Rural Development and Diversification of Rural Areas in Slovakia l.

The country context Since May 2005 Slovakia - as 9 other countries of Europe, concluded a several years of the negotiation process and became a full member of the European Union. As such Slovak citizens were exposed to several changes – both positive and negative in all aspects of political, social and economic life of the country. Traditionally well protected borders became more open, citizens could move more freely but also goods, of course. Common European markets brought lower prices for consumers in several commodities including food on one side, but on the other side more difficult sale conditions for producers. The competitiveness of enterprises became a crucial factor of the economic success. Suddenly accessible European agriculture direct payments (although just 52,5% of full directs payments of farmers of old member states - OMS) immediately brought farming to a better and more favourable conditions. This fact together with a “good weather” factor and consequently unusually high grain harvest created situation in which more than 70% of agriculture enterprises became profitable. Last surveys of sector average salaries showed, that the fastest growing wages are in agriculture – the sector, which was always lagging behind in the past. In general - the country macro-economic development took quit positive trend during last several years including the short time before the EU Accession. As the Green Report 2004 says, the GDP growth was 4,2 in stabile prices , the inflation rate was 8,5, unemployment rate was 15,2% at the end of 2003 (declining trend), average nominal salary was 480 USD, average interest rate was 7,6 in 2003. The Statistical survey conducted by the Statistical Office of the SR has shown further growth in nominal salaries – 570 USD at the end of this year. Among sectors the agriculture was the one with the fastest salary growth. Slovakian economy became a fast growing after EU Accession. The in flow of foreign investments increased remarkably (In 2003 – 11,2 billion USD, Green Report, 2004), especially in Western part of the country, the orientation of the industrial development in favour of value added branches helped to decrease the high unemployment rate and increase the average salaries. Unfortunately this positive development is not fairly balanced among regions, since most of domestic and foreign investments are concentrated around capitol city (which has an ex-centric position within the geography of the country) or in western regions, which were in quite favourable conditions already before. On the other side – Central and Eastern parts of the country are continuing to suffer of unfavourable socioeconomic context and consequently of lack of job opportunities. The study of the Slovak Academy of Science carried out in 2004 has shown clearly disparities among regions and illustrates statements above (Graph 1).

Graph 1. Current economic situation of districts in SR, Statistical Office, 2001

Due to these facts the group of socially excluded people is growing in these parts of the country . Therefore the Central and Eastern parts of the country are the main target areas for activities of European Social Fund – a new and positive phenomenon of the EU Integration. 2. The situation in rural areas

Slovakia has 5 379 thousand inhabitants, total country surface is 49.000 km2. Total rural population represents 2 567 781, which is 47,7%. Average population density is 109.9 inhabitants per km². Outside urban areas, the population is concentrated in lowlands and valleys, while mountain areas are sparsely settled, which is caused by the fact that the extensive settlement and use of the country has essentially affected the original structure of the country and composition of ecosystems. Statistically rural areas are not precisely defined. Rural settlements are considered to be those generally not having the status of a town and having a certain character and type of occupancy, economic structure, based mainly on the agriculture and forestry, a less developed infrastructure and low population density. In terms of statistical classification these settlements – villages have up to 5 000 inhabitants. The Statistics Office of the SR registers 2 883 settlements, of which 2 745 (95.2%) are villages and 138 cities. The majority of villages - 1979 have up to 1 000 inhabitants and of these 1 210 villages have fewer than 500 inhabitants. The level of rurality, according to OECD methodology, is defined by the share of the population living in rural settlements. Regions (districts) with a share of the population living in rural municipalities over 50% are described as districts having a significantly rural characterOn the basis of this classification 48% of the population of 2

Slovakia lives in “predominantly rural” districts, 40% of the population in “semi-rural” and 12% of the population in “predominantly urban districts”. Predominantly rural areas represent 59.5% of the land area of the Slovak Republic. In these areas are located 62.8% of agricultural land and 55.9% of forests. If compared to the situation within the EU - on average 28% of the population lives in predominantly rural regions, 32% in semi-rural regions and 40% in predominantly urban regions. Slovakia has a settlement structure comparable to that of, for example, Norway. . Graph 2. The regional typology of rurality in Slovakia



Types of regions
Urban Semirural
20 0 20 40 60 80 100



The above mentioned rurality copies also the general socio-economic situation and disparities between regions as described previously While rural towns and villages in Western parts of the country are benefiting of the economic growth in terms of employment (not so much in terms of income – since rural people with lower qualification are exposed to minimum salaries policy of employers too often), the faster infrastructure development and public goods investments in general, their counterparts in Central and Eastern parts are not so lucky. This part of rural Slovakia feels harder also consequences of the transition processes which are still remaining to influence socio-economic context of less favourite regions.


4. Traditional rural economic sectors In general - rural areas of Slovakia are still economically governed by traditional economic sectors – agriculture and forestry. But these sectors are becoming less and less significant in terms of GDP and employments share. Agriculture First of all – the agriculture primary production (fully privatised today), shows a permanent decline from the aspect of its share in GDP as well as in employment. In 1989-1990 the share of agriculture in GDP fell to 8% and in employment to 12%, Today it represents less than 4,55% of the national GDP and employs 4,75% of the total labour (Green Report, 2004). The Green Report is not providing any data on private farms ownership from the point of gender aspect (although individually collected through the FADN research) and neither data on women in management positions in agriculture. The employment development in this sectors is taking a further negative trend in general, since still a lot of socially caused over employment habits are remaining especially in agriculture cooperatives. Another “piece of share” of the GDP is created by food processing industries (mostly placed in cities) – 1,38% and 3,33% on the total employment. Agriculture is facing many challenges, among them one of the most important is a high fragmentation of land ownership, which constitutes a major barrier for the land market development and does not allow the use the land as the collateral, which consequently lower the position of agriculture sector in applying for credits. To sell or buy the land is not an easy task considering the huge fragmentation, it requires high transaction costs (E.g. to make the contract with 20 owners instead 1 is very complicated and expensive procedure). Although the Government allocated some resources to the land ownership identification in line with the Act No. 330/91 Coll. still more than 20% of land is un-identified and 90% of it is not consolidated. Land consolidation is a vital factor of further development of agriculture due to the high fragmentation. Land consolidation process was targeted under SAPARD Programme and continues under the Sector Operational Programme for Agriculture and Rural Development today. (So far only 120 cadasters are consolidated among 3 519 in total.). The structure of the business in agriculture is in a state of constant flux. Cooperatives have continued to retain their dominant position in agriculture, although their share in the total acreage of agricultural land has fallen. The number of commercial companies has increased, in particular limited liability companies as consequence of privatisation of state assets and the decline in agricultural cooperatives. Thus the acreage in their agricultural use also increased. The development trend in average size of the enterprise is also growing. Since 2001 (Green Report 2002) also the number of private farmers dropped down, on the other side the average size of private farm increased more than three times. As in 2001 - private farmers and commercial companies have shown better economic results than agriculture cooperative also in 2003. The table 1 below shows the structure division of agriculture entities regarding their numbers, average size and the share on the total agriculture land.


Table 1. Number of entities in agriculture and their structure in 2003 (Green Report 2004) Legal Number of Average size Share in % of status enterprises of enterprise the total profitable in hectares agriculture companies land in % State 3 1925 0,3 67 enterprises Cooperativ 616 1621 52 34 es Commerci 718 1058 39 65 al companies Natural 1194 143 8,7 76 persons Total 2.531 Source: Green Report 2004 764 100

The declining trend in the number of employees in agriculture continued also in 2003, though at a more moderate rate than in the previous year. According to workforce survey by the Statistics Office (2003) - 99.4 thousand people worked in agriculture. The revenues structure of agriculture enterprises as shown by table 3, are still very dependent on agriculture primary production. Obviously - agriculture producers do not tend to think in the direction of diversification of economic activities. Only very advanced managements try to diversify their incomes e.g. via obtaining shares in food processing industry, or they process themselves (small slaughter houses, bakeries, dairies etc.) or via establishment of retail shops in cities, some via grounding of daughter companies, or offering various services to municipalities or other customers. Only some consider tourism or small industrial activities as possible source of revenues. As seen from the table below, the tendency to diversify varies dependently on the legal form of companies. Obviously coops show least income diversification effort. Even in years which are economically weaker they remain old production and income structures. In opposite agriculture commercial companies and private farmers tend to diversify their income especially in years when revenues from agriculture due to the unfavourable market situation decreases. As empirical experiences show they also enter rural tourism or finalisation of production more often than coops. Especially private farmers are those, who are willing to diversify their income the most. First of all they are more flexible and innovative and have better access to loans, since the clear land ownership. They have also less land compared to co-ops or commercial companies and have to think more carefully about their earnings.


Table 3. Breakdown of revenues in SKK/EUR per ha of agriculture companies in 2002 and 2003 (Green Report. 2003, 2004) Indicator

Co-ops 2002 %

Commercial Com. 2003 %

Private farmers 2003 2002 %

2002 %

2003 %


Revenues from agriculture Revenues from non agriculture activities

19.4 68 3.22 7

18.2 57 2.91 3

21.7 05 3.88 1

19.5 20 6.04 2

19.0 27 4.64 7

14.5 58 4.54 3







Fishery Slovakia’s production of fish is rather limited (approximately 80 enterprises in total, their contribution to the job generation activities and the share on the GDP is not significant) and mainly focused on salmon fish and freshwater lowland fish types. Salmon fish farming facilities have useful parameters comparable with those abroad; they do however have a high rate of obsolescence and a low level of mechanisation. The causes of the low productivity of freshwater lowland fish generally as well as per hectare lie in the poor technical state of fish ponds (in consequence of a lack of finance and the expense of re-cultivation, mud removal from fishing grounds, repairs and maintenance of outlet and dike facilities). The renovation of fish-farming facilities would support multifunctional utilisation of water areas that would favourably affect the landscape and environment. In the field of fish pond cultivation a transformation has occurred through the privatisation of state enterprises. In current stage all mentioned enterprises are mainly focused on the primary production without any major effort to finalise it. On the other hand many small producers appeared in rural areas, which see the opportunity in combination of production and agri-tourism development. Ecological fish farming is becoming also popular within the tourism development and growth. In this sense as in the sense of pure fish production, processing and selling the fishery appears as important potential source of rural economic diversification. Forestry The forest total areas of the SR represents the area of timber stands is 1 927 388 ha, which is 44% of the total land surface. This asset is creating 0,5% share of the national GDP, but the created public value of forests is however at 2-3 times higher than the production utilities, but as yet is not the subject of a market and therefore is not included in GDP creation. The forestry creates 0,83% of the total employment directly (those employed directly in forestry production – together 18.000 people) and 0,4% in directly employed people (those 8.500 people employed in forestry service sector). Besides this more than 4000 entrepreneurs are registered in the forestry industry. Majority of forest is privatised today. A significant component of the post-1989 reforms was the transformation of ownership relations of forests, comprising their return to the original owners. As at 31.12.1998 forest lands totalling 812.5 thousand ha (40.8% of the Forest Land Fund) had been returned to entitled persons. It has not always been possible to match the owner of the forested land with its user (forester), where the user must abide by duties ensuing from the respective legal regulations. Forest land, which ownership is not completely identified or documented and where the entitled persons have as yet not expressed an interest in taking them over represents 137,000 ha. At the end 2001 was 42.4% of the forest area owned by state and the structure of ownership and land use in forestry was as it is shown in table 4 below:

Table 4 The type of ownership and land use in forestry of the SR. (Forestry report, 2003) Type of ownership {use} Agriculture co-ops Communities Unknown Total
2 271 0,1 187 495 9,7 107 346 5,6 1 927 388 100 1 927 388 100

Category State Private Associated Church
816 343 282 659 14,7 138 635 7,2 469 571 24,4 61 703 3,2

Ownership 42,4
1 171 575

399 387 20,7

45 834 2,4

4 644 0,2

167 313 8,7


Use 60,8

The privatisation factor is not always a positive assumption for the economic development since private owners are many times not able to take care themselves of forest and must rent it from the state or other entities or see the forests assets more as the source of an easy and fast income rather than the base for rural value added development share approximately 8%. Investments in the forestry since 1990 have fluctuated from 0.36 – 0.19% of total investments in the SR. The rate of investment has fallen from 20.48% in 1990 presents the GDP. Also this number shows that the forest assets from the point to 11,3% in 2003. Slovakia has a long tradition in wood processing industry established on the basis of the forestry industry. It re of view of added value for rural areas is still underutilised and focused mostly on regional or national export of timber as the main income source for this sector


5. Diversification of production and income – current and future challenge of Slovak rural areas As seen from the data above it is clear that traditional rural sectors even in very extensive areas cannot create enough socio-economic factors to maintain the rural population. This is even more through in more marginalised and less favourable rural areas belonging to the disadvantaged Central and Eastern Slovakian Regions. There are several opportunities for further socio-economic development of Slovak rural areas. The creation of added value and increase the share in market prices of products based on rural natural resources should represent the core of future rural development strategies. Current rural economic sectors like agriculture and forestry focused on productions which bring not very high revenues per ha (e.g. - wheat, corn, potatoes, sugar beat, pigs, poultry….) and which markets are heavily controlled and distributed do not meet requirements of additional jobs and incomes generation. This approach is still supported by farmers themselves but also by existing agriculture policy. Alternatives like ecological food production, high quality products (special agriculture crops, herbs, spices, additives, pharmacological raw materials, etc.), alternative energy raw materials are used only very exceptionally and are not recognised as the opportunity. The same time the agriculture in its actual shape, does not provide enough possibilities . Therefore new rural economic sectors like service and tourism development, social enterprises, environmentally friendly manufacturing, processing and crafts targeting new markets including niche markets, should be promoted in order to encourage progressive and innovative opportunities, which could better utilise existing human, natural and physical potential of rural areas. Therefore the rural economic diversification represents one of the most important development trends, which could provide more opportunities for broader spectrum of social groups. Taking in consideration of specificities of Slovak agriculture and forestry as well as rural areas as such, it is necessary to speak about two types of economic diversifications in Slovak context: Diversification of economic activities on the farm Diversification of economic activities in the rural community On-farm economic diversification. This approach in Slovak context means first of all to look at the current status of Slovak agriculture and rural areas. In depth description is provided above, but still some important features should be underlined here while speaking about farm diversification in the Slovak context and its future trends, such as: Maintained large scale of production and services in majority of agriculture holdings including private family farms – the structure in which more opportunities are provided for men traditionally – e.g. in managerial positions and the same time as the first beneficiary of existing programmes and policies Higher importance of the agriculture employment compared to family farm concept in some other accession countries like Slovenia or Poland or EU member states

No homogeneous ownership of agriculture and forestry land in one enterprise Land fragmentation even under buildings with non-identified owners in many cases and very limited land market Traditional approach to agriculture – focused many times on growing crops and animals, which do not generate high income per hectare and do not provide the basis for local processing and sales but producers are accustomed to produce them since the traditional production channels / including processing and marketing/ continue to exist. Lack of will to co-laborate and co-operate and build networks Lack of knowledge in the area of diversification Existing regional differences – e.g. between LFA and lowlands, or between Western and Eastern territories etc. In spite of these facts still some new innovative trends should take place in order to increase the value of agriculture products and provide more job and income opportunities To look for alternatives, which bring more income per hectare and the same time provide opportunity for local added value development {such as herbs, spices, energetic plants, flax etc.}, To support farm processing and retail activities and direct marketing especially in the field of so called regional products and broadening of existing traditional assortment To support service development and provision on farms and in farm networks To promote farm tourism and recreation activities -open farms, farm holidays etc., individual and within farm networks To support environmentally friendly industrial activities (e.g. wood and fibre processing, alternative energy production etc. Rural community economic diversification. Rural communities in Slovakia have been and still are mainly dependent on primary agriculture and forestry production, partly considering rural tourism as an alternative option in some cases. But current and future development trends show that the rural community diversification provides many more opportunities for job creation and additional income generation, such as small industry development based on rural assets like agriculture and forestry traditional or innovative products, water and other geological sources (sand, stones, ground etc.), landscape etc., further, IT opportunities, sophisticated rural tourism product development interlinked with service development, crafts and others. Recently there are also several good examples of social economy projects, which provide income and employment diversification opportunity in rural areas as well. In such an approach the added value is not inevitably connected with agriculture enterprises and their managements but provide business opportunities also for other rural citizens, who are in this case direct beneficiaries and decision makers and are willing either to employ themselves and their families or also other rural residents. 10

This requires a change in several policies at national level, which at present are disintegrated and rather sector-oriented as well to introduce the sustainable bottom-up integrated approach at the local level. This also needs to introduce new instruments like “support of rural community economic diversification” which does not exist under the current the EU structural funds but the future one. Rural business can receive the assistance for their establishment or development either with the aid for farmers or general entrepreneurial schemes, in which disadvantaged rural entrepreneurs (with less access to information, business services and infrastructure and low access to credit) cannot compete with their urban counterparts on an equal basis. At the same time, the capacity building of rural people in the area of new skills such as local rural development programme, plan and project design, implementation, management, monitoring and evaluation should be encouraged. In this sense the up coming LEADER axis within the new EU rural development policy gives a lot of hopes and expectations to improve the situation. 6. Programmes and policies supporting on farm diversification The unfavourable employment and income situation in rural areas was considered by the Ministry of Agriculture of the SR in the “Concept of Agrarian and FoodProcessing Policy of the SR to 2005”. In the framework of this programme the diversification of production and income in the agriculture was recognised as the solution for unfavourable employment developments described above. The support for investment activities for development of agri-tourism and rural tourism was included within the measure called - „The countryside and diversification of economic activities“. Within the framework of the subsidy policy of the Ministry of Agriculture SR support for diversification of economic activities in rural areas was given in line with the MoA regulation no. 3485/2/2001-100 - §28 and called "The Development of Agri-tourism, the Countryside and Diversification of Economic Activities“. At the end of 90thies the Slovak Republic has started the negotiations processes with the European Union within the framework of the earlier undersigned Accession Agreement and the National Plan for Adaptation of Acquis. European Union in its Agenda 2000 – the main policy document for the currently running programming period considered to open first time in the history of the EU enlargement process so called pre-Accession instruments similar to regular Structural Funds, among them the SAPARD program for agriculture and rural development, which later - after Accession was followed by Sector operational program for agriculture and rural development and Plan for rural development. Diversification of farm activities was the measure open within the SAPARD, and Slovakia as many other Accession countries included this measure into the Agriculture and Rural Development Plan under this Programme within the Measure No. 4a –„ Diversification activities in rural areas“. For the year 2002 - 2006 support for cofinancing of these projects has been approved in the amount of 2.293 million € per year from the European Commission resources. Further the similar Measure was also included into Sector operational program mentioned above. In addition similar measure was included before accession also into PHARE program that have been executed through the Rural Development Fund functioning under the MoA SR.


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