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Former USSR: Privatization Alone Doesn't Make More Efficient Farms

  • Ron Synovitz

Prague, 25 February 1997 (RFE/RL) -- Increased productivity at Central European farms provides a stark contrast to falling production in former Soviet Republics such as Belarus, Kazakhstan and Uzbekistan. Economists say one explanation is that most former Soviet Republics have not changed the organizational structures of the large, inefficient farms left over from the days of central planning.

By contrast, data show that competitive market policies have fostered more family farms in Central Europe. The competition also has forced Central Europe's newly-restructured cooperatives to work more efficiently by utilizing farm units that are smaller and more easily managed.

According to the Paris-based Organization for Economic Cooperation and Development (OECD), agriculture in the Czech Republic now has the potential to develop as a competitive industry. That's because the framework for a competitive, market-oriented system already has been established there.

Growing profits mean that Prague has been able to half the subsidies it provides to Czech farmers. This kind of development is considered crucial for a country that hopes to be among the first former Soviet satellites to join the European Union.

Since 1990, the restructuring of former state farms in Eastern countries has involved three basic techniques.

The restitution of property to its pre-Communist owners.

The general distribution of property to workers.

The sale or auction of property after the general distributions and restitution claims are settled.


Restitution often means transferring physical property within historic boundaries, but it also can involve schemes that use vouchers or land shares.

By its nature, restitution is a complicated legal process -- particularly when there are multiple claims, poor documentation and a shortage of legal experts. Years of court proceedings are necessary before some claims are finally settled. In the meantime, with no notion of who owns what land, many of the best fields can lie fallow.

Land restitution is a strategy that has been undertaken in the Czech Republic, Slovakia, Slovenia, Bulgaria, Romania, and the three Baltic states.

General distribution

Another privatization technique is to issue general distribution rights to workers at collectives or cooperatives. Russia, Ukraine, Belarus and Kazakhstan have used distribution schemes to de-collectivize their farm property.

Under such schemes, many state farms in Russia and Ukraine have been re-organized into "joint stock farms." The rights of each worker to a piece of that farm is determined by their years of service or total earnings.

Large farms in Belarus and Kazakhstan also have undergone a similar process. But despite this nominal restructuring, most farms in the Commonwealth of Independent States have not yet changed their internal structures or operating procedures.

Sale or auction

The third commonly used method of privatizing agricultural property is to either sell it or auction it. These sales can initially benefit the state by bringing income to the budget -- provided the process is free from corruption.

But in some countries, such as Bulgaria, the practice has often meant that only the most powerful local interests have had the capital to take part in the privatizations. When corrupt officials become involved, as has been the case in Bulgaria, there is a tendency for new private monopolies to be created. In the long run, private farms are strangled out of the market and productivity decreases.

RFE/RL monitored a liquidation auction at one Bulgarian cooperative in 1993 and found that most of the farmers in attendance didn't have enough money to bid. Today, farmers at the village complain that local "nomenklatura" with inside contacts to the former agriculture ministry obtained interest-free loans to buy up the best property.

In its recent review of agricultural reforms in transition countries, the OECD says that privatization has created a large number of landowners on paper. But the OECD warns that privatization has not eliminated the large state farms or their inefficient management structures.

The report attributes the survival of the large farms to the risks faced by new land owners if they try to start their own farms. The result is that new land owners are leasing their property to the state farms rather than working the land themselves.

The OECD says one reason is that antagonism often exists between private farmers and their old state bosses. Many rural residents fear that if start their own farms, they will lose access to the medical care, schools and energy services previously provided by the state farms.

More importantly, economic conditions are discouraging. Most new land owners don't have the start up capital for seed and agro-chemicals that traditionally have been provided under the centralized system.

The European Bank for Reconstruction and Development (EBRD) has been working in transition countries to create a financial infrastructure similar the system relied upon in by Western farmers. Banks are needed that can specialize in short-term loans to help farmers buy seed and agro chemicals. A competitive market also must be developed that will allow farmers to buy supplies and sell their harvests for a profit.

Until that infrastructure is developed, the OECD says it expects most new land owners to continue leasing their property to the large farms. In turn, these farms are becoming increasingly dependent on lease arrangements for their survival.

The trend has serious implications for many transition countries. In the Slovak Republic, Russia, Ukraine, Belarus and Kazakhstan, more than 80 percent of the land is now farmed in units larger than 100 hectares. Large farms account for more than half of agricultural land in Hungary, Bulgaria and Estonia.

This is part two of a four-part series on agricultural reform in Eastern Europe and the former Soviet republics.