Fragmentation of agricultural estates is an ongoing concern, as there are now approximately three million landowners in Hungary. This has resulted in many cases of undivided co-ownership, where even a single owner can block any new investments that can raise the productive capacity of the land. Balázs Győrffy, president of the National Chamber of Agriculture, discusses how to prevent further fragmentation of these estates.
Fragmentation of estates and their inheritance is a serious concern for Hungarian agriculture. What could be done to prevent this?
Last year an entire chapter of our publication was devoted to estate succession, which deals with some of the most important issues of agriculture. Hungary does not have any special rules on the process of estate inheritance in agriculture. Such rules have been developed in other countries to prevent the fragmentation of estates. In Britain, for example, the oldest child inherits the estate. In Germany, there is also the possibility of keeping the farm in one hand, as one heir pays the other siblings either the market price of the estate itself, or a calculated price reflecting the productive value of the estate.
In Hungary, we should have some rules to prevent the land from being subdivided, at least in cases where the estate is below a certain size. For example, one solution is to create an interest-subsidized loan that would enable the heir to pay off the other inheritors. We are currently thinking of changing the existing regulation.
Another serious concern is that very few farmers plan for what happens to their land and business after their death. While the value of the land itself is free of inheritance-tax, the value of the tools necessary for cultivating it is not. We believe that if the farmer leaves his business to his own child in the will, there should be no taxes levied on the assets that accompany the land.
How many landowners are there in Hungary?
About three million. Of course, this includes both the farmers with big estates and those who own only one square meter. In the case of undivided co-ownership, this is a particularly serious problem. As the estate is divided into smaller and smaller land units, this creates more and more land owners within the estate. With multiple co-owners of an estate’s land area, just one land owner can block an important investment, such as an irrigation project, that would improve the value of the entire estate. A drastically fragmented farm structure like this makes it impossible to maintain a competitive agricultural industry in Hungary.
The lack of irrigation is indeed a serious problem in our country. At least twice the current area would need irrigation for a competitive agriculture. What can be done?
In our opinion, it is not enough just to double the arable lands under irrigation. In the EU today, one tenth of their arable land is irrigated. However, in Hungary we only irrigate two percent of our arable land. The advantage of increasing irrigation is not limited to better yields for our existing crops. There are many other crops that could be introduced in Hungary, but can only grow with proper irrigation. Expanding both crop variety and crop yields would make us more competitive.
Further, irrigation has become more important because not only has average annual rainfall decreased over the last century, its distribution over time has also become highly volatile. There are now more droughts, but there are also more torrential rains in between.
With the help of experts, we have assessed the country’s irrigation needs and surveyed one million hectares of farmland. According to the survey, if farmers had the infrastructure available, they would irrigate four hundred thousand hectares, as compared to the current one hundred thousand hectares. We also asked the farmers to explain what prevented them from pursuing irrigation projects. They replied that they were afraid that the expensive investment would not payoff.
Over the next ten years, the state will spend 170 billion forints on getting water to farmers who are ready to irrigate in areas where it is now unavailable. The first step will be to irrigate 100,000 hectares.
Typically, these will be areas where farmers had irrigated in the past, so modernization of the basic infrastructure can relaunch irrigation with a relatively small investment.
The National Chamber of Agriculture recently signed an agreement to support start-ups. How are they supported?
The modern economy cannot work efficiently without start-ups. This is also true in agriculture, where innovative ideas need to be integrated into the processes. There are plenty of new ideas from around the world in the area of agriculture, but too few are being implemented in Hungary. That is why we want to create a supportive environment that encourages start-ups to put their ideas into practice. This would be a significant advantage for Hungarian agriculture.
An important part of this service is bringing entrepreneurs together with consultants to help them implement their ideas. And the next step is mentoring businesses.
One possibility is that a larger company helps them implement their ideas, mainly by financing them. Another is that a venture capitalist enters the business to fund product development. Both solutions are acceptable to us. Our aim is to develop Hungarian agriculture as a whole through these new products and solutions.