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Europeanising rural development

Horse cart in Tetovo, Macedonia

Horse cart in Tetovo, Macedonia
Farmers and European integration

During the past half century there has been a strong consensus underlying democratic government in Western Europe on the need to support livelihoods in the countryside. While food shortages after World War Two were one of the reasons for the introduction of agricultural subsidies, European leaders were also acutely aware that impoverished rural areas had been the breeding ground for political extremism in the run-up to the war. Since then, European societies have invested vast public resources into ensuring that the countryside is able to keep pace with social and economic development in the urban centres.

This is not something that occurs naturally. Throughout European history, as agrarian societies have been transformed into modern economies dominated by industry and services, there have been few periods when agriculture kept pace with rapid productivity growth in industry. As new technologies drove rapid increases in urban living standards, rural areas were left behind. According to one historian, “the machinery of constitutional government in Europe found it increasingly hard between 1873 and 1929 to cope with these widening economic and social disparities.” The income gap between the cities and the countryside created social pressures which threatened to undermine the democratic social contract.

Looking back on European history, the rise of authoritarian politics from the last quarter of the 19th century onwards owed much to these social pressures in the rural areas. Discontent among farmers helped trigger the political violence in the northern Italian Po Valley that propelled Mussolini and the first European fascist regime to power in 1922. In Spain, Franco’s nationalist uprising “received its most important mass support from the smallholding peasants of Old Castille.” In Germany, the Nazi party made its first big electoral gains in the heavily agricultural province of Schleswig-Holstein.

After the Second World War and the defeat of fascism, democracies across Western Europe recognised that protecting living standards in rural areas was a political imperative. Governments both within and outside the European Union made a common commitment that incomes in agriculture would not be allowed to fall behind other sectors of the economy. From Turkey to the United Kingdom, a range of measures were introduced to promote rural welfare and protect economic and social cohesion.

This was a social undertaking on a vast scale. Across Western Europe, agriculture became a semi-nationalised industry. Governments poured copious supports into the farm sector in the form of subsidies, tariffs, quotas and guaranteed purchase schemes. They offered cheap credit, subsidised diesel fuel and fertiliser, and state-run transport and storage facilities. They invested into extending modern infrastructure into rural areas and funded agricultural research, education, extension services, and pest and disease control.

In effect, the technological advances that have led to such impressive improvement in agricultural yields were funded not from the earnings of farmers, but by government. Economic historians have calculated that Western Europe sacrificed increases in real incomes of up to 2.7 percent in order to maintain this rural-urban balance. Yet according to the post-war political consensus, this was a price worth paying to maintain social cohesion and political stability.

New agricultural technologies freed up labour from the countryside, which was then absorbed into industry. During the 1950s, more than half a million people left agricultural employment in Western Europe every year. Industrialisation in turn generated the public revenues that enabled European governments to support those who remained in the countryside. By the end of the 20th century, only a minor percentage of European workers remained in agriculture.

This process is now in full fling in countries that have acceded to the EU in 2004 as well as in the accession countries Romania and Bulgaria. A specially devised pre-accession programme, focusing on agriculture and in particular on rural development has been developed and has triggered a silent revolution in the way how agricultural and rural policies (a term not existing in Bulgaria’s political vocabulary in the late 1990s) are now developed and implemented.

Support of agriculture and rural areas through targeted agricultural policies have been crucial in the evolution of the EU. It comes as no surprise that the chapter on agriculture is the largest of all chapters of the acquis, making up for nearly half of its total volume. Another legacy of this political consensus is the fact that the EU still spends a larger share of its budget on agriculture and related issues than on any other issues. Facing calls for reform, there has been a shift towards rural development (instead of pure agricultural subsidies), targeting overall economic development in Europe’s rural areas through funds for infrastructure and the creation of jobs in non-agricultural activities.

Farmers and Yugoslav socialism

Yugoslav rural development policy was based on the construction of “political factories” in economically “passive regions”. Central investment programmes, funded by massive foreign borrowing, spread a thin layer of industrial development across the countryside. This led to the emergence of significant numbers of “peasant workers” – families who continued to live on the land but depended on industrial wages for their income, growing food only for their own consumption.

Agricultural policy focused almost exclusively on large, state agricultural enterprises, taking up only 10 percent of the agricultural land, while neglecting private farms. As a result, the productivity of agriculture did not climb above 1939 levels (except temporarily) until 1963. By 1978, it stood at only ten percent of the level of the United Kingdom, at about the same level as Pakistan.

Yugoslav-style development produced highly artificial results, which have now often collapsed. Across the Western Balkans, deindustrialisation has deprived rural families of their cash income. With inadequate land plots, little mechanisation, poor infrastructure and little or no government support, many rural families have been forced back into lives of subsistence agriculture. It is as though the clock has been turned back by half a century.

This phenomenon affects a huge share of the population in these areas. In most Western Balkan countries close to or more than half of the population live in rural areas.  While data on employment in the agricultural sector are unreliable and different sources give different numbers, it is clear that the numbers are high. The following table, using data compiled by an EU report, should be read as an indication. It claims that in the Western Balkans between 8 and 42 percent of the labour force are engaged in agriculture.

Table 1: Agricultural workforce in the Western Balkans
Country

Agricultural workforce

as % of total

Croatia

8

Macedonia

16

Bosnia-Herzegovina

18

Serbia and Montenegro

25

Kosovo

40

Albania

42

Comparator: EU-25

5.5

Achilles heel: rural areas and ethnic relations

Macedonia’s Kumanovo area at the northeastern tip of the country bordering both Kosovo and the Presevo Valley in southern Serbia offers a good illustration of the problem of rural underdevelopment.

Like most of Macedonia, the Kumanovo area is heavily rural, with around half of its 140,000 inhabitants living in villages (the socialist era municipality was divided into five municipalities in 1997 and then boundaries were changed again in 2004).

During the socialist period, ethnic Macedonians and Serbs took most of the jobs in socially owned enterprises and public administration. They moved in such large numbers from the villages into the town that the three rural municipalities of Staro Nagoricane, Klecevce and Orasac became virtually depopulated, losing three quarters of their population and leaving behind mainly the elderly and uneducated.

By contrast, the rural Albanian population, with less access to formal jobs in urban Kumanovo, depended heavily on labour migration abroad. However, emigration did not keep pace with high population growth, and most villages continued to grow. As a result, there is a clear ethnic dimension to Kumanovo’s political economy, with the crisis in the rural areas falling disproportionately on ethnic Albanians.

In 1989, Kumanovo had 20,000 jobs in socialist industrial companies. Over the past decade, this industrial base has largely collapsed, and many of the socially owned enterprises have gone into liquidation, allowing less than 4,000 jobs to survive the privatisation process. The private sector has seen some modest growth, and today employs around 9,000 people, making up for roughly half of the jobs lost through deindustrialisation.

While industrial decline has affected everyone in the Kumanovo region, its consequences in the rural areas have been particularly severe. In the socialist period, many people from the villages travelled into Kumanovo town each day to work in socialist enterprises. These “mixed households”, who combined wage employment with subsistence agriculture, were a key feature of the rural economy. Kumanovo no longer has jobs to offer its rural population, who are now dependent on the limited economic opportunities at village level.

The collapse of socialist agro-industries has also had major repercussions for farmers. In 1990, the socially owned sector accounted for 72 percent of agricultural output in Kumanovo, employing around 3,500 people. ZIK Kumanovo, once one of the biggest agro-combines in Macedonia with nearly 2,000 workers, has disintegrated. Its dairy has been successfully privatised, but its other units, including a pig farm, slaughterhouse, winery, fruit juice and cold storage units, appear close to collapse. Most of its farmland is leased on an annual basis to private farmers, who grow wheat and vegetables.

With no security of tenure, nobody is prepared to invest in the land. According to a local official, the tenants are neglecting basic land-management practices, resulting in decreasing yields with each passing year. The industrial bakery Zitomel, which once had 316 employees, is in bankruptcy proceedings. The tobacco combine TKK, which once employed 849 workers, continued to operate through the 1990s, but ceased production after an unsuccessful privatisation attempt in 2004.

As a result, with the exception of some small dairies and a meat-processing plant, there is no longer a local food processing industry to purchase agricultural produce.  The main commercial avenue for bringing the produce to market has therefore disappeared. Tobacco used to be the region’s most important cash crop, but production declined steadily through the 1990s and by 2004 had all but disappeared. With the collapse of commercial farming, many rural households have been pushed back into subsistence farming. By 1998, 63.1 percent of local wheat production was used for domestic consumption.

The collapse of industrial employment and commercial agriculture have left many villages in the Kumanovo area trapped in poverty – particularly the larger Albanian villages.  Among the 2,644 inhabitants of Lipkovo village, for example, in 2004 fewer than 250 were in formal employment: 84 were “on the budget” (working in schools, health care, administration or public utilities) and 116 worked in the private sector. The biggest company in the village was the Veseli mill and bakery, opened in 1992 with capital earned by a guest worker in Switzerland, which employed 12 people. While it processed wheat from local farmers against a 15% charge, most of its wheat supplies were imported. There was no other company in the village with more than 4 workers.

As a result, fewer than half of the households have a family member in paid employment.  With half of the population below 25 years of age, youth unemployment is particularly severe. Most households have some land, but there are few with more than one hectare – insufficient to support a family. Animal husbandry has declined dramatically. According to local sources, the number of cattle has decreased from 200-300 head “in Tito’s time”, to fewer than 100 in 2004, and milk is produced only for domestic consumption.

The situation for many families in Lipkovo is already desperate. Those without a job or a reliable source of remittances are living on a diet of bread and potatoes. According to a village school teacher, barely a quarter of families are able to afford school books for their children.

Western Balkan rural crisis

Kumanovo is not an isolated case. Across the Western Balkans, in other parts of Macedonia, in Bosnia, Kosovo and much of Serbia, the same pattern of industrial collapse and rural underdevelopment constantly reappears.

Across the border from Kumanovo, in Gjilan in southeastern Kosovo, around half of the municipality’s 105,000 residents live in rural areas. Here the pattern of low productivity, semi-subsistence farming is even more pronounced. There is only one farm with more than 25 head of cattle, and only four farms with more than 200 sheep. Cereals are the staple crop, but there is only one farm with more than 50 ha under cultivation.

These primitive conditions are replicated across Kosovo. The World Bank estimates that 70 percent of farmers produce primarily for home consumption, and only 10 percent of farms are specialised commercial producers. The socially owned agro-producers and cooperatives that traditionally helped private farmers bring their goods to market have collapsed. The Kosovo government is unable to provide financial support or extension services. As a result, Kosovo’s farmers have no assistance to acquire the skills, technology or marketing support they would need in order to compete with agricultural imports from countries that subsidise their agricultural industries, such as Croatia and the EU contries.

In Kosovo, half of the population is below the age of 24 years, and youth unemployment is very high. The traditional escape route for young men – going as guest workers to Germany or Switzerland – is no longer available. With that safety valve closed, the social pressures are accumulating. Most young people are simply marking time. The more ambitious enrol in university courses which offer no job prospects. This produces further frustrations. The danger that widespread disaffection of a young population poses to the political process was vividly illustrated in March 2004, when according to UN police estimates more than 50,000 young people took part in 33 major riots across the province. The ease with which extremists were able to direct mob anger against Serb minorities, the international mission and Kosovo’s own democratic institutions was a vivid demonstration of the fragility of the political process.

In Bosnia, a recent study found that a large majority of farm holdings are small (2-3 ha) and fragmented into 6-8 separate plots – enough for 2 or 3 head of cattle and some crops for household consumption. It is almost impossible to support a family with this amount of land. Yet in some rural districts, up to 90 percent of the population live exclusively from agriculture. In the past, these were industrial workers who used their land to grow additional food for their families. These days, they are “farmers” only by default.

Unlike in Kosovo, Bosnia’s rural communities are politically passive, neither expecting nor receiving much from the political process. The immediate danger here is not social unrest, but a steady haemorrhaging of young people leaving in search of better economic opportunities, leaving large parts of the country depopulated and trapped in a cycle of poverty. Rural underdevelopment threatens to unravel the success of minority return and ethnic reintegration within a generation.

These developments in rural areas is an extraordinary regression in 21st century Europe. Whole regions of the Western Balkans now have social conditions resembling those of pre-World War Two Europe. It cannot be a coincidence that this is also Europe’s most politically volatile region.

The Kosovo conflict began in the Drenica Valley, one of the poorest rural areas of Kosovo, with its radical ideologies spreading rapidly among disaffected young people with no economic prospects. In Macedonia, the 2001 uprising was strongest in the underdeveloped Albanian villages of North-Western Macedonia (and not among the large Albanian community in Skopje). During the 2004 presidential elections in Serbia, the nationalist rhetoric of Tomislav Nikolic, of the Serbian Radical Party, received its strongest support in rural constituencies. Throughout the former Yugoslavia, social historians have attributed the spread of political violence in part to the ease with which unscrupulous nationalist elites were able to mobilise disaffected rural populations.

The forgotten countryside

The plight of the countryside is the region’s most pressing social and political problem, but it remains almost entirely invisible.

If rural underdevelopment is central to the cycle of conflict and underdevelopment in the Western Balkans, and can be considered as one of the pillars for a peaceful and prosperous Europe over the last 60 years, why does it feature so little in international policy towards the region? The international community has invested enormous effort into tackling the legacy of conflict, through constitutional settlements, electoral processes, security sector reform, rule of law programmes and physical reconstruction. Yet despite the promise of eventual European integration, there has been no systematic effort to address the social and economic roots of political instability in the countryside.

Even national politicians barely mention the rural population. Following the collapse of Yugoslavia, the successor states inherited the problem of deep, structural underdevelopment in rural areas. They have also inherited the tradition of neglect of the countryside. The new states have weak or non-existent policies and institutions for supporting rural development. While agriculture workers make up a large share of total employment in the region, in sharp contrast to Western Europe, farmers have not mobilised into effective political lobbies, and do not wield any real influence in national politics.

As a result, governments in the region are strikingly uninformed about the fate of their rural populations and largely unresponsive to the crisis in their rural areas.  Across the region, governments have adopted agricultural development strategies which are full of fine-sounding objectives, but short on practical measures.  The anatomy of the policy failure is similar in each case: a lack of hard information, analysis and policies; weak institutions; and a lack of targeted financial resources.

Data on agriculture is poor right across the Western Balkans. Parts of the region lack accurate demographic data, and governments are unable to identify the number of agricultural holdings in different parts of the country. Figures on agricultural output or employment are often crude estimates which are sometimes not even trusted by those responsible for agricultural policy. Different international assistance programmes are based on widely different assumptions.  In Bosnia, the World Bank calculates the share of agriculture in the labour force at 18 percent, while the UN Food and Agriculture Organization (FAO) puts it at 4 percent. In Macedonia, the Ministry of Agriculture in 2005 worked on the basis of 145,000 jobs in the agricultural sector, while a labour force survey found only 88,000 (of whom 40,000 were unpaid family members).

Lack of information is both a symptom and a cause of the policy vacuum. A government that is not engaged seriously in developing practical measures to address rural underdevelopment has no need to invest in data collection and analysis. By the same token, any interventions it does make will be untargeted and ineffective.  Furthermore, because rural populations in the Western Balkans are not organised into effective political lobbies, there is no-one to question the assumptions used for government policy making. Information is not generated outside of government unless it is commissioned and funded by international agencies.

Institutional weakness is a problem inherited from the socialist system. A “functional analysis” of the Macedonian Ministry of Agriculture from 2005 painted a picture of an institution wedded to outdated working practices, with staff assignments that have little in common with the Ministry’s stated policies. Its administrative capacity is fragmented across multiple institutions, each working on poorly integrated, low-impact activities.

In its “Agriculture Report 2004”, the ministry itself had pointed out that:

“Given the small size of the agricultural sector and the limited budgetary resources to which it has access, this diffuse institutional framework makes it difficult to allocate resources efficiently, according to sector priorities. Instead, budgetary resources are used to fund a wide range of relatively small public programmes, many of which currently have a very limited impact on sector output or productivity.”

Similarly, a functional review of the agricultural sector in Bosnia has found that “there is an urgent need to develop common and coordinated policies and strategies concerning the economic and structural development of the BiH agricultural sector. Sufficient capacities are presently not available neither on Entity nor on State level. (…) Functions to develop EU integration policies are almost non-existent in BiH agricultural administrations. (…) For certain key policy fields of the EU Common Agriculture Policy (like Rural Development or Agri-Environment) policies are not available at all.”

Moreover, agricultural policies are rarely linked to the budgetary process. Across the region, agricultural budgets are consumed mainly by administrative costs, and agricultural programmes receive inadequate and unpredictable funding. With the exception of Croatia and Serbia, annual government spending on agriculture in the Western Balkans amounts to less than €15 and in Kosovo to only €1.40 per capita. By comparison, agricultural spending in the EU-25 by the EU alone comes to €114 per capita, although only 5.5 percent of the population works in the agricultural sector, and national expenditure of the member states add considerably to that figure.

Table 2: Agricultural budgets in the Western Balkans (2004)
Region million € € per capita
Croatia 238.9 53
Serbia 292.9 39
Albania (2005) 50.8 14
Montenegro 9.2 14
Macedonia 24.4 12
Bosnia and Herzegovina (2003) 35.0 9
Kosovo 2.5 1.4

Macedonia has abolished most price support and subsidies over the last years, and support to farmers has shifted to direct payments, moving the country’s policy closer to European practices as one of the first Western Balkan countries. However, this support amounted to a modest €8.7 million in 2004.  Payments are made according to the area of land under cultivation or per head of livestock. With applications increasing from 12,000 in 2004 to more than 41,000 in 2005, and only a marginal increase in funding, the level of subsidies is set to decline. Programmes of this kind provide some minor income support for farmers. However, they will not bring about structural change in the farming sector.

Except in Serbia, which has adopted a new agricultural strategy and has started to apply CAP style policy measures aimed at rural development instead of market and price policy interventions, there is almost no funding available for programmes to increase productivity (e.g. grants or subsidised credit for the purchase of machinery, or extension services to improve seed varieties or breeding stock), and no measures to support the creation of agro-processing companies to purchase agricultural output. Overall, agricultural programmes in the Western Balkans are helping a few rural families to survive, but they are not addressing the underlying problems.

Europeanising the Balkan countryside

Addressing rural underdevelopment is essential to creating lasting peace and stability in the Balkans. But does the EU have the tools for the job? Or is the problem simply too vast to tackle?

Looking at another Balkan country provides an answer to this question. Bulgaria emerged from a difficult post-communist decade with turbulent politics, weak institutions and social and economic problems very similar to those found in the former Yugoslavia. Its agricultural sector, providing for nearly a quarter of total employment, had suffered from a decade of neglect and a disastrous land restitution programme. Irresponsible macroeconomic policies had caused a run on the banks and collapse of the currency, leading in 1996/7 to a major economic and political crisis.

Yet as a candidate for EU membership from 1997 onwards, the policy prescriptions and assistance offered to Bulgaria have been very different. Bulgaria has received a range of assistance designed to build its capacity to access and implement EU support for agricultural and rural development policies. The result has been a radical transformation in the way the Bulgarian state engages with its countryside. Bulgaria provides a very clear model for what could be done to address the crisis of the countryside in the Western Balkans. Taking the categories used above to dissect the policy failures in the Western Balkans states – information, analysis and policies; institutions; and budgetary resources – we can illustrate the changes which have been brought through the pre-accession process.

To access pre-accession assistance, candidates are first of all required to understand their own realities.  For Bulgaria, this process began with the EU questionnaire, delivered to all applicants for EU membership, which contained a lengthy section on the policies and institutions for agricultural and rural development. To answer the questionnaire, the administration was obliged for the first time ever to bring the many different government institutions involved in rural development, and determine exactly their roles and responsibilities, their staffing profile and capacities, and they manner in which they interact with each other. The exercised produced an x-ray of the Bulgarian administration, highlighting its fragmented nature and its capacity constraints, and identifying the reform priorities.

The administration launched a range of data-collection activities, most notably an agricultural census, and produced a detailed socio-economic portrait of rural Bulgaria. A Directorate for Agro-statistics, now employing more than 100 people, was created within the Ministry of Agriculture. The data collected was used to draw up – and afterwards to further improve – a National Agriculture and Rural Development Plan (NARDP), which under EU procedures had to begin from a serious analysis of the starting position and current development trends.

The pre-accession process also required new institutions to be created, and old structures to be rationalised. Until 1998, there was no agency within the Bulgarian administration responsible for rural development – that is, for coordinating the range of measures required to promote development in rural areas, including – besides agricultural measures – infrastructure, educational policies and support for non-agricultural employment. One of the EU’s pre-accession funds – SAPARD – is designed to support measures of this kind.  To access SAPARD funds, Bulgaria created a Rural Development Directorate, which led the process of developing the NARDP, and a new agency to manage rural development programmes – the SAPARD Agency. Coordinating mechanisms were created to ensure the compatibility of rural development measures with Bulgaria’s overall development goals that were outlined in a comprehensive National Economic Development Plan (another requirement for EU pre-accession funding).  NGOs and producer associations were given a role in policy making, to meet EU rules on participatory processes.

Under EU regulations, the SAPARD Agency manages pre-accession assistance to exacting standards of financial accountability, and follows EU rules on programme monitoring and performance evaluation. Building up this capacity was an ambitious undertaking which took several years to accomplish. The process was supported and monitored by the European Commission, which must confirm the licensing of the Agency before SAPARD funds are released. By 2006, the Agency employed some 1000 staff around the country. The SAPARD Agency now implements programmes in a range of areas, most importantly investments into farms, food-processing companies and non-agricultural businesses in rural areas.  Farmers and entrepreneurs can receive up to 50 percent of approved investments, with three quarters of the funding coming from the EU and the balance from national funds.

The requirement for matching funds from the national budget creates a strong incentive for pre-accession countries to mobilise their own resources. In order to shift resources into rural development – a new expenditure category – Bulgaria has had to improve its budget planning and public financial management.

While implementation of the SAPARD programme was slow in the first years, once institutional capacities have been built up, implementation has gained speed and Bulgaria expects to be able to use its full EC allocation of some €416 million for the period 2000-2006.

What is distinctive about the pre-accession process as an assistance strategy is that it combines institution building and financial support in a highly strategic fashion. In Western Balkan countries, rural development strategies are – if they exist at all – little more than broad statements of intention, which are neither budgeted nor adequately prioritised. Because they are not linked to budgetary resources, they tend to be purely paper exercises. In pre-accession countries, strategies and programmes are developed against a known funding stream, creating a much more robust process. Because national resources are combined with EU funds, development initiatives have to meet the high technical standards of Commission experts, and are constantly monitored and evaluated to assess their effectiveness.

EU funding is released only once the requisite institutional capacity is in place. This creates a powerful incentive for governments to overcome bureaucratic resistance and rationalise old structures. In the Western Balkans, the EU devotes considerable amounts of CARDS funding to capacity-building programmes in the state administration, but without linking them to investment programmes. This form of assistance is supply-driven, and all too often produces painfully slow results. By contrast, the accession candidates need to build up capacity in order to access pre-accession funds. This changes the dynamic dramatically. Capacity building support (such as “twinning” programmes) become demand-driven, and achieve much more rapid progress. It still takes many years for a new institution such as a SAPARD Agency to become effective. However, from the outset, it is able to follow a “learning by doing” approach – by far the best form of international assistance.

Through the pre-accession process, Bulgaria now has an effective framework of policies and institutions to address the problem of rural underdevelopment. The challenges are well-described in government strategies, practical solutions are identified and budgetary resources, supplemented by EU funds, are directed at the problem. It will still take many years before the legacy of structural underdevelopment is overcome, allowing the Bulgarian countryside to approach European levels of development. Already, however, it is clear to Bulgaria’s rural population that there are government programmes designed to benefit them, and they have something to gain from the democratic process. As a result, the risk of Bulgaria returning to the turbulent politics of the 1990s is decreasing with each passing year.

Background reading