Smarter: State Agricultural Land Tenders a New Stumbling Block in Croatian Villages

Since the beginning of 2023, the announcement of tenders for the lease of state agricultural land is expected in a large number of municipalities and cities across Croatia. After five years, since the authority for land allocation was transferred to municipalities and cities, conditions have been met to start mass publication of tenders and allocation of state land for lease.

In recent days, the public has learned about the announcement of certain tenders and the decision to allocate agricultural land for lease, which has caused a great uproar, disbelief, and dissatisfaction among a large number of agricultural producers. Livestock farmers have realized that they are in an unfavorable position, while long-term tenants, diligent landholders, have begun to lose agricultural land that they have cultivated for years, invested in, and cared for its quality, and based on that land received support from the rural development fund, as well as bank loans, which now need to be repaid, but perhaps without the necessary agricultural potential.

Law on Local Governments

The consulting company Smarter has analyzed all the novelties that will come into force, and the general conclusion is that it is urgently necessary for all agricultural producers to start preparing adequately for the new tenders. It is important to collect all possible documentation in a timely manner (which is not small) and to prepare a Business Program for each cadastral parcel or production-technical unit. It is essential to approach the tenders seriously and thoughtfully because even the smallest mistake in the submitted documentation can lead years of production effort to a complete collapse of production and life in an instant. Recently, we witnessed such an example in the media where in the municipality of Čađavica, one of the most famous and highest quality milk producers, Branko Karamarković, lost his land, experiencing firsthand all the injustice and misunderstanding of institutions regarding how to fairly implement laws and regulations while protecting good producers.

We remind that in February 2018, the Law on Agricultural Land was adopted, which transferred the authority for allocation from the Agency for Agricultural Land to local government units (LGUs). This law has caused numerous criticisms and disputes, both among LGUs and agricultural producers, and based on this law, very little agricultural land was allocated. In May 2022, amendments to the law were adopted, and during September and October 2022, numerous implementing regulations were also adopted. From 2019 to 2022, three amendments to the law, two regulations, and 19 regulations related to agricultural land legislation were adopted.

– The situation with the leasing of agricultural land is becoming increasingly complicated. Numerous municipalities and cities have not conducted tenders for years, and producers have used the land based on short-term contracts or so-called ‘certificates’, which have now expired and the holders no longer have a legal basis for using the land. Agricultural inspectors are increasingly conducting field inspections and imposing fines, as the law explicitly states that the use of state agricultural land without a valid legal basis is not permitted. Certificates or even lease contracts are expiring for numerous agricultural producers, while on the other hand, tenders for land allocation have not been announced or, if they have, will take a long time to complete the entire process. Therefore, the question arises of what agricultural producers should do in this legal vacuum? Should they sow and cultivate the land they currently use, but ‘without a valid legal basis’ and thus pay fines or wait to be evicted – emphasizes Zvjezdana Blažić, a consultant for agriculture and the food industry.

Our estimate is that a considerable amount of time will need to pass from the announcement of certain tenders to carry out the entire complicated procedure. Therefore, these days, there is enormous nervousness, fear, and disbelief in Croatian villages, as it is unclear what will happen tomorrow and who will be able to use the land they currently possess. Some agricultural producers may have cultivated and invested huge amounts of money in leased land and their agricultural holdings for years, while, on the other hand, many young farmers are waiting to receive land based on which they can develop their productions and live from agriculture. Without agricultural land, there is no agricultural production, no food production, but what is crucial in many cases, and perhaps decisive in some cases, is that there are no generous agricultural subsidies either. Therefore, these days, there is enormous anticipation and uncertainty among farmers about what awaits them in the future.

Hot Potato

It is known that some previously conducted tenders have caused a storm of dissatisfaction. It is also clear that this job for LGUs is not at all easy; on the contrary, all mayors and municipal leaders must be aware that they hold the fate of people who live from agriculture in their hands, meaning that their commissions, municipal councils, and professional services have a very “hot potato” in their hands.

For a better understanding of this enormous problem we will face, it is necessary to explain the procedures. First of all, the assumption for announcing public tenders for the lease of agricultural land is that municipalities and cities have adopted a Program for the disposal of agricultural land in their territory, for which they received prior consent from the Ministry of Agriculture. Since the disposal programs have been prepared since 2018, most municipalities and cities have adopted these programs, but the fact is that they can also be changed. New regulations have tasked LGUs to announce tenders for the lease of state agricultural land in their territory as soon as possible (after they have adopted the Programs for the disposal of agricultural land), and the tenders should be announced for the total available state agricultural land.

The proposal for the decision is prepared by the LGU, and the Ministry of Agriculture gives consent to that decision.

After receiving the Ministry’s consent, LGUs are obliged to immediately, without delay, announce the Tender. All agricultural producers can apply for the Tender, who must prepare for a very long journey of meeting all conditions and obtaining the necessary documentation. Precision in this must be at a high level.

Along with the Lease Offer, producers are obliged to submit a Business Program – a plan for the use of agricultural land for a duration of five years that must contain all production indicators and economic parameters, which are determined by the prescribed form of the Business Program. The Business Program must be made for all cadastral parcels or production-technical units (depending on how the Tender is announced). It is known that our cadastral parcels are very small, and it can easily happen that one farmer, for the land they currently use or wish to use, must create dozens of Business Programs – with all the required indicators.

The proposal for the decision on the selection of the most favorable lease offer, determined by a special Lease Commission (appointed in the LGU), is submitted for consent to the Ministry of Agriculture. After the Ministry’s consent is given, the decision on the lease of agricultural land is made by the municipal/city council. When decisions on the selection of the Lease Offer are made, the municipal mayor and the offeror sign a written Lease Agreement. This Lease Agreement is an enforceable document and is confirmed by a public notary. However, before signing the Lease Agreement, all contracts must be submitted for consent, with a prior opinion from the county state attorney’s office.

It is estimated that according to past practice, tenders could last an average of a year and six months.

When all these procedures are completed, the new lessee must be introduced to possession. However, if another holder has used that land until now, the entire situation becomes very traumatic.

Local government units in the Tender can, but do not have to, determine the maximum size of state agricultural land that can be leased to one PG (physical or legal person and their related physical and legal persons) in their territory. Even those local government units that do not limit the maximum size of the holding in the Tender can lease a maximum of 50% of the land located in the area of that LGU to one physical or legal person.

Due to all these regulations, limitations, and legal entanglements, Croatian agricultural producers are bewildered and believe that this Law will also pass unsuccessfully, like all previous ones that have not resolved the issue of state agricultural land in a quality manner.

Some LGUs bravely limit the size of agricultural holdings. The question is whether they do this based on quality analyses, strategic goals, or whether such decisions were made for political and other reasons, which are anything but for the purpose of agricultural development.

Farmers rightfully ask whether LGUs had the knowledge and time for quality analyses, whether they considered how an agricultural holding that has leased state agricultural land of, for example, 100 ha has adapted and purchased machinery, an appropriate number of livestock, number of employees, etc. Many also have obligations based on funds received from the Rural Development Program or commercial loans that were granted to them based on the total agricultural potential that the holding has used until now.

In certain areas, for example in Slavonia, there are LGUs that have prescribed a state maximum smaller than 50 ha, although the times have long passed when it was considered that a sustainable arable farm is one that has at least 50 ha, and a dairy herd of 100 cows.

Farmers therefore rightly ask these days whether we will take land from quality agricultural producers with high European yields without any economic calculation, to give it to economically unproven sustainable holdings? Under attack from such economically unjustified solutions regarding land maximums are not only large agricultural systems but also numerous family farms.

On the Way Down

At Smarter, we believe that Croatian agriculture could face the destruction of quality agricultural producers who achieve results at the European level with excellent yields and are competitive in the EU agricultural product market. In doing so, we may find ourselves in a situation where it will be difficult to create new successful farmers, as successful agriculture requires a lot of knowledge and capital, and our agriculture does not abound in these resources. The logic that 10 farmers will achieve the same amount of production, the same quality, and the same yields on the same area that one agricultural holding has excellently cultivated is simply not accurate. We are creating dead capital, and we have a huge number of abandoned farms remaining from former, failed Operational Programs. It seems that we will again pay dearly for poor political decisions in agriculture.

In the current, very uncertain situation regarding global food security, the issue of food production is a top priority, and any experimentation in this area is unacceptable. Croatia has a structure in agricultural production where plant production of cereals, oilseeds, and industrial crops predominates. Our livestock production has significantly decreased, and larger producers who had appropriate crop production alongside livestock have survived, allowing them to produce their own animal feed. It is not possible to do all this on small, fragmented, unconnected, and unregulated areas of agricultural land, which are evidently being sought to be recreated now.

The European Commission has determined based on structural indicators that the Croatian agricultural sector is still characterized by smaller agricultural holdings, lower labor productivity and efficiency, and lower factor income, as well as purchasing power compared to the EU average. The European Commission has stated that agricultural holdings are mostly small and unsuitable for modern agricultural production, which means they have low efficiency and productivity.

The fragmentation of agricultural holdings is one of the main limiting factors for the development of the agricultural sector. Compared to the average farmer in the European Union, the average Croatian farmer uses 30 percent less agricultural land, raises only half of the livestock units, and achieves a lower average economic result by 56%.

Croatia should aim to put neglected private agricultural land and land owned by the Republic of Croatia that is not in agricultural production into function, to separate agricultural land from forest management bases that can be put to use, and to further carry out the consolidation of agricultural land.

The goal should be to increase the total area of arable agricultural land, and the Law on Agricultural Land has created legal possibilities to start all these procedures.

However, it seems that the easiest approach is to the procedures for leasing agricultural land owned by the state that has been cultivated for years and in which their previous holders have invested long-term effort and developed their holdings. For years, the disposal of state agricultural land has been reduced to taking from some to give to others, and we do not even attempt to increase the total area by regulating the land that is not used. Additionally, today, due to climate change, it is very important to consider that certain soils, in new circumstances, can yield significantly better production results, and also, new crops can be grown on some other areas, even marginal lands.

A better solution would be that instead of taking state agricultural land from existing holders who produce agricultural-food products, as they have invested significant funds in land quality and cared for it for years, the state should distribute at least 150,000 hectares of unused land to small and young farmers and adequately assist in cleaning the land and bringing it to purpose, concludes the experts at Smarter.

As we see that all decisions and processes are heading towards the imminent announcement of tenders in a large number of municipalities and cities, we hereby call on agricultural producers to take a very serious and professional approach to the tenders, that is, to responsibly collect all necessary documentation. It would also be good to carefully monitor the announcements from their municipalities and cities as it could happen that the Tender is announced during holiday days when there will be less attention from all interested parties. We wish all agricultural producers good luck in the tenders and they can contact us for assistance to be as close as possible to fulfilling their need for obtaining state land for lease.