WbP 326 3o 199 6 32 7 1231 World Bank Discussion Papers Agricult ura Reform in Russia A View from the Farm Level Karen Brooks Elmira Krylatykh Zvi Lerman Aleksandr Petrikov Vasilii Uzun Recent World Bank Discussion Papers No. 257 Imnproving thie Quality of Primary Edncation in Lfatir Anierica: Tow)ards tin 21st Centuary. Lawrence Wolff Ernesto Schiefelbein, andJorge Valenzuela No. 258 Howi, Fast is Fertility Declining in Botswana and Zi,nbabuive? Luncan Thomas and Ityai Muvandi No. 259 Policies Affecting Fertility and Contraceptive Use: Arr Assessment of Twvelve Srrb-Salaraii Countries. Susan Scribner No. 260 Financial Systems in Sub-Sahlaranr Africa: A Comparative Study. Paul A. Popiel No. 261 Poverty Alleviation and Social Investmenit Funlds: DTfe Latin Anmerican Experience. PhilipJ. 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Joffe No. 285 Sharing tire M/ealtir: Privatization through Broad-based Ow'nershiIp Strategies. Stuart W. Bell No. 286 Credit Policies a,nd tihe Iinduistrialization of Korea. YoonJe Cho andJoon-KyLing Kim No. 287 East Asia's Environment: Principles and(' Priorities for Action. Jeffrey S. Hanmmner and Sudhir Shetry No. 288 Africa's Experience with Structural Adjustmenit: Proceedings of thie Harare Semiinar, Afay 23-24, 1994. Edited by Kapil Kapoor No. 289 Rethinking Researclh on Land Degradation in Developing Car nitrics. Yvan Bior, Piers Macleod Blaikie, Cecile Jackson, and Richard Palmer-Jones No. 290 Decentralizitig Infrastnicturc: Advantages anid Limruitationis. Edited by Antoniio Estache (Continued o, thie inside back cover) 32 7 1 World Bank Discussion Papers Agricultural Reform in Russia A View from the Farm Level Karen Brooks Elmira Krylatykh Zvi Lerman Aleksandr Petrikov Vasilii Uzun The World Bank Washington, D.C. Copyright c 1996 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printingJune 1996 Discussion Papers present results of country analysis or research that are circulated to encourage discussion and comment within the development community. To present these results with the least possible delay, the typescript of this paper has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any maniner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. 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The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list (with full ordering information) and indexes of subjects, authors, and countries and regions. The latest edition is available free of charge from the Distribution Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washingtoni, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'M&na, 75116 Paris, France. ISSN: 0259-2 1OX Karen Brooks is principal economist in the Sector Policy and Water Resources Division of the World Bank's Agriculture and Natural Resources Department. Ehlmira Krylatykh is a senior researcher at the Agrarian Institute, Moscow, Russian Federation. Zvi Lerman is a senior lecturer, Department of AgricultLral Econom- ics and Management, the Hebrew University, Rehovot, Israel. Aleksandr Petrikov is director of, and Vasilii Uzun is a senior researcher at, the Agrarian Institute, Moscow. Library of Congress Cataloging-in-Publication Data Agricultural reform in Russia: a view from the farm level / Karen Brooks ... [et al.]. p. cm. - (World l3ank discussion papers; 327) Includes bibliographical referenices. ISBN 0-8213-3655-X 1 . Agriculture-Economic aspects-Russia (Federation). 2. Agriculture and state-Russia (Federation). 3. Russia- (Federation)-Rural conditions. 4. Agricultural laws and legislation-Russia (Federation). 5. Agriculture-Economic aspects- Russia (Federation)-Statistics. 6. Agriculture and state-Russia (Federation)-Statistics. 7. Russia (Federation)-Rural conditions- Statistics 1. Brooks, Karen McConnell. HD1995.15.A65 1996 338. 1'847-dc2O 96-20414 CIP iii Contents FOREWORD ............................... ix ABSTRACT ............................................... xi INTRODUCTION ............................................... xiii The Composition and Geography of the Sample . ........................................... xiii Scientific and Technical Team ................ ............................... xv References ............................................... xvi SUMMARY AND CONCLUSIONS ............... ................................ xvii 1. RUSSIAN AGRICULTURE: 1992-1994 . ............................................... 1 Recent Changes in Land Tenure and Farm Organization ................ ...................... 1 Sectoral Performance During the Period 1991-1994 ........................................... 3 Profitability and Incentives ............................................... 4 Farm Finances, Debt, and Investment ................................................ 7 Marketing of Output ...................... 9 Agricultural Trade ...................... 10 List of Data Sources in Chapter 1 ...................... 13 2. THE LEGAL FRAMEWORK FOR LAND MARKETS AND REORGANIZATION OF FARMS ......... 15 Russian Land Law .................................................................... 15 Land Ownership . ............................................................. 16 Land Transactions ................. ........................................... 18 Mortgage of Land ................. ........................................... 20 Farm Restructuring . ................................................................. 20 The Ambiguous Status of Land Shares ................................................... 22 Treatment of Land Shares in Government Resolution No. 96 .......................... 22 Treatment of Land Shares in Recent Legislation ..................................... 23 Treatment of Land Shares in Draft Land Code ...................................... 24 Outcomes and Next Steps . ............................................................. 24 Size Distribution of Reorganized Russian Farms .................................... 25 Exit: The Need for a Mechanism ................................................. 26 References to Chapter 2 . .............................................................. 27 3. REORGANIZATION OF LARGE FARM ENTERPRISES ........................................ 29 Exits of Employees During Reorganization ................................................ 32 Attitudes toward Ownership of Land ..................................................... 33 Organization and Changes in Farm Management ........................................... 34 Production in Farm Enterprises ......................................................... 35 Crops . ..................................................................... 35 Livestock .................................................................... 36 Labor .......................................................................... 37 Farm Inputs and Services . ............................................................. 38 Marketing .......................................................................... 41 Processing ......................................................................... 43 Social Services and Benefits ................ ........................................... 44 Perceived Difficulties During Reorganization .............................................. 45 Finance and Credit .................................................................... 45 iv 4. FARM EMPLOYEES ...................................... 49 Demographic Profile ...................................... 49 Employees and Farm Reorganization .......... ............................ 50 Family Income ...................................... 51 Plot Structure and Tenure ...................................... 52 Attitude Toward Private Farming ...................................... 54 Household Production: Livestock and Crops ................ ...................... 54 Marketing ...................................... 55 Social Services and Expectations ...................................... 57 5. PRIVATE FARMERS ...................................... 59 Demographic Profile ...................................... 59 Farm Size and Ownership ...................................... 60 Attitude toward Ownership of Land ...................................... 63 Family Income ...................................... 63 Production ...................................... 64 Labor and Machinery ...................................... 66 Marketing ...................................... 67 Farm Inputs ...................................... 69 Cooperation ...................................... 71 Debt and Finances ...................................... 72 v List of Tables A. General Characteristics of the Five Sampled Provinces ...................................... xiv B. Distribution of Respondents by Provinces in Two Surveys .................................... xv 1.1. Land Holding by Type of User in Russia: 1991-1995 ......................................... 1 1.2. Share of Land and Production by Farm Category in 1994 ..................................... 1 1.3. Agricultural Enterprises of Different Organizational Forms .................................... 2 1.4. Share of Agriculture in GDP and Index of Gross Agricultural Output in Russia: 1990-1994 ........... 3 1.5. Livestock Numbers and Sectoral Structure of the Herd in Russia ................................ 5 1.6. Index of Gross Agricultural Output in Economies in Transition ................................. 5 1.7. Index Numbers of Prices for Agricultural Outputs and Inputs in Russia ........................... 6 1.8. Domestic and Border Prices in Russia: 1993-1994 ........................................... 6 1.9. Index of Investment in Russia: 1990-1994 ................................................. 8 1.10. Financial Position of Russian Agriculture .................................................. 8 1.11. Working Capital Position of Russian Agriculture ............................................ 8 1.12. Change in Marketing Channels in Russia: 1991-1994 ........................................ 10 1.13. Prices in Various Marketing Channels in Russia: Third Quarter 1994 ........................... 11 1.14. Russian Imports: 1990-1994 . .......................................................... 11 1.15. Food Imports to Russia from Non-FSU Countries .......................................... 11 2.1. Forms of Land Tenure and Associated Disposition Rights in the Russian Civil Code ..... .......... 17 2.2. Nizhnii Novgorod Farm Restructuring Procedure ........................................... 21 3.1. Forms of Farm Reorganization . ........................................................ 29 3.2. Rights Associated with Land and Asset Shares: ............................................ 31 3.3. Exit of Employees During Reorganization of Farm Enterprises ................................ 33 3.4. Expected Changes as a Result of Farm-Enterprise Reorganization .............................. 34 3.5. Production and Product Mix in Russian Farm Enterprises 1990-1994 ........................... 35 3.6. Structure of Production and Sales . ...................................................... 35 3.7. Crop Production and Structure of Planted Area in Farm Enterprises: 1992-1993 ................... 36 3.8. Livestock Production in Farm Enterprises ................................................. 37 3.9. Number of Animals per Farm and per Producer ............................................ 37 3.10. Labor Resources in Russian Farm Enterprises: 1990-1993 .................................... 37 3.11. Wages in Russian Farm Enterprises, October 1993 .......................................... 37 3.12. Management Strategies: What to Do If No Money to Meet Payroll? ............................ 38 3.13. Access to Different Supply Channels for Farm Inputs and Services ............................ 39 3.14. Enterprises Acting as Suppliers of Farm Inputs ............................................. 40 3.15. Cooperation in Purchase and Use of Inputs ................................................ 40 3.16. Reported Difficulties in Purchase of Farm Inputs ........................................... 41 3.17. Services Supplied by Farm Enterprises to Rural Residents ................................... 41 3.18. Proportion of Output Consumed and Sold by Producers ...................................... 42 3.19. Main Marketing Channel by Commodity .42 3.20. Marketing Problems as Reported by Farm-Enterprise Managers ............................... 43 3.21. Processing Facilities in Farm Enterprises .............. ................................... 43 3.22. Payment in Kind to Farms from Processors ............. ................................... 43 3.23. Transfer of Social Assets to Local Council ............. ................................... 44 3.24. Perceived Difficulties During Reorganization .............................................. 45 3.25. "What to Do with Farm Debt During Reorganization?" ........................................ 46 3.26. Loan Collateral Used by Farm Managers: 1992-1994 ........................................ 46 3.27. "What Farm Structures will Have the Greatest Difficulty Obtaining Credit Next Year?" ... ........... 47 3.28. Anticipated Access to Credit for Private Farmers Compared to Collectives ....................... 47 vi 4.1. Ownership of Housing in Employee Families .............................................. 49 4.2. Education Profile of Employee Families .............. .................................... 50 4.3. Occupation Profile of Employee Families ............... .................................. 50 4.4. Salary Delays in Farm Enterprises, 1992-1993 ............................................. 51 4.5. Supplementary Income in Kind Paid to Employees in 1993 ................................... 52 4.6. Household Plots as Reported by Russian Managers and Employees ............................. 52 4.7. Land Tenure and Sources of Land in Household Plots ....................................... 53 4.8. Average Size and Composition of a Household Plot ......................................... 53 4.9. Views of Private Farming Expressed by Members and Employees of Farm Enterprises .... ......... 54 4.10. Production in Household Plots . ......................................................... 55 4.11. Livestock in Households .............................................................. 55 4.12. Employees Reporting Production and Commercial Sales by Product ............................ 56 4.13. Marketing Channels for Household Plots ............... .................................. 56 4.14. Prices Received by Households and Farm Enterprises ....................................... 57 4.15. Reported Availability of Social Services and Benefits ....................................... 58 5.1. Education Profile of Private Farmers and Farm Employees ................................... 59 5.2. Housing of Private Farmers ............................................................ 60 5.3. Average Size of Private Farms and Structure of Land Use .................................... 61 5.4. Distribution of Number of Households per Private Farm ..................................... 61 5.5. Average Size of Single-Family and Multi-Family Farms ..................................... 62 5.6. Structure of Land Tenure in Private Farms .............. .................................. 62 5.7. Sources of Land in Private Farms by Province ............................................. 63 5.8. Preferred Form of Land Tenure in Private Farms and Household Plots .......................... 63 5.9. Attitude to Buy-and-Sell Transactions in Land ............................................ 63 5.10. Employment of Head of Household and Spouse in Private-Farmer Families ...................... 64 5.11. Production of Private Farms and Household Plots .......................................... 65 5.12. Livestock in Private Farms and Household Plots ........................................... 66 5.13. Farm Labor and Farm Size Indicators . ................................................... 67 5.14. Farmers with Agricultural Machinery . ................................................... 67 5.15. Proportion of Output Consumed and Sold by Private Farmers ................................. 67 5.16. Main Marketing Channels by Commodity ............... .................................. 68 5.17. Marketing Problems as Reported by Private Farmers ........................................ 69 5.18. Prices Received by Farm Enterprises, Households, and Private Farmers ......................... 69 5.19. Use of Different Supply Channels for Farm Inputs and Services ............................... 70 5.20. Reported Difficulties with Purchase of Farm Inputs and Services .............................. 71 5.21. Cooperation Among Private Farmers 1992-1994 ........................................... 71 5.22. Farmers Owning "Less than a Whole Machine" ... ........................................... 71 5.23. Collateral Used by Private Farmers: 1992-1994 ............................................ 72 5.24. Growth of Assets and Sales in Private Farms ............ .................................. 73 5.25. Sources of Annual Investment Flows ................. ................................... 74 5.26. Cost-to-Sales Ratio in Russian Farms: 1990-1993 .......................................... 74 vii List of Figures 1.1. Changes in Product Mix in Russia: 1990-1994 .............................................. 2 1.2. Livestock in Russia ................................................ 4 1.3. Average Payment and Collection Period ............................................... 9 1.4. Wages by Economic Sector in Russia ................................................ 10 2.1. Size Distribution of Farm Enterprises: Russia 1990-1993 .............. ....................... 25 2.2 Size Distribution of New Farms: Orel, Rostov, Ryazan Provinces ......... ..................... 26 2.3. Size Distribution of New Farms: Nizhnii Novgorod Province ........... ...................... 26 2.4. Size Distribution of US Farms .................. .............................. 26 3.1. Size Distribution of Farm Enterprises: 1990-1993 . ......................................... 30 3.2. Land Ownership in Farm Enterprises ................................................ 30 3.3. Exit of Employees During Reorganization ................................................ 33 3.4. Proportion of Farm Wages in Total Expenditure . ........................................... 38 3.5. Provision of Social Services and Benefits: 1992-1994 . ....................................... 44 3.6. Accounts Receivable of Farm Enterprises ................................................ 47 4.1. Age Distribution in Employee Households ................................................ 49 4.2. How Has the Family Situation Changed? ................................................ 57 4.3. What the Family Budget Buys ................... ............................. 57 4.4. Perception of Family Future ................. ............................... 57 5.1. Size Distribution of Private Farms ................................................. 60 5.2. Land Tenure in Private Farms .................. .............................. 62 5.3. Farm Income: Private Farmers and Employees ............................................. 64 5.4. Product Mix in Different Farm Categories ................................................ 65 5.5. Number of Employed in Private Farms ................................................ 66 5.6. Sources of Investment Funds .................. .............................. 74 Lr Foreword Russia's agricultural sector has potential to make a significant contribution to global food supply in the coming century. The country's agriculture is now, however, under-performing. Production continues to decline and productivity is low. At a time when world grain stocks are at historic lows, Russia is a net importer of grain despite the country's clear potential to become a major exporter. Poor performance of the agricultural sector has eroded the well-being of Russia's rural people, and impedes resumption of aggregate growth. The reasons for continued decline are complex and only partially understood. Land tenure relations and farm organization are among the most important issues that must be better understood if new approaches to sectoral recovery are to be crafted. The present study attempts to clarify these issues by examining the situation in Russian agriculture at the farm level after four years of reforms. The primary purpose of this joint study by experts from Russia and the World Bank is to enrich the information base for consideration of policy. In Russia, as in all market economies, policy makers can make informed decisions only if they have access to information and empirical analysis. The study does not offer explicit policy recommendations, but instead indicates areas of high priority for additional analytical work. One conclusion of the study is that the process of structural change in Russian agriculture is far from complete. The legal environment should therefore protect mechanisms for continued restructuring, and not lock in place a structure created at the earliest stage of reform. Analysts should continue to clarify the factors affecting performance of the sector, and shaping its structural evolution. They should continue to document the impact of measures adopted to date. Policy debates in democratic societies reflect a wide range of views, and many factors affect measures adopted. The quality of information available during debate can at times make a significant contribution toward consensus to move ahead. The World Bank supports the work presented in this study as part of its on-going efforts to assist the Government of Russia, and indeed the governments of all countries in the former Soviet Union, in improving the well-being of rural people. Alexander McCalla Director Agriculture and Natural Resources Department The World Bank xi Abstract Russia has had a formal program of land reform and farm restructuring in place since 1991. Land and asset shares have been distributed to most farm workers, but the legal status of these shares remains ambiguous, and the practical mechanisms for exit of individuals and restructuring of the large farm enterprises are mostly undecided. After four years of formal reforms, the traditional agricultural enterprises are still largely intact, and functioning much as they did in the past, although with poorer economic outcomes. Farm enterprises have diminished in size, but remain very large compared to farms in market economies. The ongoing reforms have produced a radical change in the distribution of land ownership in Russia. As of 1994, the state holds less than 20% of agricultural land, while the individual private sector, including the augmented subsidiary household plots and around 200,000 private farmers, accounts for 12% of farmland. The remaining 70% of agricultural land is in collective management, most of it divided into paper shares to individuals. Few shareholders express intentions to exit from the enterprises and use their land and asset shares to establish independent private farms. The main reasons cited by respondents in the survey are insufficiency of capital for start-up, difficulty affording needed farm inputs, and unwillingness to assume the risks involved. Farm employees express intention to remain within their enterprises, but they are markedly more pessimistic than private farmers about the outlook for their families' economic futures. Low prices for agricultural products adversely affect the ability of farms to generate eamings, and combine with poorly developed financial services to constrain agricultural recovery. The role of land markets in providing liquidity for farm enterprises is poorly understood, and the legal framework for land transactions is ambiguous and contested. Markets for commercial agricultural land function in a restricted way, as use rights are allocated and reallocated and farm enterprises and individuals lease land in and out. Enterprise managers and employees see little positive role for market transactions in land. Private farmers are more supportive of fully functioning land markets, but even among this group only a slim majority supports rights to purchase and sell agricultural land. Rural social services are deteriorating. Farm managers are cutting back on expenditures for social services, and there has been relatively little transfer of social assets to local governments. Most local governments have no budget to accept the financial and administrative responsibilities for social services. Russia's agricultural reforms have initiated important changes, but have not yet arrested the decline in sectoral performance and rural well-being. Accelerated development of land markets and other institutions that can deliver better marketing and financial services to agricultural producers, and thus increase farm earnings and rural savings, will be key to recovery and growth. xiii Introduction The changes in Russian agriculture that began Russian agriculture (Chapter 1) and provide a at the end of 1991 with the dissolution of the Soviet summary of the current legal framework (Chapter Union are usually represented by aggregate 2). The introductory material is followed by three statistical data. In addition to the overall picture of chapters that present the detailed findings of the agricultural reforms presented by these official second survey conducted between November 1993 statistics, it is interesting and instructive to examine and April 1994. The presentation of the findings is the process of reformn on the micro level in order to organized around the three main groups of understand the impact on existing farms and respondents: reorganization of large farm individuals in rural communities. Such micro-level enterprises as reported by managers (Chapter 3), the monitoring of reforms in Russian agriculture was participation of farm-enterprise employees in the undertaken in two extensive field surveys process of reform (Chapter 4), and the situation of conducted by the Agrarian Institute of the Russian private farmers (Chapter 5). The main topics Academy of Agricultural Sciences with the covered in each chapter include land use and tenure participation and support of the World Bank. The during reform, production and labor in a changing first survey was carried out between October 1992 environment, adjustment of marketing and supply and March 1993. The detailed findings have been channels to new conditions, farm finances, and published in Brooks and Lerman (1994), and a changes in provision of and access to social condensed Russian version in Brooks, Krylatykh, services in the process of reorganization. Lerman, and Uzun (1994). The second survey was The survey data in Chapters 3-5 reflect conducted a year later, between November 1993 developments at the farm level up to early 1994. and April 1994, and the following chapters provide However, the aggregate data to January 1995 used an analysis and a summary of the recent findings. in Chapters 1 and 2 suggest relatively little change Both surveys addressed three groups of active in farm organization and land tenure since the rural agents: managers of large-scale farm completion of the survey. The study thus can be enterprises (the traditional collective and state used to judge the progress of Russian agricultural farms), which started to reorganize at the end of reforms through 1994. 1991 and still account for the bulk of agricultural Throughout the monograph, tables and figures production in Russia; members and employees of presented without an explicitly identified source are these enterprises as typical representatives of the based on survey data. The data of the first survey rural population in Russia; and the emerging private are identified as 1992, while 1994 identifies the farmers, who began to establish family farms data of the second survey. Data collected in the outside the collectivist framework in 1991-1992. 1994 survey often refer to 1993 performance (e.g., The two surveys largely used the same production, labor, or borrowing). Publications questionnaires. The first survey was based on 2700 presenting the results of the first survey are listed at interviews, and the second on 1800. Both surveys the end of the Introduction. Brief lists of relevant were conducted in the same geographical area, but references are given at the end of Chapters 1 and 2. the specific respondents differed because not all Chapters 3-5 in their entirety are based on the data individual participants in the first sample could be of the second survey (1994), with comparisons to located, and because the numbers of farm units the first survey (1992). changed through ongoing reorganization. The two samples overlap, but are not identical. The Composition and Geography of the Sample The monograph starts with a summary chapter that presents the main conclusions of the study. The The pace and course of reform varies summary is followed by two general chapters that geographically, depending in part on agroclimatic analyze the economic context of the reforms in factors, and in part on policies determined at the xiv Introduction province and district levels. In order to clarify are located in the European part of Russia, and restructuring at the farm level and take into account Novosibirsk Province is in Siberia. The general regional variation, five provinces (oblasts) were characteristics of the provinces are presented in included in the sample. Pskov, Orel, Rostov, Table A. The local research organizations in these Saratov, and Novosibirsk provinces were chosen to provinces were sufficiently experienced and capture a range of agroclimatic conditions and farm qualified to carry out the field work. specialization profiles. Four of the five provinces Table A. General Characteristics of the Five Sampled Provinces Saratov Rostov Novosibirsk Orel Pskov Location Lower Volga North-Caucasus SE of West Central Russian NW European Region, SE part Region, Don Siberian Plain, plateau, center Russia, border of Eastern basin, S of East between Ob' and part with Belarus, European Plain European Plain Irtysh rivers Latvia, Estonia Farm land 8.4 M ha 8.5 M ha 8 M ha 1.9 M ha 1.6 M ha Precipitation 275-360 mm 400-650 mm 300-450 mm 550-650 mm (left bank) 400-460 mm (right bank) Climate Dry continental, Moderate Extreme Moderate Moderate droughts, winds continental, hot continental, short continental, continental and dry hot summer, warm, drought & winds moderately in the south humid Soils Heavy: 50% Chernozem, Podzol, serozem, Chernozem, Podzolic, chemozem, 30% chestnut, solonetz chernozem serozem, marshy chestnut, 11% dernopodzol, solonetz sandy Agriculture Russia's main Russia's main Mixed grain- Diversified crops, Mixed dairy- grain producer, livestock livestock grain-livestock beef, flax livestock, large producer, farms farms mechanized mixed farming Remarks Inclusion of Variety of farm Intensive use of Family farms irrigated land in enterprise farm land: 87.3% near border with farm structures plowed, only Latvia, Estonia; restructuring 9.1% forested leader in private presents special farm issues registration; 30% forested Farm-enterprise managers and employees were administered to managers of most farm enterprises surveyed in a total of 14 districts (rayons) selected in the selected districts. In this way, enterprises of among the five provinces: three districts from each different organizational forms and past history of of Novosibirsk, Orel, and Rostov provinces, four profitability were chosen. The sample of districts from Saratov Province, and one district households was drawn from a subset of the selected from Pskov Province. Survey instruments were enterprises. Farmers were surveyed in 18 districts, Introduction xv which included the same 14 districts selected for farmers. In total, 1771 interviews were conducted. managers and employees plus four additional The composition of the 1994 sample is shown in districts in Novosibirsk Province. The number of Table B, which gives for comparison also the districts had to be increased in order to achieve a composition of the sample from the first survey sample with the required number of private farmers. (1992). Although the 1994 sample was substantially The sample was chosen at random from the list of smaller than the 1992 sample (1771 interviews in all registered farmers in each district, giving 1993 compared to 2671 in 1992), the reduction preference to geographically clustered farms to save mainly involved fewer interviews with farm- travel time for the enumerators. The respondents enterprise employees, while the number of consisted of 234 farm-enterprise managers, 507 interviews with farm managers and private farrners farm-enterprise employees, and 1030 private was practically the same in both surveys (Table B). Table B. Distribution of Respondents by Provinces in Two Surveys 1994 Survey 1992 Survey Province Farm Farm Private Farm Farm Private Managers Employees Farmers Managers Employees Farmers Saratov 61 144 273 101 403 324 Rostov 51 110 200 35 306 293 Novosibirsk 58 110 250 43 300 142 Orel 52 113 177 70 318 125 Pskov 12 30 130 11 100 100 TOTAL 234 507 1030 260 1427 984 Scientific and Technical Team participated in the design of the study and undertook the analysis of the survey data. They also The study was the result of a cooperative effort wrote the English version of the present of teams of researchers from the Agrarian Institute monograph. Valuable technical support was in Moscow and the World Bank. Elmira Krylatykh, provided in Moscow by Vyacheslav Mironov, Vasilii Uzun, and Aleksander Petrikov led the work Andrei Gorbal', and Aleksander Zhitkin, and in of the Agrarian Institute and prepared a Russian Washington by Apparao Katikineni. draft of the report, providing valuable input on The two surveys were conducted with the Russian legislation and the overall status of reform support and encouragement of the late Academician in the country. The were assisted by N. Shagaida, Aleksander Nikonov, then Director of the Agrarian R. Yanbykh, M. Kuznetsov, T. Yakovieva, N. Institute. We dedicate this monograph to his Lebedeva, Z. Chibisova, and E. Kunina. On behalf memory. of the World Bank, Karen Brooks and Zvi Lerman xvi Introduction References K. Brooks and Z. Lerman. 1993. "Land Reform and April. Farm Restructuring in Russia: 1992 K. Brooks and Z. Lerman. 1995a. "Restructuring of Status," American Journal of Agricultural Socialized Farms and New Land Relations Economics, Vol. 75, pp. 1254-1259, in Russia," in: D. Umali-Deininger and C. December. Maguire, eds., Agriculture in Liberalizing K. Brooks and Z. Lerman. 1994. Land Reform and Economies: Changing Roles for Govern- Farm Restructuring in Russia, World Bank ments, The World Bank, Washington, D.C., Discussion Paper 233, The World Bank, pp. 145-172. Washington, D.C. K. Brooks and Z. Lerman. 1995b. "Restructuring of K. Brooks, E. Krylatykh, Z. Lerman, and V. Uzun. Traditional Farms and New Land Relations 1994. "Agrarian Reform and Reorganiza- in Russia," Agricultural Economics, Vol. tion of Agricultural Enterprises in Russia," 13, pp. 11-25. [in Russian], Agrarian Science, pp. 6-12, xvii Summary and Conclusions Russian agricultural output declined in 1995 policy, the issues are aired in public debate for the fifth consecutive year. Agricultural workers informed by research and empirical analysis. In are reported to earn one third of the average Russia, the public debate has been characterized Russian wage, but few leave agriculture for better largely by assertions and pronouncements, often alternatives. Investment in agriculture has declined unsupported by empirical evidence. Basic markedly, and producers have cut back on use of indicators of the magnitude of government support purchased inputs that enhance yields and preserve or net taxation, and the identification of instruments soil fertility. The well-being of Russia's 40 million of delivery are missing in the policy debate. rural people has declined through processes that Assertions are made about the impact of trade on many do not understand, and pessimism and domestic producers and the need for protection, but resignation are wide-spread. the agricultural trade data showing imports and The reduction in agricultural output in Russia exports consolidated for all trading partners are not is consistent with the experience in many countries readily available, nor included in the discussion. in transition. In fact, the decline in Russia is not as The impact of farm reorganization on sectoral severe as in other countries in the former Soviet performance is debated without adequate Union and in Eastern and Central Europe. assessment of the extent of reorganization at the Moreover, a reduction in gross product can be part farm level. As policy makers tum anew to the of a process of adjustment as the sector orients difficult problems of Russian agriculture, they will toward new markets, new products, and new need to draw on solid and current analysis of the production technologies. For example, Hungary's state of the sector and the factors that affect its decline in gross agricultural output of performance. approximately one third during the transitional This study and the two surveys on which it is period has been accompanied by profound changes based are intended as a modest contribution to the in economic policy and institutions, and modest empirical base for discussion of agricultural policy growth has now resumed on a more competitive and in Russia. The surveys conducted in the winter of dynamic basis. In Russia, the changes in policy and 1992/93 and the winter of 1993/94 on a large and institutions have also been significant, but not varied sample of farm enterprises and private farms sufficient to reverse or even arrest the deterioration were designed to provide information on changes in in sectoral performance. Russian leaders now face farm organization, ownership of assets, economic the task of determining why the deterioration behavior, and decision making at the farm level. continues and what can be done about it. The surveys suggest several conclusions that should The policy debate in Russia is dominated by inform discussions of agricultural policy. two opposing views. Many within the agricultural Mostfarms (95%) have compliedformally with lobby argue that the government has reduced the decrees mandating reorganization and support for the sector too much, and has moved too divestiture of state-owned land. As a consequence quickly with radical reforms. Reformers outside the of this process, the state now holds relatively little agricultural lobby and often outside the sector argue agricultural land (18% in early 1994, compared to that budgetary support for agriculture is still full state ownership prior to the reforms). Most excessive and reforms are too slow. Between the farms have registered as closed shareholding extreme positions of "too much reform, too little organizations, and hold land in collective or support" and "too much support, too little reform" cooperative management. The privatization of land there is little common ground. Moreover, the two and reorganization of enterprises has thus resulted positions imply quite different policy prescriptions. in a strengthening of collective and cooperative When democratic societies are divided by production and ownership, and has led to a fundamental disagreement on important matters of reduction in the share of state farms and the xviii Summary and Conclusions proportion of state owned land. Approximately 12% confidence that shareholding farms will be viable of land is now in the individual sector, of which 5% enterprises in the future. is in private farms and about 3% in household plots. If shareholders decide in the future to exit with Most shareholding farms are managed land and assets, their legal right to do so is internally like collective farms of the past, but with ambiguous. During a period of change in farm more administrative autonomy and less financial structure, a natural tension arises between stability security than in the past. Farm size in the sample of the existing enterprises and dynamism in the has declined by about 15%, but the farms are still form and size of enterprises. A degree of stability is very large, averaging 8000 ha per farm. The labor desirable so that new enterprises have a chance to force has declined less than farm size, and farms test their viability before undergoing further have made some adjustment in the production changes. On the other hand, too much stability profile, increasing crop production and reducing the locks in place a structure that may not have been relative importance of livestock. Area allotted to optimal at the outset, or may have become "less household plots has increased (from about one optimal" over time. The earliest laws and decrees quarter hectare in 1990 to one third at present), but on land reform and farm restructuring recognized the plot remains subsidiary and retains its the rights of individuals to exit with assets, and did traditional relationship with the larger enterprise. not address the need of enterprises for a degree of Although virtually all farms in the sample have stability or at least a mechanism for orderly change. formally reorganized, the change in legal status has Although few shareholders have chosen to exit, brought relalively little change in internal structure concern about enterprise stability became and decision making. paramount in 1994 and 1995, and several pieces of Shareholders are aware of their theoretical existing and pending legislation circumscribe the rights, but perceive little tangible benefit to share rights of individuals to withdraw real assets. The ownership. Land and asset shares are at present pendulum has thus swung greatly to the side of the blended into the asset base of the enterprise. Few existing enterprises. farms pay shareholders for land use or dividends on The rights of individuals to exit are not in the asset shares, since payroll takes higher priority, question; at issue is the right of the enterprise or the and farms have difficulty meeting wage obligations. individual shareholder to decide on the disposition Since the shares have no perceived value, of property. The present trend in Russian legislative shareholders see little difference between debate is to deny individuals the right to withdraw reorganized enterprises and their predecessors. property, except under restrictive conditions. This Few shareholders express intentions to exit trend would lead to corporatization of the existing from the enterprises, taking their land and asset farm enterprises. There is a strongly held view in shares to establish private farms. Shares would Russia that large corporate farms are more efficient acquire value if holders could withdraw them in and competitive than small or mid-sized farms, and real assets, but few farm employees express that the large enterprises should be protected from intention at present to establish independent private subdivision. This assertion has not been confronted farms. Employees cited a number of reasons why with empirical evidence on farm size and efficiency they do not intend to enter private farming. from around the world. A careful review of the Foremost among these were insufficiency of capital international evidence on farm size and its relation for start-up. difficulty affording needed farm inputs, to efficiency would likely raise questions about the and unwillingness to assume the risks involved. wisdom of corporatizing the existing large farm Farm employees expressed intention to remain enterprises, and would improve the quality of the within their enterprises, hut ihev were markedly debate about the draft Land Code, the draft Law of more pessimistic than private farmers about the Cooperatives, and other laws and policies critical to outlook for their famnilies' economic futures. The agricultural reform. decision to stay is thus not a reflection of Summary and Conclusions xix Markets for commercial agricultural land do the case for farm enteiprises. However, private not function now, and enterprise managers and farmers receive the same depressed product prices employees see little positive role for market as do the farm enterprises, and their opportunities transactions in land. Private farmers were more for investment are similarly constrained by low supportive of fully functioning land markets, but profitability and inability to borrow at commercial even among this group a slim majority (53%) interest rates. supported rights to purchase and sell agricultural The opportunity for producers to sell their land. All three groups of respondents supported products at world trading prices (adjusted for purchase and sale of household plots and garden quality and transport costs) is a key to agricultural plots, but transactions in commercial agricultural recovery in Russia. There is fundamental land are viewed very differently from transactions disagreement, however, on how prices should be in subsidiary plots. Land markets nevertheless raised, whether through programs of direct function in a constrained way; use rights are government price support, or improvements in the allocated and reallocated and farm enterprises lease functioning and competitiveness of agricultural land in and out. However, open and competitive markets. Until the reasons for depressed producer land markets, in which land values can be observed prices are better understood, interventions designed and on which owners can recoup investments in to increase prices are likely to fail or be very costly. land improvement and protection, are not For example, if depressed prices are due in part to functioning at present. Moreover, there is no monopoly in marketing and processing, then apparent rural constituency calling for their processors rather than producers would capture creation. Even though farm managers and private most of the payments under a program of price farmers decried the lack of financing for investment support, and there would be little public benefit to in agriculture and for working capital, the role of offset the substantial costs. At present, transport land markets in providing liquidity for farm costs, local trade restrictions, and non-competitive enterprises is poorly understood. Land markets are behavior in processing are thought to contribute to instead viewed almost exclusively as an arena in depressed producer prices, but the relative which wealth is transferred from producers to importance of each and the geographical incidence speculators. is poorly understood. Producer prices in 1993 and 1994 were below Along with low prices, poorly developed world trading prices by a substantial margin, financial services constrain agricultural recovery. 30%-40% lower for major commodities such as Farm managers and private farmers reported that grain and meat. Prices for inputs were also low, they were unable to finance working capital and although closer to world prices than were product investments at interest rates they felt they could prices. Low and declining yields, low prices, and a afford. Although the commercial borrowing rate (at toughly static labor force combine to produce an approximately 200% annually) was negative in real increase in the share of gross farm earnings paid to terms, managers felt that they would be unable to labor, despite a substantial fall in real wages. Under repay loans at that rate of interest. Most private current prices and efficiency, enterprises do not farmers (nearly 70%) in the 1994 survey had access generate enough earnings for investment. Nor are to some borrowing at interest rates below 30% they able to borrow at commercial rates, since they annually. Managers did not report high levels of lack both collateral and repayment capacity. The debt in 1994, but nonetheless reported that farms are thus caught in a cycle of falling earnings unavailability of affordable credit and repayment of and declining efficiency, from which they cannot existing debt constrained their operations. Virtually escape under current prices. Private farmers do not all debt is short-term, and must be repaid out of have the same high labor costs and do not carry current earnings, or refinanced at uncertain rates. large numbers of loss-making livestock. Their At the end of 1994, most agricultural debt was financial returns are thus somewhat better than is either written off or refinanced as long-term debt at xx Summary and Conclusions negative real rates, which is equivalent to a Some private farmers are likely to fail, as happens substantial write-off. Repeated write-offs throughout the world, only to be replaced by new undermine the establishment of sound banking entrants to farming. Russian policy makers should practices in rural areas. Moreover, rural banking accept the advisability of allowing different forms will be unattractive to the financial sector as long as of farm organization to evolve in agriculture. The there are few depositors with savings and many choice among different forms should be free and uncreditworthy borrowers. Recovery of agricultural voluntary, and the producers should be guided in earnings and deposits will thus be a first step their decisions by market forces. Instead of raising toward improved financial services for the sector. barriers to withdrawal of land and assets in an Without this step, affordable credit will of necessity attempt to avert by administrative means be only in the form of subsidized and directed fragmentation of existing large-scale farm credit, which is very often allocated through enterprises, the Russian land code should provide questionable procedures, and subsequently written for orderly withdrawal, with due advance off. notification to the enterprise, and negotiation on the Rural social services are deteriorating for specific piece of land to be withdrawn. For those who have remained in collectives, and for example, shareholders could be given a specified those who have left. Farm managers are cutting period to file notice of intent to withdraw after back on expenditures for social services and harvest, and those intending to withdraw during a employee benefits, and employees report a decline given year could negotiate with those remaining to in services and benefits. Despite the requirements identify mutually acceptable parcels. of the relevant laws, there has been relatively little Reorganization of farms must be accompanied transfer of social assets to local governments, by adjustments in the service sector, including because most are reported to be unprepared to provision of inputs, processing, and marketing. It is accept the financial and administrative not enough to privatize monopolistic state-owned responsibilities. Farm employees do not indicate service firms. Competition must be enhanced that continued access to services and benefits is among providers of services to agriculture, so that high on their list of reasons for remaining within producers will no longer be linked to a single the enterprises, perhaps because the level of regional organization and will be able to choose benefits is low and declining. Attention to rural freely among alternative suppliers, marketers, and public services, including health, education, and processors. Primary producers can compete with infrastructure for utilities, water supply, foreign imports only if the domestic marketing and transportation, and communication is needed. processing industry is competitive. Provision of rural services should be largely The findings of the present study suggest four self-financing, through taxes on rural residents, but major areas for further research, where information tax proceeds will be inadequate as long as for sound decision making is lacking. First, a major agricultural earnings are depressed. Improved study should be undertaken to measure the extent to agricultural earnings will thus create opportunities which producer incentives are depressed, and to to improve rural social services, and, conversely, diagnose the relative importance of causative improved delivery of services will be unlikely if factors. Without a clearer understanding of the agriculture continues to decline. causes of depressed prices and the regional dispersion of producer prices, remedial measures * * * are not likely to be effective. Second, the performance of agro-processing and farm-service The current farm structure should be firms recently privatized as whole units through recognized as transitional. Some of the large share- closed share distribution to employees should be holding farms may survive as viable units, and evaluated with regard to current and future others are likely to undergo further reorganization. competitiveness (price and quality of output; Summary and Conclusions xXi distribution of earnings between wages and should be undertaken, and program costs should be investment; processing margins and storage costs; compared with the benefits. The results of such opportunities for attracting foreign direct study should be publicly debated prior to adoption investment). The evaluation should lead to of any program of price support. Lastly, recommendations to improve competitiveness by intemational evidence on farm size and its relation reducing margins, if these are found to be high, and to efficiency should be assembled and analyzed in thus improve producer prices and earnings. Third, order to provide a foundation for an informed an empirical study of the impact of any proposed debate about the development of alternative forms government program of price support on producer of farm organization in Russia. prices, farm incomes, and marketing margins 1. Russian Agriculture: 1992-1994' Changes in land tenure and in the organization Table 1.1. Land Holding by Type of User in Russia: 1991- and status of the traditional large-scale farms are 1995 (% of agricultural land) visible components of the agricultural reforms that began in Russia at the end of 1991, following the Sector and Enterprise Type Jan. Jan. Jan. dissolution of the Soviet Union. Reform in the agricultural sector also encompasses changes in the State sector 58.2 17.6 16.5 trade regime, in producer incentives, and in farm Collective/cooperative sector 40.0 70.5 71.1 finances, all of which have significant impacts on Incl. shareholding enterprises 0.3 52.5 54.2 the overall performance of agriculture. The various Private sector 1.8 11.9 12.5 elements of agricultural reform are surveyed in this Private farms 0.0 5.0 5.3 chapter in order to clarify the sectoral context in Associations of private farms 0.0 2.2 2.4 Household plots 1.4 2.8 2.9 which the present study was undertaken. Other 0.4 1.9 1.9 Recent Changes in Land Tenure and Farm Total agricultural land, mill. ha 213.0 210.1 Organization Table 1.2. Share of Land and Production by Farn Category in During the three years from 1992 through 1994 (% total) 1994, Russia embarked upon a large scale transfer of ownership of agricultural land from the state to Enterprises Private Household the enterprises that work the land. A lesser, but still Farms Plots substantial amount of land was transferred to Agricultural land 88.1 5.0 2.8 individual private ownership. Table 1.1 shows Valueofoutput 60.0 2.0 38.0 changes in land holding by type of user. In 1994, Grain production 94.2 5.1 0.7 state agricultural enterprises held less than 18% of Sunflower 88.2 10.2 1.6 agricultural land, down from close to 60% prior to Sugarbeets 95.8 3.5 0.7 1991. Agricultural enterprises not in the state Potatoes 11.0 0.9 88.1 sector held 70% of agricultural land, up from 40% Meat 56.0 0.1 43.0 prior to 1991. Individuals, including private Milk 60.0 0.1 39.0 farmers and holders of household plots, held 12% Eggs 71.0 0.1 28.0 of agricultural land, up from less than 2% before 1991. Land holding is not synonymous with Several indicators of the relative size of the ownership, since some individual landholders or farm enterprise sector, private farms, and the non-state agricultural enterprises do not yet own household sector are shown in Table 1.2. The their land. The data in Table 1.1, however, household sector continues to account for a high accurately reflect the primary development in land proportion of gross agricultural product, while the reform during the period 1992-1994; i.e., the contribution of independent private farms to output expansion in the share of land held and managed is still very low (and even less than their share of by agricultural enterprises of various types outside land holdings). The enterprise sector traditionally the state sector. 1 The sources of data for tables and figures are listed at the end of the chapter. 2 Russian Agriculture: 1992-1994 dominates the production of grain and technical Fig. 1.1. Changes in Product Mix in Russia, 1990-1994 crops, while the household plots are the major producer of potatoes and vegetables. Private 100% - farmers also appear to concentrate on grain, sunflower, and sugarbeets as their main cash crops, 75: with much less emphasis on potatoes. Livestock products are produced in roughly equal proportions I tlcroFs by enterprises and households, with very little F §ULiveatckj production by private farmers. Almost all state and collective farms had re- 25% registered by January 1994, in compliance with the new laws and decrees (Table 1.3). Most of the o o. agricultural producer enterprises in 1994 were shareholding farms of the closed or limited liability Based on gross agricultural product In current prices. variety or collective and state farms that decided to retain their former status. The land and assets of shareholding enterprises of various types resemble these enterprises are now in most cases owned by each other in internal structure. In size and the enterprises, and the enterprises in turn are economic behavior they have much in common owned by shareholders, who are employees or with the state and collective farms that were their former employees (pensioners) entitled to immediate predecessors. Some internal changes participate in the distribution of land and asset have taken place; in particular the household plots shares by the former entity. The shareholding have expanded (doubling their share of agricultural enterprises are thus collectives in a truer sense than land between 1990 and 1993; see Table 1.1), and were the collectives of the pre-reform period, the product and input mix in the enterprise sector which in practice differed little from state farms. has changed somewhat in response to new relative prices and financial constraints (Fig. 1.1). Table 1.3. Agricultural Enterprises of Different Organizational The closed shareholding farm is the preferred Forms (in thousands) organizational form among the enterprises that re- registered (see Tables 1.1 and 1.3). It is closed in Jan. Jan. the sense that only employees and pensioners can 1993 1994 own shares, which are not tradable outside the Re-registered farms 19.7 24.3 farm. There are several types of closed Percent of total 77% 95% shareholding farms in accordance with the Russian Retained former status during re- Civil Code. A joint stock company is comprised registration 7.0 8.4 usually of most or all members and employees of Closed shareholding firms, limited the former collective or state farm. The joint stock liability partnerships 8.6 11.5 company must be registered with federal financial Open shareholding firms 0.3 0.3 authorities and must issue stock. A limited liability Agricultural producers' cooperatives t.7 1.9 partnership is formed by contribution of members' Associations of private farmers 0.7 0.9 shares to the charter capital of the enterprise. Registered private farmers 182.8 270.0 Members formally have voting rights on routine IPrivate farms created through I.......... ... Prise . reoaatio 46 86 managerial decisions, unlike shareholders in a joint ' stock company, where voting in general is limited to choice of management and major decisions. In The survey results reported later in this study practice, manyglmite lab paorteiships and practice, many limited liability partnerships and show in detail the ownership of assets and .. . economic behavior in a sample of agricultural int o oanies are ar sizeand enterprises and private farmers. In general the Russian Agriculture: 1992-1994 3 indistinguishable. Liability of members in both the process of reorganization, or has not yet begun types of organizations does not exceed the value of to reorganize, the enterprise has a temporary the individual's share capital. Relatively few custodial property right. Individual shareholders agricultural producers' cooperatives have been have the right to withdraw real property during the formed (1900 nationwide in 1994), in part because reorganization. Where the enterprise has completed legal issues are unclear pending passage of a law formal reorganization, however, individuals in on cooperatives, and in part because many most cases do not have a free right to withdraw enterprises in which members prefer cooperative property. production have remained collective farms. In Land held by enterprises is most often associations of private farmers, the individual registered as jointly owned property, and under the members should be registered private farmers who Civil Code disposition of private property jointly have formed an association in order to perform owned by several owners requires permission of all tasks jointly. In practice, associations exist in owners. Any enterprise can elect to undergo a full which members are not individually registered reorganization, at which time shares can be passed private farmers, and in which production is again to owners for their disposition, either by exit managed collectively. In other associations, or reinvestment. The law at present, however, production is largely private, and activities of the attaches an unconditional right to exit with land association include shared access to nondivisible only during the process of reorganization. The infrastructure or joint purchasing and marketing. legal requirement established at the beginning of The creation of the new enterprise sector in the reforms in December 1991 that all collective Russia has been a result of the design of the and state farms vote on reorganization and re- program of land reform and farm restructuring. The register has been fulfilled formally, but has brought enterprises at present own land and assets because little actual change in the size and organizational the shareholding farm is the vehicle through which structure of enterprises. property rights are passed to the individuals who invested labor in agriculture over the decades of Sectoral Performance During the Period Soviet rule. In some cases the enterprises have not 1991-1994 yet implemented procedures for assigning property rights to individuals, and the rights remain in joint The initial phase of land reform and creation ownership. In other cases rights have been assigned of the new enterprise sector has taken place during to individuals, and the individuals have reassigned a period of absolute and relative decline in rights on a temporary or contractual basis to the agriculture. Gross agricultural output measured in larger enterprises with which they have been constant prices fell 24% between 1990 and 1994 historically associated. In some cases, the original (Table 1.4). Agriculture's share of GDP fell from enterprise has reorganized into a number of smaller around 15% in 1990 to 6% in 1994. units through regrouping of members' shares. In general land and asset rights have stayed with the Table 1.4. Share of Agriculture in GDP and Index of Gross enterprises because procedures for further Agricultural Output in Russia: 1990-1994 allocation have not yet been implemented on a large scale. In addition, collectives have been Share of Gross agricultural output allowed to remain as units even in cases in which In GDP, % Total Livestock Crops they are not financially viable because bankruptcy procedures have not been well defined and 1990 15.3 100.0 100.0 100.0 enforced. 1991 11.9 95.5 92.7 100.5 1992 8.6 86.5 81.7 95.1 Property rights temporarily vested in 1993 8.4 82.7 77.2 92.4 enterprises between 1992 and 1994 have thus 1994 6.3 75.3 71.0 83.2 tended to stay there. Where the enterprise is still in 4 Russian Agriculture: 1992-1994 Reasons for the decline include loss of Fig. 1.2a. Livestock in Russia: Cattle protected markets, disruption of normal trading relations, declining domestic demand due to mill, head _-_ declining consumer incomes, reduction of traditional subsidies, and deterioration in sectoral 50 terms of trade. The rise of the service sector in 40 C Wm Russia has also contributed to the declining share X of the traditional productive sectors. 30 Collectivs Both the crop and livestock sectors have 20m declined, as shown in Table 1.4. The initial shock Xeu to profitability was felt most in the livestock sector, 10 as the cost of feed increased and consumers cut back on purchases of meat. Farm enterprises 1990 1991 1992 1993 1994 responded to the decline in profitability of meat production by reducing animal numbers, and their Fig. 1.2b. Livestock in Russia: Cows herd reduction was not compensated by the increase in livestock numbers in the household mill. head sector (Table 1.5). The decline in the aggregate number of cows was less than that for cattle in 20 general (Fig. 1.2), reflecting increased production of milk for own consumption in the household 15i3 Printstam l sector, and the attractiveness of dairying as a s HCseolletvs source of regular cash income in both enterprise 1 0 U Collectives and household sectors. The proportion of cows in 5 the private sector increased, although the share of . private farms in dairying is still very small. 0 The decline in agriculture has been a common 1990 1991 1992 1993 1994 feature of transitional economies throughout Central and Eastern Europe and the former Soviet Union (Table 1.6). All the countries have been the inflation adjusted value of depreciation. affected in varying degrees by the changes in the Reported profitability may thus be positive and economic and sectoral environment. In addition, even substantial when the farms have difficulty some countries have suffered from natural disasters meeting current wage and tax obligations and are and civil unrest. Although Russia's agricultural unable to finance purchase of inputs for the future decline has been less severe than in some production year. countries, it continues in 1995, while in a number Although actual data on sectoral profitability of Central and Eastern European countries are at present incomplete, available data on agricultural production appears to have bottomed producer incentives suggest that profitability is out in 1993 and certain relative gains were likely to be low due to depressed producer prices. registered in 1994 and 1995. The erosion of farm profitability is often attributed in the Russian press and analytical literature to a Profitability and Incentives violation of price parity, or an opening of the price scissors. The concept of parity or the price scissors The decline in production in Russia has been refers to change in an index of agricultural product in part a response to falling profitability of the prices relative to input prices or industrial prices sector. Although the decline in profitability is more generally. Index numbers of prices for farm acutely felt and widely noted, it is poorly inputs and outputs are shown in Table 1.7, and they documented. The old accounting procedures do not confirm that domestic intersectoral terms of trade reflect the impact of inflation on cost of inputs and moved against primary agriculture between 1991 Russian Agriculture: 1992-1994 5 and 1994. Thus, while the prices of all industrial and open to trade, price parity ceased to be a useful inputs and services for agriculture increased by a normative measure, since relative prices in factor of nearly 1400 between 1990 and 1994, dynamic open economies change rapidly in aggregate crop prices increased by a factor of 550 response to changes in technology, trading and prices of livestock products only by a factor of opportunities, and consumer demand. Moreover, 330. when relative prices are distorted in the base year, The concept of price parity was used in the as was the case in Russia in 1990, prior to reforms, past in market economies as an analytical tool to price parity calculations perpetuate the initial measure changes in relative prices. As developed distortion. market economies became increasingly dynamic Table 1.5. Livestock Numbers and Sectoral Structure of the Herd in Russia (million head and percent, end of year data) 1990 1991 1992 1993 1994 Cattle, mill. head 57.1 54.7 52.2 48.9 44.9 Enterprises 47.2 43.9 40.2 36.3 31.9 Households+Farmers 9.9 10.8 12.0 12.6 13.0 Cows, mill. head 20.6 20.6 20.2 19.8 19.0 Enterprises 15.3 14.8 13.7 12.8 11.6 Households+Farmers 5.3 5.8 6.5 7.0 7.4 1990 1991 1992 1993 1994 Cattle, % 100 100 100 100 100 Enterprises 83 80 77 74 71 Households 17 20 22 25 27 Farmers -- 0 1 1 2 Cows, % 100 100 100 100 100 Enterprises 74 72 68 65 61 Households 26 28 32 34 37 Farmers -- 0 0 1 2 Table 1.6. Index of Gross Agricultural Output in Economies in Transition (1990 = 100) 1991 1992 1993 1994 1991 1992 1993 1994 Forrmer Soviet Republics Baltic Countries Azerbaidjan 100 75 64 55 Estonia 96 78 72 65 Armenia 100 87 108 111 Latvia 96 84 70 53 Belarus 95 86 90 77 Lithuania 96 73 67 82 Georgia 66 55 35 31 Kazakhstan 90 91 86 72 Central and Eastern Europe Kyrgyzstan 90 86 77 65 Albania 79 93 106 115 Moldova 90 76 81 58 Bulgaria 100 88 72 75 Russia 95 86 83 75 Czech Republic 91 80 79 81 Tadjikistan 96 70 67 50 Slovakia 96 69 72 75 Turkmenistan 96 87 101 103 Hungary 94 75 68 69 Uzbekistan 99 93 94 93 Poland 98 88 89 83 Ukraine 87 80 82 68 Romania 101 87 99 104 6 Russian Agriculture: 1992-1994 Table 1.7. Index Numbers of Prices for Agricultural Outputs and Inputs in Russia (average for year, ratio of the prior year) 1991 1992 1993 1994 1994 to 1990 Outputs: Crop products 1.9 17.6 6.1 2.7 551 Grains 1.5 21.8 5.3 2.2 381 Oil seeds 1.8 21.0 4.3 3.3 536 Potatoes 3.4 9.0 6.9 4.2 887 Livestock products 1.6 6.2 10.4 3.2 330 Beef 1.5 4.8 11.7 2.6 219 Pork 1.5 7.2 13.5 3.0 437 Milk 1.4 6.9 8.6 3.3 274 Farm Inputs: All industrial inputs and services 1.9 16.2 10.7 4.2 1383 Tractors 2.3 21.9 11.0 4.0 2216 Fertilizer 1.7 12.8 10.7 6.5 1513 Fuel 1.3 34.6 11.3 3.4 1728 Mixed feed 2.1 17.9 8.6 3.7 1196 Table 1.8. Domestic and Border Prices in Russia: 1993-1994 (US$ per ton, at market exchange rate)* 1993 1994 Border Domestic Ratio# Border Domestic Ratio# Food Commodities Wheat (Import) 147-165 64 W 0.44-0.39 154 66 W 0.43 Com (Import) 142 159 Sugar (Import) 397 305 0.77 360 268 0.74 Beef (Import) 1365 586(b) 0.42 1260 666(b) 0.52 Pork (Import) 1365 918(b) 0.68 1260 1200(b) 0.95 Farm Inputs Anhydrous anmonia (Export) 81 19 0.23 108 55 0.51 Nitrogen fertilizer (Export) 69 17 0.25 80 49 0.61 Potassium fertilizer (Export) 65 11 0.17 74 46 0.62 Phosphatic fertilizer (Export) 121 29 0.24 158 94 0.59 Tractors (Export) (piece) 3689 2692 0.73 2708 4923 1.83 Diesel fuel 153 73 0.48 123 124 1.01 * Average 1993 domestic prices converted at 1000 rubles/US$, average 1994 domestic prices converted at 2205 rubles/US$. Ratio of domestic to border prices. Domestic prices paid by procurement organization for general grain, which consists largely of wheat. (b) Prices converted to slaughter weight with conversion factor approximately 2 relative to live weight price. Price parity has been replaced in developed production in domestic prices relative to the value market economies by several analytical tools that in world prices), effective protection (value added measure domestic price distortions relative to in domestic prices relative to value added in world prices on world markets, rather than relative to trading prices), and producer subsidy equivalents domestic prices at a point in the past. These (value of production at world trading prices plus all concepts include nominal protection (the value of direct and indirect subsidies relative to value of Russian Agriculture: 1992-1994 7 production at domestic prices). These indicators are probably among the chief constraints provide a progressively more comprehensive view depressing producer prices. of the degree of sectoral subsidy or taxation Some analysts within Russia have argued that relative to world trading prices. the solution to severely depressed producer prices The internationally accepted indicators have lies in a federal program of price support, not yet been calculated for Russia, but some data according to which the federal government would relevant to the calculations are shown in Table 1.8. be a buyer of last resort at the border price. The These data indicate that although domestic prices proposal would be difficult to implement because of agricultural products and inputs moved closer to the federal government at present lacks budgetary world levels in 1994, they still remained much funds for agricultural price support. Aside from the lower in most cases, particularly for grains. fiscal constraints, however, the proposal has a From the data in Table 1.8 it appears that more fundamental flaw. Measures to remove earnings of Russian producers would improve if distortions in producer prices should be based on input and output prices moved to world levels. In an understanding of what is causing the distortions. other words, the current price regime constitutes If producer prices are low due to market indirect net taxation of the sector relative to world imperfections and/or local regulations, it is trading prices. While transfers through the budget unlikely that a federal program of price support and banking system are still substantial and debt would improve prices at the farm gate. Instead the writeoffs continue to be practiced, producer large sums spent through the program would be subsidy equivalents are likely to be negative when diverted to those currently benefiting from the domestic prices for important products are as low price distortions, and producers would see little as 50% of border prices (see Table 1.8). change. A careful study quantifying the factors that Low producer prices may derive from contribute to the gap between domestic and border regulatory barriers to trade, imperfections in prices in major producing regions of Russia should product markets, high transaction costs, or a be undertaken for grains, oilseeds, meat, and milk. combination of all of these. Factors depressing The objective of such a study should be to identify product prices at the national level, such as measures that can improve producer incentives by administrative pricing, state orders, and barriers to improving the functioning of markets. export, have been removed. The effort to understand determinants of producer prices must Farm Finances, Debt, and Investment therefore focus on the sub-national level The pattern of purchase prices over time and The deteriorating terms of trade in agriculture the reported geographic dispersion of producer and the steep decline in production have apparently prices suggest that the liberalization of producer had a severe effect on farm profits and on the prices has not been effective or complete. For availability of resources for investment and example, in 1993 milk producers were paid on growth. Investment in productive assets in average 9200 rubles per ton ($9.20) in Ul'yanovsk agriculture virtually ceased in 1994. Total reported Province on the middle Volga, and 19,100 rubles agricultural investment in 1994 was around 8% of per ton ($19.1) in the neighboring Tatarstan. These its 1990 level (Table 1.9). The decline of 92% in prices compared to 35,000-50,000 rubles ($35-$50) agricultural investment between 1990 and 1994 per ton of milk in other provinces of the mid-Volga was much greater than the decline for the economy region. Both Ul'yanovsk and Tatarstan have well as a whole, where total investment in productive publicized local policies to maintain low consumer assets in 1994 had dropped to 26% of the 1990 prices for food, and these policies appear to be level. Agriculture's share of total productive funded in large part by implicit taxes on local investment fell from its traditional high of 20%- producers. Local policies and local barriers to trade 25% in 1990 and 1991 to less than 10% in 1994. 8 Russian Agriculture: 1992-1994 The sectoral contraction evident from the equal to the debt ratio of industry (13%). The use dramatic decline in production and investment has of short-term non-bank credit in agriculture apparently reduced the financing needs of Russian (suppliers' credit and other current obligations and agriculture and enabled it to avoid the crushing arrears) did not increase significantly during 1994: buildup of debt that typically accompanies the average payment period of accounts payable declining profits. The net indebtedness of (including obligations to suppliers, the agriculture in December 1994 was around 15% of government, and the payroll) remained at a level of total agricultural product (Table 1.10), practically about 65 days, as shown in Fig. 1.3. Table 1.9. Index of Investment in Russia: 1990-1994 (1990=100) 1990 1991 1992 1993 1994 Total investment 100 84 51 75 33 Total investment in productive assets 100 82 47 41 26 Investment in agricultural productive assets 100 95 33 21 8 Share of agricultural investment in total productive investment 22% 26% 16% 12% 9% Table 1.10. Financial Position of Russian Agriculture (billion rubles) Agriculture Industry 1 Dec 1994 1 Mar 1995 1 Dec 1994 I Mar 1995 1 Outstanding bank debt and loans 9078 10537 29364 37042 2 Accounts payable* 7469 9874 117050 151223 3 Accounts receivable** 4113 4372 102933 126379 4 Net indebtedness 1+2-3 12434 16039 43481 61886 5 Total product (current prices) 81601 NA 344430 NA 6 Net indebtedness over total product 4/5 15% NA 13% NA * Includes suppliers, the government, workers' payroll, and others. ** Includes customers and other receivables. Table 1.11. Working Capital Position of Russian Agriculture (billion rubles) Agriculture Industry JI an 94 1 Dec 94 1 Mar 95 1 Jan 94 1 Dec 94 1 Mar 95 1 Payable to suppliers 1583 4808 5594 22615 71337 84271 2 Receivable from customers 1497 3253 3393 27349 83451 102282 3 Working capital ratio 2/1 0.95 0.68 0.61 1.21 1.17 1.21 % overdue payables 34% 52% 56% 41% 57% 51% % overdue receivables 41% 50% 46% 45% 58% 55% In addition to unfavorable terms of trade from customers. Compared to 65 days of credit between the prices of inputs and the prices of from suppliers, farms grant around 75 days of products, agriculture also faces, like the rest of the credit to the customers (up from 70 days in the first economy, an unfavorable disparity between quarter of 1994; see Fig. 1.3). This finding is payment obligations to suppliers and collections consistent with the complaints voiced by Russian Russian Agriculture: 1992-1994 9 Fig. 1.3. Average Payment and Collection Period level of overdue accounts is not much different (Agriculture, Industry, Transport, and Construction) from that in industry; Table 1.1 1). Recognizing the liquidity squeeze of agriculture, the Russian days to pay/collect dt___ o y government in December 1994 yielded to pressure Collection of Receivables k from the farming lobby and forgave half the 75 e ' . accrued interest obligations (6 trillion rubles), 70 . s + while rescheduling the repayment of the principal 65 (another 6 trillion) from short-term to 10 years. 60 The forgiven amount was roughly equal to one third of debt outstanding as of Dec. 1, 1994, or half 5Payment of Payables the net indebtedness of the sector (Table 1.10). 5sL After the writeoff, agriculture's net indebtedness Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 1994 dropped from 15% of gross product to less than 8% (compared to 13% for industry). The incomplete data currently available on farmers and farm managers that they are squeezed aggregate farm finances leave many questions from both ends by monopolistic suppliers open. According to anecdotal reports, finances at demanding quick payment if not prepayment for the farm level deteriorated in 1994, and many inputs, and monopolistic processors unreasonably farms were unable to pay wages, social security, stretching the payment for products delivered. and taxes. More detailed work on farm finance at Overall, however, this mismatch in payment terms the aggregate and at the farm level will be needed. does not appear to be a direct source of difficulties Farm finance is an issue integrally linked to farm for the sector, as there is no evidence of rapid restructuring because farm debt must be allocated buildup of receivables that need to be financed. along with assets during restructuring. Moreover, On the contrary, the level of receivables from farms with negative net worth may require special customers for farm products is declining relative to procedures for reorganization, and these the level of supplier credit (Table 1.11). The ratio procedures are not yet developed. of customer receivables to supplier credit dropped from nearly 1 at the end of 1993 to 0.6 in the first Marketing of Output quarter of 1995 (while the corresponding ratio for industry remained at a level of 1.2). Contraction of The traditional structure of agricultural activities normally produces roughly the same marketing, with its reliance on state procurement decrease in both accounts receivable and accounts organs, is undergoing a major change. In 1994, payable, and the relative increase of accounts producers shifted away from the formerly state- payable in Russian agriculture suggests that farms owned procurement firms, which have a very poor increasingly rely on supplier credit and other record of timely payment, and sought alternative arrears as a general source of financing. marketing channels, as shown in Table 1.12. The fact that accounts receivable are less than The other channels reported in Table 1.12 accounts payable points to a negative working include local cash markets, barter deals, and capital position in Russian agriculture and casts distributions in kind in lieu of cash wages. Prices doubts on agriculture's ability to repay its current for grain on local markets or in barter deals in 1994 debt, which is typically covered by collections were lower than the prices paid by large from customers. The increase in the proportion of procurement firms (Table 1.13). Yet producers in overdue payables from 34% of all payables to 1994 were willing to accept lower prices for grain suppliers in January 1994 to over 50% in the first to reduce the risk of contractual noncompliance quarter of 1995 also suggests evidence of and shorten the time between delivery and receipt impending repayment difficulties (although this of payment. In contrast to grain, prices for 10 Russian Agriculture: 1992-1994 livestock products were reported to be higher in Fig. 1.4. Wages by Economic Sector in Russia direct marketing channels in 1994 than in procurement contracts. Baknian The shift in marketing behavior in 1994 has Banking. flnan:: resulted in increased activity on local markets, and Flour and feet an increased volume of transactions in kind, such Food industry as wage payments in kind to agricultural workers. All industry Although agricultural wages are poorly measured Communal services §. under current conditions, there is little doubt that Government real wages are falling absolutely and relative to ALLRUSSIA wages in other sectors. In February 1995 Health care agricultural workers were the lowest paid of all Education sectors, and earned just 33% of average wage in Agriculture. industry and one quarter of that in food processing 0 100 200 300 400 500 600 700 industry (Fig. 1.4). The methodology for oooZ rubles per month, Feb. 1995 calculation of reported wages includes estimates of earnings in kind, but does not include nonpayment prior to the reform, when meat consumption was due to arrears. In 1990 agricultural wages in the still subsidized. RSFSR calculated on the same basis were Imports are highly concentrated in Moscow, approximately equal to average industrial wages. where they comprise a high proportion of food marketed. Moscow is atypical of the entire country, Agricultural Trade however, and imports in general constitute a modest share of domestic consumption of most The decline in sectoral production and products. Increased agricultural protection was earnings has led to increased pressure for nonetheless prominent in the policy debate protection against imports. Agricultural wages throughout 1994. Tariffs were increased on average have fallen, production has declined, and farm by 2% effective July 1, 1995, and a special increase finances deteriorated at the same time that food of 10% in the value added tax on imported food imports of some highly visible commodities, such was also introduced. The political climate has been as meat, have increased. Russian imports of meat supportive of increased protection for food, and poultry from outside the former Soviet Union although the trade data show that food imports are in 1994 were just under 800,000 tons, almost at the lower than they were in the pre-reform period. level of meat imports for the entire Soviet Union Table 1.12. Change in Marketing Channels in Russia: 1991-1994 (% of all marketed output) 1991 1993 1994 Procurement Other Procurement Other Procurement Other organs channels orgrans channels organs channels Grains 64 36 63 37 34 66 Oilseeds 89 11 48 52 12 88 Sugarbeets 100 0 98 2 67 33 Potatoes 69 31 52 48 37 67 Vegetables 84 16 71 29 59 41 Meat 84 16 79 21 70 30 Milk 98 2 97 3 93 7 Russian Agriculture: 1992-1994 11 Table 1.13. Prices in Various Marketing Channels in Russia: Third Quarter 1994 ('000 rublelton) Weighted Procurement Direct Internal Barter average organs marketing distribution Grain 106.0 140.9 85.8 53.3 89.3 Potatoes 289.4 334.4 286.9 198.5 288.1 Vegetables 570.8 557.3 617.3 484.9 499.0 Beef, live weight 723.5 709.8 799.3 714.8 768.9 Pork, live weight 1320.4 1335.7 1402.1 1158.8 1104.2 Milk 142.9 137.6 252.2 199.9 194.3 Table 1.14. Russian Imports: 1990-1994 (billion US$) All Commodities Food Total Former Soviet Other Total Former Soviet Other republics republics 1990 153.8 72.0 81.8 33.9 17.3 16.6 1991 149.1 104.6 44.5 34.5 22.1 12.4 1992 45.8 8.8 37.0 10.1 0.5 9.6 1993 35.8 9.0 26.8 6.9 1.1 5.9 1994 38.6 10.3 28.3 8.9 1.4 7.5 Agricultural imports in aggregate are reported or semi-processed. To the extent that higher to have declined by more then two-thirds protection raises consumer prices, it is likely to throughout the reform period (Table 1.14). Food increase the margins between farm-gate and retail imports from non-FSU partners increased by 27% prices, rather than increase farm-gate prices. If the in 1994 relative to 1993, and comprised $7.5 food processing industry is monopolistic, increased billion, but were still less than half the recorded protection will strengthen the monopolies. Russian imports from non-FSU partners in 1990. The volume and value of food imports from FSU Table 1.15. Food Imports to Russia from Non-FSU Countries partners has fallen very substantially, from over (thousand tons) $17 billion in 1990 (roughly equal to imports from non-FSU partners) to less than $2 billion in 1993 1992 1993 1994 and 1994. Table 1.15 shows imports from outside Meat 288 85 387 the former Soviet Union in physical units. The Poultry 46 74 411 decline in grain and sugar imports explains much Butter 25 70 171 of the fall in the value of imports, despite Citrus 42 172 869 significant growth in imports of livestock products. Tea 47 55 98 The relatively small volume of agricultural Sugar, unrefined 2137 1667 1203 imports and the large gap betweenl domestic and Sugar, refined 1554 1442 1083 border prices (see Table 1.8) suggest that increased Grains 30386 11450 2096 agricultural protection is not likely to raise earnings of Russian primary producers. When the Monopoly is not the only structural issue of gap between domestic and border prices is as high importance to the performance of the food as that displayed in Table 1.8, additional protection processing industry. Many of the processing plants at the border will have little if any impact on were privatized in closed distributions to producer prices. Imported foodstuffs are processed employees, and they have become essentially 12 Russian Agriculture: 1992-1994 worker-managed firms. Closed worker-managed producer incentives and lack of development of firms have problems familiar from the theoretical product and input markets. Under prevailing prices, literature and from past experience in the former earnings outside the collectives are insufficient to Yugoslavia. In worker-managed firms employees attract financing for initial start-up capital and have incentives to distribute profits as wages, operating expenses. Although severe problems rather than reinvest in the firm, and the firms are remain in supply of financial services to forced to rely on relatively high levels of debt for agriculture, even a well developed commercial financing. financial sector would be reluctant to finance Reported wages in the food industry, as shown agricultural activities under the sectoral incentives in Fig. 1.4, are quite high. Agricultural producers prevailing in 1993 and 1994. Improved producer have frequently pointed to the disparity in earnings incentives resulting from more competitive and between agricultural workers and food industry efficient marketing and processing, and better and workers, and presented the gap as evidence of cheaper access to national and international monopsony power in the food industry. Unless markets will be needed in order for viable labor can move freely between the two subsectors commercial farms to emerge through continued and the skill requirements of the two types of progress in land reform and farm restructuring. employment are the same, there is little reason to Russian land reform and farm restructuring accept wage gaps as evidence of monopsony. If made a promising start between 1992-1994, but wages in food processing are elevated, however, much further change lies ahead if a competitive relative to equilibrium levels in an integrated labor and efficient farm structure is to emerge. The market, this may be due either to monopsony changes accomplished so far have taken place in a power or to asset stripping on the part of sectoral economic environment that depressed farm employees in labor managed firms. Both earnings and asset values. The sectoral monopsony power and asset stripping or environment in the future will improve as farm underinvestment in the food processing industry on product prices increase. Because a substantial the part of the new employee-owners will impede improvement in sectoral incentives lies ahead, it is growth and competitiveness of primary production. important that land and farm assets not be prematurely locked into the collective and * * * corporate structure that emerged in 1992-1994. Continued positive evolution of farm structure in Russian land reform and farm restructuring Russia will require that the government put through 1994 have resulted in stronger land tenure emphasis on the following areas: (i) design of a rights of the enterprise sector. Changes in the size, workable mechanism for exit or separation from internal structure, and economic behavior of shareholding enterprises, so that land and assets are enterprises have been modest to date. The slow not locked in the units created in the first round of pace of change is due in part to deficiencies in the formal restructuring; and (ii) enhanced functioning legal framework for reorganization and to delay in of markets in the agricultural sector so that design of readily operational models of producer incentives improve to reflect undistorted restructuring. In part the continued strength of the market opportunities. traditional enterprise sector derives from poor Russian Agriculture: 1992-1994 13 List of Data Sources in Chapter 1 Fig. 1.1: Statisticheskii byulleten' No. 1(APK), Table 1.7: Tseny v Rossiiskoi Federatsii, Goskomstat Goskomstat RF, Moscow, 1995. RF, Moscow 1995. Fig. 1.2: Rossiya 1994. Ekonomiche.skaya kon 'yun- Table 1.8: Tseny v Rossiskoi Federatsii, Goskomstat ktura, Tsentr Ekonomicheskoi Kon'yunktury, RF, Moscow, 1994 and 1995; Rossiya 1994. Moscow, December 1994. Ekonomicheskaya kon'yunktura, Tsentr Ekono- Fig. 1.3: Sotsial'no-ekonomisheskoe polozhenie micheskoi Kon'yunktury, Moscow, December Rossii 1994, Goskomstat RF, Moscow, p. 104. 1994; Statisticheskii byulleten' SNG No. 5, 1995. Fig. 1.4: Sotsial'no-ekonomicheskoe polozhenie Table 1.9: Rossiiskii statisticheskii ezhegodnik 1994; Rossii, Yanvar'-Mart 1995, Groskomstat RF, Sotsial'no-ekonomicheskoe polozhenie Rossii 1994; Moscow, 1995. Statisticheskii byulleten' No.1 (APK), Goskomstat Table 1.1: Narodnoe khozyaistvo Rossiiskoi Federatsii RF, Moscow, 1995. 1992, Goskomstat RF, Moscow, 1993; Rossiiskii Table 1.10: Sotsial'no-ekonomishesskoe polozhenie statisticheskii ezhegodnik 1994, Goskomstat RF, Rossii 1994; Sotsial'no-ekonomicheskoepolozhenie Moscow, 1995. Rossii Yanvar'-Mart 1995; Statisticheskii byulleten' Table 1.2: Rossiiskii statisticheskii ezhegodnik 1994, No. I (APK), Goskomstat RF, Moscow, 1995. Goskomstat RF, Moscow, 1995, p. 346. Table 1.11: Rossiiskii statisticheskii ezhegodnik 1994; Table 1.3: Statisticheskii byulleten' No. I (APK); Sotsial'no-ekonomisheskoepolozhenie Rossii 1994; Osnovnye pokazateli funktsionirovaniia APK Sotsial'no-ekonomicheskoe polozhenie Rossii Rossiiskoifederatsii v 1994g., Moscow, 1995 Yanvar'-Mart 1995, Goskomstat RF, Moscow, Table 1.4: Rossiya 1994. Ekonomicheskaya kon yun- 1995. ktura, Tsentr Ekonomicheskoi Kon'yunktury, Table 1.12: Statisticheskii byulleten' No. 1 (APK), Moscow, December 1994. Osnovnye pokazateli funktsionirovaniya agro- Table 1.5: Rossiya 1994. Ekonomicheskaya kon 'yun- promyshlennogo kompleksa Rossiiskoi Federatsii v ktura, Tsentr Ekonomicheskoi Kon'yunktury, 1994godu, Goskomstat RF, Moscow, 1995. Moscow, December 1994. Table 1.13: Rossiya 1994. Ekonomicheskaya konyun- Table 1.6: Strany-chleny SNG v 1993 g., Moscow, ktura, Tsentr Ekonomicheskoi Kon'yunktury, 1994; Strany-chleny SNG v 1993 g. (Kratkii Moscow, December 1994. spravochnik), Moscow, 1994; Strany-chleny SNG v Table 1.14: Rossiya 1994. Ekonomicheskaya kon'yun- 1994 g. (Kratkii spravochnik predvaritel'nykh ktura, Tsentr Ekonomicheskoi Kon'yunktury, statisticheskikh itogov), Moscow, 1994; Narodnoe Moscow, December 1994; Sotsial'no-ekono- khoziaistvo SSSR 1990, Goskomstat, Moscow, micheskoepolozhenie Rossii 1994, Goskomstat RF, 1991; Statisticheskii byulleten'No. 5 (93), Moscow, Moscow, 1995. February 1995; Agricultural Policies, Markets and Table 1.15: Rossiiskii statisticheskii ezhegodnik 1994, Trade in the Central and Eastern European Goskomstat RF, Moscow, 1995; Rossiiskaya countries, Selected New Independent States, Federatsiya v 1992 g., Goskomstat RF, Moscow, Mongolia and China: Monitoring and Outlook 1993; Statisticheskii byulleten' No. 1 (APK), 1995, OECD, Paris, 1995. Goskomstat RF, Moscow, 1995. 15 2. The Legal Framework for Land Markets and Reorganization of Farms Land law in a market economy defines and Citizens Concerning Land") reaffirms individual protects property rights in land, and creates legal property rights by allowing practically all transac- conditions under which rights can be transferred tions in land shares and by removing restrictions on through markets. During Russia's transitional the amount of land that can be leased for farming. period, the land law and laws governing farm Removal of restrictions on leasing is an important reorganization are interrelated, since they pertain to positive development. Experience in East Central two components of the reform process that are Europe, where land markets have been functioning closely linked and interdependent. This section for several years, indicates that leasing is much reviews the legal framework for both components more prevalent than purchase and sale of land. as of 1995 and early 1996. For a discussion of Active rental markets in land provide flexibility for previous phases, see Brooks and Lerman (1994). transfer, and allow owners to observe land values. The recent presidential decree is therefore a posi- Russian Land Law tive step, but legislative mechanism based on presidential decrees is fragile, because decrees The early stage of land reform and farm re- retain force only until passage of a new land code. structuring, prior to 1994, proceeded in the absence The Constitution and the Civil Code leave a of constitutional guarantees for land owners, and number of issues open for detailed specification in was directed largely by presidential decrees. The subsequent legislation, and several laws that will new Russian Constitution effective since December affect land issues are currently under consideration. 1993, and the Civil Code effective since January A draft of a new Land Code proposed by the tradi- 1995, safeguard the right to private property and tionally conservative agrarian faction in the Russian private land ownership and provide the legal basis Duma passed its first reading in June 1995, but for other legislative acts or decrees. Yet a number failed to pass the second reading in November of old laws still remain on the books that are not 1995. Its final adoption in the present version is in consistent with the Constitution and the Civil Code, question because its provisions are in direct contra- and the legal framework is under continuing revi- diction to the spirit of laws and presidential decrees sion and review. that have governed land relations in Russia since Three aspects of land law; i.e., ownership, 1991. It would furthermore require annulment of transactions, and mortgage, are critical if agricul- important existing legislation (the 1990 Law on ture is to function efficiently in a market economy. Land Reform and significant portions of the 1990 In these three areas the Russian legal framework is Law on Peasant Farms). The tabling of this draft, at present based on Presidential Decree No. 1767 of however, is a reflection of the intense debate that October 27, 1993 ("On Regulation of Land Rela- surrounds questions of land ownership and agricul- tions and Development of Agrarian Reform in tural reform in Russia, a debate that will probably Russia"), since the Land Code originally passed in continue with increased intensity in the new Duma April 1991, before the dissolution of the Soviet in 1996. Union, has largely been invalidated by subsequent The new Land Code, if adopted in its current piece-meal legislation. The October 1993 presiden- version, would preclude the normal functioning of tial decree is supportive of the development of land land markets by preventing free transfer of land to markets in that it gives owners the right to sell, most efficient producers. The effect of this distor- bequeath, mortgage, rent, and exchange land. A tion would be to freeze the farming sector in its recent presidential decree of March 7, 1996 (enti- present inefficient structure and depress land tled "On Realization of the Constitutional Rights of values, ultimately acting against the interests of 16 The Legal Framework land owners, most of whom are currently share- on article 72 of the Constitution, which affirms that holders in agricultural enterprises. questions regarding ownership, use, and disposition An important step in late 1995 was the adop- of land, mineral deposits, water and other natural tion of the Law on Agricultural Cooperation, which resources will be decided jointly by the Russian came into effect in December 1995, replacing the Federation and the constituent republics. Article 72 outdated 1988 Soviet Law on Cooperation in the reflects and perpetuates ambiguity regarding the USSR. Some provisions of the new law on agricul- jurisdiction of federal and regional authority in land tural cooperatives are significantly less restrictive issues. The new draft Land Code reaffirms the right than the provisions of the draft Land Code. For of the constituent republics to decide independently example, the cooperative law allows members to on the assignment of land to different forms of lease their land shares to the cooperative while ownership on their respective territories, in line retaining ownership, an option not available in the with local custom and in compliance with the draft Land Code. Pending laws of importance general principles of federal law. include a draft water code and a draft law "On In addition to private ownership of land by Mortgage of Agricultural Land." The latter will be individuals and legal persons, the Civil Code automatically rendered invalid if the draft Land recognizes other forms of land tenure, which are a Code is passed in its current version, since mort- carry-over from the Soviet regime, when private gage of agricultural land is explicitly prohibited in property was not allowed. These are lifetime inher- the draft. itable possession and permanent or temporary use rights, which may be granted only in lands owned Land Ownership by the state or the municipalities. The freedom of The Constitution recognizes that "land and disposition becomes progressively more restricted other natural resources may be in private, state, and as the form of tenure changes from private owner- other forms of ownership" (article 9). It further ship to use rights (Table 2.1). affirms the right of "citizens and their associations" Agricultural land in Russia has been largely (i.e., both individuals and legal persons) to hold privatized since 1992, i.e., transferred from the state land in private ownership (article 36). Owners are sector to private ownership. The state now owns granted rights freely to use and decide on disposi- less than 17% of agricultural land (see Table 1.1 in tion of land as long as use or disposition do not Chapter 1). However, only 12% is individually harm the environment or infringe on rights and owned: this is the land in private farms and subsid- legal interests of other parties. Conditions and iary household plots. Most of the privatized land is means for land use and disposition are to be speci- in the status of joint ownership (obshchaya fied on the basis of federal law; that is, the Land sobstvennost') in collective enterprises that have Code. The Civil Code recognizes three forms of recently reorganized as various partnerships, coop- ownership: private, municipal, and state. It affirms eratives, and shareholder structures. Joint, as op- the right of citizens and legal persons to own land, posed to individual, ownership is defined in the freely to use land, and to engage in transactions in Civil Code as private ownership by two or more land. The Civil Code specifies that land not owned individuals. A characteristic feature of jointly by citizens, legal persons, or municipalities will be owned property is that its disposition requires owned by the state. unanimous agreement of all co-owners. Joint Although the Constitution sanctions private ownership may be of two varieties: shared joint ownership of land, ten constituent republics of the ownership (dolevaya obshchaya sobstvennost'), Russian Federation do not recognize private owner- when individual shares in the jointly owned prop- ship of land within their territories (Tatarstan, erty are defined (without physical designation of the Bashkiriya, Dagestan, Komi, Mariel, Kabardino- underlying asset, however), and undivided joint Balkariya, North Osetiya, Tuva, Yakutiya-Sakha, ownership (sovmestnaya obshchaya sobstvennost'), and Koryakiya). These republics base their position when individual shares are not defined. In the 1994 The Legal Framework 17 farm survey undertaken for this report, farm enter- example, it was not clear if title to the land would prise managers reported that 90% of their land was pass to the enterprise, nor was it clear if withdrawal in shared joint ownership. of land by individual shareholders would require Between 1992 and 1995, when recipients of permission of all co-owners. Clarification of the land shares in former collective farms assigned status of jointly owned land in shareholding enter- them to shareholding enterprises with the objective prises came with passage of the Civil Code in of continuing collective production (possibly only October 1994 and Government Resolution No. 96 in the interim period), the precise legal status of ("On Procedure for Realization of Rights of Owners joint ownership was unclear. The rights and obliga- of Land and Asset Shares") in February 1995, after tions of the individual holder of a land share and the most shareholders had already assigned their land collective of shareholders were ambiguous. For into joint ownership. Table 2.1. Forms of Land Tenure and Associated Disposition Rights in the Russian Civil Code (October 1994) Form of land tenure Tenure holder Source of land Disposition rights Private ownership (chastnaya Individuals, Private owners. munici- Sell, give away as a gift, mortgage, sobstvennost') legal persons palities, the state lease out, any other legal use Lifetime inheritable possession Individuals Municipalities and the Lease out, allow temporary use without (pozhiznennoye nasleduyemoye state payment; buildings erected on land be- vladeniye) come private property Permanent use rights Individuals, Municipalities and the Lease out or allow temporary use with- (postoyannoye pol'zovaniye) legal persons state out payment with owner's permission only: buildings erected on land become private property Temporary use rights Individuals, Municipalities, the state, None (vremennoyepol'zovaniye) legal persons other use-right holders Leasing (arenda) Individuals, Private owners, munici- None: subleasing of farm land usually legal persons palities. the state, other not allowed use-right holders The Civil Code, in line with the accepted status of joint ownership by a group of individuals practice of property rights of business organizations to the status of ownership by a corporation (an in most developed countries, unambiguously states enterprise). Both are forms of private ownership, that any property invested by an individual upon but the designation of the owner is totally different; entry into a business organization (whether a in the one case the owner is the individual, and in limited or unlimited liability partnership, a joint- the other the enterprise. stock company, or a producer cooperative) becomes Under Government Resolution No. 96 the the property of that organization and is no longer individual owner of a land share may lease out the owned by the individual. Government Resolution land share to the enterprise (or to other individuals) No. 96 applies this principle to investment of land or simply invest the use right of the land share in and asset shares by former collective farm members the enterprise instead of investing the land share in a new agricultural enterprise. Thus, when indi- itself. In these cases, the individual retains owner- viduals assign their land and asset shares to an ship of the land share and of the underlying asset. agricultural enterprise in the form of statutory The by-laws of the enterprise determine whether payment for the right to participate in the enterprise investment of use rights is an option for potential (as a contribution to the equity capital of the enter- investors in a given farm enterprise. The right of prise), the land and assets are transferred from the leasing land shares to the farm enterprise is now 18 The Legal Framework reaffirmed in the December 1995 Law on Agricul- purpose, i.e., for farming, and the obligation to tural Cooperation and in the March 1996 presiden- preserve the fertility of the land. Failure to fulfill tial decree. these obligations can lead to administrative termi- The draft Land Code currently before the nation of tenure rights. An individual or an enter- Russian Duma does not recognize the right of prise may lose rights to farm land if the land is individuals to lease out their land share or invest the allowed to remain uncultivated or to be used other use right of the land share in the enterprise in order than for farming. This provision applies even to to retain ownership. Instead, the shareholder would privately owned land, which may be taken away be obliged to follow one of two courses: either from the delinquent owner despite legal title. These invest the land share in a reorganizing enterprise, restrictions, which are retained in the present draft thus exchanging the land share for a share of stock of the new Land Code, unduly constrain changes in in the enterprise and forfeiting land ownership, or land use, many of which in any event will be con- exercise immediately the right of exit from the sistent with rational use of land. The provisions enterprise with a physical plot of land for individual furthermore create opportunities for administrative farming. interference and corruption. Both the Civil Code and the draft Land Code retain, in addition to ownership. the traditional Land Transactions forms of land tenure, such as lifetime inheritable The Constitution and the Civil Code protect possession, permanent and temporary use right, and the right of land owners to decide on disposition of leasehold. Throughout the legal discussion in 1993 their land subject to provisions of the relevant and 1994, lifetime inheritable possession and federal legislation. Because the Constitution is permanent use rights were viewed as transitional worded to protect only general rights of ownership forms of tenure to be superseded by ownership, and disposition, and defers to federal law with although land remained in these tenure forms regard to constraints on transactions, the highest pending reclassification. Under the 1991 Law on piece of federal legislation with regard to land; i.e., Peasant Farms, individual farmers began to receive the Land Code, will determine whether land owners land from the state in private ownership. The have broad or narrow rights to conduct transactions October 1993 Presidential Decree (No. 1767) in land. The status of the federal land code in allowed people holding land under lifetime inherit- relation to local land law, as well as its content, will able possession, permanent use right, and leasehold need clarification in order for rights to engage in from the state to convert their tenure to ownership land transactions to be fully specified. A land code in accordance with existing legal procedures, such specifying broad powers of transaction will expe- as restrictions on maximum holdings. The transi- dite development of land markets, and hence facili- tional forms of tenure were expected to diminish tate transfer of land to most efficient producers, naturally as conversion proceeded. The draft Land improve land values, and increase investment in Code, on the contrary, would abolish further alloca- agriculture. The federal land code should explicitly tion of land in private ownership to new farmers protect rights to rent, sell, and mortgage land, so and thus re-emphasize anachronistic forms of land that provincial and local authorities cannot impose tenure, such as permanent use right of state-owned restrictions on transactions. Because of the very land. general wording of the Constitution with regard to The Civil Code and other early legislation land transactions, the federal land code is the key contain some legal principles that may constitute a legal instrument through which rights to engage in serious obstacle to security of ownership and land transactions can be affirmed. tenure. Land is subject to a number of obligations, The basis for land transactions is provided at which pertain to agricultural land in all forms of present by presidential decrees of October 27, 1993, tenure, including private ownership. Among these "On Regulation of Land Relations and Develop- are the obligation to use land for its specified ment of Agrarian Reform," and March 7, 1996, "On The Legal Framework 19 Realization of the Constitutional Rights of Citizens private farmers, in contrast to farm enterprises, Concerning Land." These decrees largely super- would be allowed under the draft Land Code to rent seded the provisions of the old April 1991 Land out to other users not more than half of their land Code, and their main purpose was to establish the and only for a term of five years, except in case of legal status of land shares within agricultural retirement and certain special circumstances (dis- enterprises. A second purpose was to sanction the ability of the farm operator, election to an official right to conduct transactions in land. According to duty, service in the armed forces, full time student the decrees of October 1993 and March 1996, land status). The wording of the restrictions provides owners have the right to sell, bequeath, mortgage, scope for many exceptions, but could still constrain rent, and exchange land. Land owners also may rental markets. For example, in market economies exercise land rights by leasing their land out to much agricultural land is owned by people over the private farmers or assigning it to various forms of age of 55 who choose to rent their land to younger shareholding enterprises. The March 1996 decree operators even though they are still able-bodied. As removes restrictions on the amount of land that can the pension age is raised in Russia from its current be leased in or out for farming. level (55 for women, 62 for men), a large number The presidential decrees and the Civil Code of middle aged and elderly land owners may be provide relatively full assurance of the right to lease prevented from renting out their land because they land in and out. This right applies to privately do not qualify yet for pension. Farm enterprises owned land, as well as land held in lifetime inherit- would also be prohibited from renting out more able possession and in use right (see Table 2.1). than 50% of their holdings. These provisions of the During the early stage of development of land law are most likely intended to prevent creation of markets in Russia, rental transactions will be a rentier class of owners who do not operate their important. Energetic farm operators may desire to farms. As an alternative approach to preventing rent land from pensioners (who constitute nearly absentee ownership, local authorities could specify half the holders of land shares.) and other owners or different tax rates to be paid by the land owner for from the state and thus increase the efficiency of farm land that is operated by the owner's family land use even if the operators are not in a position and for farm land rented out. The draft Land Code to buy additional land. indeed proposes differential taxation in order to The draft Land Code in general reaffirms the prevent speculative land sales after a short holding right to rental transactions, and in fact introduces period (less than 5 years), and the same market the option of long-term leasing. Individuals who mechanism instead of arbitrary administrative lease from the state or from enterprises would hold measures could be legitimately used also for other leases of up to 50 years, with a preemptive right to purposes. In general it is desirable that land owners renew the lease. Lease rights, with the preemptive be free to choose, without external constraints, the option, would be inheritable. The draft Land Code portion of their land that they work themselves, and does not set a specific upper limit to the area of the portion they rent in or out. land that can be rented in, although it stipulates that The draft Land Code furthermore would farm enterprises are allowed to lease out land to eliminate pensioners' option to rent land out. private farmers "up to an optimal size." It is desir- Pensioners are the segment of the population for able that leasing not be constrained by size limits in whom the option of leasing out land may be essen- order to facilitate rational use of land. This position tial for maintaining a reasonable standard of living. has indeed been adopted in the March 1996 presi- According to the current version of the draft, the dential decree, and unconstrained rental transac- pensioners would only be able to invest their land tions should be affirmed in the future Land Code. shares in a farm enterprise. The pensioners would The draft Land Code, contrary to the provi- thus forfeit ownership and lock themselves into a sions of the March 1996 presidential decree, would single shareholding structure, without the freedom limit rental rights of private farmers. Individual to choose who would actually pay them for cultivat- 20 The Legal Framework ing their land. This provision of the draft Land tice accept land as collateral, and most loans that Code is completely at variance with the March are secured with assets are secured with machinery, 1996 presidential decree, which specifically allows equipment, or animals. In order for mortgage pensioners to lease out or assign their land shares to financing to develop normally, land markets must producers in return for a lifetime annuity. be active enough to yield observable market values In addition to restrictions on leasing of land, for land, since it is the market value that determines the draft Land Code would practically eliminate the the collateral value of a parcel of land. So far, purchase of farm land from other than state sources valuation of land in Russia is based on "normative and the sale of farm land among individuals and tables" calculated using administratively prescribed agricultural enterprises. Only the land in subsidiary formulas, which are not directly related to real household plots (the portion up to 0.5 ha around the economic values. house) and in small vegetable gardens and livestock The elements of the draft Land Code that associations could be sold at any time (subject to effectively preclude development of land markets the standard restriction on use). The privatized land also preclude development of mortgage financing. of farm enterprises could not be sold: it could be In addition, however, the current draft explicitly leased out, but only up to 50% of the holdings. prohibits mortgage of agricultural land, and thus Surplus privatized land would have to be returned eliminates an important source of investment to the state. Individual farmers who received land in financing not only for small farmers but also for private ownership prior to the proposed law would farm enterprises. not be allowed to sell it: land could be alienated only to the state. For new private farmers created Farm Restructuring after the passage of the new law, the problem of selling land would not arise: they would receive The initial impetus for farm restructuring land in lifetime inheritable possession, without the derived from presidential decree "On Immediate right to sell, and would be allowed to obtain addi- Measures for Implementation of Land Reform" of tional land by purchasing from the state (or by December 27, 1991, and government resolution leasing from the state, from farm enterprises, or "On Procedures for Reorganizing State and Collec- from other private farmers). tive Farms" of December 29, 1991. These docu- The current draft of the Land Code appears to ments defined a process whereby within approxi- be in substantial contradiction to the provisions of mately one year the farms would call general previous presidential decrees, which promoted assemblies to vote on reorganization, and thereafter relative freedom of transactions in land. This point register according to the decision of the meeting; is forcefully made in the explanatory notes to the i.e., either under the same form of organization, or draft law, where it is argued that the presidential under the newly chosen form. Upon registration the decrees ignore constitutional provisions and local farm would assume ownership of its land in the custom in the Russian Federation. The new Land name of the shareholders, unless the assembly Code, if it were to be adopted in its present form, elected to remain a state farm. Non-land assets were would eliminate much of the progress toward already owned by the shareholders if the farm was market-oriented land relations that has been in the past a collective farm, but upon reorganiza- achieved since 1991. tion the ownership would be made explicit through the designation and distribution of shares. Share- Mortgage of Land holders of newly reorganized state farms received Under current Russian law (October 1993 share ownership of non-land assets upon registry as Presidential Decree No. 1767 and the Civil Code) one of the non-state forms of organization. As land owners have the right to mortgage land. Land shown in Table 1.2 in Chapter 1, 95% of farms had held in other forms of tenure may not be mortgaged gone through the process by 1994. Nearly half of by the holder. Banks, however, do not yet in prac- farm enterprises registered as closed shareholding The Legal Framework 21 farms, both joint stock companies and limited acknowledgment and recognition in two Govern- liability partnerships, and 35% of farms elected to ment resolutions: "On the Practice of Agrarian remain collective or state farms. Transformation in Nizhnii Novgorod Province" The December 1991 government resolution (April 1994) and "On Agricultural Enterprise defined the general outlines of the share system. Reform Allowing for the Experience in Nizhnii The resolution did not offer guidance for farms that Novgorod Province" (July 1994). These resolutions wished to proceed beyond creation of a share- recommended that the principles used for farms in holding structure essentially the same as the prede- Nizhnii Novgorod Province be extended to all of cessor state or collective farm. Nor did this resolu- Russia. A summary of the Nizhnii Novgorod farm tion require that farms determine the value of restructuring procedure is presented in Table 2.2. individual asset shares and the size and location of individual land shares, or distribute share docu- Table 2.2. Nizhnii Novgorod Farmn Restructuring Procedure ments to shareholders. Although compliance with the announced regulations was high, it was largely r Inventory of land and assets formal. Many farm employees surveyed in the a Preparation of eligibility lists winter of 1992-1993 were not aware that their 0 Calculationoflandandassetshares farms had changed organizational form (Brooks and 0 Approval of distribution plan by General Assembly Lerman, 1994). In 1992 few fanrs determined land Stage 1: Distribution of Shares and asset shares, and even fewer distributed entitle- 0 Distribution of share certificates to eligible individuals ment documents to shareholders. Additional in- 0 Acquainting shareholders with their rights and options structions on determination of land and asset shares Stage 2: Creating New Enterprises were issued in a government resolution of Septem- a Identification of technologically independent subdivisions ber 4, 1992. By early 1994, 90% of managers in the of existing farm sample used for this study indicated that the size o Regrouping of shareholders through negotiation, registra- sample ued for his stud indicaed that he sizetion of enterprises and value of shares had been determined on paper. 0 Concluding contracts between shareholders joining the Few farms had distributed assets corresponding to various enterprises the shares, and few farms began paying dividends Stage 3: Auctions to shareholders. The share determination did not o Division of land and assets into lots have much practical value other than as a step 0 Submission of bids for land and asset lots toward future restructuring, but this step had been a Physical distribution of land and assets through an auction taken on most farms by the end of 1993. Stage 4: Transfer of Property Rights Where members chose to implement a more 0 Physical transfer of land and assets fundamental internal restructuring, a methodology a Issuance of title was needed to match actual land and physical assets to shares, and to allow regrouping and trading of With the exception of the farms that were shares to form new business units in place of the wholly reorganized through the Nizhnii Novgorod original shareholding farm. A number of farms pilot program and its recent extension, most reorga- proceeded on their own initiative, but in the absence nizations did not proceed beyond re-registration of of more detailed guidelines, practical issues of the original farm under a new form. The differences implementation limited the process. A methodology am for designing and conducting an internal "auction" not clearly specified legally, nor perceived by (a "redistribution meeting") for land and physical participants, and the choice of form appeared to be assets against shares was pioneered on a small arbitraryn number of pilot farms in Nizhnii Novgorod Prov- arbitrary. One of the main lessons of the Nizhnii ince in 1992 and 1993. and implemented more Novgorod project was that participants needed widely in several provinces in 1994 and 1995. The close guidance and intensive advice in order to Nizhnii Novgorod experience received formal move beyond formal re-registration to actual 22 The Legal Framework restructuring. By early 1995, the pace of farm cooperatives is likely to bring a large share of restructuring appeared to have stalled at the stage of agricultural resources under its jurisdiction. formal registration with little substantive change. Government Resolution No. 96 of February 1, The Ambiguous Status of Land Shares 1995, was intended to strengthen the legal basis for transactions in land and asset shares and further Land shares are created and defined when a clarify procedures for reorganization for farms that state or collective farm begins the process of con- had not yet reorganized. The provisions of Resolu- version to a privatized shareholding enterprise. The tion No. 96 with regard to land remain in effect preamble to the December 1991 resolution on farm until passage of the new Land Code. In addition to restructuring states that shareholders have an clarifying transactions with shares, the resolution unconditional right to remove land and asset shares provides sample documents for recording transac- from an agricultural enterprise in order to start a tions in land and shares. private farm, without receiving permission of the Some enterprises (1900 nationwide) registered farm administration or the general assembly of the as agricultural producers' cooperatives between members. According to the govemment resolutions 1992 and 1995. This form of organization was of 1991 and 1992, recipients of land shares are among the options specified in the decrees and it is required to file an intention of disposition of the one of the business structures recognized by the share with the intemal farm commission for reorga- Civil Code. However, the legal structure of pro- nization. The options for disposition of land shares ducer cooperatives was not well defined due to lack include: receipt of land and/or other assets in of a cooperative law. A new Law on Agricultural physical form upon exit to start a private farm or Cooperation was adopted in December 1995. The other activity outside the enterprise; sale of the law recognizes agricultural production cooperatives share to other members or to the enterprise; invest- and a wide range of service cooperatives that may ment of the share in the equity capital of an agricul- engage in processing, marketing, input supply, farm tural enterprise, which is broadly defined to include and rural services, and even credit and insurance. the former collective or state farm in its new form, Production cooperatives are based on member as well as a variety of other legal forms of organiza- labor, which may be augmented with hired workers. tion, such as partnerships, joint-stock societies, or Service cooperatives, on the other hand, do not producer cooperatives. require members to work in the cooperative: the If a shareholder withdraws land and starts a only requirement is that members take part in the private farm in combination with others, the land is business activity of the service cooperative. registered as joint property of all farm owners. The An agricultural enterprise currently registered land can be reclaimed by the individual only if the under other forms of organization can follow the private farm is dissolved. Agreement of all co- procedures of the Civil Code and the Law on owners is required to sell a portion of the land. Agricultural Cooperation to reorganize and register as a production cooperative. The new cooperative Treatment of Land Shares in Government Resolu- law contains fairly detailed provisions on creation tion No. 96 of February 1995 of cooperatives in the process of restructuring of The 1991-1992 govemment resolutions do not agricultural organizations. In practice, it is expected specify what happens to the land share if it is not that all remaining kolkhozes and a number of other withdrawn for private farming, and is instead shareholding and limited liability structures will invested in establishment of a new agricultural reorganize and register as agricultural production enterprise. Govemment Resolution No. 96 of cooperatives. The term "collective," the root word February 1995 clarifies the ambiguity on the basis of kolkhoz, will no longer be used to describe these of the 1994 Civil Code by stating that if the share- agricultural enterprises, which will instead be holder invests the land share in the equity capital of cooperative farms, or koopkhozy. The new law of an agricultural enterprise, the enterprise assumes The Legal Framework 23 ownership of a land plot corresponding in size to retaining ownership. This provision of the new that of the land share, and the shareholder loses cooperative law is clearly at variance with the ownership rights to the land. As a result, the share- current draft of the Land Code, which only allows holder also loses the right to request allocation of a partial and short-term leasing of privately owned physical plot upon exit. However, instead of invest- plots. In order to take advantage of the legal right to ing the land share in an agricultural enterprise, the retain ownership of their land share, prospective individual has the option according to Resolution members must be able to meet the investment No. 96 to lease the share to the enterprise for a short requirement in the equity capital of the cooperative term or to invest the use right of the land share in from other resources. Since few prospective mem- the enterprise for a period not exceeding three bers have capital other than land and asset shares in years. In either case, the individual retains owner- the former farm enterprise, membership in a pro- ship of the land share and can subsequently (upon ducer cooperative will involve transfer of land termination of the agreed term) request to withdraw ownership to the cooperative in many cases. land in kind and exit from the enterprise to establish The cooperative law, similarly to the Civil a private farm. Code, provides that upon exit members receive the While Resolution No. 96 establishes a proce- value of their share in the cooperative, either in dure only for exit of owners of land shares (i.e., cash or in kind. Exit with a physical plot of land in individuals who have not invested their shares in principle is not conditioned on the member's the equity capital of an agricultural enterprise), the intention to establish a private farm. The decision Civil Code provides guidelines also for the more between the two altematives of cash redemption or general case of exit of any individual from an allocation of a physical plot is left to the coopera- enterprise. Upon exit from an enterprise of any tive charter, or to the general assembly if the charter organizational form except a joint-stock company, does not address the issue. the individual receives the value of the share of the The new cooperative law was followed by a investment in the enterprise. The value can be presidential decree of March 1996, which consoli- received in cash or in kind (land or assets in physi- dated some of the principles of land reform that cal form). In limited liability partnerships and appeared threatened by the draft land code before societies, compensation in kind has to be negotiated the Duma. The decree provides a detailed list of with the other owners of the enterprise. In producer what owners can do with land shares. This list gives cooperatives, the choice between the two options is land owners the right to engage practically in any left to the cooperative charter. In joint-stock compa- transaction in land shares, as long as the use of land nies, the exiting individual simply has to find a for farming is protected. Moreover, transactions in buyer for the stock, as is the standard practice land shares do no require consent of other share- everywhere in the world. holders in the organization. In addition to selling the land share, exchanging it for an asset share or Treatment of Land Shares in Recent Legislation: another land share, passing in inheritance, or giving December 1995 Cooperative Law and March 1996 it as a gift, the owner may request conversion of the Presidential Decree land share into a physical plot in order to establish The Law on Agricultural Cooperation of an individual farm or lease the plot to another December 1995 specifies that a member entering a private farmer, household, or farm enterprise. The cooperative can use the privately owned land plot land share can be invested in the equity capital of a or the land share as the initial statutory investment farm enterprise. Alternatively, if the holder of the in the equity capital of the cooperative. In this land share decides to retain ownership of the share, event, the land plot or the land share become the its use right can be leased to an agricultural pro- property of the cooperative. Alternatively, the ducer. member can lease the land plot to the cooperative, 24 The Legal Framework Treatment of Land Shares in Draft Land Code if this "does not cause damage to the economic The existing Land Code predates the whole well-being of the agricultural enterprise and the concept of land shares, which have accordingly profitability of production, unless the exiting been treated so far in various decrees and resolu- member undertakes to compensate the agricultural tions. The draft of the new Land Code under con- enterprise for the ensuing damage, including loss of sideration by the Duma devotes much space to land income." Perhaps in an attempt to offset the impact and asset shares. The draft states that the land share of this seemingly draconian clause, the draft Land exists only during the period of reorganization of Code includes another affirmative condition, which the enterprise. Recipients of land shares must states that a plot of land will be granted if "the land decide during the reorganization either to withdraw in the enterprise or part of the land is used ineffi- land for the purpose of private farming or invest the ciently (the yield is 50% or less of the district land share in a new agricultural enterprise. The new average for land of comparable quality)..." Individ- agricultural enterprise is not necessarily identical uals who wish to exit for purposes other than with the physical extent of the original enterprise: private farming have to work for 10 years in the the former enterprise may split into a number of reorganized enterprise until they become eligible to smaller enterprises in the process of reorganization, receive the value of their land share or, by special and the individuals can choose which of the new agreement, a physical plot of land. structures to join. Upon investment in a new enter- All these conditionalities may present serious prise, however, the property right passes to the obstacles to the exit of individuals with land from enterprise, and the land share loses its legal identity. enterprises after the initial stage of reorganization. In the December 1995 law of agricultural coopera- A recent commentary in the Russian newspaper tives, ownership of land likewise passes to the Izvestiya indeed asserts that the draft Land Code cooperative enterprise when the land shares are encourages creation of large latifundias in place of used to pay for the membership share in the equity existing giant collectives (Uzun, 1995). In reality, capital of the cooperative. In both cases, these the outcome of the ongoing debate around land provisions for transfer of ownership are consistent reform and land ownership will depend on the with the principles of the Civil Code. The draft language of the final laws, the public and political Land Code, however, does not include the option of atmosphere, and ultimately on the interpretation the February 1995 Government Resolution No. 96 adopted by the courts. and the December 1995 cooperative law, which allow leasing of land shares and investment of use Outcomes and Next Steps rights of land shares without foregoing ownership. The draft Land Code, similarly to the Civil The legal developments in 1995 address a Code, also provides a limited mechanism for exit of fundamental ambiguity with regard to land shares. individuals after the establishment of the enterprise, Land cannot simultaneously be owned by individual when individually owned land shares have effec- shareholders and by the enterprises with which they tively ceased to exist. The draft Land Code states are associated. Actual legislation of 1995 (Govern- that individuals have a right to exit with a plot of ment Resolution No. 96 and the Law on Agricul- land "by agreement with the enterprise" for the tural Cooperation) and the draft Land Code recog- purpose of establishing a private farm. If the parties nize the property right of the enterprise unless an fail to reach an agreement, the matter is referred to individual chooses to leave the enterprise or makes local agricultural authorities or the courts, which special arrangements to retain ownership. By may grant the individual a plot of land if that strengthening the tenure rights of shareholding individual originally invested a land share in the enterprises, current and pending legislation implies enterprise and is legally entitled to be a private a strong tendency toward corporatization of Russian farmer. The same article, however, stipulates that a agriculture. Corporatization is evident in the units plot of land will be granted to the exiting individual created during the formal reorganization from 1992 The Legal Framework 25 to 1995, and in those emerging from whole-farm Fig. 2.1. Size Distribution of Farm Enterprises reorganizations according to the Nizhnii Novgorod Russia 1990-1993 model. The observed tendency toward the creation percent of sample farms of large-scale corporate farms, rather than smaller 35 or mid-size family farms, is not consistent with the 30 observed practice in agriculture in developed 25 countries, nor with the current relative factor costs 20 in Russia, where labor is cheap and capital assets I are expensive. This discrepancy suggests the need 10 ' ., for continued restructuring of Russian farm enter- //LE prises. <4 4-8 8-12 12-18 16-20 >20 thou. ha Size Distribution of Reorganized Russian Farms [E1990 : 1993 Farm size in a market economy is an economic Source: Wortd Bank survey data variable that reflects many causative factors. Farm operators adjust farm size over time by buying and Feder, 1995). selling land, or renting land in or out to increase the In the Russian economy in the 1990s labor is economic return to the farming operation. The farm inexpensive relative to capital, and the quantity of operator seeks a return to his or her labor at least labor available for agricultural work is likely to equivalent to alternative jobs available through the increase for a period, as adjustment in the industrial labor market. The operator seeks a return to capital sector proceeds. Economic factors can thus be in the operation equivalent to the risk-adjusted expected to create a tendency for small farms to return to alternative financial assets. Where capital have lower costs than large farms. Yet the inherited is expensive relative to labor, the operator will tend capital stock favors large scale production, and to substitute labor for capital, and use labor inten- independent small scale operators are not yet well sive production techniques. Yet in agriculture the served by market services. Farm enterprises in- cost of supervising a number of hired workers cluded in the sample for this study are very large by dispersed over a large area tends to be high. Costs world standards. Although they declined in size of supervision explain the high frequency of family between 1990 and 1993 by approximately 15%, farms with family labor supplemented by a few largely through transfer of land to the redistribution hired workers in many market economies. Thus fund and through augmentation of household plots where labor is cheap and capital expensive, farms of members, the average farm size remained at will on average tend to be small. Where labor is about 8000 ha. Approximately 25% of enterprises expensive farm size will tend to be larger, except in were 4000 ha or smaller in 1993, compared to cases such as the European Union, where high approximately 17% in 1990 (Fig. 2.1). producer support prices raise the price of land and As the inherited capital stock is retired and reduce farm size much below that of North Amer- market services improve, more agricultural produc- ica. Size varies according to the predominant kind ers are likely to judge that small and mid-sized of activity on the farm, but analysis of the relation- family operations would yield them a superior ship between farm size and productivity has shown return to their land and asset shares. The farm size that farms so large that a family cannot provide preferred by farm operators will probably be much most of the labor and management are not more smaller than the initial size of the shareholding efficient than mid-sized family operations. Only in farms created to date. Shareholders will wish to plantation crops, such as bananas, is there a clear withdraw shares and reconfigure the very large apparent advantage to large size, and the advantage farms. Some amendment in the legal framework to derives largely from the need to process the product facilitate exit and reconfiguration will be needed to rapidly after harvest (Binswanger, Deininger, and 26 The Legal Framework give adequate flexibility to Russian farm structure Fig. 2.2. Size Distribution of New Farms as it responds to the new economic environment. Orel, Rostov, Ryazan Provinces When a farm undergoes reorganization through the internal auction process (the Nizhnii Novgorod percent of 46 new farms model), the new enterprises created are smaller than 35 the original farm, but still large by world standards. Fig. 2.2 shows the outcome of reorganization 25 through auction in spring of 1995 in Rostov, Orel, 20 and Ryazan provinces. Here, 10 traditional farms 15 ranging in size from less than 2000 ha to 20,000 ha 10 reorganized into 46 new enterprises, 19 of which 5 were private farms and 27 other types of farms. The 0 9E= average private farm had 49 ha after reorganization. ha0 11-20 Z150 61-200 20100 O0-ID2O 1001-2W >2= Among farms of other types, 70% exceeded 1000 Source: IFC ha. Nevertheless, the process of farm reorganization in these three provinces is characterized by signifi- cant downsizing: the median farm among those larger than 1000 ha represented less than 1/3 of the Nizhnii Novgorod Province size of the old farm before reorganization. Figure 2.3 shows the size distribution of units percent of 52 new farms created through the auction process in Nizhnii 35 Novgorod Province. A total of six large-scale farms 30 were reorganized, with initial average size of over 25 3000 ha (ranging in size from 1640 ha to 3871 ha). 20 The reorganization produced 52 new farms, with 15 average size of just under 350 ha and median size 10 of 84 ha. Among the new farms, 56% are smaller than 100 ha and 20% are smaller than 20 ha. At the other extreme, 20% of the new farms are larger than <1 -120 21-e0 51e00 201 oo -0es a01-OM 1001o >2000 500 ha and 10% larger than 1000 ha. ha In contrast to the present structure of Russian Source: IFC farm enterprises, only about 3% of American farms are larger than 840 ha, or 2000 acres (Fig. 2.4). Conditions in labor and capital markets in America Fig. 2.4. Size Distribution of US Farms are more likely to produce large farms than is the case in Russia, since labor in America is expensive 35 __ _-_- relative to capital, and wages outside agriculture are 30 high. Nonetheless, there are few farms as large as 25 what would be considered a small enterprise in traditional Russian agriculture. 20 Exit:- The Need for a Mechanism 1 The current program of land reform and farm 5 restructuring in Russia is based on the principles of a democracy and informed voluntarism. Participants <20 21-75 76-210 210-840 >840 in the process receive shares and have access to ha information about altemative ways in which to us e Source: USDA, 1987 farm census The Legal Framework 27 their shares. The farm structure that has developed In the absence of this or a similar mechanism, reflects the voluntary decisions made by partici- people choosing to remain in farming but wishing pants with the information they commanded at the to leave their original shareholding enterprise time they made their decisions, and in the sectoral would not have access to land. Agricultural workers environment in which the decisions were made. The would have the option either to stay in the large sectoral environment will continue to change as units much like the prior collectives, or exit as markets develop and the gaps between producer landless laborers with some monetary compensa- prices and border prices narrow. People who re- tion. Under these circumstances the sector would ceived asset shares will have a changing under- sacrifice the flexibility of structure needed in order standing of how best to use their assets. for Russian agriculture to increase in competitive- The present legal environment offers little ness. The restructuring procedure for agricultural protection to individuals or small groups who seek corporations should thus be one that facilitates to exit with land and assets from enterprises that are physical restructuring through withdrawal of physi- neither bankrupt nor in the process of full restruc- cal assets, instead of simply sale of shares. turing. The land code or separate legislation of equivalent stature should protect the rights of References to Chapter 2 holders of land shares to withdraw land in kind, either as individuals or in small groups, from H. Binswanger, K. Deininger, and G. Feder. 1995. shareholding enterprises. Once the right to exit is "Power, Distortion, Revolt and Reform in protected, a mechanism should be designed to Agricultural Land Relations," in: J. Behrman operationalize this right. and T. N. Srinivasan, eds., Handbook of Devel- Under one possible mechanism, the exiting opment Economics, vol. III, ch. 42, pp. 2659- individuals could propose a parcel of land and other 2772, Elsevier, New York. assets that they would accept in redemption of their K. Brooks and Z. Lerman. 1994. Land Reform and shares. If the enterprise and the exiters could agree Farm Restructuring in Russia, World Bank on a match, then the transaction would take place Discussion Paper 233, The World Bank, and be legally registered. If no agreement could be Washington, D.C. reached in a specified time period, then the entire V. Uzun. 1995. "Private farming may be derailed enterprise would be legally required to undergo a by the new Land Code," Finansovye Izves- new internal auction against shares of all members. tiya, No. 68 (197), September 26. a 29 3. Reorganization of Large Farm Enterprises The survey of managers of large farm shares are available only to insiders and cannot be enterprises in 1994 reveals a sector little changed traded on open market. While sovkhozes split since the 1992 survey. Farms are marginally evenly between these two forms of organization, smaller but still large by world standards, kolkhozes tended to reorganize as partnerships or production has declined, farm finances have collective enterprises (Table 3.1). As many as 6% deteriorated, and pessimism about the future has of the farms that discussed reorganization decided deepened. Few farms have moved beyond the to keep their old form (mostly a kolkhoz), although determination of shares to fundamental there were no legal provisions preventing change of restructuring, and the changes in organization are organization. Only 2% among the sovkhozes chose essentially those observed in the 1992 survey. The to remain state farms, as this form naturally reasons for this apparent stagnation in restructuring prevents them from assuming ownership of land of large enterprises derive in part from deficiencies and assets. in the legal framework presented in Chapter 2, and in part from discriminatory sectoral policies Table 3.1. Forms of Farm Reorganization (percent of discussed in Chapter 1. The following chapter respondents) presents a more detailed picture of the status of farm enterprises in early 1994. All Former Former The sample of farm managers in the 1994 Farms Kolkhozes Sovkhiozes survey covers 234 enterprises, of which prior to the Not reorganized 8.1 6.6 7.0 reform (in 1990) 52% were collective farms Reorganized: (kolkhozes) and 43% state farms (sovkhozes). The Keep old form 5.6 9.1 2.0 remaining farms were originally interfarm Partnership/Collective enterprises or subsidiary farms of industrial entities. enterprise 45.7 49.6 45.0 Fully 92% of managers reported in the first Join-stock society quarter of 1994 that a decision to reorganize had closed 30.3 20.7 41.0 been taken. This proportion is practically the same open 0.5 -- -- as in the winter 1992 survey, when already 90% of Association of peasanL 0.5 O.S farm managers responded that their farms had Farmers' cooperative 3.0 3.3 3.0 discussed the reorganization issue and made a Division into several 2.6 5.0 -- decision. The passing of a formal decision on farms reorganization is thus not an obstacle to Not yet decided/other 3.8 5.0 2.0 restructuring of Russian farm enterprises. Number of farms 234 121 100 The percentage of farms that have decided to reorganize is practically the same among collective and state farms. The most preferred form of new The average farm size in the sample declined organization is a partnership (tovarishchestvo) or a by about 15% from 9500 ha in 1990 to 8000 ha in collective enterprise (koliektivnoyepredpriyatiye): 1993. The farm size distribution shifted toward half the respondents chose this form, which is smaller farms in 1993, but the farms remain very formally very similar to the old collective farm large by world standards. Farms of 8000 ha or (Table 3.1). One third of the respondents indicated smaller represented nearly 60% of the sample in that the farm had decided to reorganize as a closed 1993, compared to 47% in 1990 (Fig. 3.1). Large joint-stock company, i.e., an organization in which 30 Reorganization of Large Farm Enterprises farms appear to have lost a smaller percentage of Fig. 3.1. Size Distribution of Farm Enterprises: 1990-1993 their holdings than small farms (the correlation cumulative percent of farms coefficient between percentage decrease and farm 100- -t______o___ size in 1990 is negative). Despite modest changes in i993 dfta farm size, the overall structure of land holdings in so r farm enterprises did not change between 1990 and 60 4 1993. Arable land continued to account for 65% of v- 199 data land holdings, pasture and hayland for nearly 30%, 40 and forests for around 6%. Farms transferred land mainly to the district redistribution fund (47% of total transfer) and the 0 42 village council (31%). These two authorities are o 2 4 6 8 10 1214 1i 18 20 ha 24 26 28 30 designated by law as the source of land for private farmers and household plots, and transfer of land from farm enterprises is intended to create a Fig. 3.2. Land Ownership in Farm Enterprises sufficient land reserve for new individual users. Farm managers in the sample reported that they Collective shared 80.4% transferred land to private farmers (18% of total land transfers) and household plots (4%). It is not clear that these are indeed direct transfers from farm enterprises to private farmers and household plots, since farm managers may have double counted by reporting land transferred to individuals through the redistribution reserve. The average Individual 0.3% household plot in the sampled farms increased very 1ate 0.2% modestly from 0.21 ha in 1992 to 0.29 ha in 1994. Collective joint 9.2% State-owned land in the sample is 10% of all Average farrn size 8125 ha farmland (excluding forests), down from 100% prior to the reforms (Fig. 3.2). In this sense, agricultural land in Russia has been basically Distribution of land and asset shares to privatized, and 91% of respondents reported that individuals is the first step toward farm their farms have a formal certificate of land restructuring after formal registration as a new ownership. Yet nearly 90% of the land in farm organizational form. Although share certificates in enterprises (excluding forests) is owned by themselves do not produce any internal changes in collectives, and less than 0.5% is owned by farms, they create the conditions for reorganization individuals. Most of the collectively owned land is and regrouping from within. Fully 90% of the farms in shared ownership (80% of farmland excluding in the sample have gone through the process of forests), with land shares assigned to individuals at allocating individual share certificates in land and least on paper. Less than 10% is joint or undivided assets to their members. However, so far these are ownership, the initial stage of land transfer from the "conditional" shares, i.e., paper shares recorded in state to the collective, before any share assignment central bookkeeping: the land plots corresponding has been made to individual members. to the shares have not been marked out in the field, nor have assets been distributed in physical form. Reorganization of Large Farm Enterprises 31 The average size of a land share in the sample shares to other beneficiaries (presumably workers is 12.5 ha per person. Approximately 550 of the social sphere in the village). The calculation individuals per farm, including employees, of the size of an asset share was based on length of pensioners, and social service workers, are entitled tenure and salary, as stipulated by law and to land shares. On an average farm, the employees prevailing practice. Biases in the traditional wage represent nearly 60% of recipients of land shares, structure, such as the high wages for drivers of the pensioners are around 30%, and workers of the tractors and vehicles, were thus reflected in the social sphere are the remaining 10%. In all farms in distribution of asset shares. the sample both employees and pensioners are Most managers (over 70%) indicated that their eligible to receive land shares, which is consistent non-land assets were privatized in 1992. The value with existing legal provisions. Nearly 80% of farm of the individual asset share was estimated at 2.2 assemblies in the sample used their legal discretion million rubles at prices prevailing in the first to allocate land shares to workers of the social quarter of 1994, or around $1000. The average sphere not directly employed by the farm number of asset shares per farm was around 500, enterprise, although they were not required by law which is comparable to the average number of land to include these individuals. shares per farm. Nearly 70% of farm assets have Employees and pensioners also received shares been distributed in the form of shares, while the in non-land assets on all farms that reorganized. remaining 30% remains indivisible. These are Furthermore, 15% of farms calculated asset shares mainly social assets that will be transferred to the for former employees who left the enterprise before village council or will remain under collective the distribution date, and 10% of farms assigned management. Table 3.2. Rights Associated with Land and Asset Shares: Frequency of Different Rights as Reported by Farm-Enterprise Managers* Land Shares Asset Shares Rights 1992 1994 1992 1994 Get land/asset upon leaving to start private 66.5 85.0 66.9 80.8 farm Get land upon leaving to take another job 18.8 15.8 NA NA Use asset share to purchase home NA NA 41.1 32.1 Bequeath share to heirs within farm enterprise 62.7 80.8 67.3 80.8 Bequeath share to any heirs 33.1 39.7 32.7 38.9 Receive dividends from farm profits 57.7 71.4 76.2 89.7 Receive distribution in kind 48.1 74.4 NA NA Sell share to farm enterprise 32.7 41.9 58.1 60.7 Sell share to other farm employees 31.2 37.6 52.3 53.4 Sell share to any buyer NA 6.4 11.5 6.4 Receive value of share upon retirement 24.2 26.1 21.8 41.5 Receive value of share if fired 19.6 23.9 43.1 43.2 Exchange land share for asset share 15.8 14.5 10.0 9.4 No rights provided by charter 11.5 4.3 NA 6.0 * Percent of managers (out of 260 respondents in 1992 and 234 respondents in 1994) indicating that the particular right was associated with land or asset shares in their farm enterprise. 32 Reorganization of Large Farm Enterprises The rights associated with land and asset decision has been made, the average dividend was shares in farm enterprises are shown in Table 3.2. 16% of profits and the median dividend was 10%. More than 70% of managers reported that There is little indication that the shares in land shareholders are entitled to receive dividends from and assets distributed by fully 90% of the farms to farm profits, to pass their shares in inheritance their employees and pensioners are more than paper within the farm, and to convert the shares to a plot certificates of entitlement. The responses of land and physical assets upon leaving the suggesting that land plots have been distributed to enterprise to establish a private farm. These individuals or that land plots are worked reported rights are consistent with provisions of individually are too few to be considered reliable. existing laws. A higher proportion (over 80%) of Thus, 13 out of 234 farm managers (6%) indicated managers recognized these legal rights in the 1994 that a few tens of hectares (out of 3000-5000 ha survey than in the 1992 survey (65%), only a year assigned to land shares in each farm) had been and a half earlier (see Table 3.2). Knowledge and distributed in physical form to members, but in 8 understanding of the laws pertaining to farm out of these 13 cases the plots were reported to be restructuring appears to have spread among the worked collectively, and not individually. These rural population in the two years between samples. farms are concentrated in two provinces (Rostov Ironically, just as understanding of the legal rights and Orel). One farm in Saratov Province stands out of shareholders appears to be growing, the rights as an exceptional case: its manager reported that, themselves are under threat of curtailment in draft out of 8600 ha in land shares, 1500 ha had been legislation, such as the draft Land Code and the distributed to individuals and were worked draft Law on Cooperatives. Under the present draft individually. Only 10 of 234 farms in the sample legislation, the right of shareholders or members to reported that assets had been distributed in physical exit with land and assets would be strictly limited, form to members (after the calculation of the even if the exiters desired to set up private farms. shares) and 5 farms reported that members had Few farm managers in the sample reported that received the cash value of their asset shares. In 13 shareholders could take their land when leaving the farms asset shares were reportedly applied to farm for another job (other than private farming), or purchase privatized housing. Most of these farms could exchange land shares for asset shares and are in Novosibirsk and Saratov provinces. vice versa. The right to exchange shares is a Managers on 105 farms (45% of the sample) prerequisite for efficient regrouping of land and reported that some individuals received asset shares assets within farm enterprises. Over 40% of farm in physical form. The average number of these managers reported that members could receive the individuals was only 15 per farm (out of some 500 value of their asset shares upon retirement or when shareholders), and the median was even lower (6 fired. Only 25% reported that shareholders could individuals). In 16 farms (7%), some members were receive the value of land shares upon retirement or reported to have sold their asset shares. The number termination. In practice, monetary redemption of of sellers was typically fewer than 20 per farm, with the value of land shares would be difficult on a a median of 5 and an average of 17. These cases large scale, since neither enterprises nor individuals occurred across all five provinces in the sample. can collateralize loans with land. Although most farms report that shareholders Exits of Employees During Reorganization are entitled to receive dividends, only 40% of the farms in the sample have decided on the percentage The laws enabling employees to leave their of profit to be distributed. On farms where the farm enterprise with a share of land and assets in order to establish a private farm have produced a Reorganization of Large Fann Enterprises 33 modest flow of families out of large-scale farms. Comparison of the number of employee exits Over two-thirds of managers in the sample (160 during reorganization obtained in two consecutive respondents) reported that some employees left to surveys (1992 and 1994), indicates that the pace of become private farmers. On average, 10 private exit accelerated slightly over the period, but farms were created per large-scale farm enterprise, remains quite low. Fully 50% of managers believe each run by 2 former employees, probably a that the prospects for the development of private husband and wife team). Another 10 farm managers farming in their regions will diminish in the next reported establishment of various partnerships, 2-3 years. The proportion of farm managers small enterprises, cooperatives, and other reporting that no employees had left during independent entities by former employees. Some reorganization dropped from 45% in 1992 to 30% 1400 individuals left their farm enterprises to join in 1994 (Fig. 3.3). The proportion of farm these independent structures in addition to the 3400 enterprises in which more than 10 employees had individuals who moved to private farming (Table left increased from 20% to 35%. While in 1992 the 3.3). This is nearly 4% of the total number of maximum number of employees exiting an employees in the sampled farm enterprises. enterprise was 134 and there was only one farm with more than 100 exits, the maximum number of Table 3.3. Exit of Employees During Reorganization of Farm exiting employees in early 1994 had risen to 850 in Enterprises one instance and there were 9 farms with more than 100 exits (4% of the sample). Over 70% of farm Organization Managers Number Number of managers in the five provinces reported that they created by reporting of exiting entities sold farm services to private farmers in their region, exiting member-s exits* employees established thus offering further evidence that private farmers Private farm 68.4% 3437 1603 are a recognized presence, despite the widely noted Partnership or failure of a number of private farms. small enterprise 2.6% 1344 8 Coop 0.5% 10 1 Attitudes toward Ownership of Land Other 0.9% 44 5 Most managers in the survey (85%) support allocation of land for private farming, but many Fig. 3.3. Exit of Employees During_Reorganization (65%) reported the opinion that land should be held in lifetime use or long-term lease from the state. percent of farms Fewer than 20% of managers responding supported 50 so - _ private ownership of land by private farmers. The 40 - .,< .. attitude is different with regard to land in household 30 _ ,.'. g $ i plots: here 40% of managers support the right of families to own their household plots, although 20 - 0 . 55% prefer lifetime use or long-term leasing for this 10 _ | land as well. Among the managers favoring private o | E _ < 1 [ 1>ownership of land in household plots, fewer than 0 1-9 10-20 21-30 30-50 >50 half (43%) are of the opinion that private farmers Number of Employees Leaang the Farm should be allowed to own their land. Employees 1 1994 survey 12 1992 survey reported similar attitudes to private ownership of land: nearly 40% supported private ownership of household plots, and fewer than 20% supported 34 Reorganization of Large Farm Enterprises private ownership of land allocated to private supported market transactions in land, but curiously farmers. Both managers and employees thus nearly 30% were opposed to buying and selling of perceive a qualitative difference between land in land. On the whole, it appears that many people in household plots and land in private farms: private rural Russia do not consider marketability as a ownership of household plots is more readily necessary attribute of private ownership of land. accepted than private ownership of commercial farm land. Organization and Changes in Farm Some 80% of farm managers expressed a Management negative view of the option to allow buying and selling of land in Russia. Nearly two-thirds of The managers in 1994 were more pessimistic respondents who favored private land ownership for about the expected outcomes of the reorganization farmers and households did not favor legalized process than they were in 1992. In the 1992 survey, purchase and sale of land. Managers thus reported only about 15% of the managers expected a clear more acceptance of formal changes in land deterioration due to the reorganization. In 1994, the ownership than acceptance of market transactions percentage of managers in this category rose to in land. Managers' opinions regarding land markets 30%. In 1992, 27% of the managers were are roughly consistent with those of employees optimistic, expecting reorganization to have a surveyed, although employees are slightly more positive effect on the farms. In 1994, the proportion supportive of land markets. Among employees, of optimists dropped to 10%. The proportion of two-thirds reported a negative attitude toward the respondents who did not expect any changes as a decision to allow purchase and sale of commercial result of reorganization or were undecided about its farm land in Russia, compared to four-fifths of effects remained at around 60% in both surveys. managers. Among private farmers, more than half Table 3.4. Expected Changes as a Result of Farm-Enterprise Reorganization (percent of managers responding) Decrease No change T 1992 1994 1992 1994 Total work force next year 30.0 33.3 48.8 56.4 Administrative staff 59.7 64.6 34.6 31.2 Production workers 43.6 53.0 39.9 40.9 Improve Deteriorate No change 1992 1994 1992 1994 1992 1994 Access to farm inputs 9.8 5.6 58.4 81.9 22.0 11.6 Access to credit 6.2 3.3 51.0 82.3 26.3 13.5 Marketing conditions 17.6 7.0 34.7 78.1 38 13.5 Conditions for household farming 41.2 33.0 13.5 14.4 40.8 52.5 Output 28.2 10.2 31.8 61.9 29.4 21.8 Degree of economic autonomy 54.3 63.3 5.3 6.5 27.8 19.1 Labor discipline 36.3 23.7 13.5 36.7 34.3 39.5 Reorganization of Large Farmn Enterprises 35 A significantly higher proportion of managers Russia and other countries of the forrner Soviet in 1994 expected deterioration in access to inputs, Union since 1990. access to credit, marketing conditions, production, and labor discipline (Table 3.4). The proportion of Table 3.5. Production and Product Mix in Russian Farn managers who expected improvement in these areas Enterprises 1990-1994 (averages per farm for farms with data as a result of reorganization was lower in 1994 than for all years, constant 1983 prices) in 1992. Although managers reported that they experienced more economic autonomy (i.e., less Year Farms product Crops Livestock interference from governmental officials) in their managerial decisions, the general pessimism 1990 181 3617 1832 1790 suggests that autonomy is associated with loss of 1991 181 3362 1751 1618 centralized support, rather than increased 1992 181 3067 1640 1428 opportunity for initiative. 1993 181 2875 1624 1256 1994 181 3160 1801 1361 Production in Farm Enterprises Table 3.6. Structure of Production and Sales (in percent, The value of output on the sample farms average for the sample) (averaged over the period 1990-1993) was approximately evenly split between livestock and Year Gross product in Sales in current crop products. The average gross product per farm constantprices prices (measured in constant 1983 prices) declined by Crops Livestock Crops Livestock more than 20% between 1990 and 1993 (Table 3.5). The decline was greatest in livestock production, as 1990 44 56 35 65 crop production decreased by around 10%. As a 1991 47 53 35 65 result, the product mix changed systematically over 1992 48 52 55 45 time, with the proportions of crops and livestock 1993 49 51 50 50 converging to 50% from opposite directions: the 1994 51 49 50 50 average proportion of crops in gross product rose Average 48 52 45 55 from 44% in 1990 to 49% in 1993, while the proportion of livestock products declined Crops accordingly from 56% in 1990 to 51% in 1993 Despite the reported loss of land to the state (Table 3.6). reserve and individual users, the total reported When output is measured in current prices, the planted area in farm enterprises changed little proportion of crops increased from 35% of total between 1992 and 1993 (Table 3.7). This may be sales in 1990 to 50% in 1993, with the proportion of because traditional enterprises lease back some of livestock sales correspondingly declining from 65% the land that they formally allocate to the land to 50% (Table 3.6). Terms of trade shifted in favor reserve. Area planted to grain has declined on the of crop products over time, as the prices of crop sample farms from 76% of total cultivated area in products increased more rapidly than the prices of 1992 to 68% in 1993, and area devoted to annual livestock products. The changes in the volume of and perennial grasses has increased from 15% to production and in the structure of production and 22% (Table 3.7). There has been no notable change sales as reported by farm managers in the sample in the other components of land use, such as sugar reflect general trends in the livestock sector in beets, sunflower, potatoes and vegetables, and orchards. Most of the area sown to grain on these 36 Reorganization of Large Farm Enterprises sample farms remains under wheat (35% of total than half of the enterprises in the sample produced planted area). technical crops (sunflower and sugar beets), Virtually all farm enterprises in the sample potatoes, and vegetables, and only 10 of 232 farms produce grain (mainly wheat and barley), as well as produced fruits commercially. annual and perennial grasses for animal feed. Over Most farm managers (65%-85%) reported that 90% of farms meet their entire demand for hay the main crops, including grain, sunflower, sugar from on-farm production, and over 80% of farms beet, and fodder grasses, were profitable. On the produce all of their needs in concentrated feed. other hand, potatoes and vegetables were viewed as Managers reported that prices of purchased feed unprofitable by 80% of respondents. Managers do were too high (80% of respondents), although at the not appear to make future production plans based time of the survey, managers could still sell a ton of on profitability, since the majority intended to make grain and receive more than the purchase price of a little change in the structure of production. Over ton of concentrate feed. By the end of 1994, the 60% of the managers did not intend to adjust even relative prices had shifted, and a ton of purchased the production of the relatively unprofitable crops concentrate feed cost more than a ton of average (potatoes and vegetables). Only com and sunflower grain sold. Thus the tendency toward were candidates for increased production in the self-sufficiency in feed supply reported in the future, probably because they were initially survey probably continued throughout 1994. Fewer produced by a relatively small proportion of farms. Table 3.7. Crop Production and Structure of Planted Area in Fazn Enterprises: 1992-1993 1992 1993 Producers, Harvest, Planted Planted Producers, Harvest, Planted Planted percent ton area, ha area, % percent ton area, ha area, 96 Wheat 90 2399 1358 35 98 3722 1407 34 All grains 90 6209 2945 76 98 7961 2824 68 Sunflower 44 849 266 7 47 736 294 7 Sugar beets 41 2034 67 2 34 5976 62 2 Potatoes 43 396 18 0.5 35 707 10 0.2 Vegetables 35 344 12 0.3 33 522 9 0.2 Fruits 3 1301 18 0.5 4 1211 12 0.3 Fodder beets 28 681 9 0.2 21 1077 6 0.1 Hay 90 1200 564 14 91 7467 915 22 Livestock compared to the number of producers of beef, milk, Virtually all farms in the sample produce milk and pork. and beef, and nearly two-thirds produce pork Profitability of livestock products in late 1993 (Tables 3.8 and 3.9). The average per-farm on the whole was judged to be slightly better than production of the main livestock products (beef, in 1992. Thus, 36% of managers viewed beef and milk, pork) declined between 1992 and 1993. The milk, the main livestock products in the sample, as per-farm production of eggs and poultry, on the profitable in 1993, while in 1992 beef was viewed other hand, increased quite significantly, but the as profitable by 16% and milk by 27% of number of producers in the sample was small respondents. Nonetheless, 60%-90% of farm managers (depending on the particular product) Reorganization of Large Farm Enterprises 37 reported that livestock production was unprofitable employed in all occupations. In each survey, about in 1993, and yet the majority expressed an intention 11% of permanent employees worked in to maintain livestock production at essentially the administration, and about the same proportion same level as in the past. Although managers in worked in non-agricultural production, such as both surveys expressed an intention to keep construction, maintenance, and processing. The livestock production roughly unchanged, the number of workers in the social sphere and the production of the main livestock products declined number of seasonal workers (neither of these (Table 3.8), suggesting a lack of strategic vision categories is included in the count of permanent with regard to adjustment in the livestock enterprise workers) fell particularly sharply (by nearly 30%). on these farms. Table 3.10. Labor Resources in Russian Farm Enterprises: Table 3.8. Livestock Production in Farm Enterprises 1990-1993 (per farm averages) Percent of producers Average per 1990 1993 Product among sample farms producer, ton Total permanent workers 344 302 1992 1993 1992 1993 Of which: Beef 97% 97% 206 141 Agricultural production 77% 78% Pork 65% 67% 82 58 Non-agricultural production 12% 11% Mutton 28% 27% 31 41 Administration 11% 11% Eggs (pieces) 10% 14% 4081 7692 Workers in the social sphere 22 16 Poultry 10% 12% 159 272 Pensioners 35 34 Milk 96% 96% 1494 1400 Seasonal workers 21 15 Wool (kg) NA 65% NA 1700 Table 3.11. Wages in Russian Farm Enterprises. October 1993 Table 3.9. Number of Animals per Farm and per Producer (thou. rubles) Percent offarms Average per Monthly wages with animals in farm in each each catcgorg categoro, head Average wage 43.7 Bulls over I yr 89% 208 Combine operators 81.0 Cows 96% 551 Managers 75.1 Heifers under 2 yrs 94% 254 Chief specialists 58.2 Calves under I yr 94% 522 Drivers 57.1 Pigs 70% 712 Specialists 41.4 Piglets 61% 575 Milking personnel 38.9 Sheep 28% 2400 Other livestock workers 34.6 Poultry 13% 70364 Administrative staff 27.2 Unskilled labor 22.0 Labor The structure of employment changed little The average number of permanent workers per with the reduction in numbers employed. Half of farm declined by 12% from 344 in 1990 to 302 in those employed in agriculture continued to produce 1993 (Table 3.10). This was the result of an crops, and the other half continued with livestock. across-the-board decrease in the number of Among those employed in non-agricultural production, the number of workers in processing on 38 Reorganization of Large Farm Enterprises the farm remained unchanged, while the work force participated in both surveys, and thus it is more in other non-agricultural activities declined. This robust than comparison of the expenditure produced an increase in the proportion of workers proportions in the sample as a whole. Thus, even employed in processing of agricultural products though aggregate data show farm wages declining (from 15% of all employed in non-agricultural dramatically in real terms and relative to wages in production in 1990 to 20% in 1993). other sectors (see Fig. 1.4), wages continue to grow The average monthly salary of farm workers in as a share of farm expenditures on large enterprises. October 1993 was 44 thou. rubles according to the managers' responses. There was considerable Table 3.12. Management Strategies: What to Do If No Money variability among different occupations; combine to Meet Payroll? (percent of managers responding) operators and managers earned nearly double the axerage salary, while administrative staff and unlskilled workers earned half the average salary 1992 1994 1992 1994 (Table 3.11). Over 70% of farm managers reported Dismiss some workers 13.2 16.2 80.6 83.8 that the available labor was sufficient for their Keep workers, reduce needs. Seasonal shortages are typically resolved by wages 7.8 12.4 87.2 87.6 hiring temporary help (in over 60% of the farms). Delay wage payments 57.0 90.6 39.1 9.4 Only 4% of respondents reported excessive or Delay other payments 64.7 -- 31.4 -- redundant labor on their farms. Ten percent of Take debt 69.8 50A 27.9 49.6 managers reported that they would fire excess Shift workers to workers if they had any. outside jobs 8.9 11.5 82.2 88.5 workers if they had any. Farm enterprises have difficulties meeting the payroll. Over 80% of managers reported that salary Fig. 3.4. Proportion of Farm Wages in Total Expenditure* payment was delayed in some months of 1993 (compared to 53% of managers in the 1992 survey). percent of total farm expenditure The main reason for salary delays was shortage of 5 - funds to meet the payroll bill (92% of respondents 40 37.4 who were forced to delay salaries). The preferred strategy l'or dealing with shortage of funds for 30 278 payroll was to delay salary payment until funds 20 became available (90% of respondents) or to borrow (50%). Only 10%-15% of respondents 10 reported that they would lay workers off, cut 0~ salaries. or transfer employees to work outside the 1990 1992 1993 farm enterprise if problems arose meeting payrolls. Based on matched sample of 122 farms from two surveys. Managers in both the 1992 and 1994 surveys thus reported a continued and consistent reluctance to shed labor under any circumstances (Table 3.12). Farm Inputs and Services T'he proportion of wages and salaries in total l'arm expenditure increased to 38% in 1993, Managers reported that farms continue to continuing a trend observed in the 1992 survey, in purchase most of their inputs through state channels which the share of salaries increased from 28% in (Table 3.13). The firms characterized as state 1990 to 34% in 1992 (Fig. 3.4). This finding derives channels are probably the privatized successors of from a subset of 122 farm enterprises that the former state supply agencies, but are perceived Reorganization of Large Farm Enterprises 39 by managers to be still part of state channels. the time of this sample and in the farms surveyed Alternative supply channels are emerging in the leasing was rare. form of commercial private entrepreneurs, farmers' The phenomenon of farm enterprises acting as cooperatives, and other farm enterprises acting as suppliers of inputs and services was recorded in the suppliers. Private entrepreneurs are active in the earlier survey, and this marks a change from the supply of spare parts, construction materials and economic behavior of farms prior to the reforms. services, and young animals. Other farm enterprises Under the centralized administrative system, farms supply the inputs listed above, and also seeds and had little incentive to sell services or inputs to each seedlings, animal feed, and farm machinery. The other, since the cost of carrying inventories of "other sources" column in Table 3.13 probably inputs was low. Although farm enterprises always represents cases in which the farm enterprise supplied inputs and services to employees for use produces or generates its own inputs services. Farm on household plots, commercial supply to other enterprises have traditionally relied on themselves enterprises and to private farms is a development for seeds and seedlings, feed, young animals, new to the period of market reforms. Table 3.14 construction, and especially mechanical field lists the responses of farm managers who sell inputs services. In response to a specific question, 88% of and farm services to other enterprises, and also to farm managers reported that mechanical field private farmers and household plots. In addition to services are carried out using the farm's own commercial relations between farm enterprises, machinery and equipment. Leasing of equipment voluntary cooperation between farm enterprises in became somewhat more widespread in 1994, but at the purchase and use of inputs appears to be increasing (Table 3.15). Table 3.13. Access to Different Supply Channels for Farm Inputs and Services (percent of 234 respondents who report using the channels) Input/Service State Consumer Private Farmers' Other Other channels coops sources coops enterprises sources Seeds, seedlings 67.1 4.7 2.6 0.9 25.6 15.0 Feed 30.8 0.4 2.6 1.3 10.3 12.4 Young animals 32.1 3.0 11.5 0.4 16.7 11.5 Mineral fertilizer 80.8 5.1 0.4 0.4 5.1 0.9 Herbicides/Pesticides 81.2 3.0 0.9 0.4 6.0 1.3 Machinery/equipment 92.3 10.7 6.0 3.0 14.5 6.0 Repairs/maintenance 54.3 -- 4.3 0.9 9.8 7.7 Spare parts 96.6 17.5 39.7 5.6 33.8 6.8 Fuel 98.7 2.1 9.4 1.7 8.1 9.4 Mechanical field works 28.2 0.9 3.4 1.7 9.8 11.1 Veterinary medicines 95.7 3.0 1.7 0.4 6.0 4.7 Veterinary services 59.8 -- 2.1 -- 5.1 9.4 Construction materials 87.6 -- 23.5 3.0 32.1 12.8 Construction services 29.1 1.7 22.2 0.4 6.0 11.1 Consulting 63.7 2.6 10.3 1.3 16.7 5.1 40 Reorganization of Large Farm Enterprises Table 3.14. Enterprises Acting as Suppliers of Farm Inputs (percent of 234 farm enterprises) Input/Service To other To private To household enterprises farmers plots Seeds, seedlings 36.8 47.9 44.9 Feed 25.6 13.7 82.1 Young animals 31.2 26.9 82.1 Organic fertilizer 6.4 6.8 38.0 Mineral fertilizer 1.3 2.6 6.4 Herbicides/pesticides 2.6 4.3 28.6 Machinery/equipment 17.9 35.9 41.9 Repairs/maintenance 9.8 25.6 31.2 Spare parts 16.2 18.4 17.9 Fuel 8.1 9.4 29.5 Mechanical field services 19.7 47.0 84.6 Veterinary medicines 4.3 26.5 62.4 Veterinary services 6.0 40.2 85.0 Construction materials 15.4 15.4 81.6 Construction services 5.6 5.6 54.3 Consulting 27.4 45.7 69.7 Managers reported that inputs are too other individual operators (respectively 50%, 40%, expensive, and the frequency of complaints about and 33% of farm enterprises in the sample). Farm input prices was substantially higher than in 1992 managers reported that they did not provide credit (Table 3.16). As a result, the proportion of to employees or other rural residents. respondents reporting that they experience no problems with the purchase of inputs declined Table 3.15. Cooperation in Purchase and Use of Inputs relative to the previous survey. Physical shortages (percent of 234 respondents) of inputs were not reported to be a problem in 1992, and were reported to be even less so in 1994. Input/Service Percent Affordability and profitability, rather than Seeds, seedlings 12.8 availability, constrains use of inputs on the large Organic fertilizers 1.7 enterprises. Mineral fertilizers 9.8 Virtually all farm managers (98%) reported Herbicides/Pesticides 11.1 that they provide services to their employees in Machinery/equipment 6.8 working their household plots, and over 70% Spare parts 12.4 provide services to private farmers in the area. The Veterinary medicine 8.1 range of farm services provided to employees, other Construction materials 10.3 village residents (such as teachers, doctors, postal Fuel 8.1 workers, etc.), and even private farmers is broad in scope (Table 3.17). In addition to leasing farm Two-thirds of the respondents indicated that machinery for work in the small fields of individual their employees have priority in access to farm producers who do not have mechanical equipment services and are charged preferential rates for these of their own, farm enterprises also sell used farm services. Pensioners, on the other hand, enjoy equipment to their employees, private farmers, and preferential terms on only half of farms. Reorganization of Large Farm Enterprises 41 Table 3.16. Reported Difficulties in Purchase of Farn Inputs (percent of respondents for each input/service) Price too high Not available No problems Input 1992 1994 1992 1994 1992 1994 Seed 23.1 45.7 2.3 3.0 28.1 18.4 Fertilizer 68.1 91.0 1.9 0.9 19.2 5.6 Herbicides/pesticides 60.8 89.3 5.8 1.3 21.2 5.1 Machinery/equipment -- 94.9 -- -- -- 4.3 Spare parts 52.7 85.5 19.6 1.3 21.9 11.5 Veterinary medicines 39.6 71.8 13.8 3.0 36.9 19.7 Construction materials 61.2 87.6 12.7 1.7 19.6 8.5 Fuel -- 78.6 -- 0.4 -- 17.9 Mean of responses 50.9 80.6 9.4 1.7 24.5 11.3 Table 3.17. Services Supplied by Farm Enterprises to Rural Residents (percent of 234 farm enterprises supplying the services to each recipient category) Services Employees Other Villagers Private Farmers Farn machinery for contract work 98.7 85.9 49.1 Transport 99.1 85.9 41.9 Pasture and hay 90.2 72.2 26.9 Consulting 76.5 66.2 51.3 Credit 18.4 2.6 0.4 Veterinary services 92.7 80.3 53.0 Product marketing 66.7 45.3 12.4 Fuel for farm uses 33.8 15.8 12.4 Construction materials 85.9 49.1 17.5 Heating fuel 46.6 26.5 7.3 Marketing The large farm enterprises have a clear vegetables, fruits, and eggs: these products are often commercial orientation: virtually all producers in sold directly to consumers in farmers' markets or to each product category reported commercial sales of other enterprises. Despite the dominance of state more than 80% of output of most products (Table marketing channels, farm managers believe that 3.18). A notable exception is grain, where half the they have access to alternative channels for sale of output is used internally, largely as feed for their products, should such a need arise (Table livestock. Potatoes, fruits, and vegetables are also 3.19). consumed on farm in relatively large proportions. Managers reported that the main marketing The marketing situation remains basically as in difficulties for farm products were low prices and the previous survey. State procurement agencies or late payment by large monopolistic buyers (Table their privatized successors retain a dominant role as 3.20). Few managers complained of difficulty the main marketing channel for most products finding buyers for their produce, or of difficulties (Table 3.19). Notable exceptions are potatoes, with transport and delivery. 42 Reorganization of Large Farm Enterprises The respondents were on the whole highly more pessimistic between 1992 and 1994: the pessimistic in their evaluation of the marketing marketing situation was rated average or good by situation. Only 5% of farm managers rated the 13% of respondents in 1992, compared to only 5% situation as average or good. Fully 95% of the in 1994. A very small nurmber of managers (14) respondents characterized the marketing situation indicated that they export some of their output as poor, primarily due to low prices of farm directly. Half of these reported that they had great products. These results are similar to the 1992 difficulty securing export licenses. The precise survey, when the respondents also complained of nature (whether national or provincial) of the export low prices. However, the overall evaluation became licenses is not clear from the replies. Table 3.18. Proportion of Output Consumed and Sold by Producers (in percent) Number of producers* Proportion of output sold total reporting all producers sales producers reporting sales Crops: Grain 231 225 49 50 Sunflower 109 92 69 83 Potatoes 75 41 35 63 Sugar beet 74 52 59 85 Vegetables 73 37 38 74 Fruit&berries to 7 44 63 Livestock: Meat 231 229 82 83 Milk 224 222 81 81 Wool 64 61 95 100 Eggs 32 25 63 80 * Out of total of 234 sample farms. Table 3.19. Main Marketing Channel by Commodity (percent of total number of responses for each commodity) Commodity Number offarms Procurement Collective farms and Direct Availability of reporting sales firms* other enterprises sales alternative channels# Grain 225 91.1 6.6 0.9 48 Sunflower 92 72.8 21.8 3.3 67.4 Sugar beet 52 86.5 5.8 5.7 17.3 Meat 229 95.6 0.4 1.3 57.2 Milk 222 94.1 0.9 2.7 29.3 Potatoes 41 46.4 21.9 24.4 46.3 Vegetables 37 35.1 8.1 45.9 64.9 Fruits 7 28.6 28.6 42.9 57.1 Eggs 25 56 24 12 56 Wool 61 85.2 3.3 3.3 26.2 * The traditional procurement firms have been privatized, and buy as agents of state procurement, as well as on their own account. # Percent of commercial producers in each category answering 'yes' to the question "Can you choose a buyer for the given product?" Reorganization of Large Farm Enterprises 43 Table 3.20. Marketing Problems as Reported by Farm-Enterprise Managers (percent of total number of responses in each commodity category) Reported Problems .Number of Commodity responses Late Low No Delivery Other payment price buyer diffzculties Grain 225 92.9 92.4 48.9 10.7 3.6 Sunflower 92 78.3 93.5 34.8 9.8 3.3 Sugar beet 52 59.6 82.7 36.5 40.4 5.8 Meat 229 83.4 95.6 44.1 7.9 2.2 Milk 222 84.7 97.3 50.9 9.0 2.3 Potatoes 41 43.9 65.9 43.9 7.3 -- Vegetables 37 54.1 73.0 48.6 13.5 5.4 Fruits & Berries 7 42.9 42.9 71.4 -- -- Eggs 25 60.0 60.0 40.0 4.0 -- Wool 61 77.0 91.8 59.0 8.2 6.6 Processing Table 3.21. Processing Facilities in Farm Enterprises Few farms are reported to have significant Facility Percent of Average processing capacity, although farm managers in farms capacity, contexts outside the survey frequently express a ton/year desire to process their own products, and avoid Bakery 12.8 836 what are perceived to be high marketing and Concentrated feed mill 21.8 3456 processing margins. Around 10% of managers Flour mill 7.7 933 reported that they had a bakery, a small flour mill, Vegetable oil 10.7 310 a vegetable oil press, or a dairy processing plant Canning 1.3 1662 (Table 3.21). Only 5% of managers reported Meat processing 5.1 120 capacity to process meat. Over 20% of managers Dairy products 8.5 394 reported that they had a facility for manufacturing their own concentrated feed. Table 3.22. Payment in Kind to Farms from Processors Although farms in the sample do not process much of their own products, they distribute Product Percent of Average quantity, processed products received from processors in lieu farms ton/year of monetary payments for delivery of raw materials Flour 17.9 69 (Table 3.22). Payment in kind is mainly received in Concentrated feed 22.2 1262 the form of concentrated feed, sugar, meat, and Starch 10.7 88 dairy products (around 20%-30% of farms have Sugar 26.9 103 such arrangements). The annual quantities of these Vegetable oil 16.7 31 products are not large except for concentrate feed, Meat products 18.4 10 and they are used primarily for on-farm Dairy products 27.8 23 consumption, not for resale. 44 Reorganization of Large Farm Enterprises Social Services and Benefits Fig. 3.5. Provision of Social Services and Benefits: 1992-1994 The proportion of managers reporting that their 0 20 40 60 80 100 farm enterprises provide various social services and Salary adjustment benefits to employees dropped for most categories Pension augmentation - of services and benefits between 1992 and 1994. Children allowance The change in the overall frequency of provision of Day care services and benefits is observed both in the full Shool subsidy sample and in the matched subsample of 122 farm Studerntsstipends managers who participated in the two surveys (their House repairs responses are shown in Fig. 3.5). Provision of Heating fuel 1994survey housing by farm enterprises and rent subsidies Subsidied utilities : n1992 survey declined because of the overall tendency to Vacation facilities privatize apartments and houses to residents. Other Housing benefits related to housing, such as supply of Transport heating fuel at preferential prices and subsidized Subsidized food utilities, also declined. Farms have also reduced Subsidized goods their contributions to education, as can be seen in Health care cutbacks of day care and school subsidies. The Subsidized rent primary financial responsibility for education even 0 20 40 60 80 100 prior to the reforms was with the government, not percentof respondents the farms, although farms provided financial assets in each specific category (Table 3.23). Day support and support in kind, such as maintenance of care centers, schools, clinics, and clubs appear to be school buildings, provision of heat, and supply of the first candidates for transfer to the local council. food for cafeterias where these operated. The responsibility for roads and utility systems is Augmentation of employee pensions has all but retained by the farm enterprise in virtually all cases. disappeared. Although the number of services provided has declined, 60% of the farms and more Table 3.23. Transfer of Social Assets to Local Council* still provide benefits shown in Fig. 3.5 (down from 75% to 95% in 1992). This decline in provision of Transferred social services and benefits is probably a reflection 1992 1994 of the deteriorating economic situation of the farm Housing ~8.5 5.1 enterprises. As wages grow in proportion to total Day care centers 18g4 29.5 expenditures and wage arrears accumulate, Schools 17.4 26.9 expenditures for social services are squeezed. Clinics -- 19.2 Despite the obvious difficulties in financing Shops -- 7.7 social services, farm managers did not report much Clubs 18.8 28.6 transfer of responsibility for social assets to local Sports facilities -- 4.3 authorities. Only 40% of respondents in 1994 Sewage/water 4.3 3.4 reported that some social assets had been Electric/power 6.2 7.7 transferred to the village council. This is similar to Telephones 6.2 9.4 the situation observed in the 1992 survey. There has Roads 4.6 5.1 been only a slight increase between 1992 and 1994 in the proportion of farms that transferred social *Percent of 260 managers in 1992 and 234 managers in 1994. Reorganization of Large Farm Enterprises 45 Sixty percent of all respondents and over 70% not necessarily severe) is on the whole somewhat of the respondents who have not transferred any higher in 1994 than in 1992. The proportion of social assets to the local council responded that "the managers identifying problems with information local authorities are unable to maintain the social and understanding the laws and decrees pertaining assets." The cost of maintaining the social assets in to reorganization did not increase and even slightly 1993 was on average 12% of overall expenditure in decreased between the two surveys (Table 3.24). farm enterprises, the same as in 1992. Nearly 50% of managers did not expect a change in this cost Finance and Credit category in 1994. Virtually all farms in the sample have some Perceived Difficulties During Reorganization outstanding debt. The average per-farm debt in the first quarter of 1994 was under 250 million rubles, The proportion of respondents reporting that compared to average assets of 1-1.5 billion rubles. the process of reorganization is proceeding with "no Nearly 80% of farms borrowed short-term in 1993 problems" is less than 50%: it ranges from 20% to (100 million rubles per farm), but only 10% of 50% depending on the particular problem of farms managed to obtain medium- or long-term potential difficulties addressed. These results are loans (also 100 million rubles per borrowing farm). virtual identical to those of the 1992 survey (Table About half the managers reported that during 3.24). Yet more managers in 1994 than in 1992 reorganization debt will be divided between the diagnosed certain areas as "severe difficulties": recipients of farm shares or between the new thus, 40% of managers viewed debt repayment as a autonomous subdivisions within the farm. In about severe problem (compared to less than 20% in 40% of responses, however, the managers ignored 1992); nearly 50% of managers viewed subsidies to the impact of outstanding debt on reorganization the social sphere as a severe problem (compared to and did not propose any solution to this problem less than 30% in 1992). The proportion of managers (Table 3.25). that diagnosed other areas as problematic (although Table 3.24. Perceived Difficulties During Reorganization (percent of 234 respondents) Severe difficulties Some difficulties No problem 1992 1994 1992 1994 1992 1994 Access to information about new laws/decrees 25.0 30.8 41.9 30.3 26.5 28.0 Understanding of new laws by employees 50.4 43.2 29.2 33.3 13.8 22.2 Division of land into shares 24.2 22.2 31.5 38.5 35.0 37.6 Determination of asset shares 23.8 21.4 40.8 44.0 25.4 32.9 Distribution of assets to shareholders -- 28.2 34.2 35.9 Repayment of debt 18.1 38.5 25.8 20.1 45.4 39.7 Subsidies to social sphere 28.8 47.4 26.2 26.9 36.9 24.4 Allocation of shares to pensioners 12.7 13.7 25.8 30.8 52.3 53.8 Allocation of shares to former employees 17.7 22.2 19.6 22.2 53.1 48.7 Privatization of housing 27.7 22.2 23.5 28.2 41.2 48.7 Allocation of shares to employees of social sphere 16.2 23.9 23.5 24.4 50.8 50.0 46 Reorganization of Large Farm Enterprises Table 3.25. "What to Do with Farm Debt During Reorgani- land as collateral differ sharply from those of zation?" (percent of responses counting multiple answers) private farmers, only 2% of whom indicated that they use land as collateral. 1994 1992 The reported interest rate was practically the Leave everything as previously 40 41 same for short-term and long-term borrowing Writeoff debt 7 2 (155% and 171% per annum, respectively; the Divide between shareholders 39 26 difference between the interest rates is not Divide between new subdivisions 8 12 statistically significant). Most managers reported Other 6 19 borrowing at 212%-213% per annum (half short-term borrowers and 60% of long-term Table 3.26. Loan Collateral Used by Farm Managers: borrowers reported this interest rate). 1992-1994 (percent of respondents who borrow) Approximately 20% of borrowers managed to get short-term loans at 28% per annum, which was probably a special credit program of the Land 34 24 government. Machines 61 44 Although these nominal interest rates were Crops 26 83 deeply negative in real terms under the conditions Government guarantees 28 NA of Russian inflation, they were perceived by the Buildings 4 41 borrowers to be prohibitively high. Three-quarters Cosigners 3 9 of farm managers reported that they could not No collateral 15 NA afford to borrow what they needed for normal farm Credit is mostly secured by guarantees: only operation because the interest rates were too high. - of farmaageshoorrwedreortdta Fewer than 20% of managers identified credit 15% of farm managers who borrowed reported that shraeasnobtceoaduteorwi no guarantee was required. The prevalent form of g q g is a lien on machinery and equipment Overall, some 80% of managers complained of guaerantee of borrowers). Crops are used as difficulties obtaining credit (both short-term and (over 60% of borrowers). Crops are used as l collateral by one quarter of farm managers, and long-term). nearly 3 o mngscIn the managers' view, the traditional farm nearly 30% of managers enterprises, such as collective enterprises, obliatios ascolltera. In1992 manger kolkhozes and sovkhozes were likely to have the reported that crops and buildings were accepted as y' . . . l collateral, while in 1994 machinery and equipment greatest difficulties with access to credit in 1994 wolaereapledged more frequm men y (Table 3.2 hent (45% of respondents). New enterprises, such as were~~~~~~~~ plde moefeunl*Tbe32) h joint stock companies or new cooperatives were banking system may thus be shifting toward forms Jitsokcmaiso e oprtvswr of collateral that are at the same time more secure perceived as having potentially less difficulty with and more liquid: machines are more secure than credit (25%-30% of respondents), while crops and more easily liquidated than buildings. associations of private farmers and small cropsandr to indications from the banking agribusiness entrepreneurs were considered able to Contrary to indications from the banking borrow with very little difficulty (19% and 8% of system that banks do not yet accept land as collateral, one third of farm managers reported that rspondents repecvel tha n 30% of they use and to seureloan . Thi iscnitn respondents believed that all agents would have ithey te 1992to seurv re loan qr cofsthen equal access to credit in 1994 (Table 3.27). Eighty managers indicatedytha wheas quseda colather percent of farm managers reported a perception that (Tbl32).Fammanagers'inrepor that theywas usedascol l private farmers would have equal or better access to (Table 3.26). Farm managers' reports that they use credit than collective enterprises (Table 3.28). Reorganization of Large Farm Enterprises 47 Table 3.27. "What Farm Structures will Have the Greatest Fig. 3.6. Accounts Receivable of Farm Enterprises Difficulty Obtaining Credit Next Year?" (percent of - __- respondents in each category) State procurement 58% 1994 1992 Kolkhozes/sovkhozes 46 35 Collective enterprises 46 24 Farmers' cooperatives 24 15 Closed joint-stock companies 26 16 Open joint-stock companies 30 12 Other25% Associations of private farms 19 9 For services 2% Small agribusiness entrepreneurs 8 NA Processors 30% Trade 6% Equal access for all 29 25 l Table 3.28. Anticipated Access to Credit for Private Farmers Compared to Collectives (percent of respondents) 30% of the amounts owed to farm enterprises (Fig. 3.6). The level of receivables at 140 million rubles 1994 1992 per farm should be compared to the level of 1993 sales at current prices, which averaged 350 million Easier than for collectives 42 67 About the same as for collectives 40 13 rubles per farm, or 2.5 times the receivables. More difficult that for collectives 4 7 Arrears thus represent approximately 150 days of Undecided 14 13 sales. Calculation of the time in arrears for each farm in the sample indicates that receivables Managers in the 1992 survey also perceived amounted on average to four months of sales across that private farmers would have preferential access all farms (126 days). to credit. The survey data confirm the managers' Both calculations suggest that delayed perception at least with regard to interest rates. payment was defintely aproblem in an inflationary Nearly 70% of private farmers in the survey environment. Farms were able to finance accounts reported that they borrowed in 1993 at annual receivable, but did not receive interesl although interest rates below 30%, while half of farm they had to pay interest on their loans. The state managers reported paying interest rates of slightly was the main debtor (through the procurement above 200% annually. The survey data do not offer organizations), and obligations undertaken by the insight into the degree of rationing of credit at farms were used in part to finance accounts various interest rates and among various borrowers. receivable. Political pressures to relieve farm debts The outstanding debt of farm enterprises was by rescheduling centralized credits at the end of offset to a certain extent by their receivables, which 1994 were thus heightened by the govemment's averaged 140 million per farm. Since the average perceived dual position in the farm finance outstanding debt was 250 million per farm, this problem, as both debtor and creditor. If the reduced the net indebtedness to slightly over 100 procurement firms are in fact privatized, then the million rubles in the first quarter of 1994. The main government is not responsible for their obligations, debtors were the state procurement organizations, but farm managers in 1994 perceived the which accounted for nearly 60% of accounts procurement firms to be owned by the state or receivable, and the processors, which accounted for acting on the state's behalf. 49 4. Farm Employees At the time of the survey in early 1994, most remainder the head is female. The head of employees of farm enterprises were the same household is on average 40 years old, and the people who had worked on the predecessor spouse is 37. Nearly 40% of family members in the collective or state farms. Farm employees appeared sample are children and young people under age 20 better informed about the process of reorganization (Fig. 4.1). The number of older people over 60 in than in 1992, but had little optimism that their the sample is only 4%. Since the sample included personal economic welfare would improve in the only active employees and their household future. Despite the general pessimism about the members, most retired people were excluded. The future prospects for the farm enterprise, fewer demographic profile of employees is thus not that employees than in 1992 indicated intentions to of the village as a whole, although it is likely to become private farmers at any point in the future. represent that of the agricultural work force. Farm employees continued to work in much the traditional patterns of the Soviet era, relying on a Table 4.1. Ownership of Housing in Employee Families combination of wages from the enterprise and (percent of households) earnings in money and kind from household production. Households specialized in livestock Owned by production, as in the past, and marketed much of family farm village their surplus directly to consumers on local enterprise council markets. Separate house 78 20 0 The farm employees in the sample thus do not Apartment show much change in their economic behavior from in small building 60 36 1 that of the pre-reform period. Yet these employees in large block 24 60 7 are not elderly widows or marginally employable unskilled workers. According to the demographic Nearly 60% of the families live in separate profile of the sample, many employees on farm houses. Thirty percent live in an apartment in a enterprises in the sample are men and women in small building (2-4 apartments), and only 10% their thirties and forties with high school education reported that they live in an apartment in a large or more schooling. Interviews with these employees building. Families own their homes in 65% of the lead to the conclusion that the reforms introduced at cases, and live in housing owned by the farm the farm level up to the time of this survey (early enterprise in 30% of the cases. Most separate 1994) had not created opportunities either within the traditional enterprises or outside them to Fig. 4.1. Age Distribution in Employee Households mobilize the efforts and talents of this important group of rural people. percent of family members 25 Demographic Profile 20 The average family of an employee in the 15 sample consists of 3.7 persons, with 80% of the l 101~~~~~~~~~~~~~~. families concentrated in the range of between 3 and 10[l .,. ,,, 5 persons. Most of the families include a husband 5;; .7X and wife with children. Only 10 out of 507 B Lk oe respondents are single (evenly divided between 0 L...10-1 20-29 30-39 40-495-9 >60 males and females). In 85% of cases the head of the Age household is identified as male, and in the 50 Farm Employees houses (80%) are privately owned, and 35% of were traditional collective farms (kolkhoz). In one apartments in small buildings are owned by the third of the cases the farm was described as a closed farm enterprises, as are 60% of apartments in large joint-stock company. The responses of employees blocks (Table 4.1). Most housing is more than 10 regarding farm organization are consistent with years old (70% of the respondents), and only 10% those of farm managers (see Table 3.1 in Chapter of families live in housing built 1-5 years ago. 3). A typical farm-enterprise employee has lived in a rural area since birth (80% of respondents). Table 4.2. Education Profile of Employee Families (percent of Mobility in rural areas is low: 75% of respondents respondents) have lived in the same village for more than 10 Head of Spouse years. Both the head of household and the spouse Household have basically the same education (Table 4.2). Most of the employees are high-school graduates (general Higher education 17 12 or technical schools) and about 15% report some Secondary education 60 65 Uncompleted secondary higher education. . (8 grades or less)192 Although the level of educational attainment is Professional courses 3 1 approximately the same for both spouses, Illiteratec 3 occupations differ (Table 4.3). While 90% of heads of household reported that they work full time on Numberofpersons 507 497 the farm enterprise, only 60% of spouses work full Table 4.3. Occupation Profile of Employee Families (percent time on the enterprise, and fully one third of the of respondents) spouses reported that they do not work at all on the farm. Among the spouses who do not work on the farm enterprise, one half work in the village household Spouse (teachers, doctors, etc.), one fifth are pensioners and another fifth are housewives. The rest work in other Works at farm enterprise enterprises or study. The head of the household is Full time 90 61 typically a skilled worker (55%) or a manager or Part tinie 2 3 specialist (20%) in the farm enterprise. The Not at all 7 33 occupations of spouses are more diversified. While Manager/specialist 22 11 Skilled worker 54 18 some of them are also skilled workers and Unskilled worker 8 6 managers or specialists (around 30% in both Non-ag occupation 11 37 categories, less than half the frequency among Administrative staff 4 10 heads of household), nearly 40% work in Social sphere (farm) 2 10 administration or the social sphere. Seven percent Social sphere (village) 5 17 of the spouses report their occupation as Other employment 2 5 "housewife." The percentage of pensioners among Housewife 0 7 spouses is understandably higher, as women retire Pensioner 2 8 at an earlier age (55 compared to 60 for men). Numb erof persons 507 497 Employees and Farm Reorganization In the farms that decided to reorganize, 95% of the employees received land shares and 90% Virtually alletheremployees (95%)rreported that received asset shares. Farm managers similarly their farm enterprises had reorganized. Nearly 40% reported that land and asset shares had been of respondents characterized their reorganized allocated in 90% of the farms. The average land farms as collective enterprises, cooperatives, or share reported by employees is around 20 ha, but partnerships. Another 15% reported that their farms more than a quarter of recipients reported that they Farm Employees 51 did not know what their land share was (farm was 36,000 rubles, compared to 44,000 rubles as managers reported an average land share of 12.5 ha reported by farm managers (in unmatched samples). on a much wider base). Only 6% of respondents The exchange rate at the time was approximately reported that they had received an actual plot of 1200 rubles per $US. Employees reported a very land in the process of reorganization. Most of these wide range in monthly salaries, from 2300 rubles to plots, however, are between 0.1 and 0.9 ha, so that 300,000 rubles (the range of salaries reported by even these few respondents may have been managers was between 7700 rubles and 162,000 reporting additional allocation of land to their rubles). subsidiary household plots rather than receipt of land in the process of distribution of shares. Table 4.4. Salary Delays in Farm Enterprises, 1992-1993 For half of respondents the value of asset shares was determined in 1992. The average value 1993 1992 of an asset share calculated in 1992 was 54,000 Managers rubles (approximately US$220 at the prevailing Salary delays occurred, % 80 53 exchange rate of 250 rubles per US$ in the third Emplovees quarter of 1992). The managers report an average At least one instance of salary delay, % 60 44 value of 70,000 rubles (approximately US$280) for Six or more instances of salary delay, % 8 4 asset shares allocated in 1992. The same managers Salary delays every month, % 5 0 report that the average value of an asset share at the time of the survey (first quarter of 1994) was 2.2 Because of financial difficulties in the farm million rubles, or $1500 at the prevailing exchange sector, salaries are not paid regularly. Over 60% of rate of about 1500 rubles per $US. Thus, the employees reported that salaries were delayed on at average ruble value of asset shares increased 30- least one occasion in 1993, and 10% of employees fold since 1992 due to inflationary adjustments, and reported that salaries were delayed on six or more the dollar equivalent value increased 5-fold due to occasions in 1993. Over 80% of farm managers appreciation in the value of the ruble relative to the indicated that there were some months with salary dollar. The whole notion of the value of asset shares delays in 1993. These responses suggest increasing appears to be fairly vague, and fully 53% of financial stress in farm enterprises. In the 1992 employees who had received asset shares did not survey only 50% of managers and 40% of know their value. The shares remain strictly in the employees reported salary delays (Table 4.4). The form of paper certificates, as few people in the full distribution of the number of months with sample received assets in kind or redeemed the salary delays reported by employees in 1993 is asset shares for cash. definitely worse than in 1992. Salaries are traditionally augmented by Family Income payment in kind and by opportunities to purchase various commodities from the farm enterprise at Farm employees derive income from wages preferential prices (Table 4.5). Almost everyone and production on household plots, as well as (over 90% of respondents) reported access to grain pensions and other transfers. The earnings in from the farm enterprise, either in payment in kind agriculture did not catch up with inflation in 1993. or at a nominal price. Grain is used for animal feed The reported salaries in October 1993 were higher in household production, and is supplemented by than the salaries in October 1992 by a factor of 8 access to hay (29% of respondents) and concentrate (35,535 rubles compared to 4456 rubles), while feed (13%). Employees also reported that they consumer prices in Russia increased by a factor of received or purchased sugar (44% of respondents), 10 during the corresponding period. In November vegetable oil (30%), and meat (24%) from the farm. 1993, the average salary as reported by employees 52 Farm Employees Table 4.5. Supplementary Income in Kind Paid to Employees in 1993 Total Payment in kind Purchasefromfar7n enterprise employees paid, percent of quantity, kg percent of quantity, kg percent respondents respondents Grain 91 30 1900 71 2900 Hay 29 13 2900 18 3500 Concentrated feed 13 4 840 9 422 Sugar 44 5 57 42 76 Vegetable oil 31 0 14 31 14 Meat 24 2 12 21 31 Household production is an important particularly large in Pskov Province, but here the supplementary source of income for farm observations are few in number and are all employees. Over 50% of families reported deriving concentrated in a single district, producing more than one quarter of their income from curiously large average plots of over 1.5 ha household plots. Approximately 80% of families (compared to 0.3-0.4 ha for the entire sample). derive half or less of their income from subsidiary farming. The importance of household production Table 4.6. Household Plots as Reported by Russian Managers as a source of supplementary income is consistent and Employees (1992 and 1994 surveys, in hundredths of ha) with previous findings. Managers: Employees: Plot Structure and Tenure pooled sample different samples 1990 1992/94 1992 1994 Land formally designated as the household All oblasts 23.7 39.3 29.9 33.2 plot remains at less than half a hectare in most W/out Pskov 22.9 32.5 26.9 24.1 cases, and household production thus continues to be intensive and subsidiary to wage work on the Novosibirsk 14.2 15.3 20.9 16.2 farm enterprise. The average household plot in Orel 36.5 59.2 40.7 37.0 1994 is 0.33 ha as reported by farm employees and Pskov 40.4 175.4 112.9 176.4 0.38 ha as reported by farm managers (using full Rostov 26.2 43.1 37.2 32.2 unmatched samples). The change in plot sizes between the two surveys (1992 and 1994) is not The average household plot is mostly arable statistically significant judging by the responses of land (65% of average plot size), with some hayland either employees or managers. The change since (20%), pasture (5%), and land used for growing 1990, however, is significant: the average plot size increased by more than 45%, from 0.24 ha in 1990 fruits and berries (5%). Although household plots ton0.35sha in 1992/1994.4Thisfaverage4isabased9on are intended to become private property, only 25% to 0.35 ha in 1992/1994. This average is based on of the plots were fully privately owned at the time the pooled responses of all managers and of the survey, while nearly 60% of the households employees in the two surveys. did not report any privately owned land. In an The increase in plot size varies across plca iaots i average plot, 45% of land was privately owned, provinces (Table 4.6). Thus, the household planother 40% was held in usership, and 15% in Novosibirsk and Saratov provinces hardly changed lifetime inheritable possession (Table 4.7). The between 1990 and 1994 according to the managers, while the plot sizes In Orel and Rostov showed a prprioofle.aed ln in thoueh aplos was isiennegligible. Compared to 1992, there appears to have substantial increase. The inferred increase benasbtniaIhfSrmuerhpt rvt Farm Employees 53 ownership (Table 4.7). This conclusion is highly Table 4.8. Average Size and Composition of a Household Plot uncertain, however, because the proportions in 1992 (hundredths of ha) and 1994 are calculated on a different base: the 1992 figures are percent of number of parcels in All Respondents* each tenure category, while the 1994 figures are sample with without percent of hectares in each category. documents documents Employee households identified the village Total plot 33 43 23 council as the main source of land (almost 85% of Privately owned 15 25 4 the land in an average plot), while the collective Lifetime possession 6 7 3 farm was the source for about 15% of the land in an Usership 13 10 15 average household plot (Table 4.7). Leased 0.1 0.0 0.2 Table 4.7. Land Tenure and Sources of Land in Household * Respondents with documents are 51% of the sample; Plots* respondents without documents are 499o. 1994 1992 Despite the small size of the household plots in the sample, two-thirds of the employees reported Private ownership 45.1 30.3 that they do not wish to expand their plots. Those Lifetime possession 16.8 13.1 who do wish to enlarge their household plots have Usership 38.0 55.8 fairly modest objectives: an average increase of less Lease 0.1 0.8 than 0.5 ha. There is no significant difference in Sources: plot size reported between individuals who wish to District council 1.8 1.9 enlarge their plots and those who do not wish to Village council 83.3 62.5 expand (about 0.3 ha in both groups). Farm enterprise 14.7 35.0 Around 80% of employees reported that they Other 0.2 0.7 pay a land tax, but the reported tax payments vary so greatly that either respondents or enumerators * Figures for 1994 are percent of total plot area; figures were probably unclear about units of reporting for for 1992 are percent of total number of parcels held by tax purposes. Among the very few (2% of each household. respondents) who reported that they lease some land, lease payments were reported to be on the Only half the respondents reported having a same order of magnitude as the land tax. document that attests to their rights to use the Two-thirds of the employees have a negative household plot. Respondents with documents have attitude toward the decision to allow buying and significantly larger plots than the rest, and they also selling of land in Russia. Moreover, fully 40% of have a much greater area in private ownership the employees are of the opinion that land in (Table 4.8). In this group of respondents, fully 40% subsidiary household plots should be in the own their entire plot (compared to the sample traditional form of inheritable lifetime possession. average rate of 25%), and only 30% do not have Yet another 40% support private ownership for any privately owned land (compared to the sample household land with the right to sell. Both the average rate of 60%). Both households with usership proponents and the private ownership documents and those without reported relatively proponents are equally represented among the high confidence that the family will keep the plot in respondents who are opposed to buying and selling the future: 75% of families with documents are of land in Russia. Respondents thus appear to confident that they will keep the plot compared to differentiate household land from commercial 62% of families without any documents. agricultural land, and are more supportive of market transactions in household land. 54 Farm Employees Attitude Toward Private Farming include reluctance to change the life style and lack of legal guarantees. As in the previous survey, Farm employees are the natural cadre from potential loss of social benefits and services, which private farmers can emerge. However, over inadequate skills, and poor quality of land allocated 90% of the employees in the sample reported that to private farmers are not reported to be serious they do not intend to become private farmers within deterrents (Table 4.9). The ranking of perceived the next 2-3 years. This is a higher proportion than obstacles to private farming is on the whole in the previous survey (85%). The difference is identical in both surveys. statistically significant, and although the results are While 55% of the employees support the right based on unmatched samples from the two surveys of individuals to receive land for private farming, they seem to indicate increased disillusionment more than 35% are opposed. Even among those with the prospects of private farming among the who favor private ownership of subsidiary employees of farm enterprises in the sample household plots (see previous section), only 40% provinces. support private ownership of land in private farms. Farm employees reported varying opinions about Table 4.9. Views of Private Farming Expressed by Members the desirable form of tenure for land in private and Employees of Farm Enterprises farms, with approximately equal support for long- term lease from the state, lifetime inheritable Why Not Become a Private Farmer? possession, and private ownership with the right to Main reasons cited by those who do not intend sell. to become private farmers* 1994 1992 Household Production: Livestock and Crops Insufficient capital 74 62 Difficulties with farm inputs 60 65 Employees reported spending nearly 5 hours a Afraid of risk 56 41 day tending the household plot during the summer No wish to change life style 42 31 months and 3 hours a day during the winter. In No full legal guarantees 40 36 addition, employees reported working 8-hour Reasons of age and health 29 25 working days at the farm enterprise (10-hour More stable income in collective 27 15 working days during 5-6 months of the peak No economic and legai skills 25 17 won)r Family does not want to farm 20 18 Most . Afraid to lose social benefits 19 18 Most households (over 85%) produce potatoes, Higher income in collective 17 11 vegetables, and meat (Table 4.10). Milk and eggs Inadequate land 15 17 are produced by around 60% of households. Very Negative attitude in the village 11 2 few households produce grain (around 5%), and Restrictions on buying/selling of virtually none produce technical crops, such as land 6 12 sugar beet or oilseeds. Most households reported intentions to keep the same commodity mix in the * In 1994, 92% of respondents reported that they did not intend future (Table 4.10). There is, however, a reported to become farmers; in 1992, the corresponding proportion of tendency to increase livestock production, respondents was 85%. particularly meat. With access to very little land, households obsthcles mai fatorsn tat pvare parere ase continue to specialize in livestock production. Obstacles to becoming a private farmer arep insufficient capital . 74% of respondents), Practically all households in the sample reported disfficuties with purchase of machinery and keeping some livestock. Around 80% of households equipment (60%) and risk aversion (56%) Other keep cattle (bulls, cows, and young animals in equirsrpmente(60 aroundris a on (5%pondethe various proportions) and 75% keep pigs and piglets (Table 4.1 1). An average household with cattle has Farm Employees 55 2.6 head, including 1.2 cows, 0.7 young animals Nearly 80% of households have access to (under 1 year), 0.3 bulls, and 0.4 heifers (under 2 common pasture. Over 40% of households produce years). The number of cows reported per household all their hay needs, but only 20% of households ranged from 1 to 4, with an average of 1.3. The report that they are self-sufficient in concentrated average number of bulls, heifers, and calves was feed. Nearly half the households reported producing less than 1.5 per household reporting keeping these up to 25% of their concentrated feed and a quarter animals. Households with pigs reported between 1 produce up to 25% of their hay needs. and 10 animals, with an average of 1.8. The number Household farn-ers were on the whole satisfied of chickens ranged from 1 to 60, with an average of with the profitability of livestock production. Over 17 birds per households (Table 4.11). 80% of producers report that milk, pork, poultry, and eggs are profitable; beef is reported to be Table 4.10. Production in Household Plots profitable by 60% of households and wool by 50%. Percent of Quantity Plans for 1994# Marketing producers produced, kg* up unchanged Although respondents reported that most of (irain 6 1600 3 67 production from the household plot is consumed by Potatoes 94 1700 15 81 the family, some is sold commercially. Over half Vegetable 87 330 16 83 the producers in the sample reported selling meat Frtiits 39 190 10 74 and milk (Table 4.12). Meat is the main commercial Meat 86 320 31 62 product of households: nearly 30% of meat Milk 61 3750 18 72 produced is sold. Milk, wool, and grain are also Eggs 63 1950 23 69 sold in substantial quantities outside the household Wool 20 12 4 71 (around 15% of production). Crop products other than grain are mostly consumed within the family. * Average quantity per household produced in 1993. Households reporting commercial sales have a Percent of respondents. significantly larger volume of production than the average for all producers in the sample (Table Table 4.11. Livestock in Households (average per household) 4.12). Livestock products account for 86% of income Percent oJ Number of from commercial sales of households, and crop households animals products account for 14%. Livestock products are Cattle 79 2.6 the only source of commercial income from the plot Cows 74 1.3 in 70% of households. This distribution of income Pigs 55 1.8 from commercial sales emphasizes the dichotomy Piglets 33 2.6 between livestock and crop products for Chickens 83 16.8 households: the former (meat, milk, eggs, wool) are Sheep 23 5.2 sold commercially in significant quantities, while Rabbits 8 6.3 the latter (potatoes, vegetables, fruits) are produced for own consumption. The average milk yield in household farms in farmersumats d m t the sample was reported at approximately 3200 kg commera sales ofhuehold ouction per cow per year. This is nearly 45% higher than Farmersa mares ar idenf by ove c4%of yields in the farm enterprises, which average respondnts ts the in ting cael f around 2200 kg per cow per year. Egg yields are meabovert 0 as the main v channel for low, owevr, a undr 200eggsper ear.meat, by over 50% as the main channel for milk, low, however, at under 200 eggs per year. fruits, and vegetables, and by nearly 90% as the main sales channel for eggs (Table 4.13). State 56 Farm Employees procurement is the main channel for 30% of potato product of household plots, are in fact significantly and vegetable growers and for 25% of meat higher, as households sell their meat mostly through producers. The local collective farm is the main farmers' markets, while farm enterprises deliver the sales channel for most grain producers (67%) and product to the state-controlled regional meat for 25% of milk producers. Most respondents processor. Prices received for grain appear to be the reported that they can choose a buyer for their only exception, as the few households that do sell products and that they are not constrained to sell grain deliver it mainly to the local farm enterprise, through a particular channel (Table 4.13). which naturally pays them below the price that it in The prices received by households are reported turn receives from state procurement channels. The to be approximately the same as prices reported by prices for grain received by households are indeed managers of farm enterprises (Table 4.14). The significantly lower than those received by farm prices received for meat, the main commercial enterprises (Table 4.14). Table 4.12. Employees Reporting Production and Commercial Sales by Product Percent of Percent of A ver-age output, kg/year Percent of output sold producers producers in sample reporting all commercial all commercial sales producers producers producers producers Grain 6 21 1600 2300 17 83 Potatoes 94 17 1700 3200 7 43 Vegetables 87 1 330 500 0 20 Fruits 39 3 190 530 1 51 Meat 86 51 320 460 28 55 Milk 61 52 3750 4850 15 41 Eggs (pcs) 63 7 1951 3300 2 35 Wool 20 18 12 24 15 82 Table 4.13. Marketing Channels for Household Plots (percent of respondents) Main channel Can choose Farmers' Procurement Collective Commercial buyer market organizations farm firms Grain 17 17 67 -- 83 Potatoes 33 44 3 14 68 Vegetables 50 33 -- -- 67 Fruits 67 -- -- -- 33 Meat 43 30 8 16 80 Milk 59 6 25 -- 57 Eggs 87 4 -- -- 65 Wool 44 22 17 -- 39 Farm Employees 57 Table 4.14. Prices Received by Households and Farm Fig. 4.2. How Has the Family Situation Changed? Enterprises (rubles per kg) percent of respondents so Months Average price received 70 of sale 60 in 1993 Far5m Households enterprises a0 h - 40 Meat Nov-Dec 812 1345* Milk Nov-Dec 148 143 2 Eggs Dec 72 386 10 M Wool Dec 397 1505 Better Unchanged Worse Undectded Potatoes Sep-Oct 67 63 Grain Aug-Oct 59 47* eFarmers Employeestej rAverage prices significantly different between farm Fig 4.3 What the Family Budget Buys enterprises and households. percent of respondents Social Services and Expectations Although employees continue to enjoy a wide 4 range of social services that are traditionally /0 provided by the farm enterprise, the level of provision of many services in 1994 was lower than 2 in 1992 (Table 4.15). The reported decline is not 1 and repairs. It is also noticeable for state-funded services and benefits, such as medical care and Fig. 4.4. Perception of Family Future child allowances. The general pattern of social --_- services in 1994 compared to 1992 as reported by percent of respondents employees is similar to that reported by farm managers (Table 4.15). 40 There is a striking difference in the evaluation of the reform process by employees and private 1 farmers. The employees on the whole are much 20 ] more pessimistic than the farmers. Nearly 70% of I 46< employees reported that the material situation of 10 their families had deteriorated during the last 2-3 etr U Wr n years (Fig. 4.2), and 40% of respondents reported Better Unchanged Wors Undecided that the deterioration had been substantial. The *Femer.r [Employ.e. difficult situation of the employees is demonstrated by the answers on the purchasing power of their that enough is left from their cash income after cash income (Fig. 4.3): 20% reported that the cash satisfying subsistence needs in order to buy clothing income is insufficient for subsistence and 50% and other necessities. Virtually no one reported reported that it is just sufficient for subsistence ability to afford furniture, durable consumer goods, needs. Only a quarter of the respondents indicated and other "luxuries." 58 Farm Employees Table 4.15. Reported Availability of Social Services and Benefits (percent of respondents) Farm Managers Farm Employees 1992 1994 1992 1994 Compensation for price increases 40.0 26.5 24.4 13.4 Pension augmentation 21.2 4.7 8.3 2.4 Child allowances 50.4 41.9 38.1 13.6 Day care 79.2 63.7 -- 13.2 School subsidies 70.8 61.5 -- 23.9 Student stipends 82.7 75.2 7.2 4.1 House maintenance and repairs 91.5 83.8 40.8 26.4 Heating fuel 76.5 57.3 -- 20.7 Subsidized food 88.1 91.5 63.9 62.5 Subsidized consumer goods 21.2 27.8 14.7 5.5 Subsidized utilities 69.2 55.6 -- 16.0 Medical care 69.2 68.4 82.9 51.3 Use of vacation facilities 82.3 76.5 32.3 20.5 Housing 72.7 53.8 -- 24.5 Subsidized rent 52.3 39.3 20.8 14.4 Transport 95.4 96.6 84.6 72.0 Other services 5.0 -- 0.4 -- Assistance with household plots -- 67.3 Number of respondents 260 234 1427 507 Employees reported little optimism for the situation had not deteriorated, and 30% actually future (Fig. 4.4): 30% expected further deterioration reported an improvement (Fig. 4.2). Over 60% of of their personal conditions and another 30% the farmers earn more than what is needed for expected no change. Only 20% of respondents subsistence, and nearly 20% can even afford anticipate some improvement. "luxuries," including vehicles (Fig. 4.3). Nearly In all cases, private farmers reported more 70% of private farmers do not anticipate positive evaluations of their family situation and deterioration of family fortunes in the immediate more optimistic expectations of future prospects. future, and fully 40% are optimistic (Fig. 4.4). For nearly 70% of private farmers the family 59 5. Private Farmers The emergence of private farming outside the scope Over 70% of the private farmers in the sample of large-scale collective farms is perhaps the most have lived all their lives in the rural area and tangible manifestation of the process of land reform another 8% have lived there for more than 10 years. in Russia. While many of the private farmers are Mobility of the rural population is very low: 65% of former employees of farm enterprises, they pursue the respondents have lived in the same village for a farming strategy which is distinctly different from more than 10 years. Although most private farmers that of household plots. Private farmers emphasize are rural residents, fully 13% of the respondents production of crops instead of livestock, and report that they live in town. produce primarily for commercial purposes. Their Three-quarters of the respondents had worked allotments span tens of hectares, and although not as managers, specialists, or skilled workers on all of it is privately owned land at this stage, the collective and state farms before they became size appears to be sufficient for profitable small- private farmers. Another 15% had worked in scale commercial farming. industrial enterprises and 5% had held jobs in the social sphere. The number of former government Demographic Profile officials in the sample is less than 3%. The respondents had mainly worked in the local village The average size of a private farmer's or in the adjacent rural areas. Only 12% had worked household is 3.8 persons, with 80% of the families in town. in the range between 3 and 5 persons. The head of Although private farmers are largely former household is on average 40 years old, and the farm employees, the prospect of private farming spouse is 38. Nearly 40% of family members in the appeals only to a select subpopulation. Private sample are children and young people under 20. farmers in the sample are better educated than farm The number of older people over 60 in the sample employees (Table 5.1). Twenty-three percent of the is 4%. The family size and age characteristics of private farmers have higher education, compared to private farmer households are virtually identical to 17% of farm employees in the sample. The those of farm employee households. This is proportion of private farmers and their spouses understandable, because three-quarters of private reporting fewer than 9 grades of schooling is farmers are former employees of collective and significantly lower than among farm employees. state farms. Table 5.1. Education Profile of Private Farmers and Farm Employees (percent of respondents) Farmers Employees Head of Spouse Head of Spouse Household Household Higher education 23 18 17 12 Secondary education 65 71 60 65 Uncompleted secondary (8 grades or less) 11 11 19 21 Professional courses I 1 3 1 Illiterate 0 0 0 0 Number ofpersons 1030 1025 507 497 60 Private Farmers Table 5.2. Housing of Private Farners Percent of Ownership respondents Family Farm Village enterprise council Separate house 60 90 7 0 Apartment in a small building 28 71 24 3 in a large block 11 39 13 29 All sample 100 78 13 4 Sixty percent of private farmers in the sample farm size is 54 ha (Fig. 5.1). Most of the land in an live in separate houses, and the remaining 40% average farm (85%) is arable. In Orlov, Rostov, and report that they live in apartments. The housing is Saratov arable land accounts for more than 90% of mostly privately owned (80% of respondents), but the average farm, whereas in Novosibirsk and 12.5% live in housing owned by a farm enterprise Pskov, where livestock production is relatively (Table 5.2). Another 4% live in housing owned by important, arable land is between 60%-70%, with the village council. When ownership is analyzed by 20%-30% in hayland and pasture (Table 5.3). type of housing, the responses indicate that fully While the median farm size in the sample is 54 90% of separate houses are privately owned, while ha, the average is 90 ha (Table 5.3). The relatively a quarter of the apartments in small buildings are large average size is attributable to the presence of owned by the farm enterprise and more than a 14 farms in the sample (1.4% of respondents) that quarter of the apartments in large blocks are owned report over 500 ha of land. The reported farm sizes by the village council. in this upper tail of the distribution range up to The housing is typically equipped with 3438 ha. The very large farms are all concentrated electricity (94% of respondents), but running water in Saratov Province, where the average farm size is is fully available only in half the dwellings. Farm 155 ha. Outside of Saratov, the largest farms (89 ha structures are connected to electricity in 60% of the on average) are reported in Novosibirsk Province in cases and only 10% have full running water. Access Western Siberia, where farm sizes range from 7.4 roads, while not a problem for residential housing, ha to 366 ha. Pskov Province has the smallest farms are not available for one third of farm structures; (less than 20 ha on average). some 40% of farm structures have full access roads and another 20% report partial access. Fig. 5.1. Size Distribution of Private Farms Farm Size and Ownership percert of farms Even the smallest private farms are 25 - significantly larger than the household plots in the 20 sample. There are no farms smaller than 2 ha, and X 15 only 1% of farms in the sample are smaller than 5 X' ' ha, whereas the average household plot is less than 10 , X, 0.5 ha. One quarter of the farms in the sample have 5 g g g , -/ between 25 ha and 50 ha of land, and the median / ' X ' 0-10 11-25 26-50 61-75 76-100 101-150151-250251-600 >500 size, ha Private Farmers 61 The unusually large size of private farms in (Table 5.4). Each family contributes its allotment of Saratov is attributable to the special organization of land to the "composite" farm. There is a very strong private farming in this province. While most private correlation (0.86) between farm size and the farms in the sample (86%) are one- and two-family number of families constituting the farm. While farms, there is a group of multiple-family farms in one- and two-family farms average 60-70 ha, farms Saratov (3% of the sample) that include 10-50 constituted by more than 10 families are 750 ha on families, with as many as 90 families per farm in average (Table 5.5). When adjusted for the number one case. The average number of families per farm of families, the area of farmland per family is about in all the provinces except Saratov is 1.2-1.6, while 50 ha. the farms in Saratov include on average 4.3 families Table 5.3. Average Size of Private Farms and Structure of Land Use Number Farm Structure of land use, in percent offarm size offarms size, ha Arable Orchards Hayland Pasture Forest Other All sample 1030 89.8 86.0 0.1 5.5 6.0 0.9 1.6 Novosibirsk 250 89.0 63.8 0.1 19.0 10.7 3.0 3.4 Orel 177 73.2 91.0 0.3 2.6 3.0 0.8 2.2 Pskov 130 17.5 68.1 0.6 13.2 7.4 0.6 10.2 Rostov 200 63.2 94.5 0.1 0.2 4.7 0.3 0.3 Saratov 273 155.2 94.6 0.0 0.4 4.7 0.0 0.4 Table 5.4. Distribution of Number of Households per Private Farn (in percent) Number of households All Novo- Orel Pskov Rostov Saratov sample sibirsk 1 69.6 75.2 80.5 84.6 70.8 49.5 2 16 13 13.2 13.9 14.9 22.3 3-5 9.1 8.5 5.8 1.5 12.8 12.8 6-9 2.6 3.3 -- -- 1 5.9 10-90 2.8 -- 0.6 -- 0.5 9.5 Average number of households 2.2 1.5 1.3 1.2 1.6 4.3 Half the farmland is reported to be in private lifetime possession and usership declined. Mid- ownership and another quarter is leased (Fig. 5.2, sized farms are more active in leasing markets than Table 5.6). In the previous survey conducted in are large farms. Farms of between 50 ha and 250 ha 1992, about half of land parcels in private farms on average lease 30% of their land, while the were privately owned, just over a quarter were in proportion of leased land in farms larger than 500 lifetime possession, and 17% were leased. There ha is less than 10%. The very large farms has been no change in the proportion of privately correspondingly have a high proportion of privately owned land since 1992, but the importance of owned land, 50-70%, comparable to the proportion leasing in the sample has increased, while that of of privately owned land in small farms with up to 62 Private Farmers 50 ha. Medium-sized farms of 50-250 ha own about Fig. 5.2. Land Tenure In Private Farms 40% of their land. The pattem of ownership and F leasing reflects the process of formation of large 50% and medium sized farms. Large farms are amalgamations of many family allotments, each averaging about 40 ha. Medium-sized farms are in general formed from one or two allotments, and the remainder of the land is leased in. The private farmers report on average that half their land was received from the district council and Possession 4< the other half from the local collective enterprise 19% Leased (Table 5.7). The collective farm enterprise is a Use ship source of land only for former farm employees ___ _ - (75% of the respondents). On exit, they received on average 30 ha of land, which represents the combined entitlement of a husband-and-wife couple farm enterprise, all other farmers (former industrial (farm managers report 12 ha as the average land workers, employees in the social sphere, etc.) share of farm employees). While former farm received virtually their entire allotment from the employees received 60% of their land from the district council. Table 5.5. Average Size of Single-Family and Multi-Family Farms (in hectares) Average for Single- Multi-family farms allfamilies family farms 2 3-5 6-9 10-90 all All sample 89.8 61.1 68.3 112.6 222.7 750.2 156.1 Novosibirsk 89.0 91.9 85.7 86.7 32.1 -- 79.0 Orel 73.2 66.8 70.1 185.1 -- -- 101.9 Pskov 17.4 16.8 20.8 26.1 -- -- 21.3 Rostov 63.2 56.9 58.0 99.2 105.5 121.3 78.9 Saratov 155.2 53.2 77.3 232.8 322.6 803.1 254.9 Table 5.6. Structure of Land Tenure in Private Farms (in percent of farm size) Number of Farm Private land Lifetime Usership Lease farms size, ha possession All sample 1030 89.8 49.9 19.5 6.6 24.1 Novosibirsk 250 89.0 39.7 20.6 14.6 25.1 Orel 177 73.2 13.8 39.4 12.3 34.5 Pskov 130 17.5 73.1 12.8 0.3 13.7 Rostov 200 63.2 36.6 24.9 3.0 35.5 Saratov 273 155.2 68.9 11.6 2.0 17.5 Private Farmers 63 Table 5.7. Sources of Land in Private Earms by Province (in percent of farm size) Number Farn District Village Farm Other Private offarms size, ha council council enterprise enterprises individuals All sample 1030 89.8 48.8 1.7 47.8 0.5 1.2 Novosibirsk 250 89.0 69.3 0.8 27.8 0.2 2.0 Orel 177 73.2 87.0 4.7 7.3 0.7 0.2 Pskov 130 17.5 71.5 3.5 24.7 0.0 0.3 Rostov 200 63.2 54.4 2.8 40.5 0.3 2.0 Saratov 273 155.2 23.4 0.8 74.1 0.8 1.0 Table 5.8. Preferred Form of Land Tenure in Private Farms and Household Plots as Reported by Private Farmers, Farm- Enterprise Employees, and Managers (percent of respondents) Land in private farms Land in household plots Private Employees Managers Employees Managers farmers Long-term lease from the state 4.1 19.7 25.6 8.9 14.1 Lifetime inheritable possession 24.7 20.3 39.3 38.3 41.0 Private ownership 66.2 15.8 18.8 41.6 38.9 Undecided 5.0 44.2 16.3 11.2 6.0 Attitude toward Ownership of Land population still does not recognize the role of land markets as a vehicle for preserving the value of land Private farmers are predominantly in favor of and increasing its productivity by providing a private ownership of land. Two thirds of the medium for transfer of land from less efficient to respondents reported that private farmers should more efficient producers and creation of farms of own their land (Table 5.8). This is in striking optimal size. contrast to the views of farm-enterprise employees and managers, among whom fewer than 20% accept Table 5.9. Attitude to Buy-and-Sell Transactions in Land private ownership of land by farmers, although 40% among Private Farmers, Farm-Enterprise Employees, and of the same group of respondents are in favor of Managers (percent of respondents) privately owned land in household plots. A similar Positive Negative Undecided polarization is observed in the reported attitude to buying and selling of land. While over 50% of Private farmers 52.7 36.9 10.4 private farmers support the right to buy and sell Employees 14.7 79.1 6.1 land, only 15% of farm-enterprise managers and Managers 15.4 79.5 5.1 employees share this opinion (Table 5.9). Attitudes of private farmers and other rural Family Income residents thus differ markedly with regard to the desirability of allowing land markets to function. Private farmers in the sample are commercial Land markets appear to be understood by many producers, and rely on farming as their primary purely as a venue for speculative activity. The rural source of livelihood. Half the private farmers report that over 75% of their family income is derived 64 Private Farmers from the farm. Private farmers differ significantly Table 5.10. Employment of Head of Household and Spouse in from farm employees in their sources of family Private-Farrner Families income. Although earnings from household plots are important to farm employees, employees in the Main Occupation 1994 1992 sample reported that on average 25% of family Head of household income derived from the household plots, and the Private farm 96.5 93.5 remainder from wages and salaries (Fig. 5.3). Spouse Private farm 50.5 43.5 Fig. 5.3. Farm Income: Private Farmers and Employees Local farn enterprise 17.5 19.6 Social sphere in the village 13.6 15.1 percent of respondents Other enterprise 6.0 7.3 50F- Housekeeping 5.7 7.4 40 Employment on Fann 1992 30~~~~~~~~~~~~ ~~~Head of household ~EmpFarmers full time on farm 95.0 .FErm L I SpOy ';|Spouse 10 fullI time on farm 44.2 0 Up to 25% ~~~~~~~~~~~~~part time on farm 35.8 Upto5O% upto7s% Over 75% ~~~~not working on farm 17.0 UJp to 2%Up to 50% Up to 75# Over 75% share of family income from tarming The main crop products on private farms in the sample are grain (produced by more than 90% of Households of private farmers also diversify farms) and potatoes and vegetables (produced by their sources of income to supplement earnings and half the farms in the sample). The product to insure against the uncertainties and risks of composition of the private sector reflects the farming. While the head of the household devotes importance of the grain belt in the geography of the his entire time to the farm, the spouse in half of sample. Although the private sector in aggregate cases works outside the farm, earning a produces 10% of Russian sunflower (see Table 1.3 supplementary income independent of the fortunes in Chapter 1), sunflower production is not very of the private farm (Table 5.10). prominent on private farms in this sample (Table 5.11). Sugar beet, another popular technical crop in Production Russia, is produced by fewer than 3% of private farms in the sample. The production volume of Private farmers specialize in crop production private farms is substantially greater than that of to a greater extent than do large-scale collective household plots (Table 5.11). Their specialization enterprises and employee households. Virtually all is also different: potatoes, vegetables, and livestock private farmers report that they produce crops, and products, the traditional output of household plots, only 50% report livestock production. Pure are less popular among private farms in the sample. livestock farms apparently do not exist, and farms In mixed crop/livestock farms, cash crops as with livestock also produce crops. This is in striking well as feed are grown on the arable land. Even contrast to household plots, in 70% of which all farms relatively specialized in livestock derive only sales derive entirely from livestock products. half their farm income from livestock products, and the remaining half comes from sales of crop Private Farmers 65 products. In the entire sample of private farmers 25% of farm income is attributed to livestock sales and 70% is derived from crop production. These figures are radically different from the production X - w / E// pattern of employee households, where on average 9;V.'i J i ; 86% of income derives from livestock sales and 75 X >' < 0 ; , only 14% from crops. The product mix in large- ,Othw scale farm enterprises is also different from that in 50% lUvestocki private farms: incomes on large farms are equally _ crops divided between crops and livestock (Fig. 5.4). 25% Although only 50% of farmers report that they engage in livestock production, as many as 60% keep cattle (Table 5.12) and produce meat and milk Households Private Farms Enterprises (Table 5.11). Those who identify themselves as livestock producers have more animals and higher volume of production than the remainder, for whom production is intended largely for home producers of milk, beef, and pork report that consumption. Virtually all livestock producers grow production is profitable, as do 90% of producers of their own hay (94% of respondents) and many make eggs and poultry. In contrast, most managers of their own concentrated feed (83%). large-scale farms report that livestock production is Most producers report that livestock not profitable in their enterprises (similarly to the production is profitable at their chosen levels and 1992 survey). technology of production. Some 60% of private Table 5.11. Production of Private Farms and Household Plots (average quantity per farm/household produced in 1993) Privatefarms Household plots Plans for 1994 (percent offarmers) Percent of Quantity, Percent of Quantity, up down unchanged producers ton producers ton Grain 87 99.5 6 1.6 19 12 64 Potatoes 45 8.6 94 1.7 4 3 91 Vegetables 41 3.5 87 0.3 3 0 96 Fruits 13 1.2 39 0.2 1 0 96 Sunflower 18 26.6 -- -- 9 7 79 Hay 31 114.6 -- -- 5 4 89 Beef 50 1.5 86 0.3 18 10 70 Pork 51 6.2 (including pork & poultry) 18 5 74 Milk 60 8.5 61 3.8 14 5 78 Poultry 31 0.4 NA NA 10 0 88 Eggs (thou.) 45 49.2 63 2.0 11 0 88 Wool 23 0.13 20 0.01 3 4 91 66 Private Farmers Table 5.12. Livestock in Private Farms and Household Plots (average per household) Private Farms Private Farms Identified Household Plots as Livestock Producers Percent of Number of Percent of Number of Percent of Number of farms animals farms animals households animals Cattle 62 7.0 46 8.3 79 2.6 Cows 60 3.2 45 3.7 74 1.3 Pigs 39 4.0 28 4.5 55 1.8 Piglets 25 5.4 20 6.1 33 2.6 Chickens 51 33.9 37 38.0 83 16.8 Sheep 28 16.1 23 18.3 23 5.2 Rabbits 4 10.5 3 11.1 8 6.3 Labor and Machinery part-time workers and perhaps pensioners among their member families than do single family private A private farm in the sample employs on farms. average 4 people, of whom 2 are members of the In both single- and multiple-family farms, the immediate family and 1.6 are members of the land endowment is around 26 ha per worker. This is extended family (relatives and members of other virtually identical to the land endowment per families constituting the farm). The remaining 0.4 worker in the large-scale farm enterprises when the workers are hired help, mostly seasonal. Private full labor force is taken into account (including farms employ very little permanent hired help (on nonagricultural labor and those employed in the average 0.1 person per farm). Only 4% of farms social sphere). If only agricultural labor is taken report hiring permanent help and 10% hire into consideration, farm enterprises report lower temporary help during seasonal peaks. These results labor intensity than private farms (38 ha per are consistent with the findings of the 1992 survey agricultural worker). The finding that crop-growing that private farms rely largely on family labor. private farms are more labor intensive are more Around 40% of farms employ 1-2 workers, and labor intensive than traditional collectives suggests fewer than 5% of farms employ more than 10 that private farmers use production technologies workers (Fig. 5.5). Only 1.2% of farms employ more than 20 workers. Fig. 5.5. Number of Employed in Private Farms Multi-family farms employ on average twice as many workers as single-family farms, while their percent of farms average size is 2.5 times as large (Table 5.13). The 30- ratio of labor to land is thus slightly lower in multi- 25* family farms. Immediate family of farm members account for 80% of the total number of employed in 20 multi-family farms, whereas in single-family farms 15 Q 1 , - household members represent only 66% of all labor 10 [< (Table 5.13). Regression analysis indicates that W W , each additional family in a multi-family farm 5 K , ' M ' ' contributes less than one (0.71) additional workers. 0 v - Y -- Multi-family farms thus appear to include more 2 3 4 5-6 710 11-15 >15 number of employed Private Farmers 67 reflecting low costs of labor and high costs of has 8 pieces of diverse equipment. The most capital. Private farms rely much less on livestock commonly owned machines are tractors (full-scale, than the large enterprises, and their higher labor not mini), trucks, plows, and seeders (Table 5.14). intensity is probably due to their limited stock of On average, the farms have one tractor per 30 ha of farm equipment. The data on labor intensity suggest land and one truck per 45 ha. that transition from large-scale farm enterprises to family farms will not necessarily result in massive Marketing rural unemployment, as is often feared in Russia. Private farms have a definite commercial Table 5.13. Farm Labor and Farm Size Indicators orientation, although they also produce for family consumption. The main cash products are grain, All Single- Multi- sunflower, meat, and milk (Table 5.15). More than sample family family two-thirds of grain output and nearly half the meat farms farms is sold commercially. Although sunflower is Number of employed 4.1 3.2 6.3 produced by a relatively small proportion of farms Family members 2.1 2.1 2.1 in the sample, most of the output is also sold From other households 1.0 0.1 2.9 commercially. Other commercial products are wool Permanent hired labor 0.1 0.1 0.1 and sugar beet, although again the number of Seasonal hired labor 0.3 0.3 0.4 producers in these categories is small. The Relatives/friends 0.6 0.6 0.8 traditional household-plot products, such as Number of families 2.2 1.0 4.9 Size, hectares 90 61 156 potatoes, vegetables, fruits and berries, and eggs, Size, hectares 90 6 1 156 are mainly consumed by the family and a very Table 5.14. Farmers with Agricultural Machinery small proportion of the output is sold commercially. The commodity composition of sales does not differ Average number much from that observed in the 1992 survey. Machine ~~~Percent of per farm Machine .Poers reprtnth Table 5.15. Proportion of Output Consumed and Sold by machine Private Farmers Tractors 78 1.8 Producers Percentage of output Mini-tractors 3 1.3 Commodity in the Trucks 52 1.3 sample, % Consumed Sold Plows 60 1.4 Grain 91 31 69 Seeders 52 1.6 Sugar beet 2 40 60 Hay mowers 23 1.1 Sunflower 18 9 91 Harvesters 27 1.4 Potatoes 51 94 6 Grain combines 37 1.2 Vegetables 48 97 3 Potato combines 2 1.1 Fruits&berries 18 98 2 Potato diggers 6 1.2 Meat 61 57 43 Milking machines 6 1.5 Milk 59 71 29 Other machines 48 3.9 Eggs 44 97 3 Wool 24 70 30 Most private farms have some machinery. Among the farms that report their equipment Farmers sell most products, except grain, inventory (87% of respondents), an average farm sunflower, and sugar beet, both to state 68 Private Farmers procurement channels and directly to consumers sales to consumers increased in the 1994 sample (Table 5.16), with sales to the local collective relative to 1992. enterprise or other commercial structures ranking a Farmers reported that, despite the dominance relatively distant third. Sales to procurement of traditional procurement organizations, they were organizations dominated marketing in early 1994, reasonably able to choose the buyer for their but their weight declined to some extent compared products. Even in state monopolized products such with the 1992 survey. The change in marketing as grain, sunflower, and sugar beet, 30%-50% of patterns is consistent with national trends reported farmers stated that they could find alternative in Table 1.12 (see Chapter 1). The volume of direct marketing channels if necessary (Table 5.15). Table 5.16. Main Marketing Channels by Commodity (percent of private farmers selling the commodity) Number offar7ners Procurement Collective farms and Direct Choice of buyer Commnodity reporting sales organizations other enterprises sales available Commodities sold by more than 15 percent of private farms: Grain 800 90 8 2 34 Meat 452 46 11 42 75 Milk 317 25 27 47 38 Sunflower 176 68 25 6 55 Commodities sold by fewer than 10 percent ofprivate farms: Wool 89 64 3 17 26 Potatoes 60 47 23 28 52 Vegetables 20 45 10 40 95 Eggs 26 4 4 92 62 Sugar beet 13 85 -- 8 31 Fruits&berries 7 14 -- 86 71 Farmers report that prices received for their have become worse compared to the 1992 survey. products are too low (Table 5.17). This complaint This observation is consistent with the aggregate applies to all products, regardless of the main data reported in Chapter 1 indicating that the marketing channel. Late payments are a substantial payment period for agricultural producers problem mainly for products sold through state lengthened in 1994. Both the sample and the channels, such as grain, sunflower, and wool. aggregate data suggest that late payment is a Roughly half of farmers report difficulties finding worsening problem. a buyer for their products. This is not entirely Despite the persistent reports of low prices, consistent with the finding in Table 5.16, where a there is no evidence of discrimination in pricing relatively high percentage of farmers reported that against private farmers. Prices received by private they had a choice of buyers, but the availability of farmers are comparable to those received by farm buyers was probably interpreted differently by the enterprises (Table 5.18). Fewer than 40% of respondents in the two questions. Both late farmers feel that they face more difficult marketing payments and the ability to find a buyer appear to conditions than collective farms in the area. Private Farmers 69 Table 5.17. Marketing Problems as Reported by Private Farmners (percent of total number of producers selling in each commodity category) I Number of Reported problems sellers Late payment Low price No buyer Transport Other Grain 800 87 92 65 30 6 Meat 452 31 75 39 26 3 Milk 317 51 87 58 31 3 Sunflower 176 64 86 48 14 1 Wool 89 29 75 57 12 -- Potatoes 60 25 70 53 27 2 Eggs 26 -- 15 19 12 -- Vegetables 20 35 55 50 20 -- Sugar beet 13 23 39 23 15 15 Fruits&berries 7 14 43 29 71 -- Table 5.18. Prices Received by Farm Enterprises, Households, and Private Farmers (rubleslkg) Average price received Months of sale in 1993 Farm Household Private enterprises plots farms Meat Nov-Dec 812 1345 1270 Milk Nov-Dec 148 143 135 Eggs Dec 72 386 -- Wool Dec 397 1505 530 Potatoes Sep-Oct 67 63 102 Grain Aug-Oct 59 47 60 Sunflower Oct-Dec 114 -- 110 Farm Inputs Traditional organizations in the former state little progress over the intervening two years in supply system remain the main source of farm improving provision of inputs and services on a inputs for private farmers (Table 5.19). Farmers commercial and competitive basis. turn to the local farm enterprise for seeds and Although the private sector is insufficiently seedlings, farm machinery. spare parts, mechanized developed in rural Russia to provide many of the field services, and veterinary medicine (including needs of private farmers, an increasing percentage drugs). Private sources (including farmers of farmers report that they sell farm inputs to others cooperatives) still play a relatively minor role as in the area. The last column in Table 5.19 presents input suppliers, but they provide professional the proportion of private farmers in the sample who consulting, supplementing state research stations report that they sell various farm inputs and and the specialists of the local collective farm. The services to other users. Most frequently farmers sell overall pattern of supply channels remains the same machinery services, but they also report selling fuel as in the 1992 survey, indicating that there has been to their neighbors in small quantities. Private 70 Private Farmers farmers also sell consulting services and seeds and increased compared with the 1992 survey, while the seedlings. The percentage of private farmers acting proportion of farmers complaining of physical as suppliers of inputs and services on the whole shortages (small to start with) decreased even increased compared with the 1992 survey, but the further. Although farmers may not report problems volume of their activities remains small, as with input supply, a high proportion apparently do indicated by the preponderant role of the state and not purchase fertilizers, chemicals, and veterinary the successors to the state enterprises in input drugs from any source (Table 5.19). The perception supply. that prices are too high and difficulties financing Overall, half of farmners report that input prices purchase of farm inputs leads, according to the are too high. This common complaint is particularly findings of this survey, to production technology acute for farm machinery, spare parts, and fuel using very low levels of purchased inputs. (Table 5.20). Yet a substantial proportion of Private farmers are evenly divided between farmers report that they do not experience any those who feel that their access to supply channels problems with supply of farm inputs and services. is the same as the access of collective farms and In 1994, as in 1992, private farmers did not report those who believe they are more restricted in this serious physical shortages of inputs and services. respect (around 40% of respondents in each The proportion of farmers without supply problems category). Table 5.19. Use of Different Supply Channels for Farm Inputs and Services* Input/Service Collective State Private Farmers Other Private farmers farm sources# sources coop acting as suppliers offarm inputs** Seeds and seedlings 42 47 14 7 4 24 Feed 3 3 4 1 9 8 Young animals 6 16 15 1 6 5 Fertilizer 2 32 1 0 1 3 Herbicides/Pesticides 2 25 2 0 0 2 Purchase of machinery 27 71 6 5 2 33 Repairs and service 6 15 5 2 17 27 Spare parts 14 74 35 5 2 26 Fuel 4 89 14 2 1 31 Machinery services 14 8 22 17 11 54 Veterinary drugs 20 19 1 -- 1 2 Veterinary services 30 12 4 0 1 2 Construction materials 7 47 8 1 2 3 Construction services I 10 5 1 4 4 Consulting 13 28 17 21 3 34 * Percent of 1030 respondents that report using the channels. Includes the state-controlled consumer-cooperative network (Tsentrosoyuz). ** Percent of respondents in each input/service category. Private Farmers 71 Table 5.20. Reported Difficulties with Purchase of Farm Inputs and Services (percent of respondents for each input/service) Input/Service Price Not No Input/Service Price Not No too high available problems too high available problems Seeds and seedlings 60.1 2.5 37.3 Fuel 88.6 1.3 9.9 Feed 10.7 5.0 79.3 Machinery services 36.2 3.7 59.5 Young animals 19.7 4.2 71.2 Veterinary drugs 20.5 5.4 69.0 Fertilizer 82.1 2.1 15.5 Veterinary services 11.7 3.2 79.9 Herbicides/Pesticides 75.0 4.4 20.2 Construction materials 65.4 3.3 30.4 Purchase of machinery 91.2 1.4 7.2 Construction services 45.2 4.2 49.1 Repairs and service 50.6 3.1 45.5 Consulting 3.7 3.8 90.9 Spare parts 83.3 2.9 13.4 Mean of responses 49.6 3.4 45.2 Cooperation Table 5.21. Cooperation Among Private Farmers 1992-1994 Private farmers join with others for (percent of respondents) cooperative activities (Table 5.21). Three-quarters of private farmers report that they participate in the 1994 1992 activity of farmers' organizations and cooperatives. Consulting 58.3 55.2 AKKOR, the Russian national association of Marketing 32.5 33.0 private farmers, has the highest participation rate Input supply 30.4 36.8 (67%, similar to the participation rate in 1992). Machinery pool 42.5 35.2 Over 70% participate in some form of joint activity Mutual credit 37.1 34.6 in provision or use of farm services. The overall Joint production 26.6 31.0 participation in joint activities is practically the Processing 7.9 0.8 same in the two surveys: 74% in 1994 compared to Other 9.9 6.2 78% in 1992. Novosibirsk and Rostov remain the provinces with the highest incidence of emergent cooperation among private farmers, as in the 1992 Table 5.22. Farmers Owning "Less than a Whole Machine" survey, while Pskov still has the least cooperation. Between 30%-40% of respondents cooperate Machine Percent out of Range of with other farmers in production, product allfarmers with fractional marketing, input supply, use of machinery, or machines in this ownership provision or receipt of credit. The participation category rates in various activities reported in 1994 are on Tractors 3.5 0.5-0.6 the whole identical to those in the 1992 survey Trucks 4.5 0.3-0.5 (Table 5.21). Cooperative activity in processing Plows 4.0 0.3-0.8 increased in 1994 compared to 1992. Seeders 5.0 0.1-0.5 A number of farmers report owning a fraction Harvesters 8.6 0.2-0.5 of a machine (0.6 of a tractor or 0.3 of a truck). The Grain combines 9.1 0.3-0.5 frequency of such joint ownership in the sample is Other machinery 5.6 0.2-0.5 not very high, but it is not negligible (Table 5.22). 72 Private Farmers Debt and Finances however, and since roll-over in Russia entails considerable uncertainty, service of this level of Three-quarters of the farmers in the sample are debt out of annual sales implies a squeeze on active in the credit markets, i.e., have outstanding retained earnings of the farm operator and on the debt or borrowed during 1993. Thus, 48% report ability to finance investment out of equity. that they have outstanding debt; 53% borrowed Two-thirds of the farmers provide their short-term (for durations of less than 6 months) in creditors with collateral. Over 70% mortgage their 1993; and 44% borrowed for durations longer than machinery and equipment as collateral for credit. 6 months in 1993. Most of the borrowing, whether Another 25% use AKKOR guarantees to obtain classified as short-term or long-term, appears to be credit. The house, the livestock, and the crops are for durations of less than one year: the level of not commonly used as collateral (they are used by outstanding debt is close to (and even somewhat fewer than 10% of respondents). Land is used as lower than) the volume of borrowing reported for collateral only by 2% of respondents. These 1993. The average farm in the sample borrowed 3.3 findings are similar to the 1992 survey, except that million rubles in 1993, while the outstanding debt the role of AKKOR guarantees has declined is 3.0 million rubles. This is understandable in an significantly (Table 5.23). inflationary environment, where true long-term borrowing with maturities longer than one year is Table 5.23. Collateral Used by Private Farmers: 1992-1994 impossible without proper indexing mechanisms. (percent of farmers using collateral) Comparison of borrowing and outstanding debt to the value of fixed assets reported by the farms in 1994 1992 1993 indicates that the level of debt was not large Machinery and equipment 73 51 relative to reported value of assets. The median House 6 5 ratio of debt to assets and borrowing to assets over Livestock 12 4 the farms in the sample was 0.12 and 0.14, Crops 5 3 respectively (median ratio is cited because the Land 2 6 average ratio is distorted by extreme outliers). AKKOR guarantees 27 57 Since debt is repaid from current cashflows, it Percent of all respondents who is also relevant to examine the ratio of debt to sales use collateral 64 67 (the so-called "credit-years" measure). In 1993, the average sales volume was 5.8 million rubles per Farmers typically report that interest rates are farm, compared to around 3 million rubles prohibitively high, yet most borrowed in 1993 at borrowing or debt. The median ratio of outstanding highly preferential rates. Nearly 70% of farmers debt to sales was 0.5 and the median ratio of borrowed at annual rates below 30%, mostly at borrowing to sales was 0.6, i.e., roughly six-months 28%, although 10% of farmers reported that they sales are required to repay the debt for 50% of the took loans for more than 6 months at 8% annually. farms. For the upper quartile of the debt to sales This low interest rates represent centrally allocated distribution; i.e., for 25% of the farms with credits. The average borrowing rate is not much relatively high debt, about 14 months sales are different for short- and medium-term loans (resp. required to repay outstanding debt. These data 60% and 69%). However, the difference is indicate that in 1993 most farms in the sample had statistically significant, and a somewhat higher sales revenue sufficient to cover their total percentage of medium-term borrowing is done at outstanding debt, and were in this respect rates in excess of 200% per annum. Truncating the financially solvent. Since the debt is short term, observations with reported interest rate below 30%, Private Farmers 73 we obtain for farmers an average rate of 132% for average sales of 5.8 million rubles, accounts short-term borrowing and 155% for medium-term receivable of 2.8 million rubles represent nearly six borrowing, which is very close to the interest rates months of sales, which for a small farmer is a long reported by farm-enterprise managers (155% short- time to wait for money in an inflationary term and 171% long-term). environment. The farmers' arrears compare Three-quarters of the farmers report that they unfavorably with those of farm enterprises, which cannot borrow all that they need because the collect their sales income in about four months. interest rate is high. A similar percentage of respondents report that they have difficulties getting Table 5.24. Growth of Assets and Sales in Private Farms credit (both short- and medium-term). The bank is (thousand rubles) the main source of credit for private farmers (67% Perfarm average long-term credit for investment and 50% short-term credit for current expenses). One-quarter of the Assets Sales farmers rely on relatives to advance money for 1990 32 15 current expenses in case of need. Fully 20% of 1991 941 109 farmers report that they have no source to borrow 1992 3150 1418 either short- or long-term. The credit link to the 1993 31572 5815 collective farm enterprise has been effectively Change 90-93 x 987 x 388 eliminated: none of the respondents indicate that they can borrow from the farm enterprise. Price index change* x 481 x 125 Despite the pronounced commercial orientation of private farmers, 60% of the sampled * Change of industrial prices for assets and change of farms do not report any accounts receivable. This agricultural prices for sales. probably highlights the predominance of cash sales on local markets and to private individuals. For The average farm in the sample increased the 40% of farmers in the sample who carry accounts nominal value of its assets by a factor of nearly receivable, state procurement organizations are 1000 between 1990 and 1993 (Table 5.24). The responsible for three-quarters of the total. The sales revenue in the same period increased only by remaining 25% of debtors are represented in a factor of 400. The differential increase in values roughly equal proportions by commercial trade of assets and sales reflects the deterioration of organizations, other enterprises (collective farms agricultural prices relative to industrial prices over and processors), private farmers and other the period. The value of assets roughly doubled individuals, and local government. when deflated by an index of industrial prices. The The average amount of accounts receivable per value of sales per farm roughly tripled when farm matches the reported value of working capital deflated by an index of agricultural prices. The (both are around 2.8 million rubles in 1994). This volume of production and sales on the private farms means that private farms practically do not carry thus increased substantially, although not enough to inventories. More importantly, the accounts compensate for the deterioration in agricultural receivable virtually balance the outstanding debt or prices relative to industrial prices, nor for the the current borrowing of the average farm (around galloping increase in consumer prices (which rose 3 million rubles), so that the net indebtedness of by a factor of 640 between 1990-1993). private farms is virtually zero. Based on 1993 74 Private Farmers Table 5.25. Sources of Annual Investment Flows (in percent) 1990 1991 1992 1993 Own savings 44.6 8.2 10.3 15.1 Asset share 1.4 4.0 1.8 10.9 Bank loans 46.8 85.3 76.6 40.4 Loans from relatives 7.2 1.1 1.4 0.8 Loans from enterprise 0.0 0.3 0.8 0.1 Govemment grants 0.0 0.5 0.3 0.3 From Russian farmers' fund 0.0 0.0 0.0 0.0 Other sources 0.0 0.5 8.7 32.2 Number of responding fars 15 113 617 Table 5.26. Cost-to-Sales Ratio in Russian Farms: 1990-1993 (ratio less than 1 implies excess of sales revenue over production costs) Average Median Upper Percent of Number of ratio* ratio quartile unprofitable respondents farns out of 1030 1990 1.74 1.50 2.00 67 9 1991 0.86 1.17 1.97 58 46 1992 0.75 0.84 1.43 36 399 1993 0.67 0.76 1.00 25 911 *Ratio of average costs to average sales for matched farms in each year. Since 1991 private farms have been financed an allocation of assets in kind and another 20% largely with outside money rather than savings or received the value of their asset share in cash, the retained earnings of the operator. The proportion of small weight of the asset share in total farm equity in annual investment has been 10%-15% investment is not a reflection of reluctance or since 1991. Only in 1990 did farms finance fully half of the total annual investment from own Fig. 5.6. Sources of Investment Funds savings (Fig. 5.6). Bank credits provide most of the financing for investment since 1991. Government percent of farm investment grants, money from the Russian farmers' fund, and 100. money from the farm enterprise are reported to be 0 m negligible over all years (Table 5.25). The asset share received by former employees 80 Loans on exit from the large-scale farm enterprise is mAs. Shwe basically intended to provide the startup capital for 40 l Own Savings new private farms. Yet the asset share constitutes but a small part of the annual investment in the 20 farm (Table 5.25). Since half the former employees L report that on leaving the enterprise they received 1990 1991 1992 1993 Private Farmers 75 tardiness on behalf of farm-enterprise managers in Profitability appears to improve with the age of the allocating and distributing assets to new farmers. farm: in 1993, the percentage of unprofitable farms This is rather a result of the inherently low value of among those registered in 1990-1992 was below the asset shares relative to the required investment in a average (17%), while fully 36% of farms registered new farm. Thus, as reported by managers of farm in 1993 are reported to earn losses. Actual enterprises (see Chapter 3), the average asset share profitability, however, may be lower than perceived in 1992 was valued at around 70,000 rubles, which profitability, since proper adjustment for inflation is 2% of the total assets of an average private farm may turn accounting profit into a loss. Yet in as given in Table 5.24; in 1993, the average asset general, the picture that emerges from the survey share was valued at 2.2 million rubles, which does not support the conventional view of private represents less than 7% of total farm assets shown farms that groan under a crushing burden of debt in Table 5.24. and suffer continual losses. Although some private Sales revenues on the whole exceeded farms failed financially and ceased operations, the production costs in 1992 and 1993 (Table 5.26). survey indicates that in early 1994 private farmers The proportion of loss-making farms decreased were a small but significant and persistent over time, and in 1993 only 25% of the responding component of the Russian farm structure. farms reported costs higher than revenues. 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Paul Shaw and Martha Ainsworth No. 295 Ttc Participation of Nongovernniental Organizations in Poverty Alleviation: The Case Stndy oJ tltc Honduras Social Investment Ffind Project. Anna Kathryn Vandever Webb, Kye Woo Lee, and Anna Maria Sant'Anna No. 296 Refornning tIme Energy Sector in Transition Econonmies: Selected Experience and Lessons. Dale Gray No. 297 Assessing Sector Irustituutiouis: Lessons of Experience froni Zauimbia's Education Sector. Rogerio F. Pinto and AngelousJ. Mrope No. 298 Uganda's AIDS Crisis: Its iniplications for Dcvelopmnent. Jill Armstrong No. 299 Towvards a Paymients System Lauwfor Developing amid Transition Econoinies. Raj Bhala No. 300 Africa C.'an Conipete! E.x-port Opportinities an(d Cliallenges ini Garrinits and iIorne Prodncts in the lEnropean Market. Tyler Biggs, Margaret Miller, Carolinc Otto, and Gerald Tyler No. 301 Review and Outlookfor flte WTorld Oil AMarket. Shane S. Streifel No. 302 77te Broad Sector Approach to Investnient Lending: Sector Investnfent Prograuiis. Peter Harrold and Associates No. 303 Institultional Adjnstmnent and Adjusting to Institntiions. Robert Klitgaard No. 304 Putting Institutiocial Fconontics to lVork: Fron Participation to Covernance. Robert Picciotto No. 305 Pakistan's Piublic Agritiltural Eniterprises: Inefliciencies, Market Distortions, atid Proposalsfor Reforn. Rashid Fanmqec, lRidwan Ali, and YusufChoLudliry No. 306 Granicen Bank: Perfonnance and Stability. ShlahidUr R. Khandker, Baquii Khalily, and Zahed Khan No. 307 Tme Uruiguay Rouiid and the Dcveloping Economics. Edited by Will Martin and L. Alan Wititers No. 308 Bank C overnance ContractS: Establishing Goals and Accouintability in Bank Restrucuritng. Riclard P. Roulier No. 309 Puiblic and Private Sccond(lary Educiation in Developing Countries: A Coniparative Study. Emmaniuel Jimenez and Marlaine E. Lockhled with contributionis by Donald Cox, Eduardo Luna, Vicente Paqueo, M. L. de Vera, and Nongniucih Wattanawaha No. 310 Practical Lessons for Africa fron East Asia ini Iididstrial and Trade Policies. Peter Harrold, Malathi Jayawickrama, and Deepak Bhattasali No. 311 The Inipact oft/ic UnIgnmay Round on Africa. Ileter Harrold No. 312 Procurenment anid Disbursement IvIanuialfor Projects u'ith Coninninity Participation. Gita Gopal No. 313 Harnessing Informationffor Development: A Proposalfor a l'Vorld Bank Croup Strategy. Eduardo Talero and Philip Gaudette No. 314 Colomtibia's Pension, Refonn: Fiscal and Macrorconomiic Effects. Klaus Schmidt-Hebbel No. 315 Lind Quality I,idicators. Christian PIlei,Julian Dumanski, Ann Hamblini, arid Anthony Young No. 316 Siustaiuiability of a Coveninient Targeted Credit Program: Eviderice froni Bangladesi. Shahidur R. Khandker, Zahed Khan, and Baqui Khalily No. 317 Selected Social Safety Net Progranis in tfre Plilippines: Targeting, Cost-Effectiveness, aid Options for Refonr. Kalanuidhi Subbarao, Akhter U. Ahmed, and Tesfaye Teklu No. 318 Private Sector Developnient During Transition: TDe Visgrad( Countries. Michael S. lorish and Michlel No0l No. 319 Education Achlievenients and School Eflicienry ini Rnral Bangladtesi. Shaliidir 1R. Khanidker No. 320 Household and lInttraiouse/iold Inipa(ts of tle C raneen Banik aiid Siiiiilar Targeted Credit Progranis in Bangladesh. Mark M. Pitt and Shahidur It. Khandker No. 321 Cliarance and Settlenietit Systenis for Securities: Critical Design Cloices in Emnerging AMlarket Eco,io,tiies. Jeff Stchm. No. 322 Selecting Developieient Projects for thie World Banik.Jean Baneth No. 323 Evaluatiru, Pulblic Spendinmg: A Franmcivorkfor Pniblic Exjpenditmire Revienws. Sanjay Pradhan No. 324 Credit PrograMns in Banglades/i: Perforinaiice and Sustainability. Shahidur R. Khandker and Ulaqui Khalily No. 325 Institutional aiid Entreprenetirial Leadershtip in the Brazilian Scieitce and Teclniology Sector:Setting a Neui' Agenda. Edited by Lauritz Holni-Nielsen, Michael Crawford, and Alcyone Saliba No. 326 77Te East Asian Miracle anid i!fornation Teclinology: Strategic Manageqnmrent of Technological Learning. Nagy Hanna, Sandor Boyson, and Shakuntala Gunaratne THE WORLD BANK A partner in strenigtheninig economies and expanding markets i zT to improve the quality of life tor people everywhere, especially the poorest Headquarters European Office Tokyo Office 1818 H Street, N.W. 66, avenue d'lena Kokusai Building Washington, D.C. 20433, U.S.A. 75116 Paris, France 1-1 Marunouchi3-chome Chiyoda-ku, Tokyo 100, Japan Telephone: (202) 477-1234 Telephone: (1) 40.69.30.00 Facsimile: (202) 477-6391 Facsimile: (1) 40.69.30.66 Telephone: (3) 3214-5001 Telex: MCI 64145 WORLDBANK Telex: 640651 Facsimile: (3) 3284-3657 MCI 248423 WORLDBANK Telex: 26838 Cable Address: INTBAFRAD WASHINGTONDC World Wide Web: http://www.worldba.nk.org E-mail: books@worldbank.org 9 780821 336557 ISBN 0-8213-3655-X