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Ukraine: Farm Reorganization Makes Slight But Important Progress

Kyiv, 6 May 1998 (RFE/RL) -- Thirty-year-old Viktor Ivanchenko was only a driver and then garage supervisor on the Kalinina collective farm in Ukraine's Donetsk oblast before it was reorganized just over a year ago.

He emerged from the reorganization, however, as head of the first mixed partnership agricultural enterprise in the country, named Prometey, has wasted no time in making it profitable, and thinks the country ought to move as quickly in accepting full privatization, including the ability to buy and sell land.

"The time is present and this issue should be resolved immediately, right now," he said at a recent roundtable discussion among 12 farm enterprise heads from the three oblasts where agricultural reforms have progressed in Ukraine -- Donetsk, Chernivtsi and Kyiv.

The International Finance Corporation (IFC), which developed the land privatization and farm reorganization model used in Ukraine and several other nations, including Russia, arranged the discussion to allow a group of foreign journalists to hear the views of those actually privatizing.

The managers had gathered in Kyiv for one of the IFC's training seminars, which focus on specific stages of reorganization and business development, including accounting, taxation and legal issues. The IFC holds special seminars for raion and oblast officials along with farm leaders, using business games to rehearse the types of issues faced in reorganization at all levels.

So far, 39 collective farms in the three oblasts have been reorganized, involving 21,126 farm members and nearly 115,000 hectares of land. From the 39 collectives, 83 new enterprises and 221 family farms have been created.

But that is a drop in the bucket compared to the over 12,000 collective farms which stretch across the nation once known as the breadbasket of Europe. Ukraine lost that sobriquet in recent years as it could not longer even feed itself and had to import foods. Sixty-three percent of farmers surveyed by the IFC in Chernivtsi oblast just a few months ago said their collective farms definitely needed to be reorganized.

The head of the IFC's farm project in Ukraine, Eric Howell, says the World Bank affiliate can't begin to meet the demand for its help. Twenty oblasts have asked the IFC to launch the model, but Howell says resources will only allow it to begin farm reorganization programs in two more oblasts this year.

Under the model, every member of a collective farm has the right to a share of the land and property -- as well as a vote in deciding whether a farm is reorganized and how the division occurs -- but under Ukrainian law the plot of land cannot be sold or bought on an open market.

The speaker of the last Ukrainian parliament says that's just the way it should be. Selling land, says Oleksandr Moroz, "is a crime against Ukraine." He says that if land becomes an object of buying and selling for money, it will lose its basic value.

Viktor Ivanchenko is not the only farm manager who completely disagrees. Vasyl Antonov, 42, head of the Renta limited liability farm enterprise in Donetsk, says the buying and selling of land would help establish the "real prices" for the farm's produce -- the wheat and vegetables grown, the cows, pigs and chickens raised.

Even more, he says, pensioners who no longer work the land can't dispose of it as they please either. Granted, like any other person who "owns" a plot of land, they can "rent" it to one of the enterprises formed from the old collective for what are known as forbearance payments.

Each land share owner who allowed Antonov's Renta enterprise to use his land received forbearance payments last year of 300 kilograms of grain, one ton each of hay and straw, had the enterprise plow their private vegetable plots and were allowed the use of any of the enterprise's vehicles when needed.

But that's still not the same as being fully free to use or dispose of your land, says Anatoliy Chernenko, director of the Rossiya farm enterprise in Donetsk. Prohibiting the actual sale of land also prevents farmers from using the land as collateral for bank loans to improve or expand the farm, he says.

Without the ability to mortgage land to raise money, the land itself loses value, say many of the farm managers. Currently, the only source of loans for farmers is the government's investment fund, but Antonov says that's not good because the government then wants to interfere with the operations of the farm. "They are happy to use our operation for their benefit and to get money from our operation," he says, "but not to allow us to use our land to make progress for ourselves in the future."

Oleksandr Lantukh says not only should Ukraine adopt a completely free land law, but it should levy taxes considering the differences in the quality of the land. "A farm which is located on soil whose quality is two times inferior to the quality of the next farm accordingly should pay lower taxes," he says. Lantukh, the 40-year-old director of the ATO farm enterprise, broke away from the Lenin collective farm in Donetsk in the spring of 1996. With its 43 founding members, ATO acquired 130 hectares of land (about 4 percent of the old collective) and an equal share of its equipment.

While it farms the land it holds, ATO concentrates more on servicing agricultural machinery for surrounding farms. The limited liability company was so successful in 1997 that it was able to pay forbearance payments to each land share holder of 700 kilograms of grain, 45 kilos of flour, 5 kilos each of sugar, honey and sunflower oil, and did the plowing for all private vegetable plots.

Thirty-nine-year-old Bat Batov, who is in the process of reorganizing 82 percent of the members of the Vidrodzhennia collective farm in Kyiv oblast into a new enterprise, says that Ukraine's tax structure is one of the "main hurdles" facing his company. "A farm situated on soils of poorer quality should pay lower taxes and this would eliminate any inequity in land distribution."

Batov, who was chairman of the old collective since 1994, says the concept of land ownership is important to strengthen work discipline so as to boost output. That may mean that a small number of the members are unhappy about the new atmosphere, he says, but "no one's holding them -- they're free -- they can just as well leave and go on their own."

Lantukh says this is an important part of the newly reorganized farms -- getting away from the old system where everyone received the same salary regardless of how hard they worked -- or didn't work. "Can we call it the natural selection?" he asks, "poor workers will somehow be separated...that's the law of natural selection."

An IFC survey of farmers in Chernivtsi a few months ago found four percent who said the main benefit was to get rid of idle workers.

Drunkenness was also a major problem, says Lantukh, and those who drank so much "are not likely to be a precious asset for a newly established enterprise and no one, I guess, will want them."

Interestingly, the IFC survey of Chernivtsi farmers found that 53 percent said they expected reorganization to improve work discipline on the farm, a clear reflection that they are looking first for a way to turn agriculture in Ukraine around.

But turn around takes time, says Valentyn Mezhynskiy, who heads the Prypruttia farm enterprise in Chernivtsi oblast. "You can hardly expect a poor worker to upgrade to a top level of efficiency in one or two years," says the 43-year-old Mezhnyskiy, who was chairman of the old Shevchenka collective before it broke into two enterprises in February of this year.

"Two years, one year, is not enough time for people to drastically change their life perception, their mentality and to see results," he says. "In five or ten years we will see the concrete results of the reorganization," he adds, although experience is already showing productive improvements in the first years of reorganization.

The IFC's Howell says the proof of early success is in the thousands of little stories. He tells of one small group of farmers who broke away from their old collective just over a year ago. They continued to raise pumpkins, as did the remaining collective which did not change. Last autumn, the new group harvested its abundant crop of pumpkins, using a combination of improvised equipment and the willingness of its members, to bring in healthy profits.

Meantime, he says, the old collective, lacking the equipment usually used, left its pumpkins to rot in the fields. Seeing the waste, the break-away group asked if they could go onto the collective's fields and harvest the pumpkins.

They did and made "even more profit," which he says, they shared with the old collective to help them through the winter.

The difference, he says, is in the attitude. Many farmers say they want the realization of a desire to own something or to work for themselves, but the vast majority simply want things to work better.