VZCZCXRO1690
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHBM #0094/01 0441430
ZNR UUUUU ZZH
P 131430Z FEB 09
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC PRIORITY 9206
INFO RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC PRIORITY
RUEHSF/AMEMBASSY SOFIA PRIORITY 5012
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 BUCHAREST 000094 
 
STATE FOR EUR/CE ASCHIEBE, EEB JFINN, GCLEMENTS 
SOFIA FOR FAS HHUYNH 
USDA FOR FAS MHENNEY, EJONES, DYOUNG 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON ECIN EUN PGOV RO
SUBJECT:  ROMANIA: AGRICULTURAL REFORM LAGGING AFTER EU ACCESSION 
 
Sensitive But Unclassified; not for Internet distribution. 
 
¶1.  (SBU) SUMMARY:  Romania's agricultural sector continues to 
struggle with the Communist legacy of collectivized farm land. 
Despite Romania's huge agricultural potential, its small farm size 
and lack of education in modern agricultural methods has left the 
agricultural sector as a chronic underperformer.  Political leaders, 
including new Minister of Agriculture Ilie Sarbu, have consistently 
vowed to make agricultural reform a priority, including access to 
and use of EU funding.  Given the magnitude of the challenge, 
however, it is unlikely that the Government of Romania (GOR) will be 
able to stimulate major progress in the agricultural sector in the 
near term.  END SUMMARY. 
 
BIG AGRICULTURAL POTENTIAL VS. STARK REALITY 
 
¶2.  (U) According to a recent study from Banca Comerciala Romania 
(BCR), Romania's arable land for agricultural purposes is 39.5 
percent of its total area, which places Romania sixth in the world 
in terms of the percentage of its total area that is potentially 
arable land.  Within Europe, this amount of arable land as a 
percentage of total area puts Romania just behind France and Germany 
in terms of potential. 
 
¶3.  (U) While most agricultural lands have been restituted to their 
previous owners, this process has not been finalized 18 years after 
the fall of Communism.  Much of the restituted farm land still needs 
to be properly surveyed and measured in order to be registered and 
titled to a new owner.  Progress on efforts to register lands has 
been slow to date.  The lack of proper land titles hampers owners, 
banks and potential leasers from undertaking activity or investment 
on the land. 
 
¶4.  (U) The average Romanian farm size is approximately 3.12 
hectares (7.7 acres), far behind the EU 27 average of 11.5 hectares 
(28.4 acres).  Of the 4.2 million agricultural property holdings, 
99.6 percent are individual agricultural holdings.  Eighty percent 
of all farms can be classified as subsistence holdings, while 45 
percent of all farms are even smaller than one hectare (2.47 acres) 
and therefore not eligible for EU CAP funding.  More than 81 percent 
of individual agricultural holdings use more than 50 percent of 
their own production for self consumption.  Companies represent less 
than one percent of the Romanian agricultural holdings.  The average 
size of company holdings is about 263 hectares (650 acres).  Within 
the EU, Romania has the highest imbalance of any state between the 
number of holdings and arable area per holding. 
 
¶5.  (U) In terms of agricultural employment, officially less than 
three percent of Romanians are employed in agricultural jobs on 
company payrolls.  However, actual employment in agriculture is over 
30 percent of the workforce, since in rural Romania over one third 
of household income is derived from agriculture for self 
consumption.  Some 40 percent of Romanians still live in the 
countryside, the highest rate in the EU. 
 
¶6.  (U) While Romania possesses a cadre of agricultural 
university-educated experts, they are not representative of the 
majority of farmers in Romania, who have little formal education or 
knowledge of modern, efficient farm production techniques.  Farming 
on small-size plots is typically non-mechanized, which contributes 
to low yields and to overall low quality of produce which is not 
commercially competitive for export, or even for sale within the 
Romanian domestic market.  This is true particularly among urban 
shoppers, who will gladly pay for better-quality imported produce 
than the frequently wilted, bruised, or blemished local variety, 
even if the latter is noticeably cheaper. 
 
EU AND GOR EFFORTS AT REFORM:  WHERE TO START? 
 
¶7.  (SBU) Experts believe Romania could potentially double its 
agricultural production if it could systematically access and use EU 
funding and external co-financing.  The impact on economic growth 
for the country of a more robust agricultural sector would be huge, 
given the high proportion of the population engaged in farming.  But 
the present reality is daunting.  For the years 2007 to 2013, 
Romania has eight billion euros potentially available from the EU 
for agricultural projects.  Unfortunately, accessing these funds 
remains an obstacle; in 2007, the agricultural sector was Romania's 
lowest performer in terms of absorption of EU funds.  Of the 740 
million euros earmarked for Romania's agricultural sector in 2007, 
Romania absorbed only 10 million euros, less than one percent of 
funds available.  While the 2008 absorption rate of EU funds is 
expected to be higher, big disparities between what is available and 
what is accessed will persist. 
 
¶8.  (U) Even with a higher absorption rate, farmers' groups are 
 
BUCHAREST 00000094  002 OF 002 
 
 
reporting that some of these projects are already in jeopardy and 
may be lost because farmers can not access adequate credit to make 
the necessary investments and co-payments required by the EU funding 
structure.  Unfortunately, due to the historical experience with 
forced collectivization, Romanian farmers remain adverse to modern 
collective farming ideas, even though these would increase their 
cost effectiveness and attract outside investments. 
 
¶9.  (U) Since Romania joined the EU, the Ministry of Agriculture has 
piloted an annuity program for subsistence and semi-subsistence 
farmers to encourage an increase in the size of land holdings.  This 
program allows individuals over age 62, who own less than 10 
hectares (24.7 acres), to rent their land out for 50 euros per 
hectare per year, or 100 euros per year if they agree eventually to 
sell the land.  Approximately 54,000 people have taken advantage of 
this program to date, leading to a slight increase in the average 
farm size to 3.12 hectares (7.7 acres) from 2.1 hectares (5.2 
acres).  Despite these efforts, Romania still has only 10,000 farms 
of over 1,000 hectares, but 1.2 million over one hectare. 
 
¶10.  (SBU) The new Minister of Agriculture, Ilie Sarbu of the PSD, 
was appointed in December 2008.  Sarbu previously served as Minister 
from 2001 to 2004, and he initiated several programs to modernize 
and develop Romania's agricultural sector during his tenure.  Sarbu 
has said his top priority is to capitalize on available EU funding 
structures (a declaration similar to that of his predecessor). 
Labeling Romanian agriculture a "disaster," Sarbu has called for 
significant changes in the Ministry's bloated and inefficient 
staffing.  Accessing more funds isn't the only problem; Romania has 
been unable to use all the funds already received.  After Sarbu's 
early inquiries into the status of EU fund disbursement, the 
director of the Romanian Agency of Payments and Intervention in 
Agriculture (APIA) resigned.  Additionally, 44 APIA workers are 
under investigation for fraud and corruption after allotting over 
one million euros to 52 localities based on forged documents. 
Recent press reports indicate that while the GOR converted EU 
funding from euros to lei, it never fully disbursed the monies and 
therefore incurred a huge loss in value as the leu depreciated 
significantly in late 2008.  The GOR is currently awaiting direction 
from the EU to determine what funding must be returned and what 
financial penalties Romania will incur. 
 
¶11.  (SBU) COMMENT:  No sector of the Romanian economy offers 
greater potential for growth, while presenting government leaders 
with bigger challenges, than does agriculture.  Once known as the 
breadbasket of southeastern Europe, Romania today is a net food 
importer by a wide margin.  As Minister Sarbu has pointed out, 
agriculture's share of GDP has declined from 12 percent in 2004 to 
seven percent today, and current annual production in categories 
like meat and dairy products is below even Communist-era levels. 
Achieving greater efficiencies through increasing the size of land 
holdings, coupled with investments and improvements in technique, is 
vital to realize Romania's full agricultural potential.  Building 
capacity to access and use EU funds is a necessary first step. 
Minister Sarbu has vowed progress, but will find -- as did his 
predecessors -- that only a sustained, massive political effort will 
drag Romania's agricultural sector into the 21st century.  End 
Comment. 
 
GUTHRIE-CORN