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World Bank Discussion Papers

Land Reform and Farm R-estructuring

in Russia Karen Brooks Zvi Lerman

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2 3 3 U21

World Bank Discussion Papers

Land Reform and Farm Restructuring 0~~~~~~~~ in Russia Karen Brooks Zvi Lerman

The World Bank Washington, D.C.

Copyright c 1994 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 printing February 1994 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 manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Dtive, Danvers, Massachusetts 01923, U.S.A. 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., Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'lena, 75116 Paris, France. ISSN: 0259-210X Karen Brooks is a senior economist in the Agricultural Policies Division of the Agriculture and Natural Resources Department of the World Bank. Zvi Lerman is a Visiting Research Fellow at the World Bank. He is currently on sabbatical leave from the Department of Agricultural Economics, the Hebrew University, Israel.

Library of Congress Cataloging-in-Publication Data Brooks, Karen McConnell. Land reform and farm restructuring in Russia / Karen Brooks and Zvi Lerman. p. cm. - (World Bank discussion papers; 233.) "The study on which this monograph is based was undertaken by the Agrarian Institute of the Russian Agricultural Academy of Sciences in partnership with the World Bank." ISBN 0-8213-2761-5 1. Land reform-Russia (Federation) 2. Agriculture and stateRussia (Federation) 3. Agriculture-Economic aspects-Russia (Federation) 4. Russia (Federation)-Rural conditions. 5. Russia (Federation)-Rural conditions-Statistics. I. Lerman, Zvi, 194111. International Bank for Reconstruction and Development. Ill. Rossiiskaia akademiia sel 'skokhoziaistvennykh nauk. Agrarian Institute. IV. Title. V. Series. HD1333.R9B76 1994 333.3'147-dc2O 93-50836 CIP

Table of Contents List of Tables List of Figures .

......................................................

vii

...................................................

Foreword Pr

v

ix

........................................................ ef

.......................................................... ace

xi

xiii

Abstract ........................................................

I

SUMMARY AND CONCLUSIONS ....... .......... .. ..................... Issues to be Addressed in Support of Farm Restructuring and Land Reform ....

.......

6

1. INTRODUCTION ............................................... Linkage Between Macroeconomics, Sectoral Policy, and Farm Restructuring ....

.....

11 12

2. THE LEGAL FRAMEWORK FOR LAND REFORM AND FARM RESTRUCTURING .... Land Reform ................................................ Division of Labor Between Federal and Local Organs in Land Legislation .... ...... Land Ownership .............................................. Distribution of Land ........................................... Taxes and Payment for Land ...................................... The Legal Framework for Farm Restructuring ........................... Bankruptcy Legislation .......................................... Annex Table 2.1: Russian Land and Farm Legislation .......................

15 16 17 18 21 22 23 25 26

3. AGGREGATE NATIONAL DATA AND CHARACTERISTICS OF SAMPLE REGIONS ... Reorganization in Aggregate ...................................... The Geography of the Sample ..................................... Social and Demographic Characteristics of Respondents ......................

29 29 31 35

4. CHANGES IN LAND OWNERSHIP AND USE ............................. Land Tenure and Holding in the Collective Sector .........................

41 45

Size and Labor ......................................... Production............................................ Land Tenure ...........................................

45 46 47

Land Holdings and Land Use by Farm-Enterprise Employees .................. Plot Size .............................................

Land Ownership ........................................ Production ....................................... MarketingChannels ..................

50 51

51 53 53

Land in Private Farms ..................

54

Structureof PrivateFarns ..................... Ownershipand Sourcesof Land .......

iii

..............

54 56

5. FARM REORGANIZATION IN THE SAMPLED PROVINCES ................... Procedures and Outcomes of Restructuring .............................. Distribution of Asset Shares ................................. Information Problems ..................................... Reorganization and Changes in Farm Management ......................... Changes in Labor ....................................... Changes in Input Supply and Marketing .......................... Attitudes Toward Private Farming Among Farm Employees ...................

59 59 61 63 64 65 66 69

6. RURAL SOCIAL SERVICES AND RESTRUCTURING OF THE COLLECTIVE SECTOR . . 71 Provision of Social Services .................. . ..................... 72 Difficulties with Social Services Outside the Farm Enterprise ................... 73 The Burden of Social Services ..................................... 75 7. SPECIAL CHARACTERISTICS AND PROBLEMS OF PRIVATE FARMERS ... Production . ................................................ Marketing and Prices ........................................... Cooperation . ................................................ Labor .................................................... Farm Inputs . ................................................ Debt and Finances ............................................

iv

.......

77 78 80 82 83 84 86

List of Tables TABLE 3.1: Structure of Collective Agricultural Enterprises, Russian Federation, January 1993 . . 30 TABLE 3.2: General Characteristics of the Five Sampled Provinces ................... 32 TABLE 3.3: Distribution of Respondents by Provinces ........................... 33 TABLE 3.4: Farm Structures in Sampled Provinces, January 1, 1993 .................. 34 TABLE 3.5: Growth of Private Farming in Sampled Provinces 1992 .................. 35 TABLE 3.6: Private Farmers and Farm-Enterprise Employees: Socio-Demographic Characteristics 36 TABLE 3.7: Distribution by Occupation of Household Head and Spouse for Farm Employees and Private Farmers .............................................. 38 TABLE 3.8: Distribution of Young and Old Members in Households of Farm Employees and Private Farmers ................................................... 39 TABLE 3.9: Education of Respondents .................................... 39 TABLE 4.1: State, Collective, Private, and Municipal Land as of January 1, 1993 ... ....... 42 TABLE 4.2: Transfer of Land Ownership from the State to Other Sectors between January 1991 and January 1993 ................................................ 43 TABLE 4.3: Growth of Private Sector from January 1991 to January 1993 ............... 44 TABLE 4.4: Land in Farm Enterprises: 1990-1992 ............................. 45 TABLE 4.5: Change in Number of Employed at Farm Enterprises: 1990-1992 .... ........ 46 TABLE 4.6: Product Mix in Farm Enterprises (average per enterprise) ................. 46 TABLE 4.7: Selected Yields in Farm Enterprises in 1992 ......................... 47 TABLE 4.8: Forms of Land Ownership .................................... 48 TABLE 4.9: Size of Land Shares by Category of Beneficiary ....................... 49 TABLE 4.10: Rights Associated with Land Shares ............ .. ................ 50 TABLE 4.11: Tenure of Household Plots by Farm Employees ....................... 52 TABLE 4.12. Sources of Land in Farm-Employee Households ........ .. ............. 52 TABLE 4.13: Average Farm Size by Year of Registration ........................ . 55 TABLE 4.14: Distribution of Number of Households per Private Farm ........... . 55 TABLE 4.15: Average Size of Private Farms ............. .................... 56 TABLE 4.16: Tenure of Land Parcels in Private Farms ........................... 56 TABLE 4.17: Sources of Land in Private Farms ............ .. ................. 57 TABLE 5.1: Forms of Farm Reorganization ................................. 60 TABLE 5.2: Financial Position of Farm Enterprises in 1992 (average per farm) .... ........ 61 TABLE 5.3: Rights Associated with Asset Shares .............................. 62 TABLE 5.4: Expected Changes as a Result of Farm-Enterprise ...................... 65 TABLE 5.5: Management Strategies: What to Do If No Money to Meet Payroll? .... ....... 66 TABLE 5.6: Reported Difficulties in Purchase of Farm Inputs ...................... 67 TABLE 5.7: Access to Different Supply Channels for Farm Inputs and Services .... ....... 67 TABLE 5.8: Marketing Problems as Reported by Farm-Enterprise Managers .... ......... 68 TABLE 5.9: Main Marketing Channel by Commodity ........................... 68 TABLE 6.1: Reported Availability of Social Services ............................ 72 TABLE 6.2: Difficulties with Access to Social Services Outside the Collective Farm ... ...... 74 TABLE 6.3: Transfer of Social Assets to Local Council .......................... 75 TABLE 7.1: Product Mix in Private Farms (average per farm) ...................... 78 TABLE 7.2: Perceived Profitability and Planned Production for 1993 As Reported by Private Farmers and Collective Farm Managers ..................................... 79 TABLE 7.3: Milk Yields on Private and Collective Farms ......................... 80 TABLE 7.4: Proportion of Output Consumed and Sold by Private Farms ................ 80 v

TABLE TABLE TABLE TABLE TABLE TABLE TABLE TABLE TABLE

7.5: Main Marketing Channel by Commodity ........................... 7.6: Choice of Marketing Channels .................................. 7.7: Marketing Problems as Reported by Private Farmers .................... 7.8: Cooperation Among Private Farmers ............................. 7.9: Distribution of Number of Employed per Private Farm ................... 7.10: Components of Farm Labor and Farm Size Indicators ................... 7.11: Access to Different Supply Channels for Farm Inputs and Services .... 7.12: Farmers Acting as Suppliers of Farm Inputs ......................... 7.13: Reported Difficulties in Purchase of Farm Inputs and Services ..............

vi

.......

81 81 82 83 83 84 85 86 87

List of Figures Box 3.1. Sample selection .

.............................................

33

Fig. 3. 1. Age distribution: farm employees and private farmers ...................... Fig. 4.1. Pattern of new private farm registrations over months: 1991 and 1992 .... Fig. 5.1. Exit of employees during reorganization

..............................

Fig. 7.1. Source of Start-Up Capital .......................................

vil

37 ........

54 60 87

Foreword Russia, one of the largest countries in the world, is in the process of a deep political transformationand a transition toward a market-orientedeconomy. The exact shape that the Russian version of a "market economy" will eventually take is not yet clear, and many unique factors of this vast nation with its long history will affect the economic transition. It is clear, however, that the transformation of the agricultural sector will play an important role in the overall adjustment of the Russian economy. Traditionally an unwieldy and relatively uniform structure based on intrinsically inefficient, large-scale collectiveand state farms, Russian agriculture is rapidly changing into a whole spectrum of diverse organizational forms, with small family farms at one extreme and large shareholding corporations at the other. The process of farm restructuring is accompanied and enabled by a no less dramatic process of transition to privately owned land after 75 years of exclusive state ownership. These two intertwined processes, restructuring of farms and privatization of land in Russia, will shape the future of the agricultural sector. Moreover, given the relative weight of Russian agriculture in GDP, the large size of the rural population, and the traditional preoccupation with availability of food, changes at the farm level will echo throughout the general economic reforms in Russia. Much information has been collected at the World Bank and in other international institutions on the process of transition in Russian agriculture. Most of the information, however, is based on official statistics and is of an aggregate nature. This monograph presents an empirical picture of the transition as viewed at the farm level, through the eyes of individual participants. These individuals include private farmers, managers of reorganizing farm enterprises, and employees of farm enterprises, all of whom talked to interviewers about their experience and perceptions of change. The facts collected through a survey of these individuals take us far beyond the level of anectodal information and aggregate statistics. They contribute to the creation of an empirical base for clearer understanding of the process of transition in Russian agriculture, which should help policy makers guiding the reforms in Russia and other countries of the former Soviet Union, international institutions designing financial and technical assistance, and researchers trying to understand economies in transition.

Michel Petit Director Agriculture and Rural DevelopmentDepartment The World Bank

Preface The following chapters provide an analysis of land reform and farm restructuring in Russia during 1992, based on a survey of private farmers, farm-enterprise managers, and farm employees in five provinces at the end of the year. The analysis is supplementedwith aggregate data describing the status of land reform and the relevant legislation in all Russia. The study on which this monograph is based was undertakenby the Agrarian Institute of the Russian Agricultural Academyof Sciences in partnership with the World Bank. Karen Brooks was the task manager for the World Bank, and both authors participated in design of the study and analysis of the results. El'mira Krylatykh and Vasilii Uzun led the work of the Agrarian Institute. Aleksander Petrikov of the Agrarian Institute assisted in design of the survey instruments and supervised field work. The contributions of other staff members of the Agrarian Institute, including Natalia Shagaida, and Renata Yanbykh, were substantial. Viacheslav Mironov supervised data entry and technical support at the Agrarian Institute. From the World Bank, Apparao Katikineni provided technical support for data management and Csaba Csaki contributed valuable advice throughout the project. The manuscript in its final version benefited from discussions within the World Bank, and especially from comments of Edward Cook, Costas Michalopoulos, and Enrique RuedaSabater. Useful comments were provided by Bruce Gardner of the University of Maryland at College Park. The monograph was written when Zvi Lerman was Visiting Research Fellow at the World Bank, on sabbatical leave from the Department of Agricultural Economics, The Hebrew University of Jerusalem, Israel. The study was funded by the World Bank, the National Council on Soviet and East European Research (through a grant to the University of Minnesota), and the Agrarian Institute. The monograph starts with a summary of the findings and the authors' conclusions. The introduction in Chapter 1 is followed by a discussion of the legal framework for land reform and farm restructuring (Chapter 2) and a description of aggregate Russian data and the sample characteristics (Chapter 3). Chapters 4 through 7 are the empirical core of the study, presenting the survey data. The presentation is organized under the following headings: changes in land ownership and use (Chapter 4), farm reorganization in the sampled provinces (Chapter 5), rural social services and restructuring of the collectivesector (Chapter 6), and special characteristics and problems of private farmers (Chapter 7). The separate chapter devoted to private farmers focuses on special issues of production, marketing and supply, labor, cooperation, credit and finances. Issues relating to land ownership on private farms and the use of social services by private farmers are discussed with the rest of the sample in the corresponding chapters (Chapters 4 and 6, respectively). Tables presented in the text without an explicitly identified source are based on survey data.

xi

Abstract During the course of 1992, major changes were made in the ownership of Russian agricultural land and in the rights of farm employees. These changes were accomplished through farm reorganization, during which most farms registered land in collectiveownership and affirmed the rights of members of collectives to claim individual ownership. Yet the agricultural sector is still predominantly collective: 90 percent of agricultural land registered to a designated user on January 1, 1993 was still in the collective sector. Farm reorganization accordingly brought little change in the behavior of collectives. Managers reported little change in internal operation of the farms, little intention to change production patterns or input use, and little perceived financial pressure. Private farmers, which numbered 184,000 in all of Russia at the end of 1992 and cultivated nearly 4 percent of agricultural land, differ from collective enterprises most strikingly in the product mix; in particular, in the greater relative weight of crops and lesser dependence on livestock. The growth of private farming appears to be the vehicle through which the agricultural sector changes product mix and adjusts out of products and technologies for which profitability is low under new relative prices. Private farmers sell their products and buy inputs directly through state and other channels, and report little dependence on the collective farms in their area. Cooperation in production and services appears to be developing among private farmers, and between 30 percent and 40 percent of respondents report some form of joint activity with other private farms. Access to social services is not currently a problem for private farmers, nor is there an expectation that it will become a problem. Collectivescontinue to provide many services even to private farmers in their areas, and concerns about social benefits ranked considerably below inadequacy of capital and machinery as factors keeping employees within collective enterprises. This relative complacencywith regard to social services is not likely to remain if the number of private farmers significantlyincreases in the future and collectives become unable to ensure free access to nonmembers. The transfer of rural social services to municipal governments should be accelerated, and their tax base, derived in part from meaningful land taxes, should be strengthened. In order for the collective sector to become more productive, the restructuring accomplished in 1992 and early 1993 will have to be deepened through changes within the farms. Financial pressures, in the form of reduced price subsidies and cessation of preferential credits, will have to be increased so that collective enterprises are induced to change their inherited product mix and input use. Output prices will have to rise to world or border levels so that farms receive clear signals about which products are profitable and which are not. Information and advice on how to restructure internally, how to evaluate alternative business plans, how to manage farm finances, and how to devise a marketing strategy will have to be made available much more intensively than in 1992.

xiii

Summary and Conclusions During the course of 1992, land reform and reorganization of socialized farms brought about major changes in the ownership of Russian agricultural land and in the rights of farm employees. According to a presidential decree of December 1991, farms were required to register by the end of 1992 as limited liability partnerships, open or closed joint stock companies, agricultural producers' cooperatives, or associations of peasant farms. An additional decree of March 1992 allowed farm enterprises to re-register as collective farms, effectively keeping their former structure. Individual members could express an intentionto start a private farm and exit with a plot of land. Land remaining in collective management was to be registered as state (or municipally) owned, collectively owned, or individually owned. By January 1, 1993, 78 percent of large-scale socializedfarms had complied with the requirement that they register, either as new organizationalforms or as collectivefarms with a new charter. Most farms transferred ownership of their land from the state to the collective, and affirmed the rights of members subsequentlyto convert a share of collectively owned land to individual ownership. The present study reports on the implementationof this process at the farm level and its implicationsfor the performance of the agricultural sector. They study draws on a survey of approximately 2600 managers of collective enterprises, farm employees, and private farmers in five provinces of Russia conducted in November and December, 1992. The agricultural sector is still predominantly

collective.

Ninety percent of

agricultural land registered to a designated user on January 1, 1993 was still in the collective sector. Approximately 10 percent was in the private sector, and not quite half of this (3.9 percent of registered area) was in private family farms of 43 hectares on average. Most of the remainder of land in the private sector was in household subsidiary holdings of employees of the collective sector or nonagricultural enterprises. The average size of these plots was 0.28 hectares on January 1, 1993. The proportions of collective enterprises in Russia in various forms at the beginning of 1993, including both farms that re-registered and those that did not, consisted of 27 percent collectivefarms, 22 percent state farms, 32 percent limited liability partnerships, and about 20 percent in a mix of other collective forms. The number of private farms, at 184 thousand, implies approximately 7 per collective enterprise. Private farms are not equally distributed geographically, and many collective enterprises are in communities where the number of private farms is large enough to affect local markets for agricultural inputs and services. This represents a change from one year ago, when there were fewer than two private farms on average in the environs of each collectiveenterprise. I

2

Land Reform and FarmRestructuringin Rus.ia

New collective enterprises of various forms look and behave much as did their predecessors, the state and collectivefarms. As viewed from the sample data, employees of the newly reorganized collective farms still have a traditional view of their role within the collective as salaried workers, not co-owners, and they continue to derive their livelihood from wage work in the collective sector supplementedby income from subsidiary household plots. Household plots have increased about one quarter through the land reform, but half of employees in the sample reported plots of 0.25 hectares or less in 1992. The land reform has not augmented household plots enough to change qualitatively their role within the collective system. Managerial behavior on reorganized farms appears to differ little from that on farms that did not reorganize. Managers in this survey are guiding their enterprises through reorganization, as mandated by decrees, but do not appear to be doing so in an atmosphere of crisis or urgency. The farms are not in financial crisis in general, although financial calculationsunadjusted for inflation can be off by a large margin. The level of reported farm debt is strikingly low. Farms owe an average of just under ten million rubles, and are owed between 4 million and 6 million rubles, largely by the state for products sold. Indebtedness can be compared to a total balance sheet value of 140 million rubles per enterprise on average. Eighty percent of managers in the survey expected to earn profits in 1992, at an average level of 16 million rubles. Only 10 percent expectedlosses, on average of 5 million rubles. Profits and losses are calculated on a cash flow basis without adjustment for inflation. The managers' survey indicates very little perception at the farm level that traditional practices are threatened, and that production must be fundamentally changed in response to new conditions. Farms are participatingin the reorganization, but 58 percent of managers expect the reorganization to have little effect on the farm's performance, or do not know what the effect will be. On many of these farms, the combination of price and credit subsidies and other special interventions throughout 1992 appears to have softened the financial impact of the change in relative prices. Collective enterprises that in 1992 made few if any changes in employment and production were able to end the year in most cases with reported profits. Private producers differ from collective enterprises most strikingly in the product mix; in particular, in the greater relative weight of the crop sector, and lesser dependence on sales of livestock products. Many Russian supporters of land reform and farm restructuring expect that restructuring of collective units will increase productivity. Moreover, growth of the private sector is expected to increase productivityeven more, since private production is considered to be inherently more efficient. There is little in the reported structure or behavior of new-style collective units to indicate that they will be more efficient than their predecessors. The internationalexperience with collectiveforms of agricultural production under a range of internalfarm structures does

Summary and Conclusions

not support the expectation that collectives can become efficient production units.* Nor do reorganized collectives resemble American corporate farms, most of which are small familyheld corporations more similar to the Russian multi-familyprivate farm. The study does not present strong evidence that the private sector now is more efficient than the collective in a technical sense. The private sector uses a more labor intensive technology in the crop sector, and formal assessmentof productivity would require careful measurement of inputs and a longer period of observation than was possible in this study. Yields of grains in the two sectors in the sample are approximatelythe same. Dairy yields are higher in the private sector, by 20 percent to 40 percent, and in one province, by a larger margin. The data indicate that the growth of private farming is the vehicle through which the agricultural sector changes product mix and adjusts out of products and technologies for which profitability is low under new relative prices. Collective enterprises in the sample derive about 40 percent of earnings from livestock, and private farmers derive only about 20 percent. Moreover, private producers report that livestock production is profitable under their technology and at their levels of output, while managers of collectives invariablyreport that livestock production is unprofitable. The study suggests that as private farmers leave collectives, they reinvest in product mixes and technologiesmore appropriatefor new relative prices. Entrants into private farming need machineryand small loans. Lack of access to machinery services and capital are reported to be the main factors keeping producers in collectives. Even if collectives become associations of private farmers, a number of households may choose to remain in collectiveproduction within the association. Others will choose to become private farmers outside the association, possibly forming new cooperative structures to assist with input purchasing and product marketing. Respondents to the survey indicated that the constraining factor for those who might choose to establish private farms is capital. For private farmers who began in 1991, savings were a significant source of start-up capital, as were bank loans. For those who began farming during the inflation of 1992, savings were an insignificant source of investment. Private farmers who established farms in 1992 report start up investmnentof approximately 800,000 rubles, or about $4000, provided by bank loan usually with a guarantee from AKKOR, The Russian Association of Peasant Farms and Cooperatives. The amounts required per farm are low in part because private farmers usually retain their former housing, even if it is owned by the collective, and because private farmers maintain fewer livestock. AKKOR co-signs the bank loan and in principle is responsible in case of default. AKKOR is not a financial institutionand its funds for this purpose come from government allocations to the organization. Because AKKOR

For a review of the relevantinternationalexperience,see K. Deininger,Cooperativesand the Breakup of Large MechanizedFarms; TheoreticalPerspectivesand Empirical Evidence, World Bank DiscussionPaper 218, The World Bank, Washington,D.C. (1993). *

4

Land Reform and Farm Restructuring in RuJsia

may not be using rigorous screening criteria, and because the loans allocated this way are essentially unsecured government loans, many questions arise as to the adequacy of this system to serve even the current flow of people into private farming. Private farmers do not appear to be unduly dependent on the collective sector for marketing or supply of inputs. Private farmers sell more of their output through state procurement organizationsthan through other channels, but the majority of producers report that they can choose marketing channels. Very little output is marketed through collectives. Private farmers report relatively few problems associated with marketing, except for dissatisfaction that prices received are too low. The prices that private farmers report receiving correspond roughly with those that farm managers report, although lack of standardization for quality makes it difficult to compare prices. Private farms indicate diverse sources of input supply. Relatively little comes from private suppliers, but the farms do not appear dependent on collective enterprises in their localities for most inputs. Most buy directly from state organizationssupplying inputs, just as do collective enterprises. Relatively little feed is purchased, reflecting the diminished importance of livestock on these farms. A number of farmers indicated that they were both suppliers and consumers of agricultural inputs. About one-fifth of farmers supply seed and seedlings, and between one-quarter and one-half supply some kind of machinery service, equipment, spare parts, and sometimes even fuel. Very few inputs were reported to be in short supply, although high prices limited the quantities that private farmers were able to buy. The relatively low degree of reported dependence on collective enterprises for inputs and marketing services suggests that private farmers are not unduly vulnerable to potential monopolisticor monopsonisticbehavior on the part of collectiveenterprises. It also suggests that collective enterprises are not actively seeking to offer services to private farmers on commercial terms. Increased provision of services to the private sector from the capital stock of the collective sector will be needed if the existing capital stock is to be used effectively as the private sector expands. Farm managers, employees, and privatefarmers report that access to social services is not currently a problem for private farmers, nor is there an expectation that it will become a problem. This relative complacency with regard to social services is not likely to remain if the number of private farmers significantly increases in the future. Farms have the option of turning facilities for social services over to municipal governments during restructuring. Yet collectiveshave so far transferred only a small share of assets in the social sphere to municipal governments. Collectives continue to provide many services even to private farmers in their areas, and managers do not indicate that the cost of social services weighs excessively on their budgets (managers report spending about 10 percent of total costs on benefits for social services). Many collectiveshave fewer than ten private farmers in their environs, compared to a collective work force of about 300, and the cost of maintaining services for this small group of people is not great. In the critical areas of education and medical care, most farms have a role in financing and providing services, but they are not

Summry and Conclusions

the sole or even main providers. Governmentsare partners in providing these services, and a tradition of nonexclusive access prevails. Farm employees report receiving a wide range of services from their employers, but do not anticipate problems regarding access to services were they to leave employment. More than one half (55 percent) of respondents indicatedthat loss of socialbenefits provided by their employers was not important in their decision as to whether or not to enter private farming. Concerns about socialbenefits ranked considerablybelow inadequacyof capital and machinery as factors keeping employees within collectiveenterprises. Private farmers report that they retained a number of social services traditionally provided by collectivefarms even after leaving the collective. Yet managers' ability to carry the cost of social services and provide relatively open access to former members can be expected to fall as the number of private farmers increases and as subsidies currently benefitingmost agricultural enterprises are reduced. Responsibilityfor schools and medical facilities is even now largely shared by collectives and local governments, and the transfer of greater administrative responsibility to governments need not pose difficulty, although financing may. In some areas, such as home maintenance, day care, and transport, reduced roles for collectives offer opportunities for growth of small private business. The need for more public and private provision of transport services in rural areas is apparent: those leaving collectives now lose more in transport services than in any other sphere. If subsidies are significantly cut in thefuture, collectiveenterpriseswill be pressured to change production and reduce employment. Any employees leaving collectives in the future will take land shares with them. Financialpressure on the collectivesector is likely therefore to accelerate the shift to private farming and the transformation of remaining colectives into associations of private farmers. If subsidies are cut, as they would be if a macroeconomic stabilizationprogram were implemented,many collectiveenterprises would be unable to remain as they appeared at the end of 1992. Farm reorganization and affirmation of individual members' rights to land took place at a time when continued subsidies, cheap credit, and the absence of effective bankruptcy legislation allowed farm enterprises to retain the labor force they had prior to restructuring. As a consequence, the distribution of entitlement to land is very broad. Workers dismissed in the future have the right to take with them a share of collective land as long as they indicate a willingness to register as private farmers. Managers have traditionallybeen unwilling to dismiss workers, and the study strongly confirms that reluctance. Yet retaining workers as subsidies are cut and credit tightened would necessarily cause wages to fall further. As earnings in the collective sector fall, more families will find it in their interest to take shares and leave. Remaining collectives will undergo deeper internal restructuring, and many are likely to become associations of peasant farmers. Although precipitous removal of subsidies without preparatory work could cause uncertainty regarding the fate of collective enterprises and disrupt production, phased removal withprior announcement need not be unduly disruptive. Private farmers who leave collectives do not, for the most part, go anywhere. They retain their housing and continue to work land that they know well. The most important step to minimize disruption will be

5

Land Reform and Farm Restructuring in Russia

6

expeditious internal division of collective lands. The next will be adequate and timely provision of capital. Monitoring of the process will be important, as will advance preparation. New mechanisms for financing social services will have to be implemented. Production on a smaller scale than in the collectives is not likely to cause productivity to fall. Even if it did, gains from greater growth andfaster adjustment out of loss making activities would compensatefor lost economies of scale, if losses were to occur. The proliferation of many relatively small farms need not raise concerns about efficiency in the longer run. The private farms are likely to be in the range of 25 to 50 hectares, and holdings are not reported to be excessively fragmented. It is unlikely that productivity would suffer through loss of economies of scale on production units of 25 to 50 hectares. Some loss of productivity, however, would be an acceptable price to pay for the accelerated adjustment out of unprofitable activities that comes with the startup of private farms. The size of the livestock herd can be expected to decline further, but will be compensated by increased productivity per animal. The increase is greatly needed to compensate for the fall in productivity that has taken place in the past two years, from an already low level of productivity prior to the fall. Given the current average earnings in Russia and poor prospects for industrial employment in the medium term, agriculture should be labor intensive. Since labor will not in the short run be as expensive as in Western Europe, there is little reason to fear that family farms of 25 to 50 hectares would be at a competitivedisadvantage in the crop sector, as long as they do not overuse purchased inputs. Over the longer run, as labor becomes more expensive and opportunities off farms increase, farm size can be expected to increase through normal market transactions, such as sale and leasing, and labor will leave agriculture. Issues to be Addressed in Support of Farm Restructuring and Land Reform One objective of this study was to identify issues that need to be addressed in order to stimulate progress with farm restructuring and land reform. Some issues and suggested measures are listed below. Macroeconomicpolicy Design and implementationof a viable stabilizationprogram that imposes adjustment throughout the economy will promote farm restructuring, as well as provide a more stable macroeconomicenvironment for agriculture. Reductionof subsidiesand resulting increased financial pressure on collective enterprises will catalyze additional farm restructuring and growth of the private sector. If the policies necessary to achievemacroeconomicstabilizationare introduced, i.e., tighter credit at higher interest rates, reduced subsidies for energy and feed, and lower subsidies for livestock production, they are likely to be accompaniedby dire predictions that agriculture is collapsing, and calls in Parliament for new subsidies to rescue the sector. In

Swumay and Conclusions

the future even more than in the past, continued subsidies will rescue inefficient collective enterprises, not the sector. The solution is not subsidies, but restructuring for greater efficiency and adjustment of the production mix in response to market price signals. Private producers, although they welcome subsidies when offered, have demonstrated a tendency not to produce the items or use the technologiesmost in need of subsidy. Moreover, a viable stabilization program would have to include a rise in grain prices to world levels. This would benefit the private sector, which is already relatively specialized in commercial grain production in many areas. Land policy Despite privatization of land in Russia, land markets could not begin to develop before October 1993, when buy and sell transactions were allowed by presidential decree for the first time since October 1917. Government now must support development of land markets through the introduction of a modern land titling and registration system and provision of information facilitating the operation of the market. Regulatory restrictions on land transactions must be kept to a minimum, in line with the spirit of the decree. Credit and finance In general, preferential credits for agriculture should be eliminated, since the availability of these credits supports inefficient farms, slows restructuring of the collective enterprises, and weakens the macroeconomy. As a corollary to cessation of preferential credit, agricultural producer prices should rise to world prices for comparable quality, and restrictions on marketing that lower producer prices should be lifted. Once the producer prices are freed to adjust to market forces, short-term credit for working capital needs could be simply offered at commercialrates with firm and enforceable collateralization of the output. Long-term investment lending, on the other hand, can be hardly expected in significant volumes under the current conditions of inflation and uncertainty, as borrowers and lenders will find it difficult to agree on psychologically acceptable interest rates. The needs of new private farmers for start-up capital will thus not be met by the banking system through ordinary long-term loans, and capital constraints will impede growth of the private sector. A possible approach would be to provide initial start-up capital as an outright government grant to qualified applicantsand make no effort to recover this capital. Such start-up grants are preferable to the existing system, under which the government allocates an amount of credit to be distributed through the banks under criteria established by a designated agency, such as AKKOR,and with the cosignature of the agency. This approach has the disadvantage that it blurs the distinction between a grant and a loan, since ultimately there is no real penalty for default. Moreover, the designation of a specific non-financial agency to distribute credit gives it an advantage over organizationscompeting in other functions, but without access to capital. Provision of long-term capital through grants would be expensive, but not necessarily more so in the long run than indiscriminatedistribution of public credit with poor prospects of repayment. The creation of an additional one million private farms of 40 hectares each

7

Land Reform and Farm Restructuring in Russia

8

would bring the area of the private sector up to 25 percent of Russian agricultural land and cost $4 billion in grants for start-up capital at $4000 per 40-hectare unit (this is the same level of real investment per farm reported for farm starts in 1992). The grants program would be limited in time and amount, and at its expiration the financial sector would presumably be in a position to assume responsibility for long-term lending. Land mortgages are the ideal vehicle for provision of start-up capital for private farmers through commercial banks. Yet today Russian farmers have little equity invested in the farm, and their land is not mortgaged. A number of conditions must obtain before a viable private mortgage system can develop. Land markets must exist and function well enough to provide a market value against which to collateralize the loan. Financial intermediaries must have the legal right to foreclose on the loan and assume ownership of land if the borrower defaults on payments. Public opinion must support enforcement of foreclosure. These conditions are not in place now. Public opinion now appears marginally to support lending through mortgages, but it is unlikely that foreclosure would be supported yet. It may be several years before land mortgages become a normal financial instrument. Infornation A major effort at public education should be undertaken to inform the agricultural work force of the options regarding further restructuring, particularly exit from financially stressed collectives. The survey indicates that even with the more modest restructuring undertaken in 1992, members are not fully informed about the process and the options available to them. Division of land within the farm is more complex than most restructuring implementedto date. Individuals and collectives need information that will include advice on how to restructure internally, how to evaluate alternativebusiness plans, how to manage farm finance, and how to devise a marketing strategy. Employees of collectives need better informationon options regarding managementof their land and asset shares and prospective private farmers need guidance in running a small farm. Information and advice will have to be made available much more intensively than in 1992. This may require creation of a kind of agricultural information service to combine advising on internal restructuring and division of land with start-up of private farms. Existing organizations may be able to cover some of the functions, but a coordinated effort on a larger scale than in the past will be needed. Sample procedures for internal division of land should be devised and included in the public education effort. Rural Social Services The transfer of communal social services to municipalitiesand the private sector will need attention, as will the tax base supporting rural services. The level of social services provided by collectives can be expected to fall as financial pressure on farms increases. Moreover, if the relative weight of private farmers and members of associations or collectives changes, the financing and delivery of social services that prevailed in late 1992 would be no longer tenable. Future guidelines for internal land division and continued restructuring should address explicitly transfer of social services to municipal budgets.

Summary and Conclusions

9

Stronger legislation requiring local governments to assume responsibility for the provision of social services may be required. Privatization of rural buses and trucks should be accelerated. In this context, the current law stipulating that proceeds of land tax be used exclusively for conservation and land improvement may have to be changed. Rural social services, such as schools, health care, transportation, and communication,qualify more fully as public goods than does much land improvement, and have a better claim to proceeds of the land tax. Assessed tax rates should be adjusted regularly with inflation. Since private farmers are users of social services, there will be little economicjustification for exemption of private farmers from payment of the land tax if tax proceeds are directed to local social budgets. *

*

*

Adoption of a stabilizationprogram and reduction of agricultural subsidies (including preferential credit) is likely to accelerate further changes in farm structure. New collectives will have to change their product mix in favor of more profitable activities. Throughout much of the country, production will continue to shift into grains and out of livestock. Many farms will experience labor redundancy with the new product mix. Efforts to deal with labor redundancy are likely to lead to further internal restructuring and accelerated exit of workers from the farm with their land and capital shares. Thus, while the 1991-1992 presidential decrees provided the impetus for the first round of restructuring, financial pressure at the farm level will provide the impetus for a second round. The second round is likely to create more private farms, associations of private farms, and smaller collectiveenterprises. It may also encourage individualsand collectives to go into farm services, establishing cooperatives or private businesses for marketing, input purchasing, or machine services. As collectives feel pressure to increase earnings, more will be motivated to sell services of their capital stock, especially custom work and machinery services for a growing private sector. Restructuring during 1992 indicated a trend toward a bi-modal farm structure, with private farms of about 50 hectares and collective enterprises of about 5000 hectares. Experience with bi-modal structures in other parts of the world is not positive. Over time the small-farm sector may be at a disadvantage with regard to access to credits and government support. Continued restructuring of collectives that produces a wider range of farm sizes, combined with improvement of incentives within the farms, will contribute to growth and sustainability in the longer run.

1

Introduction Land reform and farm restructuring in Russia are part of a larger process of agricultural reform, which, in turn, is linked to changes in macroeconomicmanagement and reforms in other sectors. The adjustment of Russian agriculture to a regime in which subsidies are cut and real interest rates raised will be painful and difficult. However, the inherentpotential of Russia's crop sector comnbinedwith the size and relative wealth of the domestic market means that agriculture can emerge a gainer if macroeconomicstabilization is implemented and the sector adjusts fully to market conditions. Russian agricultural performance and growth can improve appreciably, particularly if the macroeconomy is stabilized, the sector is opened to new technology through a relatively stable exchange rate, and producers are granted access to world markets and worldprices for output. Through land reform andfarm restructuring, responsive economic agents will be created at the farm level to guide enterprises onto a growth path. Russia's agriculture in the twentieth century has been subject to almost continual reform, both major and minor. During most of the Soviet era, reforms were part of the administrativecommand system, emphasizingthe needs of central planning, first establishing collectivized agriculture, then successivelytrying to improve its economic performance. In the second half of the 1980s, agricultural policies began increasinglyemphasizing individual motivation and involvement in production, without a collectivist framework. This timid beginning gained impetus and intensified in 1990-1991, with the dramatic political changes that ultimately led to the disintegration of the Soviet Union. Land reform and farm restructuring since 1991 have had as their objective the creation of a market-oriented agriculture based on predominately privatized (i.e., non-state-owned) land. The present study aims to elucidate this first phase of the transition in Russia's agriculture. One purpose of the study is to describe in detail changing patterns of land ownership, land use, and farm structure in Russia, as viewed at the end of 1992. A second purpose is to provide an empirical base for recommendinginterventionsthat will improve the implementation of farm restructuring and assist the emergence of economically productive farming units based on new patterns of asset ownership. The development of recommendationson interventionsrequires an understanding of the goals of agricultural reform. These goals have been variously formulated to include: higher output of all agricultural products, higher productivity, improved stewardship of natural resources, reduced losses, improved social conditions in rural areas, increased 11

Land Reform and Farm Restructuring in Russia

12

domestic food security, and higher agricultural incomes. Each of these goals has merit, but they are not necessarily mutually consistent. For example, production of some crops or livestock products might have to decline and others increase in order to achieve higher farm incomes. Moreover, the goals of the agricultural reform must be viewed in the context of overall developments in the economy. The specific goal of agricultural reform assumed in framing the current study is creation of a more efficient and responsive sector that produces a higher net value of output at a lower cost to society. This can be achieved only if economic agents at the farm level are permitted and induced to respond to new conditions. Adjustment at the farm level, already under way, will be difficult and prolonged, but it is ultimately the only way that the potential of Russia's agricultural sector can be realized. Producers who gain or lose income as a result of their own decisions will respond to changing relative profitability. These producers, whether individuals or groups, will face costs of adjustment as they change specialization and adopt new technology. Adjustment costs will also have a social dimension, as employees require retraining and advisory services to address new tasks. During the process of adjustment,delivery of social services in rural areas is changing, and developments in the social sphere in turn may affect the pace and nature of farm adjustment. Linkage Between Macroeconomics, Sectoral Policy, and Farm Restructuring Land reform and farm restructuring are componentsof a larger process of agricultural reform. Agricultural reform encompasseschanges in sectoral policy, as well as ownership of assets, structure of enterprises, and technology of production. Agricultural reform is closely linked with macroeconomicmanagement and reforms in other sectors. Successfulagriculturaladjustmentrequires continuedsimultaneousmomentumin three areas: * * *

Macroeconomic stabilization to create an environment supportive of sustained investment and greater integration with world markets. Enterprise reform to create accountable and responsive economic agents. Sectoral policy to provide appropriate signals to economic agents and absorb costs of adjustment to the new signals.

In agriculture, as in other sectors of the Russian economy, stabilizationand enterprise reform are interdependent. In Russia, the implementationof several key components of the stabilization program has begun after more than a year's discussion. The partial price liberalization implementedin January 1992 and additional steps taken in March 1992 were crucial for the agricultural sector. Had these policies not been implemented, aggregate production would very probably have been worse in 1992 than it was, and the breakdown in agricultural marketing evident in fall of 1991 would have escalated.

Chapter 1. Introduction

Despite modest but importantaccomplishmentsin 1992, essential components of the stabilizationprogram, including credit policy and fiscal relations, are not yet agreed upon. Price liberalization is still only partial because many controls remain; key input and output prices are still distorted relative to world prices; credit is still heavily subsidized. The very large direct subsidies and expansion of credit in 1992 and early 1993, some of which was directed toward agriculture, are neither sustainable nor conducive to recovery of the sector. As subsidies and credit are tightened, the agricultural sector will face a very large adjustment in response to implementationof a future stabilizationprogram. The purpose of stabilization is to achieve efficiency gains throughout the economy, and for this adjustmnentat the enterprise level is needed. Stabilization will require further changes in input prices, including credit, and in output prices. These changes will, in many cases, be advantageous for the crop subsector and will in general require additional restructuring of the livestock subsector. To take advantageof new opportunities and avoid further loss, farms will have to make additional changes in specialization,employment, and internal structure. Which activities to expand, which to contract, and what technology to use will be decided at the enterprise level by the agents managing the enterprises. The enterprise is thus the unit through which the sector responds to the stabilizationprogram. Enterprises will need access to capital to cover costs of changing specialization and to invest in more productive technology. Given the general economic crisis and fiscal constraints, agriculture will have to receive in the future lower net real (inflation adjusted) transfers from the budget. Large federally funded programs of investmentin new productive technology and social infrastructure for the village are not likely in the short run. In general, assistance will be in the form of credit, preferably with a positive real interest rate and a strict requirement that the credit be repaid at a future date. Investment credit under these terms will be more expensive than short term credit, which is offered at present at negative real interest rates, and producers will of necessity need longer periods of repayment. In order to undertake such investments, producers will need secure tenure in use of their productive assets, which inevitably implies clear ownership of a sizeable portion of the assets. Many Russian supporters of land reform and farm restructuring expect that restructured collective enterprises will become more efficient and responsive to a flexible economic environment. Others expect little change in the performance of collective enterprises, even after reorganization, and anticipate growth of private sector activity to be the source of recovery of Russian agriculture. Russian farms that will emerge through restructuring will not necessarily resemble Western family farms or corporate farms: they may take a variety of forms suited to the characteristics of the Russian transitional economy. The enterprise form most able to survive and contribute to recovery will be the one most adaptable to the changing environment created through implementation of a stabilization program.

13

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Land Reform and Farm Restructuring in Russiai

Among the parameters of the new environment are: * * * * * *

Reduced demand for food at higher prices and lower real incomes. Shifts in the composition of food purchases toward foods with low income elasticities (bread, potatoes, fluid milk) and away from those with high income elasticities(meat and poultry). Higher relative prices of agricultural inputs of industrial origin, such as machinery, fertilizers, and chemicals. Higher real interest rates, and consequently higher costs for capital intensive production processes, such as the livestock industry. Higher transportationcosts, which radically change regional comparative advantages in food production and require substantial shifts in land use. Lower relative price of labor.

The agricultural sector can respond in one of two ways to a macroeconomic stabilization program. The sector can attempt to reject the new environment by seeking special treatment, exemptions, protection, and subsidies. This response is ultimately unsustainable and impedes recovery. Alternatively, the sector can seek technical and financial assistance in adjusting to the new environment. One response undermines stabilizationand agricultural recovery, and the other strengthens it. Although the agricultural adjustmentin response to macroeconomicstabilizationis difficult in the short run, agriculture will be one of the earliest beneficiaries of policies that create a more stable ruble and an open trading regime. The costs that inflation imposes on agriculture are many. Because of time lags inherent in agricultural production, agriculture suffers significant losses from high inflation, and losses are increased when overdue receivables are imperfectly indexed. Although agricultural producers receive a short term gain from erosion of the real value of their outstanding debt, they are poorly served by the weakening of the financial system through which this occurs. New foreign technology for production and processing cannot be profitably introduced if domestic prices are kept below world levels at the prevailing exchange rate. Price controls and discriminatory trade policies that reduce agricultural prices are not likely to be dismantled in an environment of high inflation. Controls on input prices, special subsidies, and credit at negative real interest rates do not fully compensatefor the damage to the sector done by output price controls and trade restrictions. Moreover, the former interventions are spread among all producers, and not targeted to those with most potential for efficient growth. Because agriculture can respond strongly and positively to macroeconomic stabilization, producers should actively seek and support a program of stabilization that spreads the costs among all sectors and enforces implementation. Stabilization cannot be achieved in the agricultural sector alone. Agriculture, however, can make a significant contribution to general stabilization in a framework that imposes adjustment on all sectors simultaneously. It is through land reform, farm restructuring, and subsequentdeeper changes in structure that agriculture's contribution to stabilizationand recovery will be implemented.

2 The Legal Framework for Land Reform and Farm Restructuring The legal framework for land reform and farm restructuringshould define rights of owners of land and other farm assets, mechanisms for transfer of ownership, both during restructuring and more generally, organizational formns for economic agents in the agricultural sector, and rights and obligations of these agents. The most basic economic rights are the rights to own property, to transfer it either permanently or temporarily, and the right to engage in production and commerce without undue interference from the government or any private party. These basic rights are sofundamental that they are usually expressed in a constitution. Laws, in contrast, clarify implementationof constitutionalrights and specifypenaltiesfor noncomnpliance.More temporarymeasures of regulatorypolicy may be issued as orders or decrees of the executive branch, or as decrees or laws of the legislative branch, depending on the locus of jurisdiction. The Russian legalframework for agriculture is deeplyflawed. The old constitutionis not an accepted base for new laws, and in this environment most legislative activity has stalled pending a decision on the new constitution. Competing and conflicting decrees of a temporary nature govern a veryfundamental transfer of ownership, i.e., that of land. The most pressing need therefore is adoptionof a new constitution, after whichfurther legislative action will be needed to clarify the following issues: 1) the meaning of collective ownership of land, the rights of individualparticipants in collective ownership, and the nature of firms based on collective ownership; 2) division of responsibilitieson land issues amongfederal, provincial (republic), district, and local governments; and 3) mechanisms of redress for individuals whose land and asset rights have been infringed upon. Restrictions on sale and leasing of agricultural land were removed by presidential decree only in October 1993, and in the atmosphere of general legislative uncertainty land markets have not yet begun functioning. To have a significantimpact, the October land decree will have to be grounded in proper legislation by parliament and in new constitution. The Russian parliamentary structure inherited from the Soviet Union, consisting of the Congress of People's Deputies, the federal-level Supreme Soviet, and the republic-level Supreme Soviets, was dissolved by a series of presidential decrees in September-October 1993, and the "rule of the soviets" came to an end exactly 76 years after the revolution of October 1917. New federal and local parliamentary structures will emerge in the general election at the end of 1993, leading to possible changes in the legislative process and in the 15

Land Reform and Farm Restructuring in Russia

16

division of responsibilities between different levels of government. The description in this chapter accordingly summarizes the situation as it was prior to the dramatic confrontation between the Russian president and the parliament in the autumn of 1993.

Land Reform Approximatelyeighty legal documents enacted since 1990 on the federal level form the legal basis for land relations in Russia (for details see Annex Table 2.1 at the end of the chapter). The legal framework of land reform addresses three major issues: (a) ownership; (b) distribution; and (c) payment. Ambiguities and contradictions regarding each of these three components are present and reflect the transitional status of land and legal issues more generally. The legal framework consists of the constitution, laws, decrees, resolutions, recommendations, and other documents issued at governmentallevels from the federal to the local. The precedence of various forms of legislation, from highest to lowest, is as follows: *

The Constitution of the Russian Federation. This document is frequently amended and is more fluid than many constitutions. A new constitution is currently under

*

Resolutions of the Congress of Peoples' Deputies of the Russian Federation. These can amend and clarify the constitution, and may require passage of additional laws or decrees for implementation. For example, in December 1990, the Congress of Peoples' Deputies introduced a change in the constitution limiting the rights of owners. To conform with this constitutional change, the November 1990 law sanctioning private ownership and broad rights of owners had to be amended to restrict rights of sale. Laws of the Russian Federation. These federal laws are adopted by the Supreme Soviet and must conform with the constitution and the decisions of the Congress of Peoples' Deputies. In principle, these laws are in effect throughout the Russian Federation. In practice, however, a number of constituentrepublics recognizefederal laws only if they are approved by the republic level Supreme Soviet. Presidential Decrees (ukazy). In general, presidential decrees must conform with existing law. During the period between October 1991 and November 1992, the president was granted authority to issue decrees pertaining to economic reform that did not necessarily conform to existing law. These decrees were to be approved by the Supreme Soviet if in session or by the Presidium of the Supreme Soviet. Resolutions (postanovleniia)of the Governmentof the Russian Federation. These are passed to implement presidential decrees or decisions of the Supreme Soviet. Government resolutions are enforced throughout the Russian federation. Methodological recommendations, generally issued or confirmed by the relevant ministry, provide guidance for implementing legislation, but are not themselves obligatory. Local authorities may issue alternative recommendations.

consideration.

*

*

* *

Chapter 2. Legal Framework

Division of Labor Between Federal and Local Organs in Land Legislation The basic laws that define the division of labor between levels of government and branches of government with regard to land issues are the Land Code of the Russian Federation, the Law on Local Governmentof the Russian Federation, the Law on Provincial and District Councils of Peoples' Deputies, and the draft Principles of Land Legislation of the Russian Federation. The Land Code of the Russian Federation was in part superseded by the Federal Treaty, after which land issues came under the dual jurisdiction of federal and republic governments. The new draft Principles of Land Legislation of the Russian Federation, currently under discussion, is intended in part to clarify jurisdictions of the Russian Federation and constituent republics on matters of land and natural resources and to provide a basis for implementationat the province level. Clarificationof thejurisdictions of different levels of government will be definitive only after passage of the new constitution. The division of responsibility between branches of government (representative and executive) was gradually being clarified before the event of the fall of 1993, and this process of clarification will in all probability continue after the general election. The Supreme Soviet of the Russian Federation, as the representative branch, was charged with writing and amending the land law of the Russian Federation, determining the borders of nature preserves, nationalparks, museums, and territories set aside for small and endangered ethnic peoples, and establishing uniform principles for payment of land. This functions will probably be retained by the new federal parliament. The executive branch of the federal government consists of the cabinet, ministries, and various committees. This branch is responsible for issuing implementing decrees conforming with the basic land legislation, designing and enforcing measures to assure rational use of land, conservation, surveying and cadastral work, and managing land remaining in federal ownership. At the local level, the functions of the representative branch are generally carried out by the local Councils of Peoples' Deputies and those of the executive branch by the local Land Committees and mayoral offices. The Land Code establishesthe jurisdiction of Councils of Peoples' Deputies at the region, province, and autonomous-arealevels, as well as those of district, rural, and city councils. The Law on Local Self-Governmentand the Law on Provincial and District Councils of Peoples' Deputies outlines the responsibilities of the local Councils of Peoples' Deputies and their administrationswith regard to land issues. Authorities at the constituentrepublic and provincial level are empowered to set upper limits on the size of private farms and household plots, although the size of holding is most often determined at the district level. Village Councilsof Peoples' Deputies are charged with management of land in municipal ownership, including distribution and sale of this land. These authorities also draft proposals regarding changes in boundaries of villages and redistribution of land among villages. Deputies at the village level enforce land use and conservation regulations, and can halt construction or operation of projects that violate regulations. Local deputies can grant preferential land tax rates.

17

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Land Reforn and Farm Restructuring in Russia

Village executive authorities have powers to appropriate or purchase land and to alienate municipally owned land through granting of user rights, transfer of ownership, granting of lifetime inheritablepossession, and lease. These authorities issue titles and deeds, register tenure and use rights, implement cadastral work, collect land taxes and other fees, monitor compliance with land regulations, defend rights of owners and users, and investigate land disputes. District level councils can redistribute land within their jurisdictions to satisfy citizens' claims for garden plots. In addition, they determine district level norms per person for distribution of land shares during farm reorganization. District level authorities can overrule decisions of village or city organs. Land on collective or state farms in excess of district-levelper-capita norms is transferred to the redistribution fund managed by municipal authorities. Many of these rights of local authorities, both representative and executive, derive from the process of redistribution of land and assets during the transitional period and are made necessary by the constraints on normal functioning of markets. Over time, many of the regulatory functions can be expected to attenuate, leaving the need to assess and collect land taxes, perform cadastral work, register legal transfers of land, and enforce environmental regulations. In the meantime, lack of clarity in jurisdiction at the local level, combined with excessive regulation, inhibits transferability of land.

Land Ownership Between 1917 and 1990, the state was the sole legal owner of land in Russia. According to the Soviet Decree on Land of 1917, private ownership of land was abolished and the state allocated access through use rights. The Law on Land Reform of November 23, 1990 legalized land ownership by individualcitizens, in addition to state ownership. The right of entities other than the state to own land used in agriculture is confirmed by the Constitution of the RSFSR, as amended. Citizens' rights to private ownership of land are also protected by the Law on Ownership of the RSFSR and the Land Code of the RSFSR. Although these laws are formally in effect throughout the Russian Federation, ten republics (Tatariia, Bashkiriia, Dagestan, Komi, Mariel, Kabardino-Balkariia, North Osetiia, Tuva, Yakutia-Sakha, and Koriakiia) do not recognize private ownership of land within their territories. Russian law recognizes several forms of ownership: * * *

state and municipalownership, in which a level of government is thejuridical owner; individual ownership; collective undivided ownership (obshchaia sovmestnaia sobstvennost'), in which a legally constituted collective is the owner and the land is used by an enterprise operated by the collective. Under this form of ownership, individual shares of members of the collective need not be defined;

Chapter 2. Legal Framework

0

collective shared ownership (obshchaia dolevaia sobstvennost). Here, as above, a legally constituted collective is the owner and the land is used by the enterprise operated by the collective, but land shares are distributed to individual members. Land area and/or specific tracts may be identified with individual members of the collective, but need not be.

The differences between collective undivided and collective shared ownership are ambiguous in law, and little distinction between the two is made in practice. In addition to ownership (sobstvennost), Russian law recognizes possession (vladenie), under which the land holder has a lifetime use right and can pass the right to heirs. This form of tenure is currently being converted to ownership and is not expected to be important in the future. Land users may also have a use right (pol'zovanie), which is less formal and of shorter duration than possession. State ownership has been in place for 75 years with little confusion over its definition. At present, however, it is often unclear which level of government has jurisdiction. According to the Russian Constitution, the owner of state land can be the Russian Federation, constituent republics, autonomous areas, provinces, or other territorial units that have equivalent status (such as the cities of Moscow and St. Petersburg). According to the Federal Treaty, whether land is owned by the Russian Federation or an autonomousrepublic will be determined in negotiationswith the representatives of the territory where the land is located. Municipal ownership is a form of state ownership, but is considered to be a separate category other than federal. At present, there is little clarity regarding which land will be retained in state ownership and which in municipal ownership, and which governmental organs will act as legal guardians of publicly owned land at both levels. Municipal land can be owned by any organ of government below the province level. The overlap in jurisdictions of various levels of local government produces a considerable potential for confusion and dispute regarding who actually owns municipal and state land. Criteria for resolving these issues have not yet been decided, and they will be determined by the provisions of the new constitution. Jurisdictional questions affect the ability of various levels of government to distribute land to private owners. For example, individuals who want land for private farming or garden plots generally apply to local authorities for a land allocation from the distribution fund. Local authorities can only allocate municipallyowned land, unless they are authorized to act on behalf of higher authorities and distribute land owned by a higher organ of state. Individual ownership is the dominant form for the new private farms, although some land in private farms is held in other forms of tenure (mainly possession and lease). Most household subsidiary plots of employees on public farms are in the process of registration under individual ownership, although some are still held under use rights. The status of land registered under various forms of collectives appears to be highly ambiguous. The Land Code allows land to be owned by collective farms, joint stock

19

20

Land Reform and Farm Restructuring in Russia

companies formed on the basis of collective and state farms, and other forms of cooperative enterprises. The law is unclear, however, as to who is the actual owner of the land held in collective ownership, whether the individual members of the collective enterprises or the enterprises as legal persons. In part, the confusion arises from ambiguitywith regard to the rights and responsibilitiesof individualswithin collectives, the collective, and the enterprise. The language of the law appears to define the collectiveas the owner of collectiveland, but many questions arise as this definition of ownership is used in practice. Some of these ambiguities are clarified in the draft Law of Cooperatives recently proposed by the Russian Ministry of Agriculture. Current land legislation significantly circumscribes the rights of owners in two important areas: land holding and land use. The law specifies that ownership of farm land carries the obligation to farm the land and to observe conservation practices. Agricultural land that is not used for its intended purpose (i.e., agricultural production) or is used irresponsibly can be confiscated with no compensationto the owner, regardless of whether or not the owner has received title to this land. The owner is granted a three-monthwarning and has right to appeal. The law establishes upper limits on the size of holdings. These limits vary by district, according to the land-to-labor ratios in agriculture within the district. These restrictions are intended to create owner-operators of farm land. In further pursuit of this objective and with the aim of preventing absentee ownership, the original land reform legislationin Russia also imposedsevere restrictions on leasing of land and prohibited sales of agricultural land during a 10-yearmoratorium (except for the very small proportion of land- about 3 percent of the total - held in household plots and vegetable gardens). These restrictions initially circumscribingthe rights of owners in the important area of land transfer were abolished by presidential decree in October 1993, exactly 76 years after the 1917 Decree of Land. Although the substance of this decree must be further strengthened by proper legislation and the new constitution, it has removed a major obstacle to development and functioning of land markets in Russia. The October 1993 decree also specifically allows use of land as collateral, thus reaffirming the right to mortgage land which is protected by the Land Code and by the Law on Mortgage of May 1992. Before accepting land mortgage as a viable collateral for investment credit, however, banks will have to wait for market valuation of land to emerge and for foreclosure to become acceptable to courts and, no less important, public opinion. Without land markets and effectiveforeclosure mechanisms, banks will not be able to recover bad loans and generate the liquidity required to continue functioning as a lender. Due to these limiting factors, the volume of credit that can be offered by a bank under commercial terms will be reduced compared to the volume under fully functioning land markets.

Chapter 2. Legal Framework

Distribution of Land Most agricultural land in Russia is currently allocated to existing farms. Assignment of land to new farms necessarily requires redistribution of existing land resources among users. The process of redistributing land among users and owners is thus one of the basic components of the land reform. Article 1 of the Law on Land Reform states, "The objective of land reform is to allow different forms of land use to operate under equal protection of the law, to promote a diverse economy, and rational use and conservation of land on the territory of the RSFSR. In the course of reform, land allocation will be made to citizens, enterprises, organizations, institutions, associations (ob"edinienie), and companies and their rights to land will be granted as determined by the laws of the RSFSR." The first step in land distribution is determininghow much of the original farm's land is eligible for redistribution. The farm can allocate no more than the average allotment per person, determined at the district level, times the number of participants in the distribution. The district norm is determined according to land-to-labor ratios within the district, and norms of distribution can vary at the local level within districts. The land allotment based on the district norm is distributed free, without any payment. Land in excess of the total distributable to members remains in state ownership and may be retained under use rights by the farm enterprise. If the undistributed land is wasteland or is not used by the farm, it passes to the local reserve or redistribution fund. Contrary to this provision of the Land Code, the presidential decree of December 27, 1991, requires transfer of all undistributed land to the redistribution fund and thus raises questions as to whether farm enterprises can retain use of land in excess of district norms per person. Instructions issued by the Vice President of the Russian Federation on October 30, 1992, required local authorities to return land from the redistribution fund to original farms. The disposition of land in the redistribution fund is thus ambiguous. The Land Code stipulates that land is to be distributed to employeesof state farms and mnembersof collective farms. This language implies that pensioners would be included in distribution of kolkhoz land, but excluded from distribution of sovkhoz land. The presidential decree of December 29, 1991, setting reorganization procedures for collective and state farms, broadened the group of eligible beneficiaries: the decree states that pensioners are to be included in the distribution on both state and collective farms and that employees of social services may also be included at the discretion of the farm's collective. By defining a broad group of eligible participants in land distribution, the December 1991 presidential decree reduces the share of each individual. In order to allow small land shares to be consolidatedinto larger, commerciallyviable units, the decree permits recipients of land shares to sell them to other recipientswithin an enterprise at freely negotiated prices. Rights to sell land shares were not confirmed in subsequent legislation, however. The October 1993 presidential decree removed the last restriction on sale of physical land plots,

21

22

Land Reform and Farm Restructuring in Russia

but until it is confirmed in legislation and the new constitution, the legal status of any transfers under presidential decree would be ambiguous. The primary motivationof the buyer in an intra-farmtransaction would be to remove the land from collective management and exit the collective to start a private farm. The seller, on the other hand, would choose to remain a member of the collective enterprise and continue to draw wages, thus causing the land-to-labor ratio in the collective enterprise to deteriorate. The private gain of the member who sold the land would bring a collective loss to all remaining members of the collective. This problem is one example of ambiguities and adverse incentives associated with collective ownership as it currently exists.

Taxes and Payment for Land After nationalization of land in 1917, user rights were allocated without payment. The February 1990 Soviet Land Law introduced the principle of payment for land use, which has been retained in the October 1991 Russian Law on Payment for Land and in various directives for setting land taxes and normative prices for land. According to law, land owners, holders of land in possession (vladenie), and land users are required to pay an annual land tax. Tax rates do not vary according to form of tenure, but do reflect different quality and location of land. Revenues from land tax are required by law to be used primarily for land conservation and improvement. Nonpayment of tax for two years entitles the government to confiscate the land. When a collective enterprise holds part of its land in use right granted by the state and the remainder of land is owned by members, the enterprise is, in theory, responsiblefor taxes on the state owned land and the collective is responsible for tax on the remainder. In practice, for tax purposes, collective enterprises perceive little difference between different categories of ownership. Private peasant farms are exempt from land tax for the first five years of operation. Councils of People's Deputies at the province and local levels have authority to grant exemptions from land tax for categories of people or for particular individuals. Rental rates on leased land are restricted: they are not allowed by law to exceed the rate of land tax. Leasing is thus treated simply as a mechanism for recovering tax obligations and not as a commercial activity. People ineligible to receive free land through internal distribution may apply to purchase land from municipal authorities out of the redistribution fund. According to governmental directives, this land is to be sold for 50 times its assessed tax rate.

Chapter 2. Legal Framework

The Legal Framework for Farm Restructuring The Law on Peasant Farms (November 1990) established the right of members and employees of collective and state farms to exit with a share of land and assets in order to begin a private farm. This right is the fundamentalmotive force behind farm reorganization, since it gives members a meaningful choice between different kinds of farm organizations. A number of changes in procedures for defining, calculating, and distributing shares have been introduced since 1990, but the basic right of members to leave with land and asset shares has been affirmed. Non-land assets of state farms, unlike those of collective farms, were traditionally state property. Assets of state farms were privatized under a December 1990 constitutional addendum, which declared the state farm to be the juridical owner of its assets and production. This placed state and collective farms in approximately the same legal position at the start of reorganization and allowed decrees and directives to apply to both. The nature of the enterprise formed through transfer of state owned assets to the state farm was not clarified, however, and the change in juridical status did not bring a change in organization. The presidential decree "On Immediate Measures for Implementation of Land Reform" (December 27, 1991) and the associated clarifying documents required state and collective farms to declare their status by the end of 1992 according to the Law on Enterprises and Entrepreneurship, which did not include the traditional collective and state farms as valid options. The new form of organization, decided by a vote at a general meeting of farm members, had to be registered with local authorities. The December 29, 1991, government resolution "On Procedures for ReorganizingState and Collective Farms," and recommendations issued by the Russian Ministry of Agriculture on January 14, 1992, offer details on procedures for reorganization. A supplementarygovernmental resolution of March 6, 1992, reinstated the option of registering as a state or collectivefarm, provided the land tenure within the farm conformed to prevailing law and members had free right to leave the farm with asset and land shares to start private farms. Farm restructuring was linked to privatization of food processing through a government resolution of September 4, 1992, assigning a portion of shares in processing plants to agricultural producers. Options for registration can be classified as collective and individual forms of organization. CollectiveForms of Organization Options for registration in this category include:

* *

Collectivefarm, in conformance with a revised charter. State farm, with ownership of non-land assets transferred from the state to the enterprise. The structure and ownership of these farms will require additional attention, perhaps through the program of privatization of state enterprises. Some state farms will be exempt from privatization, such as experimental farms and horse breeding operations.

23

24

Land Reform and Farm Restructuring in Russia

* *

* *

*

Limited liabilitypartnership (tovarishchestvo). Land and asset shares of the founders are pooled, and some or all of the founders work on the farm. Closedjoint stock company. This form is similar to the limited liability partnership, except that stock certificates are issued to owners according to the value of their the land and asset shares. Although the company is closed, stock can be sold outside the enterprise upon approval of the members' council. These sales permit carefully managed turnover in the composition of members without creating a tradeable financial instrument. Open joint stock company. Like the above, except that shares are tradeable on the open market. Agricultural producers' cooperative. Although farms can legally register in this form, the organization is not yet formally defined, since the law on agricultural cooperatives has not yet been adopted. These enterprises are established on the basis of land and assets shares of members of a former collective farm, and in general members work on the farm. Collectiveenterprise. These are formed most often in reorganization of state farms and are indistinguishablefrom limited liability partnerships. Land shares are divided according to the general rules, but only part of the nonland assets are divided into shares. A large portion is retained in the indivisible fund.

The differences between and among these collective forms of organization are not always clear to participants in the process. Since the registration mandated in 1992 has created a number of similar organizations with different names and unclear procedures for operation, it is likely that further legal refinement of enterprise types will be necessary. As the legal definition of forms of organization is clarified, many farms may choose to re-register. Individual Farns A real alternative to collective forms of organization is provided by peasant farms. These are farms based on privately owned or leased land and established by individualswho left the collective or state farms with their land and asset shares. Most often, one family owns and operates the farm, but multiple family farms are legal and, in some areas, common. Limits on the size of peasant farms are set at the level of constituentrepublics or provinces and vary from 30 hectares in Moscow Province, to 80 hectares in Rostov Province, and 350 hectares in Saratov Province. The Russian average in January 1993 was 42 hectares per peasant farm. Once a farm is registered as a peasant farm, it cannot be partitioned or divided upon the exit of a member. Peasant farms are offered a number of benefits, including initial start-up grants, release from land tax for five years, reduced social security tax, and additional credit subsidies above those offered state and collective farms. Peasant farms may form a local association of peasant farms. This is a kind of production or service cooperative, the members of which in theory should all be registered private farmers. In practice, however, associations of peasant farms often do not have independently registered members and they are often chosen simply as another collective form of organization in the process of re-registration of former farm enterprises. Land in

Chapter 2. Legal Framework

associations of peasant farms should in general be divided among the members, but does not always appear to be so.

Bankruptcy Legislation One of the essential legal adjuncts of the whole process of farm restructuring is bankruptcy legislation intended to regulate dissolution and reorganization of insolvent farm enterprises. According to the November 1992 Law on Bankruptcy, which went into effect on March 1, 1993, bankruptcy procedures are initiatedfor farms that cannot meet obligations to their creditors within three months after the obligation is due. Employees who have not received wages are included among creditors and can initiate bankruptcy procedures. A commission is appointed to seek a buyer for the enterprise. If no buyer is found, the assets of the enterprise are sold at auction to pay off debts, and the remaining assets and all land are divided among former employees. Throughout 1992, the Law of Bankruptcy was not yet in effect and no bankruptcy proceedings have been initiated for any farm enterprises. Insolvent enterprises are re-registering along with others and the question of individualresponsibility of the members for past debt is not resolved.

25

Land Reform and Farm Restructuring in Russia

26

ANNEXTABLE 2.1: Russian Land and Farm Legislation Abbreviations.

CPD FL SS PD G PSS CM

Congress of People's Deputies Federal Law Resolution of the Supreme Soviet Presidential Decree Government Resolution Resolution of the Presidium of the Supreme Soviet Resolution of the Council of Ministers

Source: Agrarian Institute

LEGISLATION

REFORM-RELATED

GENERAL

Constitution of Russian Federation Program for Rejuvenation of Russian Village and Development of XAgro-IndustrialComplex

12/311990

CPD

Social Development of the Village

12/2111990

FL

Property in RSFSR

12/24/1990

FL

Enterprises

and Entrepreneurship

12/25/1990

FL

The Course of Agrarian Reform LinRussia

3121/1992

SS

12/29/1991

PD

3/6/1992

G

Measures of Economic Stabilization of Agro-Industrial Complex

4i4/1992

PD

Additional Measures of Economic Stabilization of Agro-Industrial Productin in 1993

4/12/1993

CM

11/2311990

FL

Measures for Implementation of the Law on Priority Development of Agro-4ndustial Complex Course and Development

i

of Agrarian Reform

LAND LEGISLATION

Land Reform

FL

Land Code Mortgage of Land

5/29/1992

FL

FL

Land Market Regulation Right of Citizens of Russian Federation to Receive in Private Ownership and to Sell: Land Plots for Subsidiary Household and:Cottage Farming, Gardening, and Individual Housitng

12/23/1992

FL

4/28/1993

FL

:

Changes and Additions to Some Legislation Connected with the Law of Paymentrfor Land

..3/15/1991

PSS+CM

5/15/1991

PSS+CM

Immediate Measures of Implementation of Land&Reform

12127/1991

PD

Use of Land Occupied by Tribal, Communal, and Family Units of NortheemMinorities zin

:12/27/1991

PSS

Implementation of the Law of the Russian Federation on Right of Citizens of Russian Federation to Receive in Private Ownership and to Sell Land Plots for Subsidiary Household and Cottage Farming, Gardening, and individual Housing

12/23/1992

SS

Procedure for Establishing the Standard Plot for Free Transfer of Land to Private Ownership of Citizens

3/2/1992

PD

Sale of Land Plots to Citizens: and Legal Bodies in the Process of Privatization of State and Municipal enterprises

3/25/1992

PD

Additional Measures of Acceleration of Land Reform in Russia Additional Measures of Acceleration of Land:Reformt:

Russia

_

_ _

_

_

_

_

_

_

_ _

_

_

_

_

_

_ _

_

_

_

_

_

_

_

_ _

_

_

_

_

_

_ _

_

_

_

_

_

_

_ _

_

_

_

_

_

_

_ _

_

_

_

_

_

_

-

-

-

-

-

-

-

-

-

_

_ _

_

_

Chapter 2. Legal Framework

Approval of Procedure for Sale of Land Plots in the Process of Privatization of State and Municipal Enterprises, Extension and Additional Construction of These Enterprises, and Also Allotted to Citizens and Their Associations for Entrepreneurial Activity

27

7/14/1992

PD

Land Monitoring

71/15/1992

G

Additional Measures of Allocation of Land Plots to Citizens

4/23/1992

PD

Sale for Privatization Vouchers of Housing, Land Plots, and Municipal Property

10/14/1993

PD

Procedure for Determining the Size of Land Plots Allotted to Citizens for Individual Housing Construction and Location of a Privately Owned Home

2/161/1990

CM

Measures of Supporting State Universities

12/9/1992

PD

Republican Program of Land Reform on the Territory of the Russian Federation

1/16/1991

CM

Allotment to Citizens of Land Plots for Gardening, Vegetable Growing, and Livestock Production

2/22/1991

CM

Approval of State Title Documents for Private Land Ownership, Lifetime Inheritable Possession, and Permanent Use

9/17/1991

CM

Approval of Forms Certifying Rights of Land Ownership, Lease Agreement for Agricultural Land, and Agreement fbr Temporary Use of Agricultural Land

3/19/1992

G

Approval of Procedure for Conservation of Agricultural Land Polluted by Toxic Industrial Effluents and Radioactive Substances

8/5/1991

G

Approval of Procedure for Government Inspection of Use and Protection of Land

8/17/1992

G

Improvement of the State Land Cadastre in Russia

8125/1992

G

Approval of Procedure for Compensation of Land Owners, Land Possessors, Land Users, Lessors and Losses of Agricultural Production

1/28/1993

CM

State Program of Land Monitoring 1993-1995

2/5/1993

CM

Regulation of Land Relations and Development of Agrarian Reform in Russia

10/28/1993

PD

Law of Private Farms

11/22/1990

FL

Development of Private Farms and Agricultural Cooperatives

5/10/1990

CM

Supporting the Development of Private Farms, Their Associations, Unions, and Cooperatives

1/4/1991

CM

Subsidiary Farms of Enterprises, Organizations, and Institutions in Industry, Construction, and Other Sectors

9/30/1991

PSS

Procedure for Reorganization of Kolkhozes and Sovkhozes

12129/1991

G

Approval of State Support of Private Farmers

2/5/1993

CM

Main Criteria of Government Selective Structural Policy in 1993

4/12/1993

CM

Procedure of Privatization and Reorganization of Enterprises in the Agro-Industrial

9/4/1992

G

Sample Resolution on Permanent People's Deputies Land Committee of Local Soviets

4/27/1991

SS

Reorganization of Central Organs of Government in Russian Federation

11/28/1991

PD

Organizational Measures of Implementation of Land and Agro-Industrial Reform

11/27/1992

PD

Issues of State Committee of Land Reform

10/25/1990

CM

Reform of the Management System of the Agro-Industrial Complex

12/28/1991

CM

Structure of Central Organs of Government of Federal Executive Branch

9/30/1992

PD

STATUS OF AGRICULTURAL PRODUCERS AND THEIR ASSOCIATIONS

Complex

STATUS OF STATE CONTROL ORGANS

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3 Aggregate National Data and Characteristics of Sample Regions In Russia in aggregate at the beginning of 1993, the farm structure of collective enterprises included 27 percent collective farms, 22 percent state farms, 32 percent limited liability partnerships, and 20 percent a mix of other collective enterprises. The 184,000 private farmers (as of January 1, 1993) comprise approximately sevenper collective enterprise, an increasefrom a year ago when there were fewer than two private farmers per collective enterprise. The current study draws on a sample of 260 managers of collective enterprises, 1487 active employees of collective enterprises, and 984 households of private farmers in Orel, Rostov, Saratov, Novosibirsk, and Pskovprovinces. The sample representsmajor climatic zones of Russia, but was not constructed as a random sample of enterprises within the provinces. Rather it was constructed to include major kinds of restructuredfarms, and to examine internal restructuring that characterizes each type. The demographic profile of private farmer households is on the whole similar to that of employees in collectivefarm enterprises. Most private farmers continue to live in the central village, together with neighbors who are farm-enterprise employees. The only significantdifference is that private farmers appear to be better educated than farm employees. Reorganization in Aggregate Aggregate data collected by the State Committee on Statistics and the State Lanad Committee present an overview of the process of land reform and farm restructuring in Russia at the end of 1992. By January 1, 1993, 77 percent of all public farms badl registered. The rate was higher for collective farms (82 percent) and lower for state farmis (73 percent). In many provinces, the registration rate was over 90 percent of all public farms. In the process of registeration, land ownership was transferred from the state to the farms, thus laying the foundation for further internal restructuring through distribution of land and other assets to members and employees. Aggregate data indicate a very strong tendency of farm enterprises to register as whole units in collectives, rather than break up into smaller units and individualfarms The behavioral significance of the registration will therefore derive from further internal restructuring.

29

Land Refonn and Farm Restructuring in Russia

30

TABLE 3.1: Structure of Collective Agricultural Enterprises, Russian Federation, January 1, 1993

|

Number Not reorganized (not registered) of which: Kolkhoz

Percent

5753

21.6

2364

8.9

3389

12.7

20937

78.4

Kolkhoz

4763

17.8

Sovkhoz

2478

9.3

Open joint stock societies Limited liability partnership Agricultural cooperatives

328 8551 1662

1.2 32.0 6.2

Subsidiary enterprises of nonagricultural organizations

347

1.3

Associations of peasant farmers

748

2.8

2062

7.A

Sovkhoz tReorganized and registered of which:

Othersc TOTAL

26690

100.0

Of these, 251 are former sovkhozes that chose to register as kolkhozes. In only 268 associations members are individually registered private farms; in the remaining 480 associations the constituent farms are not individually registered as private farms. Cl Mainly closed joint stock societies. Source.- Agrarian Institute. a/ b/

Table 3.1 lists 26.7 thousand farm enterprises in Russia (except for private farms) as of January 1, 1993, compared to 25.9 thousand on January 1, 1991 (Narkhoz 1990, p. 392). The slight increase in the number of farm enterprises is due to a process of fragmentation: some multiple-village enterprise break up into several village-based farms or a number of smaller subdivisions register as independent units instead of one large-scale farm. About 42 percent of collective farms and 28 percent of state farms registered in their former status. A small number (251, or 2 percent of original state farms) chose to reorganize as collective farms. Among farms that reorganized, the most common form chosen was the limited liability partnership (43 percent of new registrations). Eight percent of farms registered as agricultural producers' cooperatives, the organizational form for which the legal definition is least clear. The association of private farms is the collective form that most deviates from the collectives of the past, and very few (748, or 2.8 percent of new registrations) chose it.

Chapter 3. Aggregate Data and Sample Region Characteristics

In only 268 of these associations were the constituentfarms separately registered as private farms. The process of registration of collective and state farms produced 43,590 private farms, or about 23 percent of the total number of registered private farms on January 1, 1993. The farm structure of collective enterprises in Russia at the beginning of 1993, including both farms that registered and those that did not, consisted of 27 percent collective farms, 22 percent state farms, 32 percent limited liability partnerships, and about 20 percent in a mix of other collective forms. The number of private farms, at 184 thousand, implies approximately seven per collective enterprise, the most common of which is the closed joint stock company. Private farms are not equally distributed geographically, and many collective enterprises are in communities where the number of private farms is large enough to affect local markets for agricultural inputs and services. This represents a change from one year ago, when the aggregate ratio of private farms to collective enterprises was less than two to one. The number of farms choosing to register as state or collective farms instead of other forms fell toward the end of the year. Even farms that registered as collective or state farms in general made changes in ownership of assets within the farm. Most collective farms adopted collective shared (dolevaia) forms of ownership of land and property. In this respect they differ from their predecessors, in which land was owned by the state, and nonland assets by the collective indivisibly.

The Geography of the Sample The pace and course of reform varies geographically, depending in part on agroclimatic factors, and in part on policies determined at the province and district levels. In order to clarify restructuring at the farm level and take into account regional variation, five provinces were included in the sample. Pskov, Orel, Rostov, Saratov, and Novosibirsk provinces were chosen to capture a range of agroclimatic conditions, and to utilize the strength of local research organizations able to carry out the field work. The general characteristics of the provinces are presented in Table 3.2. Within these five provinces, a total of 14 districts were chosen, from which the sample of enterprises and households was drawn (Table 3.3). In the selected districts, enterprises of different organizational forms and past history of profitability were chosen. Three groups of economically active agents were surveyed: managers of collective farm enterprises, heads of household among employees of collectivefarm enterprises, and private farmers. The survey was conducted on a sample of 260 farm-enterprise managers, 1487 farm-enterprise employees, and 984 private farmers. In total, 2731 interviews were conducted. The distribution of respondents by province and district is given in Table 3.3. In addition to information about the respondents, demographic and economic information pertaining to family members (3805 family members of employees and 2838 of private farmers) was solicited. The information from the surveys was supplementedby additional information from the land committee, statistical organs, and district and village councils. The sample selection process is described in more detail in Box 3.1.

3j

32

Land Reform and Farm Restructuring in Russia

TABLE 3.2: General Characteristics of the Five Sampled Provinces Saratov

Rostov

NovosibirSk

Orel

Pskov

Location

Lower Volga Region, SE part of Eastern European Plain

North-Caucasus Region, Don basin, S of East European Plain

SEof West Siberian Plain, between Ob' and Irtysh

Central Russian plateau, center part

NW European Russia, border with Belorus, Latvia, Estonia

Fannland

8.4Mha

8.5Mha

8Mha

1L9Mha

1.6Mha

Precipitation

275-360 mm (left bank)

400-650 nmu

300-450 mm

Moderate continental, hot and dry

Extreme continental, short hot summer, drought&winds

550-650 mm

400-460 mm

l (right bank) Climate

Dry continental, droughts, winds

Moderate continental, warm, moderately humid

Moderate continental

in the south

Soils

H4eavy:50% chernozem, 30% chestnut, 11% solonetz

Chernozemn, chestnut, soionetz

Podzol, serozem, chernozem

Chernozem, serozem, dernopodzol, sandy

Podzolic, marshy

Agriculture

Russia's main grain producer, livestock, large farmns

Ruwssia'smain livestock producer, mechanized mixed farming

Mixed grainlivestock

Diversified crops, grainlivestock farms

Mixed dairybeef, flax

Remarks

Inclusion of irrigated land in farm restructuring

Variety of farm enterprise structures

Intensive use of farm land: 87.3 % plowed, only 9.1 %

Family tarms near border with Latvin Estonit; lc .der

forested

in private

presents special

.issues

frnl

registrazioi! 30% forestld ________________

________________

________________

_______________

4~~~~~~~~~~

Chapter 3. Aggregate Data and Sample Region Characteristics

33

TABLE 3.3: Distribution of Respondents by Provinces Province

Farm Employees

Saratov

Farm Managers 101

403

Private Farms 324

Rostov

35

306

293

Novosibirsk

43

300

142

Orel

70

318

125

Pskov

11

100

100

260

1427

984

TOTAL

BOX 3.1. SampleSelection 1.

Provinces: Orel, Rostov, Saratov, Novosibirsk,Pskov. Provinceswere chosen to reflect diversity of agroclimaticconditions, and presence of strong local institutesof agricultural economicsable to participateand managedata collection.

2.

Districts: District level data on specialization,performance, rural demographicswere examinedto choose three districts in each province. In general, three districts chosen reflectedhigh, medium, and low agriculturalincomes and economicconditions in each province. In Pskov, only one district was included.

3.

Farm Manager'sSurvey: Withinchosen districts,the surveyinstrumentwas administered by interviewto all mnanagers of collectiveenterprises. The total number of interviewswas 260.

4.

Farm Employee Survey: Of all enterpriseswithin chosen districts, a group of 43 was chosen to reflectdiversityof enterpriseforms as registeredin July 1992. Sevenenterprises were chosen in Pskov, and three in each of the three districts of the remaining four provinces. Within enterprises, 33 households were chosen from the lists of active employeesby dividing the total number of employeesby 33 and taking names at the resultinginterval. Substitutionswere allowedif the chosen person was unavailable. Any adult in the householdof the chosenperson was acceptedfor interview. The total number of interviewswas 1,487 for farm employees.

5.

Privatefarmers: Withinthe chosendistricts,nameswerechosenfrom the list of registered private farmers. When more than 100 farmers were registered,100 were chosen from the top, middle, andbottomof the list. Geographicallyclusteredfarmswere pernitted in order to save travel time. When fewer than 100 private farmers were registered, most were includedif they were not excessivelydispersed geographically. The number of private farmers was 984.

6.

Surveyswere conductedby interviewin Novemberand December1992. Each interviewer conductedapproximatelytwo per day.

34

Land Reform and Farm Restructuring in Russia

The overall status of the farm restructuring process in the five sampled provinces is summarized in Table 3.4. The number of farm enterprises that had registered by January 1, 1993varies from 72 to 91 percent of all farm enterprises in these provinces. The average registration for the five provinces is thus not much higher than the overall Russian average of 78.4 percent (see Table 3.1). The percentage of registered farms that retained their old status, however, is significantly lower in the sampled provinces: around 25 percent of registered farms compared to 35 percent for all Russia. Rostov province alone accounts for 137 out of 251 cases of sovkhozes registering as kolkhozes in all Russia. Similarly to the rest of Russia, limited liability partnerships appear to be the preferred form for registering farms. Closed joint stock societies (reported as "Other collective structures" in Table 3.4) are generally the second preferred category, but their weight is particularly high in the Orel and Rostov provinces. TABLE 3.4: Farn Structuresin SampledProvinces, January 1, 1993 Saratov

Rostov

Novosibirsk

Orel

Pskov

Newly registeredfarms

483

584 :

365

362

323

% of:al farms

88%

72%

75%

86%

91%;

%of registeredfArnsretaining

24%

28%

13%

8%

24%

0

137

0

0

6

OpenjoAintstocksocieties

47

15

16

3

1

Limitedliability.partnerships

407

234

288

60

210

Associationsof privatefarni;s

14

21

3

5

5

incl. associations withmembersnot

1

4

1

3

--

Agricultural cooperatives

--

6

10

22

31

Subsidiaryfarmsof nonagricultural

32

2

1

1

1

Othercollectivestructures

13

151

10

238

--

Privatefarms fornmedthrough registrationoflfarmenterprises

450

4987

211

16

723

Tota private farms

9772

7817

3798

1283

2069

previousstatus Sovkhozesregisteringas kolkhozes New Structures:,

registeredas pnrvatefarmers

organizations:

Source:GoskomstatRossii, RazvitiyeAgropromyshlennogo Kompleksai Fermerstvav Rossiiskoi Federatsii,No. 1, Moscow(1993).

Chapter3. AggregateData and Sample Region Characteristics

35

Registration of farm enterprises in itself does not lead to large-scale establishment of private farms. The rate of private farm formation in the registration process is even lower than the Russian average (see above). A notable exception is the Rostov province where 64 percent of all private farms were created through farm enterprise registration (see Table 3.4). The number of private farms in the sampled provinces increased during 1992 faster than the Russian average (Table 3.5). The growth of private farming was particularly rapid in the Saratov and Rostov provinces, where the number of private farms increased 5-6 fold within one year. TABLE 3.5: Growth of Private Farmingin SampledProvincesin 1992

Province

Numberof Farms 1.1992 1.1993

Averagefarm size, hectares 1.1992 1.1993

Nunmberof Farms that Discontinued Operationsin 1992

Saratov

1,598

9,772

62

57

186

Rostov

1,726

7,817

42

42

91

Novosibirsk Orel Pskov

1.305 353 574

3,796 1,283 2,069

59 56 25

58 57 22

133 54 101

49,013

184,663

42

43

5,065

All Russia

Source:Goskomnstat Rossii,RazvitiyeAgropromyshlennogo Kompleksai Fermerstvav Rossiiskoi Federatsii, No. 1, Moscow (1993). Social and Demographic Characteristics of Respondents Fifty-one percent of the individualsin the sample, including household members and respondents, were men, and 49 percent women. These ratios were the same for both farmemployee households and private farmer households, although they diverge somewhat from the sex structure of the Russian rural population in general, where according to 1991 data women constitute 53 percent of the rural population. The sample included economically active rural people, and excluded retirees, where women predominate. Seventy-sixpercent of those responding to the farm-employee survey were male, while the proportion of male respondents to the private farmer survey was as high as 94 percent. The basic sociodemographic characteristics of the sampled families are presented in Table 3.6.

36

Land Reform and Farm Restructuring in Russia

Family Size. Families of private farmers in the sample were somewhat larger than the families of farm-enterprise employees (3.9 people per family for private farmers compared to 3.7 for farm employees). In both cases, the average family size is slightly larger than the 1991 figure for rural Russia as a whole (3.3 people per family). TABLE3.6: Private Farmers and Farm-EnterpriseEmployees: Socio-DemographicCharacteristics Farmers

Farm Employees

3-4

.60%

59%

2-5

88%

89%

Average

3.9

3.7

Average

39

40

Interquartile range

:.32-45

32-50

Family size:

Age of household head.:

g94%

76%i

> 10 years

82% 14% 61%

89% 6% 72%

5 years

25%

16%

rural

75%

city

18%

Home

63%

62%

Flat 2-4 units Multistory

27% 9%

28% 8%

Self

60%

47%

27% 3%

51% 2%

Sex of household head-

Rural resident:

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