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Conglomerates exploit farm fund

Subsidy for small enterprises goes to large cooperatives

By Riva Froymovich
Staff Writer, The Prague Post
May 9th, 2007 issue

VLADIMÍR WEISS/THE PRAGUE POST
ASZ President Němec says cooperatives taking advantage of agricultural subsidies are committing fraud.
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A federal subsidy that was supposed to help independent farmers compete with hypermarket chains has instead been exploited by the well-connected bosses of big farms.
Last year, about half of the 330 farmers applying for a special subsidy encouraging collectivization were scamming the government, the Association of Private Farmers (ASZ) says. The false claims are inflating the Agriculture Ministry’s budget and denying funds to the private farmers the subsidy was supposed to benefit.
The Agriculture Ministry has confirmed the abuse, and is deciding from among three options to find the most economical resolution, said Hugo Roldan, spokesman for the ministry.  
The president of the ASZ, Stanislav Němec, exposed the issue late last month. He named top members of the Czech Agrarian Chamber and Agricultural Union — which mainly represent large cooperatives formed during the post-communist transformation process of the 1990s — as the prime offenders.
“This case is the result of big contracts between Social Democratic politicians and former communists in the Agricultural Union, because they are all people who have very, very similar personal histories,” said Němec, an independent farmer operating 450 hectares (1,112 acres) in Radonice, north Bohemia.
“A lot of them are former members of the Communist Party,” he added.
The subsidy in question aimed to motivate farmers to combine their assets, which would lift their effectiveness on the market. It offers decreasing installments of funding over five years for farmers who join with other producers to collectively sell products — beginning at 5 percent of annual turnover for the first two years and later dropping to 2 percent in the fifth year. The subsidy became available in January 2005.
“The loudest promoters of this idea probably think in a way firmly rooted in the former regime. … [They abuse] trust, circumvent the law and ‘milk’ the state,” Němec wrote in a letter published by the ASZ April 23 that listed the 184 owners wrongly taking advantage of the subsidy.
The accused owners operate several farms and collectivized their distribution process on paper for the grant, he said. In reality, though, the farms were already joined because they are all owned by the same company. They do not represent a new partnership.
In addition, the owners of 69 other entities cannot be tracked down, said Němec, whose association found all its information in public records on the Internet.
“This is a clear abuse of this subsidy — fraud or attempt of fraud,” he said.
Commissioned loophole
Agricultural subsidies are a cornerstone of the farming industry around the globe, and especially in new European Union nations, which are dealing with the greater competition that came with the removal of trade barriers.
The state had set aside 60 million Kč ($2.9 million) for its collectivization subsidy, a fraction of its total payments to farmers. But the participation of these 184 fraudulent collectives has increased the necessary funding for the project to 480 million Kč, Němec said. The Agriculture Ministry said 370 million Kč.
“It means that farmers who seriously went about creating this kind of company according to all regulations haven’t received any money yet,” Němec said. “Because the Agriculture Ministry doesn’t have enough.”
These “fraudulent” farmers merely found a loophole in a poorly worded law, said Jiří Tvrdoň, an agricultural economics professor at the Czech University of Life Sciences Prague.
“The legislation was not precisely defined,” he said.
The country’s large farming cooperatives are divided into several business units, established under a limited-liability company, meaning each farm operates mostly independently, Tvrdoň said.
“Many times, nobody knows who the real owner is,” he said.
From a legal standpoint, then, each individual farm is distinct despite sharing an owner. So, while signing up for the collective subsidy doesn’t much change the structure of the company in reality, on paper it can, Tvrdoň said.
The Agriculture Ministry conceded the problems flagged by Tvrdoň, but pointed a finger at the European Commission, under the directive of which the subsidy was passed.
“The problem arose because the government regulation in question was wrongly formulized at its beginning,” Roldan said. “The European Commission does not define, anywhere, what a group of producers is.”
Němec said an overwhelming majority of those companies abusing the subsidy are members of the Agricultural Union and the Agrarian Chamber, and that Czech food giants Agrofert and Agropol registered several “collectives” that they own.
The Agricultural Union has no role in promoting the exploitation of the subsidy, said the union’s president, Miroslav Jírovský.
“I don’t even know who is on that list,” Jírovský said. “If ASZ has any evidence [against the Agricultural Union], then they should lodge a criminal complaint.”
Unfortunately, it’s not illegal for cooperatives to abuse the loophole in the law, Jírovský said.
“The government regulation is wrong, and I have been criticizing this for nearly half a year,” he said.
Hela Balínová and Naďa Černá contributed to this report.

Riva Froymovich can be reached at rfroymovich@praguepost.com


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