Rural Development and Diversification of Rural Areas in Slovakia

l. The country context

Since May 2005 Slovakia - as 9 other countries of Europe, concluded a several years of
the negotiation process and became a full member of the European Union. As such
Slovak citizens were exposed to several changes – both positive and negative in all
aspects of political, social and economic life of the country. Traditionally well
protected borders became more open, citizens could move more freely but also goods,
of course. Common European markets brought lower prices for consumers in several
commodities including food on one side, but on the other side more difficult sale
conditions for producers. The competitiveness of enterprises became a crucial factor of
the economic success. Suddenly accessible European agriculture direct payments
(although just 52,5% of full directs payments of farmers of old member states - OMS)
immediately brought farming to a better and more favourable conditions. This fact
together with a “good weather” factor and consequently unusually high grain harvest
created situation in which more than 70% of agriculture enterprises became profitable.
Last surveys of sector average salaries showed, that the fastest growing wages are in
agriculture – the sector, which was always lagging behind in the past.
In general - the country macro-economic development took quit positive trend during
last several years including the short time before the EU Accession. As the Green Report
2004 says, the GDP growth was 4,2 in stabile prices , the inflation rate was 8,5,
unemployment rate was 15,2% at the end of 2003 (declining trend), average nominal salary
was 480 USD, average interest rate was 7,6 in 2003. The Statistical survey conducted by the
Statistical Office of the SR has shown further growth in nominal salaries – 570 USD at the
end of this year. Among sectors the agriculture was the one with the fastest salary growth.

Slovakian economy became a fast growing after EU Accession. The in flow of

foreign investments increased remarkably (In 2003 – 11,2 billion USD, Green Report,
2004), especially in Western part of the country, the orientation of the industrial
development in favour of value added branches helped to decrease the high
unemployment rate and increase the average salaries.
Unfortunately this positive development is not fairly balanced among regions, since
most of domestic and foreign investments are concentrated around capitol city (which
has an ex-centric position within the geography of the country) or in western regions,
which were in quite favourable conditions already before. On the other side – Central
and Eastern parts of the country are continuing to suffer of unfavourable socio-
economic context and consequently of lack of job opportunities. The study of the
Slovak Academy of Science carried out in 2004 has shown clearly disparities among
regions and illustrates statements above (Graph 1).
Graph 1. Current economic situation of districts in SR, Statistical Office, 2001

Due to these facts the group of socially excluded people is growing in these
parts of the country . Therefore the Central and Eastern parts of the country are the
main target areas for activities of European Social Fund – a new and positive
phenomenon of the EU Integration.

2. The situation in rural areas

Slovakia has 5 379 thousand inhabitants, total country surface is 49.000 km2.
Total rural population represents 2 567 781, which is 47,7%. Average population
density is 109.9 inhabitants per km². Outside urban areas, the population is
concentrated in lowlands and valleys, while mountain areas are sparsely settled, which
is caused by the fact that the extensive settlement and use of the country has essentially
affected the original structure of the country and composition of ecosystems.
Statistically rural areas are not precisely defined. Rural settlements are considered to be
those generally not having the status of a town and having a certain character and type
of occupancy, economic structure, based mainly on the agriculture and forestry, a less
developed infrastructure and low population density. In terms of statistical
classification these settlements – villages have up to 5 000 inhabitants.

The Statistics Office of the SR registers 2 883 settlements, of which 2 745

(95.2%) are villages and 138 cities. The majority of villages - 1979 have up to 1 000
inhabitants and of these 1 210 villages have fewer than 500 inhabitants.

The level of rurality, according to OECD methodology, is defined by the share

of the population living in rural settlements. Regions (districts) with a share of the
population living in rural municipalities over 50% are described as districts having a
significantly rural characterOn the basis of this classification 48% of the population of
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Slovakia lives in “predominantly rural” districts, 40% of the population in “semi-rural”
and 12% of the population in “predominantly urban districts”. Predominantly rural
areas represent 59.5% of the land area of the Slovak Republic. In these areas are
located 62.8% of agricultural land and 55.9% of forests. If compared to the situation
within the EU - on average 28% of the population lives in predominantly rural regions,
32% in semi-rural regions and 40% in predominantly urban regions. Slovakia has a
settlement structure comparable to that of, for example, Norway.
.

Graph 2. The regional typology of rurality in Slovakia

CA
NO
KM TS
BY
SL SK
PU DK BJ
ZA
PB SP ML
KK SB
IL MT LM PP
RK
TN LE
SI PO HE SV
NM TR
MY BN PD SN VT
BR
SE BB
GL
KE SO
PN TO PE ZH RA RV KS
DT MI
MA TT HC ZC ZV
PT TV
PK ZM BS
NR RS
BA SC KA
GA LC

SA LV VK
NZ
DS

KN

Types of regions
Urban
Semirural
20 0 20 40 60 80 100 km Rural

The above mentioned rurality copies also the general socio-economic situation
and disparities between regions as described previously While rural towns and villages
in Western parts of the country are benefiting of the economic growth in terms of
employment (not so much in terms of income – since rural people with lower
qualification are exposed to minimum salaries policy of employers too often), the faster
infrastructure development and public goods investments in general, their counterparts
in Central and Eastern parts are not so lucky. This part of rural Slovakia feels harder
also consequences of the transition processes which are still remaining to influence
socio-economic context of less favourite regions.

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 4. Traditional rural economic sectors
In general - rural areas of Slovakia are still economically governed by
traditional economic sectors – agriculture and forestry. But these sectors are becoming
less and less significant in terms of GDP and employments share.
Agriculture
First of all – the agriculture primary production (fully privatised today), shows a
permanent decline from the aspect of its share in GDP as well as in employment. In
1989-1990 the share of agriculture in GDP fell to 8% and in employment to 12%,
Today it represents less than 4,55% of the national GDP and employs 4,75% of the
total labour (Green Report, 2004). The Green Report is not providing any data on
private farms ownership from the point of gender aspect (although individually
collected through the FADN research) and neither data on women in management
positions in agriculture. The employment development in this sectors is taking a further
negative trend in general, since still a lot of socially caused over employment habits are
remaining especially in agriculture cooperatives.
Another “piece of share” of the GDP is created by food processing industries
(mostly placed in cities) – 1,38% and 3,33% on the total employment.
Agriculture is facing many challenges, among them one of the most important is
a high fragmentation of land ownership, which constitutes a major barrier for the land
market development and does not allow the use the land as the collateral, which
consequently lower the position of agriculture sector in applying for credits. To sell or
buy the land is not an easy task considering the huge fragmentation, it requires high
transaction costs (E.g. to make the contract with 20 owners instead 1 is very
complicated and expensive procedure). Although the Government allocated some
resources to the land ownership identification in line with the Act No. 330/91 Coll. still
more than 20% of land is un-identified and 90% of it is not consolidated. Land
consolidation is a vital factor of further development of agriculture due to the high
fragmentation. Land consolidation process was targeted under SAPARD Programme
and continues under the Sector Operational Programme for Agriculture and Rural
Development today. (So far only 120 cadasters are consolidated among 3 519 in total.).

The structure of the business in agriculture is in a state of constant flux.

Cooperatives have continued to retain their dominant position in agriculture, although
their share in the total acreage of agricultural land has fallen. The number of
commercial companies has increased, in particular limited liability companies as
consequence of privatisation of state assets and the decline in agricultural cooperatives.
Thus the acreage in their agricultural use also increased. The development trend in
average size of the enterprise is also growing. Since 2001 (Green Report 2002) also the
number of private farmers dropped down, on the other side the average size of private
farm increased more than three times. As in 2001 - private farmers and commercial
companies have shown better economic results than agriculture cooperative also in
2003. The table 1 below shows the structure division of agriculture entities regarding
their numbers, average size and the share on the total agriculture land.

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 Table 1.
Number of entities in agriculture and their structure in 2003 (Green Report
2004)
Legal Number of Average size Share in % of
status enterprises of enterprise the total profitable
in hectares agriculture companies
land in %
State 3 1925 0,3 67
enterprises
Cooperativ 616 1621 52 34
es
Commerci 718 1058 39 65
al
companies
Natural 1194 143 8,7 76
persons
Total 2.531 764 100
Source: Green Report 2004

The declining trend in the number of employees in agriculture continued also in

2003, though at a more moderate rate than in the previous year. According to
workforce survey by the Statistics Office (2003) - 99.4 thousand people worked in
agriculture.
The revenues structure of agriculture enterprises as shown by table 3, are still very
dependent on agriculture primary production. Obviously - agriculture producers do not
tend to think in the direction of diversification of economic activities. Only very
advanced managements try to diversify their incomes e.g. via obtaining shares in food
processing industry, or they process themselves (small slaughter houses, bakeries,
dairies etc.) or via establishment of retail shops in cities, some via grounding of
daughter companies, or offering various services to municipalities or other customers.
Only some consider tourism or small industrial activities as possible source of
revenues. As seen from the table below, the tendency to diversify varies dependently on
the legal form of companies. Obviously coops show least income diversification effort.
Even in years which are economically weaker they remain old production and income
structures. In opposite agriculture commercial companies and private farmers tend to
diversify their income especially in years when revenues from agriculture due to the
unfavourable market situation decreases. As empirical experiences show they also enter
rural tourism or finalisation of production more often than coops. Especially private
farmers are those, who are willing to diversify their income the most. First of all they
are more flexible and innovative and have better access to loans, since the clear land
ownership. They have also less land compared to co-ops or commercial companies and
have to think more carefully about their earnings.

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 Table 3.

Breakdown of revenues in SKK/EUR per ha of agriculture companies in 2002 and 2003 (Green Report. 2003, 2004)

Indicator Co-ops Commercial Com. Private farmers

2002 2003 2002 2003 2002 2003
SKK/ % SKK/ % SKK/ % SKK/ % SKK/ % SKK/ %
EUR EUR EUR EUR EUR EUR
Revenues 19.4 86 18.2 86 21.7 85 19.5 76 19.0 80 14.5 77
from 68 57 05 20 27 58
agriculture
Revenues 3.22 14 2.91 14 3.88 15 6.04 24 4.64 20 4.54 23
from non 7 3 1 2 7 3
agriculture
activities
 Fishery

Slovakia’s production of fish is rather limited (approximately 80 enterprises in

total, their contribution to the job generation activities and the share on the GDP is not
significant) and mainly focused on salmon fish and freshwater lowland fish types.
Salmon fish farming facilities have useful parameters comparable with those abroad;
they do however have a high rate of obsolescence and a low level of mechanisation.
The causes of the low productivity of freshwater lowland fish generally as well as per
hectare lie in the poor technical state of fish ponds (in consequence of a lack of finance
and the expense of re-cultivation, mud removal from fishing grounds, repairs and
maintenance of outlet and dike facilities). The renovation of fish-farming facilities
would support multifunctional utilisation of water areas that would favourably affect
the landscape and environment.

In the field of fish pond cultivation a transformation has occurred through the
privatisation of state enterprises. In current stage all mentioned enterprises are mainly
focused on the primary production without any major effort to finalise it. On the other
hand many small producers appeared in rural areas, which see the opportunity in
combination of production and agri-tourism development. Ecological fish farming is
becoming also popular within the tourism development and growth. In this sense as in
the sense of pure fish production, processing and selling the fishery appears as
important potential source of rural economic diversification.

Forestry

The forest total areas of the SR represents the area of timber stands is 1 927 388
ha, which is 44% of the total land surface. This asset is creating 0,5% share of the
national GDP, but the created public value of forests is however at 2-3 times higher
than the production utilities, but as yet is not the subject of a market and therefore is not
included in GDP creation. The forestry creates 0,83% of the total employment directly
(those employed directly in forestry production – together 18.000 people) and 0,4% in
directly employed people (those 8.500 people employed in forestry service sector).
Besides this more than 4000 entrepreneurs are registered in the forestry industry.

Majority of forest is privatised today. A significant component of the post-1989

reforms was the transformation of ownership relations of forests, comprising their
return to the original owners. As at 31.12.1998 forest lands totalling 812.5 thousand ha
(40.8% of the Forest Land Fund) had been returned to entitled persons. It has not
always been possible to match the owner of the forested land with its user (forester),
where the user must abide by duties ensuing from the respective legal regulations.
Forest land, which ownership is not completely identified or documented and where the
entitled persons have as yet not expressed an interest in taking them over represents
137,000 ha. At the end 2001 was 42.4% of the forest area owned by state and the
structure of ownership and land use in forestry was as it is shown in table 4 below:
 Table 4

The type of ownership and land use in forestry of the SR. (Forestry report,
2003)

Type of ownership {use}

Agriculture
Category State Private Associated Church co-ops Communities Unknown Total
816 282 1 927
343 659 469 571 61 703 2 271 187 495 107 346 388
Ownership 42,4 14,7 24,4 3,2 0,1 9,7 5,6 100
1
171 138 1 927
575 635 399 387 45 834 4 644 167 313 - 388
Use 60,8 7,2 20,7 2,4 0,2 8,7 - 100

The privatisation factor is not always a positive assumption for the economic
development since private owners are many times not able to take care themselves of
forest and must rent it from the state or other entities or see the forests assets more as
the source of an easy and fast income rather than the base for rural value added
development share approximately 8%. Investments in the forestry since 1990 have
fluctuated from 0.36 – 0.19% of total investments in the SR. The rate of investment has
fallen from 20.48% in 1990 presents the GDP. Also this number shows that the
forest assets from the point to 11,3% in 2003.
Slovakia has a long tradition in wood processing industry established on the basis of
the forestry industry. It re of view of added value for rural areas is still under-
utilised and focused mostly on regional or national export of timber as the main
income source for this sector

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5. Diversification of production and income – current and future challenge of
Slovak rural areas
As seen from the data above it is clear that traditional rural sectors even in very
extensive areas cannot create enough socio-economic factors to maintain the rural
population. This is even more through in more marginalised and less favourable rural
areas belonging to the disadvantaged Central and Eastern Slovakian Regions.
There are several opportunities for further socio-economic development of
Slovak rural areas. The creation of added value and increase the share in market prices
of products based on rural natural resources should represent the core of future rural
development strategies. Current rural economic sectors like agriculture and forestry
focused on productions which bring not very high revenues per ha (e.g. - wheat, corn,
potatoes, sugar beat, pigs, poultry….) and which markets are heavily controlled and
distributed do not meet requirements of additional jobs and incomes generation. This
approach is still supported by farmers themselves but also by existing agriculture
policy. Alternatives like ecological food production, high quality products (special
agriculture crops, herbs, spices, additives, pharmacological raw materials, etc.),
alternative energy raw materials are used only very exceptionally and are not
recognised as the opportunity. The same time the agriculture in its actual shape, does
not provide enough possibilities . Therefore new rural economic sectors like service
and tourism development, social enterprises, environmentally friendly manufacturing,
processing and crafts targeting new markets including niche markets, should be
promoted in order to encourage progressive and innovative opportunities, which could
better utilise existing human, natural and physical potential of rural areas. Therefore
the rural economic diversification represents one of the most important
development trends, which could provide more opportunities for broader
spectrum of social groups.
Taking in consideration of specificities of Slovak agriculture and forestry as well
as rural areas as such, it is necessary to speak about two types of economic
diversifications in Slovak context:
‰ Diversification of economic activities on the farm
‰ Diversification of economic activities in the rural community

On-farm economic diversification.

This approach in Slovak context means first of all to look at the current status of
Slovak agriculture and rural areas. In depth description is provided above, but still
some important features should be underlined here while speaking about farm
diversification in the Slovak context and its future trends, such as:
‰ Maintained large scale of production and services in majority of agriculture
holdings including private family farms – the structure in which more
opportunities are provided for men traditionally – e.g. in managerial positions and
the same time as the first beneficiary of existing programmes and policies
‰ Higher importance of the agriculture employment compared to family farm
concept in some other accession countries like Slovenia or Poland or EU member
states
 ‰ No homogeneous ownership of agriculture and forestry land in one enterprise
‰ Land fragmentation even under buildings with non-identified owners in many
cases and very limited land market
‰ Traditional approach to agriculture – focused many times on growing crops and
animals, which do not generate high income per hectare and do not provide the
basis for local processing and sales but producers are accustomed to produce
them since the traditional production channels / including processing and
marketing/ continue to exist.
‰ Lack of will to co-laborate and co-operate and build networks
‰ Lack of knowledge in the area of diversification

‰ Existing regional differences – e.g. between LFA and lowlands, or between

Western and Eastern territories etc.

In spite of these facts still some new innovative trends should take place in
order to increase the value of agriculture products and provide more job and
income opportunities
‰ To look for alternatives, which bring more income per hectare and the same
time provide opportunity for local added value development {such as herbs,
spices, energetic plants, flax etc.},
‰ To support farm processing and retail activities and direct marketing especially
in the field of so called regional products and broadening of existing traditional
assortment
‰ To support service development and provision on farms and in farm networks
‰ To promote farm tourism and recreation activities -open farms, farm holidays
etc., individual and within farm networks
‰ To support environmentally friendly industrial activities (e.g. wood and fibre
processing, alternative energy production etc.
Rural community economic diversification.
Rural communities in Slovakia have been and still are mainly dependent on
primary agriculture and forestry production, partly considering rural tourism as an
alternative option in some cases.
But current and future development trends show that the rural community
diversification provides many more opportunities for job creation and additional
income generation, such as small industry development based on rural assets like
agriculture and forestry traditional or innovative products, water and other geological
sources (sand, stones, ground etc.), landscape etc., further, IT opportunities,
sophisticated rural tourism product development interlinked with service development,
crafts and others.
Recently there are also several good examples of social economy projects, which
provide income and employment diversification opportunity in rural areas as well. In
such an approach the added value is not inevitably connected with agriculture
enterprises and their managements but provide business opportunities also for
other rural citizens, who are in this case direct beneficiaries and decision makers
and are willing either to employ themselves and their families or also other rural
residents.

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 This requires a change in several policies at national level, which at present are
disintegrated and rather sector-oriented as well to introduce the sustainable bottom-up
integrated approach at the local level. This also needs to introduce new instruments like
“support of rural community economic diversification” which does not exist under the
current the EU structural funds but the future one.
Rural business can receive the assistance for their establishment or development
either with the aid for farmers or general entrepreneurial schemes, in which
disadvantaged rural entrepreneurs (with less access to information, business services
and infrastructure and low access to credit) cannot compete with their urban
counterparts on an equal basis. At the same time, the capacity building of rural people
in the area of new skills such as local rural development programme, plan and project
design, implementation, management, monitoring and evaluation should be
encouraged. In this sense the up coming LEADER axis within the new EU rural
development policy gives a lot of hopes and expectations to improve the situation.

6. Programmes and policies supporting on farm diversification

The unfavourable employment and income situation in rural areas was considered
by the Ministry of Agriculture of the SR in the “Concept of Agrarian and Food-
Processing Policy of the SR to 2005”. In the framework of this programme the
diversification of production and income in the agriculture was recognised as the
solution for unfavourable employment developments described above. The support for
investment activities for development of agri-tourism and rural tourism was included
within the measure called - „The countryside and diversification of economic
activities“. Within the framework of the subsidy policy of the Ministry of Agriculture
SR support for diversification of economic activities in rural areas was given in line
with the MoA regulation no. 3485/2/2001-100 - §28 and called "The Development of
Agri-tourism, the Countryside and Diversification of Economic Activities“.

At the end of 90thies the Slovak Republic has started the negotiations processes
with the European Union within the framework of the earlier undersigned Accession
Agreement and the National Plan for Adaptation of Acquis. European Union in its
Agenda 2000 – the main policy document for the currently running programming
period considered to open first time in the history of the EU enlargement process so
called pre-Accession instruments similar to regular Structural Funds, among them the
SAPARD program for agriculture and rural development, which later - after
Accession was followed by Sector operational program for agriculture and rural
development and Plan for rural development.

Diversification of farm activities was the measure open within the SAPARD, and
Slovakia as many other Accession countries included this measure into the Agriculture
and Rural Development Plan under this Programme within the Measure No. 4a –„
Diversification activities in rural areas“. For the year 2002 - 2006 support for co-
financing of these projects has been approved in the amount of 2.293 million € per year
from the European Commission resources. Further the similar Measure was also
included into Sector operational program mentioned above. In addition similar
measure was included before accession also into PHARE program that have been
executed through the Rural Development Fund functioning under the MoA SR.

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