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Eastern Europe: Reforms Must Address Entire Agriculture Sector

Prague, 25 February 1997 (RFE/RL) -- Failures in Eastern European agricultural reform have resulted from a lack of sector-wide policies needed to foster a competitive free market. That's the authoritative assessment of the Paris-based Organization for Economic Co-Operation and Development (OECD).

The OECD's latest report on East European agriculture says farm privatizations should go hand-in-hand with policies that help improve transport, marketing, distribution, foreign trade and market price information.

The report says governments must ensure greater competition and help build an infrastructure that can maintain a competitive industry "from the farm gate to the domestic consumer and the international market."

The report's conclusion is that new private farms must be nurtured, along with competitive agricultural trading firms, so that producers can profit from their labor.

The findings have important implications for Central Asian republics such as Uzbekistan and Turkmenistan that are only now beginning to consider reforms for their inefficient state farms.

The OECD says that privatization across the region, from Slovakia and Bulgaria to Russia, has not broken up most of the large inefficient farms left over from the Soviet era. Rather, the large farms are now dependent on leasing their land from hundreds of small owners.

High start-up costs and a lack of financing have made it difficult for many new landowners to break away and start independent farms. Others worry about angering the managers of their old state farms -- managers who still have strong influences in rural economies across Eastern Europe and the former Soviet republics.

The OECD says real competition has been slow to emerge at food processing plants, too. It says that's because many of the newly-privatized industries have retained their dominant market positions at both the local and national levels.

Bulgaria is a worst-case scenario, depicting what the OECD calls a "policy failure" that borders on a policy void. Across the country, private farmers are trapped in a system best described as a kind of "nomenklatura feudalism."

The farmers complain that only individuals with close ties to the former Communist ruling elite have been able to get bank loans to buy off key state processing plants. Meanwhile, those who received land through restitution and managed to start their own farms are now forced to sell their harvests to monopoly trade firms. These firms are usually led by former members of the Communist nomenklatura and they offer prices far below the world market.

As a result, more and more Bulgarian farmers say they will not plant next year. The corrupted reforms already have led to bread shortages in a country that traditionally has been a grain exporter.

In Serbia, too, bread shortages are forecast for next year as more farmers refuse to plant grain. Serbian farmers also complain that they can't get fair prices from state purchasing agencies. As was the case in Bulgaria last year, nomenklatura interests in Serbia reportedly have profited from exporting the state grain reserves.

The private businessmen responsible for decimating Bulgaria's agricultural sector are mostly linked to the former governing Socialist Party. With the recent collapse of the Socialist government, there has been public outcry for criminal prosecutions.

The lesson from the Bulgarian crisis is that private farmers must have access to a competitive marketplace where they can sell their harvests for a profit. This means eliminating policies that favor monopolist trade firms. It also means cutting exclusive export privileges that foster such monopolies.

Analysts say Uzbekistan's leaders should keep in mind that one key measure of agricultural reform is to compare domestic prices against world prices.

The OECD says that when the price difference is concentrated between what it calls "the farm gate" and domestic wholesale markets, producers are, in effect, subsidizing consumers. Ultimately, productivity is stifled because farmers are discouraged from investing in new equipment and other improvements.

This lack of profit motive was sited more than 20 years ago by former U.S. Secretary of Agriculture Earl Butz as the underlying reason behind the failure of collective Soviet-era farms.

In 1977, when the United States exported millions of dollars of grain to Moscow, Butz told farmers in Illinois that the deal was proof of the superiority of private agriculture and the free market.

Butz said rewards for greater productivity ensure that Illinois farmers will go to the barn at 3 a.m. on a cold January morning to nurse a sick piglet back to health. Without a profit motive, Butz said, Soviet farmers simply let the pig die.

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