The Czech Republic enjoys favorable agricultural conditions and a farming tradition that goes back centuries. The Czech legend concerning the arrival of farming says that after long wanderings across Europe, "Old Father Czech" halted on a mountain top, gazed at the fertile land before him and spoke to his people, "This is the promised land — flowing with milk and honey."

The Czech Republic has 4.3 million hectares available for agricultural use. Arable land represents about 3.1 million ha of of the total, more than half of which is planted to cereals, mainly wheat and barley, with fodder crops, mostly maize silage for cattle, accounting for about 25%.

In the past decade, Czech agriculture has undergone a wrenching transformation sparked by the 1989 "Velvet Revolution" that peacefully overthrew the Communist state. At that time, the country's new leaders decided to accelerate the transition to a private, market-based economy through what was called "shock therapy."

For agriculture, that therapy involved radical market and trade liberalizations and, most critically, rapid land privatization. This complex issue included returning agricultural property that had been taken from owners during collectivization, transforming cooperatives into legal entities compatible with the Commercial Code and privatizing state-owned farms and state land.

Although the process took more time than planners anticipated, the privatization process in production agriculture was mostly complete by the end of 1997. At that time, the state still held about 20% of total agricultural land, but it leased those holdings to private farm enterprises. By the end of 1998, roughly 75% of the total agricultural land was farmed by corporate farms and private farm cooperatives, with the remainder operated by individual farmers.

But the move away from socialism has been a two-edged sword. Although the sector gained ownership and control over management and output, much of the privatization movement was funded on credit, leaving agribusinesses and producers burdened by excessive debt.

The transitional difficulties have been exacerbated by the Czech Republic's efforts to prepare for accession to the European Union, particularly in the area of trade. Czech imports of E.U. foodstuffs have increased almost ten-fold since 1989, contributing to the Czech Republic's huge negative agricultural trade balance.

The Association Agreement between the Czech Republic and the European Union is quite liberal compared with E.U. agreements with other East European countries, where import tariff barriers are twice as high. Consequently, the Czech market is more susceptible to external influences such as the Russian financial crisis, which encouraged the E.U. to increase its pork exports to less protected markets.

In a 1999 publication, the agriculture ministry conceded that with hindsight, "the liberalization of foreign trade was too extensive" and "exposed our producers to what was in many cases unfair competition, which could only be resisted with great difficulty."

At the same time the Czech Republic threw its doors wide open to food exporters, Czech price liberalizations that removed consumer subsidies and other economic reforms cut into domestic demand for many products. Meanwhile, market reforms left Czech commodity prices open to pressures from global supply-demand imbalances.

The combination of low prices, sliding demand, a flood of imports and excessive debt meant that by 1999, some 70% of Czech agribusinesses were financially unstable.

In response, the government adopted a "new agrarian policy," in which improving the sector's income and profitability is a key goal. More specifically, the government wants to increase Czech exports of wheat and malting barley, diversify agricultural output, develop specialty and niche markets and build up value-added processing.

In 1999, the government instituted new loan programs under its Assistance and Guarantee Fund. Basically, the programs offer interest subsidies and credit guarantees to enable the sector to restructure debt and finance farming operations. Beginning this year, processors also became eligible for loan guarantees and interest subsidies to upgrade and modernize plants and equipment.

The driving force behind Czech agricultural policy remains E.U. integration. The Czech Republic was among the first six former socialist states to become member candidates, and by the end of 1999, Czech legislation was about 80% harmonized with the E.U. Czech officials say the country is prepared to meet the commitments associated with E.U. accession by Jan. 1, 2003.

In December, the Czech Republic sent an accession negotiation position paper to the E.U. Commission. The document states Czech adherence to the European agriculture model and notes the country is prepared to adopt the tenets and regulations of the E.U.'s Common Agricultural Policy.

But alignment with the E.U.'s higher farmgate prices is a sensitive area, and a transition period may be required, although it would conflict with the E.U.'s commitment to the free movement of goods. Because adoption of higher E.U. prices will hurt processors and consumers, the Czech Republic also wants to reserve the right to negotiate special measures to mitigate this price shock.

Another issue to be resolved involves direct compensatory payments. The Czech Republic has asked for the payments to cover a total area of about 1.9 million ha for its farmers after accession, but the current E.U. position is to support new members using the European Agricultural Guarantee Guidance Fund rather than compensatory payments.

GRAIN AND PROCESSING. Grain and other commodity prices are market-driven, although a price floor exists for wheat and dairy products through the activities of the State Market Regulation Fund (S.F.T.R.). The agency establishes intervention prices and surplus wheat and dairy products, using a system of minimum guaranteed prices designed to gradually align domestic prices with those of the European Union.

Flour milling in the Czech Republic was virtually 100% privatized by 1995. Czech citizens, often workers at the state mills, purchased the assets using a combination of state-issued vouchers and private financing.

During the early 1990s, new mills proliferated, with more than 200 in operation by 1995, compared with 45 large state-run mills before the revolution. The new mills are mostly small to medium in size, from 10 tonnes per day on up.

The level of technology in the country's mills varies widely, along with quality. Many of the same debt and other economic factors that have plagued production agriculture also have hampered investment and modernization of the milling industry, and, with the increase in the number of mills, competition has been fierce.

In terms of sales receipts, the grain milling and starch industry is one of the country's smallest, accounting for 2.9% of total food sales in 1998.

LIVESTOCK AND FEED. Despite severe dislocations over the past decade, the livestock and meat industry remains the key branch of the food sector, accounting for about 24% of total sales. Slaughter, processing and packing activities have become highly integrated, and hence, more efficient.

But the economic disruptions caused by the transition changed the mix of per capita meat consumption. Pork, a traditional meat among Czechs, was least affected, with consumption in 1999 at 44.7 kg per person versus 50 kg in 1989.

But beef consumption plummeted, falling to 13.7 kg in 1999 from 30 in 1989. At the same time, consumption of cheaper poultry has increased to 20.5 kg in 1999 from 13 kg.

Until 1989, compound feed production was controlled by a monopoly company called ZZN, which produced about 5 million tonnes of feed a year. Privatization created shareholding companies that evolved from the former chain of ZZN facilities located throughout the country. Feed companies play the an important role in feed production, but more compound feed is produced on farm than in pre-transition period.

At the end of June, the Parliament and the Senate passed a new feed law that will take effect in January 2001, seen as a step toward meeting E.U. standards and accession requirements. The law establishes a new method of registering producers, importers and distributors of feed; institutes a labeling requirement for feed containing genetically modified organisms; and restricts the use of antibiotic growth promoters to those used in the E.U.

OILSEEDS. Over the last decade the demand for healthier and cheaper vegetable oils and fats has risen significantly, leading to a decisive expansion of the oilseed area.

Since 1989 the amount of land devoted to oilseeds has risen from 120,000 ha to approximately 468,000 in 1999, a figure that now represents roughly 15% of arable land. The majority of this land, 350,000 ha, is devoted to rapeseed, which has gradually became a major market crop.

Most of the rapeseed produced is industrially processed for edible oils and fats. Nearly half of the 1 million tons of rapeseed produced is exported, mainly to E.U. markets. The government wants to expand non-food uses, including lubricants and production of the "ecological fuel known as bio-oil."

The country's largest oilseed processor is Setuza, a joint stock company producing vegetable oils, cosmetics, soaps, detergents, dental hygiene products and industrial products. Setuza is the monopoly supplier of edible oils for fast food chains in the Czech Republic, including McDonald's and Kentucky Fried Chicken, and it is a major exporter of processed oils.

Melissa Cordonier Alexander, formerly an editor of World Grain, is now a consultant providing information research services for agriculture.