The new Agricultural Land Law (ZPP) could ‘show its teeth’ at the end of this year and the beginning of 2024, as new tenders for the lease of agricultural land are being announced based on its foundations. The authority for managing agricultural land is being transferred to local self-government units (JLS), which are already bravely limiting the maximum area of leased land to just 25 hectares. This is also the biggest novelty defined by the legal solution, according to HUP’s analysis Focus of the Week.
The strongest blow is suffered by producers with production organized on hundreds of hectares or those who use more than a thousand hectares, who count on this key resource in concessions for 20 years and have invested significant funds in modern agrotechnological systems and crop and livestock production.
Not only large producers are under attack, but also many family farms of various sizes whose support from EU funds depends on the total production potential. The law not only fails to encourage successful farmers, who have seriously invested based on previous leases, significantly increased productivity, improved competitiveness, and employed the population in rural areas, but threatens ‘overnight’ exclusion of investors from business.
Meanwhile, the local state will practically receive unlimited discretion to allocate land to new and small family farms in pursuit of EU incentives, which are sometimes owned by members of JLS bodies, which is a classic conflict of interest, HUP warns.
If arbitrary, non-market fragmentation of holdings occurs, we expect a negative impact on productivity, which could result in the shutdown of unprofitable production, increased reliance on imports, and a deterioration of the agricultural trade balance (including forestry), which has been in surplus for the last three years.
The law is inappropriate in the context of geopolitical tensions and accelerated adverse climate changes. The last years, marked by border closures due to the pandemic and the energy shock, have shown that ensuring strong domestic agricultural production is crucial. Croatian farmers are still mostly very small, as even 70 percent of them cultivate less than five hectares of agricultural land in fragmented low-value production and short value chains.
What are the trends in Croatian agricultural production?
Total revenues of Croatian farmers have more than doubled from 2015 to 2022 to 3.7 billion euros, while exports have simultaneously tripled to around 600 million euros. Croatian agriculture has recorded a slightly stronger real growth in productivity per working hour compared to the EU average since 2015, and in the last three years, the average productivity growth has been even faster (+32.6 percent compared to 13 percent in the EU). Finally, this sector has significantly reduced indebtedness, as seen through the decline in the net debt to operating profit (EBITDA) ratio from a maximum of 3.90x in 2016 to 1.34x in 2022.
In its logic, the ZPP is in collision with the proclaimed consolidation of land as one of the goals of all agricultural strategies over the past 20 years. According to the Constitutional Court’s assessment, land consolidation is a legitimate goal. Finally, the law is completely inappropriate in times of geopolitical tensions and accelerated adverse climate changes, which is why the import of numerous agricultural crops has not only significantly increased in price but we are witnessing continuous uncertainty in supply channels and the availability of sufficient quantities.
Despite positive financial trends, however, we could be concerned because in the last three years, the physical volume of agricultural production has recorded an average annual decline of about 2.7 percent, and according to the latest estimates, the yield of wheat and barley is lower by up to 20 percent compared to 2022 due to adverse weather conditions. Sector investments in fixed assets over the past five years have averaged only 75 million euros and are half lower compared to investments from 2008 to 2015.
– HUP therefore calls for the adoption of measures that will at least temporarily prevent the right to manage agricultural land for which there are concession relationships. We insist on the right of priority for existing concessionaires, as organized production is the basis for all, not only past but also future development of Croatian agriculture – they conclude in the analysis.
