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ANALYSIS OF FARMERS REACTION TO POLICY OF PROMOTING ORGANIC FARMS IN ROMANIA USING PROBIT MODEL

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ANALYSIS OF FARMERS REACTION TO POLICY OF PROMOTING ORGANIC FARMS IN ROMANIA USING PROBIT MODEL



Abstract

In aceasta lucrare sunt analizati factorii sau mai bine spus avantajele care pot motiva fermierii de a trece de la ferme conventionale la ferme organice. Parametrii necunoscuti ai acestei schimbari sunt estimati cu ajutorul modelului Probit. In cadrul acestui model s-a maximizat venitul incert ce poate fi obtinut în cadrul fermei organice.

Rezultatele sugereaza ca subventiile induce în principal fermierii care sunt deja  înclinati sa produca organic. Analiza rezultatelor sugerând ca în cazul scaderii pretului de vânzare dar crescând în acelasi timp subventiile influenteaza puternic conversia de la conventional spre  organic.

Key words: conversion, organic, model, farmer’s reaction,

Introduction

Organic farming and food offer real benefits for the environment and many consumers value organic production methods and are prepared to pay a premium for food produced to organic standards. It has an important contribution to make, alongside other sustainable farming methods, to the future prosperity of our countryside and the choices available to consumers. I am delighted that the major retailers have committed themselves to working with the Organic Action Plan Group to ensure that our farmers can take advantage of the opportunities offered by rising consumer demand for organic food.

In Romania the acreage of certified organic vegetable production is still very small. There are great opportunities but also large constraints for the development of organic vegetable production.

Institutional support from the old EU Member States is strongly appreciated. This support is valued as mental support in the struggle with traditional systems and against skepticism both in the public and private domain.

Romania's effort to encourage sustainable, organic farming practices provides valuable lessons for other Central and Eastern European (CEE) countries. Agriculture is important in Romania - not counting agro-processing, it accounts for about 21 percent of GDP, 35 percent of employment and 9 percent of external trade. Meanwhile, Romania has a relatively low income and relatively poorly developed infrastructure, even for the region, which means the country faces bigger challenges than most CEE countries in establishing sustainable agriculture.

This legislation is a major step, but a paper published in 2000, "Strategy to Sustainable Agriculture in Romanian Danube Basin: An Organic vs. Conventional Agriculture Approach," points out a number of obstacles to further development. Both sustainable and conventional agriculture are dependent on the rational use of modern machinery, improved crop varieties and seeds, soil conservation, modern animal husbandry and waste management. Although the government cooperates closely with agricultural institutions, NGOs and farmers to encourage sustainable agriculture, state spending on agricultural research receives a much smaller proportion of the national budget than in EU countries, according to the strategy paper.

If you ask almost any farmer in Romania what they know about organic agriculture, the first thing they'll tell you is that all family farmers are organic here - they can't afford to buy pesticides and fertilizers. This "organic farming by poverty" 727x2324h ; affects the majority of Romanian farmers. While the situation bodes well for the possibility of developing modern organic farming in Romania, there's still a long way to go.

The percentage of Romanian farm land currently used for organic On the bright side, a number of organizations like Albert's have been working to introduce a more scientific form of organic agriculture to Romania: one that seeks to combine the best of traditional local techniques and proven organic practices from the West.

With a total area of 238.391 km2, almost as large as United Kingdom (244.100 km2), Romania would become the ninth largest country in an enlarged European Union, with 27 member states. Second biggest country in size after Poland among the 12 candidate countries, Romania also placed second as population with 22,4 million inhabitants (1/5 of the total candidate countries’ population), placing seventh in the future EU 27.

The Romanian agriculture, although with a high natural potential, is still far from a compatible level to the European Union structures.

Table 1

The role of the agricultural sector in Romania (year 2007)

Utilized Agricultural Area

GVA of agriculture(1)

Agricultural employment(1)

thousands hectares(2)

% of total area

million €

Share in GDP (%)

thousands

% of total employment

Romania

14.811

62,1

4.564

11,4

4.861

42,8

CC 12

58.808

54,1

18.552*

4,5

8.950*

22,0

EU 15

131.619

40,6

167.197

2,0*

6.767

4,3

EU 27

190.427

44,0

185.748

2,2

15.717

7,9

Romania % of

25,2

24,6

54,3

CC 12

Romania % of

11,3

2,7

71,8

EU 15

Romania % of

7,8

2,5

30,9

EU 27



(1): Including Forestry, Hunting and Fishing sector; (2): Utilized Agricultural Area; * = estimated Sources: Eurostat, DG ECFIN, OECD, FAOSTAT, DG AGRI G2

Overall, the agriculture and the forestry represents 60 – 80% of the economical activity in rural.

This structure of the economical activity and of the employment together with connecting elements, like the education level, elasticity in professional reorientation, the quality of the infrastructure, the investments level and the business opportunities, are holding the Romanian economy far from a European compatible level.

From the 23,8 million hectares of total area, the agricultural area amounts 14,8 million hectares, respectively 62,1% of total. We should mention that the EU 15 average is 40,6%, and together with the candidate countries the average will increase up to 44% for EU 27. The forest covered area approaches one third from the national territory of Romania (28,5%). The arable area, almost 2/3 of the total agricultural area (63,4%), is corresponding to Ľ of the total candidate countries.  Fruit-growing farms account for five percent of the farms and mixed farms for four percent.

In the Romania two types of organic agriculture can be distinguished: biodynamic and ecological farming. The history of organic agriculture starts in 1926 with the first biodynamic farm in Zealand, Loverendale.

Increasing consumer concern about food safety and environmental pollution by intensive crop and livestock production has promoted the development of sustainable food production practices in the past decades. Organic production serves food safety and environmental objectives, as it rules out the use of fertilizers and other chemicals such as it rules out the use of fertilizers and other chemicals such as pesticides and herbicides. Consumer surveys suggest that the demand for organically produced food is strong and that a substantial share of consumers is willing to pay a price premium for organically grown food. However, expectation about demand for organically produced food, based on consumer concerns has not resulted in strong consumer responses or large expansions of the market for organically produced food (Thomson and Kidwell, 1998).

The main issues that the Romanian economy is facing today are not represented by a high ratio of the agriculture in the national economy, but an extremely low level of the profitability in agriculture, the lack of a coherent legislation framework which can establish the status of the agricultural households and the status of the farmer, defining a transitory agricultural policy which will allow the achievement of the specific objectives in transition to the Common Agricultural Policy. By promoting and transition to organic farm can be a possibility to protect the biodiversity and give the chance to refresh the agriculture.

A second problem of the Romanian agriculture, regarding both crop and animal production, refers to the uniformity of the products. Achieving a high quality standard is equally important with its upholding.

Even if still far from its real potential, Romania, accounts for 18,1% of the milk production in the 12 candidate countries, 14,6% for beef, 14,9% for poultry and 20% of egg production, only 12,9% for pork and a huge 46% of sheep meat.

Table 2

Self-sufficiency in crop production in Romania (%)

1989

1990

1991

1996

1997

1998

2005

2006

2007

Cereals

107

115

118

89

131

95

99

84

113

Wheat

104

124

102

60

126

96

91

98

124

Barley

117

97

82

92

123

90

89

80

95

Maize

102

125

145

105

134

94

101

72

104

Oats

99

54




52

109

106

100

105

129

100

Rye

98

37

98

91

103

101

138

95

100

Others

93

96

100

103

123

108

100

100

100

Sunflower

114

100

100

100

62

100

Soya

71

69

78

98

40

86

Total

108

92

102

132

108

98

oilseeds

Sugar beet

54

58

56

44

46

39



24

The table 2 shows that Romania can easily pass the self-sufficiency stage for most of the crop productions. Considering all previous mentioned elements, concerning the productivity and the quality level, bringing the Romanian agriculture to European standards should drive to a considerable increase in the values recorded in table 2. and this way to an amplified capacity for agro-food export.

Table 3

Romania Organic Agriculture (July 2007)

Number of organic farms

2678

Number of certified farms

2280

Number of farms in transition

398

% of total number of farms

14,86

Hectares under organic management

170000

% of total agricultural area

1,47

(Source: Skal/Blik)

With over 2,500 members, representing approximately 170000 hectares of farmland, Bioterra has grown rapidly since its founding in 1997, when the area of farms where 11500 hectares. The group reaches out to farmers with educational videos, a regular newsletter - offering tips and updates on the latest organic materials and techniques - and up to 30 introductory seminars per year in villages around Transylvania.

Areas under organic crop may increase this year to some 170,000 ha, as opposed to 110,000 ha last year, when much of the vegetable yield was exported as raw material to EU member states, director with the Agriculture Ministry Daniel Lica pointed out yesterday in the second edition of Profinn.

Last year, Bioterra was invited to oversee the organic conversion of over 1,700 farmers who provide milk to the Swiss-Romanian dairy concern Dorna Lactate. Founded in 1989 by the Swiss entrepreneur Jean Valvis, Dorna Lactate is currently one of the top three dairy producers in Romania. And, in the last year, Valvis has been encouraging his farmers to switch to organic production.

The largest sector in the Romania is the vegetal sector. In the past few years the number of vegetal farmers in particular has risen sharply because compared to other sectors the conversion is relatively easier.

Also the dairy sector can gain the area because increasing consumer demand and the introduction of dairy products in the supermarkets has also stimulated the growth of the dairy products.

The European policy is an advocate of expansion of the area under organic management. The European policy presented September 2004 a renewed Plan of Action for Organic Farming, committing itself to the attain 10% of agricultural land under organic management by 2010.

Table 4

Mean values for major farm characteristics averaged over farms and years

Specifications

Standard farms

Organic farms

1.

Net returns (Euro/year)

1.6

1.39

2.

Land area (10 ha)

3.84

4.21

3.

Number of livestock

3.16

2.6

4.

Machinery and building capital

2.3

2.53

5.

Labour (1000 hours/ year)

3.7

3.2

6.

Farmer’s age

43.6

41.1

Subsidy rates are obtained from Ministry of Agriculture and different by year, farm location and farmer’s age. These rates also depend on the first year of the contract, as the contract terms have varied from year to year.

The measure of inputs are fallow: livestock is measured in standardised animal units; capital represents capital invested in machinery and buildings; labour is the sum of hired and family labour.

This regulation provides financial support during the transition period. The conversion subsidies were substantially improved in 1999 for the horticulture, for greenhouse production and fruit production. There is, however, the condition that one must grow organically for at least five years. Subsidy is given per five years per hectare.

For arable crops it amounts to 1,136 Euro, for vegetables (field and greenhouse production) the subsidy is 5,682 Euro (until 1999 it amounted to 2,727 Euro respectively 4.205 Euro) and for fruit production it is 11,364 Euro.

The budget for 1999 amounted to 6.82 million Euro. (In 1998 conversion subsidies were granted for almost 1.6 million Euro, in 1997 for 1.86 million Euro.

The interest in 1999 was so high that the regulation was over-subscribed within one day. Within the application period 175 applications were submitted. No more than 55 applications could be granted.

The sample period is characterized by large variation of farm gate prices and subsidy rates per hectare of arable land. Output prices decreased and the subsidy rates increased.

Nevertheless, TER believes that their goal of 10 percent organic and 15 percent sustainable agriculture is achievable by 2010. But reaching this level will require a dedicated effort on the part of government and educational institutions, to promote legislation curbing the most harmful agricultural practices, such as stubble burning; to invest in the national infrastructure; and to educate farmers about modern, sustainable techniques

Romania may take advantage of the fact that it has optimum organic farming conditions to gain a leading position in the European market. Experts say that, in the context of globalization and of the European accession, our country should move to capitalize on its natural resources as a competitive edge in agriculture, as part of its economic development strategy. “In Romania we have the advantage that we can define ecological, unpolluted perimeters where to apply practices of ecological farming. Further more, the Romanian traditional farming is based on clean technologies, thus benefiting from fertile and productive soil on large farmland areas.

Conclusion

Investments in organic farming are generally higher than the average ones in classical agriculture, but profits are also twice as high. After the EU accession some of the current farming subsidy forms will be eliminated. However, organic farming will benefit from substantial amounts. According to expert estimates, Romania may introduce approx. two million ha in the ecological farming system.

Bibliography

1.      Chambers, R. G., 1988 – Applied Production Analysis. A Dual Approach. New York: Cambridge University Press

2.      Dorfman, J. H., 1996 – Modelling multiple adoption decision in a joint framework. American Journal of Agricultural Economics 78

3.      EIM/Haskoning, 1999 – Study on a European Union wide regulatory framework for levies on pesticides, EIM/Haskoning, Zoetermeer.

4.      Heast, C., 2000 – Data obtained from sheets presented by Heast during Aurelia conference in The  Romania.

5.      Hiuang, C. L., 1996 - Consumer preferences and attitudes towards organically grown produce. European Review of Agricultural Economics 23.

6.      Romero, C., Rehman, T., 1989 - Multiple criteria analysis for agricultural decision . In: Developments in Agricultural Economics 5. Elservier, Amsterdam.

7.      Van Keulen, H.,Wolf, J 1986 - Modelling of Agricultural production: Weather, Soils, and Crops. Simulation Monographs.Pudoc, Wageningen.












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