointed to administer the program. The federal Ministry of Agriculture and Food and regional administrations select machinery and equipment to be placed in a pool. Regional authorities distribute the machinery and equipment to producers, who pay for use in installments. The fee structure for the lease includes implicitly subsidized interest rates. In 1996, this system was expanded to include mineral fertilizers, seeds, and pedigree livestock. The program thus resembles one of unsecured loans repaid in installments, rather than leasing as it is known in other contexts. In the Soviet era it was common to have multiple pricing tariffs for various users of a good or service, and agriculture was often accorded privileged status. Most of the multiple tariffs have been eliminated, but a dual tariff remains for electricity. The difference in average tariffs in the economy and the tariffs charged to agriculture is presented in Table 1.8 below. The magnitude of this subsidy, at 16 million redenominated rubles nationwide ($3.2 million), is not substantial. Fertilizer manufacturers paid reduced rail tariffs to deliver fertilizer to farms and regional distribution centers. Table 1.8: Russia - Prices for Electric Power in Agriculture and Industry, R per kWh/hour Ref. prices for el. Power, Use of el. power in Subsidy(+)/ 000 RUR/O0O kWh agriculture, 000,000 tax(-), kWh 000,000,OOORUR Economy as total Agriculture 1994 62.7 34.1 275.3 7.9 1995 185.0 98.0 255.7 22.2 1996 254.0 146.0 236.0 25.5 1997 241.0 169.0 226.4 16.3 Source: Ministry of Agriculture and Food. Ministry of Economy Subsidies for inputs have been provided in order to compensate producers for the rise in costs relative to product prices. Although the change in relative prices has had a negative impact on farm profitability and on sources of finance for recapitalization of agriculture, the change has 40 E. Serova also affected productivity and efficiency of input use. The former effect can be considered to be negative, but the latter is positive. It is well recognized that in the past use and maintenance of machinery in Russia was poor. Waste and loss of fertilizer in the Soviet period has been estimated to be as high as 40% of the quantity supplied. With present higher prices, utilization and management of inputs has improved. Fuel appears to be used more rationally, even taking into account the jump in reported usage under the credit-in-kind program. Fertilizer delivered is now reported to be used, while in the Soviet times, usage was only a portion of delivery. Even though agriculture still pays a reduced rate for electricity, the rise in price over time has brought a marked reduction in usage. Russian agriculture today uses fewer inputs more effectively than in the Soviet period. Labor and land have substituted to a large degree for purchased inputs. The substitutions may not be economically optimal, and yields and labor productivity remain lower than desirable in the long run. To some extent, the government's input subsidy programs have had the unintended effect of inhibiting growth of markets for inputs and credit, and have thus retarded growth in yields. This is particularly true for the debt write-offs, the management of the credit-in-kind programs, and the federal leasing program. Tax Concessions Tax reform was one of the important elements of economic reform in 1992. A profit tax at 23% was introduced. The value-added tax (VAT) replaced turnover and sales taxes. Excise taxes were introduced for several commodities. Property taxes were introduced for enterprise assets and for land. The rates of the asset tax were to be established by regional authorities not in excess of 1%. Land tax rates were set at the federal level for every territory and were differentiated according to land quality. Regional authorities have the latitude to adjust land tax rates within limits set by the federal regulations. In addition to the above taxes, rental payments were established for the use of natural resources. A Road Fund was established in 1992 to finance maintenance and construction of the highway system. Revenues to the Road Fund derive from taxes on sales of fuel and lubricants, and various vehicular taxes on ownership and purchase. Several additional extra-budgetary funds were established to finance social expenditures. The source of revenues for these funds is the payroll taxes. Payments to the Pension fund were initially established at 31.6%, and reduced in 1993 to 28% of payroll. Payments to the Social fund were set at 5.4% and have subsequently remained unchanged. In 1993, a mandatory health insurance fund was established to which all enterprises were to pay 3.6% of payroll. The unemployment fund was established with a 1% payroll tax in 1992, which was increased to 2% in 1993. Agricultural producers have been granted various tax concessions since the introduction of the reforms. Primary producers were exempted from the assets and profits taxes from the beginning. In 1994 the profit tax exemption was extended to processing activities of agricultural enterprises utilizing their own products. The agricultural payroll tax for the pension fund is 20.6%. The rate of payments to the Road fund is also reduced for agriculture. An estimate of the total value of tax concessions to agriculture is shown in Table 1.9. The largest item is the exemption from the assets tax, but this number is derived from the unadjusted book value of assets, which is a gross overvaluation. Depreciation has much exceed Chapter 1: Russia 41 investment in the past ten years, and the asset base of agriculture is essentially filly depleted. Therefore asset tax exemptions are overstated. Table 1.9: Russia - Tax Privileges for Agriculture, 000,000,000 RUR Value of taxes privileges: 1994 1995 1996 1997 profit tax 1,050 1,313 574 662 assets tax 4,102 8,012 18,762 18,779 payments to Road fund 766 919 1,015 2,826 payments to Pension fund 1,046 1,312 1,960 2,420 Total ~~~~~~6,964 13,551 24,307 26,684 Note: Privileges for private farmers are not included. Source: Ministry of Agriculture and Food The present Russian tax system creates a major distortion in agricultural marketing and production. Profits earned by agricultural enterprises are, in theory, subject to the (reduced) enterprise profits tax. Profits earned on household plots are exempt from tax, since the households are not registered firms, and the income levels earned do not reach the threshold requiring payment of individual income tax. Differential tax treatment explains in part why approximately half of Russian agricultural product is reported now to originate in the household sector, rather than the enterprise sector. On the other hand, agricultural enterprises apparently have difficulty avoiding various local taxes levied in an ad hoc manner by local authorities. Recent tax law severely circumscribes the taxing authority of local governments, but producers report that the level and variability of local taxes is an obstacle to sound financial management. BACKGROUND INFORMATION ON CALCULATIONS OF SECTORAL PROTECTION AND TAXATION For the calculations of the Nominal Rates of Protection (NRP) and the Effective Rates of Protection (ERP), each commodity is classified as an exporTable l.or importable, according to the shares of net exports in total production (Table 1.10). Russia is clearly a net exporter of sunflower seeds and barley (in 1995 and 1997), and a net importer of wheat, maize and pork. Table 1.10: Russia - Trade Status of the Selected Commodities 1994 1995 1996 1997 Wheat 5 5 5 4 Maize 98 14 16 11 Barley 0.3 -6 3 -4 Rye N/A 1 4 N/A Sunflower seeds -24 -11 -64 -37 Potato 0.2 0 0 -0.2 Pork 10 17 18 19 Beef 0.5 N/A 1 2 Note: (import-export)/gross output* 100% Source: Own calculations from the Customs and Goskomstat data 42 E. Serova The methodology of calculation requires comparison of Russian and international trading prices, with appropriate adjustments to each to bring the commodities to a physical location of comparison and a roughly common physical condition, including characteristics of quality and degree of processing. A first step is choice of international prices to serve as comparators. Table 1.11 compares two available reference prices that serve as candidates for unadjusted border prices, and also shows domestic Russian farm gate prices, in dollars converted at the prevailing official exchange rate. The first price shown in Table 1.11, the OECD price, is a common benchmark price used in many studies by the OECD and roughly capturing trading prices of basic commodities entering and leaving European ports. The second price listed in Table 1.11 and noted as "non-OECD price" is the actual price reported in Russian customs data for products entering and leaving Russian borders. Since these prices can vary by season and by shipment, the prices reported in Table 1.11 were calculated as an average of f.o.b. prices for the commodities in which Russia was a net exporter and average of c.i.f. prices for the commodities mostly imported. In the calculations reported below, we used actual Russian customs prices for wheat, barley, rye, sunflower seeds, pork, beef, and milk, since these commodities are actually traded in significant quantities. For potato and maize, we used the OECD reference prices, since trade in these products is low. For example, the c.i.f. price for maize entering Russia is largely for hybrid seed, and is thus not the same commodity as that priced at the farm gate. For sugar, OECD prices were used. Table 1.11 also shows unadjusted Russian farm gate prices for the same commodities. Table 1.11: Russia - Two Alternative Reference Border Prices (OECD and non-OECD) and Farm Gate Prices (in $/t) Wheat Barley Sunflower Pork Beef seeds 1994 OECD 115.29 83.98 278.61 1,360.96 1,896.57 Non-OECD 99.67 57.27 202.54 1,228.92 1,061.50 Farm gate 48.11 34.76 118.17 814.75 586.56 1995 OECD 163.4 128.1 284.97 1,793.52 2,389.24 Non-OECD 129.7 77.18 232.39 1,472.56 n.a." Farmn gate 80.21 44.80 182.21 1,360.53 1,040.03 1996 OECD 197.89 166.67 255.52 2,008.87 2,367.72 non-OECD 188.57 181.13 224.39 1,455.73 557.13 Farm gate 124.88 98.19 154.50 1,711.09 1,369.48 1997 OECD 155.44 134.02 242.84 2,037.55 2,161.40 non-OECD 160.18 92.32 199.64 1,679.08 694.39 Farmn gate 107.49 86.36 135.58 1,725.26 1,194.68 1/ The OECD price in 1995 for beef is used instead. The OECD price is converted into carcass weight equivalent. Source: OECD and Russia's Customs data The next step in the calculation requires taking the border prices and the Russian fann gate prices to a common location for comparison. In our calculations, for importables, we added a variable margin to take the product from the border to a pre-determined point of competition (or sale) (see appendix Table 1.1). For importables, a transport charge was added to the farm gate price to take the product from the Russian farm to the point of competition. This transport charge was assumed to be 30 percent of the crop farm level prices, to transport a product from the farm gate to a point of competition. To avoid a great variation in the value of the Chapter 1: Russia 43 transportation costs depending on the product, we established as a reference the value of 30 percent of the farm-gate price of a ton of wheat in 1994. This value was converted into dollars at the 1994 exchange rate, and then adjusted upward in dollar terms by 10% each year8. The transport costs thus derived ranged from about $14 per ton in 1994 to about $19 per ton in 1997, and were held standard across commodities. For livestock products, the tranporatation cost was obtained from an unpublished work of Mudahar and Shaeffer9. For exportables, the f.o.b. customs prices were adjusted back to the farm level by subtracting the transport cost (again approximately $14 in 1994, rising to about $19 in 1997 - see appendix Table 1.1). Nominal protection rates thus derived are displayed in appendix Table 1.2. The calculations suggest that in aggregate Russian agricultural producers are harmed by output prices that are depressed relative to international levels. The instruments that serve to depress output prices are the combination of policies, many of which originate at the local level, and market imperfections that impede transmission of international prices down to the farm level. The magnitude of the net taxation through output prices was greatest in 1994 at an estimated -57%, and diminished successively over the intervening four years, until a level of -16% in 1997. Net taxation through output prices is greatest in the crop sector, and less in the livestock sector. Selected livestock products, notably beef, had positive protection, as capture in positive NPR's for 1996 and 1997. For computation of ERPs, three traded inputs were considered: gasoline and diesel, fertilizers, and electrical power. For oil products the average export prices were taken, and for the fertilizers and electrical power - domestic average price. Implicitly it is assumed that family farms and large-scale farms paid the same prices for the same inputs. The national Statistics agency monitors the input prices only for the large-scale farms, and prices for the other producers are not available. As far as family farms provide quite insignificant part of the GAO and the households mostly get such inputs from the large-scale farms we consider such assumption admissible. The effective protection rates computed are very similar to the values found for the NRPs thus suggesting that trade barriers are uniform among inputs and outputs. For the computation of non-price related transfers, the total budget spending had to be allocated to the products based on their share in the gross agricultural product. The bulk of budget expenditures for agri-food sector are not attributed to the particular product. The federal budgetary expenditures for agriculture are not yet fully transparently evident. Parliament approves the federal budget annually, including authorized expenditures for agriculture are displayed under the categories for agriculture and fishery, and management of land resources. Authorized expenditures broadly maintenance of institutions (Ministry of Agriculture and Food and its bodies, Land Committee and its regional branches), federal subsidies for agriculture, some investments, some spending for agricultural science, land a According to table 5, the price of fuel and lubricants paid by farmers, in dollar terms, increased almost 150% from 1994 to 1997, or an average of 35 percent p.a. We are being conservative assuming only a 10 percent increase in transportation costs in our estimations. 9 Mudahar, Mohinder S. and G. Barry Schaeffer. Measuring the effects of agricultural price, subsidy and transfers policy in Russia. Agriculture, Industry and Finance Division. Country Department III, Europe and Central Asia Region. The World Bank, Washington, DC. June 1996 (unpublished). 44 E. Serova engineering, and other activities. These expenditures in total are reflected in the Table 1.12 in the last row. In addition, a portion of expenditure on agricultural education and science appears in other chapters of the budget, and agriculture may receive a portion of investment allotted to the real sector. The structure of the federal budget has changed from year to year and it is difficult to trace all these expenditures. Furthermore, the budgetary support to the credit-in-kind program appeared in the budget as a reduction in revenue, rather than an item of expenditure. Using the budget as a source for tracking governmental expenditures on agriculture thus presents challenges. A portion of governmental support for agriculture also takes the form of mutual clearing of obligations; e.g., swaps of payables and receivables, usually enterprise debts to the budget for past loans and budget debts to the enterprises for products delivered to the federal food funds (for the army and northern territories). For all of these reasons the various governmental bodies (Ministry of Agriculture and Food, Ministry of Finance, National Statistical Committee) report different figures on state support to agriculture, and the figures are periodically adjusted. In addition to budgetary expenditures, in 1994-1995 there was an explicit extra-budgetary fund for agriculture and mining, formed through a tax of 1.5% on gross revenues of enterprises in all sectors of economy. One third of this fund was retained at the federal level, and two-thirds went to the regions. The federal part was then allocated one-third to agriculture and two-thirds to the mining industry. The regional revenues from the special fund were also used for agriculture and mining, in proportions established by regional authorities. Officially the decomposition of agricultural budget is not published. On the basis of sources from the Ministries of Agriculture and Food, the Ministry of Finance, and the State Committee on Statistics, we estimate the following breakdown of expenditures for 1994-1997 at the federal level. Table 1.12: Russia - Total Expenditures for Agriculture (trillion RUR or billion redenominated rubles) 1994 1995 1996 1997 Institutions 714.20 2,132.87 2,505.57 1,358.58 Subsidies 3,873.00 5,770.40 374.20 1,122.97 Leasing Fund 783.00 934.10 655.30 716.70 Individual farmers support 0.00 82.60 15.40 4.01 Land resources N/A N/A N/A 141.53 Science 182.90 289.70 427.80 74.50 Investments 786.30 768.90 576.00 92.47 Special Fund for Soft Credit x x x 2,700.0 of which paid back x x x 2,005.9 Restructured debts x 29,200 x x Total (the federal budget outlay) N/A 6,200 8,500 9,900 Index-deflator of the GDP, % 1455 1181 Source: Own calculations and Goskomstat data N/A= not available According to the calculations above, nominal expenditures fell between 1995 and 1997. The decline in spending at the federal level over this period was picked up in part at the regional level. Federal spending to agriculture equals about one third of total state expenditures for this Chapter 1: Russia 45 sector, and the regional budgets pick up the remainder. With the worsening financial condition of regional budgets in 1997 and particularly in 1998, however, the share of regional support jumped up to 80% of total state support of agriculture. The major part of subsidies from the federal budget was allocated for the compensation of the costs of the mineral fertilizers (up to 1/3) and support of pedigree breeding and elite seed production (up to 20%). The soybean and flax programs are not significant in size. Wool subsidies in several years were large, and these served as safety net payments for depressed areas that specialized in wool production. A key feature of the composition of federal support to agriculture is its variability over time. For example, spare parts were highly subsidized in 1994, but this subsidy was subsequently abolished. Similarly, feed subsidies were high in some years and low in others. Variability of subsidies exacerbated uncertainty in the economic environment of agriculture. A breakdown of the various items grouped under "subsidies" in 1997 is shown below. Table 1.13: Russia - Subsid Structure in 1997 (federal budget), Percentage of Total Type of subsidy Actual spending Elite seeds 6.03 Energy costs compensation of green houses 4.04 Flax 2.79 Soya 3.31 Fertilizers 10.94 Crop area insurance 1.70 Pedigree breeding 11.99 Wool 14.30 Feed for feedlots 42.61 Other 2.29 Total 100.00 Source: Ministry of Agriculture and Food data and own calculations. Although allocated expenditures as shown in the budget are not entirely clear, actual expenditures are even less clear. In each of the years, actual expenditures deviated from allocations because revenues fell short of projections. In general, expenditures for agriculture were cut back less than those for other sectors, reflecting a measure of political support for the sector. Both projected and actual expenditures on agriculture in 1998, however, were cut back severely, to the point that federal support for agriculture at present is very minor." 'o Our calculations of ERA could underestimate the true aggregate level of support for agriculture if one considers all the support provided through regional budgets - what some analysts have referred to as "the regionalization of agricultural policies in Russia." We did not have reliable disaggregated data at the regional level. 46 E Serova CONCLUSIONS AND IMPLICATIONS FOR FUTURE PERFORMANCE OF THE SECTOR The statistical basis for analytical work on Russian agriculture is still weak, and this impedes ready access to the information that policy makers need. The analyses attempted here are standard for many OECD countries, and are undertaken in a number of lower and middle- income countries that are not yet members of OECD. On a routine basis, these calculations require regular and reliable observations on farm gate prices, transport and processing margins, wholesale prices, input prices, input use, retail prices, and international trading prices. Although many statistics are collected in Russia, there are still key gaps in data needed to monitor the performance of a market economy. Russian primary producers of major commodities receive prices that are lower than international reference prices. Other factors besides output prices affect producers' incentives and their well being. Nonetheless, the finding that almost a decade into reforms and over a period in which Russian trade policy was quite liberal, farm gate prices are depressed relative to international prices suggests that serious attention should be turned to identify measures that can improve transmission of international prices. Artificially low output prices will retard reinvestment in agriculture needed to improve competitiveness and increase yields. This finding is important because it contrasts with that of a recent report undertaken by the OECD with a different methodology that suggests that on balance Russian producers are not taxed by price interventions (ref OECD). In contrast to the OECD, our calculations use Russian customs price data, which in general give lower international reference prices. We also take the imported commodities into the country for a common point of comparison, and apply margins of transport and handling that are lower than the OECD assumed levels of 50%. The different findings of the two studies agree in the general conclusion that Russian farm gate prices, and hence producer incentives, are relatively low. The studies differ on the interpretations accorded to assumptions about margins, and about the actual levels of margins assumed. The degree of implicit taxation through output prices declined over time between 1994 and 1997, and was greater for crops than for livestock. Both the OECD study and our approach agree on these findings, and hence they appear to be relatively robust. The importance of this finding lies in its implications: the combination of policies and market imperfections are penalizing the export products in which Russian has a present or potential comparative advantage, and assisting the producers of commodities that are least competitive; i.e., the livestock sector. Overall, these effects retard the improved competitiveness of Russian agriculture as a whole. Budgetary expenditures on agriculture at the federal level have been declining over time, and are now quite modest. Overall the amount of money spent on governmental programs for agriculture (the categories outside market support) has been rather modest for a large country (at $ 1.7 billion per year), but not insignificant. The striking finding is how little improvement in the sector has been achieved with these monies. Given the outlook for budgetary stringency in the future, it is even more important at present than in the past to identify institutional and regulatory lacunae that depress producer incentives and impede reinvestment by private agents. Remaining public funds available for agricultural intervention can be best targeted toward removing these constraints, since budgetary resources will clearly be inadequate to compensate producers for their ill effects. Chapter 1: Russia 47 Appendix Table 1.1: Russia - Price Adjustments Adjustments from Border to Point of Competition (expressed as % Wheat Corn Barley Rye Sugar Beet Pork Beef Milk 1994 17% 50% 20% 20% 52% 8% 8% 8% 1995 17% 50% 20% 20% 52% 8% 8% 8% 1996 17% 50% 20% 20% 52% 8% 8% 8% 1997 17% 50% 20% 20% 52% 8% 8% 8% Note: include unloading, storage and handling, importers margins, transportation. Source: Mudahar and Shaeffer (1996). Appendix Table 1.2: Transportation Costs (from farm to point of competition), in U$ Grains Livestock 1994 14.43 77.40 1995 15.88 85.14 1996 17.46 93.65 1997 19.21 103.02 Note: Transportation costs/ton for grains refers to 30% of the wheat price per ton in 1994 and a 10% annual increase in these costs. Source: Goskomstat data CHAPTER 2: ROMANIA Emil Tesliuc THE ROMANIAN AGRICULTURAL SECTOR The agricultural sector in Romania is, after industry, the second largest in the economy, employing one third of the labor force and contributing to one fifth of GDP. It is, therefore, important for jobs and earnings. Almost one half of the population lives in rural areas, where agriculture is the main source of employment (70%) and earnings (65%). Food expenditures represent more than half of the household expenditures, thus food prices and domestic food supply are important policy priorities. Domestic agriculture was the main source of cheap resources for food industry, thus sustaining its development in a very autarchic environment. With the increased openness of the economy, the competitive pressure on the Romanian food industry has also increased. The unanimous desire of the policy-makers to help agriculture develop led to the implementation of a wide spectrum of interventionist policies between 1994 and 1996. At the beginning of the period, fiscal subsidies were sufficient. However, state-owned agriculture soon grew entirely dependent on public money. The accent moved in time to quasi-fiscal transfers able to escape the scrutiny of the public eye. Cumulatively, the fiscal and quasi-fiscal flows to agriculture during this period were estimated at 3% to 9% of agricultural GDP. These policies soon proved to be unsustainable. At the end of 1996, the budget was unable to accommodate the request for funds "needed" by the sector. The parastatals that provided quasi-fiscal support went bankrupt. Romania was forced to reform its agricultural policy. The collapse of the interventionist policy forced Romania to shift the accent toward the free-market. At the beginning of 1997, a comprehensive reform agenda was developed with help from the World Bank. The reform was designed to deal simultaneously with changes in the incentive franework and rapid structural adjustment via rapid privatization and downsizing of inefficient operations. The target of the reform was to transfer the assets of the agricultural state firms to private entrepreneurs, either as going concerns, or through liquidation of bankrupt businesses, in order to be used more efficiently. In the short-term - one to two years - agricultural output would register a fall, to be followed by a sound recovery, led by the private sector. The practice proved that incentives' reform was easier to implement than the needed privatization and liquidation policy. At the middle of 1998 the new incentive framework was in place, but because of lack of progress on privatization there was no strong private initiative to capture the new set of incentives. The expected supply response did not happen. As a result, the anti-refornist lobby raised its voice, asking for more subsidies and border protection. Chapter 2: Romania 49 AGRICULTURAL POLICY DURING TRANSITION THE BEGINNING OF THE TRANSITION: 1989-1993 After the land reform of 1991, the agricultural landscape in Romania changed dramatically. At the outset of the transition", 411 state farms and 3,776 cooperatives exploited almost all of the country's (arable) land resources. In 1991, about 65% of the agricultural area12 - belonging to the cooperatives- was restituted to former owners or their heirs. About 3.7 million peasant households, who, after repossessing their land, decided to exploit it individually or in associations, took the place of former agricultural cooperatives. Three quarters of the area in private ownership is now worked by small, subsistence-based, agricultural units, of 2 to 3 has each, sometimes divided into 3 to 5 plots. Following land reform, three new forms of private land tenure replaced state co-operatives: a) peasant farms (small-scale farms, averaging 2.5 ha each); b) family associations (farms of 100 ha each); and c) agricultural companies (farms of 500 ha each). State farms remained essentially unchanged. Out of the total agricultural area, state farms are farming 16% of the land resources of Romania, agricultural companies 14%, family associations 10%, and peasant farms the remaining 60% (1997). The number of private farms increased dramatically compared with the pre-land reform situation: about 3,875 formal associations, 7,000 informal ones and 3.7 million small farms now farm private land. The contribution of the private sector in vegetal production was, in 1997, 89.4%. However a large part of the production never reaches a market, due to the widespread subsistence farmning that characterize the peasant farms. As for the marketed portion of the ouitput, the emerging private associations/companies contribute at par with the state farms in supplying the food industry. Agricultural structural policy developed in two streams: fast privatization of the co- operatives land, and a virtual standstill on the privatization of state-owned land, animal farms, and downstream or upstream businesses. Privatization of the land resources occurred in 1991, with the restitution of land in state cooperatives to the former owners'3. The rest of agricultural land was maintained with an unclear legal status - no state institution were assigned as the owner of the remaining land and no legal ownership title issued for it. Until today, state farm privatization has been postponed, waiting for a political solution. There is some hope that state farm privatization may start in the second half of 1999. Except for the large impact of land reform on ownership and land tenure, little or no progress has occurred in trade or price liberalization. The liberalization of major macro prices was delayed. At the beginning of the period, exchange rates and interest rates were subject to value or volume quotas. Multiple exchanges cohabited with directed, preferential credit schemes. Foreign and domestic trade policy was still dominated by parastatals. Land reforn broke the former links between agriculture, its upstream suppliers, and downstream clients. In this turmoil, 1992 obviously was a bad agricultural year: gross agricultural output decreased by 12%, mainly " In 1989, figures from the Statistical Yearbook 1990. 12 73% of the arable area, respectively. 13 With the land, most of the cattle herd was transferred to the former owners as well. 50 E. Tesliuc due to cereal production being at two thirds of its "normal" average. The change in the land ownership and tenure required new solutions for input and credit distribution, as well as output marketing. THE HEAVY HAND OF THE STATE To arrest the decline in agricultural output and to reintegrate private agriculture back into the marketing chain, the authorities implemented a new policy package in 1993. The main features of this agricultural policy were concerted, heavy, intervention in four major commodity chains (wheat, pork, poultry, and milk/dairy products), plus milder, selected interventions in other areas. For the four commodities, prices were set administratively using a pan-seasonal and pan-territorial rule. Producers that surrendered their products at fixed prices to state-mandated agents benefited from large producer subsidies, and gained eligibility for other input subsidies and soft credit. Commodities surrendered at the administrative price were controlled downstream, through capped or fixed processing and marketing margins. Under this system, producer, processor, and retail prices were "under control." However, in order for such a mechanism to work, one should limit import and export competition. In July 1995, the domestic market was insulated from foreign competition through a sharp increase in border protection from 20% to 70-80% in the case of imports'4 combined with export bans or quotas. In other sectors - sugar beet, sunflower and maize - the mildest interventionist tools such as state procurement, soft credits and border measures were used. Investment grants were provided for the build-up of the cattle herd. To stimulate private investment in agricultural machinery, domestically produced equipment bought on credit benefited from subsidized interest rates. All the measures listed above, required to implement a change in domestic relative prices rather than border prices, had their cost. Producer subsidies for inputs, outputs or factors or interest rate subsidies had a straight fiscal cost. Other costs were not so obvious. The cheap credit that the National Bank provided to the banks, was intermediated under fixed margin to their clients, and therefore had a cost. The revenues of the National Bank declined, the tax on profits that should be surrendered to the budget declined, and therefore the total funds available for public spending declined. The National Bank, Banca Agricola and some parastatals like the grain monopsony Romcereal/ANPA or the State Ownership Fund were used to transfer resources to the sector, absorbing the losses of the agricultural companies. These transfers, of quasi-fiscal nature, add to the cost of support for agriculture. Many rationales were provided as justification for the heavy interventionist policies. The most common was the "micro food-security" argument, to protect urban consumers from uncontrolled price increases. Keeping staple food prices under control was seen as a device for controlling inflation. Leaving aside the "good-intentions" of this policy, one can measures three major consequences. First, the policy required private agriculture to interact solely with state 4 For the four "commodities of national importance," the "erga omnes" import tariffs were set at 236% for pork, 143% for broilers, 240% for butter and to 65% for wheat. Chapter 2: Romania 51 agencies, the latter extracting huge rents from their monopolist/monopsonist position. Second, huge sums of money were injected in agriculture, but the incidence of the subsidies was concentrated heavily in the remaining state sector. Third, studies on subsidy incidence showed that most of the benefits accrued to the wealthier strata of the society. THE 1997 SLOGAN: LIBERALIZATION AND PRIVATIZATION Not only did these interventions not achieve their intended targets, but also their costs grew larger and larger over the four-year period peaking in 1996. Unfortunately 1996 was a bad agricultural year for Romania and the agricultural bet that the government placed with these larger subsidies did not pay off. Part of these costly liabilities accrued to the 1997 budget. In 1997, the budget was again unable to meet the demands the agricultural subsidies imposed on it. The parastatals that took over the losses of the sector were almost bankrupted by it. Under these circumstances, in 1997 the interventionist policy was discontinued. Soft credit policy stopped in January 1997, prices were liberalized, and producer subsidies were eliminated in February 1997. Import tariffs were reduced to around 28% (production-weighted average) in May 1997, and exports were fully liberalized in August 1997. A liberal economic climate was instituted, gradually, during 1997. MAIN POLICIES AFFECTING INCENTIVES Under this heading, we will describe the main policy tools used by the authorities to modify the incentives producers, processors and consumers are facing: price, subsidies, credit, trade and exchange rate (a summary of the current agricultural policies for the six commodities analyzed is presented in the Annex). Price Policy. At the beginning of the transition, administered prices were a common policy tool. The gradual price liberalization recipe followed by the earlier administrations have chosen a combination of producer price liberalization combined with widespread use of consumer subsidies and control over the retail prices or commercial margins. Given the mistrust in markets, the chosen formula was "under control" in many respects: most of the producers were state-owned units, were moral suasion or owner-control was used in imposing a "price discipline". In agriculture, where the private sector was dominant at the primary level, the control was exerted through downstream and upstream parastatals used to convey "administrated price signals" to producers. In 1992, the time of first wave of price liberalization, 80% of agricultural budget was in consumer subsidies, and the figure decreased in 1993 to 16% and then to almost zero. Same time, 80 to 90% of the marketed output in core agricultural commodities was bought by state-owned marketing agents. Starting from 1994, the administration tried a more "liberal" formula, creating a maze of output and input price subsidies that producers can benefit from. The entry pass in the system was the respect of administratively set prices for producers, followed by the respect of margin and retail price controls for the processors and retailers buying the subsidized commodity. In effect, the system was trying to replicate the outcome of the former one. Commodities under the state-controlled marketing system were intended to reach consumers at lower prices, thus 52 E. Tesliuc eliminating the emerging private competition. The system was implemented for four commodities of "national importance": wheat, pork, and poultry meat and cow milk. The Achilles' heel of the system was its fiscal cost and the constant pressure of liberalized input industries on farmers financial viability. When budget pressure to sustain the attached subsidies was too high, quasi-fiscal subsidies were used. When the use of the latter form of subsidies increased (in 1995-96), the system went bankrupt. In February 18th, 1997, agricultural commodity prices were liberalized at all marketing levels. Subsidy Policy. Throughout the transition period, agricultural sector was supplied with large amounts of subsidies. The aim of the policy makers was to provide cheap food to the population while maintaining remunerative prices for the producers. Taxpayers would pay for the wedge between the producers and consumers prices. Thus, budgetary support augmented the sector value added by 9 to 24 percent. Consumer subsidies dominated the period 1991 to 1992 (Table 2.1). In 1993, they were replaced with a combination of producer, input and factor price subsidies, and concentrated in four commodities. The system was implemented between 1993 up to February 1997. Starting March 1997, the emphasis was placed on indirect interventions like input vouchers, storage subsidies and services of general interest. Table 2.1: Romania - Budgeary Support for Agriculture, 1991-97. Budgetary Support for Agriculture 1991 1992 1993 1994 1995 1996 1997 % of Gross Value Added in Agriculture 9 18 12 13 12 14 10 Composition: 100 100 100 100 100 100 loo Consumer (price) subsidies 46 80 16 0 0 0 0 Producer (price) subsidies // premia 0 0 50 26 46 46 1 1 Input (price) subsidies 14 4 13 32 24 23 13 Factor (price) subsidies 0 0 0 10 12 14 1 1 Transfers, out of which: 0 0 5 14 0 4 31 Services of general interest 35 13 13 15 16 12 11 Agricultural Credit (principal): 0 0 0 0 0 0 22 Administrative costs 5 2 2 2 2 1 2 Source: Changes in the Romanian Agricultural and Food Sector, Ministry of Agriculture and Food 1997 Annual Report Credit Policy. At the start of the transition, many state-owned agricultural firms were found with little working capital, their productions cycle being dependent on the borrowed one. This was supplied, until the end of 1996, by a mono-sector bank, Banca Agricola. When the price of credit was liberalized in 1992, the interest rate cost began to depress the financial profit margin of the agricultural enterprises. In response of state sector lobby, the administration started to control the credit allocation and its price, using the National Bank and the sector bank as instruments. To deliver preferential credit to agriculture proved to be a difficult topic; the amount of interest subsidy required was a heavy weight on the budget. Starting 1993, tough, the administration financed these transfers using central-planning tools. The standard mechanism was for the central bank to issue directed credit lines for agriculture, bearing negative interest rates. The intermediation, taken care by Banca Agricola, was a simple distribution exercise, bankers being instructed by law to whom to lend and what margin to charge. Under this mechanism, large quasi-fiscal subsidies have been transferred to the agricultural sector. The central bank renounced to a portion of its profit, and lent agricultural enterprises cheap credit. Chapter 2: Romania 53 That profit, that otherwise was fully surrendered to the budget and was transparently allocated to the budgetary-funded activities, escaped public debate and went to the agricultural sector into a hidden, non-transparent way. Credit policy was only one of the tools used to transfer quasi-fiscal subsidies to agriculture, albeit the main one. Another chief tool was the privatization agency - State Ownership Fund - whose revenues were used to grant zero-interest rate loans to state-owned enterprises, or that instructed profit-making enterprises in their portfolio to cancel debt of the loss-making ones. Similarly, state-owned banks were instructed to restructure their overdue credit portfolio with state farms, inclusive by debt being written-off. Finally, major state-owned utility providers of energy and electricity charged lower than parity prices for their services, subsidizing indirectly energy users. Some of these subsidies, for which information exist, are quantified in the table below (Tesliuc, 1997a): Table 2.2: Romania - Quasi-Fiscal Transfers to Agriculture (% of AgGDP) 1993 1994 1995 1996 1997 Preferential interest rates 2.3 1.3 1.9 3.2 0.5 NRB profits used to cover the interest subsidies - - 1.1 - - NBR interest payments deferred - 0.2 0.6 0.9 State Ownership Fund zero-interest lending 0.3 0.9 0.7 0.6 Debt forgiveness (State Budget, State Enterprises) - - 0.7 Other QF Operations - 1.2 1.2 1.3 - Total 2.6 3.7 6.3 6.0 0.5 Source: Tesliuc E. D., "Agricultural Finance - an assessment of the costs and implicit transfers associated with the current system of agricultural finance", Oeconomica 1998, Bucharest. Support Through Direct Interventions: Fiscal & Quasi-Fiscal Subsidies. The budgetary support and the quasi-fiscal subsidies for agriculture grew from 1991 to 1996 (see Table 2.3). In 1996, the agents providing quasi-fiscal subsidies were unable to sustain the drain of their resources toward agriculture. Both Banca Agricola, and the main grain monopsony of the country - National Agency of Agricultural Products -, registered large debts. In addition, the budgets stepped in to support the bankrupt agents above, action that diminished the funds available for the agricultural sector. The costs of the past had come due in 1997. Without quasi- fiscal support, agriculture benefited from half of its past allocations. Table 2.3: Romania - Budgeta and Quasi-Fiscal Suport for Agriculture % of A DP) 1991 1992 1993 1994 1995 1996 1997 Budgetary Support for Agriculture 8.9 23.9 11.6 13.8 13.2 15.1 11.0 Quasi-Fiscal Support for Agriculture 0.0 0.0 2.6 3.7 6.3 6.0 0.5 Budgetary and Quasi-Fiscal Support 8.9 23.9 14.1 17.5 19.5 21.0 11.5 Source: Tesliuc E. D., "Agricultural Finance - an assessment of the costs and implicit transfers associated with the current system of agricultural finance", Oeconomica 1998, Bucharest. The fiscal and quasi-fiscal support was large, and the figures above quantify only a portion of it. Agriculture benefited from a lower profit and value added tax rate, and agricultural farm income or land was not taxed at all. Even without quantifying these components, agriculture benefited from a 20% of its domestic value added via fiscal and quasi-fiscal routes in 1995-96. 54 E Tesliuc This support, averaged over the sector value added, is hiding large differences. Most of the support was directed to the marketed portion of the production of four commodities. The state dominated the marketing of these commodities, and the support was an indirect way of the state helping inefficient state-owned farms. In some case, like state-owned pig and poultry farms, the incidence of these subsidies was extremely high, larger than the value added. The policy was counteracting the restructuring signals sent by market forces. By concentrating on the protection analysis of these commodities, the authors are confident that they captured the bulk of the implicit transfers that occurred through output and input price distortion. Trade Policy. Until WTO implementation in June 1995, trade policy granted moderate protection to importables but taxed exportables. For imports, the average tariff did not exceeded 25% during 1991-95. For exports, bans and quotas on main raw commodities were used to maintain sufficient cheap food in the country (wheat) or cheap raw materials for the domestic food industry (oilseeds, sugarbeet, and barley). From Jul-95 until May-97, the import regime turned protectionist, with trade-weighted average import tariff up to 70-75% until May 1997. For some commodities, effective import tariffs were set at above 300%; tariff dispersion was high. However, political discretion was often used to reduce on a temporary basis the import tariffs to zero, for the benefit of some agricultural lobbies. Due to this practice, the tariff collection in that period was as low as 18%. On the export side, the same bias against exportables was maintained. Table 2.4: Romania - Trade-Weighted Rates of Tariff Protection, 1993-1997 (%) Section Description 1993 1994 Jan- Jul- Jan- Jan- Jul- Jul/95 Dec/95 Dec/96 Jun /97 Dec/97 Average Tariff: I. Live animals and animal 22.8 23.2 22.8 135.0 84.3 69.5 38.6 products II. Vegetable products 22.0 20.4 23.2 67.1 48.3 70.6 25.6 III. Animal and vegetable fats, oils 24.8 23.1 22.6 84.4 51.1 48.5 23.4 IV. Foodstuffs, beverages, tobacco 21.1 26.4 26.4 66.0 78.5 83.8 32.8 Total 13.5 12.7 13.5 15.9 16.7 17.0 12.9 Agriculture (I-IV) 21.7 24.5 25.1 75.0 68.0 76.1 30.7 Industry (V-XXI) 12.0 11.5 12.1 11.4 11.6 11.2 11.1 Source: Tesliuc E. D., "Agricultural Finance - an assessment of the costs and implicit transfers associated with the current system of agricultural finance", Oeconomica 1998, Bucharest. Starting May-97, the agricultural trade regime opened gradually. All the export bans or quotas were lifted in May, and a wheat export tax implemented in May was abolished in September 1997. Import tariffs were reduced to a trade-weighted average of 31%, and maximum tariffs were reduced to 60% in order to reduce tariff dispersion. Exchange Rate Policy. Romania inherited an energy-intensive industry, whose financial profitability was pending on supplies of cheap energy. Up to 1997, Romania pursued a policy of cheap energy, by controlling the price of energy produced by state parastatals. Such a policy, ceteris paribus, will turn the parastatals into loss-making companies. To mitigate this effect, the cost of energy inputs, notably imported oil was reduced through a policy of overvalued exchange rate. The cost of the policy for the tradable sector was large. Agriculture, producing mostly tradable goods, paid a large portion of this tax (Deaconescu, Gordon, Tesliuc, 1996). The effects of the exchange rate miss-alignment are occasionally spelled out in the paper. Chapter 2: Romania 55 CALCULATIONS OF AGGREGATE MEASURES We selected six commodities for the study: wheat, barley, maize, pig, poultry, and milk. They were selected for two main reasons. First, the markets in which they were sold had been severely distorted by price, subsidy, marketing, and credit policy during 1994-96. One may suspect that the largest part of the overall transfers (implicit protection or taxation) was concentrated in these markets. Second these commodities account for a large share of the gross agricultural output (GAO), 44-48%, and GDP,`5 50-55%, during the period studied. In four of the six markets, we documented our analysis throughout the whole marketing chain. In the case of wheat/flour, pig/pork, chicken/broiler and cow milk, the analysis was carried out at the production, processing and retail level. The maize and barley markets have been analyzed only at producer level. All the six commodities are produced mainly in the private sector, by individual farmers, associations and private companies. Table 2.5 presents the situation in 1995. The share of the output produced in the state sector varied, from 7% in the case of milk and maize, to about 40% for pig and poultry. The average share of the state units in gross agricultural output was about 20%; so the state presence is quite large in the two tivestock sectors, but very small in milk and maize production. Table 2.5: Romania - Production by Farm Type in 1995 Commodity Unit Production State Units Private Individual Companies, Farmers Associations Wheat 000 tones 7,709 23% 28% 49% Maize 000 tones 9,923 7% 15% 78% Pig 000 tones 897 41% 4% 55% Poultry 000 tones 367 39% 4% 57% Milk 000 hl 52,830 7% 1% 92% Source: National Commission for Statistics, Producer Balances However, the state is very present in marketing. One cause is that a large part of the production is consumed on farm, or transferred as gifts to the urban relatives; or urban land owners who benefit from in kind payment of dividends. The share of output that is not marketed is about 50%, varying from 40% for pig and wheat to 55-65% for maize, poultry and milk. The rest of the output is marketed. During 1993 to 1996, all the products except maize are largely marketed through a state- controlled network, being subject to heavy price, subsidy and trade policy interventions, both in the output and input side. As one can see from Table 2.6, in 1995: 15 In 1996, these commodities accounted for 47% of the gross agricultural output (29% of the vegetal and 73% of the animal production, respectively) and 55% of the GVA. They had similar shares in GAO and GVA in the rest of the period analyzed in this study. 56 E. Tesliuc * wheat purchased for the state consumption fund, seed fund or by state livestock units at the guaranteed procurement price represents 87% of the total sales; • sales of live pigs at guaranteed minimum price represents 65% of the total sales; * for poultry sales, the same share is 94%; * and for cow milk, the share of the sales through the state network is about 50%. It is important to note that for maize, the only commodity in our sample that is not subject to the minimum guaranteed price regime, the share of the sales through the state network is only one third, and declining over time. There are two important remarks about the actual flow of commodities. First, the system of price and subsidy interventions in the first four markets have the effect of absorbing the marketed supply into the state marketing network, and also prevents the development of alternative, private marketing systems. Second, one can expect that price distortions will be larger in these markets. Table 2.6: Romania - Uses of Prima Production of Ke Prima Commodities in 1995 Commodity Unit Total State Peasant Other Sales Self- Stock Var./ Network Market Consumption Looses Wheat 000 tones 7709 47% 3% 4% 42% 5% Maize 000 tones 9923 9% 2% 17% 61% 11% Pig 000 tones 897 41% 8% 14% 38% -1% Poultry 000 tones 367 38% 2% 1% 55% 3% Milk 000 hl 52830 16% 10% 7% 68% 0% Source: National Commission for Statistics, Producer Balances This analysis covers 1994 through 1997 and it encompasses a period of heavy state intervention followed by a short one of liberalization. The first period begins with the implementation of the policy measures provided for in "Law 83/1993 on Support Granted to Agricultural Producers." The objective of the law was to protect producers. Support measures are not restricted to the five commodities analyzed in our study, but we have deliberately limited the analysis to a core group of products. The last year of the study, 1997, was the year in which the authorities decided to let markets have more freedom. EVOLUTION OF DOMESTIC AND BORDER PRICES The evolution of real prices (nominal prices divided by CPI) exhibits a diverse pattern. At the producer level, prices of maize, pig meat and cow milk increased in real terms until 1996, and decreased in 1997 after the price liberalization (Table 5 in Synthesis Report). Prices for wheat, barley and chicken meat had a more erratic evolution, and fell in 1997, with the price liberalization. The prices registered large fluctuations (in real terms) in the case of grains, due to the bad harvest in 1996 that made import parity prices relevant for that year. Part of this evolution has to do with the known (negative) covariance between price and quantity produced: 1994 and 1996 were years with relatively bad harvests, while 1995 and 1997 were "good" agricultural years. In dollar term, domestic prices varied somewhat in line with the evolution of border prices (CIF of FOB prices, function of the trade position of Romania in the respective commodity). For the commodities analyzed here, 1996 was a peak agricultural year on world Chapter 2: Romania 57 markets, with grain and livestock prices at their peak in the decade (Table 2.7), also disturbing domestic prices. Table 2.7: Romania - Border Prices at Main Import of Export Point (U$/t) Commodity Specification 1994 1995 1996 1997 Wheat SRW, FOB Romania 139 167 181 146 Maize Yellow, FOB Romania 108 134 137 102 Barley FOB Romania 90 106 149 110 Pig meat carcass, FOB Romania 1,200 1,287 1,450 1,450 Chicken carcass, CIF Romania 1,038 1,491 1,378 1,600 Beef carcass, FOB Romania 2,385 2,926 3,512 2,574 Cow Milk Powder milk, butter fat content 28%. CIF Romania 1,500 2,150 1,825 1,800 Source: National Commission for Statistics, Producer Balances AGRICULTURAL MEASURES OF SUPPORT The simplest indicator, the NPC, is the ratio of the domestic price to its opportunity cost. Domestic prices are prices observed on the domestic market. To characterize prices, one needs to specify location and date and, for the opportunity cost, the type of competition'6. The prices used in NPC numerator were those observed at a location where most of the trade occurs - a representative location -, at each level of the marketing chain. For the commodities with administratively fixed prices, the question "what prices should we use?" was very simple. Wheat, pork and poultry meat, milk and dairy products followed, from 1994 to 1996, a pan-territorial and pan-seasonal rule. For these commodities and years, location was not a characteristic of the price; we used the "official", fixed price. For 1997, and for maize and barley throughout the period, we used modal prices observed in the representative, local market. The source of information was price reports produced by the association of producers or traders in the respective commodity. Concerning the time dimension, the main issue was to compare like with like - domestic prices and opportunity cost at the same moment in time. The opportunity cost is the price the farmer, the producer, the processor can get or the consumer would pay if there were no policy distortions. We refer to the opportunity cost as the "border price", as it is often called in the literature. As Romania's agricultural trade is small compared to world trade flows and cannot influence the word market price in any of the commodity under study, the export or import prices that Romanian commodities may get indicates the opportunity cost"7. We have used as reference border prices the unit export or import values (CIF / FOB prices, respectively) at the main entry and exit point, the Constantza port. To reflect the true opportunity cost, the reference border prices were adjusted to the point of competition at producer, processing or retail level, by taking into account transport, marketing and processing 16 Timmer P., "Getting Prices Right - The Scope and Limits of Agricultural Price Policy", Cornell University Press, 1986, p. 73-95. 17 Romania fulfills the textbook assumptions for the small-country case, where the position of the domestic trader in the world economy is of "price-taker." 58 E. Tesliuc costs. In the absence of any barriers - trade, price, subsidies, fiscal or quasi-fiscal, exchange rate policies or non-competitive market structures - markets will make these border prices prevail also domestically. Put differently, a non-interventionist policy will leave the farmer facing these prices. For domestic prices -at each level on the marketing chain - we used an annual average price computed as ratio of total sales per quantity sold. For border prices, we used average unit values, computed as ratio of value of imports/exports of commodity X per quantity traded during that year. Under direct payments we included programs that transferred funds to farmers based on the assets they hold. Two schemes were included: a livestock grant program and a voucher 18 scheme . Input subsidies were included under the programs that aimed at reducing the costs of inputs paid by the farmers'9. The policies aiming at reducing the cost of inputs that were quantified in the study are input price subsidies on fertilizer or certified seeds procurement, plus storage and interest rate subsidies paid out of the agricultural budget. Finally, we added a part of the general services such as research and agricultural extension, proportional with the commodity share in total agricultural output. For the livestock products, we corrected the ERA with an adjustment for animal feed. This takes into account the implicit transfers that occur to the livestock sector as a result of the difference between domestic and world market price for major animal feed items. In our case, corrections were done for maize and barley. When we aggregate all commodities ERAs together, we deduct this inter-sectoral transfer from the overall ERA figure to avoid double counting. Finally, we warn the reader on the limitations of the approach used, due to the availability and quality of the data: There is a large share of production that it is not marketed for every commodity under the study, ranging from 30% to 70% of total output. In computing the total transfers to/from producers, we used the price differential apparent on the marketed portion of the output to the whole output. The lack of hard data on the costs and returns of the peasant farms did not allow us to compute separate protection coefficients. The foreign trade unit values used in the analysis exhibit significant variability over time, due to the trade position of the country as marginal importer or exporter, in addition to the i8 The livestock grants were granted for the cattle business as allotment for the acquisition of pure-breeding cows or birth of calves and the grants for the producers that maintain into exploitation more than three milking cows over the year for livestock breeding. The voucher scheme was implemented in the fall of 1997 and allowed landowners to buy agricultural inputs from a list comprising gasoline, fertilizer, pesticides, certified seeds and mechanical services. Each landowner received input vouchers at a rate of one voucher per ha owned, up to maximum 10 ha. '9 A wide range of measures had the effect of reducing the cost of input facing farmers. On the vegetal production, agricultural producers who contract their crops with the state-agents benefit from policy measures such as free- distribution of a specified quantity of fertilizers, access to subsidized seeds, free application of pesticides, free-of- charge irrigation services and interest-rate subsidy for credit used to finance agricultural production or for the acquisition of equipment. On the animal production, farmers receive free application of medicines, benefit from free seminal material for animal reproduction and interest-rate subsidy for their working capital needs. Chapter 2: Romania 59 variability of some reference world market prices. In most of the agricultural commodities, Romania is an occasional trader (see wheat, maize and dairy products). In pork, when Romania is a systematic exporter, the unit values tend to rise over time toward international reference prices (such as CBT hog prices). CONCLUSION AND MAIN LESSONS Agricultural reform in Romania during the 1990s was a series of forward and backward steps. The liberalization of the main production factor (land) in 1991 caused a temporary drop in output. The reaction of the authorities was to increase intervention in the sector. The system failed to stabilize output (livestock numbers decreased) or the volume of marketed production, but imposed costs on the agricultural agents (losses, arrears). With subsidies, these costs were partially covered by the taxpayers. In 1997, when subsidies were reduced, most of the former beneficiaries of the subsidies went into bankruptcy. The liberalization was not accompanied by sustained structural measures (unbundling integrated firms; rapid privatization). The costs of this hesitant attitude must eventually be paid. Incentive reforms proved to be simpler to implement that structural reform. Opposition of interest groups to incentive reform was large. Structural reforms were difficult to implement. There is a need for political support to implement hard measures. Strong administrative capacity to implement is required (to a greater extent than in the case of incentive measures). Optimism that led to wrong assessment was damaging. The lack of structural reform wiped off the potential benefits of the liberalization. First, was no advance in the liberalization of important factor markets, like agricultural land.20 Also, privatization of significant marketing chains (grains storage, certified seed producers) was unnecessary postponed. Thirdly, privatization in state farms and some large pig farms was delayed. Grain production is still blocked by lack of privatization in storage and production. Infrastructure bottlenecks in export of grain have not been solved, but blocked by indecision. All these "frozen" subsectors not operating under profit maximization rules were destabilizing the intended positive outcome of the reform. Inefficient producers that keep their output levels high and register losses while increasing output, depress prices and returns for the private operators and restricts entry. These state owned producers should be shut down, but were not. Summarizing, the sequencing in implementation of reform measures proved to be very important. Advancing on one front (incentives) increased the difficulties in the non- restructured sectors, making their prospects for privatization worse. In pig and poultry production, the delay in privatization, coupled with reduction in protection worsened the situation of the inefficient state farms, making them less attractive for 20 Land not allowed for sale in 1997; poor land lease arrangements, lack of clarity in the ownership status of the state land. 60 E. Tesliuc privatization. The largest pig farms have yet to be privatized. Thus pig and poultry production, already declining, will decline further. The large peasant farmer subsistence based sector is not integrated in the formal economy, nor is it part of the larger Romanian social fabric. There is a need for long-term reforms that would include them in the formal, commercial economy, and boost their production beyond subsistence levels. This has a cost, but the additional tax revenues should partly pay for this (the informal economy does not pay taxes, so there is an entry trap). Reform means contraction of inefficient sectors. But a drop in output coupled with a more efficient use of resources is a positive development. However, this fuels the power of counter-reformist lobbies, and may endanger the reform effort. Care should be taken to avoid this. Reliable hard evidence is crucial for the design of successful reform. Those who would bear the brunt of reform will obviously make their voice be heard louder than to voice of those who benefit (see the voucher scheme implementation in Romania). The serious analysis of the incidence of the policies and their costs has brought into the public debate many "sacred" topics. The public has learned about the inefficiency of some state operators, and the skewed incidence of subsidies to some state-owned sectors, etc. There is a growing awareness regarding the costs of past policies and the reasons of their failures. Now there is a growing search for solutions consistent with the market paradigm. This may prove to be a very important factor that may stop the reversal of the reforms. This opinion is now fighting with the old state lobby, threaten to loose its former privileges. This analysis, and similar others, would help, we hope, incline the balance toward reform. Chapter 2: Romania 61 REFERENCES Adams D., Vogel R. 1996. "Rural Finance in Romania", World Bank paper, December 1996 Deaconescu, Gordon, Tesliuc E.D. 1996. "Producer Price Interventions and Incentives in Romanian Agriculture", World Bank paper, November 1996 Esanu C., Lindert K. 1996. "An Analysis of Consumer Food Price and Subsidy Policies in Romania", World Bank paper, December 1996 Esanu C., Tesliuc E.D. 1997. "Romania: Agricultural Performance and Policy in 1997" Esanu C., Tesliuc E.D., 1998. "Romania: Labour Adjustment and Agricultural Land Reform and FarmLand Markets" Florian, V.; Serbanescu, C. 1997. "Food demand and rural poverty in Romania during transition to market", Research paper; Agricultural Economics Institute, Bucharest, Romania, February 1997. Metzel J., Salinger L. 1996. "Agricultural Effective Protection Analysis", World Bank paper, December 1996 Oprescu G. 1996. "Privatization in Agriculture", World Bank paper, July 1996 Tarhoaca C. 1996. "Food Access in Romania, Data Inventory and Analysis", World Bank paper, January 1997 Tesliuc, ED 1996. "Agricultural Trade Regime in Romania", World Bank paper, July 1996 Tesliuc, ED 1996. "Agricultural Finance in Romania" - An Assessment of the Cost and Implicit Transfers Associated with the Current System of Directed Credit, World Bank paper, December 1996 Tesliuc E.D. 1997b. "Romania: Recent Agricultural Policy, Trade and Market Developments" Tesliuc E.D. 1998. "Forecasting the Dynamics of the Pork Market in Romania" Tesliuc E.D. 1999. "Assessing the impact of governmental policies upon incentives faced by producers - A quantification using the example of five major agricultural commodities", Ph.D. Dissertation Thesis 62 E. Tesliuc A endix Table 2.1: Romania - Policy Summa Tables Policy 1994 1995 1996 1997 WHEAT ll Producers Price policy Administratively fixed Market determined Production A fixed price payment (premium) was No subsidy payment Subsidies injected at processing level Input Subsidies Input subsidies (fertilizers, certified seed, Input subsidies (fertilizers, irrigation) certified seed, irrigation) A voucher scheme was introduced Subsidized storage cost for a certain number of months Credit Subsidies Subsidized credit (farmers were subsidized Subsidized Credit to processors the up to 70% of the difference between who purchased wheat from market interest rate and 15%) producers Subsidized credits for land preparation works Market 74% 70% 78% 74% marketed output in the structure marketed marketed marketed private sector output in the output in the output in the private private private sector sector sector Processors Direct subsidization through payments Direct subsidization through injected at processing level subsidized credits for wheat acquisition. A revolving fund was set up, budgeted by the Ministry of Agriculture Consumers Indirect subsidization for standard bread Indirect subsidization for standard loaf through a mechanism, which enabled bread loaf through the Revolving processors to buy wheat at a lower price. Fund. Price of bread was market Price of bread was administratively set. determined. PORK l Producers Price policy Administratively fixed Market determined Production A fixed price payment (premium) was No subsidy payment Subsidies injected at processing level Input Subsidies Subsidized forage No intervention Credit Subsidies Subsidized credit (farmers were subsidized No intervention the up to 70% of the difference between market interest rate and 15%) Market 66% 76% 78% 66% marketed output in the structure marketed marketed marketed private sector output in the output in the output in the private private private sector sector sector Processors Direct subsidization through payments No intervention injected at processing level Consumers Indirect subsidization for standard kg of No intervention meat. Chapter 2: Romania 63 Appendix Table 2.1: Romania - Policy summary tables (cont.) Policy 1994 1995 1996 11997 MAIZE Producers Price policy Market determined Production No Intervention Subsidies Input Input subsidies (fertilizers, certified seed, Input subsidies (fertilizers, Subsidies irrigation) certified seed, irrigation) A voucher scheme was introduced Subsidized storage cost for a certain number of months Credit Subsidized credit (farmers were subsidized Subsidized credits for land Policy Subsidies the up to 70% of the difference between preparation works market interest rate and 15%) _ Market The share produced by the private sector increased to 92% in 1997, due to land structure restitution process Processors No intervention Consumers No intervention POULTRY Producers Price policy Administratively fixed Market determined Production A fixed price payment (premium) was No subsidy payment Subsidies injected at processing level Input Subsidies Subsidized fo age No intervention Credit Subsidized Subsidized credit (farmers No intervention Subsidies credit were subsidized the up to (farmers 70% of the difference were between market interest subsidized rate and 15%) the up to Direct transfers from State 70% of the Ownership Fund difference between market interest rate and 15%) Market Share produced by the private sector was 75%, mainly for own consumption structure Processors Direct subsidization through payments No intervention injected at processing level Consumers Indirect subsidization for standard kg of Market determined Price meat. 64 E. Tesliuc Appendix Table 2.1: Romania - Policy summar tables (cont.) 1994 1995 11996 1997 COW MILK Producers Price policy Administratively fixed Market determined Production A fixed price payment (premium) was No subsidy payment Subsidies injected at processing level Input Subsidized forage No intervention subsidies Credit Subsidized Subsidized credit (farmers No intervention Subsidies credit were subsidized the up to (farmers 70% of the difference were between market interest subsidized rate and 15%) the up to Direct transfers from State 70% of the Ownership Fund difference between market interest rate and 15%) Market 62% 74% 68% 94% marketed output in the private structure marketed marketed marketed sector output in the output in the output in the private private private . sector sector sector Processors Direct subsidization through payments No intervention injected at processing level Consumers Indirect subsidization for standard liter of Indirect subsidization for standard milk liter of milk Source: Own Calculations CHAPTER 3: POLAND Mariusz Safin OVERVIEW ON THE EVOLUTION OF FARM SUPPORT POLICIES 1988-199721 Until 1990, in the pre-reform period, agriculture was supported mainly from the state budget. In 1988 and 1989, as measured by the OECD (1995), both producers and consumers were subsidized. This system of subsidies operated in a very closed and distorted economy with trade monopolized by the state22, a strongly overvalued exchange rate, and prices set by the state. These distortions make analysis of market transfers difficult, mainly because the question of the 'right' exchange rate to use to compare domestic and world prices was not answered satisfactorily until now. Since 1990, price and trade liberalization and the withdrawal of state subsidies have led to a considerable cut in support to agriculture. For the two years following the start of these reforms, food consumers were subsidized by agricultural producers. During this period of negative protection (1990-1991), strong pressure by farmers on policy makers pushed the latter to reintroduce positive support for agriculture. The government decided to support farmers mainly through agricultural markets, which implied taxation on consumers (OECD 1996). As a consequence of the exchange rate phenomenon, Polish exports became increasingly expensive on international markets, while imports became cheaper for domestic consumers. With farmers' price international competitiveness declining, the demand for protection increased. The more liberal trade regime of 1990 and 1991 was gradually replaced by a more trade- restrictive policy in the form of higher import tariffs and import bans appearing for food safety reasons (like BSE). On the export side, export subsidies were occasionally used; during the period 1995-1997 export subsidies were granted through the Agency for Agricultural Markets (ARR23) for pig carcasses and milk powder. 21 Relevant material can be found in the World Bank report (1990) and Kwiecinski (1996). These reports cover the period up to 1995. This note covers from 1995 to 1997. 22 Before 1990, in Poland, there were no trade barriers. However, the supply of foreign currencies was rationed and foreign trade transactions had to be approved by the Trade Committee of State, constituting an implicit trade barrier. 23 ARR is the Polish acronym for the Agency for Agricultural Markets (Agencja Rynku Rolnego) 66 M. Safin Trade measures were complemented by ARR intervention purchases (at a floor price) on .wheat, rye and milk. They were also applied irregularly for pork, sugar, starch potato, honey, linen and wool markets. Support for sugar is provided in an EU-shaped form of A-B-C production quotas. The existence of the floor price scheme on farm products did have an upward effect on farmgate prices, but the fiscal cost of this scheme, in the case of sugar and pork, does not necessarily represent an equivalent income transfer to farmers considering the high margins in the agro-processing industry. The government also intervenes in the input markets. In the case of tradable inputs (agrochemicals, machinery, equipment, etc.), border protection on imports raises the domestic price paid by farmers. To some extent this effect is compensated by input subsidies which farmers obtain mainly in the form of subsidized credit and a lime subsidy. Additionally, soft credits are offered for investment and for input purchases. The interest rate for these credits is about 1/6 of the NBP24 rate, which is lower than commercial lending rates. Apart from interest rate subsidies, there are also considerable transfers to the rural financial sector which cover bank losses from non-repaid agricultural credits. For the purpose of this paper, policies were divided into four categories: 1) commodity- specific support where the intervention can be quantified for each commodity in question; 2) non-commodity-specific policies, where it is difficult (or even impossible for methodological and data reasons) to disentangle intervention effects on commodities (for example fuel subsidy); 3) production-coupled policies, which affect farmers' decisions to produce; and 4) production de- coupled policies (for example differential income tax treatment) which do not, in principle, affect production decisions but support farmers' income. Sections two and three are analyses of production-coupled and de-coupled policies, and section four consists of conclusions and a discussion of policy challenges for the future. THE EXTENT AND IMPACT OF PRODUCTION-COUPLED POLICY INTERVENTIONS COMMODITY-SPECIFIC POLICIES This section presents the main findings on the effect of the various price interventions on farm income for the sum of all products covered in this study during 1995-97. Farm income was defined as a gross value of output minus gross value of purchased inputs. Thus, it represents value added at the farm level, and does not exactly correspond to agricultural value added as defined in the National Accounts. The price gap analysis is applied to the actual level of production and consumption during these years, and therefore it does not capture either the production or the consumption response (elasticity effect) to price interventions. 24 NBP is the acronym for the National Bank of Poland Chapter 3: Poland 67 Output Market Intervention The decrease in protection of the output market in 1996 and 1997 as compared to 1995, was to some extent a result of trade liberalization, especially within the CEFTA. Commodities imported from the CEFTA countries have the lowest import duties. For example, the base import tariff for milk is 80%, but CEFTA countries pay less than half (37%) of the base tariff. Nonetheless, a commodity by commodity analysis reveals that the extent of intervention is considerable. Depending on the year, the total support ranged from 3.1 to 3.9 billion PLZ, equivalent to about US $1 billion per year. This considerable support of farmer's income gives farmers incentives for lobbying activities. The variations of market interventions appear to be due to changes in world prices and domestic demand and supply conditions, but also to instability in policies. Whatever the main reason, visible instability in output market interventions forces farmers to diversify production, meaning there is little incentive to specialize. The latter is often perceived as a way to increase incomes, so policy instability inversely affects farmers' potential income. Input Market Intervention Government intervention in input markets imposes implicit taxation on farmers. This tax can be viewed as an implicit subsidy to the input sector, which to some extent is compensated to farmers via input subsidies like soft credit (see sections below). Support Through the Agency for Agricultural Markets Agency for Agricultural Markets was created to stabilize agricultural prices and prevent them from falling below minimum price25 levels using market operations. From farmers' income perspective, the ARR should contribute to stabilizing farmers' income and preventing them from falling below a certain level. To achieve these objectives, two main functions of the ARR operation have emerged: (i) contributing to market price support by making purchases at prices which are higher than the relevant border price equivalents, and (ii) subsidizing storage costs by making intervention purchases during harvest at prices which do not account for expected storage costs. The ARR is also responsible for maintenance of strategic food reserves in Poland, which makes it difficult to disentangle pure intervention effects from effects of procurement of strategic reserves. Market intervention costs of the ARR folds into the cost of price support and storage costs. Administrative costs of the ARR make intervention relatively expensive. Appendix Table 1, based on scarcely available statistics, shows that on average two thirds of the ARR budget is spent on market intervention and the rest on administrative costs, losses, insurance and VAT. Analysis of market intervention costs presented in this table does not include the financial cost of the ARR operation; rough estimates suggest that inclusion of this item would double the whole market intervention costs. This suggests that transfer of one zloty to farmers through the ARR 25 Minimum prices are negotiated every year between farmers trade union, government and the ARR for wheat, rye, sugar and milk. 68 M Safin market intervention costs the taxpayers about 4 zloty. In this context, the efficiency of price support provided via ARR can be seriously questioned. Trade Effects Commodity-specific policy measures during 1995-1997 supported importables but taxed exportables. As a result, farmers' production decisions were probably biased towards importable products. It was anticipated that this import-substitution policy would diminish or even eliminate the food trade deficit. However, there is a danger that in the long run, such a policy will negatively affect competitiveness of Polish agriculture as farmers move resources from relatively competitive commodities which are exported, to less competitive products which are imported. Therefore, agricultural exports can be expected to fall further in the future, leading to increased import barriers, i.e. trade is adversely affected. International trade and specialization in production can raise consumption considerably in trading nations without utilizing additional resources. The existence of an anti-trade policy bias ultimately leads to negative effects on societal welfare. Effects of price Support Policies on Consumer's Real Income Agricultural policy in Poland, with considerable market transfers, understandably affects consumers' income. This aspect of agricultural policy is of high importance considering the average share of expenditure on food products in Poland in 1997 was 36%, and is fairly representative for the whole post-reform period. Poor households are usually more affected than rich households by a system which maintains higher food prices than would be the case in the absence of intervention. While economic development in most cases guarantees an increase in household incomes, disparities between households tend to grow. Poor groups in society must therefore spend a higher proportion of their income on food. The effects of agricultural price support on consumer's welfare income were measured by Safin and Guba (1998). Their results suggest that during 1993-1996 price policies lowered real income of consumers on average by 4.3%. More detailed analysis with disaggregation into workers, non-workers and pensioner households revealed that poor households lose more than 8% of real income because of agricultural price support. A large proportion of the 'additional' income (compared to the average) spent on food in poor and large households are explained by the policy effects. This substantial cut is difficult to justify when taking into account that about 13% of the population in Poland lives below the poverty line (World Bank, 1995). NON-COMMODITY-SPECIFIC POLICIES Transfers through rural finance, lime and fuel subsidies are the main non-commodity specific measures of support. These transfers have risen over the years. In zloty terms, transfers are estimated at about 0.7 billion PLZ in 1995, 1.2 billion PLZ in 1996 and 1.5 billion PLZ in 1997. The largest are transfers through rural finance. They consist mainly of interest rate subsidies and coverage of unpaid debts. A relatively small subsidy (7 million PLZ) was granted for the purchase of fuel in 1996. The lime subsidy aims to help farmers prevent soil from Chapter 3: Poland 69 becoming too acidic as this may cut productivity considerably. Therefore, this subsidy can be regarded as a partial compensation for preventing durable asset depreciation. If non-commodity specific support is viewed as an input subsidy, farmners were not fully compensated for implicit taxation on inputs in 1995 and 1997, but in 1997 the subsidies were higher than the tax. However, these input subsidies (especially soft credit for purchase of intermediate inputs) seem to benefit the input sector more than farmers. Thus, input subsidies were not an efficient method of supporting farmers income support during 1995-1997. However, if the input tax is removed in the future (as the 1995-1997 trend suggests) and non-commodity specific support maintained or even increased, which is possible taking into account farners' present demands to do so, it may significantly increase farmers' income. PRODUCTION-COUPLED POLICIES To obtain a picture of production-coupled support, commodity specific and non-specific policy effects should be added (Table 3.1). Table 3.1: Poland - Estimates of Total Production-Coupled Support Item 1995 1996 1997 Item_ ____ 000 PLZ 000 PLZ 000 PLZ Commodity-specific policies 1,435,651 1,324,241 2,788,775 Non-commodity specific policies 707,717 1,212,881 1,528,579 Total production-coupled support 2,143,368 2,537,122 4,317,354 Agricultural GDP 15,832,500 17,925,500- 19,203,900 Share of production-coupled support in AGDP 14 14 22 Source: own calculation, Ministry of Finance, Pedersen (1997) and GUS. Production-coupled transfers to agriculture reached about one seventh of AgGDP in 1995 and 1996 and increased to almost one fourth of AgGDP in 1997. In nominal terms this support grew by 100%, and by about 67% in real terms. The value of transfers per farm increased from 1,100 PLZ in 1995 to 2,200 PLZ two years later, which is equivalent to 141 PLZ per one hectare of arable land. PRODUCTION DE-COUPLED AND OVERALL POLICY INTERVENTIONS The two main components of production de-coupled support are subsidies to farmers' pension and health insurance scheme, and differential tax treatment. FARMERS' PENSION AND HEALTH INSURANCE SCHEME Ninety-three percent of the pension and heath insurance scheme (KRUS) is subsidized from the state budget, and the remaining 7% is contributed by farmers. No other profession in Poland enjoys such a generous level of support. The usual KRUS contribution made by non- 70 M Safin agricultural workers is 48% of their salary, regardless of income level. In the analyzed period there were no alternate schemes or funds available to individuals, and all payments are paid into the state budget. Some of the budget resources remain unspent, and contributions paid by the employee are essentially much higher than the benefits obtained-an implicit tax on income. Because pension and health insurance benefits are the same for farmers and non-farmers, there is an implicit money transfer from an average non-farm employee to farmers. Understandably, this arrangement attracts new entrants to agriculture. The only requirement for becoming a farmer is to hold more than one hectare of land. The average cost in 1996 for one hectare of average-quality land was 3,200 PLZ (equivalent to about U$1,200). The introduction of more stringent requirements for qualifying as a farmer could reduce the overall costs of this type of production de-coupled support. DIFFERENTIAL TREATMENT OF INCOME TAX Polish farmers do not pay income or company taxes. Although the minimum income tax rate was 21% in 1995 and 1996, and 20% in 1997, many tax concessions translated into an effective average rate of income tax for farmers of about 17%. This suggests that 17% of the agricultural value-added (assuming AVA to be a proxy of farmer income) should have been paid by farmers. Instead, tax concessions to farners during 1995-1997 cost about 2.5 billion PLZ, 2.8 billion PLZ, and 3.7 billion PLZ, respectively (Appendix Table 3.2.). Farmers pay a 'land tax' that is intended to substitute for income tax. It is a tax paid on the basis of land owned, and is set at a zloty rate equivalent to the procurement price of 0.25 tons of rye in the last three months of the previous year. This tax is considerably lower than the unpaid income tax. The difference amounted to roughly 1.6 billion PLZ in 1995, 1.7 billion PLZ in 1996, and 1.8 billion PLZ in 1997. TOTAL PRODUCTION DE-COUPLED SUPPORT Total production de-coupled support (the sum of the pension and health insurance subsidy and the net money transfer from differential income tax treatment) is estimated at 8 billion PLZ in 1995, 9.6 billion PLZ in 1996, and 10.8 billion PLZ in 1997 (Table 3.2). The pension and health insurance subsidy accounts for about 80 percent of this total. Table 3.2: Poland - Estimates of Total Production De-Coupled Support Year '000 PLZ Income tax differential 1995 1,639,023 Treatment 1996 1,723,509 1997 1,805,560 Pension and health 1995 6,355,606 Insurance policy 1996 7,868,611 1997 9,010,697 Total production 1995 7,994,629 De-coupled support 1996 9,592,120 1997 10,816,257 Source: own calculation and Ministry of Finance (pension and health) Chapter 3: Poland 71 OVERALL SUPPORT TO POLISH AGRICULTURE Table 3.3 presents an estimate of overall support provided to Polish agriculture. The amount is considerable, accounting for approximately 3.3-3.5% of Poland's GDP. In absolute terms, it is about 10 billion PLZ in 1995, 12 billion PLZ in 1996, and 15 billion PLZ in 1997. The share of production-coupled money transfers to agriculture was 24% on average Table 3.3: Poland - Estimates of Overall Support to Agriculture Year '000 PLZ Production-coupled 1995 2,143,368 Support 1996 2,537,122 1997 4,317,354 Production-decoupled 1995 7,994,629 Support 1996 9,592,120 1997 10,816,257 Overall support 1995 10,137,996 1996 12,129,242 1997 15,133,611 Source: own calculation NOTES FOR SUPPORT MEASUREMENT Measuring intervention is not a simple task. The most frequently used coefficient-the Producer Subsidy Equivalent (PSE), as applied by the OECD, does not account for interventions in input markets. Therefore, an alternative method is used by this World Bank study. The method concentrates on changes in value added through calculation of three elements: interventions in: (a) output; (b) input markets; and (c) calculation of other non-commodity specific but production-coupled transfers to agriculture. The most important production de-coupled measures26 used to support farmers' income complement the overall level of agricultural support in Poland. Analysis of interventions in output (and input) markets relies on a border price paradigm which assumes world market prices2", suitably adjusted to represent the opportunity cost to domestic producers who produce a particular commodity (or purchase inputs). The difference between domestic and adjusted world prices indicates the degree of interventions. 26 Subsidy to the pension and health insurance schemes, and income tax concessions 27 Represented by prices in a country engaged in international trade 72 M Safin Intervention effects of commodity-specific policies were measured in a three step procedure. First, the quantity domestically produced (in the case of an output) or purchased (in the case of an input), was multiplied by the domestic price and given a domestic price value. Second, the same procedure replaced domestic prices with adjusted world prices from Safin and Guba (1998) for the period 1995-1996 and statistics from the Institute for Prices and Situation in Foreign Trade for 1997. World prices in the referenced paper were derived from border prices for the three main trade areas: European Union, CEFTA countries, and Former Soviet Union countries. World prices and domestic prices were compared by adjusting the relevant price (depending on whether the commodity or input was exportable or importable) for transaction costs, transport, eventual processing costs (sugar beet) and also for quality differences. A weighted average of the adjusted world prices from the three trade areas provided a reference price which was used in calculations presented in this paper. Subtraction of the output or input value at reference prices from the output or input value at domestic prices gave an estimate of market support (if the difference was positive) or tax (if the difference was negative). Third, all other commodity-specific support or tax was added to the estimates of money transfers via input and output markets. Simple addition of the total value of commodity specific transfers to non-commodity specific transfers gives the value of production-coupled support. This in turn, when added to production de-coupled support (farmers pension scheme, differential tax treatment), provides an estimate of overall agricultural support. LOOKING AHEAD Polish agriculture has been facing the daunting challenge of restructuring under increasing macroeconomic pressure from the exchange rate, reduction of public expenditures and relatively high interest rates. However, it is likely that in the short to medium term, some relief from macroeconomic pressure will come from the economic crisis which began in 1998. The difficult economic situation in the countries of the Former Soviet Union, which are traditional Polish export markets, had an adverse effect on Polish trade, resulting in economic deceleration and inflation 8.6% in 1998-one percent lower than predicted by the government. These two factors encouraged the Monetary Council, responsible for monetary policy, to cut interest rates eight times in 1998. These cuts considerably lowered real interest rates and are expected to not only stimulate consumption and contribute to lower production costs, but also weaken the real value of the Polish zloty, thereby relieving competitive pressure. Obligations under the WTO and regional trade agreements severely limit agricultural policy options, including protecting domestic producers from international competition28. The best policy is to work towards the creation of a sound and competitive agricultural sector. This means putting aside the objective of achieving self-sufficiency in every commodity, instead 28 Obviously, protection can be increased, but international repercussions would be serious. Chapter 3: Poland 73 concentrating on export-led production. Gradual trade liberalization should aim to remove anti- trade and import-substituting effects, while market interventions should be limited to those that focus on improvement of market efficiency. These should include the creation of market information systems, the introduction of clear and consistent legislation, and the simplification of administrative procedures. These must be accompanied by a reform of institutions, such as the ARR, operating in the agricultural sector. Market interventions should be separated from measures intended to assure some level of strategic food reserves. Working towards the opening of foreign markets for Polish exports should be one of the top priorities on the agenda of government diplomatic actions. The government should also protect farmers from unfair competition like dumping. In practice, it is difficult to identify fair and unfair competition. Nevertheless, there are international antidumping procedures, however imperfect, that provide the government with a means to protect Polish farmers from harmful competition. The whole system of income taxation, pension and heath insurance scheme, and unemployment benefits eligibility for farmers should be harmonized with the rest of the labor force. The current system provides an incentive to stay in farming because of income tax concessions and the pension subsidy. Consequently, labor outflows from agriculture are curtailed, and new entrants are attracted to this already over-employed sector. On the other hand, unemployment benefits eligibility discriminate against farmers29. It is likely that such a transformation of Polish agriculture will push many farmers out of farming. Policies that attempt to prevent the outflow would be ill advised, as they would impede the process of restructuring the sector. Hidden unemployment in Polish agriculture is estimated at 25% of the labor force (Agricultural Census in 1997), which is equivalent to about one million workers. If the average farm size is to become comparable to an average EU farm, outflow from agriculture should be at least twice this number. Additionally, in the context of growing importance of capital-intensive farming in developed countries, considerable labor outflow from agriculture is desirable. Although Poland is a particularly radical case because of a large number of small farms, this phenomenon is not peculiar to Poland and is well documented in literature (e.g., Johnson, 1991). Implementation of the policies recommended in this paper should be accompanied by production de-coupled measures that provide a safety net to farmers forced to leave agriculture. These policies, however, should be targeted and granted for only a limited period of time. Displaced farmers must have acceptable job alternatives, and there must be good options for non-agricultural use of farms. Training can be provided to farmers who decide to give up agricultural production as their main source of income. Training should take into account specific features of the Polish farming population, with an emphasis on non-agricultural activities like agro-tourism and leisure. There are potentially many job opportunities in rural areas for farmers who decide to completely change professions. The most obvious need is to create a modern physical and social infrastructure in order to attract investment to rural areas. The government's 29 Farmers with more than 2 hectares of land are not eligible for unemployment benefits in Poland, even if they do not produce. 74 M. Safin role in this cannot be overstated, i.e. to provide high quality administration and simple procedures for potential investors in rural areas. It also seems reasonable to institute tax concessions (one year for example) for investors in rural areas, which could compensate higher entry costs in these areas. From this analysis, it should be clear that the government cannot increase Polish agricultural competitiveness through production-coupled support. However, it can stimulate and promote rural development where agriculture is one of many viable investment and career opportunities. The government should withdraw from agricultural markets, concentrate its efforts on rural development, and allow the free play of market forces in the trade of agricultural products. REFERENCES IER, ARR, MR. 1996. Handel zagraniczny produktami rolno-spozywczymi. Stan i perspektywy. Raporty rynkowe Nr 4. IERGZ: ARR: MRGZ. Pazdziemik 1996. IER, ARR, MR. 1996. Rynek miesa. Stan i perspektywy. Raporty rynkowe Nr 1 1 IER, ARR, MR. 1996. Rynek mleka. Stan i perspektywy. Raporty rynkowe Nr 11 Johnson D. Gale. 1991 World Agriculture in Disarray, Saint Martins Press, New York and Great Britain Kwiecinski A. 1996. Chapter on Poland in 'Long term agricultural policies for central Europe' edited by Gale Johnson. International Center for Economic Growth, San Francisco. OECD. 1996. Agricultural Policies, Markets and Trade in Transition Economies. Monitoring and Evaluation. Pederson G. 1997. Rural finance policy in Poland. Consultant report for the World Bank. Washington, DC. Polish-European Community-World Bank Task Force. 1990 An agricultural strategy for Poland, The International Bank for Reconstruction and Development/ The World Bank, Washington. Safin M., Guba W. 1998. Agricultural price policy impacts in Poland. Regional and income distribution perspective. ECSRE Rural Development and Environment Sector, Working Paper No 7, The World Bank. The World Bank. 1995. Understanding poverty in Poland. A World Bank Country Study. Washington, DC Chapter 3: Poland 75 A_endix Table 3.1: Pland - Cost of Price Suport b A enl for Agricultural Markets Commodity Year Purchase price Sale price Quantity sold Cost of price support Storage costs of Total costs of (PLZ/t) (PLZ/t) (t) (000 PLZ) the Agency for market Agricultural intervention Markets (000 (000 PLZ) PLZ) Wheat 1995 1 912 1 912 1996 719 643 158 869 12 172 20 188 32 360 1997 529 0 0 0 41 864 41 864 Rye 1995 1 714 1 714 1996 407 0 0 0 6 6 1997 370 0 0 0 3 085 3 085 Sugar beet 1995 8 8 1996 0 0 1997 0 0 Potatoes 1995 0 1996 270 270 1997 43i Pork 1995 26 839 26 839 1996 4 005 4 005 1997 0 0 SMP 1995 2 2 1996 4 900 4 571 5 252 1 727 1 645 3 372 1997 5 400 4 630 19 398 468 468 Butter 1995 1996 5 037 7 07S 1997 0 0 Total for the 1995 0 30 475 30 475 above Commodities 1996 13 899 26114 40 013 1997 0 45 417 45 848 Total reported 1995 49 277 Costs 1996 44 712 1997 92 211 Notes: 1. Storage cost of the Agency covers rental of warehouse, insurance, and physical losses but not financial losses. A rough estimate of the latter (based on opportunity cost of capital) gives the amount of money comparable to the cost of price support. 2. Share of the reported ARR intervention costs in total costs of the ARR is not large - only about 20%, and the remaining 80% is cost of maintaining strategic reserves. Source: Ministry of Agriculture 76 M. Safin Appendix Table 3.2: Poland - Cost of Production De-Coupled Support 1995 1996 1997 (000 PLZ) (000 PLZ) (000 PLZ) INCOME TAX SUBSIDY 1. VA - approximation of agriculture income 14,900,200 16,687,500 21,497,000 2. Unpaid income tax (Polish effective rate: 17%) 2,533,034 2,836,875 3,654,490 LAND TAX (introduced to substitute for income tax) 1. Arable land (ha) 18,622,000 18,474,000 18,457,000 2. Rye price PLZ/t (last three month of previous year) 192 241 401 3. Tax in PLZ per ha (equivalent to price for 0.25 t of 48 60 100 rye) 4. Land tax paid 000 PLZ 894,011 1,113,366 1,848,930 BALANCE (subsidy if(+) or tax if(-)) 1,639,023 1,723,509 1,805,560 Source: own estimation CHAPTER 4: BULGARIA Henry Gordon, Nedka Ivanova, and Nikolay Nikolov EARLY TRANSITION YEARS Bulgaria is generally recognized to have very good agricultural potential. The country has a mild climate and rainfall is generally adequate except for some summer crops, which benefit from irrigation. Fertile soils exist in the Danube plain, in the north, and the Maritsa valley, in the center of the country. In the years before the Second World War Bulgaria had a diversified export-oriented agricultural sector that produced a wide range of cereals, livestock and horticultural products. The sector's one million farms were privately owned with an average size of about four hectares. During the communist period, farms were consolidated into state production cooperatives and subsequently into huge integrated agro-industrial complexes. Only about 10 percent of the land area remained in the control of private households, mainly for private gardens. Private ownership of livestock was only a little more widespread, ranging from 18 percent of cattle in private hands to 38 percent for poultry. External trade was dominated by a monopoly-trading agency and tightly integrated into the CMEA. During the early 1990s only limited economic reform occurred, while general economic decline lowered domestic demand for food and agriculture products. The breakup of the CMEA reduced agricultural exports, which had been a significant source of sector income. After 1991, and despite early liberalization, non-tariff trade measures were frequently employed to compensate for perceived imbalances in commodity supply and demand. In the early transition period, profitability of field crop production was squeezed by partial price liberalization in the industrial sector, which increased prices for some inputs such as fertilizer, while crop prices remained low due to the combined effect of trade and price policies. The most important policy initiative in the years immediately following communism's collapse was not in the area of trade or incentives policies, but rather the reform of state enterprises. A demonopolization program broke up the production complexes into 849 state- owned "commercial companies", for which privatization nonetheless proceeded very slowly. Holdovers from the old system also persisted in the form of holding companies under the Ministry of Agriculture, including the state grain marketing agency Zarneni Hrani, which operated grain storage and milling facilities, Sortovi Semena, a national seed organization, the national irrigation company, and others. 78 H. Gordon, N. Ivanova, and N. Nikolov Another initiative affecting primary production was a land restitution process, initiated in 1991 but implemented slowly in subsequent years. Land allocations averaging two to three hectares were made to farm workers and claimants from the pre-war period. Unfortunately, a tax was put on the new owners to compensate for pre-1989 land improvements, and in order to minimize the tax burden owners frequently degraded irrigation infrastructure, buildings, tree stock, and other inherited non-land assets. Efficient use of land was also hindered by lack of a system for land mapping, titling and registration, and legal restrictions on land transactions. With the breakup of the complexes, livestock was also distributed to individual members. Since many of the new owners lacked the financial means or knowledge to care for the livestock, a great number of animals were slaughtered or exported. This dramatically reduced herd size, even below the levels that might have been justified for efficient consolidation of the sector. The period studied starts in 1994, just after these attempts at partial reform. It presents the results of a quantitative assessment of agricultural incentives and income transfers for the period 1994-1997. The incentives indicators used are nominal protection coefficients and effective protection coefficients, while the economic support measure employed is the effective rate of assistance (ERA). The latter is an aggregate measure of net income transfers to agricultural producers for specific commodities. As in the NPR and EPR, it accounts for the policy transfers implicit in price and trade policies, and also the explicit policy transfers in the form of government expenditures on agriculture (both budgeted and unbudgeted), which are allocated by commodity. The commodities analyzed are wheat grain, maize grain, sunflower seed, veal calves, pigs, chickens, and cow milk. Due to lack of data and the priority given to primary production in the analysis, processed commodities are not analyzed. The seven commodities comprised over two-thirds of agricultural value added during the period 1994-1997. During this period the share of agricultural GDP in total GDP varied from around 12 percent at the beginning of the period, to over 20 percent at the end.30 The share of agricultural employment in total employment grew continuously during the 1 990s reaching a level of 24 percent in 1997. PRINCIPAL INTERVENTION MECHANISMS31 The main interventions tools in agriculture during the 1994-97 period were trade measures, price regulations, and fiscal transfers to agriculture. These are summarized in the Appendix, which shows the specific type of intervention mechanisms obtaining in each year for 30 In 1997 agricultural production increased due to very good weather, while overall GDP remained depressed due to the effects of an economic collapse in 1996 and early 1997. 3 The policy regime description in this section relies heavily on papers by Nash on trade policy (Dec. 1997), Woodruff on privatization (Feb. 1998), Varangis on cereals and oilseeds policies (1997), Davidova on livestock and pricing policies (Dec 1997), and EU Phare on land reform (March 1997). Chapter 4: Bulgaria 79 each commodity. It should be emphasized that the table covers policies affecting outputs. Inputs are only covered to the extent that grains are considered as the primary input to livestock production. Further work is needed to specify input use for field crops and to the policies that affected these inputs. This will assist explanation of policy factors affecting EPRs and ERAs for wheat, maize and sunflower. Trade. Trade policy exhibited a very heavy reliance on discretionary trade policies, including automatic and non-automatic licenses for imports and exports, export quotas, taxes and bans, and import duty exemptions. The products most severely affected by the export measures were grains, oilseeds and cattle. Import tariff exemptions were heavily used for all commodities, with tariff levels generally higher (around 40 percent) for pork and chicken, and lower (around 20 percent) for grains, oilseeds and beef. A key problem was the instability of the trade regime. One analyst has documented 25 amendments in the regime from the end of 1995 to mid 1997. These changes tended to take place whenever material commodity balances showed an impending deficit (in which case import exemptions were used), or a surplus (in which case export restrictions were employed). The trade licensing system was used as a tool for ex ante monitoring of trade flows under this regime, enhancing the ability of government to intervene frequently in response to perceived market imbalances. This created great uncertainty in the decision-making process of primary producers, processors and traders who were not able predict what the trade regime would be, even in the near future. Pricing. In 1994 a system of retail ceiling prices was in force. The system aiming at controlling the prices of goods and services of special importance including, among others, flour, bread, sunflower oil, veal, pork, and chicken, and a wide range of dairy products. Ceiling prices were formed on the basis of an allowed markup of 12 percent over production cost. The ceiling price system was superceded in 1995 by the Price Law, which essentially used the same markup approach to set ceiling prices for a similar basket of goods, but increased the allowed margins. There was no mechanism for direct intervention on the market foreseen during 1994-1997, but two indirect interventions were allowed that could in principal affect returns to primary producers. First, transactions outside the allowed margins were illegal, and this type of control could reduce prices at lower levels of the marketing chain, filtering all the way down to producers. Second, the foreign trade regime was used to respond to monitored price changes that were considered excessive, and this could also affect general supplies and farm level prices. The foreign trade regime thus played the role of price regulator, which provides another explanation for the frequent changes in trade policies that occurred over the period. In 1997 ceiling prices were replaced by a system of contracted prices, a tool for implicit control of profit margins in the food chain. As with the previous system, it was targeted to support consumers at the expense of producers and distributors. The number of commodities covered was reduced but still included processed versions of the seven commodities considered in this analysis. While the new system eliminated direct controls on margins, but kept in place a system for monitoring wholesale and retail prices and margins. This continued to have a chilling effect on market participants, who feared that their markups were still being scrutinized against government benchmarks. For example, dairy processors complained that the Price Committee did not accept their costs and margins on the grounds that their technical coefficients for transformation of milk into cheese did not adhere to 'the norm.' On the basis of this information, 80 H. Gordon, N. Ivanova, and N. Nikolov and following the decision that margins were unacceptable, new temporary zero import duty quotas were opened for white cheese. Wheat pricing during the period presented a special case for which direct producer level intervention was more pronounced (Appendix Table 1). From 1994 to 1997 various decrees, as well as the 1995 Price Law, set minimum producer prices. Transactions below the prescribed level were prohibited. These prices were updated once a year until the economic crisis of 1996 (which was also considered a crisis in the wheat market). In that year, several revisions occurred. By 1997, minimum producer prices were enforced in three ways. First, in order for mills to obtain loans from the State Savings Bank and other banks they needed to produce evidence that the minimum prices had been used in their contracts; second, in order for farmers to receive credit from the State Fund Agriculture (SFA) under either a forward contract scheme or a subsidized interest rate scheme they needed to sell to the government at these prices; third, exporters needed to verify purchase at the minimum price in order to obtain an export license from the Ministry of Trade. Fiscal Transfers. During 1994-97 total fiscal support to agriculture ranged from 4 to 9 percent of agricultural GDP, with no discernible trend over the period (Appendix Table 2).32 The transfers included allocations for specific commodities (especially grains/oilseeds and tobacco), as well as more general support for research, irrigation, land reform and veterinary services. In dollar terms, aggregate transfers ranged from $62 to $94 million (Table 1 and Appendix Table 2). For the seven commodities in question, this study has attempted to allocate transfers by commodity, adding some portion of the general transfers to the commodity-specific allocations. The method used for allocating general transfers is to assign a portion of each general allocation to a commodity based on the computed share of that commodity in the total value of production. Table 1 also shows that allocations to the seven commodities were less than the overall allocation level, ranging from $49 to $18 million and declining substantially in the last two years. Privatization of Agricultural Enterprises. The privatization process for both agricultural and industrial enterprises was slow during the period. From the time of Privatization Law adoption in April 1992 until the end of August 1997, only about 18 percent of long term assets of all enterprises originally under state ownership were privatized (privatization as defined here includes liquidation).33 The performance for agriculture and food industry (AFI) enterprises was somewhat better, but still low. By the end of August 1997, 337 of the 849 AFI enterprises had been privatized, accounting for 26 percent of total AFI long term assets. In the case of Zarneni Hrani, the state grains enterprise, by 1997 only around one-third of its grain storage capacity (two-grain bases and seven silos) had been privatized. As for the seed enterprise Sortovi Semena. only about 7 percent of its long-tern assets had been privatized. 32 Appendix Table 3 was prepared to include both budgeted allocation for agriculture as well as expenditure funded from earmarked revenues, which are typically not budgeted but are nonetheless funds at the disposal of MAFAR that are allocated to specific activities. 33 The operational measure of privatization employed is the transfer of at least 67 percent of enterprise shares to private investors, or at least 51 percent of shares to a strategic investor. Chapter 4: Bulgaria 81 Table 1: Bulgaria - Fiscal Transfers to Agriculture, Allocated by Commodity 1994- 97 (US $ million) Commodity 1994 1995 1996 1997 Wheat 24.4 26.5 19.2 4.3 Maize 8.3 11.8 7.8 8.6 Sunflower seed 0.6 0.5 0.2 4.7 Veal calves 1.5 1.3 0.5 0.0 Pig 5.3 5.1 2.5 0.2 Chicken 1.2 0.9 1.0 0.0 Milk cow 2.7 2.9 1.1 0.1 Total for the 7 commodities 44 49 32 18 Total fiscal transfers to agriculture* 94 69 62 65 * See Appendix Table 3 Note: numbers may not add due to rounding Source: MAFAR Land Restitution and Titling. The process of land restitution started in June 1991 but suffered many delays in subsequent years. These continued in the 1994-97 period due to government amendments to the Land Law that blocked further restitution, court appeals, lack of funding for survey contractors and other needs, and a host of other technical and organizational difficulties. Bulgaria has approximately 6.3 hectares of agricultural land (of which 4.7 million is arable land, and 600,000 ha is considered irrigable). Most of this was claimed under the restitution process (5.6 million ha). It was estimated in mid-1997 that land restitution was only 58 percent complete, that is, about 3.2 million ha of the total claimed area had been restored. Conferring of titles, with registration in a land title system linked to a cadastral survey map was even slower, with only 8 percent of new owners holding notarial deeds. As of 1997, land records were separated between three institutions, MAFAR's Municipal Land Commissions for farmland restitution records, the Ministry of Regional Development and Public Works for the cadastral base, and the legal records on land transactions in the Notary Office. There was increasing consensus among decision makers and donors on the need to establish responsibility for legal title to land and the supporting cadastral map base in one institution responsible for both, and for all land irrespective of its use. MAIN ASSUMPTIONS FOR CALCULATION OF INDICATORS A number of key assumptions underlying the analysis have an important bearing on the results. These include, among others, definition of commodity trading status (importable, exportable or nontradable); choice of international reference prices; definition of farm type (size and input use); and identification of representative locations for calculations of commodity NPRs and EPRs. 82 H. Gordon, N. Ivanova, and N. Nikolov COMMODITY TRADING STATUS: PREVALENCE OF EXPORTABLE COMMODITIES The amount traded of the selected commodities during the 1994-1997 period is quite small and unstable. Table 2 shows that exports for pork, poultry, veal and maize were marginal in most years. Thus, it is not obvious at first glance how trading status should be defined for each commodity, or whether the commodities should be viewed as non-tradable. On further investigation it was decided that nearly all of the commodities should be considered exportable in all years. This is because of the strong barriers to export that existed during the period, which included export bans and taxes. Two exceptions are made. Maize is treated as an importable in all years (due in part to tariff barriers), and milk is considered importable for 1997 only, but exportable in earlier years. Table 2: Trade Volumes 1994-1996 ('000 mt) Commodity 1994 1995 1996 Wheat grain Export 15 681 0 Import 1 0 191 Maize grain Export 0 0 na Import 1 0 na Sunflower seed Export 24 42 19 Import 3.4 2.5 1 Beef/veal Export 10 1 l Import 9.3 7.4 7.5 Pig meat Export 2 1 10 Import 2.1 .15 .2 Poultry meat Export 3 3 10 Import 3 1.8 4.2 Source: National Statistics Institute. na = not available. Note: There was no data on trade for live animals during these years, but they are assumed to be exportable. CHOICE OF REFERENCE PRICES To obtain an accurate measure of the opportunity cost of policy interventions, border prices must be identified for each commodity on a fob (export) or c.i.f. (import) basis, depending on the presumed trading status of the commodity. Border price data can be obtained using at least two methods. One relies on actual import or export transactions, originating for example from customs sources. Another subtracts transport costs (in the case of an exportable) or adds transport costs (in the case of an importable), between an external market and the Bulgarian border. In most cases, the customs data approach is used in the analysis below (see Appendix Table 3 for a listing of data sources by commodity). FARM SIZE, INPUT USE AND LOCATION One of the most severe data limitations encountered was lack of detailed crop budget information that would allow specification of input use patterns and input-output coefficients for Chapter 4: Bulgaria 83 different farm types and sizes.34 This, along with lack of information on farm size distribution, made it difficult to develop an accurate representative farm typology, which is useful for estimation of NPCs and particularly EPCs. Due to this limitation, very simple farm types were assumed, and inputs were allocated to different commodities based on information supplied by knowledgeable market participants and staff of the Ministry of Agriculture, Forestry and Agrarian Reform (MAFAR). This was supplemented by information from secondary sources on the share of specific commodities in the overall value of commodity output, which was used to allocate inputs to different commodities. The chief purchased inputs for field crops are machinery services and fertilizer, and for some farm types pesticides and purchased seed are important. Unfortunately, due to data limitations only fertilizer could be considered as an input for field crops in the EPC and PSE calculations, which undoubtedly understates input use - and overstates value added - for most farm types growing these crops. Wheat, maize and sunflower production is assumed to occur on private, medium-to-large scale, capital intensive units in Dobrudja plains. The main producing areas are in the Northeast of the country and in particular the areas of Varna, Ruse, Dobrich (in the region of Dobrudja) and further south, in Burgas. About 50 percent of wheat production and 70 percent of maize and sunflower seed production comes from these regions. Adjustments of border prices to producing locations takes these distances into account.35 Livestock production is assumed to occur on small labor intensive units that are privately owned. The chief input is animal feed, and feedgrain is the only input taken into account in the EPC and PSE calculations. This is much less of a distortion than the simple use of fertilizer in the case of field crops, since feed typically accounts for two-thirds to three quarters of the costs of livestock production. The representative production area defined for livestock is Plovdiv, located in central Bulgaria. SUMMARY AND IMPLICATIONS OF MAIN RESULTS Results of the support measures at the commodity level are presented in Tables 2, 3 and 4 in the synthesis report. The yearly weighted average (Table 3, below) provides an initial overview of the overall trend in indicators over the period. Deviations from this average can then be examined for individual commodities. 34 Recently, the FAO has begun to develop crop budgets, but the data was not available in final form at the time of this analysis. 35 See footnotes in the spreadsheet "Final NPCs.xls" for specific assumptions regarding distances for producing areas and associated transport cost adjustments. 84 H. Gordon, N. Ivanova, and N. Nikolov The yearly weighted average for NPRs shows that on average, substantial taxation occurred through negative output price transfers from 1994 to 1996, with no clear trend over the period. In 1997, the weighted average NPR rose to -3 percent, indicating that on average the impact of policies on output prices was approximately neutral. This masks significant deviations from neutrality in 1997. For wheat, there existed a substantial subsidy due to a policy of producer price support, which raised domestic price 37 percent above adjusted border prices. For all other commodities except pigs, high levels of taxation occurred. Specifically, NPRs ranged from -40 percent (maize) to -13 percent (veal). The reasons for this pattern vary by commodity group. Grains and oilseeds suffered from export bans or taxes combined with restrictive licensing during the year, and milk/livestock producers evidently suffered the upstream effects of retail price restrictions, embodied in the contract price system. For two commodities, sunflower seed and chickens, the level of taxation in 1997 actually increased from previous years. Thus, the improvement in incentives in 1997, summarized in a weighted average NPR of -3 percent, is more apparent than real. This improvement resulted almost solely from an extremely high level of support for wheat, while all other commodities (except pigs) were taxed at levels equal to or more than previous years. Weighted average EPRs follow the same pattern from 1994 to 1996 as for NPRs, rising, the falling, but with year to year fluctuations more pronounced. The EPR of -12 percent for 1997 shows a moderate average level of taxation. As with NPRs, this result is influenced greatly by a very high wheat EPR of 44 percent, while other EPRs in 1997 show moderate to severe taxation, ranging from a low of-59 percent for milk to -1I percent for pigs. In 1997 policies affecting inputs prices evidently reinforced the taxation that occurred through policies affecting output prices. As with NPRs, sunflower seed and chicken EPRs show markedly increased taxation in 1997 compared to previous years. The results for NPRs and EPRs can best be summarized by the observation that policies showed instability across years and commodities. This is consistent with the description of trade and pricing policy above. To the extent that general patterns exist, they show a tendency toward moderate to severe implicit taxation in all years, for both crops and livestock/milk. Average net income transfers to farmers, as embodied in the weighted average ERA indicator (bottom row of Table 3), shows a trend toward reduction in income transfers over the period. The aggregate ERA is expressed as a percentage of agricultural GDP, and in the 1994- 96 period its ranges from 3 to 6 percent, while in 1997 it falls to 2 percent. Here against, the high level of support to wheat masks a general pattern of negative income transfers, with taxation levels as high or higher than in previous years. In Table 4, ERAs are decomposed into their three elements - implicit output price transfers, implicit input price transfers, and fiscal transfers (see Appendix 1 for an explanation of each type). This shows quite clearly that the dominant instruments for transferring income from farmers were policies affecting output prices. For wheat, maize and sunflower, such negative transfers far outweighed the small positive transfers through input price and fiscal measures. In the case of livestock, the story is a little more complicated, since implicit output taxation of maize and wheat producers results in an implicit subsidy to livestock producers, who were able to use feedgrain at reduced prices. The only commodity for which positive input price and fiscal Chapter 4: Bulgaria 85 transfers consistently outweighed negative output price transfers is chicken, which had small positive ERA during the period 1994-96 (Table 3). For all other livestock/milk products, tendency was toward negative net transfers (negative ERAs) in most years. Table 3: Bulgaria - Aggregate Measures of Support: 1994-1997 NPR EPR ERA as share of Ag. GDP (%) 1994 -30 -28 -6 1995 -23 0 -3 1996 -26 -47 -5 1997 -3 -12 -2 Note: To calculate the yearly weighted average, each indicator is weighted by its share in the total (gross) value of the 7 commodities for the year in question. Computations and weights used are to be found in columns BJ-BL in spreadsheet file "detailed-data- november.xls", available from Henry Gordon (ECSSD). Source: authors' calculations Table 4: Bulgaria - Commodity Policy Transfers as a Share of Commodity Value Added Wheat Maize Sunflowe Veal Pigs Chickens Cow milk grain grain r seed calves Implicit output price transfers 1994 -72 -78 -37 -57 -42 5 -129 1995 -90 -94 -39 -30 -20 50 -88 1996* -21 -82 -9 -77 -156 -10 -116 1997 28 -67 -49 -39 -1 -46 -104 Implicit input price transfers 1994 7 6 15 46 21 8 28 1995 5 3 10 41 32 18 47 1996* 5 5 11 12 78 24 12 1997 3 2 7 -30 -11 -3 -38 Fiscal transfers 1994 11 6 1 3 4 2 3 1995 11 7 0 2 2 1 2 1996* 9 6 0 -3 11 3 -7 1997 1 4 6 0 0 0 0 * Output and input price transfers for veal and for milk in 1996 are shown as a percent of gross value of production rather than as a percent of commodity value added. This is because commodity value added was negative for these commodities in 1996 Source: authors' calculations 86 H. Gordon, N. Ivanova, and N. Nikolov REFERENCES The following six background studies, based on fieldwork carried out in September 1997, were used as references in writing this note. These can be consulted for more detailed information on the agricultural policy regime as of mid- 1997 and sector policies and performance in preceding years. The studies were commissioned by the World Bank for the Bulgaria Agriculture Sector Review and provided the basis for a set of reforms under an ongoing agricultural sector adjustment loan, ASAL I. The reports were summarized in a set of short policy notes that were discussed in agricultural policy workshops in January 1998 within Bulgaria. Jan H. Bakker, "The State of Land Restitution and Development of the Land Market in Bulgaria" (October 1997) Sophia Davidova, "Bulgaria, Livestock Chain" (December 16 1997) David Gisselquist "Production and Availability of Agricultural Inputs" (December 24 1997) John D. Nash "Report on Agricultural Trade Policy" (December 1997) Panayotis Varangis, "Cereal & Oilseed Marketing and Performnance in Bulgaria Current Situation, Major Constraints and Recommendations" (n.d.) Charles Woodruff, "Privatization of Agriculture and Food Industries Enterprises: Current Status and Recommendations" (February 1998) In addition to the above, the following EU-Phare document was consulted for useful background information on land restitution and titling progress as of early 1997: EU Phare, "Identification Mission on the Progress of Land Restitution and Future EU Phare Assistance" (March, 1997) Appendix Table 1: Inventory of Agricultural Support Mechanisms 1994-1997 (note: blank indicates no recorded intervention) Commodity Policy 1994 1995 1996 1997 Wheat grain Export Export ban for Exports allowed Export ban Export ban until end most of year under quota with June, 1997 when tax (which varied export allowed with through year); tax under licensing Licensing regime regime Import 40% general 40% general 15% general import 15% general import import duty; import duty; duty; licensing duty; licensing duty free licensing regime; regime; duty free regime; duty free import within duty free import import within quota import within quota quota within quota Price Controlled Controlled Controlled minimum Controlled minimum minimum price minimum price for price for grain and price for grain and for grain and grain and ceiling ceiling prices and contract price ceiling prices prices and margins controls for regime for processed and margins margins controls processed wheat wheat products controls for for processed products processed wheat products wheat products Fiscal Directed credit Directed credit Directed credit and Directed credit and and subsidies and subsidies subsidies subsidies Maize grain Export Export ban Export ban Export ban Export ban; removed in 6/97 after which exports allowed under licensing and export tax regime (10% tax from 10/97) Import 20% general 25% general 25% general import 25% general import import duty; import duty; duty; duty free duty until 7/97 when duty free import within quota duty removed; duty import within free import within uota quota Price Fiscal Directed credit Directed credit Directed credit and Directed credit and and subsidies and subsidies subsidies subsidies Sunflower Export Heavy taxes - Heavy taxes - up Export ban Export ban; seed up to $200/ mt, to $200/ mt, along removed in 6/97 and along with with licensing export taxes licensing regime reintroduced regime ($80/mt as of 6/97) Import 15-20% 15% general 15% general import 15% general import general import import duty with duty with licensing duty with licensing duty; duty free licensing; duty until 6/97 when duty import within free import within removed quota quota Price Ceiling prices Ceiling prices and Ceiling prices and Contract price and margins margins controls margins controls for regime for sunflower controls for for sunflower oil sunflower oil oil sunflower oil Fiscal Directed credit Directed credit Directed credit and Directed credit and and subsidies and subsidies subsidies subsidies 88 H. Gordon, N. Ivanova, and N. Nikolov Live pig Export Licensing Licensing regime Licensing regime Licensing regime regime Import 40% general 40% general General tariff 241 ECU/mt import import duty; import duty; duty replaced by 241 duty; licensing duty free free import within ECU/mt import regime import within quota duty; licensing quota regime; duty free import within quota Price Ceiling prices Ceiling prices and Ceiling prices and Contract price and margins margins controls margins controls for regime pork controls for for pork products pork products products pork products Fiscal Directed credit Directed credit Directed credit and Directed credit and and subsidies and subsidies subsidies subsidies Commodity Policy 1994 1995 1996 1997 Live chicken Export Licensing regime Licensing regime Licensing regime Import 40% general 40% general 15% general import 15% general import import duty; import duty; duty duty; licensing duty; licensing duty free free import within, regime; duty free regime; duty free import within quota import within quota import within quota quota Price Ceiling prices Ceiling prices and Ceiling prices and Contract regime for and margins margins controls margins controls for chicken products controls for for chicken chicken products chicken products products Fiscal Directed credit Directed credit Directed credit and Directed credit and and subsidies and subsidies subsidies subsidies Live calves Export Ban on cow Cattle and cow Cow export allowed Cow export allowed and milk export from exports allowed under license regime under license regime cows 4/94; cattle under licensing with export tax of with export tax of exports under regime with $500/mt $500/mt licensing export tax of regime $500/mt Import 15% general General duty General duty 5% General duty 5% import duty reduced to 5% and and additional duty and additional duty additional duty amounting to 140 amounting to 140 amounting to 140 ECU/mt introduced; ECU/mt introduced; ECU/mt duty free import licensing regime introduced; duty within quota for free import within breeding stock; quota for breeding licensing regime stock Price Ceiling prices Ceiling prices and Ceiling prices and Contract price and margins margin controls margin controls for regime for veal and controls for for veal and dairy veal and dairy dairy products veal and dairy products products products Fiscal Directed credit Directed credit Directed credit and Directed credit and and subsidies and subsidies subsidies subsidies Chapter 4: Bulgaria 89 Apendix Table 2: Agricultural Suport Allocations, 1994-1997 (millin leva) _ 1994 1995 1996 1997 Directed Credit and Fund for the Protection of Agricultural 1,195 Subsidies Production (FPAP)* (mainly cereals) FPAP subsidized interest rate 1,000 568 State Fund Agriculture (includes directed credit, 4,383 48,177 interest subsidies, and direct subsidies) Wheat Market Support Wheat import from Poland and forward 12,000 purchases from farmers Tobacco Prod. Support One-time budgetary contribution for tobacco 100 Contribution accord. To artl. para2 item 1.9 of 300 350 1995 budget Contribution accord. To artl. para2 item 5.5 of 500 1997 budget Direct subsidy for tobacco producers 500 Budgetary contribution to the Tobacco Fund 100 Tobacco Fund 192 449 1,300 8,802 Irrigation Support Melioration Fund** 522 966 1,765 8,220 Land Law on Ownership and Use of Ag. Lands (land 868 725 825 restitution) 1997 budget structural reform support (land 11,000 restitution) National Fund for Land Productivity 132 Other Other off-budget allocations to the MFAR 1,916 353 2,437 18,887 Total support (min leva, 5,098 4,656 11,060 107,718 nominal) Total support (mln dollars, nominal) 94 69 62 65 Total support as Share of Ag. GDP 9% 4% 6% 9% Exchange rate (leva/$, yearly avg.) 54 67 178 1,668 Ag GDP (in nominal. Lei) 59,014 108,913 183,732 1,220,186 Note: no entry indicates a zero allocation. * Operated as State Fund Agriculture from 1996 ** Irrigation support to Irrigation Systems Company Source: MAFAR 90 H. Gordon, N. Ivanova, and N. Nikolov Appendix Table 3: International Reference Prices for Outputs - Data Sources Commodity Price used Source Wheat grain Avg. wheat grain export price (1997) Sofia Commodity Exchange and international price adjusted to (1997) and OECD (1994-96) border (1994-1996) Maize grain Avg. maize grain export price (1997) Sofia Commodity Exchange and international price adjusted to (1997) and OECD (1994-96) border (1994-1996) Sunflower Avg. unit export price for sunflower Sofia Commodity Exchange seed seed and international price adjusted to (1997) and OECD (1994-96) border (1994-96) Veal calves Avg. unit export price for live calves Customs Pigs Avg. unit export price for fresh chilled Customs pork meat (1997) and live pigs (1994- 96) Chickens Avg. unit export price for frozen Customs chicken Cow milk Avg. unit export price white cheese Customs (1997) and Min. of Ag. (1997) and N. Zealand milk price (1994-96) (1994-96) CHAPTER 5: TURKEY36 Haluk Kasnakoolu and Erol H. Qakmak INTRODUCTION In this chapter we examine the fiscal burden and distribution of costs and benefits of agricultural policies in Turkey. We begin with a brief review of existing agricultural policy instruments employed in Turkey. Next, we analyze the costs and benefits of these policies based on calculations by OECD, and revised estimates we have made, of the producer subsidy equivalent (PSE), consumer subsidy equivalent (CSE) and total transfers. In the third section, we estimate the transmission efficiency of agricultural support policies and their net income effects. Finally, we provide an analysis of the distribution of the costs and benefits of agricultural policies in Turkey by commodity, region, farm size, and income group. INSTRUMENTS OF AGRICULTURAL POLICY IN TURKEY The Turkish goverm-nent has implemented a wide variety of measures to meet its objectives in the agricultural sector. In the crops sector, these measures have primarily included domestic price support, augmented by restraints on imports (in the past) and high tariffs (in recent years). In the livestock sector, border measures have been the main mechanism used to support producer prices. Price controls and export taxes have been employed to protect consumers, and input subsidies and credit are provided to farmers to improve yields and farmer income, and to counterbalance the implicit protection given to domestic input industries through border measures. No limits are set on production or sale other than some control over planted acreage of a few selected crops. The instruments of Turkey's agricultural policy are described below. 36 Based on the original paper from Haluk KASNAKODLU and Erol H. QAKMAK, on The Fiscal Burden and Distribution of Costs and Benefits of Agricultural Support Policies in Turkey. Middle East Technical University, Department of Economics, 06530 Ankara, Turkey. 92 H.Kasnakodlu and E. Cakmak Output Price Support. This has been the most widely used instrument of agricultural policy in Turkey. It has always been at the center of policy discussions and gained popularity among other instruments well beyond its relative significance. Output price support began in 1932 with wheat. Until the 1960s, agricultural support was limited to 8-10 cereal grains, opium, tobacco, and sugarbeet. By the end of the 1960s, the number of commodities supported equaled 17, a number that increased in the 1970s to 22. The number of products covered started to decline in 1981, and by 1990 only 10 products received support. In 1992, however, there was a sharp increase to 26 commodities, followed by a decline. Since 1994, support purchases have been limited to cereals, tobacco, tea and sugarbeet.37 Prior to 1992, output support prices were announced by government decree each year. Related state economic enterprises (SEEs) and agricultural sales cooperatives (ASCUs) were commissioned to buy at floor prices set by the government. With the exception of sugarbeet, these crops could also be sold to independent buyers. From 1993 on, private companies were also allowed to contract for sugarbeet. In August 1993, a new system was outlined for crops covered by ASCUs. Instead of floor prices, a system similar to deficiency payments was introduced, whereby a target price was announced, together with a low intervention price based on the world price. Farmers selling their crop to ASCUs or commodity exchanges were paid a deficiency payment equal to the difference between the price obtained and the target price. The payment was made by the Agricultural Bank and reimbursed by the Treasury. Deficiency payments were implemented initially for cotton in 1993, with the intention of expanding the benefit to sunflower, tobacco, tea and hazelnut production. Due to budgetary problems in 1994, the deficiency payment system was abandoned, but the government is considering instituting payments for wheat, cotton, and sunflower. Livestock products seldom receive price support, but instead rely mainly on border measures for their protection. Since 1986, a limited incentive premium program has been administered for milk, and some support purchases existed for livestock in 1979 and again in 1989. Wool and mohair have received both price supports and border protection since the 1970s. Trade Policies. Prior to 1980, the imports of agricultural commodities were highly restricted. Those allowed to be imported could only be imported by SEEs. Imports of fertilizers and pesticides were also controlled by SEEs and were given special treatment. Prior to 1980, export restrictions in the form of licensing and registration requirements existed for the export of several agricultural products and inputs. Export levies were applied on relatively high-value products to raise revenue and on certain cereals to regulate domestic supplies. Subsidies also existed to promote exports of horticultural and livestock products, fresh and processed vegetables, citrus fruits, some cereals, and sugar. Since 1980, many licenses and monopolies have been eliminated, and export duties reduced or replaced by special fund taxes. 37We gratefully acknowledge the help of Mr. Rahim Yeni from the Ministry of Agriculture and Rural Affairs (MARA) for providing the data and informnation for the total budgetary transfer tables for Turkey, presented in the Annex. Chapter 5: Turkey 93 Supply Control Measures. Limited use has been made of supply controls in agricultural policy. Only tobacco (since June 1986), hazelnut (since June 1983) and tea (since June 1987) production are subject to cultivated-area control. Sugarbeet output is indirectly controlled by Turkish Sugar Factories Inc. (TSF) through contracts. Direct Payments. Direct payments constitute a minor form of output price support in Turkey. Payments intended as relief from the effects of natural disasters, the return of sugarbeet pulp to producers after processing, and incentive premiums for livestock farmers are some examples of direct payments observed in Turkey. Area and headage payments or diversion payments are not employed as tools of agricultural policy. Since 1983, under the Fallow Land Reduction Program, cereal producers have been indirectly supported through access to cheaper credit, extension, and demonstration projects. Sugarbeet producers have been encouraged to expand into livestock. Milk and meat production incentive premiums were introduced in 1987 and 1990, respectively. Reduction in Input Costs. Input subsidies constitute the second most important component of agricultural support policies. The most important forms of input subsidies are: (i) Capital grants, that include reductions in customs duties, incentive credits, income tax reductions, and Resource Utilization Support Premia. (ii) Interest concessions, whereby short-term and investment credit is provided at interest rates well below the rate of inflation and commercial interest rates. (iii) Fertilizer subsidies to both the domestic manufacture and consumption of fertilizers since 1961. Prices for all types of chemical fertilizers were set by government decree. In 1997, the government decided to fix the fertilizer subsidy in nominal TL per kilogram, a shift in policy that, if sustained, will reduce the fertilizer subsidy substantially. (iv) Seed Subsidies, consisting of state-controlled seed production and distribution, subsidies on imported seed purchased by the Soil Products Office (SPO), and support of hybrid seed producers through refund payments in 1985. (v) Pesticide Subsidies, including free protection measures offered by the state in case of epidemic disease or pest infestations, and subsidies on services performed by private contractors after 1985. (vi) Cultivation Services. TSF sows seed beet and pays for the maintenance of machinery and other capital equipment that belongs to contracted sugarbeet producers. (vii) Irrigation Subsidies. All water rights are, with minor exceptions, vested in the state. They charge only for the costs of operation and maintenance, and nothing for the imputed value of water. Even this, however, is covered to the extent that electricity charges for pumping are subsidized. 94 H. Kasnakodlu and E. (7akmak (viii) Feed Subsidies and Improvement of Breeding Stock, including animal feed purchase rebates (1985-89), industrial feed price support (1988-89), and free or subsidized access to artificial insemination by breeding bulls and sheep. General Services. The general services provided to agricultural producers either free or at subsidized cost include: (i) Research, training and extension services. (ii) Inspection services, including inspections of imports and abattoirs, food and feed factories, and monitoring and supervising animal movements. (iii) Pest and disease control services, including free or subsidized tests, vaccines, drugs, and chemicals provided to producers. (iv) Infrastructure services, including state investments in irrigation, land improvement, soil and water conservation, roads, electricity, water, and pasture land improvement. Income Taxes. Only the largest farmers are required to pay income tax, although a withholding tax of 5% is applied on sales of production. Consumer Subsidies: No direct subsidy is given to consumers, but they are indirectly protected through price controls and market interventions. MEASUREMENT OF SUPPORT TO AGRICULTURE The PSE is an indicator of the value of the monetary transfers to agriculture resulting from agricultural policies in a given year. Five types of agricultural policy measures comprise this indicator, including: (i) Market price support, that transfer money to producers through their affects on producer and consumer prices. For a given product, this is calculated by multiplying domestic production by the difference between domestic farmgate price and a reference price (usually the world price at the border). (ii) Direct payments, that transfer money directly from taxpayers to producers without raising prices to consumers. (iii) Reduction of input costs, that transfer money to producers through the lowering of input costs. Chapter 5: Turkey 95 (iv) General services, which reduce costs to the agricultural sector as a whole but are not directly, received by the producers. (v) Other support, such as that provided by state or provincial governments and certain tax concessions. The CSE is an indicator of the value of monetary transfers to consumers resulting from agricultural policies in a given year. Two types of agricultural policy measures included in the calculation of CSEs are: (i) Market transfers, that are transfers to (if positive), or more commonly from (if negative), consumers due to market-price support policies. For a given product, it is measured by multiplying domestic consumption by the difference between domestic consumer price and world price, evaluated at the farmgate level (and approximated by the difference between domestic farmgate price and world price at the border as in the case of PSE calculations). (ii) Other transfers, including budgetary transfers to consumers resulting from agricultural policies (consumer subsidies). PSE AND CSE COVERAGE AND TOTAL TRANSFERS PSE and CSE calculations by OECD cover 13 agricultural commodities, including wheat, maize, other grains, rice, oilseeds, sugar, milk, beef and veal, pigmeat, poultry, sheepmeat, wool, and eggs. The percentage of these commodities in total value of Turkish agricultural production was the lowest among OECD countries. To obtain total producer and consumer subsidies, OECD assumes that the average rate of transfers calculated from the 13 commodities can be applied to the rest of the commodities. For most OECD countries, the likely bias from this generalization would be small. The bias could be significant for Turkey, however, since less than one-half of the total value of agricultural production is represented by these commodities. Total transfers are a broader indicator than the PSE. They are defined as the sum of all transfers from taxpayers and all transfers from consumers resulting from agricultural policies, less transfers to the budget or budget revenues from imports. They include an extrapolation of market-price support to all agricultural production, as measured by the PSE, and they also include budgetary transfers additional to those included in the PSE, such as those to other parts of the agro-food sector and rural areas (e.g. subsidies to food processing and distribution industries and rural infrastructure outlays), to social welfare recipients (e.g. domestic consumer food aid programmes), and for stockholding of agricultural commodities (financing costs, storage costs, and storage losses). Very often, large budgetary expenditures result from measures that must be undertaken in order to regulate markets in the face of policy intervention. These expenditures can exceed the transfers that producers receive from consumers through domestic prices that exceed world 96 H. Kasnako6lu and E. (7akmak prices, or from taxpayers through deficiency payments. Such policies often require complementary programmes such as export subsidies, subsidies to support the stockpile of commodities for which production exceeds consumption, subsidies aimed at limiting the level of production (quotas, set-asides, conservation programmes), as well as subsidies provided in order to increase demand (consumer subsidies, including processing and food aid). The expenditures incurred in the implementation of such programmes may represent very high transfers to economic groups other than farmers. Thus, the value of calculating total transfers is to show that in many cases the total transfers resulting from agricultural policies are much larger than those that are estimated as being received by farmers or by the sector as a whole. REVISIONS ON OECD ESTIMATES OF PSE, CSE AND TOTAL TRANSFERS In this section we examine the PSE, CSE and total transfer computations for Turkey as made by OECD, and we offer modified estimates of transfers to the agricultural sector, and the fiscal costs associated with them. Our modifications will be carried out at three levels. First, we will examine the grossing-up procedure from 13 commodities to all the commodities for PSE and CSE calculations. Secondly, we will examine the total budgetary transfers (i.e. taxpayers' contribution) generated by agricultural policy and the subset that comprises total budgetary transfers going to farmers directly. From these, we obtain revised estimates of PSEs and associated total transfers from taxpayers and consumers. REVISED GROSSING-UP OF PSES AND CSES We have pointed out above that PSE and CSE calculations by OECD are carried out for the same basket of 13 commodities in all countries. In PSE calculations, market-price support is computed for each of the commodities separately. Non-market price support, which in general is not commodity-specific, is ascribed to individual commodities using various estimation procedures. In the computation of total transfers, non-market price supports or the budgetary outlay aggregates for all commodities are employed. The implicit tax to consumers (CSE) is added to arrive at total transfers related to agricultural policy. In the case of Turkey, PSE and CSE calculations are based on 12 of OECD's 13 commodities, since rice is excluded from the computations. The 12 commodities constituted 34- 43% of the total value of agricultural output in Turkey over the last 10 years. For the grossing-up to be unbiased, composition of the included commodities must be similar to the composition of the excluded commodities. When we examine Table 5.1, we observe that this condition is not met for Turkey. In 1995, crop production constituted 74% of the total value of Turkey's agricultural production, and livestock production the remaining 26%. In OECD calculations, the share in output value of crops is 42%, and that of livestock is 58%. Using the inflation rate of 43% for both crops and livestock results in a bias in favor of PSEs for livestock products. To correct for this bias, we have recalculated PSEs and CSEs for 1993-1996 using two different inflation factors for crops (25% inflation) and livestock products (95%). Chapter 5: Turkey 97 Table 5.1: Value of Agricultural Production in Turke 1995-Billion Tb) Commodities Total Value Marketed Value OECD Covered % Covered TOTAL 1,468,855 1,042,838 636,527 0.43 Crops Total 1,084,215 841,729 270,041 0.25 Cereals 227,945 136,856 220,565 0.97 Wheat 156,341 99,886 156,341 1.00 Barley 48,138 23,308 48,138 1.00 Maize 16,086 9,031 16,086 1.00 Rice 4,234 3,850 0.00 Pulses 61,645 43,849 0.00 Industrial Crops 157,166 151,625 27,925 0.18 Sugarbeet 27,925 27,235 27,925 1.00 Oilseeds 27,963 26,167 21,551 0.77 Sunflower 21,551 20,219 21,551 1.00 Tuber Crops 106,387 78,105 0.00 Vegetables 222,751 179,419 0.00 Fruits & Nuts 280,357 225,709 0.00 Livestock Total 384,640 201,109 366,486 0.95 Milk 174,503 33,099 174,503 1.00 Meat 122,757 116,254 122,757 1.00 Wool 4,352 1,039 4,352 1.00 Poultry meat 25,727 25,727 25,727 1.00 Eggs 39,147 13,310 39,147 1.00 Source: SIS (1997). Table 5.2 presents OECD's estimates of PSEs and CSEs, and the revised estimates by the authors. In 1993, the revised PSE was 5% lower than that estimated by OECD, and the revised CSE was 22 percent lower in absolute terms than the OECD estimate. In 1994 and 1995, the revised PSE and CSE are lower than OECD estimates, and the difference increased from one year to the next. In 1996, revised estimates of PSE and CSE are slightly higher than OECD estimates by 3.6% and 1.4%, respectively. Table 5.2: Total PSEs and CSEs for Turkey, Revised for Grossing-Up (Million US$) 1993 1994 1995 1996 PSE (12 Commodities) 3,910 1,913 3,432 3,673 PSE (OECD) 9,775 4,783 7,981 8,542 PSE (revised) 9,279 3,788 4,568 8,850 CSE (12 Commodities) -3,408 -1,213 -2,663 -2,973 CSE (OECD) -8,520 -3,033 -6,193 -6,914 CSE (revised) -6,646 -1,882 -2,660 -7,012 Source: OECD (1996). OECD (1997), Table 1. REVISED TOTAL TRANSFERS AND NON-MARKET PRICE SUPPORT FOR PSE Total transfers related to agricultural policy in Turkey consist of total budgetary transfers (TBT) to the sector, and transfers from consumers net of government revenue. The OECD's 98 H.Kasnakodlu and E Cakmak estimates of itemized budgetary transfers related to agricultural policies (1994, pp. 118-21) are taken as the basis for our revisions, and are presented in Table 5.3. Revised figures for 1993 are obtained from the Turkish Ministry of Agriculture and Rural Affairs (MARA) and presented in the fourth column of Table 5.3. The last column of Table 5.3 represents the transfers given directly to farmers. The main items excluded are the compensation for the duty losses of, and equity injections to, intervention agencies, and concessional loans made by the central bank to the SPO. Table 5.3: Total Transfers Related to Agricultural Policy in Turkey Items Included In the PSE Categories of Transfer Units OECD Revised 1993 1993 1993 BUDGETARY EXPENDITURES Expenditure on agriculture through Ministerial budgets billion TL 8,168 6,172 6,172 Projects partly financed by foreign loans and reimbursed by the Treasury billion TL 274 157 157 Premia and input subsidies not financed by the MARA or GDRS (finding source) billion TL 4,975 10,802 10,802 General services and infrastructure provided by State Owned Enterprises billion TL 80 120 120 Transfers to intervention agencies (Compensation for Duty Losses) billion TL 4,857 4,861 Transfers to intervention agencies (Capital Transfers - Equity Injections)) billion TL 2,551 3,150 Sub-Total billion TL 20,905 25,262 17,251 CONCESSIONAL LOANS Concessional Loans to Farmers and ASCUs billion TL 21,836 22,316 22,316 Concessional Loans by The Central Bank billion TL 2,172 2,172 Sub-Total billion TL 24,008 24,488 22,316 Total budgetary and extra-budgetarv transfers, and concessional loans billion TL 44,913 49,750 39,567 US dollar exchange rate TL per US$ 10,964 10,964 10,964 Total budgetary and extra-budgetary transfers, and concessional loans billion US$ 4.1 4.5 3.6 TRANSFERS FROM CONSUMERS Transfers from consumers-]2 commodities (CSE) billion US$ 3.8 3.8 Budget revenues from (implicit) import taxes-12 commodities billion US$ 0.3 0.3- Share of PSE/CSE commodities in total value of production percent 39.0% 25%-95% Consumer transfers (all commodities) billion US$ 9.7 6.6 Budget revenues (all commodities) billion US$ 0.7 0.7 Total Transfers from Consumers billion US$ 9.0 5.9 TOTAL TRANSFERS TO AGRICULTURE billion US$ 13.1 10.4 Sources: OECD (1994), MARA files, and annex tables. Table 5.4 presents TBT for the period from 1994 to 1996. Any discrepancies between these and OECD's TBT are mainly due to the fact that OECD's data for recent years are only estimations based on the previous year's values, assuming that they remain constant in real terms. The revised figures in both Tables 5.3 and 5.4 are actual expenditures with some revision of the assumptions used in the OECD calculations. The TBT as calculated by OECD is comprised of: i. Expenditures on agriculture from Ministerial budgets. Only parts of MARA's and the General Directorate of Rural Services (GDRS) and other budgets related to agricultural policies are included in this item. This underestimates the actual TBT, due to its omission of other important items in their budgets. OECD considers only 10 percent of MARA's budget as general administration costs to be included in TBT. In fact, 50 percent of the current expenses of MARA are made to administer agricultural policies, and all of MARA's investment expenditures, and 50 percent of its other expenses (including, among other things, contributions to the Chamber of Farmers and the Veterinary Union, membership dues to international institutions, and payments to Chapter 5: Turkey 99 informers) should be included as transfers to agriculture. The GDRS is responsible for the improvement of rural infrastructure, and its agricultural investments should be considered transfers to agriculture. In addition, one-third of its current expenses, and all of its research expenditures, should be treated as transfers to agriculture. Apart from MARA and GDRS, many goverrnent-related institutions (such as the Ministry of Industry, Ministry of Treasury, the State Hydraulic Works, and various procurement agencies) are involved in the administration of agricultural policies, and parts of their budgets should also be included in any estimates of TBT. Table 5.4: Total Budgetary Transfers Related to Agricultural Policy in Turk ey Items Items Items Categories of Transfer Units Revised Included In Revised Included In Revised Included In the PSE the PSE the PSE 1994 1994 1995 1995 1996 1996 BUDGETARY EXPENDITURES Expenditure on agriculture through billion TL 12,031 12,031 17,830 17,830 27,239 27,239 Ministerial budgets Projects partly financed by foreign loans and billion TL 527 527 507 507 1,049 1,049 reimbursed by the Treasury Premia and input subsidies not financed by billion TL 15,305 15,305 22,089 22,089 69,108 69,108 MARA or GDRS (funding source) General services and infrastructure provided billion TL 193 193 364 364 683 683 by State Owned Enterprises Transfers to intervention agencies billion IL 0 0 3,150 (Compensation for Duty Losses) Transfers to intervention agencies (Capital billion TL 2,433 3,330 2,500 Transfers - Equity Injections)) Sub-Total billion TL 30,489 28,056 44,120 40,790 103,729 98,079 CONCESSIONAL LOANS Concessional Loans To Farmers and ACCUs billion TL 37,709 37,709 86,512 86,512 123,252 123,252 Concessional Loans By The Central Bank billion TL 0 0 0 Concessional Loans By The Agricultural billion TL 54,634 112,933 19,747 Bank To ASCUs Sub-Total billionTL 92,343 37,709 199,445 86,512 142,999 123,252 Total budgetary and extra-budgetary transfers, billion TL 122,833 65,766 243,565 127,302 246,729 221,331 and concessional loans tJS dollar exchange rate TL per 29,778 29,778 45,738 45,738 81,281 81,281 USS Total budgetary and extra-budgetary transfers, billionUS$ 4.1 2.2 5.3 2.8 3.0 2.7 and concessional loans Sources: OECD (1996), OECD (1997), MARA files, and Annex tables. ii. Projects mainly financed by foreign loans. OECD estimates are derived using the average cost of these projects per year. The revised estimates in Tables 3 and 4 use the project-specific realized (or actual) expenditures. iii. Premia and input subsidies not financed by MARA or GDRS. The main item comprising input subsidies is the subsidy on fertilizer, although the market price for fertilizer deviates only slightly from the border price due to Turkey's negligible tariff on imports. Deficiency payments, as applied to cotton in 1993, were not included in the OECD's TBT. Other differences between OECD's and MARA's estimates are due to the fact that the State Hydraulic Works ceased claiming any expenditures for O&M subsidies in 1994, and the TSFAS discontinued the services that it provided for sowing sugarbeet in 1994. It was not possible to identify that part of the subsidy in the electricity sector that was used in agricultural production. 100 H. Kasnakoflu and E. (7akmak iv. General services and infrastructure provided by SEEs. The OECD's estimate for this item is the same as that employed by MARA. v. Duty losses and equity transfers to intervention agencies. We use the actual expenditures, while OECD estimates are usually based on previous years. vi. Concessional loans. The four types of concessional loans include loans from the Agricultural Bank (AB) to farmers, loans from the AB to agricultural credit cooperatives associations (ACCUs) that are transferred to farmers (and reported as loans to farmers), loans from the AB to agricultural sales cooperative unions (ASCUs), and loans from the Central Bank to the SPO. Interest concessions on the loans to farmers and ACCUs are also considered transfers to farners. Concessional loans to ASCUs and to SPO are transfers from taxpayers to agriculture for support purchases, and they are separated from the interest concessions directly accruing to the farmers in Table 4. THE MARKET-PRICE SUPPORT COMPONENTS OF PSE AND CSE The market-price support component constitutes a significant part of the subsidies to producers and implicit taxes on consumers (in this study we have not attempted to revise the market-price support component of OECD estimates). In 1996, over 70% of the PSE and nearly all of the CSE came from this component. Furthermnore, the relative magnitudes of this component showed important variations from one year to the next. From 1993 to 1996, the shares of market-price support in total support to producers were 0.89, 0.35, 0.63 and 0.72. The selection of the appropriate reference prices and scaling them to farmgate level to compare with domestic prices is probably the most critical and yet the weakest part of the OECD methodology. We did not attempt to resolve this problem in our study. REVISED PSE, CSE AND TOTAL TRANSFERS Throughout the remainder of this chapter, we will use the revised PSE, CSE, and total transfer estimates calculated as follows. i. Revised CSE= From Table 5.2 ii. Revised PSE = OECD market price support for 12 commodities x (% share of Crops in CSE) / 0.25 + OECD market price support for 12 commodities x (% share of livestock in CSE) / 0.95 - feed adjustment for 12 commodities / 0.95 + total budgetary transfers included in PSE (from Tables 5.3 and 5.4). iii. Revised Total Transfers - revised total budgetary transfers (from Tables 5.3 and 5.4) + revised CSE (from Table 5.2) - budget revenues (from Tables 5.2, 5.3 and 5.4). Chapter 5: Turkey 101 We used the OECD market price support for 12 commodities for 1993, but 1994 -1996 estimates were derived by multiplying OECD's PSEs by the corresponding shares of market- price support in PSEs mentioned above. The percentage shares of crops and livestock in CSE are used as proxies for the percentage shares of crop and livestock market-price support in total market-price support. As the market-price support for both CSE and PSE are computed using the same prices and the CSE share of total market-price support is by far the greatest, we believe that our revised estimates provide a fairly close approximation to the crop and livestock components of PSE market-price support. Table 5.5 presents OECD's and our own revised PSE, CSE, and total transfers for the 1993-1996 period. The total revised PSE for all commodities in Turkey amounted to US $8.8 billion dollars in 1996. The total CSE amounted to US $-7.0 billion that same year. Table 5.5: OECD and Revised Total Transfers to Agriculture in Turkey 1993 1994 1995 1996 1993 1994 1995 1996 Unit (rev.) (rev.) (rev.) (rev.) OECD OECD OECD OECD From Taxpayers $ bn 4.5 4.1 5.3 3.0 4.1 4.9 7.1 7.7 From Consumers $ bn 6.6 1.9 2.7 7.0 9.7 3.0 6.2 7.0 Budget Revenues $ bn 0.7 0.1 0.8 0.9 0.7 0.1 0.8 0.9 Total Transfers $ bn 10.4 5.9 7.2 9.1 13.1 7.8 12.5 13.8 Total PSE $ bn 11.0 2.9 5.2 8.8 9.8 4.8 7.9 8.6 Total CSE $ bn -6.6 -1.9 -2.7 -7.0 -8.5 -3.0 -6.2 -6.9 Source: OECD (1995), OECD (1996), OECD (1997), and Tables 2-5. TRANSFERS TO AGRICULTURE IN TURKEY AND OECD COUNTRIES Turkey's PSE for the 13 commodities has increased from little over US $1 billion in the early 1980's to US $3.7 billion in 1996. The percent PSE (% PSE) that relates total PSE to total value of production of these commodities, has increased from 17 percent in 1979-80 to 30 percent in 1996. Average percent PSEs of OECD countries have increased from 29 percent in 1979-80, to 36 percent during the same period (see Table 5.6). Table 5.6: Total and Percent PSE and CSE in Turkey and OECD Countries Unit 1979-81 1986-88 1990-92 1993-95 1994 1995 1996 Turkey's Total PSE $ mill. 1,072 1,577 3,740 3,074 1,913 3,432 3,673 Turkey's% PSE % 17 26 36 30 25 31 30 OECD's % PSE % 29 45 42 41 42 40 36 Turkey's Total CSE $ mill. -615 -1,083 -3,390 -2,431 -1,213 -2,663 -2,973 Turkey's % CSE % -9 -18 -32 -22 -14 -21 -22 OECD's % CSE % -22 -37 -34 -31 -32 -29 -23 Source: OECD (1997), OECD (1996). Note: Based on OECD estimates for total of 13 commodities. The subsidies to producers was largely financed by taxing producers through higher domestic prices. Seventy-two percent of Turkey's PSE came from market support, 2 percent from 102 H.Kasnakodlu and E. 9akmak direct payments, and 30 percent from other support (reduction in input costs, general services, others - see Table 5.7). In the OECD-country aggregate, the market support component constituted 60 percent, direct payments 23 percent, and the other support 18 percent of PSEs. Tabe .7:Copoitin f SE ureyand OECD Countries,(%) Type of Support Turkey OECD 1986-88 1993-95 1996 1986-88 1993-95 1996 Market Support 72 73 72 79 72 60 Direct Payments 1 2 2 18 18 23 Other Support 39 30 30 17 15 18 Feed Adjustment -12 -5 -4 -11 -5 0 Total 100 100 100 100 100 100 Note: Based on OECD estimates for total of 13 commodities. Source: OECD (1997), OECD (1996). Table 5.8 illustrates the PSEs per full-time farmer equivalent in Turkey and other OECD countries. The full-time farmer equivalent (FFE) includes all forms of labor (farmers, hired employees, and unpaid family workers), assuming 2,200 hours annually of working time in agriculture. The PSE per FFE of about US $1,000 in Turkey is less than 10 percent of OECD's average of US $10,000. Per capita income in Turkey is about US $2,700. The per capita income of the approximately 3.5 million households engaged in agricultural activities is around US $2,000. The total population in these households is approximately 17 million. The PSE per agricultural household therefore amounts to a little less than US $2,500, and we estimate that the support to agriculture equals about 25 percent of the per capita agricultural income. For a full-time farmer, PSEs equal about US $ 1,000, or 50 percent of farm income. Table 5.8: PSE Per Full-time Farmer Equivalent in Turkey and OECD Countries (thousand US$) 1979-81 1986-88 1990-92 1993-95 1994 1995 1996 Turkey 0 1 1 1 0.7 1.1 1.2 OECD 6 11 13 14 14 15 14 Note: Based on OECD estimates for 13 commodities. Source: OECD (1997), OECD (1996). Tables 5.9 and 5.10 present PSEs per hectare of agricultural and crop land in Turkey and OECD countries. The agricultural land area was measured as the sum of the total harvested area for PSE crop commodities, the area of permanent meadows and pastures, and the area used for (non-permanent) forage production. Over the past 15 years, PSE per hectare (ha.) of agricultural land in Turkey has tripled from US$45/ha. in 1979-81, to US$135/ha. in 1996. This figure is equal to more than 80 percent of the OECD-country average of US$161/ha. The crop-land PSE was measured as the sum of the gross total PSEs for wheat, coarse grains, rice, oilseeds and sugar crops, divided by the sum of total harvested area for these comrnodities. Over the past 15 years, PSE per hectare of crop land has increased from US Chapter 5: Turkey 103 $28/ha. in 1979-81, to US$124/ha. in 1996. Nevertheless, it is little more than one-third of the average PSE of $355/ha in OECD countries. Table 5.9: PSE Per Hectare of Agricultural Land in Turkey and OECD Countries (US$/hectare) 1979-81 1986-88 1990-92 1993-95 1994 1995 1996 Turkey 45 62 137 114 71 127 135 OECD 86 153 168 170 171 176 161 Note: Based on OECD estimates for total of 13 commhodities Source: OECD (1997), OECD (1996). Table 5.10: PSE Per Hectare of Crop Land,in Turkey and OECD Countries (US$/hectare) 1979-81 1986-88 1990-92 1993-95 1994 1995 1996 Turkey 28 82 147 64 44 24 124 OECD 170 410 398 417 431 418 355 Note: Based on OECD estimates for total of 13 commodities Source: OECD (1997), OECD (1996). TOTAL TRANSFERS IN TURKEY AND OECD COUNTRIES The expenditures incurred in the implementation of agricultural support programmes may represent very high transfers to economic groups other than farmers. Comparing total transfers with PSEs permits us to compare the total costs of agricultural policies with the benefits received by farmers or the sector as a whole. Table 5.11 presents the magnitude and sources of total transfers to agriculture in Turkey and OECD countries. The transfers from taxpayers include all the budgetary outlays used for PSE calculations, plus those mentioned in Section 3. The total transfer from consumers is equal to the CSE grossed-up by the percentage share of production covered by the PSE calculations. Budget revenues arising from border policy measures exist only for those commodities for which it is a net importer. They are calculated for individual commodities as the product of the tariff (or the price differential) and the difference between the consumption and production levels for these commodities. These estimates are also grossed up to include all production using PSE percentages. In 1996, total transfers from consumers and taxpayers to agriculture net of related budget revenues amounted to US $9.1 billion in Turkey, US $7.0 billion of which came from implicit taxation of the consumers due to higher domestic prices. The remainder consisted of budgetary outlays from the taxpayers, US $0.9 billion of which was recovered from border measures. The total PSE received by the agricultural producers in the same year was US$8.8 billion. 104 H.Kasnakoclu and E. (7akmak Table 5.11: Sources of Total Transfers to Agriculture in Turkey and OECD Countries (in US $ billion) 1993 1994 1995 1996 Turkey From Taxpayers 4.5 4.1 5.3 3.0 From Consumers 6.6 1.9 2.7 7.0 Budget Revenues 0.7 0.1 0.8 0.9 Total Transfers 10.4 5.9 7.2 9.1 Total PSE 11.0 2.9 5.2 8.8 OECD From Taxpayers 166.8 163.2 167.7 164.5 From Consumers 184.7 180.6 183.1 146.5 Budget Revenues 19.3 15.5 16.9 13.9 Total Transfers 332.1 328.2 332.9 297.1 Total PSE 248.1 249.9 256.6 237.1 Note: Total PSEs for Turkey are the revised estimates by the authors. Total PSEs for OECD countries are the PSEs for 13 commodities grossed-up by 70 percent for all the years. Source: OECD (1997), OECD (1996), Table 5. We can interpret the ratio of total transfers to total PSE as the transfer inefficiency of agricultural policies. In 1996 this ratio was 1.03, meaning that society paid US $1.03 to transfer US $1 to the agricultural producers. If we look at Turkey's gross transfer inefficiencies of agricultural policies over the last four years, we observe that they have fluctuated between 0.93 to 2.03 between 1993 and 1996. The average gross transfer inefficiency over this period was 1.17. One of the main reasons for these fluctuations is the delay in the consolidation of the accounts of intervention institutions. One can describe the total transfers in Table 5.11 another way. If we consider that agricultural income is not taxed in Turkey, then the taxpayer's burden fell on the non-agricultural producers. Since the agricultural producers constitute about 30% of the total consumers, they contribute about one-third of the transfers from the consumers, making the net subsidies to producers much lower. In 1996, the implicit tax paid by farmers as consumers amounted to US $2.1 billion, thereby lowering the net subsidy to US $6.7 billion. This implies that non- agricultural producers have paid US $7.0 billion in order to transfer US $6.7 billion to agricultural producers. In other words, non-agricultural producers were directly or indirectly taxed US $1.05 to pay US $1 to farmers in 1996. The net transfer efficiencies over the last four years averaged 1.21 per year, as compared to the average OECD-country average of 1.3 over the same period. Table 5.12 presents the relative magnitudes of total gross transfers to agriculture. Total transfers in Turkey, where the agricultural sector is a significant component of economic activity, constitute nearly 5 percent of GDP as compared to 1.5 percent in OECD countries that have relatively smaller agricultural sectors. Total transfers per capita amounted to US $145 in 1996, or approximately 5 percent of the per capita income in Turkey. Given that contributions from the non-agricultural sector constitute about 85 percent of total transfers, that the non-agricultural households constitute two-thirds of the total, and that non-farm per capita income is about US Chapter 5: Turkey 105 $3,500, this amounts to a 5 percent implicit income transfer per capita from the non-agricultural sector. Table 5.12: Total Transfers to Agriculture in Turkey and OECD Countries 1993 1994 1995 1996 Total Transfers/GDP (%) TURKEY 5.2 4.5 4.4 5.1 OECD 1.6 1.6 1.5 1.3 Total Transfers/Capita ($) TURKEY 136 98 117 145 OECD 378 373 376 334 Total Transfers/FFE ($) TURKEY 1,130 819 973 1,243 OECD 15,651 15,440 15,955 14,493 Total Transfers/Agricultural Land ($/ha) TURKEY 206 148 181 228 OECD ~~~~~~~284 280 284 254 Source: OECD (1997), OECD (1996). DISTRIBUTION OF THE BENEFITS OF AGRICULTURAL SUPPORT In this section we analyse the distribution of the benefits of agricultural support by commodity, region, farm size, and income. In doing so we employ OECD's percentage PSE calculations as an approximation, since our own revised PSEs are not commodity- specific. SUPPORT BY COMMODITY Table 5.13 presents the trends in percentage PSEs by commodity between 1990 and 1996. The following observations are of particular interest. * Differences among commodities varied markedly over time. * Certain commodities in certain years were taxed rather than subsidized by agricultural policies. Examples include wheat in 1995, sugar and maize in 1994, poultry in 1996, and eggs in 1991. . Livestock producers were subsidized relatively more than crop producers on average over the past 7 years. However, in 1991 and 1993, crop producers were subsidized more than livestock producers. * Oilseeds registered higher rates of support on average than other crops. * Among livestock products, milk, and beef registered higher rates of support on average than others. 106 H.KasnakoeJlu and E. Cakmak Table 5. 13: Percent PSEs by Commodi for Turkey 1990 1991 1992 1993 1994 1995 1996 1990-96 Wheat 26 54 31 23 26 -3 27 26 Maize 37 46 44 33 -2 16 19 28 Other Grain 38 45 42 53 27 5 17 32 Oilseeds 52 54 50 28 20 34 44 40 Sugar 23 44 48 40 -16 28 32 28 Cotton 22 14 27 39 26 Crops 30 50 38 32 19 7 26 29 Milk 58 53 51 52 49 51 36 50 Beef 24 35 39 46 32 58 54 41 Poultry 32 14 22 31 9 35 -5 18 Mutton 21 20 8 18 21 29 41 23 Eggs 7 -14 38 19 14 52 17 19 Livestock 34 31 35 37 30 47 34 35 Note: Cotton is not included in the totals for crops and all products. 1990-96 is a simple arithmetic average. Source: OECD (1994), OECD (1995), OECD (1996), OECD (1997). Table 5.14 summarizes the composition of support to agricultural producers of different commodities during the 1993-96 period (see Annex Table A4 for details). The following observations are of particular interest. * Market-price support constituted about one-half of the total support provided to cereals, about two-thirds of the total support to industrial crops, and nearly all of the total support to livestock products. * Market-price support showed significant variations over the four years, and was negative for wheat, maize and sugarbeet in 1994, barley in 1995, and poultry in 1996. - Transfers through direct payments and input subsidies were positive and stable for crops, but unstable for livestock products, registering negative values in many years due to distorted feed crop prices. * Total support to different agricultural commodities ranged between -0.34 percent (in 1994 for sugarbeet) and 4.3 percent (in 1995 for beef and veal) of agricultural GDP. Table 5.14: Composition of Total Support by Commodities (1993-1996) Range of Total Average of Total Range of Market- Average of Market- Support as % of Support as % of price support as price support as Commodities Agricultural GDP Agricultural GDP % of Total Support _% of Total Support Wheat -0.28-3.27 1.97 39-63 49 Maize -0.02-0.44 0.21 43-64 54 Barley 0.16-2.13 0.98 -49-84 44 Sunflower 0.25-0.52 0.30 64-82 69 Sugarbeet -0.34-1.16 0.64 63-77 70 Milk 1.68-3.41 2.57 70-158 101 Beef & Veal 1.77-4.30 2.93 71-104 88 Poultry -0.11-1.18 0.55 71-107 87 Sheepmeat 0.86-1.84 1.20 74-102 86 Eggs 0.35-1.80 0.77 94-140 109 Note: The years with negative total support (PSE) are excluded from the ranges and averages. Sources: OECD (1996), OECD (1997) and MARA files. See also annex Table A4. Chapter 5: Turkey 107 We can therefore conclude that the distribution of agricultural support between the producers of different agricultural commodities was neither stable nor equal over the past seven years. The support had distributional effects on the relative incomes of farmers that varied according to the production activities in which the farmner was engaged. SUPPORT BY REGION The regional distribution of agricultural subsidies depends on the distribution of agricultural production value in the region (see Table 2.15), the commodity composition of each region's agricultural production value (see Table 2.16), each region's subsidized input-use intensity (see Table 2.17), the composition of a region's agricultural support by commodity, and the input subsidies it receives. Since the percentage PSEs calculated by OECD. cover only a limited number of commodities, we must extrapolate from those estimates in order to arrive at the magnitude of total PSE. For this analysis, we assume that the percentage PSEs are ranked, from the highest to the lowest, as follows: milk, beef and veal, oilseeds, industrial crops, cereals and pulses, mutton, poultry and eggs, fruits, vegetables. Based on the information provided in Tables 5.10 - 5.17, we can make the following observations regarding the regional distribution of agricultural support. . The western and southern coastal regions, which are also the (relatively) higher- income regions in Turkey, account for about 50 percent of the value of agricultural production, and hence receive about 50 percent of the subsidies. * The eastern and southeastern Anatolian regions, which are the (relatively) lower- income regions in Turkey, account for less than 20% of the value of production, and receive about 20 percent of the subsidies. These regions benefit from relatively higher subsidies for livestock products due to their specialization in livestock activities, but central Anatolia (with a herd composition favoring cattle) and the Aegean and Thrace regions (specialized in processing of animal products, especially milk) also share this advantage. * The central Anatolian regions receive slightly over 25 percent of the total agricultural subsidies. * The Aegean, Thrace and Mediterranean regions account for 35 percent of the cultivated land but nearly 45% of the irrigated land, and more importantly, over one- half of the land irrigated from dams and artificial lakes (hence, they benefit more from subsidised water). Similarly, these high-income regions own about one-half of the agricultural machinery, and use fertilizers and pesticides more intensively, hence they benefit more from the related input subsidies of fuel, electricity, and credit. Although they own only one-third of the livestock, these regions own more than half of the highly subsidized culture breed cattle, and are more likely to benefit from agricultural support in general, due to the fact that about 80 percent of the cooperatives that carry out agricultural policies are based in these regions. We can conclude that the market price component of agricultural support policies did not significantly alter the relative regional distribution of income (according to their Gini 108 H.Kasnakodlu and E. Cakmak coefficients) due to product differentials among regions. It is clear, however, that this component of agricultural support policies has contributed significantly to the widening of absolute income differentials among the regions of Turkey, since most of the benefits went to the higher-income regions. As far as the input cost-reducing component is concerned, we can conclude that agricultural policies have contributed to the widening of relative as well as absolute income inequality, as the higher-income regions use subsidized inputs relatively more intensively than the lower-income regions. Table 5.15: Regional Distribution of Agricultural Production Value percen Turkey Aegean and Mediter- Central Black Sea East and Commodities Thrace ranean Anatolia Southeast Crops 100 32 21 24 8 14 Field Crops 100 24 15 33 9 20 Fruits 100 39 25 16 9 11 Vegetables 100 38 28 18 8 9 Live Animals 100 19 11 31 9 31 Cattle 100 20 9 29 13 29 Sheep and Goats 100 14 12 26 4 44 Poultry 100 22 14 51 5 7 Animal Products 100 26 11 24 14 25 Total 100 29 19 26 9 18 Source: SIS (1995) Table 5.16: Cornposition of Agricultural Production Value by Region (ercent) Turkey Aegean and Mediter- Central Black Sea East and Commodities Thrace ranean Anatolia Southeast Crops 57 67 72 55 79 39 Field Crops 28 23 26 36 77 26 Fruits 14 21 20 9 84 7 Vegetables 16 22 26 11 78 6 Live Animals 30 21 19 33 32 44 Cattle 19 14 11 21 31 26 Sheep and Goats 8 5 6 8 35 17 Poultry 2 2 2 4 59 1 Animal Products 13 13 9 11 24 17 Total 100 100 100 100 100 100 Source: SIS (1995) Chapter 5: Turkey 109 Table 5.17: Selected Resional Indicators % of % of Total % of % of % of % of Sett. % of % of Regions Farmers Cultivated Irrigated Irfigation Tractors Using Chem Settlements Culture Area Cult. from Fertilizer with Co-op Cattle Area Dams North Central 11.9 17.1 10.5 9.3 18.2 99.0 21.1 15.2 Aegean 19.6 13.9 18.1 16.8 21.6 98.7 29.7 32.7 Thrace 8.3 8.9 6.2 6.9 15.7 98.8 29.8 14.4 Mediterranean 11.7 11.7 19.0 31.7 10.7 98.5 20.6 5.8 North East 5.9 4.6 7.1 4.6 2.3 77.6 7.9 4.6 Southeast 9.0 14.0 8.8 5.0 3.4 76.7 1.7 1.8 Black Sea 15.7 8.1 3.7 1.7 7.3 98.0 19.6 8.8 East Central 7.8 7.7 10.3 10.4 7.1 95.2 8.8 7.0 South Central 10.2 14.0 16.3 13.7 13.6 98.4 27.1 9.7 Turkey 100.0 100.0 100.0 100.0 100.0 93.6 18.0 100.0 Source: SIS (1992) SUPPORT By LAND SIZE In this section we examine the distribution of the benefits of agricultural support policies to different income groups in agriculture. Although the data available do not permit a comprehensive treatmnent of this subject, we can obtain some clues about these indicators by looking at some of the evidence available from the last 1991 Agricultural Census. First of all, we take the farm size distribution as an approximation of income distribution in agriculture. Table 5.18 presents the distribution of agricultural land and livestock owned by farm size. In Turkey, the mode farm size is 2-5 hectares, and nearly 70 percent of the agricultural holdings are less than 5 hectares. Land and livestock owned are also distributed unequally. Small farmns (less than 5 ha.) comprise 70 percent of the farms, accounting for a little over 20 percent of the land, less than 45 percent of the sheep, and little over 50 percent of the cattle. The larger farms (5 or more hectares) constitute 5 percent of the holdings, 35 percent of the land, 17 percent of the sheep, and 10 percent of the cattle. 110 H. Kasnako6lu and E. Cakmak Table 5.18: Land and Livestock Distribution by Farm Size (1991) Farm Size Number of Land Owned Sheep Stock Cattle Stock Ho_i ngso ha ('000) % (mill.ha.) % ('000) % ('000) % Landless 101.6 2.5 0.0 2,254.8 4.5 298.2 2.6 < 0.5 251.7 6.2 0.07 0.3 1,425.2 2.8 331.4 2.9 0.5 - 0.9 381.3 9.4 0.25 1.1 1,728.8 3.4 628.2 5.6 1.0- 1.9 752.2 18.5 1.00 4.3 4,607.5 9.2 1,512.6 13.4 2.0 - 4.9 1274.6 31.3 3.87 16.5 12,224.6 24.4 3,454.3 30.5 5.0 - 9.9 713.1 17.5 4.68 20.0 11,298.4 22.5 2,481.4 21.9 10.0 - 19.9 383.3 9.4 4.92 21.0 8,037.8 16.0 1,516.4 13.4 20.0 - 49.9 173.8 4.3 4.65 19.8 5,835.9 11.6 845.8 7.5 50.0 - 99.9 24.2 0.6 1.50 6.4 1,444.9 2.9 153.4 1.4 100.0 - 249.9 10.3 0.3 1.39 5.9 1,043.7 2.1 56.8 0.5 250.0 - 499.9 1.9 0.1 0.65 2.8 177.9 0.4 32.1 0.3 500.0 + 0.4 neg. 0.48 2.1 131.8 0.3 14.9 0.1 Total 4,068.40 100.0 23.45 100.0 50,211.3 100.0 11,320.4 100.0 Source: SIS (1994). We have seen the unequal distribution of land, but how is the quality of the land distributed among farrners? Table 5.19 presents the distribution of rainfed land and irrigated land by farm size. Sixty-seven percent of the farmers, specifically those who own less than 5 hectares of land, cultivate only 22 percent of the rainfed land and 30 percent of the irrigated land. The one percent of the farmers who own more than 50 hectares of land cultivate more than 15 percent of rainfed land, and nearly 15 percent of the irrigated land. The share of irrigated land in total area sown decreases with farm size, due to the fact that irrigation on small farms is generally confined to small vegetable gardens. Larger landholdings tend to be irrigated by dams and artificial lakes constructed and subsidized by government, whereas smaller lands are more likely to be irrigated from wells constructed at the farmer's expense. Table 5.19: Distribution of Total and Irrigated Area by Farm Size (1991) Farm Size Number of Cultivated Land Irrigated Irrigated/ Holdings Land Sown Area ha ('000) % ('000 ha) % ('000 ha) % < 0.5 251.7 6.4 62.57 0.3 267.4 0.9 0.43 0.5 - 0.9 381.3 9.6 231.1.3 1.1 650.7 2.1 0.28 1.0- 1.9 752.2 19.0 917.15 4.3 1939.2 6.3 0.21 2.0 - 4.9 1274.6 32.1 3,492.99 16.3 6265.5 20.3 0.18 5.0 - 9.9 713.1 18.0 4,246.56 19.8 6356.9 20.6 0.15 10.0- 19.9 383.3 9.7 4,549.25 21.2 6375.9 20.6 0.14 20.0 - 49.9 173.8 4.4 4,338.32 20.2 5052 16.3 0.12 50.0 - 99.9 24.2 0.6 1,392.32 6.5 1585.9 5.1 0.11 100.0 - 249.9 10.3 0.3 1,207.97 5.6 1617.4 5.2 0.13 250.0 - 499.9 1.9 0.1 617.69 2.9 464.6 1.5 0.08 500.0 + 0.4 neg. 393.53 1.8 359.7 1.2 0.09 Total 3,966.8 100.0 21,449.48 100.0 30935.4 100.0 0.14 Source: SIS (1994). Chapter 5: Turkey 111 Table 5.20 presents the yields for selected field crops by farm size. We observe that barley, maize, and sunflower yields increase significantly with farm size, whereas wheat, chickpea, lentil and potato yields increase by farm size up to 50 hectares and then decrease. Table 5.20: Yields of Selected Crops by Farm Size in Turkey (1991) Farm Size Wheat Barley Maize Chickpea Green Lentil Sunflower Potato Ha Kg/ha Kg/ha Kg/ha Kg/ha Kg/ha Kg/ha Kg/ha < 0.5 213 185 244 94 77 161 1370 0.5 - 0.9 208 180 251 102 172 1440 1.0- 1.9 209 190 242 118 89 170 1657 2.0 - 4.9 218 198 270 113 99 132 1978 5.0 - 9.9 226 201 287 107 99 132 2060 10.0- 19.9 232 214 311 105 101 130 2994 20.0 - 49.9 227 213 426 107 87 132 2470 50.0 - 99.9 222 200 617 85 93 140 1994 100.0 - 249.9 211 211 970 82 98 151 713 250.0 - 499.9 188 244 797 97 93 136 800 500.0 + 252 267 497 118 98 139 1000 Total 224 211 305 105 95 133 2193 Source: SIS (1994). Tables 5.21 - 5.23 present the use of subsidized inputs by farm size. Unfortunately, the information provided in these tables only differentiates between farmers using these inputs and those which are not using them, and not by farm size. Except in the case of chickpeas, we can say that the percentage of farmers not using chemical fertilizers is larger for smaller farm sizes than for larger farm sizes, but the differences are not great. The picture is similar for pesticides, insecticides, and herbicides. Farms with less than 5 hectares of land (nearly 70% of the farms) own 35 percent of the tractors, 8 percent of the harvesters, and 47 percent of the water pumps, all of which imply additional subsidies in the form of electricity, fuel, and credit. In summary, we have seen that a large number of farmers own and cultivate a small portion of the land, and that the quality of land owned by small farms is poorer than the quality of larger farms, since larger farms cultivate a higher proportion of irrigated land. Furthermore, the yields on larger farms are higher than on smaller farms, at least in part because the larger farms benefit more from input subsidies than the smaller farms. These findings imply that the larger farms produce most of the value of production and hence receive most of the benefits of market- price supports. Therefore, agricultural policies are likely to have contributed to income inequality and to the widening of absolute income differentials in the rural sector. 112 H.Kasnakodlu and E. (7akmak Table 5.21: Percentage of Holdings Using Fertilizers by Farm Size (1991) Farm Size (ha) Wheat Barley Maize Chickpea Green Lentil Sunflower Potato < 0.5 89.2 69.5 77.4 28.5 0.0 93.1 61.4 0.5 - 0.9 90.1 82.7 83.8 47.2 69.2 87.2 1.0 - 1.9 91.8 87.4 86.8 38.3 43.7 96.8 68.7 2.0 -4.9 93.6 94.1 86.8 34.5 41.5 89.3 75.9 5.0 -9.9 93.4 90.5 85.7 31.6 51.4 94.5 79.7 10.0 - 19.9 93.4 90.1 87.2 28.5 57.7 90.8 70.7 20.0 -49.9 93.3 91.2 84.1 28.8 63.3 87.9 70.6 50.0 -99.9 95.7 91.8 96.2 17.5 71.4 82.8 55.7 100.0 - 249.9 94.0 90.5 100.0 53.7 74.3 99.3 69.2 250.0 -499.9 90.9 88.3 100.0 66.6 59.9 84.6 100.0 500.0 + 99.8 99.8 96.0 100.0 100.0 93.8 Total ~~93.0 89.5 85.9 32.6 56.0 91.3 75.4 Source: 515 (1994). Table 5.22: Percentage of Holdings Using Pesticides by Farm Size (1991) Fanm Size (ha.) Wheat Barley Maize Chickpea Green Lentil Sunflower Potato < 0.5 47.0 16.1 29.4 17.6 0.0 29.5 40.7 0.5 -0.9 43.3 ) 26.6 19.9 30.6 24.1 54.0 1.0 - 1.9 48.5 34.7 23.3 25.3 32.5 55.8 52.5 2.0 -4.9 48.8 34.6 22.6 20.5 23.3 44.2 51.3 5.0 - 9.9 55.0 40.1 25.7 25.4 20.9 58.2 50.0 10.0 - 19.9 60.2 47.3 26.1 23.0 22.7 68.4 53.4 20.0 -49.9 64.4 53.5 19.0 24.2 21.4 71.8 55.4 50.0 - 99.9 62.9 54.1 75.8 34.6 26.1 69.5 26.3 100.0 -249.9 52.1 43.4 28.7 15.9 15.9 - 35.4 69.2 250.0 - 499.9 37.9 36.0 96.0 22.0 10.2 61.5 0.0 500.0 + 86.3 85.7 72.0 78.1 76.6 50.0 0.0 Total 52.2 39.6 23.2 23.3 22.5 57.2 51.7 Source: SIS (1 994). Table 5.23: Distribution of Agricultural Machinery by Farm Size (1991) Farm Size Number of Number of Number of Number of (ha.) Holdings Tractors Water Pup Harvesters (thousand) % (thousand) % (thousand) % (thousand) < 0.5 251.7 6.4 9.3 1.0 10.7 2.2 0.0 neg. 0.5 - 0.9 381.3 9.6 21.8 2.3 25.1 5.0 0.0 neg. 1.0 - 1.9 752.2 19.0 64.0 6.7 58.5 11.7 0.1 0.5 2.0 -4.9 1274.6 32.1 241.5 25.4 140.1 28.1 1.5 7.7 5.0 -9.9 713.1 18.0 264.3 27.8 111.2 22.3 4.0 20.4 10.0 - 19.9 '383.3 9.7 199.8 21.1 88.2 17.7 6.5 33.2 20.0 - 49.9 173.8 4.4 116.0 12.2 48.4 9.7 4.9 25.0 50.0 -99.9 24.2 0.6 19.8 2.1 10.0 2.0 1.7 8.7 100.0 -249.9 10.3 0.3 8.8 0.9 3.3 0.7 0.6 3.1 250.0 -499.9 1.9 0.1 2.5 0.3 2.1 0.4 0.0 neg. 500.0 + 0.4 neg. 1.3 0.1 0.3 0.1 0.2 1.0 Total 3,966.8 100.0 949.2 100.0 498.1 100.0 19.6 100.0 Source: SIS (1994). Chapter 5: Turkey 113 DISTRIBUTION OF THE BURDEN OF AGRICULTURAL SUPPORT In this section we examine the distribution of the burden of agricultural support by income groups. In previous sections, we separated taxpayer and consumer transfers to agriculture. We observed that almost all of the transfers from taxpayers come from the non- agricultural urban consumers, but that transfers from consumers are divided between urban and rural consumers. Agricultural producers, as consumers, actually paid about one-third of the agricultural support they received. It is very difficult to know how transfers from taxpayers are distributed to different income groups in Turkey, as only a limited number of studies exist on the burden of different types of taxes by income groups and the types of taxes imposed to finance agricultural transfers. In this respect we can only point out that the tax system in Turkey is believed to be very inefficient, limited in its coverage, full of leakages, and critically dependent on indirect taxes and income taxes collected from fixed- income wage and salary earners. Various estimates show that the size of the untaxed and unrecorded economy in Turkey equals anywhere between 30 to 50 percent of total GNP. It is therefore not unrealistic to expect that the transfers to agriculture from taxpayers place a relatively greater burden on middle- and lower-income groups than the higher- income groups. Concerning the distribution of the burden of transfers from consumers, we can say a little bit more. Table 5.24 shows the shares of expenditures by income level on food, beverages, and tobacco, and on clothing and footwear. These comprise the categories of transfers from Turkish consumers out of total consumption expenditures. Total agro-based expenditures on average constitute 45 percent of the total consumption expenditures in Turkey, 40 percent of consumption expenditures in the urban areas, and 52 percent of the total consumption expenditures in the rural areas. The share of agro-based expenditures decreases by income for urban and rural consumers alike. In the lowest income group, agro-based expenditures constitute 58 percent of total expenditures, although this varies markedly between urban (53 percent) and rural (62 percent) consumers. Table 5.24: Shares of Agro-based Expenditure by Income Quintile (%) TURKEY Total Lowest Income Quintile 2nd Quintile 3rd Quintile 4th Quintile Highest Income ................ . ........ ........... . ... .......... _._ . ..-Quintile Food-Beverage-Tobacco 0.36 0.51 0.47 0.42 0.37 0.26 Clothing-Footwear 0.09 0.07 0.08 0.09 0.10 0.09 Total Agro-Based Expen. 0.45 0.58 0.55 0.51 0.46 0.35 URBAN Food-Beverage-Tobacco 0.31 0.45 0.41 0.36 0.32 0.22 Clothing-Footwear 0.09 0.08 0.09 0.09 0.10 0.09 Total Agro-Based Expen. 0.40 0.53 0.49 0.45 0.42 0.31 RURAL Food-Beverage-Tobacco 0.45 0.56 0.52 0.51 0.47 0.36 Clothing-Footwear 0.09 0.06 0.07 0.08 0.09 0.10 Total Agro-Based Expen. 0.54 0.62 0.60 0.60 0.56 0.46 Source: SIS (1997a). 114 H.Kasnakodlu and E. Qakmak On the basis of the observations above and the fact that lower-income groups have a lower average propensity to save from income, we can conclude that the lower-income groups pay a relatively higher portion of their incomes as transfers to agriculture than the higher income groups and thus the relative negative real-income effects of agricultural support on lower-income groups are greater. REFERENCES Organization for Economic Cooperation and Development. 1994. National Policies and Agricultural Trade-Country Study. Turkey, Paris. .1995. Agricultural Policies, Markets and Trade in OECD Countries, Paris. .1 996. Agricultural Policies, Markets and Trade in OECD Countries, Paris. . 1997. Agricultural Policies, Markets and Trade in OECD Countries, Paris. SIS. 1992. 1991 General Agricultural Census. Results of Village Information Survey, Ankara. 1 1994. 1991 General Agricultural Census: Results of the Agricultural Holdings, Ankara. . 1995. 1993 Agricultural Products (Quantity, Price Value), Ankara. . 1997b. 1995 Agricultural Structure (Production, Price, Value), Ankara. . 1 997a. Household Consumption Expenditures Survey Results 1994, Ankara. Chapter 5: Turkey 115 CHAPTER FIVE ANNEX Table 1: Payments to Agricultural Support (TL billion) 1993 1994 1995 1996 1997 Budgetary Expenditures for Agricultural 8011 2433 3330 5650 28830 SOEs Duty Loss 4861 0 0 3150 0 Equity Injection 3150 2433 3330 2500 28830 Compensation payments 0 4426 4997 12524 23828 Tobacco (quota) 4028 2947 4500 2800 Tea (pruning project) 398 2050 8024 21028 Support Purchases 30920 36842 46544 89981 380088 Cereals by TMO 8231 7801 2370 29500 188241 Tobacco by TEKEL 6441 9395 7026 6324 23847 Sugar beet by TSFAS 16248 19466 37148 54157 168000 Input subsidy payments (from budget) 3456 8771 12264 52575 99750 Fertilizer 3311 7923 9231 44983 84733 Agricultural Pesticide & Medicaments 105 177 1138 2573 5633 Seeds and plant 35 62 70 194 874 Milk premium 96 609 1824 4825 8510 Livestock incentive payments (from 457 883 584 118 1658a budget) Meat premium 0 129 146 0 12 Animal husbandry based on projects 99 590 205 46 59 Artificial insemination 0.145 0.006 0.003 0 0 Contractual animal husbandry 348 78 0 0 0 Imported breeding stock 2 60 215 40 1546 Certified animal husbandry 9 26 18 32 40 Total Payments to Agricultural Sector 42934 53355 67718 160848 534153 Share in GNP (%) 2.2 1.4 0.9 1.1 1.8 Agricultural Credits 23100 39330 108020 281499 590570 Farmers 12612 19605 57772 148174 266570 Agricultural Credit Cooperatives Union 10488 19725 47521 91107 200000 From SPSF (from budget-credit - - 2727 42218 124000 repayments) a/ Actual January-September Source: Undersecretariat of Treasury 116 H.Kasnakodlu and E. Cakmak Table 2: Budgets of MARA and GDRS (TL million) Investments Year Current Internal External Transfers Total 1990 601675 182014 27048 32266 843363 1991 1231250 282470 47280 545700 2106700 1992 2694000 417046 62054 90651 3263751 1993 3950500 693000 125400 144746 4913646 1994 7450000 814800 441800 204492 8911092 1995 10606000 1762230 422370 402102 13192702 1996 17380300 4082965 545035 916502 22924802 1997 33391000 7158989 1093311 2159102 43802402 1998 70249000 9491000 270000 2423603 82433603 Source: MARA Table 3: Agricultural Credits by the Turkish Agricultural Bank (TL million) Type, 1994 1995 1996 Crop production C 7848 18913 41864 Livestock production L 8141 28817 77780 Fertilizer C 1650 4601 10125 Agricultural equipment C 1771 4846 16687 Aquaculture L 135 531 1672 Agricultural Credit Cooperatives 19725 47522 91107 Crop C 7306 17306 30290 Livestock L 4041 9940 19246 Fertilizer C 6419 15393 31781 Equipment C 1959 4883 9790 Agricultural Sales Cooperatives 59579 141166 40301 State Owned Enterprisesb 24345 86560 404345 Agro-Industry 63 66 46 Total 123257 333022 683927 Total Crop (C) 26593 65942 140537 Total Livestock (L) 12317 39288 98698 Notes: a C = Crop, L=Livestock b Credits to TIGEM, TEKEL, TSFAS etc. at the commercial rates. Source: Turkish Agricultural Bank. Chapter 5: Turkey 117 Table 4: Composition of PSE by Commodities (TL billion) Market- Input Market- Input Total MPS as % of Commodities Year price Subsidies Total price Subsidies Total Support Total supporti and Direct Support' P c and Direct Support" as % of otb _.__._______Transfers' Transfer AgGDe Wheat 1993 3205 4057 7262 3228 4034 7262 2.47 44 1994 5342 8527 13869 5342 8527 13869 2.42 39 1995 -17039 13774 -3265 -17039 13774 -3265 -0.28 1996 8384 48750 28059 76809 3.27 63 Maize 1993 938 365 1303 718 585 1303 0.44 55 1994 -658 554 -104 -658 554 -104 -0.02 1995 822 1081 1903 822 1081 1903 0.16 43 1996 4179 3971 2223 6194 0.26 64 Barley 1993 5140 1128 6268 5269 999 6268 2.13 84 1994 3248 1454 4702 3248 1454 4702 0.82 69 1995 -903 2759 1856 -903 2759 1856 0.16 -49 1996 13362 5668 19030 13362 5668 19030 0.81 70 Sunflower 1993 541 360 901 592 309 901 0.31 66 1994 911 511 1422 911 511 1422 0.25 64 1995 4443 991 5434 4443 991 5434 0.47 82 1996 9756 7875 4402 12277 0.52 64 Sugarbeet 1993 2612 786 3398 2611 787 3398 1.16 77 1994 -3092 1120 -1972 -3092 1120 -1972 -0.34 1995 5613 3284 8897 5613 3284 8897 0.77 63 1996 12776 16147 6972 23119 0.98 70 Milk 1993 9750 -146 9604 9741 -137 9604 3.27 101 1994 14458 5109 19567 14458 5109 19567 3.41 74 1995 30821 -11254 19567 30836 -11269 19567 1.68 158 1996 68065 31824 13453 45277 1.93 70 Beef & Veal 1993 8481 -365 8116 8480 -364 8116 2.76 104 1994 5014 5116 10130 7226 2904 10130 1.77 71 1995 37534 12493 50027 40535 9492 50027 4.30 81 1996 39360 63276 4315 67591 2.88 94 Poultry 1993 2626 -166 2460 2626 -166 2460 0.84 107 1994 1160 484 1644 1160 484 1644 0.29 71 1995 11399 2328 13727 11399 2328 13727 1.18 83 1996 3672 -5531 2931 -2600 -0.11 Sheepmeat 1993 2593 -50 2543 2595 -52 2543 0.86 102 1994 5187 321 5508 5188 320 5508 0.96 94 1995 11599 3902 15501 11599 3902 15501 1.33 75 1996 -5761 28480 9964 38444 1.64 74 Eggs 1993 1434 -412 1022 1435 -413 1022 0.35 140 1994 2300 -88 2212 2300 -88 2212 0.39 104 1995 19700 1200 20900 19700 1200 20900 1.80 94 1996 22908 12199 234 12433 0.53 98 a/ MARA estimates. b/ OECD estimates. c/ OECD's market price support is estimated by multiplying the CSE estimates of OECD by the ratio of production to consumption of each commodity. Sources: OECD (1996), OECD (1997) and MARA files. 118 H.Kasnako4lu and E. (7akmak Table 5: Total Transfers Related to Agricultural Policy in Turkey items included OECD revised in the PSE Category of Transfer Units 1993 1993 1993 BUDGETARY EXPENDITURES Expenditure on agriculture through Ministerial budgets Ministry of Agriculture (MARA) million TL 4878896 4913646 - less general administration million TL -487890 Itemized: Current expenses million TL 3950500 Investment million TL 818400 Other expenses million TL 144746 revised contribution from MARA (50% of current+inv) million TL 2866023 2866023 Gen. Directorate of Rural Affairs (GDRS) million TL 3777000 itemized agricultural budget: research million TL 165280 165280 investment million TL 1057790 1057790 1/3rd of current exp. budget million TL 2082520 2082520 revised contribution from GDRS million TL 3305590 3305590 State Hydraulic Works, research and extension million TL n.a. n.a. n.a. Sub-total million TL 8168006 6171613 6171613 Projects partly financed by foreign loans that are reimbursed by the Treasury Agricultural Extension & Applied Research Project I million US$ 8 4 4 Agricultural Extension & Applied Research Project 11 million US$ 8 7 7 Mus-Bingol Rural Development Project (TUGEM) million US$ I 1 1 Yozgat Rural Development Project (TUGEM) million US$ 1 2 2 Agricultural Research Project million US$ 7 0 0 US dollar exchange rate TLperUS$ 10964 10964 10964 Sub-total million TL 274100 156577 156577 Premia and input subsidies not financed by the MARA or GDRS (funding source) Input subsidies not financed by MARA or GDRS Fertilizer subsidy (SPSF) million TL 3311109 3311000 3311000 Sugarbeet fertilizer subsidy (TSFAS) million TL 186940 224328 224328 Hybrid seed subsidy (SPSF) million TL 44200 35000 35000 Beet seed provided in kind (TSFAS) million TL 70000 146278 146278 Sowing of sugarbeet: operation costs (TSFAS) million TL 65000 107206 107206 Maintenance of beet cultivation equip. (TSFAS) million TL 100000 0 0 Pesticides and vet. medicine subsidy (SPSF) million TL 160453 105000 105000 Animal feed subsidy (SPSF) million TL 0 0 Livestock capital grant (RUSF) million TL 419790 95710 95710 Imported breeding stock subsidy (RUSF) million TL 13466 15977 15977 Artificial insemination subsidy (SPSF) million TL 1 15 15 Electricity subsidy (TEK) million TL 304782 0 0 State Hydraulic Works O&M costs (Treasury) million TL 0 0 0 Premia and other input subsidies not financed by MARA or GDRS Payments to compensate forgiveness of farmer debt (Treasury) Debt write-offs million TL n.a. n.a. n.a. Interest free deferrals million TL n.a. n.a. n.a. Disaster payments for seed (tr. via Agricultural Bank) million TL 94955 80532 80532 Sugarbeet pulp return (TSFAS) million TL 55000 121896 121896 Deficiency payments for cotton (Agricultural Bank) million TL 6300000 6300000 Direct payments for pruning tea plants (CAYKUR) million TL Tobacco Premium (Agricultural. Bank) million TL Milk incentive premium (RUSF) million TL 149400 96000 96000 Meat incentive premium (RUSF) million TL Sub-total million TL 4975096 10638942 10638942 General services and infrastructure provided by state-owned enterprises Sugarbeet: Turkish Sugar Factories (TSFAS) million TL 53305 81544 81544 Tobacco: State Monopoly (TEKEL) million TL 24759 37876 37876 Tea: CAYKUR million TL 1473 822 822 Sub-total million TL 79537 120242 120242 Chapter 5: Turkey 119 Table 5: (continued) items included OECD revised in the PSE Category of Transfer Units 1993 1993 1993 Transfers to intervention agencies* Compensation for "duty losses" Grains: Soil Products Office (TMO) million TL 2420293 2424000 Sugar: Turkish Sugar Factories (TSFAS) million TL 997000 997000 Tobacco: State Monopoly (TEKEL) million TL 1440000 1440000 Tea: CAYKUR million TL n.a. 0 Other crops: ASCUs million TL n.a. 0 Special livestock purchase (EBK) million TL - 0 Sub-total million TL 4857293 4861000 Capital transfers ("equity injections") Soil Products Office (TMO) million TL 345750 946000 Turkish Sugar Factories (TSFAS) million TL 1591700 1591000 State Monopoly (TEKEL) million TL 0 0 Tea Company (CAYKUR) million TL 613100 613000 Sub-total million TL 2550550 3150000 CONCESSIONAL LOANS TO FARMERS AND ASCUS Loans by Agricultural Bank (end-year balance) Loans for crop production million TL 49036000 49036000 49036000 Commercial interest rate percent 85.0%/0 85.0% 85.0% Actual interest rate percent 46.5% 46.5% 46.5% Difference percent 38.5% 38.5% 38.5% Interest concession million TL 18878860 18878860 18878860 Loans for livestock production million TL 6333000 7349838 7349838 Commercial interest rate percent 85.0% 85.0% 85.0% Actual interest rate percent 38.5% 38.5% 38.5% Difference percent 46.5% 46.5% 46.5% Interest concession million TL 2944845 3417675 3417674.67 Loans for sugarbeet production million TL 50000 77236 77236 Commercial interest rate percent 85.0% 85.0% 85.0% Actual interest rate percent 60.0% 60.0% 60.0% Difference percent 25.0% 25.0% 25.0% Interest concession million TL 12500 19309 19309 Sub-total million TL 21836205 22315844 22315843.67 CONCESSIONAL LOANS BY THE CENTRAL BANK* Loans to TMO million TL 6205540 6205540 Commercial interest rate percent 85.0% 85.0% Actual interest rate percent 50.0% 50.0% Difference percent 35.0% 35.0% Interest concession million TL 2171939 2171939 Total budgetary and extra-budgetary transfers, and concessional loans million TL 44912726 49586157 39403218 US dollar exchange rate TLperUS$ 10964 10964 10964 Total budgetary transfers in US dollars million USS 4096 4523 3594 Consumer transfers Transfers from consumers (CSE) million US$ 3779 Budget revenues from (implicit) import taxes million US$ 272 Share of PSE commodities in total value of production percent 39.0% Consumer transfers (all commodities) million US$ 9701 Budget revenues (all commodities) million US$ 698 Total transfers million US$ 13099 Part III Data File Selected Tables from Own Calculations (Full database available on CD-ROM) Table la. Nominal Exchange Rate (LCUIUS$) - Annual Average Year Bulgaria Germany Poland Romania Russia Ukraine 1993 - - 1.81 - - - 1994 50.70 1.62 - 1.655.09 2,204.00 32,751.42 1995 67.17 1.43 2.42 2,062.00 4,554.00 147,307.50 1996 176.16 1.50 2.70 3,082.60 5,124.00 1.84 1997 1,817.00 1.73 3.28 7,167.90 5,785.00 1.86 * Ukraine: in 1994-1995 nominal exchange rate was commodity-specific. Annual average values for 94-95 are from IFS. Table lb. Consumer Price Index - CPI (1994=1) Year Bulgaria Germany Poland Romania Russia Ukraine 1993 - - 0.75 - - - 1994 1.00 1.00 1.00 1.00 1.00 1.00 1995 1.63 1.02 1.27 1.32 231 4.77 1996 2.78 1.03 1.52 1.84 2.82 8.59 1997 17.74 1.05 1.77 4.68 3.13 9.96 Table lc. Agricultural GDP (current US mill.) Year Bulgaria Germany Poland Romania Russia Ukraine 1993 - - 5,151 - 1994 1,200 16,725 - 5,813 19,397 5,356 1995 1,659 18,743 6,530 6,844 31,857 4,875 1996 1,440 19,313 6,648 6,373 38,747 5,423 1997 2,194 16,968 5,855 6.565 30,056 5,219 Table Id. Total Value Added of Selected Commodities (current U$ mill.) Year Bulgaria Germany Poland Romania Russia Ukraine 1993 - - 3,294 1994 799 14.097 1.882 3.067 2.604 1995 1,031 16,391 2,032 2,217 4,280 1,381 1996 439 15,886 3,710 2,353 6,137 1,463 1997 1,287 14,482 2,860 2,583 6,496 2,455 Note: Value added in Germany adjusted for nontraded inputs. Table le. Gross Agricultural Output (current U$ mill.) Year Bulgaria Germany Poland Romania Russia Ukraine 1993 - - 13,327 - 1994 1,115 37,433 - 10.023 33.452 n.a 1995 1,360 42,675 17,880 11,733 45,974 n.a. 1996 999 42,365 18,928 11,850 55,055 n.a. 1997 1,464 37,079 15,750 7,819 57.908 n.a. Table If. Total Output Value of Selected Commodities (current U$ mill.) Year Bulgaria Germany Poland Romania Russia Ukraine 1993 - - 8,760 1994 1,116 29,085 - 4,335 13,949 4,358 1995 1,361 33,215 10,245 4.977 25.298 3.366 1996 999 32,144 11,205 5.098 30,342 4,828 1997 1,795 28,944 9,557 4,587 27,053 5,140 123 Table 2. Quantity Produced (ton) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 - - - 1994 - 10,902,516 - 2,133,600 27,054,000 1995 - 11,891,143 - 1,816,300 15,786,000 1996 - 12,074,050 - 1,107,500 15,933,000 1997 - 13,398,820 - 1,891,300 20,774,000 - Maize 1993 - - 1994 1,711,000 - - 9,343,200 892,000 1995 1,817,000 - - 9,923,132 1,738,000 - 1996 1,034,000 - - 9,607,900 1,088,000 - 1997 1,696,000 - - 12,679,000 2,671,000 - Rye 1993 - - 4,992,000 - - 1994 - 3,450,605 - - 5,989,000 - 1995 - 4,521,270 6,288,000 - 4,098,000 1996 - 4,213,855 5,653,000 - 5,934,000 1997 - 4,580,140 5,299,000 - 7,480,000 Wheat 1993 - 8,243,000 - 1994 3,896,000 16,422,407 - 6,186,500 32,129,000 13,857,000 1995 3,435,000 17,725,506 8,668,000 7,709,300 30,119,000 16,273,000 1996 1,786,000 18,875,006 8,576,000 3,164,100 34,917,000 13,547,110 1997 3,556,000 19,793,233 8,193,000 7,185,600 44,188,000 18,403,900 Potatoes 1993 - - 36,270,000 - 1994 - 9,668,572 - - 33,828,000 - 1995 - 9,897,933 24,891,000 - 39,909,000 - 1996 1 13,099,568 27,217,000 - 38,652,000 1997 - 11,659,284 20,776,000 - 37,015,000 Rapeseed 1993 - - 594,000 - 1994 - 2,736,894 - - - 1995 - 3,024,027 1,377,000 1996 1 I,835,676 449,000 - - 1997 - 2,759,916 595,000 Sunflower Seed 1993 . . - 1994 602,000 - - - 2,553,000 1,569,000 1995 767,000 - - - 4,200,000 2,289,000 1996 530,000 - - 2,765,000 2,122,980 1997 446,000 2,824,000 2,308,360 Sugar 1993 - - 15,621,000 1994 - 24,293,000 - - 13,946,000 19,612,000 1995 - 26,149,000 13,309,000 1 I9,072,000 29,650,000 1996 - 26,064,000 17,846,000 - 16,166,000 17,462,067 1997 - 25,769,000 15,886,000 - 13.841,000 13,404,822 Beef/Cattle 1993 - - 408,946 1994 185,000 1,058,406 - - 3,240,000 1995 127,000 1,053,666 373,000 2,733,000 - 1996 153,000 1,062,019 388,000 - 2,630,000 987,479 1997 128,000 1,117,756 402,000 - 2,338,000 740,007 Pork 1993 - - 1,974,468 - - 1994 314,000 3,461,500 - 892,600 2,103,000 1,245,000 1995 388,000 3,429,600 2,008,000 897,400 1,865,000 1,163,000 1996 382,000 3,440,100 2,072,000 914,000 1,705,000 478,693 1997 339,000 3,475,000 1,895,000 925,000 1,565,000 343,515 Chicken 1993 . - - - - 1994 114,000 639,200 - 324,600 1995 128,000 663,900 - 366,800 - 1996 138,000 692,800 - 373,200 - 1997 131,000 734,000 - 231,000 Milk 1993 - - 12,635,326 - - 1994 1,162,000 25,861,000 - 5,065,800 42,176,000 1995 1,129,000 26,774,000 11,638,586 5,424,200 39,241,000 - 1996 1,126,000 26,991,000 11,692,130 5,487,400 35,819,000 15,821,200 1997 1,161,000 26,986,000 11,888,000 5,504,100 34,066,000 13,717,500 Notes: Bulgaria: Beef/Cattle figures are for veal; milk expressed in hectoliters Romania: figures for Maize and barley are from feed maize and feed barley Russia: pork and beef carcass weight 124 Table3 Out3 tPrices (US/ton) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 - - - 1994 - 157.10 - 96.67 49.20 - 1995 - 164.22 - 87.29 44 80 1996 158.91 - 129.76 110,10 - 1997 - 130.15 - 83.71 86.36 Maize 1993 - - - 1994 8418 - - 84.59 128.20 1995 95.51 - - 104.27 131.16 - 1996 123.81 - - 149.22 191 33 1997 130.10 - - 76.73 138.44 - Rye 1993 - - 105.81 - 1994 - 159.61 - 60.53 - 1995 - 161.55 93.22 - 81.07 1996 - 155.95 134.25 - 135.35 1997 - 130.35 113.11 - 113.76 - Wheat 1993 - - 138.33 - - 1994 65.68 165.54 - 132.92 62.54 59.33 1995 70.99 174.74 145.19 116.39 93.12 68.29 1996 130.53 173.69 212.13 145.98 136.78 91.84 1997 126.34 138.34 165.03 118.58 119.60 95.52 Potatoes 1993 - - 65.47 - - 1994 - - - 112.13 - 1995 - - 109.31 - 199 82 1996 - 86.78 - 221.45 - 1997 - - 82.62 - 176.45 - Rapeseed 1993 - - 210.97 1994 - 25 1.14 - - - 1995 - 255.17 234.28 1996 - 264.41 222 51 - - 1997 - 249.31 263.72 - - Sunflower Seed 1993 - - 1994 138.27 - - - 118.17 63.33 1995 138.04 - - - 182.21 172.10 1996 134.81 - - - 154.50 144.16 1997 168.83 - - - 135.58 132.37 Sugar 1993 - - 24.25 - - 1994 - 61 20 - - 26.48 15.87 1995 - 65.56 33.41 - 32.50 26.40 1996 - 64.49 33.75 - 38.22 46.32 1997 - 57.10 28.96 - 35.03 49.43 Beef/Cattle 1993 - - 1,236.59 - 1994 660.32 3,327.12 - - 663,96 - 1995 1,058.30 3,492 82 1,785.42 - 1,109.26 - 1996 599.51 2,932.77 1,604.08 - 1,433.33 452.62 1997 1,140.68 2,621.63 1,393.73 - 1,259.63 474.70 Pork 1993 - - 1,066.52 - - 1994 759.48 1,767.01 - 1,329.23 892.15 586.23 1995 990.28 2,118.91 1.065.42 1,454.90 1,429.76 591.34 1996 632.23 2,346.59 1,310.59 1,524.69 1,774.94 781.45 1997 1,631.36 2,128 01 1.363.48 1,255.60 1.790 20 954.41 Chicken 1993 - - - - 1994 696.87 1,317.19 - 1,268.81 1995 753.78 1,416.24 - 1,260.91 - 1996 602 60 1,369.42 - 1,362.49 - - 1997 954.40 1,236.45 - 1,255.60 - Milk 1993 - - 126.76 - - 1994 165.75 442.70 - 181.26 149.08 1995 197.06 487.83 181.02 206.11 246.86 - 1996 133.57 444.11 190.29 210.86 27009 104.13 1997 211.54 38806 178.96 20927 256.74 126.46 125 Table 4. Unadjusted Output Price at Border (US/ton) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 - - 1994 - 88.40 .M - - 4920 M 1995 - 111.59 M - - 44.80 1996 - 170.25 M - - 110.10 M - 1997 - 141.80 M - - 86.36 Maize 1993 - - - 1994 116.00 M - - 128.20 m - 1995 148.00 M - - - 131.16 M 1996 182.00 M - - - 191.33 M - 1997 177.00 M - - - 138.44 M Rye 1993 - - 98.00 M - 1994 - 97.06 M - - 60.53 M 1995 - 98.34 M 41.40 M - 81.07 M - 1996 - 148.97 Nt 102.71 - 135.35 M 1997 122.78 M 121.75 - 113.76 M - Wheat 1993 - - 127.00 M - - 1994 132.00 108.18 M - - 62.54 M 164.00 1995 157.00 152.04 M 96.46 m - 93.12 M 149.00 1996 185.00 199.51 M 190.64 M - 136.78 M 182.00 1997 124.00 163.71 NI 112.21 M - 119.60 M 142.00 Potatoes 1993 - - 91.00 - - 1994 - 320.05 M - - 112.13 M - 1995 - 393.61 M 107.78 - 199.82 M 1996 - 258.60 M 104.64 - 221.45 M - 1997 - 244.44 Nt 90.44 - 176.45 Rapeseed 1993 - - 215.00 - 1994 270.15 m - - - 1995 - 296.42 M 230.91 1996 - 297.27 M 242.38 - - 1997 - 277.27 M 270.79 - Sunflower Seed 1993 - - 1994 234.00 - - - 118 17 249.00 1995 239.00 - - - 182.21 288.00 1996 189.00 - - - 154.50 212.00 1997 304.00 - - - 135.58 222.00 Sugar 1993 345.00 - - 1994 352.37 NI - 26.48 M 1995 - 387.78 M 23.64 M - 32.50 M - 1996 351.13 M 25.38 NI - 38.22 M 453.00 1997 - 309.55 M 21L59 M - 35.03 M 309.55 Beef/Cattle 1993 - - 1,045.00 1994 945.00 1,390.94 m - - 663.96 M - 1995 1,450.64 1,629.24 M 1,527.37 - 1,109.26 M - 1996 1,229.00 1,406.53 M 1,534.79 - 1,433.33 M 1,740.00 1997 1,523.96 1,420.34 N 1,484.30 - 1,259.63 M 1,450.00 Pork 1993 - - 1,224.00 M - - 1994 1,100.00 1,980.08 M - - 892.15 NM 1,350.00 1995 1,300.00 2,337.15 M 1,018.24 - 1,429.76 M 1,406.00 1996 849.00 2,273.72 M 1,416.38 - 1,774.94 M 1,416.38 1997 3,460.00 1,910.31 M 1,535.91 - 1,790.20 M 1,535.91 Chicken 1993 - - - - 1994 1,400.00 1,821.20 m - - - 1995 1,059.00 2,012.14 M - - 1996 1,552.00 2,010.37 M - - - 1997 2,513.00 1,765.04 M - - Milk 1993 - - 1994 321.32 1,698.18 M - - 149.08 M 1995 343.30 2,369.23 m - - 246.86 M - 1996 338.20 2,184.61 M - - 270.09 M 2,184.61 1997 166.45 M 1,814.04 M - - 256.74 Ni 1,814.04 126 Table 5. Adjusted Output Price at Border (US/ton) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 - 1994 - 91.87 M - 93.35 M 68.72 M 1995 - 117.44 M - 7130 6130 1996 176.82 M - 114.05 217.36 M 1997 - 149.25 M - 75.50 73.11 - Maize 1993 - - - - 1994 14713 M - - 63.84 186.11 M - 1995 183.35 M - - 90.02 217.06 M 1996 22183 M - - 93.31 275 89 M - 1997 216.17 M - - 58.26 203 26 M Rye 1993 - - 107 00 M - 1994 - 98.61 M - - 115 87 M - 1995 100.16 M 73.00 M 118 07 M 1996 - 146.24 M 97 00 - 179 33 M - 1997 - 12216 M 90.85 - 150.26 M - Wheat 1993 - - 120 00 M - - - 1994 110.58 116.49 M - 140.84 116 61 M 116.33 1995 13238 15918 M 11400 M 125.71 151.75 M 103.48 1996 156.81 204.26 M 210.17 M 139.64 220.63 M 126.40 1997 92.07 169 46 M 126.06 M 104 82 187 41 M 98.62 Potatoes 1993 - - 39 00 - 1994 - - - 278.61 M - 1995 - - 95.10 284.97 M 1996 - - 85 24 - 255 52 M - 1997 - - 76.00 - 242.84 Rapeseed 1993 - - 166 00 - 1994 270 50 M - 1995 - 302.74 M 210 00 - - 1996 - 302 01 M 217.00 - - 1997 - 279.74 M 239 64 Sunflower Seed 1993 - - - - - ' 1994 185 77 - - - 18811 197 89 1995 190.11 - - - 216.51 22645 1996 146.71 - - - 206 93 166.69 1997 246.53 - - 180.43 174 56 Sugar 1993 - - 18 30 - 1994 - 43.91 M - 42.96 M 79 36 1995 - 48 49 M 25 30 M - 49.03 M 48.90 1996 - 43.66 M 27.90 M - 61.89 M 3414 1997 38 33 M 23 99 M - 42 91 M 23 33 Beef/Cattle 1993 - - 659.00 - 1994 815.79 1,210.63 M - - 1,14642 M 1995 1,254.69 1,425 81 M 1,445 00 - 1,290.19 M 1996 1,062.31 1,212 56 M 1,458.31 60170 M 903 48 1997 1,318 33 1,252.21 M 1,400.28 - 749.94 M 752 90 Pork 1993 - - 879.00 M - - - 1994 947.28 1,868.80 M - 715 28 1,327.23 M 706 30 1995 1,120.88 2,211 61 M 995.44 761.26 1,590.36 M 730.05 1996 72941 2.154 02 M 1,306.00 84740 1,572.19 M 73544 1997 1,647.06 1,806 55 M 1,396.28 915.75 1,813 41 M 797.51 Chicken 1993 - - - - - 1994 674.41 1,388 47 m - 683.55 M - - 1995 507 16 1,523 92 M - 957 36 M - - 1996 625.17 1,544.86 M - 847.35 M - - 1997 1,215 08 1,361 54 M - 97506 M Milk 1993 - - 142.00 - 1994 273.23 219.35 M - 232,38 M 159 21 M - 1995 292.33 295.45 M 187.00 33118 M 198.74 M - 1996 287.90 267.89 M 176.20 281.89 M 206.12 M 103.12 1997 278 99 M 224.35 M 176 02 278 34 M 184.03 M 85 63 127 Table 6. Nominal Rate of Protection Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 1994 71% M 4% M -28% M 1995 40% M 22% -27% 1996 -10% M 14% -49% M 1997 -13% M 11% 18% Maize 1993 1994 -43% M 32% -31% M 1995 -48% M 16% -40% Ni 1996 -44% MI 60% -31% M 1997 -40% M 32% -32% M Rye 1993 -1% NI 1994 62% NI -48% M 1995 61% M 28% M -31% M 1996 7% M 38% -25% M 1997 7% M 24% -24% M Wheat 1993 15% NI 1994 -41% 42% NI -6% -46% M -49% 1995 46% 10% M 27% M -7% -39% M -34% 1996 -17% -15% M 1% M 5% -38% M -27% 1997 37% -18% M 31% M 13% -36% M -3% Potatoes 1993 68% 1994 -60% M 1995 15% -30% M 1996 2% -13% M 1997 9% -28% Rapeseed 1993 27% 1994 -7% M 1995 -16% M 12% 1996 -12% M 3% 1997 -11% M 10% Sunflower Seed 1993 1994 -26% -37% -68% 1995 -27% -16% -24% 1996 -8% -25% -14% 1997 -32% -25% -24% Sugar 1993 33% 1994 39% .M -38% M -80% 1995 35% NI 32% M -34% M -46% 1996 48% NI 21% M -38% M 36% 1997 49%M 21%M -18% M 112% Beef/Cattle 1993 88% 1994 -19% 175% M -42% M 1995 -16% 145% M 24% -14% M 1996 -44% 142% NI 10% 138% NI -50% 1997 -13% 109% .M 0% 68% M -37% Pork 1993 21% M 1994 -20% -5% M 86% -33% M -17% 1995 -12% -4% M 7% 91% -10% M -19% 1996 -13% 9% NI 0% 80% 13% M 6% 1997 -1% 18% M -2% 37% -1% M 20% Chicken 1993 1994 3% -5% M 86% NI 1995 49% -7% M 32% M 1996 -4% -11% M 61% M 1997 -21% -9% M 29% M Milk 1993 -11% 1994 -39% 102% M -22% M -6% M 1995 -33% 65% M -3% -38% M 24% M 1996 -54% 66% M 8% -25% M 31%M 1% 1997 -24% M 73% NM 2% -25% M 40% M 48% 128 Table 7. Convergence to EU Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Wheat 1997 99% M 60% Maize 1997 116% M 90% M Barley 1997 90% M 90% 84% M Sugar 1997 69% 31% / Rapeseed 1997 128% M 9% M 15% M 128% Pork 1997 80% 74% M 78% 66% M 76% Beef/Cattle 1997 114% 63% M 51% 59% M 51% Note: Only adjusted border prices were available for Romania. 129 Table 8. Tradable Inputs (U$/ton). Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 - - 1994 - 54.06 - - 5.56 1995 - 55.71 - - 13.57 - 1996 - 55.38 - - 26.88 - 1997 44.08 - - 25.16 - Maize 1993 - - - - - - 1994 3.67 - - 43.52 5.38 - 1995 2.01 - - 49.35 5.39 - 1996 3.85 - - 46.48 20.76 1997 1.90 - - 31.12 14.38 - Rye 1993 - - 63.77 - - 1994 - 48.72 - - 5.97 - 1995 50.77 71.49 - 11.53 - 1996 - 48.98 77.18 - 25.38 - 1997 - 41.37 73.25 - 22.40 - Wheat 1993 - - 91.49 - - - 1994 3.69 50.10 - 61.01 6.33 16.25 1995 2.85 54.85 96.11 60.30 11.56 33.58 1996 4.96 49.76 76.51 57.98 26.74 29.93 1997 2.69 42.52 72.24 56.61 24.67 26.86 Potatoes 1993 - - 51.25 - t994 - - - - 0.90 - 1995 - - 95.28 - 1.20 - 1996 - - 40.51 - 3.08 - 1997 - - 35.32 - 3.66 - Rapeseed 1993 - - 167.54 1994 - 198.85 - - - - 1995 - 106.86 189.74 - - - 1996 - 142.18 169.91 - - 1997 - 92.12 179.34 - - Sunflower Seed 1993 - - - - - . 1994 8.34 - - - 10.14 39.38 1995 5.46 - - 13.41 80.16 1996 7.40 - - 47.23 49.26 1997 8.07 - - - 49.89 47.84 Sugar 1993 - - 22.32 - - 1994 - 11.41 - - 0.72 3.97 1995 - 12.27 29.29 - 1.39 6.59 1996 - 11.80 16.52 - 3.79 10.97 1997 - 10.11 12.98 - 3.99 8.71 Beef/Cattle 1993 - - 112.43 - - 1994 385.43 867.93 - - 30.59 1995 410.41 945.88 1,714.34 - 61.43 - 1996 707.04 980.11 1,455.75 - 98.84 1,606.18 1997 690.59 926.36 1,293.31 - 71.85 1,586.50 Pork 1993 - - 67.24 - - - 1994 309.19 803.79 - 1,053.23 30.52 352.14 1995 327.10 870.21 946.21 1,094.23 55.50 721.53 1996 569.90 869.03 1,267.20 1,291.85 79.64 1,879.24 1997 560.90 772.11 1,309.15 669.22 75.37 1,856.22 Chicken 1993 - - - - - - 1994 234.41 711.70 - 618.37 - - 1995 260.98 751.78 - 617.63 - 1996 376.22 771.69 906.25 - - 1997 386.48 695.21 - 490.79 - - Milk 1993 - 151.01 - - - 1994 82.41 126.03 - 63.60 4.54 - 1995 88.49 135.36 117.55 80.79 12.59 - 1996 147.31 127.57 148.71 82.46 19.38 11.23 1997 146.96 106.41 140.43 56.66 17.69 11.10 130 Table 9. Unadjusted Input Prices at Border (U$iton) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 . - - . - - 1994 - 49.44 - - 6.87 - 1995 - 52.66 - - 18.79 1996 - 56.34 - - 31.83 1997 - 45.07 - - 28.03 - Maize 1993 - - - 1994 8.82 - - 38.03 6 66 1995 5.15 - - 47.13 746 - 1996 9.43 - - 40.84 24.59 1997 4.72 - - 28.75 16.02 Rye 1993 - - 54.04 - - 1994 - 44.56 - - 7.38 - 1995 47.07 57.26 - 15.98 1996 - 48.37 63.75 - 30.06 - 1997 - 40.87 57 93 - 24.96 - Wheat 1993 - - 81.01 - 1994 8.19 47.55 - 64.09 7.83 23.53 1995 6.01 54.06 88.68 69.45 16.01 38.02 1996 10.87 51.23 82.03 69.41 31.67 47.46 1997 6.25 44.02 77.44 53.27 27.48 61.90 Potatoes 1993 - - 46.84 - 1994 . - 1.11 - 1995 - - 89.09 - 1.67 - 1996 37.10 3.70 1997 - - 32.01 - 4.13 Rapeseed 1993 - - 146.60 1994 - 110.54 - 1995 - 110.55 17076 - - - 1996 146.19 166.43 - - - 1997 - 94.50 184.15 - - - Sunflower Seed 1993 - - - - 1994 28.05 - - - 12.17 56.07 1995 18.56 - - - 18.64 104.22 1996 21.79 - - - 57.6S S6.66 1997 19.01 - - - 56.75 83.99 Sugar t993 - - 17.91 - .. - 1994 - 10.75 - - 0.88 31.89 1995 - 11.56 22.89 - 1.89 53.03 1996 - 10.95 14.41 - 3.82 15.36 1997 - 9.37 15.08 - 4.03 14.29 BeefDCattle 1993 - - 85.42 - - 1994 510.69 685.91 - 56.25 - 1995 675.41 802.01 1,340.54 - 115.96 - 1996 778.12 929.80 1,256.65 - 171.96 1,761.30 1997 555.36 878.14 1,162.35 - 102.47 1,320.38 Pork 1993 - - 85.97 - - - 1994 404.01 658.47 - 882.11 56.13 661.42 1995 541.73 766.01 866.19 946.88 104.77 816.09 1996 618.48 908.93 1,223.44 943.40 138.55 2,624.07 1997 447.32 814.64 1,280.49 512.12 107.48 2,645.92 Chicken 1993 - - - . 1994 269.12 508.72 - 526.36 1995 351.66 606.23 - 549.23 1996 429.91 827.41 682.47 - 1997 370.06 754.62 - 388.54 Milk 1993 - - 115.46 - - - 1994 105 80 113.20 - 51.25 8.35 1995 140.00 126.09 100.64 70.60 23.77 - 1996 162.84 131.04 130.54 51.58 33.71 15.71 1997 122.46 110.12 139.33 45.17 25.22 41.85 131 Table 10. Value Added at Domestic Prices in US/ton). Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 1994 103.04 43.64 1995 108.51 31.24 1996 103.54 83.22 1997 86.08 61.20 Maize 1 993 1994 80.52 41.07 122.82 1995 93.50 54.91 125.77 1996 119.95 102.75 170.57 1997 128.20 45,61 124.06 Rye 1993 42.04 1994 110.88 54.56 1995 110.78 21.73 69.53 1996 106.97 57.07 109.97 1997 88.98 39.86 91.36 Wheat 1993 46.84 1994 62.00 115.43 71.91 56.21 43.07 1995 68.14 119.89 49.08 56.10 81.56 34.72 1996 125.58 123.94 135.62 88.00 1 10.05 61.91 1997 123.65 95.82 92.79 61.97 94.93 68.66 Potatoes 1993 14.22 1994 111.23 1995 14.02 198.62 1996 46.27 218.38 1997 47.30 172.79 Rapeseed 1993 43.43 1994 142.29 1995 148.32 44.55 1996 122.23 52.60 1997 157.19 84.38 Sunflower Seed 1993 1994 129.93 108.04 23.94 1995 132.58 168.79 91.94 1996 127.40 107.27 94.91 1997 160.76 85.68 84.53 Sugar 1993 1.93 1994 49.79 25.76 11.91 1995 53.29 4.12 31.11 19.8S 1996 52.70 17.23 34.43 35.35 1997 46.99 15.98 31.04 40.72 Beef/Cattle 1993 1,124.17 1994 274.89 2,459.19 633.37 1995 647.89 2,546.94 71.08 1,047.83 1996 -107.54 1,952.66 148.33 1,334.49 -1,153.56 1997 450.09 1,695.27 100.42 1,187.77 -1,111.81 Pork 1993 999.28 1994 450.29 963.22 276.00 861.62 234.09 1995 663.18 1,248.70 119.20 360.67 1,374.27 -130.18 1996 62.33 1,477.56 43.39 232.84 1,695.30 -1,097.79 1997 1,070.46 1,355.90 54.33 586.38 1,714.84 -901.82 Chicken 1993 1994 462.47 605.49 650.44 1995 492.80 664.46 643.28 1996 226.38 597.73 456.23 1997 567.93 541.24 764.80 Milk 1993 -24.25 1994 83.33 316.67 117.66 144.54 1995 108.57 352.47 63.46 125,32 234.27 1996 .13.75 316.54 41.58 128.40 250.71 92.90 1997 64.58 281.66 38.54 152.60 239.05 115.36 132 Table 11. Margins (From the Relation Between Valued Added and Output Prices. Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Wheat 1993 1994 34% 11% 1995 34% 30% 1996 35% 24% 1997 34% 29% Maize 1993 1994 4% 51% 4% 1995 2% 47% 4% 1996 3% 31% 11% 1997 1% 41% 10% Barley 1993 60% 1994 31% 10% 1995 31% 77% 14% 1996 31% 57% 19% 1997 32% 65% 20% Rye 1993 66% 1994 6% 30% 46% 10% 27% 1995 4% 31% 66% 52% 12% 49% 1996 4% 29% 36% 400/a 20% 33% 1997 2% 31% 44% 48% 21% 28% Sunflower seed 1993 78% 1994 1% 1995 87% 1% 1996 47% 1% 1997 43% 2% Potatoes 1993 79% 1994 43% 1995 42% 81% 1996 54% 76% 1997 37% 68% Sugar 1993 1994 6% 9% 62% 1995 4% 7% 47% 1996 5% 31% 34% 1997 5% 37% 36% Rapeseed 1993 92% 1994 19%/o 3% 25% 1995 19% 88% 4% 25% 1996 IS% 49% 10% 24% 1997 18% 45% 11% 18% Pork 1993 9% 1994 58% 26% 5% 1995 39%/ 27% 96% 6% 1996 118% 33% 91% 7% 1997 61% 35% 93% 6% Beef/Cattle 1993 6% 1994 41% 45% 79% 3% 60% 1995 33% 41% S9% 75% 4% 122% 1996 _ _ 37% 97% 85% 4% 240% 1997 34% 36% 96% 53% 4% 194% Chicken 1993 1994 34% 54% 49% 1995 35% 53% 49% 1996 62% 56% 67% 1997 40% 56% 39%/o Milk 1993 119% 1994 50% 28% 35% 3% 1995 45% 28% 65% 39% 5% 1996 110% 29% 78% 39% 7% 11% 1997 69% 27% 78% 27% 7% 9/D 133 Table 12. Adjusted Value Added at Border (in US/ton). Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 1994 42.43 61.85 1995 64.78 42.51 1996 120.48 185.52 1997 104.18 45.08 Maize 1993 1994 138.31 25.82 179.45 1995 178.19 42.90 209.60 1996 212.40 52.47 251.31 1997 211.45 29.51 187.25 Rye 1993 52.96 1994 54.05 108.49 1995 53.09 15.74 102.09 1996 97.87 33.25 149.27 1997 81.29 32.93 125.31 Wheat 1993 38.99 1994 102.39 68.94 76.75 108.79 92.79 1995 126.37 105.12 25.32 56.26 135.74 65.46 1996 145.94 153.03 128.14 70.23 18S.96 78.93 1997 85.82 125.44 48.62 51.54 159.93 36.72 Potatoes 1993 -7. 84 1994 277.50 1995 6.01 283.30 1996 48.14 251.82 1997 43.99 238.71 Rapeseed 1993 19.40 1994 159.96 1995 192.19 39.24 1996 155.82 50.57 1997 185.24 55.50 Sunflower Seed 1993 1994 157.72 175.94 141.82 1995 171.54 197.88 122.23 1996 124.91 149.25 80.03 1997 227.51 123.68 90.56 Sugar 1993 0.39 1994 33.16 42.08 47.48 1995 36.94 2.41 47.13 -4.14 1996 32.71 13.49 58.07 18.78 1997 28.96 8.91 38.89 9.04 Beef/Cattle 1993 573.58 1994 305.10 524.72 1,090.17 1995 579.28 623.80 104.46 1,174.23 1996 284.19 282.77 201.66 429.74 -857.82 1997 762.97 374.07 237.93 647.47 -567.48 Pork 1993 793.03 1994 543.26 1,210.33 -166.84 1,271 11 44.88 1995 579.15 1,445.60 129.25 -185.62 1,485.60 -86.04 1996 110.93 1,245.09 82.56 -95.99 1,433,64 -1,888.62 1997 1,199.74 991.91 115.79 403.63 1,705.93 -1,848.41 Chicken 1993 1994 405.28 879.74 157.19 1995 155.50 917.69 408.13 1996 195.26 717.45 164.88 1997 845.01 606.92 586.53 Milk 1993 26.54 1994 167.43 106.15 181.14 150.87 1995 152.32 169.36 86.36 260.58 174.98 1996 125.05 136.85 45.66 230.31 172.40 87.41 1997 156.53 114.24 36.69 233.16 158.81 43.78 134 Table 13. Effective Rate of Protection Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 1994 143% M -29%/. M 1995 68% M -27% 1996 -14% M -55% M 1997 -17/. M 36% Maize 1993 1994 -42% M 59% -32% M 1995 48% M 28% -40% M 1996 -44% M 96% -32% M 1997 -39% M 55% -34% M Rye 1993 -21% M 1994 105% M -50% M 1995 109% M 38% M -32% M 19% 9% M 72% -26% M 1997 9% M 21% -27%/ M Wheat 1993 20%/6 M 1994 -39% 670/. M -6% -48% M -54% 1995 -46% 14% M 94% M 0% -40%/6 M -47% 1996 -14% -19% M 6% M 25% -42% M -22% 1997 44% -24% M 91% M 20% -41% M 870/, Potatoes 1993 ++ 1994 -60% M 1995 134% -30%/6 M 1996 -4%/ -13% M 1997 8% -28% Rapeseed 1993 124% 1994 -11% M 1995 -23% M 14% 1996 -22% M 4% 1997 -15% M 52% Sunflower Seed 1993 1994 -18% -39%/6 -83% 1995 -23% -15% -25% 1996 2% -28% 19% 1997 -29% /-31% -7% Sugar 1993 .396% 1994 50% M -390/ M -75% 1995 44% lM 71% M -34% M ++ 1996 61% M 28% M -41% M 8g% 1997 62% M 79%/0 M -20% M 350% Beef/Cattle 1993 96% 1994 -10% 369% M -42% M 1995 12% 308% M -32% -11% M 1996 -- 591% M -26% 211% M 34% 1997 -41% 353% M -58% 83% M 96% Pork 1993 26% M 1994 -17% -20% M ++ -32% M 422% 1995 15% -14% M -8% ++ -7% M 51% 1996 -44% 19%/6 M -47% ++ 18% M 42% 1997 -11% 37% M -53% 45% 1% M -51% Chicken 1993 1994 14% -31% M 314% M 1995 217% -28% M 58% M 1996 16% -170/. M 1770/, M 1997 -33% -11% M 30% M Milk 1993 -- 1994 -50% 198% M -35% M -4% M 1995 -29% 108% M -27% -52% M 34% M 19% -- 131% M -9/o -44% M 45% M 6% 1997 -591/% M 147% M 5% -35% M 51% M 164% -- extremely negative ++ extremely posirive 135 Table 14. Non-Price Transfers per Ton of Output (US/ton). Commodity Year Bulgaria Gernany Poland Romania Russia Ukraine Barley 1993 - - 1994 - 71.55 5.71 8.14 1995 - 87.82 - 11.85 5.92 1996 - 107.60 - 15.41 14.12 - 1997 - 81.13 - 566 6.77 Maize 1993 - - - - - 1994 5.15 - - 4.51 26.63 1995 6.48 - - 6.90 15.64 1996 7.63 - - 5.29 25.79 1997 4.66 - 2.71 9.90 - Rye 1993 - - -- - 1994 - 54.91 - 10.79 - 1995 - 66.00 5.16 - 9.01 1996 - 72.38 7.72 - 17.75 1997 53.83 7.48 . 7.97 Wheat 1993 - - - - - - 1994 6.67 59.41 - 17.44 11.26 14.35 1995 7.70 74.50 7.95 16.84 10.61 6.60 1996 10.85 83.91 13.60 42.90 17.95 12.06 1997 1.10 67.41 12.21 9.19 8.42 21.66 Potatoes 1993 - - - - - - 1994 - - - - 23.86 1995 - - 5.92 - 20.31 - 1996 - - 5.00 - 28.13 - 1997 - - 5.34 - 13.52 Rapeseed 1993 - - - 1994 - 301.82 - - - - 1995 - 219.76 12.68 - - - 1996 - 329.55 12.80 - - - 1997 - 202.94 17.02 - - Sunflower Seed 1993 - - - 1994 1.11 - - - 25.54 0.51 1995 0.62 - - - 19.13 1.49 1996 0.30 - - - 20.05 19.10 1997 9.95 - - - 10.44 33.75 Sugar 1993 - 1994 - (2.65) - - 5.72 3.54 1995 - (258) 1.81 - 4.14 0.34 1996 - (2.81) 1.94 - 5.55 6.79 1997 - (2.78) 1.87 - 2.72 12.62 Beef/Cattle 1993 - - - 1994 8.42 591.39 - - 205.10 1995 9.85 709.75 96.66 - 180.34 - 1996 3.08 865.69 92.29 - 261.13 213.53 1997 0.26 656.49 89.95 - 144.41 566.20 Pork 1993 - - - - - - 1994 17.97 145.35 - 129.20 231.79 15.03 1995 13.20 129.55 63.19 55.66 206.87 5.63 1996 6.57 131.81 76.12 66.69 318.24 248.86 1997 0.44 111.35 88.00 27.55 195.46 655.37 Chicken 1993 - - - - - 1994 11.42 108.35 - 164.16 - 1995 6.63 86.59 - 57.75 1996 7.49 76.92 - 69.67 - - 1997 0.29 64.70 - 41.88 Milk 1993 - - - - - - 1994 2.51 36.39 - 5.65 23.84 1995 2.52 29.82 9.80 9.15 33.20 1996 0.97 24.72 11.05 6.61 42.18 2.03 1997 0.07 14.58 11.56 3.06 24.41 5.25 136 Table IS. Total Transfers per Ton of Output (U/ton). Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 1994 132.16 9.03 -10.0S 1995 131.55 27.84 -5.35 1996 90.66 31.12 -S8.19 1997 63.03 13.87 22.89 Maize 1993 1994 -52.64 19.77 -30.00 1995 -78,21 18.92 -68.19 1996 -84.82 55.56 -54.95 1997 -78.58 18.S1 -53.28 Rye 1993 -10.92 1994 111.74 -43.14 1995 123.69 11.14 -23.54 1996 81.48 31.54 -21.55 1997 61.53 14.41 -25.98 Wheat 1993 7.86 1994 -33.72 105.90 12.60 41.32 -35.37 1995 -50.53 89.26 31.72 16.67 43.58 -24.14 1996 -9.51 54.82 21.07 60.67 -60.97 4.96 1997 38.94 37.79 56,38 19.61 -56.57 53.60 Potatoes 1993 22.06 1994 -142.42 1995 13.94 -64.37 1996 3.12 -5.31 1997 8.65 -52.40 Rapeseed 1993 24.02 1994 284.15 1995 175.88 17.99 1996 295.96 14.82 1997 174.89 45.90 Sunflower Seed 1993 1994 -26.68 42.36 -117.37 1995 -38.34 -9.96 -28.81 1996 2.79 -21.93 33.97 1997 -56.80 -27.56 27.72 Sugar 1993 1.54 1994 13.98 -10.59 -32.03 1995 13.77 3.53 -11.88 24.29 1996 17.18 5.68 -18.09 23.35 1997 15.24 8.94 -5.13 44.31 Beef/Cattle 1993 550.59 1994 -21.79 2,525.87 -251.70 1995 78.46 2,632.89 63.27 53.94 1996 -388.65 2,535.58 38.95 1,165.87 .82.21 1997 -312.62 1,977.69 -47.57 684.71 21.87 Pork 1993 206.26 1994 -75.01 -101.76 572.05 -177.69 204.25 1995 97.23 -67.35 53.15 601.95 95.54 -38.51 1996 42.03 364.27 36.94 395.52 579.90 1,039.69 1997 -128.84 475.34 26.54 210.30 204.37 1,601.96 Chicken 1993 1994 68.60 -165.90 657.42 1995 343.93 -166.64 292.90 1996 38.61 -42.79 361.02 1997 -276.79 -0.98 220.15 Mill: 1993 -50.79 1994 -81.58 246.92 -57.83 17.52 1995 41.24 212.93 -13,09 -126.12 92.49 1996 -137.83 204.41 6.97 -95.30 120.49 7.52 1997 -91.89 182.00 13.41 -77.50 104.66 76.83 137 Table 16. Effective Rate of Assitance (in Terms of the Value of Output of Selected Commodities). Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 1994 50% M 0% M -2% M 1995 4.7/ M 1% 0% 1996 3.4% M 1% .5% M 1997 29% M 1% 2% Maize 1993 1994 -s% M 4% 0% M 1995 -I M% M 4% 0%'o M 1996 -9%/. M 10% 0% M 1997 -7% M 5% -1% M Rye 1993 -1% M 1994 1.3% M -2% M 1995 1 7°/O M I%M 0% M 1996 1 1% M 2% 0% M 1997 1.0% M 1% -1% M Wheat 1993 1% M 1994 -12% 6.09/ M 2% -100/o M -11% 1995 -13% 4.8% M 3% M 3% -5% .M -12% 1996 -2% 3 2% M 2% M 4% -7% M -1% 1997 8% 26% M 5% M 3% -9% M 19% Potatoes 1993 9% 1994 -35% M 1995 3% -10% M 1996 1% -1% M 1997 2% -7% Rapeseed 1993 0% 1994 2.7% M 1995 1.6% M 0% 1996 1.7% M 0% 1997 1.7% M 0%/f Sunflower Seed 1993 1994 -1% -1% -4% 1995 -2% 0% -2% 1996 01/ M/o 1% 1997 -1% 0% 1% Sugar 1993 0% 1994 12% M -1% M -14% 1995 11% M 0% M -1% M 21% 1996 1.4% M 1%M -1% M 8% 1997 14% M 1%M 0% M 12% Beef/Cattle 1993 3% 1994 0%/. 9 2% M -6% M 1995 1% 8.4% M 0% 1%M 1996 -6% 84% M 0% 10% M -2% 1997 -2% 7.6% M 0% 6% M 0% Pork 1993 5% M 1994 -2% -1.2% M 12% -3% M 6% 1995 3% -0.7% M 1% 11% I% M -1% 1996 -2% 3.9% M 1% 7% 3% M 10/. 1997 -2% 57% M 1% 4% I%M 11% Chicken 1993 1994 1% -04% M 5% M 1995 3% -0.3% M 2% M 1996 1% -0.1% M 3% M 1997 -2% 0.0% M 1% M Milk 1993 -7% 1994 -8% 22.0% M -7% M 5% M 1995 -3% 172% M -1% -14% M 14% M 1996 -16% 17.2% M 1% -10% M 14% M 2% 1997 -6% M 17 0%0 M 2% -9% M 13% M 21% 138 Table 17. Effective Rate of Assistance (in terms of Value Added of Commodi ) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 1994 128% M -23% M 1995 121% M -17% 1996 S8% M -106% M 1997 73% M 37% Maize 1993 1994 -65% M 48% -24% M 1995 -84% M 34% -40/. M 1996 -71% M 54% -32% M 1997 -61% M 41% -43% M Rye 1993 -26% M 1994 101% M -79% M 1995 112% M 51% M -34% M 1996 76% M 55% -20% M 1997 69% M 36% -28% M Wheat 1993 17% M 1994 -54% 92% M 18% -74% M -S2%/ 1995 -74% 74% M 65% M 30% -53% M -70% 1996 -8% 44% M 16% M 69%/o -55% M -8% 1997 31% 39% M 61% M 32% -60% M 78% Potatoes 1993 155% 1994 -128% M 1995 99% -32% M 1996 7% -2% M 1997 18% -30% Rapeseed 1993 55% 1994 200% M 1995 119% M 40% 1996 242% M 28% 1997 111% M 54% Sunflov,er Seed 1993 1994 -2/% -39% -490% 1995 -29% -6% -31% 1996 2% -20% 36%/o 1997 -35% -32% 33% Sugar 1993 80% 1994 28%. M -41% M -269% 1995 26% M 85% M -38% M 123% 1996 33% M 33% M -53% M 66% 1997 32% M 56% M -17% M 109% Beef/Cattle 1993 49% 1994 -80/o 103% M -40% M 1995 120/o 103% M 89% 5% M 1996 361% 130% M 26% 87% M 7% 1997 -69% 117% M -47% 58% M -2% Pork 1993 21% M 1994 -17% -1/1% M 207% -21% M 87% 1995 15% -5% M 45% 167% 7% M 30% 1996 -67% 25% M 85% 170% 34% M -95% 1997 -12% 35% M 49% 36% 12% M -178% Chicken 1993 1994 15% -27% M 101% M 1995 70%/o -25% M 46% M 1996 17% -7% M 79%/ M 1997 -49% 0% 4M 29% M Milk 1993 209% 1994 -98% 78% M -49% M 12% M 1995 -38% 60% M -21% -101% M 39% M 1996 1002% 65% M 17% -74% M 48% M 8% 1997 -142% M 65% M 35% -51% M 44% M 67% 139 Table 18. Decomposition of Government Support to Agriculture, for Selected Commodities, as % of Ag.GDP. Output Price Input Price Non-price related Total Transfers Commrnodity Year Transfers Transfers Transfers (ERA) Bulgaria 1994 -43.4% 10.2% 3.9% -29.3% 1995 -33.9% 12.9% 2.9% -18.1% 1996 -30.5% 5.4% 2.3% -22.8% 1997 -9.0% -2.9% 0.7% -11.1% Poland 1993 31.8% -15.5% n.a. 16.3% 1995 16.7% -14.0% 8.7% 11.4% 1996 9.1% -8.1% 9.9% 10.9% 1997 10.9% -3.3% 10.8% 18.4% Romania 1994 10.9% -4.8% 6.2% 12.3% 1995 2.2% -2.4% 5.0% 4.8% 1996 15.6% -9.2% 5.1% 11.5% 1997 5.3% -4.4% 2.5% 3.4% Russia 1994 -59.8% 2.1% 19.5% -38.2% 1995 -16.0% 3.0% 11.4% -1.6% 1996 -5.2% 2.9% 12.8% 10.6% 1997 -7.4% 2.1% 8.8% 3.4% Ukraine 1994 -99.8% 39.4% 12.4% -48.0% 1995 -35.2% 36.6% 3.0% 4.4% 1996 -13.1% 18.0% 12.6% 17.5% 1997 1L.6% 24.9% 26.1% 62.6% Giermanv 1994 58.1% -7.6% 29.0% 79.4% 1995 44.6% -5.0% 28.3% 67.9% 1996 35.4% 1.2% 30.1% 66.8% 1997 38.5% 1.6% 27.8% 67.9% Turkey 1994 15.0% 3.0% 17.0% 35.0% 1995 23.0% 2.0% 17.0% 42.0% 1996 24.0% 3.0% 7.0% 34.0% al Commodities included for each country are as follows: Bulgaria: wheat, maize, sunflower seed, veal, pork, chicken, and cow milk. Poland: wheat, rye, oilseed rape, sugar beet, potatoes, pig, cattle, milk. Romania: wheat, food barley, food maize, pig meat, chicken, cow milk. Russia: wheat, maize, barley, rye, sunflower seed, potatoes, sugarbeet, pork. milk and beef Ukraine wheat, sunflower seed, sugar beet, pork. Germany: wheat, barley, re, sugar, rape seed, beef, pork, chicken, milk. b/ For Bulgaria, nca-price transfers correspond to credit subsidies, and others non-price transfers. For Poland, non-price transfers correspond to credit subsidies, income tax differential treatment (grossing up for the selected group of commodities based on the value of production), and costs of the Agency of Agricultural Markets (AAM). For Romania and Ukraine, non-price transfers correspond to credit subsidies. For Germany, non-price transfers correspond to National Payments (fuel and credit subsidies, income compensations, and exchange rate compensations), and EU transfers (direct payments and input subsidies). ci Effective Rate of Assistance, expressed as percentage of agricultural GDP rather than as value of output, which is the standard definition in PSE calculations. n a Not available 140 Table 19. Detailed Decomposition of Government Support to Agriculture, for Selected Commodities, as % of Ag.GDP. Country Item 1994 1995 1996 1997 Bulgaria Output Transfers -44.8% -34.7% -42.1% -29.3% Input Transfers 10.5% 13.2% 7.5% -9.3% Credit Subsidies 1.7% 0.5% 0.0% 0.0% Input Subsidies 0.0% 0.7% 1.6% 1.7% Other Subsidies 2.3% 1.8% 1.6% 0.7% Total Transfers -30.2%. -18.5% -31.5% -36.1% Germany Output Transfers 58.1% 44.6% 35.4% 38.5% Input Transfers -7.6% -5.0% 1.2% 1.6% Credit Subsidies 0.7% 0.8% 0.8% 0.7% Input 2.6% 2,4% 2.2% 2.2% Income Compensations 2.7% 2.7% 2.5% 2.0% Compensation Of Exchange Losses 0.5% 0.4% Eu Transfers, Direct Payments 14.9% 17.7% 21.0% 20.1% Eu Transfers, Input Subsidies 0.9% 0.7% 0.6% 0.6% Eu Transfers, Producer Tax -1.1% -0.9% -0.9% -1.8% Other 8.3% 5.0% 3.3% 3.6% Total Transfers 79.4% 67.9% 66.8% 67.9% Poland Output Transfers 31.8% 16.7% 9.1% 10.9% Input Transfers -15.5% -14.0% -8.1% -3.3% Credit Subsidies 2.1% 3.4% 4.2% Input Subsidies 0.5% 0.6% 0.6% Income Tax Differential Treatment 5.9% 5.7% 5.7% Parastatals 0.2% 0.2% 0.2% Total Transfers 16.3% 11.4% 10.9% 18.4% Romania Output Transfers 10.9% 2.2% 15.6% 5.3% Input Transfers -4.8% -2.4% -9.2% -4.4% Input Subsidies 5.0% 3.8% 4.2% 1.8% Other 1.2% 1.2% 0.9% 0.7% Total Transfers 12.3% 4.8% 11.5% 3.4% Russia Output Transfers -27.4°%D -7.8% 23.6% 28.0% Input Transfers -0.2% -0.6% -1.3% -2.4% Input Subsidies 9.7% 6.2% 8.0% 4.3% Direct Payments 3.0% 2.5% 2.1% 1.2% Other 6.8% 2.8% 2.7% 3.4% Total Transfers -8.1% 3.0% 35.1% 34.4% Ukraine Output Transfers -99.8% -35.2% -13.1% 11.6% Input Transfers 39.4% 36.6% 18.0% 24.9% Credit Subsidies 11.3% 2.5% 2.2% 2.8% Direct Payments 1.0% 0.4% Other 10.4% 23.3% Total Transfers -48.0% 4.4% 17.5% 62.6% 141 Table 20. Real Producer Prices (in 1994 LCU/ton) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 - - 1994 - 254 160,000 108,429 1995 - 231 - 136,114 88,323 1996 - 231 - 217,875 200,180 1997 - 215 - 128,281 159,699 Maize 1993 - - -- - 1994 84 - 140,000 282,554 1995 93 162,580 258,568 1996 117 - - 250,556 347,871 1997 120 - - 117,591 256,018 Rye 1993 - - 256 - - 1994 - 258 - - 133,406 1995 - 228 178 - 159,816 1996 - 227 238 - 246,095 1997 - 215 210 - 210,375 Wheat 1993 - - 334 - - 1994 66 268 - 220,000 137,835 48 1995 69 246 278 181,485 183,571 24 1996 123 253 376 245,109 248,696 20 1997 117 228 307 181,731 221,180 18 Potatoes 1993 - - 158 - - 1994 - 247,129 1995 - - 209 - 393,939 1996 - - 154 - 402,645 1997 - - 153 - 326,318 Rapeseed 1993 - - 510 - 1994 - 406 - - - 1995 - 359 448 1996 - 385 394 - - 1997 - 411 490 - Sunflower Seed 1993 - - - - 1994 138 - - 260,457 73 1995 134 - - - 359,204 66 1996 127 - - 280,904 31 1997 156 - - - 250,720 25 Sugar 1993 - 59 - 1994 - 99 - - 58,361 10 1995 - 92 64 - 64,079 9 1996 - 94 60 - 69,496 10 1997 - 94 54 - 64,774 9 BeefS'Cattle 1993 - - 2,990 - 1994 660 5,382 - - 1,463,364 1995 1,029 4,921 3,414 - 2,186,822 1996 567 4,270 2,840 - 2,606,062 97 1997 1,053 4,326 2,589 - 2,329,438 89 Pork 1993 - - 2,579 - 1994 759 2,858 - 2,200,000 1,966,293 365 1995 963 2,985 2,037 2,268,559 2,818,679 201 1996 597 3,417 2,320 2,560,026 3,227,167 167 1997 1,505 3,511 2,533 1,924,211 3,310,635 178 Chicken 1993 - - - - - 1994 697 2,131 - 2,100,000 1995 733 1,995 - 1,S66,085 1996 569 1,994 - 2,287,683 - 1997 881 2,040 - 1,924,211 - Milk 1993 - - 306 - - 1994 166 716 - 300,000 328,566 1995 192 687 346 321,379 486,665 1996 126 647 337 354,046 491,074 22 1997 195 640 332 320,702 474,796 24 142 Table 21. Changes in Real Producer Prices (% Change Over Previous Year) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1994/95 -9% -15% -19% 1995/96 0% 60% 127% 1996/97 -7% -41% -20% 1994/97 -15% -20% 47% Maize 1994/95 10% 16% -8% 1995/96 26% 54% 35% 1996/97 3% -53% -26% 1994/97 43% -16% -9% Rye 1994/95 -12% -30% 20% 1995/96 0% 33% 54% 1996/97 -5% -12% -15% 1994/97 -17% -18% 58% Wheat 1994/95 5% -8% -17% -1 8% 33% -50% 1995/96 79% 3% 35% 35% 35% -18% 1996/97 -5% -10% -18% -26% -11%o9 1994/97 77% -15% -8% -17% 60% -63% Potatoes 1994/95 32% 59% 1995/96 -26% 2% 1996/97 0% -19% t994/97 -3% 32% Rapeseed 1994/95 -12% -12% 1995/96 7% -12% 1996/97 7% 24% 1994/97 1% -4% Sunflower Seed 1994/95 -3% 38% -10% 1995/96 -5% -22% -53% 1996/97 22% -11% -20% 1994/97 13% -4%/ -66% Sugar 1994/95 -7% 9% 10% -9% 1995/96 2% -6% 8%0/ 10% 1996/97 0% -10% -7% -7% 1994/97 -5% -8% 1 1% -6% Beef/Cattle 1994/95 56% -9% 14% 49% 1995/96 -45% -13% -17% 19% 1996/97 g6% 1/o -99/ -11% -8% 1994/97 59% -20% -13% 59% Pork 1994/95 27% 4% -21% 3% 43% -45% 1995/96 -38% 14% 14% 13% 14% -17% 1996/97 152% 3% 9% -25% 3% 7% 1994/97 98% 23% -2% -13% 68% -51% Chicken 1994/95 5% -6% -6% 1995/96 -22% 0% 16% 1994/96 55% 2% -16% 1995/97 26% -4% -8% Milk 1994/95 16% -4% 13% 7% 48% 1995/96 -34% -6% -3% 10% 1% 1994/96 55% -1% -1% -9% -3% 6%/o 1995/97 18% -11% 8% 7% 45% 143 Table 22. Changes in Real Producer Prices (% Change Over Previous Year) - in Logarithmic Form (base 10) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1994/95 -4% -7% -9% 1995/96 0% 20% 36% 1996,'97 -3% -23% -10% 1994/97 -7% -10% 17% Maize 1994/95 4% 6% -4% 1995/96 10% 19% 13% 1996/97 1% -33% -13% 1994/97 15% -8% -4% Rye 1994/95 -5% -16% 8% 1995/96 0% 12% 19% 1996/97 -2% -5% -7% 1994/97 -8% -9% 20% Wheat 1994/95 2% -4% -8% -8% 12% -30% 1995/96 25% 1% 13% 13% 13% -9% 1996/97 -2% -4% -9% -13% -5% -4% 1994/97 25% -7% -4% -8% 21% -43% Potatoes 1994/95 12% 20% 1995/96 -13% 1% 1996/97 0% -9% .994/97 -1% 12% Rapeseed 1994/95 -5% -6% 1995/96 3% -6% 1996/97 3% 9% 1994/97 1% -2% Sunflower Seed 1994/95 -1% 14% -5% 1995/96 -2% -11% -33% 1996/97 9% -5% -10% 1994/97 5% -2% -47% Sugar 1994/95 -3% 4% 4% -4% 1995/96 1% -3% 4% 4% 1996/97 0% -5% -3% -3% 1994/97 -2% -4% 5% -3% Beef/Cattle 1994/95 19% -40 6% 17% 1995/96 -26% -6% -8% 8% 1996,97 27% 1% -4% -5% -4% 1994/97 20% -9% -6% 20% Pork 1994/95 10% 2% -10% 1% 16% -26% 1995/96 -21% 6% 6% 5% 6% -8% 1996/97 40% 1% 4% -12% 1% 3% 1994/97 30% 9% -1% -6% 23% -310% Chicken 1994/95 2% -3% -3% 1995/96 -11% 0% 7% 1996/97 19% 1% -8% 1994/97 10% -2% -4% Milk 1994/95 6% -2% 5% 3% 17% 1995/96 -18% -3% -1% 4% 0% 1996/97 19% 0% -]% -4% -1% 3% 1994/97 7% -5% 4% 3% 16% 144 Table 23. Real Output Border Prices (in US'94/ton). Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 - - 1994 - 88 - 93 49 - 1995 - 109 - 69 44 - 1996 - 161 108 104 1997 - 131 - 70 80 - Maize 1993 - - - - 1994 116 - - 64 128 1995 144 - - 88 128 1996 172 - - 88 181 1997 163 - - 54 128 Rye 1993 - 100 - 1994 - 97 - - 61 - 1995 - 96 40 - 79 1996 - 141 97 - 128 1997 - 113 112 - 105 Wheat 1993 - - 130 - - 1994 132 108 - 141 63 164 1995 153 148 94 122 91 145 1996 175 189 180 132 129 172 1997 114 151 104 97 110 131 Potatoes 1993 - - 93 - - - 1994 - 320 - - 112 - 1995 - 383 105 - 194 1996 - 244 99 - 209 1997 - 226 83 - 163 - Rapeseed 1993 - - 220 - 1994 - 270 - 1995 - 288 225 - 1996 - 281 229 - 1997 - 256 250 - - - Sunflower Seed 1993 - - 1994 234 - - - 1-18 249 1995 232 - - - 177 280 1996 179 - - - 46 200 1997 281 - - - 125 205 Sugar 1993 - - 354 - - 1994 - 352 - - 26 1995 - 377 23 - 32 - 1996 - 332 24 - 36 42S 1997 - 286 20 - 32 286 Beef/Cattle 1993 - - 1,071 - - 1994 945 1,391 - - 664 1995 1,411 1,585 1,485 - 1,079 - 1996 1,161 1,329 1,450 - 1,355 1.644 1997 1,406 1,311 1,370 - 162 1, 3 8 Pork 1993 - - 1,255 - - 1994 1,100 1,980 - 715 892 1,3s0 1995 1,264 2,273 990 740 1,391 1.367 1996 802 2,149 1,338 801 1,677 1,338 1997 3,193 1,763 1.417 845 1,652 1,417 Chicken 1993 - - - - - - 1994 1,400 1,821 - 684 1995 1,030 1,957 - 931 1996 1,467 1,900 - 801 - 1997 2,319 1,629 - 900 Milk 1993 - - - - - 1994 321 1,698 - 232 149 1995 334 2,304 - 322 240 - 1996 320 2,064 - 266 255 2.064 1997 154 1,674 - 257 237 1.674 145 Table 24. Changes in Real Output Border Prices (% Change Over Previous Year) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1994/95 23% -26% -11% 1995/96 48% 55% 139% 1996/97 -19% -35% -23% 1994/97 48% -25% 62% Maize 1994/95 24% 37% -1% 1995/96 19% 1% 42% 1996/97 -5% -39% -29% 1994/97 41% -16% 0% Rye 1994/95 -1% -60% 30% 1995,/96 47% 141% 62% 1996/97 -20% 16% -18% 1994/97 17% 12% 73% Wheat 1994/95 16% 37% -28% -13% 45% -12% 1995/96 14% 27% 92% 8% 43% 19% 1996/97 -35% -20% -43% -27% -15% -24% 1994/97 -13% 40% -20% -31% 76% -20% Potatoes 1994/95 20% 12% 73% 1995/96 -36% -6% 8% 1996/97 -8% -16% -22% 1994/97 -30% -11% 45% Rapeseed 1994/95 7% 2% 1995/96 -3% 2% 1996/97 -9% 9% 1 994/97 -5% 13% Sunflower Seed 1994/95 -1% 50% 12% 1995/96 -23% -18% -28% 1996/97 57% -14% 2% 1994/97 20% 6% -18% Sugar 1994/95 7% -94% 19% 1995/96 -12% 4% 144% 1996/97 -14% -17% -11% -33% 1994/97 -19% -94% 22% Beef/Cattle 1994/95 49% 14% 39% 62% 1995/96 -18% -16% -2% 26% 1996/97 21% -1% -6% -14% -19% 1994/97 49% -6% 28% 75% Pork 1994/95 15% 15% -21% 4% 56% 1% 1995/96 -37% -5% 35% 8% 21% -2% 1996/97 298% -18% 6% 6% -2% 6% 1994/97 190% -11% 13% 18% 85% 5% Chicken 1994/95 -26% 7% 36% 1995/96 42% -3% -14% 1994/96 58% -14% 12% 1995/97 66% -11% 322% Milk 1994/95 4% 36% 39% 61% 1995/96 -4% -10% -17% 6% 1994/96 -52% -19% -4% -7% -19% 1995/97 -52% -1% 11% 59% 146 Table 25. Changes in Real Output Border Prices (% Change Over Previous Year) - in Logarithmic Form (base 10) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1994/95 9% -13% -5% 1995/96 17% 19% 38% 1996/97 -9% -19% -12% 1994/97 170/. -13% 21% Maize 1994/95 9% 14% 0% 1995/96 8% 0% 15% 1996/97 -2% -21% -15% 1994/97 15% - r/o 0% Rye 1994/95 -1% -40% 11% 1995/96 17% 38% 21% 1996/97 -9% 6%/o -9% 1994/97 7% 5% 24% Wheat 1994/95 6% 14% -14% -6% 16% -5% 1995/96 6% 11% 28% 3% 15% 70/0 1996/97 -18% -10%/o -24% -13% -7% -12% 1994/97 -6% 14% -10% -16% 25% -10% Potatoes 1994/95 8% 5% 24% 1995/96 -19% -3% 3% 1996/97 -3% -7% -11% 1994/97 -15% -5% 16% Rapeseed 1994/95 3% 1% 1995/96 -1% 1% 1996/97 -4% 4% 1994/97 -2% 5% Sunflower Seed 1994/95 0% 18% 5% 1995/96 -11% -8% -15% 1996/97 20% -7% 1% 1994/97 8% 2% -8% Sugar 1994/95 3% -119% 8% 1995/96 -6% 2% 6% 1996/97 -7% -8% -5% -18% 1994/97 -9% -125% 9% Beef/Cattle 1994/95 17% 6% 14% 21% 1995/96 -8% -8% -1% 10% 1996/97 8% -1% -2% -7% -9% 1994/97 17% -3% 11% 24% Pork 1994/95 6% 6% -10% 1% 19% 1% 1995/96 -20% -2% 13% 3% 8% -1% 1996/97 60% -9% 2% 2% -1% 2% 1994/97 46% -5% 5% 7% 27% 2% Chicken 1994/95 -13% 3% 13% 1995/96 15% -1% -7% 1996/97 20% -7% 5% 1994/97 22% -5% 12% Milk 1994/95 2% 13% 14% 21% 1995/96 -2% -5% -8% 3% 1996/97 -32% -9% -2% -3% -90/ 1994/97 -32% -1% 4% 20% 147 Table 26. Real Exchange Rate (LCU/JUSs) Commodity Year Bulgaria Germany Poland Romania Russia Ukrraine Barley 1993 - - - - - 1994 - 1.6 - 1,655 2,204 1995 - 1.4 - 1,603 2,027 1996 - 1.5 1,777 1,924 - 1997 - 1.8 - 1,661 2,004 Maize 1993 - - - 1994 51 - - 1,655 2,204 1995 42 - - 1,603 2,027 1996 67 - - 1,777 1,924 - 1997 III - - 1,661 2,004 - Rye 1993 - - 2.4 - 1994 - 1.6 - - 2,204 - 1995 - 1.4 2.0 - 2,027 - 1996 - 1.5 1.9 - 1,924 - 1997 - 1.8 2.0 - 2,004 - Wheat 1993 - 2.4 - - 1994 51 1.6 - 1,655 2,204 0.81 1995 42 1.4 2.0 1,603 2,027 0.36 1996 67 1.5 1.9 1,777 1,924 0.23 1997 III 1.8 2.0 1,661 2,004 0.20 Potatoes 1993 - - 2.4 - 1994 * 1.6 - - 2,204 - 1995 - 1.6 2.0 - 2,027 1996 - 1.7 1.9 - 1,924 - 1997 - 1.7 2.0 - 2,004 - Rapeseed 1993 - - 2.4 - 1994 - 1.6 - . - 1995 - 1.4 2.0 - - 1996 - 1.5 1.9 1997 - 1.8 2.0 - - - Sunflower Seed 1993 - - - 1994 51 - - - 2,204 1.15 1995 42 - - - 2,027 0.39 1996 67 - - - 1,924 0.23 1997 109 - - - 2,004 0.20 Sugar 1993 - - 2.4 - - 1994 - 1.6 - - 2,204 0.62 1995 - 1.4 2.0 - 2,027 0.35 1996 - 1.5 1.9 - 1,924 0.23 1997 - 1.8 2.0 - 2,004 0.20 Beef/Cattle 1993 - - 2.4 - - 1994 5 1 1.6 - - 2,204 - 1995 42 1.4 2.0 - 2,027 - 1996 67 1.5 1.9 - 1,924 0.23 1997 110 1.8 2.0 - 2,004 0.20 Pork 1993 - - 2.4 - - 1994 51 1.6 - 1,655 2,204 0.62 1995 42 1.4 2.0 1,603 2,027 0.35 1996 67 1.5 1.9 1,777 1,924 0.23 1997 109 1.8 2.0 1,661 2,004 0.20 Chicken 1993 - - - 1994 51 1.6 - 1,655 - 1995 42 1.4 - 1,603 - - 1996 67 1.5 - 1,777 1997 110 1.8 - 1,661 - Milk 1993 - - 2.4 - - - 1994 51 16 - 1,655 2,204 1995 42 1.4 2.0 1,603 2,027 - 1996 67 1.5 1.9 1,777 1,924 0.23 1997 109 1.8 2.0 1,661 2,004 0.20 148 Table 27. Changes in Real Exchange Rate (% Change Over Previous Year) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1994/95 -10% -3% -S% 1995/96 6% 11% -5% 1996/97 16% -7% 4% 1994/97 11% 0% -9% Maize 1994/95 -16% -3% -8% 1995/96 58% 11% -5% 1996/97 65% -7% 4% 1994/97 119% 0% -9% Rye 1994/95 -10% -17% -8% 1995/96 6% -5% -5% 1996/97 16% 7% 4% 1994/97 11% -15% -9% Wheat 1994/95 -16% -10% -17% -3% -8% -55% 1995/96 5S% 6% -5% 11% -5% -37% 1996/97 65% 16% 7% -7% 4% -11% 1994/97 119% 11% -15% 0% -9% -75% Potatoes 1994/95 1% -17% -8% 1995/96 1% -5% -5% 1996/97 1% 7% 4% 1994/97 3% -15% -9% Rapeseed 1994/95 -10% -17% 1995/96 6% -5% 1996/97 16% 7% 1994/97 11% -15% Sunflower Seed 1994/95 -16% -8% -66% 1995/96 58% -5% -42% 1996/97 62% 4% -11% 1994/97 114% -9% -82% Sugar 1994/95 -10% -17% -8% -44% 1995/96 6% -5% -5% -35% 1996/97 16% 7% 4% -11% 1994/97 11% -15% -9% -67% Beef/Cattle 1994/95 -16% -10% -17% -8% 1995/96 58% 6% -5% -5% 1996/97 64% 16% 7% 4% -11% 1994/97 117% 11% -15% -9% Pork 1994/95 -16% -10% -17% -3% -8% -44% 1995/96 58% 6% -5% 11% -5% -35% 1996/97 62% 16% 7% -7% 4% -11% 1994/97 115% 11% -15% 0% -9% -67% Chicken 1994/95 -16% -10% -3% 1995/96 58% 6% 11% 1994/96 64% 16% -7% 1995/97 117% 11% 0% Milk 1994/95 -16% -10% -17% -3% -8% 1995/96 58% 6% -5% 11% -5% 1994/96 62% 16% 7% -7% 4% -11% 1995/97 115% 11% -15% 0% -9% 149 Table 2. Changes in Real Exchange Rate (% Change Over Previous Year) - in Logarithmic Form (base 10) Commodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1994/95 -5% -1% -4% 1995/96 3% 4% -2% 1996/97 6% -3% 2% 1994/97 4% 0% -4% Maize 1994/95 -8% -1% 4% 1995/96 20% 4% -2% 1996/97 22% -3% 2% 1994/97 34% 0% 44% Rye 1994/95 -5% -8% 4% 1995/96 3% -2% -2% 1996/97 6% 3% 2% 1994/97 4% -7% -4% Wheat 1994/95 -8% -5% -8% -1% -4% -35% 1995/96 20% 3% -2% 4% -2% -20% 1996/97 22% 6% 3% -3% 2% -5% 1994/97 34% 4% -7/o 0% 4% -60% Potatoes 1994/95 0% -8% 4% 1995/96 1% -2% -2% 1996/97 0% 3% 2% 1994/97 1% -7% -4% Rapeseed 1994/95 -5% -8% 1995/96 3% -2%/e 1996/97 6% 3% 1994/97 4% -7% Sunflower Seed 1994/95 -8% -4% 47% 1995/96 20% -2% -24% 1996/97 21% 2% -5% 1994/97 33% 4% -76% Sugar 1994/95 -5% -8% 4% -25% 1995/96 3% -2% -2% -19% 1996/97 6% 3% 2% -5% 1994/97 4% 7O/, 4% 49% BeeflCattle 1994/95 -8% -5% -8% 4% 1995/96 20% 3% -2% -2% 1996/97 22% 6% 3% 2% -5% 1994/97 34% 4% -7% 4% Pork 1994/95 -8% -5% -8% -1% 4% -25% 1995/96 20% 3% -2% 4% -2% -190/ 1996/97 21% 6% 3% -3% 2% -5% 1994/97 33% 4% -7% 0% -4% -49% Chicken 1994/95 -8% -5% -1% 1995/96 20% 3% 4% t996/97 22% 6% -3% 1994/97 34% 4% 00/D Milk 1994/95 -8% -5% -8% -1% -4% 1995/96 20% 3% -2% 4% -2% 1996/97 21% 6% 3% -3% 2% -5% 1994/97 33% 4% -7% 0% 4% 150 Table 29a. Decomposition of Real Producer Prices for Wheat (percent change) a/ Country Period Real Domestic Real Exchange Attributable to Prices Border Prices Rate Trade Policies Bulgaria 1994/95 2% 6% -8% 4% 1995/96 25% 6% 20% -1% 1996/97 -2% -18% 22% -6% 1994/97 25% -6% 34% -3% Poland b/ 1993/95 -8% -14% -8% 14% 1995/96 13% 28% -2% -13% 1996/97 -9% -24% 3% 12% 1993/97 -4% -10% -7% 13% Romania 1994/95 -8% -6% -1% -1% 1995/96 13% 3% 4% 5% 1996/97 -13% -13% -3% 3% 1994/97 -8% -16% 0% 8% Russia 1994/95 12% 16% -4% 0% 1995/96 13% 15% -2% 0% 1996/97 -5% -7% 2% 0% 1994/97 21% 25% -4% 0% Ukraine 1994/95 -30%/o -5% -35% 10% 1995/96 -9% 7% -20% 4% 1996/97 -4% -12% -5% 12% 1994/97 -43% -10% -60% 27% Germany 1994/95 -4% 14% -5% -12% 1995/96 1% 11% 3% -12% 1996/97 -4% -10% 6% -1% 1994/97 _7/ 14% 4% -26% Table 29b: Decomposition of Real Producer Prices for Pigmeat (percent change) at Country Period Real Domestic Real Exchange Attributable to Prices Border Prices Rate Trade Policies Bulgaria 1994/95 10% 6% -8% 12% 1995/96 -21% -20% 20% -21% 1996/97 40% 60% 21% -41% 1994/97 30% 46% 33% -50% Poland b/ 1993/95 -10% -10% -8% 8% 1995/96 6% 13% -2% -5% 1996197 4% 2% 3% -2% 1993/97 -1% 5% -7% 1% Romania 1994/95 1% 1% -1% 1% 1995196 5% 3% 4% -3% 1996/97 -12% 2% -3% -12% 1994197 -6% 7% 0% -13% 1994/95 16% 19% -4% 0% 1995/96 6% 8% -2% 0% 1996197 1% -1% 2% 1994/97 23% 27% 4% Ukraine 1994/95 -26% 1% -25% -1% 1995/96 -8% -1% -19% 12% 1996/97 3% 2% -5% 5% 1994/97 -31% 2% 49% 16% Germany 1994/95 2% 6% -5% 1% 1995/96 6% -2% 3% 6% 1996/97 1% -9% 6% 3% 1994/97 9% -5% 4% 10%/. Note: Pd , Pw, and RER represent the domestic price, the border price, and the real exchange rate, respectively. Percent change is computed as difference of the logarithms (base 10). TP represents changes attributable to trade policies. 151 Table 30. Trade Status Conunodity Year Bulgaria Germany Poland Romania Russia Ukraine Barley 1993 - - 1994 - M - M M - 1995 - M - X X 1996 - M - X M - 1997 - M - X X Maize 1993 1994 M - - X M - 1995 M - - X M 1996 M - - X M 1997 M - X M Rye 1993 - M 1994 - M - - M 1995 - M M M 1996 - M X - M 1997 . M X M M \1Vheat 1993 - - M 1994 X M - X M X 1995 X M M X M X 1996 X M M X M X 1997 X M M X M X Potatoes 1993 X 1994 - M - - M 1995 - M X - M 1996 - M X - M - 1997 - M X - X Rapeseed 1993 - - X 1994 - M - - - 1995 - M X - - 1996 - M X - - - 1997 M X - - - Sunflower Seed 1993 1994 X - - - X X 1995 X - - - X X 1996 X - - - X X 1997 X - - - X X Sugar 1993 - - X 1994 - M - - M X 1995 - M M - M X 1996 - M M - M X 1997 - M M - M X Beef/Cattle 1993 - - X 1994 X M - - M X 1995 X M X - M X 1996 X M X - M X 1997 X M X - M X Pork 1993 - - M 1994 X M - X M X 1995 X M X X M X 1996 X M X X M X 1997 X M X X M X Chicken 1993 1994 X M - M - 1995 X M - M 1996 X M - M - 1997 X M - M Milk 1993 - - X - 1994 X M - M M X 1995 X M X M M X 1996 X M X M M X 1997 M M X M M X 152 Distributors of World Bank Group Publications Prices and credit terms vary from CZECH REPUBLIC INDIA Euyo rulihn CLd. PERU SEE country ryConsult your S, NS Prodena Allied Publishers Ltd E4u61ySooSusongng Co, LA Editorial Desarrollo SA Wennergren-Williams AB local distributor betore placing an Havelkova 22 751 Mount Road Jongro-Gu Apartado 3824, Ica 242 OF 106 P. 0 Es 1305 order 130 00 Prague 3 Madras - 600 002 Seoul Lima 1 S-1t 25 Snlna Tel: (420 2) 2423 1486 Tel. (91 441852-3938 Tel: (82 2) 734-3515 Tel: (5t t41 285360 Tel: (46 8 705-97-50 ARGENTINA Fax: (4202 2423 11t4 Fax: (91 44) 852-0649 Fax: (822) 732-9154 Fan: (51 14)286628 Fax:0(4 rD27i.s7 World Publications SA URL: ht :/1www.nis.cz/ INDNESIA LEBANOE-mail: mailwi. An. Cordoba 1877 DENMARK Pt. Indira Limited Librairie du Liban International Booksource Center Inc. SWITZERLAND 1120 Ciudad de Buenos Aires SamfundsLitteratur Jalan Borobudur20 PO. Box 11-9232 1127-A Antipolo St, Barangay, Librairie PayotService Institutionnel Tel: (5411) 4815-81565 Rosenoerns AMi 11 PO. Box 181 Beirut Venezuela C120)Lusunne 30 FE-mail: wp1books@infovia.Comn.ar DK-1970 Frederiksberg C Jaata 1&'6l013)2390 Tel: (961 9) 217 9434 TMea.k(atji32 ; City 12o fOLausanne E-mail: wpooko@iotoia.com.ar Tel: (45 351 351943 Tel: (62 211 390-4290 Fax: (961 9) 217 434 Tel: (63216896 6501; 6505: 6507 Tel: (41 211 341-3229 AUSTRALIA, FIJI, PAPUA NEW Fax: (45 351357822 Fax: (82 2f) 390-4289 E-mail: hsayegh@librairie-du- Fax: (63 2) 896 1741 Fax: (41 21) 341-3235 GUINEA, SDLOMON ISLANDS, URL: htnp:/Anww.sL.cbs.dk IRAN liban.com.lb POLAND ADECO Van Diermen VANUATU, AND SAMA ECUADOR KbSa URL: tpJ/w brairie-du- International Publishing Service EditionsTechniques D.A. tnformation Services LibADRiod Ketabe ESaamG.PbaliAshe,8hSree liban.com.lb Ul. Piekna 31/37 Cli. de Lacuez 41 848 Whitehorse Road Lihreria Internacionoal Delatrooz Alley No. 8 MALAYSIA 00-677 Warzawa 061807 Blornad. Mitcham 3132, Victoria RO, Boo 17-01 -3029 R.O. Boo 15745-733 University ot Malaya Cooperative Tel: (48 21628-6088 Tel: (41 21( 943 2673 Tel- (6) 3 920 7777Juan Leon Mona 951 Tehran 15117 Bookshop, Limited Pus: (48)621-7255 Pus: (41 21) 943 3605 Fax: (61) 3 9210 7788 Quito Tel: (98 211 8717819; 8716104 PO. Box 1127 E-mal: books%ips@ikp.atmrCom.pl THAILAND E-mail. service@dadirect.com.au Tel: 593 2) 521-606; (593 2) 544- Fax: (98 21) 8712479 Jalan Pantal Baru URL: Central Bookt Distribution URL: hotp://www.dadirect.corn.au tos, E-mail: keetab-sara@nadanet.ir 69700 Kuala Lampor Oittp:/)va .impscg.maw.tddips/exopt 308 Silom Road AUSTRIA Fax: (593 2) 504-209 Kowkab Publishers Tel: (60 3) 756-5000 PORTUGAL Bangkok 10500 Gerold andCo E-mail: librimil@ihrrimorldi.com.ec PO Box 19575-511 Pus:(6)755424Lirria Portugal Tel: (66 2)2336930-9 Weihburg s 26E-mail: librimu2@librimundi.com.ec TernE-mail: urnkoop@tim.net my Apanlado 2881, Rua Do Carm Fan: (6621237-0321 A-Tell Wren CDDEU Tel: (98 211 258-3723 MEXICO S 70-74 . TRINIDAD ATOBAGO Tel: (43 1) 512-47-31-0 Ruz de Castlla 763, Edit. Expocolor Fax: (98 2 258-3723 INFOTEC 1200 Lisbon AND THE CARRIBBEAN URL htp:fwwwgeoIdC0/t-Dfi Primer pito, Dl. #2 IRELAND As. San Fernando No,.37 Tel: (1) 347-4982 Systemafics Studies Ltd. UR:http://arsaogerold.co/at.05line Quito P Col. Toriello Guerra Fax: (1) 347-0264 St. Augustine Shopping Center BANGLADESH Tel/Fax: (593 2) 507-303~ 253-091 Government Supplies Agency 14050 Meoico, D.FCatr Mi oa St. Augustine Sopn etr Micro Industries Development E 0al oluIrpa.e 4-is an tSol rairo Tel: (5251 624-2800 haTerinia Mu Robado, Wst. AInuoives Assistance Society (MIDAS) EGPTRA5RPBLCHFarourtRa E-ail: i$2 824-2922 ROMAN4IA Trinda &86 Tobgo,WesInie House 5, Road 1EGYPT, ARAB REPUBLIC OF Dublin 2 E-mati: lNotec@rtro.nel.moi Compani De Librarii Bucureoti S.A. Fax:1)86d) 845-8467 Dhameond RoArd 1CA Ahram Distribution Agency Tel: 13531) 681-3111 URL, *htp:/rtn.netn.m Str. Lipscani no. 26, sector 3 E Ohanmondi li/Area ~~~Al Galaa Street Pus: (353 1) 475-2670 Emi:twtiia.e Ohaka 1209 Cairo ISALMundi-Prensa Mexico SA. do CV. Bucharest Tel: ( 2322)53S-08427 ISRAEL 2i393-9732POBox13056Ec/Rio Panuco, 141-CoIrnaionalrv Tel: (40 1)3139845 UGANDA ubliFax. e Tecnicas Internacion FTel: (20 2)i578-6083 Yomot Literature Ltd. C ( 3 Fan: (40 F) 312 4000 4GusNro Ltd. 01409SaoPaulo,SPFax: (356 2) 57B-68335 UtRD BcPD Boo 9997, Madheani Building BELGIUM Foe:.(202) 578-6330oo00 Mexico, 5.E RUSSIAN FEDERATIONPlt1/JiaRd Jean Do Lannoy The Middle East Obserer 3 Yoaana asandar Street Tel: (52 5 na533-5858 lsdatelotaS Po pa 1. c R Av. do Rol 202 41, Shefd Street Tel Avis 61560 a: e52 5)514-6799 9a, Kolpachii Pereulok Kampala Cairo Tot::(9723) 5285-397 Mso1031Tel: (256 411251 467 1060 BmusselsTel: (20( 2 393-9732 :Fax (972 3) 5285-397 NEPAL MaxoscowarsP: (25841) 251 460 Otel:wajOnbarioK1J9J3 Fa (20 2) 393-9732 EverestaCommissinariaSansoniSPAvices Tel: 17 095)917 07 49 E-mail: gusswiftuguanda.com Fa) 538-5418 RGOMY. International E tr . M e Fax: (7 090) 917 92 59 Faa: ep@rnutoos.o (32pei4d538-0941eeSSFINLAND PD Boo 13058 JPLtd.x5443 ozinmanaringlasnetrvu UNiTED KINGDOM BRAZIL Gr o 43Micrainfo Ltd. PRL ettp://wwweouicas boternaioksais 5Ateemioen Kiriakauppa Tel Avis 61130 Kathmandu SINGAPORE; TAIWAN, CHINA o. Boxd3, ODinea Park, aron, ;blishienicas FnternacionaisoPR. Boa 128 Tel: (9723 3499469 Tel: ( 4 026MYAnMAR; BRUNEI fiLl GHANAa206 Old Fax: Road, K n 6 (977 OasisQfficialVasco9oulevard,Goodwood) ZHampshire A 23 Ltda. 209 P16~~~~FI-00101 Helsinki Pu:(92148 6039 Fa i7 (224 431 Hemisphiere Publication Services Ria Peixoto Gomide, 209 Tel: EpBo s E-mail: royPnelve7iion.netAI a: 9 7 41 Boxt2an 9,Pud inRd403 U England 0149 aoPalo S. 1 alan PddngRod- 5403 Tel: (44 1420 986840 Fax (358 P o 121-443 URL: http://www.royint.co.il NETHERLANDS Golden Wheel BuildingFaa China Book Impor 2 entre E4-maCl3 E-ai. rp@cli.cmaFe(sgs4tockmann.fiax (7 )S9 43 Fax *4 14o 89379 Fax: (55 O 1) 258-6990 eil: ia n Palestinian AutBority/Middle East De Liodeboom/nternationalz Singapore 349316 E-mail: (a2 mi5 rint.c.9k h-mail. postmaster@optiuoI.br URL: http://wo.uleateemiseo.com ndex Intormahon Services Publication ho.- Tel: (65) 741-5168 U URiL hiOp:/t%vww.uoI hr FRANCE R.OB. 19502 Jerusalem RDO. Boo 202, 7480 AE Haaksbergon Faa: (65) 742-93506dL tp/w.iril.ou CANAA H iEditions ( aio DBJ Tel:(972 21 6271219 Tel: (31 53) 574-0004 E-mail: aogate@asiancnnnect.com The Stationery otfice EANADA6 4 Fax(301)364-82448 rae Gay Lussac Fax: (9722(a6271634 Faa: (31 53)(572-9296 SLOVENIA 51 Nine Elms Lane Renotf Publishing Co. Ltd 75005 Paris ALY, BERIA E-mail: lindebooWworldonline.ril Gbros, London SWF 2 7R 5389 Canotek Rood TTALY ,CLL: t/wdIA 27lltHue fnalin- Gosprearsk vestik Puhcisyi ng T 1 awaf do otar D 9Tel (3 ) 2 9260 Licosa Commissioa Sansoni SPA 0Group P: (44 171 873-824 Otaa, (57 i Kl) 2S79,8 Fax: (33-1) 4329-91567 Fax:o Fax: (44 173 873-8242242)57336°1 -m(i ibeamndirenns Tel: (813) 745-2665 deVia Dura Di Calabria, 1H1 debnunae cesta S URL: http://wnwsw.the-stafionery- Pu. (63 1745-7666 GERMANY CaselSa Postale 552 NEW ZE aLaNeb s office.co.ukB e E-mail: UND-Verlag 50125 Firenze NEC ZEALtND Tel: (3066111338347; 1321230 sider dept@roosutbooku.com Poppelsdotter Allee 55 Tel: (39 55)645-415 PriSute Mai Bug. 991an: (386861)133 8030 VENEZUELA URL hltp:// w-ww.renoutbookso.com 53115 Boon Fan: (39 51 8 41-257 New Market E-alCeaok@ssnki Tentr-Cuiesci Libercis, Samac CYPRUS Tel: (49 228s 949220 E-mail: licasa@titEcc.t Auckland SOUTH AFRICA BOTSWANA GAentr2, iadariT China Fnnil&Eooi Pan: (49 228) 217492 dRL: httply/wwm.bbcc.allicosa Tel: (849) 524-8119 For single titles: NTel:5 C2, Caracas 503;01 Publishing HousAppliedRes8ar URLe htp:llww asia2Kde 8. Da Fo Si Dong Jie E-loIan Rundle Publiobers Ltd Aricaa Beijing GHANA 206 Osld Hope Road, Kingston 6 Oasis official Vasos Boulevard, Goodwood ZAMBIA Tel. (061018401-7385 Epy Books Services Tel:976-927-2085 RD. Boo 3627 P.O. Boo 12119,61 City 7463 University Book2hop, University at Pus. (86106401-7365 PO. Boo 44 Fan 876-977-0243 Wellington Cape Tows Zambia TUxC E-mail. irpl6coli.com Tel: (6 4 499 1551 Tel: (27 211 5954400 Groat East Road Campus Cb.na 9Bok 2m8 st2Ce JAAN Fa: i(44(4991972 Pus: (27 21595 4430 PD. Boo 32379 83 Cm ima: oasisactrix.geo.z E-mail: ofordpoup.co.za Lusaka Beijing Tel: 223 21 77884 Eastem Book Service ~~~URL: htop:l/wwwsa.asisboooks.co.nzf Parsuscrpton2rdrs ~ %1? 252576 Boi(iog Pus~~~~~~Fa: 223 21 779099 3-13 Hongo 3-chosie, Bunkyo-ku Intrnabsritional rdSrb:cripti26n Sorvic95 Chinese Corporation fsr Promotios GREECE Tokyo 113 NIGERIA ItrD.tBooa 41095 itio ZIMBABWE ot HumanitiesPaaoiiuSATe:(1331081UiestPrsLiieP..Bx49 ZM BW 02. You Pang Hul Tong,35 PpSotioumr StA. Tat: (81 3(318-0861 Unreert Presns uimditgedih Craighall Academic and Baobab Books (Pvt.) Xuan Nei Da Joe 35.8 Atohmar SIr.maa: (81 e3(3818-0884 .o Th revae Crown Buidig Jerich Johannesburg 2024 Ltd. BeijingTl3 106 826Athens h-maL: rdrWseb.op PiaoMlBg500Tel (27 11) 880-1449 4 Cosald Road, Graniteside Tel (866101660 72 484 Te:3134-96L badan Fax: (27 11) 880-6248 RD Boo 567 Pus: (06 101)660 72 494 Fax. (30 1(364-0254 hItp://www.bekkonrno.or.ipl-svt- Tel (234 22141-1356 E-mal: Ws.co,za Harare COLOMBIA ~~~~~~~~HAITI ebs Pus: (23422) 41-2056 Tel: 263 4755635 COLOMBIA Ctilture Diffusion KENYA ~~~~~~~~~~~~~~SPAIN Fas: 2634 701913 Cnonarrer 6LN.d5-2 5. Rue Capois Atdcra Book Servico (ECA.) Ltd. PAKISTAN Mundi-Prensa Libros, S.A. Carrera 6No. 51-21C.R. 257 Duaran House, Mtangano Street Mirza Book Agescy Castelon 37 Apadtado Aereo 34270 Port-au-Prince RDO. Boo 45245 65. Shahrah-e-Quaid-e-AZamn 28001 Madrid aattdd ogl,.CTel: (509123 9260 Naimobi Lahore 54000 Tel. (34 911 4 303700 Tal (57 1(28S-2798 Pus: (500) 23 4858 Tel: (254 2) 223 641 Tel. (92 42~ 735 3601 PFas. (34 91 (5753998 Fax j57 1)285-2798BONG KONG, CHINA; MACAD Fas: (254 2) 330 272 Tao: (92 4 (676 3714 E-mail: libreri@mnAndiprensa.es COTE D'IBOIRE UROL: hftp://ww.nmundiprensa.corni Center d'Edibson et do Diffusion Asia 2000 Ltd. Legacy Banks DOxord University Press Muodi-Pressa Barcelona Atricainos (CEDA) Soles & Circulation Department Loita House 5 Bangalore Town Conseil de Cent, 391 04 8.P 541 302 Seahird House Mezzanine 1 Sharae Faisal080Bacln Abidjan 04 22-28 Wyndham Street. Central RDO. Boo 68077 PO Boo 13033 08909 Barcelona349 Tel:(225 246510 24 511 Hong Kong, China NairobiKach750 Tel: (225( 24 6510 46 51 Te:852) 2530-1409 Tel: (2541 2-330853, 221426 Tea,ac9h21-75307 Tel: (34 3 400-34592 Pus: )325( 25 0567 ~~Fax: (5) 2526-1107 Fax: (254)3084 5681654 Te. 9214430maal: (34 elon407-7659 ns.e CYPRUS E-mail: sales@asia2050.comn.hk E-mail: PeayDointo an: (9202114847840E-albtcon@udiroSe Center tor Applied Research URL http:/Legacy@iarm-necocomkE-mail: ouppak@TheOtlice.net SRI LANKA, THE MALDIVES Centru Corlpliede Reerh UThp/m ai20.o.k KOREA, REPUBLIC OF Lake House BDokshop Cyprus College - ~~~HUNGARY Dayasg Books Trading Co. Pak Book Corporation 100, Sir Chittampalam Gardiner B, Diogenes Street, Engomni Euro Into Service Intemnational Division Adoz Chambers 21, Queen's Road Mawatha R.O. Boo 2006 Margitszoeti Europa Haz 783-20. Pangba Bon-Dong, Lahore Colombo 2 Teli(37250-73 H-1138 audapest SDchDs-ku Tel: (92 42 636 3222; 636 0805 Tel: (94 t) 32105 Pan: 357 2I66-2051 Te:(6 5 02.308 5 Seoul Faa: (924 ()636 2328 Fa:41 4320 59-0730 Telas '36 1350 90324 Td.E-ai: bchrin25.p Fa Fax (36 ~~~) 350 go 32 Tel: ~(822 536-00555Emi:ltcbane.i E-mail ALULsri.lanka.oet E-mail euroislo@mail.matav.hu Fan.(2~ 5602 E-mail: seamap@chollian.net Recent World Bank Technical Papers (continued) No. 432 Luiz Gabriel Azevedo, Musa Asad, and Larry D. Simpson, Management of Water Resources: Bulk Water Pricing in Brazil No. 433 Malcolm Rowat and Jose Astigarraga, Latin American Insolvency Systems: A Comparative Assessment No. 434 Csaba Csaki and John Nash, eds., Regional and International Trade Policy: Lessonsfor the EU Accession in the Rural Sector-World Bank/FAO Workshop, June 20-23, 1998 No. 435 lain Begg, EU Investrnent Grants Review No. 436 Roy Prosterman and Tim Hanstad, ed., Legal Impediments to Effective Rural Land Relations in Eastern Europe and Central Asia: A Comparative Perspective No. 437 Csaba Csaki, Michel Dabatisse, and Oskar Honisch, Food and Agriculture in thie Czech Republic: From a "Velvet" Transition to the Challenges of EU Accession No. 438 George J. Borjas, Economic Research on the Determinants of Immigration: Lessonsfor the European Union No. 439 Mustapha Nabli, Financial Integration, Vulnerabilities to Crisis, and EU Accession in Five Central European Countries No. 440 Robert Bruce, loannis Kessides, and Lothar Kneifel, Overcoming Obstacles to Liberalization of the Telecom Sector in Estonia, Poland, the Czech Republic, Slovenia, and Hungary: An Overview of Key Policy Concerns and Potential Initiatives to Facilitate the Transition Process No. 441 Bartlomiej Kaminski, Hungary: Foreign Trade Issues in the Context of Accession to the EU No. 442 Bartlomiej Kaminski, The Role of Foreign Direct Investment and Trade Policy in Poland's Accession to the European Union No. 443 Luc Lecuit, John Elder, Christian Hurtado, Francois Rantrua, Kamal Siblini, and Maurizia Tovo, DeMIStifying MIS: Guidelines for Management Informat iotn Systems in Social Funlds No. 444 Robert F. Townsend, Agricultural Incentives in Sub-Saharan Africa: Policy Challenges No. 445 Ian Hill, Forest Management in Nepal: Economics of Ecology No. 446 Gordon Hughes and Magda Lovei, Economic Reform and Environmental Performance in Transition Economies No. 447 R. Maria Saleth and Ariel Dinar, Evaluating Water Institutions and Water Sector Performance No. 449 Keith Oblitas and J. Raymond Peter in association with Gautam Pingle, Halla M. Qaddumi, and Jayantha Perera, Transferring Irrigation Management to Farmers in Andhra Pradesh, India No. 450 Andres Rigo Sureda and Waleed Haider Malik, eds., Judicial Challenges in the New Millennium: Proceedings of the Second Summit of the Ibero-American Supreme Courts No. 451 World Bank, Privatization of the Power and Natural Gas Industries in Hungary and Kazakhstan No. 452 Lev Freinkman, Daniel Treisman, and Stephen Titov, Subnational Budgeting in Russia: Preempting a Potential Crisis No. 453 Bartlomiej Kaminski and Michelle Riboud, Foreign Investment and Restructuring: The Evidence from Hungary No. 454 Gordon Hughes and Julia Bucknall, Poland: Complying with EU Environmental Legislature No. 455 Dale F. Gray, Assessment of Corporate Sector Value and Vulnerability: Links to Exchange Rate and Financial Crises No. 456 Salman M.A. Salman, ed., Groundwater: Legal and Policy Perspectives: Proceedings of a World Bank Seminar No. 457 Mary Canning, Peter Moock, and Timothy Heleniak, Reforming Education in the Regions of Russia No. 458 John Gray, Kazakhstan: A Review of Farm Restructuring No. 459 Zvi Lerman and Csaba Csaki, Ukraine: Review of Farm Restructuring Experiences No. 460 Gloria La Cava and Rafaella Y. Nanetti, Albaniia: Fillizg the Vulnerability Gap No. 461 Ayse Kudat, Stan Peabody, and Caglar Keyder, eds., Social Assessment and Agricuiltural Reform in Central Asia and Turkey No. 463 Stephen Foster, John Chilton, Marcus Moench, Franklin Cardy, and Manuel Schiffler, Groundwater in Rural Development: Facing the Challenges of Supply and Resource Sustainability No. 465 Csaba Csaki and Zvi Lerman, eds., Structural Change in the Farming Sectors in Central and Eastern Europe: Lessonsfor EU Accession-Second World Bank/FAO Workshop, June 27-29, 1999 No. 466 Barbara Nunberg, Readyfor Europe: Public Administration Reform and Europeani Union Accession in Central and Eastern Europe No. 469 Laurian Unnevehr and Nancy Hirschhorn, Food Safety Issues in the Dezveloping World THE WORLD BANK 1818 H Street, N.W. Washington, 1).C. 20433 U.S.A. Telephone: 202-477-1234 Facsimile: 202-477-6391 Telex: MCI 64145 WORLD13ANK MCI 248423 WORI-DBANK Internet: www.worldbank.org E-mail: books(etworldbank.org ISBN 0-8213-4771-3