Voluntary Report - public distribution

**Date:** 7/12/2004

**GAIN Report Number:** EZ4016

EZ4016

**Czech Republic**

**Agricultural Situation**

**Czech Republic 10-year Agricultural Strategy (2004 to 2013)**

**2004**

**Approved by:**

![](media/image1.wmf)Sarah Hanson

U.S. Embassy

**Prepared by:**

Petra Choteborska

**Report Highlights:**

In June 2004, the Czech government approved its ten-year agricultural
strategy for 2004 to 2013. The strategy foresees a continued
restructuring of the farm sector with grain and oilseeds production
increasing; pig and poultry production contracting; and possible
increases in milk production. Farms are expected to grow in size and be
mostly cooperatives or corporations. The number of family farms will not
increase. A strategy for the food industry will be drafted by the Food
Industry Chamber and is not included in this plan.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Vienna \[AU1\]

\[EZ\]

######### [New Agricultural Strategy -- Summary]{.underline}

######### 

######### In June 2004, the Czech government approved its ten-year agricultural strategy. The document is based on the assumption that EU farm subsidies will rise from 25 billion CZK in 2004 to 40 billion in 2013. The strategy foresees continued restructuring of the farm sector, particularly a transfer of dairy and beef cattle from the lowland to the mountain regions, and an extension in the national grassland area. Production of grains and oilseeds should increase, while pig and poultry production could fall. Production of milk could rise if not constrained by EU milk quotas. Multifunctional character of Czech agriculture is anticipated to develop slowly and accelerate towards 2013. The strategy envisions that farms will grow in size and be mostly cooperatives or corporations. The number of family farms should not increase. Strategy for the food industry is not included in the agricultural strategy; it will be drafted by the Food Industry Chamber

######### 

######### [Specifics of Czech Agriculture]{.underline}

-   Even though agricultural production fell by 35% since 1989, supply
    still exceeds domestic demand. The Czech Republic (CR) has a big
    potential for production of crops for non-food use (e.g. rapeseed
    for bio-fuels), which complies with CR's obligation to the EU to
    increase a share of renewable sources of energy from 3.6% to 8% in
    2010.

-   High concentration of agricultural production -- cooperatives and
    companies (shareholding and limited) farm on 75% of arable land and
    individual farmers farm on remaining 25% of land.

-   Over 90% of leased from owners and state, which does not give
    farmers enough stability for long-term investments. The government
    wants to privatize over 0.5 million hectares of total agricultural
    land (3.5 million hectares).

-   Use of land and production allocation does not reflect natural and
    climatic conditions -- over 70% of total agricultural land is arable
    land; around 50% of cattle is bred on arable land; and 0.3% of land
    is unused.

-   There are big differences in production efficiency of various
    agricultural companies, e.g. meat processors have on average half
    efficiency when compared to the EU companies. Lower efficiency is
    partially a result of lower quality management and partially of
    older technology and equipment.

-   Many agricultural companies are in debt, which slows down
    investments necessary for meeting tougher conditions on food safety,
    environment, and animal welfare.

-   Farmers' incomes are influenced by extreme risk of production:
    weather instability (droughts, floods) and price fluctuation.

-   Foreign capital is slowly penetrating into the agrarian sector,
    which improves companies' economic situation. In border areas it is
    mainly speculative purchase of land.

-   EU animal welfare standards concern change of chicken breeding. The
    Czech Republic negotiated a transitional period, but after 2012
    chicken breeding in cages will be forbidden.

-   Czech food industry is still not consolidated. The least
    consolidated are meat processors, dairy plants and bakeries.
    Production capacity is excessive.

-   Retail sector, dominated by foreign chains, has a strong economic
    influence in the agrarian market. Proliferation of supermarkets and
    hypermarkets in 1990s has brought changes in distribution as many
    retail chains build their own distribution centers.

-   Organic farming is growing and currently is produced on 5% of
    agricultural land, mainly outside of arable land.

-   Agrarian trade is less efficient than trade in industrial goods. The
    Czech Republic tends to export commodities and import high value
    products. This trend should change in the future. The government
    supports exports of grains, oilseeds, milk, and sugar. Marketing
    organizations are still nonexistent.

**[Czech Agricultural Strategy 2004 - 2013]{.underline}**

Priorities of Czech agricultural policy after the EU accession reflect
multifunctional character of Czech agriculture and could be defined in
these major categories: competition - water -- biodiversity -- landscape
-- rural areas.

More detailed strategic goals are divided into seven areas:

1.  Higher competitiveness of the Czech agricultural sector in the EU
    and towards other countries based on higher production efficiency,
    quality of products, food safety, value added and regional diversity
    of products.

2.  Increased living standard of rural population by lowering risks in
    agricultural entrepreneurship, support of multifunctional character
    of agriculture and diversification of agricultural production for
    industrial use (e.g. biofuels).

3.  Increased recreational function of countryside, especially of
    agricultural water areas such as ponds

4.  Increased water retention capacity of land by turning some arable
    land into grassland, especially in flood areas

5.  Improved quality of water

6.  Increased quality of agricultural land, by using less synthetic
    fertilizers, foresting of areas with the worst conditions for
    agriculture etc.

7.  Higher share of renewable sources of energy from agriculture (fast
    growing woods, bio-fuels etc.)

Within boundaries of EU's Common Agricultural Policy (CAP) the Czech
Republic has space for forming its own agricultural strategy, which
concerns mainly the following areas:

-   Specific conditions for providing direct payments (national choice
    of Single Area Payment Scheme for 2004 -- 2006, top-ups from the
    national budget, national choice for the payment scheme after 2006,
    conditions for providing these payments -- "cross-compliance")

-   Focus and structure of the Horizontal Plan for Rural Development
    (HPRD)

-   Focus and structure of the Operational Program for Agriculture

-   Focus and structure of national subsidies (state aid) including
    other structural subsidies for protection of landscape, environment,
    cultural heritage and investments in rural areas

The strategy is divided into three time periods:

1\. Entry period (2004 -- 2006)

-   Single Area Payment Scheme (SAPS) and Complementary National Direct
    Payments (CNDP, also called "top-ups") will apply. The Czech
    Republic will receive 25% of direct payments from the EU in 2004,
    which will be increased by 5% until 2007 a year, then by 10% a year
    until 2013, when direct payments will be equal with the current
    EU-15. SAPS means that payments will be based on area not on
    commodity. CNDP may be paid out either by regime: classic under
    Agenda 2000 or modified Common Agricultural Policy (CAP) Single
    Payment Scheme or by SAPS.

2\. Adjustment period (2007 -- 2010)

-   In this period, the Czech Republic must transform the system of
    direct payments SAPS into the EU's Single Payment Scheme (SPS) based
    on regional implementation (depending on the production structure
    with the possibility to solve specific sector problems from national
    resources) and meeting complex conditions ("cross compliance").

3\. Equalization period (2011 -- 2013)

-   At the end of this period direct payments in the old and new member
    states will be equal.

######### Subsidies to Czech agriculture

######### Domestic support is divided into four groups:

-   **Direct payments** -- simplified area payment scheme (SAPS) will be
    applied; 25% of the EU level (190.7 Euro) will be paid from the EU
    budget, it will be paid out after December 1, 2004 and payments will
    be based on area. Agricultural area, on which SAPS payments will be
    distributed, is according to Eurostat 3.652 million hectares, out of
    which are 185,000 hectares are declared as not eligible land. The
    Czech Republic therefore wants to decrease the area to 3.469 million
    hectares.

-   **National complementary payments (top-ups)** -- in 2004 maximum top
    up is up to 55% of the EU level; however, due to tight budget
    situation it will only be 48%. Top ups are paid by May 1, 2004 and
    distributed as follows:

> Hops 26.56 mil CZK
>
> Flax and forage seeds 26.44 mil CZK
>
> Suckler cows 381.52 mil CZK
>
> Sheep and goat 46.71 mil CZK
>
> Livestock t 936.39 mil CZK
>
> Arable land 3.78 bill CZK
>
> Payments from the national budget that can reach 100% of the EU level
> for milk and starch will be around 0.5 bill CZK and will be paid out
> after December 1, 2004.

-   **Structural Funds**

a)  *Horizontal Plan for Rural Development (HPRD)* -- 500 mil Euro for
    2004 -- 2006 (Czech Republic will pay 20% of this amount, the EU
    80%) -- the program will be used for support in rural areas
    (payments for less favorable areas -- LFA, grass area, environmental
    policies, etc.).

b)  *Operational program "Rural Development and Multi-functional
    Agriculture"* -- 176 mil Euro for 2004 -- 2006 (50% will be paid
    from the EU budget, 50% from the national budget) -- the program
    will be used for investments in agricultural property,
    diversification of agricultural activities (production of regional
    products, environment protection, technology, etc.)

-   **State Aid** -- 1.5 bill CZK for 2004 is paid out from the national
    budget continually; the program supports: special crops, bees,
    irrigation for orchards and vineyards, repair of vineyards, hop
    gardens and orchards, fruit and vegetables, extension service, etc.

(Exchange rate: \$1 = 26 CZK)