Content

Executive Summary

 Preface

This chapter contains an executive summary of the Agriculture and Rural Development Plan for Lithuania.

The Plan has been drafted in accordance with the programming requirements of Council Regulation (EC) No 1268/1999 and Commission Regulation (EC) No 2759/1999. 

The Plan has been prepared by the Lithuanian Ministry of Agriculture (MoA) in close co-operation with the Commission and relevant competent authorities and co-ordinated with economic and social partners. The MoA is responsible for the drafting and implementation of the RDP.

The Plan presents the objectives and instruments for Lithuanian agricultural and rural development in order to qualify for SAPARD assistance. The Plan is based on the Programme of Government of Lithuania, the Lithuanian Agricultural Strategy, the Preliminary National Development Plan and the National Agri-Environmental Programme. The aid measures are in conformity with the obligations assumed in the accession partnership and are in line with the National Programme for adoption of the Acquis. In addition, the measures are consistent with the objectives of the EU Common Agricultural Policy . 

The Plan comprises nine chapters and ten annexes.

The Rural Development context of Lithuania

General Description of the region

Lithuania is located in the eastern part of Europe, bordering Latvia, Belarus, Poland and Kaliningrad (region of Russia). The total surface area of Lithuania is 65,000 km² and the population amounts to 3.7 million. Rural areas are defined as “areas excluding towns and urban-type settlements with the status of a town” (p. 5). Rural areas constitute 97.4% of the  total area, and rural population constitutes 31.8% of the total population. About 54% of the total area is categorized as utilized agricultural area and 30% is covered with forest.

Lithuania is divided into 10 counties and 44 districts. The population is evenly distributed between the 10 counties, which is considered an important strength for Lithuania .

Macroeconomic context

The macroeconomic trends for Lithuania have been pointing in a favourable direction since 1994. Real GDP growth has averaged 5% in the period 1995-98, and GDP per capita amounted to 6,200 EUR in 1997. The average inflation rate has been halved and stabilised around 5%, and Lithuanian exports have increased four-fold. In addition, budget deficits have been low in recent years. On the downside counts increasing trade deficits and a relatively high rate of long-term unemployment (including youth unemployment). In 1998, 44% of the population was employed, and labour force surveys indicate a total unemployment rate of 14%.

Agriculture in national economy

In the period 1993-1997, the service sector has demonstrated fast growth, and the agricultural share of GDP has fallen slightly. However, agriculture remains an important creator of national wealth and is currently contributing with 10% of total GDP. Importance of agriculture is illustrated by the fact that it was the main engine for the GDP growth in 1995-96. Agricultural employment has remained rather stable throughout the same period and constitutes around 21-24% of total employment.

Agricultural situation in Lithuania’s rural areas

The utilised agricultural area equals 3.5 million hectares (54% of the total area) of which almost 3 million hectares are arable land, leaving the remaining land to grazing (meadows and natural pastures) and permanent crops. It is worth noting that recent trends indicate that agricultural land of around 200,000 – 450,000 hectares is being abandoned by farmers due to poor soils.

Gross Agricultural Output (GAO) was worth 6153 million LTL in 1998. The agricultural production in Lithuania has been more or less evenly divided between crop and cattle production. Whereas, GAO based on livestock was dominant in the early 1990s (53% of GAO), crop production is now more significant (59% of GAO in 1998) primarily due to favourable climatic conditions and supportive government policies.

Farming structure

The farming structure in Lithuania has changed significantly since Lithuania gained its independence, and land reform has pushed for private initiative. Currently, three types of farms exist: agricultural companies (corporate type farms also involved in food processing), family farms and small household plots (typically operated by shareholders). As opposed to EU farms, private farms in Lithuania are comparatively small (average 11.9 hectares) and unspecialised. Considerable room for improvement exists in terms of farming structure, which could – together with investments in better technology – lead to an increase in overall agricultural productivity.

Agri-environmental policy and organic production

Organic production has evolved in recent years, and there are currently about 170 organic farms. However, only 0.1% of total agricultural area is covered with organic crops which is a low share compared to international standards. A support programme for organic farmers has been launched and certification and control authorities have been established. An obstacle for organic farming is the non-existence of local markets for organic products. 

An Agri-environmental programme corresponding to EU Council Regulation No. 1257/1999 has been prepared and a Code of Good Agricultural Practice has been drafted and approved. These instruments seek to improve the environmental situation while still keeping profits at a level that secures a good living standard for farmers. 

Food processing

Similar to the primary agricultural sector, the processing of agricultural products (i.e. the food industry) plays an important role in Lithuanian economy. The food industry accounted for 28.1% of total industrial output in 1998, and it accounts for 20% of industrial employment. The diary and meat sectors are the most important branches.

The transition to market economy has imposed serious challenges on Lithuanian agri-food industry. The agri-food industry is characterised by a fragmented production structure with an excessive number of large, inefficient processing units. Outdated equipment and technology lead to inadequacy of quality and efficiency. Current overcapacities in the industry are illustrated by the fact that only 20% and 45% of meat processors and diaries respectively are in use. The overcapacities  are among other things caused by the loss of export markets in former Soviet. The EU food markets have until now been closed for Lithuanian agri-food products due to non-compliance with EU requirements. Currently, only 16 dairies and one game meat processing enterprise are in compliance with EU veterinary standards.  

The investment need is considerable to overcome the present situation in the food processing sector. Private and public investments are paramount to increase efficiency,  secure fulfilment of EU requirements, and exploit the comparative advantage of the relatively low labour costs in Lithuania.

The fisheries sector is of importance in local rural areas which are dependent on fisheries. However, fisheries only accounted for 0,05% of GDP in 1995. The fish processing industry forms an essential part of the fisheries sector in the areas in question employing around 3,000 people. The Plan propose to support the improvement of the conditions for processing and marketing of fishery products through restructuring and modernising the fish processing industry.

Other sectors

Grain crops (winter and spring cereals, and leguminous grain) and fodder crops (fodder root crops, perennial grasses maize for silage and green fodder, and other silage crops) constitute 45.8% and 44.4% of total crop area respectively. Domestic demand for grain and fodder is satisfied by 105%.

Rapes is the most widespread oil crop (84,000 hectares). Rape seed cultivation and processing is a rather new sector in Lithuania and due to this, the sewing, supervision and machinery are insufficient.

Another significant sector is the fibre flax sector, which supply fibre flax raw material to the local textile industry. The sector is characterised by lack of investment, which translates into insufficient  production technology and equipment.

The fruit and vegetable sector face similar problems. Currently, about 1000 persons are employed and produce is a little more than half a million tonnes per year. The productivity of the sector is hampered by insufficient storage and production facilities.

Forestry

30% of Lithuania is covered with forests. Forests constitutes an important natural resource. Pine and spruce are dominant tree species.

Forests are primarily publicly owned, and only 16.4% was privately owned in 1999. It is estimated, however, that privatisation will lead to private ownership of between one third and one half of total forest area. Private forestry is characterised by a large number of small holdings (average holdings of 2.5 hectares). This fragmented character of private forestry has so far limited the commercial exploitation (timber harvesting, wood processing etc.) of forests, and the forest sector contributes only 2.8% to GDP. However, wood products are important for export and accounted for around 5% of total Lithuanian exports. Forestry and forest processing have 12,000 and 34,000 employees respectively.

A privatised, well organised Lithuanian forestry sector has considerable economic potential and provides an alternative income and employment opportunity, which can lower the dependency on agriculture in Lithuania. Furthermore, the conservation of forests (or protected parks) is important from a biodiversity and recreational perspective.

Environment

The main environmental problems identified in the Plan are related to agriculture.

·        Around 15% of arable land is subject to soil erosion leading to the loss of valuable topsoil and productivity.

·        The excessive use of fertilisers and nutrient outlet from large-scale pig and poultry breeding units and from livestock production leads to eutrophication of water bodies. 

·        The use of pesticides has contaminated drinking water reservoirs.

The use of fertilisers and pesticides has been falling due to recession and financial problems, but the nutrient already accumulated represent a potential environmental threat.

Actions aiming at improving the environmental situation in Lithuania include the development of a network of protected areas to preserve cultural heritage and biodiversity. Protected areas cover 734,000 hectares (11.2% of total area) situated mostly in the Southeast Lithuanian regions. Although Lithuania faces serious problems in conserving the rich landscape and biodiversity (during the last 30 years, the amount of natural meadows and wetlands has decreased significantly), the existence of the system of protected areas serves as a good basis for redesigning and conserving biodiversity in the future.

Analysis of disparities

Lithuanian rural areas are characterized by some unfavourable developments compared to urban areas.

·        Rural population is decreasing (3.8% in 1998) due to falling birth rate and high death rate in rural areas. Urban population increased by 0.2% in the same period. The disparity is further illustrated by the ratio between children and retired people which is 0.93 for rural areas and 1.28 for urban areas.

·        Duration of life was respectively 5 and 2.4 years shorter for men and women in rural areas than in urban areas.

·        Per capita income in rural areas was 30% lower than in urban ones.

·        Rural areas have a lower employment rate, but despite of this, the rural employment rate is also lower than the urban one. Age structure of rural unemployment rate is unfavourable for young people - nearly 30 % of persons under 20 are unemployed. Employment in rural areas is highly dependent on agriculture.

Compared to the EU, the following disparities are significant:

·        GDP per capita at PPP is one third in Lithuania compared to the EU average.

·        Dependency on agricultural activities in Lithuania is considerably higher than in the EU. 

·        The agricultural sector in Lithuania lags behind in terms of quality, productivity, efficiency and competitiveness.

Strengths and weaknesses of the region

Summarizing the strengths of rural Lithuania it is obvious that agriculture is of outmost importance to future socio-economic development of rural areas in terms of production and employment. Also, positive changes can be registered within the agricultural sector since independence, e.g. continuous land reform, efforts in restructuring farming as well as modernising both the primary sector and processing industry (although insufficient so far), and harmonisation with EU legislation and standards is well under way. Natural resources (raw materials) and climate conditions in Lithuania are also positive features in rural areas. Finally, the forestry and fisheries sectors do seem to possess certain potentials in terms of diversifying and thereby securing stable rural activities in the future.

The main weaknesses of rural development are significant and constitute pressing problems for rural Lithuania.

With regard to economic issues, both agriculture and the processing industry are characterised by structural imbalances (fragmentation and small units), outdated technology, and lack of capital for investments causing low productivity and thereby lack of competitiveness. Furthermore, the necessary framework conditions (land market, infrastructure and administrative structures) are at least not functioning in an optimal manner and at worst not in place. These weaknesses necessitate considerable actions in the context of not only SAPARD but also nationally and bilaterally through EU member states.

In terms of social development, rural disposable household income is lower than in urban areas. In that respect, over-dependence on agriculture is equally a serious problem in rural areas demanding for a diversification of rural activities and employment opportunities. This will be increasingly important when the agriculture and processing sectors become more efficient. Moreover, basic living conditions are comparatively poorer in rural areas than in the cities, and a tendency to ageing of rural population can be a threat to economic vitality.

Finally, it must be considered an essential weakness (or even threat) that current – and future – intensive farming causes considerable environmental damage through, inter alia, the use of fertilisers and pesticides.

Overview and brief assessment of previous actions

Previous actions can roughly be placed in two categories. Community supported and non community supported actions.

Actions with community support have so far been implemented under the Phare programme, which was launched in Lithuania in 1991. About 29 million EURO have been allocated through the Phare programme.

During the period 1991-94, focus was put on feasibility studies, development of advisory services for private farmers, land reform and the initiation of a rural banking system. In 1995, emphasis was placed on market restructuring activities, e.g. sectorial reforms, restructuring of agri-processing enterprises and strengthening of food control systems.

From 1997 and onwards, European integration issues has been the top priority. Financial support has been provided to make Lithuania ready for EU membership. Specific attention has been given to the veterinary and phytosanitary subsectors, land market development, institutional development, establishment of integrated agricultural information systems and development of the fisheries sector. 

The Phare programme has played a major role in transferring know-how and building institutional capacity. The MoA, control institutions and other public organisations have been strengthened and EU integration has increased considerably. Overall, the design and implementation of Phare have been satisfactory, although outcomes occasionally were hindered by slow tendering and contracting actions.

Actions undertaken without community support involves the National Programme for Development of Agriculture (NADP). NADP was approved in 1993, and set out the following national objectives for development of the agricultural sector.

·        To satisfy the peoples demand for high quality food products;

·        To develop food product exports,

·        To ensure farmer income parity to average income levels;

·        To reduce the level of unemployment in rural areas

·        To promote farming practices taking environmental concerns into account; and

·        To revive and preserve rural cultural traditions.

In 1997, the government decided to initiate a new package of reforms integrated under the Rural Support Fund (RSF). The overall aim is transition to market economy and restructuring of the agricultural sector. The annual budget is about 100 million EUR. The resources of the RSF are supplied via the following programmes.

·        Agro-food market regulation measures (subsidies for agricultural holdings and food processors).

·        Priority investment measures (grant aids for investment in agricultural holdings, diversification, rural infrastructure etc.).

·        Technical assistance, training and research (support for advisory services, information systems and research projects in rural areas).

·        Rural Credit Guarantee Fund (resources to secure farmers loans) .

Due to insufficient monitoring systems it is not possible to make precise assessments of RSF activities. However, the following areas have been identified as effective support areas (high economic impact):

·        Partial compensation of interest payments on long- and short-term loans.

·        Support to young farmers

·        Support to investments in farm equipment and machinery.

In addition, investments in human resources seem to be very effective. However, the nature of human resource development makes evaluation and assessment very complicated.

  Rural Development Plan - Strategy, Objectives, Priority Areas and Eligible measures

The strategy and general, specific and operational objectives presented in the Plan are prepared by the Ministry of Agriculture and take the National Development Plan into consideration. Priorities in the plan are based on the general national objectives, and the RDP general objectives are as follow:

RDP General Objectives

·        Provision of additional income for farmers and rural dwellers as well as increased income levels leading to improved living standards and working conditions in rural areas;

·        Improved competitiveness and efficiency of primary agricultural production;

·        Improved processing and marketing of agricultural produce through increased efficiency and competitiveness;

·        Improved quality and hygiene standards;

·        Achieving a sustainable rural development through promotion of farming and other economic activities in harmony with the environment;

·        Creation of employment opportunities in rural areas;

RDP Strategy

The strategy to achieve the general objectives presented in the plan is presented as follows:

·        Improving structures in the area of primary agricultural production, modernising farms and introducing new efficient farming technologies, and promoting efficient, competitive, quality and marketable output at all levels of the agri-food chain;

·        Building the competitive agri-food industry and targeting investments towards sector restructuring, development of higher value added products, fulfilment of hygiene, food safety and quality standards, creation of employment opportunities, introduction of environmentally friendly technologies;

·        Supporting the achievements of the highest environmental standards in all programmes which promote agriculture, food, rural development and forestry;

·        Promoting the production of non-surplus products as well as encouraging alternative income creating rural enterprises, both on and off-farm;

·        Ensuring availability of appropriate human resources, advice and support to meet economic, social and development needs of farmers and rural communities in general; and sustaining and exploiting cultural, historical and natural heritage of the countryside

SAPARD Priority areas

The analysis of agriculture and the rural areas in Lithuania suggest that the following areas are selected as priority areas in the SAPARD programme.

1.      Agricultural production;

2.      Processing and marketing of agricultural products;

3.      Diversification of economic activities in rural areas;

4.      Rural Infrastructure and Environment;

5.      Forestry

6.      Environmentally friendly agricultural methods

7.      Vocational training;

8.      Technical assistance, information and publicity campaigns.

Eligible measures in the SAPARD programme

On the basis of the analysis of disparities, strengths and weaknesses in Lithuanian rural areas, and with the previous actions taken into consideration, seven measures have been developed in accordance with the priority areas presented above. The measures are in accordance with the objectives and strategy outlined above.

Measure 1:       Investments in agricultural holdings.

The specific objectives are to improve the quality of agricultural products as well as hygiene and environmental standards of production. These objectives should be achieved parallel to increased efficiency and cost reductions leading to increased income levels and living standards. Finally, an adapted farm structure should be achieved.

Measure 2:       Improving processing and marketing of agricultural and fishery products.

The specific objectives are to improve the quality of food processing and food products as well as hygiene and environmental standards of production. More attention on product development will be welcomed together with investments in efficiency and cost reductions. Improved working conditions are also target by support.

Measure 3:       Development and diversification of economic activities, providing for multiple activities and alternative income.

New business opportunities including development of rural tourism should be supported leading to increased income and employment opportunities. Also improvements in rural social services should be supported.

Measure 4:       Improvement of rural infra structure.

Improvements in infrastructure such as water supply, sewage systems, telecom systems and roads will be supported to make the living conditions in rural areas better and to reduce disparities between rural and urban areas in Lithuania.

Measure 5:       Aforestation of agricultural lands and improvement of Forest Infrastructure

Increased afforestation of abandoned agricultural land is considered an important activity to reduce dependency on agriculture and to improve environmental conditions in rural areas.

Measure 6:       Environmentally friendly agricultural methods

The main objective of agri-environmental programme is to decrease negative impact of agriculture on the environment, restore traditional landscape and increase biodiversity and to prepare measures that ensure normal economic and social conditions for rural population,

Measure 7:       Vocational training.

Training of farmers and forest owners is considered to be an important objective in order to support the modernisation of production and agricultural and forestry business.

Measure 8:       Technical assistance, information and publicity campaign.

This measure is a support function for the š previous mentioned measures. The objectives are to support technical assistance, information campaigns and monitoring and evaluations of projects, measures as well the overall programme.

The measures are described in more details in chapter ė of the RDP and in annex II: Technical sheets.

The SAPARD priorities and the associated measures will be supplemented by national programmes primarily financed through the Rural Support Fund. Also bilateral, multinational and EU co-operation will be considered complementary to the SAPARD priorities and thereby contributing to the general objectives of the RDP.

Prior appraisal of the Plan

The plan has been subject to an ex ante evaluation in accordance with regulatory request. The ex ante evaluation was prepared on the basis of the October 1999 version of the plan. The ex ante evaluator recommended several improvements in order to meet the Commission requirements. The following are the main points in the evaluation report:

·        Consistency of the proposed strategy should be improved.

·        Consistency with the Common Agricultural Policy and other policies should be analysed.

·        Expected impacts of selected priorities should be clarified and developed.

·        Quantification of targets should be elaborated.

·        Definitions of responsibilities; monitoring and evaluation arrangements; and procedures and selection criteria for project selection should be developed and clarified.

The MoA has taken the recommendations of the evaluation into account and has in the period from December 1999 to August 2000 improved the general structure, arguments and presentation of the Plan, and attached additional information. Actions have been taken within all of the above mentioned areas in order to meet Commission requirements for a final approval

An assessment of the final RDP and a check of improvements and amendments in response to Commission questions and comments is prepared by the ex ante evaluator. This assessment is included in the plan as annex and concludes that the RDP - as it is presented here - in an adequate way fulfil the Commission requirements and thereby opens the gate for final approval.

National legislation applicable

A national legal basis for public funding of relevant structural measures in Lithuania have been developed  and the main definitions crucial in this regard have been outlined.

National legislation comprises public procurement rules applied for implementation of projects related to Measure 4 (rural infrastructure), legislation on administration of public funding, legislation and procedures regarding financial control (the State Control) and specific national legislation applicable to Measure 1-7. For more detailed description see Ch. 5.

Eligibility of Expenditure for Community Funding

In order to be eligible for Community assistance, measures under the Plan have to be in accordance with the guide lines of the Community policies, in particular Rural Development Strategy and the Objectives of the CAP (as set out in 3.1 in the Plan). In chapter 6 and in annex 2, the general and specific selection criteria for action related to rural development are described.

 Financial Plan, Aid Rates and Rate of Community Contribution

The overall costs of implementing the measures foreseen in the RDP in the period 2000-2006 amount to close to 537 mill. Euro. In accordance with the rules laid down in the SAPARD Regulation, public aid may amount to 50% for revenue generating investments which in Lithuania’s case constitutes about 277 mill. Euro (average aid rate is 51.6%).

The Community contribution of the public funding constitutes as a rule 75%. This adds up to a Community contribution of 208 mill. Euro implementing the SAPARD programme in Lithuania. National funding amounts to 69 mill. Euro, whereas the private co-financing will be  260 mill. Euro.

  Administration and conditions of implementation

The overall responsibility for implementation of the Plan is carried by the MoA, but certain measures or projects might be delegated to other bodies designated by the MoA.

The National Paying Agency under the MoA is responsible for administration, monitoring and control of financial aid provided under the Plan. The Agency allocate and control funds in accordance with criteria and procedures outlined in the Plan. The Responsibility covers both the Rural support Fund and funds under EU assistance.

Part of the authorisation and control function will be delegated to Regional Agricultural Units (48 offices), which will be responsible for collection of applications for support and payment claims.

Detailed description of compliance with Community policies and regulation can be found in 8.4.

Monitoring and evaluation

A Monitoring Committee (MC) will be established in accordance with Regulations 1268/99 and 1260/99. Membership will be drawn from ministries, government, state bodies, social and economic partners as well as the private sector. The MC shall be assisted by a secretariat responsible for documentation, reports, agendas and summaries from meetings. In addition, the MC shall install and maintain databases necessary for monitoring of the programme.

Evaluation of the Programme will be carried out using the appropriate methodology and will comprise both intermediate and final evaluation. 

For futher decription of duties of the MC and evaluation criteria see 9.2.

 General Provisions

The Plan has been carried out in co-operation with a Rural Business Development and Information Centre. In addition, local authorities and social and economic partners have taken part in the process.

The regional authorities have been doing continuous evaluation of strengths and weaknesses of their particular regions in order to develop the appropriate objectives, strategy and measures. 

In the preparation of the Plan, the CAP and Accession Partnership priorities have been elaborated. In addition, the introduction of market mechanisms and further liberalisation called for in the “new” CAP (integrated in Agenda 2000) have been elaborated in the Plan. Also the Phare 2000 socio-economic cohesion in target regions have been taken into consideration.