Strategy for Integrated Development Of
IDARA WP 12:
STRATEGY FOR INTEGRATED DEVELOPMENT OF
AGRICULTURE AND RURAL AREAS
IN HUNGARY
Prepared in an international Vth framework project supported by the European Commission
Coordinated by the University of Bonn
With the co-operation of the following academic institutions:
Budapest University of Economic Sciences and Public Administration, Hungary
Imperial College, London University, United Kingdom
National University of Galway, Ireland
Research Institute of Agricultural Economics, Czech Republic
University of Warsaw, Poland
Revised version, utilised the comments of a seminar with agricultural policy makers held at the Budapest University of Economic Sciences and Public Administration,
on 12 November 2002
BUDAPEST 2002
INDICE
1.Forewords
2.Situation description – Diagnosis
a)Transition process
Institutional framework in a historical overview
Regional and rural development in a historical overview
b)New framework conditions with EU accession
Regional- and rural development after 1990
Rural- and regional development issues
Agri-Food Industry in the Hungarian Economy
Role of Food-industry in the Development of the Agriculture and Rural Areas
3.Key issues – identifying priorities
a) National level
b) Regional level
Rurality in Hungary
Rurality and the statistical system
Why on sub-regions’ level?
The first classification of sub-regions
Analysing the situation from the first classification
Analyses of rural areas by five sub-region classes
4.Measures contributing to solving problems in priority areas
a)Scenarios – structured in policy areas breakdown
Income diversification
POLICY SIMULATION
Comparative analysis of agricultural policies by fapri, oecd and idara forecasts
Trend based expert opinions
Results of the simulation
b)Strengths and weaknesses
Main results of the Hungarian case-studies
c)Experience in EU15
5.integrated strategy
a)Optimal Policy Mix
Policy proposals for Hungary
b)Institutional setting
The present institutional framework of rural and regional development – division of responsibilities
Actual situation of the Hungarian implementation system of EAGGF
Co-ordination of the development of agricultural administration system
Main tasks of the EAGGF Paying Agency
Delegated tasks and the tasks of the paying agency system
Abbreviations
6.Literature
7.References
Appendix: IDARA plus: QA for agricultural sector models
Appendix: Check list for iterative modelling
Appendix 1: Population and settlements in Hungarian subregions
Appendix 2: Active earners and unemployed people in the Hungarian subregions
Appendix 3: Public utilities in the Hungarian subregions
Appendix 4: enterprises in the Hungarian subregions
Appendix 5: Trade, tourism and services in the Hungarian subregions
Appendix 6: Agriculture in the Hungarian subregions
Appendix 7: Non-agricultural activities in the Hungarian subregions
1. Forewords
The aim of this research project is to identify key problems and discuss strategies for an integrated development of Agriculture and Rural Areas in the first group of CEEC accessing the EU. The research has started in February 2000, and will be closed in January 2003. The co-operating institutions (indicated in the cover page) are elaborating the project. The project has three main topics: i) impact of rural development policy (led by the National University Galway), ii) competitiveness, non-agricultural income and farm enterprise diversification (led by the Imperial College, London University) and iii) simulation model of policy implication (led by the University of Bonn).
The research was to identify problems and device formulas for integrated development of rural areas. At present, integrated rural development policies and especially, the supporting institutional structures are mostly lacking. Most rural areas will undergo substantial agricultural adjustment and this will inevitably result in an increasing outflow of labour. Agricultural diversification can play a key role to stimulate local economic development. Finally, both the labour outflow and the income situation of households, central to a rural development strategy, will depend directly on agricultural production and price developments.
Against this background, and in light of these major interdependencies, this research project has embraced a comprehensive approach. The project aims to improve the understanding of three interdependent areas that have not been adequately addressed so far by research, namely the identification of adequate policy measures and institutional structures for the introduction of an integrated rural development policy in the CEEC, a thorough analysis of agricultural diversification patterns and its potential role in rural development, and finally the development of a simulation model that allows a comprehensive estimation of the impact of different policy measures on agricultural production, budget and income and, in turn, its consequences for rural development strategies.
More precisely, the combined research to be undertaken by the project will cover four main tasks, namely:
- Identification of key rural development problems and analysis of the most effective and efficient policy measures and delivery structures, as well as the adequate institutional framework to support rural development.
- Analysis of competitiveness and diversification at farm and household levels, by compiling and analysing data on competitiveness indicators, farm income sources and enterprise diversification activities, which are compatible with the EU concepts. This will help, among other things, to identify the potential of farm diversification to contribute to rural economy in the CEEC.
- Development of a simulation model for the CEEC compatible with the EU SPEL/MFSS, that permits EU and CEEC policy-makers to estimate the impact of a variety of policy measures on production, consumption, net trade, income and budget.
- Enhancement of co-operation between EU and CEEC researchers and transfer of know-how to the CEEC with a view to support the enlargement process. To this end, CEEC partners will be closely involved in all research activities and will be responsible for the integration of research results (see below).
The Hungarian team was based on the Department of Agricultural Economics and Rural Development of the Budapest University of Economic Sciences and Public Administration. Staff members and PhD students also participate in the project. The following division of labour was made: rural development issues by Prof. Sándor Elek, competitivity and diversification by Prof. Gyula Módos and Prof. Maria Sebestyén-Kostyál, policy simulation model by Prof. László Pitlik. Here should be mentioned that the latter issue was elaborated by the team of the St. Stephan University, Gödöllő. The head of the Hungarian team is prof. Tibor Ferenczi.
The work could not be done by the great contribution of PhD students in all of the co-operating universities. In the Hungarian team the following participation was very significant: Ákos Borbély, Ákos Németh and Péter Csillag (rural development), Barna Kovács, Tamás Mizik, Gábor Harsányi and Zoltán Győrfi (competitivity and diversification), László Bunkóczi, Mária Pásztor, István Pető and Attila Popovics (policy simulation). From foreign institutions, a great contribution was given to the current pages by Hannah Chaplin, PhD student of the Imperial College, London University.
The international project is co-ordinated by Prof. Wilhelm Heinrichsmeyer. The most significant contribution was received by the following foreign partners: Dr. Udo Bremer, ing. Tanja Möllmann, and ing. Kai Bauer from the University of Bonn; Dr. Sofia Davidova, Dr. Matthew Gorton from the London University, Prof. Michael Cuddy and Ms S. Callanan, Dr. Tomas Ratinger from the Czech Institute of Agricultural Economics and Prof. Jerzy Wilkin from the Warsaw University.
2. Situation description – Diagnosis
a) Transition process
Institutional framework in a historical overview
Rural development is a rather new term in Hungary, which became widely used after the reorganisation of ministries held by the Independent Peasants’ Party in 1998.
Previously most policies, which could be termed as ‘rural’ have been managed by the regional development administration. Still today the bulk of the policies having influence on rural territories is managed and administered by the regional development bureaucracy. Thus the analysis will frequently refer to ‘regional development’ policies and institutions because they too play an important role in rural development.
During communism regional and spatial development was organised by a centrally driven, administrative planning system. The central and the county (NUTS 3) level shared responsibilities; however, the former controlled the power. As a consequence of the vertical planning mechanism policies were arranged along sectoral lines. Political and sectoral objectives were superior to regional concerns in government policies. Moreover the pervasive, command and control economic and political regime provided a solution for certain problems itself (e.g. unemployment, subsistence). Other concerns of today’s regional and rural policies were either completely disregarded (environmental issues) or, conversely, the objective was the very opposite (e.g. depopulating the small villages, eliminating rural cultural heritage). This was mainly the reason why regional (let alone rural) policy as such was not emphasised on the institutional level.
With the Act on Local Governments in 1990, local municipalities got back their independence, resources and responsibilities. The hierarchical system was replaced by a structure in which there was no hierarchy between local governments of different sizes and the county self-government. It was in 1990 when the Ministry of Environment and Regional Development, regional development policies gained a separate institutional system for the first time. A Regional Development Fund (RDF) was also created. At the same time a number of civil organisations and NGOs were set up, such as voluntary associations of neighbouring villages, development agencies and organisations for environmental conservation.
The next significant change came in 1996 with the introduction of the Act on Regional Policy and Physical Planning. This legislation was assessed by the EU, and deemed the most progressive in Central and Eastern Europe. The EU's decision was based on principles and regulations that fulfil the requirements for accession. The legislation created a multi-level, decentralised institutional system for regional development and initiated the creation of larger (NUTS 2) regions, in addition to traditional levels of planning.
A positive feature of the new Hungarian regional development institutional structure is that it triggered a decentralising tendency throughout the entire public administration system. It provides a framework for co-operation between different levels and sectors and it also offers solutions to certain disfunctions in the administration and spatial management.
This legislation was very advanced; however, its implementation was far from sufficient.
After the elections in 1998, the institutions, resources and responsibilities for regional development were taken away and placed into the new 'super department', the Ministry of Agriculture and Regional Development (MARD). However, not only this institution, but a range of other ministries, regional, local authorities, organisations and NGOs were involved in issues connected to rural development, constituting a highly complicated and sometimes overlapping system. The reason for this entanglement, amongst others, is that the last decade was a period of continuous change in the institutional system for rural policies.
In 1999, the Act on Regional Policy was modified, aiming at a more centralised and possibly better implemented policy. Also in that year, preparation for pre-accession programmes (e.g. SAPARD) started, new units within MARD were set up, a system of rural micro-regional associations, covering almost the entire country was further developed and a range of rural and regional development plans of different levels were written.
It is important to understand that, the balance and work of institutions is still very fragile in Hungary. There are overlaps and uncovered areas. The change of government, or even of a single minister, can result in the shift of directions and values and the actual change of many officials in the ministries and other public institutions, even on lower levels. This makes the work of bureaucracy fragile and often interrupted, causing dysfunction in the entire system.
Regional and rural development in a historical overview
Regional development policy – rural development prior to 1990
The problems of Hungarian rural development are largely rooted in past decades. To the detriment of villages (small villages in particular) a centralising policy was in force for decades, which drew resources away from the countryside.
As soon as rural regions and villages were able to achieve some development, then infrastructure development driven by economic and administrative rationalisation led to the abandonment of economic and social institutions in the majority of small villages. By reorganising institutions on the district level they were practically shut down in minor settlements. Consequently emigration and the ageing of the population began. The majority of villages lost their own self-governance, schools and as a result of forced co-operative mergers their economic potential too. Consequently the assets of those living there devaluated.
On the other hand the reform of agriculture from the second half of the sixties (coupled with the authorisation and subsequent booming of supplementary agricultural activities) led to a notable improvement in the income situation of the rural population, which was particularly considerable in major villages with a favourable transport location. Farming traditions and favourable natural endowments were also an advantage.
This controversy (favourable agricultural but detrimental settlement policy in respect of the countryside) however has somewhat softened in the second half of the eighties. Institution mergers were no longer forced on the districts level. At the same time the profitability of agricultural production deteriorated even though the former anti-agricultural and anti-household-farming measures were practically abolished. The financial austerity measures, which were introduced to tackle state indebtedness (with no political intention) led to a worsened situation of those in agriculture and in the countryside in general. In fact, neo-liberal economic policy has been detrimental to agricultural and rural population in all countries including the US and developing countries too.
An interesting aspect about these belt-tightening measures in Hungary was that they had a positive impact, namely that they lead to lower concentration. (This is presumably because liberalisation has different implications in non-market driven or semi-market driven economies than in developed market economies. Where the evolution of regional differences had been governed by state re-distribution and not by market forces the reduction of state re-distribution results in the equalisation of resource allocation rather than the polarisation of it.) Although the decisive role of the National Planning Agency along with various party and council bureaucracies survived until the late eighties in the allocation of regional development funds, these funds substantially decreased from the beginning of the eighties. Consequently the earlier allocation mechanisms prioritising towns and industrial centres halted, their resources run out. This was the primary reason why the improvement of rural regions’ capacity to keep their population at place became an objective of regional policy.
At the same time the austerity measures necessitated by Hungary’s foreign debt service appreciated agriculture. In fact, without agricultural exports the declaration of insolvency seemed to be inevitable. Until the mid-eighties the symptoms of the sector’s crisis did not manifest. Emigration to towns therefore slowed down. Those migrating to towns preferred to move to nearby (minor) towns. The so-called second economy (that is, outside the planned socialist economy) became universally part of family’s subsistence strategy. As it was typically arranged through informal channels it was advisable to retain family and acquaintance connections. In parallel urban problems started to emerge. State financed large-scale housing construction started to downsize and later completely ceased. It became more and more obvious that individual prosperity requires participation in the second economy.
To acquire a flat was only possible by ones own means.
Regional development policy has also changed somewhat. Albeit the system of 5-year plans remained unchanged, from 1985 a new method was elaborated for the development of under-developed regions: target areas were designated on the basis of statistical indicators and support was allocated through tenders. The sum appropriated for this purpose was managed as a separate fund. Although these changes were promising, they did not induce a basic re-arrangement. The so-called settlement-development contribution (which can be regarded as a forerunner of local taxation) could have inspired taxpayers to take control of local authorities, however its primary impact was limited to raising funds. The system of councils remained practically intact, but the election system and the political and administrative supervision of local councils became a bit looser by the end of the decade. Local initiatives were launched and the parliament passed the Act on Associations, which triggered the establishment of societies, clubs and other organisations mainly in towns. By the end of the decade the intertwined administrations remained however unchanged in their position even if their confidence and scope of competence decreased.
b) New framework conditions with EU accession
Regional- and rural development after 1990
The position of regional development changed after the election of the new government in 1990. The National Planning Agency and the Construction and Urban Development Ministry ceased to exist passing the responsibility for regional development to the newly established Ministry of Environmental Protection and Regional Development (MEPRD). Despite, in the first years the position of regional development became marginal.
The resources of the new ministry were rather scarce. Supervision of local municipalities belonged to the Ministry of Internal Affairs, whereas that of their economic management to the Ministry of Finance. Besides, the attention of MEPRD was focused on the management of environmental problems. It was around 1992 when the need for a more pronounced regional development policy started to outline. By this time the intensification of regional differences (particularly that of unemployment) was tractable in everyday life too, crisis regions emerged. The need for a governmental management of this situation somewhat increased the importance of the ministry.
The Municipality Act of 1990 had an epochal significance both in respects of political affairs and the regional system, pursuant to which municipalities regained their independence, their resources and their scope of responsibility. The former hierarchical system was replaced by a new structure, where lower level municipalities are no longer subordinated to those on the upper level. Local municipalities are not subordinated to county-level municipalities, those of the districts of Budapest to the metropolitan municipality. The Regional Development Fund (RDF) was also established. Meanwhile a number of civil organisations and NGO-s were founded, such as voluntary associations of villages, development offices and environmental protection groups.