WORLD TRADE
ORGANIZATIONG/AG/NG/W/187
5 December 2001
(01-6207)
Committee on Agriculture
Special SessionOriginal:  English
ASPECTS OF NTCs IN (POST)TRANSITION ECONOMIES
Technical paper by Bulgaria, Czech Republic, Croatia, Estonia, Hungary, Latvia, Lithuania, Poland,
Romania and Slovak Republic
Introduction
This paper is presented by Bulgaria, Czech Republic, Croatia, Estonia, Hungary, Latvia,
Lithuania, Poland, Romania and Slovak Republic in order to facilitate the understanding of NTCs in
countries that are in the difficult process of transformation to a fully-fledged market system orconsolidating the results of such a deep-going economic process in the agricultural sector.  This
document should serve as a background for proposals submitted by above-mentioned members.
Transition from a command economy to a market economy caused specific problems to the
economies as a whole, in particular, to agriculture which has had to bear a disproportionate burden oftransition and where the fair competition has been impeded.  The impact of transition could be
described and to a certain extent quantified.  There are a number of analytical researches on specific
aspects of transition in agriculture.  The current submission gives a general descriptive reflection
based on statistics of the last 10 years.
In describing the nature of transition for the agricultural sector, distinction should be made
between special burdens the sector had to face and the impact of those difficulties.  The most difficultchallenges were usually faced during the initial stage of intensive reforms.  But the consequences,
most importantly in terms of the need for major structural adjustment, lasted much longer and
continue to be difficult to overcome.
Transition also had negative impact to the NTCs, especially on rural development.  In most
cases agriculture decreased to a level where it no longer guaranteed the provision of public goods
linked to the agricultural activities.
1. Burdens of reform
1.1. Indirect taxation of agriculture
Trade and processing industries often did not pay for the produce, in other words agriculture
made a net transfer to the processing industry and imports.  In some countries the retail sector used thecredit to purchase cheap imported food products thereby tying up financial resources that otherwise
would have been used for payments for domestic producers.
1.2. Extremely tough competition on the traditional markets
Traditional export markets changed in nature being partly opened to competition from other
sources, or partly closed selectively for political reasons.  Domestic markets were openedG/AG/NG/W/187
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progressively in order to move to market economy as quickly as possible. WTO commitments were
bound at relatively low rates, thereby preventing adequate protection.
1.3. Restructuring of ownership
Although the privatization took on various forms, one of its common consequences was the
separation of land and non-land assets.  These assets were allowed to be removed from agricultural
enterprises.  This caused an imbalance in assets and weakened many enterprises leading to serious
overall decline.  Because of this unclear situation and perspectives many skilled and able people left
agriculture for other sectors or started their own private farms.  Such new enterprises were without
established production routine and marketing channels.  Often there were unbalanced skills/training as
the pattern of large enterprises was replaced by much smaller structures demanding wider skills.Uncertainties in terms of the ownership structure during the reform prevented necessary investments
and in many occasions impeded proper land management.
1.4. Low level of support
As transition was ongoing in most sectors it was a heavy burden for the whole economy and
resources were scarce to support the transition in agriculture.  There was very little support in the
early days of transition; many countries had negative PSEs.  This led to the situation where acceding
countries to the WTO had to agree on de minimis  or slightly above by accession to the WTO as
commitment.
1.5. Unbalanced prices
Prices (input, output and retail) were liberalized.  For a short period of time input prices rose
many more times than output prices.  Retail food prices rose more than farm gate prices.  As aconsequence, there was a relative decrease of purchasing power of agricultural income, and a decrease
of the share of primary producers in final retail price.
2. Impact of the transition on agricu lture in (post)transition economies
2.1. Demand for, but serious lack of capital
The general postponement of investment into agriculture over a decade due to uncertainties
regarding land ownership and the new production structure that resulted from privatization has
generated huge demand for capital.  New credits to agriculture were denied as agriculture was
considered as a sector with a high risk and low profitability.  Most of the credits were offered onshort-term bases and in many instances the interest rates were prohibitively high.  This together with
low level of owners’ equity made the recovery of agriculture to a large degree dependent on
government assistance.
2.2. Abandoned agricultural lands
In many countries large areas of agricultural land are abandoned.  Depending on the climatic
conditions in some countries this land is getting covered with bush and being turned into forest in a
short period of time.  At early stages this creates a multiplication ground for weeds.  In several
countries more than 20 per cent of agricultural land was abandoned in 2000.
2.3. Abandoning and aging of buildings, machinery, fruit gardens and vineyards
Privatization and massive change of ownership contributed to the termination of production in
many enterprises.  As launching new enterprises is very costly, a lot of agricultural buildings areempty; many are partly destroyed.  Even if many buildings are used in other sectors (sometimesG/AG/NG/W/187
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promoted by government programmes) still up to 40 per cent of not depreciated agricultural buildings
are abandoned.  The share of tractors older than 10 years (the usual time of depreciation) is on average
more than 70 per cent.  Because of reform impe diments, low level of profitability and income,
buildings, machinery, fruit gardens and vineyards were not renewed.
2.4. Urbanization and social problems
Income of the people active in agriculture is one of the lowest in most transition economies.
The share of rural average income in general average income dropped considerably.  Many people in
rural areas have lost their motivation and agriculture is often the biggest source of unemployment.
Above-mentioned factors are causing social problems.  The number of state support receivers as well
as the share of rural inhabitants depending on that, has increased by considerable amount.
2.5. Production and trade
The production of main agricultural products declined in average to 60-80 per cent from the
pre-transition level.  Most (post) transition economies decreased their exports and increased imports.In other words they have made space for production and exports from other countries.  The share of
(post) transition economies in overall agricultural exports decreased.
2.6. Inflation and food consumption
Transition was often accompanied by high inflation, which had negative impact on
agriculture.  The purchasing power of domestic population declined reducing the amounts of
consumed food.  Consumption of certain food produc ts declined down to 50 per cent, the share of
income spent on food rose up to 50 per cent.
3. Impact of transition on NTCs in (post) transition economies
3.1. Rural development and the livelihood of rural areas
The transition endangered the livelihood of rural areas in many countries.  A vast number of
people are de-motivated, either unemployed or otherwise dependent on social support.  Income in thesector dropped considerably due to the transition difficulties.  This prevents modernization of
agriculture and also impedes more generally the development of rural areas as agriculture is (even at
low share of agricultural employment) the biggest employer in rural areas.
3.2. Environmental aspects and preservation of bio-diversity
The main environmental functions of agriculture are preservation of bio-diversity, and
traditional landscapes.  As large parts of agricultural land are abandoned or badly managed, bio-
diversity rich areas are shrinking and traditional landscapes are insufficiently taken care of. In many
countries semi-natural grasslands are the first to be abandoned.  To re-establish a parcel of arable landis costly but in time terms it takes a few years only.  The re-establishment of semi natural grasslands
takes decades. In the meantime the abandoned land is ground for multiplication of weeds and thus
creating conditions for uncontrolled old grass wildfires.  As large parts of agricultural land are
abandoned, those lands cannot carry out their natural functions to prevent fire, landslides or erosion.G/AG/NG/W/187
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3.3. Food security
In many (post) transition economies the food self-sufficiency level dropped dramatically and
has caused concerns on the sustainable level of own agriculture and its ability to produce the public
goods.  Although food security can be guaranteed via other ways like imports and public stockholding, they cannot replace agriculture as provider of variety of public goods like bio-diversity or
amenity values.
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