ME-WbCorrt
1 73 1z1 World Bank Discussion Papers
The Livestock
Sector in Eastern
Europe
Constraints
and Opportunities
Cornelis de Haan,
Tjaart Schilihom van Veen, and
Karen Brooks
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1 73 w 1=1World Bak Discussion Papers
The Livestock
Sector in Eastern
Europe
Constraints
and Opportunities
Comelis de Haan,
Tjaart Schillhorn van Veen, and
Karen Brooks
The World Bank
Washington, D.C.
Copyright O 1992
The International Bank for Reconstruction
and Development/THE WORLD BANK
1818 H Street, N.W.
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ISSN: 0259-21OX
Comelis de Haan is livestock adviser in the Wordd Bank's Agriculture and Rural Development
Departmnent. Tjaart Schillhom van Veen is livestock specialist in the Agriculture and Rural Development
Division of the Bank's Europe and Central Asia, Middle East and North Africa Regions Shared Services
Department. Karen Brooks is senior economist in the Agricultural Policies Division of the Bank's Agriculture
and Rural Development Department.
Library of Congress Cataloging-in-Publication Data
Haan, C. de.
The livestock sector in Eastern Europe: constraints and
opportunities / Cornelis de Haan, Tjaart Schillhorn van Veen, and
Karen Brooks.
p. cm. - (World Bank discussion papers; 173)
Includes bibliographical references.
ISBN 0-8213-2202-8
1. Animal industry-Europe, Eastern. 2. Livestock-Europe,
Eastern. 3. Agriculture-Economic aspects-Europe, Eastern.
I. Schillhorn-van-Veen, T. W. II. Brooks, Karen McConnell.
III. Title. IV. Series.
HD9425.E82H3 1992
338.1'76'00947-dc2O 92-26314
CIP
- Ili -
- ~~~FOREWORD
Agriculture in Eastem Europe is undergoing dramatic change. Ownership of land
and animals is transferred from the state to the private sector. Consumer and prodLucer
subsidies are being phased out, and formerly protected internal markets are being
opened up. These changes have had profound effects on production and rural income
and employment, as intemal and export demand collapsed and prices plummeted. 'The
whole sector now has to adapt to these open market conditions.
The crucial livestock sector--contributing about half of agricultural production and
using more than half the locally produced grain-was severely affected by the move from
a command to a market economy. Past policies of heavy protection and subsidies had
caused excessive consumption, use of inappropriate--and often polluting--technologies
and inefficient production. The required adjustments are therefore the more painful.
Production has declined, especially in production systems depending on imported feed
with respect to inputs, and extemal market with respect to output. Overall the sector Ihas
experienced a contraction of approximately 20% since the late eighties.
Still, the sector has considerable potential. Physical conditions are generally good
for livestock production and market opportunities already exist and can be still further
developed.
This report indicates how this potential can be further developed. It presents the
current situation as a result of past policies and recommends short and medium term
measures to improve efficiency, develop markets and reduces the sector's negative
environmental impact. This report intends to guide World Bank staff, other donors and
Eastern European officials involved in the sector in the technical, institutional and policy
issues concerned.
Harinder S. Kohli Michel Petit
Director Director
Technical Department Agriculture and Rural
Europe, Central Asia, Middle East Development Department
and North Africa Regions
- iv -
ACKNOWLEDGEMENTS
The authors have made extensive use of the information presented at two
consecutive round tables organized by the European Association for Animal Production
and FAO in respectively Budapest (April 1991) and Berlin (January 1992). These
contributions to a better understanding of the processes in the livestock sector in Eastern
Europe are gratefully acknowledged. Furthermore, the authors wish to thank the many
World Bank colleagues who commented on this paper. In particular, they would like to
thank Mr. Prem C. Garg, who reviewed several drafts, Mrs. Arntraud Hartmann and Mr.
Odin Knudsen who acted as peer reviewers, Mr. Rory O'Sullivan for support and
encouragement and Mr. Willem Zijp who provided input in the part on Human resource
development. As always the remaining errors and omissions should be attributed to the
authors.
v -
TABLE OF CONTENTS
Executive Summary ...................................................... vii
Chapter 1: THE LIVESTOCK SECTOR IN THE EAST EUROPEAN ECONOMIES 1
General ..................................................1
Relative Importance of Individual Commodities ................................. 1
Chapter 2: LEGACIES OF PREVIOUS POLICIES ......................................... 2
Incentive Policies .......................................................2
Ownership Policies .......................................................3
Equipment and Capital Investments ................................................... 5
Labor .......................................................6
Environmental Contamination ...................................................... 7'
Support Services .......................................................7
Chapter 3: INHERITED TECHNOLOGIES .................................................... 9
Feed ......................................................
Animal Breeding ...................................................... 110
Animal Health ...................................................... 110
Equipment and Installations ...................................................... 11
Marketing ...................................................... 12
Chapter 4: RESULTING PRODUCTIVITY ...................................................... 13
Overall Performance of the Sector ..................................................... 13
Production Levels in the Social and Private Sectors .......................... 14
Financial Efficiency ...................................................... 14
Chapter 5: LIVESTOCK SECTOR IN TRANSITION ....................................... 15
Chapter 6: FUTURE PERSPECTIVES ...................................................... 18
Overall Perspectives ...................................................... 18
Immediate Market Prospects ......................19
Longer-Term Prospects ................................................ 19
Future Shape of the Industry ................................................ 20
Chapter 7: FUTURE ACTIONS ...................................................... :23
Management of the Transition ...................................................... 23
Medium-Term Policies ...................................................... 24
Changes in Property Rights and Farm Organization ......................... 27
Chapter 8: THE ROLE OF THE WORLD BANK: PAST, PRESENT AND FUTURE 29
Future Lending ......... 29
References .............. 32
Annexes .............. 34
- vii -
EXECUTIVE SUMMARY
INTRODUCTION
i. The purpose of this paper is to analyze past and present developments in the
Eastern European livestock' sector, in order to prepare for a carefully formulated and
executed adjustment. The authors try to explain the forces which shaped the sector in
the past and, based on this analysis, suggests priorities for World Bank assistance in the
modernization process.
PAST POLICIES
ii. In most East European countries livestock comprises about half of total agricultural
production, is the main user of cereals, and is an important foreign exchange earner.
Past policies have led to this prominent place, and largely shaped the present sector.
First, as the consumption level of meat and milk was generally considered to be a
barometer of the well-being of the population, national policies pursuing self-sufficiency
and low food prices through high protection and subsidy levels were considered to be
fully justified. Later on it became also important as a foreign exchange earner. The
livestock sector was therefore one of the most highly subsidized and protected sectors
in agriculture. Emphasis, however, was on quantity rather than quality. Second, and in
part because of its perceived importance in earning foreign exchange, policies were
introduced to collectivize the livestock sector. Still, in all Eastern European countries
individual ownership of livestock remained permitted and, in effect, the private sector
owned relatively more livestock than land. Meat and milk processing, on the other hand,
remained largely in the state sector. It was therefore not subjected to the intense
competition and subsequent plant size increase, which shaped the industry in the US and
Western Europe in the eighties. Third, with increasing budgetary constraints in the
eighties, investment dropped to very low levels.
RESULTING TECHNOLOGIES
iii. These policies led to inefficiencies in installations and technologies.
(a) Farm structure. Collectivization created units too large to be economically
efficient, except in Poland and Yugoslavia where private agriculture
predominated. The large collective animal farms created an important
source of environmental pollution. On the other hand, in those countries
where land was not collectivized, the private sector and farm size remained
small, with extremely fragmented plots.
I/ This paper concentrates on the developments in Central and Eastern Europe, e.g., Bulgaria, Czechoslovalda,
Hungary, Poland, Romania and the former Yugoslavia (EEU 6). It does not include the Commonwealth of
Independent States (CIS).
- viii -
(b) Feed. Subsidies on grain, fuel and interest rates led to an excessive use of
concentrate feed in dairy production instead of the more rational use of
fodder crops and grassland. In addition, grain subsidies led to inadequate
attention to overall feed quality, especially to the energy/protein balance.
The result was an imbalanced diet and overfeeding with costly grain.
Tentatively it was estimated that the structural deficit of 1 million tons feed
protein was compensated by a wasteful use of 10 million tons grain.
(c) Stock quality. The policy of self-sufficiency and the input subsidy policies led
the to development of breeds, that, especially in efficiency characteristics
(feed conversion, fertility) and quality (carcass quality, lean-to-fat ration) can
not, given the current globalization of the markets, compete with the
modern American and European breeds and lines.
(d) Input and advisory services. Research and extension focussed on the social
sector, and have been conditioned by the subsidy policies on feeds and3
investments. Little technology is available on equipment and machinery for
small-holders (milking, cooling equipment for example) or on grassland. On
the other hand, the command economy facilitated the imposition of the strict
discipline necessary for good disease control. Thus, the major contagious
diseases were well controlled. The "management" diseases (stiffness due
to poor housing, mastitis, deficiency diseases, internal and external
parasites) were less well controlled and brought substantial losses.
(e) Equipment and installations. Collectivization, subsidies, and the declining
investment levels, brought labor intensive, energy inefficient and
environmentally dangerous farm buildings and equipment.
(f) Agro-processing. The decline in investment and the lack of competition
caused stagnation of the development of processing (feed mills, milk and
meat processing plants). Plants remained small and equipment outdated.
This resulted in inefficient processing and a limited product range of
mediocre quality and, consequently, in an inability to compete in the
international markets.
RESULTING PRODUCTIVITIES
iv. Despite subsidies and protection, the overall performance of the sector has been
mediocre at best. Annual growth in the sector varies from a very poor 0.4%, for beef, to
an acceptable 3.0-4.7% for the poultry sector2. Productivity per animal has stayed even
by West European standards, but was lagging in efficiency characteristics like feed
conversion, where Eastern Europe (with the exception of Hungary) is about 30 percent
behind. The limited competitiveness in the international markets is shown by the
V Poutry, with its rapid turnover and industrial production system, is generally doing well as long as feed costs
are subsidized.
- ix -
low value added of exported livestock products (more than half of the livestock exports
are in the form of live animals) and by the much lower price (up to 40 percent less) East
European products obtain in the world market. Productivity in the socialized sector is
generally higher than on private farms, due to privileged access to higher quality inputs,
such as feed, breeding stock and equipment.
THE SECTOR IN TRANSITION
v. The macro-economic adjustments, with the abolition of producer and consumer
subsidies and the fall in real income, have led to a general decline in demand, which,
together with the collapse of the Soviet market, resulted in excess supply. The sector has
contracted approximately 20 percent to date, and further, albeit less drastic, adjustmients
are to be expected before the industry will stabilize. These adjustments often affected
above all the more specialized production units that are dependent on
(semi)manufactured inputs, such as the intensive poultry farms, and the larger, more
commercial private farms in Poland. The contraction has an impact on the current and
future development of the sector, since returns to investments facilitating consolidaition
and modernization are currently depressed. It is expected that the sector will, in the short
and medium term, not reach the output achieved in the late eighties.
OVERALL PERSPECTIVES
vi. While precise estimates of Eastern Europe's comparative advantage in producing
milk and meat are not available, the overall outlook is modestly optimistic. The
contraction taking place at present may lead to a more efficient production system, and
does not necessarily result, in the long-term, in major reductions in output. The region
possesses a reasonable climate, especially the southern countries (Bulgaria, Romania and
Yugoslavia) are favored with a mild climate supporting low-cost production of feed,
reducing the energy cost associated with poultry and pig production. The geographical
location of poultry production and to a lesser extent pig production may, in the long-term,
shift southwards, influenced by lower energy costs as well as by the availability of protein
feeds grown in these southern areas. The region also has low-cost skilled labor and, in
the countries that collectivized, large fields well suited for mechanized fodder production.
Finally, many of the soils of the region are either only suitable for livestock or require a
regular supply of organic manure to maintain fertility, indicating a need for a mixed
farming system. On the negative side are the long winters in the northern countries,, the
dilapidated infrastructure on the farm and in the livestock processing industry (with the
exception of Hungary), and the lack of managerial skills and motivation necessary in the
complex and demanding livestock industry. The region has a large, albeit contracting,
internal market and limited possibilities in the Soviet Union, the Middle - and Far East, and
the rest of the developing world. The region can certainly compete for the lower end of
the EEC market, but access to that market depends on political decisions.
x -
FUTURE ACTIONS
vii. In the short term, the industry has to come to grips with (a) its approximately 20%
contraction, (b) the price and input supply adjustments. Of immediate concern is to
maintain an efficient production base. Specific measures may include protection from
subsidized external markets, prevention from excessive fragmentation and asset stripping
provision of essential inputs to improve efficiency (i.e. feed additives). The contraction
should be targeted to marginal producers. Contraction should not be delayecl through
subsidies spread among all enterprises.
viii. In the medium term, three lines of actions are essential to improve competitiveness
and sustainability of the livestock industry in the region:
(a) increase efficiency, including (1) a greater emphasis in ruminant production
on fodder and pasture based production, and in non-ruminants (pigs and
poultry) more attention to protein quality; (2) more attention in cattle
breeding to efficiency in roughage conversion, in non-ruminant production
to better feed conversion characteristics, and for all livestock more attention
consumer to consumer preferences (less fat, protein content of milk); (3)
more attention to labor and energy efficiency in farm buildings and
equipment; (4) more attention to specialty products such as wild-
life/livestock systems; and (5) improvements in management incentives,
research systems and rationalization and privatization of veterinary, breeding
and extension services.
(b) improve quality through (1) the introduction of better standards, the
restructuring of pricing systems with incentives for quality, and the
redirection of breeding and production methods; (2) expansion of the
product line; (3) improved packaging; and (4) increased marketing efforts.
(c) clean-up of the environmental contamination caused by larger scale
production units. This will require large investments or closure of these
farms.
ix. The pursuit of greater competitiveness and sustainability will proceed within the
context of changes in ownership and farm structure already underway. In each of the
countries of the region, new laws on land ownership have already been adopted and
changes in land tenure and farm structure have begun. These changes are complex and
shaped by social and historic factors, as well as economic changes in farm structure.
Asset management, not consistent with pursuit of greater competitiveness and ecological
sustainability cannot prevail in the longer run. Although there has been much study of
the relationship between farm size and efficiency, research does not support the concept
of a unique optimal farm size or form of organization (for example a corporate-, or family
farm). It is therefore not appropriate, nor would it be feasible in the current climate, to
attempt to prescribe a particular form of organization or farm size; for example, either
- xi -
retention of the large-scale farms of the past, or mandatory imposition of small family
farms. The former privileged access of large farms to markets and inputs should be
dismantled along with the institutions that conveyed the privilege. Furthermore, legal and
financial constraints on consolidation of fragmented small holdings should be removed.
These and similar steps facilitate a process through which, over time, a new farm
structure consistent with the new imperative for competitiveness and the new distribution
of property rights may emerge.
BANK INPUTS
x. The Bank could support these trends at the policy level by:
(a) encouraging the continuation of present policies of liberal pricing and
subsidy reduction. If necessary, internal markets may be protected against
dumping. Vulnerable groups can receive targeted food assistance; milk, for
example, is an important commodity in these programs;
(b) discouraging constraints on land and asset use, such as defined farm size,
restrictions on contracting, and prohibitions on hiring of labor and services,
but encourage a pluralistic approach;
(c) supporting policies and lending practices that ensure that the various
enterprise forms are subject to the same subsidy and taxation regimes, and
have equal access to services, inputs and capital;
(d) assisting in the development of a legislative environment which fosters
private enterprise and a market oriented economy, with respect for human
and animal welfare;
(e) assisting in the re-orientation of the management and labor force, through
re-training and re-organization;
(n) introducing stricter quality standards and quality price incentives for meat
and milk, and associated products;
(g) introducing stricter environmental standards for intensive as well as
extensive production units, and encouraging mixed land use.
xi. Support at the institutional level could include changes, which inter alia would
(a) promote, in research and extension, a closer cooperation between animal
health and animal production disciplines and, more generally, between
livestock and crop production;
- xii -
(b) establish a clearer separation of responsibilities between animal breeding
institutions and performance recording schemes;
(c) promote close relationships between Eastern and Western (or other)
institutions, not only in research, but also between breeders and other
private industry organizations;
(d) promote extension services, with emphasis on farm management;
(e) sponsor privatization of animal health and production services, and the
development of commodity groups and producers associations;
(f) assist in policy analysis, project evaluation and funding of investment in rural
infrastructure. Considering the rapid changing economic conditions, there
would, for example, be a need for relatively frequent sector analyses.
xii. At the project level the Bank could support:
(a) research on priority areas of grassland and fodder production, protein feed
crops, adapted farm mechanization and housing, and livestock/wildlife
management systems and their economic evaluation;
(b) conservation of local livestock breeds able to perform well under local
conditions with low quality diets;
(c) the environmental clean-up of the oversized and excessively polluting
production units;
(d) where necessary, land consolidation programs, and especially those that
promote complimentarity between the hilly and mountainous areas and
more intensively used areas;
(e) provision to qualified borrowers, through the commercial banking sector,
credit to support construction and consolidation, adapted mechanization
programs, quality and efficiency improvements and diversification in the feed
mill and meat and milk processing industry;
(f) in conjunction with the private sector, more efficient internal and external
marketing systems;
(g) risk sharing mechanisms (partial bank guarantees) to promote
joint ventures with foreign companies;
- xiii -
(h) support vocational training for farmers and private entrepreneurs, and
consumer education;
(i) at the farm level most support is directed towards the development of mixed
farming systems; as such most Bank support in this area will be a
component of a larger agricultural-, or agro-processing project.
xiii. In addition the Bank should monitor the rapid changes in the economies of the
Eastem European countries and the expected technological modernization of the
agricuftural and animal production systems through sector analysis.
- 1 -
Chapter 1. THE LIVESTOCK SECTOR IN THE EAST EUROPEAN ECONOMIE'S
General
1.01 Animal production is a mainstay of
East European agriculture and warrants Figure 1. MAJOR OUTPUT VOLUMES OF THE RED MEAT
attentive consideration in the formulation INDUsTRY (PERCEn) COMPARING EASTERN EUROPE,
of the short term and long-term strategies.
Although the contribution of agriculture to Pap
overall GDP in Eastern Europe is modest sLoged
(8 to 20 percent [Annex table 1]), with an P
estimated output of about US$ 30 billion3,
the livestock sector constitutes 50 percent
of the total agricultural production. Etude.
Livestock consumes from 50-70 percent of * TuIa*
domestically produced cereals. Within the
agricultural sector, livestock products
make up between 24 and 50 percent4 of 10
agricultural exports and are thus important Er12 Ue" uISI
sources of export earnings.
Relative Importance of Individual Commodities
1.02 On the basis of world market prices, pork is by far the most important livestock
commodity in Eastern Europe, followed by beef, milk, poultry meat and eggs (table 1).
qeef and milk production together are only slightly more important than pork. Pork is
especially important in Poland and Hungary. Mutton, wool and small ruminant dairying
are relatively unimportant, except for the
southern countries. Animal manure Table 1. RELATIVE SHARES OF THE VALUE OF OUTPUT
OF THE LIVESrOCK INDUSTRY IN EASrERN EUROPE
provides an essential contribution, as a
fertilizer substitute and to improve the
structure of the poor, sandy soils in many
Eastern European countries. Animal Pork 37.1 Broilers 8.0
traction, using horses, oxen or buffaloes, Beef 22.4 Eggs 7.7
may locally still be important out overall Milk 20.2 Mutton 4.4
draught animals are increasingly replaced Wool 0.3
by mechanized power. Processed hides,
skins, and leather have traditionally been (at international prices)
strong components of the agro-processing
industry, especially in Czechoslovakia.
3/ At international prices.
41 In some cases, however, countries sold fresh, good quality meat for export, and used cheaper, lower quality
imported meats for the internal market, to increase foreign exchange earnings
- 2 -
Chapter 2. LEGACIES OF PREVIOUS POLICIES
2.01 Major objectives of past East European agricultural strategies were the provision
of cheap food to the population and achievement of self-sufficiency in production. This
was especially the case in the livestock sector. Instruments for implementation of these
objectives included subsidized inputs, services and consumer prices, and collectivization.
These two policy domains largely defined the structure of production, ownership of land
and animals, the use of labor and capital investments, and the characteristics of input
supply (feed, services) systems and the agro-processing industry. The following
paragraphs provide an overview of these factors.
Incentive Policies
2.02 Ample meat and milk supplies were considered to be a key barometer for the
populations well-being, and livestock production in the former East European command
economies was highly protected and subsidized. For example, the producer subsidy
equivalent (PSE) (the aggregate of the different subsidies) for milk and pork varied in
Poland in the late eighties between 50 and 70 percent, respectively at par or exceeding
the EEC protection levels (Annex table 2). Over the period 1986-1989, subsidies on meat
and milk in Poland were 1.2 percent and 1.6 percent of GDP, respectively (Knudsen
1991). Milk producer prices in Poland were, during this period, on average 24 to 50
percent above world market prices. This support was supplemented by subsidies on
inputs, particularly for animal feed (in Poland about 0.3 percent of GDP). Total subsidies
to the Polish livestock sector constitute 60 percent of total agricultural subsidies, whereas
the sector's contribution to agricultural GDP was only 50 percent. Similarly, in 1986 in
Hungary 76 percent of the agricultural subsidies went to milk and meat, which contributed
less than 50 percent of agricultural production.
2.03 Consumer subsidies were large and, in addition to producer subsidies, led to high
levels of consumption of meat and milk. Meat consumption under the command economy
fluctuated between 70 and 100 kg per capita per year (Annex table 3). These levels of
meat consumption exceed those in market economies with comparable income levels.
Similarly, consumption of dairy products was significantly above the average consumption
in the EEC.
2.04 These subsidies mainly benefitted the social sector, although there was a
considerable spill-over from the social sector to private farms. Data from Hungary (1986)
show that for agriculture as a whole, subsidies constituted 51 percent of the value added,
compared to only 2 percent of the privately produced value added. Similarly, in Poland
it was estimated (Knudsen 1991) that in 1986-1987 the social sector had a 10 to 50
percent higher PSE for pork and milk than the private sector (Annex table 2). The Polish
private sector benefitted only from higher protection and subsidies with beef.
-3 -
Ownership policies
Land
2.05 Past land tenure policies greatly affect present farm structure. In Albania, Bulgaria,
Czechoslovakia, Hungary and Rumania, collectivization policies have made land use by
private farmers rare, whereas in Poland and Yugoslavia land was not collectivizecd and
private land ownership predominates (Annex table 4). Average farm size of the social
sector varies between 500 ha and 7,000 ha for the state farms and from 100 to 4,500 for
the cooperatives. Yet, in all countries some form of private land ownership remained,
mostly in the form of small plots of up to 0.5 ha allotted to collective farm workers. In
Poland and Yugoslavia, with a predominantly private farm sector average farm size is 3
to 6 ha, significantly below the 18 ha average farm size in Western Europe.
2.06 Collectivization did not increase available land per worker. For example, there is
about 6-7 ha land available per active worker on the state farms of Poland and
Yugoslavia, compared with 3.5 - 6.4 ha on private farms there. If the larger share of part-
time farming of private farmers in these countries is taken into account, available land per
active full time employed laborer will be about the same in the two sectors. Similarly,
available land per active worker in the other countries is around the 7 ha. Collectivization
has pooled land resources, however, erased individual boundaries and thus led to large
size, well mechanizable plots. This in contrast with land holdings in Poland and
Yugoslavia, where land fragmentation is a serious problem, with on average 10 to 12 plots
per farm. Economies of size are important in grazing and pasture management, in
particular in fodder production and conservation (hay and silage making).
2.07 Land was often undervalued or not valued at all, and value of buildings overstated.
In former East Germany, for example, buildings constituted nearly half of farm assets,
compared to approximately 10 percent in West Germany. A re-evaluation may be
necessary, especially where these overvalued buildings were used as collateral for farm
loans..
Livestock
2.08 Livestock ownership followed the same pattern as land tenure, i.e., in those
countries with predominantly collective land ownership, animals were mainly collectively
owned, whereas in the countries with predominantly private land ownership, logically most
livestock is privately owned (Annex table 5). Still two interesting phenomena are worth
noting:
(a) Private farmers owned relatively more livestock than land. For example in
Hungary with only 12 percent of the arable land and 3 percent of grassland
belonging to private farmers, they own 24 percent of the cattle. This is
primarily a result of the strong contractual or informal linkages between
social and private farmers, especially through the trade of feed to members
or employees of large farms. When politics permitted active cultivation of
private plots, the large farms encouraged growth of livestock production
there. Large farms marketed much of the output from private production
-4 -
of their employees. In some countries, tax laws promoted transfer cf inputs
from socialized farms to their employees or members.
(b) Private farmers kept a higher percentage of female animals (cows, sows).
This revealed the preference of the private sector for the more labor-and
management-intensive breeding and milking operations, and of the
socialized sector for the more easily mechanized and managed fattening
operations.
2.09 Herd size varies between 1.5 and 3 cows per farm in the private sector and
exceeds 200 cows in the social sector (table 2). Bulgaria, Czechoslovakia and Romania
in particular have very large herds in the social sector. This compares with an average
herd size per farm in the EC12 of 31.6 (1989), ranging from 6.3 animals in Portugal to
82.8 in the United Kingdom; the herd size in nearby Austria was 18. However, few dairy
Table 2. AVERAGE HERD SIZE (HEADS/FARM) UNDER DIFFERENT ENTERPRISE FORMS, 1989
Hungary Poland Romania Yugoslavia EC12
Dairy cattle
Private 2.5 2.4 1.5 3 32
Socialized 550 255 1,000+ 200+ n.a.
farms of the size found in Eastern Europe are found in the EEC, with only 0.5 percent of
the holdings in the EC12 (7 percent of the cows) in herds of more than 300 animals,
compared with, for example, Hungary (1985), where about 40 percent of the dairy cows
are kept in holdings of more than 300 animals. The large farms become inefficient due
to management and waste disposal problems5. Similarly, unit size in pigs in the Eastern
European private sector is small, with a typical private farm involved in pig production in
Hungary (1985) and Poland (1989) having 1 to 2 sows and 6 to 10 feeder pigs. Pig
production units in the socialized sector are generally very large, with typical units of 500
to 1,000 sows, with up to 100,000 fattening spaces and outputs of up to 150,000 head
per year. This compares with an average unit size in the EC12 (1988) of 68.3 animals,
ranging from an average of 9 animals per holding in Portugal to 406 animals per holding
in the Netherlands; the average holding in Austria is 25 (de Haan, 1991).
Aaro-Processing
2.10 Nearly all Eastern European feed mills and meat and milk processing plants are
owned by the socialized sector. Most feedmills are managed by parastatals. Dairy
processing is managed entirely by cooperatives in Poland and partially by cooperatives
in Hungary and Yugoslavia. These cooperatives, however, have been dominated by the
government in the past, and have behaved like parastatal companies. State dairy
0/ A complicaing factor of the small production sstems with limited feed resources is the seasonality of
production; in Poland for ecample 60% of the milk output was produced in spring and sununer.
-5 -
monopolies prevail in the other Eastern European countries. Meat processing is generally
managed by state monopolies.
2.11 The agro-processing industry in Eastern Europe has not been subject to the forces
that led to consolidation and subsequent increase in plant size in the agro-processing
industry in the Western Europe and the US during the eighties. As a result, East
European agro-processing plants are generally small, and often serve a single state or
Table 3. AVERAGE DAILY MILK THROUGHPUT PER DAIRY PLANT IN SELECTED EASTERN EUROPEAN
COUNTRIES AND THE NETHERLANDS
Bulgaria Hungary Poland Yugoslavia Netherlands
(1990) (1985) (1990) (1985) (1987)
Milk (Ltx1OOO) 205 52 42 30 290
cooperative farm. For example, the average capacity of East European feed mixing plants
fluctuates between about 8,000 ton/year in Poland (1990) and 20,000 ton/year in
Yugoslavia (1991) and Hungary (1985), compared with about 50,000 ton/year in, for
example, the Netherlands (de Haan, 1991). Similarly, dairy plants in Eastern Europe have
an average throughput of 30,000-50,000 It per day (with the exception of Bulgaria, which
has a much higher average size) compared with about 300,000 It per day in the
Netherlands (Table 3.).
Equipment and Capital Investments
At Farm Level
2.12 State and cooperative farms in the past had preferential access to investment. For
example, in Poland, state farms received an estimated 40 percent of capital investiment
during the last two decades (Polish-European Community-World Bank Task Force 1990),
while accounting for less than 20 percent of agricultural GDP. It is now estimated theit per
ha capital inputs on state farms were twice as high as average for Polish agriculture.
Similarly, investments in Hungary's private sector with about 35 percent of the output,
amounted over the period 1980 till 1985 to only 1 percent (mainly in construction) of total
investments and total capital assets of the private sector amounted (1984) to only 7
percent of total estimated agricultural assets. Much of the investments in the socialized
sector were used for large and unhealthy buildings that were the underlying cause of
major health problems leading to a low productive lifespan of the animals. Dairy cattle, for
example, often lasted less than two lactations because of foot and leg problems or
mastitis caused by concrete floors; calf mortality was often 20 percent because of poorly
ventilated buildings.
2.13 The rate of investment has decreased considerably in the last decades (witlh the
exception probably of Hungary), and equipment and facilities in livestock have become
obsolete. Thus, for Czechoslovakia, Podesbraski, et.al. (1991) reports that, following the
substantial investments in the early eighties, maintenance and replacements have fallen
behind, and an estimated 50-55 percent of the cattle and 60 percent of the pig breeding
-6 -
facilities are sub-standard. Even with reduced investment in the recent past, many
cooperative and state farms have debts that, under the new economic conditions,
threaten their survival. A brief survey of farms in East Germany, for example, indicated
an expected survival of 65 percent of 133 former collective farms when old debt were
canceled, compared to 18 percent if these debts remain in effect (Hinrichs, 1991).
At Agro-Processing Level
2.14 Investments in the feedmill and livestock processing industry peaked in the late
seventies and early eighties and substantially declined over the last decade. As a result,
the livestock processing industry has outdated equipment and uses generally obsolete
technology. For example, only a small percentage of the feed industry in Eastern Europe
has pelletizing and fat mixing equipment (only 5 percent of commercial feed in Poland is
provided in the form of pellets", compared with 80 to 95 percent in the EEC). Yearly
investments in the dairy industry in Poland and Hungary now fluctuate around US$0.01
per liter processed, about one-fifth the investment per liter in, for example, the
Netherlands. Capital investment in the meat industry shows in general a similar decline,
with the possible exception of Hungary which, with World Bank support, has continued
to modernize its meat processing industry. As a result, processed livestock products are
poorly competitive in the world market. Dairy plants in the former East Germany pay
farmers 20 percent less than in the former West Germany, because Eastern processing
technology is less efficient (Isenmeyer, 1991).
Labor
At Farm Level
2.15 Poor incentives in the socialized sector and the lack of capital investment in the
private sector has led to low labor efficiency in both. For example, in dairy production,
case studies in Hungary (1985) indicate a requirement of 3.7 to 6.0 man-hours per 100
liters produced in the state farms, compared with about 1.2 man-hours in modern family
farms in Northern Europe. The excessive amount of managerial and service personnel
(30 percent) in state and cooperative farms and the excessive specialization of the labor
force are the major reason. Still labor costs are low; in 1991, for example the labor cost
in Poland were less than 10 percent of the labor cost in the U.S.
2.16 Private farming in Eastern Europe in the past was predominantly a part time
occupation, and women did mnuch of the work. If these patterns prevail in the future, it
will be important to design extension programs to reach large numbers of women
engaged in part-time small scale livestock production.
At Agro-Industry Level
2.17 The small plant size and the lack of management incentives has led also to low
labor productivity in the agro-industry. In the feed sector, output is about 500 tons per
employee per year, about one-fourth of the West European averages. Still, meat and milk
processing constitute one of the most important sources of off-farm employment in the
6/ PeDcting prevents losses during milling, transportation and on the farm.
rural areas. For example, the Polish meat, egg/poultry and dairy processing induistry
employs 43% of all labor in agro-processing.
Environmental Contamination
2.18 Probably the worst legacy of past policies is the massive environmental
contamination caused by unsound farming practices. The large ("mega") livestock farms
are sources of soil, water, and air pollution. This pollution is exacerbated by the
imbalances in protein/energy supplies (para. 3.02) leading to over-use of grain and cereal
by-products and, subsequently, to much higher phosphate excretion than with a rnore
balanced diet. Similarly, anti-pollution measures in the livestock processing industry are
generally deficient. Indirectly the sector is affected by the overall environmental
contamination, locally resulting in relatively high residues of metals or PCB's in animal
products.
Support Services
Animal health
2.19 The objectives of the animal health services were to limit the number of diseases
through vaccination and hygiene and in later years to adjust to the health and qujality
requirements needed for export outside the East bloc.
2.20 These services were generally provided by the socialized sector, although in many
instances the state farms and cooperatives recruited their own veterinarians. The pricing
policy for veterinary care varied among countries. Poland and Romania provided most
services free of charge; in Hungary veterinary care was generally providecd by
veterinarians employed by the socialized units; and in Yugoslavia most of the senAces
were paid for by the beneficiaries.
2.21 The animal health coverage is broad: in Hungary, Poland, Bulgaria and Yugoslavia
(FAO-WHO-OIE 1990) there are about 2,000 veterinary livestock units7 per veterinarian;
in Romania about 4,000. This is comparable to West European standards", with about
2,000 VLU per veterinarian in (formerly) West Germany (1988) and 3,500 VLU per
veterinarian in the Netherlands.
Animal breeding
2.22 Animal breeding was traditionally the responsibility of the public sector. In most
countries artificial insemination (Al), performance recording and herd book functions were
carried out by the same service. Services remain largely free of charge or subsidized;
Hungary and Yugoslavia have full cost recovery. Al is generally widespread, espe(cially
in the countries with subsidized services. In Poland, for example, Al is used for 80 percent
of dairy cows (this is comparable to Western European figures). Al in swine breediing is
2/ VLU, defined as 1 cattle, 0.5 pigs, 0.1 sheep or goat and 0.01 chicken or duck
~/ The coverage is more intensive, however, when the contnbution of veterinaty technicians is added. In Bulgaria,
for example, the ration veterinarian/technician is 23.
less frequently used, especially in those countries where smaliholder production
predominates (Poland, Yugoslavia), reaching, for example, only 10 percent of the
population in Poland (1990). Where large units predominates in pigs, Al in pigs is also
widespread.
2.23 The technical Al parameters are rather poor and sire selection and use of superior
sires is suboptimal. Available data give on average 2.6 and 3 inseminations per calf born
in Hungary (1983) and Romania (1990), respectively, and a 72 percent 60-day non-return
rate in Poland (1990), compared with less than two inseminations per calf born in most
countries in Western Europe. Furthermore, the number of inseminations per bull is low,
leading to slow genetic progress. Bank sector missions report figures of 1,250 from
Hungary (1982) and 10,000 from Poland and Romania (1990), compared with over 20,000
in most West European countries. The use of imported semen in those countries is
below 20 percent of total inseminations.
Research and Extension
2.24 Technology generation and transfer in Eastern Europe has emphasized the
parastatal sector and neglected the private smallholder. Research is fragmented among
different institutes. There is little contact between the different disciplines, especially
between health and production specialists. Furthermore, key constraints such as
grassland production and conservation are not adequately addressed, and there is an
almost complete absence of economic evaluations of the technical results. Finally, the
macro-economic stabilization programs force staff reduction and a general decrease in
funding for research and extension.
2.25 Extension is (a) carried out by the researchers themselves, who directly inform their
"megaunit" clients (Bulgaria, Romania) of technological advances; (b) organized among
various units in the social sector on a commodity basis (Hungary); or (c) funded partially
by public funds and by either the users in the social sector (Yugoslavia) or the proceeds
of special production units operated by the extension service (Poland). Poland and--
partially--Yugoslavia (Habe et al. 1991) are starting to focus their livestock extension on
the private farmers. Urgent action in this respect is required for all the East European
countries.
- 9 -
Chapter 3. INHERITED TECHNOLOGIES
Feed.
3.01 The policy of food self-sufficiency has led to excessive attention to grain production
(Poland, Romania), and the use of grains for feed, without adequate attention to overall
feed quality. Collectivization and mechanization led to excessive attention to the use of
grain and neglect of fodder crop and grassland production.
Table 4. ESTIMATED PROTEIN DEFICIENCY IN SELECrED EASTERN EUROPEAN COUNTRIES (SOYA MEAL
EQtUIVALENIS)
Poland 500,000 tons (1990) Hungary 275,000 tons (1987)
Romania 1,000,000 tons (1990) Yugoslavia 250,000 tons (1986)
3.02 Eastern Europe has a structural deficit in high-quality feed protein. The deficit,
mainly for the non-ruminant sector, was estimated before the contraction at 1 million tons
of feed protein or the equivalent to almost 2.5 million tons of soybean meal (table 4). The
relative importance can be demonstrated by comparing this with the total of 9 tc 10
million tons of soya cake imported in the EC12 (1988), with a much larger livestock
population. This deficit leads to inappropriate protein/energy balances, with the result
that the animal needs more feed for the same growth. Although exact data are not
available, estimated feed conversion in pig production in Eastern Europe would be
between 4 and 5.5 kg feed per kg growth (compared to 3 kg/kg growth in West Europe)
and in broiler and egg production between 2.5 and 3.5 kg per kg feed. While part of this
difference might be caused by inferior genotype and inadequate thermo-insulation of
livestock housing, it can be safely assumed that at least half the difference is caused by
the inadequate protein feeding. Thus, for example for Hungary, Poland, Romania and
Yugoslavia, a saving of about 10 million ton of feed9 could be made, if the deficit of about
2 million ton of soja meal equivalents would be resolved. Furthermore the inefficient
feeding causes much greater pollution as the higher feed consumption leads to higher
excretion of phosphates than necessar, (van der Zijpp, 1991).
3.03 The deficit in high-quality protein is exacerbated by poor grassland management.
This is the result of earlier subsidy policies, which made concentrate fee.ding more
attractive than grass, and of the general neglect by research and extension of grassland
management techniques. The long grazing or cutting intervals generally used in Eastern
Europe lead to a sharply reduced protein content of the pasture whereas a more intensive
grazing would be more efficient. There is a heavy reliance on hay making instead of
silage, causing further losses of the conserved product. Uttle use was made of existing
topographical potential for stratification of the production system (for instance by raising
young dairy stock in the hills and mountains).
21 Based on a saving of 1 kg feed per kg growth on the approximate 6.5 million ton pork (Uve weight), .75 kg feed
saving per kg growth on the approximate 2 million ton of broilers (I}ve weight) and .75 kg feed per kg eggs on
the 1.5 million ton of eggs produced in the four countries.
- 10-
3.04 The discrimination against the private sector in land tenure and subsidy policies
has led to the adoption of different feed technologies in the various sectors. The much
higher degree of mechanization in the socialized sector has led to an energy costly but
technically better harvesting and conserving methods on state and cooperative farms.
Private farms, particularly in Poland and Yugoslavia, have relied primarily on weather-
sensitive hay making, whereas state farms and cooperatives predominantly rely on higher-
quality-yielding silage. For example, in Poland, private farms transformed 85 percent of
the total area mowed into hay and 15 percent into silage, whereas the state and
cooperative farms used 40 percent of their area mowed for hay making and 60 percent
silage making (Polish-EEC-World Bank Task Force, 1990). The state farms and
cooperatives generally use better feed conservation techniques (hay ventilation, grass
wilting and clamp silos) than the private sector. Private farms had poor access to high-
quality concentrate feed, especially protein feed. For example, of the 8.3 million tons of
concentrate feed produced in Poland, only 3 million tons are used by private producers,
although they own 88 percent of the dairy cattle, 70 percent of the pigs, and about 66
percent of the poultry. As a result, the concentrate used by the private farmers often
consists mainly of cereals and is highly deficient in protein. Furthermore, because of the
presently high overhead cost in the feed industry, most of the private sector relies
strongly on home-mixed feed, without essential feed additives such as vitamins and micro-
elements.
Animal Breeding
3.05 The policy of self sufficiency led almost all countries to develop over the last thirty
years--through cross breeding and selection--their own adapted breeds, notably in dairy
and swine production. Several countries (Hungary, Poland and Romania) have gone
further and developed synthetic lines and hybrids in pigs and poultry. However, breeding
and selection have resulted in breeds and lines which cannot compete with the West
European and North American breeds, on the basis of direct production and quality
parameters, although they may be better adapted to local conditions and a diet low in
high quality proteins. With the increasing globalization of the sector in Eastern Europe,
these breeds will not be able to withstand the influx of West European stock and could
disappear completely in a rather short time, bringing loss of valuable genetic material in
the process. This is confirmed by experience in the former East Germany, where local
breeds have all but vanished or are in the process of doing so. Some local breeds have
characteristics worth conserving, and conservation of local breeds needs to be
considered in future research and extension projects in the-region.
Animal Health
3.06 The ample supply of veterinarians and the past administrative control has led to
good vaccination coverage and good overall epidemic disease control, but poor public
health and quality standards. It will be important to maintain the system of vaccination
and epidemic disease control at lower cost than in the past. This is especially important
for Poland, the only Eastern European country with a foot and mouth disease (FMD) free
status; a fact which broadens its export opportunities. Unfortunately, there are early signs
of a breakdown of the system. Moreover, FMD is only one of many diseases which limit
exports to countries with stricter disease prevention regulations. Also, the diagnostic
- 11 -
ability, especially with respect to microelement deficiencies and toxicological problems is
limited.
Equipment and Installations
On Farm
3.07 The decline in capital investment, and the surplus labor led to on-farm installattions
which are often:
labor intensive. Dairy cattle installations frequently are still the single standl type
with bucket-type milking machines, instead of the walk-through milking parlor.
Swine and poultry installations frequently lack automatic feeding and de-
manuring facilities;
energy inefficient. With energy heavily subsidized, materials chosen were not
energy efficient, and energy cost per animal in the severe Eastern European
winters is very high;
deficient in protection of animal welfare. Installations and housing systerns, in
particular for intensive pigs and poultry production are almost universally of the
types now increasingly being outlawed in Western Europe (tie-on farrowing
crates for sows, batteries for poultry);
environmentally hazardous. Manure and silage effluent disposal are absolutely
inadequate. The ensuing environmental contamination is considered the major
problem in large collective and state farms; and
inadequate. Milk cooling systems or storage of eggs and other produce are
inadequate, often not well maintained, and frequently not consistent with the
production levels of the farm unit.
In the Agro-Processing Industry
3.08 The last decade's decline in investment in the agro-processing industry, caused
product diversification for the internal market to be limited and product quality to be
mediocre. For example, in Poland (Polish-EEC-World Bank Task Force, 1990), the share
of highly profitable yoghurts and other flavored liquid milk products is only 16 percent of
the total liquid milk market. Ice cream is only .2 percent of the total dairy product output.
In contrast, this share of further processed products is 40 percent in the Netherlands.
Romania and Hungary have focussed on a broader export market and have a more
diversified product line. Similarly, with few exceptions (Polish ham and sausages for the
US market canned meat from Yugoslavia, and pan-ready poultry from Hungary), value
added processing and packaging is limited.
3.09 In effect, most Eastern European livestock exports consist of raw products wvth
little value added. For example, the ratio of live animal to beef export is nearly 3 times
-12 -
higher in Eastem Europe compared to selected EEC countries10 (Annex table 7). This
trend is even more obvious in the small ruminant market, where Bulgaria, Hungary,
Poland and Romania's market share of live animal export was over 40 percent in 1981-87
compared to around 15 percent for lamb and mutton. In dairy, the value added milk
products contribute in only a limited number of countries significantly to agricultural
output. Cheese is the most commonly exported product (Yugoslavia, Romania, Bulgaria,
Czechoslovakia and Poland), but the total export of all of Eastern Europe is less thian that
of, for example, France. Butter and milk powder are mainly exported by Poland and
Czechoslovakia, casein by Poland.
Mlarketing
3.10 Most livestock products were marketed through state channels. These channels
were characterized by:
* poor price transmission throughout the channel;
lack of feedback, especially in terms of quality requirements from the consumer
to the producer;
* lack of market transparency, and increasing use of barter trade; and
* lack of market infrastructure, especially in refrigeration equipment; storage, and
management skills.
For the more perishable products such as eggs and milk a substantial direct farmer to
consumer market existed in many countries. For example, about 35 percent of the milk
produced in Poland was estimated to remain outside the formal marketing channels and
was either directly consumed on the farm or directly sold to consumers.
],Q/ In some csaso hower, this wu related to an effort to increase foreign exchange earnings by seling livestodc
and fresh meat for aport and us cheaper, lower quality, imported meats for the internal market.
- 13 -
Chapter 4. RESULTING PRODUCTIVITY
Overall Performance of the Sector
4.01 Growth in the livestock sector has been mediocre (table 5). Milk and beef
production grew over the last twenty five years at a modest annual rate of 1.4 and 0.4
percent respectively, mainly as a result of a growth in productivity per head. Pork
production grew over that period 1.8 percent per year, however exclusively as a result of
an increase in the numbers. Only poultry production has increased at an acceptable rate
with meat production growing at an annual rate of 4.7 percent and egg production at 3.0
percent per year. The growth in the poultry sector has mainly been a result of an
Table 5. ANNUAL GROWTH (%) [N PRODUCnVrIY OF LVESTOCK COMMODITES IN THE PERIOD 1961/65
TrL 1988/90 IN THE Six EASTERN EUROPEAN COUNTRIES (Source: FAO Production data).
Numbers Prod./Head. Output Growth
Cattle
Dairy cows -0.1 1.5 1.4
Beef 0.1 0.3 0.4
Pigs 1.9 -0.1 .8
Poultry
Meat 1.4 3.3 4.7
Eggs 3.0
increase in productivity per head. This better performance of the poultry sector is,
because poultry production is (i) less environment specific and the technology could
therefore be imported from the West; (ii) has a rapid turn-over, and is easy to mechanize;
and (iii) depends largely on feed grain, and therefore benefitted strongly from subsidy
policies.
Table 6. AVERAGE UVESTOCK PRODUCTIVrTY LEVELS IN EASTERN EUROPE AND THE EEC. (Source:
FAO production data)
E. Europe EEC Austria USSR USA
Milk yield (It/cow/year) 2950 4790 3556 2549 6711
4.02 Productivity has lagged considerably behind the Western European levels.
Average milk production per cow is provided in table 6. There is a significant difference
in average productivity between the Eastern European countries (Annex table 6). In milk,
the production in Poland (3,250 fts per lactation) and in particular Hungary (4400 It per
lactation) is approaching EEC levels, but the production of the southern countries reaches
only half (1,800 to 2,200 liters per lactation) such levels. Different feeding (grassland
constitutes a much smaller share in the dairy feeding systems of the southern countries)
- 14 -
and breeding in the dairy herds, must be important factors explaining this difference. In
pig and poultry production the differences are less pronounced.
Production Levels in the Social and Private Sectors
4.03 Access to better feed and breeding services causes the milk yield per cow in the
socialized sector to be about 20 to 200 percent higher than on private farms (Annex table
8). These data seem to rebut the widely accepted West European theory that dis-
economies of scale (especially in reproductive management and health care) come into
play when herd size exceeds certain levels (i.e. 300 cows). This diseconomy is not
corroborated by two Hungarian studies (1982 and 1985), which show that with increasing
herd size, even over 1,000 cow units, the cost of production per liter declines. It is not
clear, though, whether this observed increased efficiency with increasing size is a result
of preferential access of the larger farms to scarce feed and equipment (an advantage
which would disappear in a more liberal economy), of the low labor costs, or due to other
sources. Moreover, the environmental costs were not considered in these studies.
4.04 For pig production few comparative analyses are available. Data from Romania
(1990) show an off-take of 10.9 piglets per sow in the socialized sector, compared with
11.4 on private farms. Comparative data from Poland (1990) show 11.5 piglets per sow
for the socialized sector and 10.5 for private farmers. Data from Hungary (1987) and
Poland (1990) point to a 20 to 30 percent higher feed use in pigs fattened on private
farms. This is probably a result of the feed protein deficiency on private farms (para
3.03). Average weight at slaughter is much higher in the private sector, reaching 144 kg
for the private sector in Romania (1990), compared with 107 kg on state farms. Most
poultry production is in the socialized sector.
Financial Efficiency
4.05 While physical yields have been higher in the social sector, this does not necessary
mean that the social sector has been economically or financially more efficient. Data from
Poland (Polish-EEC-World Bank Task Force, 1990) and Hungary (1985) show that more
than half the livestock enterprises in the social sector were producing at a loss, in
particular if full cost (including land rents) were taken into consideration. Similarly,
profitability of the dairy and meat processing industry in Eastern Europe is low. For
example, in Poland the meat and dairy industry is one of the least profitable industries.
Knudsen (1991) reported that of the 56 loss-making state enterprises (out of a sample of
500 from all sectors), 34 (60 percent), were directly related to the livestock sector (meat
and poultry and feed processing).
- 15 -
Chapter 5. LIVESTOCK SECTOR IN TRANSITION
5.01 The political reform process in Eastern Europe has initiated a radical transformation
of property rights. With the introduction of macro-stabilization programs, price controls
are abolished and subsidies cut drastically. For example, the subsidies in the dairy
industry in Poland fell from US$1 billion in 1989 to zero in 1991. Consumer prices
increased and demand fell. Hungary reports a fall in per capita consumption of meat and
milk of about 30 and 10 percent respectively. In Poland, per capita consumption of milk
dropped 10 percent between
early 1989 and early 1990
following the complete removal Figure 2 MNARKET P HAUNGES OF AGRICULTURAL
of all food subsidies in late
1989, and dropped another 8
percent in 1991 (Kowalski, Price in FtKg; grain in FT/1 0Kg.
1992). Meat consumption 140
remained initially the same 130 Legnd .
(Polish-EEC-World Bank Task 120 1987
Force, 1990), but declined in 110 1988
1990-91. 100 E9
90 ~~~~~~1990
5.02 This situation is 9i 1991>
aggravated by the collapse of 70 _
the Soviet market and the 60i
transient decline in 1990/91 of s
the Middle Eastern markets. 40
Remaining trade in food with the 3 s swem Bal o com
former USSR is either on credits
or grants from EEC or USA,
with which East European governments can not compete. The combined USSR and
Middle Eastern markets bought in 1988 from for example Hungary and Yugoslavia about
25 percent of their exports of meat and milk.
5.03 The resulting oversupply is exacerbated by institutional changes introduced cluring
the transition, as can be demonstrated by the Polish experiences. First, exports stagnated
following the abolition of the national and secondary cooperative structures responsible
for dairy stock management. This led to a high degree of uncertainty and indecision,
followed by distress selling at extremely low prices (one-third to one-half the world market
price), particularly of butter. Single buyers continue to dominate the regional markets.
The price liberalization and abolition of national dairy and meat monopolies have therefore
led to the maintenance of inefficient regional monopolies, which compensate for the
reduction of subsidies by increasing overhead margins instead of improving efficiency
(Knudsen 1991). The productive sector is thus hostage to inefficient input supply and
processing and marketing sectors. At the farm and industry level the situation is
exacerbated by high inflation and the imposition of positive interest rates, which led to
financing charges which the sector could not meet. This is leading to an eliminatilon of
the most inefficient enterprises as well as a general contraction of the sector. In some
instances especially the more progressive farmers are affected. For example in Poland,
hard hit by plummeting dairy prices (para 4.03), the medium sized progressive farms,
- 16 -
which are more exposed financially, were more severely affected and had to slaughter
their cows.
5.04 The fall in production and demand directly affects the financial viability of the agro-
processing industry. This trend was observed in Poland in mid-1 990 after the introduction
of the stabilization program. The Polish feed mill industry experienced a drop of 60
percent in demand following the stabilization program and operated at 20 to 30 percent
capacity. To survive, the industry drastically increased its margins for processing and
distribution, which in turn brought the feed price to a level about double the raw material
costs, compared with a processing and distribution overhead of about 20 percent in
Western Europe. This is leading to a strong shift toward on-farm mixing. (Polish-EEC-
World Bank Task Force, 1990).
5.05 After about 1-2 years of adjustments, livestock population have declined by about
5-20 percent and production by about the same amount (table 7 and Annex table Al0).
Some of the factors which explain the different trends (Annex table 10) are:
(a) Countries which depended Table 7. CHANGES IN LESrOCK NUMBERS AND
on external trade, Hungary PRODUCTION (1989-1991) IN CZECHOSLOVAKIA,
and Romania eampye HUNGARY, POLAND AND ROMANLA
and Romania example,
showed the steepest decline Livestock Livestock
in livestock number and numbers production
production. This was to be -------------
expected with the declining Cattle -15% Beef +5'%
purchasing power of their Pigs -4% Milk -18%
major trade partner e.g. the, Sheep -14% Pork - 2%
Poultry -22% Broiler meat - 8%
now former, Soviet Union.
(b) Countries with a strong
internal market and a private livestock industry seem to be less severely
affected.
(c) The reduction in consumer subsidies on milk and the subsequent decline
in milk consumption", led to surplus production and consequently a
forced culling of dairy cows. The production surplus was exacerbated by
subsidized imports from the EEC, especially in the more open market in
Poland. This culling of dairy animals led to the strong increase in the beef
output, although this is, of course, temporary.
(d) The decline in the sheep sector was probably caused by the, temporary,
weakening of the Middle Eastern export market, especially to Iraq, one of
the main buyers of Eastern European sheep.
(e) The decline in the poultry industry is mainly a result of declining export
(Hungary, Bulgaria, Romania), of the difficulty to obtain quality feed, and of
fl/ For example, per capita milk consumption in Poland is estimated to have declined from 279 liters fluid milk
equivalents over the 1984-1990 period to 239 fluid milk equivalents in 1991.
- 17 -
the general decline of the social sector, which even in Poland, was heavily
involved in poultry production.
(f) Finally, the better performance of the pork sector (especially in Poland) is
mainly the resuft of a strong internal market for pork and the low prices for
cereals and potatoes, leading farmers to use these products for pork
production.
5.06 These adjustments are small in comparison with the changes in former East
Germany, where from the winter 1989/1990 to summer 1991, cattle numbers declined
by 30 percent and pig numbers declined by about 50 percent (Isenmeyer, 1992). It is still
too early to assume that no further adjustments can be expected in the Eastem and
Central European livestock sector. However, the latest trends in the Eastern European
markets point to consolidation, now that livestock numbers have adjusted to the 10-20
percent drop in local demand, as well as to the reduction of export to the former USSR.
For example, the milk prices in Poland have been rising from the low of $0.04 per liter to
a more attractive $0.12 per liter (Kowalski, 1992).
- 18 -
Chapter 6. FUTURE PERSPECTIVES
Overall Perspectives
6.01 A tentative assessment of the comparative advantages of Eastern Europe with the
main other producers active on the world market are:
(a) For dairy and beef production, positive aspects of the physical environment
of Eastern Europe are the predominance in several countries of poor soils
which absolutely require organic manure, the more continental climate
suitable for high quality fodder and grassland production and conservation,
and many (upland) areas suitable for ruminant livestock production only. On
the negative side are the rather short growing season and frequent dry
summers. The farm structure, with large plots in those countries with
previous collective land ownership, favors efficient fodder-harvesting
techniques. Many units, especially in Bulgaria, Czechoslovakia and Romania
are too large, however, for efficient management and sound environmental
practices. On the other hand, farm size in Poland and Yugoslavia is too
small to permit rational feed and animal management. Farm labor is
generally low cost and skilled, although frequently too specialized, and
poorly motivated. Inadequate skill levels are particularly evident in dairy
production. Farm installations are frequently outdated and environmentally
unsafe. In Poland and Yugoslavia, the farm size is too small to permit
essential investments in quality improvement, especially for milk. Genetically,
Poland and Hungary have good quality stock, hardy enough to resist the
somewhat more severe winters of Eastern Europe. The animal health status
has, so far, been good. The meat and milk processing industry which is
weak, burdened with poor quality raw material, has poor equipment, and
has limited product diversification.
(b) Many of these factors apply also to the pig and poultry C(white meat")
sector. The long severe winters and poorly insulated buildings constitute
a strong handicap, in particular for poultry production, where low
temperatures directly affect feed efficiency. The poultry industry will
therefore need to concentrate in the areas with more moderate winters. On
the other hand, the warm summers in the southern countries provide
excellent possibilities for the production of cereals and high quality protein
feeds. The more easily mechanized white meat sector suffers less from the
labor deficiencies sketched above, and profits from the lower labor costs.
As regards farm structure a key issue in the livestock sector is the cost of
reducing the environmental contamination of the "mega-units". Experience
in East Germany indicates that in many instances outright closure is the
only solution. The key technoloaical constraint is the structural feed protein
deficiency in the area, although technologies are becoming available to
address this issue. With the increasing globalization of the livestock
breeding stock supply, the current inferior quality of pig and poultry breeds
in Eastern Europe needs only to be a temporary drawback. The processing
industry suffers from outmoded and dilapidated equipment, and is in ts
present state not competitive with the West European or North American
- 19 -
industry. A complete renovation will be required. However, if slufficient
capital is found, the processing industry would benefit from the significant:
recent technology advances in food processing and could build up a very
modern equipment base. With prevailing salaries low, a renovated industry
could thus become one of the most competitive industries in the world.
(c) Eastern Europe traditionally had a strong leather industry. At present the
utilization of bovine hides is higher (in Czechoslovakia and Romania
approximately 300 percent) than domestic production. Productivity is low,
and improvements can be made in quality (for example from sole leather to
fine leather).
6.02 With little attention given to real production costs under the command economies
of the past, there are almost no data to assess how these factors affect production costs
relative to those from other major meat and milk producing areas in the world. There is
thus an urgent need to develop such comparisons. A preliminary assessrnent of
production cost for meat and milk in Poland indicates that Polish production costs foir
meat and milk are competitive with world market prices (table 8).
Immediate Market Prospects
Table 8. APPROXIMATE PRODUCTION COSTS AND
6.03 In the short term the domestic DBOARDER PRICES OF MAIN LIVESrOCK PRODJCTS IN
market for animal products will continue to
decline with further removal of subsidies
and falling purchasing power (Annex 2). Item Production World Market
Similarly, profitable export markets are Cost Price
unlikely to increase substantially in the
near future, although the EEC decision to
purchase meat and milk in Eastern Europe MiLk 0.12 0.14
for food aid to the CIS may provide some Pork 0.75 1.00
relief. Access to the EEC is being Poultry 0.70 0.80
regulated under so-called association Beef n.a. 1.20
treaties, which are already signed with
Czechoslovakia, Poland and Hungary and Source: Polish-EEC-WB Task Force (19S0)
are being negotiated with the Albania,
Bulgaria and Romania. The association
treaty (Annex 2) with Czechoslovakia,
Hungary and Poland allows a gradual (5-10 percent per year) increase in the reduced
tariff import quota reaching 179,000 ton meat and 300,000 live cattle in the year 19963
(Mortensen, 1992). While important, the total quota would only cover about 3 percent of
the total production and about 25 percent of the exports. Chances for increased demand
from the Middle East are not very bright.
Longer-Term Prospects
6.04 Long term prospects are difficult to assess. In most countries the! output
contraction of 10-20% will, at least for the next five years, be permanent. Population
growth has stagnated in the most of Europe and both meat and milk demand are
- 20 -
expected to rise between 0.5 and 1 percent in both Eastern and Western Europe. Key
imponderables are:
(a) Economic developments within Eastern Europe. Using the consumption
patterns in Italy and Austria as an arbitrarily selected standard (Annex Table
3.), meat consumption in all Eastern European countries may still rise
modestly in the long term. Consumption of milk products (cheese, yoghurt
etc.), rather than fluid milk and butter, may rise significantly. These
increases reflect a slight convergence towards consumption patterns in
more affluent western societies. At present neighboring countries already
are important trade partners, and future demand in anyone country will
depend on the economic development, especially in deficit countries such
as Czechoslovakia.
(b) Political and economic development in the Commonwealth of Independent
State (CIS). Eastern Europe has a comparative advantage in terms of
distance, familiarity with culture and language and experience with trucking
of perishable goods.
(c) Access to the EEC through the GATT negotiations and the reduction of
protection and subsidy levels of the EEC. The outcome of these ongoing
processes is difficult to assess. The increasing resistance from the Western
European governments to continue the high level subsidy to their livestock
sector, and political considerations of the EEC towards providing greater
access for Eastern European products are presently by counter balanced
by strong protectionist demands of the livestock fam lobby in the EEC.
(d) Competitiveness of Eastern European livestock products in the Far East.
The major expansion in the world meat market is in Korea, Taiwan and
Japan. For example poultry meat imports increased 62 percent in Japan
over the period 1987-1990. However, the competition is heavy from New
Zealand, Australia and Thailand, who have a comparative advantage in
terms of distance and quality. In addition, China has seen a very strong
development of its production over the last decade and will be a strong
competitor in the future as well.
(e) Economic development of Africa and the rest of Asia. Demand for livestock
products in other developing countries has been increasing at a rate of 2
percent per year, and the low quality, but inexpensive Eastern European
livestock products have a place in this market.
The Future Shape of the Industry
6.05 Considering these factors together, a following vision emerges of the Eastern
European livestock sector in the year 2000. Overall composition of the sector, This will
mostly be defined by the growth of the internal market and the changes in consumer
preferences.
- 21 -
(a) The fall in demand is expected to consolidate at about 20 percent, future
annual growth of about 1% percent. That means that in the year 2005 the
overall sector could be of about the same size as at the end of the eighties
before transition, although this will depend to a large extent on trade
performance.
(b) The increased opening to the West will bring about increased health
consciousness, which will imply (i) an increased consumption of poultry
meat, now at approximately 15 kg/per capita,12 (ii) a stabilization or
reduction of beef consumption; (iii) a lower pork consumption, and
consumer preference for much leaner pork (i.e. lower slaughter weight).
Assuming an annual per capita increase in consumption of 1.5 percent for
poultry meat and a 0.5 percent per capita decline in pork and beef
consumption, internal demand would increase only slowly.
6.06 Farm size and enterprise form will depend on the pace of establishment of land
markets and to what degree they are liberalized. Farm structure will further depend on
the economic growth in other sectors (industry, services) are able to absorb surplus
farming population and allow restructuring. Provided some modest restructuring is
possible, three forms of farms are likely to emerge:
(a) The large enterprise, evolving from the current state farms and
cooperatives, with shared ownership by the former laborers/members.
Experience in former East Germany indicated that this is the preferred
enterprise form in the initial phase, one year after the unification aboult 90
percent was still managed as a large unit. Key factors for the success of
enterprises will be their capacity to (i) reduce surplus labor by at leasit 50
percent; and (ii) persuade commercial banks to grant them loans
(Isenmeyer, 1992) to upgrade installations and machinery. To avoid
diseconomies of scale, and environmental pollution, maximum limits per unit
for livestock will probably between 500-1000 cows and 1000 sows, although
within an enterprise several of such units could be envisaged.
(b) A substantial part of the large enterprises will break up eventually in medium
sized farms of 100-200 ha with crop and livestock production, and about
200 cows and/or 500 sows, owned and managed by small partnerships or
individual families. On the other hand, many of the small farms, presently
being formed (para c) in Romania and Bulgaria might amalgamate in such
large farms as well. These farms could be the backbone of the future
agricultural production in Eastern Europe, as they will combine the
advantages of adequate overall farmsize and large plots with individual
management.
(c) Small sized part-time farms will remain the mainstay of agriculture in Poland,
Albania and Yugoslavia. They might well become the dominant feature of
the other East European countries, if surplus farm labor can not be
absorbed in other sectors of the economy, and if limits continue to be
L2/ Except for Hungary and Poland with a PC consumption of respectively 22.7 and 8 kg (1990).
- 22 -
imposed on farm size. Such smaller units will offer good opportunities for
more intensive pig and poultry production, but would be less efficient in
pasture based ruminant production.
6.07 In the long term the European livestock industry may see more drastic changes.
The poultry industry, for example, now located close to the ports of entry of American
grain and soy beans, may transfer south eastwards towards Hungary, Romania and the
southern FSU which are expected to be major growers of these crops in the early 21st
century. These changes will also influence consumer preferences, major technological
advances and the concerns about the environmental aspects of intensive livestock
production.
- 23 -
Chapter 7. FUTURE ACTIONS
Management of the Transition
7.01 Consistency and continuation of the policies during the transition period are of
immediate importance. The high share of livestock products in the diet of the East and
Central European population makes these adjustments in the livestock subsector
particularly sensitive and difficult to manage. There is a danger of overreaction from the
govemment, with reimposition of price controls, guarantees, and producer and consumer
subsidies. These, if instituted, would simply delay the inevitable consolidation and impede
the emergence of a more efficient industry. Still measures might be justified to conserve
the most efficient operators in the sector and maintaining its comparative advantages.
This could include the following steps:
(a) While preparing ownership transfer, the multiple activities of state and
cooperative farms need to be restructured into financially autonomous units
to avoid cross subsidization between these units. This implies the
introduction of individual autonomy and cost recovery for units that supply
inputs (feed mills), services (animal breeding, health, etc.) marketing and
processing and the farm proper; these activities are at present frequently
carried out by a single social enterprise without individual cost and profit
accounts. To enhance competition, this might in some cases imply a
complete breaking up of the original enterprise in independent units. More
often, however, it will, at least for the time being, imply maintaining the
financially autonomous enterprises within a vertically integrated structure;
(b) introduction of improved financial and managerial control to ensure that the
individual profit centers are managed as such and to avoid asset stripping
and pilfering, particularly during transition;
(c) introduction of subsidy policies for state and cooperative farms and
livestock processing plants, with clearly spelled out reduction targets and
time spans, to eliminate almost immediately the most poorly operating
enterprises. The subsidies should be in the form of direct transfers (and not
as price or input transfers), and should aim to promote efficiency. They
could be tied to agreed-upon development plans on labor reduction and
input usage.(as currently done in former Eastern Germany) or subsidize
investments in product quality or efficiency improvements in, for example,
energy and feed utilization;
(d) improvement of the efficiency of existing enterprises through the supply of
critical inputs such as protein and other feed additives to improve feed
efficiency, and essential vaccines and drugs, to maintain adequate animal
health status;
(e) introduction of measures to promote higher quality products. This would
imply the immediate introduction of a much higher price differential for more
hygienic milk (lower bacterial count) and leaner (thinner backfat) pigs. Such
- 24 -
measures would mainly benefit better managed enterprises, which would
already have a better quality control, and could be complemented by other
measured in the longer term (para 7.01); and
promotion of privatization, and efficiency gains in the processing industry.
This deserves the utmost priority, as experience, for example in Poland,
clearly shows that stagnation and poor price transmission in the meat and
milk processing industry is one of the key causes of market collapse.
Medium-Term Policies
7.02 Although medium to long term market opportunities exist, the volume is difficult to
predict. It is clear, however, that Eastern and Central Europe will be able to enter these
markets only if the livestock sector produces a better quality product at a low price. New
polices will therefore have to be developed in the areas of:
(a) quality improvement and incentives for quality. Following the transition
measures involving milk quality and pig carcass quality, for the medium
term, more elaborate control and incentive programs at farm and industry
could be developed to align local products quality to local consumer
preferences and make it more competitive in the international markets. For
example, the dairy pricing structure in all Eastern European countries is
almost exclusively based on the fat content, and not on the protein content
of the milk, in spite of a decreasing price for butter fat and an increasing
appreciation for protein. Furthermore, consumers will prefer increasingly
leaner meat. This, among others, can be improved by using genetic stock
producing leaner meat, and by improved feeding techniques, and by a
pricing structure which rewards quality. Similarly, regulations concerning
contaminants (heavy metals, PCB's) and the use of estrogenic growth
hormones need to be strengthened and enforced. Several parts of the
region could possibly find a special niche in the Western health food
markets. However, this would only be possible if the consumer has the
assurance that a reliable quality control system is in place.
(b) expansion of the product line, for Table 9. PRODUCT MIX OF MILK PRODUCTS IN
example, by adding baby milk, POLAND (1989) AND SWITZERlAND.
salad creams, yogurt, cheeses
and industFial dairy products Prt Percent of Milk
such as casein, skim milk powder
additives, and ultra-filtration skim Poland Switzerland
milk, etc. This includes more on-
farm processing as done for
example in Switzerland and Milk powder/
Austria. (See Swftzerland and Butter 53 12
Poland's present production mix Cheese 10 18
in table 9). With much pasture Quark 9 4
land either in hills and mountains, Cream 8 12
or on soils unsuitable for arable Other 5 6
agriculture there are excellent
- 25 -
opportunities for extensive livestock (beef cattle, sheep), home proceissing,
and/or wild life production.
(c) improved packaging and marketincg. Proper packaging would decrease
losses during transport and storage, and would make the products; morr.
attractive to the consumer. There is a need for more open imiarket
structures, especially of those which serve the retail trade.
(d) increased marketing efforts through the development (in the public and
private sector) of marketing bureaus, and training. Although cooperatives
may have a questionable name, they are useful entitity to process and
market perishable good such as milk. Such cooperatives, however, should
operate independent and be able to compete without public support with
the private sector.
(e) independent farmer. commodity and trade organizations. There is need to
foster the development of such organizations, and the linked information
networks which would improve technological and price information..
7.03 Improved quality has to be combined with increased efficiency leading to reduced
cost. The large well shaped fields of the majority in the East and Central European
countries could be used for competitive, low-cost fodder production, if well managed.
Specific possible technological improvements include the following:
(a) a much greater emphasis in ruminant production on fodder and pasture
based production, shifting away from the concentrate-based feeding
practices used until now. Within the forage based production strategy,
more emphasis to be given to natural pasture improvement, especially with
the use of clover mixtures, to replace chemical fertilizer;
(b) more attention to protein quantity and quality. Especially for thie non-
ruminant sector, better balanced rations especially in essential amino-acids
reduce cereal consumed and lowers cost. Promising possibilities exists in
the cultivation of sunflower and soya in the southern countries and in the!
cultivation of field peas and fava beans (following the development of these
crops in Austria) in the northern countries. The rapidly changing production
technology and the present world market surplus does not favor local
industrial production of the essential amino-acids (lysine and methionine).
(c) more attention in cattle breeding to produce optimal breeds, not necessarily
aiming for maximum yield, but for optimum efficiency combined with
hardiness, with good fodder conversion qualities, and paying attention to
milk protein content rather than fat. For the non-ruminant production. aimingi
at better feed conversion characteristics, and for all livestock more attention
to economic quality aspects (slaughter quality, milk composition, etc.);
(d) more attention to labor and energy efficiency in farm buildings ancl
equipment;
- 26 -
(e) more attention to specific niches products including wild-life/livestock
systems;
(f) stratification of the production systems with young stock in the upland
grazing areas and dairy and feeder pig production units in the more
intensive areas;
(g) the outlook on productivity enhancement using hormones and feed
additives is not clear; Eastern European livestock producers should
embrace these productivity enhancers if approved and used in the 'West;
(h) improvements in management incentives and the provision of services as
described in the following paragraphs.
7.04 The need for greater efficiency must be combined with an increased concern for
the environment. The "megaunits" of the social sector and the aging dairy and meat
industry are major sources of pollution, and an increased demand for more
environmentally friendly industry can be expected. Technical solutions are available and
enforcement mechanisms along the lines of West European countries can now be
introduced. Pollution control should be an integral part of any modernization effort.
Existing facilities requiring an excessive clean-up might have to be closed down. All these
processes lead to a substantial extensification and would reduce environmental pollution
by the sector. The greater efficiency can also only come about if the sector is supported
by effective services. The required policy changes in these areas are detailed below.
7.05 In animal health care, a better division between public and private sector
responsibilities is an essential first step. It could be carried out according to the following
principles:
(a) curative and most preventive veterinary health care (including feed analysis)
can be easily privatized and fully charged to the producer, a better
diagnostic service can be developed with support of producer groups and,
if necessary, some public funds; and
(b) public goods services such as sanitary control, food inspection, diagnostic
services, and vaccinations against the main epizootic diseases will remain
public sector responsibilities, although most of these tasks can be
subcontracted to private veterinarians (de Haan, 1991).
Key issues in most Eastern European countries are the pace of privatization, the
incentives provided to private veterinarians and the fate of the veterinary technicians,
whose jobs may become redundant under a private animal health care system. Key
technical issues are (a) maintenance of the prevention of epizootics and diseases of
public health importance, (b) improvement the housing and other facilities, and (c)
orientation towards production diseases and (d) ensuring supplementation with
microelements and vitamins where necessary. A considerable training effort will be
necessary to improve the management skills of the veterinarians to operate in the private
sector.
- 27 -
7.06 In animal breedina, there is little justification for the state to carry out and provide
free animal breeding services. In countries where not yet practiced, a full cost reicovery
should be introduced in the short term, with a view toward medium-term privatiization.
Furthermore, increased efficiency needs to be sought to improve the pace of genetic
progress in the population. This entails (a) the organization of Al, performance testing
and herd book services in separate organizational units, and (b) substantial improvements
in the efficiency of bull selection, particularly proven bull use. Several countries can make
further improvements by restructuring their Al stations and inseminator networks.
7.07 Many of the suggested actions depend on the ability of the extension system and
farmers to adjust to the changing circumstances. Many of the required changes are
generic and do not specifically relate to animal production:
(a) commodity groups and producer associations need to be set up at the farm
level and strengthened to make research, extension and education more
relevant and accountable. Farmers groups are needed to obtain a more
economic focus, a better integration of crop and livestock production, and
a higher accountability and efficiency in research and extension. Extension
and education should assist male and female farmers to better formulate
priorities and work plans. These groups and associations should be given
the opportunity to acquire the skills to build up networks that can cooperate
(or compete) with the agro-industry, and identify and develop markets.
(b) at the institutional level there is a need for restructuring to make the
institutions leaner and more efficient. There is a need, upon privatization of
(part of) the service, to identify and correct the skill gaps. A masterplan for
hiring and training should be developed.
(c) there is a need for consumer education, especially regarding human
nutrition. Apart from an educational responsibility to inform the plublic at
large, a legal framework may have to be set up (by government) that
balances promotional efforts by the industry with private interest, public
health.
7.08 Livestock extension and education must focus increasingly on the private producer,
and more appropriate technologies need to be developed for the private sector. Farm
laborers need to acquire broader skills. Technically, they need more information on
improved nutritional management, and, above all, in grassland and fodder management
and conservation.
Changes In Property Rights and Farm Organization
7.09 In Hungary, Czechoslovakia, Romania and Bulgaria, laws restoring rilghts of
landowners at the time of collectivization were passed in 1991. These laws will bring a
profound change in land management, although these changes may appear with some
delay; the same applies to a lesser extent to animal ownership which even traditionally
was largely private. Asset ownership and use need not be synonymous if contractual
relations can be entered into rather freely. For example, fragmented ownership need not
- 28 -
entail fragmented use13 if rentals and sales can be easily negotiated. The major lesson
to date to emerge from passage of these laws is that prior patterns of use appear to
withstand even radical changes in ownership. It will be important in the future to promote
policies consistent with efficient asset use, as prior use changes in response to new
conditions. The following factors will be important: competitive provision of machinery
services derived from the inherited stock of machinery plus new additions under new
ownership; rigorous evaluation of applications for credit, including clear demonstration of
ownership of assets offered as collateral; removal of preferential access to inputs,
services, and markets on the part of remaining state enterprise; and removal of
constraints on contracting, such as prohibitions on sale, mortgage, and lease, or
maximum holdings.
7.10 As farms are reorganized, distribution of liabilities as well as assets will have to be
addressed. For the livestock sector, the question of who is responsible for environmental
cleanup will be important.
7.11 In the long-term private ownership, with free transfer of the property rights of all
assets (land, processing facilfties, etc.) should be the goal.
7.12 A more comprehensive privatization effort of the agro-industry, which also includes
a major change in management incentives at the regional level, is an imperative for the
development of the productive sector. The identification of the type of measures that
would lead to such crucial behavior is one of the key questions, for which not yet all the
answers exist. Both privatization and private entry will be important.
Xl/ Large plot size, allowing efficient utilization, was one of the few positive lgacies of the previous system.
-29 -
Chapter 8. THE ROLE OF THE WORLD BANK: PAST. PRESENT AND FUT IURE
8.01 World Bank lending for livestock to Hungary, Poland, Romania and Yugoslavia over
the period 1975-90 amounted to about US$650 million. Annex table 9 provicdes an
overview of the Bank's past lending in the livestock subsector to these countries.
(Bulgaria and Czechoslovakia only recently joined the World Bank and have not yet
become substantial borrowers for the livestock sector.) Most livestock lending covered
all species, although subsector-specific projects included pig production and processing,
poultry production (Romania) and livestock processing (Hungary). In Yugoslavia, the
emphasis was on regional development projects with relatively small livestock
components.
8.02 The results of these projects have in general been favorable. Evaluations after
project completion showed that three of the four livestock-only projects and 10 of the 13
livestock component projects had been successful, that is, provided an economic return
of 10 percent or more. Important constraints were (a) the lack of quality feed to fully
utilize the improvements in buildings, equipment and animals brought about by the Bank-
funded projects; (b) excessive price controls, which affected the adoption rate of the
improved technologies; and (c) limited institutional capacities to implement the projects
on time.
Future Lending
8.03 The World Bank expects to lend US$8-9 billion to Eastern European countries over
the next three years. This would include about 10 percent for agriculture and 15 to 20
percent for environmental concerns (the share of livestock-related activities to be financed
has not yet been determined). The focus of the lending program would need to reflect
the results of the sector analysis discussed above and would have the folilowing
characteristics:
8.04 At the policy level:
During Transition
(a) encourage the continuation of present policies of liberal pricing and subsidy
reduction, eventually, if necessary, preserving, through well targeted
subsidies protecting the most efficient producers and processors, and
vulnerable groups through targeted food (milk) subsidy programs;
(b) discourage constraints on land and asset use, such as defined farm size,
restrictions on contracting, and prohibitions on hiring of labor or services;
but encourage a pluralistic approach;
(c) ensure that the various enterprise forms are subject to the same subsidy
and taxation regimes, and have equal access to services, inputs and capital;
(d) assist in the development of a legislative environment which fosters private
enterprise and a market oriented economy, with respect for human welare;
- 30 -
(e) assist in the re-orientation of the management and labor force, through (re-)
training and re-organization;
(fl urge the introducing of stricter quality standards and quality price incentives
for meat and milk, and associated products;
(g) urge the introduction of stricter environmental standards for intensive as well
as extensive production units, among other be encouraging mixed land use.
8.05 At the institutional level:
Encourage institutional changes, which inter alia would
(a) promote, in research and extension, a closer cooperation between animal
health and animal production disciplines and, more generally, between
livestock and crop production;
(b) establish a clearer distinction between animal breeding and performance
recording schemes;
(c) promote close relationships between Eastern and Western (or other)
institutions, not only in research, but also between breeders and other
private industry organizations;
(d) promote extension services, with emphasis on farm management;
(e) sponsor privatization of animal health and production services, and the
development of commodity groups and producers associations;
8.06 At the project level:
(a) fund research on priority areas of grassland and fodder production, protein
feed crops, adapted farm mechanization and housing, and livestock/wildlife
management systems and their economic evaluation;
(b) support conservation of local genetic stock;
(c) where econ6mically warranted, promote the environmental clean-up of the
oversized and excessively polluting production units;
(d) promote where necessary, land consolidation programs, and especially
those which promote the complimentarily between the hill/mountainous
areas and the higher potential areas;
(e) fund, in conjunction with the private sector, more efficient internal and
external marketing systems including export promotion boards;
(fl develop criteria for evaluation of credit risk to assist the commercial banks
to evaluate loan applications for farm building and consolidation, adapted
- 31 -
mechanization programs, and quality and efficiency improvements and
diversification in the feed mill and meat and milk processing industry;
(g) sponsor extension services, with emphasis on farm management aspects;
and complementary to the private livestock breeding, supply and animall
health services;
(h) develop risk sharing mechanisms (partial bank guarantees) to promote joint:
ventures with foreign companies.
8.07 Much of the future success of the transformation of the livestock industry depends;
on information. Farmers need marketing information (e.g. prices, market transparency)
and production efficiency advise (e.g. technical, economical or efficiency advise);
institutional staff need (re) training, while educational institutions need to be re-oriented.
Therefore this review supports the Bank's approach to the reform of the agricultural
information systems as proposed or implemented in Poland, Hungary and Romania.
8.08 As animal production is often a major component of mixed farm systems, most olf
the Bank support will generally be directed through larger multi-component agricultural,
environmental, institutional, or agroprocessing projects. The rapid change of the
economies in these countries may require relatively frequent updates on the sector.
- 32 -
REFERENCES'4
Anon. (1991). Agriculture and Environment in Eastern Europe and the Netherlands.
Conference Proceedings. September 1990. Wageningen: Stichting WOL.
Csaki, Cs. (1991). Agricultural Changes in Hungary and Eastern Europe and Their
Possible Impacts on International Trade. O.E.C.D.-Netherlands seminar on the
agriculture of Hungary. The Hague: Ministry of Agriculture, Nature Management
and Fisheries, p. 35-71.
Cochrane, N.J. and Lundell, M.R. (1991). Agriculture Privatization and Land reform in
Central Europe. World Agriculture, April 1991.
de Haan, C. (1991). Uvestock production and enterprise reform in Eastern Europe.
In: The Uvestock Production Sector as Affected by Current Changes. EAAP
Publication 57. Wageningen (The Netherlands): PUDOC
Demyanenko, V.N. (1991). Structure of the Soviet and US Food Systems: A
Comparative Analysis. Food Policy, 14, 284 - 298.
EEC. (1990). The Agricultural Situation in the Community. Brussels: E.E.C.
FAO (1990). European Agriculture: Policy Issues and Options to 2000.
ERC/88/INF/4. Rome: FAO.
FAO (1990). Production Yearbook 1989. Rome: FAO.
FAO-WHO-OIE. (1990). Animal Health Yearbook (1989). Rome: FAO.
Habe, F., Erjavec, E., and Tavcar, T. (1991). Country statement on Yugoslavia. In:
The Uvestock Production Sector as Affected by Current Changes. EAAP
Publication 57. Wageningen (The Netherlands): PUDOC.
Hinrichs. (1991). Personal communication
Hungary, (1991). Statisztikai Havi K6zlemenyek (various issues)-
Isenmeyer, F. (1991). A Comparative View and Case Study: Animal Production in a
unified Germany. In: The Uvestock Production Sector as Affected by Current
Changes. EAAP Publication 57. Wageningen (The Netherlands): PUDOC.
lsermeyer, F. (1992). Restructuring East Germany's Agriculture-Facts, Problems and
SJ4 Most data originate from World Bank sector reviews, which are based on freely available national statistical
sources, but as sector reports are only available for official use. They include agricultural sector reports on
Hungary (1985 and 1989), agricultural sector updates for Yugoslavia (1990) and Romania (1991) and Bulgaria
agricultural sector reconnaissance (1990).
- 33 -
Perspectives. Paper presented at the 2d Round Table on Animal Production in
Eastern Europe. Berlin, January 1992.
Knudsen, 0. (1991). 'The Macro-economy and Structural Adjustment in Poland." In:
Agricultural issues in the 1990's. Proceedings of 11th Agricultural Sector
Symposium, Washington D.C.: The World Bank, p. 165-177.
Kowalski, T. (1992). "Current situation in animal production in Poland". Paper
Presented at the 2d Round Table on Animal Production in Eastern Europe.
Berlin, January 1992.
Medgeyesi, E. and Tompa B. (1991). Helyzetk6p a mez6gazdasagr6l. Statisztikai
Szemle 69, 37-58.
Mortensen, K.F. (1992) Trade Perspective for Animal Production between Eastern
European countries and the European Community. Paper presented at the 2d
Round Table on Animal Production in Eastern Europe. Berlin, January 1992.
Podebraski, Z., Habovstiak, J., and Biros, V. (1991) Czechoslovakia Country
Statement. In: The Livestock Production Sector as Affected by Current
Chanaes. EAAP Publication 57. Wageningen (The Netherlands): PUDOC.
Polish-EEC-World Bank Task Force (1990). An Agricultural Strategy for Poland.
Washington, D.C.: The World Bank.
Romania. (1991). Ce facem din zootehnia tarii? Tribuna economica 24.
United Nations. (1989). Le march6 du b6tail et de la viande. Revue agricole pour
l'Europe. Report ECE/AGR/103 (vol. IV), New York: United Nations.
van der Zijpp, A.J. (1991). Sustainable Animal Production, a response to
environmental problems. In: The Livestock Production Sector as Affected by
Current Changes. EAAP Publication 57. Wageningen (The Netherlands):
PUDOC.
Zhurek, S. J. (1991). lntra-CMEA food trade. Implication for USSR. Food policy 14,
299-305.
-34 -
ANNEX I
Page 1 of 7
TABLE Al. THE IMPORTANCE OP LIVESTOCK AND LIVESTOCK COMMODITIES IN THE NATIONAL
PRODUCnION OF EASTERN EUROPE (perent)
Bulgaria Czech. Hungary Poland Romania Yugoslavia
Agriculturalshare GDP 19 8 16 20 16 14
Livestock share
of agric. GDP 40 57 46 50 50 50
Milk 18 27 14 28 15 24
Beef 18 27 12 20 21 25
Pork 33 33 46 38 30 25
Mutton 11 1 4 3 11 5
wool 1 0 0 0 1 0
Eggs 10 7 9 6 11 10
Poultry meat 9 5 14 5 10 9
Note: Based on FAO Production Yearbook figures and esimated 1990 average world market prices (per ton beef
US$2,650, pork US$1,500, mutton US$2,560, milk US$1,600, eggs US$1,200 and poultry meat US$950).
TABLE A2. PRODUCER SUIDY EQUIVALENIS OF THE MAIN LIVFSOCK PRODUCTS IN POLAND
1986 1987
Private State EEC Private State EEC
Pork 28.1 36.6 5.0 n.a. n.a. 5.0
Beef 15.7 4.0 50.0 39.1 39 46.0
Milk 57.1 77.9 73.0 22.7 41.1 68.0
Soure: Knudsen (1991)
TABLE AS: PER CAPITA CONSUMPTION PATTERNS; DAILY CALORIE AND PROrEIN INTAKE (IN 1988) AND ANNUAL HEAT AND MILK CONSUMPTION (IN KG)
Counby Caloies Poein All red meats Beef Pont Lamb/mutton Pouloy meat Fluid milk Cheese Butter
(day) (g/day) 1984-86 1990 19871990 19871990 19871990 1990 1986 1990 19861990 1986 1990
Poland 3456 102 76 64 21A 20.8 45.8 40 0.8 0.7 7.9 153.5 153 3.3 4 9 8.9
Czechodovakia 3563 107 88 85 27.2 26A 52.9 57.8 OA OA 13.7 96.5 92.S5 8.2 9 9.7 9.6
Hungary 3599 103 101 76 8 6.7 88A 69A 0.2 0.2 21.9 93 85 3.8 3.8 3.0 3.1
Romania 3352 103 67 60 55 13.0 52.7 37.7 0.8 2.1 11.5 108 129 3.3 4 1.3 2.4
Bulgaria 3612 109 77 70 13A 14.7 45.9 46.7 10.8 8.6 15.6 na n.a na .na n.anaL
Albania 2728 84 27 na una na na n.a na n.a na na na na na Dna na
Yugodl 3501 101 68 67 13.0 155 35.7 35A 2.5 2.8 13.4 88 825 2 2 .5 5
USSR 3378 106 677 67 29.7 31.0 23.4 23.8 3.3 35 13.0 92 76 3 3 6.7 7.1
Ausra 3472 99 99 98 22.4 22 51.15 2.7 na na 12.2 160 133 7 8.5 5.3 5.1
Itay 3603 110 81 80 27.1 270 28.4 29.6 1.6 1.7 18.8 79 73 15 17 2.2 1.8
Geanuy 3338 103 104 103 225 19.3 55.1 11.9 0.8 1.0 55.1 54 60 85 10.4 7.9 7.1
Jaan 2781 90 36 36 7.2 8.7 16.2 16.7 12 1.0 142 365 405 0.9 1.1 0.7 0.7
s BPAO Producto Yearbook PAO Consunwtio Yeanioo&: USDA Wodd Dairy Situatbo *: induding poultry
to
�1
- 36 -
ANNEX 1
Page 3 of 7
TABLE A4. ESTIMATED PRIVATE OWNERSHIP OF DIFFERENT LAND CATEGORIES IN EASTERN EUROPE
(PERCENT)
Bulgara Czechoslovakia Hungary Poland Romania Yugoslavia
1990 1989 1988 1990 1990 1987
Arable land 16 3 17 77 9 82
Pasture n.a. 11 3 73 9 61
Farm size (ha)
Private farm 0.5 0.1 0.3 6.4 0.6 3.5
State farms n.a. n.a. 7,600 2,768 5,500 694
Cooperatives n.a n.a 4,500 500 2,100 94
Source: Bank sector reports and USDA.
TABLE A5. SHARE OF THE LIVESTOCK POPULATION OWNED BY THE PRIVATE SECTOR
(percent)
Hungary Poland Romania Bulgaria Yugoslavia
Cattle 24 82 34 16 90
cows 30 88 52 24 n.a
Pigs 52 70 28 17 80
Sows 64 72 20 29 n.a
Sheep 16 67 48 20 100
Poultry 38 67 38 42 48
TABLE A6. AVERAGE MILK YIELD IN THE DIFFERENT SECTORS
(ItItactation)
Poland Hungary Romania Yugoslavia EC12
(1989) (1985) (1990) (1989) (1989)
Private 3,115 3,950 2,012 1,700 4,571
Cooperative 3,840 4,463 1,571 n.a. n.a.
State 3,996 5,319 2,970 5,300 n.a.
Overall 3,250 4,400 1,958 1,811 4,571
- 37 -
ANNEX I
PAge 4 of 7
TABLE A7. EXPORT OF LVE ANIMALS AND BEF IN SELECTED COUNTRIES
E. Europe Yugoslavia Ireland
1981-83 1986.88 1981-83 1986-88 1981-83 1986-88
'Live animals (1000 hd) 544.5 6293 103.5 115.9 407.2 2793
Meat (MtxlOOO) 131.5 1953 34 26.1 219.8 340.7
Live/meat ratioa .84 .64 .61 .89 37 .17
a. = Export meat/meat equivalent of live cattle export
TABLE A8. CHANGES IN SOYBEAN IMPORTS IN SELECrED EAsTERN EUROPEAN COUNrRIES
Counby Average Quantity Average Value of Imports
Impoted (in MT) (US$1000)
1970-79 1980-89 1970-79 1980-89
Bulgaria 16 3,816 242 18,399
Czechoslov 1,740 2,319 3,905 6,803
Hungary 693 640 934 2,030
Poland 10,626 7,515 23,624 19,976
Romania 10,366 27,400 29,120 73,980
Yugoslavia 6,048 24,098 16,451 68,358
- 38 -
ANNEX I
Page 5 of 7
TABLE A9. WORLD BANK LENDING TO EASTERN EUROPE IN THE LIVEsTocK SuBsECroR, 1975-90
Hungawy Poland Romania Yugosla�ia
Number of projects
with livestock component 3 1 7 13
Total project costs
(millions US$) 759 135 1,972 2,754
Total livestock costs
(millions US$) 350 49 1,356 562
Total Bank lending
(millions USS) 250 100 496 939
Estimated Bank lending
for livestock
(millions USS) 82 36 341 192
- 39 -
ANNEX, I
Page 6 of 7
TABLE A10. CHANGES IN LIVESTOCK INVENTORY IN FOUR EASTERN EUROPEAN
COUNrRIES (1989-1991)
Country Stock number Stock number Percent
1989 1991 date change
Czechoslovakia 5,075 4,206 (12/91) - 17
Hungary 1,690 1,540 (12/91) - 9
Poland 10,733 8,844 (06/91) - 10
Romania 5,188 4,750 - 8
Total 22,686 19,340 - 15
Czechoslovakia 7,384 6,462 (12/91) - 17
Hungary 8,327 7,000 (12/91) - 9
Poland 18,835 21,868 (06/91) - 10
Romania 14,351 11,800 (11/91) - 8
Total 48,897 47,130 - 4
Czechoslovakia 1,047 500 (12/91) - 52
Hungary 2,215 1,732 (12/91) - 22
Poland 4,409 3,234 (06/91) - 27
Romania 16,210 15,000 (11/91) - 7
Total 23,888 20,466 (11/91) - 14
Poultr
Czechoslovakia 47,000 33,929 (12/91) - 28
Hungary 57,000 42,000 (12/91) - 26
Poland 60,000 43,250 (06/91) - 30
Romania 128,000 111,800 (11/91) - 13
Total 292,000 230,000 (11/91) - 22
- 40 -
ANNEX 1
Page 7 of 7
TABLE All. CHANGES IN LuvEsrOcK PRODUCTION IN FOUR EASTERN EUROPEAN
COUNnRUES (1989-1991)
Country Stock number Stock number Percent
1989 1991 date Change
Beef
Czechoslovakia 405 324 (12/91) - 20
Hungary 114 139 (12/91) + 22
Poland 637 687 (06/91) + 8
Romania 235 310 (11/91) + 32
Total 1,391 1,460 - 5
Cow milk
Czechoslovakia 7,101 5,133 (12/91) - 17
Hungary 2,862 2,562 (12/91) - 9
Poland 16,404 13,800 (06/91) - 10
Romania 3,439 3,110 (11/91) - 8
Total 29,806 24,605 - 17
Pork
Czechoslovakia 934 757 (12/91) - 19
Hungary 1,014 1,100 (12/91) + 8
Poland 1,854 1,875 (06/91) + 1
Romania 840 815 (11/91) - 3
Total 4,624 4,547 - 2
Poultry meat
Czechoslovakia 233 250 (12/91) + 7
Hungary 590 490 (12/91) - 17
Poland 474 465 (06/91) - 2
Romania 380 350 (11/91) - 8
Total 1,677 1,555 - 7
- 41 -
ANNEX 2
Page 1 of 11
Eastern Europe Trade of Livestock and Uvestock Products
GENERAL
1. Historically the major objectives of the agricultural sector in eastern Europe were
(1) self sufficiency, (2) provision of cheap (subsidized) food to the population and, to a
lesser extent, (3) parity and (4) provision of sufficient meat, which was often the
barometer of well-being. Export (outside COMECON) and quality were, initially, not among
the main objectives and, compared to western European countries, the market share of
eastern Europe in the international livestock product market is relatively small. Still
livestock and livestock products contribute in a major way to the total agri-food export
package.
INTERNAL TRADE
2. Self sufficiency was a major objective of agricultural policy and most Eastern
European countries, with the exception of the USSR, Czechoslovakia and to some extent
East Germany, have been self sufficient in milk and meat. Internal markets, especially in
Poland, are of considerable size and will continue to be so. The population size is, with
the exception of Albania and Bulgaria, fairly stable and any major expansion of the rnarket
may be have to derive from greater per capita consumption rather than from population
increases. Per capita consumption, however, especially of meat and butter, was fairly high
already. Consumption of animal products has been declining in the last two years when
free market reforms removed some of the subsidies on food but is still equal to that in
many other developed countries. Short term the internal market for animal products may
decline further with removal of subsidies and a decrease in purchasing power. Demand
will probably stabilize within the next few years and then increase.
3. The long term outlook, using Italy and Austria as an arbitrarily selected standard,
indicates that, after the short term adjustment effects have been corrected, consunnption
in Eastern European countries may still rise modestly. Consumption of milk products
(cheese, yoghurt etc.), rather than fluid milk and butter, may rise significantly. These
increases reflect a slight convergence towards of the type animal products consunmed in
more affluent western societies, and a narrowing of dietary options (as affected by eating
out, fast food etc.). The development should coincide with an increased quality of food
from animal origin, e.g. a decline in the consumption of animal fats.
- 42 -
ANNEX 2
Page 2 of 11
4. Most eastern European countries are trying to restructure the pricing systems of
food products. The majority of subsidies have been removed which in some countries has
led to traumatic adjustments of the agricultural sector. Many of these traumatic
experiences relate to distorted local markets dominated by monopsonistic patticipants
and an inefficient agro-industry. New policies are still debated and few, apart from
removing subsidies, have been implemented. Apart from economic policy reform, most
countries' livestock economists and technicians are debating (1.) quality improvement (2.)
expansion of the product line (for example by adding baby milk, yoghurt, cheeses), (3.)
restructuring pricing systems with incentives for quality.
EXTERNAL TRADE
Situation before 1988
Table 1. Total and agricultural trade in eastern European countres during 1987 and 1988 (in US$ x 1000).
Poland Cz. slovakia Hungary Romania Bulgaria Yugoslavia
Total exports 12 500 23 500 9 500 14 800 14 600 12 000
Agric. export 1 250 675 2 000 825 1 700 1 075
Total imports 10 600 23 500 9 600 11 000 15 500 12 900
Agric. import 1 500 2 500 875 525 1 100 1 200
Source: FAO trade data
5. Agriculture contributed approximately 10 % to the total exports of most eastem
European countries, except in Hungary where agricultural exports constituted 20% of the
total external trade. All countries, except East Germany and Czechoslovakia, also had a
positive although declining agricultural trade balance during the period 1983-1988. Most
agricultural exports went to the USSR, and to some neighboring countries in eastern or
western Europe. Eastern European trade, especially with the USSR, was too some extend
governed by long term bilateral agreements at fixed prices which were, with respect to
the USSR, more or less pegged to the oil and gas exchange values (e.g. food for oil). The
arrangement with the USSR was abolished in 1990 and replaced by hard currency basis
of trade which in the short run, and depending on fuel prices, may be unfavorable to most
eastern European countries. Export to the USSR has declined during the 1980's. For
example the market share of USSR in the international markets for meats has declined
from 53% in 1982 to around 33% in 1988; for dairy and eggs from 33% to 10% (see also
- 43 -
ANNEX 2
Page 3 of 11
table 3). This decline has accelerated during 1989-1990; meat imports from Eastem
Europe declined 20% in 1989, in part because of delays in payment and of the declining
exchange rate of food/oil. Eastern Europe was looking at the EEC as a source of new
markets, did sign some agreements to facilitate trade, but seems increasingly frusitrated
by the piecemeal dismantling of trade barriers. The EEC, traditionally animporter of meat,
has become an exporter and a competitor. Import restrictions make it increasingly dfflicult
to penetrate the EEC market, especially after 1992. Moreover, export subsidies on EEC
products distort the world market and, as such, the competitive position of eastern
Europe.
6. Most eastem Table 2. Market share (in %) of exports of Hungary and Yugoslavia.
European exports _
consist of raw
products with little 1982 1988
value added. This Country Sales to Meat Dairy/eggs Meat Dairy/eggs
is illustrated in Hungary
table 4; the ratio EEC 29.2 12.7 42 18
USSR 53.3 33.4 33 9
live animal/beef Middle East 1.5 8.8 1.5 17.7
axport is nearly 3 Neighbors 4.9 24.2 9.1 36.4
Yugostavia
x higher in EEC* 33 54 62 31.7
eastern Europe USSR -4.8 -
Middle East 16.8 27.6 9.7 24.9
compared to Neighbors* 32 19 44.4 32.
selected EEC * = mainLy ItaLy, both an EEC member country and a neighbor
c o u n t r i e s . Source: National Statist. yearbooks
Whereas the
Eastern European
market share of live cattle (including calves) during 1981-1987 was around 14%, their
share of the beef market is only 8%1. This trend is even more obvious in the small
ruminant market where Bulgaria, Hungary, Poland and Romania's market share of live
animal export was over 40% in 1981-87 compared to around 15% for lamb and miutton.
7. Value added milk products contribute significantly to agricultural output in only a
limited number of countries. Cheese is the most commonly exported product (Yugoslavia,
Romania, Bulgaria, Czechoslovakia and Poland), but the total export of all of eastern
Europe is less than that of, for example, France. Butter and milk powder are mainly
I/ In some cases, however, this was related to an effort to increase foreign exchange earnings by selling livestock
and fresh meat for export and use cheaper, lower quality, imported meats for the internal market.
- 44 -
ANNEX 2
Page 4 of 11
exported by Poland and Czechoslovakia; casein by Poland. Many of these products were
exported at discount prices because of poor quality; most cheese exported to Ireland, for
instance, was mainly used as pizza topping.
8. The mechanism of external trade was distorted by oligopolistic traders; in Poland
for example the agricultural export business was dominated by only five (state)
enterprises. Liberalization of trade did, consequently, not directly result in increased
competition and more efficient markets.
Table 3. Annual export of live animals and beef of selected countries (in MTx1000)
8 e e f Live animal** Ratio
'81-83 '84-86 '86-87 81-83 '84-86 '86-87 Live/Beef (81-87)
ItaLy 48.5 108.3 107.7 3.3 1.6 .4 .02
NetherLands 231.5 292.8 316.5 68.7 86.4 83.7 .28
IreLand 219.8 269.6 340.7 89.6 74.9 61.4 .27
Austria 23. 54. 63. 21.9 19. 19.9 .43.
YugosLavia 34. 38.1 26.1 20.7 26.9 25.5 .74
E. Europe* 131.5 175.9 195.3 108.9 121.5 125.8 .71
Alt Europe 1727 2221 2397 827.8 874 853.8
B = Bulgaria, Ronania, Hungary, Czechoslovakia and Poland.
-= caLculated, assuming a sLaughter weight of 220 kg for EEC and 200 kg for Eastern European
countries.
Source: FAO trade year book
Early changes (1988-1991)
9. The transition period, of which the timing varied slightly by country, was
characterized by major changes and volatilities in the markets. The restructuring of
demand, as well as of feed supplies, including a limitation of feed imports, changed the
outlook of livestock production considerably, especially in the larger state farms and
cooperatives, resulting in a sell-off of stock2. The number of cows kept on state ;and
The suddenly opened borders provided traders a chance to export live animals to the EEC. This loophole was
closed by new EEC trade barriers which also cover exports to (eastern) Germany.
- 45 -
ANNEX 2
Page I' of 11
cooperative farms in Poland for example dropped 5% from 1989 to 1990; more drastic
reductions occurred in most east European countries in 1990-1991.
10. Insecurity, inefficient marketing and processing, decline in real wages, and
increasing unemployment reduced the purchasing power of consumers, resulting in a
contraction of the internal markets for animal products. Especially in 1990 and 1991 most
countries were having a serious overcapacity problem in their livestock sector, and tried
to reduce it by selling off stock. In some countries these sales were supported by
incentive payments such as export subsidies. The eastern European output of red meat
for example declined nearly 10% in 1990, and cattle inventories are expected to continue
their downward slide well into 1992. This decrease will also have an effect on the rural
labor market adding to unemployment. Unemployment, increasing cost of living and,
relatively, declining pension payments may in some countries (Poland, Yugoslavia) lead
to a "retum" to the farm, and dependence of subsistent farm produce and income.
Future projections (Short term)
11. The political volatility in eastern Europe will, at least in the short run, continue to
affect the trade in food. Anticipated food aid to the USSR in 1991-92 may affect exports
of most eastern European countries somewhat. Short term projections are also affected
by traditional considerations such as demographics, by EEC policies, the outcome of the
GATT negotiations and, to a lesser extent, the developments in the Middle East. The new
economic order in the former USSR will also lead to re-arrangements in trade, with the
agriculture surplus states (Ukraine, Belarus and the Baltics) emerging as competitors for
the Eastern European countries, both in the East and in the West.
Demographics. The projection of demand in Europe is influenced by population
dynamics and by changing dietary preferences. Population growth has stagnated
in most of eastern and western Europe. The growth in total food demand (volume)
till the year 2000 is estimated to be less than .3% in western Europe, slightly higher
in the southern parts and around 1% in eastern Europe. Milk consumption is
expected to rise approximately .4, .9 and .5 % in respectively the EEC, eastern
Europe and in the USSR; the expected annual rise in meat consumption till the
year 2000 is respectively .6, .9 and .7 %/3
From FAO, 1988. These data generated in 1988 may be too optimistic for eastern Europe where recent changes
have depressed production and demand. However changing consumption patterns may have a positive affect on
certain commodities (increased demand for yoghurts or pizza would affect the demand for milk, for e=xmple).
- 46 -
ANNEX 2
Page 6 of 11
Food aid. Short term the food aid plans of the US and Europe may affect the
market for agricultural produce. Direct food aid to the USSR may make in-roads
into the traditional market of eastern Europe, and may well be followed by soft
trade deals thereby affecting the long term markets position4. Indirect food aid,
through purchases from eastern Europe as planned by the EEC, may alleviate the
eastem European country from surpluses and provide some cash to modernize
their agricultural infrastructure. On the other hand this temporary relief may give
wrong signals to the market.
Effect of "western" policies. Changing "western" trade policies are very relevant
to eastern European countries, which try to compete in the EEC/EFTA region and
in the US market, as well as in the world market. The US, Japanese, and western
European farm policies have been, and will continue to be, dominated by the
"family farm" issue. Consequently there may be limited support for large scale
farming as presently done on eastern European state farms and cooperatives. At
present there appears to be some reluctance to a rapid changeover in most
eastern European countries, as well as in the newly formed Soviet bloc countries.
Convertibility. Trade opportunities would greatly improve eastern Europe would
attain full currency convertibility. If not, they would continue to be depending on
barter and counterbarter arrangements which generally is an inefficient mode of
trade and may lead to distorted production systems.
Future projections (long term)
12. Many of the issues affecting short term trade development will linger. The
modernization of the livestock industry, marketing, transportation and processing will
require considerable investment, a sound stratification plan and increasing flexibility.
Among the factors that may influence this process are the development of a competitive
product line, improvement in processing, marketing and management, utilizing
comparative advantages (mild climate, soils and topography, cheap labor).
Marketing considerations
13. To date the export from eastern Europe to the rest of the world has been small,
in the middle eighties only .2 % of total production. Developing countries will be net
4/ Short term, however, the prices are so low in eastern Europe that, apart form dumping, most western countries
will not be able to penetrate the local markets in eastern Europe.
- 47 -
ANNEX 2
Page 7 of 11
importers of meat with an expected growth rate of about 20/o. An important part of this
demand will consist of small ruminants and poultry. This indicates that, although the
overall export market may be fairly depressed and, as long as EEC surpluses exist, highly
competitive, there may be a niche for specialty products. Examples may be the Polish
hams and sausage (which have some name recognition) or small ruminant products
(including cheese). There exist a relatively larger market for live sheep and goats in which
Hungary, Bulgaria and Turkey are the major suppliers and Italy and West Germany the
major consumers.
Potential markets:
14. Neighbors: A country's major trade partners, especially of semi perislhable
products such as the majority of livestock related commodities, are its neighbors i(table
2). Any trade strategy of eastern European countries should include further development
of across the border trade.
15. EEC: There has been considerable expectation within eastern Europe that the
EEC would provide easy terms of trade. Recent events however have demonstrated the
difficulty the EEC has to overcome for any special trade deal in the agricultural sector
without an internal backlash from affected farm groups. This is demostrated by
association treaties between the EEC and respectively Czechoslovakia, Hungary and
Poland. For animal products the treaties specify:
(a) An increase of the reduced tariff quota on meat from 135,000 ton in 1992
to 179,000 ton in 1996 (i.e. an increase of 5.2 percent per year). WVthin
these quota, tariffs and levies will be reduced by 60 percent over three
years.
(b) An increase in the reduced tariff quota for live animals (180 - 300 kg
liveweight) from 217,000 in 1992 to 297,000 cattle in 1996 (i.e. 6 percent per
year). Within this quota, the levy reduction is 25 percent. However,
following a surge in export in live animals from Poland in 1990 (1,000,000
head of cattle) which upset internal EEC markets, EEC imposed an irnport
ceiling on the total number of live animals of 425,000 head per year.
(c) Import concessions on 4000 ton cheese, 2000 ton butter and 5500 ton milk
powder.
-48-
ANNEX 2
Page 8 of 11
Table 4. Major suppliers of agricultural commoditis to the USSR (1988/89).
Commodity Import volume Major suppliers nd percentage of the mrket.
(MT x 1000)
................... ......................... ........................................................., .
Coarse grain 22.888 USA (76X), EEC (142), China (5X), others (5X)
Soybeans and meal 4.448 USA (412), Argentina (38X), China (11X), Brazil (10X)
Fresh and frozen 406 China (312), France (17X), Hungary (16X), N.Zealand (9X)
meat Romani (8X), oNgolia (7X), other (122)
Poultry 136 Hungary (592), Bulgaria (122), Io nle (4X), other 252
Butter 247 N.Zealrnd, Notherlands, Irland (122 each), FRG (112),
Finland (32),
Hungary (22) other (482)
Wool 128 Australia (64X), N.Zealand (22X), Uruguay (SX), Mongolia
(52), other (4X)
Source USDA
The treaties offers possibilities for "tiangular sales (Purchase of EEC financed food for
the former USSR); such sales, however, will reduce the above mentioned imports quotas.
Similar association treaties are being prepared with the remaining East European
countries. While important, these concessions will have only a limited impact. For the
three countries together, the 1992 meat and the live animal quota would cover only three
percent of their total 1989 production and twenty percent of their meat exports. Besides,
most of the meat concessions concern pork, which have to gain access to the highly
competitive European market. For th EEC, they compare somewhat meager with the
reported 200,000 ton meat import quota's of, for example, New Zealand.
16. CIS states: The Soviet Union used to be the major trade partner of most Eastern
European countries. Still from a Soviet viewpoint few of the eastem European countries
were essential suppliers (table 5).
Eastern Europe has a comparative advantage in terms of distance, familiarity with culture
and language, and experience with transportation of produce (trucking etc.). On the other
hand the new western republics (Ukraine, Baltics, Belarus, Moldavia) are already net
exporters of milk and meat to the rest of the former Soviet republics, and may become
potential competitors as well as important trade partners.
17. Far East. A major expansion of the market of livestock products Is taking place in
Korea, Taiwan and, although heavily regulated, Japan. Poultry meat consumption in PR
China for instance has doubled since 1987.
- 49 -
ANNEX 2
Page 9 of 11
TabWe 5. Annual external trade in poultry meat of selected European countries and Eastem Europe
(in MT X 1000)
EXPORT IMPORT
'84-86 '86-87 '88 '89 '90 '84-86 '86-87 '88 '89 '90
Italy 9.1 12.3 18. 19. 30 25.2 24.7 35.7 41.5 30
Netherlands 203.9 219.6 252.7 259.1 100E 24.27 31.9 48. 51.3 20
Ireland 3.0 4.2 5 5 4 7.8 8.9 8 8 8E
Austria nd 44.3 56.6 63.3 11.1 15.5 14.8 16.7 15
Sweden 2.5 1.5 1 1 33.1 37.7 - - -
Poland 14. 16 16.7 19.9 20E 7 - - 1 1
Czechoslovakia nd 14 16 14 10 1. 3 3 5
Hungary nd 195 236.2 178.1 174 - .1 .1 .1 -
Romania 35 43 110E 120E 0 1.2 2.5 3.7 7 48
Bulgaria 24 36.5 34.6 30 30
Albania - - - - - - 1. 1.7 1
Yugoslavia 17.4 16.6 15.1 15 11 .8 1
E. Europe 226.7 277.4 318.5 232.2 - 11.7 5. 8.5 8E
USSR - - - - - nd 235 178.6 136.1 90
Source: FAO trade yearbook * hungary (mainly), Bulgaria, Czechoslovakia and Romania.
Poultry meat imports during 1987- 1990 increased 72 and 63% in respectively Hongkong
and Japan. The competition for this market is fairly heavy. New Zealand, Australia and
Thailand have a comparative advantage in terms of geography, the EEC and US in terms
of quality as well as in special interest5. Thailand's broiler production has doubled since
1986; over 70%/o of its exports go to Japan. Other major competitors in the area are the
United States, China and Brazil. China is a major supplier of meat to Russia and other
bordering republics where it has a geographical competitive advantage.
18. Middle East For some of the southern countries such across the border trade may
include trade with Middle Eastern, Central Asian and north African countries. The fairly
lucrative market for eggs and poultry products is highly competitive (Brazil, France and
other EEC countries are major suppliers) but is declining somewhat as these coLintries
are developing their own production systems. The market for beef and live sheep will be
stronger but competitive. Especially the southern countries in eastern Europe may dlo well
in this market if competing on a "no dumping" basis.
5/ Japan has increased its ownership of farms or processing in Thailand, Australia and in the US.
- 50 -
ANNEX 2
Page 10 of 11
Agricultural support
19. End of state monopoly. The state will have to end its monopoly in trade in
agricultural inputs and products. The transfer to a free market system may require some
thought and time; there are already some indications that transfer to a few privileged
private owners will neither improve the market nor the production and productivity.
20. Farm support. Most producer subsidies, which were substantial in some countries,
have been removed or are being removed. In many countries, Poland for example, this
process has been fairly traumatic, and political pressures continue to consider
reinstatement of at least some protection. Given the high proportion of the population still
employed in agriculture, governments may be tempted give in to demands from the
agricultural sector. This will slow the transformation process but may provide some social
safety to a substantial part of the rural population.
21. Border pricing. Border levies vary in eastern Europe and, in some countries, have
been lowered or removed during 1990. However some tariffs and quota's were
reintroduced or increased in 1991. The effects, internally as well as externally, depend to
some extend on the outcome of the GATT negotiations; competition in an in perfect
market influenced by subsidized goods from the EEC is difficult. At present the pricing
structure of eastern European countries is so low that, from a viewpoint of price, little
competition will occur in the internal market. The exports market, however, is affected by
variable border levies (of the EEC and others); unfortunately poor quality of eastern
European products have a far larger effect on the slow penetration that market than levies
etc. If the EEC will lower their internal farm produce pricing, and recent events may give
some credence to such a move, then low input farming may expand, and in a market
based on forage-based production of meat and milk there may be some opportunities for
eastern European countries. Overall however it has to be expected that the volatility of the
market continue for some time.
- 51 -
ANNEX 2
Page 11 of 11
CONCLUSIONS
1. The internal market in the eastern European countries is substantial but will not
expand much; it is more likely to contract during the next two years. In the short
term little competition will occur from outside the former East block, provided that
the infrastructure allows an efficient market and that no dumping (by EEC, and
others) occurs.
2. Competing in the world market may in the short term be difficult because of the
generally poor quality of products, and of the export subsidization of the EEC for
its products. There may be a narrow window for specialty products and small short
term opportunities when EEC allows importation of defined quota of specific
products. In the long term the EEC may have solved their over-production/sturplus
problem and become and interesting trade partner.
3. Trade with the former Soviet States will, in the future, with respect to livestock
products, be mainly with Russia. The, then also exporting, western republics such
as the Baltic states, the Ukraine and Belarus may have a geographical advantage,
as has China in the east. The development of this market may take some tirne as
the Russian market will, at least for the time being, continue to contract.
4. In the long run eastern European could be competitive if they are able to develop
a simple grassland based production system or, in the southern areas, an efFicient
production of corn and soybeans.
5. These still speculative predictions assume the development of an efficient
marketing, storage and transportation system, and further diversification of the
product line; improving these systems requirew considerable investment and
improvement in management before they are able to efficiently Umarket" the output
of the livestock producers.
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Recent World Bank Discussion Papers (continued)
No. 143 China: Industrial Policiesfor an Economy in Transition. Inderjit Singh
No. 144 Reforming Prices: The Experience of China, Hungary, and Poland. Anand Rajaram
No. 145 Developing Mongolia. Shahid Yusuf and Shahidjaved Burki
No. 146 Sino-Japanese Economic Relationships: Trade, Direct Investment, and Future Strategy. Shuichi Ono
No. 147 The Effects of Economic Policies on African Agriculture: From Past Harm to Future Hope. William K. Jaeger
No. 148 The Sectoral Foundations of China's Development. Shahid javed Burki and Shahid Yusuf, editors
No. 149 The Consulting Profession in Developing Countries: A Strategyfor Development. Syed S. Kirmani
and Warren C. Baum
No. 150 Successful Rural Finance Institutions. Jacob Yaron
No. 151 Transport Development in Southem China. Clell G. Harral, editor, and Peter Cook and Edward Holland,
principal contributors
No. 152 The Urban Environment and Population Relocation. Michael M. Cernea
No. 153 Funding Mechanismsfor Higher Education: Financingfor Stability, Efficiency, and Responsiveness. Douglas Albrecht
and Adrian Ziderman
No. 154 Eamings, Occupational Choice, and Mobility in Segmented Labor Markets of India. Shahidur R. Khandker
No. 155 Managing Extemal Debt in Developing Countries: Proceedings of aJoint Seminar, Jeddah, May 1990. Thomas M.
Klein, editor
No. 156 Developing Agricultural Extensionfor Women Farmers. Katrine A. Saito and Daphne Spurling
No. 157 Awakening the Market: Viet Nam's Economic Transition. D. M. Leipziger
No. 158 Wage Policy during the Transition to a Market Economy: Poland 1990-91. Fabrizio Coricelli and Ana Revenga,
editors
No. 159 International Trade and the Environment. Patrick Low, editor
No. 160 International Migration and Intemational Trade. Sharon Stanton Russell and Michael S. Teitelbaum
No. 161 Civil Service Reform and the World Bank. Barbara Nunberg andJohn Nellis
No. 162 Rural Enterprise Development in China, 1986-90. Anthony J. Ody
No. 163 The Balance between Public and Private Sector Activities in the Delivery of Livestock Services. Dina L. Umali, Gershon
Feder, and Comelis de Haan
No. 165 Fisheries Development, Fisheries Management, and Extemalities. Richard S. Johnston
No. 166 The Building Blocks of Participation: Testing Bottom-up Planning. Michael M. Cemea
No. 167 Seed System Development: The Appropriate Roles of the Private and Public Sectors. Steven Jaffee andJitendra Srivastava
No. 168 Environmental Management and Urban Vulnerability. Alcira Kreimer and Mohan Munasinghe, editors
No. 169 Common Property Resources: A Missing Dimension of Development Strategies. N. S. Jodha
No. 170 A Chinese Province as a Reform Experiment: The Case of Hainan. Paul M. Cadario, Kazuko Ogawa, and
Yin-Kann Wen
No. 171 Issuesfor Infrastructure Management in the 1990s. Arturo Israel
No. 172 Japanese National Railways Privatization Study: The Experience ofJapan and Lessonsfor Developing Countries.
Koichiro Fukui
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