Land Reform in the Former Soviet Union and Eastern Europe

Land Reform in the Former Soviet Union and Eastern Europe Land reform is a key factor in determining the political, ec...

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Land Reform in the Former Soviet Union and Eastern Europe

Land reform is a key factor in determining the political, economic, and social future of the transitional states of the former Soviet Union and Eastern Europe. Despite the centrality of land reform to economic reform and political stability, it remains an understated aspect of post-communist states. Land Reform in the Former Soviet Union and Eastern Europe represents the first major study in the area. Utilizing extensive field work, unpublished materials, statistical data, and interviews with land reform officials, the contributors explore the key issues including: • • • • •

historical issues that affect land reform the conduct of contemporary land reform the impact of land reform the land market and the problems and obstacles it faces an assessment of future trends.

With previous land reforms characterized by state expropriation and nationalization, this important study explores the processes of land privatization. Examining the political, economic, and social consequences for eleven states, Land Reform in the Former Soviet Union and Eastern Europe illustrates the importance that successful land reform has for this transitional region. Stephen K.Wegren is Associate Professor of Political Science at Southern Methodist University, Texas. He is the author of Agriculture and the State in Soviet and Post-Soviet Russia.

Routledge Studies of Societies in Transition 1 The Economics of Transition Bert van Selm 2 Institutional Barriers to Poland’s Economic Development The incomplete transition Edited by Jan Winiecki 3 The Polish Solidarity Movement Revolution, democracy and natural rights Arista Maria Cirtautas 4 Surviving Post-Socialism Local strategies and regional response in Eastern Europe and the former Soviet Union Edited by Sue Bridger and Frances Pine 5 Land Reform in the Former Soviet Union and Eastern Europe Edited by Stephen K.Wegren

Land Reform in the Former Soviet Union and Eastern Europe Edited by Stephen K.Wegren

London and New York

First published 1998 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1998 Selection and editorial matter Stephen K.Wegren; individual chapters the contributors The right of Stephen K.Wegren to be identified as the Editor of this Work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988 All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalogue record for this book has been requested ISBN 0-203-44857-X Master e-book ISBN

ISBN 0-203-75681-9 (Adobe eReader Format) ISBN 0-415-17066-4 (Print Edition)

Contents

List of figures

vii

List of tables

viii

List of contributors

x

Introduction: The third wave of 20th-century land reform: post-Soviet states Stephen K.Wegren

xi

Part I Land reform in the former Soviet Union: Europe 1

The conduct and impact of land reform in Russia Stephen K.Wegren

2

2

Rural responses to land reform in Russia: an analysis of household land use in Belgorod, Rostov, and Tver’ Oblasts from 1991 to 1996 David J.O’Brien, Valeri V.Patsiorkovski and Larry D. Dershem

26

3

Land and agricultural reform in Ukraine Timothy N.Ash

48

4

Land reform in Estonia, Latvia, and Lithuania: a comparative analysis William H.Meyers and Natalija Kazlauskiene

68

Part II Land reform in the former Soviet Union: Central Asia 5

Land reform in Kyrgyzstan Peter C.Bloch and Kathryn Rasmussen

87

6

Land reform in Uzbekistan Zvi Lerman

106

7

Land reform in Turkmenistan Zvi Lerman and Karen Brooks

127

Part III Land reform in Eastern Europe 8

Picking up the pieces: consolidation of Albania’s radical land reform Peter C.Bloch

147

9

Politics, equity, and efficiency: objectives and outcomes in Bulgarian land reform Keith S.Howe

162

vi

10

Land reform and farm restructuring in Hungary during the 1990s Csaba Csaki and Zvi Lerman

174

Index

203

Figures

2.1 Percentage representation of agricultural producers, land used, and mean percentage of 29 commodities produced by large farms, fermery, and household plots in Russia (1994) 2.2 The size of the rural population in Russia from 1989 to 1995 31 2.3 Mean number of animals owned by households in 1993, 1995, 1996 by village and human capital 38 2.4 Mean weighted household production and sales of food commodities in 1993, 1995, and 1996 by 39 village and human capital 2.5 Mean weighted household production and sales of households in 1995 and 1996 by community 40 involvement and size of helping network 2.6 Mean number of selected durable consumer goods owned by households in 1995 and 1996 by 42 village 2.7 Percentage of households which started a new business, built a new house, or accomplished a long- 43 desired purchase in 1995 and 1996 by village 6.1 Structure of land resources 107 6.2 Area under cotton and grain: 1940–1992 108 6.3 Structure of land tenure: pre-1990 109 6.4 Introduction of new irrigation 110 6.5 Land in household plots: 1960–1993 113 6.6 Structure of land tenure: 1993 118 7.1 Structure of agricultural land: 1995 129 7.2 Growth of irrigated area: 1965–1993 130 7.3 Availability of irrigated land: 1965–1993 131 7.4 Area sown to cotton and grain: 1985–1993 131 7.5 Decline of collective land: 1985–1994 132 7.6 Share of household plots in cultivated land 133 7.7a Distribution of arable land: 1995 134 7.7b Structure of land use by individual sector: 1995 135 7.8 Growth of agricultural product: households and enterprises 136 10.1 Land use by legal form of farm organization: 1993–1996 183 10.2 Distribution of corporate farms by size: 1994–1996 187 10.3 Distribution of individual farms by size: 1991–1994 192 10.4 Employment in agriculture: 1981–1995 200

Tables

I.1 1.1 2.1

Comparison of land reform results

Production plans of private farmers in 1995 in comparison with 1994 Mean percentage of commodity production by large farms, fermery, and household plots in Russia in 1994 2.2 Mean size of all land used by households in three European Russian villages from 1993 to 1996 3.1 The importance of Ukrainian agriculture to the Soviet agro-economy in 1989 3.2 Private farm development in Ukraine, 1991–1996 3.3 Agricultural land ownership structure as of 1 January 1994 3.4 Structure of agricultural production 3.5 Ukraine, key economic indicators, 1991–1996 3.6 Food consumption patterns in Ukraine, 1986–1995 3.7 Agricultural production in Ukraine, 1991–1996 4.1 Proportional distribution of farms by size prior to World War II 4.2 Areas under major crops prior to reforms 4.3 Distribution of land area by type of farm, 1 January 1995 4.4 Laws to implement land reform in the Baltics 4.5 Dynamics of number of agricultural land users and farm size, 1991–1996 4.6 Proportional distribution of family farms by size in 1995 4.7 Shares of family and household farms in main agricultural production activities, 1990 and 1995 4.8 Dynamics of gross agricultural output index 4.9 Changes in agricultural output 4.10 Mineral fertilizer use in the Baltics, 1990–1995 5.1 Land use in the Kyrgyz Republic 5.2 Distribution of land resources in the Kyrgyz Republic, 1 January 1991 5.3 Land resources and rural population by oblast, 1 January 1995 5.4 Severity of agricultural problems, rural enterprise head survey, 1995 5.5 Severity of agricultural problems, rural committee head survey, 1995 5.6 Reasons for satisfaction or dissatisfaction with the farm restructuring, rural enterprise head survey, 1995 5.7 Distribution of land among agricultural enterprises, 1 January 1996 6.1 Growth of peasant farming in Uzbekistan 6.2 Land in peasant farms: structure and use, September 1994 6.3 Structure of livestock sector, September 1994 6.4 Average share of subsidiary household plots and peasant farms for selected commodities, 1980– 1989 vs. 1990–1993

xvii 12 29 36 48 51 52 53 59 60 60 68 69 71 71 76 77 78 79 80 80 88 89 90 95 96 97 100 114 115 115 116

ix

7.1

Population density, availability of arable land to rural population, and percentage of rural population in Turkmenistan and other former Soviet republics, 1990 7.2 Individual land use, 1985–1995 7.3 Land holdings of peasant farms, 1991–1995 8.1 Structure of land ownership in 1945 8.2 Purchased and rented parcels by year of transaction 8.3 Factors constraining sale 8.4 Conditions under which owner would sell land 8.5 Ability to decide alone about selling or renting parcel 8.6 Who must make decision about selling or renting parcel 8.7 Change in parcel use with more security 10.1 Comparison of state farms and cooperatives before the reform 10.2 Registered operations in agriculture and forestry 10.3 Ownership of productive land in Hungary, 1990–1995 10.4 Land use by legal form of farm organization 10.5 Number of corporate producers in agriculture 10.6 Distribution of the number of corporate farms and productive land holdings by size 10.7 Share of corporate farms in crop production, pre-1990 and 1995 10.8 Distribution of individual farms by size 10.9 Individual farms reporting livestock, 1994 10.10 Share of private farms in sown area and crop production, pre-1990 and 1995 10.11 Reported financial results for farms that provide statistical information for tax purposes, 1995 10.12 Profitability vs. size for farms that provide statistical information for tax purposes, 1995 10.13 Government support programs for agriculture, 1994–1996 10.14 Share of land owned by the operator in various farm size categories, 1995

128 133 135 148 155 156 157 157 158 158 176 182 184 184 186 187 188 191 192 193 195 196 196 198

Contributors

Timothy N.Ash, Economist, Economist Intelligence Unit, London, England Peter C.Bloch, Senior Scientist, Land Tenure Center, University of Wisconsin, Madison, Wisconsin Karen Brooks, Principal Economist, World Bank, Washington, DC Csaba Csaki, Principal Economist, World Bank, Washington, DC Larry D.Dershem, Post-Doctoral Research Associate, Dept of Rural Sociology, University of Missouri, Columbia, Missouri Keith S.Howe, Economist, University of Exeter, Devon, England Natalija Kazlauskiene, Vice Minister, Ministry of Agriculture and Forestry, Lithuania Zvi Lerman, Senior Lecturer, Dept of Agricultural Economics, The Hebrew University, Rehovot, Israel William H.Meyers, Professor of Economics, Dept of Agricultural Economics, Iowa State University, Ames, Iowa David J.O’Brien, Professor of Sociology, Dept of Rural Sociology, University of Missouri, Columbia, Missouri Valeri V.Patsiorkovski, Laboratory Chief, Russian Academy of Sciences, Moscow, Russia Kathryn Rasmussen, Land Tenure Advisor, Terra Institute, Kyrgyzstan Stephen K.Wegren, Associate Professor, Dept of Political Science, Southern Methodist University, Dallas, Texas

Introduction: The third wave of 20th-century land reform Post-Soviet states1 Stephen K.Wegren

The 20th century has witnessed tremendous social and political upheaval. During this century, the world experienced two global wars and countless regional wars. Totalitarian dictatorships at one time or another encompassed large portions of Europe and Asia. On at least three occasions the world stood on the brink of nuclear war. Great empires of the 19th century disintegrated. Unprecedented economic growth and urbanization spread across the continents, leading to the globalization of markets. Illiterate nations were educated. Environmental issues became key social and political issues. We experienced a ‘green revolution’ on this planet while space travel investigated other planets. During the post-war period, decolonization brought independence to millions of people and led to a proliferation of nation states. In the wake of post-war decolonization, land reform movements were intimately linked to the elimination of rural poverty and economic development. A significant literature arose to analyze and explain the quest for economic justice in former colonial lands. In other, non-colonial nations, land reform after World War II was linked to the establishment of capitalism which brought rapid economic development and democracy. For example, land reform in post-war Japan triggered rapid industrial expansion that made that country an economic giant. As we approach the end of the 20th century, a crucial question is whether land reform still matters in a world that has become more urban. Is land reform, which is often associated with peasant movements, relevant to a world that is more modern and more technologically interconnected? More precisely, does land reform matter in the former Soviet Union and Eastern Europe? The answer is an unqualified ‘yes.’ The affirmative has a two-part answer. First, to understand why land reform is important it is necessary to understand the role of land reform. Land reforms are timeless because they affect in direct and fundamental ways the existing alignments of economic and political power within nations. No matter what the level of world or regional development, land reforms set forth processes which are enormously important, difficult, and complicated. At a minimum, land reforms set in motion social processes that facilitate class formations and alliances that impact the political system in meaningful ways. Land reforms also lead to economic restructuring of agricultural production. In this light we would be foolish if we neglected the importance of contemporary land reform or ignored the fact that land reform is central to shaping the outcomes of the transition process in post-Soviet nations. The second reason that land reforms still matter is that since the break-up of the Soviet empire, we are witnessing the ‘third wave’ of land reform in the 20th century. By ‘third wave’ I have in mind a land reform movement that has characteristics distinct from previous land reforms. Previous ‘waves’ of land reform were characterized by state expropriation and nationalization of land, which began under Soviet communism and later spread through Europe and Asia. A second wave of land reform occurred in Third World states as

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peasants mobilized in order to address extreme land concentrations in the hands of a few. Peasant movements ‘from below’ allowed them to obtain land from landlords and large landed estates. The third wave of land reform seeks to destatize and to privatize land holdings in former communist countries. Land reform in transitional nations of the former Soviet bloc will have several effects.2 Economically, successful land reform will affect agricultural production and performance by facilitating the rational use of rural labor and the efficient use of productive inputs. A more efficient agriculture is expected to improve farm incomes, decrease farm costs, lessen the demand for state subsidies, and contribute to capital accumulation for the modernization of society. Improved agricultural performance may also enhance comparative advantage which in turn may promote foreign trade and integration into the world economy. Politically, land reform is important because it affects various relationships among groups of the population. One relationship is between the government and rural dwellers. Based on Third World experiences, a conflictual peasant-state relationship often reflects more general societal instability. Samuel Huntington went so far as to argue that peasant support for a government is the crucial variable to the stability of the system: If the countryside is in opposition, both the system and government are in danger of overthrow. The role of the countryside is variable: it is either the source of stability or the source of revolution.3 Other political relationships concern differing concerns between urban and rural dwellers, industrial and agricultural interests, the rural elite and the governing elite, and intra-agricultural interests. These relationships influence political alliances, voting and interest group blocs, and public policies, all of which not only affect the nature of society but also the stability of the regime. Land reform also will facilitate significant social transformation. Some nations, such as post-war South Korea, undertook land reform in order to stem rural to urban migration which had become worrisome to the government. As Soviet-era land use structures give way to market-based principles, new patterns of population flows will result. Indeed, in Russia for example, significant urban to rural migration has occurred since 1991.4 Successful land reform also will bring social transformation as poor agricultural land is withdrawn from production, as land use changes occur, as suburbs expand, and as urban development expands. To date, these latter processes have been hindered by restrictions on the land market in former Soviet bloc states. Despite the centrality of land reform to more general reform outcomes in post-Soviet states, there is often an ‘urban bias’ among Western analysts and observers, perhaps stemming from the urban nature of Western societies. This urban bias has meant that the rural sector seldom receives the attention that is warranted by its centrality to the outcome of reforms. To address that shortcoming, this book was undertaken with several goals in mind. The first goal was to address the relative dearth of book-length studies on land reform and to do so in ways that would be useful across disciplines. When this book was begun no other comparable book existed, one that brought together analyses of land reform in different post-Soviet states. One intent, therefore, was to facilitate comparative analysis of land reform, not only among post-Soviet nations but with the experiences of non-bloc nations as well. A second goal was to provide a yardstick for measuring how far former bloc nations had come in reforming their agricultural system which had been based on the Soviet collectivization model. This book is intended to analyze and describe the processes and problems of undoing the Soviet legacy in the rural sector. We would argue that only by understanding land reform and its economic, political, and social effects can we fully understand the prospects for those nations.

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A third goal was to assemble what we know about land reform in former bloc nations in order to understand how far reforms still have to go. It is necessary to be cognizant of the economic, political, and social problems and obstacles that continue to surround land reform. From a comparative perspective, it is useful to analyze the extent to which similar problems exist but with a different magnitude, combination, or effect in the various nations. From a policy standpoint it is necessary to be aware of problems in order to design policies and programs to address those issues.5 A variety of goals, therefore, underlie the conceptualization for this book. In pursuing this project I have been fortunate to gather an exceptionally well-qualified and talented group of authors who agreed to contribute to this volume. The chapters in this book come from a wide range of internationally recognized specialists in the United States, the United Kingdom, Israel, Russia, Kyrgyzstan, and Lithuania, each of whom has considerable experience in the country about which he/she writes. LAND REFORM IN COMPARATIVE PERSPECTIVE Historically, land reform has been one of the most significant processes associated with social change and economic development. During the 18th and 19th centuries, the transformation from feudalism to the rise of commercial capitalism was attended by various pathways of land reform. The English path was marked by class cooperation which, through the enclosure laws of the 19th century, gave rise to an unprecedented period of industrialization and economic growth. The French path was different, as peasant resistance led not to capitalism but to ‘rentier landlordism.’6 The Japanese path during the 19th century was marked by intense class conflict between landlord and peasantry. Tax and rent exactions from the peasantry by landlords and the state contributed to the development of industrialization.7 In the 20th century, history has shown that governments ignore inequities in land tenure at their own risk, as eventually rural dwellers mobilize. Not all rural mobilizations result in revolution, of course. As James Scott has argued, peasant rebellions are few and far between. What is much more common and insightful to peasant behavior is an understanding of the ways in which they resist intrusion of the state.8 At the same time, peasant mobilizations are significant events and several of the ‘great’ revolutions have occurred as a direct consequence of peasant revolt, for example the Mexican Revolution in 1910 and the Chinese in 1949.9 In other 20th-century revolutions peasants made up a key component of the revolutionary movement, as in Russia in 1917, Cuba in 1959, Vietnam in the 1960s, and Nicaragua in 1979. In the late 20th century, how are we to understand the land reform movement in post-Soviet societies? What analytical context is best suited to explain developments in the former bloc countries? To understand land reform in post-Soviet states, it is first necessary to review the first two waves of land reform in the 20th century. The first wave was communist ‘land reform.’ At first glance, communist land reform seems to have shared characteristics with the second wave (see below) in that it aimed to expropriate land from large (and medium) land holders for distribution to landless peasants. However, a number of differences between the two waves outweigh this superficial similarity. First, communist land reform is always ‘from above,’ that is, elite-driven by a relatively few members of society. Second, the impetus of reform is urban-based. Third, communist land reform did not in reality address land hunger and rural poverty. During communist reform, land was only temporarily, if at all, distributed to small land holders and poor peasants. Subsequent collectivization of agriculture typified communist ‘land reform.’ Moreover, arguments about the efficacy of collectivization aside, the indisputable fact is that the state and party apparatus were used to benefit urban interests to the detriment of rural interests. Fourth, while Third World land reform strove to liberate, empower, and raise the standard of living of the rural poor, communist land reform enslaved the peasantry, engulfing

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it in the so-called ‘second serfdom,’ depriving it of rights and freedoms, subordinating it to urban interests, and ushering in the domination of the Communist Party in the rural sector. The second wave of land reform occurred in the Third World. There are several defining characteristics which set Third World land reforms apart. An abundant literature tells us that land reform in Third World states often was undertaken in order to address issues of inequality in incomes, rural poverty, land concentrations in the hands of a few, and exploitative land-lord-tenant relations.10 Thus, land reform in Third World states was pursued to alleviate rural ‘land hunger’ and social injustice—and for these reasons often (but not always) was initiated ‘from below’ by the peasantry. Land reform in post-Soviet states differs in significant ways from the motivations, processes, experiences, and outcomes of previous land reforms. Land reform movements in former bloc nations may be said to represent a ‘third wave’ of 20th-century land reform, one whose combination of characteristics is distinct in important ways from the previous two. First, reflecting the traditional strength of the state and the concentration of power in the hands of a relatively small political elite—two characteristics of communist regimes—land reform in post-Soviet states has not been introduced ‘from below’ but rather ‘from above,’ by the state. In Third World states, the impetus for reform often came from the peasantry, although in some authoritarian regimes land reform was imposed from above (Korea, Japan). Thus, the wave of reform in the Third World allowed for reform from either above or below. The case studies in this book illustrate that in none of those nations did demands for land reform originate with the rural population. In post-Soviet nations, the rural elite (farm managers, local agricultural bureaucrats) in general is more conservative than the urban elite and wants to retain essential features of the economic and political structure from the Soviet period. For this reason, the rural elite has lost legitimacy in the eyes of the ruling urban elite, and therefore land reform proposals have been often developed by urban elites and implemented as part of governmental reform.11 In short, land reform in postSoviet states has had to come from above because it has not come from below (the peasantry) or from the rural elite. A second difference is the motivation for land reform. Land reform in Third World states was designed to address issues of rural inequality that resulted from large landed estates, rural poverty, or exploitative landlord-peasant relations. Post-Soviet land reform has not been designed to address those issues. In short, land reform in former bloc nations has not been pursued as a search for social justice, at least as defined in socialist terms.12 Instead, land reform has been designed to achieve a market economy through privatization. The intent behind contemporary land reform has been to introduce both rural marketization and to complement wider mar-ketization of the economy. Land reform in post-Soviet states also is intended to abolish the vestiges of the Soviet agricultural system, which among its various characteristics (see below), evolved to offer farm members welfare state guarantees and social security irrespective of farm efficiency, profitability, or output. But privatization has consequences, which in part explain peasant resistance to reform measures. First, privatization introduces inequity and intra-class stratification as rural inequality is increased by putting land in the hands of those who could use it most effectively. Second, privatization carries with it the reversal of Soviet-era egalitarianism and the promotion of private farmers who in Stalin’s day would be labelled ‘kulaks.’ Thus, rather than state-imposed egalitarianism, as these societies move away from state planning it is hoped that the ‘miracle of the market’ will spur economic growth. A third difference is the political strength of rural interests. In the Third World, the political potency of peasants was variable, depending on the nation, its political institutions, and the position adopted by the government.13 In cases where the government backed land reform, peasants had political strength. In cases where the government opposed land reform the peasantry was politically weak.14 Even when the

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government opposed reform, studies have shown that at least part of the rural sector will enjoy a privileged position due to the government’s desire to build political alliances and rural support.15 In communist land reform, rural interests were coopted and represented through a corporatist strategy pursued by communist parties. After 1965, state corporatism was combined with a ‘social contract’ strategy which was designed to ‘trade’ higher living standards for political quiescence.16 Although significant differences remained between urban and rural conditions, rural dwellers did experience an improvement in their standard of living from about 1965 to 1990.17 During contemporary land reform in former bloc nations, conservative rural interests (anti-reform) in general have been notably weak, measured by their inability to affect the course of economic policy, the inability to improve terms of trade faced by food producers, and the difficulty of increasing access to credit and technology. Rural liberals (pro-reform) also have been vulnerable to the course of economic policy, the set of economic conditions they confront, and the nature of political alliances which has forced them to search out urban alliances.18 This pattern of rural weakness is not unique to authoritarian regimes, but is not usually found in democratic nations where politicians are more vulnerable to rural pressure through voting and organized interest groups. Whether rural interests will fare better as democracy deepens remains to be seen in the future, as some scholars hypothesize.19 Thus, in considering these three factors we see that the third wave of 20th-century land reform shares characteristics with previous waves, but the combination of factors in the post-Soviet period is unique. FROM COMMON BACKGROUNDS TO DIFFERING OUTCOMES Communist domination of the nations in the former Soviet Union and Eastern Europe meant that following Soviet-style collectivization, these nations shared common features of the Soviet agricultural model. The Soviet model was applied wherever communists gained political power, although the pace of the application varied, as shown by Eastern Europe in the 1940s. In some cases significant departures or even reversals of the Soviet model occurred, as in China, Yugoslavia, and Poland. But in general, the Soviet agricultural model was a common feature shared by all communist regimes, at least initially. As is well known, beginning in 1929 Stalin pursued collectivization of Russian agriculture, which defined the communist model of land and agrarian reform. It is that model of agricultural organization which the third wave of land reforms is attempting to reverse. Collectivization was begun in order to achieve both economic and political goals—facilitation of industrialization and the political control of the countryside and food supplies (the efficacy of collectivization in achieving those goals is a different question, one that has been the subject of considerable historical debate). Collectivization began in the Northern Caucasus, Volga, and Siberian regions of Russia, and the Ukraine, later spreading throughout Russia and the Central Asian republics during the first half of the 1930s. In general, collectivization imposed common characteristics on bloc nations and their agrarian systems, including: 1 2 3 4 5 6 7 8

a system of large state and collective farms; production operations that were centrally planned; planned use of inputs and controlled prices of inputs; the use of collective forms of labor organization based on labor brigades; planned wage funds and centrally defined production bonuses; centrally controlled prices for farm production; state monopoly of food storage, processing, distribution, and sale; restrictions on private food production;

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9 the absence of a land market or land turnover; 10 state controls on land use; 11 state control, regulation, and management of all agricultural finances, credit, and banking. Once the Soviet agricultural system had taken shape, it was applied to other nations as they became incorporated into the Soviet bloc. The Baltic states, occupied by Soviet troops in 1940, underwent an initial nationalization of land and collectivization drive during 1940–1941 prior to the outbreak of war. In occupied territories during the war, the Germans retained land nationalization, but farms were essentially decollectivized. Following the end of World War II, a policy that was similar to the Soviet NEP was pursued until Baltic agriculture was re-collectivized, starting in 1949 and extending into the 1950s. Following World War II in Eastern Europe, the peasantry comprised more than one-half of the population in all but Germany and Czechoslovakia, and thus the newly installed political leaderships had to pursue policies that did not alienate rural dwellers. For that reason collectivization was not immediately implemented. But after communist regimes were firmly established, backed by Soviet troops, collectivization was begun in Eastern European states in 1948, with many of the same features that had been present during Soviet collectivization. We should note, however, that in Eastern Europe variations did exist regarding fidelity to the original model. For example, different types of collective farms were established. After a period of relaxation in Eastern Europe in the wake of Stalin’s death (the New Course), the final collectivization drive was undertaken in the mid-1950s and completed throughout most of Eastern Europe by the early 1960s. Certain Eastern European nations—such as Hungary, which is considered in this volume, and Poland, which is not—deviated more substantially from the orthodox Soviet model, as did Yugoslavia (but for different reasons), and were not involved in the final collectivization drive of the 1950s. The processes and outcomes of contemporary post-Soviet land reform have varied in the countries under consideration in this book. Differing land reform outcomes are not necessarily surprising, given the diversity in cultural traditions and historical experiences each nation had. In order to make sense from the existing diversity, for each case study the author addresses a series of central questions: 1 How has land reform been conducted, that is, what is the legislative background to land reform and the land distribution process (who gets land, how much, how is land distributed)? 2 What has been the impact of land reform, that is, what has been the impact on farms and have collective farms been reorganized? 3 What is the nature of the land market and how is it regulated, including the freedom to buy and sell land? 4 What are the most salient obstacles and problems to the success of land reform, including economic, legislative, social, or political deficiencies? On one level post-Soviet nations share similarities that form the core of the ‘third wave’ postulated above. At the same time, the case studies in this volume demonstrate both similarities and differences in land reform outcomes. While a full description of the experiences of our sample countries is found in subsequent chapters, a core of land reform issues is illustrated in Table I.1 below. The table reveals the diversity that underlies land reform outcomes in the former Soviet Union and Eastern Europe. While destatization and

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Table I.1 Comparison of land reform results Nation

Land restitution to former owners

Land distribution to farm workers

Collective farms reorganized

Private land ownership legalized

Land market Land market functioning restrictions

Establishme nt of individual/ family peasant farms

Russia No Yes Yes Yes Yes Moderate Yes Ukraine No Yes Yes Yes No Substantial Yes Estonia Yes No Yes Yes Yes Minimal Yes Latvia Yes No Yes Yes Yes Minimal Yes Lithuania Yes No Yes Yes Yes Minimal Yes Kyrgyzstan No Yes Yes No Partial Substantial Yes1 Uzbekistan No No Yes No No Substantial Yes2 Turkmenist No Yes Yes Yes No Substantial Yes an Albania No3 Yes Disbanded Yes Partial Substantial Yes Bulgaria Yes No Yes Yes Yes Minimal Yes Hungary Yes Yes Yes Yes Yes Minimal Yes Notes: 1 Peasant farms in Kyrgyzstan are based on leased and lifetime use rights, not private ownership. 2 Peasant farms in Uzbekistan are based on leased and lifetime use rights, not private ownership. 3 Present farm members received land, while former owners received payment in the form of state bonds.

privatization are common characteristics of most former bloc nations, the pathways to land reform have differed significantly, reflecting the impact of politics and political groupings, historical experiences, and cultural influences. The first question concerns land restitution versus land distribution. While Russia and Ukraine have distributed land through a share certificate system, the Baltics and Eastern European states have pursued land restitution, although who would be restituted and how has varied. The Baltics and Bulgaria have restituted land only to former owners and their heirs, although in the Baltics rural residents could receive land that had not been claimed by a former owner. Albania has distributed land only to present farm members, while Hungary has distributed land to former owners and present farm workers. In Central Asia, some states such as Uzbekistan have not distributed land. Collective farms underwent reorganization and restructuring, although the extent to which that had an impact on production processes obviously varied. At the more conservative end of the spectrum, Russia and Ukraine required state and collective farms to ‘reorganize,’ a measure which allowed them to continue to exist. These farms essentially remained intact and in reality often changed little in their operations. At the other end of the spectrum, Albania went so far as to abolish completely its collective farms and distribute the land to private land owners. In the middle between the farm reorganization in Hungary and the disbandment of farms in Albania are the Baltics. In Baltic countries, state-owned farms were also fundamentally changed. None of the pre-reform state and collective farms continue to exist in their previous form. In the Baltics, all the non-land assets were identified and workers, former workers, and farm pensioners got shares or vouchers to use in the restructuring process. The weaker farms liquidated and divided property among the

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share holders. Some farms were divided into smaller and more specialized farms. The majority were restructured into smaller but still large ‘group-owned’ farms. As in other post-Soviet nations, large farms became jointly owned by share holders in joint-stock companies, limited liability companies, share holding companies, or cooperatives. In all nations covered in this book except Kyrgyzstan and Uzbekistan private ownership of land has been legalized. Legalization of private ownership did not, however, equate with a functioning land market, as several nations had either no land market or only the most rudimentary market in existence. Regarding the land market, the Baltics, Hungary, and Bulgaria have the fewest restrictions. In the Baltics, the only legal limitation is that many land owners do not yet have land titles because of the large number of plots that have to be registered or surveyed. In the Baltics, however, only individuals and the state can own agricultural land, not ‘legal entities’ (organizations or enterprises). Russia has legalized a land market, but has faced conservative opposition to the development of an unregulated land market. In Russia, to the extent that rural land can be sold, it must be used for agricultural purposes. Moreover, legislation greatly restricts land use changes and absentee ownership. A third group of nations, including Central Asia, Ukraine, and Albania, have substantial limitations on the land market. In these nations either land cannot be bought or sold altogether, permitting only land leasing, or only the sale of household and dacha plots. In all nations, however, the market for leased land is much more active. The establishment of peasant farms is another common characteristic of post-Soviet land reform. Among the nations covered in this book, all except Uzbekistan and Kyrgyzstan have peasant farms that are founded on private ownership of land. However, it is necessary to point out significant differences in quantity and size of peasant farms. Russia, as of early 1997, had about 280,000 such farms, while Ukraine had 35,000. Latvia and Lithuania actually have more peasant farms than Russia, although their size is much smaller. Because of smaller populations, the number of peasant farms per capita is much higher in the Baltic states. Peasant farms average about 42 hectares in Russia, 23 in Ukraine and Estonia, but less than 1 hectare in Albania and only about 10 hectares in Hungary. ORGANIZATION OF THE BOOK The book is organized geographically by region. Part I starts with European nations of the former USSR, including Russia, Ukraine, and the Baltic states. Belarus was excluded because land reform has been all but non-existent there. Part II then examines land reform in Central Asian nations. The reason for a separate section on Central Asia is that first, although those nations were part of the former Soviet Union, Central Asian states are distinct geographically, culturally, religiously, and ethnically. Furthermore, land reform has been conducted quite differently in Central Asia than in the former USSR states of Europe. One disappointment was not being able to successfully solicit a chapter on land reform in Kazakhstan which has recently introduced private ownership of land (but the private ownership of household plots only, similar to Belarus). Finally, Part III investigates land reform in several Eastern European countries. It simply was impossible, given space limitations, to include a chapter for each Eastern European nation, and thus choices had to be made. NOTES 1 I would like to thank Zvi Lerman for his comments on a previous draft of this Introduction. I remain responsible for all viewpoints, as well as any remaining errors. 2 By ‘former Soviet bloc’ I am referring to nations of the former Soviet Union and Eastern Europe.

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3 Samuel P.Huntington, Political Order in Changing Societies (New Haven, CT, Yale University Press, 1968), p. 292. 4 Stephen K.Wegren, Gregory Ioffe, and Tatiana Nefedova, ‘Demographic and Migratory Responses to Agrarian Reform in Russia,’ Journal of Communist Studies and Transition Politics, Vol. 13, No. 4 (1997). 5 Towards this end several of the chapters were contributed by persons involved with international organizations such as the World Bank. These organizations are actively engaged in the design and implementation of reform programs. 6 Philip T.Hoffman, ‘Institutions and Agriculture in Old Regime France,’ Politics and Society, Vol. 16, Nos. 2–3 (June–September 1988), pp. 241–264. 7 See Henry Bernstein, ‘Agrarian Questions Then and Now,’ Journal of Peasant Studies, Vol. 24, Nos. 1/2 (October 1996–January 1997), pp. 22–59. 8 See James Scott, Weapons of the Weak: Everyday Forms of Peasant Resistance (New Haven, CT, Yale University Press, 1986); and Forrest D.Colburn, ed., Everyday Forms of Peasant Resistance (Armonk, NY, M.E.Sharpe, 1989). 9 Eric Wolf, Peasant Wars of the 20th Century (New York, Harper Torchbooks, 1973). 10 See Keith Griffin, Land Concentration and Rural Poverty (New York, Holmes and Meier, 1975). 11 Basic orientations toward reform are reflected in surveys and voting results, showing that urban dwellers are more supportive of radical reform and that they tend to vote for reform candidates more than rural dwellers. See Chapter 1 for citations of this literature for Russia. 12 We should note that continuance of cultural or socialist traditions of ‘social justice’ is evident in the ways land has been distributed. Some post-Soviet nations limit the size of land plots that have been distributed, some limit land holdings in general, and some distribute plots of equal size to all claimants. 13 Howard Handelman, The Politics of Agrarian Change in Asia and Latin America (Bloomington, Indiana University Press, 1981), pp. 1–16. 14 For case studies in Latin America, see William C.Thiesenhusen, Broken Promises: Agrarian Reform and the Latin American Campesino (Boulder, Westview, 1995). 15 See for example, Robert H.Bates, Essays on the Political Economy of Rural Africa (Berkeley, University of California Press, 1983), esp. chap. 5. 16 See Linda C.Cook, The Soviet Social Contract and Why it Failed (Cambridge, MA, Harvard University Press, 1993). 17 The literature here is vast, particularly in Russian. For representative studies on the Russian countryside, see A.P.Tiurina, Sotsial’no-ekonomicheskoe razvitie Sovetskoi derevni 1965–1980 (Moscow, Mysl’, 1982); O.M.Verbitskaia, Rossiiskoe krest’ianstvo: ot Stalina k Khrushchevu (Moscow, Nauka, 1992); and Alfred Evans, ‘Equalization of Urban and Rural Living Levels in Soviet Society,’ Soviet Union, Vol. 8, No. 1 (1981), pp. 38– 61. For an alternative view to the rural social contract see Stephen K.Wegren, ‘The Social Contract Reconsidered: Peasant-State Relations in the USSR,’ Soviet Geography, Vol. 32, No. 10 (December 1991), pp. 653–682. 18 See Stephen K.Wegren, ‘The Politics of Private Farming in Russia,’ Journal of Peasant Studies, Vol. 23, No. 4 (July 1996), pp. 106–140. 19 Robert H.Bates, ‘Urban Bias: A Fresh Look’, Journal of Development Studies, Vol. 29, No. 4 (July 1993), pp. 219–228.

Part I Land reform in the former Soviet Union: Europe

1 The conduct and impact of land reform in Russia Stephen K.Wegren

Russia is undergoing its third great land reform this century. Previous land reforms were associated with significant political and economic transformation. The first Russian land reforms of the 20th century, called the Stolypin reforms, were designed to facilitate the movement of peasants out of the communal mir, and were linked to Russia’s attempt to industrialize and to introduce limited democracy in the early 20th century.1 The mir was characterized by its egalitarian land distribution system which stifled both labor productivity and crop production. These reforms, marked by a series of governmental decrees between 1906 and 1911, were intended to address the backwardness of the Russian economy compared to Western nations and the low level of agricultural productivity which acted as a brake on industrial development. This goal was pursued by canceling peasant redemption payments, allowing the consolidation of land strips, encouraging the break-up of communes, and facilitating the creation of individual farms based on private land ownership through the distribution of land deeds. The Stolypin reforms aimed to replace the communal system of land distribution and use with a new class of prosperous peasants, the so-called ‘kulaks.’ The second great land reform was Stalin’s collectivization. Collectivization was central to the imposition of Stalinism in the countryside and to the rapid industrialization that helped prepare the nation for war. The roots of collectivization lie in the nature of land relations in 1917. As Tsarist power collapsed in 1917, followed by the ineffective rule of the Provisional Government which eschewed genuine land reform, peasants took matters into their own hands and seized land. Out of this rural instability flowed communist land reform. In April 1917, the Bolsheviks became the only political party that backed forcible land expropriation when they adopted a resolution that supported the seizure of landlords’ land by peasants.2 Following the Bolshevik adoption of the Social Revolutionary Party’s land program in August 1917, once the Bolsheviks assumed power their ‘Decree on Land’ of 26 October 1917 abolished all private property and placed all land held by landlords, the state, and the church under the jurisdiction of rural district land committees and county Soviets of Peasants’ Deputies until the convening of the Constituent Assembly.3 As Bolshevik agrarian policies became more anti-peasant during the period of War Communism, whatever gains from the Stolypin reforms had survived the war were undermined. After the break between the Social Revolutionaries and the Bolsheviks, the policies of War Communism moved against enclosed peasant holdings during 1918–1920. During War Communism and the Civil War, Committees of Poor Peasants were formed to enforce grain requisitions in order to feed the Red Army. In reality grain requisitions deprived the peasantry of any surplus, as both Reds and Whites took whatever they could. In response to low government requisition prices, gross exploitation by Civil War combatants, and fluid battle lines, the peasantry reduced the area of sown land, and grain production declined precipitously.4 Soon thereafter disasters followed: hunger, food rationing in large cities, and urban depopulation.5

LAND REFORM IN THE FSU: EUROPE

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Following the defeat of the Whites and foreign interventionists, the consequences of War Communism gave rise to the New Economic Policy (NEP) which ushered in an era of tolerance for different forms of land usage codified in the 1922 land code (and amendments to it in 1925).6 After the adoption of the 1922 land code, land leasing from the state was permitted, although land transactions could only transfer rights of land use. Legal tolerance for land leasing, use rights in perpetuity, and the freedom for individuals to farm strips of land—the so-called khutora and otruba of the 1920s—dominated agricultural land and production.7 Beginning in 1927 voluntary communes were supplanted by gradual collectivization. In mid-1929, gradual collectivization was replaced with rapid collectivization which, by the mid-1930s, wiped out all individual independent peasant farms and increased the level of state control over state and collective farms. Stalinist rural institutions governed land use and remained virtually unchanged until the late 1980s. The third great land reform in Russia began in 1990. This latest reform is an attempt to undo the Stalinist agricultural system by destatizing and privatizing agricultural enterprises, and by instituting private farming based on private ownership of land. Russian land reform involves the transfer of land from large stateowned farms to individuals and collectives. In a strict legal sense land that has been transferred is considered private land. However, ‘private’ does not necessarily mean individually owned. Within the rural private sector, land reform has instituted a variety of different forms of land tenure, including private ownership, lifetime inheritable possession, permanent use rights, and leasing. A distinctive feature of Russian land reform is the fact that even after destatization most agricultural land has remained collectively owned and managed, with only around 10–12 percent of land individually owned. According to a World Bank survey, less than one-half of private farmers owned their land in 1994, with the remainder based on inheritable possession, use rights, and leasing from the state.8 During the 20th century, land reform in Russia has been a major component of socio-economic and political transformation. Contemporary Russian land reform is and will continue to be central to the success of economic and political reforms as the country attempts to move away from its Stalinist past. Successful land reform will address a number of problems inherited from the Soviet past. Economically, successful land reform will utilize land more efficiently. Land reform will facilitate comparative advantage and will eliminate the irrationalities of Soviet-era planning whereby climate and soil quality were only secondary considerations to cropping patterns. Politically, successful land reform will foster the rise of new rural groups who support governmental agrarian policies as well as provide reformers with political support in the countryside, thus contributing to the development of rural democracy. New rural interest groups will form the bases around which parties will form, a development that is consistent with the development of a pluralistic democratic society. In the social sphere, successful land reform will address the demographic and migratory legacies of the Soviet past—the aging of the rural population and the out-migration of the rural young and the skilled. The road to successful land reform is neither easy nor quick, and so final conclusions about its results are premature. Nonetheless, six years after Russian land reform was begun, we may conclude that it is characterized by both successes and failures, and any assessment must take note of both. The purpose of this chapter is to analyze contemporary Russian land reform six years after it was begun. The chapter is broadly informed by field work undertaken by the author during the past six years, although few specific references to experiences in Russian oblasts will be found in the text (citations to publications based on field work are found in the notes). Instead, the hope is to provide an overview of Russian land reform, and the intent is to analyze the processes of land and farm privatization, the achievements and impact of land reform, and the problems that confront it.

4

LAND REFORM IN THE FSU UNION

The analysis is divided into two broad sections: the conduct of land reform and the impact of land reform. We will start by examining the conduct of land reform, by which we mean the legal basis of land reform legislation and land distribution to individuals. THE CONDUCT OF RUSSIAN LAND REFORM In some sense the roots of Russian land reform are found in the rule of Mikhail Gorbachev. As early as 1985, Gorbachev made favorable references to the Stolypin reforms by way of suggesting a proper model for rural reform.9 Despite Gorbachev’s liberal rhetoric and experience in agriculture —he served as the CPSU’s secretary for agriculture from 1978 until his selection as General Secretary in 1985—he not only postponed agrarian reform for nearly four years, but it could be argued that he never did embrace genuine land reform. When he did turn his attention to agrarian reform in 1988, the goals were modest and failed to institute either genuine farm autonomy or private ownership of land. Even as Gorbachev attempted to move the Soviet Union away from Stalinist-era rural institutions, he remained unwilling to embrace private land ownership. During 1988–1989, a number of local experiments were conducted with individual farms, run by persons who were fully independent of a parent farm. However, the main direction of Gorbachev’s reforms was the so-called ‘targeted lease,’ which essentially bound the lessee to the parent farm.10 Following the important March 1989 party plenum which adopted land leasing as the main direction of land reform, the USSR Law on Land, adopted at the end of February 1990, codified the leasing of land in order to create independent individual farms, but did not embrace land ownership.11 Thus, under Gorbachev, certain steps were taken to liberalize the Stalinist agricultural system, such as the use of collective contracts and rental agreements.12 Moreover, Gorbachev supported the establishment of private peasant farms. In January 1991 he signed a decree that created a national land fund of five million hectares, comprising under-utilized and abandoned farm land, to be distributed to prospective peasant farmers and other individual users. Despite this move, all-Union legislation neither recognized private ownership of land nor established the legislative basis for a land market. In the Russian Republic the situation was different. Under the leadership of Boris Yeltsin, the Russian Supreme Soviet legalized private land ownership and the sale of land in December 1990, although land sales remained heavily restricted (see below).13 Within this muddled political context—the so-called ‘War of Laws’ between Gorbachev and Yeltsin—the Russian Republic moved to the forefront of land reform, both in terms of private ownership in general and land ownership in particular. When the Soviet Union ceased to exist in December 1991, a confusing situation existed in which the state owned all land and individuals were precluded from either buying or selling land, but individual republics were given the right to adopt their own land legislation, even if it contradicted all-Union laws. The legal basis of private property in Russia When the Russian Republic began to undertake land reform, almost all agricultural land was in the hands of state and collective farms. For example, at the end of 1990, the Russian Republic had 222.1 million hectares of agricultural land, of which 213.7 were used for agricultural production. Of those 213.7 million hectares, state and collective farms used 209.9 million hectares, or 98 percent of agricultural land. Individual peasant farms (krest’ianskie fermerskie khoziaistva), private plots, and collective vegetable and collective fruit gardens accounted for 3.9 million hectares of land, or the remaining 2 percent of land used for agricultural production.14 The primary tasks of Russian land reform, therefore, were to distribute land to persons and


5

enterprises that would utilize land more efficiently and to develop a system of property rights that were consistent with democratic institutions. The legal basis of Russian land reform has been analyzed in detail in previous publications, so our intent here is to review the highlights that concern private land ownership and land distribution. As was indicated above, legislation underlying land reform may be traced to December 1990, at the meeting of the Second Congress of People’s Deputies of the RSFSR. That congress adopted a Law on Property for the Russian Republic that was different from the USSR Law on Property in that it distinguished between private (chastnaia) and state property. Furthermore, that congress adopted the first legislation since the Bolshevik revolution that allowed individuals to buy and sell land. Despite the freedom to buy and sell land, the legislation entitled ‘On the Program of Reviving the Russian Country-side and the Development of the Agroindustrial Complex,’ placed a 10-year moratorium on land sales and only the state was permitted to buy land from land owners. As a consequence of those restrictions a land market did not develop. Private ownership of land was then codified in the land code of the RSFSR, adopted in April 1991.15 A chronology of important laws on land is found in Appendix A. Having legalized private land ownership, other legal acts were important in allowing farm members to resign from a farm and for putting farm land into the hands of rural dwellers. The most important act in these respects was a decree signed by Russian President Boris Yeltsin at the end of December 1991.16 Yeltsin’s decree allowed collective and state farm members to withdraw from a parent farm with land shares and property shares, to exchange their shares, or to lease the rights to their shares. The decree also allowed farm members to sell their land plots ‘to other citizens’ if they retired from farming, inherited the plot, wanted to organize a private farm elsewhere, or intended to invest the proceeds in rural processing, retail, construction, or business. However, the right to buy and sell land was still restricted. Thus, by the end of 1992 private land ownership had been legally established in Russia, a fact that contributed to the enormous growth in the number of private farms during that year. Furthermore, the right to exit a farm was codified, and the basis for a primitive, if regulated, land market was founded. The Supreme Soviet and Yeltsin continued to spar over the nature of the land market and the right to buy and sell land. With the dissolution of the Supreme Soviet in September 1993 and the victory over conservatives the next month Yeltsin was given the opportunity to break the stalemate, an opportunity he took advantage of at the end of October 1993. On 27 October 1993 Yeltsin issued a decree that in many respects has served as the cornerstone of land reform in Russia.17 As stipulated by the October 1993 decree, members of state and collective farms received a certificate (svidetel’stvo) of land ownership entitling them to a share of the farm’s land.18 This certificate served as a legal document for purchasing, selling, leasing, exchanging, or mortgaging land.19 Perhaps most important, the October 1993 decree annulled previous restrictions on land sales and allowed the owner of land shares to sell his land allotment, although some restrictions did apply. The certificate was the individual’s guarantee to own land as well as tangible proof of ownership. Despite this legal guarantee, the distribution of land certificates was conditional, which is to say that physical land plots continued to be held by the collective and were only distributed ‘in kind’ if a person decided to leave the parent farm to begin private farming (or in some cases another job), but relatively few farm members did leave a parent farm. In an overwhelming percentage of the cases a farm member transferred their land shares to the collective, thus losing access to a land plot ‘in-kind’ based upon their shares (although he or she could receive the cash value of their plot if they subsequently left the farm). A 1994 World Bank-sponsored survey in five Russian oblasts showed that about 30 percent of farms surveyed had experienced 0 exits by farm members, about 35 percent of farms had between 1 and 9 exits, and 35 percent had more than 10 exits.20

6


Following the dissolution of the Soviet-era Supreme Soviet in October 1993, a new Russian constitution was worked out during the fall and then ratified by Russian voters in December 1993. The constitution codified private land ownership by stating that ‘land and other natural resources may be in private, state, and other forms of ownership’ (Chapter 1, Article 9), and restated the right to private ownership of land in Article 36. Subsequently, the civil code, adopted in October 1994, further strengthened the right to private property by devoting Chapter 17 to the rights of land ownership. The civil code repeated the right to private ownership of land, to mortgage it, to lease it, to give it away, or to sell it (Article 260). However, the process of selling land held in ownership by individuals, other than sales to the state for state or municipal needs, was not elaborated.21 Thus, with regard to property rights, from 1991 a series of land reform acts successfully established and codified private ownership of land. The legal foundation of private property certainly constitutes one of the successes of land reform. Conversely, land use was regulated and users were obligated to meet certain requirements or risk confiscation. Perhaps most important, land transactions were restricted, which affected the development of a land market. The constitution and the civil code did little to specify the procedures for land sales and purchases, which meant that the primary legislative document regulating those transactions would be the new, post-Soviet land code. In the interim, Yeltsin’s October 1993 decree governed land sales, but this was a general policy statement and provided few specifics about how to conduct land transactions. The final piece of the land legislation puzzle—the one that would define the nature of the land market and the conditions regulating land transactions—is the land code. The differences between Yeltsin and the conservatives over the content of the land code have been and remain fundamental. Yeltsin and reformers support a free land market in which agricultural land or land shares may be sold to anyone, and present rural land would not be restricted to only agricultural uses. Conservatives, led by the communist and Agrarian parties, support a ‘regulated land market’ by which only the sale of small-scale agricultural plots of land to other plot users would be permitted, and rural land would have to remain in agricultural use. By early 1997 the battle over the land code had already extended more than two years. One version of the land code was adopted by the State Duma in 1995 but was considered too restrictive and thus was shelved under threat of a presidential veto. In May 1996 another version of the land code was passed by the State Duma, but it was even more restrictive than the first, ‘practically forbidding free land turnover.’ This version of the land code did not even allow the free sale or purchase of land or mortgaging of land. Land shares could be exchanged, but only among members of a farm.22 Thus, it was rejected by the Federation Council in July 1996.23 Members of the State Duma attempted to gather support in order to overturn the decision of the Federation Council, but were only able to muster 269 votes instead of the 300 that were required.24 In the fall of 1996, a compromise commission was formed, including 14 members from the State Duma, four from the Federation Council, and two representatives from the government. The commission was said to represent all the factions in the legislature.25 The commission reportedly worked on a version that would allow free land sales, but only under very restrictive conditions.26 The commission also reintroduced the concept of a moratorium prior to selling. According to published reports, free land sales would be allowed only after the land had been worked by the owner for a period of 10 years.27 By early 1997 it was reported that the commission was not able to reach an acceptable compromise and had become stalemated.28 Thus, during 1997 Russia remained without a land code. Given the fundamental differences between conservatives and reformers, the prospects were not very bright for a new land code in the near future, which in turn held up other important legislation regarding land and agrarian reform.


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The land distribution process29 When conceptualizing the land distribution process, Russian reformers had a number of options to consider. Within post-Soviet states, the distribution of land has varied. In some countries, such as Bulgaria, land reform attempted to return land to its pre-communist owners.30 In other countries such as Lithuania and Latvia, priority in land restitution has been given to former owners, although they may end up with different plots of land or some form of compensation.31 Some nations, such as the Czech Republic, Hungary, Romania, and Slovakia, have adopted a mixed system of land privatization, allowing land restitution to original owners up to a defined quantity of hectares, then using a coupon system for those wishing to obtain additional land.32 Other post-Soviet nations have opened up land acquisition possibilities to anyone who desires to undertake agricultural production. Within those broad categories of land distribution, Russia fits most closely with the last variant. In Russia no attempt was made to return land to its pre-Soviet owners, and a coupon system of land privatization was discussed but never implemented. Instead, Russian land reform pursued an open land distribution process to anyone wishing to undertake private agricultural activities. Under the terms of land distribution, who could obtain land? The 1990 ‘Law on Peasant Farms’ stipulated the right of ‘every able-bodied citizen’ to receive a free land plot in order to organize a peasant farm on the territory of the RSFSR, if they possessed ‘specialized agricultural knowledge or past specialized training.’ In the case of many claims for the same plot of land, preference would be given to citizens who have lived in that locality or who have many children.33 Furthermore, the 1991 RSFSR land code (Chapter 10, Article 58) added that any citizen at least 18 years old may receive land who had experience in agriculture and the corresponding skills, or who had past specialized training. In practice, the stipulation of ‘specialized agricultural knowledge or past specialized training’ was often not enforced, and in fact during 1990–1991 the bulk of new private farmers had no agricultural experience; an estimated two-thirds of private farmers in 1991 were former urban dwellers. The process was tightened, however, and by the end of 1993 more than 85 percent of private farmers were former rural dwellers. It is not only important to note who received land, but which land and how they received it. In order to address those issues, in the sections below we will survey the process of land distribution for urban and rural dwellers. Land for urban residents Urban dwellers were not able to obtain rural land directly from state and collective farms. Citizens who lived in urban areas but who wanted to obtain rural land for private farming were able to do so from a special land fund that existed in each raion. During the Soviet period, that is, before 1992, the raion (or city) Council of People’s Deputies created a land fund, drawn from state and collective farm land, and land from other land-using enterprises. Originally, the land in these special land funds included agricultural land that had been abandoned or converted into less valuable land; land that had not been used for its specified purpose; agricultural land that had not been used for one year, or land that had a non-agricultural purpose and had not been used for two years; land of agricultural enterprises whose productivity for the last five years was more than 20 percent below the norms of similar land; and land that had not been purchased and was still in the possession of the bank.34 Land which could not be used for agricultural production was not included in raion land funds. After raion organs had established average norms for free land,35 ‘excess’ farm land was also withdrawn from collective enterprises and placed in a raion land fund. Excess land was determined by multiplying the number of farm members (including pensioners) by the raion land norm, and any surplus land (above the normative total) was then subject to withdrawal and redistribution. For

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example, if the farm had 100 members and the raion land norm was 10 hectares per person, then any farm land above 1,000 hectares would be withdrawn from collective ownership and used for peasant farms or small-scale agriculture. This determination of excess land occurred as long as the parent farm remained intact. If farm members voted to disband then all farm land was distributed among its members. Urban residents, prior to Yeltsin’s October 1993 decree, could obtain a land plot in a rural location free of charge from raion land funds, up to the established raion norms. Urban residents became eligible for land from the raion land fund by submitting an application to their raion soviet and paying a small administrative fee. After the October 1993 decree urban residents were required to purchase agricultural land, with the exception of those wishing to start a private farm. The 1990 Law on Peasant Farms indicated that all citizens wishing to begin private farming were to receive free land plots up to the established raion land norm, and this stipulation was not overruled by the October 1993 decree. However, eligibility for free land was conditioned on having agricultural experience or education. Early in the land reform process it was clear that this stipulation was not enforced, but starting in 1993 the Minister of Agriculture V.Khlystun stated that stricter standards would apply to those desiring to obtain free land. While free land to urban residents became more difficult to obtain, the October 1993 decree allowed urban residents to purchase or lease land from rural land owners, providing the land would continue to be used for agricultural purposes. In addition, the October 1993 decree did not prohibit urban residents from privatizing their private plots, ogorody, or holdings within a collective garden if they desired (in the latter case with the approval of other joint owners; not until the civil code was adopted was land held in joint ownership not subjected to unanimous approval by the collective). Following October 1993, therefore, urban residents’ rights to free land were limited to land that would be used for private farming, or to land that was previously used for small-scale agricultural production that the ‘owner’ wished to privatize. Even the much touted March 1996 decree by Yeltsin stipulated that ‘citizens and organizations’ could receive free land, providing it was their first land plot, but only if the land had been withdrawn from agricultural circulation (was no longer considered agricultural land).36 Land for farm members The process of rural land acquisition for farm members differed from that for urban dwellers. The main difference is that farm members were able to obtain agricultural land directly from the parent farm. During the reorganization of state and collective farms, a process which extended from 1992 to early 1994, a farm meeting was held to decide whether a farm would reorganize into a new form of ownership, and if so, into which form. During the reorganization process, all farm members were to receive free land shares from their farm entitling them to land plots up to the norms established by rural, village, or urban Councils of People’s Deputies.37 As we saw above, Yeltsin’s October 1993 decree required the preparation and distribution of certificates of land ownership for the purpose of establishing a legal and practical foundation for a land market. Prior to December 1991, the specific size of a land share to be distributed to a farm member depended on the length of time a person had worked on the farm. Yeltsin’s December 1991 decree on the reorganization of state and collective farms changed this system, and a resolution adopted in September 1992 codified equal land plot sizes for all members of the farm and those who provided social services to the farm. A reorganized farm distributed land shares to all those who were eligible to receive them. However, land shares were conditional, which meant that the farm remained intact unless one of three specific conditions were met. A farm member could convert land shares into land ‘in kind’ by:


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1 leaving the farm and starting a private farm;38 2 desiring land to operate a private plot; 3 converting a land share to land ‘in kind’ in order to lease the land to private farmers, agricultural enterprises, or private plot operators.39 Under these conditions farm members were assigned specific plots of land. When a farm member received land from a parent farm, Oblast Committees on Land Reform (later renamed Committees on Land Resources and Land Surveying) designated specific land plots to each applicant using a standardized procedure that numbered land plots and then assigned them to persons in the order the application was made.40 During the farm reorganization process a farm member had a one-time opportunity to receive land in kind. If he or she decided to remain a member of the farm collective then their land shares transferred to the farm and became general farm property. If the member later decided to leave the farm they could not receive land, but instead would be compensated the cash value of their land share.

THE IMPACT OF RUSSIAN LAND REFORM Having surveyed the legal foundation of land reform in the first section, this second section of the chapter analyzes the impact of land reform. In particular, we will examine: 1 economics: farm restructuring and agricultural production; the land market; 2 politics: rural democracy and peasant-state relations; and 3 the social sphere: rural demographics and rural migration. Economics: the impact on farm restructuring Russian land reform has emphasized privatization, an emphasis that has had two primary components. The first component has been the creation of a private farm stratum. Towards that end, private land ownership was legalized, farm members were allowed to withdraw from state and collective farms, land shares were distributed to farm members, land certificates were distributed, and the legal basis for a land market was created. By the beginning of 1997 about 280,000 private farms were in existence, although the number of farms had essentially stagnated since mid-1993, and the number of farm bankruptcies increased dramatically since 1993.41 During land reform, the private farming stratum gained the most land, but even so still held an insignificant amount of agricultural land. Along with other forms of land privatization, Russian agriculture had become ‘private’ in name, but continued to be dominated by large agricultural enterprises. The second direction was the reorganization of the state farming sector. Based on a decree signed by Yeltsin in December 1991, during 1992–1994 state and collective farms were reorganized. Reform committees were set up at the raion level as well as in each farm in order to oversee the reorganization of state and collective farms.42 During the farm reorganization process, relatively few state and collective farms actually disbanded, while an overwhelming percentage of reorganized farms either retained their collective farm status or became joint-stock farms. Thus, in most cases the farm and its property remained intact. For example, about 83 percent of former state and collective farms either retained their previous status or reorganized as a joint-stock farm.43 As a consequence, on 1 January 1995, former state and collective farms and their successors still held about 87 percent of agricultural land (not including land reserves and forest funds), although technically this land was now private, not state, property.

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In response to the fact that the first phases of land reform had a relatively marginal effect on farm restructuring, in late 1993 a farm privatization program was introduced in Nizhnii Novgorod Oblast,44 which began to dismantle the very weakest collective and state farms.45 The Nizhnii Novgorod model of farm privatization was adopted as a federal program in 1994, called the ‘Program of Land Privatization and Reorganization of Agricultural Enterprises.’46 For simplicity we shall refer to the national program as the ‘Nizhnii model’ in the discussion below. By the end of 1996 the Nizhnii model had been introduced in 11 Russian oblasts. The Nizhnii model offered farms a ‘second chance’ at privatization, offering substantial tax and financial advantages to former state and collective farms that voted to go through the reorganization process.47 Under the Nizhnii model, privatization took the farm reorganization process further than the original farm restructuring program. Whereas the first stage of farm restructuring allowed collective farms to merely change their name and juridical status without fundamentally changing their operations, the Nizhnii model radically altered the operations of farms by sub-dividing larger farming units into smaller units to be operated by individuals, families, or small collectives. The Nizhnii model divided collective farm land shares equally among eligible farm members, while farm property shares were determined by taking into account length of service and size of income of an individual. Farms volunteered to privatize, and proceeded through a series of steps, starting with preparatory work, the distribution of land and property shares, auctions for unclaimed land and property, and the transfer of property rights.48 The application and waiting list reached several hundred by early 1996.49 International Finance Corporation (IFC) documents suggest that the impact of farm privatization is difficult to measure directly. During privatization farm management was changed, and that change rather than the change in the size of the farm may account for improved farm performance. Nevertheless, on farms that had privatized during 1993–1994 in Nizhnii Novgorod, production results were positive and better than oblast averages. Reorganized farms were reported to be more efficient, measured in terms of income produced per worker, higher wages for farm workers, lower subsidies per worker, and lower production costs per centner (110 pounds) of output.50 Furthermore, while the entire agricultural sector suffered from disadvantageous price relationships with non-agricultural goods and taxes that exceeded subsidies, reorganized farms fared somewhat better. Crops yields on reorganized farms in Nizhnii Novgorod were reported to be about one-third higher than the oblast average; farm profitability increased whereas other farms in the oblast experienced a sharp decline; milk yields decreased less than the oblast average; and average salaries were about 10 percent higher than the oblast average.51 While Nizhnii Novgorod Oblast in general was reported to support its agricultural sector with oblast funding,52 it is likely that some of these economic results stemmed from generous local and federal subsidies per hectare, tax advantages, and other selective benefits that were offered to farms that enrolled in the privatization program. IFC documents also indicated that privatized farming units showed less drunkenness and more personal responsibility than nonprivatized farms.53 Economic reform and agricultural production Russian food producers consist of three main actors, including large agricultural enterprises, that is, collective farms and their legal successors. These farms will be referred to as the collective sector in our discussion below. They have land resources that typically average several thousand hectares and have 300– 400 workers. The second food producer is the private peasant farmer, or fermer in Russian. Private farms average about 42 hectares per farm and have three to four workers, although regional variations do exist.54 The third food producer is the peasant household, or krest’ianskoe khoziaistvo, which usually numbers three


11

to four persons (at most) and operates a private plot or collective garden ranging in size from 0.5 to 0.6 hectare. In the collective sector, the combination of farm reorganization and market reforms had a significant impact on Russian agricultural production. In the collective sector during 1990–1996 gross agricultural output in Russia declined by more than 40 percent.55 These decreases were mostly due to declines in consumer demand as a result of retail price increases. As consumer demand decreased, so too did food consumption. On a per capita basis, during 1995 Russians consumed fewer kilograms of meat and meat products, milk, fish, sugar, and vegetable oil, and fewer eggs in comparison with 1991. In comparison with 1990, the only products which they consumed more of were potatoes and cereal products.56 Farms in the collective sector responded to declining demand and consumption by reducing production. Farms also decreased production in response to disadvantageous output-to-input price ratios for food producers, a decline in state subsidies, and the high cost of credit confronted by farm enterprises—all consequences of the government’s economic policies. As a result of these economic processes, agricultural production and land use in the collective sector were affected in two ways. First, the amount of land under cultivation declined. The amount of land withdrawn from agricultural use totaled about 12 million hectares during 1990–1995, or about 5 percent of agricultural land in 1990. A significant portion of land withdrawn from cultivation was marginal agricultural land that should have been idled—seen by the fact that cultivated land declined by 7 percent in the Northern Economic Region, 17 percent in the Northwestern Economic Region, nearly 14 percent in the Central Economic Region, and more than 10 percent in the Volga-Vyatka Economic Region. However, significant percentages of land were withdrawn from productive agricultural regions as well: a decline of almost 12 percent in cultivated land in the Volga Economic Region, and nearly a 9 percent decline in the Northern Caucasus Economic Region was evidenced during 1991–1994.57 A second way in which agricultural production in the collective sector was affected was through changes in cropping patterns. During 1990–1994, the amount of land used for grain growing declined by about 7 million hectares, land used for technical crops declined by 800,000 hectares, land used for potato growing increased by 200,000 hectares, land used for feed grains decreased by 5 million hectares, and fallow land increased by 3.1 million hectares.58 These data indicate that land was taken out of agricultural use and that food producers responded to various economic signals (procurement prices, cost of inputs such as seed and fertilizer, availability and price of fuels, spare parts, etc.) by shifting production according to market and economic conditions. Agrarian and land reforms affected private peasant farmers differently. During the first five years of reform fermery increased their land holdings from 181,084 hectares on 1 January 1991 to over 12 million hectares on 1 January 1996—equivalent to about 6 percent of agricultural land in the country.59 The period of greatest expansion was during 1992–1993, similar to the growth in the number of private farms. After 1 January 1994, both the number of private farms and the area they operated increased very slowly. By early 1996, private farms in ‘good’ agricultural areas (defined as black earth regions of the Volga Region, Northern Caucasus Region, and Ural Region), possessed 53 percent of all land held by private farmers.60 In terms of food production, most analysts agree that production levels are purposely understated by private farmers in order to avoid taxes, but it is difficult to specify the magnitude of this under-reporting. Food production by private farmers has increased, but in 1995 still accounted for less than 2 percent of gross agricultural output according to official statistical sources.61 Among food products grown by private farmers, cereals and other plant products are the most common, accounting for 76 percent of the area used by private farmers. For this reason, in 1995 private farmers produced 5 percent of the nation’s grain and over 10 percent of its sunflower seeds.62

12


Regarding animal husbandry, private farmers in general possess small percentages of the nation’s total herds of cattle, pigs, goats and sheep and poultry. Not only are the herds of these animals less than 2 percent of the nation’s herds, but animal stocks of beef cattle, dairy cows, sheep and goats, and horses actually declined between 1 January 1995 and 1 July 1996.63 The number of pigs increased marginally, and only the number of poultry grew by a substantial margin on private farms. As a result, animal husbandry production by private farmers is insignificant, accounting for less than 2 percent of meat and milk output. Thus, output from private farmers remained low in comparison to the amount of land they possessed and the percentage of the agricultural workforce they constituted.64 Reflecting increasing financial hardship as land reform progressed, a relatively small percentage of private farmers had plans to expand production during 1995 in comparison with 1994. The primary reason: financial constraints. Federal support for private farming decreased in constant rubles every year since 1991 and constituted less than 10–15 percent of the level recommended by agricultural specialists. Support at the local level was not much better as oblast administrations distributed on average $100.00 per private farm in financial support during 1995.65 As a result, only two in one hundred private farms were able to build sheds for their animals during that year, and in general financial constraints affected production plans. Trends in production plans, gathered from a survey of 749 private farmers throughout Russia, are indicated in Table 1.1. The third food producer is the peasant household which operates a private plot or some other form of smallscale, subsidiary agriculture used mainly for family subsistence. By the end of 1995 there were more than 16 million registered private plots encompassing more than 6 million hectares, or about 2.5 percent of the nation’s agricultural land. In addition, over 22 million families had been allocated land for collective gardens, encompassing over 2 million hectares; and another 5.6 million families were allocated 600,000 hectares for use in individual dwelling or dacha construction.66 Overall, more than 40 million families were allocated free land plots during land reform, although the size of these plots is quite small, usually less than half a hectare. Despite their small size, the output from these family-based activities has grown substantially during the past five years. While small-scale agricultural activities are not sufficient to feed the nation nor are able to contribute to the production of all products, for certain products the output constitutes a significant percentage of the nation’s output. For example, in 1994 peasant households produced 43 percent of the nation’s meat, 39 percent of its milk, 28 percent of its eggs, and 39 percent of its wool.67 Table 1.1 Production plans of private farmers in 1995 in comparison with 1994 (in percent of farms surveyed) Product

Production to increase

Production to decrease

Production to stay the Too hard to answer same

Cereals 18 22 51 9 Sunflowers 47 22 24 7 Sugar beet 43 5 47 5 Vegetables 31 17 44 8 Feed grains 17 10 61 12 Beef cattle 26 15 49 10 Pigs 37 10 43 10 Sheep and goats 19 32 38 11 Poultry 21 4 62 13 Source: Itogi vyborochnogo obsledovaniia namerenii sel’ skokhoziaistvennykh predpriiatii i krest’ianskikh (fermerskikh) khoziaistv po porizvodstvu produktsii v 1995 godu (Moscow, Tsentr ekonomicheskoi kon’’


Product

13

Production to Production to Production to stay the Too hard to answer increase decrease same iunktury, 1995), pp. 21–22. I thank Ken Gray of US Dept. of Agriculture for making this information available.

Land reform and the land market Land reform legislation established the foundation for a rudimentary land market, although in reality Russia has a system of land turnover, not a genuine land market.68 Legislation regulating land transactions, namely presidential decrees in October 1993 and March 1996, allowed land shares to be purchased and sold, but only with various restrictions. Land shares from collective enterprises were subject to restrictions on who could obtain land shares and on land use, while privately owned land such as private plots and private farms faced restrictions only on land use—agricultural land had to remain in agricultural use. The October 1993 decree stipulated that a land share owner had the right to sell his or her shares to ‘other members of the collective, or to other citizens and juridical persons’ so long as the land would be used for agricultural production (point 5). Most important, members of the collective had preference in obtaining land shares over other purchasers. Thus, other members of the farm had priority in buying or selling land shares, and only after farm members and the farm itself decided not to buy were land shares available to persons/organizations outside the farm. Subsequent decrees upheld the right of other farm members to have the first opportunity to obtain land shares within an agricultural enterprise, and continued the restriction that agricultural land could only be used for agricultural purposes. In fact, reform legislation created a number of restrictions on land use that affected the development of a land market. Reform legislation obligated all land users to meet certain requirements: (1) to cultivate agricultural land and not to let it sit idle, (2) to use agricultural land for farming, (3) to maintain the land’s fertility.69 Land that was not used for farming or which remained uncultivated for more than a year was subject to confiscation, even if the land was privately owned. The intent of restrictions on land use was to protect agricultural land from being converted into non-agricultural land, a basic demand of rural conservatives. These restrictions were significant in limiting the development of a genuine land market in two ways. First, restrictions on land share sales provided the legal mechanism to keep intact collective agricultural enterprises (former state and collective farms and their successors). Second, the restriction on land use acted as a brake on land use conversion by preventing large-scale transformation of agricultural land into urban or suburban land. If farm members with land shares were able to sell or lease their shares to anyone for any purpose—as reformers argue the land code should allow—the turnover of land shares and the rural land market would be much more active. Instead, during the early years of land reform relatively little agricultural land has been turned into urban-use land. Today, the ‘land market’ in Russia is primarily characterized by the exchange by individuals of small land plots, often less than one hectare in size. Enterprises, for a variety of economic reasons, do not appear to be significantly active in the purchase of rural land, although there have been reports of banks and certain businesses purchasing whole farms in order to supply their workers with food.70 In general, more than three years after the legislative basis for a land market was established, the land market is limited, with less than 0.3 percent of eligible land involved in a transaction.71 Data from Roskomzem (Russian land reform committees) showed that land transactions typically involved land for family or personal use, much less so

14


for commercial purposes. For example, transactions for individual construction, private plots, dacha plots, or collective gardening totaled 134,794 in 1993, 109,894 in 1994, and 62,481 in 1995 (with an average size per transaction of 0.10, 0.11, and 0.10 hectares, respectively by year).72 One of the most important restraints on the rural land market is the lack of demand for rural land. Field work by this author in Kostroma Oblast showed that 0.31 percent of rural land in private hands had been involved in a land transaction as of 1 October 1995.73 Demand for rural land was low in other oblasts as well. IFC documents indicate that less than 2 percent of land shares in reorganized farms in Nizhnii Novgorod Oblast were involved in a transaction during 1993–1995. Moreover, unclaimed land shares in reorganized farms increased each year, as elderly owners died and their heirs did not claim the land shares. Another factor that has constrained the rural land market is the high cost of credit to purchase land. A primitive system of advertising and real estate services, which has also played a major role in retarding the development of a land market, had begun to be addressed as Moscow Oblast introduced a computerized system that would aid in tax collection as well as make it easier to identify what land plots were available for sale. In Moscow Oblast, some 25 raion and urban settlements were equipped with this new computerized land cadaster system.74 At the national level, a computerized cadaster system was designed with financial assistance from the World Bank and Hermes, a German government credit insurance company.75 This system will require additional state funding if it is to be fully operational. The politics of land reform: rural democracy and peasant-state relations The political objective of land reform was to foster the rise of new rural groups who support governmental agrarian policies as well as provide reformers with political support in the countryside, thus contributing to the development of rural democracy. During the Soviet period, a person’s standard of living was linked to the size of the city in which he resided, with large cities enjoying the highest standard of living. Small towns and rural villages had the lowest standard of living, often similar to Western conditions in the 1930s. When radical reform was begun, some analysts argued that those who enjoyed privileges under the Soviet system, logically those who resided in large cities, would be most resistant to change while those who had the lowest standard of living under the Soviet system—in small towns and rural villages—would have the most to gain and therefore would be most supportive of radical reform.76 Those predictions about social support for economic reform have turned out to be wrong. Surveys and voting data have shown that large cities have been the most supportive of radical reform, and small towns and villages the least supportive.77 The political frustrations of land reform can be seen when considering rural voting patterns and peasantstate relations. Surveys conducted by Western academics and Russian polling groups have consistently shown during the past five years that rural dwellers are less supportive of land reform.78 Furthermore, residents of smaller towns hold more favorable attitudes toward conservative parties than urban dwellers in large cities (more than 1 million residents).79 In general, residents in large cities are more supportive of land reform, an unrestricted land market, and economic reform than residents in small towns and rural villages. Since a relatively small percentage of Russia’s population lives in cities with more than 1 million residents, land reform in general remains a deeply contentious issue.80 A random survey of 3,827 Russians taken in 1995 prior to the December parliamentary elections showed that only 12 percent felt that land should be bought and sold without restriction, while 40 percent were against all sales and purchases of land.81 Attitudes expressed in surveys are consistent with voting results. Since voting and elections became meaningful political events in Russia, the rural population has displayed a pronounced and consistent pattern of voting more conservatively than urban dwellers. Instead of engendering rural support for land


15

reform, the majority of rural dwellers (with the exception of private farmers who comprised less than 3 percent of the rural population), voted against reform candidates and parties, as shown by the December 1993 and 1995 parliamentary elections, and the June and July 1996 presidential runoffs.82 In those elections a band of southern, mainly rural agricultural oblasts voted for conservative and communist candidates. Based on survey data and election results, it would be fair to conclude that land reform has not been very successful at providing reformers with political support in the countryside. The second political consideration concerns peasant-state relations. Because Russian land reform emanated from above—at state initiative— the Yeltsin government needed to build support in the countryside. Three main agrarian groups exist, each with political assets and political constraints.83 Those three groups include: the Agrarian Party, the Association of Peasant Farms and Agricultural Cooperatives of Russia (AKKOR) and the Union of Landowners. The Agrarian Party is the most conservative of the three groups, which means it is most opposed to the course of reforms pursued by the Yeltsin government on ideological grounds. The Agrarian Party primarily represents state and collective farm interests and food processing workers in the agro-industrial complex. The Agrarian Party is explicitly against the ‘uncontrolled’ sale and purchase of state land, ‘which may lead to land-lessness and the further destruction of the majority of peasants.’ Its party platform advocates the ‘regulation of land relations in the country as the basis for developing a diverse agricultural sector,’ and proceeds from the principle ‘that land first and foremost is for those who work it.’ Further, ‘the party is for the firm union of the working class and peasantry, and against a new rich [class], created from land latifundia for personal enrichment.’84 The Agrarian Party has consistently opposed Yeltsin’s decrees that liberalized conditions for a land market and has backed the most restrictive versions of the land code coming out of the Duma. It would be difficult, if not impossible, for the Yeltsin government to build a viable political coalition with the Agrarian Party.85 At the other end of the political spectrum of rural groups is AKKOR. Although a voluntary organization, AKKOR is a formal institution with national and regional organizations in every krai and oblast. AKKOR’s primary constituency is private peasant farmers. AKKOR does not have political functions and does not offer political candidates for office, but instead was designed to provide technical assistance to beginning private farmers. Although AKKOR is not a political organization, it had several political resources on which it could draw. An important resource has been the corporatist relationship between AKKOR and the government, which stemmed in part from the fact that the Minister of Agriculture, V.Khlystun (1992–1994, mid-1996-present), and the president of AKKOR, V.Bash-machnikov, are personal friends. This relationship allowed AKKOR leadership to be consulted on important land reform legislation.86 Furthermore, AKKOR was afforded a privileged position vis-à-vis other rural groups, indicated by the fact that during 1992–1993 the Russian government channeled state subsidized credits through local AKKOR offices to peasant farmers. Perhaps the most important political resource has been high-level political support based on AKKOR’s vision of land reform, private farming, and a land market, all of which coincided with the views of the Yeltsin administration. For example, AKKOR was instrumental in drafting in 1993 the section on land reform for Gaidar’s party ‘Russia’s Choice’ with which rural liberals had established an electoral alliance. The third group is the Union of Landowners. In December 1994 the Union of Landowners was formed, led by V.Bashmachnikov (the president of AKKOR). The Union of Landowners held the same liberal goals as AKKOR, that is, the promotion and defense of private farming interests, a non-restrictive land market, and unregulated land use changes, but unlike AKKOR this organization has political functions.87 The Union of Landowners was designed to offer candidates for office, but the weakness of enter an urban alliance with Prime Minister Viktor Chernomyrdin’s party rural liberals in the countryside compelled the Union of

16


Landowners to ‘Russia is Our Home’ for the December 1995 elections.88 The Union of Landowners drafted the section on land reform for the party platform. Despite ideological agreement on land reform between the government, AKKOR, and the Union of Landowners, a weak rural constituency for land rural liberal interest groups—AKKOR and the Union of Landowners—are politically weak and have been unable to broaden rural support for the AKKOR has been criticized for ‘turning into a new lever of centralized reform has been the most notable characteristic in Russia. The two main government or have a significant impact on local land reform policies. administration in the agro-industrial complex.’89 Moreover, both AKKOR and the Union of Landowners have opposed the government’s financial and social policies toward private farming and the agricultural sector.90 As a ernment’s land reform policies, nor the broader program of agrarian consequence of the weakness of these two organizations, neither the govreform, have been widely supported in the countryside. The causes of this unpopularity are not difficult to identify. Land reform is often associated with the break-up of large-farming enterprises which entire social system, providing services such as education, medical care, farmers. Furthermore, because the law stipulated that other members of the housing, and access to cheap food. Land reform brought the distribution of supplied farm members not only with employment but also acted as an land shares, but since the population of the countryside was in general were able to take advantage of the opportunity to become independent older than the urban population (see below) relatively few farm members collective had the first opportunity to purchase land shares, demand for land shares was often low. Land share holders could lease out the use of were not used and the certificates themselves were often considered worththeir land, but again demand for rural land was low, due to the socio-rural population was reluctant to leave their land or to search out a new economic conditions prevalent in the countryside. In addition, an elderly less pieces of paper. Finally, rural dwellers opposed land reform because an unregulated land market, as advocated by the regime and rural liberals, residence. Thus the rights conferred by certificates of land share ownership raised fears among the rural population that rich urban dwellers would buy up rural land and convert it to urban land use. The social sphere and land reform: rural migration and rural demographics Except for brief periods of extreme political and social disruption in the 20th century, such as during the period of War Communism, the rural population in Russia has experienced a consistent decline, in large part due to out-migration. Rural out-migration was an inherent aspect of urbanization and industrialization and therefore should be recognized as a natural and universal process. By the 1960s, in addition to the customary flow into cities as part of urbanization, Russian scholars also argued that Soviet-era migration was motivated by urban-rural inequity and the low standard of living in the countryside.91 A series of processes, therefore, underlie the motivations for rural-urban migration in Russia; but the main point was that the rural population decreased. In the Russian Republic between 1939 and 1989, the rural population declined by more than 46 percent, from 72 million to 38.9 million. Central Russia was especially affected, experiencing a 42 percent reduction in the rural population in the non-black earth zones of Russia between 1959 and 1984.92 Among rural residents who left in the greatest numbers were young men, young women, and those with education and skills. A consistent finding of Soviet surveys was that rural dwellers under 30 expressed the greatest desire to migrate out of the countryside, while those over 50 expressed the least willingness to leave. Young rural males expressed dissatisfaction with work, while rural females cited poor supplies of food. Both sexes cited a lack of cultural activities and a dearth of other young people.93


17

The migration of young women from the countryside created a gap between the number of men and the number of women. In the non-black earth region of the RSFSR in the late 1980s, for example, there were only 100 women aged 18–29 for every 113 men of similar age.94 The same situation existed in many black earth areas as well. The third trend in rural out-migration was the departure of the skilled. One survey from Yaroslavl’ Oblast showed that those with the ‘highest potential’ to migrate were the most skilled.95 Research also showed that rural residents possessing higher education or desiring education were more likely to leave.96 As a result of decades of out-migration, the rural population became older, on average, than the urban population, particularly in the Central Economic Region, the heart of Russia. By the early 1990s, 7 of the 12 oblasts in the Central Region had more than 30 percent of the rural population too old to work, and another two oblasts had 29 percent of the rural population of pension age. Only Moscow Oblast in the Central Region had less than 25 percent of its rural population of pension age in 1991.97 The introduction of contemporary land reform in Russia brought with it changes in migrational patterns. Starting in 1991 the Russian countryside became a net recipient of new settlers. The number of net rural arrivals increased from 57,000 in 1991 to 289,000 in 1992.98 During 1993–1994 the number declined slightly, but even so net population flows continued to be positive, averaging about 268,000 persons a year.99 The inflow into the countryside came from two sources. The first was an urban-rural movement, no doubt motivated by the decline in urban living standards. The second source stemmed from a more general inflow of persons into Russia from the ‘near abroad’ in the wake of the collapse of the USSR. Due to the high cost of urban housing, as well as competition for jobs and increasing unemployment, arrivals from the near abroad are not settling in Russian cities, but rather in the countryside. We should note, however, that an estimated 80 percent of new arrivals from former Soviet republics are former urban residents, and thus it is entirely possible that they will not settle in the countryside permanently. Overall, significant percentages of new arrivals into rural areas are less than 40 years of age. For example, during 1995, rural areas in Russia experienced a net inflow of 29,289 persons aged 20–29, and another 43, 179 aged 30–39.100 These two age groups accounted for 54 percent of net migration into rural areas in 1995. Overall, persons of working age accounted for 44 percent, and persons too old to work accounted for 21 percent of net rural migration. Underlying the migratory inflow into rural areas is land that land reform made available. As we have seen, any Russian citizen—urban or rural dweller over 18 years of age—was eligible to receive a free land plot, up to established raion norms, in order to start a private farm. For persons who did not want to become private farmers, land plots for other agricultural uses such as private plots were available for free until December 1993, and after that date, were free to rural residents and were sold to urban residents. Against the backdrop of the high cost of food, and decreases in per capita consumption, free or cheap rural land and the food security it would provide undoubtedly was a significant factor in the move back to the countryside. AN ASSESSMENT OF RUSSIAN LAND REFORM This chapter set out to analyze the conduct and impact of Russian land reform. In our analysis four main dimensions affecting land reform were examined: land reform legislation and land distribution, the economics of land reform, the politics of land reform, and social aspects of land reform. This concluding section will summarize the findings and assess prospects for the future. The first factor concerned the institutionalization of reform legislation. Through presidential decrees, government laws, the 1993 constitution, and the 1994 civil code, private property and the right of private

18


land ownership have been successfully institutionalized. Thus, the right to private property is no longer a sharp political issue. The codification of private property is one of the main successes of land reform and a key building block for the future. On the other hand, however, legal rights over land sales, land use, and changes in land use remain contentious. These latter questions will not be resolved until a new land code is adopted, but political differences have complicated that process. Land reform legislation also introduced an open distributional strategy that benefited both urban and rural dwellers who desired to obtain land for agricultural purposes. Land distribution was pursued for both political and economic reasons. Politically, the intent was to transfer land from state and collective farms, thereby undermining farm managers’ ‘hold’ over farm members and diminishing farm managers’ influence in general. Economically, the land distribution process hoped to put land into the hands of individual owners and users who would utilize land more productively, increase output, and use inputs more efficiently. Were those goals achieved? Politically, the primary effect of the attempt to undermine rural conservatives’ power has been to galvanize rural opposition to land reform policies. The conservative Agrarian Party suffered an electoral defeat in the elections of December 1995, as the number of Agrarian deputies declined from 55 in 1993 to 35. However, there is little evidence to show that rural attitudes are moving away from the policy stances advocated by the party. The primary reason the Agrarian Party lost seats from 1993 was because many rural voters cast their votes for communist candidates who held even more conservative attitudes. From an economic perspective, lands held by state and collective farms were opened up, and during the 1996 presidential election campaign candidates referred to the existence of some 40 million land owners in Russia. An overwhelming majority of those land owners operate small private plots, whose output has increased significantly since 1990 for selected agricultural products. During 1995, for example, output from private plots and other small-scale individual agricultural activities accounted for more than 40 percent of gross food output in the nation. The second variable concerned the economics of land reform. As might be expected during a transitional period, land reform has not had a beneficial impact on the agricultural sector, at least in the short term. On the one hand, a private farmer stratum has arisen, holding about 5 percent of agricultural land and contributing an estimated 5 percent of gross food output (depending on the source of the estimate). Various evidence suggests that private farmers do have lower production costs, although their yields remain below those of larger agricultural enterprises. On the other hand, gross food production has declined dramatically since 1990. Furthermore, while the area of land under cultivation has decreased, a significant percentage of the land that has been withdrawn from production has come from areas that are highly productive and endowed with good quality black earth soil. Another economic dimension of land reform concerned the development of a land market. Land reform was intended to transform land use and ownership using both legislative and market mechanisms. Despite a legislative foundation for a land market, the functioning of the land market has been mixed. There is evidence of urban and rural land turnover, but land turnover is not the same as a genuine land market. The land market has not fully developed for reasons other than the lack of an adequate legislative base. In both urban and rural locales there still is a lot of land that is not able to be exchanged in the land market. For instance, in rural areas, most farm land remains the property of large agricultural enterprises. Rural demographics and patterns of farm reorganization have meant that relatively little land is available for purchase, and if purchased, regulations restrict freedom of land use. The rural land market is undercut by the distribution of free land to rural dwellers and the ability of urban dwellers to privatize pre-existing private plots for only an administrative fee. In addition, informational systems about land plots available for purchase remain primitive and inadequate. The cost of borrowing money is a severe constraint for


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prospective urban and rural land purchasers. For these and other reasons, the Russian land market to date consists of the buying and selling (and trading) of small land plots in rural and rural-like areas. The political dimension of land reform has been among the least successful. Whereas early hopes were for rural support for reform, in fact the rural population has been the most conservative element of Russian society as shown through analyses of election results since 1993. Not only has the Yeltsin government been unable to broaden rural support for its reform policies, but rural liberal groups have become more vocal in their opposition to the financial policies toward the agrarian sphere, despite ideological congruence with the regime over the general course of land reform. In the social sphere, since 1991 the countryside has been a net recipient of new settlers, thus reversing a pattern of migratory outflow that had spanned several decades. It is unlikely that the recent inflow to rural areas was caused by land reform, although free land was, no doubt, an attractive incentive. Instead, it is more likely that rural in-migration occurred as a response to the break-up of the USSR and general economic reform which led to significant declines in the standard of living in all but the largest urban areas. What is important about rural in-migration is that significant percentages of new arrivals are younger than 40 years of age. This fact has two potential ramifications. First, surveys of private farmers reveal that younger persons (and especially men) are more likely to establish a private farm. Second, if the flow of net new arrivals continues for a decade or more the statistical aging of the Russian countryside may be attenuated. What may we conclude, then, about the successes and failures of Russian land reform, and what are the prospects for the future? The legal infrastructure of land reform may be considered one of the main successes of reform, even without a land code. Furthermore, having created a landed stratum in society with a stake in private ownership, land distribution may be judged to be more successful than not. Likewise, in the social sphere, rural in-migration is a positive development, although one of unknown duration. However, to maximize incentives for would-be farmers to move into rural areas, and once there to stay, the government needs to pursue rural social policies that make the countryside an attractive place to live and an advantageous place to work. For that to occur, politics has to be decoupled from economics. What this means is that the regime’s anti-rural bias and the antipathy toward agricultural subsidies on the basis that it props up the collective sector must be re-examined. The Russian agricultural sector, like every agricultural sector in the world, needs subsidies in order to be price-competitive with imports or to provide production incentives. The question is not whether subsidies are necessary but rather how to use them to achieve the maximum benefit. Economic aspects of land reform, in the short term at least, have not been unambiguously successful. However, one would expect that as macro-economic stabilization occurs the economic benefits of land distribution will become more apparent. Significant change and adaptation have taken place among food producers, but those adaptations have been lost in a generally hostile economic environment. The politics of land reform will remain problematic into the foreseeable future. There is little possibility that rural conservatives and the Yeltsin regime can agree on the principles of land reform. Rural liberals will remain weak, and land reform unpopular, as long as the countryside remains conservative. The countryside will remain conservative as long as it is statistically old, and as long as the rural sector suffers rather than benefits from economic reform. Over the longer term rural in-migration may begin to address the aging of the rural population. But for the country-side to emerge a ‘winner’ in reform would require a major ideological reorientation by the regime. In short, the regime would have to abandon those who have supported it the most (urban dwellers in large cities), and to redirect the benefits of reform to the rural sector in the hope that rural attitudes might be reversed.101 It is highly unlikely that such a change will occur, and thus movement in rural political attitudes awaits a shift in rural demographics, which, if it takes place at all, will occur only over the longer term.

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NOTES 1 The reforms proceeded in two phases. The first phase allowed a peasant member of the village commune to lay claim to his share of communal land, for which he would receive a deed of ownership. Between November 1906 and January 1915, some 2.7 million households applied for land appropriation, and 1.97 million rural families received land deeds. However, this first phase was not very effective. In the words of one historian, ‘the separation of title did not in itself result in the establishment of an isolated and independent farm…and most of the separations of title recorded during the inter-revolutionary decade did not result from, or lead to, the physical consolidation of scattered holdings.’ Geroid Tanquary Robinson, Rural Russia under the Old Regime (New York, Macmillan, 1932), p. 216. The second phase, dated from mid-1910, dissolved all communes which had not redistributed land since Emancipation in 1861. In 1911, another decree simplified consolidation, allowing the registration of land plots as private property even if they were still fragmented into strips, and peasants were given the right to sell all or part of their strips. By 1915, land titles had been given to 6–7 million peasant households, but only 1.2 million households had consolidated their holdings into separate farms. Nonetheless, a class of productive, relatively wealthy peasants did emerge. Between 1906 and 1913 Russia enjoyed the highest annual average grain production in its history up to that time, and during 1909–1913 kulaks produced more marketable surpluses of grain than either middle and poor peasants or large land owners. Zhores A.Medvedev, Soviet Agriculture (New York, W.W.Norton, 1987), pp. 15–17. 2 The Social Revolutionaries, who based most of their support on the peasantry and whose leader Chernov was the Minister of Agriculture, denounced land seizures in advance of the Constituent Assembly which was to decide the political future of the country following resignation of Tsar Nicholas II in early 1917. Edward Hallett Carr, The Bolshevik Revolution, 1917–1923, Vol. 2 (New York, Macmillan, 1952), p. 30. 3 The small holdings of working peasants and Cossacks were excluded from confiscation. Ibid., p. 35. 4 William Henry Chamberlain, The Russian Revolution, 1918–1921: From the Civil War to the Consolidation of Power, Vol. 2 (New York, Grosset and Dunlap, 1963), p. 107. 5 Ibid., pp. 106–116; and William J.Chase, Workers, Society, and the Soviet State: Labor and Life in Moscow, 1918–1929 (Urbana, University of Illinois Press, 1987). 6 The Land Code of the RSFSR was adopted in May 1922 and came into effect on 1 December 1922. Shortly afterward all other laws and decrees on land were repealed. The new land code strengthened state land ownership and the laws against the sale and purchase of land. According to Article 27, ‘the purchase, sale, and provisional sale, the bequeathing or mortgaging of land are forbidden and all such contracts infringing this prohibition are invalid.’ V.P.Danilov, Rural Russia under the New Regime (Bloomington, Indiana University Press, 1988), pp. 95–96. 7 Alec Nove, An Economic History of the USSR: 1971–1991, (Harmondsworth, Middlesex, England, Penguin, 1992), p. 101. 8 Karen Brooks and Zvi Lerman, ‘Russia’s Legal Framework for Land Reform and Farm Restructuring,’ Problems of Post-Communism, Vol. 43, No. 6 (November–December 1996), p. 50. From 1992 through 1994, rates of private ownership for private farms remained virtually unchanged, while private farms based on leased land increased from 17 percent to 24 percent of farms surveyed. 9 For analyses of the Stolypin model and its relevance for contemporary land reform, see David A.J.Macey, ‘Gorbachev and Stolypin, Soviet Agrarian Reform in Historical Perspective,’ in William Moskoff, ed., Perestroika in the Countryside: Agricultural Reforms in the Gorbachev Era (Armonk, NY, M.E. Sharpe, 1990); David A.J.Macey, ‘Stolypin is Risen! The Ideology of Agrarian Reform in Contemporary Russia,’ in Don Van Atta, ed., The Farmer Threat: The Political Economy of Agrarian Reform in Post-Soviet Russia (Boulder, CO, Westview Press, 1993); and David A.J.Macey, ‘Is Agrarian Privatization on the Right Path? A Discussion of Historical Models’, The Soviet and Post-Soviet Review, Vol. 21, Nos. 2–3 (1994), pp. 149–188. 10 Sel’skaia zhizn’, 27 August 1988, p. 1; and Pravda, 16 March 1989, pp. 1–4. For an analysis, see Karen M.Brooks, ‘Soviet Agriculture’s Halting Reform,’ Problems of Communism, Vol. 39, No. 2 (March–April 1990), pp. 29–41.


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11 Izvestiia, 7 March 1990, pp. 1–2. 12 Frank A.Durgin, ‘Russia’s Private Farm Movement: Background and Perspectives,’ The Soviet and Post-Soviet Review, Vol. 21, Nos. 2–3 (1994), at pp. 220–222. 13 For a description of early land laws, see Stephen K.Wegren, ‘Private Farming and Agrarian Reform in Russia,’ Problems of Communism, Vol. 41, No. 3 (May–June 1992), at pp. 109–111; the text of the laws may be found in Zemel’naia reforma v Rossii (Moscow, Iuntus, 1991). 14 Narodnoe khoziaistvo RSFSR v 1990 g.: statisticheskii ezhegodnik (Moscow, Goskomstat RSFSR, 1991), p. 417. 15 See Krest’ianskie vedomosti, No. 16 (27 May 1991). 16 ‘On Urgent Measures for the Implementation of Land Reform in the RSFSR,’ Rossiiskiia gazeta, 31 December 1991, p. 3. For a description of the process for land distribution, see Stephen K.Wegren, ‘Political Institutions and Agrarian Reform in Russia,’ in Van Atta, ed., The Farmer Threat, at p. 125. 17 The decree was entitled ‘On the Regulation of Land Relations and the Development of Agrarian Reform in Russia.’ For an analysis, see Stephen K. Wegren, ‘Yeltsin Decree on Land Relations: Implications for Russian Agrarian Reform,’ Post-Soviet Geography, Vol. 35, No. 3 (March 1994), pp. 166–178. 18 The certificate was based upon share sizes that had been previously established during farm reorganization. That is, property shares were based upon length of service to the farm and amount of work performed, and land shares were equal in size for all members of the farm. 19 The October 1993 decree also established the right to mortgage land if it is held in private ownership. Other forms of land tenure do not have the right to mortgage land. 20 Karen Brooks, et al., Agricultural Reform in Russia: A View from the Farm Level, World Bank Discussion Papers, No. 327 (Washington, DC, The World Bank, 1996), p. 33. Assuming that this survey is representative of broader patterns throughout Russia, about two-thirds of state and collective farms experienced less than 10 exits. The reasons for this occurrence included the relative (and increasing) unpopularity of private farming over time, the age and demographic structure of the rural population, and the fact that many farm members had no place else to live. Interestingly, the World Bank survey also showed that receipt of land shares was not an obstacle to leaving the farm, that receiving land was not a significant factor in deciding whether to become a private farmer, and that restrictions on buying and selling land was the least cited reason for not becoming a private farmer. Between the 1992 and 1994 surveys sponsored by the World Bank, the factors with the greatest increase among respondents for not becoming a private farmer included ‘afraid of risk’ (+15 percent), ‘insufficent capital’ (+12 percent), and ‘no wish to change life style’ (+11 percent). Ibid., p. 54. 21 The civil code did cover sales of shares held jointly, that is, by two or more persons. Chapter 16 (Article 250) explained that other share holders have the first right to purchase the shares of the person selling his or her shares. If within a month of being notified of the seller’s intent, or 10 days in the case of land, other share holders do not indicate a desire to obtain or to purchase the shares in question, then the seller may sell his or her shares to anyone. The civil code also stipulated that property held in joint ownership required the permission of co-owners before land or property could be disposed of; but Article 252 allowed for joint property to be subdivided among owners if they agreed to do so. Furthermore, Article 258 permitted one of the members of a private farm to withdraw without subjecting the entire farm to subdivision; in such a case the remaining owners could pay the departing member monetary compensation. Finally, the civil code continued the restrictions on land use by stipulating that land may be withdrawn from the user/owner if not used within three years, or if land use is changed without legal permission (Articles 284 and 285). 22 Sel’skaia zhizn’, 13 April 1996, p. 2. 23 Article 3193, Sobranie zakonodatel’stva Rossiiskoi Federatsii, No. 27 (1 July 1996), p. 6573. 24 Krest’ianskaia rossiia, No. 28 (22–28 July 1996), p. 1. 25 Ibid., No. 50 (23–29 December 1996), p. 1. 26 Sel’skaia zhizn’, 15 December 1996, p. 2. 27 Rossiiskii fermer, No. 61 (29 October 1996), p. 2. 28 Ibid., 14 January 1997, p. 1. In June 1997 the State Duma passed another version of the land code, one that also prohibited the sale of agricultural land. During the summer Yeltsin vetoed this version.

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29 The sections on land distribution for urban and rural residents draw upon previous research by the author, published in Stephen K.Wegren, ‘The Development of Market Relations in Agricultural Land: The Case of Kostroma Oblast,’ Post-Soviet Geography, Vol. 36, No. 8 (October 1995), at pp. 499–502. 30 See Nancy J.Cochrane, ‘Farm Restructuring in Central and Eastern Europe,’ The Soviet and Post-Soviet Review, Vol. 21, Nos. 2–3 (1994), at pp. 321–325. 31 See William H.Meyers, et al., Agricultural Transformation and Privatization in the Baltics, Baltic Reform 92-BR 7 (Center for Agricultural and Rural Development, Iowa State University, 1992). 32 See Erik Mathijs and Jo Swinnen, ‘Agricultural Privatization and Decollectivization in Central and Eastern Europe,’ Transition, Vol. 2, No. 15 (26 July 1996). 33 Section 2, Article 4, ‘O krest’ianskom (fermerskom) khoziaistve,’ in Zemel’naia reforma v Rossii, p. 25. 34 Section 2, Article 6, ‘O krest’ianskom (fermerskom) khoziaistve,’ in ibid. 35 Norms were determined by dividing the number of rural dwellers into the quantity of agricultural land. In most parts of European Russia land norms averaged between 6 and 10 hectares, unless an area was heavily populated or mostly urbanized, in which case land norms were lower. 36 Rossiiskaia gazeta, 12 March 1996, p. 5. Much of this decree restated what had been adopted previously, most importantly the rights of disposal: a person had the right to bequeath, sell, give away, exchange, lease, transfer the rights of, or use his or her land shares without the consent of other share holders (point 4). For those land owners who had not yet received their land certificates (land deeds, as established by the 27 October 1993 decree), local governments were to send notification to owners indicating the procedure for receipt of their certificate. However, the degree also contained new stipulations. The decree permitted localities to increase the maximum size of a land plot for use as a private plot, and stipulated that the amount of land that could be leased was ‘unlimited.’ And the decree allowed municipalities to obtain land shares from individuals in order to redistribute to citizens or to sell to corporate enterprises engaged in agricultural production. 37 The size of land norms was not changed even after local soviets were replaced with ‘administrations’ following the events of October 1993. 38 Persons were entitled to withdraw from a farm with land in order to undertake private farming, use private plots, or for any other number of small-scale agricultural purposes. See Article 7 of the 1991 RSFSR land code, contained in Krest’ianskie vedomosti, No. 16 (27 May 1991), p. 3. 39 Krest’ianskaia rossiia, No. 38 (30 September–6 October 1996), p. 4. 40 Interview, Gorkomzem, city of Kostroma, 21 July 1995. 41 See Stephen K.Wegren, ‘The Politics of Private Farming in Russia,’ Journal of Peasant Studies, Vol. 23, No. 4 (July 1996), at pp. 111–114. 42 Wegren, ‘Private Farming and Agrarian Reform in Russia,’ at p. 111. 43 Reorganizatsiia kolkhozov i sovkhozov Rossiiskoi Federatsii po sostoianiiu na 1.1. 94g, (Moscow, Goskomstat Rossiiskoi Federatsii, 1994), p. 1. 44 The project is funded and supported by the International Finance Corporation, a subsidiary of the World Bank, and the British Know-How Fund. By May 1996, 175 farms in six oblasts had privatized, including 134 farms privatized in Nizhnii Novgorod Oblast, 26 in Orel Oblast, 9 in Riazan, 6 in Rostov Oblast, 5 in Kirov, and 2 in Volgograd Oblast. In addition, by winter 1996 the second edition of the privatization program manual had been distributed to all 26,000 collective farms in Russia. International Finance Corporation, ‘Land Reform in Russia,’ Operational Report, November 1996. The author thanks Dafna Taipero of the IFC for making Operational Reports available. 45 In addition to the six oblasts where farm privatization had been completed, another five oblasts had a list of farms that had formally applied for privatization based on the Nizhnii model. These oblasts included: Krasnodar, Voronezh, Tula, Samara, and Moscow. 46 Resolution 874 from 27 July 1994, ‘On Reorganization of Agricultural Enterprises Based on the Experience of Nizhnii Novgorod Province,’ in IFC, Land Privatization and Farm Reorganization in Russia: Annexes (Washington, DC, IFC, 1995), pp. 43–56.


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47 For a detailed description of how the Nizhnii model works, see Stephen K. Wegren, ‘Farm Privatization in Nizhnii Novgorod: The Model for Russia?’ RFE/RL Research Report, Vol. 3, No. 21 (May 1994), pp. 16–27. 48 IFC, Land Privatization and Farm Reorganization in Russia (Washington, DC, International Finance Corporation, 1995). 49 IFC, ‘Land Reform in Russia,’ Operational Report, November 1996. 50 IFC, draft documents on farm performance. While farms reorganized in the second and third seasons have shown similar trends, a greater number of those farms had large debt and their production and efficiency indicators have not shown positive results as quickly. 51 IFC, ‘Land Reform in Russia,’ Operational Report, March 1996, p. 10. 52 Sel’skaia zhizn’, 30 July 1996, p. 1; and see the interview with the governor of the oblast, B.Nemtsov in ibid., 16 January 1997, at p. 3. 53 IFC, ‘Land Reform in Russia,’ Operational Report, March 1996, pp. 7, 10. 54 See Brooks, et al., Agricultural Reform in Russia: A View from the Farm Level. 55 Zemlia i trud, No. 51 (17–23 December 1996), p. 4. 56 ‘Potreblenie osnovnykh produktov pitaniia v Rossii,’ APK: ekonomika, upravlenie, No. 11 (November 1996), p. 37. 57 Calculated from Sel’skoe khoziaistvo Rossii (Moscow, Goskomstat, 1995), p. 167. 58 Rossiiskii statisticheskii ezhegodnik 1995 (Moscow, Goskomstat, 1996), p. 360. 59 N.Popov, ‘Krest’ianskie (fermerskie) khoziaistva,’ APK, ekonomika, upravlenie, No. 5 (May 1996), p. 56. On 1 January 1996, more than 60 percent of private farmers had farms that were less than 20 hectares, and more than 80 percent had fewer than 50 hectares. ‘Gruppirovka krest’ianskikh (fermerskikh) khoziaistv Rossiiskoi Federatsii po razmeru predostavlennykh im zemel’nykh uchastkov na 1 Ianvaria 1996g.,’ APK ekonomika, upravlenie, No. 6 (June 1996), p. 47. 60 Calculated from Krest’ianskie (fermerskie) khoziaistva Rossiiskoi Federatsii na 1 Ianvaria 1996 goda (Moscow, Goskomstat, 1996), pp. 3–4. 61 Popov, ‘Krest’ianskie (fermerskie) khoziaistva,’ p. 56. 62 Sel’shoe khoziaistvo Rossii, p. 305. 63 Itogi khoziaistvennoi deiatel’nosti krest’ianskikh (fermerskikh) khoziaistv Rossiiskoi Federatsii v 1994 godu (Moscow, Goskomstat, 1995), pp. 55, 58, 61; and Chislennost’ skota i ptitsy v krest’ianskikh (fermerskikh) khoziaistvakh na 1 Iiulia 1996 g. (Moscow, Goskomstat, 1996), p. 1. I thank Ken Gray of USDA for this latter source. 64 See Durgin, ‘Russia’s Private Farm Movement,’ at p. 230 where he calculated that private farmers constituted at least 10–13 percent, and perhaps as much as 18 percent of the workforce involved in agricultural production. 65 Popov, ‘Krest’ianskie (fermerskie) khoziaistva,’ pp. 59–60. 66 N.Komov, ‘Rossiiskaia sistema zemlepol’zovaniia,’ APK: ekonomika, upravlenie, No. 5 (May 1996), p. 23. 67 Sel’skoe khoziaistvo Rossii, pp. 359, 368, 377, 386. 68 For a fuller analysis of the Russian land market, see Stephen K.Wegren, ‘Land Reform and the Land Market in Russia: Operation, Constraints, and Prospects,’ Europe-Asia Studies, Vol. 49, No. 6 (1997). 69 The Law on Peasant Farming (1990) and the Land Code of the RSFSR (1991) established these principles; the October 1993 decree and another presidential decree in December 1993 restated these obligations. On the latter reference see Rossiiskaia gazeta, 29 December 1993, p. 8. 70 Interview with E.Serova, 2 August 1996. 71 Krest’ianskie vedomosti, No. 29 (22–28 July 1996), p. 9. 72 Ibid., p. 8. The number of transactions for private farming and other agricultural enterprises totaled 720 in 1993, 321 in 1994, and 127 in 1995, with an average size per transaction of 32.4, 22.0, and 52 hectares, respectively. 73 Wegren, ‘Land Reform and the Land Market in Russia: Operation, Constraints, and Prospects.’ 74 See Sel’skaia zizhn’, 24 September 1996, p. 2; and Rossiiskii fermer, 10 January 1997, p. 2. 75 Interfax Food and Agriculture Report, Vol. V, No. 6 (2–9 February 1996), p. 8.

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76 See Raymond M.Duch, ‘Tolerating Economic Reform: Popular Support for Transition to a Free Market in the Former Soviet Union,’ American Political Science Review, Vol. 87, No. 3 (September 1993), pp. 590–608. 77 See Jerry F.Hough, Evelyn Davidheiser, and Susan Goodrich Lehmann, The 1996 Russian Presidential Election (Washington, DC, The Brookings Institution, 1996). 78 Jerry F.Hough, ‘The Russian Election of 1993: Public Attitudes toward Economic Reform and Democratization.’ Post-Soviet Affairs, Vol. 10, No. 1 (1994), pp. 1–37; Stephen K.Wegren, ‘Rural Reform and Political Culture in Russia.’ Europe-Asia Studies, Vol. 46, No. 2 (1994), pp. 215–241; Stephen Whitefield, ‘Social Responses to Reform in Russia,’ in David Lane, ed., Russia in Transition: Politics, Privatization and Inequality (London and New York, Longman, 1995). 79 Hough, et al., The 1996 Russian Presidential Election, p. 4. 80 As of 1 January 1996, 12 Russian cities had more than one million residents, accounting for about 16 percent of the total population in Russia. Chislennost’ naseleniia Rossiiskoi Federatsii po gorodam, poselkam gorodskogo tipa i raionam na 1 Ianvaria 1996 g. (Moscow, Goskomstat, 1996), pp. 3, 37. 81 Hough, et al., The 1996 Russian Presidential Election, p. 43, and see p. 2 for a description of the survey and sources of funding. 82 On voting results, as well as specific attention to the urban-rural electorate divide, see Ralph S.Clem and Peter R.Craumer, ‘The Politics of Russia’s Regions: A Geographical Analysis of the Russian Election and Constitutional Plebiscite of December 1993,’ Post-Soviet Geography, Vol. 36, No. 2 (February 1995), pp. 67–86; Ralph S.Clem and Peter R.Craumer, ‘A Rayon-Level Analysis of the Russian Election and Constitutional Plebiscite of December 1993,’ Post-Soviet Geography, Vol. 36, No. 8 (October 1995), pp. 459–475; Ralph S.Clem and Peter R.Craumer, ‘The Geography of the Russian 1995 Parliamentary Election: Continuity, Change, and Correlates,’ Post-Soviet Geography, Vol. 36, No. 10 (December 1995), pp. 587–616; and Robert W. Orttung and Anna Paretskaya, ‘Presidential Election Demonstrates Urban-Rural Divide,’ Transition, Vol. 2, No. 19 (20 September 1996), pp. 33–38. 83 See Stephen K.Wegren, ‘Rural Politics and Agrarian Reform in Russia,’ Problems of Post-Communism, Vol. 43, No. 1 (January–February 1996), pp. 23–34. 84 The APR’s program may be found in Zemlia i trud, No. 51 (20–26 December 1994), pp. 3–4. 85 Aleksandr Zaveriukha, served as Deputy Prime Minister in charge of Agriculture from 1994 to March 1997. During that time, he often supported Yeltsin’s reform initiatives and called on the APR to moderate some of its stances on the land code and land reform. The last straw was Zaveriukha’s support for Yeltsin’s March 1996 land decree. In response the APR expelled Zaveriukha from membership. 86 See Don Van Atta, ‘The Second Congress of the Russian Agrarian Union,’ RFE/RL Research Report, Vol. 2, No. 31 (30 July 1993), p. 44. 87 Rossiiskii fermer, Nos. 9–10 (14–20 March 1995), pp. 1–2. 88 Krest’ianskaia rossiia, No. 25 (3–9 July 1995), p. 2. 89 E.Serova, ‘Predposylki i sushchnost’ sovremennoi agrarnoi reformy v Rossii,’ Voprosy ekonomiki, No. 1 (January 1995), p. 44. 90 Wegren, ‘The Politics of Private Farming in Russia,’ at pp. 126–131. 91 T.I.Zaslavskaia, ‘Metodologicheskie problemy izucheniia migratsii sel’skogo naseleniia,’ in Migratsiia sel’skogo naseleniia (Moscow, Mysl’, 1973), pp. 156–157. 92 B.Pankov, ‘Probleme sel’skogo rasseleniia—kompleksnoe reshenii,’ Ekonomika sel’skogo khoziaistva, No. 10 (October 1985), p. 20. 93 L.V.Makarova, Migratsionnoe povedenie sel’skogo naseleniia tsentral’nykh raionov Rossii (Moscow, Institut sotsiologii, 1991), p. 110. 94 L.Vashchukov and V.Nefedov, ‘Uskorit’ razvitie agropromyshlennogo kompleksa,’ Vestnik statistiki, No. 1 (January 1989), p. 15. 95 A.Shchannikov, ‘Sotsial’no-ekonomicheskie faktory uluchsheniia ispol’zo-vaniia trudovykh resursov kolkhozov,’ Ekonomika sel’skogo khoziaistva, No. 11 (November 1981), p. 10.


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96 For an analysis of the effects of education on rural attitudes and rural migration in Novosibirsk, see Cynthia S.Kaplan, ‘The Emergence of New Attitudes in the Soviet Countryside,’ in Karl-Eugen Wadekin, ed., Communist Agriculture: Farming in the Soviet Union and Eastern Europe (London and New York, Routledge, 1990), chap. 4. 97 Nechernozemnaia zona Rossiiskoi Federatsii v tsifrakh, 1992 (Moscow, Goskomstat, 1992), p. 22. 98 See Stephen K.Wegren, ‘Rural Migration and Agrarian Reform in Russia: A Research Note,’ Europe-Asia Studies, Vol. 47, No. 5 (1995), pp. 877–888. 99 Stephen K.Wegren, Gregory Ioffe, and Tatiana Nefedova, ‘Demographic and Migratory Responses to Agrarian Reform in Russia,’ Journal of Communist Studies and Transition Politics, Vol. 13, No. 4 (1997). 100 Chislennost’ i migratsiia naseleniia Rossiiskoi Federatsii v 1995 g.: statisticheskii biulleten’ (Moscow, Goskomstat, 1996), p. 50. Working age is defined as 16–55 for women, 16–59 for men. 101 On statistical and survey data regarding the government’s pro-big city bias, see Hough, et al., The 1996 Russian Presidential Election, pp. 35–37.

APPENDIX A: CHRONOLOGY OF RUSSIAN LEGISLATION ON LAND REFORM November 1990 November 1990 December 1990 December 1990 April 1991 December 1991 March 1992 September 1992 October 1993 December 1993 April 1994 July 1994 October 1994 February 1995 December 1995 March 1996

Law on Land Reform of RSFSR. Law on Peasant Farms. Law on Property in the RSFSR. Law on Enterprises and Entrepreneurship in the RSFSR. Land Code of the RSFSR. Presidential Decree ‘On Immediate Measures for Implementation of Land Reform.’ Government Resolution ‘On the Course and Development of Agrarian Reform.’ Government Resolution ‘On Procedures for Privatization and Reorganization of Enterprises in the Agro-Industrial Complex.’ Presidential Decree No. 1767 ‘On Regulation of Land Relations and Development of Agrarian Reform.’ Constitution of Russian Federation. Government Resolution ‘On the Practice of Agrarian Transformation in Nizhnii Novgorod Province.’ Government Resolution ‘On Agricultural Enterprise Reform Allowing for the Experience in Nizhnii Novgorod Province.’ Civil Code. Government Resolution No. 96 ‘On Procedures for Realization of Rights of Owners of Land and Asset Shares.’ Law on Agricultural Cooperation. Presidential Decree ‘On Realization of the Constitutional Rights of Citizens Concerning Land.’

2 Rural responses to land reform in Russia An analysis of household land use in Belgorod, Rostov, and Tver’ Oblasts from 1991 to 1996 David J.O’Brien, Valeri V.Patsiorkovski, and Larry D. Dershem1

Many analyses of land reform in rural Russia have focused on reform legislation or reform efforts at the federal level. Much less attention has been given to rural responses to land reform at the oblast or village level.2 The purpose of this chapter is to address the general paucity of on-site, village-level analysis by examining changes in land use in three villages of three oblasts. We are interested in the interaction between federal, oblast, and village levels, as well as changing land use patterns in rural Russia, especially as new relationships alter land use by creating new types of access to credit and informal rental arrangements which have altered agricultural production, processing, and marketing arrangements. A central focus of our analysis will be on peasant households (krest’ianskie khoziaistva), whose output has increased dramatically since 1990. Rather than being merely a relic from the Soviet past, we will argue that peasant households as production units will continue to play a vital role in the transformation of Russian agriculture as the nation attempts to move to a more efficient production, processing, and distribution system. The first part of the chapter provides a brief overview of Russian land reform policies since 1991. The second part of the chapter examines four types of strategies which oblasts have used to deal with land use since the collapse of the Soviet Union. The third part of the chapter reports on household-level strategies and practices of land use in three rural villages in Belgorod, Rostov, and Tver’ Oblasts. While much of the field work that underlies our knowledge about Russian land reform has come from the non-black earth zone of Russia, the oblasts used in our study are geographically distinct: Belgorod is located in the Central Black Earth Region, Rostov is located in the Northern Caucasus Region, and Tver’ in the non-black earth zone of the Central Region. This study will provide, therefore, a comparative analysis of how rural villages are responding to land reform in three distinct zones, each with differing soils and climates. Survey data to examine the village-level responses to land reform have been gathered by the authors in the villages of Latonovo (Rostov Oblast), Vengerovka (Belgorod Oblast), and Sviattsovo Bolshoe (Tver’ Oblast), in 1993, 1995, and 1996.3 The villages used in this study are the sites of an ongoing collaborative US-Russian study of rural village adaptation to change which was started in 1991 by the University of Missouri, and the Soviet (now Russian) Academy of Sciences. The 1995 and 1996 surveys were the first two waves of a three-year panel study of household economic and psychological adaptation to social change, which was funded by the National Science Foundation. The third wave of the panel study will be completed in 1997. AN OVERVIEW OF FEDERAL LAND USE POLICIES FROM 1991 TO 1996 Both the pre-1993 and new post-1993 Russian constitutions state that land relations in Russia can only be regulated through a law (zakon) which is passed by the State Duma, although we should note that all laws


27

adopted by the Duma must also be passed by the Federation Council and be signed by the president of the Russian Federation. Three Dumas—1990–1993, 1993– 1995, and 1996-present—have been unable to pass a new land code that would (1) clarify the nature of land relations at the federal level; and (2) be acceptable to the president. As of early 1997, two drafts of a land code had been adopted by the Duma, but both were shelved under threat of presidential veto. In the interim, a number of presidential decrees have filled the void, but only temporarily until a new land code is finally adopted (see the preceding chapter for a survey of land reform legislation). The struggle over who will define land relations began in 1990. Since then, there has been a continued struggle between the executive and legislative branches of the Russian federal government. The struggle between the executive and legislative branches of the federal government has resulted in a stalemate which left people at the local level in a state of uncertainty regarding ownership of land. Moreover, at the present time private farmers (fermery) in Russia are politically weak.4 This political weakness prevents private farming interests from exerting a significant influence on national policy or at the oblast level. Rural Russians, who are rational economic actors, have very reasonable fears that if they take land they may end up losing it and/or paying some type of penalty at some later point in time. We will argue that the state of uncertainty over the long-term future, more than any peculiar cultural resistance to independent farming, explains much of the reluctance of rural households in Russia to make investments in large-scale land holdings. It is important to note that even during the Soviet period, rural households understood some basic mechanisms of a market economy and regularly sold products from their household plots in local collective farm markets. They did not, however, have any experience with a market for land. A land market is an essential part of the total agricultural market in Western nations, insofar as land is a major source of collateral with which farmers purchase fertilizer, seeds, and machinery connected with their production. Moreover, a land market system is crucial in creating the conditions whereby agricultural producers will make long-term decisions regarding capital investments in order to make the land more productive over time. From 1929 to 1993 Russian rural households had no experience with a land market, although there is evidence of a rudimentary land market taking shape.5 Another major source of difficulty in solving land reform in Russia has been to recognize that the Soviet agricultural model created a system whereby rural households were almost totally dependent on a service delivery structure which was linked to state farms (sovkhozy) and collective farms (kolkhozy)—the traditional agricultural production organizations. The Russian government has not addressed the issue of replacing services which were delivered by kolkhozy and sovkhozy. These services included health care, education, utilities, groceries, and clothing, as well as assistance with private plots such as cultivation, access to inputs (e.g., fertilizer), and transportation to markets. At the same time, local government, the sel’sovet (village council) remained weak during the Soviet period, restricting its activities largely to recording births, deaths, and other types of demographic data on households. Thus, rural residents have very reasonable fears about whether they might be able to receive basic services if they became officially registered private farmers and separated from kolkhozy, sovkhozy, or their reorganized forms (see below).6 Thus, the Russian government’s and international development agencies’ preoccupation with legal issues regarding land reform has not been matched by any serious attention to the delivery of rural services, but it is precisely service issues that are a prime aspect of peasants’ calculations. An example of the government’s inattention to rural services may be seen by Prime Minister Viktor Chernomyrdin’s resolution no. 791 of 6 July 1994, in which there was only one sentence in twenty-three pages which addressed the problems of the rural household.7

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Successful land reform is linked to the creation of a civil society in Russia, especially with respect to finding ways to provide resources for local governments, and, in general, identifying new ways to restructure service delivery systems so that rural dwellers are not dependent on kolkhozy or their successors. In short, land reform must be viewed as one part of a larger community development program in Russian society in which various kinds of formal and informal social organizational mechanisms will be created to replace the structures which were destroyed during the Soviet period. PRODUCERS, LAND OWNERSHIP, AND PRODUCTION IN RUSSIA TODAY There are currently three main types of agricultural producers in Russia today: (1) large farms such as kolkhozy and their reorganized forms, the TOOs; (2) newly registered private farmers (fermery); and (3) peasant households (krest’ianskie khoziaistva). During farm reorganization that began in 1992, members of collective farms were given various options for the future of their kolkhoz. The first option was for the farm to disband, distributing all land and property to farm members. This option was obligatory for chronically unprofitable farms. A second option was to remain a collective farm. By the end of the first phase of farm reorganization, 1992–1994, about onethird of collective farms chose to retain their former status. The third option was to reorganize by creating a partnership of ‘limited responsibility,’ of the ‘open type.’ This was a joint-stock company in which persons outside the kolkhoz, as well as present members of the kolkhoz, could purchase stock in the reorganized kolkhoz using their land and/or property shares. Remuneration and responsibility would be based on the profits of the reorganized kolkhoz and an individual’s shares in that company. A fourth option was to create a joint-stock company of the ‘closed type’ (tovarishchestvo s ogranichennoi otvetstvennostiu, or TOO).8 The TOOs only permit membership and share ownership from farm members. This variant was the most popular of reorganization options, chosen by about 47 percent of former state and collective farms. Individual members receive shares, which in the black earth region of south Russia are approximately four to five hectares per farm member. Allocated land cannot be sold to anyone. This restriction does not pertain to the private plots and does not preclude informal rent relationships (see our discussion of informal rent relationships between village residents and private farmers in Latonovo, under the heading, ‘Land use in the three villages’, p. 47). If a member left the TOO he or she would be compensated for his or her share in cash. The remuneration for each household would be dependent on the profits of the TOO and the number of members of that household who were working for it. Individual members must work for the TOO, so that they are in virtually the same position as kolkhozniki working on collective farms. A second type of food producer in Russia today are officially registered private farms (fermery). Since 1994 the creation of private farms has been slowing while the number of farm closures has been increasing.9 For example, during 1994, 36,000 private farms were closed, while 26,000 new farms were started.10 In terms of farm creation, on 1 January 1996 there were around 280,000 private farms in Russia, up only slightly from January 1995 when the number of registered private farmers was 279,000.11 The largest increase in new farms occurred during 1992 to mid-1993. By the beginning of 1995, 68 percent of all private farms were located in European Russia.12 The third group of food producers is comprised of peasant households, or krest’ianskie khoziaistva. The term ‘peasant household’ is a literal translation from Russian and is meant to convey a specific meaning of the household as a ‘basic unit of production and social livelihood.’13 By world standards, persons living in rural Russian households have relatively high levels of education, they have been exposed to urban influences, and they have had regular access to television, radio, and newspapers from Moscow and from


29

Figure 2.1 Percentage representation of agricultural producers, land used, and mean percentage of commodities produced by large farms, fermery, and household plots in Russia (1994) Source: Ekonomicheskaia gazeta, no. 39 (September 1994), p. 18.

foreign countries.14 Russian rural households, therefore, are not illiterate, nor are they isolated, and thus they are not like the persons who are typically described as possessing a ‘peasant culture.’15 Nevertheless, persons living in rural households in Russia refer to themselves by the term ‘peasant household.’16 Figure 2.1 shows the three main types of agricultural producers in Russia, the current proportion of land farmed by each type, and the proportion of total agricultural output in Russia in 1994 by each producer. Food producers in 1994 included 20,986 large agricultural enterprises (kolkhozy, TOOs), 279,000 officially registered private farmers (fermery), and 16 million peasant households (krest’ianskie khoziaistva). In 1994, 170 million hectares of agricultural land were used by large farms, 12 million hectares were farmed by officially registered private farmers, and 12 million hectares were in use by private household plots. Although peasant households worked only 6.2 percent of the total land under cultivation in 1994, they accounted for almost 40 percent of all agricultural production in Russia. These trends are shown in Table 2.1. As shown in Table 2.1, household plots provided 67.9, 88.1, and 43.0 percent of vegetable, potato, and meat production in Russia in 1994, Table 2.1 Mean percentage of commodity production by large farms, fermery, and household plots in Russia in 1994 Commodities Agricultural producers

Grain

Meat

Milk

Eggs

Potatoes

Sunflowers

Vegetables

Large farms New private fermer

94.4 5.0

56.0 1.0

60.0 1.5

59.7 2.5

11.0 0.9

98.1 0.3

31.9 1.2

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Commodities Agricultural producers

Grain

Meat

Milk

Eggs

Potatoes

Sunflowers

Vegetables

Household 0.6 43.0 38.5 37.8 88.1 1.6 67.9 plots Totals 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Statistics on agricultural production provided by the Russian embassy in Washington, DC. Reported by Betty Brown through e-mail, [email protected] (29 September 1995).

respectively. The only crops for which the large farms dominated production were sunflowers and grain, where they accounted for 98.1 and 94.4 percent, respectively, of production in 1994. One of the unintended consequences of federal land reform efforts has been to create conditions which encourage the development of peasant household production. Unlike the private farmer who since 1929 has lacked legitimacy from the regime, has reasonable insecurities about the long-term ownership of land which he or she farms, and is burdened by high official tax rates, the peasant household was legally supported during the Soviet period and now can make a more flexible adaptation to current conditions than large farms. This is especially true with respect to negotiating informal labor and exchange relationships with kin, neighbors, community institutions, and the large farms. Another indicator of the continued importance of peasant households in Russian agriculture is the growth of the rural population during the last few years despite the fact that the overall population growth rate of Russia declined between 1988 and 1992, and actually was negative in 1993.17 In part, this increase is due to a lack of opportunity for many persons in urban areas, especially as defense plants have closed or have reduced their size following the collapse of the Soviet Union. At the same time, however, rural households also provide considerable opportunities for persons to make a living if they cooperate with other household members in producing and processing agricultural products.18 Rural population trends are indicated in Figure 2.2. Despite the relatively high mean age of the rural population in Russia, which is actually quite similar to the demographic structure of the rural population in the American Midwest,19 there is evidence that some rural households are restructuring to increase their human capital and labor capacity. This trend is illustrated by the increase in the number of households in our surveys which have fallen into the ‘other extended family type.’ This type refers to households which have an assortment of adult relatives living together, but does not include the conventional extended family type which includes a working-age adult married couple with children (under age 18), and one or more parents of the married couple. Instead, the ‘other extended family type’ is composed of an assortment of adult members who contribute to a common labor pool for household chores and agricultural production. These households typically are made up of multigenerational extended family members, such as an aged mother in her eighties and her son in his fifties, or a brother, sister or niece living with a middle-aged couple who did not have any children living at home. In our 1991 survey, which only included Latonovo, this type accounted for only 5.1 percent (10 of 198 households) of the sample. In our 1993 survey, which included the villages Latonovo, Vengerovka, and Sviattsovo Bolshoe, this type accounted for 11.2 percent (18 of 161) of the households in the sample in Latonovo and 11.8 percent (31 of 262) of the households in the sample of all three villages. In our 1995 survey, this type accounted for 12.7 percent (22 of 173) of the households in the Latonovo sample and 17.3 percent (88 of 508) of the households in the total sample combined.


31

Figure 2.2 The size of the rural population in Russia from 1989 to 1995 (in millions) Sources: Narodnoe khoziaistvo Rossiiskoi Federatsii v 1989 (Moscow: Goskomstat, 1990), p. 16; Chislennost’ sostav i dvizhenie naseleniia v Rossiiskoi Federatsii (Moscow: Goskomstat Rossii, 1992), p. 22; Rossiiskii statisticheskii ezhegodnik (Moscow: Goskomstat, 1995), p. 523.

Chaianov’s classic work on peasant households in Russia showed that the availability of labor in the household, which he associated with the family life cycle, was strongly connected to a household’s capacity to work the land and to produce agricultural products.20 More recently, scholars have shown that family size, along with class variables, are associated with the differentiation of peasant households in contemporary Third World countries.21 Conditions in the post-Soviet period have created incentives for households to add new members in order to increase production. Because of a lack of mechanical equipment, most peasant household production depends, in whole or in part, on hand labor. Thus, the addition of working-age adults greatly expands a household’s productive capacity. OBLAST-LEVEL RESPONSES TO LAND REFORM Although the political struggles over land reform at the federal level have received most attention by scholars, public policy makers, and development specialists in Russia and the West, there has been a considerable amount of variation in oblast responses to land reform. We will examine four basic types of responses to the federal land reform policies: (1) a delaying strategy; (2) a defensive strategy; (3) an external development (internationally funded) strategy; and (4) a household and community development strategy. Delaying strategy The first strategy has been a delaying strategy. This strategy pertains to oblasts which have been waiting for the stalemate at the federal government level to end and for clear direction from Moscow on land reform. In this case, the oblast government has not made any decisions that bear upon land reform or land use and has not initiated any agricultural or rural development programs. The oblast is not doing anything to protect the status quo, but it also does not create any new programs either through external or local development sources. Examples of oblasts which have followed this strategy include Tver’, in north central Russia, and Kurgan, in the Urals.

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Defensive strategy In this strategy, the oblast government has tried to protect old Soviet structures related to agriculture, especially subsidies and the large farms, and to minimize the negative results of federal decisions. Places which have adopted this strategy include Tartarstan, in the Volga River Region, Primorski Krai, in the Far East, and Orel and Voronezh in central European Russia. The Tartarstan government, for example, has maintained in its budget a 15 to 20 percent support for agriculture and rural areas. This is more than five times larger than federal subsidies for agriculture and rural areas, which, in 1996, were only 4.1 percent of the national budget.22 Moreover, the projected federal support for agriculture and rural areas was projected to decrease to 2.2 percent of the budget in 1997.23 In Voronezh Oblast, the provincial government has attempted to retain the Soviet style support system by forcing TOOs and kolkhozy to sell 30 percent of their products to the oblast government at a low price, which it then uses to sell subsidized flour and other products to oblast residents. Through this practice retail prices on these products are artificially low and below market-clearing prices. The chairmen of the kolkhozy and TOOs do not like this strategy, but this strategy does have popular appeal among oblast residents. This is one reason why this area has been a source of support for communists and is part of the so-called ‘red belt,’ which refers to southern regions of Russia that have voted for communists in the 1995 parliamentary election and again in the presidential election of 1996.24 External development (internationally funded) strategy This strategy, which has been dependent on foreign funding sources such as the World Bank and USAID, involves a variety of attempts to reorganize the legal arrangements of agricultural production and ownership at the oblast level. The most notable in this regard have been Nizhnii Novgorod, Vologda, Riazan, and Tula Oblasts. In the Nizhnii Novgorod experiment, which has been financially supported by the British Know-How Fund, the Canadian government, and the International Finance Corporation (IFC), sovkhozy and kolkhozy were broken up into smaller units, using land and property entitlement certificates which were given to present and former (pensioner) members of the parent farm.25 These certificates could be used to create several types of enterprises, ranging from partnerships to officially registered private farmers. The certificates could not be used, however, to support peasant households. Of the different kinds of enterprises created out of the Nizhnii model, to our knowledge there are no empirical data to show which types of agricultural enterprises have been most successful, although the IFC does report that production and yields are higher than the oblast mean on privatized farms. One evaluation of the project came from the Head of the Oblast Department of Agriculture in Nizhnii Novgorod, Boris Smetov. While stating that ‘we see our mistakes, but there will be no return to the past,’ he also indicated that of the 700 agricultural enterprises created by the Nizhnii Novgorod experiment, only 200 (less than 30 percent) had revenues which at least matched expenditures. These 200 enterprises produced 70 percent of all agricultural products of the 700 enterprises created by the experiment. The other 500 have a very large debt and very low levels of production.26 Another externally funded development program operated by Chemonics International and funded by USAID was started in Vologda Oblast and later spread to other oblasts.27 While we have not been able to obtain data on actual production by newly created enterprises, Alexsandr Kalyben (Vice-Governor of Vologda Oblast) was quoted as saying ‘khuzhe ne stalo’ (things have not become worse).28 A different type of externally funded development program has been started in Riazan Oblast. The Russian government and the World Bank are developing a computerized marketing and information system,


33

Agricultural Reform Implementation Support (ARIS), to assist agricultural enterprises to obtain information on commodity prices.29 Although these externally funded development programs may appear to be more ‘reform-minded’ than the delaying or defensive strategies, they are, nonetheless, tied to Soviet-era thinking insofar as they rely on ‘legalistic’ and bureaucratic solutions. These programs have not critically examined underlying social organizational structures which support (or fail to support) rural households which are accounting for a substantial proportion of agricultural production as indicated in Table 2.1 and Figure 2.1. In essence, these programs tend to simply ‘downsize’ Soviet-era social organizational models. This is reflected, for example, in the Nizhnii Novgorod experiment where large kolkhozy were broken up into smaller units, but their organizational structure resembled that of kolkhozy. At the same time, this model did not provide support for household production. Household (krest’ianskoe khoziaistvo) and community development strategy Household and community development strategies encourage the support and development of peasant households and rural village communities as a social organizational base of agricultural production. Included here are a variety of formal and informal strategies which take the existing social organization of Russian agriculture and rural life as a given, but seek to develop, in an incremental fashion, the long-term development of private farming. Several assumptions underpin this development strategy. First, this strategy assumes that land use and the emergence of a substantial class of private Russian farmers requires sensitivity to the unique conditions and preferences of peasant households in Russian villages. A second assumption behind this strategy is that rural households in Russia are adapting faster to new structural exigencies than are the large-scale enterprises. For example, our research shows that rural households have been developing informal cooperative arrangements with one another on land use, production, and marketing of products. A third assumption underlying household and village community development strategies is that agricultural production and the social organization of rural village life were linked by the existence of state and collective farms during the Soviet period. Therefore, any long-term development of more efficient agricultural production will require the development of households and villages independent of the largescale enterprises. This development falls under the rubric of the development of a private citizen, civic society, social capital, and community development.30 Examples of this type of strategy are found in Belgorod, Rostov, Perm’ and Iaroslavl’ Oblasts. The Belgorod provincial government has created a special fund to assist peasant households to improve existing homes or to build new homes and buildings for storing grain or silage, or for keeping animals. The fund, which is called ‘fund podderzhki individualnogo zhilishchnogo stroitelstva na sele’ (fund for the support of individual buildings in rural areas)31 lends money to peasant households and they repay their debt in agricultural products, such as meat, milk, eggs, cottage cheese, or sour cream which can be produced by the peasant household. This program was initiated in late 1994 and early 1995. The loan repayment is based on the cost per kilo of an agricultural product at the time of the loan (e.g., 10 million rubles would purchase one thousand kilos of meat at 10,000 rubles per kilo). The household pays back the loan, not in rubles, but in kind, calculated as the equivalent of the rubles borrowed at the time of the loan. This repayment method protects both the fund and the peasant household against inflation. Although the Belgorod program does not provide direct support for peasant household production, it does generate capital to increase the peasant household’s capacity to produce by improving its ability to incorporate more members from urban and rural areas, as well as its capacity to keep more animals. This program has attained

34


national attention. In a government resolution in June 1996, point 11 recommends to local organs of government in other oblasts to ‘use widely the experience’ of Belgorod in creating funds for supporting the construction of individual dwellings.32 Another Belgorod provincial effort to improve the condition of peasant households has been a program to permit local villages to lease equipment to start up new bakeries. The lease is made for a period of twenty years and payments are made with profits from production. Rostov Oblast offers examples of incremental community development strategies which are of an informal nature, based largely on tight-knit kin and village networks. One of the distinguishing features of village life in this oblast is the presence of villages in which long-term family and kin networks preceded and were maintained throughout the Soviet period. Thus, although this oblast has been less reform-minded than Belgorod Oblast with respect to developing formal mechanisms to assist peasant households, the informal mechanisms of kin and village networks have supported an informal incremental adaptation to the emerging market economy.33 Villages in this oblast are the sites for informal partnerships between former members of kolkhozy, who, through informal agreements with each other and with other members of their villages who have chosen to remain in the kolkhozy or TOOs, have found ways to increase the scale of their production without actually purchasing additional land. LOCAL RESPONSES TO LAND REFORM: LATONOVO, VENGEROVKA AND SVIATTSOVO BOLSHOE Survey data to examine village-level responses to land reform were gathered from three Russian villages in three oblasts during 1993, 1995, and 1996. The villages and oblasts include: Latonovo (Rostov Oblast), Vengerovka (Belgorod Oblast), and Sviattsovo Bolshoe (Tver’ Oblast).34 Appendix A, at the end of this chapter, provides some basic data about the agricultural sector in each of the three oblasts. As of 1 January 1996, the village of Latonovo had a population of 1,509 (523 households). It is located 1, 192 kilometers south of Moscow in the Matveev-Kurgan region on the southern edge of the Russian plains, in Rostov Oblast. The nearest city is Taganrog, with a population of just under 300,000. As of 1 January 1996, the village of Vengerovka had a population of 1,010 (267 households), and is located 77 kilometers from the city of Belgorod in south central Russia, near the Ukrainian border. Belgorod is a city of 311,000 residents. Both Latonovo and Vengerovka are located in what is termed the ‘black earth’ zone of southern Russia. The black earth zone has a relatively temperate climate and contains productive, rich soil. Sviattsovo Bolshoe (‘greater Sviattsovo’), which is actually a collection of eight very small villages, is located in the non-black earth zone in northern Russia, between Moscow and St. Petersburg, near the city of Torzhok. As of 1 January 1996, the population of Sviattsovo Bolshoe was 920 (455 households). The climate in this village is much harsher and the soil much less productive than in Latonovo or Vengerovka. Collective farms in Latonovo and Vengerovka, which reorganized into TOOs, produce cereal grains, sunflower, and beef. The collective farm in Sviattsovo Bolshoe produces a variety of dairy products, some grain, some fiber (flax), and wood products. In terms of access to markets, Latonovo and Sviattsovo Bolshoe have an advantage over Vengerovka. Latonovo is 18 kilometers from Matveev-Kurgan (20,000 population) and 50 kilometers from Taganrog. Sviattsovo Bolshoe is 11 kilometers from Torzhok (70,000 population), 60 kilometers from Tver’ (455,000 population), and 200 kilometers from Moscow (8.6 million population). The urban center closest to Vengerovka is the city of Belgorod, 77 kilometers away.35 These villages originally were selected according to demographic, ecological, and economic criteria developed as part of a comparative Russian-US study of rural services conducted jointly by the Institute for the Socio-Economic Studies of Population (ISESP), and the Department of Rural Sociology, University of


35

Missouri. The villages in Rostov and Belgorod Oblasts were matched to two rural farming villages in northwest Missouri in the American Midwest. Sviattsovo Bolshoe in Tver’ Oblast, which was outside of the black earth zone, was selected to provide a basis of comparison with the other two villages. Structured face-to-face survey interviews were conducted by researchers from ISESP over a two-week period in each village during the summer months. The interviewing was preceded by several visits to the villages, in the winter, by the Russian principal investigator, during which time he secured the support of local village administrators, kolkhoz/TOO chairmen, and other significant officials for the project. During the summer, the American researchers, along with the principal investigator on the Russian side, conducted in-depth ethnographic observations and video interviews. In 1993 a total of 263 households, in the three villages combined, were asked 80 questions (all of which were pre-tested) regarding a wide range of rural quality-of-life issues, including household production, service utilization and preferences, social networks, community attachment, mental health, and subjective quality of life. In the 1995 and 1996 surveys, a total of 508 households, in the three villages combined, were asked a total of 102 questions (all of which were pre-tested) which covered the same areas as the earlier survey, but also included a much more extensive set of questions dealing with household production and sales and startups of new businesses.36 The response rate in the 1993 survey was 100 percent, while the response rate was 98 percent in 1995 and 1996. The high response rates can be attributed to the long-term relationships developed between the ISESP researchers and village residents. The sample was constructed from the official list of permanent residents in each village, which is called the Book of Household Accounts (Kniga ucheta domashnikh khoziaistv). A stratified sample, based on the proportion of different household types in the villages was obtained. These household types, in the three villages in 1995 were: (1) single-adult household (23.2 percent), (2) retired couples (9.3 percent), (3) employed couples without children (8.7 percent), (4) employed couples with children (28.9 percent), (5) employed couples with children and other adults (10.0 percent), (6) single parents with children (2.6 percent), and (7) other extended family (17.3 percent). As noted earlier, the proportion of households in the extended family type has increased markedly during the past few years. Initially, the primary Russian interest in the surveys pertained to household consumption, service utilization, and future service preferences, and thus the interviewers were instructed to ask to interview the ‘head of the household who is responsible for social services and household plot production.’ This led to a bias toward the selection of more women, who were most apt to be in charge of these household functions, than would have occurred if respondents were selected randomly within households. None-theless, given the higher life expectancy of women, the proportion of women in the sample is not that much greater than their proportional representation in the village populations. Land use in the three villages The average size of land plot used for production by peasant households in our surveys increased in all villages since 1993, although the average size remained quite modest, reaching only slightly more than one hectare in Latonovo and Sviattsovo and merely one-half a hectare in Vengerovka. The percentage of households using more than one hectare of land increased from 1993 to 1995 in all of the villages, but decreased from 1995 to 1996. At no time did the percentage of households in the sample cultivating more than 10 hectares exceed 1.9 percent of the village population in any of the three villages. There were no households working more than 10 hectares of land in Vengerovka in 1995 or 1996. In 1996, only seven households in the stratified random sample (based on household demographic type) in the three villages

36


were officially registered as private farmers. The average size of land holding cultivated by these seven fermery was 21.37 hectares. Five of the seven worked land in excess of 10 hectares, with the largest size being 60 hectares. Table 2.2 shows the average size of the land plot cultivated by peasant households in the three villages in 1993, 1995, and 1996. This land plot includes land which is part of the traditional household plot, plus land which had been allocated by the local village government, and land which had been acquired through other types of rental arrangements. Latonovo, in Rostov Oblast, has been successful in creating conditions whereby officially registered private farmers have been able, through the cooperation of other village residents, to acquire the use of fairly large tracts of land. In 1996, we conducted an in-depth ethnographic interview (recorded on video), with two private farmers who formed an informal partnership and now are the most successful private farmers in the village. These two individuals were not selected in our sample survey, but they worked the largest amount of land of any private farmers in the village. One of these men had been the party chairman for the kolkhoz in Latonovo. The other man had been a tractor driver for the kolkhoz. Although these two private farmers have used some new legal mechanisms to increase the size of the land they farm, they have also relied upon the informal cooperation of other village residents. In 1991, after registering as private farmers, they received their share of land and property from a collective farm. The Table 2.2 Mean size of all land* used by households in three European Russian villages from 1993 to 1996 Latonovo, Rostov Oblast (Household & Community Development Strategy)

Vengerovka, Belgorod Oblast (Household & Community Development Strategy)

Sviattsovo, Tver’ Oblast (Delaying Strategy)

Year Mean % > 1 ha % > 10 ha Mean % > 1 ha % > 10 ha Mean % > 1 ha 1993 0.18 0.0 0.0 0.47 0.0 0.0 0.41 0.0 1995 0.90 5.8 0.0 0.51 2.9 0.0 1.28 6.8 1996 1.2 3.6 0.6 0.51 2.4 0.0 1.1 5.1 * This includes the household plot, land allocated by the local village government, and rented land. Source: University of Missouri-ISESP, RAS Russian Village Project.

% > 10 ha 0.0 3.1 1.9

amount of land they received, however, was only 6.3 hectares each. They then rented an additional 63.7 hectares each from the local government for a total of 140 hectares. Today, they are farming more than 300 hectares. The additional 160 hectares have been rented to them, on an informal basis, by 25 households in the village. These 25 households consist mainly of pensioners and public service workers (teachers, nurses, doctors, etc.) who are not dependent on the TOO for salary and wages. Many other households would like to rent land to these registered private farmers but they cannot expand their present operation until they can get better equipment. It is especially noteworthy that in this informal arrangement households receive six times more grain per unit of land than they would receive from working the land for the TOO.37 The informal relationships between village residents and registered private farmers in Latonovo is an example of the incremental informal community development strategy. The success of this strategy depends upon the existence of extensive informal social helping networks and trust in the village. A measure of helping networks was used to ask 508 respondents in the three villages to identify up to five persons (kin and non-kin) who could help their households in the following situations: borrow money, trade goods and services, care for the household, help on the household plot, help with household tasks, and discuss important matters (for a maximum of 30 persons).38 In 1995, respondents in Latonovo reported an average of 12.4 persons who would assist them, whereas the average sizes of helping networks in Vengerovka and


37

Sviattsovo Bolshoe were only 10.2 and 10.0, respectively. Thus, networks in Latonovo were larger. Networks in Latonovo also contained, on average: 1 more members who live in the village (93 percent in Latonovo compared to 80 percent in Vengerovka and 77 percent in Sviattsovo); 2 higher density (94 percent of the members of networks in Latonovo know each other, compared to 84 percent in Vengerovka and 82 percent in Sviattsovo); 3 more members who assisted with lending money (an average of 1.8 persons in the networks in Latonovo, compared to 1.5 persons in Vengerovka and 1.4 persons in Sviattsovo); 4 more members who assisted with production on the plot (an average of 2.4 persons in Latonovo, compared to 2.1 persons in Vengerovka and 2.1 persons in Sviattsovo). These informal helping networks are vital sources of social capital in an environment of scarce resources and social services. The helping networks in Latonovo may also account for the much higher levels of startups of new businesses other than private farming in this village than in the other two villages (see Figure 2.7).39 In 1995 and 1996, 15 percent of the households in Latonovo started new businesses, while the corresponding figures for Vengerovka and Sviattsovo were only 2.4 percent and 8.6 percent, respectively. Agricultural production and sales While the amount of land which peasant households use to produce agricultural products has changed modestly, there have been more substantial changes in the agricultural production and sales of these households since 1993. Ownership of animals, as well as production and sales from private plots, have increased from 1993 to 1996. There has been, however, considerable variation in individual peasant household production and sales since new opportunities have opened up in the post-Soviet era. Figure 2.3 illustrates that two factors, village of residence and the amount of human capital in the household, account for some sizable differences in the capacity of a peasant household to take advantage of opportunities offered by the emerging market economy. Households in the village of Vengerovka show markedly higher average household levels of ownership of animals, production, and sales than do corresponding households in Latonovo or Sviattsovo Bolshoe (see Figures 2.3 and 2.4). Households with higher levels of human capital, as measured by the presence of more adults of working age in the household, on average own more animals (Figure 2.3) and produce and sell more agricultural products than do households with fewer working-age adult members (Figure 2.4). Moreover, it is clear from Figure 2.4 that households with higher levels of human capital are using that capital to a considerable extent to produce food for their own consumption. The explanation for the positive relationship between human capital and peasant household production is straightforward and has been empirically documented in many different national contexts.40 In a production process which still depends very heavily on manual labor, especially with respect to the maintenance of animals, households with more adult working-age members obviously have an advantage over singleparent, retired-couple and single-adult households. A more complex explanation is required to explain variations in ownership, production, and sales by village. We would expect the village of Sviattsovo to be at a disadvantage vis-à-vis both Latonovo and Vengerovka with respect to material conditions associated with agricultural production, climate, and soil quality. On the other hand, the proximity of Sviattsovo to Tver’ or Moscow may offset this disadvantage to

Low-human-capital households are composed of (a) single persons, (b) retired couples, and (c) single parents. High-human-capital households are composed of (a) employed married couples without children, (b) employed married couples with children and children, (c) employed married couples with children and other adults, and (d) ‘other extended family’ type of households.

Notes:

Figure2.3 Mean number of animals owned by households in 1993, 1995, 1996 by village and human capital Source: University of Missouri–ISESP, RAS Russian Viallage Project.

38 LAND REFORM IN THE FSU UNION

2 Low-human-capital households are composed of (a) single persons, (b) retired couples, and (c) single parents. High-human-capital households are composed of (a) empoyed married couples without children, (b) employed married couples with children, (c) employed married couples with children and other adults, and (d) ‘other extended family’ type of households.

1 The commodites included pototes, vegetables, fruit, milk, and meat. The weigthing procedure was based on the relative ruble value, in local regional markets, of products in 1995. Potates, vegetables and fruit recived the baqse value of 1, milk recived a value of 1.5, meat recived a value of 6.

Notes:

Source: University of missouri—ISESP, RAS Russian village Project.

Figure 2.4 Mean weighted1 household production and sales of food commodities (kilos) in 1993, 1995, and 1996 by village and human capital2 LAND REFORM IN THE FSU: EUROPE 39

40


Figure 2.5 Mean weighted household production and sales1 of households in 1995 and 1996 by community involvement2 and size of helping network3 Source: University of Missouri-ISESP, RAS Russian Village Project. Notes: 1 The commodities included potatoes, vegetables, fruit, milk, and meat. The weighting procedure was based on the relative ruble value, in local regional markets, of products in 1995. Potatoes, vegetables and fruit received the base value of 1, milk received a value of 1.5, and meat received a value of 6. 2 Respondents were asked how often (often, sometimes, never) they (a) ‘go to different types of family events and ceremonies’ and (b) ‘go to different types of village events and ceremonies.’ 3 Respondents were asked to give the initials of up to five individuals to whom they could turn in the following situations, (a) to borrow money, (b) to trade goods and services, (c) to care for the household if they were away or sick in the hospital, (d) to help them harvest produce from the household plot, (e) to help with household tasks, (f) to discuss important matters.

some extent. Some households in Sviattsovo, for example, established contracts with restaurants in Moscow to provide them with cottage cheese and other types of value-added dairy products. It is interesting to note that actual production and sales by households in Sviattsovo are roughly equivalent to those of households in Latonovo. The most interesting differences are between Latonovo and Vengerovka. Although both of these villages are located within the black earth region and have roughly equivalent growing and marketing conditions, the amount of animals owned, as well as production and sales of agricultural products is much higher in Vengerovka. The greater productivity of peasant households in Vengerovka than in Latonovo appears to be associated with the Belgorod Oblast programs to provide credit and other supports for peasant households. It is interesting in this regard that productivity and sales are higher, overall, in Vengerovka than in Latonovo despite the fact that the average size of land worked by peasant households is greater in Latonovo (see Table 2.2). This finding provides support for the view that oblast-level programs can have a positive effect on community development at the village level. Differences in the social organization of Latonovo and Vengerovka, as well as differences in oblast support for peasant household production, may be associated with different trajectories for rural community development and the creation of a new private farmer class. In Latonovo, as we have seen, extensive informal helping networks, which have emerged from a village with a long-term stable social and cultural history, have provided village support to assist the development of a few fairly large and successful private farmers.


41

On the other hand, the Belgorod Oblast credit program seems to be supporting in Vengerovka the evolution of a larger number of more successful small producers. Figure 2.5 shows the relationship between two measures of ‘social capital’: the level of community involvement (defined as regularly attended family and village events and ceremonies) and size of helping networks;41 and household agricultural production and sales. It is important to note that both of these measures are only moderately correlated with human capital (Pearson r=0.26 and 0.17, respectively), and thus represent a source of capital, over and above the availability of labor in the household. Households which have more extensive helping networks and which are more involved in the local village appear to be operating much more successfully in the new market economy. Our research showed that sales of agricultural production by households with high social capital were at least 20 percent greater than the sales of households with lower levels of social capital. This is a very important finding because it shows that the emergence of a market economy may actually increase the number of ties and strengthen existing social bonds between households if certain conditions are present. While this is a very complex issue, these findings suggest that households in an environment of minimal technology, with limited access to credit, and lacking a solid legal framework to protect private farming, appear to have an incentive to become more socially connected. Moreover, this relationship is consistent with findings regarding small producers in other national contexts where there is a high level of risk and lack of legal protections, such as Japanese immigrant farmers in California,42 and Hungarian farmers during the communist period.43 In both of those examples, households used social networks and community attachments, which are forms of social capital, to overcome barriers to owning land and/or accessing credit, as well as to take advantage of new economic opportunities. Changes in the quality of rural life One of the most compelling pieces of empirical evidence showing that there have been substantial changes in rural life in Russia, in spite of the apparent lack of progress in land reform at the federal level, is the indication of positive material changes in people’s lives. We will examine the indicators of increased food consumption, changing household demographic structure, increase in the ownership of animals, and increase in ownership of durable goods. Figure 2.4 (see above) shows that the average number of kilos of food produced per household increased between 1995 and 1996, while the average number of kilos sold per household decreased. This reflects an increased consumption of food by the households which produced it, as well as feed given to animals and to trade and barter for goods or services. Of the three villages, Vengerovka had the largest average percentage increase in food consumption per household (26 percent or 2,724 kilos). Sviattsovo was next with 22 percent (1,595 kilos) increase, and Latonovo reported the lowest increase, 16 percent (1,182 kilos). There were also demographic changes which suggest some improvement in the quality of life in the villages. There was a decrease of 1.7 percent (from 46.48 to 45.69) in the average age of household members in all three villages combined. In Latonovo, the average age of all household members was 42.7 in 1995 and this decreased to 41.2 in 1996. In Vengerovka, the average age of all household members increased from 45.4 in 1995 to 46.2 in 1996. In Sviattsovo, the average age of all household members decreased from 51.7 in 1995 to 50.0 in 1996. Another indicator of an improvement in the quality of life in the villages was the increase in the number of animals owned by households during the past few years. There was an overall increase of 11.3 percent of horses, cows, poultry, and pigs combined from 1993 to 1996. There were, however, substantial differences in the percentage increases between the three villages. The two villages located in the oblasts with

42


Figure 2.6 Mean number of selected durable consumer goods owned by households in 1995 and 1996 by village Source: University of Missouri-ISESP, RAS Russian Village Project.

household and community development strategies, Vengerovka and Latonovo, had substantial increases, 41. 5 and 19.9 percent, respectively, while Sviattsovo, which is located in the oblast with the ‘delaying strategy,’ had a 27.8 percent decrease in the average number of animals owned by households. Figure 2.6 shows the mean level of various types of durable consumer items in the households in the sample in the three Russian villages. Although we have only recorded the presence of these items for two years as part of the three-year panel study, remarkable changes have occurred already. The increase in the average number of cars per household has been most dramatic, with a 39.3 percent increase in the three villages from 1995 to 1996 (41 percent in Latonovo, 50 percent in Vengerovka, and 27 percent in Sviattsovo). Automobiles are a primary means of transportation of products to market, as well as a source of transportation for inputs in the food production process. The increase in the number of telephones and video recorders (VCRs) also has been substantial. The number of telephones increased overall by 30.7 percent,44 and VCRs by 57.3 percent.45 We would argue that the growth in ownership of these items is especially noteworthy as an indicator of an improvement in the quality of daily life of Russian rural people. There has been a significant growth in new businesses, besides farming, which includes both agriculturally and non-agriculturally related businesses. In 1995, a total of 15 households out of 508 households (2.95 percent) surveyed reported having a business; 8 were agriculturally related and 7 were not related to agriculture. Our survey in 1996 showed that 3 of these businesses did not survive. In 1996, the same sample of 508 households reported a total of 30 businesses (16 of the 30 are agriculturally related), which is a 100 percent increase in small businesses in the villages in a one-year time period! It is likely that the increase in new businesses is due to the general financial difficulty of large-scale agricultural enterprises, the increased pressures on peasant households to earn cash, and as a response to new market opportunities. Figure 2.7 shows that the growth in the number of new businesses has been larger in Latonovo than in the other two villages. The percentage increase in all types of new businesses was 186 percent in Latonovo [7 businesses in 1995 (2 were agriculturally related) and 20 in 1996 (11 were agriculturally related)]; 14 percent in Sviattsovo [6 businesses in 1995 (5 were agriculturally related) and 8 in 1996 (5 were


43

Figure 2.7 Percentage of households which started a new business1, built a new house2, or accomplished a long-desired purchase3 in 1995 and 1996 by village Source: University of Missouri-ISESP, RAS Russian Village Project. Notes: 1 Respondents were asked, ‘Do you, or another household member, have a private business?’ If yes, specify either an agribusiness or other type. 2 Respondents were asked, ‘Have you built or bought a new house in the past year?’ 3 Respondents were asked, ‘Have you purchased something of importance you have wanted for a long time in the past year?’

agriculturally related)]; and 0 percent in Vengerovka [2 in 1995 (1 was agriculturally related) and 2 in 1996 (both were not agriculturally related)]. Earlier, we noted that Latonovo has more extensive social helping and exchange networks than the other two villages. These networks have been used by some residents in Latonovo to start and maintain new businesses. It is also important to note that a substantial number of respondents have reported that during the past year they have been able to make a desired ‘purchase of importance [self-defined by respondents] which they have wanted for a long time.’ These items included, for example, cars, cows, telephones, furniture, and video recorders. CONCLUSION The data presented in this chapter illustrate the importance of looking beyond the federal level when analyzing land reform and agriculture in Russia. As our research shows, there have been some important developments at the provincial and village levels which are frequently overlooked. First, the existence of oblast differences in strategies with respect to dealing with the impasse in land reform can be seen as providing a series of quasi-experiments which test the validity of different approaches to land reform. Although empirical data to evaluate the success of these quasi-experiments is limited, our tentative conclusion is that ‘bottom up’ community development strategies, like those in Rostov and

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Belgorod Oblasts, provide more of a basis for optimism about reforming Russian agriculture and rural development than do the delaying or defensive strategies. These latter strategies merely delay the time in which rural villages must deal with the realities of a market economy. Second, differences in the pattern of land use, agricultural production and sales, and new business development in Latonovo and Vengerovka suggest that we may witness some different, but equally ‘successful’ approaches to rural community development in different places in Russia. The experience in Latonovo has seen a relatively small number of successful private farmer households emerge, with support from the oblast and other villagers. In Vengerovka, on the other hand, the pattern has been for a larger number of peasant households to expand production and sales, but to operate small land plots whose production is often consumed by the family. Finally, our data show that there are real differences in agricultural production and sales at the household level which can be attributed to differences in oblast and village community development strategies, as well as to household differences in human and social capital. While there has been an increase in peasant household production and sales since the collapse of the Soviet Union, we are also witnessing the beginnings of a new system of stratification in the Russian countryside. The long-term implications of these new inequalities present researchers and policy makers an ambitious agenda for future research. NOTES 1 Research support for this chapter comes from the National Science Foundation (Grant # 9409936), The International Research and Exchange Board (IREX) Special Projects Grant for the Study of Eurasia, University of Missouri Research Board, the Russian Academy of Sciences, and the University of Missouri Agricultural Experiment Station. 2 One exception is the work of Stephen Wegren in Kostroma Oblast. See Stephen K.Wegren, ‘Agricultural Reform in the Nonchernozem Zone: The Case of Kostroma Oblast,’ Post-Soviet Geography, Vol. 33, No. 10 (December 1992), pp. 645–685; Stephen K.Wegren, ‘New Perspectives on Spatial Patterns of Agrarian Reform: A Comparison of Two Russian Oblasts,’ Post-Soviet Geography, Vol. 35, No. 8 (October 1994), pp. 455–481; and Stephen K.Wegren, ‘The Development of Market Relations in Agricultural Land: The Case of Kostroma Oblast,’ Post-Soviet Geography, Vol. 36, No. 8 (October 1995), pp. 496–512; and Stephen K.Wegren, ‘Land Reform and the Land Market in Russia: Operation, Constraints, and Prospects,’ Europe-Asia Studies, Vol. 49, No. 6 (1997). See also the results of a World Bank survey in five Russian oblasts, in Karen Brooks, et al., Agricultural Reform in Russia: A View from the Farm Level, World Bank Discussion Papers No. 327 (Washington, DC, The World Bank, 1996). 3 For a further description of the methdology employed in these studies, see David J.O’Brien, Valeri Patsiorkovski, Larry Dershem and Oksana Lylova, ‘Social Capital and Adaptation to Social Change in Russian Villages,’ Studies in Public Policy (Glasgow, Centre for the Study of Public Policy, 1996); and David J. O’Brien, Valeri V.Patsiorkovski, Larry Dershem and Oksana Lylova, ‘Household Production and Symptoms of Stress in Post-Soviet Russian Villages,’ Rural Sociology, Vol. 61, No. 4 (1996), pp. 674–698. 4 On the political weakness of private farmers, see Stephen K.Wegren, ‘The Politics of Private Farming in Russia,’ The Journal of Peasant Studies, Vol. 23, No. 4 (July 1996), pp. 106–140. 5 See Stephen K.Wegren, ‘The Development of Market Relations in Agricultural Land.’ 6 David J.O’Brien, Valeri V.Patsiorkovski, Inna Korkhova and Larry Dershem, ‘The Future of the Village in a Restructured Food and Agricultural Sector in the Former Soviet Union,’ Agriculture and Human Values, Vol. 10, No. 1 (Winter 1993), pp. 11–20; David J.O’Brien, Valeri Patsiorkovski, Larry Dershem and Oksana Lylova, ‘Social Capital and Adaptation to Social Change in Russian Villages,’ Valeri V.Patsiorkovski and Natalia Rimashevskaia, The Paid Services of the Population (Moscow, Nauka, 1991).


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7 ‘Programa agronoi reformy v Rossiiskoi Federatsii na 1994–1995 gody,’ APK: ekonomika, upravlenie, No. 12 (December 1994), pp. 3–25. 8 In 1996, the TOOs were renamed Obshchestvo s ogranichennoi otvetstvennostiu (OOOs). 9 See Stephen K.Wegren, ‘Rural Politics and Agrarian Reform in Russia,’ Problems of Post-Communism, Vol. 43, No. 1 (January–February 1996), at p. 25; and Stephen K.Wegren, ‘The Politics of Private Farming in Russia,’ at pp. 111–114. 10 Ekonomicheskaia Kon’’iunktura (Moscow, Tsentr, 1995), p. 124. 11 Krest’ianskie (fermerskie) khoziaistva Rossiiskoi Federatsii na 1 Ianvaria 196 goda (Moscow, Goskomstat, 1996), pp. 1–5. 12 Wegren, ‘The Politics of Private Farming in Russia,’ p. 111. 13 Teodor Shanin, ‘Defining Peasants: Conceptualisations and De-Conceptualisations,’ The Sociological Review, Vol. 30, No. 3 (August 1982), pp. 407–43. 14 Caroline Humphrey, ‘Rural Society in the Soviet Union,’ in Understanding Soviet Society, ed. by Michael P.Sacks and Jerry G.Pankhurst (Boston, Allen and Unwin, 1988), p. 54. 15 Compare the description of peasant culture by Robert Redfield, Peasant Society and Culture (Chicago, University of Chicago Press, 1956); and Valeri V. Patsiorkovski and David J.O’Brien, eds., Research Methodology and the Quality of Rural Life in Russia and the USA (Moscow, Institute for the Socio-Economic Studies of Population, Russian Academy of Sciences, 1996). 16 O’Brien, Patsiorkovski, Dershem and Lylova, ‘Household Production and Symptoms of Stress in Post-Soviet Russian Villages.’ 17 Michael Ryan, Social Trends in Contemporary Russia: A Statistical Source-Book (New York, St. Martin’s Press, 1993), pp. 52–53; Sergei A.Vassin, ‘The Determinants and Implications of an Aging Population in Russia,’ World Wide Web, Rand Corporation Home Page. WWW.Rand.Org/publications/cf/cf124/ cfl124.chap6.htm1. 18 O’Brien, Patsiorkovski, Dershem and Lylova, ‘Social Capital and Adaptation to Social Change in Russian Villages; O’Brien, Patsiorkovski, Dershem and Lylova, ‘Household Production and Symptoms of Stress in PostSoviet Russian Villages.’ 19 Patsiorkovski and O’Brien, eds., Research Methodology and the Quality of Rural Life in Russia and the USA, p. 136. 20 A.V.Chaianov, The Theory of Peasant Economy (Homewood, IL, R.D.Irwin, 1966). 21 Carmen D.Deere and Alain de Janvry, ‘Demographic and Social Differentiation among Northern Peruvian Peasants,’ The Journal of Peasant Studies, Vol. 8, No. 3 (April 1981), pp. 335–366. 22 Sel’skaia zhizn’, 6 June 1996, p. 1. 23 Rossiskaia gazeta, 21 September 1996, p. 2. 24 Communist and nationalist parties received more support in Voronezh Oblast than any other bloc or party in December 1995. In the Presidential election, the communist Gennadi Ziuganov received 46 percent of the vote and Yeltsin 22.9 percent in the first round; and in the second round Ziuganov received 57.6 percent and Yeltsin received 36.9 percent. 25 For a description of how the Nizhnii model operates, see Stephen K.Wegren, ‘Farm Privatizaton in Nizhnii Novgorod: A Model for Russia?’ RFE/RL Research Report, Vol. 3, No. 21 (May 1994), pp. 16–27; and Chapter 1 of the present volume. 26 Sel’skaia zhizn’, 23 May 1996, p. 3. 27 Chemonics, a subsidiary of a major agri-business corporation, is a development consulting firm located in Washington, DC which provides technical assistance throughout the world, including many USAID projects. 28 Sel’skaia zhizn’, 12 March 1996, p. 3. 29 Ibid., 14 March 1996, p. 5. 30 O’Brien, Patsiorkovski, Korkhova and Dershem, ‘The Future of the Village in a Restructured Food and Agricultural Sector in the Former Soviet Union,’ pp. 11–20; O’Brien, Patsiorkovski, Dershem and Lylova, ‘Social Capital and Adaptation to Social Change in Russian Villages,’ O’Brien, Patsiorkovski, Dershem and Lylova, ‘Household Production and Symptoms of Stress in Post-Soviet Russian Villages.’

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31 Sel’skaia zhizn’, 24 February 1996, p. 2. 32 Resolution No. 723 from 21 June 1996, ‘O merakh po stabilizatsii ekonomicheskogo polozheniia i razvitiiu reform v agropromyshlennom komplekse,’ Zemlia i trud, No. 28 (9–15 July 1996), p. 3. 33 Larry D.Dershem, Community and Collective: Interpersonal Ties in Three Russian Villages (Colombia, Missouri, University of Missouri, unpublished Dissertation, 1995). 34 To provide a benchmark for household demographic characteristics prior to the collapse of the Soviet Union, and thus prior to the hyper-inflation of 1992– 1993, the authors have also included some figures from 1991, which are based on their survey data from the village to Latonovo. See Patsiorkovski and O’Brien, eds., Research Methodology and the Quality of Rural Life in Russia and the USA, pp. 119–122. 35 See Ryan, Social Trends in Contemporary Russia: A Statistical Source-Book, pp. 40–45. 36 Surveys for 1993, 1995, and 1996 can be obtained from our Website Russian Village Project which is located at http://genxinc.com/ruraltransitions. 37 Due to severe wage arrears throughout the agricultural system, payments ‘in kind’ to collective farmers have replaced payment in money. 38 Latonovo, n=173; Vengerovka, n=173; Sviattsovo Bolshoe, n=162. 39 New businesses typically included textile stores, clothing repair shops, shoe repair shops, barber shops, etc. 40 See Shanin, ‘Defining Peasants: Conceptualisations and De-Conceptualisations,’ pp. 407–443; and Deere and de Janvry, ‘Demographic and Social Differentiation among Northern Peruvian Peasants,’ pp. 335–366. 41 James S.Coleman, ‘Social Capital in the Creation of Human Capital,’ American Journal of Sociology Vol. 94 (special supplement, 1988), pp. S95–120. 42 See for example, Edna Bonacich and John Modell, The Economic Basis of Ethnic Solidarity: Small Business in the Japanese American Community (Berkeley, University of California Press, 1980); and Stephen Fugita and David J. O’Brien, Japanese American Ethnicity: The Persistence of Community (Seattle, University of Washington Press, 1991), at pp. 47–62. 43 See Endre Sik, ‘From the Multicoloured to the Black and White Economy: The Hungarian Second Economy and the Transformation,’ International Journal of Urban and Regional Research, Vol. 18, No. 1 (1994), pp. 46–70; and Endre Sik, ‘Network Capital in Capitalist, Communist, and Post-Communist Societies,’ International Contributions to Labour Studies, Vol. 4 (1994), pp. 73–93. 44 63 percent in Latonovo, 16 percent in Vengerovka and 13 percent in Sviattsovo. 45 29 percent in Latonovo, 83 percent in Vengerovka and 60 percent in Sviattsovo.

APPENDIX A: AGRICULTURAL CHARACTERISTICS OF ROSTOV, BELGOROD AND TVER’ OBLASTS

Agricultural characteristics Population of oblast 1994 (millions) Percent urban No. of private farms (fermer) on 1/1/96 No. of private farms per 1,000 persons as of 1/1/ 96 Agricultural land—1994 (million hectares) Percent of national meat production—1994 Percent of national grain production—1994 Percent of national milk production—1994

Rostov

Belgorod

Tver’

4.40

1.43

1.65

68% 15,774

64% 1,666

81% 3,803

3.59

1.17

2.3

8.48

2.11

2.38

3.43

1.99

1.33

6.67

2.17

0.6

2.95

1.87

1.53

Sources: Demograficheskii ezhegodnik Rossii (Moscow: Goskomstat, 1995), pp. 20–25; Krest’ianskie (fermerskie) khoziaistva Rossiiskoi Federatsii na 1 Ianvaria 1996 goda (Moscow, Goskomsat, 1996), pp. 3–4; and Sel’skoe khoziaistvo Rossii (Moscow: Goskomstat, 1995), pp. 18–59, 353–354, 363–364.

3 Land and agricultural reform in Ukraine Timothy N.Ash

Ukraine has always had special agricultural importance and so it was not by chance that it was commonly referred to as the ‘bread basket’ of the former Soviet Union. The Ukraine, which in 1989 held only 15 percent of the arable land area and 4.6 percent of the total agricultural land area, in the same year produced 26 percent of Soviet grain output, 53.3 percent of sugar beet output, 26.7 percent of potato output and more than 20 percent of livestock production, as indicated in Table 3.1 below.1 Favorable agro-climatic conditions underpinned Ukraine’s position as a key agricultural area and food producer in the Soviet food supply system. Indeed, the country possesses one-third of the world’s chernozem (black earth) soils, and these account for one-third of the total agricultural land area in Ukraine. Almost 60 percent of agricultural lands are flat, with a further one-third having a slope of between one and three degrees, making a total of 90 percent of agricultural land suitable for arable production.2 Furthermore, Ukraine’s geostrategic position, population, and resource base also made it one of the most critically important republics within the former Soviet Union. Ukraine acted as a bridge to Europe for Russia, providing a buffer from the West. Its population of 50 million plus (in 1989) made it the second most populated nation in the USSR. Its land area was larger than any other European nation, and within the USSR it was exceeded by only Russia and Kazakhstan. For a variety of reasons, therefore, Ukraine has immense significance, but often has existed within the shadow of its Slavic neighbor to the east, Russia. In the post-Soviet period, Ukraine will likely emerge as a major economic actor, but only after reforms have been successfully consolidated. Central to the reform effort are land and agricultural reforms. Although currently Ukraine mostly exports products to former Soviet republics, with its resource base it has the potential to become a major agricultural exporter to Europe, perhaps challenging France and other European Union nations over time. Thus, what happens in Ukrainian reform will affect not only Ukrainians but Europe as a whole. The purpose of this chapter is to survey land and agricultural reforms in Ukraine. We will start with an overview of Ukrainian agriculture in the Table 3.1 The importance of Ukrainian agriculture to the Soviet agro-economy in 1989 Population (m) Agricultural land area (m ha) Arable land area (m ha) Pasture land (m ha) Grain production (m tons)

Ukraine

USSR

Ukraine as a percent of USSR total

51.7 48.6 33.8 4.7 51.2

286.7 1,055.0 225.4 296.5 196.7

18.0 4.6 15.0 1.6 26.0


Ukraine

USSR

49

Ukraine as a percent of USSR total

Sugar beet production (m tons) 51.9 97.4 53.3 Sunflower seed production (m tons) 2.9 7.1 40.8 Flax production (thou. tons) 111.0 345.0 32.2 Potato production (m tons) 19.3 72.2 26.7 Vegetable production (m tons) 7.4 28.7 25.8 Fruit and berries (m tons) 2.5 9.7 25.8 Cattle (m, head) 25.6 119.6 21.4 Cows (m, head) 8.6 41.8 20.6 Pigs (m, head) 19.5 78.1 25.0 Sheep and goats (m, head) 9.3 147.5 6.3 Poultry (m, head) 254.5 1,199.5 21.2 Meat production (dead weight, m tons) 4.4 20.1 21.9 Milk production (m tons) 24.4 108.5 22.5 Egg production (bn pieces) 17.4 84.9 20.5 Wool production (thou. tons) 30.1 479.2 6.3 Source: Narodnoe khoziaistvo SSSR v 1989: statisticheskii ezhegodnik (Moscow, Goskomstat SSSR, 1990), various pages.

Soviet period. Following that, subsequent sections will analyze land reform legislation, the development of the private agricultural sector, obstacles to land reform, and different pathways along which reform is being introduced. THE HISTORICAL BACKGROUND TO UKRAINIAN AGRICULTURE As with other Soviet republics during communist rule, Ukrainian agriculture was centrally planned with production organized into large state and collective farms. Both state and collective farms received annual production targets detailing both production levels and the amount of output the farm had to supply through the state order system. In return, farms received inputs through the various state-run input supply organizations such as sel’khozkhimiia (which supplied chemicals) and sel’khozteknika (which supplied machinery services). Inputs and outputs were allocated by administrative fiat and prices played only a limited role in the whole system. At the farm level, farm managers made few decisions in comparison to their Western counterparts, and frequently even planting and harvest dates were set by central planners. In 1985 there were around 27,000 collective farms and about 2,000 state farms in Ukraine with an average farm size of 4,000 hectares.3 In theory, land farmed by agricultural collectives was owned by the collective. In reality, because Ukrainian farms were subject to the USSR land code and the Model Charter for collective farms, land was state-owned and workers on these farms assumed the same role as wage labor in industrial enterprises.4 The chairmen of collective farms were also, in theory, elected by the labor collective, while state farm directors were appointed by the agricultural administration with the approval of the local Communist Party apparatus. Prior to 1966, collective farm workers were not paid a wage but rather received a share of the farm’s output. Under Khrushchev the remuneration system changed, allowing for payment in kind and in cash, some of which was paid in advance. As part of Brezhnev’s efforts to reform the agrarian sector, after 1966, workers on these farms were paid a wage and had access to various state

50


security benefits such as pensions and state-funded health care. Rural dwellers also commonly tended a small plot of land for subsistence production. During the Soviet period, so-called ‘private agriculture’ consisted largely of the private plots of state and collective farm workers.5 These land plots were small in size, usually about 400 square meters in Ukraine (0. 4 hectare), although most other republics had smaller average sizes (except the Baltics).6 Urban dwellers received dacha (country house) plots which also were quite small. In addition, there were also so-called subsidiary agricultural holdings (podsobnoe khoziaistvo), which typically comprised farming operations operated by workers of industrial enterprises. Even though the state did its best to marginalize the private agricultural sector, farm members spent nearly three hours a day on their private plots in Ukraine. Furthermore, private production in Ukraine was second only to that of the RSFSR in meat, eggs, and milk production in the later Gorbachev period. Ukrainian private plot operators also averaged more income from private plot sales than did private plot holders in the RSFSR.7 The private agricultural sector was critical to the overall effort to feed the Soviet and the Ukrainian populations. Thus, while the private agricultural sector is variously estimated to have held only around onetwentieth of the agricultural land area in Ukraine by the mid-1980s it is thought to have produced around onequarter of the gross value of agricultural output.8 This commendable performance was achieved as a result of higher productivity and by concentrating on producing high-value agricultural goods, such as fruit and vegetables, and livestock production (milk and meat). Another factor which helped production was the fact that at the local level private plot holders often had a symbiotic relationship with state and collective farms. These farms often supplied private plot operators with feedstuffs and in return commonly utilized output from the private plots to ensure that they met their own state order. This arrangement was based on national policies adopted during 1986–1987 to aid private plot operators.9 In other former Soviet republics the period of Mikhail Gorbachev’s ‘perestroika’ program brought a wave of experimentation in agriculture (particularly with the development of leasehold farming). In Ukraine, however, little changed in the period between 1985 and 1990. To a large extent this was the result of the iron rule (1972–1989) of the leader of the Ukrainian Communist Party, V.Shcherbitsky, who resolutely resisted both economic and political liberalization.10 Thus, from 1985 to 1990 the share of the private and household sector in total agricultural production actually declined from 28.5 percent to 26.7 percent, which contrasts with the growth recorded in other former Soviet republics.11 This lack of reform during the perestroika period appears to have been a crucial factor in stalling reform after independence. The demise of Mr. Shcherbitsky and his replacement by Volodymyr Ivashko, and soon after (July 1990) by Leonid Kravchuk brought a degree of economic liberalization and initial land reform legislation.12 The first significant land reform legislation came with the approval in December 1990 of the Ukrainian land code.13 One notable advance was that the land code allowed the leasing of land to producers. Yet, while the land code was a notable advance from the past, it allowed only the lifetime inheritable possession (vladenie) of land and notably failed to provide the right to ownership (sobstvennost’) of land. The law also did not allow the right to buy and sell land. Land remained state-owned, while the ‘possessors’ of land were only given the right to use land as they saw fit, without the full rights which come with land ownership. For almost a full year after the adoption of the land code there was little further progress. To a large extent this can be explained by the ongoing struggle for independence which meant that at the national level little attention was devoted to land reform. Meanwhile, at the local level the rural agricultural administration in general remained opposed to any form of land reform. Agricultural bureaucrats saw reform as inevitably reducing their own influence and position in the local rural economy. This factor appears to have been particularly important in stunting the development of new forms of private farming. Thus, whereas the Ukrainian land code allowed individuals to take land into possession for agricultural production, local state


51

administrations determined what land was allocated to whom.14 Clearly, an obstructive local state administration had the power to stall the allocation of land to potential new private farmers. The available evidence suggests that local state administrations invariably did stall the allocation of land to those wanting to take up private farming. For example, by the end of 1991 there were just over 14,600 private farms throughout the entire country, a sum that was a less than one-third of the more than 49,000 private farms in Russia during the same time. Within Ukraine there were regional exceptions, such as local administrations in western Ukraine, Table 3.2 Private farm development in Ukraine, 1991–1996 End of period

Number

Land area (ha)

Average farm size (ha)

Dec 1991 Dec 1992 Mar 1993 Jun 1993 Sep 1993 Dec 1993 Mar 1994 Jun 1994 Sep 1994 Dec 1994 Mar 1995 Jun 1995 Sep 1995 Dec 1995 Mar 1996 Jun 1996 Sep 1996

82 14,681 20,665 24,628 26,048 27,739 29,666 30,895 31,325 31,983 33,040 33,746 34,149 34,778 34,783 35,266 35,400

2,000 292,300 415,700 482,000 510,000 558,200 620,500 657,500 675,000 699,700 728,900 757,000 773,000 786,400 795,400 820,600 820,200

24.4 19.9 20.1 19.6 19.6 20.1 20.9 21.3 21.5 21.9 22.1 22.4 22.6 22.6 22.9 23.3 23.1

where there was more of a tradition and culture of private farming from pre-Soviet history, were widely reported to more amenable to private farming and this is reflected in the more robust growth of private family farms in these regions. The real growth in the private farming sector would come only after the legislative bases had been laid, and a significant spurt of growth occurred during 1992–1993 as shown in Table 3.2. Ukrainian reforms in the post-independence era Independence was declared by the Ukrainian Supreme Council on 24 August 1991, and confirmed by referendum on 1 December 1991. Independence under Mr. Kravchuk brought the passage of three landmark land reform bills: the Law on Peasant Farms, approved on 20 December 1991; the Law on Forms of Land Ownership, approved on 30 January 1992; and a set of Amendments to the Ukrainian land code, which was passed on 13 March 1992. A chronology of land legislation during 1990–1996 is contained in Appendix A. The adoption of these three laws following independence recognized private and collective land ownership in addition to state ownership of land. These laws recommended that the bulk of state-owned

52


land should be transferred into the collective ownership of the enterprises which farmed the land. Some land (around 6 percent) was to remain in state ownership, for example land utilized by experimental agricultural enterprises and breeding farms. The laws also recognized that land could be owned by those not currently using the land. Thus, the right of private ownership to land was extended to all citizens for both agricultural and non-agricultural uses. To facilitate the transfer of land to new owners the legislation decreed that 10 percent of the land in cultivation by state and collective farms should be allocated to a special ‘land reserve.’ The land reserve was to be used to distribute land for private farming, subsidiary agricultural production (dachas, garden plots), and to persons not currently engaged in agricultural enterprises. The legislation also allowed existing members of agricultural enterprises to acquire land for private farming and private plot production from an additional pool of 15 percent of land from state and collective agricultural enterprises which was left after the allocation of 10 percent of the land to the land reserve. The balance of land remaining, excluding land in common use (roads, public buildings) was to be transferred to the collective ownership of members of the agricultural enterprise. In effect, this meant that farm members were given land share entitlement certificates. In theory, individuals wishing to leave the state and collective farms obtained a land share free of charge up to the average land share of farm workers in the region. Each individual’s share of land and the physical assets of the farm were determined by the labor contribution of the individual to the farm, which was related to the number of years of service and the individual’s position within the farm. In Ukraine as a whole, the average land share was 6 hectares. Any land entitlement beyond the average farm share in the region had to be purchased by the individual leaving the farm. Thus, for example, if a farm worker wishing to leave a collective farm had an entitlement, based on his/her labor contribution, of 10 hectares of land, and if the regional average land share entitlement was 5 hectares, the farm worker had the right to obtain 5 hectares of land free of charge and could purchase the remaining 5 hectares. By 1 January 1994 most state and collective farms had nominally been reorganized to comply with the new legislation, as shown in Table 3.3. However, as the table shows, most state and collective farms, around 61 percent, decided to retain their collective form of organization but with a new title ‘Collective Agricultural Enterprise’ (CAE). While these farms had taken land into collective ownership, the vast majority had failed to divide the land into individual land shares or to distribute land share certificates to workers. Thus, while a member of a CAE might know that he or she owned shares in the new enterprise, few farms actually went as far as to designate which parts of the farm business were owned by which individuals, a prerequisite to the formal break-up of the farm into individual private farms. Only a small number of state and collective farms, less than 5 percent of the total, decided to transform into associations of private farms. As a result the large-farm structure was retained more or less intact although the prevalence of state ownership had been replaced by collective ownership. As in Russia, few farm workers opted to take their entitlement Table 3.3 Agricultural land ownership structure as of 1 January 1994 % of land area Collective Agricultural Enterprises (CAEs) State farms subject to privatization State farms excluded from reorganization Agricultural cooperatives Partnerships and joint-stock societies

60.8 14.2 6.4 0.2 0.5


53

% of land area Households, including: subsidiary household plots 8.2 gardens and vegetable patches 1.1 pastures and hay 2.6 Private farmers 1.5 Other users 0.5 Common use land State land reserve (agricultural land component) 2.6 Village reserve (agricultural land component) 0.8 Source: Lerman, Brooks, and Csaki, Land Reform and Farm Restructuring in Ukraine, p. 34. Table 3.4 Structure of agricultural production (% of total output produced by each sector) State sector 1990

Household plots 1995

1990

Private farms 1995

1990

1995

Grain 97.2 90.4 2.8 8.1 — 1.5 Sugar beet 100.0 95.2 0.0 2.6 — 2.2 Sunflowers 97.8 91.0 2.2 4.4 — 3.0 Potatoes 33.5 4.1 66.5 95.8 — 0.1 Vegetables 73.1 26.9 26.9 72.7 — 0.4 Meat (d.w.) 71.1 48.5 28.9 51.3 — 0.2 Milk 75.9 54.5 24.1 45.0 — 0.2 Eggs 62.2 44.1 37.8 53.5 — 0.1 Source: Andrei Revenko, ‘Agriculture in Ukraine: Summary of Development in 1990– 1995,’ Ukrainian Economic Monitor, Vol. III, Nos. 8–9 (August–September 1996), p. 25.

to land and a share of the physical assets of the farm and take up private farming.15 This trend is reflected in the low level of output by private farms as shown in Table 3.4. The fact that the large-farm structure was generally retained was in no small part due to the fact that the government of Kravchuk had no real design as to what land tenure system should be put in its place. Within government there was a reluctance to bring about radical change, which partly reflected the fact that the administration relied on the support of the large lobby of collective and state farm managers in parliament and was therefore reluctant to instigate any radical land reform legislation which would threaten to jeopardize this support. At the local level, the lack of a blueprint from the national government as to how land reform and farm restructuring were to proceed meant that the local rural bureaucracy, which generally opposed the break-up of the large-farm structure as they saw it as jeopardizing their own position in rural society, were given carte blanche to prevent any local initiatives towards new forms of private farming. The Kuchma era Immediately upon assuming the office in July 1994, the new president, Leonid Kuchma identified the need to introduce radical reforms in the agrarian sector as a priority for his administration. As an indication that

54


the new president meant business, a new deputy prime minister with responsibility for the agricultural sector was appointed: Petro Sabluk, who formerly headed the Institute of Agricultural Economy in Kiev.16 A few months later, on 10 November 1994, a presidential decree on ‘Urgent Measures for Accelerating the Pace of Land Reform in the Agricultural Sector’ was issued. The new decree stipulated that land entitlement certificates were to be distributed to farm members, although the decree failed to indicate how these certificates were to be used in the process of farm reorganization. Nevertheless, both the president and his new deputy prime minister for the agricultural sector continued to talk about the importance of developing a mixed agricultural system of large collective/cooperative farms and private farms. The government also liberalized somewhat the state procurement system and identified input supply and processing industries to be privatized. The latter policy was stalled by consistent opposition from within parliament and alternative proposals that large farms be given a majority stake in these enterprises. Over the next eighteen months large farms distributed land shares to farm workers so that by the beginning of 1996 almost all large farms had completed the reorganization process. According to Pavlo Haidutsky, the Minister of Agriculture, more than 97 percent of large farms had transformed into collective forms of ownership by the beginning of 1996, which meant that in theory at least farm members were the owners of shares of the farming enterprise. However, the process of distributing land shares was beset by numerous problems. According to Anatoli Zasukha, the Chairman of the State Committee on Land Resources, 10,000 large farms, or around one-half of the total, were having problems in determining the actual size of land shares as of mid-1996.17 By early 1997 there was still no clear policy at the national level as to how share certificates were to be used during farm reorganization. Reformers have proposed that Ukraine should adopt a land auction system comparable to that implemented in the Nizhnii Novgorod region in Russia, which created a land market for rural land. Conservatives argued that such radical reforms would destroy the large-farm structure. The conservative position was characterized by the words of Oleksandr Tkachenko, the First Deputy Chairman of the Supreme Council, who argued that: It seems to me that the third stage of collapse (1996–1997) will consist of the complete fragmentation of the land, the final ruin of collective farming, and the establishment of small-scale production with the possibility of buying and selling land. We will be ‘assisted’ in this process by the IMF and the World Bank.18 In the spring of 1997 a new strategy plan for the agricultural sector was in preparation and the indications were that this would encourage farms to reorganize along the lines of the Nizhnii Novgorod model.19 The land market Although legislation established private ownership of land, various restrictions were imposed on owners of land shares. Owners of land shares were given the right to bequeath their share and to use it as collateral, although the latter right was somewhat restricted by the imposition of a six-year moratorium on the sale of land shares. A further restriction forced owners of land shares wishing to use their land shares as collateral to secure a loan to obtain the permission of other share holders. Individuals leaving the former state and collective farms were also limited by the fact that the law restricted the amount of land which could be owned by private farmers to 50 hectares of arable land and 100 hectares of general agricultural land.20 A private farmer could, however, lease land above this limit.


55

To date there is still no fully functioning land market in Ukraine. According to current legislation, citizens of Ukraine may freely conduct land transactions only for plots of land that have been transferred to private ownership for subsidiary household farming, gardening, or dacha or garage construction.21 The sale of all other types of agricultural land is subject to a six-year moratorium. Thus, any kind of agricultural land other than a household plot may not be sold for six years, regardless of the way in which it was acquired, and irrespective of whether the land in question is a land share or a physical land plot. On the other hand, transactions are allowed in land share certificates (the pieces of paper conferring ownership rights to unspecified plots of land) within the farm enterprise: land share certificates may be leased to another member of the collective or to the enterprise, may be used to create new collective farming structures on the basis of underlying privately owned land and assets, or may be passed in inheritance, or the right to a land share (not a land plot) may be sold to another member of the collective or to the enterprise. In fact, rural dwellers are acutely aware of the absence of a land market. According to a 1996 survey of farm employees and members, only 8 percent answered that they were able to purchase land, and only 9 percent answered that they could buy the land share of another member of the enterprise.22 These results reflect the lack of knowledge of rights, and/or the reality that a land market does not function. THE DEVELOPMENT OF THE AGRICULTURAL PRIVATE SECTOR Household plot production Perhaps the greatest impact brought about by land reform legislation in Ukraine thus far has been the expansion in peasant household plot production—a trend similar to that in Russia.23 The combination of difficult economic conditions, along with changes in the law which gave the population access to land for household production from the land reserve meant that land for household production was more readily available and much sought after. Not only did the number of people holding private plots increase, but the size of individual plots increased from 0.36 hectares in 1990 to 0.53 hectares in 1993.24 Holders of individual plots benefited by a change in the legislation which increased the limits on the size of plots to 2 hectares for household plots, 150 square meters for family gardens, 120 square meters for family orchards, and 1 hectare for pastures. Traditionally, household producers held the right of usage over their plots but not full land title. Holders have now been given the right to privatize their plots and take full title. Despite this right, the process of privatizing plots has been slow. According to Anatoli Zasukha, by mid-1996 around 8 million hectares of land were reported to be held in the form of personal plot production (garden plots, subsidiary holdings, orchards, and gardens). With an agricultural area of nearly 49 million hectares, this meant that only about 16 percent of land had been privatized. Mr. Zasukha also indicated that his committee had formally been granted land ownership deeds to 623,000 people by mid-1996, although he noted that this represented just 10 percent of all holders of land plots. In explaining the slow progress in awarding land titles Mr. Zasukha blamed confusion and poor information on the part of land claimants and foot-dragging on the part of the state apparatus. As a result, Mr. Zasukha announced that the period for completing the privatization of land plots would be extended to January 1998.25 Despite the problems in privatizing household plots, official data indicate that their contribution to total agricultural production has risen dramatically. For example, a review of Table 3.4 shows that between 1990 and 1995 the share of private plots in production of potatoes grew from 66.5 percent to 95.8 percent, and for vegetables the increase was from 26.9 percent to 72.7 percent.

56


Private peasant farming Similar to private peasant farms in Russia, Ukraine private farms tend to be small, about 23 hectares (even smaller than in Russia, where the average size is about 42 hectares), and operated by family labor. An average farm has 2.5 family members, and a very small percentage use hired labor.26 While household production has expanded rapidly during the period of reform, private family farm development has been disappointing compared to that in Russia. Reviewing Table 3.2, for example, shows that by January 1991 there were just 82 private farms operating in Ukraine, farming a total of 2,000 hectares or 24 hectares per farm. This compares with the 4,432 private farms operating 200,000 hectares in Russia by this time.27 Further, as we noted above, by the end of 1991 the gap had grown even wider: over 49,000 private family farms in Russia compared with just over 14,600 in Ukraine.28 During 1992 and 1993, as state and collective farms reorganized their farm structures in accordance with the new land code, the number of private farms rose sharply to reach 27,739 by the end of 1993. However, since then the rate of increase in the number of private farms has slowed appreciably, mirroring the relative lull in the evolution of land reform legislation. Thus, in 1994 the number of private farms rose by just 4,244, and in 1995 by just 2,795. During the first nine months of 1996 the number of private farms rose by just 622. By the end of September 1996, 35,400 private farms farmed just over 820,000 hectares of agricultural land. In terms of the total land area, by the end of September 1996 private farms farmed just over 2 percent of agricultural land in Ukraine. Similarly to Russia, land farmed by private farmers comes from two main sources. The first source is a national land fund, organized to the raion level. During 1991 and 1992, 4.8 million hectares of land (3.8 million hectares of arable land and 1 million hectares of pasture), were allocated into a special land reserve for allocation to private farmers. However, this land was frequently marginal and of a low quality, consisting of land that was either unused or unwanted by former state and collective farms. Individuals wishing to obtain this land had to apply to the local agricultural administration and were then often allocated small, scattered strips. In fact, given its poor quality, interest in acquiring land from the land reserve from potential private farmers has been limited and hence only a small proportion of this land has been allocated to private farmers. The second source of land has come from the reorganization of large farms. However, the number of individuals leaving the large farm structure has been limited, a fact which reflects the problems associated with private farming and peer pressure from members of the collective. Thus far progress with land reform in Ukraine has been disappointing from a variety of perspectives, one of which is the very slow growth in the number of private farms as indicated above. However, a range of other factors account for the slow growth in private farming in Ukraine. We turn to an analysis of the factors affecting the progress of land reform in the section below. FACTORS IMPEDING THE PACE OF LAND REFORM At a general level, the slow development of private farming in Ukraine reflects a restrictive legislative framework, including the restriction on the amount of land which can be held in ownership and restrictions on its sale and purchase. By far the largest part of land farmed by private farmers is not held in private ownership. Instead, most land farmed by private farmers is either held in lifetime use or in inheritable possession, a characteristic that resembled trends in Russia during its first few years of reform as well. Because the average farm size has remained broadly stable at 20–24 hectares the upper limit on land ownership has not figured as a prominent problem, although restrictions do hinder farm consolidations and economies of scale. Private farmers can, in any event, lease additional land should they wish to expand their holdings.


57

In addition to the general legislative problem constraining private farm development, we may point to other factors as well. Financial support for private farms Private farmers have received relatively limited support at the national and the local level. In terms of the amount of state support provided to the new private farmers, Oleksei Moylnyy, the deputy general director of the Ukrainian State Fund to Support Private Farms, indicated that in 1995 his fund was allocated just 406 billion karbovanets ($2.2 million) for distribution to private farmers. Through other channels the state allocated only a further 372 billion karbovanets ($2 million) to private farmers. Clearly, the Ukrainian state budget has been in no position to provide large-scale financing to the private farming sector. However, such small budgetary outlays compared to the still substantial sums allocated to support the large collective agricultural sector indicates the low priority given to private farming.29 More generally, restructuring throughout the agro-food sector will require significant investment in new equipment and machinery which assumes the availability of local credit. However, banks are generally not interested in providing finance for investment in long-term capital investment in agriculture. Banks are also very inexperienced in the provision of long-term finance, having little or no experience in investment appraisal, risk assessment, and screening. The credit that is available is of a short-term duration, typically around three months, which presents clear problems for farms wishing to invest in capital with a long-term return. Farms themselves are often unwilling to take on debts because of high interest rates and uncertainties over future rates of interest, and due to uncertainty about the market for agricultural production. Most investment is therefore provided through farms’ own resources, which obviously imposes limits on farms’ abilities to upgrade machinery and equipment. Solutions to the problem involve developing local rural credit institutions. Initial finance and training has to be provided by the international agencies. Foreign input supply companies are providing some credits for the purchase of agricultural inputs in return for payment in kind. This is only a partial solution to the problem. Western technical assistance should incorporate the development of local credit institutions and encourage the development of ‘revolving funds.’ The lack of political consensus A crucial problem with land reform in Ukraine has been that politicians have failed to provide a clear perspective as to how far land reform should proceed and what land reform should be aiming to achieve. Both the current and the previous president, Leonid Kuchma and Leonid Kravchuk respectively, must take some of the responsibility for this shortcoming. Mr. Kravchuk failed to maintain the reform momentum that was begun with the passage of legislation in late 1991 and early 1992. Mr. Kravchuk can partly be absolved in as much as he was grappling with the many problems associated with creating a new state and in battling with an obstructive parliament. However, Mr. Kuchma, on the other hand, came in to power in July 1994 and almost immediately announced that land reform would be a priority for his administration. In practice, the president has lacked a clearly elaborated program and has failed to provide a blueprint for large-farm restructuring beyond basic reorganization. The lack of leadership and direction from the top was clearly indicated by Mr. Lazarenko, the Prime Minister, before he assumed office. In an interview given in February 1996 he argued that:

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The problem with agriculture is that we have ended up neither here nor there. We decided to institute various forms of ownership in the countryside but did not finish the job. We created tens of thousands of private farms, but assured a future only for about a thousand private farmers. That is how many private farms can survive, while the rest of them are unrealistic. We destroyed the collective farms, without at the same time providing a basis for private farming. That is why there is no progress in the creation of private farms. We do not have sufficient financial resources to support both collective and private farms. I am in favor of changing relations in the village but in an evolutionary rather than revolutionary manner. It is not possible to distribute everything into private ownership immediately, as some propose doing…land is the foundation of the state, and if we cut it to the quick, we will have unforeseen consequences.30 There are other political difficulties in pursuing land reform. We may point to three political obstacles in particular. First, the Supreme Council, or parliament, is often criticized for blocking the adoption of radical land reform. In part, the large-farm structure management (former state and collective farms) continues to have a strong lobby of deputies within parliament. Indeed, the left-wing opposition in parliament, which consists of the Communist Party of Ukraine, the Socialist Party of Ukraine, and the Agrarians, can count on the support of one-third of the number of parliamentary deputies. Second, parliament reflects a general reluctance among the public at large to dismantle the existing largefarm structure. Especially within rural areas there is opposition to the break-up of the large-farm structure, and in general reformers must contend with the conservatism of the rural population. Third, although conservatives are a considerable force in the parliament, in fact two-thirds of deputies are centrists, independents, and reformists. To a large extent, the slowness of Ukrainian land reform stems from the failure of reformers to convince the majority of the political spectrum of the merits of a radical solution to the land reform problem. This failure has been critical. The lack of a clear policy program and the failure to mobilize the political center has provided ample ammunition to the opposition of land reform in parliament. One of the staunchest critics of land reform has been the chairman of parliament, Oleksandr Moroz, who also heads the socialist faction of deputies in parliament. Mr. Moroz has skillfully played to those who see the problems in the break-up of large-farms and land distribution: If we divide land, we will initiate extremely complex and tragic processes in Ukraine. I do not believe that we currently have the specialists in Ukraine who would be able to divide land in a specific village. I do not believe that an appropriate methodology can be found. We can evaluate land in cadaster parameters; we can take into account the enterprises’ economic potential or the frequency of using fertilizer; however, a lot of subjective factors will emerge. For instance, the land allocated for my neighbor once belonged to my grandfather; or one plot is closer to the village than the other; or one plot is on a slope and the other on a plain and so on and so forth. Thus, it is impossible to divide land among people and meet all their demands and interests. What is the value of a land share, for instance in Svky near Kiev? Who will determine the price? Particularly since this price will be severalfold higher than the price for an identical land plot somewhere in the provinces.31 Further, Mr. Moroz declared on 19 December 1995 that:


59

If we start selling land, in six months time we will destroy virtually every agricultural enterprise in Ukraine. So I do not agree with the president that land should become a commodity.32 Even the former Minister of Agriculture, Pavlo Haidutsky, who served during 1995–1996, commented while still in office that: As to the development of private farming in the future, this prospect certainly exists, but not as a dominant form in the next 50 years, because material resources are extremely concentrated in our country. Our organizational structures are geared to collective forms of the organization of labor.33 The macro-economic environment Clearly, any analysis of land reform cannot ignore the extremely difficult operating environment that has existed for the Ukrainian farm sector during the transition. A cursory analysis of the acute difficulties in the macro-economy indicates that this must have had a very significant impact upon attitudes toward land reform. Perhaps the biggest brake on the pace of land reform has come from the impact of the post-independence recession. The recession itself was spurred by the collapse of the Soviet Union and the supply links and monetary relations between enterprises in the different republics. However, imprudent fiscal and monetary policies ensured that Ukraine suffered from one of the steepest downturns in economic activity experienced by any of the former Soviet republics not inflicted by civil strife and war (as suffered by Tajikistan, Armenia, Georgia, and Azerbaijan). Real GDP declined by 57 percent between 1990 and 1996, as compared with the downturn in Russia of 40 percent.34 The decline in Ukrainian activity is illustrated in Table 3.5. Falling real GDP brought a significant decline in living standards and Table 3.5 Ukraine, key economic indicators, 1991–1996 (real change, %) 1990

1991

1992

1993

1994

1995

1996

Real GDP −3.4 −8.7 −9.9 −14.3 −23.1 −11.4 −10.1 Agricultural −7.0 −13.2 −8.3 +1.5 −16.5 −4.2 −9.0 production Industrial −0.6 −4.8 −6.4 −8.0 −27.3 −11.6 −5.1 production Food n/a −12.8 −14.4 −12.3 −18.4 −12.8 n/a processing Inflation (%, n/a 91.2 3,200 5,371 891 377 80 annual average) Exchange n/a n/a 0.002 0.045 0.328 1.473 1.810 rate (Hrn: $) Currentn/a n/a −619 −849 −1,163 −1152 −1,368 account balance Sources: EIU, Country Report: Ukraine; Ministry of Statistics of Ukraine; Olga Vasechko and Andrei Revenko, ‘Food Processing in Ukraine, 1990–1995,’ The Ukrainian Economic Monitor, Vol. III, No. 11 (November 1996), p. 17.

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Table 3.6 Food consumption patterns in Ukraine, 1986–1995 (kg per capita per annum) Average 1986–90

1991

1992

1993

1994

1995

95 as % of 86–90

Meat 67.8 65.5 53.4 46.4 43.5 38.9 −52.6 Milk and 363.7 345.5 284.5 264.2 258.2 243.5 −33.0 dairy goods Eggs 280.0 256.0 227.0 206.0 183.0 171.0 −39.0 (number) Potatoes 130.1 115.5 132.9 150.0 135.8 123.7 −5.0 Vegetables 117.9 102.5 88.9 90.1 83.7 96.6 −18.1 Bread and 139.2 142.5 142.5 144.5 134.8 128.4 −7.8 cereals Fruit and 48 36.5 37.9 40.4 26.8 33.4 −30.5 berries Sugar 49.2 50.0 45.4 39.0 33.0 31.6 −35.8 Oil 11.4 11.2 10.6 10.0 8.7 8.2 −28.1 Fish and fish 18.5 12.2 7.3 3.7 3.5 3.6 −80.5 products Calories per 3,522 3,445 3,151 3,031 2,765 2,640 −25.1 day Source: Olga Vasechko and Andrei Revenko, ‘Food Processing in Ukraine, 1990–1995,’ The Ukrainian Economic Monitor, Vol. III, No. 11 (November 1996), p. 20.

reduced domestic demand for food and a fall in consumption. This latter trend can be seen from food consumption patterns in Table 3.6. By 1995, calorific intake declined by 25 percent compared to the average over the period between 1986 and 1990. Consumption of all food products declined but was steepest for those products which were most highly subsidized under the former Soviet system and which hence underwent the greatest relative increase in price when subsidies were removed. Consumption of meat products thus declined by more than one-half, with consumption of milk and eggs falling by around one-third. Combined with falling domestic demand, Ukrainian agriculture was increasingly cut off from traditional markets in other former Soviet republics. The combined result has been that output of agro-food products, and in particular of livestock products, declined quite substantially as shown in Table 3.7. Parallel to the decline in demand for food and agricultural produce, farms were faced by an increasingly uncertain economic environment. Inflation, which had been broadly unchanged during the years of Soviet rule, spiraled virtually out of control. Thus, from December 1990 to December 1996, prices rose by more than 100,000 percent. A peak was reached in December 1993 when the inflation rate reached more than 7, 000 percent.35 A tightening in fiscal and monetary policy has been successful in bringing inflation down to an end-year rate of 39.7 percent in 1996, but uncertainty about future trends is now entrenched and still hinders economic decision-making. Table 3.7 Agricultural production in Ukraine, 1991–1996 (million tons) Grain

1990

1991

1992

1993

1994

1995

1996

51.0

38.7

38.5

45.6

35.5

33.9

24.5


1990

1991

1992

1993

1994

1995

61

1996

Sugar beet 43.3 34.2 28.8 33.7 27.6 29.6 22.8 Potatoes 16.7 14.6 20.3 21.0 16.1 14.7 18.4 Vegetables 6.7 5.9 5.3 5.8 5.0 5.9 n/a Sunflowers 2.7 2.4 2.3 2.1 1.6 2.9 2.0 Meat 2.0 1.9 1.7 1.4 1.5 n/a n/a (carcass weight) Milk 24.5 22.4 19.1 18.1 11.6 n/a n/a Sources: OECD, Agricultural Policies, Markets and Trade in the Central and Eastern European Countries, Selected New Independent States, Mongolia and China: Monitoring and Outlook, (Paris, OECD, 1995); East Europe Agriculture and Food Monthly, various issues.

Attitudes toward land reform Given the economic conditions that have surrounded land and agricultural reforms, it is hardly surprising that rural dwellers have been less than enthusiastic about breaking up the large-farm structure and moving to new forms of agricultural production, including private farms. Not surprisingly the vast bulk of the rural community have opted for the relative security of the large farm structure. Under the Soviet system farm workers received not only material benefits but also social security, a sense of community, and various social services. Within the present context, farm workers on large farms continue to feel safe, even if the large farm fails to pay cash salaries on time, or at all. This is due to the fact that farm workers are often paid in kind for their labor, and are largely self-sufficient in food provided from their personal plots. Farm workers can also sell any surplus at local markets to earn monetary income to purchase any additional consumer requirements. The link with the large farm also continues to ensure the provision of a range of agricultural services to the private plots, including, and most importantly, the provision of feed. It is therefore hardly surprising that most farm members opted to retain the large-farm structure. Recent surveys of attitudes towards land reform reinforce the impression that the rural population remains nervous at the prospect of dismantling the large-farm structure. In June 1996, SOCIS-Gallup International conducted a survey of the attitudes towards land reform of members and pensioners on collective farms, Collective Agricultural Enterprises and agri-business companies.36 When asked how they viewed land reform, 21 percent claimed that land reform was not needed with 17 percent responding that the pace of land reform had been too fast. Thus, 38 percent expressed generally negative attitudes towards land reform. By comparison 17 percent responded that a deeper transformation was required and a further 17 percent that the pace of land reform should be accelerated. Interestingly, 54 percent of managers on these same farms were in favor of a faster pace of reform. While these figures might indicate that the rural population are not set against land reforms, the general view appeared to be that reforms should focus on improving rather than breaking up the large farm. For example, when asked their attitude towards the Collective Agricultural Enterprises, more than one-half of those questioned expressed positive attitudes with a further one-third indicating that more effective organization of collectives was required. This contrasts with less than 10 percent expressing negative opinions about collective forms of production. On a positive note, the SOCIS-Gallup International survey reported earlier did show that around one-third of those questioned did support a land market whereby land sales were restricted to members of the collective.

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Attitudes towards the development of a land market were regionally divided. In eastern Ukraine 67 percent opposed a market in agricultural land, compared with only 4 percent opposing such a market in western Ukraine. Overall, however, less than one-tenth of respondents supported the free sale of land. PATHWAYS TO REFORM We noted previously the lack of a land market and the various restrictions that exist on land turnover. Within government there does appear to be a vague commitment to introducing a land market, but with considerable opposition in parliament, and given the still opaque constitutional division of powers in Ukraine, the introduction of legislation may still be some way off. Despite the absence of a fully functioning land market, in some regions farm-level restructuring is occurring on either an ‘ad hoc’ or an institutionalized basis. Ad hoc reform It would be wrong to assume that all management on former state and collective farms is of very poor quality. In-depth interviews conducted by the author with the managerial teams of around 50 large, former state and collective farms in the district of Bila Tserkva in Kiev Oblast during 1994 and 1995 indicated that around one-third of managers were in fact doing their best given the very difficult operating environment.37 Thus, in at least certain areas, at the grassroots level a great deal of land reform and farm reorganization have been undertaken. It is important to note that the extent of farm-level restructuring depends to a very large extent on the quality of farm-level management.38 Many of the better managers had in fact instigated, apparently at their own initiative, a range of on-farm restructuring methods. For example, one farm, which specialized in vegetable production, had subcontracted the harvesting of the crop to workers on the farm. Farm workers were thus responsible for the harvesting of the final crop and in exchange had agreed to pay the central farm unit a set rent for that right. The better farms had also generally split production into various business profit centers which invariably included two or three arable units (often run by individual brigades), a dairy unit, perhaps a beef fattening unit, a central workshop, and a mechanization pool. These separate units would generally operate as autonomously from the other units in the farm as the farm accounting methodology would allow.39 The Nizhnii Novgorod model transposed On a more institutionalized basis, the Ukrainian government has permitted a number of foreign donors to develop experimental pilot farm privatization programs. Perhaps the best known is the large-farm restructuring project in the Donetsk region sponsored by the International Finance Corporation (IFC) and UK Know-How Fund (KHF). This project, which began in September 1995, has used the same approach to land privatization as has been used in the Nizhnii Novgorod region of Russia since 1993.40 As in Nizhnii Novgorod, the governor of the region, here Vladimir Scherban, was supportive of radical land reform.41 The Nizhnii/Donetsk method of farm reorganization involves auctioning the land and assets of former state and collective farms to their workers and management. The program is sequential, involving a number of stages: • Distribution of land and property entitlement certificates;


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• Creation of peasant farms, partnerships, companies, service cooperatives and other agricultural enterprises on the basis of individuals farms, farm brigades, other production units and villages, as well as individual families and their groups; • Conclusion of contracts for use of land and property entitlements; • Division of the farm into lots for land and property auctions using the existing land and operational subdivisions of the farm; • Distribution of property and land through an internal auction at which individuals and groups bid for sections of the farm using land and property entitlements as a means of payment; • Issuance of property and land ownership documents to the new owners.42 The IFC argues that the program was never intended to lead to total parcelization of former large farms: The Models did not mandate the parcelization of the former state and collective farms for several reasons. First, neither the Russian nor the Ukrainian government supported parcelization and would not endorse a Model that mandated it. Second, the centralized infrastructure of most state and collective farms was not suited to service large numbers of small plots. Finally, legislation in Russia and Ukraine mandates that all farm members receive equal land shares. Usually, almost half of these farm members are pensioners and social sphere workers who do not want the responsibility of farming small parcels of land nor do they necessarily have family to give the land to.43 A key advantage of the Nizhnii/Donetsk scheme over programs which have focused on specifically developing family farms is that it can enable the creation of intermediate-sized farms, providing a bridge between the large collective farms and the small private farms. Thus, in the bidding process farm workers can pool together their land and property certificates to bid for groups of assets and land. Groups of workers can continue farming communally after the subdivision of the farm. In some ways, therefore, the reform is less radical and more likely to be accepted by the relatively conservative farm community. The first auction in the Donetsk region was held at the Lenina farm in the Artemovsky district on 5 March 1996.44 Subsequent auctions were held at the Ivanovskoe farm in the Krasnoarmeisky district on 12 March 1996 and at the Rossiia farm in the Yasinovatsky district on 14 March 1996.45 By spring 1996 a further 50 large farms were reported to have applied to be reorganized using the IFC model.46 It remains premature to judge the success of the IFC/KHF-sponsored reorganization program. Both the IFC and the KHF hope that the Donetsk model will be transferable to other regions of Ukraine. In praising the success of the project in the Donetsk region Mr. Sergei Poliakov, a member of the regional administration, noted that: ‘The Donetsk model has demonstrated its effectiveness in the pilot phase and will be an important tool in strengthening and liberalizing our agricultural sector here and throughout the country.’47 However, experience with the Nizhnii Novgorod project in Russia has demonstrated that the model may not be easily transferable to other regions. In particular, with the lack of clear political will at the national level there is still no firm commitment to force all large farms to adopt an auction-based reorganization approach. IFC documents also indicate that farm privatization is to be voluntary, not forced. Consequently, the transferability of the pilot project to other regions will to a large extent be dependent on the initiative of regional governors and individual farm managers. There is by no means a clear majority of such governors and/or managers in favor of such an approach. Most farm managers, often termed ‘Red barons’ because of their dominance over the farm they run, are unlikely to opt for an approach which would reduce their own power. Meanwhile, regional governors are also unlikely to favor auctions while responsible for agricultural production in their own regions. The fear is

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that such a radical farm reorganization could disrupt production and hence jeopardize their own careers.48 Governors would also view the dissipation of the existing large-farm structure into a larger number of smaller farms unfavorably as this would hinder their own ability to direct agricultural production. A further problem is that the process is very intensive in terms of preparation, which makes its transferability somewhat limited.49 The latter problem is, to a certain extent, being resolved by the IFC through extensive training of local consultants to take over from the foreign staff. CONCLUSION Although Ukraine started radical land reform at about the same time as Russia, progress in Ukraine has been more modest and much slower. Significant limitations still exist on ownership rights to land as well as on the right to buy and sell land. While a land market has started to develop in Russia, the same cannot be said for Ukraine. Furthermore, land is seldom used as collateral and banks are reluctant to lend money for agricultural purposes. The first stage of farm reorganization has been implemented, but little has changed in the structure of Ukrainian agriculture and land shares have been slow to be distributed to farm members. Unlike in Russia, where President Yeltsin has taken an active role in issuing decrees that have forced the issuance of land certificates, the Ukrainian leadership has been more passive. This passivity reflects both ambiguity about land reform at the highest levels as well as significant opposition from more conservative forces within the government. Moreover, farm members have been generally unwilling to leave the parent farm or to move from a collective structure. In comparison with Russia, in Ukraine the numbers of private farms, the amount of land they cultivate, and their output lag significantly behind. On the other hand, similarly to Russia, production from small-scale individual private agriculture has increased significantly. Thus, progress in Ukrainian land reform has been slowed by legislative constraints, lack of bold leadership, political opposition, and rural conservatism. Significant land reform results in the future will require addressing these shortcomings as well as stabilizing the macro-economy. Given the severe economic consequences that have occurred in Ukraine following the break-up of the Soviet Union, and given the combination of challenges that lie ahead, it is likely that quite some time will pass before we may speak of ‘successful’ land reform. NOTES 1 Author’s calculations from Narodnoe khoziaistvo SSSR v 1989: statisicheskii ezhegodnik (Moscow, Goskomstat SSSR, 1990), various pages. 2 Zvi Lerman, Karen Brooks, and Csaba Csaki, Land Reform and Farm Restructuring in Ukraine, World Bank Discussion Paper No. 270 (Washington, DC, The World Bank, 1994), p. 24. 3 Ibid., p. 237. 4 See Alec Nove, ‘Labor Incentives in Soviet Kolkhozy,’ in Socialist Agriculture in Transition: Organizational Response to Failing Performance, ed. by Josef C.Brada and Karl-Eugen Wadekin (Boulder, CO, Westview Press, 1988), chap. 1. 5 Karl-Eugen Wadekin, The Private Sector in Soviet Agriculture (Berkeley, University of California Press, 1973). 6 Stephen K.Wegren, ‘Private Agriculture in the Soviet Union under Gorbachev,’ Soviet Union, Vol. 16, Nos. 2–3 (1989), pp. 108–109. 7 Ibid., pp. 110–111, 120–127, 141. 8 Lerman, et al., Land Reform and Farm Restructuring in Ukraine, p. 26, indicates that in 1990 the private household sector accounted for about 27 percent of total agricultural production in Ukraine.


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9 Karl-Eugen Wadekin, ‘Agriculture,’ in The Soviet Union under Gorbachev, ed. by Martin McCauley (New York, St. Martin’s Press, 1987), chap. 6. 10 See the Economist Intelligence Unit, Country Profile 1996–97 (London, Economist Intelligence Unit, 1996). 11 Lerman, et al., Land Reform and Farm Restructuring in Ukraine, p. 26. 12 Shcherbitsky was replaced as First Party Secretary of the Communist Party of the Ukrainian Soviet Socialist Republic by Volodymyr Ivashko. In July 1990 Mr. Ivashko left to become number two to Mr. Gorbachev in Moscow, whereupon a power struggle developed for the leadership of the Ukrainian state between the chairman of the Supreme Council, Leonid Kravchuk, and Stanislav Hurenko, who had become the chairman of the Communist Party of the Ukrainian Soviet Socialist Republic. Mr. Kravchuk moved from the post of the Chairman of the Supreme Council (parliament) to being elected as the president of Ukraine in December 1991, and eventually succeeded in leading Ukraine to independence in December 1991. 13 In May 1990 Soviet legislation had passed the right of republican governments to determine land reform legislation. 14 Land which could be allocated to private farmers included that unused or under-utilized in agricultural production. The former Soviet president, Mikhail Gorbachev, had mandated republican governments to identify such land for use by private agricultural producers in a presidential decree of January 1991. See Izvestiia, 7 January 1991, p. 1. 15 A World Bank survey of five oblasts in Russia found that about 45 percent of farms experienced zero exits from the farm. See Karen Brooks, et al., Agricultural Reform in Russia: A View from the Farm Level, World Bank Discussion Paper No. 327 (Washington, DC, The World Bank, 1996), p. 33. 16 Ill health forced Mr. Sabluk from office in April 1996, and he was replaced by Mykhailo Zubets. 17 Interview with Anatoly Zasukha, Ukraina Moloda, 10 July 1996. 18 Holos Ukraine, February 1996. 19 See Chapter 1 in this volume; and see Stephen K.Wegren, ‘Farm Privatization in Nizhnii Novgorod: The Model for Russia?’ RFE/RL Research Report, Vol. 3, No. 21 (May 1994), pp. 16–27. 20 Lerman, et al., Land Reform and Farm Restructuring in Ukraine, p. 36. 21 Decree of the Cabinet of Ministers, 26 December 1992, ‘On Privatization of Land Allotments.’ 22 Information from Zvi Lerman, The Hebrew University. 23 See Chapter 2 in this volume. 24 Lerman, et al., Land Reform and Farm Restructuring in Ukraine, p. 13. 25 Interview with Anatoly Zasukha, Ukraina Moloda, 10 July 1996. 26 Lerman, et al., Land Reform and Farm Restructuring in Ukraine, p. 52. 27 John Channon, ‘Agricultural Reform in Russia: 1992–1995,’ paper presented to The Royal Institute of International Affairs, 20 July 1995, p. 27. 28 Although there is a burgeoning literature on Russian private farming, for analyses that tracked early trends see Timothy N.Ash, Robert Lewis, and Tanya Skaldina, ‘Russia Sets the Pace of Agricultural Reform,’ RFE/RL Research Report, Vol. 1, No. 25 (19 June 1992), pp. 55–63; Stephen K. Wegren, ‘Rural Reform in Russia,’ RFE/ RL Research Report, Vol. 2, No. 43 (29 October 1993), pp. 43–53; Stefan Y.Zhurek, ‘Transforming Russian Agriculture: Why Is Privatization so Difficult?’ The Soviet and Post-Soviet Review, Vol. 21, Nos. 2–3 (1994), pp. 253–282; and Frank A.Durgin, ‘Russia’s Private Farm Movement: Background and Perspectives,’ ibid., pp. 211– 252. 29 Interview with Oleksei Moylnyy, Ukraina Moloda, 16 February 1996. 30 Interview with Pavlo Lazarenko, prior to his appointment as the Prime Minister of Ukraine, published in Ukraina Moloda, 24 April 1996. 31 Report on the speech of Oleksandr Moroz, the Chairman of the Supreme Council of Ukraine to the heads of raion councils on agro-industrial issues, Holos Ukraine, 5 March 1996. 32 ITAR TASS, 29 December 1995. 33 Interview with Pavlo Haidutsky, Minister of Agriculture, Ukraina Moloda, 9 February 1996. 34 See Economist Intelligence Unit, Country Reports (London, Economist Intelligence Unit, 1996), Quarters 1–4.

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35 Data from EIU, Country Report: Ukraine, various issues. 36 ‘A Chronicle of Land Reform in Ukraine,’ Ukrainian Legal and Economic Monitor, Vol. 4, No. 11 (November 1996), pp. 14–18. The survey was conducted at the request of the IFC Land Privatization and Farm Reorganization Project, which is sponsored by the British Know-How Fund (KHF). 37 Conducted under the auspices of the EU-TACIS project Restructuring the Agro-Industrial Kombinat Ross. (EUTACIS stands for European Union-Technical Assistance for the Commonwealth of Independent States.) 38 About one-third of managers were considered by the author to be average, with the balance being of very poor quality. 39 Full autonomy for these units was seriously constrained by the inappropriateness of the farm accounting methodology. In general, farms were unable to identify the time spent by workers and machinery on many farm operations. Farms were also generally unable to adequately cost farm operations due to problems in accounting for inflation. Most, if not all, farms made no attempt to account for inflation in costing farm operations. 40 See Chapter 1 of this volume for more on the Nizhnii model and its accomplishments in Russia. 41 Mr. Scherban, a member of the Ukrainian Parliament and a leading businessman, was assassinated in September 1996 at Donetsk airport. 42 International Finance Corporation, Land Privatization and Farm Reorganization in Russia (Washington, DC, IFC, 1995), p. 7. 43 IFC, Land Privatization and Farm Reorganization: An Overview of IFC Projects in Russia and Ukraine, (Washington, DC, IFC, 1996), p. 3. 44 At the time of its auction the Lenina farm employed 912 workers and comprised almost 4,300 hectares of agricultural land with 1,744 head of cattle and 1,215 pigs. Just prior to the formal auction process those attending the auction meeting agreed to form a joint-stock company to operate some communal services (including a grain threshing floor, a flour mill, a sunflower oil processor, a mineral water spring, an irrigation system, hay storehouses, garages, a slaughterhouse, a livestock burial ground, an apartment building, fuel stocks, herbicides and pesticides, the farm’s administrative offices, and a hostel). In addition, the farm’s social assets (roads, water and sewerage system, school, kindergarten, hospital, pharmacy, etc.) were transferred to the ownership of the Village Council. In the actual auction, as expected, groups of farm workers pooled together to bid for assets and a total of 17 separate farm units emerged from the auction, including 11 family farms. The size of land held by each of the separate new units ranged from 1,643 hectares to just 5.8 hectares. In addition to actual farming units, one group bid for the shop, another for an agricultural machinery service unit, and another for a mineral water bottling plant. 45 The auction for the Ivanovsky farm split the farm into five enterprises: one limited liability company, one farmers association, and three family farms. However, almost all the farm’s land and assets (97 percent) accrued to a closed joint-stock company, led by the former director of the former Ivanovsky farm. As with Lenina, the participants in the auction agreed that social assets should be transferred into the ownership of the Village Council. The auction for Rossiia largely mirrored that for Ivanovsky, with almost all the land and assets being acquired by the firm, Rossiia, which was led by the former director of the original Rossiia farm. 46 Nezavistmos’, 9 April 1996. 47 ‘Land Reform Accelerates in Ukraine,’ IFC Press Release, 27 August 1996, p. 1. 48 Despite the move towards greater farm decentralization governors are still judged by the performance of the economy in their own particular region. 49 Both the Nizhnii and the Donetsk pilots were run with a large team of foreign consultants. While local consultants are being trained to take over the process it is still doubtful whether they could provide adequate support should all Russia’s 26,000 former state and collective farms and Ukraine’s 13,000 such farms decide to adopt an auction approach.


APPENDIX A: CHRONOLOGY OF LAND REFORM LEGISLATION IN UKRAINE December 1990 December 1990 February 1991 December 1991 January 1992 February 1992 March 1992 July 1992 May 1992 June 1992 December 1992 December 1993 January 1993 May 1993

Supreme Council Decree on Land Reform The Land Code of Ukraine Law on Property Law on Peasant Farms Law on Forms of Land Ownership Law on Collective Farm Organization Amendments adopted to the Land Code of Ukraine Law on the Payment for Land Amendment to the Law on Collective Farm Organization Additions and Amendments to the Law on Peasant Farms Amendments to the Law on the Payment for Land Government Decree on the Privatization of Land Plots Government Decree on the Procedure for the Introduction of a State Land Cadaster Government Decree on Urgent Measures for the Preparation and Implementation of Land Reform

September 1993 Government Decree on the Establishment of Land Tax Rates January 1994 Government Decree on the Privatization of the Agro-Industrial Complex November 1994 Presidential Decree on Urgent Measures for Accelerating the Pace of Land Reform in the Agricultural Sector January 1995 Presidential Decree on Accelerating the Pace of Privatization of Public Property in the Agro-Industrial Sector March 1995 Presidential Decree on The Commission on Agrarian and Land Reform Issues under the President of Ukraine March 1995 Resolution of the Cabinet of Ministers on the Methodology for Estimating the Monetary Value of Land for Agricultural Use and Urban Settlement June 1995 Water Resources Code June 1996 President Suspends the Enactment of the Law on the Privatization of the AgroIndustrial Complex June 1996 Approval of New Constitution which Accepts the Right of Private Land Ownership July 1996 Law on the Specifics of Privatization of Assets of Enterprises in the Agro-Industrial Sector August 1996 Presidential Decree on Land Shares

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4 Land reform in Estonia, Latvia, and Lithuania A comparative analysis William H.Meyers and Natalija Kazlauskiene

HISTORICAL PRECONDITIONS FOR LAND REFORM Land reform and family farming have a long historical precedent in the Baltics. The transition from serfdom to family farming began in the early 19th century in the Baltic provinces of Kurland, Livland, and Estland (present-day Estonia and about two-thirds of present-day Latvia) under the Russian Empire.1 The first step, though, was not ownership but rather an incremental increase in personal freedom for peasant-cultivators.2 Only in the second half of the 19th century were peasants in these provinces granted the right to buy their land holdings.3 In the territory encompassing present-day Lithuania and the rest of present-day Latvia, which at that time were under Russian rule, the control of the nobility over estates had been curtailed.4 Emancipated serfs were granted the right to buy land during the same period as those in the Baltic provinces of Kurland, Livland, and Estland. Although these reforms led to a rapid increase in the number of ownercultivators by the beginning of World War I, about 50 percent of the agricultural land was still owned by the state, the Church, or large private landlords.5 The collapse of the Russian Empire after World War I and the sudden realization of national independence by Estonia, Latvia, and Lithuania provided the opportunity and the political necessity to implement radical land reform measures. In the tradition of agrarian reforms in the eastern part of Europe, these reform measures were initiated and managed by the state and driven as much or more by political as economic objectives.6 The reform involved expropriation of land (mostly from the large private estates), compensation, and land redistribution that began in Estonia in 1919, in Latvia in 1920, and in Lithuania in 1922.7 The recipients of the land were those who had served in the national armies, those who were landless, and existing smallholders who could demonstrate a need for more land. By the end of the 1930s, there were about 140,000 family farms in Estonia, more than 275,000 in Latvia, and more than 287,000 in Lithuania, as shown in Table 4.1. The large estates of the pre-war years were Table 4.1 Proportional distribution of farms by size prior to World War II Lithuania 1930 Total number of farms 287,380 Average size 15.0 ha

Hectares

Percentage

up to 5 5–10 10–15 15–20 20–30

18.6 27.2 20.7 11.5 11.8


Hectares

69

Percentage

30–50 7.2 50 and over 2.8 Latvia 1935 up to 5 28.5 Total number of farms 275,698 5–10 16.0 Average size 16.3 ha 10–20 28.2 20–50 21.7 50–100 5.2 over 100 0.4 Estonia 1939 up to 5 16.0 Total number of farms 139,984 5–10 17.1 Average size 22.7 ha 10–20 46.9 20–30 15.5 30–60 4.4 over 60 0.3 Sources: Adapted from Andrejs Plakans, ‘Agrarian Reform in the Baltic States between the World Wars: The Historical Context,’ in An Overview of Rural Development Strategies for the Baltics, Baltic Report 93-BR 9, Iowa State University, Center for Agricultural and Rural Development, 1993; and Robert Zile, Changing Ownership in Latvia through Agrarian Reform, Baltic Report 92-BR 5, Iowa State University, Center for Agricultural and Rural Development, 1992.

essentially gone. For example, in Lithuania from 1,149 large estates with an average size of about 2,400 hectares there remained only 443 ‘large’ farms with an average size of 247 hectares.8 There was a very active land market during the inter-war period that was reducing the number and increasing the average size of farms, but this process was interrupted by World War II and more dramatically by the nationalization of land in 1940 and the later collectivization of farms after the Baltic states were occupied by and incorporated into the USSR.9 The collectivization of agriculture took place mostly in the late 1940s and included the forced deportation to Siberia of some 300,000 of the more successful farmers.10 By the end of 1950 less than 10 percent of the family farms remained uncollectivized in the Baltic states. The volumes and structure of agricultural production in the Baltics after collectivization were not based on the domestic resource endowments or market supply and demand conditions. Taking into account the climate, geographical location, and relatively higher productivity and efficiency of the agricultural sector in this region compared to the rest of the USSR, the Table 4.2 Areas under major crops prior to reforms (in 1,000 hectares) Grains

Fodder crops

Potatoes

Other

Total sown area

Lithuania 693 445

1,192 828 559

979 106 72

139 47 12

95 1,674 1,088

2,405

Lithuania 686

1,084 820

933 80

113 41

81 1,627

2,214

1980 Latvia Estonia 1990 Latvia

70


Estonia

397

Grains

Fodder crops

Potatoes

Other

665

46

8

1,116

Total sown area

central government developed specialized livestock and dairy production enterprises based on domestic pastures and imported feed grains. For this purpose, fields of more than 100 hectares of arable land were formed, excessive moisture was drained from the fields, and big pasture areas were arranged close to newly constructed livestock facilities. Large-scale heavy machinery was introduced to operate on large fields. Before 1989, the Baltic countries were delivering to the centralized all-Union funds 25 to 40 percent of their meat and milk production depending on the country. To support this large livestock sector, the crop sector was specialized to produce forage (including feed grains and legumes, hay, silage, and feed beets). As a result, 65 to 75 percent of crop output was used on farms for feeding animals, and only one-fourth to onethird of total crop sector output were so-called commercial crops: potatoes, sugar beet, flax, fruit and vegetables, and food grains. These trends are shown in Table 4.2. To increase the livestock sector efficiency and to benefit from economies of scale, standardized dairy facilities (around 400 cows in one place per farm), feed cattle units, and also pig raising units were created (18,000 to 54,000 pigs per unit). Within the livestock sector, the main attention was given to milk and pork production. Beef production was a kind of by-product of dairy production, since cattle in the region were of the dual purpose (milk and meat) type. Also, based on the USSR pricing system, agricultural inputs, outputs, processing, and distribution costs, as well as final consumer products, were heavily subsidized. LEGISLATIVE BASES OF LAND REFORM The main goal of land reform in Lithuania, Latvia, and Estonia has been the re-establishment of the traditional pre-World War II farming structure based on private land ownership and family labor. The restitution of the property rights and ownership in force before 1940 was chosen as the main principle of land reform. As a result, the land formerly used by state and collective farms (1,500 to 5,000 hectares per farm on the average) was fragmented into small-size holdings claimed by former owners or their legal heirs. Part of the state land is still being used by reorganized state and collective farms (agricultural companies of different types) and subsidiary household plots inherited from the pre-reform period. By 1995, the agricultural companies used only 32 percent of the agricultural land in Lithuania, 17 percent in Latvia, and 39 percent in Estonia, as shown in Table 4.3. The household plots are currently included in the land privatization schemes, so that these smallholders can also own their land. The agrarian reforms in the Baltic countries started in 1989 when all three countries, still within the legal framework of the USSR, found ways to establish family farms. Under provisions of peasant (or private) farm laws passed between May and December 1989, individual farms were established based on long-term land use rights, not ownership. These early individual farms set the precedent for introducing alternative farming forms based on private operations and the right to use and inherit land. In January 1992, these farms had an average size of about 16.5 hectares of land in Lithuania and used around 2.2 percent of the agricultural land in the country. As a rule, these farms turned out to be the strongest and most viable because they started during relatively favorable economic conditions prior to price liberalization and high inflation, were few in number, and were eligible for government support and special credit provisions to new farmers. In Lithuania, the next step in land reform was taken in the summer of 1990, when personal subsidiary (household) plots, used by the rural population to produce food and provide additional income, were


71

allowed to increase from 0.5 hectare to 2 hectares for rural non-agricultural employees and to 3 hectares for agricultural employees. Large-scale land reform started in late 1991, after Lithuania officially regained its independence as a state and took steps to re-establish true private farming. Similar patterns of reform also developed in Estonia and Latvia. All three countries Table 4.3 Distribution of land area by type of farm, 1 January 1995 (percentages) Lithuania

Latvia

Estonia

State-owned farms 1.2 1.9 1.0 Agricultural companies 31.7 16.9 38.8 Family farms 34.2 46.7 31.6 Household farms 25.2 9.2 24.8 Other users 7.7 25.2 0.8 Total 100.0 100.0 100.0 Sources: CCET, Review of Agricultural Policies: Latvia (Paris, Organisation for Economic Co-operation and Development, 1996); CCET, Review of Agricultural Policies: Lithuania (Paris, Organisation for Economic Cooperation and Development, 1996). Table 4.4 Laws to implement land reform in the Baltics Law

Date adopted

Law on Peasant Farms June 1991

May 1989

Lithuania Law on the Procedures and Conditions for the Restitution of the Rights of Ownership to Existing Property Law on Land Reform Law on Privatization of the Property of Agricultural Enterprises Law on the Initial Privatization of State Property Law on the Leasing of Land Land Law Latvia Resolution on Agrarian Reform Land Reform in Rural Areas Act Land Tenure and Land Surveying Act Law on Privatization of Agricultural Enterprises and Collective Fisheries Land Privatization in Rural Areas Act Law to Establish a State Land Service

July 1991 July 1991 December 1991 December 1993 April 1994 Private (family) Farms Act June 1990 November 1990 June 1991 June 1991 July 1992 December 1992

May 1989

72


Law

Date adopted

Law on Peasant Farms June 1991

December 1989

Estonia Law on the Principles of Property Reform Law on Land Reform October 1991 Law on Agricultural Reform March 1992 Sources: CCET, Review of Agricultural Policies: Estonia (Paris, Organisation for Economic Co-operation and Development, 1996); CCET, Review of Agricultural Policies: Latvia (Paris, Organisation for Economic Cooperation and Development, 1996); CCET, Review of Agricultural Policies: Lithuania (Paris, Organisation for Economic Co-operation and Development, 1996).

passed the necessary laws to initiate the restitution of land rights to former owners prior to the formal recognition of their independence by the USSR in August 1991. Latvia passed its initial land reform law in November 1990, while Estonia and Lithuania did the same in June 1991. A review of early reform laws is provided in Table 4.4. Among the series of laws adopted to regulate reforms in the Lithuanian agricultural sector, the main ones were the Law on the Restitution of Private Ownership for Existing Property, the Law on Land Reform, and the Law on Privatization of the Property of Agricultural Enterprises. The first law set up the procedures for the actual denationalization of the countryside, recognizing the legal right of pre-World War II owners and their heirs to their once-nationalized property, including land. The other two laws provided the basis for fundamental changes in ownership forms, ownership relations, the creation of family farming, and the reorganization of large-scale state and collective farms into privately owned and supposedly more viable, manageable production entities. Estonia and Latvia each had an analogous set of laws for land restitution, land privatization, and the reorganization and privatization of non-land assets in state and collective farms. Although the methods used in each country varied, the principles were very similar. The basic principles guiding the process of land reform were as follows: • Only private individuals and the state could own land. Legal entities (organizations and enterprises) were excluded from land ownership. • Initially, the land could be acquired for ownership in two ways: by receiving land restitution as a former owner or legal heir, or by purchasing it from the state. In Estonia and Latvia, restitution rights were extended to former land owners who were citizens before World War II but later emigrated. In Lithuania, only citizens permanently residing in the country were eligible. • Individuals or legal entities could lease land from the state or other land owners for their agricultural activities. • Initially, for restitution purposes, the maximum land area that could be privately owned in Lithuania was set at 80 hectares, including 50 hectares of agricultural land. Such limits were not established in Latvia and Estonia. • The state formed a special ‘fund’ of land excluded from privatization and set aside for road construction, urban expansion, recreation, and similar activities. • Former owners and their heirs had priority in acquiring the land for agricultural purposes. Others were able to buy or petition for land in a priority sequence after the original claimants were satisfied.


73

According to the law, the right of land ownership was restored based on the applications of former owners or legal heirs. The government could do this in three different ways: 1 By providing the same plot of land owned prior to land nationalization, 2 By providing a corresponding plot of land in the same area or in the current place of residence, or 3 By providing compensation. In the beginning of land reform, the governments of all three countries imposed some restrictions on farm size and/or land use. This significantly affected the way the whole reform was conducted. Initially, the land could not be sold or leased for a period of five years and had to be used exclusively for agricultural production. Later, recognizing that these restrictions resulted in slowing down land reform and the whole of agrarian reform, laws were amended. For example, the five-year restrictions on leasing or using land for other than agricultural purposes in Lithuania were lifted in May 1992; and local authorities were given responsibility to approve land use changes. Also in Lithuania, the restitution application deadline, initially 31 December 1991, was extended to April 1992 when the list of eligible heirs was also extended to include grandchildren. In the restitution claims, former owners were given a certain flexibility in making decisions about farming. As an example, in Lithuania former owners could start private farming right away in the spring of 1992, lease the land to newly created agricultural companies, postpone actual farming for five years, or get compensation. Rural inhabitants who did not own land before World War II were given the opportunity to purchase land from the state at prices fixed by the government, depending on soil quality and location. Peasant farms, established under provisions of 1989 law, were not directly affected by the restitution of property rights to former owners, because their rights had priority. However, the land use rights granted under the 1989 law created tension and conflicts in the countryside since some of this land was claimed later by former owners or their descendants. Except for a few cases in Latvia the ‘1989 farms’ did not have to give up their rights to former owners. The course of the reform revealed problems which had to be resolved in order to speed up the reform. There were four main issues that contributed greatly to these problems. 1 In many cases claims were not in the original location of land property, but in the current residency of claimants. This situation resulted in a shortage of land in some regions, especially land with fertile soils or close to large urban centers. 2 There was a general lack of agricultural land for restitution: 50 years of industrialization naturally decreased the area of agricultural land, and additional territory was allocated by the authorities for future expansion of towns and cities. 3 The expansion of household plots from 0.5 hectare to 2 or 3 hectares with the later extension of land use rights to the plot users, in some cases conflicted with the restitution of land rights of former owners. 4 The reorganized state and collective farms were operating in complete uncertainty about their land use availability as long as the privatization of land was still in process. These and many other conditions required amendments to the original laws. In Lithuania, the first amendments were introduced during the summer of 1993, offering alternative and more attractive compensation to former owners in the form of forests, monetary compensation, and land for private dwelling construction in both rural and urban areas. The amendments were aimed at clarifying the system of

74


environmental protection and other land management restrictions. The main amendments on land reform are those listed here: • Summer 1993: Amendments to the Law on Land Reform came into force and introduced alternative, more attractive compensation to former owners. • April 1994: A new law regulating land use in Lithuania was passed that defined the structure of land tenure and the rights and responsibilities of legal land owners. • Summer 1995: Land in household plots became eligible for privatization by current users. They could buy it from the state with cash or compensation vouchers. As stated in the general provisions of the April 1994 law, land had to be used in compliance with the active legislation of the Republic of Lithuania and had to be aimed toward ‘…preservation and improvement of the natural environment and rational use of land resources.’ This April 1994 law defined the broad structure of land tenure, the rights and responsibilities of legal land owners and users (private individuals, groups, and the state), and authorized the sale, lease, mortgage, and other disposition of land by owners. It also formulated the role of the government in land use regulation. According to this, the government is involved in ‘…formulation of special provisions on land use, restrictions on certain activities and land use or changes in the initial land use purposes.’ Within the framework of this law, the Ministry of Agriculture is responsible for supervising the institutions involved in maintaining and updating land registration, preparing land use plans and maps, and monitoring land use assigned for particular purposes and compliance with the law on environmental protection. Each country found it necessary to make such changes in laws and regulations in order to remove obstacles and speed up the process of restitution and the completion of registration and issuance of titles. PROBLEMS IN LAND REFORM As noted earlier, the land reform process was accompanied by laws and regulations to reorganize and privatize the assets of the state and collective farms. The principles followed were generally to transfer the assets or shares in the assets to current and former workers on the state and collective farms as well as to the former owners whose assets were nationalized or collectivized during the Soviet period. The specific processes varied somewhat across the Baltics, but the principles were the same. Members of collective farms and state farm workers were provided with alternative ways to establish the enterprises and management structures of these farms. This has resulted in the creation of various kinds of group farming enterprises that are generally smaller and more specialized than the former state and collective farms. They are usually organized as joint-stock, share holding, or limited liability companies or cooperatives. In some cases, usually on the weaker farms, the members decided to liquidate the farm entirely. In all cases, the social infrastructure of the farms such as schools, roads, clinics, and other community facilities were transferred to the responsibility of the local governments. In many cases these local authorities were not yet prepared financially or organizationally to assume these new functions. Also, in many cases the claimants for land restitution were not those who resided in the rural areas, and therefore could not acquire agricultural assets through the asset privatization procedures. Thus, it often happened that the land was separated from other production assets, which complicated the establishment of new family farms, especially in view of the lack of credit resources to acquire new assets. A major problem with completing the land reform was the sheer magnitude and complexity of the cases to be processed. In Estonia, the smallest of the three countries, 158,000 parcels were claimed by the April


75

1993 deadline. Many parcels were claimed by more than one heir.11 By 1995, about 70 percent of these claims were validated by the appropriate authorities, but the registration of land in the cadaster and the issuing of titles are taking much longer. In many cases, a cadastral survey was needed before this process could proceed. By mid-1995 only 5 percent of the cadaster units had been created (covering about 7 percent of the agricultural land in Estonia), less than 25 percent of the land claimed by private farms was registered in the cadaster, and less than 10 percent of this land has been titled.12 The whole restitution process in Estonia was probably more complicated than in the other two countries, but all three countries faced difficulties with building the institutions for land reform, cadastral surveys, registration, and titling at the same time that the restitution process was in progress. Moreover, most homesteads were abandoned or destroyed in the process of land collectivization during the Soviet period, and the rural infrastructure was altered so that it was often not suitable for farm homestead agriculture. Thus, new boundaries had to be drawn while roads and electric and water services had to be restructured to serve the new farming structures. In Latvia, restitution claimants had first priority but current users of agricultural land, including the reorganized state and collective farms— agricultural companies—and persons who were not employed in agriculture but wanted to receive land to farm, could also apply for a parcel. There was no limit to the size of parcel, but lots of more than 100 hectares had to be approved by the Cabinet of Ministers. The land requested by the newly reorganized agricultural companies could be used for five years, but not owned, by these farms. Their land would pass to the individual share holders if the farm subsequently was liquidated. More than 300,000 applications for land were submitted, totaling 5.36 million hectares, which exceeded the land available by more than 25 percent. Of this total, 1.66 million hectares was claimed for restitution by 100,700 former land owners, 760,000 hectares was requested by household farms and others that wanted to start farming, and 2.7 million hectares was petitioned by the agricultural companies.13 From a total of about 250,000 land claims, 65,000 properties were surveyed and registered and 43,000 had completed the titling process by March 1996. This registered and titled land amounts to about 25 percent of total agricultural land, but the remaining claims involve more difficulties and may take ten more years.14 In Lithuania, more than 500,000 restitution claims were received for a total area of 3.5 million hectares. Of these claimants, nearly 90 percent wanted land or forest plots and the rest preferred compensation. Even without the land compensated in cash, the restitution claims exceeded the total agricultural land area in Lithuania. Also there were the inevitable conflicting claims that had to be resolved, including the fact that the peasant farms established under the 1989 laws occupied some of the claimed land and could not be evicted (this was not the case in Latvia, where some farmers were displaced by restitution claimants). When the household farm families were given the right to buy the 2–3 hectare plots they used and where most of them lived, they also occupied some of the land claimed by former owners and heirs. There were procedures to offer alternative land or compensation, but these conflicts extended the time needed to even validate and settle the claims before registration and titling could proceed. The situation improved after the Lithuanian government amended the Land Law in July 1993 to offer more attractive compensation alternatives. The director of the National Land Survey Office in Lithuania estimated that by January 1996 nearly 40 percent of the process was completed, but these were the less complicated cases. The director reported that they had surveyed 162,000 parcels, of which 127,000 were for family farms; and 95,000 of these had received full land ownership titles. The remaining claims for agricultural land involved missing documents or the resolution of conflicts between claimants. The completion of these could take another six to ten years.

76


IMPACT ON THE AGRICULTURAL SECTOR As a result of land restitution and asset privatization, a new farming structure has evolved, and is still evolving, in the Baltics, as indicated in Table 4.5. Of agricultural producers, the first are household farms which remained from the Soviet times, previously known as subsidiary (or household) plots of the rural population. During the Soviet period, the sizes of subsidiary plots were among the largest in the USSR.15 Today, these household farms are using roughly one-fourth to one-third of all agricultural land. These farms, while being significant producers of potatoes, vegetables, fruit, and milk, have very limited possibilities to expand production levels or change their production mix, because of the limited land resources (2–3 hectares on average) and the fact that the initial purpose of their existence was to provide an additional income source for the rural Table 4.5 Dynamics of number of agricultural land users and farm size, Farm type

1991*

1994

1995

1996

State and collective 2,535 **

1,212

299

217

n/a

167 3,483

188 2,880

n/a 2611

** 2,300 14.1 465,800 0.7

385 111,500 8.8 404,000 2.1

334 134,600 8.5 396,700 2.1

270 165,800 7.8 378,400 2.2

State and collective 4,532 **

823

103

95

** 1,101

547 656

412 617

** 7,300 21.0 250,200 0.5

837 57,500 19.3 228,300 3.8

706 64,300 19.9 243,500 3.6

518 74,100 19.7 250,000 3.8

State and collective 3083 **

356

**

22

n/a 1,013

500 961

500 851

** 2,300

509 10,200

448 13,500

506 19,800

Lithuania

Average size, ha Agricultural companies Average size, ha Family farms Average size, ha Household farms Average size, ha Latvia

Average size, ha Agricultural companies Average size, ha Family farms Average size, ha Household farms Average size, ha Estonia

Average size, ha Agricultural companies Average size, ha Family farms

92

22


Farm type

1991*

1994

1995

77

1996

Average size, ha 26.5 26.0 26.0 20.7 Household farms n/a 186,700 186,800 186,000 Average size, ha n/a 2.0 1.7 1.4 Note: * All dates as of 1 January. Latvia ‘1991’ data is for 1990. ** These data are not applicable, as the category did not exist at that time. Sources: CCET, Review of Agricultural Policies: Estonia (Paris, Organisation for Economic Co-operation and Development, 1996); CCET, Review of Agricultural Policies: Latvia (Paris, Organisation for Economic Cooperation and Development, 1996); CCET, Review of Agricultural Policies: Lithuania (Paris, Organisation for Economic Co-operation and Development, 1996).

population. The number of these farms is becoming stable or declining, and some of them are trying to acquire or lease more land to join the ranks of the family farms. The second main group of producers are subdivided and reorganized state and collective farms, now referred to as agricultural companies. The number and size of agricultural companies are gradually decreasing, as is the share of their produce in total agricultural output. This farming group also has problems with currently used land availability, because the land restitution to former owners is not over yet, and none of the countries permits land ownership by legal entities. Despite being better off with Table 4.6 Proportional distribution of family farms by size in 1995 Lithuania, 1995 Total number of farms 134,600 Average size 8.5 ha

Latvia, 1994 Total number of farms 64,364 Average size 19.9 ha

Estonia, 1995 Total number of farms 13,514 Average size 23.0 ha

Hectares

Percentage

up to 3 3–10 10–20 20–30 over 30 up to 5 5–10 10–20 20–50 up to 50 up to 5 5–10 10–20 20–30 30–50 over 50

19.6 48.1 22.6 6.2 3.5 12.4 18.5 32.7 31.5 4.8 8 13 28 21.5 20 9.5

respect to production facilities, machinery, bigger fields, and animal herds, the future of this farming form is quite uncertain. The last, but not the least important group, is the constantly growing group of family farms (established on restituted or purchased land and using mainly family labor in agricultural production). During the establishment period, these farms face a variety of economic, legal, and organizational problems which

78


often continue for some time. Nevertheless, the amount of land used by this group continues to grow and it has the greatest potential for growth and development in the future once the main problems are solved. Because Lithuania granted restitution rights to more of the distant heirs of former owners, land holdings of family farmers are more fragmented and there are greater difficulties in achieving viability. In fact, the size distribution of family farms in Lithuania has a higher portion of small farms now compared with the 1930s, while in Latvia and Estonia the proportion of small farms is smaller, as shown in Table 4.6. However, family farmers make extensive use of land leasing to increase the size of their operations. All three types of farms represent private farming, with the main differences being the size, management form, and land ownership structure. The state still retains a small number of farms in each country (mainly experimental farms and so-called training farms for agricultural education and research establishments) because of the need to continue training, research, selection, and breeding work in the countries in an absence of private funding sources for those activities. These range in average size from Table 4.7 Shares of family and household farms in main agricultural production activities, 1990 and 1995 (in percentages) 1990

1995

Lithuania

Latvia

Estonia

Lithuania

Latvia

Estonia

Grain 0.9 73.8 59.4

0.8 7.1 61.9 44.6

6.7 none 48.9 59.0

6.6 55.4 93.6 94.9

65.5 66.0 96.2 96.0

72.1 none 90.7 92.8

42.7

Beef cattle 39.9 19.3

23.8 29.8 14.3

22.4 15.9 6.0

14.8 76.7 42.4

61.6 79.8 63.4

73.7 39.1 13.8

33.6

Product Sugar beet Potatoes Vegetables Livestock Dairy cows Pigs

200 hectares per farm in Lithuania to 500 hectares per farm in Latvia, and use less than 2 percent of the land area. With the restoration of family farming, the increases in size of household farms, and the restructuring (and sometimes liquidation) of state and collective farms, the distribution of production changed dramatically. As land, labor, and animals shifted from the large-scale farms to smaller operators, the shares of production provided by family and household farms increased for all the major products. The production of grains and sugar beet, dominated by the large farms in 1990 and earlier, had shifted to small farms by 1995, as illustrated in Table 4.7. Potatoes and vegetables, which were important crops in the small household plots prior to reforms, nearly disappeared from the relatively large agricultural companies by 1995. Even livestock and dairy shifted dramatically towards the family and household farm production units. By 1995, beef cattle and dairy cow production was mostly from the small farms in Latvia and Lithuania. The shares of pig production also increased in the small farms, but large production complexes still dominated, except in Latvia. Poultry and egg production remained primarily in the large production complexes, which were and still are vertically integrated firms. Only in Estonia did the large enterprises continue to produce the majority of all livestock, dairy, and poultry products.16 The share of output by farm


79

type differs by product and by country, but the tendency of the growth in importance of smaller farms is common to all three countries. Much of the shift in production is the result of the fact that agricultural output has declined substantially in the Baltics since the agrarian reforms began, and these declines have been more significant in the largefarming units than in the family and household farms. Aggregate agricultural output has declined by 40 to 51 percent since 1990 as shown in Table 4.8. The disruptions caused by land restitution and farm restructuring contributed to Table 4.8 Dynamics of gross agricultural output index, 1990=100 Lithuania Latvia Estonia

1990

1992

1993

1994

1995

100 100 100

73 81 79

67 63 72

55 50 65

56 49 60

these declines, but other significant and probably more important factors were reduced domestic and external demand, lack of credit resources, a severe cost-price squeeze for farmers, and poor weather conditions. Among major products, the largest output declines were in meat, ranging from 61 to 63 percent from 1990 to 1995, indicated in Table 4.9. The declines in milk and grains ranged from 40 to 50 percent, except that grain production in Latvia was down 60 percent over this period. The main factors contributing to a sharp livestock and dairy output decline were: 1 The loss of cheap grain imported under USSR delivery arrangements and lack of financial resources to purchase feed grain from other sources; 2 Two years of severe drought that caused the liquidation of animals; 3 The cost-price squeeze and delayed payments that caused considerable exports of live animals; 4 The price liberalization at early stages of reforms (removing farm input and consumer subsidies) resulted in a sharp consumer price increase, which in turn, because of the low and declining purchasing power of the population, caused a significant decline in domestic demand; 5 More liberal trade policies that opened the domestic market for competition with imported products, so that imports depressed the demand for domestic food products; 6 The loss of the traditional markets for food and agricultural products in Russia and other countries of the former Soviet Union (FSU) because of reasons of politics (Russia was relating trade issues to certain political demands causing a delay in granting MFN status in trade) and economics (declining demand, delayed payments, inconvertibility of the Russian currency, increasing competition with Central and Eastern Europe, the European Union, and other country exporters); 7 The limited access to Western markets because of inadequate product quality and lack of trading expertise, market research, and product certification; and 8 The decline in livestock productivity because of poor feeding conditions and the lack of experience in proper practices in newly established private farms. Since the crop sector development was to a great extent driven by the need to provide feed for dairy and meat production, it also adjusted to a sharp decline in livestock numbers. However, the decline in crop output was

80


Table 4.9 Changes in agricultural output (1,000 tons) 1990 Lithuania Latvia Estonia 1995 Lithuania Latvia Estonia 1995 as % of 1990 Lithuania Latvia Estonia

Meat

Milk

Grain

530 309 183

3,157 1,893 1,208

3,265 1,622 952

208 118 68

1,819 944 707

1,954 645 520

39.2 38.2 37.2

57.6 49.9 58.5

59.8 39.8 54.6

Table 4.10 Mineral fertilizer use in the Baltics, 1990–1995 (kilograms/hectare) Year

Lithuania

Latvia

Estonia

1990 1991 1992 1993 1994 1995

227 247 156 88 78 83

n/a 221 136 73 10 24

220 176 153 144 102 82

smaller than that of the livestock sector, except in Latvia. Because of the reduced demand for feed grains, the import of grains declined and domestic crop production adjusted by shifting towards feeds and forages. However, grain production declined primarily because of the severe cost-price squeeze that reduced input use and resulted in lower yields. When the wide array of USSR input subsidies were removed, beginning in 1990, input prices rose many times faster than product prices. For example, the price ratio of fertilizer to wheat rose by 300 to 400 percent from 1990 to 1992 in all three countries; and the ratio of diesel fuel to wheat rose as much as 700 percent in Lithuania and Latvia.17 A key indicator of reduced input use is the decline in the application of mineral fertilizers, shown in Table 4.10. Financial resources were not available and still are not available, either in cash or credit, to meet normal farm operating expenses, so fertilizer and other purchased input usage has declined by two-thirds or more. A positive indicator was that in 1995 application rates began to increase in Latvia and Lithuania. The prices of farm products relative to other goods and services in the Baltic economies continued to decline until 1994 or 1995, when the massive market adjustments began to stabilize. At this point the declines in production subsided and, for some products, output began to increase. The general economic conditions began to improve and the purchasing power of consumers began to recover. This was not the end of difficult times but the beginning of a recovery for the farm economies and for farmers. The development of private farming cannot progress without the development of the marketing infrastructure that provides inputs and processes farm products and brings them from the farms to consumers. The governments of all three countries developed processes to privatize and restructure the


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upstream and downstream enterprises that provide these services. The retail stores and input suppliers at the two ends of the food chain were the first to begin the privatization process, but the other links in the chain took more time and effort. On the retail level, close to 90 percent of outlets are currently in private ownership, the rest continue to be privatized. The underdeveloped marketing infrastructure and inefficiency of the downstream industry also contributed to the decline of agricultural output sold to processing enterprises. The delayed payments for farm produce, high inflation rates, and the lack of or the complicated access to credit resources forced farmers to look for the alternative marketing channels. In the case of livestock products and milk, as well as potatoes and vegetables, a considerable amount of farm output is now marketed directly through farmers’ markets in the cities and other settlements, as well as through direct contracts with newly established or privatized public catering enterprises. On the other hand, privatization in the food industry progresses not only through the transfer of existing enterprise assets to new and private owners, but also through new entries of private processing facilities serving the needs of local markets. With some differences in timetables, methods used, and the degree of privatization achieved across the countries, the agricultural processing industry (including large-scale enterprises) in the Baltics has been privatized to a large degree, except for special-purpose enterprises which governments decided should remain in state ownership (e.g., elevators for the strategic food and feed grain reserves). Despite the differences in privatization methods, in all three countries over half of the assets have been privatized to the enterprise employees, farmers, or other investors. (Individual farmers or special farmer cooperatives that were formed for this purpose as in Latvia and Estonia.) Attempts have been made to attract foreign capital, but this has been very selective and has been somewhat more successful in Estonia than in the other two countries. For example, in Lithuania, foreign capital accounts for nearly 98 percent of shares in the tobacco industry but only 9 percent of all the statutory capital in the food chain as a whole. The remaining shares of all food chain enterprises are held by Lithuanian share holders (55 percent) and the state (36 percent). In the agro-processing industry, which was the specific focus of privatization to farmers, by December 1996 the state owned only 17 percent, farmers 38 percent, and employees 45 percent of the shares. The privatization of the Latvian dairy processing enterprises put even more emphasis on farmer ownership by requiring that ‘dairy producers’ associations… hold at least 70 percent’ of the shares.18 The emphasis on farmer ownership was intended to stimulate vertical integration and increase farmers’ control over what was considered to be a monopolistic food industry. However, this approach created problems in management decision making as well as in attracting and accumulating the necessary financial resources for enterprise restructuring and modernization investments. In the past, the capacity of the food industry was based on a farm output almost two times higher than now. The privatization process preceded the restructuring and downsizing of the industry, and as a result of these two factors all big processing enterprises are operating at one-third to one-half of their capacities. This surplus capacity increases processing costs and contributes to retail food production cost increases. Surplus capacity is also exacerbated by the establishment of many new private processing enterprises. The former network of wholesale storage and distribution centers has almost disappeared, since every processor is trying to minimize the marketing margins in order to make products cheaper at the retail level or perhaps to capture more of the margins for their own business. As a result, processors are usually delivering their products directly to the retail network or storing it at the freezing and refrigerating facilities on the plants. Moreover, any legal entity registered in the countries can be involved in foreign trade. Thus, many of the larger processing enterprises are involved in foreign trade themselves, or are using the services of trading companies or commodity exchanges, which are not yet well developed.

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DEVELOPMENT AND FUNCTIONING OF LAND MARKETS Land markets are beginning to function in the Baltics, but the current manifestation of land market behavior is more in the form of leasing arrangements than in land sales. The main legal constraint to land sales in Lithuania and Estonia is that legal entities cannot own agricultural land. At present the laws in these two countries extend land ownership rights only to individuals and the state. At the beginning of the land reform, there were also general restrictions on leasing and selling land, but these have since been removed and the restrictions on selling or leasing agricultural land for non-agricultural purposes have been eased. Both the restrictions on land ownership by legal entities and on non-agricultural uses for agricultural land limit market demands for land and hence slow the development of the land markets. In addition to the legal constraints, there are several other factors that have limited the role of land markets. The process of land restitution, registration, and issuing titles has been a long and difficult one; and many new land owners do not yet have title to the land they own. Moreover, there are many farmers who would like to expand the size of their operations but do not have the financial means. Mortgage lending is at a very early stage of development and is also constrained by the restriction on land ownership by legal entities, since banks are less willing to take land as collateral if they cannot take ownership of the land in foreclosure proceedings. Latvia was the first of the three countries to extend land ownership to legal persons in a recent amendment to the Land Privatization in Rural Areas Act. The amendment, which came into force on 3 January 1995, extends land ownership rights to legal persons who are registered in Latvia and have more than one-half of their equity from Latvian citizens or joint ventures from states with which Latvia has concluded investment agreements. The latter group of eligible countries are members of the European Union and the Organisation for Economic Co-operation and Development (OECD). In June 1996, Lithuania amended Article 47 of the constitution, where land ownership rights are specified, to extend land ownership rights to foreign ‘natural and legal persons’ in the European Union and OECD member states as soon as the Association Agreement with the European Union (EU) comes into effect. This change was a necessary step to prepare for future membership in the EU, but it specifically excluded agricultural land and did not include Lithuanian legal persons. Though this action did not change the statutes on agricultural land ownership, it demonstrated that it can be done and very likely will be done in the future. At the start of the reform process, the new governments in Lithuania, Latvia, and Estonia, were concerned that restitution and other land privatization processes would be disrupted if land were purchased by the newly formed agricultural companies or by foreign persons and legal entities. These concerns may well have been justified at the beginning of land reforms but become less important as land restitution and privatization progress. The difficulties in completing the registration and titling of restituted and other privatized land are due to both the resolution of conflicting claims and the limited human and financial resources available to process such a large number of land claims and sales. These obstacles have been discussed earlier in connection with progress in land reform, but they need to be stressed here as a key to getting the land market moving. In April 1994, Lithuania provided the legal basis for the operation of a land market by adopting the Land Law that came into force on 1 July 1994, and gave land owners full rights to sell, bequeath, mortgage, exchange, or lease land to other persons.19 By July 1995, over 19,400 agricultural land plots had been transferred to other owners, including 3,761 that were inherited, 4,273 that were given as gifts, and 11,379 that were sold.20 In addition, 1,500 parcels covering 26,500 hectares had been used as loan collateral by January 1996. These are not large numbers, but they indicate that the processes are working and the land market has taken its first steps. There does not seem to be data on such transactions available from Latvia or Estonia, which may indicate that the land transaction processes are developing more slowly there.


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Most of the farmers that desire to purchase land to increase their operating area have little or no financial resources to do so. In a well-functioning land market, mortgage lending is the principal means to finance land purchases. Latvia established a mortgage and land bank in 1993 to provide medium- and long-term credit, but Estonia and Lithuania are still developing these institutions. This financial service from mortgage banks or other banks is also constrained by the fact that legal entities cannot own land and therefore are reluctant to use land as collateral. Moreover, the fact that many farmers do not yet have ownership titles for their land limits the use of this means of finance for land purchases or other capital expenditures. The alternative to buying land is the land lease. Leases are widely used as a means to expand the operating area of a farm or even to start farming. Most of the leased land is still leased from the state, since the land privatization is not completed and much of the land is still in state ownership. However, individuals that have land use rights also lease land to others even before completion of land registration and titling. To preserve the viability of the agricultural companies while the land restitution and privatization are in process, measures were taken to ensure that they had access to land in the territory near their buildings and other operations. In Latvia this took the form of withholding land from claimants for five years so it could be used by the agricultural companies. The five-year period expires in September 1997, so they will apparently have to negotiate with land owners for lease of the land they need. This will help develop the leasing market and begin to establish market rental values that can also be the basis for imputing land prices. In Lithuania, the laws that relate to the establishment of the agricultural companies and the privatization of non-land assets of former state and collective farms included a provision that private land owners in the vicinity of these farms were required to lease their land to the farms. About 9,000 restituted farms were thus obligated to lease their land to the agricultural companies as long as the companies continued to exist. In early 1997, amendments were submitted to the Lithuanian parliament to revoke this mandatory leasing. Since these amendments were adopted, these companies will need to negotiate their leases at market rental rates to obtain the land they need to operate. The removal of these special land access and land leasing privileges will actually improve the functioning of the leasing market and may also create conditions in which land ownership rights can be extended to legal entities such as the agricultural companies. CURRENT STATUS AND FUTURE PROSPECTS Lithuania, Latvia, and Estonia are in a farm restructuring process that has already changed the face of Baltic agriculture and re-established family farming as the basis for future development of the agricultural sectors. In some ways it has been a tortuous path. Choosing restitution as the basic principle of land reform was a political imperative at the beginning of building new nation states, but it may not have been the easiest nor the most efficient path to the goal of a family-farm-based agriculture. Nevertheless, as obstacles arose, the governments have been willing to amend laws and procedures to improve the land reform processes. Many different types of farms now coexist and compete for resources and markets, and this is likely to continue for the foreseeable future. The large agricultural companies that remain from the restructuring of the former state and collective farms are declining in number and size, most rapidly in Latvia and least rapidly in Estonia. Family farms are clearly the most dynamic part of the transition in farming structures, but many are too small to be viable in the longer term. If the land markets and mortgage financing institutions can be developed and strengthened, a natural process of consolidation can occur as it was beginning to do in the inter-war period. In this environment, the stronger farming forms and the most capable farmers will lead the way to a more productive and efficient production system. This process is likely to take many years, by which time it might be overtaken by other events such as the accession of these countries to the European Union.

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The two major obstacles that still constrain the development of a well-functioning land market are the slow progress of the land registration and titling which limits the supply of land that could be sold, and the restriction on agricultural land ownership by legal entities which limits the demand for land. As these are resolved and as financial conditions in agriculture improve, the transition in farm structures can proceed more rapidly. The strength and vitality of the farming sector also depend on a stable policy environment and a marketing infrastructure that is efficient in providing inputs and moving competitive products from the farm to the consumer. Land restitution and privatization, and the privatization of assets and restructuring of state and collective farms in the Baltics were only part of the kaleidoscope of events and policies that have begun to transform Baltic agriculture. The transition reforms and policies of these countries were bold and comprehensive, and the governments did not hesitate to undertake sweeping economic reforms and agrarian reforms even while they were building the new institutions that were necessary for them to become nation states once again. The rapid changes in the agrarian sector influenced the development of the whole economy, and the reforms in the general economy had major impacts on the developments in the agrarian sector. The aggressive path they chose with the restitution of land and the fairly rapid dismantling of the former state and collective farms may have appeared at times to be rather disruptive to the agricultural sector. However, it has launched a family farm basis for future agricultural development and may well be a more effective path to a private and dynamic agriculture than the gradual way chosen by some other countries in the region. NOTES 1 Arveds Svabe, Latvijaz vesture 1800–1914 (Uppsala, Daugava, 1958); and August Rei, The Drama of the Baltic Peoples (Stockholm, Kirjastus Fabian Selts, 1972). 2 Andrejs Plakans, ‘Agrarian Reform in the Baltic States between the World Wars: The Historical Context,’ in An Overview of Rural Development Strategies for the Baltics, Baltic Report 93-BR 9, Iowa State University, Center for Agricultural and Rural Development, 1993. 3 Svabe, Latvijaz vesture 1800–1914. 4 Anicetas Simutis, The Economic Reconstruction of Lithuania after 1918 (New York, Columbia University Press, 1994). 5 Plakans, ‘Agrarian Reform in the Baltic States between the World Wars: The Historical Context.’ 6 John P.Powelson, The Story of Land: A World History of Land Tenure and Agrarian Reform (Cambridge, MA, Lincoln Institute of Land Policy, 1988). 7 Plakans, ‘Agrarian Reform in the Baltic States between the World Wars: The Historical Context.’ 8 Simas Suziedelis, ed., Encyclopedia Lituanica, 6 vols. (Boston, Juozas Kapocius, 1970). 9 Plakans, ‘Agrarian Reform in the Baltic States between the World Wars: The Historical Context.’ 10 Romuald J.Misiunas and Taagepera Rein, The Baltic States: Years of Dependence 1840–1980 (Berkeley and Los Angeles, University of California Press, 1982). 11 Center for Co-operation with the Economies in Transition (CCET), Review of Agricultural Policies: Estonia (Paris, Organisation for Economic Co-operation and Development, 1996). 12 Ibid. 13 William H.Meyers, Natalija Kazlauskiene, Inesis Feiferis, and Valdek Loko, Transformation and Privatization in the Baltics, Baltic Report 92-BR 7, Iowa State University, Center for Agricultural and Rural Development, 1992. 14 Country Department IV, Latvia Agriculture Policy Update, World Bank EC4NR Agriculture Policy Note No. 3 (Washington, DC, The World Bank, 1996). 15 See Stephen K.Wegren, ‘Regional Differences in Private Plot Production and Marketing: Central Asia and the Baltics,’ Journal of Soviet Nationalities, Vol. 2, No. 1 (Spring 1991), pp. 118–138.


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16 M.M.Pajo and R.Teinberg, The Restructuring of Estonian Agriculture, Baltic Report 94-BR 15, Iowa State University, Center for Agricultural and Rural Development, 1994. 17 Meyers, et al., Transformation and Privatization in the Baltics, Baltic Report 92-BR 7. 18 CCET, Review of Agricultural Policies: Latvia (Paris: Organisation for Economic Co-operation and Development, 1996). 19 See Natalija Kazlauskiene and William H.Meyers, Land Policy and Economic Development in Lithuania, Baltic Report 96-BR 24, Iowa State University, Center for Agricultural and Rural Development, 1996. 20 CCET, Review of Agricultural Policies: Lithuania (Paris, Organisation for Economic Co-operation and Development, 1996).

Part II Land reform in the former Soviet Union: Central Asia

5 Land reform in Kyrgyzstan Peter C.Bloch and Kathryn Rasmussen

As a former Soviet republic, Kyrgyzstan (formerly Kirgizia) has been faced with similar problems and obstacles in reforming its economic and political structures, and in this sense has shared experiences with several other post-Soviet states during land reform. As was the case in other Soviet republics before independence, almost all agricultural land in Kyrgyzstan was held by state and collective farms. For example, in 1990 state and collective farms accounted for 96 percent of the total land area and 99 percent of arable land in agricultural enterprises. Research and experimental farms, subsidiary farms of industrial enterprises, and other types of state-managed farms accounted for most of the remainder. The collective sector was subject to planned indicators from the center which limited farm autonomy. The task, therefore, as in other states, was to privatize, put land in the hands of individuals, and make farms responsible for their economic activity. In addition to the usual problems facing post-Soviet states, Kyrgyzstan has had to confront a number of obstacles that arise from its unique socio-economic conditions. Here we would point to the fact that Kyrgyzstan is largely an agrarian nation, with agriculture accounting for one-half the country’s exports and one-third of its GDP. Furthermore, the rural population, most of which is directly or indirectly involved with agriculture, constitutes over 60 percent of the total population, and just over 40 percent of the labor force is employed in the agricultural sector. As a result, Kyrgyzstan has traditionally been one of the poorest republics in the USSR. The Soviet-era Kirgizia had among the lowest average monthly wage incomes, among the highest birth and death rates, and among the largest average family size—all indicators of a Third World state.1 The purpose of this chapter is to survey land reform in Kyrgyzstan. We are interested in examining how Kyrgyzstan has dealt with the set of similar and unique problems it has confronted as it attempts to move away from its communist past. We will begin with a brief overview of the structural problems facing land reform in Kyrgyzstan. Following that, the bulk of the paper is divided into two broad sections. In the first section we survey land reform initiatives, the distribution of land, and the land market. The second section examines farm restructuring and investigates the impact of land reform on farm restructuring and the problems new agricultural enterprises are facing. STRUCTURAL PROBLEMS IN CONTEMPORARY LAND REFORM Kyrgyzstan confronted a number of structural problems at the beginning of land reform, including legal obstacles and political opposition to private ownership, the structure of land usage and the need to decollectivize, poor land-to-people ratios, and ethnic tensions.

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Since 1991, the government of Kyrgyzstan has introduced reform measures aimed at transforming its farm sector into a mix of collectively and individually owned and operated farm enterprises. To date, the constitution Table 5.1 Land use in the Kyrgyz Republic (in thousand hectares) Land category

1 January 1991

1 January 1995

Annual crops 1,295.7 1,297.7 Perennial crops 44.7 45.7 Fallow 11.9 19.2 Hayfields 207.7 167.0 Pasture 8,844.1 9,063.3 Land around houses 97.6 151.0 Collective gardens 4.4 4.4 Collective orchards 2.0 8.2 Land under amelioration and fertility 6.7 13.6 restoration Forest 1,123.3 1,042.0 a Scrub and brush area 106.5 454.8 Swamps 8.6 6.2 Land covered by water bodiesb 867.3 874.7 Land under roads and livestock paths 121.9 113.2 Streets, public squares, and yards 49.6 62.3 Land under public structures 27.2 28.9 Destroyed landc 2.0 2.7 Otherd 7,173.7 6,639.5 Total area 19,994.9 19,994.4 Source: State Inspectorate on Land Resources and Engin eering. Notes: a. Included area not considered part of state Forest Fund, shelterbelts, other protective vegetation, other protected areas, and scrub and brush growing on land designated as agricultural land. b. Includes land under rivers, streams, seas, lakes, reserveoirs, ponds, artificial water bodies, canals, collectors, and drainage arteries. c. Includes land under exploration for ‘useful materials,’ under torforazrabotkax, under construction sites and other such structures. d. Includes sands, ovragov, glaciers, other unused land, c cliffs, and osiypi.

of Kyrgyzstan does not permit private ownership of agricultural land, reserving ownership to the state (Article 3). A draft amendment has been prepared but has yet to be considered by the Jogorku Kenesh (parliament), where there is considerable opposition to private land ownership. While the World Bank and other donors have been pressing the government for several years, and while the government continually responds that it intends to pursue the constitutional amendment, there are no immediate prospects for it to be approved. Regarding the structure of land use, Kyrgyzstan has extensive pasture lands, covering about 9 million hectares or 45 percent of the total land area. Just 8 percent of the land (1.6 million hectares) is arable, 5

LAND REFORM IN THE FSU: CENTRAL ASIA

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percent is forested, and 33 percent is classified as unusable, being mainly glaciers and high mountain areas. The agricultural sector features a mix of grazing in upland areas and intensive irrigated agriculture in the lowlands. The main agricultural outputs are mutton, wool, beef, feed grains, fruits and vegetables, cotton, tobacco, and silk. Table 5.1 indicates the structure of land use and its changes between 1991 and 1995. As we noted above, when Kyrgyzstan gained independence its agricultural sector was dominated by state and collective farms. Table 5.2 shows the detailed breakdown of land holdings in the country. In addition, there is a serious imbalance between the rural population and available arable land, as illustrated in Table 5.3. There is only one-third of a hectare of cultivable land per person, and less than one-fourth of a hectare of irrigated land, which in the semi-arid conditions of most of the country is the only land on which annual crops can be grown reliably. A typical family of five would have barely one hectare of irrigated land, hardly enough to produce sufficient wheat to meet subsistence needs much less produce a surplus for sale. The situation is even worse, however, in two of the oblasts, Djalal-Abad and Osh, where more than half of the rural population lives on one-fourth of the irrigated land. It was clear from the start, therefore, that Kyrgyzstan could not adopt the reform strategy that abolished state and collective farms and divided all land into individual family farms. It was also clear, however, that the government and substantial numbers of rural people wished to dismantle the state and collective farm system. Furthermore, as the riots in Osh in 1990 showed, ethnic sensitivities would have to be taken carefully into account. The riots were set off by the decision of the city soviet to reassign to ethnic Kyrgyz the land of a collective farm that had been farmed by ethnic Uzbeks; at least 300 people died and more than 1,000 were injured.2 LAND REFORM AND THE CREATION OF PRIVATE PEASANT FARMS, 1991– 1993 Land reform in general, and the development of peasant farms in particular, began in earnest after the passage of the ‘Law on Peasant Farms’ on 15 Table 5.2 Distribution of land resources in the Kyrgyz Republic, 1 January 1991 Collective farms Interfarm agricultural enterprises State agricultural enterprises Sovkhozes State agricultural research institutes Subsidiary enterprises Other enterprises Peasant farms Land excess Forestry enterprises Urban land/rural settlements Land of industry, transport, defense, and communications Nature protection, recreation, and historical/cultural

No. of enterprises

Total area (ha)

179 7 1,134 263 57 743 71 8 30 61 75 3,740

7,183,800 2,600 8,838,700 8,145,500 522,400 83,100 87,600 1,200 1,440,000 1,072,300 58,500 904,100

147

40,700

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No. of enterprises

Total area (ha)

Land use under hydro-engineering 777 97,000 Totalsa Land used by the Kyrgyz Republic 6,158 19,638,900 Land used outside the boundaries of 114 870,500 the Kyrgyz Republic Land used in the Kyrgyz Republic by 4 1,226,200 other countries Land used within the boundaries of 6,048 19,994,500 the Kyrgyz Republic Source: State Inspectorate on Land Resources and Engineering. Notes: a. Figures may not add due to rounding Interfarm enterprises: Entities which performed services for a group of state or collective farms in a single region. For example, livestock fattening stations in each raion were considered interfarm enterprises. Their function was to collect young livestock from each farm and to transport them via rail to a feed station where they were kept and fattened for 1— 2 months until the buyer came to collect them. Seed stations, another example of interfarm enterprises, would provide seeds to all farmers in the region. State agricultural enterprises: State farms (sovkhozes), training farms and research institutes, subsidiary farms of industrial enterprises, specialized farms such as elite seed farms, breeding farms and experimental farms of research institutes. Other agricultural enterprises: Includes joint-stock companies. Peasant farms: Includes single-family farms as well as associations of peasant farms. Excess land: Land which is difficult or impossible to use, e.g. high steep pasture, glaciers, cliffs, and other areas that are difficult to access.

February 1991. The law authorized local Councils of People’s Deputies to allocate land on a competitive basis for the establishment of peasant farms. State and collective farms were obligated to allocate land to those wishing to take advantage of the opportunity. In order to facilitate the development of peasant farms, they were granted a number of advantages, including access to farm inputs through the state supply network where the costs of farm implements, fuel, ferti Table 5.3 Land resources and rural population by oblast, 1 January 1995 Oblast

Total land (thou. ha)

Cultivable Irrigated landb Rural Cultivable landa (thou. ha) (thou. ha) populationc land per (thou. persons) person (ha)

Djalal-Abad 2,791.9 159.1 96.7 Issyk-Kul 4,390.7 187.8 136.8 Naryn 4,411.8 133.0 110.9 Osh 4,208.1 259.2 129.2 Talas 1,443.9 120.0 88.9 Chui 2,428.8 446.9 273.1 Kyrgyz 19,674.8 1,306.0 835.6 Republic Source: State Inspectorate on Land Resources and Engineering.

820.5 418.5 261.7 1,408.5 202.4 745.5 3857.1

0.19 0.45 0.51 0.18 0.59 0.60 0.34

Irrigated land per person (ha) 0.12 0.33 0.42 0.09 0.44 0.37 0.22


Oblast

Total land (thou. ha)

Cultivable Irrigated landb Rural Cultivable a land (thou. ha) (thou. ha) populationc land per (thou. persons) person (ha)

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Irrigated land per person (ha)

Notes: a. Land in annual crops, b. Irrigated land in annual crops, c. Residents of agricultural enterprises.

lizer, and energy were relatively low compared to farmgate prices, low-interest state credit and a two-year exemption from all taxes.3 These advantages, coupled with the low cost of farm machinery at the time, enabled many early peasant farmers, after a year or two of operation, to obtain enough equipment to insulate themselves from dependence on the old state or collective farm for assistance in plowing, planting, and harvesting. Thus, peasant farms established in 1991 and 1992 did so under relatively favorable conditions. The law was backed by presidential action. About two months after the ‘Law on Peasant Farms’ was passed, a presidential decree was issued outlining the reform program during 1991–1993. The main objective of the decree was the establishment of a Special Land Fund,4 and a subsequent decree assigned 1.5 million hectares to that fund. According to the February 1991 decree, in each raion (district), unutilized or under-utilized lands were placed into this land fund for the creation of peasant farms, agricultural cooperatives, and associations of peasant farms. There was no limit placed on the amount of land an aspiring peasant farmer could request; as a result, a variety of farm sizes emerged in the early years of land reform. The impact of legislative activity is seen by the growth in the number of peasant farms.5 At the end of 1990, before the law, just 8 peasant farms existed in the country, comprising only 1,200 hectares. By the end of 1991 almost 2,000 peasant farms had been established; they accounted for 5 percent of all land in use by agricultural enterprises.6 By mid-1994, the number of peasant farms had reached 16,400 farms with 419, 200 hectares.7 According to the ‘Law on Peasant Farms,’ land was granted to individuals in rent or lifetime inheritable tenure depending on the desire of the head of the peasant farm. Employees of state farms, collective farms, and agricultural cooperatives who chose to leave the collective farm individually were allocated land parcels from the so-called ‘common lands’ of the farm enterprise where they worked. As in Russia and other nations, early peasant farms were typically established by specialists—accountants, agronomists, veterinarians—who had been working in state and collective farms. LAND REFORMS, 1994 TO PRESENT A presidential decree of 22 February 1994, entitled ‘On Measures to Enhance the Land and Agrarian Reform in the Kyrgyz Republic,’ advanced land reform beyond the base created during 1991–1993. Several additional decrees, government orders, and ministerial regulations issued in 1994 and early 1995 represented an attempt to bring order and clarity to the process of land reform. Subsequent changes in the use rights were stated in a 3 November 1995 presidential decree. Land use rights were extended to 99 years, and the Special Land Fund, which by this time had been renamed the National Land Fund, was to be abolished and its lands transferred to a Redistribution Fund, managed by the Ministry of Agriculture.8 According to land legislation, there are two terms that describe rights granted for the use of agricultural land: use (pol’zovanie) and rent (arenda). In practice, however, due to changes in legislation and the inability of the land surveyors to update the State Acts in keeping with the fast pace of change in legislation,

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a variety of phrases are recorded in the State Acts to describe the type of use rights granted on land parcels. Four terms describing land use rights were encountered during field research: vladenie (possession); pozhizennoe nasledemoe vladenie (lifetime inheritable possession); pol’zovanie (use); and postoiannoe pol’zovanie (permanent use). Although possession, lifetime inheritable possession, and permanent use are all understood by holders of the use rights to grant the enterprise a 99-year use right, officials in some raions insisted that the terms ‘possession’ and ‘lifetime inheritable possession’ actually refer to different types of land use rights. Specific guidelines and procedures for implementing the reforms, absent from the earlier farm restructuring program, clearly spelled out the roles of various organs responsible for conducting the reforms, and provided for the development of mechanisms for reform implementation. Responsibility for land and agrarian reform was transferred from the State Property Committee (Goskomimushestvo, or GKI) to the Ministry of Agriculture and Food. For policy guidance on reform implementation, the Republican Center for Land and Agrarian Reform (RCLAR) was created within the Ministry of Agriculture, with branch centers for land and agrarian reform (CLARs) at the oblast and raion levels. Under the current reform program, all collective and state farms, including specialized seed and breeding farms previously exempt from the reforms, are distributing shares of their arable land to all farm residents and shares of non-land assets to farm employees. Pasture land is not included for distribution in the reforms. Shareholders, with assistance of the rural committee, the oblast commission on land and agrarian reform, raion administration, and local CLARs, are able either to pool their shares with others to form group farming enterprises or to establish individual family farms. Land shares are issued in the form of a 99-year lease,9 with priority for renewal given to the share holder upon expiration. A certificate on the right to use a land share is given to the household head,10 while a State Act on the right of land use is issued in the name of an enterprise. Land shares are generally not assigned to a specific parcel, and in most cases exist only on paper. Land shares (but not the land itself) can be bought, sold, given in rent, mortgaged, and bequeathed to any citizen of Kyrgyzstan. Implementation of land reform is largely the responsibility of rural committees,11 CLARs, and raion administrations. At the national level, the Ministry of Agriculture, the Food and Republican Center for Land and Agrarian Reform, and the State Institute for Land Resources and Land Engineering provide policy and direct assistance to the raion-level organs, but most of the work is done at the raion or village level.12 Rural committees are assigned many, sometimes contradictory, tasks under the current reform program. They are to (a) assign land and property shares to residents and workers; (b) assist farm workers and residents in organizing new farm enterprises, service cooperatives, and banking and financial operations; (c) monitor and enforce rational land and water use; (d) keep land records, rent out and monitor use of National Land Fund land and pastures; and (e) maintain statistical records of all activities on their territories. It is impossible for the rural committees to fulfill all their assigned duties, much less perform them in a highly competent manner. The rural committees have not received training or resources for tackling these problems, and it is likely that many of the tasks assigned the rural committees are neglected. Furthermore, the heads of the rural committeees are almost always the former managers of state and collective farms which creates a conflict of interest that may slow the progress of the reforms. The head of administration, at either oblast or raion level, also carries much responsibility for the conduct of land and agrarian reform in their district. Raion akims are to devise reorganization plans for all farms in their raions. They must also organize informational meetings on all farms in their territories to explain to farm residents their rights and responsibilities under the new reforms. In the end, raion akims (and to some extent oblast akims) are held accountable for the success or failure of farm restructuring. Raion CLARs are to help devise reorganization plans for farms, determine land and property shares, determine the reserve


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land for the National Land Fund (NLF), and survey and register the land holdings of newly formed enterprises. DOCUMENTATION OF LAND USE RIGHTS There are four main documents issued as evidence of use rights for agricultural land. Two documents—the Certificate on the Right to Use a Land Share and the State Act on the Right to Use a Land Parcel—are issued for permanent use rights, and another—a Certificate on the Right to Temporary Use of a Land Parcel —is issued for temporary use rights. All three documents are issued by the Center for Land and Agrarian Reform at the raion level. A fourth document, a standard lease contract, is issued for leases of less than five years. The contracts are usually issued by the village government. Certificate on the Right to Use a Land Share A Certificate on the Right to Use a Land Share is issued to each household head and documents the total land shares held by a family, with the individual family members’ shares listed on the Certificate. The Certificate is issued even in cases when a family’s land share has not been physically identified. The Certificate contains a spot for a sketch map (1:10,000 scale) of the family’s parcel of land. Whether a sketch map is actually prepared varies among oblasts and raions. The term of the land-share use right is 99 years. State Act on the Right to Use a Land Parcel A State Act on the Right to Use a Land Parcel, issued only to legal entities (enterprises), is registered in the name of the head of the farm enterprise. In all cases, before a State Act is issued, a physical parcel of land must be defined and allocated to the enterprise. The Act contains a metes and bounds description of the location of the land parcel, as well as a 1:10,000 scale sketch map of the parcel, with adjacent land users labeled and identified in the map legend. Additional information includes the size of the land parcel, and for what purpose the land is given. In principle, the State Act is to be issued only for enterprises with 99-year use rights to a parcel. In practice however, many State Acts have been issued for enterprises holding land in rent for 5–10 years. In such cases, the terms of use, and the name of the lessor are recorded on the State Act. Certificate on the Right to Temporary Use of a Land Parcel A Certificate on the Right to Temporary Use of a Land Parcel is issued for rental agreements of five years or longer.13 In principle, such Certificates are issued for rent of pastures, and any other agricultural land rented from the raion administration, village government, or from any farm enterprise. A sketch map (1:10, 000) is included on the Certificate, along with the name of the lessee, a description of the land area given in temporary use, and the intended use of the land parcel. The Certificate also has a section for notes on conditions and restrictions on use of the land parcel and the termination of land use rights. Rent agreement A fourth type of document is issued for short-term rent agreements—less than 5 years. This document is issued by the village government and confirmed by the raion administration and is commonly used in rent agreements between the village government and the farm enterprise. Information recorded includes the

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names of the two parties to the contract, the amount of land, length of time, and method of payment. No sketch map is attached. In practice, due to a lack of funds and different approaches in implementing land reforms across the country, a number of different documents are issued as evidence of use rights to agricultural land. A shortage of funds at all levels has resulted in a shortage of Certificates and Acts available for issue. Thus, raion governments, and in some cases village governments, have issued their own temporary Certificates on the Right to Use a Land Share or have used photocopies in place of the original, hard-cover State Acts, to ensure that those entitled to land shares at least have some document serving as evidence of the right granted. The temporary Certificates may or may not include sketch maps of a family’s holdings, depending on the oblast or raion. The absence of a State Act is problematic for farm enterprises because without this document an enterprise is not eligible to apply for credit. THE DEVELOPMENT OF A LAND MARKET Land markets have been slow to develop in Kyrgyzstan. While land use rights have been guaranteed by previous legislation, few transactions other than short-term rentals have occurred. This is partly due to the fact that most farmers have only had State Acts or land shares for a year or two. Our field work indicated that there have been significant rental transactions. As of mid-1995, nearly one-third of farms in the oblasts we visited had acquired land beyond the shares they received in the initial distributions —and virtually none have given up any of their initial allocation. Based on our field work, enterprises in Osh and Djalal-Abad have been much more active in acquiring land than have those in other parts of the country. Most of their land was rented in, and most of that was from the National Land Fund, which in 1996 was renamed the Redistribution Fund; no farmers reported having purchased land. A substantial number of enterprises in Naryn, Talas and Issyk-Kul experienced an increase in the number of members who contributed their land shares; this suggests that there has been some dynamism in the makeup of the new enterprises which indicates that the restructuring process did not end with the initial land distribution and incorporation of enterprises. In order to stimulate transactions, and hence encourage land to move to more productive uses, a presidential decree was issued on 25 November 1996 entitled ‘On measures for introducing a market in land use rights and creating a market system of agricultural credit.’ The decree envisaged the sale of land use rights on 50 percent of the Redistribution Fund’s agricultural land by 1 March 1998, and established a Committee on the Sale of Land Use Rights and Land Parcels of the Redistribution Fund (of Agricultural Land) under the Ministry of Agriculture and Food to manage the process. In order to satisfy political opposition and avoid speculation, only Kyrgyzstan citizens and only farmers having experience working the land will be allowed to buy these rights. Bekbolot Talgarbekov, Vice Prime Minister and former reformist Minister of Agriculture, said in a briefing that President Akaev’s Decree about the introduction of the right to sell use rights for land has canceled the old system. Now, farmers can buy and sell their land, lease, back up credits as a pledge…. Introduction of the sale of rights to land will create a market for land. It will strengthen the layer of land-owners-agriculture producers and will promote growth of goods production in agriculture.14


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ATTITUDES ABOUT LAND REFORM AND FARM RESTRUCTURING IN 1995 In order to assess attitudes toward the land reform and farm restructuring program adopted in Kyrgyzstan, in 1995 the Land Tenure Center at the University of Wisconsin developed a sample survey. Visits were made to 47 former state and collective farms, which constituted slightly more than 10 percent of the 1991 total. Questionnaires were administered to the heads of the rural committees, to 117 heads of peasant farms, and akims of the 11 raions in which the farms were located. Table 5.4 reports on the attitudes of the heads of peasant farms towards the problems they faced as independent operations. It demonstrates clearly that those farmers who had already succeeded in establishing enterprises separate from the parent farm were preoccupied with the acquisition and financing of inputs, and not very concerned about security of tenure or about their ability to manage their farms. Responses from the heads of the rural committees agreed with the assessment of peasant farmers. As Table 5.5 shows, it is clear that the lack of inputs and of the credit needed to obtain them are serious problems. It should be noted, however, that of the two groups of people who were interviewed, neither would be representative of the farm population who were unhappy with the progress of the reforms. The heads of independent farms were quite clear about the benefits and costs of the reforms, as Table 5.6 shows. They clearly expressed the benefits of the reforms—independence, access to land, and internalization of incentives—and just as clearly noted that the economic hardship caused by reformengendered dislocation was the major cause of dissatisfaction. They perceived, however, that they were slightly more satisfied than other members of the farm and non-farm population. FARM RESTRUCTURING: THE EVOLUTION OF NEW FARM ENTERPRISES Some critics of farm restructuring argue that farm restructuring has occurred only on paper. State and collective farms, they argue, have merely Table 5.4 Severity of agricultural problems, rural enterprise head survey, 1995* Slow progress on demarcating and documenting land rights of individual households within enterprises Lack of knowledge on how to farm Slow progress on demarcating and documenting land rights of peasant farming enterprises Irrigation water distribution Lack of markets for farm output Lack of seeds Lack of farm extension or veterinary services Lack of fertilizer and farm chemicals Lack of fuel Lack of spare parts or equipment

Osh and DjalalAbad

Chui

Naryn, Talas, and Issyk-Kul

Kyrgyz Republic

1.4

1.8

1.2

1.4

1.2

1.5

1.5

1.4

1.5

1.8

1.3

1.5

1.9 2.2 2.0 2.4

3.0 2.2 3.5 2.4

2.4 3.0 2.8 3.6

2.4 2.5 2.7 3.0

3.2

4.5

4.0

3.8

3.4 4.1

4.0 4.3

3.9 4.1

3.8 4.1

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Osh and DjalalAbad

Chui

Naryn, Talas, and Issyk-Kul

Kyrgyz Republic

Lack of credit 3.8 4.1 4.5 4.2 Source: Peter C.Bloch, James M.Delehanty, and Michael J.Roth, Land and Agrarian Reform in the Kyrgyz Republic, Land Tenure Center Paper no. 128, University of Wisconsin, Annex 5.3. Notes: * weighted averages of responses on the following scale: 1=not a serious problem, 2=problem is somewhat serious, 3=problem is serious, 4=problem is very serious, and 5=problem is extremely serious.

changed their legal status to associations of peasant farms or agricultural cooperatives in order to be eligible for government credits to the agricultural sector. In addition, critics argue that the slow distribution of nonland assets such as tractors, barns, dairy parlors, and combines, has obstructed the formation and operation of new farm enterprises. The field work conducted by the Land Tenure Center of the University of Wisconsin during 1995 demonstrated that farm restructuring was real, not only on paper. Many new farm enterprises had been established by the beginning of the 1995 planting season and were making management decisions independently.15 This was even more true in 1996. Nineteen farms were visited in early 1996 to assess the extent of farm reorganization Table 5.5 Severity of agricultural problems, rural committee head survey, 1995

Slow progress on demarcating and documenting land rights of individual households within enterprises Slow progress on demarcating and documenting land rights of peasant farming enterprises Lack of knowledge on how to farm Irrigation water distribution Lack of farm extension or veterinary advice or service

Problem is not serious (%)

Problem is Problem is somewhat serious serious (%) (%)

Problem is very serious (%)

Problem is extremely serious (%)

59

16

5

14

7

57

15

7

13

9

48

26

7

11

9

20

24

28

15

13

13

4

33

16

33


Problem is not serious (%)

Problem is Problem is somewhat serious serious (%) (%)

Problem is very serious (%)

97

Problem is extremely serious (%)

Lack of seeds 26 20 20 22 13 Lack of markets 7 9 24 17 44 for farm output Lack of credit 7 7 20 17 50 Lack of fertilizer 4 7 13 26 50 and farm chemicals Lack of fuel 0 7 13 15 65 Lack of spare 0 2 11 13 74 parts or equipment Source: Bloch, Delehanty, and Roth, Land and Agrarian Reform in the Kyrgyz Republic, Table 5.24. Table 5.6 Reasons for satisfaction or dissatisfaction with the farm restructuring, rural enterprise head survey, 1995* Osh and DjalalAbad Chui Naryn, Talas, and Issyk-Kul Kyrgyz Republic General degree of satisfaction with the farm restructuring to date: Farm enterprise head 3.8 3.5 3.3 Most individual households within 3.7 3.3 3.3 enterprise Social service workers 3.7 3.3 3.0 Pensioners 3.6 3.4 2.9 Most important reasons why certain groups are pleased or very pleased with the reforms (%): People are independent 50.0 50.0 56.3 People able to get land of their own 16.7 25.0 37.5 People see the fruits of their labor 14.6 16.7 6.3 Labor efficiency/productivity improves 18.8 8.3 0 Most important reasons why certain groups are dissatisfied or very dissatisfied with the reforms (%): Economic hardship 50.0 41.7 39.0 Machinery problems 13.6 16.7 26.8 Slow pace of reforms 9.1 25.0 26.8 No credit 9.1 16.7 4.9 No wages for social service workers 13.6 0 0 People not ready 4.5 0 2.4 Source: Bloch, Delehanty, and Roth, Land and Agrarian Reform in the Kyrgyz Republic, Annex 5.4 Notes: * Figures are weighted averages of the following scale: 5=very pleased, 4=pleased, 3=indifferent, 2=dissatisfied, 1=very dissatisfied.

3.5 3.4 3.3 3.3 51.9 25.0 12.5 10.6 42.7 21.3 21.3 8.0 4.0 2.7

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in three oblasts: Chui and Talas in the north, and Osh in the south.16 Based on our field work, we noted that there was a generalized tendency for one enterprise—an association of peasant farms or agricultural cooperative—to control at least half of the land subject to distribution on the territory of the rural committee. Thus, it is typical for the former state or collective farm to have been liquidated on paper, but still exist in practice, with a new name and a substantial share of the land and non-land assets. Frequently, the heads of such enterprises are heads of the village government as well. Such reconstituted state and collective farms are now called associations of peasant farms or agricultural cooperatives. These enterprises operate no differently than before, and have a large number of workers employed in areas other than direct agricultural production. The head of the enterprise is still very much a manager, directing a large workforce (as many as 200–300 workers) on small details of farm operations such as instructing drivers where to obtain fuel, and tractor drivers where and when to plow. The independent farming units in the raions visited are typically comprised of groups of relatives. They have an elected head of the farm who has ultimate authority for all decisions taken regarding farm operations. The head may seek advice from specialists or elders in the enterprise. A variety of approaches to working the land and dividing the harvest are used on farm enterprises of different sizes. On the smaller farms where sowing and harvesting can be done manually, each family works its own land and is paid a share of the harvest. Often, a ledger will be kept recording the amount worked by each family, and the family will receive a share of the harvest according to the amount worked. On larger farms where plowing, sowing, and harvesting are all done by machine, the land is worked collectively, and each family receives an equal share of the harvest. THE RESTRUCTURING OF STATE AND COLLECTIVE FARMS Presidential decrees in late 1991 and early 1992 initiated the restructuring of unprofitable collective and state farms, and recommended that each state and collective farm worker be issued a share of the enterprise’s non-land assets. Raion administrations were also ordered to reserve 50 percent of irrigated arable land, in most cases the best land on each farm, for the National Land Fund. The NLF was designated for the creation of peasant farms, with special consideration given to ‘traditional Kyrgyz ways of farming.’17 In 1992 the effort to restructure unprofitable state and collective farms intensified. The GKI was to privatize those enterprises it determined to be of low profitability and to reorganize them into joint-stock companies, agricultural cooperatives, and associations of peasant farms. In late 1992, a presidential decree stipulated that rural committees be formed on each farm to function as the lowest-level executive organ responsible for farm restructuring. Privatized agricultural enterprises formed in the early stages of reform were allocated land in three different ways: 1 Employees of state, collective, or agricultural cooperative farms exiting the enterprise to establish a peasant farm received land from the farm enterprise where they worked. This was usually among the least productive land of the farm. According to the ‘Law on Peasant Farms,’ lands of average and above-average productivity were not subject to allocation for the creation of peasant farms. The location of the land parcel allocated was decided by the farm administration and then subject to approval by a general meeting of the work collective.


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2 Non-farm employees received land grants from the Special Land Fund. Land allocated for the creation of peasant farms was granted on a competitive basis to those with more farming experience and demonstrating greater potential for developing a viable farm enterprise. 3 Farm enterprises reorganized by GKI generally emerged from the reorganization with land holdings intact in cases where the farm was reorganized into a joint-stock company. In cases where the farm was reorganized into smaller group and individual farms, it is unclear how land allocations were made to the new farm enterprises, or whether these new enterprises did have defined parcels of land. The first phase of reforms showed substantial progress through the end of 1992. During 1991 and 1992 the share of arable land under state and collective farms decreased by more than 20 percent, from 90 percent to 69 percent, while the arable holdings of associations of peasant farms, peasant farms and individual farms increased by almost that much. By the end of 1993, however, the reforms had stagnated, and there were signs that they were being reversed in some areas. State and collective farms actually increased in number and in land area during 1993, and by the end of the year they still held two-thirds of the arable land. These trends caused the government to suspend the farm restructuring program in late 1993. Following a new presidential decree in February 1994, farm restructuring moved forward and appears to have been successful. Statistics on farm reorganization show clearly that significant progress has occurred in restructuring the state and collective farms. On 1 January 1995, state and collective farms accounted for only 48 percent of all arable land held by agricultural enterprises, an 18 percentage point drop from the previous year. The share of associations of peasant farms and individual private farms increased from 13 to 24 percent, and that of joint-stock companies and small enterprises from 12 to 18 percent. Table 5.7 shows that by January 1996 there were more than 40,000 farm enterprises, compared to about 450 state and collective farms in 1990; 38,000 of these were peasant farms with an average arable land area of 9 hectares. Peasant farms made up 27 percent of all arable land. If associations of peasant farms are included, then more than half the land is in the hands of small farmers.18 FINANCIAL AND ECONOMIC CONSTRAINTS OF NEW ENTERPRISES A number of obstacles confront the new farming enterprises that have been created out of the reform process. In the sections below we survey these constraints. Registration fees and taxes Farmers in all oblasts we visited complained that taxes and other fees paid by farms are too high. Furthermore, those who have only recently established farm enterprises argued that the cost of registering a farm enterprise as a legal entity is exorbitant. In order to receive a State Act, an enterprise must register with the raion statistical office. The raion statistical office then registers the entity with the Tax Inspectorate and enables the enterprise to open a bank account. Only then can the farm enterprise receive a State Act. A fee must be paid to the police to register an official stamp for the enterprise. Even though use rights are apparently not at risk if the family chooses not to register, registration is required to receive a State Act and to open a bank account for the enterprise, thus making the enterprise eligible for credit.19 An obvious concern for raion administrations in maintaining accurate records on farm enterprises located in the raion is the link between records on land holdings, registered farm enterprises, and the calculation of expected tax revenues. At the national level, four types of taxes/fees are levied on agricultural producers: the value-added tax (VAT), the Social Fund tax, the land tax, and water fees.20

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From our field observations, there seems to be considerable confusion among farmers and local government officials on the question of taxes, primarily the value-added tax. The value-added tax is only to be levied on total receipts of sold output. Thus, if a farm enterprise uses most of its production as in-kind payment to workers and members, and sells just 10 percent of the total harvest, the VAT is levied only on the cash receipts for the 10 percent sold. In practice, however, farmers told of being charged VAT on the total value of the harvest instead of only on the portion sold. The VAT probably encourages barter transactions as a way of hiding revenues, and may discourage smaller farms from engaging in high-value crop production because it is calculated on revenue as opposed to profit. Further, according to Ministry of Agriculture officials, local administrations may introduce their own taxes, and often do so. Apparently this is a Table 5.7 Distribution of land among agricultural enterprises, 1 January 1996 Farm type

No. of enterprises

Total area (thou. ha)

Arable area (thou. ha)

Ave. area (ha.)

Ave. arable (ha.)

%of area %of arable

Agricultural 944 2,959 298 3,134 316 25.4 24.8 cooperatives* Associations 30 345 32 11,497 1,060 3.0 2.6 (unions), associations of cooperatives Associations 215 3,423 291 15,921 1,352 29.4 24.2 (unions), associations of peasant (singlefamily) farms State 822 890 126 1,082 153 7.6 10.5 agricultural enterprises Joint-stock 228 419 81 1,839 353 3.6 6.7 and limited liability farms Other 313 1,897 42 6,060 134 16.3 3.5 agricultural enterprises and institutions Peasant 38,404 1,714 333 45 9 14.7 27.7 (singlefamily) farms Total 40,956 11,647 1,202 284 29 100.0 100.0 Source: State Institute on Land Engineering, ‘Quantity and Distribution of Land Resources of the Kyrgyz Republic, 1 January 1996.’ Note: * Includes kolkhozes (collective farms).


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reaction to the large sum of tax revenue that goes uncollected due to under-reporting of sales by farm enterprises, and the pressing need to fund social programs and pensions. Credit and input supply Among the most crucial questions for farmers is credit. Farmers who have recently started independent operations, those who have formed enterprises out of the 1994–1995 reorganizations, are still psychologically dependent on institutionalized credit. They are convinced that without credit as start-up capital for the purchase of farm machinery, there will be no way for them to survive. Unlike the peasant farms established in 1991–1993, these newer farms are starting out with little or no working capital, little or no machinery, and no realistic mechanism for obtaining credit. Their attitudes toward credit differ somewhat from those of farmers who have been operating for several years, and even from those who have completed one harvest. The first independent farmers display much more aversion to depending on credit, as their experience with government credit programs is generally negative. In addition, these early farmers have concrete plans as to how they would use credit if it were available at reasonable interest rates—such as buying farm machinery to switch from a less profitable crop currently produced with manual labor to a more lucrative crop cultivated mostly by machine, or purchasing milk-processing equipment to extend the shelf-life of milk to be marketed. Borrowing from commercial banks was not considered by any of the heads of farm enterprises interviewed, as interest rates are prohibitively high, in the range of 40–60 percent compared to an annual inflation rate of 10–12 percent. Nor do the government’s emergency credit programs offer much relief to farm enterprises. In 1994, monetary credit was offered through the farmers’ organization Diykan Ordo and Diykan Bank. In 1995, the Ministry of Agriculture offered commodity credit through oblast and raion administrations. In both cases, there were allegations that little of the credit ever reached the farms. In our visits, farmers expressed not simply a need for credit, but for a reduction in the number of channels through which the credit passes en route to farmers. Heads of farm enterprises argued that when credit is made available, a small margin is added at each step by the lender so that by the time the credit reaches the farmer it is much less attractive because of the high interest rate. The Ministry of Agriculture has reacted to such complaints by urging the establishment of rural credit cooperatives (RCCs).21 These cooperatives are to comprise no fewer than 50 heads of household.22 In densely populated areas such as Osh and DjalalAbad, these credit cooperatives will likely average 200–300 families.23 In Osh Oblast, one cooperative is formed per village. There are several concerns, in addition to the membership size, on the use of these cooperatives as a mechanism for distributing credit. The apparent goal in establishing the RCCs is to provide a permanent mechanism for lending working capital to farm units. Each cooperative should then have a small core staff sufficiently trained in accounting, principles of lending, etc. Heads of farm enterprises believe that credit will be channeled through the RCCs, and in 1996, the Ministry of Agriculture offered commodity credit, channeled in most cases through the RCCs. This would seem inadvisable since the credit cooperatives probably do not have the trained personnel to perform all the tasks required. The government risks damaging faith in the system of credit cooperatives among farmers if it tries to use the RCCs as a lending mechanism before they receive proper training and institutional support.

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Inputs Farmers also expressed concern about the price of farm inputs. Fuel, fertilizer, and seed provided through the Ministry of Agriculture via the raion administrations are much more expensive than through the private channels that are beginning to develop. Heads of farm enterprises interviewed tend to obtain fertilizer, fuel and seed from private traders. In Chui Oblast, just two of the seven farm enterprises visited purchased these inputs from the state, and in Osh and Talas Oblasts, none did. The Ministry of Agriculture’s commodity credit programs have offered little relief in obtaining timely supplies of inputs to farmers in Talas and Osh, who have developed active relations with traders in Kazakhstan and Uzbekistan, respectively, for the supply of current inputs and sometimes for machinery rental. Rarely do the farmers have fixed contracts with a single trader, but they find the inputs where they can. Due to a lack of cash, many farm enterprises are doing without mineral fertilizers, pesticides, and herbicides. In addition, the quality of seed used has deteriorated: most farms either use their own seed or get seed from private traders, and it is of dubious quality in both cases. Machinery Farm enterprises rent machinery from one of three sources: from the large cooperative or association that is the rump of the parent farm, from other private farmers or merchants, or from a technical service established by the raion administration. If possible, farms try to avoid renting from the parent farm as these enterprises only offer their machinery services after they have finished plowing, sowing or harvesting their own land. By the time the larger farm gets around to offering services to the smaller farms, the smaller farms have already experienced significant crop losses or potential losses because of the delay in harvesting or sowing. Access to pasture and water Nearly all farms in Kyrgyzstan depend on irrigation. Both pastures and water are common property resources, and therefore farmers cannot operate completely independently.24 The land reform has thus far accomplished much less in determining arrangements for access to these resources than for arable land. Regarding pastures, current policy holds that grazing lands are to remain under the ownership of the state and are therefore not included in the land share distribution process. The state has devolved management responsibilities to the village governments, with no guidelines for appropriate practices. The absence of clear rights and responsibilities governing the use of pasture lands, while a potentially serious problem, has not yet been critical because of the significant reductions in herd sizes that have taken place since 1989,25 even though there has been a massive shift from the production of fodder crops to wheat and thus an increased use of natural pasture for grazing.26 But when stocking levels recover (and expand, as they are likely to do under private ownership), overgrazing problems and grazing conflicts will grow. While the wholesale privatization of pasture land is problematic, it does seem sensible to give raion administrations the autonomy to demarcate pasture land on a case-by-case basis. Regarding water use, the irrigation systems were designed for large fields under central management. In most cases, the subdivision of the fields has been constrained by the scale of the canal and drainage networks. Technical research is being sponsored by the European Union’s Technical Assistance of the CIS program (EU-TACIS) on several pilot farms, but there is also a need to develop the capacity to manage the distribution of the irrigation water and of the costs of the water. The Water User Associations that are in the process of being created, generally on the same scale as the former state and collective farms, are likely to be too large and controlled by too few individuals. The most appropriate solution is to have more numerous,


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smaller groups of water users which can exert internal control over delivery schedules, maintenance, and payment. Produce Markets Farmers seem to be succeeding in finding markets for their produce. Several said, however, that their biggest problem was finding markets and that uncertainty and lack of market information causes them to spend much time looking for buyers. Those farmers who have operated for several years now seem less bothered by the marketing question, and seem to have little problem finding buyers. In general, farms seem to have no problem finding markets for grain, sugar beet, milk, and vegetables. In Talas and Osh Oblasts, farmers were frustrated by a lack of markets for tobacco and cotton. A few farms reported large losses on a tobacco or cotton crop for which there was no buyer. In these cases, it was unclear whether there were no buyers for the crop, or whether the crop was of poor quality. Influence of the raion administration and village government in farm operations Heads of farm enterprises only rarely admitted any interaction with the raion administration on questions of production and sales of farm output. This was especially true for the smaller peasant farm enterprises, but not for the larger farms—reconstituted state and collective farms. There are strong ties between the raion administrations and the village government heads. The village government is the executive organ of the local administration for land and agrarian reform. Thus, village governments answer directly to the raion administration on questions of land and agrarian reform.27 Because of this connection, on farms where the head of the village government is also the head of the large-farm enterprise, it is quite possible that the raion administration is influential in the production and marketing decisions of that farm enterprise. CONCLUSION Kyrgyzstan has made significant progress in transforming its agrarian structure to meet the new realities of the market economy. The majority of state and collective farms have undergone real restructuring, and small farms control nearly one-third of the land. The process has occurred with little social tension since independence, although in the northern oblasts, especially Chui, there has been considerable reluctance on the part of both farm managers and the farm population to break up the state and collective farms. The principal weaknesses of the land reform program have been its continued lack of clear delineation of responsibilities among agencies at the local level, and its reliance on decrees issued in response to central government perceptions that the reforms are lagging. There has been no systematic effort to monitor the onthe-ground progress of the reforms. The CLARs, village governments, local representatives of the State Institute for Land Management and Engineering, and the raion administrations have all been assigned responsibility for land reform and farm restructuring, and therefore no single agency has a clear mandate or a comprehensive picture of the process. This dispersion of responsibility implies that application of reform guidelines is inconsistent, permitting local variations which may or may not be appropriate or acceptable to the central government. In spite of these uncertainties, as well as the much slower progress on the transition to market relations for inputs, output, and credit, private farmers in Kyrgyzstan have begun to take advantage of the opportunity to make independent decisions on production and marketing. It is too early to tell how successful they will be, but our research in 1995 and 1996 gives grounds for optimism.

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NOTES 1 See Sotsial’noe razvitie i uroven’ zhizni naseleniia SSSR: statisticheskii sbornik (Moscow, Goskomstat, 1989), pp. 81–82, 249–250. 2 Gregory Gleason, ‘Central Asia: Land Reform and the Ethnic Factor,’ RFE/RL Research Report, Vol. 2, No. 3 (15 January 1993), p. 30. 3 Farmers interviewed reported an initial two-year exemption from all taxes. It could not be confirmed whether this applied to both types of early peasant farms (lifetime inheritable and rent). Policy on taxes is also stated unclearly in the Law on Peasant Farms. In any event, tax advantages do not apply to peasant farms established after 1992. 4 The Special Land Fund was created by presidential decree in April 1991. It was renamed the National Land Fund in December 1992. Finally, it was renamed again to the Redistribution Fund in 1996. During this time not only the name but some of the operations changed as well. 5 Data on peasant farms must be interpreted with caution due to the changing definition of peasant farms. Early peasant farms, those formed in 1991 and 1992, were farm units operating independently and typically comprised of a single family. Later, the term ‘peasant farm’ was also applied to families or groups that received a physically defined land parcel, but operated within the larger collective enterprise, rather than independently. The statistics on peasant farms probably include a number of state and collective farms which were entirely ‘reorganized,’ their land and non-land assets distributed among smaller units of single-family farms or small-group farms. 6 Some of these were unprofitable collective farms forced to reorganize by government order. Such farms were simply re-registered as hundreds of individual peasant farms, when in reality they were still functioning as one unit. 7 Ekonomika i zhizn’, No. 39 (September 1994), p. 18. 8 The decree orders that the ministry distribute this land by auction. However, the ministry has not yet defined a mechanism to accomplish this, nor are rural committee chairs taking measures to implement this provision. It is possible that land will be auctioned only after the current rent agreeements expire. 9 Originally the term was 49 years, but it was raised in response to World Bank pressure for greater tenure security. 10 Certificates on the right to use a land share are issued in the name of the household head, with the total family shares plus of individual family members listed. 11 Rural committees, by law, are comprised of 3–7 members. The chair and deputy chair are appointed by the raion akim (the head of the raion administration, who is appointed by the president), and the remaining members are elected by the farm population. 12 The State Institute for Land Resources and Land Engineering provides instructional and methodological support to surveyors in the raion CLARs and produces the base maps of state and collective farms which are used in assigning land parcels to legal entities. It is the chief organ charged with registering new interests created out of the restructuring. It keeps detailed inventories of land-holdings for each agricultural land user, which provides the basis for an annual land register and a land cadaster produced every five years. 13 In the present version of the draft land code, a Certificate on the Right to Temporary Use of a Land Parcel will be issued in cases of 5–10-year rent agreements, while agreements for over 10 years will be documented by the State Act. 14 Quoted in O.Dzubenko, ‘To Own Means to Be in Charge,’ Slovo Kyrgyzstana, 12 December 1996; cited in Kyrgyz Business News, 16 December 1996, translated by Ulan Asanov. 15 Michael Roth, Katie Rasmussen, Erika Nystrom, and James Delehanty, ‘Dimensions of Farm Restructuring in the Kyrgyz Republic: Assessments of Farm-Level Processes and Constraints,’ in Peter C.Bloch, James M.Delehanty, and Michael J.Roth, Land and Agrarian Reform in the Kyrgyz Republic, LTC Research Paper No. 128 (Madison, Land Tenure Center, July 1996), pp. 106– 107. 16 Farms in Chui Oblast have traditionally combined wheat with livestock (dairy) and fodder production. Large milk complexes and farms specializing in feed grains (barley and grasses) and green fodder (alfalfa, maize) are characteristic of the region. In the past, several farms specialized in seed production, primarily alfalfa, and sugar


17 18

19 20

21 22 23 24

25

26 27

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beet production was also typical of the oblast until the mid-1980s when a root disease damaged the soil. Similarly, farms in Talas Oblast produced feed grains, livestock (sheep and cattle), and tobacco. Osh Oblast, located in the Fergana Valley, is characterized by cotton and tobacco production, as well as fruits and nuts, vegetables, and rice. As in all oblasts of Kyrgyzstan, livestock production is combined with the production of fodder. The dominant agricultural activity in Osh, however, is cotton. It is not clear what is meant by this phrase. Most have interpreted it as meaning land set aside for ethnic Kyrgyz. These farms only held 15 percent of total land, implying that they held a much smaller share of pasture land than of arable land. This indicates yet another difficulty for small farms as they try to develop diversified production strategies based on crops and livestock. The raion CLAR issues State Acts only to legal entities, thus it is impossible for a farm enterprise to have a document confirming its use rights to a land parcel without having first registered with the statistics office. Considerable confusion surrounds the normative acts establishing land tax rates and water fees. A presidential decree of 27 February 1995 laid out new land tax rates. An attempt to lower tax rates was made during May-June of 1995, resulting in a government resolution stating considerably lower tax rates and setting out new fees for water use by agricultural producers. This resolution, however, was confirmed by only one chamber of parliament, and is considered by the Ministry of Agriculture to be non-binding. Some officials in the oblasts and raions, however, argue that since the goverment resolution was the last document issued on the subject, it should be considered binding. Tax rates under the presidential decree average 200 som/ha, while rates under the government resolution average 100 som/ha. The land tax is paid in installments, 75 percent in the fourth quarter of the current year, and 25 percent in the first quarter of the following year. In 1996 the exchange rate was 11 som per dollar. An association of rural credit cooperatives, composed of the heads of all credit cooperatives, will be formed in each raion. Presumably this implies that families will pledge their land as collateral to the cooperative. In Osh Oblast, the median number of families in credit cooperatives formed as of 20 January 1996 was 295. For a concise treatment of the constraints placed upon economic agents by common property regimes, see Daniel W.Bromley, ‘The Commons, Property, and Common-Property Regimes,’ in Daniel W.Bromley, ed., Making the Commons Work: Theory, Practice, and Policy (San Francisco, ICS Press, 1992). Tjaart W.Schillhorn van Veen, ‘The Kyrgyz Sheep Herders at a Crossroads,’ ODI Pastoral Development Network, Network Paper 38d (London, Overseas Development Institute, July 1995), Table 2, reports that sheep herds fell by nearly 50 percent from January 1990 to January 1994. Robin Mearns, ‘Commons and Collectives: The Lack of Social Capital in Central Asia’s Land Reformism,’ IDS Working Paper, No. 40 (Brighton, UK, Institute of Development Studies, September 1996), p. 7. It is likely that heads of the local administration consult the rural committee chairs on other issues as well. During several of the field visits conducted a few days prior to a national referendum, rural committee heads were summoned to meetings at the raion administration, presumably to discuss preparations for the referendum.

6 Land reform in Uzbekistan1 Zvi Lerman

Uzbekistan emerged as an independent state in September 1991 with a legacy of an undiversified monocultural agriculture heavily specialized in cotton. During the Soviet era, cotton production in Uzbekistan registered persistent gains from the very beginning of collectivization in 1928, often at the expense of wheat and other cereals. Uzbekistan became the main supplier of raw cotton to the USSR, accounting for over 60 percent of cotton output in the USSR during the 1980s. The centrally prescribed production of cotton in a dry desert region was sustained through intensive irrigation from the two main Central Asian rivers, the Amu Darya and the Syr Darya, thus dramatically reducing the flow of water to the Aral Sea and directly contributing to the environmental disaster that had already become known under the Soviet regime as the ‘Aral Sea catastrophe.’2 Since the declaration of independence in September 1991, Uzbekistan has embarked on a program of reforms intended to achieve a transition from a command economy to a market-oriented economy. The reforms in the agricultural sector are aimed to improve the efficiency of production with the objective of increasing the output and eliminating the traditionally wasteful use of resources.3 These goals are to be accomplished through the process of land reform and farm restructuring, implemented simultaneously with price and trade policy reforms. The complex reform process is basically expected to change the producer incentives, strengthening profit orientation and thus increasing personal involvement and motivation. The attempted change in producer incentives, however, has not been accompanied by a comprehensive reform of property rights, as all agricultural land remains in state ownership. The purpose of this chapter is to present an overview of land reform in Uzbekistan. The analysis is based on information collected in extensive field trips and numerous interviews with government officials, scientists, farm managers, and individual farmers in Uzbekistan during 1994–1995.4 THE PRE-1990 AGRICULTURAL SYSTEM The population Uzbekistan, with a population of 20.7 million and land area of 447,400 square kilometers, is the third most populous among the former Soviet republics (after Russia and Ukraine) and the fifth largest in territory (after Russia, Kazakhstan, Ukraine, and Turkmenistan). Uzbekistan is a desert country, however, in which only 10 percent of the territory is habitable land. The rural population, which comprises 60 percent of the total, is concentrated on 4.5 million hectares of irrigated arable land in oases and along the rivers, while more than 80 percent of areas classified as agricultural land are desert and mountain pastures fit only for karakul sheep. The structure of land resources is indicated in Figure 6.1.


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Figure 6.1 Structure of land resources

The density of rural population in Uzbekistan is 2.7 people per hectare of arable land, compared to only 0. 5 in the European republics of the former Soviet Union according to 1990 data. Ignoring the expansive desert pastures, which are not of much use to individual farmers, there is only 0.37 hectare of arable land per rural resident in Uzbekistan, compared to 2 hectares per person in Ukraine and 0.75 hectare per person in the densely populated Moldova. The high population density in rural areas is actually increasing over time, mainly because of two factors. First, the population growth rate in Uzbekistan, at 27.6 per 1,000, is among the highest in the former Soviet Union, and second, there is very little out-migration from rural to urban areas due to established cultural traditions that encourage young people to stay close to their parents’ homestead.5 During the last decade, the proportion of rural population in Uzbekistan accordingly increased from 57.7 percent in January 1984 to 61.0 percent in January 1994, while the cultivated area remained practically unchanged. This trend is in contrast to the developments in most other former Soviet republics, where the proportion of rural population has been decreasing since 1980.6 Agricultural production Uzbekistan is rich in mineral resources (oil, natural gas, coal) and boasts a fairly diversified industry (both light and heavy), which was created during the Soviet regime. Despite these factors, Uzbekistan is still basically an agricultural country. Agriculture employs 40 percent of the labor force and accounts for 35 percent of net material product and of productive assets. High population pressure on the intrinsically limited resources of land usable for farming is one of the two main features of Uzbek agriculture. The other feature is the need for irrigation. Crop production and most livestock production (with the exception of the karakul sheep) is confined mainly to irrigated areas. All cotton (Uzbekistan’s main export product) is grown under irrigation, and grain production largely shifted to irrigated lands in the 1970s. The share of dry farming declined over the years, as irrigated areas increased from 78 percent of total cultivated land in 1965 to 98 percent in 1990. Agricultural production in Uzbekistan during the 1980s averaged two-thirds crop products and one-third livestock. The cultivated land was mostly sown to field crops, with orchards and vineyards taking up not

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Figure 6.2 Area under cotton and grain: 1940–1992

more than one-tenth of the area. Among field crops, cotton accounted for 50 percent of the cropped area, with the rest under grain (25 percent), animal feed crops (20 percent), and vegetables (5 percent). The cropping structure changed over time, with 1986 representing a break point. The total cropped area increased steadily from 3 million hectares to 4 million hectares from 1940 to 1986 due to expansion of irrigation. The area sown to cotton increased from 0.9 million hectares in 1940 to 2.1 million hectares in 1986. Only part of this growth in cotton was achieved through expansion of total irrigated land: much of it was made possible by the reduction of the area sown to grain, which dropped by more than half from 1.5 million hectares in 1940 to 0.7 million hectares in 1986.7 This trend reversed after 1986: the area sown to grain began to increase, while the area under cotton was reduced. As a result, the area under grain bottomed out in 1986 at 18 percent of total sown area, increasing to 29 percent of the total in 1992. The area sown to cotton on the other hand peaked in 1986 at 52 percent of the total and dropped to 40 percent in 1992. Despite the impressive gain in area sown to grain since 1986, it just about returned to the 1965 level. The dramatic changes in grain and cotton areas were accompanied by a steady increase in the area sown to vegetables and feed crops. These changes in cropping structure since 1986 were the result of conscious government policies intended to increase domestic food production and reduce the reliance on food imports through greater diversification of the agricultural product mix. Changes in cropping are shown in Figure 6.2. Agricultural production in Uzbekistan did not collapse after independence to the same extent that it did throughout most of the former Soviet Union (FSU). Gross agricultural product in 1994 and 1995 was about 15 percent lower than in 1990 (in constant prices), in contrast to other former Soviet republics and countries in Eastern Europe, where agricultural output dropped by 30–40 percent after 1990. To a large extent, this was achieved because Uzbekistan was growing cotton, an internationally marketable export commodity, for which ready markets could be found in Western Europe and Turkey after the disappearance of the traditional FSU demand.


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Organization of the farm sector Agriculture in Uzbekistan, as in all other Soviet republics, was traditionally organized in a dual system, in which large-scale collective and state farms coexisted in an almost symbiotic relationship with quasi-private individual farming on subsidiary household plots. The large-scale farms were the backbone of commercial agriculture, feeding agricultural products into the state-controlled distribution system. Yet the subsidiary household plots produced much in excess of their subsistence needs, and typically sold their surplus products to the local large-scale farm, to the state-controlled consumer coop network, and partly also in nearby towns, where the bazaar was a well-established traditional institution. An average collective or state farm in Uzbekistan had 2,000–3,000 hectares of arable land and employed around 1,000 farm workers. Some 2,000 collective and state farms jointly managed 95 percent of arable land in the country. An average household plot in the 1980s was 0.12 hectare, and 2 million household plots cultivated 3 percent of arable land. In terms of production, however, the household plots consistently accounted for 20– 25 percent of gross agricultural product over the recent decades, a much higher proportion than their share of land. This was accomplished mainly by concentration in livestock production. From 1970, the households had more cattle in absolute numbers than the collective and state farms combined (nearly 60 percent of all cattle and over 70 percent of all cows between 1970 and 1992). Collective and state farms provided young stock as well as feed and common pasture for household animals. In return, the households delivered their surplus livestock output to the local large-scale farm, which then proceeded to sell it to the state as part of its obligations to the administrative command system. The structure of land tenure prior to 1990 is indicated in Figure 6.3. In addition to livestock production, the small household plots specialized in labor-intensive crops, producing 30 percent of the total output of potatoes, 45 percent of vegetables, and 60 percent of fruits and berries during the decade 1980–1989. Large-scale crops requiring purchased inputs and mechanization, such as cotton and grain, were grown mainly by collective and state farms. Thus, up to 1990, household plots produced about 5 percent of grain (mainly as feed for their animals) and no cotton. This specialization within the dual agriculture system was to a large extent the result of conscious government strategy, because cotton in many countries is grown by smallholders without sophisticated machinery.8 The emphasis on large-scale cotton fields and mechanical picking (57 percent of all

Figure 6.3 Structure of land tenure: pre-1990 (percentage of arable land)

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Figure 6.4 Introduction of new irrigation

cotton in 1990 was picked by machines) was an outcome of Soviet ideology for agriculture. Irrigation system All agriculture in Uzbekistan, even the karakul sheep grazing in the desert, is dependent on water. The rapid population growth necessitated continuous expansion of irrigated areas over the years. The total area under irrigation increased from 2.2 million hectares in 1953 to 4 million hectares in 1985, a long-term growth rate of about 2 percent per annum. The introduction of new irrigation outstripped the long-term growth of labor in agriculture, and irrigated area per agricultural worker in Uzbekistan grew at a rate of 0.7 percent per annum, rising from 1.5 hectares per worker in the 1950s to 2.2 hectares per worker in the late 1980s. The expansion of irrigation accelerated after 1970, and peak growth was achieved in the decade 1976–1985, when the irrigated area was growing at an average rate of 90,000 hectares per year. After 1985, the introduction of new irrigated lands slowed down considerably, and in recent years the total irrigated area has remained static at the level of 4.2 million hectares. This slowdown was due not only to increasingly acute budget constraints, but also to the realization that the potential for irrigation expansion had been largely exhausted and new reclaimed areas were of marginal quality for agriculture. Trends in expansion of irrigated areas are shown in Figure 6.4. The main source of irrigation water in Uzbekistan is the surface flow from melting snows and mountain streams: this provides more than 95 percent of the water used for irrigation. The groundwater resources do not contribute significantly to the total supply of irrigation water, and ground-water is mostly used to water desert pastures from wells. Water is pumped from reservoirs, and also directly from the two major rivers of Amu Darya and Syr Darya, in quantities fixed by multilateral agreements with Uzbekistan’s neighbors. Water has always been regarded as a nationally owned resource, and the irrigation system is built, run, and operated by the state. The main features of the irrigation system in Uzbekistan are allocation of water according to irrigation norms and free delivery of water. The volume of water needed to irrigate crops is set by scientists working in research institutes, and not by the farmers who produce the crops. Farms pay


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nothing for water, and the government absorbs the full cost of delivery to all regions, districts, and farms, including the investment and maintenance cost of physical plant. Farms thus have an incentive to take delivery of their full allocation, but do not have economic incentive to use their allocation efficiently. THE PROCESS OF LAND REFORM9 Agricultural reform in Uzbekistan began in 1989, more than two years before independence, as a natural extension and adaptation of Gorbachev’s centrally initiated attempt to increase food production and improve farm efficiency.10 The 1989 legislation attempted to give more land to households and encourage restructuring of farms for better efficiency. In addition to increasing the total area in the household sector by 60 percent from 250,000 hectares to 400,000 hectares, this initial phase of the reform process spelled out the first principles of farm restructuring through creation of autonomous subdivisions in large-scale collective and state farms. These principles have largely guided the implementation of reforms since then. Appendix A presents a chronology of main legislative acts relating to land reform and farm restructuring in Uzbekistan since the first attempts in 1989 to increase the land holdings of subsidiary household plots and to encourage the formation of intra-farm ‘lease groups.’ The land reform legislation that has emerged in Uzbekistan since 1989 provides an adequate basic framework at least for the first stages of transformation of agriculture toward market-oriented operation. The general principles incorporated in Uzbek reform legislation are quite similar to those adopted by other former Soviet republics, which is not surprising in view of the pervasiveness of common heritage in all these countries and the common roots of reform in Gorbachev’s perestroika strategy. Ownership and tenure of land Despite legislation that encourages changes in land tenure and farm organization, all land remains property of the state. The principle of state ownership of land, which prevailed in the Soviet Union from October 1917, was incorporated in the new Uzbek constitution of December 1992 and subsequently reiterated in other laws. The official rationale against private ownership of land is two-fold: first, it includes the universal argument of the need to avoid speculation in land and accumulation of large tracts in the hands of absentee owners; second, it relies on the specific Uzbek reality, where land is useless without water, and water is a national resource delivered by a state-run irrigation system. Land is allocated to the users by the state. Collective users are granted land in permanent use, and individual users receive state-owned land in inheritable lifetime possession. In both these traditional Soviet forms of land tenure, land is granted to the user for an unlimited term, but without any rights of transfer. Land cannot be privatized, sold, mortgaged, given away as a gift, or exchanged. Only leasing out of part of the land for a specified term is allowed. Transactions in land are thus limited to short-term leasing of relatively small parcels of state-owned land among users. Users pay for the use of state-owned land, although no ‘downpayment’ is required when land is allocated. In retaining exclusive state ownership of land, Uzbekistan followed the accepted practice among most of its Central Asian neighbors. It consciously departed from the policy of other large republics of the FSU, such as Russia and Ukraine, which legalized private (individual and collective) ownership of land alongside state ownership, or Belarus and Kazakhstan, which at least recognize private ownership of subsidiary household plots, while retaining state ownership of agricultural land for commercial farming. The sweeping universal restrictions on transactions in land place Uzbekistan among a rapidly shrinking minority of former Soviet republics that adhere to non-market mechanisms of land management. Turkmenistan is the only

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other Central Asian country that still prohibits all transactions in land. Although Turkmenistan’s 1992 constitution formally recognizes private ownership of land, the legal situation of private land owners in Turkmenistan is not much different from that of holders of state land in Uzbekistan. Uzbekistan’s other neighbors, Kazakhstan and Kyrgyzstan, retain state ownership of land, but allow relatively unrestricted transactions in land use rights. In other former Soviet republics, such as Russia, Ukraine, Moldova, the Baltics, and the Trans-Caucasus states, the initially imposed restrictions on transactions in land are beginning to be relaxed. Land, however, remains the only productive asset in Uzbekistan that cannot be owned privately (by individuals or collectives). The new constitution declared that ‘the economy of Uzbekistan, evolving towards market relations, is based on various forms of ownership.’ It explicitly allowed ‘private property, along with other types of property.’ The Law of Property, as amended in May 1994, recognizes three main forms of ownership. These are private property, collective (shirkat) property, and state property (including municipal). Property of foreign investors and international organizations is introduced as a distinct, fourth category. Private property in Uzbek law is the property of individuals. The definition of collective property is broader than usual: it includes partnerships, cooperatives, joint-stock companies, and all shareholder structures in general. THE INDIVIDUAL FARMING SECTOR Growth of subsidiary household plots Individual farming never ceased during the Soviet regime, as subsidiary household plots in Uzbekistan consistently contributed around 25 percent of gross agricultural product, and well over 50 percent of livestock and crop production excluding cotton and grain. The household plots, however, can be characterized merely as quasi-private agriculture because of their close and almost symbiotic relationship with the large-scale host farms.11 Their normal operation and success depended more on the good will of the local farm manager than on the diligence and efforts of the household members. Land in subsidiary household plots steadily increased between 1960 and 1988, rising at an annual rate of 2 percent from 130,000 hectares to 250,000 hectares. This permanent growth was driven by the natural increase of rural population, but did not catch up with it. The rural population increased faster, at an annual rate of 2.7 percent during this period, and at the end of 1988 the number of households with land was only 1. 9 million out of a total of more than 2.5 million households in rural areas. To correct this distortion, a program of land distribution to subsidiary household plots was implemented after 1988, primarily as a social measure intended to reduce the pressure of multiple families on a single household plot. The land allocated to household plots nearly doubled: by January 1993 the total land in subsidiary household plots reached 491,000 hectares and the number of households with land exceeded 2.5 million. Compared to the status in November 1988, over 650,000 new households received land for the first time and 1.6 million households received additional land to augment their plots. The average plot size increased from 0.12 hectare in 1988 to 0.19 hectare in 1992–1993. As a result of these changes, the subsidiary household plots in 1993 held 8.6 percent of arable land in Uzbekistan (up from 3.2 percent in the 1980s). Trends in household plots are shown in Figure 6.5.


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Figure 6.5 Land in household plots: 1960–1993

Emergence of peasant farming A phenomenon closer to private farming began to emerge in 1991–1992 with the establishment of the first peasant farms in Uzbekistan. Peasant farms are expected to be operationally more independent of the local farm enterprise than the traditional household plots, although physically they are located on its territory and share its irrigation system. This fundamentally new option for the restructuring of Uzbek agriculture was provided by the Law of Peasant Farms adopted in July 1992. A peasant farm is a legal entity based on the family unit, with one of the members designated as the ‘head of farm.’ The peasant farm is allowed to keep a business bank account and must have an official stamp and a letterhead. A peasant farm is created for the purpose of agricultural production using primarily family labor, although additional use of hired labor is allowed. A peasant farm is essentially different from a subsidiary household plot in that its members are self-employed and do not work for a large-scale farm enterprise. A peasant farm is established on a plot of land that its head receives from the state in lifetime inheritable use. Additional land may be leased from the state as needed for a period of not less than 10 years. The land for a peasant farm is allocated in a single tract, including all irrigation and drainage facilities and access roads. The size of the tract depends on local conditions, such as availability of irrigated land, the needs of employee households in collective farms, and the size of the applicant’s family. The farmer receives the land with the irrigation facilities free, without any payment. The law, however, requires payment for use of land, in the form of a land tax or lease payments. The land is given to peasant farms under highly restrictive conditions: first, the land must be used for farming, with due regard to conservation practices and environmental concerns; second, the land cannot be privatized, sold, mortgaged, given away as a gift, or exchanged. There is, however, no explicit prohibition on leasing some of the farm land to or from other producers. The land of a peasant farm is not subject to division among members or heirs: a single heir is chosen by ‘family council’ among the members when the head of farm dies; a member who leaves the farm is not entitled to take away a portion of the land.

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An unusual provision in the Uzbek Law of Peasant Farms states that ‘new peasant farms may be initially created on a contract basis within the structure of collective and state farms.’ This is, of course, completely at variance with the practice in other countries of the FSU and throughout East Central Europe, where the very act of creation of a peasant farm implies secession from the collective enterprise. The rationale for this provision may be connected with the special importance of irrigation in this desert country. Peasant farms must be established on irrigated land. Since virtually all irrigated land is in collective farms, land for new peasant farms must be carved from existing farm enterprises. Peasant farms are thus automatically created within the existing perimeter of a collective farm, and there is no special reason to insist on formal separation. Furthermore, the state is concerned that failure of a peasant farm may involve degradation or even destruction of the existing irrigation network, and is reluctant to allow full independence of a new small farm until it has proven its ability to survive and perform up to expectations. These considerations may also explain the strict control that Uzbek administration attempts to exercise on the operation of peasant farms. These are required by law to submit detailed business plans to the district governor in justification of their application for a plot of land. The scarce irrigated land is allocated to peasant farms on a ‘competitive’ basis: the applicants ‘bid’ for land by submitting their business plans and stating their qualifications, and the local authorities allocate land on the basis of some ranking of the applications. Once established, the peasant farm must submit actual performance reports and periodic financial statements so that the district officials can judge its progress and accomplishments. If unsuccessful, the farm may be stripped of its land. Even if justified by the attempt to preserve the integrity of the irrigation network, this unusual administrative evaluation process is an obvious remnant of the central planning and administrative command system, and as such it is of course easier to implement under conditions of maximum control of the peasant farms. The provision that peasant farms may be created within collective farms and that peasant farms may be given land in less than lifetime tenure are obviously in line with this philosophy, as they enable the state to maintain its control of the emerging private sector. As in other parts of the former Soviet Union, the reality in the field preceded formal reform legislation. Thus, peasant farms in Uzbekistan began to be created long before the adoption of the Law of Peasant Farms in July 1992. The number of registered peasant farms increased Table 6.1 Growth of peasant farming in Uzbekistan Jan. 1991 Jan. 1992 Jan. 1993 Oct. 1993 Oct. 1994 Oct. 1995 Number of registered farms Land allocated to registered farms, thou. ha Average size of registered farm, ha

1,358 9.1 6.7

1,868 13.7 7.3

5,942 45.1 7.6

6,469 65.3 10.1

13,768 184.9 13.4

17,700 257.3 14.5

rapidly from less than 2,000 in 1990–1991 to nearly 18,000 in 1994. The average farm size has increased steadily over the years, rising from 6.7 hectares in 1990 to 14.5 hectares in 1995. These trends are shown in Table 6.1. In addition to registered peasant farms, which are the only ones reflected in official statistics, thousands of families have submitted an application to establish a peasant farm and have been actually allocated land by their collective farm in excess of a standard household plot. There were nearly 7,000 such ‘unregistered’ peasant farms in collective enterprises in the fall of 1994, compared to 13,000 registered peasant farms at that time. The total land allocated to both registered and unregistered peasant farms was 340,000 hectares in the fall of 1994, compared to 185,000 hectares in registered farms only. The ‘unregistered’ peasant farms are established on a temporary basis in accordance with the law inside large-scale farm enterprises until they


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prove their ability to operate and justify a permanent grant of land in lifetime inheritable use. ‘Probation’ farmers that do not fulfill the business plan submitted to the local authorities may lose their land and revert to the former status of farm-enterprise employees. Not all the land in peasant farms is arable: more than one-third is pasture and only half is irrigated. The cultivated land in peasant farms (which includes arable land and land under perennials) is 160,000 hectares, which is around 3 percent of total cultivated land in Uzbekistan. Although peasant farms are rapidly closing the gap with subsidiary household plots as measured by total land area (340,000 hectares in peasant farms compared to 490,000 hectares in subsidiary household plots in the second half of 1994), subsidiary household plots still have a higher share of arable land in Uzbekistan. Land used by peasant farms is indicated in Table 6.2. Of the nearly 20,000 peasant farms in 1994, two-thirds specialize in livestock and one-third (6,500 farms) specialize in crop production. Government policy encourages livestock specialization among peasant farms. According to recent decrees and resolutions, only operations with at least 30 head of cattle will be eligible for peasant farm status. These livestock farms automatically receive 0.3 hectare of land per head of cattle for feed production. They are also entitled to assistance from district authorities and farm-enterprise managers in provision of concentrated feed and other farm Table 6.2 Land in peasant farms: structure and use, September 1994 Structure of land holdings Total land, ha* Irrigated Dry arable Pasture Other

Structure of land use 339,700 48% 7% 34% 11%

Cultivated land, ha Grain Feed crops Vegetables Fruit and grapes Cotton Other

159,680 27% 31% 5% 10% 14% 13%

Note: * Includes 154,800 ha in 6,820 unregistered peasant farms created on a probation basis in collectives. Table 6.3 Structure of livestock sector, September 1994 Total animals (thou.) Collectives Household plots Peasant farms

Cattle

Cows

Sheep

Pigs

5,376.5 26% 70% 4%

2,299.3 18% 79% 3%

10,288.3 48% 50% 2%

307.7 90% 7% 3%

inputs, an important consideration in the absence of market sources for inputs in Uzbekistan. This policy is part of the general drive in Uzbekistan to emphasize livestock production as a source of domestically produced food and to reduce the dependence on food imports. The policy has definitely produced significant results, as the number of cattle in peasant farms increased from 90,000 head in September 1993 to 225,000 head in September 1994, and the average number of animals per livestock farm rose from 9 to 17. Yet in relative terms the weight of peasant farms in the livestock sector is still small: 4 percent of the total number of cattle and 2 percent of the total number of sheep in 1994. For comparison, household plots

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account for 70 percent of cattle and 50 percent of sheep in 1994. The share of peasant farms in the livestock sector is thus not higher than their share of the crop sector as represented by cultivated land (3 percent of the total). A comparison of livestock holdings by sector is shown in Table 6.3. Peasant farmers are treated as a preferential sector by the state and enjoy a wide range of incentives. The Law of Peasant Farms provides a two-year exemption from the land tax and stipulates that peasant farms ‘will have access to subsidized loans from a special credit fund to be created for their use by banking institutions.’ This provision was operationalized in February 1994 when the Cabinet of Ministers instructed Uztadirkorbank (the major investment bank in Uzbekistan) to provide unlimited credit to peasant farms for a term of not less than 10 years to purchase equipment, livestock, construction materials, fuel, fertilizer, seeds, and other inputs. The state budget finances peasant farm expenditures for land reclamation, construction of roads and bridges, gas, electricity, heat, and water supply systems, and other communal services. The Tax Code identifies peasant farms, together with the rest of the farming sector, as a specific category of tax payers who have to pay income tax only on earnings derived from non-agricultural activities. The February 1994 cabinet resolution slashed by 50 percent the tax rate on non-agricultural earnings of small rural enterprises. Performance of the individual sector The augmentation of household plots and the emergence of peasant farms substantially increased the role of the individual sector in agricultural production in Uzbekistan. The share of the individual sector (including household plots and peasant farms) in total agricultural production increased from 28 percent in 1990 to 41 percent in 1994. Since 1990, the individual sector has been responsible for a significantly higher proportion of the output of vegetables and livestock products than during the 1980s. Household plots and peasant farms combined now produce over 60 percent of Uzbekistan’s output of meat, milk, and wool, half its output of potatoes and vegetables, and probably also half the output of fruits and berries, although no definitive figures are available in this category since 1990. Even grain production in the individual sector has increased to respectable levels of around 10 percent of the total. Some peasant farms are beginning to grow cotton, although no output results are yet available for this commodity. A comparison of the individual sector’s share in agricultural production before and after 1990 is shown in Table 6.4. Table 6.4 Average share of subsidiary household plots and peasant farms for selected commodities, 1980–1989 vs. 1990–1993 (in percent of total output for each commodity) 1980–1989

1990–1993

Grain n/a 9.7 Potatoes 31.3 45.5 Vegetables 45.3 55.5 Fruits and berries 60.0 n/a Meat 47.7 61.3 Milk 62.7 72.3 Eggs 34.0 40.3 Wool 62.2 68.8 Karakul skins 30.5 29.3 Note: All differences between the two periods are statistically significant, except for eggs and karakul skins.


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The main difference between the two components of the individual farming sector—the subsidiary household plots and the peasant farms— is that of size: while household plots have 0.2 hectare of land, an average peasant farm has around 15 hectares. Another formal difference is that household plots are run by families of employees in the local farm enterprises, while members of peasant farms are self-employed. These two factors are probably sufficient to account for deep behavioral and psychological differences between the two types of farming, and yet we cannot ignore the fact that in Uzbekistan both the household plots and the peasant farms are physically located within the same large-scale farm enterprise, coordinating their activities in various ways with the farm manager. The very creation of a peasant farm depends on the good will and cooperation of the farm manager: the village council and the district authorities will not move on a new application for land without the consent of the farm manager, who is expected to allocate a physical tract of irrigated land to the new peasant farm out of the lands that the farm manages. The Uzbek procedure is different from the practice in Russia, Ukraine, and other European republics, where peasant farms receive land from a state reserve created in advance by extracting a specified percentage of land from collective and state farms and where peasant farms are physically separated from the large-scale enterprises. While in other republics the relations between peasant farmers and farm managers, although usually not hostile, can be described as ‘at arm’s length,’ the relations in Uzbekistan appear to be extremely friendly to the extent that the peasant farmers continue to depend on the farm manager for much of their input supplies, product marketing, and even lobbying at the district government level. This may be a natural state of things in an environment without functioning market services and infrastructure, and it may be quite helpful to the new peasant farmers in the initial stages of development. There is nothing that legally prevents the farmers from independent management of their relations with the external environment, and many farmers are already beginning to move in this direction, but so far private farms appear to operate simply as oversized subsidiary household plots, and not independent economic agents. Some officials in Uzbekistan are actually of the opinion that peasant farms should simply evolve through further augmentation of subsidiary household plots, and not through a special land-allocation procedure. RESTRUCTURING OF FARM ENTERPRISES Although the individual sector, including the household plots and the peasant farms, has almost trebled its land holdings since 1990, it accounts for only 9 percent of arable land in Uzbekistan. Fully 90 percent of irrigated and arable land in the country is still managed by large-scale collective and state farms. The pattern of land tenure after four years of reform is thus not significantly different from that in the pre-reform period. This is clear from a comparison of the structure of land tenure in the post-Soviet period shown in Figure 6.6 with one pre-1990 structure of tenure shown in Figure 6.3. Perhaps more importantly, the organizational changes in large-farm enterprises have been skin-deep so far. According to the new standard statute of collective farms, it is still the district governor who has the power to nominate and fire the farm manager, with the general assembly of the collective reduced, as in the Soviet past, to mere rubber-stamping of official decisions.12 Moreover, farms operate in an economic environment which is still subject to central administrative controls.13 State orders have been abolished for many products, but are still enforced for crops and grain, the two main cash commodities. This imposes a heavy tax burden on agricultural producers, because state orders carry a price which is much lower than the market. A sense of administrative intervention in farming operations pervades all levels of the system. All facets of farming activity appear to require the approval of local authorities, who continue to exercise the old power over their territories.

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Deeper changes in land tenure and farm operation will come only as a result of macro-economic liberalization combined with deep restructuring of large-scale farm enterprises, intended to make them more suitable for operation in a market environment. Ongoing changes in farm organization The intention of the Uzbek government to reduce state ownership of business enterprises was formulated in the Law of Destatization and Privatization adopted in November 1991, just two months after the declaration of independence. Destatization involves transformation of state-owned

Figure 6.6 Structure of land tenure: 1993 (percentage of arable land)

enterprises into collective enterprises, lease enterprises, joint-stock societies, limited liability partnerships or corporations, and other non-state organizations. Privatization is clearly intended as the next stage of the destatization process, with property rights in the collective and share-holding structures passing to individuals or private legal entities. Privatization is applicable to all assets, but not land. Ownership of the new enterprises created in the process of destatization and privatization is not restricted to Uzbek nationals: foreign residents and foreign corporations are allowed to acquire former state property through bids or at an auction. It is, however, the workers’ collective at each enterprise that decides on the new form of organization and determine through their choice if any of the assets are to be auctioned to outsiders. In application to agriculture, the general strategy for reducing the direct involvement of the state in business enterprises primarily involved transformation of state farms into collective farms and other shareholder forms, as well as reorganization of large-scale state-owned livestock and poultry complexes into joint-stock companies. By 1996 the destatization of state farms in Uzbekistan was virtually complete: only 22 state farms remained of the 1,137 state farms that existed on 1 January 1992. The rest have been transformed, mainly into collective farms and agricultural production cooperatives. Although the legal framework provides for a mixed form of transfer of ownership of state property, combining free transfer with redemption of assets at their current value, the government decided to transfer all the assets of state farms without any payment to the workers’ collectives. The internal restructuring of collective (and former state) farms in Uzbekistan appears to have followed the widely accepted model that emerged under Gorbachev and continued to evolve in all former Soviet


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republics after the dissolution of the USSR. According to this model, the large-scale collective structure is gradually dividing into smaller units, mostly based on functional subdivisions. These units gain increasing operational autonomy and develop first into cost centers and eventually into profit centers. The subdivisions maintain current accounts, initially on a clearing basis in the accounting department of their collective farm and later in the local bank in the nearest town. Their buying and selling activities are usually handled by the central structures of the collective farm, although some enterprising units choose to manage input purchases and product marketing on their own. A characteristic feature of these units in the initial stages of development is that they operate assets leased from the collective farm: they own the output and the profits, but not the productive assets or the land. Typically, each of these units is a small production cooperative managed by the workers’ team. In this sense, it is a smaller replica of the large collective farm. Yet already the change in scale may be sufficient to induce a better sense of responsibility and motivation among the member-workers, improving the performance compared to the anonymous and faceless large-scale farm. As long as the individuals in these units do not own the productive assets, however, they will continue to suffer from all the inherent weaknesses of production cooperatives and labor-managed firms that led to the failure of this organizational form in Eastern Europe. Moreover, Gorbachev’s experiment with ‘contracting out’ the farm operations to autonomous groups was unsuccessful mainly because the ‘lease units’ were subject to the then prevailing system of state orders and centrally planned allocation of inputs, which continued to be handled through collective and state farms, and in this sense were never fully independent business entities. The success of the restructuring of collective farms in Uzbekistan thus largely depends on relaxation of government intervention in the management of agriculture and development of functioning support services for the sector. An interesting variation on the theme of ‘lease groups’ adopted in some cases in Uzbekistan involves the leasing of productive assets to individuals, and not to whole workers’ teams. One individual leases from the collective farm a functionally complete subdivision and hires the workers needed to run the unit. The lessee is fully responsible for the operation of the leased enterprise, and his or her managerial skills will determine its success or failure and with it the welfare of the workers’ team. This structure based on an individual lessee appears to be unique to Uzbekistan, and it is probably as close as one gets to a privately held corporation without actually allowing private ownership of the assets. It is a very interesting experiment, but unfortunately no information is available on its frequency and breadth of adoption in the country. Another fairly radical restructuring program implemented in Uzbekistan involves the separation of entire livestock units from collective and state farms and their reorganization as shareholder companies or jointstock societies. Some 2,000 units in collective and state farms have been separated and privatized in this way following a March 1993 government resolution. The livestock units are sold to the workers’ teams, who are required to repay the value of the assets in 10 nominal annual payments, without interest. Field visits indicate that some units shed as much as 15– 20 percent of the original labor force in the process of privatization in an attempt to reduce costs. At the present stage, these privatized units are closed joint-stock societies, but in future they may be allowed to sell shares to outside investors. The livestock privatization program is another example of a unique Uzbek approach to farm restructuring: it is without precedent among the former Soviet republics. Unfortunately, it is also an example of the enormous power that central authorities continue to wield in the management of agriculture.

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Plans for distribution of asset shares The next stage in internal restructuring of collectives will come with the eventual implementation of the temporary regulations adopted in June 1994. These regulations provide guidelines for the division of collective assets into individual shares and regrouping of shareholders into voluntary functional units, not necessarily based on existing subdivisions in the collective farm. Collectives will issue certificates of share ownership to their workers and pensioners, and optionally to employees of the social sphere in the village (teachers, medical personnel, support service staff, etc.). Once asset shares are assigned to individuals and the individuals regroup according to internal agreements, the collective farm will in effect divide into an association or a union of producers with private ownership of their assets. Unfortunately, there is still no mechanism for division of land into individual shares, and land will have to be leased collectively by the entire group of individuals forming the new unit, or by the unit as a corporation. Division of enterprise assets into shares does not necessarily imply the creation of a shareholding corporation or joint-stock company. The ‘shareholders’ may decide to keep their shares in a collective farm, a cooperative, a lease enterprise, an association, or any other organizational form recognized by law. The small producer groups created by individuals pooling their asset shares and leasing land collectively may continue to function in the framework of the former collective farm, utilizing the accumulated expertise of its specialists and administrators as a service cooperative. The service cooperative will specialize in input purchasing, product marketing, mechanical maintenance, and various professional and managerial services —i.e., activities with pronounced economies of size and manifested benefits of specialization. Already today some collective farm managers, when asked about their future role in the restructured farms, indicate that they intend to focus on finding markets for their member-producers and making use of their ability to find and procure inputs and machinery. Distribution of asset shares to individuals is a necessary step in fundamental restructuring of collective farms beyond a mere name change, and once completed it will eventually have to be followed by a similar procedure for distribution of land shares. It is only in this way that farm restructuring will advance toward production based on individual ownership, which is a prerequisite for increased efficiency. The structure based on groups of producers with private ownership of assets and individual allotments of land can be made to work in all lines of agricultural production. The voluntary regrouping of individual shares of land and assets provides a mechanism which is sufficiently flexible for the production of vegetables, grain, cotton, livestock, and even for desert-pasture grazing of karakul sheep. As part of its attempts to speed up farm restructuring, the government has embarked on an experimental program in Karakalpakstan, which is a relatively backward area in the western part of the country suffering from severe environmental problems associated with the Aral Sea. The program, still on the drawing board, will be designed to convert the large and unprofitable collective farms in Karakalpakstan into associations of private farmers with private ownership of assets and individual land leases. WATER MANAGEMENT REFORMS14 Viewed against the dynamic changes in land relations and farm organization, Uzbekistan’s water economy remains largely static. There are no ongoing plans to adjust the traditional water delivery system to the new reality, specifically to the emergence of peasant farms, which cannot become truly independent as long as they continue to receive their irrigation water through the collective farm. Reform proposals in water management are so far limited mainly to academic circles. The issue of water pricing has been in the forefront of attention of local scientists for a number of years. Traditionally the government absorbs all the costs of construction, expansion, maintenance, and operation


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of the irrigation system, and does not charge any price for the irrigation water it delivers to collective farms and other agricultural enterprises. Any input that is provided free of charge is likely to be used wastefully. The combination of water quotas and free delivery is a guaranteed recipe for excessive use of water. There is no incentive for the farms to utilize only the necessary quantity of water, which may be less than the full allocated quota. There is actually a real disincentive to save water, because reduced use in the current period will be translated by the planning authorities into a reduced water quota for the next period. Several pricing schemes for irrigation water have been developed by researchers in Uzbekistan. These pricing schemes are designed to recover delivery costs, to provide funds for renovating and expanding the water delivery system, and to motivate improvements in farm-level water management practices. The average recommended prices are low in comparison with water charges in other parts of the world: the average recommended price for Uzbekistan is $6.33 per 1,000 cubic meters, while current prices of irrigation water in California’s San Joaquin Valley range from $25.00 to $75.00 per 1,000 cubic meters. However, charging even a small price for irrigation water in Uzbekistan will have a significant impact on farm-level water management practices, because farms will be required to pay per unit of an essential input that was previously provided free of charge. There is considerable support among water resource professionals and government officials for implementing a system of water prices in Uzbekistan. However, if farms are required to pay for water use, they must also be allowed to determine which crops to produce, to select their best marketing alternatives, and to retain the profits that are generated through the sale of their production. Farmers facing market prices for both their outputs and inputs will adjust cropping patterns and adopt irrigation practices, as needed, to maximize the net economic values that result from the use of irrigation water. Introduction of charges for irrigation water thus must be part and parcel of a general program for complete elimination of the remaining state orders for cotton and grain, liberalization of prices for both inputs and outputs, and reduction of direct government intervention in production planning. No thought has been given in Uzbekistan to changing the property rights for water. While there is some ongoing discussion of the question of land privatization, it seems to be taken for granted that water will remain a state-owned resource, and will continue to be delivered through a state-owned system. Yet even before a water pricing program is implemented, the current system of allocating water to agricultural producers can be modified to ensure a more efficient use of water resources. The volume of water allocated annually to each farm could be determined using the existing system of irrigation norms, or by assigning a uniform average volume of water to all farms. In either case, farms would be permitted to trade portions of their annual water allotments with other farms in the same district, or with farms in other districts, to the extent that existing water delivery facilities can support such trades. Farms may trade water use rights intertemporally, i.e., between seasons of the year, or they may trade water for units of agricultural commodities, or portions of their state-order production quotas. A tradable water allotment program will generate a price for water, and this in turn will motivate farms to use their allotments more efficiently through a combination of irrigation deliveries and trades with other farms. A tradable water allotment program could evolve over time into a formal water market as experience is gained with market prices and transaction costs. In addition, the implementation of a formal system of water rights would enable farms to trade water between years, as they would be given use rights to a specific volume of water each year. The current system of irrigation norms actually imparts a form of perceived water rights among all farms in Uzbekistan, because farms expect to receive the volume of water required to produce their crops each year. Hence, the concept of formal use rights may be viewed as a natural extension of the existing water allocation program.

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The assignment of water rights is an appropriate answer to the needs of peasant farms. At the present time, peasant farms have a secondary status regarding water deliveries within collective farms. This procedure should be replaced with the assignment of a specific volume of water for each hectare of land that is irrigated on the peasant farms. The primary purpose for establishing peasant farms is to increase the output from each hectare of land. The same result can be achieved with regard to water resources if the peasant farms are given property rights to the use of their irrigation supply. If such a program is implemented, experience with water rights will grow as the number of peasant farms increases. CONCLUSION The two salient features of agrarian reform in Uzbekistan are retention of state monopoly on land ownership and continued pervasive intervention of local and central authorities in agriculture. Producers only receive use rights in land, while land remains the property of the state. Uzbekistan and its southern neighbor Turkmenistan are the only major countries among the former Soviet republics that impose a virtually absolute prohibition on transfer of land, and thus block the development of any land markets beyond the most rudimentary level of small short-term leases. Agrarian reform in Uzbekistan is a centrally managed top-down process, and hardly anything in its design is left to the free will of the lower levels. In Uzbekistan, the central controls persist, and it is the president and the central government who are the main planners of reform and the main driving force behind its implementation. Uzbekistan’s government maintains a strategy of pervasive intervention in agriculture, and local authorities exercise rigid control over the allocation of land to peasant farms, which is enforced by close monitoring of farmers’ performance through business plans and financial statements. The combination of state monopoly on land and continued central controls in Uzbekistan creates a picture of transition to the market which is different from that in the European republics of the FSU. The observed changes in the structure of agriculture are characterized by significant strengthening of the individual sector (including enlargement of household plots and emergence of private farms) and organizational changes within large-scale collective farms that are intended to shift the balance of accountability toward smaller units and sometimes even individuals. Yet the agricultural sector in Uzbekistan is still dominated by large-scale farm enterprises, and the individual farmers are not really independent: they are strongly dependent on the managers of collective farms for their water and land, the main resources for farming. The changes in collective farms, on the other hand, have been skin-deep, and managers, for instance, still remain state appointees accountable to the district governor, and not their member-shareholders. Agriculture, through cotton production, is the main earner of foreign currency in Uzbekistan. The government tries to maintain its grip on the sector in order to control this source of revenue. Yet events, and especially the break-up of the cozy economic ties that characterized the Soviet Union, create a pressure for change, forcing the government to launch a range of reforms. By giving individuals more land and a portion of assets from collective farms (e.g., the privatized livestock units) the government has alleviated some of the difficulties with agricultural production and has made the private sector more responsible for its own food supply. With Uzbekistan’s limited land and water resources, food production can be increased only by improving yields per hectare of land and per unit of water used. This in turn requires continued transfer of rights to water and to more land from the collective sector to the private sector. In addition to transfer of use rights, the government must continue its policy of economic liberalization, eliminating state orders and freeing prices, so that producers will be able to decide on their own what to grow and where to sell. Output


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and productivity in the private sector will increase as the incentive structure changes, so that individuals, and not the state, benefit directly from their efforts. NOTES 1 This chapter is based on observations and data collected by the author in the course of World Bank agricultural sector missions to Uzbekistan in 1994–1995. The data for Figures 6.1–6.4 are based on official statistical publications, including Narodnoe khoziaistvo v SSSR v 1990 g.: Statisticheskii ezhegodnik (Moscow, Finansy i Statistika, 1991), Narodnoe khoziaistvo Uzbekskoi SSSR: Statisticheskii ezhegodnik (Tashkent, Uzbekistan State Committee on Statistics, various years), Sodruzhestvo Nezavisimykh Gosudarstv v 1994 godu: Statisticheskii ezhegodnik (Moscow, Mezhgoskomstat SNG, 1995), and Sodruzhestvo Nezavisimykh Gosudarstv v 1995 godu: Kratkii spravochnik statisticheskikh itogov (Moscow, Mezhgoskomstat SNG, 1996). The opinions expressed are of the author himself, and in no way reflect the policy, official or otherwise, of the World Bank. 2 N. Precoda, ‘Requiem for the Aral Sea,’ Ambio, Vol. 20, Nos. 3–4, (1991), pp. 109–114. 3 For econometric evidence of wasteful use of resources and inefficiency of Soviet agriculture in Uzbekistan, see D.Gale Johnson and Karen Brooks, Prospects for Soviet Agriculture in the 1980s (Bloomington, Indiana University Press, 1983); A.Kriss, Agricultural Productivity in the Former Soviet Republics, unpublished Master of Science thesis, Department of Agricultural Economics and Management, The Hebrew University of Jerusalem, 1994; Z.Lerman, J.Garcia-Garcia, and D.Wichelns, ‘Land and Water Policies in Uzbekistan,’ PostSoviet Geography and Economics, Vol. 37, No. 3 (March 1996), pp. 145–174; and J. Garcia-Garcia, ‘Agricultural Policies in Independent Uzbekistan,’ paper pre-sented at the Conference on the Struggle for Modernization and Democratization: The Case of the Former Soviet Central Asian Republics, University of Minnesota, Minneapolis, 11–13 April 1996. For an informative discussion of agricultural and rural issues in Soviet Uzbekistan and a detailed bibliography of Soviet sources on the subject, see Peter Craumer ‘Agricultural Change, Labor Supply, and Rural Out-Migration in Soviet Central Asia,’ in R.A.Lewis, Geographic Perspectives on Soviet Central Asia (London and New York, Routledge, 1992), pp. 132–180. For a long-range perspective of rural development in Uzbekistan spanning the Soviet period and the post-independence years, see Peter Craumer, Rural and Agricultural Development in Uzbekistan (London, The Royal Institute of International Affairs, 1995). For a political scientist’s view of the position of the Central Asian republics in the USSR, see Gregory Gleason, ‘The Political Economy of Dependency under Socialism: The Asian Republics in the USSR,’ Studies in Comparative Communism, Vol. 24, No. 4 (Winter 1991), pp. 335–353. 4 For a review of the early phase of agricultural reforms in Uzbekistan, see Don Van Atta, ‘The Current State of Agrarian Reform in Uzbekistan,’ Post-Soviet Geography, Vol. 34, No. 9 (September 1993), pp. 598–606. For a Russian perspective of the initial economic changes in Uzbekistan, see B.P.Plyshevskii, ‘Reforming the Economies of the CIS: Uzbekistan,’ Rossiiskii ekonomicheskii zhurnal, No. 10 (1993), pp. 30–38, English translation in Problems of Economic Transition, Vol. 39, No. 9 (1995), pp. 84–95. Max Spoor analyzes problems of agrarian change in the context of transition to a market economy in cotton-growing water-dependent countries of Central Asia. See Max Spoor, ‘Transition to Market Economies in Former Soviet Central Asia: Dependency, Cotton and Water,’ The European Journal of Development Research, Vol. 5, No. 2 (1993), pp. 142–158. Finally, Gregory Gleason provides a general view of future prospects of Central Asian nations in the context of Soviet legacy. See Gregory Gleason, ‘Independent Muslim Republics in Central Asia: Legacy of the Past, Shape of the Future,’ Journal of the Institute of Muslim Minority Affairs, Vol. 12, No. 2 (1991), pp. 355–375. 5 See Peter Craumer, Rural and Agricultural Development in Uzbekistan, op. cit. (note 3), which provides interesting estimates of the negligible out-migration from rural to urban areas in Uzbekistan. 6 In Russia the trend has reversed and the rural population has been increasing since 1991, largely due to rural inmigration. See Stephen K.Wegren, ‘Rural Migration and Agrarian Reform in Russia: A Research Note,’ EuropeAsia Studies, Vol. 47, No. 5 (1995), pp. 877–888; and Stephen K.Wegren, Gregory Ioffe, and Tatiana Nefedova,

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7

8 9

10

11

12

13 14

‘Demographic and Migratory Responses to Agrarian Reform in Russia,’ Journal of Communist Studies and Transition Politics, Vol. 13, No. 4 (1997). The substitution of cotton for grain in Central Asia is not a Soviet invention: it began in the late 19th-early 20th century, when the construction of the Trans-Siberian railway (1888–1900) ‘considerably lowered the cost of transport of cotton, and gave facilities for the import of cereals into Turkestan [mainly today’s Uzbekistan]; thus making it possible to increase the cotton plantations by reducing the areas under cereals.’ A.N.Antsiferov, A.D.Blimovich, M.O. Batshev, and D.N.Ivantsov, Russian Agriculture during the War (New Haven, CT, Yale University Press, 1930), p. 64. T.Bell and F.Gillham, The World of Cotton (Washington, DC, ContiCotton, 1989). The discussion of agrarian reforms in this and the following two sections is based on the text of the relevant laws and on unpublished official data provided by the Ministry of Agriculture, the Ministry of Planning and Forecasting, and the State Committee on Statistics in Tashkent. For an economic analysis of agricultural reform in the USSR during Gorbachev’s period, see Karen Brooks, ‘Soviet Agriculture’s Halting Reform,’ Problems of Communism, Vol. 39, No. 2 (1990), pp. 29–41; for a political analysis see Stephen K.Wegren, ‘Dilemmas of Agrarian Reform in the Soviet Union,’ Soviet Studies, Vol. 44, No. 1 (1992), pp. 3–37. Karl-Eugen Wadekin, The Private Sector in Soviet Agriculture (Berkeley, CA, University of California Press, 1973); Z.Lerman, Ye.Tankhilevich, K. Mozhin, and N.Sapova, ‘Self-Sustainability of Subsidiary Household Plots: Lessons for Privatization of Agriculture in Former Socialist Countries,’ PostSoviet Geography, Vol. 35, No. 9 (September 1994), pp. 526–542. Standard Statute of a Collective Farm, Peasants’ Association, and Union of Collective Farms of the Republic of Uzbekistan, Ministry of Agriculture, Tashkent, 1994. The new standard statute for collective farms, replacing the traditional Soviet statute, was prepared by the Ministry of Agriculture and given the force of law by a presidential decree of January 1994 ‘On Approval of Standard Statute of Collective Farms in the Republic of Uzbekistan.’ J.Garcia-Garcia, ‘Agricultural Policies in Independent Uzbekistan’, op. cit. (note 3). This section draws on D.Wichelns, Economic Evaluation of Agricultural Water Resources in Uzbekistan, unpublished report for the World Bank, Department of Resource Economics, University of Rhode Island, Kingston, RI, 1994.

APPENDIX A: SELECTED LEGISLATION ON LAND REFORM AND FARM RESTRUCTURING IN UZBEKISTAN Pre-Independence (Uzbek SSR) 1989 Aug. On Allocation of Land to Subsidiary Household Plots (Resolution of Central Committee of the Communist Party, Presidium of Supreme Council, and Council of Ministers of Uzbek SSR) 1989 Dec. Regulations on Leasing in the Uzbek SSR (Resolution of the Presidium of Supreme Council implementing the Basic Law of the Soviet Union and Union Republics on Leasing) 1990 May On Sale of Young Animals and Feed by Collective and State Farms to Subsidiary Household Plots (Resolution of Council of Ministers of Uzbek SSR) 1990 June Land Law (amended July 1993) 1990 Oct. Law of Property (amended July 1992, May 1994) 1991 Jan. On Measures for Development of Subsidiary Household Plots of Collective Farm Members, State Farm Employees, and Other Rural Residents (Presidential Decree) 1991 Feb. Law of Enterprise (amended Nov. 1991, July 1993) 1991 Feb. Law of Entrepreneurship 1991 June Law of Cooperatives (amended Dec. 1993) Post-Independence (Republic of Uzbekistan) 1991 Nov. 1991 Nov.

Law of Leasing On Further Strengthening of Peasant Farms and State Support for Entrepreneurial Activity in Uzbekistan (Presidential Decree) 1992 July Law of Peasant Farms 1992 Dec. Law of Economic Associations, Partnerships, and Companies 1992 Dec. Constitution of the Republic of Uzbekistan (Article 53: private property; Article 55: state ownership of land) 1993 March On Measures for Deepening of Economic Reforms in the Livestock Sector (Government Resolution No. 137) 1993 May Land Tax Law 1994 Jan. On Approval of Standard Statute of Collective Farms (Presidential Decree) 1994 Jan. On Further Deepening of Economic Reforms, Protection of Private Property, and Development of Entrepreneurship (Presidential Decree) 1994 Feb. On Improvement of Reforms in Livestock Farming and Protection of Interests of Peasant Farms and Privatized Farm Enterprises (Government Resolution No. 87) 1994 Feb. On Additional Measures for Implementing Economic Reforms in Agriculture (Government Resolution No. 88) 1994 March On Priority Directions for Further Development of the Process of Destatization and Privatization (Presidential Decree) 1994 May Bankruptcy Law

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1994 June 1994 July 1994 Aug. 1994 Aug.

Temporary Regulations for Privatization and Creation of Various Forms of Ownership in Agriculture Regulations on Sale into Private Ownership of Trade and Service Facilities Together with the Land Plots on Which They Are Located (Government Resolution) On Results of Implementation of Economic Reforms in the First Half of 1994 and Measures for Further Improvement of Their Effectiveness (Government Resolution) On Measures for Economic Encouragement of the Development of Agriculture (Presidential Decree)

7 Land reform in Turkmenistan 1 Zvi Lerman and Karen Brooks

Turkmenistan is the only country in Central Asia in which the constitution formally recognizes private ownership of land. Yet, this constitutional provision introduced in 1992 has done little to spur the process of land reform. Changes in land tenure and use since independence in 1991 do not further key objectives of land reform, such as increasing private investment in agriculture and improving stewardship of land and water resources. Land markets do not yet exist, due to legal constraints on transactions. Thus, although the constitutional recognition of private ownership in land is notable, virtually all the work of creating meaningful property rights in land and a framework for evolution of farm structure remains ahead. With a land area of 488,100 square kilometers, Turkmenistan is the fourth largest among the former Soviet republics (after Russia, Kazakhstan, and Ukraine), but its population of around 4 million puts it near the bottom of the ranking, with smaller populations reported only in the three Baltic republics. The combination of large land area and relatively small population produces an overall population density that is among the lowest in the former Soviet Union: 7.6 people per square kilometer.2 Turkmenistan’s population density is much lower than in most other Central Asian states and is comparable to the population density in sparsely inhabited Kazakhstan (see Table 7.1). The low figure for the overall population density is misleading, however. Turkmenistan is a desert country: cultivated land in Turkmenistan is merely 4 percent of agricultural land, compared to the 40 percent average for all former Soviet republics. The rest is unirrigated and uninhabitable. The rural population of 2 million is concentrated on 1.2 million hectares of arable land, which works out at 1.7 people per hectare of arable land as effective rural population density, compared to the USSR average of less than 0.5. Ignoring the expansive desert pastures, which are not of much use to individual farmers, there is 0.6 hectare of arable land per rural resident in Turkmenistan. This is more than in other Central Asian republics and in TransCaucasus, but much less than in the European republics. Turkmenistan is thus characterized by a high pressure of rural population on intrinsically limited resources of irrigated land. Because irrigated land is so scarce, and because water resources are fixed and limited, a central objective of tenure reform in Turkmenistan must be to achieve good stewardship of land and water, and to promote their efficient and sustainable use. The present property rights and constraints on markets have led to severe and potentially irreversible degradation of land, through excessive application of water, salinity buildup, and deterioration in drainage. Preservation and enhancement of land quality will require commitment of the labor and savings of rural households, and this will not be forthcoming unless tenure is secure and land markets can function.

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THE IMPORTANCE OF AGRICULTURE Turkmenistan is largely an agricultural country. More than half its population is rural, and the proportion of the rural population has been steadily increasing since the 1960s. The annual growth rate of the rural population is 2.8 percent, while the urban population has been growing at an annual rate of 2.3 percent. As a result, the rural population has increased from around 52 percent of the total in the 1970s to nearly 55 percent in 1993. This puts Turkmenistan between the relatively more urbanized Kazakhstan, where only 40 percent of the population is rural, and the rest of Central Asia, where the rural population is around 60 percent, as indicated in Table 7.1. The rural population is mainly employed in agriculture. With the relatively fast growth of rural population, agricultural employment in Turkmenistan has increased from 40 percent of total labor force in 1985 to 44 percent in 1992–1993. Industrial employment during the same period remained at 21 percent of the total number of employed. Between 1980 and 1991, agriculture accounted for around 25 percent of gross material product, compared to over 45 percent for industry. The share of agriculture in gross material product declined dramatically during 1992–1993, dropping to around 10 percent in current prices. All measures of GDP and sectoral accounts in Turkmenistan are very uncertain because of extreme price distortions. Nonetheless, agriculture’s share of the economy seems to have declined. This is a harsh reflection of the unfavorable terms of trade of agriculture during the recent years, caused by faster increase of prices of industrial products. The decline in gross agricultural output since independence has been less than in some other countries in transition, in part because much of the system of administrative allocation of inputs and mandatory marketing quotas has been preserved. Yields have fallen significantly, however, particularly in the grain sector and in livestock. The relatively moderate decline in output has been achieved by continuing the traditional extensive expansion in the former Soviet tradition, with little consideration of costs or comparative advantage. Table 7.1 Population density, availability of arable land to rural population, and percentage of rural population in Turkmenistan and other former Soviet republics, 1990 Population density, people per ha Arable land, ha per rural resident Percentage of rural population Turkmenistan 7.6 FSU average 13.0 Central Asia Uzbekistan 46.3 Kyrgyzstan 22.3 Tajikistan 37.4 Kazakhstan 6.2 Trans-Caucasus Armenia 113.3 Georgia 78.4 Azerbaijan 82.4 European republics Russia 8.7 Ukraine 86.0 Belarus 49.4

0.60 2.28

54.6 33.9

0.37 0.52 0.22 5.00

59.7 61.9 68.6 42.4

0.48 0.33 0.39

31.8 43.8 46.5

3.40 1.97 1.76

26.1 32.5 32.9


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Population density, people per ha Arable land, ha per rural resident Percentage of rural population Moldova 129.6 0.74 Estonia 35.1 2.45 Latvia 41.6 2.20 Lithuania 57.2 1.96 Source: Narodnoe khoziaistvo SSSR v 1990 g. (Moscow: Finansy i statistika, 1991).

52.5 28.5 28.9 31.2

The role of agriculture in the economy of Turkmenistan highlights the potential importance of the process of land reform and farm restructuring in this country. Transformation of agriculture through properly designed land and farm policies can markedly improve the wealth and the standard of living of the population, which has always been among the poorest in the former Soviet Union. Conversely, failure to attend to property rights in land and water will prolong and accelerate the current decline of rural areas into severe poverty, with its attendant political consequences. LAND IN TURKMENISTAN Cultivated land in Turkmenistan accounts for a mere 4 percent of all agricultural land, or 1.7 million hectares out of 41 million hectares; the rest is desert pastures as shown in Figure 7.1. Because of severe desert conditions in the country, nothing can be grown without irrigation, and virtually all cultivated land in Turkmenistan is irrigated. The source of water for irrigation is a negotiated share of four international rivers, the most important of which is the Amu Darya. Water from the rivers is distributed across the country through the 1,400-

Figure 7.1 Structure of agricultural land: 1995 Source: See note 1.

kilometer Kara-Kum Canal. In the early 1960s, before the major irrigation projects connected with the KaraKum canal were launched, total irrigated and cultivated area in Turkmenistan was less than 0.5 million hectares. Land used for farming thus more than trebled over forty years. Figure 7.2 shows the dramatic

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Figure 7.2 Growth of irrigated area: 1965–1993 Source: See note 1.

growth of irrigated area in Turkmenistan from 0.5 million hectares in 1965 to 1.25 million hectares in 1988 and then, after a short lull, by an additional 20 percent to 1.5 million hectares in just two years 1992–1993. The expansion of cultivated area through irrigation even outstripped the growth of rural population and the increase of the number of workers in agriculture. The cultivated area per capita grew at an annual rate of around 1 percent from 1965, increasing from 2.2 to 3.2 hectares per agricultural worker and from 0.5 to 0.6 hectare per rural resident between 1965 and 1993. These trends are shown in Figure 7.3. Expansion of irrigated area has continued since 1992 by an addition of approximately 400,000 hectares. Turkmenistan’s water resources are limited, however, and the share of regional rivers allocated to Turkmenistan under existing procedures is relatively high compared to population. Turkmenistan’s allocation of regional water supplies is unlikely to increase in the future, and pressures of competing uses of water will intensify as population growth continues.3 Under present conditions of low yields and high wastage of water, further expansion of irrigated area is not environmentally desirable or economically justified. Turkmenistan’s agricultural growth in the future will require higher yields per hectare and more efficient use of water. Cotton is Turkmenistan’s main cash crop, accounting for half the cropped area. Prior to 1991 all cotton was exported within the USSR. In recent years, cotton has become a major source of foreign currency earnings as exports have been redirected to other countries, among them Turkey, Switzerland, Pakistan, Italy, and the UK.4 In an attempt to reduce reliance on wheat imports and improve self-sufficiency in food, Turkmenistan’s producers have been required by decree to nearly treble the land under grain since 1990: the share of grain increased from 15 percent to 33 percent of the total sown area as shown in Figure 7.4. The figure indicates that the increase in sown land devoted to grain has come at the expense of cotton (its area has declined by about one-tenth during the last decade), as well as a reduction in area of feed crops, potatoes, vegetables, and melons. The changes in cropping patterns have been accomplished entirely through government directives, and the decline in area under feed crops has occurred despite an increase in the animal herd.


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Figure 7.3 Availability of irrigated land: 1965–1993 Source: See note 1.

Figure 7.4 Area sown to cotton and grain: 1985–1993 Source: See note 1.

INHERITED LAND TENURE Prior to the adoption of the new constitution in 1992, all land in Turkmenistan was owned by the state. This exclusive state ownership of land was traceable to the fundamentals of the 1917 Soviet Land Decree, which eliminated privately owned land in the region that would eventually become the USSR. The Soviet state granted use rights in land to producers, both collective and individual. Turkmenistan inherited from the Soviet Union a dual pattern of land tenure. Most of the agricultural land (over 95 percent) was in permanent

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Figure 7.5 Decline of collective land: 1985–1994 Source: See note 1.

use of large-scale farm enterprises: there were some 500 former state and collective farms, which cultivated 1,500– 2,500 hectares of sown land per average farm. In addition, around 2 percent of arable land was allocated in lifetime inheritable possession to rural households, where employees and pensioners of the farm enterprises farmed with family labor small subsidiary household plots of less than 0.2 hectare on average. The land in household plots was almost entirely arable land, orchards, and vineyards, without any pastures and with very little area of hay meadows. The composition of an average household plot was typically 85 percent arable land and 15 percent orchards and vineyards. In Turkmenistan, the large-scale farms produced on average 80 percent of gross agricultural product during the decade of the 1980s, while the remaining 20 percent came from production in small household plots. The share of subsidiary household plots in gross product was much higher than their share of land in all former Soviet republics. The significant contribution of household plots to agricultural production was regarded throughout the Soviet Union (at least in Gorbachev’s time) as a sufficient reason for encouraging this subsector and increasing its land holdings.5 Household plots were accordingly the first beneficiaries of the land reform process everywhere in the FSU. GROWTH OF THE INDIVIDUAL SECTOR A definite change in agricultural land tenure is noticeable in Turkmenistan, especially since 1990. The share of large-scale farm enterprises in cultivated land is shrinking, as indicated in Figure 7.5. The share of traditional farms in arable land declined from 93 percent in 1985 to 86 percent in 1994, and their share in land under perennials (orchards and vineyards) dropped from 86 percent to 76 percent in the same decade. The decline accelerated markedly after 1989. Since total irrigated and cultivated land continues to expand (as shown in Figure 7.2), the declining share does not imply a decrease of total land area cultivated by largescale farms. However, the rate of growth of collective cultivated hectarage is much slower than the rate of growth of all cultivated land, which accounts for a pro


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Figure 7.6 Share of household plots in cultivated land Source: See note 1. Table 7.2 Individual land use, 1985–1995 (thou. ha) Year

Household plots

Collective gardens

1985 35.4 0.7 1986 36.2 0.7 1987 38.1 0.8 1988 45.3 1.3 1989 47.2 3.3 1990 51.9 3.1 1991 88.4 4.5 1992 101.5 5.4 1993 109.9 5.7 1994 117.8 5.8 1995 119.6 6.4 Source: State Committee of Land Reform of Turkmenistan.

Private farms

Total in individual use

— — — — — — 0.1 1.8 31.1 87.3 98.0

36.1 36.9 38.9 46.6 50.5 55.0 93.0 108.7 146.7 210.9 224.0

nounced decline in the collective share. Both arable and perennial land is shifting from traditional largescale farms to the individual sector, whose share in cultivated land has rapidly increased since 1990. This trend is indicated in Figure 7.6. The total land holdings of the individual sector increased more than six-fold during one decade: from 36, 000 hectares in 1985 to 224,000 hectares in 1995. The individual sector today includes three distinct categories of producers, as shown in Table 7.2. The largest category is still the household plots, which account for more than half of all land in the individual sector. The household plots are cultivated by nearly half a million rural families (455,300 families as of October 1995), mostly employees and pensioners of large-scale farms.

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Another well-established category is gardens and vegetable patches, cultivated by nearly 80,000 urban families (77,100 families as of October 1995). This category of so-called collective gardens is quite small, however, and represents less than 3 percent of all land in the individual sector. The collective gardens are established by associations of city workers, usually affiliated with the same work place, who apply as a group to local government for an allocation of land. These urban groups are allocated contiguous tracts of land not far from the city, which are then subdivided into small individual plots for part-time farming by association members. The third category, which began to emerge as recently as 1991–1992, is private peasant farms, established by independent individuals outside all collective frameworks. The number of independent private farms reached 3,200 by the end of 1995, while another 5,000 applications were pending. Land in private farms exceeds 40 percent of all land in the individual sector. Figures 7.7a and 7.7b show the share of arable land and the structure of land use in the individual sector, respectively. The land in household plots doubled within two years, from 52,000 hectares in 1990 to 102,000 hectares in 1992. By the end of 1995, it reached 120,000 hectares, or an average of 0.25 hectare per family. The share of household plots in arable land increased from around 2 percent in the 1980s to nearly 5 percent in 1995. Their share in perennial land doubled from 11 percent to 21 percent in the same period. The weighted average share of household plots in all cultivated land by the mid-1990s exceeded 5 percent, up from 2.5 percent in the 1980s. Collective gardens of urban workers registered an even more impressive growth rate: from a mere 700 hectares in 1985 to 6,400 hectares in 1995, or an average of 0.08 hectare per family. Private farmers, the new third component of the individual sector, were allocated nearly 100,000 hectares of land between 1992 and the end of 1995, of which 80,000 hectares are the farmers’ property and another 18, 000 hectares are leased from the state. The average size of a private farm is 25 hectares. While household plots and collective gardens cultivate mostly irrigated arable land, peasant farms as a matter of policy are established on marginal virgin land. The peasant farmers are expected to convert their marginal land into arable land by preparing it for cultivation and providing irrigation. As of late 1995, only 40 percent of the land holdings of private farms were classified as arable land (39,000 hectares of the total of 98,000 hectares). In order to start producing before their allocation of private land has been fully prepared for cultivation, many farmers are forced to lease arable land from the local collective or state farm. Nearly 20 percent

Figure 7.7a Distribution of arable land: 1995 Source: See note 1.


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Figure 7.7b Structure of land use by individual sector: 1995 Source: See note 1.

of land holdings in peasant farms is leased land that the local farm enterprises had left unutilized, as shown in Table 7.3. Despite the generous endowment of land, private farms are currently producing less than 1 percent of the nation’s agricultural output, mainly because most of them were established very recently and are still not fully operational on their marginal land. In contrast, the increased allocation of good land to household plots has led to a substantial increase in their contribution to gross agricultural product. The share of household production in gross agricultural product Table 7.3 Land holdings of peasant farms, 1991–1995 (ha) Year

Total land

Privately owned

1991 0.1 — 1992 1.8 — 1993 31.1 25.7 1994 87.3 69.8 1995 98.0 80.3 Source: State Committee of Land Reform of Turkmenistan.

Leased 0.1 1.8 5.4 17.5 17.7

rose from around 17 percent in 1989–1991 to nearly 30 percent in 1994, and household plots today account for over 60 percent of the value of livestock production in Turkmenistan (their share of crop products remains below 10 percent). The change has in fact been observed since 1990, when large farms began distributing additional land to households for individual cultivation, as shown in Figure 7.8.

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Figure 7.8 Growth of agricultural product: households and enterprises Source: See note 1.

THE LEGAL FRAMEWORK OF LAND REFORM The legal framework of land reform in Turkmenistan is provided by a long list of presidential decrees and laws, some of them dating back to the Soviet period in 1990, as indicated in Appendix A. The changes in land relations began in the first half of 1991, primarily with the president’s letter of April 1991 (which had the force of a presidential decree) instructing local councils and ministries to allocate additional arable land for household plots and collective gardens from under-utilized land reserves of largescale farm enterprises. The jump in the share of cultivated land in household plots observed between 1990 and 1991, and the associated increase in agricultural production of households are a direct outcome of this policy decision. The April 1991 decree established a new principle, namely that land originally granted to farm enterprises in perpetuity could be reallocated to other users if it was not utilized efficiently. This principle has since remained an active component of the land policy in Turkmenistan. The augmentation of household plots began before the adoption of the new constitution of Turkmenistan. At that time, all land in Turkmenistan was state-owned, as everywhere in the former USSR, and land tenure was governed by the traditional Soviet forms of permanent use (for farm enterprises) and inheritable lifetime possession or usufruct (for individuals). The May 1992 constitution (Article 9) recognized private ownership of land (and other means of production) by individuals. The constitution also allowed corporate ownership of assets, including land, and naturally retained the category of state ownership. The constitution of Turkmenistan is unique among the constitutions of Central Asian countries in that it recognizes private ownership of land. The constitution, however, only sets general principles, and practical implementation is left to laws, presidential decrees, and government resolutions. Both the 1990 land code, which remained in force after the adoption of the new constitution, and subsequent legislation unequivocally showed that private ownership of land did not carry with it the usual rights of transfer: privately owned land to this day may not be sold, given away as a gift, or exchanged by its owner. According to the presidential decree of February 1993, published after the adoption of the new constitution, land in subsidiary household plots and in collective gardens was to be transferred from the old


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form of inheritable lifetime possession to private ownership. The decree also legalized longterm leasing of land by individuals and groups of individuals within largescale farms: land could now be leased to farm employees for terms of 10 years and longer. In addition, the February 1993 decree made the first step toward expanding individual land tenure to include an entirely new category of producers, namely private farms. While the traditional household plots and collective gardens were largely intended for subsistence purposes, and only a small part of their output was sold in local markets, the new private farms were expected to have a commercial orientation. As of February 1993, citizens of Turkmenistan could apply to receive up to 50 hectares of land in private ownership for commercial farming. This land, however, was not necessarily arable or irrigated land. The presidential decree specifically stipulated that local authorities would allocate land plots for commercial farming from reserve lands, virgin lands, and lands not used by farm enterprises. The new farmers were thus expected to ‘open’ virgin lands by their own efforts and with their own resources. This task would normally involve leveling the rough native terrain, moving away large volumes of sand, trucking in equally large volumes of fertile soil from afar, and providing irrigation ditches or pipes from relatively distant water sources. Yet the new farmers were obliged to start producing within two years, and would lose the land if they failed to start farming commercially within the stipulated period. This was probably an unrealistic stipulation, given the tremendous difficulties that individuals would face in ‘opening’ virgin lands and providing irrigation. Nevertheless, the ‘opening’ of virgin lands by private farmers since 1993 accounts for part of the considerable increase in irrigated land observed during 1994–1995. The land received for private farming, although classified as privately owned, could not be sold, given as a gift, or exchanged. The legal framework thus prohibited all transactions in land, preventing creation of optimally sized farms through market mechanisms. Despite the physical obstacles and the marginal quality of land allocated to private farming, individuals began to apply in increasing numbers for an independent plot of land outside the collective framework. As of October 1995, 3,237 individuals had received a total of 80,300 hectares of virgin lands in private ownership, and nearly 5,000 additional applications were pending. Private farmers managed to ‘open’ 31, 000 hectares, or nearly 40 percent of land that they had received. The growing interest in private farming encouraged the preparation of a special law, the Law of Peasant (Daikhan) Farms, which was passed in March 1994, replacing the February 1993 presidential decree. THE CONCEPT OF PRIVATE LAND OWNERSHIP The prevailing views of land ownership and land relations are reflected in the draft land code submitted for discussion in 1996,6 According to the current legal conception, every citizen of Turkmenistan has the right to private ownership of land. Foreign citizens may not own land: only leasing by foreigners is allowed. Yet, the draft land code states that ‘land is granted in private ownership…in inheritable lifetime possession, without the right to sell, give as a gift, or exchange’. This formula is transported verbatim from the Sovietinfluenced land code of 1990, except for the addition of the clause ‘private ownership’ to comply with the new constitution. This juxtaposition of two distinct concepts, that of private ownership (chastnaia sobstvennost’) and that of inheritable lifetime possession (nasleduemoe pozhiznennoe vladenie), is not accidental: it occurs at least twice more in the draft land code. When listing the legitimate uses for which individuals may be granted land in private ownership (Article 57), the draft law states:

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Citizens of Turkmenistan have the right to receive in private ownership with lifetime inheritable possession plots of land for the following purposes: (1) commercial farming, peasant farming, free entrepreneurship, and provision of services to the population; (2) subsidiary household farming; (3) individual residential and summer-home construction; (4) gardening and vegetable growing; etc. [Emphasis added.] When discussing the establishment of private farms (Article 64), the draft law states: Citizens of Turkmenistan who wish to establish a peasant farm for crop or livestock production based predominantly on personal labor and labor of other family members will lease land or receive land in private ownership with the right of lifetime inheritable possession. [Emphasis added.] Rights of land owners include the right to transfer the land plot or part thereof in temporary use to other juridical or physical bodies (Article 47). This presumably includes leasing out land to others. Since no other rights of alienation are mentioned, none are allowed by implication. Land users (as opposed to Land owners) do not have any rights of transfer, not even temporarily. Thus, it appears that the term ‘private ownership’ is equated, both semantically and legally, with ‘lifetime inheritable possession,’ the traditional Soviet form of land tenure that prevailed before the introduction of private land ownership. A ‘private land owner’ has no other rights than using the land during his or her lifetime, leasing it out temporarily, and leaving it to the heirs. Taking an extreme position, one could argue that ‘private land ownership’ is really a meaningless concept in this context, and the words have been added superfluously to the legal language: there was no need for a new concept in addition to the traditional ‘lifetime inheritable possession’ as the substance of property rights in land did not change. RESTRUCTURING OF TRADITIONAL LARGE-SCALE FARMS Despite the vigorous growth of all three components of the individual sector (household plots, collective gardens, and peasant farms), the bulk of agricultural resources remains in large-scale farms, as we saw in Figure 7.5. Large-scale farms continue to dominate agricultural production. The land cultivated by these farms is state-owned, and any plans for land privatization, or at least privatization of production, are necessarily linked with farm restructuring. Internal changes in the structure and organization of large-scale farms in Turkmenistan began in the late 1980s and early 1990s, when Gorbachev’s model of intra-farm lease groups or lease contracts was gaining popularity in all parts of the Soviet Union.7 According to this model, a group of farm workers leases farm resources from the large-scale enterprise and assumes responsibility for production. In return, the lease group either makes a fixed lease payment or apportions a specified share of its output to the farm enterprise. The lease group may be composed of workers without any blood relation who are employed in the same section of the farm enterprise, or alternatively it may be based on members of a whole family or even several families. Gorbachev’s intra-farm lease model did not prove particularly successful, because in a command economy the lease groups continued to depend on central farm management for input supply and product marketing, and because their production decisions continued to be dictated by the production plan of the large-scale enterprise. Yet it provided an important experiment in small-group or individual initiative as a


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departure from large-scale organization and laid the foundation for various farm-restructuring schemes which prescribed distribution of land and assets to individual members in the form of shares. Farm restructuring through share distribution mechanisms is the accepted practice in Russia, Ukraine, Belarus, and Moldova, as well as some East European countries (most notably Hungary). On a formal policy level, Turkmenistan always encouraged the development of intra-farm leasing. This was regarded as a vehicle for more equitable distribution of income in collective and state farms and as a tool for increasing economic motivation of workers and hence improving agricultural production efficiency. Measures announced in May 1993, for instance, limited the share of total value of production of lease groups that could be withheld by the collective farm in lieu of lease payments and as a contribution to general expenses of the community (35 percent of cotton value, 50 percent of grain, 50 percent of grapes, and 20–25 percent of fruits, vegetables, and potatoes). The rest was to be used to cover production costs and pay group members for their work. The value of the lease contract from which these amounts were withheld was to be based on average yields achieved during the previous 3 years in the corresponding section of the collective enterprise before it was leased by the group, and all production in excess of the contractual obligation remained the property of the lease group. The lease group, however, was obliged to sell all its excess cotton and grain to the state, and only fruits, vegetables, and melons could be sold on local markets. A more radical attempt to restructure the large-scale farms beyond intra-farm leasing arrangements was announced in March 1994 in presidential Decree No. 1729 ‘On Restructuring of Kolkhozes, Sovkhozes, and Other Agricultural Enterprises in Turkmenistan.’ Large-scale farms were to be transformed into associations of peasant farms, share holding societies and partnerships, cooperatives, associations, and other farm enterprises of various forms of ownership. The workers were allowed to choose freely the preferred form of organization. Land was to be transferred in permanent use to the newly created organizational forms, and assets were to be leased with a right to buy. This mechanism did not allow privatization of land, nor did it go as far as distribution of shares in land and assets to individual members. Yet it envisaged a reorganization of existing large-scale enterprises into diverse organizational forms, each exercising direct control of its resources. Even this farm-restructuring decree, however, stipulated that state orders on cotton and grain would remain in force for the new organizations. The implementation of the March 1994 farm-restructuring decree was entrusted to a joint government committee, which proposed a list of 58 farm enterprises in all five provinces that were to be ‘subject to restructuring’ in 1994. The list was based mainly on weak and unprofitable farms, with one or two ‘stars’ included in each province. These ‘stars’ had begun their own program of internal transformation long before the publication of the decree, and they were intended to serve as model examples for other farms in the region. The implementation process thus had an unpleasant flavor of administratively forcing a limited subgroup of farms to restructure, instead of proposing an open restructuring procedure that could be adopted freely by any farm desiring to reorganize. The committee, moreover, made the flawed (although perhaps natural) decision to start with weak and unprofitable farms in the hope of immediately improving their situation. Experience in other countries shows that this is a false hope, and weak farms can transform successfully (if at all) only after the foundations have been laid by transformation of a relatively large number of good or average farms. Unfortunately, no data are available on the actual results of the March 1994 program to start with a transformation of 58 selected farms. Discussions with officials and lack of coverage in the state-controlled press, which usually reports all official accomplishments, seem to suggest that the program has never really got off the ground, and that the effort simply petered out. Perhaps in an attempt to correct for the lack of visible success of the 1994 farm-restructuring decree, the Turkmenistan government announced a new farm transformation program in June 1995.

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The new program was encapsulated in a very short, two-paragraph presidential decree of 15 June 1995 which (a) abolished the existing large-scale farms (kolkhozes, sovkhozes, and interfarm enterprises) and created in their place so-called peasant associations (daikhan birleshik in Turkmen); (b) transferred the use and management of land and assets from the existing farms to the new associations. The decree was followed by the Law of Peasant Associations (15 June 1995) with implementation regulations (15 September 1995). Judged from the terse wording of the presidential decree, the transformation from collective and state farms to peasant associations is merely a ‘changing of the sign.’ Yet the law and the regulations contain much substance intended to move the agricultural sector toward more meaningful and deeper restructuring. A peasant association takes possession of all land and assets previously used by the large-scale farm from which the association is created. The assets are transferred without payment to the ownership of the peasant association, while land remains state property and is given to the association in use. The term for which land is given in use is not specified: neither the law nor the regulations say that land is given in ‘permanent use,’ as was the traditional practice in the past for collective and state farms. This is probably not an accidental omission. According to the State Land Committee, the government now has complete flexibility to take land away from associations if they misuse the land or do not produce with expected efficiency. This may provide a potential source of land for new applicants and serve as a means for reallocating land through non-market mechanisms. However, it places the producers in an untenable position of insecure tenure and puts them at the mercy of bureaucrats. Land reallocation from inefficient to more efficient users is best entrusted to market forces. Another major provision of the new program is that each peasant association, based as it is on a former collective or state farm, may continue transforming through internal reorganization. The peasant association in Turkmenistan may create a variety of semi-autonomous internal organizational forms, including lease groups, peasant farms, subdivisions, livestock units, and other formations, all of which should operate on profit principles. The association may also establish profit-oriented agro-service operations. These internal divisions remain within the association. No mechanism for separating the land and assets of a division from the parent association has been specified. In the process of reorganization, the ownership of non-land assets may be transferred from the association to the newly created subunits. Alternatively, the subunits may lease the assets from the association, as was the former practice. Land, however, remains the responsibility of the association and can only be leased to the subdivisions, because land is owned by the state, not the association. The 1996 draft land code provides the legal framework for leasing of land by the association to its subdivisions. It states (Article 13) that ‘land owners and land users, regardless of the form of ownership, may give land in use to workers and collectives in the form of intra-farm lease contracts.’ This provision is essential to enable allocation of land to autonomous intra-farm subdivisions, because the original 1991 Law on Leasing stipulates that an asset can be leased out only by its owner, which in the case of land is the state. Documentation of use right is supposed to be issued to the association for the entire land area of the former farm enterprise (less unutilized tracts). The association is responsible for ensuring that land resources are used as designated (i.e., for farming) and it is fully accountable for damage caused by inefficient use of land, environmental pollution, and other violations. This indirect leasing, or subleasing, looks highly unusual to Western eyes, and is not practiced in this form in the European part of the former Soviet Union. Yet it is reminiscent of the practice in Israel, where state land is leased in large tracts to the village association (the moshav), which then subleases it to the members.8 It should be noted, however, that the Israeli practice has increasingly come under attack in recent years, and it will ultimately be changed to allow direct leasing of land by producers from the state.


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Membership in the peasant associations is formally voluntary. Members have a right of free exit, and they may leave with their personal property and the household plot. However, they do not get a share of the association assets, either in kind or money, as these are not divided among the members. Nor do they get a share of the association land, because it remains state-owned. An exiting member may apply for a plot of land in virgin areas or from unutilized reserves, like any other citizen intending to become a peasant farmer. The Law of Peasant Associations may express an intent on the part of the government to move the new organizations beyond a mere ‘changing of the sign’ toward the creation of a true association of diverse forms of producers. These producers, while enjoying considerable operational autonomy, will be linked by strong lines to the association through a variety of leasing arrangements (most notably, leasing of land) and the overriding obligation to comply with state purchase orders. Like land, state purchase orders remain the responsibility of the association, and are allocated by it to the subdivisions on the basis of annual contracts. Because of the strong links between the association and its members built into the current legislation, future restructuring is envisaged mainly in the form of expanding intra-farm lease arrangements. As long as farms remain subject to the administrative constraints of Turkmenistan’s command economy, and as long as lease divisions do not have a meaningful mechanism for separation and exit, the associations are not likely to be more effective than their predecessors, the lease contract brigades of the later Soviet period. The emphasis on expanding intra-farm lease arrangements is reflected in the president’s program on deepening of market reforms and socio-economic development of Turkmenistan in 1996 (announced in the president’s New Year speech on 27 December 1995) and in the presidential decree ‘On Additional Measures for Reforming Peasant Associations in 1996’ based on this program. The draft decree instructs the Ministry of Agriculture and the local authorities to speed up agricultural sector reforms by basing in 1996 all intra-farm production relations on contracts with autonomous subdivisions and families. The land and assets of peasant associations are to be assigned on long-term leases for not less than 10 years, which in principle is intended to ensure sufficient security of tenure. One year later, in December 1996, the president initiated an additional step forward in the overall program of reforming land relations in the farming sector. According to the Law on Allocation of Land in Ownership to Citizens for Commercial Farming (20 December 1996), families of members in peasant associations are entitled to receive land in private ownership for commercial farming. The land will pass into private ownership certified by official documents after a two-year probation period, during which the family cultivates the land under a lease contract from the state. The presidential decree attached to the law actually directs the peasant associations to start distributing land to member families on two-year leases prior to its transfer into private ownership, and establishes supervisory organs on different levels that are required to report on the progress of the new reform measures at 10-day intervals. While private ownership is of course understood in the currently accepted sense, i.e., a non-transferable but secure use right, the December 1996 law constitutes an important new development on the road to the establishment of familybased private farming. While according to recent presidential programs all production is to be farmed out to lease groups and families in the village, the peasant association remains responsible for input supply, machinery, equipment maintenance and repairs, and other agro-service support activities. The contractors are required to pay for these services. The potential for the present farm units to evolve toward cooperatives of independent producers exists, if very fundamental further restructuring and privatization is allowed and encouraged. LAND TITLING Recent legislation has created three main categories of land users:

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1 Nearly 600,000 rural and urban residents with small household plots and gardens, totaling over 120,000 hectares. 2 A few thousand private farmers, each with up to 50 hectares of land from virgin areas or unutilized reserves (a total of around 80,000 hectares in 3,500 farms as of the end of 1995). 3 Some 500 peasant associations (former kolkhozes and sovkhozes) controlling 35 million hectares of land. Land in household plots, gardens, and private farms is classified as privately owned in the sense of the 1992 constitution. As such, more than half a million land owners are entitled to receive an official document confirming their title to this land. Before the title document is issued, the specific land plot has to be surveyed, mapped, and officially registered. The surveying and registration process is handled by provincial and district arms of the State Land Committee, which also issue a simple certificate of title. The certificate shows schematically the location of the land plot in relation to the adjoining territory and an outline of the borders and dimensions. The certificate is signed by the head of the district land management and surveying department, which also keeps track of the individual titles. The wording of the certificate highlights the inherent ambiguity in the attitude of Turkmen legislation toward private ownership of land. The certificate confirms ‘private ownership of land…with a right of lifetime inheritable possession.’ Land allocated to private farmers receives a more formal title document (a state ‘akt’), which is issued by the State Land Committee and registered in the Registry of State Titles to Right of Possession and Right of Use of Land. The land owner receives one copy of the title document, and the other copy is filed at the district level. The title document includes a fairly detailed two-page map, drawn to scale and certified by the district land committee, and also space for listing outside owners and future changes in ownership and use. The preprinted part of the title document does not use the term ‘private ownership’ (sobstvennost’) at all: it only uses the terms ‘permanent possession’ (postoiannoe vladenie) and ‘use’ (pol’zovanie). The filled-in handwritten part usually contains the same ambiguous formula as the certificate for household plots: ‘The land is given in private ownership in lifetime inheritable possession.’ The front page of the title document contains some excerpts from the 1990 land code, which provide insights into the philosophical attitude toward land in Turkmenistan. Peasant associations created on the basis of former collective and state farms are supposed to receive new documents from the State Land Committee, conferring use rights to their land. These use rights will no longer be permanent, in contrast to the traditional use rights of former collective and state farms. The State Land Committee is conducting a full-scale survey of association lands in order to identify utilized and unutilized land, a process that is expected to take up to four years. The unutilized land will be extracted into the state reserve for redistribution, and the peasant associations will only retain the use of the remaining land. The official opinion is that this procedure will be simplified by the fact that the use rights of peasant associations under the new law are no longer permanent. The State Land Committee is faced with a very important task, as titling of land is an essential component in the transition to a market economy. The four-year overall land survey project is a relatively standard job for the Land Committee with its various institutes. Titling of hundreds of thousands of individual land holders is something entirely new for the system, but it seems to be progressing. The system as it is designed today keeps the title documents and the registry at the district level, which is probably entirely sufficient at the present stage. It is desirable to develop a standard title document for all plots, instead of the two different documents in use today (one for household plots and one for peasant farms). Even if this is not done, the household plot certificate preferably should also include a page for listing


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ownership changes, like the peasant farm ‘akt.’ In the future, a central registry will have to be developed to pool and duplicate the data stored on the district level, without eliminating the district systems. This is essential in order to allow transactions to be initiated and handled from a location outside the specific district center where the records are kept, an important consideration in a country with a geographically dispersed population. The current land registry is manual and is maintained on ‘paper storage.’ A more modern computerized system of land registry will be needed in the future if market transactions in land become legal. CONCLUSION Land reform in most of the former Soviet Union involves privatization of land, i.e., transfer of land from state ownership to private ownership of collectives in large-scale farms. The establishment of such joint private ownership is an essential first step toward ultimate transfer of land to individual ownership. The land policy that emerges from the legal documents in Turkmenistan, specifically from the June 1995 Law of Peasant Associations and its attendant regulations, suggests that this country does not intend to follow the practice of Russia, Ukraine, and other former Soviet republics and has no plans to implement large-scale privatization of state-owned lands. The intention is to lease land out to producers, while retaining state ownership of most agricultural land. Recent presidential decrees and laws encouraging intra-farm reorganization do not change the basic situation. There are examples of countries with very successful agriculture based on leasehold of state land, not private ownership.9 Long-term leaseholds can be made equivalent to ownership rights if they have the attributes of ownership, specifically security of tenure and transferability at negotiated prices. Turkmenistan, however, imposes strict prohibitions against land transactions which make individual use rights in land totally non-transferable. Under these conditions, neither leased land nor ‘private ownership’ Turkmenistanstyle will be accepted by peasants as equivalent to true economic ownership; neither will encourage muchneeded private investment of rural households; and neither will allow adjustment of farm sizes through transfer of allotments from less efficient to more efficient producers. Therefore, various programs for transfer of land to families and individuals must be accompanied by relaxation of restrictions on transactions in land, as well as reduction of the pervasive intervention of the government in farm-level production decisions. Without these fundamental changes, privatization of land will not lead to the required development of a functioning market environment. Restrictions on land transactions and government intervention in production are often rationalized by the need to prevent fragmentation of large farms which have been built with considerable investment over decades and are thought to enjoy economies of scale. The fears of fragmentation are unfounded. First, there is no real evidence of economies of scale in agricultural production (as distinct from agricultural services). Experience around the world actually demonstrates the opposite, namely that large-scale mechanized farms are less efficient than small family units.10 Second, the recent record in transition economies indicates that the new land owners are not eager to leave the safety umbrella of collectives and strike out as independent small farmers, even in countries where land can be bought and sold.11 Thus, even if Turkmen farmers are granted the basic economic freedoms to decide on disposition of their land and output, agriculture will not disintegrate. It will evolve, as in other countries, toward a whole spectrum of different organizational forms, reflecting free choice and individual preferences. And this is the essence of a market-oriented agriculture.

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NOTES 1 The data for this chapter are based on official statistical publications and on information collected by the authors in the course of World Bank agricultural sector missions to Turkmenistan. The official statistical publications are Narodnoe khoziaistvo SSSR v 1990 g.: Statisticheskii ezhegodnik (Moscow, Finansy i statistika, 1991); Turkmenistan v 1993 godu: Statisticheskii ezhegodnik (Ashgabat, Goskomstat Turkmenistan, 1994); Sodruzhestvo Nezavisimykh Gosudarstv v 1994 godu: Statisticheskii ezhegodnik (Moscow, Mezhgoskomstat SNG, 1995); Sodruzhestvo Nezavisimykh Gosudarstv v 1995 godu: Kratkii spravochnik statisticheskikh itogov (Moscow, Mezhgoskomstat SNG, 1996). The current information in Turkmenistan was provided by the State Committee for Land Reform, State Committee on Statistics, and Ministry of Agriculture. The views expressed in this chapter are those of the authors alone. 2 This compares to an average of 13.0 in the former USSR. 3 See Turkmenistan: Rationalizing the Health Sector, Report 14861TM (Washington, DC, The World Bank, 1995); and Turkmenistan: Review of the Agrarian Sector, draft report (Washington, DC, The World Bank, 1996). 4 Some recent information on exports from Turkmenistan can be found in Sotsial’no-ekonomicheskoe polozhenie Turkmenistana za ianvar’-dekabr’ 1994 g. (kratkii obzor)(Ashgabat, Goskomstat Turkmenistana, 1994); Sotsial’no-ekonomicheskoe polozhenie Turkmenistana za ianvar’-iiun’ 1995 g. (kratkii obzor) (Ashgabat, Goskomstat Turkmenistana, 1995). 5 For more on household production under Gorbachev, see Stephen K.Wegren, ‘Regional Differences in Private Plot Production and Marketing: Central Asia and the Baltics,’ Journal of Soviet Nationalities, Vol. 2, No. 1 (1991), pp. 118–139. 6 The approval of the 1996 draft land code was delayed by the decision to move ahead with a new civil code for Turkmenistan. The chairman of the parliamentary legislative committee estimated in January 1997 that a land code consistent with the principles of the new civil code would not be passed until 1999. In the interim, land relations in Turkmenistan will continue to be guided by presidential decrees. 7 For a discussion of leasing in the USSR during Gorbachev’s period, see Karen M.Brooks, ‘Soviet Agriculture’s Halting Reform,’ Problems of Communism, Vol. 39, No. 2 (1990), pp. 29–41. 8 For a discussion of the structure and the theory of the Israeli moshav, see P.Zusman, Individual Behavior and Social Choice in a Cooperative Settlement (Jerusalem, The Magnes Press, 1988). 9 Private ownership of farm land is prevalent but not universally practiced in market-oriented economies. Two notable examples are the Netherlands and Israel, where much of agricultural land is state-owned for specific historical reasons. In these countries, state-owned agricultural land is handled in practice like privately owned land: farmers have long-term security of tenure and individual farms can be transferred at negotiated market prices. 10 For a review of world experience, see Klaus Deininger, Cooperatives and the Breakup of Large Mechanized Farms: Theoretical Perspectives and Empirical Evidence, World Bank Discussion Paper No. 218 (Washington, DC, The World Bank, 1993). 11 See Csaba Csaki and Zvi Lerman, ‘Agricultural Transition Revisited: Issues of Land Reform and Farm Restructuring in East Central Europe and the Former USSR,’ Quarterly Journal of International Agriculture, Vol. 35, No. 3 (1996), pp. 211–240; Stephen K.Wegren, The Politics of Private Farming in Russia,’ Journal of Peasant Studies, Vol. 23, No. 4 (1996), pp. 106–140; and Csaba Csaki and Zvi Lerman, ‘Land Reform and Farm Restructuring in East Central Europe and the CIS in the 1990s: Expectations and Achievements after the First Five Years,’ European Review of Agricultural Economics, Vol. 24, No. 3/4 (1997).


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APPENDIX A: SELECTED LEGISLATION ON LAND REFORM AND FARM RESTRUCTURING IN TURKMENISTAN 1990 Dec. 1991 April

Land Code of the Turkmen SSR amended May 1991 President’s letter to local councils of People’s Deputies and heads of ministries and authorities ‘On augmentation of areas for household plots and collective gardens from inefficiently utilized lands’ 1991 May Amendment of the Land Code 1992 May Constitution of Turkmenistan (Article 9: private ownership of land) 1993 Feb. Presidential decree ‘On right of ownership and use of land in Turkmenistan’ ; Regulations on Allocation of Land Use in Private Ownership and Long-Term Leasing to Citizens of Turkmenistan 1993 May Presidential decree ‘On increasing economic motivation for increased production and improved quality of agricultural products’ 1994 March Presidential decree ‘On restructuring of kolkhozes, sovkhozes, and other agricultural enterprises in Turkmenistan’ ; Law on Peasant (Daikhan) Farms 1994 May Presidential decree ‘On implementation of reforms in agriculture of Turkmenistan’ 1995 June Presidential decree ‘On creation of peasant associations’; Law on Peasant Associations 1995 Sept. Standard regulations on peasant association 1995 Dec. President’s program ‘On Deepening of Market Reforms and Socio-Economic Development of Turkmenistan in 1996’; Presidential decree ‘On Additional Measures for Reforming Peasant Associations in 1996’ 1996 Jan. Draft Land Code 1996 Dec. Law on Allocation of Land in Ownership to Citizens for Commercial Farming 1996 Dec. Presidential decree ‘On additional measures for implementation of economic reforms in agriculture’

Part III Land reform in Eastern Europe

8 Picking up the pieces Consolidation of Albania’s radical land reform Peter C.Bloch

Traditionally one of the most economically backward nations in Eastern Europe, Albania has undergone a rapid transition from state control of the entire economy to the beginnings of a market economy. The nation remains primarily agrarian and still has one of the lowest standards of living of the former Eastern bloc nations. Part of the reason lies in its long-standing adherence to Stalinist orthodoxy. While other East European states experimented with economic reforms in the post-Stalin period, Albania remained wedded to the Stalinist model until the 1960s, when, under the influence of the Chinese, it attempted to introduce a few mini-reforms. But these minor reforms not only did not change the nature of the system, they simply imposed a new (Maoist) orthodoxy on the nation, as ideological conformity and political obedience were emphasized. Contemporary economic and political reforms, therefore, constitute the nation’s first serious attempt to de-Stalinize society. In order to modernize and improve the standard of living for its population, since 1991 Albania has undergone a rapid transition from state control of the entire economy to the beginnings of a market economy. Some of the earliest and most radical reforms took place in the agricultural sector. Privatization of land was abrupt. Within 18 months of the passage of the Law on Land (no. 7501 of 1991), all state farms and cooperatives had been dissolved, and nearly all agricultural land was distributed to households that had participated in the operations of the farms.1 During contemporary land reform, households have been given several non-contiguous parcels of land to ensure equity and lower risk. Whereas prior to land reform 420 producing units controlled the nation’s 700,000 arable hectares, land reform has fragmented agricultural land into nearly two million parcels held by about 500,000 families.2 With an average family farm holding less than 1.5 hectares, it is evident that most farms are too small to be commercially viable. For the agricultural sector to become market-oriented and internationally competitive, there will have to be consolidation, with some farms growing in size and others disappearing. The Albanian government shows no sign of desiring to implement an active consolidation program, but instead appears to be willing to rely on market forces and on institutional innovations to facilitate the farm consolidation. The purpose of this chapter is to examine Albania’s land reform since 1991. We will begin by tracing Albania’s unique agrarian history. Following that, subsequent sections will describe the country’s efforts at market transition,3 assess the impact of land reform, and consider the prospects for land reform and attempts to construct a viable agricultural sector. HISTORICAL ISSUES Albania’s agrarian structure has changed substantially in the past century. In the declining years of the Ottoman empire, the çiflik system covered perhaps 60 percent of the territory and an even greater share of

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the good land.4 In the rest of the country, mostly in the hills and mountains, small owner-cultivators predominated. After independence in 1920, there were several attempts at agrarian reform, but they amounted to very little. In 1929, çiflik holdings were about 200,000 hectares, representing about half the arable land.5 Of these 200,000 hectares, about one-half were owned by private persons and one-half by the state. At the end of World War II, ‘large’ and ‘rich’ land owners held at least as much land as in 1929, but the state owned less than in 1929, as Table 8.1 shows.6 Medium and small land owners had become the dominant group, controlling 60 percent of the land; landless peasants were ‘only’ 14 percent of the farm population. As World War II ended, the Albanian Communist Party, which later changed its name to the Albanian Party of Labor (APL), made land reform one of its first priorities. State farms were created on çiflik land beginning in 1945, with the former tenants becoming state farm workers. The Agrarian Reform Law of August 1945 expropriated the holdings of the large land owners and redistributed the land to about 70,000 farm families, both the Table 8.1 Structure of land ownership in 1945 Farm households

Arable land area

Average holding size

Number

Hectares

Hectares

%

%

Large land owners 7 n/a 14,554 3.7 State-owned land 50,000 12.7 Rich land owners 4,713 3.0 91,133 23.2 Medium and small land owners 128,961 83.1 237,666 60.4 Landless peasants 21,544 13.9 – – Total 155,225 100 393,353 100 Source: Government of the People’s Republic of Albania, National Statistics Department.

2,080 19.3 1.84 – 2.53

landless and those owning fewer than 5 hectares.7 For reasons both economic and ideological, the Party encouraged small farmers to join producer cooperatives.8 At first this was done via media persuasion and tax incentives, but by 1955 only 9.6 percent of the rural population, with 13.7 percent of the land, had joined voluntarily.9 Beginning in late 1955 the Party decided that collectivization would be accelerated, with coercion used in cases where incentives failed.10 By the early 1960s nearly all farm families were members of cooperatives or state farm employees. The exceptions were in the remote, mountainous areas where there were no economic gains from collective production. However, the regime was determined to eliminate private farming, and so after 1965 even these areas were collectivized, removing the last vestige of private farming by 1967.11 In general, while most of the Soviet bloc nations in Eastern Europe underwent considerable change in their agrarian policies and structures in the post-Stalin period, Albania, being a non-bloc but communist nation, retained several essential features of a Stalinist agricultural system. For example, while other Eastern bloc nations dismantled their MTS (Machine Tractor Stations) during the late 1950s and early 1960s, Albania retained MTS. Moreover, Albania retained restrictions on income from private plots even as the USSR and other bloc nations eased those restrictions, at least temporarily. The USSR and other bloc nations introduced a rural pension system for farm members in the 1950s and 1960s, but Albania’s pension system was not adopted until 1972. While the USSR was experimenting with ‘links’ in the 1950s, Albania rejected increased autonomy for its labor brigades. While bloc countries reformed their agricultural administration in

LAND REFORM IN EASTERN EUROPE

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the 1960s and in general reduced the number of plan indicators, in Albania structural reorganization did not occur until 1970 and even then central plans determined all major farm activities.12 During the communist period the agricultural sector did not keep pace with the rest of the economy. The APL pursued a Stalinist pro-industrial strategy which restricted capital investments and financial resources into agriculture, while at the same time facilitating a transfer of labor from rural areas. As a consequence, the share of agricultural workers in the economy declined from 80 percent in 1950 to under 50 percent in 1990. Even with this rapid decline in the agricultural labor force, labor productivity grew more slowly in agriculture than in the economy as a whole: it was 88 percent of the economy-wide average in 1950 but only 49 percent in 1990, with most of the drop occurring during the period of collectivization in the 1950s.13 The government tinkered with the system to try to accelerate the growth of productivity by consolidating cooperatives into larger units and collectivizing all private livestock, but by the 1980s the agricultural sector, like the rest of the Albanian economy, was in crisis. After Enver Hoxha’s death in 1985, no significant domestic or foreign policy reforms were undertaken as the regime attempted to continue the central planning system. The structures of a centralized economy, however, faced pressures from transitions in other countries in Eastern Europe and increasing demonstrations at home, primarily from young people. These pressures led President Ramiz Alia, who had succeeded Hoxha, to pledge to continue the policies of the past: he promised that the upheaval that was sweeping across Eastern Europe would not infect Albania. Thus, by the late 1980s the political system was also under stress. The earliest harbinger was a demonstration in May 1989 by university students in Tirana; the increasing economic and political pressure caused the regime to introduce a multiparty system in December 1990. Despite pledges to maintain the status quo, in January 1990, at the 9th plenum of the Albanian Communist Party, Alia outlined a series of steps that would democratize the nation and relax state control of the economy. The first competitive elections in Albania since 1923 came in February and March 1991. The major parties were the Albanian Democratic Party (ADP) and the APL. Townspeople voted for the ADP but rural dwellers voted overwhelmingly for the APL, and thus the communists won 162 out of 250 seats in the People’s Assembly. The People’s Assembly in turn selected Ramiz Alia—who resigned as the head of the Communist Party—as President to head a reformist cabinet. Alia began to pursue reforms that resembled the initiatives Gorbachev had introduced in the USSR in 1988, including multi-candidate secret elections and term limits. These clear moves toward democracy, and attempts at major economic reforms, were insufficient to stem generalized turmoil as strikes and demonstrations against the government hit Tirana. Communist rule collapsed in March 1992 when parliamentary elections brought the ADP to power in a landslide, largely due to the fact that rural dwellers voted for democrats instead of communists this time. The ADP held onto power by winning a substantial majority in a widely criticized election in May 1996. THE CONDUCT OF CONTEMPORARY LAND REFORM Despite moves toward economic reform in January 1990, meaningful change was slow in coming, and the principal initiatives in land reform did not come until 1991, when the APL was still in power. In addition to the distribution of agricultural land there were at least seven distinct privatization programs.14 The legal basis for agricultural land privatization was Law no. 7491 of 29 April 1991, entitled ‘On Main Constitutional Provisions,’ which transformed Albania from a one-party socialist state to a multiparty, market-oriented one. The distribution of agricultural land was covered by Law no. 7501 of 19 July 1991 ‘On Land,’ and the principles of private property rights were established in Law no. 7512 of 10 August

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1991 ‘On the Sanctioning and Protection of Private Property, Free Initiative of Indepen-dent Activities, and Privatization.’ The latter law was said to have ‘ripped the heart out of the Stalinist economic system.’15 For land reform, the key legislation was Law no. 7501. It required the distribution of all land of agricultural cooperatives to cooperative members —and of state farm land to state farm employees—for free. Decisions over land distribution and certificates of ownership (tapi) were issued by elected land commissions in each village. Subsequent regulations specified the distribution mechanisms and operational criteria for the land commissions. The basic principle of the land distribution program was that the land was to be divided on a per capita basis among all persons associated with the cooperative farm, with each family receiving the sum of the per capita shares of its members as private property, i.e., with freehold tenure.16 Pasture land and forests, whether they had been owned by families, villages or the state before collectivization, remained the property of the state.17 The one restriction on freehold land in Law no. 7501 was the prohibition to sell or buy agricultural land. This restriction was viewed as a temporary measure to prevent distress sales before land holders had the chance to adjust to the new realities of independent, small farming operation. Four years later the restriction was eliminated by Law no. 7983 of 27 July 1995 ‘On Buying and Selling of Agricultural Land, Meadows, and Pastures.’ In about one-half of the villages in the country, the land distribution proceeded smoothly and ‘according to the law.’ In the other half, however, there were difficulties, mostly tied to the determination of former owners to reclaim the land their families had possessed before collectivization. According to del Re and Gustincich: ‘Not accepting any more interference from the State, the farmers did not wait for reasonable laws to solve the land question, and they have taken back the lands which belonged to their family before its expropriation by the regime in the 1940s.’18 In such cases, the village land commissions usually bowed to the inevitable and permitted the ‘old boundaries’ to be respected.19 This is not, however, an indication that old, pre-communist inequalities will emerge: most of the ‘old boundaries’ were those established during the ‘land-to-the-tiller’ program carried out by the socialist regime in 1945–1946.20 Overall, 548,000 hectares of ex-cooperative arable land were distributed to 383,600 families, for an average holding of 1.4 hectares. There were substantial regional differences, however. In certain mountainous regions in the north of Albania, the average allotment ranged between 0.5 and 0.9 hectare per family.21 The holdings were further fragmented into three or more parcels. In order to achieve equity, most land commissions chose to allocate land of different capabilities to each family. A typical holding might, therefore, include one parcel of irrigated land, one of rainfed crop-land, one of orchard, and one of hayfield.22 Overall, during land reform approximately 1,500,000 parcels have been created from the 420 farming cooperatives that existed until 1991.23 Former state farm land was to be distributed according to the same per-capita principle, but was distributed ‘in use’ rather than as private property. The distinction was justified philosophically by the substantial investments in irrigation, drainage, terracing, greenhouse construction, etc., that the state had made to increase the productivity of the land.24 The ‘in use’ concept as developed in Albania remained problematic, however. Families received land for free, but without any clear delineation of the rights and responsibilities of either the land users or the government. Furthermore, the time period for use was left undetermined. In total, 154,000 hectares of state farm land were allocated to 106,000 families, in approximately 300,000 parcels. By early 1995, therefore, the agricultural land privatization program was characterized by the following (little has changed since then):


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1 Of the total agricultural land area, 81.2 percent has been made available for distribution to farm families. 2 Of the total available for distribution, 96.2 percent has been distributed into either titled or de facto holdings by farm families. 3 The titled land represents 55.1 percent of the land available for distribution and 57.6 percent of the land actually distributed. The progress made in the ex-cooperatives in the issuance of titles is much greater than in the ex-state farms: 68 percent of the former’s lands are covered by titles in comparison with 20 percent of the latter’s.25 4 Much of the land that had not been distributed was marginal land that would be more trouble than it was worth. This land had been refused by villagers because it was a likely future financial burden once property taxes were introduced. It is also interesting that the land reform appears to have had less success than hoped in creating new property rights and greater tenure security; its main impact on agricultural investment appears to stem from the fact that many people were allocated the same land their families had owned before communism: Virtually all investment continues to be focused on land owned by the family prior to collectivization; when people’s holdings consisted of a mix of some ancestral and some new parcels, the tendency appeared to be to focus investment on the ancestral land. Exceptions occur in comunas such as Kolonje in Lushnje where land consists mostly of new, reclaimed land to which people have no old claims and where land was distributed without reference to old boundaries and with little or no accompanying conflict. The same patterns apply to levels of non-use which are higher on parcels characterized by greater levels of insecurity, i.e., those not originally part of a family holding. Possession of tapi documents appears to have little or no security-enhancing impact in cases of holdings composed mostly or entirely of old family land. In new land areas without a strong history of claims, tapi possession does appear to significantly enhance security and this appears to positively affect use and investment levels.26 In conclusion, within a very short time the vast majority of agricultural land was in the hands of individual families. Nearly two million parcels had been created, and there were nearly 500,000 independent farm enterprises. This degree of fragmentation is undoubtedly unsustainable, more so because Albanian farmers have generally resisted any form of association or cooperative grouping in the aftermath of collectivization. THE IMPACT OF LAND REFORM Land reform has affected Albanian agriculture in a number of ways. The initial impact of the collapse of the cooperatives and state farms was a sharp drop in agricultural production, which fell by 20–30 percent from its peak in 1989 to 1991.27 Agricultural production rebounded thereafter, with overall sectoral growth being estimated at 6.4 percent per year from 1990 to 1994.28 The virtually total disintegration of the industrial sector, whose share of Gross Domestic Product fell from 42 percent to 14 percent from 1990 to 1993, made the share of agricultural production in GDP increase from 36 percent to 56 percent.29 Crop production continued to decrease after 1992, with the bulk of the sectoral increase coming from a rapid growth in livestock production. A second impact has been on the size of the rural population. Unlike migratory patterns in Russia, and continuing a trend that had persisted for decades in Albania, during land reform there has been an exodus

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from rural areas to the cities. This trend was especially evident in the northern mountainous districts. This rural outflow is likely a direct consequence of agrarian reform. Previously state and collective farms had provided income support and social services for families, via state subsidies, even when there was evident overpopulation. Following the introduction of land reform this support was lost when the farms collapsed and the small land allocations were inadequate to support the families of allottees. The migration resulting from an absence of economic opportunities had negative consequences at both ends: ‘ghost villages’ in the source region and uncontrolled peri-urban expansion in the destination region, with over 90 percent of informal settlements taking place on high-quality agricultural land.30 A third impact of reform has been on food trade and imports. During 1995–1996, competition from imported foodstuffs has increased as Albania has become more accessible via international transport while few improvements have been made in the devastated domestic transport and marketing systems. The prices at which imports are sold in Tirana and other large cities are frequently below the cost of domestic production, although one of the reasons for this is the chronic overvaluation of the Albanian lek due to large remittance inflows from emigrants abroad. We thus see news stories like the following: TIRANA, November 11 [1996] Food prices in Albania appear to be aiming higher, according to a report from the Ministry of Agriculture and Food in Tirana. Bread grain is sold at between lek 34.7 and 36.0 per kilo while corn at lek 31.6. White cheese that last week was sold at lek 244.4 per kilo is selling at lek 253.3 per kilo. Fruit and vegetable imports continue to suffocate the Albanian market with prices for such products rising to new highs. Tomatoes are sold at lek 97 per kilogram, carrots and cauliflower at lek 80, cucumbers at 140 and oranges at lek 150. Albanian farmers seem unable to meet the increasing demand of the internal market.31 Furthermore, a survey conducted under the Land Market Project found: Discouragement is also voiced over the general economic equation for crop and especially grain growers: high costs for inputs and low costs for grain, something farmers associated with the importation of Canadian wheat to keep bread prices low. Almost two-thirds of respondents mentioned price issues as a problem. Not surprisingly, those most likely to be concerned were those relying primarily on farming as their primary source of income.32 Although it is too early to assess the long-term impact of the land reform program on Albanian agriculture and the economy, we can say that it has been among the most successful in Eastern Europe in that it (1) distributed virtually all agricultural land to former members of cooperatives and state farms, and (2) gave title to most of it. Indicators of the increasing productivity and incomes that privatization is supposed to generate have, however, been slow in coming. This is best illustrated by the lag in the development of land markets, the subject of the next section. THE LAND MARKET33 As a result of land reform, Albanian agricultural land was severely fragmented. Albania, therefore, faced the challenge of developing a strategy to reassemble the nearly two million pieces of agricultural land into rational farming operations. One strategy that was tried early in the transition was to encourage the formation of farmers’ organizations for input and output marketing, machinery use and even for production. The hostility of farmers towards anything collective, cooperative, or associative meant, however, that attempts to constitute farmer groups have generally failed.34 Another policy option was to promote land consolidation in order to reap economies of scale, but to date the Albanian government has not yet begun


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the development of an administrative consolidation program. Hopefully, the government will not do so because there is little evidence worldwide that consolidation programs achieve their goals, for a variety of reasons including high costs, resistance of farmers, and the fact that small parcels can be as productive as, or more so, than large ones.35 A final possibility for picking up the pieces is to encourage the development of a land market. Land markets can contribute to the rationalization of agriculture by encouraging transactions that promote consolidation of holdings via exchange of parcels and the exit of land holders who wish to pursue other economic activities. As we saw, however, the buying and selling of agricultural land was prohibited until Law no. 7983 was enacted in July 1995. The previous restrictions on land purchases and sales from Law no. 7501 does not imply that land markets could not operate. Other forms of transactions, such as rental, did not have the same restrictions as did land sales. In addition, anecdotal evidence suggests that there has been a substantial volume of informal land transactions, including sales documented by receipts or even notarized purchase agreements, especially in peri-urban areas.36 Following on the recommendations of a study conducted by the Land Tenure Center (LTC) of the University of Wisconsin in 1992, the government of Albania has developed and has been implementing since early 1994 a Land Market Action Plan (LMAP), with assistance from LTC, Terra Institute, Ltd. (USA), and Ordnance Survey International (UK). The goal of the Action Plan is to create ‘a fluid and environmentally sustainable land market’ via the creation of a system of title registration and the development of land market policy options.37 Funding, in an amount which may total $40 million by 1999, is being provided by the US Agency for International Development (USAID), the European Union PHARE program, and the World Bank. The centerpiece of the Action Plan is the creation of an Immovable Property Registration System (IPRS), whose core purposes are to guarantee security of tenure and to facilitate land market transactions. The characteristics of the Albanian IPRS are that: 1 it is a unified system for all types of immovable property (land and buildings) in urban or rural locations and in either public or private ownership; 2 it is a ‘title registration’ system, so that the government guarantees that the contents of the registry are legally valid, as contrasted to a ‘deeds registration’ system, where the government accepts documents and files them together, but does not judge or vouch for their legality; 3 it registers all rights, not just ownership, so that subsidiary rights like mortgages and leases have legal guarantees as well; 4 it is parcel-based, with each parcel having a unique identifying number that is represented both on cadastral maps and on registration documents; 5 its information is accessible to the public, to enable potential buyers to identify ownership and geometric characteristics of parcels; 6 it is decentralized, at the district level, to enable easy access; 7 it is simple, rather than multipurpose: it contains information only on parcel and owner identification and subsidiary rights, i.e., not valuation, quality, zoning considerations, etc.; 8 it is designed to be self-financing or even profit-making in spite of a very low fee schedule. After nearly three years, the IPRS is in an advanced state of implementation, with district offices open and functional in 13 of the 36 districts and 10 more almost ready to open. Surveying and mapping to record the boundaries of all parcels is complete in some districts and making rapid progress in others, and the process

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of registration has begun in 1,545 of 2,993 cadastral zones and has been completed in 200 as of 31 December 1996.38 The project was designed to follow a sequential process: 1 maps are updated and parcel boundaries are entered on them; 2 registration cards with geographical information from the maps and rights-holder information is taken from the tapi’, then the information is computerized; 3 the computer lists of owners and maps are displayed in the village or neighborhood for 90 days for ownership verification; at the end of the display period, if there are no objections to the lists, registration becomes final. The Land Market Action Plan is also developing Albanian interest and capacity in land policy analysis and formulation. Apart from land reform, land market regulation and immovable property registration, the state has several other responsibilities that affect land markets, most of which it will continue to have even after the entire land reform and market transition process is complete. These responsibilities include, for example, the maintenance and revision of the legal and regulatory framework for the land market, property taxation, dispute resolution, land use planning and zoning, and administration of leases and appropriate uses of stateowned land. These issues are peripheral to the subject of this chapter but are crucial for the future of land markets. They are presented here simply to demonstrate that stimulating land market development is not as simple as writing a law legalizing transactions on one hand and creating a registry to guarantee rights on the other. This is made especially evident by the fact that the land market, or at least the formal market, has barely begun to operate, according to the responses to the LTC/Terra survey, which are analyzed below. Market transactions As part of the Land Market project, a baseline survey was conducted in late 1995 to collect data on the agricultural land situation as it exists after land privatization but before the registration system is put in place. The survey encompassed 792 rural families and 3,541 parcels of land owned or used by the families in 5 of the 36 administrative districts of Albania. The districts were selected for representativeness of major agro-ecological and sociocultural patterns in Albania. Within districts, villages were chosen for the purpose of comparing areas where land registration had begun with areas where it had not. Within each village, 10 percent of the households were sampled, drawn from randomly selected lists supplied by the Ministry of Agriculture. There were a minimum of 12 and a maximum of 25 households interviewed in each village. The questionnaire, consisting of several hundred questions dealing with physical, demographic, and socioeconomic aspects of households and their relationship to land, was administered in October and November 1995. The survey results provide little evidence that a rural immovable property market is developing in Albania, as Table 8.2 shows. Of the 3,541 parcels about which information was obtained in the survey, only 35 had been bought by their owners, and only 7 had been leased. Fifteen had been obtained by an exchange for another parcel—a form of transaction which could have been expected to occur much more frequently given the fragmented state of initial land allocations and the prohibition on buying and selling. In spite of this restriction, only 6 of the 35 purchased parcels were acquired in 1995. None of the respondents reported having sold a parcel. Furthermore, 29 of the 35 purchased parcels had houses on them, meaning that the very limited amount of market activity has primarily concerned housing rather than farm land. Given the lack of direct observations of market activity, one must address the issue of market potential in other ways. There has not been a land market in Albania for at least thirty years. Therefore it is interesting


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to understand how people determine the value of their land. The LTC/Terra survey permits one to understand the market information and motivations of the holders of immovable property. From our survey we found that there Table 8.2 Purchased and rented parcels by year of transaction Purchased Rented in Other means of acquisition

1990

1991

1992

1993

1994

1995

Total

8 0 94

8 3 1,914

6 1 798

7 0 542

0 1 66

6 2 85

35 (1.0%) 7 (0.2%) 3,506 (99.0%)

are several considerations in understanding the motivations of land holders. One of the most important is the holder’s valuation of the property for rental and sale. We conclude that parcel owners appear to have the ability to assign value to their parcels. In particular, they consider size, fixed assets, location, and other obvious determinants of value. Parcel owners also appear to be influenced by the existence of conflict and family land issues. This suggests that parcel owners do have rational criteria for estimating the value of their properties. Yet transactions are not occurring, or at least are not admitted. To understand some of the constraints on the land market, we turn to the section below. PROBLEMS OF AND OBSTACLES TO THE LAND MARKET There are several obstacles confronting the land market in Albania. These constraints on the land market include legal issues, conditions of market transactions, and a willingness to sell land. These aspects of the land market are analyzed below. Legal constraints With the passage of Law no. 7983 in July 1995, the principal constraint to purchase and sale of agricultural land was removed. The market is still not entirely free, however, because of two conditions in the law. First, to be legally recognized, a purchase/sale transaction must be registered in the IPRS (Article 3). This first condition was intended to enhance the security of transactions by registering the change of ownership; this cannot be done until the registration system is in place. While the district registration offices are open in 13 districts as of November 1996, they have not yet begun to register transactions because they are preoccupied with first registration. Thus urgent transactions must currently be conducted extra-legally, or through a judicial process of dubious legality given the explicitness of Law no. 7983, Article 3. The second condition is that sellers are obliged to follow an order of priority in offering the land for sale. This process is indicated in Article 6 of Law no. 7983 which states that ‘A family or a person who wants to sell his agricultural land, meadow or pasture is required to publish the offer in the village where he lives, respecting the following order of priority among third parties.’ That order of priority is: 1 Direct line ascendants (e.g. father, grandfather, mother, etc. of the family head and direct line descendants of legal age (e.g. children), and brothers and sisters; 2 Neighbors of parcel being sold; 3 Ex-owner; 4 Other inhabitants of village;

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5 Any Albanian citizen. The law states that ‘For each of the categories mentioned above, the owner of a parcel of land nearest to the parcel of land to be sold has the priority to buy the land.’ The second condition was incorporated into Law no. 7983 to make it conform with Albanian customary law, which permits freehold land tenure but burdens it with similar obligations to ensure that the community’s interests are served.39 The rationale for the priority list is that if someone wishes to sell a parcel, especially if he or she40 is abandoning agriculture, the parcel: 1 2 3 4 5

remains within the family, or serves the goal of consolidation with an adjoining property, or restores a parcel to its pre-collectivization owner, or discourages absentee ownership, or discourages foreign ownership.

The problem is that this condition probably discourages formal transactions as well, thereby threatening the legitimacy of the IPRS. In addition, transactions which do occur may result in non-market pricing, since nothing in the law suggests that a buyer cannot propose an extremely low price, which according to the law the buyer would have to accept.41 Constraints on and conditions for land market transactions The supply side of the immovable property market is determined by the willingness of owners to put their property up for sale. According to our survey, the most frequent reasons why parcel holders felt unable to sell their parcels were: (1) the need for family agricultural use, indicated for nearly half the parcels; and (2) that the land was not desirable, expressed by 17.5 percent of the sample. Respondents only designated 110 parcels as being off the market because their house was on it; this represents only about 13 percent of all parcels with houses. This is an indication that the most active portion of the immovable property market will be for housing, even in rural areas. Tenure-related explanations account for about 17 percent of the parcels: disagreement of other family members, the fact that the land was not owned by the family before collectivization, and the location of the parcel on state land. Clearly, though, the most important constraints to the supply of land for the market are not tenure-related. Factors affecting the willingness to sell are indicated in Table 8.3. On the other hand, Table 8.4 demonstrates the reasons why land owners would be willing to sell. The majority of respondents gave ‘good price’ as the principal condition under which they would sell. Other conditions suggest substantial flexibility in the short term as well as recognition of family-cycle effects in the long term. There is, therefore, no reason to conclude that there is a supply-side problem in the immovable property market in rural areas. Table 8.3 Factors constraining sale Factor

Frequency

Percentage

Need for agricultural use Other family members disagree Nobody likes this land

1,740 201 619

49.1 5.7 17.5


Factor

Frequency

Percentage

It’s not my old land Need because house is on it State land Other reasons Not answered Total

299 110 103 363 106 3,541

8.4 3.1 2.9 10.3 3.0 100.0

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Table 8.4 Conditions under which owner would sell land Factor

Frequency

Percentage

For a good price If can’t continue to farm If would leave the village If find better land Other reasons Not answered Total

1,915 144 836 283 206 157 3,541

54.1 4.1 23.6 8.0 5.8 4.4 100.0

Another important consideration is who is able to decide whether to sell. Decisions about jointly held land are important because they affect the availability of land on the land market. As Table 8.5 shows, according to our sample, about one-half of land owners said they could make sales decisions without involving anyone else. The situation was somewhat different for land to be leased, as 62 percent said that their parcels could be rented out by individual decision. Thus, while joint decisions hinder land sales somewhat, this latter response suggests that there are a substantial number of parcels that do not face the constraints commonly associated with joint decision-making. Unfortunately, the complexity of real-world intra-household interactions make these responses more suggestive than definitive. Table 8.6 adds some insight to the preceding point. When people in our survey were asked who participated in market decisions, the number of parcels subject to individual decision decreased. The household head—the only individual given the opportunity by the questionnaire to make a sale or rental decision alone—decided the market transaction for only 38.2 percent of land sales and 43.7 percent of land rentals. Decisions about parcels received during the 1991–1992 land redistribution program and inherited parcels are made within nuclear families. We conclude that Albania has no Table 8.5 Ability to decide alone about selling or renting parcel Sale

Rental

Value

Frequency

Percentage

Frequency

Percentage

No Yes Not answered Total

1,779 1,734 28 3,541

50.2 49.0 0.8 100.0

1,308 2,205 28 3,541

36.9 62.3 0.8 100.0

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Table 8.6 Who must make decision about selling or renting parcel Sale

Rental

Value

Frequency

Percentage

Frequency

Percentage

Head alone Head & spouse Sons Daughters All family members Family and kin Family and neighbors Tradition Not answered Total

1,354 811 69 0 1,284 5 0 7 11 3,541

38.2 22.9 1.9 0 36.3 0.1 0 0.2 0.3 100.0

1,549 689 82 0 1,203 0 0 7 11 3,541

43.7 19.5 2.3 0 34.0 0 0 0.2 0.3 100.0

more constraints on the supply of land than that exist in most countries with joint property rules or traditions. Willingness to sell given more security of tenure In order to assess the importance of land security and its impact on the land market, our survey asked ‘What would you do differently with this parcel from what you are doing now if you were more secure about the land/ property?’42 The responses are given in Table 8.7. Combining several answers, more than one-half the responses indicated that security would lead to intensified use of the parcels. However, owners of 530 parcels said that they would sell them, and owners of 236 other parcels said they would rent them out. Thus, according to our survey, more than 20 percent of land parcels would be potentially available for market transactions once greater security was felt. This quantity would certainly be an adequate potential supply of parcels for the nascent land market, given that in mature land markets annual turnover rarely exceeds 10 percent.43 Table 8.7 Change in parcel use with more security Value

Frequency

Percentage

Build shop, storage, etc. Spend more on investments Plant trees and vines Rent it out Sell it Other Don’t know Not answered Total

103 1,702 131 236 530 37 640 162 3,541

2.9 48.1 3.7 6.7 15.0 1.0 18.1 4.6 100.0


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ASSESSMENT AND FUTURE TRENDS Albania’s market transition has been astonishingly rapid and smooth. There have been no reversals of policy, only a slowing of progress during the election cycle in 1996. The Land Market Action Plan is on track, so that it will be possible to complete the groundwork for ‘fluid’ land market operation before the year 2000. But making transactions possible and simple will not necessarily stimulate them. Land users must have economic and social motivations to enter into transactions. Here the assessment is not so sanguine. The economic condition of the agricultural sector is mixed at best, with foreign competition combining with seriously degraded physical and marketing infrastructure to make life extremely difficult for farmers. Credit, notably mortgage finance, is still largely unavailable to small farmers. On the other hand, the socio-political situation is improving now that the Albanian electorate has rejected bringing former communists back into power democratically.44 Still, there are significant obstacles to overcome. Land parcels are small and fragmented which affects agricultural productivity. The legal basis for a land market exists but turnover of land parcels has been relatively low. Land sales remain more constrained than land rentals. Perhaps the greatest need at present is to instill a sense of land security. For a people who received their land allocations only three to five years ago, and whose parents received land fifty years ago only to lose it within twenty years, and whose grandparents were promised land eighty years ago at Independence and never received it, security of tenure is not a feeling that will come easily or quickly. It is likely that increased security, built through land transactions, investment, intensification of production, will expand only gradually over the longer term. NOTES 1 David Stanfield, Susana Lastarria-Cornhiel, John Bruce, and Edward Friedman, Consolidating Property Rights in Albania’s New Private Farm Sector, Land Tenure Center Paper No. 146 (Madison, WI, Land Tenure Center, December 1992). 2 David Stanfield and Maksi Raço, ‘Creation of Albanian Land Markets,’ Land Tenure Center Newsletter, No. 71 (Spring 1994). 3 We note that international assistance, including a Land Market Project implemented by the Land Tenure Center and Terra Institute, Ltd (with international donor funding), has been active in supporting the transition to a market economy. 4 The çiflik system was one in which peasants contributed labor and a share of output to private landlords, the state, the family of the Sultans, or religious institutions. Orjan Sjöberg, Rural Change and Development in Albania (Boulder, CO, Westview Press, 1991), p. 29. 5 Ibid., pp. 32–33. 6 There is no clear explanation for the drop in the amount of state-owned land. Sjöberg speculates that the disparity ‘could presumably be accounted for by the agrarian reform, concessions to Italian investors and poor collecting and reporting of data.’ Ibid., p. 33. 7 The law allowed farmers to retain up to 40 hectares of land if they were full-time, mechanized farmers; a subsequent law in 1946 reduced the ceiling to 5 hectares. Raymond E.Zickel and Walter R.Iwaskiw, eds., Albania: A Country Study, 2nd edn (Washington, DC, Federal Research Division, Library of Congress. 1994), p. 107. 8 Economic reasons included land scarcity, with only about 0.3 hectare per person available, the lowest in Europe, and ideological reasons included the belief in the superiority of collective activities. 9 Kristaq Pata and Myslym Osmani, ‘Albanian Agriculture: A Painful Transition from Communism to Free Market Challenges,’ Sociologia Ruralis, Vol. XXIV, No. 1 (1994), p. 88. 10 See Stanfield, et al., Consolidating Property Rights in Albania’s New Private Farm Sector.

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11 Cooperative families were allowed private plots, but these were small (0.11 ha), and officially were to be used only for subsistence with no food sales allowed. Sjöberg, Rural Change and Development in Albania, p. 89. 12 See Karl-Eugen Wadekin, Agrarian Policies in Communist Europe: A Critical Introduction (The Hague, Allanheld, Osmun and Co., 1982), pp. 63–71; 215–226. 13 Andrea Segrè, Agricoltura e Società in Economie Dinamiche: Saggio sugli stimuli e adattamenti da expansione e da recessione (Milan, Franco Angeli, 1995), p. 88. 14 The sale of apartments to their current occupants; restitution to former owners or their heirs of property seized by the government; privatization of industrial and commercial enterprises; sale of business sites by municipalities; leasing of land in tourism development zones; granting of studios to artists as private property by municipalities; awarding of harvest concessions on state forest land to private companies. 15 Zickel and Iwaskiw, Albania: A Country Study, p. 118. 16 Decision 255 of the Council of Ministers, 2 August 1991. 17 Subsequent legislation allowed the state to devolve ownership of pastures and forests to local governments and individuals. 18 Emmanuela del Re and Franz Gustincich, Pane, Sale e Cuore: il Kanun di Lek Dukagjini tra le genti delle montagne albanesi (Bread, Salt and Heart: The Kanun of Lek Dukagjini among the People of the Albanian Mountains) (Lecce, Italy, Argo, 1993), p. 34. 19 David Stanfield and Agim Kukeli, ‘Consolidation of the Albanian Agricultural Land Reform through a Program for Creating an Immovable Property Registration System,’ unpublished paper, Land Tenure Center (January 1995), p. 3. 20 Stanfield, et al., Consolidating Property Rights in Albania’s New Private Farm Sector, p. 17. 21 Zickel and Iwaskiw, Albania: A Country Study, p. 135. 22 Even though Law 7501 did not address it explicitly, it was used by the village land committees to privatize village house parcels. Thus the typical family holding included four or more parcels. 23 Government of Albania (Ministry of Agriculture and Food, Ministry of Construction, Military Topographic Institute, Geology and Geodesy Enterprise, and Ministry of Justice). Land Market Action Plan for Albania. Final Draft, Tirana, Albania, 15 May 1993, p. summary-1. 24 The illogicality of this argument is that ‘the state’ cannot invest out of its own resources, whether financial or human, because its only means of obtaining these resources is ‘the people’ and most of the investments were made with forced labor. 25 Stanfield and Kukeli, ‘Consolidation of the Albanian Agricultural Land Reform,’ p. 7. 26 Ibid., chap. 5. 27 Christian Henning, Wilhelm Scheper, and Werner Schmidt, ‘Impact Analysis of Drastic Agricultural Policy Changes in Albania with Special Regard to the Wheat Market,’ Diskussionsbeiträge, no. 3 (Institut für Agrarökonomie, Christian-Albrechts-Universität, Kiel, Germany, 1991), p. 7. 28 World Bank, World Development Report 1996 (New York, Oxford University Press, 1996), p. 208. 29 International Monetary Fund, Economic Review: Albania (Washington, DC, IMF, 1994), p. 5. 30 Fioreta Luli and Valintina Sulioti, ‘The Illegal Conversion of Agricultural Land at the Urban Fringe in Albania: Results of a Study in Three Urban Districts,’ Tirana, Land Research Institute, April 1995, p. 5; page reference is to English-language summary by H.M.Jacobs and E.Yanda. 31 Quotation from Albanian Times—Internet newspaper. The Albanian lek, which is completely convertible within the country, currently fluctuates around a typical exchange rate of 100 to the US dollar. 32 Harry Lemel, ‘Baseline Study Results,’ Tirana, Albania: Terra Institute, Ltd. and Land Tenure Center, October 1996 (draft), chap. 2. 33 This section is based on research reported more fully in Peter C.Bloch, ‘Potential for Land Market Development in Albania,’ paper prepared for the International Conference on Land Tenure and Administration, Orlando, FL, 12–14 November 1996. 34 Farm Restructuring and Land Tenure in Reforming Socialist Economies: A Comparative Analysis of Eastern and Central Europe, World Bank Discussion Papers No. 268 (Washington, DC, The World Bank, 1995), p. 48.


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35 For evidence in a neighboring country, the Former Yugoslav Republic of Macedonia, see Peter C.Bloch, Jolyne S.Melmed-Sanjak and Robert Hanson, ‘The Debate over Agrarian Structure in Macedonia: Implications for Land Management,’ forthcoming in the Proceedings of the International Conference on Land Management, London, Samara Press (1988). 36 Luli and Sulioti, ‘The Illegal Conversion of Agricultural Land at the Urban Fringe in Albania: Results of a Study in Three Urban Districts,’ p. 5. 37 Government of Albania, Land Market Action Plan for Albania, p. 8. 38 A cadastral zone is the smallest administrative unit used by the IPRS, and each is delimited so that it has approximately 1,000–1,500 properties (parcels, apartments). The average size of a cadastral zone is about 10 square kilometers with urban zones being substantially smaller than rural ones. 39 Albanian customary law was codified by several people, the most prominent being Lekë Dukagjini in the 15th century. See Shtjefën Gjeçov, The Code of Lekë Dukagjini (New York, Gjonlekaj Publishing Co., 1989). 40 In effect it will almost always be a ‘he’ if custom is followed: the kanun is explicitly misogynistic, consigning women to completely subservient roles in society, with few independent rights. This is most evident in inheritance rules: ‘Inheritance belongs to a descendant by filiation or by blood, and not to one related by milk [i.e. a child of different parents suckled by the same mother], nor to the children of daughters.’ Further, ‘If the male line of a house dies out, even though there may be a hundred daughters, none of them have the right to any share in the inheritance of their parents, nor do any of their sons or daughters. “A descendant in the female line cannot be considered equal to one issuing from uncles.”’ Gjeçov, The Code of Lekë Dukagjini, chap. 8, article XXXVI, paragraphs 89, 92. 41 Article 7 of Law 7983 specifies that the priority group to which the offer is made has up to 15 days to respond, after which the seller can offer it to the next highest group. This adds another constraint to transactions: before the first four groups have had their opportunity, 60 days will have passed. 42 This question followed others on security concerns, but there was not a clear definition of what is meant by ‘more secure.’ The designers presumably meant to imply that the registration system was at least part of the potential increase in security, but the questionnaire is silent on this. 43 For example, in the United States, approximately 5.7 percent of agricultural parcels are transferred annually. See Paul Barkley and Gene Wunderlich, ‘Rural Land Transactions in the United States,’ Agricultural Information Bulletin, No. 574 (Washington, DC, USDA, 1989); and Gene Wunderlich, ‘Trends in Ownership Transfers of Rural Land,’ Agricultural Information Bulletin, No. 601 (Washington, DC, USDA, 1990). 44 After this chapter was written the political situation changed suddenly and dramatically in Albania. ‘Pyramid’ investment funds, to which Albanians had enthusiastically contributed, began to collapse during the beginning of 1997. Popular opinion blamed the ruling Democrats, and the government’s unwillingness to take responsibility generated demonstrations, then riots, then armed conflict. Under international pressure, a coalition government was formed, headed by a Socialist (ex-communist) prime minister, to prepare for new elections. The election was held in June 1997, bringing to power the Socialists by an overwhelming majority. The Socialists formed a new government and began the slow process of restoring civil order. The IPRS was generally spared from the looting and destruction of government buildings.

9 Politics, equity, and efficiency Objectives and outcomes in Bulgarian land reform1 Keith S.Howe

Progress in restructuring Bulgarian agriculture has been impeded by slowness in land reform. In part, this slowness reflects the protracted course of economic reform in the country as a whole. At the beginning of 1997, an economic crisis, characterized by rapid inflation and exchange rate depreciation, led to a severe political crisis as parliament was disbanded and new elections were called. Continued slowness by government to undertake industrial privatization and introduce a currency board (both required to secure assistance from international agencies and especially the International Monetary Fund), also presented the backdrop to a spring election which had an uncertain outcome in terms of longer-term political stability. The leadership of the country remained in doubt. Such problems stemmed mainly from a political environment in which the Bulgarian Socialist Party (BSP) has dominated most of the period since the collapse of the communist regime in November 1989. The BSP, in practice the reconstructed Communist Party, won the first free general election since the Second World War. The second election, in October 1991, marked the beginning of only about a year of reform-minded minority government under the Union of Democratic Forces. This in turn gave way to Lyuben Berov’s government of non-party ministers until, in December 1994, the BSP was again returned to power with an absolute majority. The BSP retained power until April 1997 when the UDF regained control of the government. Almost inevitably, this generally conservative political environment of recent years has enabled those people unsympathetic to change to shape decisions within the policy and institutional frameworks for agricultural reform. However, land reform in particular has been constrained by much more than national economic conditions and the political stance of those responsible for its initiation and progress. The particular institutional framework for change, and the mechanisms put in place to facilitate the process, have also tended to obstruct rather than aid progress. This chapter reviews such factors. A major element in the discussion will be the legal basis for land reform but, initially, it is necessary to set contemporary issues in their wider historical context. THE HISTORICAL LEGACY For some five hundred years, until the Russian-Turkish War of 1878, the territory of modern Bulgaria was under Turkish rule. During that long historical period Bulgarians lost legal title to the land which, instead, formally became the property of the Sultan. However, in the early nineteenth century the situation had again begun to change and, by the 1870s, although their legal rights to property were unclear, Bulgarian peasants had become individual proprietors of the land which they farmed. This transformation of property rights


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was encouraged by the pre-liberation convention, sanctioned by Ottoman law, that the working of land for three or more years conferred virtual ownership.2 With the liberation of 1878 there came a marked acceleration of changes in land ownership. At the outbreak of war, some Turks sold their property to Bulgarians while others leased land on the understanding that it would revert to its owners if and when they returned. Consequently, much land owned by Turks was simply abandoned following liberation only to be seized by Bulgarian peasants or returning refugees. Despite a net increase in population at the time, the demand for occupancy of agricultural land was eased by continued emigration of Turks, Greeks, and Bulgarians, and some increase in the number of town dwellers. But the most important factor assuring that land supply remained more than adequate to match demand was the expropriation of state and communal property, much of it forest, by private owners. No doubt this process was aided by the lack of a land register which defined boundaries between individual properties and between public and private land. Post-liberation farm structure By 1908 almost 60 percent of agricultural land was in private ownership, another 30 percent was in the hands of village communes, with most of the remaining 10 percent being retained by the state.3 In the preceding decade alone, the area in state ownership had declined by over 25 percent in response to peasants’ expropriation of the land they farmed under the terms previously mentioned. By one means or another, therefore, private land ownership became widespread, and the close of the nineteenth century can be seen as marking the foundation of extensive private land ownership in Bulgaria. Although in some localities existing large-scale land owners acquired more land, as did a newly emergent and wealthy urban class investing in real estate, the predominant pattern was of land owned and farmed in small units. This characteristic was maintained well into the twentieth century. For example, data for census years spanning 1897 to 1946 show both very small and very large farms declining numerically until, by 1946, one-quarter of all farms were between 5 and 10 hectares in extent and occupying some two-fifths of the total cultivated area.4 Notwithstanding brief periods of some consolidation between the First World War and the Great Depression, this reflected a trend over fifty or so years for average farm size to decline. Overall, average farm size fell from 4.98 hectares in 1897 to 4.27 hectares in 1946. At the same time, the total number of Bulgarian farms increased by 30 percent while the land area available for cultivation increased by only 12 percent. Correspondingly, individual land holdings became increasingly fragmented and geographically dispersed in many small plots. In 1939, for example, 1.1 million private farms averaging 4.3 hectares per holding were fragmented into some 12 million individual plots. The data for 1897 to 1946 show that the average size per parcel of land across all farm size groups fell from 0.5 to 0.38 hectares.5 The explanations for increasing farm fragmentation are familiar from other regions of Europe. First, inheritance laws resulted in the subdivision of property between all heirs. Second, rapid population growth at a time of slow industrialization meant that agriculture alone was left to provide employment for increasing numbers of people. During this period over 90 percent of all cultivated land was farmed by the owner, an exceptionally high proportion compared to many other parts of Europe. After the Second World War We have seen that until the Second World War the typical picture of Bulgarian agriculture was one of a mainly equitable distribution of land in small-scale private ownership but farmed within a structure of

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highly fragmented holdings. The advent of central planning in 1946 therefore heralded a period of radical upheaval as agricultural land was consolidated under the campaign for collectivization. Collectivization meant that almost all land came under either outright state ownership or cooperative control. This occurred not as, in effect, a one-time event but rather as a process which continued in various guises over time. In practice, the farm sector— and therefore land holdings—were reorganized on more than one occasion, most notably during the early 1970s. At that time state and cooperative farms were consolidated into huge agroindustrial complexes. These averaged 10,000 hectares in size, provided a major source of employment, and occupied 84 percent of the total agricultural land area.6 Simultaneously, state ownership began to replace cooperative land holding and so, for all practical purposes, the distinction between cooperative and state farms gradually disappeared. Most land could then be considered as directly under state control. By that criterion, in 1986 agricultural land under state control amounted to well over 80 percent of the total, individual use in small plots by collective farm workers (a category including a very small number of still truly private farmers) in excess of 10 percent, and that used by auxiliary farms—those small areas available mainly to industrial workers— the residual. In that same year, inefficiencies associated with the agro-industrial complexes led to their disbandment into much smaller collective farms (TKZSs). Since 1991, with land reform at the forefront of agricultural transition, the smaller collective farms have themselves been disbanded. Formerly collectivized land has been restituted to its previous owners or their heirs. It is to this process that our discussion now turns. THE LEGAL AND INSTITUTIONAL FRAMEWORK FOR LAND REFORM SINCE 19917 The legal basis for the current process of land reform is the Law of Ownership and Use of Agricultural Land (LOUAL) of 1991 and Regulations concerning the law’s application.8 This legislation includes rules for dealing with many technical issues and all procedures and institutions for land redistribution. The LOUAL is sometimes described as ‘the most suffering’ law in Bulgaria because it has been the law most frequently amended in parliament to the present.9 This observation alone suffices to highlight the complex background to what has proved a long and tortuous path towards full restitution of land to its previous owners or their heirs. In the following discussion, attention is focused primarily on those main elements of the legal and institutional framework which have underpinned restitution from the outset. An indication of problems which have subsequently ensued is given later. The institutions given primary responsibility for initiating the process of land restitution throughout Bulgaria were 301 Municipal Land Commissions (MLCs) responsible for over 4,800 so-called Territories Belonging to Settlements (TBSs) occupying nearly 5.6 million hectares of land. Their objective is to restore private property rights to the owners, or their heirs, of land in their possession before the creation of the collectives and state farms and in accordance with the land area determined by the Law for Land Ownership of 1946. In other words, the pattern of ownership as it existed in 1946 is the basis for determining to whom, in which specific locations, and in what quantities, land is to be restituted in the 1990s. As will be seen, the legal provisions necessary to the achievement of what, on equity grounds, may be regarded as a laudable objective, present formidable problems. Since the law has been subjected to frequent amendment it is somewhat problematical identifying what constitute the key provisions at a given time. Nevertheless, the core provisions as they applied in 1993, with reference to particular Articles of the Regulations, serve to illustrate the most enduring features. These contain the essential features of the law which apply to the present time. Comments on particular aspects of any amendments are made later. With those qualifications in mind, the LOUAL provides for land to be restored in two ways:


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1 Restoration in existing or restorable old (actual) boundaries (Article 18g(1) of the Regulations). In principle, restitution of land to its previous owners or their heirs should be most easily accomplished where evidence is available for the actual location of the property. Specifically, actual old boundaries which have been preserved on the terrain are defined with respect to topographic features including roads, fences, areas of trees or shrubs, rivers or reservoirs, ravines, and dry river beds, if their location had been unchanged after inclusion in the lands of the collective or state farms. Also, restorable boundaries of former estates are those which can be determined from the cadastral maps of settlements, and the reallocation or surveyor plans elaborated prior to the establishment of the collective or state farms. The size and category of the estate, its location, borders, neighbors, and any reductions in the area of the property must be specified. 2 Under plans for land reallocation (Article 18g(2) of the Regulations). Where it is impossible to provide evidence of boundaries but it can be established that former owners or their families are entitled to have land restituted, this is to be achieved by land reallocation. Importantly, owners should receive consolidated land to avoid the problems of farm fragmentation. If possible, the owner shall receive land equivalent in quality and quantity to the areas where the main part of the original estate was located. Moreover, restituted land holdings should be structured to facilitate both cultivation and access for transportation. Small estates preferably should be located close to settlements. When land is to be restituted under a reallocation program (option 2), the procedure is in two stages. First, ownership rights are restored in abstract, which means that the right to own land of a specified area and category is formally recognized before any specific location is designated. Second, following a plan of land reallocation actual restitution takes place. However, when people want to cultivate their land immediately but have to await the completion of plans for reallocation, land can be allocated for temporary use under Article 18i of the Regulations. As might be anticipated, procedures for the reinstatement of property rights are lengthy. In outline, the sequence of events which in principle incorporate the provisions have been as follows: 1 Former land owners or their heirs petition the relevant MLC for restitution of their property. 2 Within one month of receipt of the petition, the MLC should issue a decision on the reinstatement of ownership rights. This is either: (a) when owners recover their actual land property which can be farmed immediately. Thus when land can be restituted in real boundaries the issued decision is final; or (b) when land cannot be restituted in real boundaries, but a right to ownership is acknowledged, owners must await the final decision regarding the specific area of land which is allocated to them until after the plan of land reallocation is enacted. If they want to use land in the interim, they must petition separately under the terms of Article 18i. 3 A sketch of each plot must be prepared by the MLC with reference to existing or new cadastral maps. The act of receiving the sketch from the MLC means that owners are considered to be ‘granted into possession.’ 4 A notary issues a legal deed of ownership which is based on the MLC’s final decision and on a sketch of the plot.

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According to the law, a distinction is drawn between economic (1 and 2 above) and juridical (3 and 4 above) restoration of property rights. The deadline for the submission of claims subject to the above terms was set for 4 August 1992.10 Applicants had to provide both a description of the estate concerned and evidence of ownership. Proof of ownership could be given by act of notary, notarial deed, deeds of partition, TKZS protocols, land registers, applications for TKZS membership, rent ledgers, and any other written evidence. If written evidence was not available, then the applicant could attach to their petition a signed statement, certified by a public notary, which declares the applicant’s ownership. In cases of mis-information, the signatory is liable for prosecution under the criminal code. LAND REFORM IN PRACTICE During the regional distribution of claims some 1.7 million applications were made, almost all from individuals resident in Bulgaria, and only about 0.4 percent from so-called legal entities.11 The latter included churches, monasteries, agricultural schools, municipalities, and the state. Of nearly 5.7 million hectares regarded as available for restitution, 91 percent was claimed by individuals, most of whom were resident in Bulgaria, 1.4 percent by the state, 5.1 percent by municipalities which held common land before collectivization, and 2.4 percent by other legal entities. By the beginning of February 1993, 1.1 million decisions had been issued. More details which include additional information obtained from the National Statistics Institute are as follows. Land in real or restorable boundaries By the end of January 1993, the land area subject to restitution in real boundaries (Article 18g(1)) was determined in almost two-thirds of all Territories Belonging to Settlements. In total, 218,250 final decisions for restitution of land ownership within real boundaries were issued, accounting for some 0.74 million hectares. According to data from the National Statistics Institute, by the end of October 1996, the corresponding numbers had increased to 802,868 decisions for almost exactly 1 million hectares. But the data are seen in perspective when it is noted that these areas accounted for only 6.3 percent of all land claimed (1993) and 18.3 percent of the total area of all restitutable land (1996). Land subject to reallocation In contrast to the above, nearly 0.9 million decisions were enacted for restitution under land reallocation, accounting for 2.98 million hectares (52.5 percent of all claimed land) in January 1993. These included nearly 0.2 million decisions under Article 18i which covered almost 0.33 million hectares, or 11 percent of all land claimed, for temporary use. Figures for October 1996 were 1.7 million decisions relating to an actual 4.48 million hectares, with 0.71 million decisions relating to 1.86 million hectares under Article 18i. In addition, some 10,000 decisions were issued under Article 27 by January 1993 whereby plans for land reallocation were completed and their provisions implemented. In practice, this was equivalent to restitution in real boundaries. By October 1996 no fewer than 663,400 such decisions had been issued, accounting for 2.1 million hectares of land.12 The area restituted under Article 27 in January 1993 is not recorded, but it can be deduced that something over 12 percent of all claimed land must have been returned to recognized owners or their heirs by February 1993. Of the total, it is known that at least half was being farmed. It must be remembered, however, that


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restitution is formally complete only when the final legal title to land is issued. By the end of January 1993, a mere 141 notarial deeds had been issued relating to only 818 hectares. By October 1996, 106,221 deeds had been issued for almost 358,000 hectares. This figure should be interpreted in the context of about 5.5 million hectares of land in total subject to restitution, i.e., still only 6.5 percent of the total restitutable land area is at the final stage of having legal evidence for ownership without which there is no secure basis for trade in land. EXPLAINING THE PACE OF LAND REFORM The original version of the LOUAL was passed in 1991 by a parliament dominated by the BSP and, according to one analyst, ‘it soon became obvious that, with its numerous and serious flaws, the law would not achieve its declared goal: namely, the privatization of the country’s agricultural sector and farmland.’13 The law contained a number of restrictions. For example, limits were placed on the area of land single households were entitled to own. These limits were 30 hectares in the flat, typically grain-cropping area of Dobrudja (north-eastern Bulgaria), and 20 hectares elsewhere. Furthermore, no land could be sold within three years of restitution to private owners, and economic sanctions could be implemented if the land was not farmed. The revisions of 1992, implemented by a UDF government which, unlike its BSP predecessor, also released regulations for implementing the law much more quickly, seemed more conducive to rapid change than could have been expected under the original legislation. Restrictions on household ownership were lifted, although the 30 hectare limit would apply for a transitional period of two years after legal restoration of property rights. The limit did not, however, apply to inherited property. Also, sanctions for failure to farm were repealed, as was the restriction on freedom to sell. Owners were free to choose in what ways their land could be used so long as certain environmental requirements were observed. Moreover, up to 50 percent of foreign individual or institutional ownership of land was now permitted with the objective of stimulating investment in agriculture.14 It is against this more liberal framework for land restitution that progress must be assessed. There have, however, been several obstacles to smooth adjustment. Disparities in area claimed Nikolaev reports that in 1990 and 1991 there were instances of local authorities intentionally destroying maps and archival material documenting who had owned what.15 Whatever the precise explanations for the discrepancies, in August 1992 the area claimed in Bulgaria equaled what was actually available in only about one-third of TBSs. Hidden within the national mean were marked regional variations. In some 40 percent of all TBSs the area claimed exceeded that available. At one extreme, area claimed equalled area available in only 15 percent of TBSs in Rousse. Rousse is located in the north-east and is part of the main arable area in the country. At the other extreme, the corresponding figure was nearly 50 percent for TBSs in Haskovo. Haskovo is located in the south-east, close to the Balkan and Rhodopa mountains, but also in a relatively flat area that is suitable for crop production. As the capital city, Sofia is clearly a special case, although it too had claims which equaled land available in about 50 per cent of TBSs. Throughout the country, therefore, initially there was a basic need to match claims to land with its actual availability. By contrast, and excluding Sofia itself, it should be noted that a range from 13 percent of TBSs in the Haskovo region to 39 percent in Rousse had claims for land less than that actually available. It must also be borne in mind that the restitution process was inevitably complicated from the outset because more people had claims on land than existed in 1946. At that time some 850,000 land owners

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possessed plots with an average size of 0.35 hectare, whereas at the start of the 1990s there were twice as many owners or heirs with claims on land. The potential implications for farm fragmentation are obvious. By November 1996 it was reported that claims for restitution exceeded land actually available by some 250,000 hectares,16 a fact that had provoked a legal amendment earlier in the year to vest the Ministry of Agriculture and Food Industry with powers to suspend land distribution or order MLCs to alter their decisions where owners claimed more land than their entitlement.17 Problems encountered by MLCs Additional data confirming the early slowness of land restitution, and further explanation for it, became available early in 1993. The Ministry of Agriculture carried out a comprehensive survey of MLC chairmen and members to elicit opinions and data. With regard to Article 18g(1) claims, about two-thirds replied that they had determined old and restorable boundaries for very few TBSs. Over four-fifths responded that they were not ready to announce land reallocation plans for any of the TBSs under their jurisdiction for Article 18g(2) claims. A mere 1 percent had returned land to the possession of land owners in all TBSs. It was the general opinion of MLC respondents that the average period needed to complete the restoration of full property rights to land is about a year. In order of importance, difficulties cited by MLCs in processing applications and reaching decisions were: absence of adequate documentation proving ownership (34 percent), lack of surveying equipment (28 percent); and shortage of finance (20 percent). Other significant responses focused on skills shortages of MLC members themselves, and lack of computer software and hardware to support the demands of extensive data processing. Nevertheless, when there is clear evidence of ownership rights to designated areas of land, it is to be expected that restitution can be relatively rapid, and the land can be farmed immediately according to the owner’s preferences. Since property rights over specific areas of land are restored to previous owners or their heirs, the process is also socially equitable. Land restitution in real boundaries is, however, made difficult by the fact that the property is predominantly in mountainous or semi-mountainous regions. Land surveyors are responsible for identifying and measuring the entitlements of each land owner, tracing boundaries, and planning and developing the expensive new road networks which are necessary to give land owners access to their land. This is a formidable task even with a highly trained workforce of surveyors, which Bulgaria does not possess. The process of land restitution through reallocation is always administratively complex. It includes the preparation of a land distribution plan, the announcement, approval, tracing and coordination of boundaries, restitution of ownership, and the registration of estates in the given cadaster. Each MLC is responsible for the selection, by competitive bidding, of contractors who carry out all technical activities associated with the process of restitution in its area. Until March 1993 there had been 463 auctions for such contracts, accounting for 40 percent of all TBSs and 51 percent of claimed land. While land reallocation is inevitably the more protracted process, there are longer-term economic advantages. Under reallocation, land owners receive consolidated holdings within the TBS and this is a basis for efficient farm organization. The process of land reallocation itself can, however, be problematic. It may be quickly accomplished if all plots are neighboring, but not otherwise. An MLC must then arrange exchanges of plots within the TBS, while aiming to match soil quality and related characteristics. In some places people with claims on land have jointly submitted an application to the MLC for restoration of property rights in one part of a TBS. In Radomir (south-west Bulgaria), for example, 30 land owners applied for a total of about 30 hectares to be restituted in that way. Their objective was to create an informal association to cultivate the land, indicative of a desire to experiment with new forms of farming association.


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To some extent these reflect an intention to continue with cooperative production, a consideration to which we return below. Political and legal obstacles Reference has been made to realization from the outset that the LOUAL and associated Regulations are key issues in Bulgarian politics. Evidence of this is that between enactment in 1991 and the end of 1995 the initial law had been amended no fewer than 13 times.18 Before the December 1994 election, the constitutional court overruled amendments on two occasions. In March 1995, the new government then introduced amendments to about half of the existing law, but the constitutional court overruled 19 of the specific articles of these. Undeterred, the government then tabled another bill aimed, it was said, at reintroduction of provisions relating to creation of a land market and preferences granted to cooperatives. At the same time, the Ministry of Agriculture and Food Industry adopted measures intended to speed up land restitution. One such measure was that entitlement to compensation of legitimate claimants unable to receive their property within physical boundaries was limited to voucher compensation alone, instead of both land and vouchers. In principle, former land owners whose actual land had been lost under buildings and other forms of urban and infrastructure development should have been compensated by land allocation elsewhere. In practice, this meant drawing on land currently in state or municipal ownership, a reservoir of land far too small to compensate claimants. According to Dimiter Dinkov, head of the Ministry’s Land and Land Use Department, the state land stock had diminished during restitution to 148,000 hectares, almost half of the area in 1947 when land nationalization was initiated. In turn, the MLCs estimated that municipal land ownership had increased substantially to reach some 400,000 hectares. Landless peasants and smallscale land owners willing to undertake farming might therefore be unable to obtain land. Developments since 1995 According to official sources, by the end of 1995 some 3.75 million hectares (69.1 percent of the total area of farm land in Bulgaria) had reverted to its former owners. Land distribution plans were in place for another 0.4 million hectares, and 3 million hectares had been restored with legal title early in the year. From a regional perspective, land reform was most advanced in north-eastern Bulgaria, where up to 88 percent of land was restituted around Dobrich and 84 percent around Silistra. By contrast, only 23 percent was restituted around Varna on the Black Sea coast. In general, progress in 1995 was considered to be slow, with errors in land distribution plans, an unwieldy system of disputes settlement, and failure of owners to present themselves for entry into possession in situ singled out by Ministry experts to be the main reasons for relatively slow progress. Proving title to land in court has created particular problems. By the end of 1995 regional courts had awarded title to 68,000 hectares more than were available in all Bulgaria! The problem here is that courts rule on the basis of private plans for restitution without subjecting them to careful examination. As a result, in some areas of the country land division had effectively halted since the land demanded was practically non-existent. Since restitution began, 140,000 ‘plaints’ had been moved in court.19 Of these, the courts had ruled on 76,000, accounting for 0.25 million hectares. To speed up the process, the Ministry was proposing an amendment to the land law obliging courts to rule on plaints on non-awarded title on site. Also, all plaints in the respective population centers would have to be ruled on simultaneously.20 Actual experience nevertheless failed to discourage the government from expecting that about 92 percent of agricultural land would be restored to its previous owners by the end of 1996. The residual 8 percent would

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be land mainly in the vicinity of large cities and allocated to users a long time ago under government decrees. It was considered that a special statute would be necessary requiring current users of such suburban land to provide former owners with land elsewhere before they themselves could be granted ownership. Increasingly, the evidence contradicted optimistic expectations. For example, land restored to its former owners was reported as having increased by only 0.4 percent in January 1996, considered tantamount to a halt in reform when set against the background of a 16.1 percent increase in 1995 over 1994.21 By May the total was 3.5 percent, crudely suggestive of an annual increment for 1996 of something over 7 percent. This may be contrasted with 6 percent in 1992, 9 percent in 1993, 18.8 percent in 1994, and 16 percent for all of 1995.22 It might be expected that progress in restitution would accelerate in the early years, only to slow down as the process reaches its conclusion. That is because constructing the institutional framework for implementing restitution takes time before it begins to function at least to some degree effectively. The less problematic aspects of restitution, such as restoring ownership within defined boundaries, can be completed first. It is later in the process that the more complex issues remain to be resolved. Yet aside from cumbersome and inefficient technical and legal procedures, political factors have continued to play a major role. For instance, in early 1996 President Zhelev called on farmers in some places to organize themselves against decisions of MLCs, an appeal which found some support. Still more amendments to the LOUAL were challenged in the constitutional court during the year and, in November, the objections were upheld. Importantly, though, the law now permits the Minister of Agriculture to suspend land distribution or order MLCs to alter their decisions if owners claim more land than is their entitlement. Potentially, this provision has major implications for the speed at which the restitution process is completed.23 Disused land An associated consequence of the disorganization, though attributable to general problems of the economy and agricultural policy as well as to land reform in itself, has been the extent to which land has remained uncultivated or fallen into disuse. In 1995 some 647,000 hectares, or 14.4 percent of all arable land, remained idle, while derelict land increased by 45,400 hectares relative to 1994.24 More than half of the abandoned land was in private farms. Worst affected were mountain and highland areas where 90 percent of agricultural land had been unused for up to three years. By 1996 the situation was, literally, almost twice as serious, with an estimated 1.3 million hectares (27.6 percent of all cultivable land in Bulgaria) untilled and unplanted.25 Part of the explanation for land falling into disuse is that just over half of all owners of restituted land are urban dwellers with no inclination to become farmers. Not only do the problems in land restitution impede the development of land markets needed to provide the institutional mechanism for transfer of ownership, but people also retain ownership as a hedge against inflation. This practice is commonly observed during comparable inflationary periods in market economies across the world. The land market As can be inferred from the foregoing discussion, a land market in any fully functional sense still does not exist in Bulgaria. The slowness with which issuing the notarial deeds so essential to confirm private ownership has taken place necessarily impedes land market development, at least in terms of outright transfer of ownership by sale. The dimensions of the potential need for land transactions have been illustrated by Jackson and Kopeva.26 Based on simple assumptions about the distribution of population as between rural and urban dwellers, both now and in 1946, and corresponding patterns of land ownership,


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Jackson and Kopeva estimate that for every hectare that farmers own in the 1990s another 1.24 hectares ‘will have to find a way from city owners to the rural farmers through sale, leasing, or some form of farming business association such as a partnership or cooperative.’ Of course, this excludes any additional transactions from rural dwellers who have land restituted but choose not to operate as new independent farmers. To compensate for the lack of a true land market the government provides base prices for land. For example, in September 1996 the government approved an Ordinance on Agricultural Land Categorization under which land will be classified into 10 categories. Previously there had been only 7, and the change was justified in terms of the number of owners applying to change the use of their land to construction of petrol stations, natural gas pipelines, and roads. It is a legal requirement that land must be categorized before owners can apply for any change in use. Criteria for categorization include fertility, suitability for certain types of crops, the availability of irrigation, as well as location and topographical features. Ratings are calculated on a scale which ranges from below 10 (tenth-class land) to over 90 (first-class land). As regards setting base land prices, the most fertile was valued at about 4,000 leva per hectare and the cheapest, mainly in the mountains, high-lands, and other remote areas, 500 leva per hectare.27 Highest prices are at the Black Sea coast, in the neighborhood of the major cities, and along motorways. For protection against inflation, land prices are pegged to the minimum monthly wage. Clearly, the administered system is essentially to compensate for the lack of price formation by market forces which, even so, would presumably continue to operate within the constraints set by zoning permissible land use. Experts are quoted as believing that, in due course, market prices will greatly exceed base values.28 Together with announcement of base prices for land, the Agricultural Land Tenancy Act passed in the summer of 1996 was viewed as another measure designed to encourage land market activity. Under this Act, agricultural land may be leased for 4 to 50 years. Any one person may rent up to 600 hectares, but not more than one-third of the total land stock may be in a given locality. The limitation is on grounds of avoiding creation of local monopolies. Still more recently, it was announced that the Ministry of Agriculture and Food Industry had approved a bill to go before parliament for land consolidation.29 Similar to a law in place during the 1940s, this will allow a majority of land owners in a given area to buy out small estates. Provoked by concerns that agricultural land is currently fragmented into some 12.5 million separate plots, the bill provides for land consolidation on a voluntary basis. Specifically, if a majority of the owners of not less than two-thirds of the aggregate cultivable land in a municipal territory so wish, those dispossessed can be allocated with comparable land elsewhere or, if land is unavailable, given financial indemnity. At the time of writing, the bill has formally been to the parliament for consideration, but with the dissolution of the parliament in February 1997 there is no likelihood of its passing into law in the immediate future. Farm organization It is a significant indicator of both political preferences and slowness in farm reorganization that the National Statistics Institute regularly reports the number of new cooperative farms created since implementation of the LOUAL. In January 1994, for example, 1,341 such cooperatives were recorded as accounting for 917,500 hectares. By October 1996 these had increased to 3,205 cooperatives with 2.4 million hectares of land, implying that average size per cooperative rose from 684 to 744 hectares, or nearly a 9 percent increase, in less than two years. In other words, by the end of 1996 well over 40 percent of all cultivable land in Bulgaria was being farmed in new cooperatives. Reference to regional data shows Rousse and Bourgas respectively with over 50 and 60 percent of cultivable land in cooperatives, and only Plovdiv is well below 40 percent.30

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Although the LOUAL and Regulations incorporate measures for liquidation of non-land assets which are themselves linked to land restitution, such matters are strictly beyond the scope of this chapter. However, to the extent that land and other agricultural resources are technical and economic complements in production, it is perhaps unsurprising that slowness of land restitution is associated with the re-emergence of cooperative farming. The longer agricultural resources remain entrapped in what is to a large extent their pre-transition pattern of allocation, especially given the prevailing political and economic uncertainties, the more protracted will be the evolution of farm structures typical of established market economies. CONCLUSIONS The process of land restitution in Bulgaria, and the process of agricultural reform which depends on it, is far from complete. Since the enactment of the Law of Ownership and Use of Agricultural Land in 1991, a combination of both technical complexity in implementing the law and of political circumstances have conspired to impede progress. The objective of restituting land to previous owners or their descendants, attractive though it may be on equity grounds, has been a major source of problems. The changing size and disposition of the Bulgarian population in the last 50 years, allied to losses of agricultural land to urban use and the difficulties of proving entitlements to land, are all conducive to a protracted process of land restitution and, by association, reallocation of agricultural resources into a new structure of farming organizations. As recently as November 1996, the then Minister of Agriculture and Food Industry, Krustyo Trendafilov, claimed that some 5 billion leva was needed to complete land reform in addition to the 4.5 billion leva already expended since 1992.31 In an economy on the verge of hyperinflation it is difficult to know how to interpret such sums, except beyond observing that land reform had already proved expensive in terms of its demands on real resources and delayed evolution towards a market-oriented agricultural economy. Nonetheless, there can be no doubt that a commitment to accelerate agricultural reform from across the political spectrum is essential to the recovery, stability, and growth of Bulgarian agriculture. It remains to be seen whether the new UDF government elected in 1997 under Ivan Kostov proves more effective than its predecessors. NOTES 1 The assistance of Teodora Cherveniashka and Margarita Mihaylova of the Policy Advisory Unit, Ministry of Agriculture and Food Industry, Sofia, with provision of data and other documentation is gratefully acknowledged. Any errors remain strictly the author’s own. 2 R.J.Crampton, Bulgaria 1878–1918 (New York, Columbia University Press, 1983). 3 Ibid., Table 5. 4 The Bulgarian unit of land area is the decare, one-tenth of one hectare. For ease of international comparisons, the more familiar hectare unit is, however, used throughout this chapter. 5 T. Minkov, Land Rent in Bulgaria during Capitalism (Sofia, Science and Art Publishing House, 1960). 6 National Statistics Institute, Statistical Year Book (Sofia, National Statistics Institute, 1987). 7 This section is based on Diana Kopeva, Plamen Mishev, and Keith S. Howe, ‘Land Reform and the Liquidation of Collective Farm Assets in Bulgarian Agriculture: Progress and Prospects,’ Communist Economies and Economic Transformation, Vol. 6, No. 2 (1994), pp. 203–217. 8 The LOUAL was published in the State Gazette, No. 17, March 1991. Texts including subsequent amendments to the law and regulations are available in English language translation from SOFIA-INTER Private Agency, Sofia, as: (a) Bulgarian Law 3, Ownership and Use of Farm Land Act, and Decree No. 232 of 29 November 1993 on the


9 10

11 12

13 14

15 16 17 18 19 20 21 22 23

24 25 26

27

28 29 30 31

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Implementation of Article 24, para. 3 of the Ownership and Use of Farm Land Act; and (b) Bulgarian Law 46, Decree No. 74 of 25 April 1991, Rules for the Application of the Ownership and Use of Farm Land Act. See ibid, for specific dates of amendments. The original 1991 law set 4 March as the deadline for submitting claims, but this was extended to 4 June as claimants were very slow in coming forward. Hence the 1992 date relates to the amended law of that year. See R. Nikolaev, ‘Bulgarian Farmland Law Seeks to Hasten Privatization,’ RFE/RL Research Report, Vol. 1, No. 21 (1992), p p. 30–33. Kopeva, Mishev, and Howe, ‘Land Reform and the Liquidation of Collective Farm Assets in Bulgarian Agriculture: Progress and Prospects.’ An idea of the rate of progress is conveyed by the following data. By January 1994, 33,549 decisions were issued under Article 27 relating to 0.14 million hectares. By October 1996, such decisions had increased almost 20 times from January 1994 for a 15-fold increase in area. R.Nikolaev, ‘Bulgarian Farmland Law Seeks to Hasten Privatization.’ Evidently denied under Article 3 of the LOUAL, as most recently amended in the State Gazette, No. 45 (May 1995). Also, foreign nationals acquiring farm land by legal deed of inheritance must transfer land to individual citizens and public institutions within 3 years. Nikolaev, ‘Bulgarian Farmland Law Seeks to Hasten Privatization.’ An evident improvement on the 340,000 hectares quoted at the close of 1995. Bulgarian Business News, Vol. 6, No. 2 (8–14 January 1996), p. 7. Bulgarian Business News, Vol. 6, No. 47 (18–24 November 1996), p. 7. Bulgarian Business News, Vol. 6, No. 2 (8–14 January 1996), p. 7; and Continent newspaper, 5 July 1996. A ‘plaint’ is a translation from Bulgarian which essentially refers to a complaint, or a low-level legal process to seek redress. Bulgarian Business News, Vol. 6, No. 6 (5–11 February 1996), p. 7. Bulgarian Business News, Vol. 6, No. 10 (4–10 March 1996), p. 7. Evidently somewhat at variance from what has been quoted by ‘official sources’ (69.1 percent in total). Article 12 amended, published in the State Gazette, No. 79 (September 1995), states that ‘In the event that the land claimed should exceed the amount of land available in the area at the time of the establishment of the labor cooperative farms, the state farms and other suchlike agricultural organizations, the Minister of Agriculture and Food Industry shall be empowered to discontinue the land division for the purpose of precisely specifying the amount of land due to each claimant, as well as order an MLC to rescind or modify earlier enacted decisions. In such cases persons found to have filed false petitions and declarations shall be held materially liable for damages inflicted as well.’ Bulgarian Business News, Vol. 6, No. 20 (13–19 May 1996), p. 7. Bulgarian Business News, Vol. 6, No. 47 (18–24 November 1996), p. 7. Marvin Jackson and Diana Kopeva, ‘Land Markets in Transition Economies: The Case of Bulgaria’s Radical Land Reform,’ paper presented to the Conference of the Agricultural Economics Society, University of Exeter, April 1994. The leva is the Bulgarian currency. It is difficult to indicate an exchange rate because the currency has been quite unstable. For example, in early November 1996 the leva was trading at 260 to the dollar; by the end of the month it had fallen to 360 to the dollar. Bulgarian Business News, Vol. 6, No. 40 (30 September-6 October 1996), p. 7. Bulgarian Business News, Vol. 7, No. 6 (3–9 February 1997), p. 7. The Sofia Region and City of Sofia, as might be expected given the level of urbanization (about 10 percent of the total population of Bulgaria), have only about 11 percent and 3 percent of cultivable land, respectively. Bulgarian Business News, Vol. 6, No. 47 (18–24 November 1996), p. 7.

10 Land reform and farm restructuring in Hungary during the 1990s 1 Csaba Csaki and Zvi Lerman

Agriculture has traditionally played a greater role in the Hungarian economy than it has in most industrialized countries. Although the intensive industrialization drive after World War II dramatically reduced the share of agriculture in national product, agriculture and food processing consistently accounted for between 15 percent and 20 percent of national income during the 1970s and the 1980s. Of 9.3 million hectares of land in the country, 70 percent is arable and 19 percent is forest. According to data from the Food and Agriculture Organization (FAO), the amount of arable land per capita is one of the highest among the European countries.2 Most of the agricultural land is relatively fertile, and climatic conditions are favorable for temperate agriculture. This fertile land represents one of the most important natural resources of the country, and provides the basis for a strong food and agricultural sector. During the four decades of socialism after World War II, Hungarian agriculture performed relatively well compared to other centrally planned economies in Eastern Europe and the Soviet Union. Between 1960 and 1989, gross agricultural product nearly doubled according to FAO data, growing at an annual rate of 2.5 percent (compared to 1.7 percent for nations in the Council of Mutual Economic Assistance (CMEA) and 1. 3 percent for the USSR). The yields of crop and livestock products were comparable to many developed market economies and were the highest among all CMEA countries. Hungarian agriculture’s relatively good performance was due in part to the innovative way in which central planning was managed in the 1970s and the 1980s. Hungary was in the forefront of continuous attempts to reform and improve the performance of the socialist system of agriculture. The Hungarian reforms in this period emphasized individual initiative and decentralized decision-making to a much greater extent than any other country with a socialist regime. Although Hungarian agriculture during the 1970s and the 1980s had many strengths, the sector’s legacy is mixed. Agriculture in Hungary was constrained by the well-known shortcomings of socialist agriculture. Quantity was the major objective, while quality and efficiency played only secondary roles. Agricultural land did not have clear ownership rights, and land markets did not function. The whole sector required an expensive system of subsidies, in part as a political expedient designed to keep consumer food prices low. The existence of captive markets in other CMEA countries removed incentives for quality improvements. There were no incentives to stimulate technological innovation and product development as required by competitive market conditions. Since the change of political regime in 1990, the Hungarian government has implemented an ambitious reform program to transform agriculture into a market-based economic sector predicated on private ownership. The most important measures generally fall into three categories: (a) changes in institutions and regulations designed to enhance the functioning of markets; (b) privatization of the major means of production in primary agriculture, and also in agro-processing and input supply; and (c) introduction of


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support programs for producers, processors, and traders consistent with the evolving new conditions. By mid-1996, most of the initial tasks of transition had been completed. The process of reform has been difficult and painful for many enterprises and individuals. In 1990 Hungary had no alternative but to move toward market-oriented privatized agriculture if it wanted to compete in the international markets. The implementation of this objective, according to many analysts, was more costly than originally expected. The transition from large-scale farming to private farming in general is a process that involves not only building, but also dismantling. This is especially true for the first stage of the process. Partial loss of the stock of fixed assets and other setbacks are an unavoidable side effect of such a process. Unfortunately, the behavior of the government at times tended to strengthen rather than counteract these unavoidable negative effects. Often the reforms were managed in an ad hoc manner, with frequent course changes and amendments, both retroactively and in the course of the process. The legislation that guided the agrarian transformation was not always based on clearly considered and formulated programs that had been reached through a broad social consensus. The implementation of some of the new laws was beyond the existing administrative capacity within the original time framework set by the laws. Despite all the fumbling and shortcomings, the first six years of transformation in Hungarian agriculture can be considered as one of the most successful examples in a regional comparison. The major achievements of the first phase of the agricultural reform in Hungary include almost complete privatization of farm land, creation of a market-conforming incentive framework for agriculture, full privatization and ongoing modernization of agro-processing, and deep reforms of government institutions in agriculture. Without intending to provide a comprehensive account of all the recent reforms in Hungarian agriculture, this chapter focuses mainly on land reform, farm restructuring, and some related policy issues. PRE-REFORM LAND OWNERSHIP AND FARMING STRUCTURE Prior to World War II, Hungary was characterized by extreme concentration of land in large estates. As few as 0.1 percent of land owners owned 30 percent of all land; 85 percent of all farms controlled only 19.4 percent of cultivated land. There were 1.8 million landless peasants and farm workers in Hungary at that time —nearly 20 percent of the total population. The political and economic changes after World War II included a socialist agrarian reform program. As part of the March 1945 land reform, all estates larger than 570 hectares were expropriated and other farms were reduced by confiscation of land to a maximum holding of 57 ha. Livestock and production assets were confiscated with the excess land. Nearly 3 million hectares of confiscated land were distributed to 725,000 landless workers and smallholders in the process of the 1945 reform. The new holdings were limited to 8.5 ha for crops and pasture and 1.8 ha for gardens and vineyards. A 10-year moratorium was imposed on the sale of land received in the process of reform to prevent reconcentration in large estates. In 1948, in a second wave of land reform legislation, some 170,000 ha of leased land was transferred from relatively large farmers to farm workers, smallholders, and cooperative farms for low rent payments. The Hungarian land reform was part of an overall process of nationalization. Banks were nationalized in November 1947, industrial enterprises with more than 100 employees were nationalized in March 1948, and industrial enterprises with more than 10 employees were nationalized in December 1949. By 1950, 92 percent of gross industrial product originated in the socialized sector. Socialization of the agricultural sector, which was manifested in a transition from individual farming to cooperatives and state farms, albeit without total nationalization of land, lagged behind the rest of the economy. Although collectivization began in 1948, only 11.5 percent of gross agricultural product in 1950 originated in cooperatives and state farms,

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which at that time controlled 950,000 ha out of total of about 7 million hectares of agricultural land. Fully two-thirds of the agricultural cooperatives were disbanded during the 1956 uprising, but the collectivization drive was renewed in full force at the end of 1958. By 1966, 77 percent of gross agricultural product originated in cooperatives and state farms, which at that time controlled 6 million hectares and had over 1 million cooperative members. In Hungary, socialization of agriculture never involved total elimination of private ownership of land, as it did, for instance, in the Soviet Union and Albania. Individuals joining cooperative farms after 1948 put their land into collective cultivation, but retained ownership of the land. Private ownership of land plots by members was registered in the books of the cooperative farms. However, when members left the cooperative or died Table 10.1 Comparison of state farms and cooperatives before the reform (averages per farm 1970–1988) State farms

Cooperatives

Number of farms (1988) 133 1,400 Sown area per farm (ha) 4,260 2,117 Number of tractors per farm 71 28 Cattle (head) per farm 2,023 647 Pigs (head) per farm 9,975 869 Milk (ton) per farm 3,345 797 Grain (ton) per farm 12,121 6,083 Source: Statisticheskii ezhegodnik stran-chlenov Soveta ekonomicheskoi vzaimopomoshchi [Statistical Yearbook of CMEA Countries, in Russian], Moscow (1989).

without leaving heirs who were also members, their private land was purchased by the collective at a low price. A category of collective or cooperative land thus evolved over the years. In addition to the three categories of state land, private land in cooperatives, and collective land, around 5 percent of agricultural land in Hungary always remained in private farms outside the collectivist framework. In the last two decades of the collectivist era there were around 130 state farms and 1,400 cooperatives in Hungary. State farms were more mechanized and much larger than cooperatives: they had more tractors, cultivated more land, raised more livestock, and produced more output, as shown in Table 10.1. Despite their size advantage, state farms cultivated only about 15 percent of all agricultural land, and the cooperatives were the dominant form of socialized agriculture in Hungary (70 percent of agricultural land). Many of these large-scale farms diversified into non-agricultural activities in order to supplement the income derived from farming. In the late 1980s the non-agricultural net income of many cooperatives and state farms was substantially greater than the net income from agricultural activities. The members and workers in cooperatives were always allowed to cultivate small individual plots of about 0.5 ha on average. The products grown in these small plots were intended both for personal consumption and for commercial sale. The cooperative usually assisted the individuals with the supply of farm inputs for their personal plots and often purchased their output. On individual plots representing 10 to 15 percent of all agricultural land, Hungarian peasants raised 20 to 30 percent of all cattle and around 50 percent of all pigs in Hungary. According to some estimates, this ‘private agriculture’ accounted for 35 percent of gross agricultural product. The farm-sector structure characterized by symbiotic coexistence of large cooperatives and small individual plots is often referred to as the ‘Hungarian model’ of agriculture. A similar structure prevailed through most of the collectivist era in all other socialist countries, including the


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Soviet Union. Yet the ‘Hungarian model’ typically fostered more integrated production relations between the household farms and the cooperatives, which sometimes verged practically on ‘contract’ farming, and allowed a high degree of autonomy from central authority. BASIC FRAMEWORK FOR LAND REFORM AND FARM RESTRUCTURING AFTER 1990 The economic strategy that Hungary had adopted back in the early 1960s brought it by 1990 much closer to a market-oriented economy than its CMEA partners. After the democratic elections in 1990, Hungary embarked on a full-scale transformation to a market-based economy. In agriculture, the transition primarily involves two sets of closely interrelated issues: (a) privatization of land and productive assets, including assignment of ownership rights in specific assets to individuals or legal entities, and (b) restructuring of the inherited large-scale cooperatives and state farms into organizational forms with clear personal involvement and accountability of individuals. The basic framework underlying the transformation is largely consistent with a market orientation for agriculture, as it eliminates direct or indirect state ownership of most farming entities and allows the existence of diverse organizational forms (including cooperatives) that can remain viable in a market environment. Government policies during the first six years after the 1990 change of economic ideology created laws and implementation programs to induce and facilitate adjustment in size, ownership, and internal management of the inherited farms. A key underlying assumption of government policy was that private ownership of land and farm assets would provide significant incentives for greater efficiency compared to cooperatives with collective ownership and collective responsibility, which always suffered from inefficiency due to pervasive moral hazard and free-riding. The transition to private ownership also served to compensate a large segment of the population who had lost their property to the state and to cooperatives through direct and indirect coercive measures after World War II. The compensation program was largely to be funded using the land and asset reserves of cooperatives, state farms, and other state-owned entities in the agricultural sector. It was designed to produce a new sector of independent private farms outside the traditional collectivist framework. The legal basis for the transformation of land relations and farming structures is provided by four laws: 1 2 3 4

Compensation Law (Law XXV of 1991, June 1991) Law of Cooperatives (Law I of 1992, January 1992) Cooperative Transition Law (Law II of 1992, January 1992) Land Law of 1994

The Compensation Law sets out the principles and procedures for return of land to individual ownership. The Law of Cooperatives introduces an organizational form based on standard Western concepts of voluntary cooperation in production and services. This form of cooperation is expected to replace the traditional cooperatives that developed according to the Soviet model during the decades of the socialist regime. The Cooperative Transition Law is intended to regulate the process of transition from the traditional cooperatives that had dominated Hungarian agriculture since the 1960s to new farming structures that include individual and corporate farms, as well as new agricultural cooperatives based on the principles of the 1992 Law of Cooperatives. Unlike the other laws, the Cooperative Transition Law was of limited duration and formally expired in December 1992, one year after being passed by parliament. The fourth component of the reform program, a new land law, was passed in early 1994.

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Compensation Law The full title of this law is ‘Law on Partial Compensation for Damages Unlawfully Caused by the State to Properties Owned by Citizens in the Interest of Settling Ownership Relations.’ It prescribes compensation of Hungarian citizens whose property was expropriated after June 1949, and is not restricted to compensation of land owners. Hungary opted for financial compensation, instead of physical restitution of land and assets. The compensation system was judged to be more appropriate to existing economic reality, more flexible, and more easily implementable on a technical level than actual restitution to former owners. In addition to compensation of former land owners, provisions were made for allocation of some land to current users, i.e., landless cooperative members and employees of cooperatives and state farms. The instrument of compensation is a compensation coupon denominated in units of 1,000 forints. The coupon is a transferable bearer security and can be used by all to purchase state-owned flats, property, and shares offered during privatization of state-owned enterprises. However, only the first (original) recipient of the compensation coupon can use it to purchase farmland at an auction. Although the Compensation Law deals with property of all kinds, 16 out of 30 articles are special regulations relating to farmland. In the absence of market valuation mechanisms, land in Hungary is valued in ‘gold crowns,’ which is a traditional Austro-Hungarian unit of land quality. Claims to former land holdings are made in gold crowns, and money-denominated compensation coupons are issued at an ‘exchange rate’ of 1,000 forints to 1 gold crown. Each cooperative is required to set aside for purposes of compensation the land that it acquired under the relevant post-1949 legislation. The Cooperative Transition Law (Law II of 1992) stipulates that land in personal use or in long-term leasehold may not be set aside for compensation. The set-aside land is to be auctioned in individual parcels to coupon holders in three categories: (1) outsiders whose former land is in the possession or use of the auctioning cooperative, (2) current members of the auctioning cooperative, (3) permanent residents in the village or town where the auctioned land is located. Land of state farms is set aside and auctioned in a similar fashion. The area of state-owned lands offered for auction was about 20 percent of the land area auctioned by cooperatives. In practice, state-owned land is not subject to direct claims, as it was created through confiscation of large estates in 1945–1946, prior to the critical date of June 1949 stipulated in the Compensation Law. Instead, the land in state farms is to be used to satisfy compensation claims that cannot be satisfied from cooperative land. The law stipulated an opening price of 3,000 forints per gold crown in an auction and a minimum price of 500 forints. Since 1 gold crown is equivalent to a 1,000 forint coupon, in many areas the compensation coupon held by an individual claimant is not enough to buy back all the former land holdings. The new land owners are obliged to cultivate the purchased land and not to withdraw it from agricultural production within five years. Failure to meet this obligation will result in confiscation without compensation. In addition to compensation of former land owners, a special land reserve is to be created by cooperatives and state farms for their landless members and employees. The reserve is based on an allocation of 30 gold crowns of farmland per member and 20 gold crowns per employee. This is equal to 1.5 ha of averagequality land (‘20 gold crown land’) for members and 1 ha for employees, which is allocated without any auction. In the case of cooperative land, the cooperatives act as sellers in the land auctions and they collect the coupons in payment for land from the buyers. The cooperatives can use these coupons to purchase stateowned assets, like any other holder of coupons. A special provision stipulates that cooperatives can use the coupons to purchase at least 20 percent of the assets in state-owned food-processing enterprises undergoing privatization.


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Law of Cooperatives The cooperative form of organization, ‘created through voluntary association of people,’ is endorsed by the Hungarian constitution. The January 1992 Law of Cooperatives is intended to provide the legal framework for the operation of Western-style cooperatives in Hungary, as distinct from the traditional cooperatives established in the collectivist era. The law covers cooperatives in general, and there is no special emphasis on agricultural cooperatives. The main subject headings of this law cover the following topics: (a) establishment of a cooperative; (b) self-governing bodies in a cooperative; (c) cooperative membership: rights and obligations, termination of membership, ownership relations; (d) economic activities of a coopera-tive; (e) liabilities; (f) fusion, splitting, transformation, and dissolution of cooperatives. A cooperative in Hungary may be established by five members. Members are natural or legal persons. Members in a cooperative share some common interest or activity. The law makes a definite distinction between membership and employment: the new cooperatives do not have an obligation to employ their members. The cooperative membership is sovereign to decide all questions relating to management and operation of the cooperative. The decisions are guided by the cooperative bylaws or statute, which must be approved when a cooperative is founded. The General Assembly is the highest organ of self-government in a cooperative, and it is the only forum qualified to decide on reorganization of the cooperative and division of property. All members have a say and a vote in the General Assembly, and the cooperative principle of ‘one person, one vote’ prevails. The law provides for two types of cooperative securities: cooperative shares and cooperative quotas. Shares are membership certificates and they are purchased when members join the cooperative. Each member must purchase one share and it entitles him or her to one vote at the General Assembly. Cooperative shares are non-transferable and receive an annual dividend from profits at a rate decided by the General Assembly. Cooperative quotas, on the other hand, represent fractional ownership of the assets in the cooperative. They are transferable and inheritable, but non-voting. Owning a quota is thus not a condition of membership: outside quota holders participate in the General Assembly, but without voting. Quota holders receive an annual dividend from distributed profits. The value of cooperative quotas increases when the cooperative retains undistributed earnings and decreases when the cooperative reports losses. The law goes in considerable detail into provisions for termination of membership (Articles 48–51). One of the most relevant instances of termination of membership at the present juncture is when a member ‘secedes from the cooperative.’ The law does not require any formal approval of the decision to secede, apart from a written notification to cooperative management. The exiting member is entitled to a financial settlement (Article 51): ‘As part of the settlement, the assets put into the use of the cooperative on the basis of the membership contract must be returned to the former member…If an asset put into the use of the cooperative can no longer be traced, or is no longer in the use of the cooperative at the time of secession, the former member must be compensated for its value.’ The law also indicates that the exiting member is entitled to receive his or her share of accrued cooperative profits (i.e., the accumulated increase in the value of the quota). The specific arrangements of this provision are not spelled out, however, and the procedural decision is left to the bylaws or the selfgoverning bodies. In principle, the freedom of individual exit from a cooperative with a fair share of assets is all that is needed for relatively unrestricted restructuring of cooperatives in the future. Yet in addition to the individual exit provisions included in the context of termination of membership, the law contains a long and

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detailed section entitled ‘Fusion, Separation, Transformation, and Dissolution of Cooperatives.’ These terms are self-explanatory: fusion is merging of two existing cooperatives; separation is a split of an existing cooperative into two or more units; transformation is reorganization of a cooperative as a limited liability or a joint-stock company; and dissolution is liquidation of an existing cooperative by a voluntary vote of the members, fusion with another cooperative, bankruptcy proceedings, or decline of membership below the legal minimum of five. Such restructuring decisions must be adopted by a two-thirds majority in the General Assembly, which can be convened by a written request from 10 percent of the members (Article 21; Article 80 on the other hand requires a petition from 15 percent of the members to discuss a transformation proposal; the origin of this discrepancy is not clear). In the case of a separation proposal, the General Assembly is convened in two rounds. The first assembly debates the separation proposal. If the separation proposal is approved (by a two-thirds majority), the management prepares a plan for division of assets and liabilities between the splitting entities and the plan is brought for approval to the second assembly. The law makes no provision for resolution of conflict if the second assembly does not approve the division of assets by the required majority and thus effectively blocks the proposed split. In principle, the injured group can turn to the courts for a review of the decision (Article 13), but international legal practice shows that courts are reluctant to interfere in matters that are within the purview of cooperative bylaws and a General Assembly. Cooperative Transition Law The so-called Cooperative Transition Law (Law II of 1992) provides procedures for entry into force of the Law of Cooperatives (Law I of 1992) and sets out transition regulations intended for the restructuring of traditional cooperatives. This transition law had a limited duration: it was applicable to existing agricultural cooperatives until 31 December 1992. When the law was being prepared in 1991, the assumption was that the transformation of cooperatives would be completed by the end of 1992. This proved to be an overoptimistic assumption, and the transition law had expired long before the restructuring processes in Hungarian agriculture were completed. The main operational topic of the law is the assignment of property rights in land and assets to cooperative members. With regard to land, the law follows in full the provisions of the Compensation Law discussed above. In addition, it allows a kind of a ‘private arrangement’ between a member holding a compensation coupon and the cooperative: the member may surrender the coupon to the cooperative and receive in return land for the full gold-crown value of the coupon without participating in the auction (this land, however, will be allocated only from what remains after the auction). The land left as cooperative property after compensation auctions is to be assigned to the members (Article 25). These changes in land ownership must be registered in the Land Register, with the new owner bearing the associated costs. With regard to non-land assets, the law introduces a procedure of ‘property designation,’ which involves assignment of property rights in the assets of the cooperative less agricultural land. The state waived its ownership rights to property which was in cooperative use prior to January 1989 and allowed inclusion of this property with the rest of cooperative assets for property designation. Property is assigned in the form of cooperative quotas, which are transferable non-voting securities. The main beneficiaries of the property designation process include (a) current members who were admitted before January 1991; (b) persons who were members for at least five years prior to the adoption of the new law (or their heirs); and (c) persons who terminated their membership after January 1988 but remained employees of the cooperative (and are thus entitled to restoration of their membership).


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Quotas are thus assigned not only to members (both active and pensioners), but also to outsiders—former members of sufficient seniority and former members who maintained employment relations with the cooperative after exiting. In addition to these beneficiaries, the General Assembly may assign cooperative quotas to other groups of outsiders: all employees of the cooperative, all former members and their heirs, and family members who regularly help the cooperative in production work. These special quotas must not exceed 10 percent of the total assets available for assignment. Individuals and groups were allowed to leave the cooperative without the consent of the General Assembly up to the end of 1992. The seceding members would exit with a proportional share of cooperative assets (and liabilities). This provision applied to individuals and groups taking away not more than 10 percent of the assets of the cooperative. Apart from secession of individuals and small groups with less than 10 percent of the assets, the law also envisaged a process of internal reorganization of an existing cooperative with the objective of improving the overall performance (again to be completed before the end of 1992). The reorganization plan, involving physical distribution of assets to the new organizational units, had to be approved by a two-thirds majority at the General Assembly. The plan had to be based on the principle of ‘independent functionality’ of the new economic units. Cooperative liabilities had to be distributed together with the assets, so that the creditors had to approve the reorganization proposal. If the General Assembly failed to approve the asset distribution plan by the required majority, a closed auction would be organized between the cooperative and the interested members. The members would bid for assets with their cooperative quotas. Assets remaining after the closed auction would be offered to outsiders for cash at a public auction. The transition law included the basic principles needed for farm restructuring: assignment of property rights in land and assets, freedom of individual exit with a share of assets from the cooperative, asset distribution procedures for internal reorganization of cooperatives, and a conflict resolution mechanism through auctions. Unfortunately, the law expired in December 1992 before the process was completed, and not all of its components are incorporated in the Law of Cooperatives. Some amendments to the cooperative law were passed by the parliament in its last session prior to the 1994 elections, but they have not yet been signed into law. These amendments mainly simplify the procedure which needs to be followed if a village-based section of a multi-village cooperative wishes to split off. By making it easier for segments of cooperatives to establish unit sizes that are more compatible with managerial considerations as well as with social cohesion, this amendment would add to efficient transition. However, the amendment does not resolve the problems outlined above regarding the difficulty of effecting a split when the asset distribution proposal is blocked by the General Assembly. Land Law of 1994 The Land Law of 1987 did not reflect the changes in economic orientation and in the patterns of land ownership that emerged after 1990 as a consequence of the Compensation Law, the Law of Cooperatives, and the Cooperative Transition Law. In fact, many of the provisions of the 1987 Land Law were nullified by new regulations or provisions which are part of other laws. In particular, the 1987 law recognized ownership of land by cooperatives (which was in fact the most common form of ownership prior to 1992), while under the Cooperative Transition Law all cooperative land was to be either given as compensation or distributed to individual ownership. Only in the first quarter of 1994 was a new, updated land law passed. The new land law deals specifically with agricultural land under post-reform conditions.

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The 1994 Land Law contains a number of provisions which can unnecessarily inhibit land market activities and may have negative implications for investment incentives and credit markets. The law recognizes only individual ownership of agricultural land, but not corporate (or cooperative) ownership. This substantially limits the range of enterprises that have the ability to consolidate land holdings, creating farms of optimal size. The prohibition on corporate land ownership restricts the incentive of corporations to invest in agriculture, and also deprives them of the ability to use land as collateral for raising credit. By prohibiting corporate land ownership, the law specifically seeks to block the entry of foreign land owners. This objective, however, can be achieved even if corporations are allowed to own land: it is sufficient to devise an appropriate definition allowing land to be owned only by corporations that are entirely or mostly under Hungarian control. The law also establishes an upper limit of 300 ha for private ownership of land. Although this is not a binding constraint for most family farms, it may limit the range of operations of some commercial types of farms. The new land law limits the duration of a lease on agricultural land to a maximum of 10 years (with longer lease terms for orchards and forest plantations). This could limit the incentives of some investors for land consolidation through leasing if the payoff period of their projected investment exceeds 10 years. According to another lease-related provision in the new law, the land owner is required to compensate the tenant for certain natural calamities by reducing the rent. This diminishes the incentive of land owners to lease out. Similarly, tenants are granted a right to terminate the lease contract for health reasons. This may provide a loophole for tenants that penalizes owners and thus deters rentals. The land law also contains a whole range of regulations the objective of which is to ensure environmentally sound utilization of land. For that purpose, it provides significant discretion to local land department offices to determine whether utilization is appropriate, and whether changes in cultivation schemes are acceptable. While the logic of environmental concerns is sound, they should be addressed through a less discretionary procedure. Otherwise, inconsistencies and bureaucratic abuse can become factors deterring investments and hampering consolidation. CURRENT STATUS OF LAND REFORM AND LAND PRIVATIZATION By the end of 1996, the process of privatization and restructuring of large-scale cooperatives and state farms had produced a diversified mix of land ownership forms and farm structures as shown in Table 10.2 and Figure 10.1. Cooperatives and limited liability companies or partnerships are the main corporate forms among farms registered as legal entities. Some 30,000 individual or family farms represent the noncorporate segment, which includes farming operations that are legally registered but are not incorporated. In addition to 30,000 registered full-time farms, there are about 20,000–30,000 full-time farms that are not officially registered and 1.2 million small part-time farmers (out of 1.7 million rural households). While the initial issues of land privatization have been resolved and the new farming organizations are consistent, at least formally, with the conditions Table 10.2 Registered operations in agriculture and forestry Type of operation

1994

1995

Limited-liability companies/partnerships Shareholding companies Cooperatives Other legal persons

3,140 171 2,048 114

3,636 171 2,117 415


Type of operation

1994

183

1995

Under liquidation 37 33 Total operations registered as legal persons 5,510 6,372 Individual farms 29,130 29,976 Other non-corporate operations 2,462 2,735 Under liquidation 299 261 Total registered non-corporate operations 31,891 32,972 Source: The Status of Agriculture 1995 [in Hungarian], Research Institute for Agricultural Economics, Budapest (October 1996).

Figure 10.1 Land use by legal form of farm organization: 1993–1996

of a market economy based on private ownership, the consolidation of ownership and farming structures will require further time and appropriate government policies. Land privatization was based on the compensation policy and on the legislation guiding the restructuring of collective farms. There were basically three tracks for privatization of land in Hungary. First, the land that had always been registered in the ownership of cooperative members but was managed collectively with severe restrictions on exercise of property rights reverted to full-fledged private property in 1992. Second, ‘landless’ cooperative members received on average 1 ha (20 gold crowns) from the land reserves of their cooperatives. Third, former land owners were compensated with land from resources cultivated by cooperatives and state farms in a fairly complex process involving issue of vouchers followed by land auctions. These privatization processes have had a deep impact on the distribution of land ownership in the farming sector. In 1990, 27 percent of land in Hungary was state owned, 42 percent was owned by cooperatives, 24

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percent was privately owned by members of cooperatives (and mostly cultivated by the cooperatives), and 7 percent was privately owned by individuals outside the collective framework. Since 1990, cooperatives and state farms have lost more than 4 million ha of land, which has shifted to private ownership through compensation and through allocation of one-hectare plots to landless farm employees. As of 1995, all cooperative land is registered as private property of the members, and the share of privately owned land outside the cooperatives increased from 7 percent in 1990 to 48 percent in 1995 as shown in Table 10.3. Table 10.4 shows land use Table 10.3 Ownership of productive land in Hungary, 1990–1995 (percentages) Year

State

Cooperatives

Cooperative members

Privately owned by others

1990 27 42 24 1991 27 39 23 1992 24 31 26 1993 23 19 23 1994 21 — 40 1995 20 — 33 Source: Hungarian Ministry of Agriculture.

7 11 19 35 41 48

Table 10.4 Land use by legal form of farm organization (percentages) Arable 1990

Productive 1993

1996

1990

1993

1996

Enterprises 14.2 20.3 18.1 n/a 31.2 28.6 Cooperatives 73.1 54.7 31.1 n/a 46.9 23.7 Private farms 12.7 25.0 50.8 n/a 21.9 47.7 Total 100.0 100.0 100.0 100.0 100.0 Thou, ha n/a 4,712.5 4,712.5 n/a 7,960.5 8,017.2 Source: The Status of Agriculture 1995 [in Hungarian], Research Institute for Agricultural Economics, Budapest (October 1996).

categorized by legal form of organization. While land registered to owners outside the collective framework is usually marked in a clearly identifiable form, the land registered in ownership of cooperative members is not always physically designated. By mid-1996, only about 20 percent of land in this category had been physically distributed to the owners. In line with the provisions of the Compensation Law, a land reserve of 2.2 million ha (44 million gold crowns) was created in 1992 by setting aside land owned by the state and by cooperatives. The land was set aside in large contiguous parcels of tens and hundreds of hectares. These large tracts were then divided into subparcels for auctioning. The subparcelization was done by splitting a large rectangular parcel into individual strips running the full width of the original tract. The result is a strip pattern, rather than the mosaic of small plots commonly observed in many other countries. A one-hectare parcel may consist of a very long and narrow strip of land. An individual realizing his or her entitlement in an auction ends up with several parcels in a configuration which is not easily amenable to individual cultivation. This pattern also engenders easement problems that require resolution through negotiations between neighbors.


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After inevitable initial difficulties and delays connected with late claims, validation difficulties, and disputes about boundaries and access rights, compensation coupons were distributed to all eligible claimants. By the end of 1994, 1.8 million ha (36.8 million gold crowns) or about 85 percent of land set aside for compensation had been auctioned off to 527,000 new owners in 21,000 auctions. The large tracts of set-aside land were thus fragmented into small individual plots of 3.5 ha on average, each plot possibly consisting of several smaller parcels. The bidding price in these auctions ranged from the statutory minimum of 500 forints per gold crown to 2 million forints. The remaining auctions were scheduled for a second round starting in April 1995. Land received through the compensation process must be farmed at least five years. A recipient of land, whether a member of a cooperative or an outsider, therefore must make one of the following decisions: (a) farm the land individually; (b) lease the land to another individual farmer; (c) lease the land to a large-scale farm (a cooperative). There are indications that most compensation land (90 percent by some estimates) is leased back to cooperatives. This includes compensation land received by cooperative members as well as by outsiders. According to various surveys, around 80 percent of cooperative members entitled to compensation intend at this stage to continue cultivating their land in a cooperative framework.3 Secession of cooperative members has been minimal: only about 10–15 percent of members have so far left their cooperatives to become private farmers. However, the increase in the individual farming sector in 1994–1995 was entirely due to exits of former cooperative members who decided to become private farmers. RESTRUCTURING OF COOPERATIVE FARMS The reorganization of cooperative farms is based on the January 1992 Cooperative Transition Law, which provided a framework for privatization of cooperatively owned land and distribution of collective assets. The beneficiaries of the distribution process constitute three distinct groups: active members and current employees of the cooperatives, passive members (pensioners), and outsiders associated with the cooperative (former members, former employees, heirs, etc.). Assets are distributed according to the seniority and ‘work contribution’ of the beneficiaries. Land is distributed in two rounds: the first round is governed by the provisions of the Compensation Law (distribution to former land owners and to landless members and employees); the second round involves distribution of land left over after compensation auctions and is guided by the same principles as distribution of non-land assets (i.e., leftover land is treated as part of the ‘property designation’ process, see above). Only insiders (both active and passive) have voting rights at the General Assembly (by virtue of their shares). Outsiders have a right of say and a right to dividends, but no vote. The original intention of the legislators was to complete the process of farm restructuring by December 1992, within one year of the adoption of the Cooperative Transition Law. The actual restructuring took much longer, however, and the first phase was completed only in 1995. All cooperatively owned land was transferred to individual ownership of cooperative members or distributed as part of the compensation process. The non-land assets of the cooperative farms were also privatized: 41.5 percent of the assets (by value) was allocated to the active members, pensioners received 38.7 percent, while those who had left the farm earlier received 19.9 percent. The distribution process must be followed by organizational decisions: the new individual owners of land and productive assets must decide how to regroup in order to continue farming. Some individuals may leave the cooperative or the state farm with their personal allotment of land (20–30 gold crowns plus any additional compensation land that they are entitled to). Existing cooperatives may split into several smaller,

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village-based or functional units, and these units may register either as cooperatives or as business organizations (mainly limited liability companies, and, to a lesser extent, joint-stock companies). State farms may spin off subdivisions and reorganize as limited liability or joint-stock companies. The restructuring process is thus generating a greater number and a greater diversity of agricultural producers. In 1989, there were around 140 state farms and 1,300 cooperatives in Hungary. In 1992, the number of state farms and cooperatives dropped slightly to 120 and 1,200, respectively, but a new category of ‘corporations with legal status’ emerged with 1,600 registered entities. In 1996, virtually all state farms have been privatized, the number of cooperatives has increased through internal Table 10.5 Number of corporate producers in agriculture Organizational form

1989

1992

1996

State farms and enterprises 139 122 28 Corporations with legal 163 1,591 4,268 status Cooperatives 1,333 1,246 2,117 Total corporate 1,635 2,959 6,413 organizations Sources: 1989 and 1992 from the Hungarian Statistical Abstract, Budapest (various years); 1996 from The Status of Agriculture 1995 [in Hungarian], Research Institute for Agriculture Economics, Budapest (October 1996).

restructuring to over 2,000, and there are now over 4,000 corporations with legal status, also created through restructuring of cooperatives and state farms. Thus, the number of ‘corporate’ producers increased from around 1,600 in 1989 to nearly 6,500 in 1996 as shown in Table 10.5. In addition to these corporate forms of organization, there are 30,000 registered full-time farmers, another 30,000 unregistered full-time farmers, and 1.2 million smallholder farms. Despite the increase in the number of corporate farms, their share in the use of total arable and productive land has declined dramatically. This is the result of the land privatization program, which transferred large tracts of land to the use of individual farmers. The share of corporate farms in arable land declined from 87 percent in 1990 to 49 percent in 1996, while the share of individual farms increased correspondingly from 13 percent of arable land in 1990 to 51 percent in 1996. Restructuring of cooperatives thus leads to the creation of new farms that on the whole are much smaller than the traditional socialized farms, which used to cultivate thousands of hectares of land. The number of farms with up to 500 ha of productive land increased from 38 percent in 1994 to 51 percent in 1996, while the number of large farms with over 1,000 ha of land declined from 47 percent to 34 percent, as indicated in Figure 10.2 and Table 10.6. The downsizing of large-scale corporate farms is a positive phenomenon that moves Hungarian agriculture toward greater compatibility with market orientation, as farms with thousands of hectares and hundreds of workers are not a common phenomenon in market economies (with the exception of plantations). However, despite the clear tendency toward downsizing of the traditional largescale farms, the inequality of farm sizes is so great that most of the land is still concentrated in farms larger than 1,000 ha, which cultivate in aggregate 86 percent of all productive land used by corporate farms. This inequality is clearly demonstrated by the last column in Table 10.6. The tendency toward creation of downsized cooperatives observed on the national level is confirmed by the findings of a farm-level survey conducted in 1994 by the Godollo Agricultural University.4 The survey, encompassing a large sample of about a quarter of Hungary’s cooperative


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Figure 10.2 Distribution of corporate farms by size: 1994–1996 Table 10.6 Distribution of the number of corporate farms and productive land holdings by size (percentages) Number of farms Size, ha Up to 100 101–500 501–1,000 1,001–3,000 3,001–5,000 Over 5,000 Total

1994

17.8 20.0 15.1 33.7 9.3 4.1 100.0 2,572 farms Source: The Status of Agriculture 1995 [in (October 1996).

Total land holdings 1996

1994

1996

31.0 0.4 1.8 20.2 3.1 4.0 14.7 6.2 8.2 25.9 34.3 34.6 5.7 19.2 15.9 2.5 36.8 35.4 100.0 100.0 100.0 2,999 farms 4.6 M ha 4.0 M ha Hungarian], Research Institute for Agricultural Economics, Budapest

reduction of a third in both factors of production. Despite downsizing, cooperatives after transformation are 235 workers on 2,663 ha of land, a 347 workers on 3,907 ha of land. The corresponding averages for the new smaller. Thus, prior to transformation, an average cooperative employed percent after transformation, and the new cooperatives tended to be farms, established that the number of cooperatives increased by about 24

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Table 10.7 Share of corporate farms in crop production, pre-1990 and 1995 (percentages) Enterprises 1986–1990

Cooperatives 1995

1986–1990

Wheat 13.7 22.5 84.4 Barley 14.6 19.0 80.4 Maize 12.6 14.5 69.8 Sugar beet 13.9 27.3 76.8 Sunflowers 11.8 21.2 86.4 Potatoes 5.3 5.2 21.9 Source: The Status of Agriculture 1995 [in Hungarian], Research Institute for Agricultural (October 1996).

1995 47.5 36.3 25.5 32.3 44.5 7.1 Economics, Budapest

however, there has been no change in efficiency as measured by the ratio of labor to land, which remained at about 9 workers per 100 ha after the transformation. Overall the transformation process produced only a very small adjustment in employment in this sample: the total number of actively employed in the sample declined from 119,000 to 115,000, and 4,000 people were left without a job. This represents 4 percent of the employed in the transformed cooperatives, where all the unemployed remained. There are indications that the labor situation has been changing recently, as cooperatives abandon their traditional policy of guaranteeing employment to all members and begin to shed redundant labor more aggressively. The shift of resources from the corporate to the private farming sector has led to a sharp decline in the share of cooperatives in crop production as shown in Table 10.7. While prior to the beginning of reforms in 1990 cooperatives accounted for 70–80 percent of total production of main crops (wheat, barley, maize, sugar beet, sunflowers), their share of these crops in 1995 is down to 30–50 percent of total production. A similar picture is observed for livestock: thus the share of cooperatives in the total number of pigs in the country declined from 27 percent in mid-1991 to 19 percent in mid-1996. All this is the result of a clear structural change in Hungarian agriculture, where the role of individual farming is rapidly increasing at the expense of cooperative farms. The initial fears that reforms will lead to drastic fragmentation of large-scale farms and destroy the existing agricultural sector thus have not materialized. Yet there has been a definite reduction of the average size of cooperatives and a significant reallocation of resources and roles between the cooperative and private sectors. This is a dynamic process, and structural changes in Hungarian agriculture will continue for a number of years to come, until the sector stabilizes near a new equilibrium. RESTRUCTURING MODES FOR COOPERATIVES Field observations of the restructuring of Hungarian cooperatives suggest the following typology of farm transformation. An average Hungarian cooperative in the last decade consisted of three villages. The most obvious kind of transformation is therefore a transition to village-based structures: the multi-village cooperative splits into several one-village units, which proceed to manage their affairs independently. This kind of transformation is explicitly recognized by Hungarian legislation and procedures are set for proportionate distribution of land and assets among the constituent villages. The new village-based units may organize as cooperatives or transform into business organizations (limited-liability and joint-stock companies).


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Another restructuring mode involves the division of a cooperative into independently viable functional groups. In the past, such groups were designated as cost centers within the cooperative and were assigned the requisite assets from the cooperative pool. They enjoyed a measure of operational autonomy, but remained part of a single hierarchical organization. According to the new legislation, such functional groups can be organized by individuals who put their land and cooperative quotas (‘asset shares’) into the unit. Specific assets are transferred (‘sold’) to the functional group by the former cooperative against quotas, and the group thus owns its factors of production and profits. The creation of such functional groups through ‘investment of quotas’ provides opportunities for pensioners and outsiders to use their cooperative quotas in the role of ‘passive investors.’ The new structure essentially separates ownership and management, as the functional group will not necessarily employ all its quota holders: some will remain unemployed by the particular group and only enjoy dividend income on their investment. The functional groups can organize as cooperatives or other forms of businesses. They can physically separate from the former cooperative, or continue some sort of a relationship, utilizing the former cooperative (if it is not dissolved) as a source of professional services or possibly even as a channel for purchasing and marketing. New functional units are also being created by enlarging and strengthening the subsidiary household plots and placing them on ‘contract farming’ arrangements with the cooperative. These units may eventually organize individually or in groups as autonomous producers, while possibly continuing to use the former cooperative for marketing and other services. In some instances, not all the existing functional subdivisions in a cooperative are viable. In such cases, the cooperative can reorganize around the more profitable units, which will be restructured as independent entities, and liquidate the unprofitable units. The liquidation proceeds are used to retire outstanding debt. Distribution of assets to independent functional units requires the consent of the creditors of the old cooperative. The creditors review the distribution plan and participate in the General Assembly that decides on the distribution. They can effectively block the distribution decision by refusing to grant their consent to the proposed plan. As a result, some reorganizing cooperatives adopt a ‘holding company’ structure. The ownership of all assets remains with the legal successor of the former cooperative (by virtue of cooperative quotas invested in it by the quota holders) and the new functional units rent the assets from the ‘holding company.’ The entire outstanding debt also remains with the holding company. The balance sheet of the functional units contains only working capital created through injection of equity by the respective investors, while all the fixed assets remain on the balance sheet of the holding company. The operating revenues are earned by the functional units, while the income of the holding cooperative consists of rental and management fees received from the functional units. This income is used to service the outstanding debt. This admittedly curious structure, where the functional units have no fixed assets, is presented as a transitional phenomenon, pending resolution of difficulties with outstanding debt. A ‘core’ organization often remains as a legal successor of the ‘old’ cooperative. This is normally a much reduced unit without clear functions, except the function of liquidating the affairs of the ‘old’ cooperative and acting as its legal successor. When the ‘core’ is active beyond mere liquidating responsibilities, it concentrates on providing general services to the autonomous units, such as accounting and computers, expert and management consulting, and possibly central input purchasing and product marketing. It may maintain ownership of a machinery pool if the same machines are shared by several subunits. The result is a kind of ‘service cooperative,’ whose function is to provide common integrating services to all participating units. Service cooperatives are widespread even in countries where production is mainly carried out by private family and corporate farms. A service cooperative provides to its member-users services that are too expensive or difficult to run individually. Thus, a marketing cooperative will typically send trucks to collect

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the produce of its members and take it to the market. In this way, the small private farmer will be relieved of the need to purchase an expensive truck, which in any event may remain under-utilized if purchased, and will not have to waste time traveling back and forth to the nearest town with that one farmer’s produce. Similarly, a service cooperative can help with input purchases, field machinery services, and a variety of farm management functions, such as computers and accounting. All these functions can be handled also by private companies, and private suppliers of services are active in Hungary. Yet service cooperatives established by groups of local farmers often provide an alternative and effective solution to immediate needs for agricultural services. So-called ‘production systems’, although formally organized today as share holding companies, are very similar to typical service cooperatives in their operating and organizational features. Like a service cooperative, they are partly owned by the users of their services (production cooperatives, private farms, etc.), with a partial stake held also by suppliers (manufacturers of machinery, herbicides, seeds, etc.). This unique Hungarian phenomenon developed in the 1960s and 1970s as a regional organization devoted to introduction of new technologies and new imported inputs. In the late 1980s and mainly since 1990, the production systems have been assuming a bigger role as regional integrators of input supply and product marketing functions. The main function of the production system is to supply farm inputs through a regional and national network of service centers and to provide marketing services to its members. The inputs are supplied for credit, which is collateralized by product delivery contracts. The production system has sufficient bargaining power and a sufficient collateral base to raise credit from the commercial banks, which may be difficult or impossible for its smaller members. There are around 20 production systems with crop and livestock specialization throughout Hungary. Despite their regional origin, they all have national networks and freely compete with one another. STATE FARMS State farms are going through a process of privatization, which also entails internal transformation similar to that of cooperatives. In the first stage (‘decentralized privatization’), state farms ‘spin off’ certain autonomous, independently viable activities as limited-liability companies or share holder structures. In the second stage (‘block privatization’), the ‘residual core’ is auctioned as one whole. The privatization program for both stages is proposed by the management of the state farm, reviewed by the Ministry of Agriculture and Food, and approved by the State Property Agency. As of mid-1996, the number of state farms had dropped from 121 to 35. Of the former state farms, 39 have been liquidated as insolvent and their assets sold through auctions; another 47 have been privatized as going concerns. Among the 47 privatized state farms that continue operations, 44 were purchased by Hungarian nationals, mainly the managers and workers of the former state farms. Only 3 farms were sold to foreign investors. Of the 35 remaining state farms, 7 were in the process of being privatized and expected to pass into the hands of private owners by the end of 1996. The ‘residual cores’ of 28 state farms are currently on the special list of farms that are to remain in majority state ownership because of their specialization (e.g., experimental stations or breeding and selection farms and historical heritage farms established as imperial farms 200 to 300 years ago). These 28 farms control 36 percent of the land and 48 percent of the assets formerly managed by all 121 state farms. They have been reorganized as joint-stock companies, and 25 percent of their stock is eventually to be sold to private owners (most likely the current managers and employees). All of these farms reported profit in 1995.


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According to current practice, the state farms have been privatized without their land. The privatized farms use 26 percent of the land originally cultivated by all state farms, but this land remains state property and is leased to the new operators for 10–15 years, with an option to buy. This practice is motivated by the uncertainties of the compensation process: state land is the pool of last resort for compensation if cooperative land runs out before all outstanding claims are satisfied. So far, about 40 percent of land formerly cultivated by state farms has been used for compensation of private individuals, and the state intends to retain control of this reserve until the end of the compensation process. INDIVIDUAL FARMING Individual farms in Hungary are officially classified into ‘small farms,’ which are basically the traditional household plots of former cooperative members and state farm employees, and ‘sole proprietorships,’ which are generally full-time farms with commercial orientation. The total number of individual farms is about 1.2 million, of which 50,000–60,000 are classified as ‘sole proprietorships.’ Evidence from field visits suggests the existence of several categories of private farms: (a) subsistence family farms (household plots), (b) parttime farms with commercial orientation, (c) commercial family farms, and (d) large private farms employing hired labor. Although no separate statistics are available for these categories of individual farms, the classification corresponds on the whole to an increasing scale of farm sizes. Official land statistics for 1996 indicate that farms in the small-size category control 62 percent of arable land and 57 percent of productive land. Yet the individual farms in Hungary are undergoing a process of consolidation that leads to an increase in average farm sizes and in the proportion of relatively large farms. In May 1993, 1.45 million smallholders outside cooperatives and state farms owned 1.2 million ha of arable land and 1.75 million ha of productive land, which gives an average of 0.8 ha of arable land and 1.5 ha of productive land per farm (until 1992, private farms averaged only 0.5 ha of arable land). In May 1996, 1.2 million individual farmers owned 2.4 million ha of arable land and 3.8 million ha of productive land, which gives an average of 2 ha of arable land and 3.2 ha of productive land per farm. The decrease in the total number of individual farms from 1.45 million in 1993 to 1.2 million in 1996, accompanied by an increase in average farm size from 1.5 ha to 3.2 ha of productive land, provides definite evidence of consolidation among Hungarian individual farms. Further evidence of farm consolidation in the individual sector is provided by the changes in the distribution of farm sizes between 1991 and Table 10.8 Distribution of individual (full-time and part-time) farms by size (percentages) Farm size, ha 0–0.19 0.20–0.49 0.50–0.99 1.00–1.99 2.00–4.99 5.00–9.99 10.00 and more Total

1991

46.1 29.6 14.3 6.9 2.5 0.4 0.1 100.0 1,395,753 farms Source: Hungarian Ministry of Agriculture.

1994 50.3 19.6 10.5 8.7 6.7 2.4 1.8 100.0 1,201,015 farms

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Figure 10.3 Distribution of individual farms by size: 1991–1994

1994 which reveal an increase in the proportion of relatively large farms, as shown in Table 10.8. The proportion of farms larger than 2 ha increased from 3 percent of all individual farms in 1991 to 11 percent in 1994, while the proportion of farms smaller than 1 ha declined from 90 percent to 80 percent, as shown in Figure 10.3. Although the individual farms are still predominantly very small, there was a definite shift from small to larger farms between 1991 and 1994. Of 1.2 million individual farms in 1996, 35 percent specialize in crop production without any livestock, 44 percent are mixed crop-livestock operations, and the remaining 21 percent report keeping livestock without Table 10.9 Individual (full-time and part-time) farms reporting livestock, 1994 Kind of livestock

Percentage of farms with animals

Cattle 4.1 Pigs 43.3 Sheep 2.1 Poultry 71.7 Ducks 15.8 Source: The Status of Agriculture 1995 [in Hungarian], Research Institute for Agricultural Economics, Budapest (October 1996).


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Table 10.10 Share of private farms in sown area and crop production, pre-1990 and 1995 (percentage of respective totals) Sown area 1986–1990

Production 1995

1986–1990

Wheat 2.0 30.9 1.8 Barley 5.8 46.8 5.0 Maize 22.2 63.0 17.5 Sugar beet 5.9 40.3 9.4 Sunflowers 1.9 34.4 1.7 Potatoes 77.8 91.2 72.8 Source: The Status of Agriculture 1995 [in Hungarian], Research Institute for Agricultural (October 1996).

1995 30.0 44.7 60.0 40.4 34.2 87.7 Economics, Budapest

any crops. A closer analysis shows, however, that livestock is mainly pigs, which are kept by 43 percent of farms, indicated by Table 10.9. Beef cattle, dairy cows, and sheep are reported by less than 5 percent of farms. Chickens and ducks are relatively popular among individual farmers (72 percent and 16 percent of farms respectively). Private farms, cultivating 48 percent of arable land, make a significant contribution to crop production. According to 1995 data, private farms account for 30 percent of wheat production, 45 percent of barley, 60 percent of maize, and nearly 90 percent of potatoes. Their share of crop production has increased dramatically compared to the period before 1990, in parallel with the increase in their total land holdings, shown in Table 10.10. While individual farms always accounted for a large proportion of traditional subsistence crops, such as potatoes and other vegetables, in recent years they additionally moved into cash crops, registering very substantial increases in their share of sugar beet and sunflowers, as well as wheat, barley, and maize. The increase in production of cash crops by private farms points to a clear emphasis on commercial farming. New private farms that are not household plots are being created by compensation beneficiaries, by members seceding from cooperatives with their land, and by employees of cooperatives and state farms who secede with their allotment of 20 gold crowns (a 1 ha plot). Estimates of the compensation process indicate that an individual claimant acquires 3–4 ha of land at an auction (this is total land, and not arable land). A survey of nearly 8,000 secessions from cooperatives conducted by the Godollo University in 1994 indicates that the seceding individuals left on average with 4 ha each (see note 4). Part-time farming in Hungary received a considerable boost as a result of the compensation process. Many urban residents now cultivate their land on a part-time basis and sell the output commercially. Difficulties caused by the small size of the plots and lack of equipment are often solved by working the individual plots collectively, using jointly hired labor and machinery. Large private farms are also an outgrowth of the compensation process. Here an enterprising individual, who is interested in full-time commercial farming as a business, leases or purchases the adjacent small plots of other compensation beneficiaries. As a result, many small parcels that in principle could be cultivated by a large number of part-time farmers are consolidated into one relatively large plot, which is cultivated by one farmer. The large farmer uses hired labor in addition to the immediate and extended family, while agricultural machinery is purchased or rented, depending on availability of capital. If successful, these largefarming operations will grow and their reliance on hired labor will increase.

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The available data for Hungary indicate that many private land owners do not set up an independent farming operation. As noted above, only 10– 15 percent of cooperative members have opted to leave the cooperatives with their land and assets to become independent farmers. The reasons for this reluctance to break away from cooperative frameworks are not documented empirically. Some are probably economic in origin and reflect risks to new farm starts in the current environment. The complexity of the legal provisions governing secession may have also slowed down the process. Although the existing cooperative legislation clearly ensures freedom of individual exit from the cooperative, workers are not always familiar with the exact provisions of the complex laws. Land endowment is not necessarily a factor limiting secession, although it may play a role. Small is not always bad where farm sizes are concerned. Commercial family farms may be of various sizes, depending on the type of activity pursued and the intensity of capital. For example, a vegetable operation using plastic cover could be profitable even on a small farm size of a few hectares. Such operations are already emerging where the household has sufficient financial resources to set up the capital base. Other operations require a larger farm size for profitability. However, for many private farmers who seceded from cooperatives, success at present depends on continued association with cooperatives for input supply, output marketing, and technical advice. Such farmers are operating essentially as contractors for the cooperatives. As noted above, both systemic reasons and the currently depressed state of agriculture explain why the class of family farms is fairly small and why many would-be private farmers are reluctant to undertake the risk of setting up an independent farm operation at this stage. Still, entrepreneurial individuals are already establishing private farms of variable sizes through consolidation (both by rental and purchase) of smaller tracts. With improvement in the economy this trend is likely to be enhanced. FINANCIAL SITUATION OF COOPERATIVE AND STATE FARMS In the past, one-third of farm enterprises (cooperatives and state farms) were highly profitable, one-third were near breakeven, and one-third reported losses. Weak and failing farms were usually absorbed into stronger units, in line with cooperative principles of mutual assistance as enforced by the socialist systems. The geographical distribution of weak farms apparently was highly uneven: their incidence was higher in poorly endowed counties. However, the profitability in the past was distorted by state-fixed wholesale prices and many direct and indirect subsidies that cooperatives received under the old system. Under recent and current financial conditions, many traditional farm enterprises came under financial pressure and some were forced into liquidation as a result of the strict enforcement of the bankruptcy law. The number of liquidations was particularly high among former state farms, where one-third (39 entities) were liquidated in 1993–1994 as insolvent. Other organizational forms are financially more robust despite the persistent difficulties. The number of farms under liquidation in 1994 and 1995 was about 0.5 percent of the total number of farms (in both the corporate and the non-corporate categories, see Table 10.2). Some farms are shedding unprofitable operations as part of the restructuring process, using the proceeds to retire part of the debt. The subset of 4,702 farms that provide statistical information for tax purposes sheds light on the financial performance of corporate farms. The main corporate forms, namely limited liability companies, shareholding companies, and cooperatives, are on the whole profitable, with net profits reaching 4 to 5 percent of sales as shown in Table 10.11. Although cumulative profits among all farms in this sample exceeded cumulative losses 3-to-1, fully 43 percent of farms reported losses in 1995. These were mainly smaller farms, with up to 20 employees and less than 40 million forint in sales, because profit margins in 1995 showed a clear increase with farm size, as indicated by Table 10.12. A similar pattern is observed in


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the individual farming sector, where the larger family farms are doing quite well, while a substantial proportion of smaller farms struggle to survive. It is Table 10.11 Reported financial results for farms that provide statistical information for tax purposes, 1995 Limited liability Number of units 2,764 Cumulative financial results (million forints) Reported profits 10,499 Reported losses 3,394 Net profits (before tax) 7,105 Averages per farm (thou. forints) Net profit (before tax) 2,571 Sales 60,306 Own capital 16,747 Ratio of net profit to sales, % 4.3 Ratio of net profit to own capital, 15.3 % Source: The Status of Agriculture 1995 [in Hungarian], (October 1996).

Cooperatives

Other forms

Total

1,588

350

4,702

15,568 6,525 9,043

5,950 2,099 3,851

32,017 12,018 19,999

5,695 132,916 146,671 4.3 3.9

11,003 247,489 226,780 4.4 4.9

4,253 98,761 76,260 4.3 5.6

Research Institute for Agricultural Economics, Budapest

expected that many of the weaker farms will go out of business in the near future. Consolidation of land and adjustment of farm sizes will probably increase the share of mid-sized and large family farms in total production and land use. Investments in large farms increased by 31 percent in 1995 over 1994 figures. Foreign investment in primary agriculture was initially quite modest, but the interest of foreign investors has begun to turn toward agriculture. In 10 percent of corporate farms in the sample foreign investors have contributed more than half the capital, and another 2 percent of farms have some foreign investment in their capital structure. TAXES AND SUBSIDIES The farming structure evolving in any country in transition is affected by various government subsidies and taxes. To the extent that these subsidies and taxes have a distinct bias for or against particular farm organizations, or particular sizes of operations, the implications need to be analyzed, as the outcome may inhibit the emergence of economically efficient farms, or may artificially encourage less efficient types or forms. Credit subsidies are a major component of the current support programs for agriculture. Farmers are entitled to investment grants as well as interest-rate subsidies, which are delivered as tax refunds through the tax administration. In the 1996 program, farmers received a 30 percent interest-rate subsidy for shortterm credit and a 25–30 percent interest-rate subsidy for investment credit. In 1997, the short-term interestrate subsidy increased to

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Table 10.12 Profitability vs. size for farms that provide statistical information for tax purposes, 1995 Net profit Number of hired workers

Percentage of farms

Sales

Own capital

(average per family, thou. forints)

0 27.1 64 12,668 23,130 1–20 39.7 −83 39,172 16,915 21–50 13.7 6,726 116,869 70,664 51–100 10.0 9,059 166,662 135,505 101–300 8.4 16,111 369,904 309,292 301–500 0.6 69,933 990,200 953,667 >500 0.4 162,944 2,497,388 2,048,611 Source: The Status of Agriculture 1995 [in Hungarian], Research Institute for (October 1996).

Profit to sales

Profit to capital

(percentage) 0.5 0.3 −0.2 −0.5 5.8 9.5 5.4 6.7 4.4 5.2 7.1 7.3 6.7 8.1 Agricultural Economics, Budapest

40 percent of the Central Bank refinancing rate plus an additional bonus of up to 4 percent maximum. Interest-rate subsidies on short-term credit account for 8 percent of total government support to agriculture, while investment grants and subsidies account for a massive 18 percent of total support budget, as shown in Table 10.13. Other producer and market support subsidies include deficiency payments for farms cultivating unfavorable soils (introduced recently to address regional differences), support for land amelioration and forestry development, minimum price guarantee programs for food products (mainly milkprice supplements to producers), and export subsidies. Export subsidies are the largest component of the government support budget for agriculture (45 percent), but they obviously do not benefit most individual farmers. Another program that bypasses individual farmers is support to reorganizations (14 percent of total support budget). This program is intended to support improved use of resources in restructured large-scale farms after privatization, increase production for export purposes, and help maintain the original labor force productively employed. In 1993, the value of Hungarian agricultural programs was about 2 percent of GDP or about 3 percent of total government expenditures. In 1996, the support programs cost 30 percent less in US dollars than four years previously, and amount to about 1.1 percent of GDP. The total cost of agricultural support programs in Hungary is not excessive when compared to support rates in developed OECD countries. However, it is more than what can be justified from considerations of per-capita GDP in a country where the agricultural sector is a much larger component of the economy than in the OECD countries. Hungarian agriculture enjoys substantial tax breaks, and compared with other countries the tax burden on agriculture is relatively low. Small agricultural producers with revenue of up to 1 million forints are exempt Table 10.13 Government support programs for agriculture, 1994–1996 Percentage of total support budget Export subsidy Domestic price support Deficiency payments Short-term interest-rate subsidy Investment subsidies

1994

1996

50.2 10.2 — 17.2 14.8

45.1 2.3 6.8 8.0 18.2


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Percentage of total support budget Reorganization support Other subsidies Total in million US$ Source: Hungarian Ministry of Agriculture.

1994

1996

6.9 0.7 $689

13.6 6.0 $568

from taxes. Farmers with revenue of between 1 million and 2 million forints are not obliged to keep accounts, and may pay taxes at personal rates (up to a maximum of 48 percent through 1996 and 42 percent in 1997). Farmers with gross revenue of 2 million forints or more must keep proper accounts and pay taxes at corporate rates (18 percent of net income, down from 40 percent in 1993). In addition to income on taxes, employers pay about 40 percent of the wage bill to social security (42.5 percent in 1996, 39 percent in 1997). Cooperatives pay corporate tax, while members pay personal tax on their personal income. Land tax was eliminated in 1995. There is a refund of 70 percent of the fuel excise tax, and the refund rate increased to 85 percent in 1997. It is difficult to estimate the exact value of tax breaks to farmers. A modest estimate is 10 to 12 billion forints per year, or about 12 percent of the budgeted support to agriculture. Yet despite the lenient taxation of agriculture and despite the policy that farmers who are not registered with tax authorities are not entitled to receive any government subsidies, only 47 percent of production was reported for tax purposes in 1996. Most individual farmers do not pay taxes or social security, and do not provide statistical information to tax authorities, even though this means that they forgo their right to receive subsidies. For this reason, the financial data reported in Tables 10.11 and 10.12 above represent mainly corporate farms, and virtually none of the individual farmers. There is an increasing under-reporting of outputs. According to recent estimates, 10–15 percent of agricultural production has moved completely to the shadow economy, and is not reflected in national statistics or in the tax base. Improvement of tax collection is difficult because of inadequate tax administration. In an attempt to correct the situation, all producers selling any agricultural products must be registered with the tax authorities as of January 1997 even if they do not fill out detailed income statements. In this way, all commercial farmers will become eligible to receive subsidies, and at the same time they obviously will be monitored by tax authorities. FARMERS’ ORGANIZATIONS Agricultural producers in Hungary show considerable political awareness and have established a wide range of associations to represent their interests. The cooperative farms are represented by the National Association of Agricultural Producers (MOSZ). There are several organizations established by private farmers, but none of them can be considered the ‘sole’ representative of the private farmers. In 1994, the Chamber of Agriculture was organized with a regional network, along the lines of the German system, to provide support for all types of farming organizations, collect information, and support the implementation of agricultural policies. Two political parties are dominated by agricultural concerns. The Independent Smallholders Party is tied to private farmers and rural entrepreneurs. This party is currently the third largest party in the Hungarian parliament (about 10 percent of seats) and the leading force of the opposition. The Agricultural Alliance has close relations with MOSZ, but is represented in parliament only by one seat.

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LAND MARKETS The compensation-based land distribution mechanism has produced ownership of highly fragmented land holdings and parcel configurations that are not compatible with efficient cultivation. The average private holding is about 1.9 ha. In many instances, these are not viable farm sizes, and fragmentation into a number of parcels does not allow efficient cultivation even with small-scale equipment. Parcel consolidation is therefore essential. Consolidation can be accomplished through land markets, which provide a medium for purchase, sale, and leasing of land: Many of the small owners or their heirs who are not particularly suited to manage farms may consider the merits of renting out or selling their land to individuals or corporations who are better qualified to run larger and more efficient farm operations. By virtue of their higher efficiency and better qualifications, these operators would be able to offer a rent or a land price which is higher than the value of the land to the original, less efficient owner. In Hungary, however, land markets are not yet fully functioning, and there is still no smooth economic mechanism for adjustment of farm sizes. The current laws do not restrict the ability of individuals to buy or sell land. Hungarian law recognizes only individual private ownership, while corporate and cooperative land ownership is ruled out. On the other hand, lease contracts are legally allowed for both individuals and corporations. Since lease contracts are enforceable like any other commercial contracts, and the civil code specifies adequate mechanisms of land registration and title issuance, it would seem that there are no legal obstacles to the smooth operation of land rental and sale markets. In fact, markets for sale and purchase of land operate only partially in the country. The land that was privately owned before 1990 can be traded, while land received through compensation and as a share from the cooperative cannot be sold for three years after receipt. Land ownership and land transactions are further constrained by existing legislation which prohibits ownership of agricultural land by legal persons (corporations) and foreign citizens and sets an upper limit of 300 ha for individual land ownership. While the market for land sales remains in an embryonic stage, there is a very active and quickly developing market for leasing and rental of land. A large portion of land received through compensation is leased to individuals, cooperatives, and private companies as shown in Table 10.14. Table 10.14 Share of land owned by the operator in various farm size categories, 1995 Farm size (ha)

Percentage

0–1 1–5 6–10 11–20 21–50 51–100 Over 100 Total average Source: The Status of Agriculture 1995 [in Hungarian], (October 1996).

80.6 76.1 60.8 51.7 35.6 22.8 26.3 62.2 Research Institute for Agricultural Economics, Budapest

Though there are over 2 million land owners in Hungary, 50 percent of the land is used by about 4,000 farming organizations.


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Lease agreements are fairly common in Hungary. A survey conducted for the World Bank showed that lease transactions by private farmers in 1991 and 1992 involved annually 15 percent of the land in the sample.5 Land sales were much less frequent in the survey, involving only about 2 percent of the land annually. One should bear in mind, however, that widespread private ownership by people who are essentially not qualified to be farm operators is a very recent phenomenon in Hungary, arising out of the compensation process. The new land owners have not had enough time to decide between the option of farming and the option of selling or leasing out their land. In addition, if land received as compensation is sold within three years from time of possession, the seller is required to pay income tax on the entire sales revenue, which obviously acts a deterrent to land sales. Another potential obstacle to land sales is the attitude of the banking system. The 1992 World Bank survey shows that Hungarian banks are reluctant to lend against land and overwhelmingly prefer the house and personal possession as a collateral. Lack of land mortgage mechanisms may seriously delay the development of land markets in Hungary. One would thus perceive the present situation as a pre-equilibrium setup, with adjustments in ownership (and consolidation through sales and purchases) towards an equilibrium in the next few years. LAND REGISTRATION AND TITLING Land registration and titling is a legal and practical prerequisite for the operation of land markets. Hungary’s land registration and titling administration is currently handled by the Department of Lands and Mapping, which is within the Ministry of Agriculture (although the department deals also with urban real estate). The department oversees a system of 20 county land offices and 113 district land offices, with a total staff of about 4,300 persons. The process of compensation and distribution of cooperative land placed a significant load on the land registration and titling administration, as hundreds of thousands of parcels need to be demarcated and registered, in addition to residential apartments that are being transferred to private ownership. The department benefits from the services of about 1,000 private surveyors, who are contracted by cooperatives to survey lands scheduled for division among members. Compensation land, on the other hand, needs to be surveyed and demarcated at the expense of the state, and this work is done by the Department of Lands and Mapping. The existing backlog of registration and titling applications varies in different county offices, but in many the average lag time between possession of land and issuance of titles is about 18 months. With the anticipated increase in sales and mortgage registration activities in the near future, the pressure on the existing limited capacity will increase. The speedy issuance of ownership titles is important for the development of the land sale market: lack of reliable (state-confirmed) evidence of ownership may deter potential buyers from the purchase of land due to the risk that the seller in fact is not entitled to alienate the property. An expansion of the registration and titling capacity is thus warranted. Some of this expansion can be achieved by transferring man-power and resources from the compensation offices, which will be winding down their activities in the near future. But it is clear that significant additional resources for the enhancement of the land administration capacity are necessary. Hungary inherited a solid system of cadastre and land titling, but this system has to be adjusted to the needs of a modern land market and market economy. The upgrading of the land titling system is in progress, with the significant financial support of the European Union for the computerization of 115 regional land registry offices. Although Hungary began with an existing system of land registration fully conforming to European standards, the administration of the compensation and land privatization process represents an immense task. The titling of newly privatized parcels is lagging. By mid-1996 about 55 percent of parcels covered by the compensation were properly titled. The titling of land shares provided to

200


Figure 10.4 Employment in agriculture: 1981–1995

the collective farm members is, however, still at a rather early stage. Only about 10 percent of owners have received titles, at best. On the whole, about 20–25 percent of the country’s agricultural area still requires titling. The completion of this process, given the available resources, will require an additional two years at minimum. SECTORAL PERFORMANCE AFTER SIX YEARS OF LAND REFORM Agricultural production and the output of agro-processing industries declined significantly between 1990 and 1993. Agricultural production fell by 33 percent and agro-processing contracted by 14 percent. Sectoral growth resumed in 1994, but the recovery has been relatively slow and modest in primary agriculture. The reported annual growth was less than 3 percent in 1994, 2 percent in 1995, and nearly 5 percent in 1996. Agricultural output in 1995–1996 remained 27–28 percent below the 1990 level. Agriculture’s share in GDP and in employment has declined significantly. The food and agricultural sector accounted for about 22 percent of GDP in the 1980s, but contributed only 11.5 percent in 1995. This comparison, however, must be treated with some caution, because pre-reform GDP indicators were calculated using a different methodology (national statistics have changed from an organization-based to an activity-based GDP calculation). There has been a dramatic decline (by 43 percent) in the number of people employed in food and agriculture. About 160,000 agricultural workers became unemployed, at least temporarily, after the beginning of the reform period. The share of agriculture in total employment declined from around 20 percent in the pre-1990 period to 8.5 percent in 1995 as indicated in Figure 10.4. As a result, labor productivity in agriculture has increased significantly, although crop yields fell to the level of the early 1980s. Despite the positive trends in agricultural product in 1995 and 1996, primary agriculture as a whole has not yet stabilized. The use of chemicals continues to decline (70–80 percent compared to the pre-reform period). The agricultural technology at the farm level is becoming more differentiated: the larger commercial farms are able to maintain high levels of technology, while recent surveys reveal inadequate


201

technology and inputs on 30–40 percent of the cultivated areas. About half of the farms use low-quality seed and insufficient quantities of chemicals and fertilizers. Outdated field machinery and obsolete farm equipment and storage facilities not only increase harvest and storage losses, but also reduce product quality. The increased investments in 1995 and 1996 have not yet offset bottlenecks attributable to the absence of investments in the previous years. Short-term liquidity and financing problems are still the tightest constraints on improving production technologies and production efficiency in general. Hungary traditionally has been a net exporter of food and agricultural products; this provided about 25 percent of total export earnings in the pre-reform period. The early years of transition had a negative impact on the trade performance of the sector as well. Exports declined by almost 30 percent from 1991 to 1993. Net exports, however, remained relatively large (US $1.2 billion in 1993). Hungary remained the only country in the region able to maintain a positive balance of agricultural trade, even with the EU, during these difficult years. About 50 percent of food and agricultural production was exported to non-CMEA countries already in the pre-reform period. Export performance significantly improved in 1994, and in 1995 it again reached the level of the late 1980s (US $3 billion). The increase in imports was more modest than in most other countries in the region, allowing net exports to quickly resume their pre-reform level of US $2 billion. There has been a significant change in the composition of exports. About 75 percent of agricultural exports are now processed products of higher quality, and 55 percent of food and agriculture products were exported to OECD countries (47 percent to the EU). Both producer and consumer prices are now fully liberalized, and despite some remaining distortions reflect border prices. Producer prices are about 30 percent lower than the EU domestic producer prices, but not far from border prices. Consumer prices are around the US consumer price levels, still lower than EU domestic consumer prices. The domestic prices fluctuating above and below world market prices are driven by the relatively high inflation rate, which averaged 20–25 percent annually in 1995–1996. Relative prices of agricultural products improved in 1995–1996, when the price increases for agricultural products were somewhat more than the increase of the price index for farm inputs. Yet when viewed over the entire period between 1990 and 1995, input prices increased 25 percent more than agricultural producer prices: while the input price index reached 256 in 1995, the producer price index rose only to 204 over the same period (relative to 1990=100). THE FUTURE OF HUNGARIAN AGRICULTURE While much progress has been achieved, Hungarian agriculture is still in the process of evolution toward a structure that would be fully compatible with the rigors of national and international market forces. The existing legal and institutional framework, as well as the basic incentive framework, generally provide correct guiding signals for a long-run transformation to a viable farm sector. As pointed out in preceding discussion, some distortions exist, which require amelioration. Nonetheless, the basic forces at work produce a likely transition path whereby the role of private, family-based farms will increase, and the cooperative sector will undergo a change in structure and focus. In the transition process, many small household farms (a large part of which are operated on a part-time basis) will be consolidated through purchase and lease by individual entrepreneurs and limited-liability companies into larger farm operations. At the same time, small but capital-intensive farms specializing in high-value crops will emerge. Such farms will be essentially based on family labor, although to some extent they will also use hired labor (mostly in the high season). Many of the commercial family farms would be associated through service cooperatives, jointly owned by the member farmers, and providing services which entail economies of scale, such as input supply,

202


marketing, and some forms of processing. Similar services could be provided through ‘production systems,’ owned by associations of farmers (or their service cooperatives) jointly with input suppliers and product processors or marketers. The existing production cooperatives will evolve, over time, towards increased reliance on internal contracting arrangements for most production activities, which will be the responsibility of individuals or small groups with private ownership of land and assets. The core of the cooperative activities will focus on service functions, thus becoming in essence a service cooperative. The beginnings of this process could already be observed before 1990 in some of the more successful cooperatives, and the implementation of these organizational improvements is a market testimony to the higher efficiency and better labor incentives which they entail. As in other market-oriented agricultural economies, one would expect the emergence of some large-scale corporate farms, utilizing professional management and skilled hired labor. At the other end of the farm spectrum, a class of part-time or marginal farmers will exist for some time. However, neither large-scale corporate farms nor small part-time farms are likely to become the backbone of Hungarian agriculture. Instead, cooperative farms and full-time private farmers will remain the dominant food producers. NOTES 1 This chapter draws extensively on information collected by the authors during World Bank agricultural sector missions to Hungary between 1994 and 1996, previous work of the authors, and the work of a number of Hungarian colleagues. Official statistics are from the Hungarian Statistical Abstracts and from FAO and OECD publications. The views expressed in this chapter are those of the authors alone and do not represent official or unofficial World Bank policy. 2 Hungary has 0.5 ha of arable land per capita compared to an average of 0.4 ha for CMEA countries and 0.2 ha for the 15 countries of the European Union. 3 See Erzsebet Toth and Gyula Varga, Major Characteristics of Farming Co-operatives after Transition [in Hungarian] (Budapest, Research Institute for Agricultural Economics, November 1996). 4 See Jozsef Hajdu and Zoltan Peszeki, ‘Changes in machinery and Other Equipment During the Period of Transformation in Agriculture,’ unpublished survey results, Godollo Agricultural University, 1994. 5 The results of the survey, conducted by the Dutch consulting firm Euroconsult on behalf of the World Bank, were published in Farm Restructuring and Land Tenure in Reforming Socialist Economies: A Comparative Analysis of Eastern and Central Europe (Washington DC, The World Bank, World Bank Discussion Paper 268, 1994).

Index

administration: Kyrgyzstan 117–18, 132; Uzbekistan 146, 151 age structure, rural population, Russia 23–4, 26, 40–1, 55 Agrarian Party 201, 25 agricultural companies, Baltic states 97–8 agricultural problems, Kyrgyzstan 122– 4 agricultural processing industry, Baltic states 102–3 agricultural production: Albania 195; Baltic states 89, 99–101; Hungary 227, 242, 247–8, 258; Russia 16–17: by farm type 39–40; peasant households 50–4, 57; Turkmenistan 163–4, 167–8, 171–2; Ukraine 62, 63, 64, 68, 78; Uzbekistan 138–9, 149 agricultural technology, Hungary 259 AKKOR see Association of Peasant Farms and Agricultural Cooperatives of Russia Albania 189–207; agricultural production 195; food trade and imports 195–6; historical background 190–2; land market 196–200 (constraints 200–203, 207(n40); factors affecting sale 201–3; transactions 199–200); legislation 192–3, 198, 200–1; privatization 192–5; rural migration 195 Albanian Party of Labour (APL) 190, 191, 192 ancestral land, Albania 194 APL see Albanian Party of Labour arable land: Hungary 224, 240;

Kyrgyzstan 128; Russia 15; Turkmenistan 164, 171 Aral Sea 136 asset shares, Uzbekistan 153–4 assets, cooperatives, Hungary 232–3, 234, 239, 243–4 Association of Peasant Farms and Agricultural Cooperatives of Russia (AKKOR) 21–2 attitudes to land reform: Kyrgyzstan 121–4; Ukraine 78–9 Baltic states 87–108; decline in agricultural production 99–101; farm size and type 88, 90, 97, 98; farming structure 96–9, 106; historical background 87–9; land markets 103– 5; land reform principles 92; legislation 89–94; problems 94–6 Bashmachnikov, V. 21 Belgorod Oblast, Russia: agricultural characteristics 61; support fund for peasant households 44–5, 53; village survey 46 black earth zone, southern Russia 38, 46 Bolshevik agrarian policies 3–4 Book of Household Accounts, Russia 47 BSP see Bulgarian Socialist Party Bulgaria: historical background 209– 11; land restitution 211–213, 214, 215, 218–219, 221: difficulties 216– 17; legislation 211–13, 217, 220; see also Law of Ownership and Use of Agricultural Land; 203

204

INDEX

Municipal Land Commissions Bulgarian Socialist Party (BSP) 208, 214 business ownership, Russian villages 56–7 business plans, Uzbekistanian peasant farms 146 cadaster: Bulgaria 216; Estonia 95; Hungary 257 cadastral zones, Albania 198, 206(n38) CAE see Collective Agricultural Enterprise car ownership, Russian villages 55–6 Centers for Land and Agrarian Reform (CLARs) (Kyrgyzstan) 117, 118, 119 central planning, Bulgaria 210 centralized economy, Albania 191–2 certificate of land entitlement: Kyrgyzstan 117, 118–20; Russia 7–8, 12; Turkmenistan 180–1; Ukraine 67, 69, 70 Chernomyrdin, V. 22, 37 çiflik system, Albania 190, 205(n4) CLARs see Centers for Land and Agrarian Reform CMEA see Council for Mutual Assistance Collective Agricultural Enterprise (CAE) (Ukraine) 67–8, 78, 79 collective farms: Baltic states 97; Bulgaria 211; Kyrgyzstan 111, 114 (restructuring 125–7); Russia 13, 37– 8 (agricultural production 15–17, 39– 40; restructuring xxi, 13–14, 15); Turkmenistan 168; Ukraine 63, 64; Uzbekistan 139–40, 146, 150–1, 152, 157; see also joint-stock companies collective gardens, Turkmenistan 170 collectivization xviii–xxii; Albania 191; Baltic states 88–9; Bulgaria 210; characteristics xviii; Hungary 226; Russia 3–4 communism, Albania 191–2 communist land reform xiii, xv–xvi, xvii, 3–4

compensation: Bulgaria 217–18; Hungary 228, 229–30, 236–7, 238, 249 conservatism (rural) xvii; Russia 25, 26, 27; Ukraine 70, 75, 78 consolidation: Albania 189–90, 196–7; Baltic states 106; Bulgaria 217; Hungary 246–7, 255, 260 consumer durables, Russian villages 55–6 consumer prices, Hungary 259 cooperatives: Albania 191, 193; Bulgaria 221; Hungary 226, 227, 230–2, 260 (modes 243–5; restructuring 239–45); Uzbekistan 152–3, 154 corporate land ownership, Hungary 234–5, 237 corporations, Hungary 239–40, 241 cotton: Turkmenistan 165–7; Uzbekistan 136, 138–9, 140, 157, 159(n7) Council for Mutual Assistance (CMEA) 224, 225 credit facilities: Baltic states 102; Hungary 251–3; Kyrgyzstan 129–30; Russia 19, 26; Ukraine 73, 74 crop production: Baltic states 89, 99–101; Hungary 242, 248; Russia 15–16, 39–40; Ukraine 62, 63; Uzbekistan 138, 149 decolonization xii deportation, Baltic states 88 desert: Turkmenistan 162, 164; Uzbekistan 136, 137 destatization: Russia 4; Uzbekistan 151–2 development strategies, Russian oblasts 43–5 disused land, Bulgaria 219

INDEX

Djalal-Abad Oblast, Kyrgyzstan 113, 120, 122, 124, 130 documentation: Bulgaria 215; Kyrgyzstan 118–20; Turkmenistan 178, 180–2 Donetz scheme, Ukraine 80, 81 downsizing, Hungary 240–1 economic crisis, Bulgaria 208 economic indicators, Ukraine 76 economies of scale, Turkmenistan 183 efficiency: agricultural production xiii; privatized farms, Russia 14 employment, Hungary 242, 258 entitlement to land: Russia (farm members 12; urban dwellers 10–12); Ukraine 67 Estonia: agricultural production 99; land restitution 95; legislation 91; see also Baltic states ethnic riots, Kyrgyzstan 113 exports, Hungary 259 expropriation: Bulgaria 209; Hungary 226, 229 family farms: Baltic states 87, 90, 98, 106; Uzbekistan 145 family structure, Russian rural households 40–1 farm consolidation see consolidation farm exits 8, 29(n20); Hungary 239, 249 farm inputs, Kyrgyzstan 130 farm machinery: Hungary 259; Kyrgyzstan 130–1 farm management, Ukraine 79, 81 farm organization, Bulgaria 221 farm reorganization: Bulgaria 210; Russia 13–14, 38; Turkmenistan 178; Ukraine 69–70, 72, 75, 80–2, 84(n44), 85(n45)

205

farm restructuring: Baltic states 96–9; Hungary 225, 228–35, 239–45; Kyrgyzstan 112–16, 121–2, 124–7, 134(n16) (problems 124, 132–3); Turkmenistan 168–72, 175–80; Uzbekistan 150–5 farm size and type: Baltic states 88, 90, 97, 98; Hungary 236, 241, 246–7 farmers’ organizations, Hungary 254–5 fermery see private peasant farms (Russia) fertilizer use, Baltic states 101 financial performance, Hungary 250–1 financial restraints, Kyrgyzstan 127–32 financial support, Ukrainian private farms 73–4 first wave of reform xv–xvi, 3, 27(n1) food consumption: Russia 15; Russian villages 54; Ukraine 77 food production: Russian villages 42; Ukraine 64, 78 food trade, Albania 195–6 foreign capital, Baltic states 102–3 fragmentation: Albania 189, 193, 195, 196, 204; Bulgaria 210, 215, 220; Hungary 238 funding, Bulgaria 222 GDP see gross domestic product General Assembly, Hungarian cooperatives 231, 232, 233– 4, 244 GKI see Goskomimushestvo Gorbachev, M. 5–6; intra-farm lease model 175–6; perestroika strategy 65, 142; restructuring model 152 Goskomimushestvo (GKI) (Kyrgyzstan) 117, 125–6 grain production: Baltic states 100–1; Turkmenistan 167; Uzbekistan 138–9 gross domestic product (GDP), Hungary 258 helping networks, Russian villages 49, 53, 57 historical perspective xv–xvii

206

INDEX

household farms, Baltic states 96–7 household heads, Albania 202 household plots: Lithuania 90; Turkmenistan 167–8, 169–70, 171–2, 173; Uzbekistan 140, 144, 145, 147, 149–50 human capital 40–1; relationship with agricultural production 50, 51–2, 57 Hungarian model 227–8 Hungary 224–61; agricultural production 227, 242, 247–8, 258; cooperatives, membership and organization 230–2, 243, 260 (restructuring 232–4, 239–5); corporate farms 239–40, 241; exports 259; farm restructuring 228–35, 239– 42 (modes 243–5); farmers’ organizations 254–5; financial performance 250–1; individual farms 246–50; land market 255–6; land ownership before reform 226–8; land registration and titling 256–7; legislation 228–35 (Compensation Law 229–30; Cooperative Transition Law 232–4, 239; Land Law of 1994 234–5; Law of Cooperatives 230–2); privatization 235–8, 245–6; state farms 245–6; taxes and subsidies 251–4 IFC see International Finance Corporation Immovable Property Registration System (IPRS) (Albania) 197–8, 200, 201 imports, Albania 195 independence, Baltic states 89 inflation: Bulgaria 208, 222; Ukraine 77 inputs see farm inputs international finance, Ukraine 80–1 International Finance Corporation (IFC) 80–2 international funding, oblasts 43–4 intra-farm leasing, Turkmenistan 175– 6, 179 IPRS see Immovable Property Registration System irrigation:

Kyrgyzstan 131; Turkmenistan 164–5, 166; Uzbekistan 138, 141–2, 145, 146 (management reforms 155–6) joint-stock companies: Hungary 245; Kyrgyzstan 126; Russia 13, 38, 49; Ukraine 84(n44), 85(n45); Uzbekistan 152, 153 Kara-Kum Canal 165 Karakalpakstan, Uzbekistan 154–5 Kiev Oblast, Ukraine 79 Kirgizia see Kyrgyzstan kolkhozy see collective farms Kravchuk, L., Ukraine 65, 66, 68, 74, 83(n12) Kuchma, L., reforms in Ukraine 69–70, 74 Kyrgyzstan 111–35; agricultural problems 122–4, 132–3; documentation 118–20; farm restructuring 124–7, 132, 134(n16); financial restraints 127–32; land distribution by farm type 128; legislation 113–14, 116–17, 120–1, 126; structural problems 112–13 labor see human capital land allocation, Uzbekistan 147 land categorization, Bulgaria 220 land code: Russia 9, 28(n6); Turkmenistan 173, 174, 178, 183(n6); Ukraine 65 land consolidation see consolidation land distribution process: Albania 193– 4; Hungary 226, 239; Kyrgyzstan 117; Russia xxi, 9–12, 25; Ukraine 69; Uzbekistan 144 land fragmentation see fragmentation land fund: Baltic states 92; Kyrgyzstan 116, 121, 126, 133(n4); Ukraine 72 land leasing:

INDEX

Baltic states 103, 105; Hungary 235, 255–6; Russia 6; Turkmenistan 179, 182; Uzbekistan 143 land market xxii; Albania 196–203; Baltic states 88, 103–5, 106; Bulgaria 219–21; Hungary 255–6; Kyrgyzstan 120–1; Russia 18–19, 25–6, 36–7; Ukraine 70–1 Land Market Action Plan (LMAP) (Albania) 197–8, 204 land ownership: Albania 190, 193; Baltic states 87; Bulgaria 209, 212–13, 214–15; Hungary 226–7, 232–3, 237, 256 (corporate 234–5); Kyrgyzstan 113; Russia 18; Turkmenistan 167–8; Ukraine 64, 66–8, 69; Uzbekistan 142–4, 151 land prices, Bulgaria 220 land reallocation: Bulgaria 212, 214, 216–17; Turkmenistan 178 land redistribution, Baltic states 87, 89, 95 land registration: Albania 197–8; Hungary 256–7 land reserve: Hungary 230, 238; Ukraine 67 land resources: Kyrgyzstan 114, 115, 128, 134(n12); Uzbekistan 137 land restitution xxi; Baltic states 92–3, 95–6, 106–7; Bulgaria 211–14, 215, 216–17, 218–19, 221 land rights see rights to land land shares: Kyrgyzstan 117, 119; Russia 18, 22; Ukraine 69, 70 land tenure see land ownership land titling:

Albania 194, 197; Bulgaria 218; Hungary 256–7; Turkmenistan 180–2 land use: Hungary, by organization 236, 237; Kyrgyzstan 112, 113; Russia 15, 36–7, 47–9; Turkmenistan 165, 169, 171; Uzbekistan 144, 145, 147, 148 land valuation, Hungary 229 Latonovo village, Russia 41, 46; helping networks 49, 57; private farmers 48–9 Latvia: agricultural production 99; land ownership 104; land restitution 95–6; legislation 91; see also Baltic states Law of Ownership and Use of Agricultural Land (LOUAL) (Bulgaria) 211–12, 214, 217, 219, 221 Lazarenko, P., Ukraine 74 lease groups: Turkmenistan 175–6; Uzbekistan 153 legalization, private ownership xxi– xxii, 7–9 legislation 36; Albania 192–3, 198, 200–1; Baltic states 89–94, 103–4; Bulgaria 211–13, 220; Hungary 228– 35; Kyrgyzstan 113–14, 116–17, 121, 126; Russia 7–9, 18, 24–5, 26–7 (chronology 34; see also Yeltsin, B.); Turkmenistan 172–4, 176–7, 179–80 (chronology 184–5); Ukraine 65, 66 (chronology 85–6); Uzbekistan 142, 143, 145, 151 (chronology 160–1) lifetime possession, Turkmenistan 174– 5, 181 liquidation, Hungary 250 Lithuania 90; agricultural production 99; land ownership 104, 105; land reform issues 93; land restitution 93, 96;

207

208

INDEX

legislation 91–4, 96, 104, 105; see also Baltic states livestock: Baltic states 89, 99, 100–1 ; Hungary 227, 242, 248 ; Russia 16, 50, 51, 55 ; Ukraine 62, 63 ; Uzbekistan 140, 147–8, 153 LMAP see Land Market Action Plan LOUAL see Law of Ownership and Use of Agricultural Land macro-economy, Ukraine 76–8 mapping: Albania 198 ; Hungary 257 market economy xvi–xvii ; Albania 189–90; Russia 36 market orientation, Hungary 225, 240, 260 marketing infrastructure, Baltic states 102–3 markets (produce), Kyrgyzstan 131–2 meat production, Baltic states 100–1 migration patterns, Russia 22–4 milk production, Baltic states 100–1 mir (Russia) 3 MLCs see Municipal Land Commissions Moroz, O., Ukraine 75 mortgage lending, Latvia 105 MOSZ see National Association of Agricultural Producers Municipal Land Commissions (MLCs) (Bulgaria) 211, 216–17, 219 National Association of Agricultural Producers (MOSZ) (Hungary) 254–5 nationalization, Hungary 226 NEP see New Economic Policy New Economic Policy (NEP) (Russia) 4 Nizhnii Novgorod model: Russia 13– 14, 31(n44) (appraisal 43); Ukraine 80–1 oblasts (Russia): agricultural characteristics 61; responses to land reform (defensive strategy 42–3; delaying strategy 42; external development strategy 43–4;

household and community development strategy 44– 5) Osh Oblast, Kyrgyzstan 113, 120, 122, 124, 129–130 pasture, Kyrgyzstan 131 payment, collective farms 64 peasant associations, Turkmenistan 177–9, 181 peasant farms: Uzbekistan 144–9 (conditions 145–6; growth 147; incentives 148–9; output 149–50) peasant households: Russia 15, 17, 35, 38–9 (agricultural production 39–40, 50–4; development strategy 44–5; family structure 40–1; land plot size 48); Ukraine, plot size and output 71 peasant mobilization xv peasant-state relations xiii, 20–2 political difficulties, Ukraine 65, 74–6 political objectives, Russia 19–22, 25, 27 population, Uzbekistan 137–8 population density, Turkmenistan 162, 164 pricing schemes, irrigation 155–6 private farms: Baltic states 96–9; Hungary 235, 246–50 (by size 247); Russia 16; Ukraine 64, 65–6, 71–4 (financial support 73–4) private land ownership: Bulgaria 209, 210; Hungary 226–7, 228, 237; legalization xxi–xxii, 7–9; Russia 4, 6–9; Turkmenistan 162, 173, 174–5, 180–1, 184(n9) private peasant farms: Kyrgyzstan 113– 16, 133(n5) (survey 121–2); Russia (fermery) xxii, 6, 15, 38 (agricultural production 16, 17, 39–40; financial restraints 16–17; land reform 16; Latonovo village 48–9; weakness 36 , 38); Turkmenistan 170–1, 172, 175 , 181;

INDEX

Ukraine 72–3 private plots, Hungary 227 ; Russia 17 privatization xiii, xvii, xxi–xxii ; Albania 189, 192–5, 205(n14); Baltic states 89–94, 102–3, 106; Bulgaria 211; Hungary 225, 235–8, 239–40, 245–6; Kyrgyzstan 125–7 ; market, economy xvi–xvii; Nizhnii model 13–14, 31(n44), 43 ; Russia 4, 6–9 ; Turkmenistan 173, 182 ; Ukraine 66– 7, 71 ; Uzbekistan 152, 153 ; see also farm reorganization productivity: Albania 191; Ukraine 64 profitability, Hungary 252 property designation, Hungary 233 property ownership, Uzbekistan 143–4 quality of rural life, Russia 54–7 raion: Kyrgyzstan 118, 119, 125, 127, 132; Russia 10–11 RCCs see rural credit cooperatives rental agreements, Kyrgyzstan 119–20 restitution see land restitution restructuring: cooperatives 232–4, 239– 45; see also farm restructuring revolution, peasants xv rights to land: Baltic states 90, 92; Bulgaria 209, 212–13, 216; Hungary 232–3; Kyrgyzstan 116, 117, 118–20; Turkmenistan 175, 178 rights to water, Uzbekistan 156 Rostov Oblast, Russia: agricultural characteristics 61; informal community development strategies 45, 49, 57; village survey 46

209

rural committees, Kyrgyzstan 117–18, 123, 133(n11), 135(n22) rural credit cooperatives (RCCs), Kyrgyzstan 129–30 rural dwellers, attitudes to land reform 20, 22, 25, 26, 78 rural elite xvi rural land, demand 19 rural population: Kyrgyzstan 111, 113 , 115 ; Russia 23, 40–1 ; Turkmenistan 162, 163, 164; Uzbekistan 137 , 159(n6) rural services, Russia 37 rural-urban migration: Albania 195; Russia 22–3 Russia 3–61; agricultural producers 37– 42; agricultural production 15–17; civil code 8, 29(n21); farm restructuring 13–14; federal land use policies, 91–96 36–7; land code 9, 28(n6); land distribution process 9– 12, 25; land privatization 6–9, 13; land reform (assessment 24–7; conduct 5– 12; impact 13–24; legislation 7–9; oblasts’ response 42–5; rural migration patterns 22–4, 26; support for 20; villages’ response 45–57) secession: Hungary 231, 233, 249; see also farm exits second wave of reform xvi, 27(n1); see also collectivization security of tenure, Albania 203–4, 207(n42) service cooperatives, Hungary 244–5, 260 set-aside land, Hungary 229–30, 238 shadow economy, Hungary 254 share ownership, Uzbekistan 154 Shcherbitsky, V., Ukraine 65, 83(n12) social capital, relationship with agricultural production 53– 4 social infrastructure, Baltic states 95 social transformation xiii–xiv;

210

INDEX

Russia 5, 22 socialist agriculture, Hungary 224–5, 226, 227 Soviet agricultural model see collectivization Soviet economy, Ukrainian contribution 63 sovkhozy see state farms Stalinism 3, 189, 191 state control: Albania 189; Uzbekistan 157 state farms: Bulgaria 210; Hungary 227, 245–6; Kyrgyzstan 111, 114, 125–7; Russia 37; Turkmenistan 167; Ukraine 63, 64; Uzbekistan 139, 152 State Land Committee, Turkmenistan 180, 181 State Property Committee (Kyrgyzstan) see Goskomimushestvo state-owned land: Albania 190, 205(n6); Bulgaria 209, 210–11; Hungary 230, 237; Kyrgyzstan 113; Turkmenistan 167–8, 173, 182; Uzbekistan 143, 157 Stolypin reforms 3, 27(n1); see also first wave of reform subsidies: Hungary 251–3; Russia 27 supply side, land market, Albania 201– 3 support programs, Hungary 251–4 surveys: attitudes in Kyrgyzstan 121–2; attitudes in Ukraine 78–9; land holdings in Albania 199; Russian village changes 35–6; village response to land reform (Russia) 46–7 Sviattsovo Bolshoe village 46, 49, 50 Tartarstan Oblast, Russia 42 taxes: Hungary 253–4; Kyrgyzstan 127, 129, 133(n3), 134(n20) TBSs see Territories Belonging to Settlements Territories Belonging to Settlements (TBSs) (Bulgaria) 213, 215, 216–17

third wave of reform xiii, xvixvii, 4–5 Third World xiii, xvi, xvii, 111 TOO see joint-stock companies Turkmenistan 162–85; agricultural production 163–4, 167–8, 171–2; farm restructuring 175–80; individual sector 168–72; land titling 180–2; legislation 172–4, 176–7, 179–80; private land ownership 173, 174–5; state-owned land 167–8 Tver’ Oblast, Russia: agricultural characteristics 61; village survey 46 Ukraine 62–86; ad hoc reform 79–80; agricultural background 63–71; crop output 62, 63; factors impeding land reform 73–9; Kuchma era 69–70; land reform attitudes 78–9; legislation 65, 66, 85–6; macro-economy 76–8; policy difficulties 74–6; post-independence reform 66– 70; private sector development 71–3; privatization programs 80–1 Union of Landowners 21–2 urban bias xiv urban dwellers: Bulgaria 219, 220; Russia 10–12, 20; Turkmenistan, collective gardens 170 urban elite xvi urban-rural migration, Russia 23–4, 40 Uzbekistan 136–61; agricultural production 138–9, 149; farm organization 139–41; farm restructuring 150–5; individual farming sector 144–50; irrigation system 141–2; land reform process 142–4; legislation 142, 143, 145, 151, 160–1; population 137–8; water management reforms 155–6 value-added tax (VAT), Kyrgyzstan 127 Vengerovka village, Russia 46, 49, 57

INDEX

villages: Hungary 243; Russia (agricultural production and sales 50– 4; land reform responses 45–57; land use 47–9) virgin lands, Turkmenistan 173–4 Voronezh Oblast, Russia 42–3 War Communism 4 water prices, Uzbekistan 155–6 water resources: Turkmenistan 164–5; Uzbekistan 141–2, 155–6; see also irrigation water rights, Uzbekistan 156 Yeltsin, B. 6; 1991 decree 7, 12, 13; 1993 decree 7–8, 11, 18; 1996 decree 11–12; free land market 9 yields, Turkmenistan 165 Zasukha, A., Ukraine 71

211

Land Reform in the Former Soviet Union and Eastern Europe

Migration and Remittances: Eastern Europe and the Former Soviet Union

Economic Implications of Chronic Illness and Disability in Eastern Europe and the Former Soviet Union

Housing Policies in Eastern Europe and the Soviet Union

Innovation, Inclusion, and Integration: From Transition to Convergence in Eastern Europe and the Former Soviet Union

Turmoil at Twenty: Recession, Recovery and Reform in Central and Eastern Europe and the former Soviet Union

Transition--The First Ten Years: Analysis and Lessons for Eastern Europe and the Former Soviet Union

Lights Out?: Challenges Facing the Emerging Economies of Eastern Europe and the Former Soviet Union

The Reform of Housing in Eastern Europe and the Soviet Union

Unleashing Prosperity: Productivity Growth in Eastern Europe and Former Soviet Union

The How the East was Won: Impact of Multinational Companies in Eastern Europe and the Former Soviet Union

Economic Thought and Economic Reform in the Soviet Union

Theory and Reform in the European Union (Europe in Change)

The Omri Annual Survey of Eastern Europe and the Former Soviet Union, 1996: Forging Ahead, Falling Behind

Reform and Transformation in Eastern Europe: Soviet-Type Economics on the Threshold of Change

Planning in the Soviet Union

Stalin and the Soviet Union

East-West Trade at the Crossroads: Economic Relations With the Soviet Union and Eastern Europe

Russia and the Former Soviet Republics

Families in Eastern Europe

Encyclopedia of World Cultures Southeast and East Asia: Soviet Union, China and Eastern Europe, Vol. 5

Management in Eastern Europe

Management in Eastern Europe

Democratization in Eastern Europe

European Union and NATO Expansion: Central and Eastern Europe

Environmental Justice and Sustainability in the Former Soviet Union (Urban and Industrial Environments)

Transitional Justice in Eastern Europe and the former Soviet Union: Reckoning with the Communist Past (Basees Routledge Series on Russian and East European Studies)

The Holocaust in the Soviet Union

The new Eastern Europe

On Ruins of Empire: Ethnicity and Nationalism in the Former Soviet Union

From Red to Gray: The ''Third Transition'' of Aging Populations in Eastern Europe and the Former Soviet Union (World Bank Working Paper)

Land Reform in the Former Soviet Union and Eastern Europe

Migration and Remittances: Eastern Europe and the Former Soviet Union

Economic Implications of Chronic Illness and Disability in Eastern Europe and the Former Soviet Union

Housing Policies in Eastern Europe and the Soviet Union

Innovation, Inclusion, and Integration: From Transition to Convergence in Eastern Europe and the Former Soviet Union

Turmoil at Twenty: Recession, Recovery and Reform in Central and Eastern Europe and the former Soviet Union

Transition--The First Ten Years: Analysis and Lessons for Eastern Europe and the Former Soviet Union

Lights Out?: Challenges Facing the Emerging Economies of Eastern Europe and the Former Soviet Union

The Reform of Housing in Eastern Europe and the Soviet Union

Unleashing Prosperity: Productivity Growth in Eastern Europe and Former Soviet Union

The How the East was Won: Impact of Multinational Companies in Eastern Europe and the Former Soviet Union

Economic Thought and Economic Reform in the Soviet Union

Theory and Reform in the European Union (Europe in Change)

The Omri Annual Survey of Eastern Europe and the Former Soviet Union, 1996: Forging Ahead, Falling Behind

Reform and Transformation in Eastern Europe: Soviet-Type Economics on the Threshold of Change

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Stalin and the Soviet Union

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