Does land reform matter? Some experiences from the
former Soviet Union*
ZVI LERMAN
(received September 1997, final version received February 1998)
Summary
There is still no evidence that new farming structures created in the process
of land reform have achieved higher productivity than traditional farms. The
most striking achievements of reform include a sharp reduction in state ownership of land and a substantial increase in the share of individual farming relative
to collective agriculture. Among the rural population, independent private
farmers appear to be more optimistic and economically better off than members
of collective farm enterprises. This provides qualitative evidence of a positive
impact of reform, as private farmers are direct participants in the process of
reform, while rural residents who choose to remain in collectives largely shirk
exposure to reform and continue to work within a traditional framework.
Keywords: economies in transition, land reform, farm restructuring, collective
farms, private farmers, rural development.
1.
Introduction
Agricultural reform in all transition economies involves adjustments on three
major levels. One level is that of sectoral policies. This includes price liberali* The empirical data in this article are largely derived from farm-level surveys conducted by
the author in cooperation with colleagues from the World Bank (most notably, Karen
Brooks and Csaba Csaki) since 1992, as part of the World Bank's ongoing effort to monitor
the progress of agrarian reform in former socialist countries. The views presented in this
article are the author's own and do not reflect in any way the views and policies of the
World Bank. The author is grateful to Ulrich Koester and two anonymous referees for
helpful comments that have reshaped the article. The author would also like to thank the
participants of the departmental seminar in Rehovot, and especially Ziv Bar-Shira, for a
lively discussion of an earlier version and useful suggestions.
European Review of Agricultural Economics
25 (1998) 307-330
0165-1587/0025-0307
© Walter de Gruyter, Berlin
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The Hebrew University, Rehovot, Israel
308 Zvi Lerman
2.
What is land reform in the FSU context?
Traditional socialist agriculture was characterised by a dual farming structure. One component comprised commercial production in large-scale collective and state farms. These large farm enterprises cultivated thousands of
hectares and employed hundreds of workers. The other component consisted
of subsistence-oriented individual farming in small household plots. A typical
household plot was less than half a hectare, and it was cultivated by parttime family labour. Organisationally, the household plots were part of the
collective, and not independent entities: the plots were allocated to members
and employees of the large collective farm in the village, but the families
were generally allowed to make their own production decisions. This duality
of farming was typical of both the Soviet Union, where it became universally
established in the early 1930s, and East Central Europe, where it was
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sation, changes in taxation, relaxation of export and import restrictions, and
overall reduction of government intervention in agriculture, all of which are
closely linked with the general goals of macroeconomic stabilisation. Another
level involves upstream and downstream markets. It includes the development of market-oriented channels for input supply, farm product sales,
agricultural processing and farm credit. The third level encompasses issues
of farm privatisation, specifically land reform, establishment of property
rights, and internal restructuring of farms in compliance with general marketbased principles.
While the service sectors in the former Soviet Union (FSU) and East
Central Europe (ECE) have steadily grown since 1991, agriculture still plays
a much larger role in the economy of these countries than in Western Europe
and North America. Improvements in the performance of the agricultural
sector are therefore likely to have a major impact on economic recovery in
the region and on the well-being of the relatively large rural population.
Back in 1991, at the dawn of reforms, privatisation of agriculture was
expected to produce a quick supply response, leading to rapid significant
improvements in the economy. This has not happened, and in retrospect we
now know that these expectations were impossibly naive. Agricultural production in the FSU countries, and also in many parts of ECE, declined
precipitously between 1991 and 1995, and it is only in the last few years
that we are witnessing signs of a possible reversal of the downward trend
(which may still prove to be merely a statistical error). Of course, the
disappointing performance of agriculture can be explained by general difficulties of macroeconomic adjustment or inadequacy of market services. Yet
given the large gap between initial expectations of reformers and scholars,
on the one hand, and the actual accomplishments, on the other, it is appropriate to review what the process of agrarian reform has achieved.
Does land reform matter?
309
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imposed by the post-World War II socialist regimes in the early 1950s. The
large-scale collective farms controlled most of the resources and were responsible for most of the agricultural output. The small-scale individual sector
controlled about 2 per cent of land across the region, and yet contributed
between 20 and 30 per cent of agricultural output.
Another feature of socialist agriculture concerned the ownership of land.
Over 85 per cent of arable land in the countries behind the Iron Curtain
was owned by the state. All agricultural land had been fully nationalised in
the fifteen republics of the former Soviet Union and in Albania. In the rest
of East Central Europe, cooperative or collective land ownership co-existed
with state property, and there were also various forms of private land. Yet
even land that was formally registered as individually owned was managed
and cultivated by large-scale collectives and cooperatives.
The prevailing view of land reform in market economies involves transition
from large landlord estates to family farms (Binswanger et al., 1995). This
view is not universally accepted, of course, as many economists debate the
relative merits of large-scale versus small-scale farming, while the evidence
regarding the farm-size effect remains inconclusive at best. Yet this seems to
be the model of land reform that market economists generally have in mind.
In this model, tenants who previously cultivated pieces of estate land owned
by somebody else and had to forgo a part of their output in favour of the
landlord receive, in the process of reform, individual ownership of a plot of
land and are relieved of their obligations to the former estate owner. The
organisation of production remains largely unchanged, as only the ownership
is transferred from large landlords to tenants, who already farm the land
and have the skills and implements necessary to cultivate their fields. The
first wave of land reform in Russia after the October 1917 revolution indeed
followed this pattern, as the lands of the nobility and the crown were
summarily distributed to the peasants, who had previously cultivated the
same lands for the former owners. The Soviets, however, reversed this natural
process in 1929, when family farms were forcibly drawn into collectives,
which continued to exist over the next 60 years on a combination of joint
and individual (household plot) production.
Agricultural production in collective or cooperative farms is not a widespread phenomenon in market economies. The main justification for collective farming - economies of scale - has never been validated empirically. In
fact, the farms in market agricultures throughout the world are observed to
be much smaller (measured by the amount of land and number of workers)
than the socialist farms. The disadvantages of collective production, including free riding, moral hazard and monitoring costs, are well documented
and appear to outweigh the alleged advantages (Deininger, 1993; Schmitt,
1993). Indeed, socialist agriculture, despite its very impressive physical
growth rates, has never been particularly efficient. This is evident not only
from the persistent record of food shortages in the Soviet Union and most
310 Zvi Lerman
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other countries in the region, but also from the results of quantitative
analyses that highlight very low returns to capital investment in Soviet
agriculture (Cook, 1992; Easterly and Fischer, 1994) and explain the growth
of output mainly by a continuing increase of the quantity of resources used
in production (Millar, 1990). Thus, Soviet Uzbekistan, the main producer
of cotton in the former Soviet Union, achieved over time cotton yields per
unit of fertiliser applied and per unit of irrigation water used that were
dramatically lower than in most other cotton-growing countries (Lerman
et al., 1996). The productivity of labour and other factors across all fifteen
former Soviet republics during a quarter of a century (1965-1990) was
significantly lower than in the developed economies and the average rate of
agricultural productivity growth in the mighty Soviet Union was similar to
that in developing countries (Kriss, 1994).
In the early 1990s, the former Soviet Union thus faced the need for another
land reform, which would reverse the results of collectivisation and hopefully
eliminate the inherent inefficiency of socialist agriculture. Borrowing an
analogy from a market framework, this post-Soviet land reform was similar
to the reform of a hacienda-type system with a mix of central landlorddriven production (the joint production of the collective farm) and individual
tenant-based farming (the household plots). This type of reform is always
much more complex and less smooth than the transition from landlord
estates to family farms (Binswanger et al., 1995).
In market economies, the ultimate aim of land reform (whether of estate
or hacienda type) is the transfer of land to individual ownership and cultivation. Alternative mechanisms (leasing of land to individual farmers, restricted
ownership without free transfer rights) are regarded as a poor second best.
Transfer of land ownership to individuals and households was indeed the
model of land reform for the FSU envisaged by Western experts and scientists
in the early 1990s. It accordingly included two major components: (a) privatisation of land and (b) division of land to family farms. This model was
willingly accepted by local liberals and reformers, who were eager to follow
the predominant (and generally successful) experience of the market economies. The alternative practice of individual farming on state-owned land
received in leasehold (as in Israel, Belgium, or the Netherlands, for instance)
was not given much prominence or consideration at that stage, probably
because most leading experts were not closely familiar with this option.
The basic Western model focused on land and labour only, ignoring other
factors of production. This was dictated primarily by the experience in China
and Vietnam, where the level of mechanisation and purchased input use was
very low and agrarian reform did not have to involve much beyond distributing land to households. The collective farms in the FSU, on the other hand,
operated with a heavy capital asset base. A comprehensive reform of FSU
agriculture thus had to address both the issue of land and the issue of farm
assets. Distribution of land to households had to be augmented by some
Does land reform matter? 311
3.
Initial expectations
In 1990 and 1991, as the countries of East Central Europe and the Soviet
Union embarked upon economic and political liberalisation, expectations
regarding agriculture's role in the process of reform were sharply polarised.
The proponents of traditional collective agriculture resisted the reform
attempts, arguing that privatisation of land and farming structures would
lead to the immediate fragmentation of holdings, causing collapse of food
production and even famine. They regarded privatisation of agriculture as
tantamount to plundering the nation's wealth. The supporters of marketoriented reforms, on the other hand, were expecting a rapid supply response
from agriculture once land and other productive resources began to shift
into individual ownership and collective structures began to disintegrate.
Expectations of rapid recovery were based on the Chinese experience, which,
in the early 1990s, was the only international benchmark for the reform of
collectivised agriculture (Chen, 1981; McMillan et al., 1989; Lin, 1991, 1992).
The reformers also optimistically cited the example of household plots,
which produced 30 per cent of agricultural product on 2 per cent of the
land. The highly positive experience with the household responsibility system
in China and the performance of the household subsector in the socialist
countries were regarded in the early 1990s as sufficient proof of immediate
benefits that could be achieved by privatising land and agricultural
production.
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scheme of allocating and distributing the assets accumulated in large collective farms, be it tractors, combines, livestock stables or grain storage facilities.
This is never an easy task because of the inherent fixity and inseparability
of many of the farm assets, which often require cooperative rather than
individual ownership solutions. The task became even more difficult in the
face of intense political opposition from the traditional and conservative
forces, who, in addition to rejecting the option of privately owned land, also
advocated the preservation of the accumulated capital and infrastructure of
large-scale socialist farms. Land reform in the FSU context thus became
inseparably intertwined with plans and options for the restructuring of the
existing large-scale farms.
In addition to serving the goal of redistribution of the capital base, farm
restructuring could also be regarded as a vehicle for correcting the inherent
inefficiency of large collective farms. Collectives had to be restructured to
operate on market principles so as to institute a system of individual performance-based incentives and rewards, eliminate the phenomena of free riding
and moral hazard, and reduce the burden of transaction costs (the cost of
monitoring labour and enforcing internal contracts).
312 Zvi Lerman
4.
Assessing the impact of reform
Integrated evaluation of the process of agricultural transformation by all
five dimensions is currently very difficult. So far, it has been attempted only
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Both the proponents and the opponents of reform bolstered their arguments with expectations (or fears) of a rapid privatisation of land, quick
dismantling of large collective and state farms, and rapid emergence of
private farming as the dominant form of agricultural production. As an
historical example of the over-optimistic and over-ambitious expectations
of reformers at that time, it is perhaps constructive to recall the December
1991 decree of the Russian President Boris Yel'tsin that gave all twenty-five
thousand collective and state farms in Russia three months, until March
1992, to restructure in line with the new principles.
The reality after five years of reforms is, of course, different. Neither a
collapse nor a rapid recovery has come about. We are now beginning to
realise that the initial expectations were quite naive. First, the encouraging
examples used to justify these expectations were not applicable. The household plots in the FSU were not really more productive than collective farms:
their impressive performance was attributable to specialisation in livestock
(which does not require much land) and to almost total reliance on free
input supply and farm services from collective farms, while their crop and
milk yields were not significantly higher than those on collective farms
(Lerman et al., 1994). In China and Vietnam, agriculture depended much
less on capital and purchased inputs than in the former Soviet Union, so
the transition to small-scale individual farming was easier to accomplish
and produced an immediate impact. Second, expectations of a rapid recovery
and efficiency improvements implicitly assumed a swift transition from inherently inefficient collective production to theoretically more efficient individual farming (the Western market-agriculture model). These expectations
ignored the effect of risk, uncertainty and imperfect markets on individual
choice (Machnes and Schnytzer, 1993), while in reality these factors created
severe obstacles to transition from collective to individual farming.
Perhaps more significantly, the transition to a market-oriented agriculture
is a long and complex process. Privatisation of land and restructuring of
large farms is only one facet of a multi-dimensional process of transition,
and, however important it is, success requires progress in all dimensions.
Csaki and Lerman (1997) identified five relevant dimensions, each divided
into several steps characterising progress towards a market-based agriculture. In addition to land reform, these dimensions are liberalisation of
markets, privatisation of services, establishment of an institutional framework, and development of rural finance. The success of land privatisation
cannot be measured in isolation from the other dimensions.
Does land reform matter?
313
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by assigning purely subjective scores to each dimension and ranking different
countries by unweighted average scores (Csaki and Lerman, 1997). Attempts
to develop quantitative measures for the evaluation of the reform process
usually focus on a single dimension, or even a single aspect of a dimension,
such as the 'decollectivisation index' proposed by Mathijs and Swinnen
(1997). The present author feels that the available empirical base is still not
ripe for a comprehensive assessment of agricultural reforms by all dimensions, and the rest of the article will accordingly focus on selected empirical
findings that, in the author's opinion, highlight some major changes and
impacts achieved specifically in the process of land reform and farm
restructuring.
How should the impact of land reform and farm restructuring in former
socialist agricultures be assessed? The ultimate test, of course, is to register
an increase of agricultural productivity or efficiency compared to the inadequate pre-reform levels. The traditional socialist focus on physical yields
(i.e., productivity of land) should be replaced with a much broader analysis
of all factors of production with the objective of detecting significant
improvements compared to the pre-1990 situation. The available data are
still grossly inadequate for such an econometric analysis, and even the
overall production statistics do not ensure an unambiguously reliable picture.
Another possible approach is to compare the performance of reorganised
entities with that of non-reorganised producers at the same point in time.
This could involve comparison of restructured and non-restructured collectives, comparison of individual private farms with large collectives, and
comparison of agricultural performance in 'deeply reformed' regions and
provinces with that in more conservative regions. Attempts in this direction
have not led to conclusive results so far because of sampling difficulties,
short time series and generally inadequate data. An ongoing comparative
study by the World Bank's International Finance Corporation (IFC) and
the UK Know-How Fund of restructured farms and non-restructured collectives in a number of provinces in the FSU has been unable, so far, to detect
significant differences in performance characteristics of the two groups
(unpublished results). World Bank surveys in three of the FSU countries
(Russia, Ukraine, and Moldova) have failed to detect significantly higher
crop yields among private farmers compared to collectives (Brooks and
Lerman, 1995; Brooks et al., 1996; Lerman and Csaki, 1997; Lerman et al.,
1995; Lerman et al., 1998). Milk yields per cow achieved by individuals are
higher than those achieved by collectives in some countries (Ukraine), lower
in other countries (Turkmenistan), and roughly the same in yet other countries (Moldova). Initial comparisons between more radically restructured
western provinces in Ukraine and more traditional central and eastern
provinces have not detected significant signs of improvement in the 'deeply
reformed' western parts of the country (Lerman et al., 1994). The only
positive piece of evidence emerges from the work of the agricultural policy
314 Zvi Lerman
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group at the Catholic University in Leuven, indicating that in the ECE
countries a higher 'decollectivisation index' has been associated with a
smaller overall decline in agricultural sector production in recent years
(Mathijs and Swinnen, 1997).
Given the generally inconclusive picture of quantitative performance data,
we are forced to look for indirect and partial measures of the impacts of
land reform, based on our understanding of the pre-1990 structure of socialist
agriculture and the goals of market reforms. The two salient features of
socialist agriculture, as noted above, were duality or bimodality of farming
structures and concentration of land in large collectives. Market economies,
on the other hand, are characterised by a continuous spectrum of farm
sizes, with clear predominance of relatively small family-operated units
(Binswanger et al., 1995). Collective or cooperative production is an exception, not the rule. The impact of land reform can be assessed, first and
foremost, by measuring the achievements on this level. The corresponding
criteria include adjustment of farm sizes, depth of internal restructuring of
large collectives, as well as growth of the individual farming sector and
reduction of the collective and state sector.
In the absence of solid production data, the impact of land reform can
also be assessed by looking at rural households' views of their economic
situation 'before and after'. The results of this approach are largely qualitative, yet they provide a good proxy for the general satisfaction with the
process of reform and its achievements. If the direct beneficiaries of land
reform among the rural population are now happier, better off and more
optimistic than individuals who did not participate directly in the process
of land reform, then this is indirect proof that land reform has had a positive
impact on the rural population.
We thus propose an abbreviated, interim agenda for assessing the impact
of land reform, based on available data. This agenda includes examining the
extent of transition from collective to individual farming ('individualisation
of agriculture'), adjustment of large farms to smaller sizes more commonly
observed in market economies ('downsizing of collectives'), depth of internal
restructuring of large farms, and the 'happiness index' of the rural population.
In the future, with more reliable data, it will be possible to extend this
agenda to examine productivity and efficiency changes.
Ample statistical data are available on land redistribution, but much less
is known from official sources about the restructuring of collective farms.
Household-level attitude data are not covered at all by official statistics. To
pursue our assessment agenda, we need to combine statistical data from
official sources with sociological attitude-based surveys. Farm surveys conducted by the World Bank in various countries since 1992 provide relevant
information. The analysis is presented mainly for the FSU countries, which
constitute the dominant part of the former socialist world in Europe: the
Does land reform matter?
315
total endowment of arable land in the FSU is seven times that in ECE, and
the rural population is three times as large.
5. Patterns of land reform
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Two alternative tracks of land reform are discernible in the former socialist
world. These can be characterised as restitution to former owners versus
distribution to users. Restitution normally means that beneficiaries get a
physical plot of land and a registered title, although in some countries
(notably Hungary and the former East Germany) financial compensation is
paid to former owners when physical restitution of old plots is unfeasible.
Distribution, on the other hand, starts with division of the available land
into individual shares, or paper certificates of entitlement. Further procedures are then needed, first, to identify the physical allotment represented
by the paper share and, second, to register it and issue title documents.
While distribution mechanisms are designed to leave land in the control of
active farmers ('land to the tiller'), restitution often transfers land to urban
residents who have no farming experience and at best become part-time or
weekend farmers.
Claims of former owners and restitution are relevant mainly for countries
in which private land ownership existed until after World War II and the
original land owners or their descendants are still identifiable. In the FSU,
where land was nationalised decades ago and the traditions of private
ownership are not strong, land rights are distributed to current users, not
former owners. Land shares are normally distributed without payment to
members and workers in collective and state farms (including pensioners)
and some other categories of rural residents.
Among the FSU countries, reinstatement of pre-collectivisation ownership
and compensation of former landowners is practised only in the Baltic states,
which initially (in 1989-1990) began distributing land to users according to
the prevailing FSU model, but then switched to strict restitution to former
owners. This departure from the FSU model in the Baltics cannot be
attributed entirely to the fact that the area was absorbed into the Soviet
Union and collectivised only after World War II. In Moldova, Ukraine and
Belarus, the western provinces also came under Soviet rule during World
War II and the collectivisation of agriculture was completed in 1950, roughly
at the same time as in the Baltics. Many people in the western parts of these
countries still can identify their 'grandfather's vineyard'. Yet restitution of
land or compensation of former landowners is not part of the official
approach to land reform in these countries. The adoption of the restitution
strategy by the Baltic states is probably a political statement of their psychological desire to sever all links with Russia and the rest of the FSU and a
reflection of their goal to become a part of 'the other' Europe.
316
Zvi Lerman
Table 1. Restructuring modes for collective farms
•
•
•
•
•
Reconstitution of a collective structure based on individual ownership of land and asset
shares
Transformation of the collective structure into a joint-stock corporation based on
individual shares
Division of the collective structure into autonomous profit-oriented entities based on
the individual investment of land and asset shares, and operating within an association
or a service cooperative
Separation of independent entities from the collective structure (family farms,
partnerships, or production cooperatives)
Cooperation of independent entities
Perhaps the two most prominent achievements of agrarian reforms since
1991 are the strengthening of individual farming and the transfer of land
from state to private (not necessarily individual) ownership. While land
privatisation has been possible only in some of the FSU countries that
legally recognise private ownership of land, the role of individual farming
has increased universally, regardless of whether the land has been privatised
or remains state owned.
Private land ownership is recognised in the western part of the FSU,
specifically in Russia, Ukraine, Moldova, Georgia, and Armenia. In the east,
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Both restitution and distribution are linked to restructuring existing farm
enterprises, because they are the main source of land in the former socialist
countries and because it is meaningless to distribute land to new owners,
while leaving other assets untouched. Assets, like land, are divided into
shares among the beneficiaries, based on various criteria. The shareholders
then have the option of keeping their land and asset shares in the restructured
farm enterprise, or leaving the former collective with their share of land and
assets with the object of establishing an independent private farm. The
design of the land reform mechanism in the FSU thus does not necessarily
lead to fragmentation of the large collective farm: while independent private
farmers may certainly exit, other shareholders may opt to remain in the
collective enterprise, forcing it through a process of internal restructuring.
The various farm restructuring modes, ranging from a mere 'changing of
the sign on the door' to an association of producer groups and finally to
individual farmers, have been described and discussed in the literature
(Lerman, 1995; Csaki and Lerman, 1996; Lerman, 1997; Swinnen and
Mathijs, 1997). The alternative modes are summarised schematically in
Table 1. All the farm-restructuring modes listed in this table can actually be
observed throughout the region, although certainly not with equal frequencies. The order of appearance in Table 1, which corresponds to increasing
'depth of restructuring', roughly matches the frequency ranking of the
different modes in the ECE and FSU countries: less radically restructured
farms remain much more dominant than more radically restructured forms.
Does land reform matter?
317
the six Central Asian republics, including Kazakhstan, generally retain state
ownership of agricultural land, and certainly of land intended for commercial
farming. Where private ownership is recognised, the share of the state has
declined from 100 per cent prior to 1991 to less than 50 per cent of arable
land (Table 2). These numbers are changing continuously, as land privatisation is an ongoing process in all countries.
Percentage of Land in State Ownership
All agricultural land
Russia
Ukraine
Moldova
Georgia
Armenia
Excluding pastures
40 (estimated)
42
17
78
67
54
35
Source: Official country statistics; in Georgia and Armenia, government strategy is against
privatising mountain pastures, which account for a substantial proportion of agricultural land.
There is another dichotomy among the western republics in the preferred
mode of land privatisation. The three small, densely populated republics,
namely Georgia, Armenia, and most recently also Moldova, have moved in
the direction of 'mass privatisation', i.e., comprehensive distribution of land
to individuals and elimination of the role of large-scale farm enterprises.
The two giants, Russia and Ukraine, continue to prefer concentration of
land in large collective farms, while allowing and even encouraging some
distribution to individuals. In Russia and Ukraine, state-owned land has
been privatised wholesale, in chunks of thousands of hectares, by transferring
its ownership to local collectives. This privatised land, however, is not owned
by individuals: it is now owned jointly by hundreds of people in each large
farm enterprise (a former collective or state farm). Exclusive state ownership
of the past is thus being replaced in the FSU by a mixture of collective and
individual ownership, similar to the ownership pattern that persisted in ECE
between 1950 and 1991.
In addition to large-scale privatisation of land to collectives, substantial
amounts of land have been transferred by the state to individuals. 'Land
individualisation', as distinct from 'land privatisation', is observed in all
FSU countries, regardless of the legal attitude towards land ownership. One
mode of land individualisation involved enlargement of the traditional subsidiary household plots, which had existed throughout the Soviet era. Since
1991, the size of the household plots in various FSU countries has practically
doubled through generous reallocation of land from large collectives to
individual holdings (Csaki and Lerman, 1996). This was a process whereby
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Table 2. Share of state-owned land in FSU countries that recognise private land
ownership: 1996-1997
318 Zvi Lerman
Table 3. Share of individual sector in agricultural production in the FSU (% of gross
agricultural product)
Russia
Ukraine
Moldova
Turkmenistan
Uzbekistan
Armenia
Georgia
Source:
Official country statistics.
1990
1995
26
27
18
17
28
35
35
46
46
39
30
41
100
65
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the state allocated land to households in permanent use rights or in ownership, according to fixed general criteria, and individuals did not have to
apply deliberately in order to receive land.
The individual sector also grew through a fundamentally new mechanism
that allowed the establishment of private family farms outside the collectivist
framework. Hundreds of thousands of independent family farms have
emerged in the FSU (Lerman, 1997). A distinctive feature of these private
farms is their substantially larger size: while household plots typically have
less than 1 ha of land, private farmers cultivate from several hectares to tens
of hectares (depending on the land endowment in each country). Unlike the
extension of the household plots, the establishment of a private farm is not
an automatic option: the interested individual has to apply to local authorities to receive land, and the application must meet various criteria. Even in
countries that recognise private ownership of land, not all land in private
farms is privately owned. Survey data indicate that private farmers own less
than half their land holdings in Russia (Brooks and Lerman, 1995) and less
than one-third in Ukraine (Lerman et al., 1995). Private farms, unlike
household plots, also cultivate land leased from the local collective enterprise,
other individuals, or the state (Lerman, 1997).
The strengthened individual sector, including both enlarged household
plots and private family farms, now accounts for about half the agricultural
product in the FSU (Table 3). Most of this output, however, is from household plots, and the contribution of the private family farms is still small. In
Russia, for instance, private farms account for about 2 per cent of gross
agricultural product, compared to the 44 per cent that originates in household plots.
The strengthening of the individual sector involved land transfers from
large collective farms to household plots and private farmers. The average
collective in Russia, Ukraine, or Moldova has shrunk by more than 15 per
cent since 1991 (Table 4), partly because of land distribution to individuals
and partly due to internal restructuring, which often leads to a division of
Does land reform matter?
Table 4.
Russia
Ukraine
Moldova
Downsizing of large farm enterprises in the FSU (average farm size in
hectares)
1990-91
1995-96
Change in size
9,500
3,700
2,800
8,000
3,100
2,000
-16%
-16%
-27%
World Bank surveys.
the original enterprise into two or three smaller units. As a result of the
opposing processes that augment the individual holdings and reduce the
size of collectives, the traditional bimodal structure of socialist agriculture
is becoming less sharp. Survey data for Russia reveal a definite shift in the
distribution of farm enterprises towards smaller sizes between 1990 and 1993
(Brooks et al., 1996; Lerman, 1997), although the smallest farm enterprises
are still very large compared to typical farms in market economies. At the
same time, the emergence of a new category of private farms, between the
two extremes of farm-size distribution, with sizes of 10-40 ha, is beginning
to have a smoothing effect. A similar phenomenon is observed in ECE,
where the average size of collective farms declined from 3-4 thousand ha in
1990 to 1-2 thousand ha in 1995, while the average size of individual farms
increased from less than 0.5 ha to about 2 ha and more (Csaki and Lerman,
1996). Thus the process of land reform has produced a noticeable downsizing
of the very large socialist farms, shifting the farm size distribution towards
those of market agricultures.
6. The new collectives
Despite the downsizing of large farms and the expansion of the individual
sector, collectives continue to dominate the FSU agriculture. In all former
Soviet republics, farm enterprises control most of the land resources, and
the individual sector cultivates about 15 per cent of agricultural land
(Table 5). Although this is much higher than the 2 per cent share of the
pre-1991 period, it shows that, so far, there has been no drastic fragmentation
of the traditional large structures. The only exception is Armenia, where
large farm enterprises have been virtually eliminated and all farming is done
by individuals.
According to official statistics, between 80 and 90 per cent of the traditional
collective farms are no longer called 'kolkhozes' (Brooks et al., 1996; Lerman
et al., 1995, 1998). They have re-registered as joint-stock societies, limited
liability companies, partnerships, agricultural cooperatives, or other new
names. By this measure, all is well with the reform process. Yet there are
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Source:
319
320
Zvi
Table 5.
Lerman
Land holdings by user in the FSU: 1995 (% of agricultural land)
Individual sector
87
80
85
18
78
92
86
59
13
15
15
82
22
8
14
24
Russia
Ukraine
Moldova
Armenia
Georgia*
Turkmenistan
Uzbekistan
Kyrgyzstan
* In Georgia, households cultivate 22% of agricultural land and 44% of arable land.
Source: Official county statistics.
practically no official data on what is happening behind the new facade,
and it often seems that, so far, farm restructuring has amounted to a mere
'changing of the sign on the door'. Recent survey data for Ukraine and
Moldova provide a glimpse of the extent of internal restructuring in these
newly reorganised large farms (Table 6). Although the numbers for Ukraine
and Moldova are very different, the restructuring mode in both countries
involves the definition of autonomous functional subdivisions within the
large farm enterprise. The subdivisions are largely responsible for their own
production decisions, yet most reorganised farms have kept a central management structure that coordinates the decisions of the autonomous subdivisions on the overall farm level. The central management is also typically
responsible for the relations with banks and financial institutions, as very
few subdivisions (even in Moldova) have their own bank accounts or access
to credit.
The progress with internal restructuring of large farms is much more
impressive in Moldova than in Ukraine, although real reforms in Moldova
began only in 1996. This may be due to the desperate economic situation
of the large farm enterprises in Moldova, which spurred them to start
Table 6.
Management structure in reorganised enterprises (% offarms in the survey)
Farms retain central management
Subdivisions have independence in:
production planning and management
input purchasing/product marketing
hiring and firing
Subdivisions have own administrative staff
Subdivisions have own bank account
Source: World Bank surveys.
Ukraine
Moldova
96
72
75
5
7
5
0
76
35
47
32
10
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Collective and state sector
Does land reform matter?
321
7. Transactions in land
Privatisation of land has not yet led to the development of significant land
markets in the FSU, mainly because of various restrictions on transactions
in land (Csaki and Lerman, 1997). There is evidence of buying and selling
of small household plots, together with the family home, in Russia, Ukraine,
and Moldova (Wegren, 1995: Lerman et a)., 1998), but buy-and-sell transactions involving commercial farm land are virtually unknown. Transactions
in land are largely restricted to leasing from the state, the local collective
enterprise, or other individuals. Leasing appears to be the only practicable
mechanism at this stage for adjusting farm sizes and transferring land from
inactive or inefficient owners to active and efficient producers. Table 7 shows
that leasing is indeed practised as a mechanism for enlarging land holdings
in different countries both in the FSU and in ECE. Leasing-out can enable
inactive landowners to make sure that their land does not remain idle and
that they continue to receive an income from their assets. Thus, pensioners
throughout the region, or urban restitution beneficiaries in ECE, can lease
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reorganising quickly and radically in order to survive. Farm enterprises in
Moldova are still far from enjoying true autonomy within the larger collective structures, yet Moldova appears to provide a template for a relatively
straightforward restructuring mechanism for traditional farms.
Available data are insufficient for detecting differences in performance
among the different organisational forms of the new collectives. Nor are
they sufficient for a comparative study of the performance of reorganised
versus non-reorganised collectives. As already mentioned, an IFC study in
several provinces in Russia has failed so far to detect differences in the
performance of restructured and non-restructured collectives.
While the general impression is that very little has changed in the structure
and organisation of the large farm enterprises (apart from some downsizing),
they nevertheless differ in one significant feature from the traditional socialist
collectives. The members of the new collectives are now holders of welldefined shares in land and assets, and the decision to keep their shares in
the collective for joint use is voluntary, not compulsory. The current legislation in most FSU countries explicitly allows individuals to leave the collective with their share of land and assets in order to establish an independent
private farm. Thus, the new collectives, at least in theory, are voluntary
structures that guarantee the right of exit of their members. Conceptually,
this is a dramatic change compared to the closed compulsory cooperatives
of the socialist era. Perhaps this new attribute of collectives has not yet had
time to produce an impact on the structure of agriculture in the FSU, but
it has certainly laid down an institutional foundation for deep structural
changes in the future.
322
Zvi
Table 7.
Lerman
Leasing of land by private farms
Farms with leased land
Source:
Total size
(ha.)
Private land
(ha.)
Leased land
(ha.)
14
2
6
7
2.6
8.7
16.9
4.1
1.6
0.9
3.4
2.4
1.0
7.8
13.5
1.7
1.3
0.7
2.8
3.0
World Bank surveys.
out their parcels to active farmers or collectives in return for a fixed lease
payment or a share of revenues.
We note that private ownership of land is neither necessary nor sufficient
for land transactions. Kazakhstan and Kyrgyzstan do not recognise private
ownership of land, and yet the use rights in these countries are secure for
more than 50 years and are fully tradeable. In Russia, Ukraine, and Moldova
private land ownership has been recognised since 1991, but, until recently,
land transactions were prohibited by various moratoria. In Georgia, where
a large proportion of land was privatised in 1992-1993 and no formal
moratoria were in force, land transactions could not be carried out for lack
of an appropriate legal framework for land sales (the required law was
adopted only in February 1996). Finally, Turkmenistan, the only Central
Asian country whose constitution recognises private ownership of land,
prohibits outright any transactions in land between individuals other than
short-term leasing, as does Uzbekistan, where private land ownership is not
recognised.
Land markets are essential for adjusting farm sizes and transferring land
from less efficient to more efficient producers. In this sense, land markets
will have a long-term impact on the performance of agriculture, and are
thus generally regarded as an important component of the process of land
reform. As long as legal and administrative restrictions impede the development of land markets (for sale or leasing) and thus prevent farm size
optimisation through market mechanisms, the former socialist countries will
not be able to realise the full potential benefits of land reform in terms of
production efficiency.
8.
The benefits of individualisation of land
Despite the ambiguity in property rights and obstacles to transactions in
land, the growth of the individual sector is having a significant impact on
the rural population. The original Soviet rationale for allowing individual
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Armenia
Georgia
Moldova
Romania
Percent
of farms
Farms without
leased land
(ha.)
Does land reform matter?
323
Table 8.
Commercialisation of the individual sector (% of output sold)
Household plots
Private farms
9
11
26
27
35
NA
Moldova
Russia
Ukraine
Armenia
Georgia
Source:
28
33
World Bank surveys.
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farming in small household plots was to provide the rural population with
an independent source of food, thus freeing the central planners from the
need to worry about feeding the countryside. Indeed, pre-1991 household
budget surveys published in Soviet statistical yearbooks indicate that rural
families derived on average 25 per cent of their total income from the
household plot. By increasing the land holdings of the individual sector, the
governments in the FSU countries improved the ability of the rural population to satisfy its subsistence needs. After decades of persistent out-migration
from rural areas, some FSU countries have actually witnessed an increase
of the rural population in recent years: urban residents are discovering the
attraction of the village as an easy source of food for their families and
apply to receive land for individual cultivation.
Yet the individual farming sector does not limit its production to satisfying
subsistence needs. Recent farm surveys consistently indicate that both household plots and private farms sell a substantial proportion of their output in
nearby town markets. The share of output consumed within the family is
still greater than the share of output sold, but, on average, the individual
sector sells about one-third of its production volume (Table 8). Farmers who
produce more also sell more, and the increasing commercialisation of the
individual sector makes a tangible contribution to keeping the town markets
in the FSU countries well stocked with produce.
Armenia and Georgia, the two countries that suffered from war and civil
strife, demonstrate the benefits of the contribution of individual production
to family subsistence and to commercial supply of food in the markets. In
these two Transcaucasian countries, agriculture has shifted to pure individual
production. In Armenia, all arable land was distributed to individual peasants in 1992, and large collective holdings were eliminated. The process was
swift and was conducted in exemplary order. In Georgia, the distribution of
land to individuals was partial, but large collective farms ceased to function
and all agricultural production today originates in the individual sector.
Although the economy of these two countries was in a state of disarray until
quite recently, there was no sign of famine and everyone was reasonably
well fed throughout the difficult times. The markets were always full of
324 Zvi Lerman
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produce, and the only shortage that the urban residents suffered may have
been shortage of cash, not of food. Had production remained concentrated
in large farm enterprises, the collapse of the central distribution and marketing system in wartime would have prevented the delivery of products from
the large bureaucratically managed farms to the population. The individual
sector, however, has proved much more resilient and adaptable to the
changing situation. It has managed to feed itself and the urban residents
as well.
A related phenomenon is now taking place in Moldova, another small
former Soviet republic. After years of political deadlock that prevented
significant reforms in agriculture, the large collective farms are economically
in very poor shape. Most of them report large losses and have been unable
to pay salaries for more than 6 months (Lerman et al., 1998). This is proving
to be a major stimulus for rural families to leave the collective enterprise
and to establish an independent private farm on a separate plot of land.
Private farmers in Moldova cite the economic failure of the collective as the
main single reason for their exit to establish an independent farm (Lerman
et al., 1998). This observation is consistent with Mathijs and Swinnen's
(1997) finding that there is an inverse relationship between their 'decollectivisation index' and the economic situation of the parent collective. The number
of private farms in Moldova has increased very fast since 1994 to about
70,000 farms, which is more than double the number of private farms in all
of Ukraine, where the population is 10 times larger.
The case of Russia and Ukraine illustrates the mutually compensating
forces between the scope of agricultural reforms and individualisation of
agriculture. Unlike Moldova, both Russia and Ukraine have been implementing a wide range of agricultural reforms since 1991. The reforms have
been partial, limited, gradual and controversial, but still the reform process
has been moving forward in these countries, primarily due to the personal
conviction of their presidents. There has been an ongoing debate about
private ownership of land, for instance, but land privatisation continued by
force of presidential decrees. In Moldova, on the other hand, all progress
was blocked by parliamentary disputes, and the situation remained frozen
until the end of 1994, when a landmark decision by the consititutional court
relaunched the reforms. In the process of ongoing reforms in Russia and
Ukraine, large farm enterprises have implemented various changes in an
attempt to adapt to the new environment, and their economic situation
today is not critical (although it is unquestionably worse than in the Soviet
era, when the agricultural sector enjoyed virtually unlimited budgetary support). Farm members and employees thus have much less motivation to
leave the collective framework and set up a private farm than their counterparts in Moldova. The establishment of private farms in Russia and Ukraine,
after a dramatic initial burst in 1992-1993, has stagnated in recent years
and has remained virtually unchanged since 1995, as new entrants are
balanced by liquidations of failing farms. The structure of the farm sector
Does land reform matter?
325
9. The human impacts of reform
While there is still no clear evidence on performance differentials between
farms of different organisational categories, the attitudes of families and
individuals revealed in various farm surveys suggest that reform has had a
positive impact. We have already cited evidence of some urban-to-rural
migration due to agricultural reforms. Contrary to the situation in former
East Germany, where changes of ownership structure and dramatic increases
in factor efficiency have led to high redundancies among the rural population
(Koester and Brooks, 1997), reforms have not produced additional unemployment in rural areas of the FSU. There is actually evidence that smallscale individual farming absorbs more labour than the large-scale collectives,
despite their large contingent of non-productive workers employed in various
support services. In densely populated, land-poor Moldova, private farms
employ 1.2 workers per hectare, while large farm enterprises employ only
0.3 workers per hectare. In land-rich Ukraine, one worker is supported by
5.5 ha in a private farm and 8 ha in a collective enterprise. In Russia, private
farms report land endowments of 26 ha per worker, while collective enterprises report 38 ha per worker. Individual farming, by acting as a labour
sink, may provide at least a partial solution to the problem of productive
employment of the rural population and prevent the migration of unemployed farm labourers to urban areas, migration that would most certainly
impose an impossible burden on the fragile fabric of social and welfare
services in the FSU countries.
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in Russia and Ukraine is still changing, but it appears much closer to a
balanced coexistence of different organisational forms than in Moldova,
where peasants are fleeing the large-scale enterprises in despair.
Unfortunately, there are no systematic cost and income data for household
plots and private farms that would enable us to compare the performance
of these two components of individual agriculture and to determine their
viability in a market environment. World Bank survey data for Armenia,
Georgia, and Moldova indicate that private farmers are profitable in the
current economic environment. Since private farmers in these countries enjoy
extremely limited government support and sell their output in an open
market, this suggests that private farms are economically viable. The situation regarding household plots is much less clear, however. In the past, they
relied totally on free inputs from the host collective and sold much of their
output through the collective. Today, reliance on the collective has been
largely eliminated, and household plots are fairly independent in their input
purchases and product sales. Those remaining today will probably continue
to survive as independent entities if the collectives break up in the future.
This view is supported by the situation in Georgia, where agriculture rests
almost entirely on the shoulders of the household plots. Yet without quantitative evidence, all this remains in the domain of conjecture.
326
Zvi Lerman
better
no change
0
10
20
30
40
50
Percentage of Respondents
60
Key: • farmers, • employees.
Source: World Bank surveys for Russia and Moldova.
Figure 1. Wow has the family situation changed in the last few years?
below minimum
subsistence
adequate
comfortable
10
20
30
40
Percentage of Respondents
50
Legend:
'Below minimum' - family income not sufficient to buy all
the food it needs;
'Subsistence' - family income sufficient to buy food and the
bare necessities of life;
'Adequate' - family can afford clothing, shoes, etc., in addition to food;
'Comfortable' - family can also afford durable products and
experience no material difficulties.
Key: • farmers, • employees.
Source: World Bank surveys for Russia, Ukraine, and
Moldova.
Figure 2.
What the family budget buys
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worse
Does land reform matter? 327
better
no change
10
20
30
40
50
Percentage of Respondents
60
Key: • farmers, • employees.
Source: World Bank surveys for Russia, Ukraine, and
Moldova.
Figure 3. Perception of family's future prospects: 'How will the family's economic
situation change in the next few years?'
Another important outcome of reform emerges from a comparison of
attitudes and subjective situation assessments of independent private farmers
and employees of large farm enterprises, based on recent surveys in three
major FSU countries - Russia, Ukraine, and Moldova. Private farmers, in
most cases, are former farm-enterprise employees who have decided to leave
the collective and take the fate of their families into their own hands. The
remaining farm-enterprise employees are basically the same human material
as private farmers, but they have a different set of attitudes and priorities:
they prefer the relative safety of the traditional collective framework to the
risks and uncertainties associated with independent farming. Both groups
give a fairly low evaluation of the general standard of living in their countries.
Yet their responses show that, on the whole, farmers are better off and more
optimistic than employees of collective enterprises.
The percentage of respondents reporting that the family budget is just
sufficient for subsistence is significantly higher among farm-enterprise
employees than among private farmers; at the other extreme, a much higher
percentage of private farmers report that they can afford more than just the
bare subsistence needs, including even the purchase of durables (Figure 2).
Private farmers evaluate the changes during the last few years more positively
than farm-enterprise employees: a significantly higher percentage of private
farmers judge the situation to have improved, while most farm-enterprise
employees, at best, regard the situation as unchanged (Figure 1). Finally,
private farmers face the future with much greater optimism than employees
remaining in collective farm enterprises (Figure 3).
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worse
328 Zvi Lerman
10. Conclusion
In addition to land reform, agricultural reform includes market liberalisation,
privatisation of services, establishment of an institutional framework for
agriculture and development of rural finance. The success or failure of land
reform cannot be measured in isolation from these other dimensions. It is
still difficult to measure the economic impact of reforms in agriculture, not
only because the time is too short and the data are poor, but also because
no country has implemented a comprehensive set of reforms in all relevant
dimensions and the observed negative features can always be attributed
to the failure to implement some subset of the necessary reforms. The
only indisputable observation, namely the decline in agricultural output, is
probably associated with the general transition in the economy, and is not
an outcome of agricultural reforms.
Another negative feature of reform is the continued dominance of large
farm enterprises in FSU agriculture. Despite definite downsizing of the
traditional farms and the substantial increase of the individual sector, most
land resources are still controlled by collective organisations. Internal
restructuring of these collectives into smaller autonomous units consistent
with principles of market operation is generally regarded by market economists as a task of highest priority for all economies in transition.
In general, agrarian reforms have not moved in line with original expectations. Most land is not in individual cultivation; family farming has not
become the dominant form of agricultural production. The reasons for this
divergence between expectations and achievements range from national
political difficulties to individual risk aversion. There is no conclusive evidence that the ultimate economic results would have been different had the
expectations been realised in full. Yet, reforms in agriculture appear to have
had a beneficial, albeit limited, effect on the rural population. Distribution
of land to individuals has improved the food supply situation both in the
village and in town markets. Restructuring of large farm enterprises has not
produced rural unemployment, and the village now appears more attractive
to urban residents. Individual producers show a definite commercial orienta-
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Private farmers are at the leading edge of reform. They have taken a clear
decision, and there is no turning back to the safety of the collective umbrella.
They are exposed to all the risks that producers have to face in a transition
environment prone to extreme economic and legal uncertainty, including
the ultimate risk of bankruptcy. Nevertheless, they appear to be happy and
optimistic relative to those individuals who have decided to stay in the
collective rather than face the risks of personal initiative. In a certain sense,
this is the most significant and most encouraging outcome of reform: the
efforts have not been in vain.
Does land reform matter?
329
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