Life annuity program in Romania: is the indemnity high enough to be efficient?

Romania bears the marks of the country’s former land policies : 36% of the active population is involved in agricultural activity. In addition, the agricultural land is characterized by excessive land fragmentation (approximately 2 ha per holding). In the context of a strong will to stimulate the land market and to encourage competitiveness by modernizing the production systems, the Ministry of Agriculture in 2005 decided to implement a specific policy : the life annuity subsidy. This consists in a subsidy calculated according to the surface of the agricultural land, paid to people over 62 years old who commit themselves to stopping agricultural activity. This paper analyses the opportunity for farmers to participate in this program using a Net Present Value to test the financial incentive of the measure under renting or selling contracts. We based our analysis on data concerning the land market and profitability from a survey conducted in the Mures region in the summer of 2007 and on land price figures. We show that in this specific context of grain and land prices, the amount of the subsidy is not high enough to make the program attractive but comforts landowners who are already engaged in renting contracts.