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Farmers fear collapse

A CRISIS in demand, coupled with a dramatic fall in the prices of all agricultural commodities, has been squeezing Slovakia’s agriculture sector and the country’s farmers are fearful of a total collapse of the industry. The Slovak Spectator spoke to Stanislav Nemec, spokesman of the Slovak Chamber of Agriculture and Food (SPPK), about the turbulence in the market, the changes the sector has been through over the past decades and also about Slovakia’s self-sufficiency in food.

A CRISIS in demand, coupled with a dramatic fall in the prices of all agricultural commodities, has been squeezing Slovakia’s agriculture sector and the country’s farmers are fearful of a total collapse of the industry. The Slovak Spectator spoke to Stanislav Nemec, spokesman of the Slovak Chamber of Agriculture and Food (SPPK), about the turbulence in the market, the changes the sector has been through over the past decades and also about Slovakia’s self-sufficiency in food.

The Slovak Spectator (TSS): What are the greatest difficulties that Slovak farmers face in comparison to farmers in other EU countries?

Stanislav Nemec (SN): Especially now, in times of the global economic downturn, when comparing the old and new EU members, Slovakia is at a disadvantage in agrricultural subsidies. According to our chamber, the differences between countries mean that that the common agricultural policy of the European Union is common only in theory. In practice, Western European farmers are getting direct payments at 100 percent from the EU budget while their competitors from the new member countries, including Slovakia, will work up to this level only in 2013. Not even speaking about the fact that they still depend on 30 percent co-funding from their national budgets, which the governments and parliaments might not always fully secure. We have felt the impact of this during the first three years of our EU membership which, along with previous under-capitalisation and the relatively high transformational expenses for some companies, has complicated the situation of the whole agriculture sector.

The sector is now on the brink of a collapse because the financial crisis has been coupled with a crisis in demand, accompanied with a dramatic drop in the prices of all the key agricultural production commodities. Slovak farmers have a much narrower space to manoeuvre and are more vulnerable to any kind of turbulence in the market.

We warned about these risks even during the pre-entry period when the conditions for Slovakia’s entry to the EU were being shaped. Our words that we did not fear competition in the common market but rather uneven conditions in the market are now being fulfilled.

TSS: To what degree are Slovak farmers able to face price competition from imported agricultural commodities, while according to comparisons of market prices in selected European Union countries the prices of selected products in Slovakia are the lowest?

SN: The prices of the main agricultural commodities are not shaped in Slovakia but indeed are subject to global influences of both the European and world markets. Domestic farmers are competitive and in many cases they surpass foreign producers in the quality of their production. However, the handicap of lower government support is difficult to overcome. The drop in prices is causing existential problems for Slovak farmers because they essentially have no reserves to help them face these developments.

The financial crisis has complicated farmers’ access to loans and has complicated the financial management of the whole sector which is now seen as having a higher risk factor by the financial institutions. A lack of their own funds and the dropping volume of loans from financial institutions are endangering the drawing of European Union funds from the Rural Development programme for the years 2007-2013 and, eventually, from other EU operational programmes.

A classic example is the milk producing sector where the actual sales price of raw cow’s milk in Slovakia – at €0.17 to €0.20 for a kilogramme – is the second lowest in the whole EU, after Lithuania. The farmers are starting to get rid of milk cows as well as high quality biological material which in the future might seriously endanger continuity in our country’s natural production.

The price of grain is very low as well; standing at €110-115 per tonne for food-quality wheat and about €80 for a tonne of fodder. The sales price of rapeseed has dropped 40 to 50 percent year-on-year while the selling of poultry and beef has not met the expectations of farmers either.

TSS: Is Slovakia self-sufficient in the production of agricultural products?

SN: Slovakia should be self-sufficient in practically all the commodities grown in the temperate zone. However, as a consequence of discriminatory supporting rules and reform moves in joint agricultural policies, this is no longer fully true. The sector of pork and beef production should serve as a reminder since imports in these segments have increased by 566 percent since 2003 and today we are importing about three-fourths of its consumption. For the country, which 10 to15 years ago still showed a surplus in these segments and exported part of its production, this development comes across as quite dramatic. The recent reform of the sugar regime has also brought us to the loss of self-sufficiency and now forces us to cover part of the demand from the internal market by imports. Almost half of the consumed wine in Slovakia now comes from imports which is why we regularly harvest from only 50 percent of the registered vineyards.

The €2.21 billion in imported agricultural commodities last year was the highest in the modern history of Slovakia. Since exports grew at a slower pace, the foreign trade deficit in agricultural commodities also reached a record level of €856 million. The changing structure of Slovak exports, in which raw material exports are starting to prevail, for example in rapeseed or grain at the expense of products with a higher added value, is also one of the negative effects. Strategic, geopolitical and economic factors, which Slovakia cannot influence at all or only to a limited degree, play a role as well.

TSS: How did the situation develop that farmers are often selling their products to retail chains under the cost of production?

SN: The farmers do not have as frequent contacts with the retail chains as do the food producers, but this does not mean that the retail distribution of food products does not affect farmers. On the contrary, the trade policies of large food producers and their bonds to foreign suppliers cause domestic products to be gradually pushed out of the market, which has a negative impact on the domestic production sphere. An uncontrolled influx of retail chains and late attempts to bring more balance to relations [between suppliers and retailers] through legislation resulted in retailers’ dominant position in the market and their subsequent abuse of economic power. The retailers do play a significant role because they are currently selling 70 to 90 percent of the volume of decisive product groups.

TSS: What is the degree of interest by farmers in subsidies for direct sales from original producers to consumers and eventually an interlinking between ecological farming methods and direct sales to consumers?

SN: Supportive programmes in this area are only beginning so it will be possible to evaluate their effectiveness only later. Direct sales from original producers are one of the ways to improve the condition of agricultural economy in Slovakia. On the other hand, farmers are warning that it is in no way a solution that will save the current condition of farmers. No more than 5 to 6 percent of agriculture production is sold in this way. Thus, the total stabilization and revival of farming in Slovakia will require a whole complex of systematic solutions in the areas of government support, new forms of organizing production and retail sales, tax issues, consumer education, science, and research and development. The chamber is linking substantial hopes to a new makeup in the European Commission which should be announced during the fall. We hope the EC’s Directorate-General for Agriculture and Rural Development will be more flexible than it has been so far to the developments in the whole branch and will come up with reform proposals that will be able to boost the competitiveness of EU agriculture and prevent the situation where one group of EU members, including Slovakia, pays for the problems caused by poor policy.

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