Home | Business News | Browse by Publication | I | International Advances in Economic Research

Structural change in rural Croatia--Is early retirement an option?

Article Excerpt
Abstract Structural change in agriculture, although often connected with social hardship of uncompetitive small-scale farms and a loss of tradition, is inevitable. It is the basis for successful rural development. We discuss whether early retirement schemes (ERS) are a good value for public money in terms of the necessary adaptations of the farming sector in the course of economic development, and if they are an option for the EU candidate country Croatia. In Croatia, the small scale farm structure leads to widely uncompetitive farms. A study on farmers' socioeconomic situation as well as actual and expected reactions to policy support is based on results of a household survey. The sample includes farm households from two Croatian regions: The peri-urban Zagreb county and the typically rural region of Bjelovar-Bilogora. Despite unfavourable economic conditions and insufficient farm incomes, rural people are often reluctant to give up farming. We present results on the age structure, income and production structure of farms and farmers' likely reactions on ERS. We discuss incentives which push farmers to leave the farming sector and ask in which direction farm families plan their future. We conclude with a synthesis of the theoretical advantages and disadvantages of early retirement schemes and link them with possible outcomes in the Croatian case.

Keywords Early retirement - Farm Structures- development * Croatia

JEL Q12 . Q18

Introduction

Structural change in rural areas is a consequent outcome of economic growth and a necessity for the development of rural areas. At the same time, it causes fear and comes with hardship for those who cannot adapt and will turn out as losers of a fast rural transformation. Early retirement schemes (ERS) address both issues by their two-fold objectives: ERS aim at an increased efficiency and structural adjustment in the agricultural sector by promoting a transfer of resources (such as land and production rights) from exiting farmers to those who continue farming and will use the resources more efficiently. The objective of equity is addressed when ERS provide income support to the targeted marginalized and uncompetitive elderly farmers.

We are interested in whether ERS are a good value for public money in terms of the necessary adaptations of the farming sector in the course of economic development. Thus, one objective of this paper is to present theoretical aspects and empirical findings with regard to the economic efficiency of ERS. Furthermore, we offer insights into the socioeconomic situation of farmers in Croatia based on a survey conducted in 2007. We specifically look at factors that are deemed important in terms of farm exit, as ERS could be an option for Croatian policy makers in their ongoing preparations for the planned EU accession. Finally, we link the outcomes of our literature review with some indicators from the Croatian case study.

Early Retirement Schemes in the EU

Economic theory provides two general rationales for policy intervention: correction of market failures and income redistribution. While government intervention in the case of market failures is generally done for reasons of economic efficiency, intervention in order to redistribute incomes between groups in the society is done for reasons of equity. An optimal policy design achieves a specific objective while keeping the impact on economic distortions low and ensuring efficiency in the allocation of resources.

The ERS of the European Union (EU) reflect both above mentioned rationales, efficiency and equity. They aim at structural change and competitiveness issues as well as specific social problems of elderly farmers and farm holding viability. The objectives of ERS in the EU can be summarized as follows (EC Council Regulation, No. 1257/1999):

* Improve the structure of the acreage and the competitiveness of farms.

* Increase the share of rural non-farm employment and improve living standards amongst the rural population.

* Encourage the replacement of older farmers by younger, better trained farmers who are capable of making the farms economically viable, profitable, bigger and hence, generally improve the situation on the given farm holding.

* Ensure an adequate income to those elderly farmers who decide to stop their farming operations.

* As a side effect, encourage a non-farming use of land if farming is unprofitable.

Hence, ERS particularly address efficiency issues by promoting a transfer of resources (such as land and production rights) from exiting farmers to those who continue farming. At the same time, ERS explicitly provide income support to the targeted marginalized and uncompetitive elderly farmers who, in many European countries, are disadvantaged compared to other jobholders in terms of their non existent or limited entitlement to pensions. Due to their age and often low education, elderly farmers usually have hardly any chance to enter alternative jobs and are therefore to a high degree, dependent on their farming activities.

General EU-Regulations on enhancing farm successions and improving farm structures can be traced back to statutory measures in the early 1970s. Regulations for specific ERS for farmers were first introduced in 1992 with the EEC Council Regulation No. 2079/1992, coming along as one of the accompanying measures in the so-called MacSharry Reform. In 1999, new regulations for ERS were set out in the Reform of the Agenda 2000, implemented by the EC Council Regulation No. 1257/1999, which carried on unchanged within the reforms of the so-called Luxembourg Decisions in 2003.

The implementation of an ERS never was and still is not mandatory for EU member states. If member states opt for the implementation of an ERS, a cofinancing by the EU can only take place if the binding EU regulations are followed. The current minimum requirements for member states who wish to introduce an ERS are set out in the articles 11 and 12 of EC Council Regulation No. 1257/1999. Article 11 of the regulation states that a person benefiting from early retirement shall:

* Stop all commercial farming activity definitively; he or she may, however, continue non-commercial farming and retain the use of the buildings.

* Be no less than 55 years old, but not yet of normal retirement age at the time of transfer.

* Have practiced farming for the 10 years preceding transfer.

Article 11 of the regulation also outlines...

View this article FREE - Now for a Limited Time, try Goliath Business News
Free for 3 Days!