In Slovakia, there is a bill restricting landowners’ property rights on the table. Like elsewhere in the EU, we are also worried about our food. Foreigners, however, are the least of a problem for the Slovak agriculture.
On May 1, 2014, the ten years long ban for foreigners on buying land in Slovakia comes to an end. The EU’s philosophy is that the European citizen is at home in every member country of the Union and this entails the possibility to buy an agricultural land. Thus, Slovakia and other member states are obliged to loosen these restrictions.
The barrier was truly only of a formal nature, since it could have been easily circumvented by setting up a Slovak-based limited company, which could in turn buy land without restrictions. Nevertheless, in Slovak society, the picture of foreigners buying up the homeland evokes memories that go perhaps as far as the Ottoman invasions. In addition, let’s consider the constant laments of Slovakia’s self-insufficiency in food production combined with the lobbying of domestic producers, and politicians will happily come up with a bunch of “solutions”. As it happens with political solutions, these are full of irrationality and can actually make the proclaimed goal even more distant.
The government prepared the framework of a legislative intent on acquisition of agricultural land, which has been transformed into a yet unpassed bill. This framework limits the property rights of land owners by making them, in case they consider selling, offer their land first to local farmers for a price which is considered “adequate” in the particular geographic area. This price, of course, does not have to match your expectations. If you inherited a piece of land from your grandfather and you are not planning to cultivate it, you basically have two options: either renting it for a song to a local cooperative or a farm, or selling it to them for two songs. For many cooperatives, this is a way to secure cheap land without the fear of new, either domestic or foreign, competitors and complacently continue to receive payments from the EU. Of course, all this at the expense of the land owners, for whom this measure constitutes a major interference in property rights. At the same time, this will complicate the market entry for new players on the supply side, who will have to either make local connections or buy a local cooperative first.
Foreigners are not the problem
Scaring people with foreigners is typical for the whole of Europe. Some years ago, Hungary went even further by issuing a ban on selling agricultural land to legal persons. Most recently, Hungarians have been quarrelling with Austria and the European Commission because of an amendment of law which effectually cancelled the validity of the so-called ‘pocket contracts’, by which the Austrian farmers managed to circumvent the law and buy Hungarian land. Lithuania wants to hold a referendum on the issue of foreigners acquiring land in the country, even though a success would mean a direct conflict with the EU. Laws limiting land management are present in various forms in several EU member states. It is interesting to note that the focus is almost always on the buyers, even though the transaction always has two sides. Most people mind when someone else is selling their country’s land. Once they receive a good offer for their own piece of land, however, the national sentiments go aside.
In Slovakia, we can read emotional news headlines such as ‘Foreigners already own thousands of hectares of Slovak land!’ It is not clear where the problem actually is. Let’s tackle this issue step-by-step.
So, firstly, the number of hectares in foreigners’ hands is marginal. Since the land is owned by Slovak companies, the land area actually controlled by foreign citizens can only be estimated from the numbers of real estate agencies and banks. Here, not even the boldest estimations exceed 2% of the total sum of Slovakia’s cultivated land.
Foreigners already own buildings, companies, receivables, cars, and car factories in Slovakia, so why should specifically land ownership cause any special worries? In contrast to movable assets, tillage can hardly be taken away in larger amounts or to larger distances. Its use is strongly regulated and, without an official stamp, one can hardly convert it.
You can have an objection that the land can be transformed into building sites. This is also not a real problem. The Slovak citizen does not need only food, but also residences and industry, which are all a result of the transformation of land into building sites. Will all of it be converted into assembly plants with all fields vanishing? Hardly. Built-up areas in Slovakia appear only on a minimum scale. Let’s look at the development of the land fund’s structure. During the period 2007-2012, the amount of agricultural land decreased by 19,871 hectares, which is 0.82% of the total area of agricultural land in Slovakia. However, built-up areas in the same period grew only by 4,875 hectares, which is approximately a half of the area of the small town of Modra. Most of the agricultural land was converted into other areas (+8,376 hectares; this entails handling areas, quarries, parks, cemeteries, country lanes, etc.), forest parcels (+5,397 hectares), and water areas (+1,439 hectares).
It is humorous that the government is, on one hand, ‘afraid’ of conversion of land into built-up areas and, on the other hand, when construction of highways and car factories was at stake, it didn’t hesitate (and its predecessors didn’t either) to expropriate the tillage from former owners. And this process still becomes increasingly sophisticated. Why don’t we talk about ‘occupying’ the land with technical crops such as colza instead? These take up 10% of the tillage and are causing a shift of resources from food production to fuel production. And that has nothing to do with foreigners owning Slovak land.
What about the increase in rent prices? Today, farmers rent 95% of the land they manage, which is convenient for them: they have no capital expenses and the rent is, due to the high fractionation and ownership composition, very favourable for the renter in many of Slovakia’s regions. The most daring ones sometimes even decide not to pay at all.
Food production in Slovakia is largely inefficient in comparison to other countries, and this constitutes dormant profit opportunities. This is known also to new players who began to offer land for attractive prices. They managed to buy the land from original owners and to subsequently rent it to farmers for a higher price. Considering the above-mentioned numbers, this is also a marginal phenomenon. However, this shouldn’t be considered a problem by those who consider land a scarce resource. On the contrary, they should applaud this. Price is the best signal of the resource’s scarcity and its increase makes the resource’s user behave more efficiently. It will only be good for the economical use of land if the ownership puts together, the owners eagerly begin to exercise their property rights, and the prices will be the result of a sophisticated and a profound market – not of informal pub agreements made with retired neighbours for upcoming 15 years.
All these fears are, however, only substitutes of the primeval one – will there be enough food to eat?
Hunger is not a function of a land quantity, but of the ability to get food on the table. Nations having something to say about this include Ukraine, China, or North Korea. The more attentive students of history have certainly noticed that in the cases of the Holodomor, the Great Leap Forward, and certainly in the case of the Juche doctrine (which is autarchic), foreigners had nothing even remotely in common with famine. All these countries even tried to achieve what is the mantra of (but not exclusively) the Slovak Ministry of Agriculture – food self-sufficiency.
The idea of self-sufficiency is absurd one. It would make sense at some point in the Middle Ages when the farmer’s capital consisted of a plough and a hoe, or, in the better case also of a horse. Today, the situation is entirely different. If the opponent decides to starve us in times of a crisis, food self-sufficiency will have only a minimal effect. It will not help us to have fields and farmers capable of cultivating them at disposition if their tractors won’t have fuel, chemicals, manures, spare parts, and vaccines for animals – stores will be empty anyway. It is all the other way around. Engagement in international trade means an increase in the society’s wealth and the food trade constitutes no exception to this. The more open the market, the higher the choice of affordable food.
It is true that, especially since Slovakia’s accession the EU, the share of Slovak food on the shelves in stores fell significantly – in some departments by as much as 50-60 per cent. But this piece of information alone has no negative flavour – it means only that customers can now choose from a greater variety of products. It doesn’t automatically mean abandonment of local products. For example, Hungarian and Austrian sources are more local for Bratislava than Eastern Slovak ones as they are far much closer. The imports of foreign products are on the rise, but so are the exports of Slovak ones. According to the Food and Agriculture Organization, the exports of eggs from Slovakia rose tenfold in the period 2002-2010, while poultry exports rose fivefold, milk rose fourfold, beef rose by a half, and we could continue like this with most commodities.
Until now, it sounds as if there actually were no problem besides a too active legislator. But there is one. Not even the growing exports can cover the fallen demand on the domestic market, and thus the production of numerous commodities has been falling in the recent years rather sharply. In the case of poultry and milk it is less dramatic (even though the fall reaches two digit percentage), but in the case of beef and pork, today’s production is up to 50% lower compared to the beginning of the millennium. There is no specialisation of the sector, in case of which an increase in production of certain commodities would be balanced by a decline in the others. Everything fell. Slovakia is well below the level of Western countries such as Germany and Denmark in production of individual commodities per capita. Labour productivity in the industry is lower than in the V4 neighbour countries and the investment rate is miserable.
If you were expecting a spectacular unveiling of the murderer responsible for (almost) killing the Slovak agriculture, you will be disappointed. The prime suspect is clear, of course. It is the foreigner, a particular one from Brussels – the EU’s Common Agricultural Policy (CAP).
The CAP cripples the commercial aspect in production and transforms farmers into vassals of regulations. The choice of commodities to produce, and their amount, is made in a way to maximise the profits from direct payments. Anything produced in surplus decreases the farmer’s profit. This holds true especially in livestock – each additional cow above the limit means a minus. It is no exaggeration to say that the Union pays for production and simultaneously for idleness. The customer and her needs are left out of the Policy’s consideration.
Moreover, the Eastern Europeans also possess a bonus in the form of lower payments than their Western colleagues, a familiar ache commemorated since the EU entry. Let’s add the historical outage in the culture of farming, which was for half a century replaced by inefficient cooperative monsters, many of which are still alive today (and owing to the new bill mentioned at the beginning of the article, they are currently digging even deeper trenches). The socialist way of thinking is deeply rooted, especially in the highest places of the political hierarchy. For example, the conception for soil management in Slovakia for years 2013-2020 quantifies the amount of poultry for 2020 to the last single piece. Here, one is naturally inclined to doubt that it is meant seriously. The extreme fractionation is another Eastern European specificity. The recent increase in the price of employing contract workers wasn’t helpful to the Slovak farmers employing seasonal labour force either.
Agriculture and food industry is a business like any other, terms such as market, competitiveness, supply, and demand hold true also here. The problems of Slovak food is not to be found among the speculators with land, foreigners, or greedy chains, but in the low competitiveness and market deformations caused by the European Union and the history of collectivisation. If we want to change something about it, we need to fight at fronts entirely different from restrictions on land management. These would only contribute to preventing new forces from coming on the scene.
Published in the .tyzden magazine.
Translated by Tomáš Herda