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Romania: Land Restitution Law A Step Toward Farm Reforms

A land restitution law signed by Romanian President Emil Constantinescu this week is being hailed by supporters as a key step toward bringing back family farms. RFE/RL's Ron Synovitz reports land privatization is merely the first of many reforms Eastern European governments must implement to foster efficiency in agriculture.

Prague, 13 January 2000 (RFE/RL) -- More than a million and a half Romanians are hoping a new law will let them reclaim farms confiscated from their families by Communist authorities a half century ago.

The legislation, which comes after years of delays and parliamentary debates, allows the restitution of land seized by the Romanian state since nationalization began in the 1950s -- up to 50 hectares of farmland per family and 10 hectares of forest.

President Emil Constantinescu signed the law Monday on a live Romanian national television broadcast. Surrounded by rural workers in traditional Romanian folk costumes, Constantinescu said the law "redresses a great wrong done by the Communists to the centuries-old right of farmers to own land."

"This is not a gratuitous gesture. The 10th of January, 2000, will go down in the history of our country, because from today onward, the land of the country will go back to its rightful owners after decades of thefts, injustices and illegalities."

Our correspondent reports that despite the fine words, the law will not put Romanian agriculture on the fast reform track. Western farming experts say private land ownership rights are merely the first of many reforms needed to foster productive private agriculture. Bucharest is only now completing a process finished years ago by countries like Hungary and the Czech Republic.

Jim Davis, a former staff adviser to the Agriculture Committee of the U.S. House of Representatives, has become familiar with the ills of Eastern Europe's farms through his work as an independent consultant in Ukraine.

Davis says bringing Eastern European farms up to Western productivity levels will require reform of the entire production chain -- from the suppliers of seed and fertilizer to those who process finished products or are allowed to export raw commodities.

Davis says one of the most important reforms in Romania and elsewhere, after establishing private property rights, is for the government to get out of the business of buying and handling farm products.

"Governments [across Eastern Europe are] still in the food-processing business [with] mutually exclusive goals. Many times the government has the desire to provide food to its people at the lowest possible cost [by underpaying farmers]. This is certainly negative from the standpoint of farming."

Davis concluded that if governments really want strong private farms then there must be a mechanism where the government is just one of many bidders for farm products.

Looking at Romania's agriculture sector as a whole, the European Bank for Reconstruction and Development (EBRD) said in its latest Transition Report (1999) that reforms remain "sluggish." Published at the end of last year, the EBRD report says Romanian farmers are forced to rely on inefficient state companies for seed and agro-chemicals. The dilapidated processing facilities across the country also remain largely state-owned.

The EBRD report also notes that private farmers have difficulty obtaining short-term loans because of the absence of a functioning land registry in Romania. Where Western banks would use land to guarantee such loans, the Romanian system has so far excluded farmers from posting land as collateral.

The result is a problem shared by farmers from Russia to the Balkans and the Baltics. Farmers must either find a source for a scarce subsidized loan or else barter away large parts of future harvests. Barter deals are almost always disadvantageous for farmers, and their lost profits keep them from investing in new equipment to improve future harvests.

Davis says governments can help in the short term by offering subsidized loans to small farmers or at least loans at reasonable market rates. In the long term, Davis says a Western market mechanism known as warehouse receipts -- or grain receipts -- should be developed.

Warehouse receipts are one of the most effective tools Western farmers have to market their grain. They allow farmers to transform their harvests into legal tender by placing their grain in a bonded warehouse. In return, the farmer gets a certificate showing the amount and quality of their grain. Western banks recognize the receipts as collateral for loans. That allows farmers to continue work toward their next crop while waiting for the best market price for their last harvest.

The Romanian government is working on plans to introduce farm loans based on grain receipts. But a key problem experienced in other Eastern states is that the mechanism requires mutual trust by all participants. Banks must recognize the receipts. Farmers must trust that their grain will be available when they want to sell it. Buyers must trust they will receive the quality of grain they pay for.

Davis says a test program for grain receipts in Ukraine appears to have failed last year because there was not enough trust among the Ukrainian market players.

Another major problem for Eastern farmers is lack of access to foreign markets -- particularly in countries like Serbia and Belarus, where state purchasing agencies set prices below international levels and only firms closely linked to the government are allowed to export.

Bulgaria experienced the worst-case scenario of tight and corrupt export controls in 1996 when private firms linked to then-Prime Minister Zhan Videnov's government were given exclusive export rights.

Confronted with the prospect of losing money by planting, many private Bulgarian farmers simply let their fields lie fallow. A country that had once been a net grain exporter soon found itself unable to produce enough bread for its own people. The Bulgarian bread scandal eventually contributed to the collapse of the government.