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A PLOT OF ONE'S OWN
By Vasily Uzun
Russia Profile, Russia
Oct 31 2006
Land Reform Shows that Small Farms Can Produce Big Results
The transition from a socialist-style planned economy to a market
economy in Russia involved radical changes in land relations. In
the Soviet era, all land was exclusively the property of the state,
given for free to those who used it in perpetuity. Changes in the
way communal farms used land were permitted only with the approval
of federal and regional authorities.
The 1990s land reforms sought to improve resource use efficiency
through privatization of collective-farm land and liberalizing
the market for land plots. These privatization mechanisms, and
the subsequent trading of land, did have a positive effect on the
efficiency of agricultural land usage.
In the post-Soviet space, the privatization of collective farm land
was done in a variety of ways, depending on the region. In the Baltic
States, the land was returned to its former owners; in Armenia,
the land was allotted to families living in the villages at the time
of the reforms. In Russia, farm land was allocated to farm members
in standard parcels. If farm laborers then chose to leave the farm,
they would receive the same amount of land elsewhere in Russia.
One of the reasons restitution was technically impossible to carry
out in Russia in the early 1990s was because citizens did not have
documents confirming property rights. The idea of giving each family
a land plot was also considered, but was rejected on the grounds that
most communal farmers were unprepared to work on their own.
As a result of the reforms, some 120 million hectares, or 60 percent
of farm holdings, were divided into shares, and 12 million people
became landowners. Owners of land shares had the right to use
their segments to create or expand a farm business or to use them
as private gardens. Shares could also be sold, rented, given away,
used as capital, or passed on to descendants.
Before the reforms, virtually all Russian farmland, some 221 million
hectares, was used by communal farms. Only about 4 million hectares
functioned as private gardens. Following the introduction of reforms,
5 percent of communal farmers, as well as some city dwellers,
pooled land plots, obtained land from the state redistribution fund
or rented land parcels from shareholders in a drive to create their
own agri-businesses. By the start of 2006, this group of people held
19.5 million hectares of farmland.
There were huge variations in the ways in which land reform was
carried out in different parts of the country: many regions were able
to put off introducing private property for as much as 49 years,
according to a 2002 law on land trading; most villagers rented out
their land shares to nascent agribusinesses joint-stock companies
or cooperatives created from reformed communal farms; agriculture is
generally loss-making in northern zones, where not all agricultural
organizations have rental contracts with land-share owners, and
roughly a quarter of all land parceled out is used by agricultural
organizations without a signed agreement.
The method of land privatization adopted in Russia made it possible
for people who live in rural areas to assume land ownership rights
on a voluntary basis while allowing major farms to continue working
by renting land shares. This setup avoided strip farming as well as
the division of all of Russia into 5-by-10-hectare chunks.
But Russia's agricultural land privatization system had some obvious
drawbacks. For example, land shares are not accurately demarcated:
holders know roughly where their fields are but not the precise
location; agribusiness managers are able to use shared land without
signing agreements with the owners and, to this day, 15 years after
the reforms began, land share owners still do not clearly understand
their rights and responsibilities.
The authorities in many post-Soviet countries including Ukraine,
Moldova, Georgia, Azerbaijan, and Kyrgyzstan have already divided
up their land into plots. But these countries now face the problem
of consolidating the divided parcels into optimal-sized units. This
process is also slowly getting underway in Russia, but lacks the
necessary political or legal infrastructure.
In recent years, Russia has seen relatively active trade in
agricultural land. It is being bought up, rented out long-term or
added to the charter capital of agribusinesses. As of Jan. 1, 2005,
legal entities in the Moscow Region mainly agribusinesses and other
investors held more than 300,000 hectares of land, or roughly 25
percent of farm holdings in the region. Agribusinesses have also taken
control of most of the agricultural land in the regions around Moscow,
including Belgorod and Oryol regions.
Land can be transferred from a share owner to an agribusiness or
other investor based on buy-sell agreements (as is the practice
of Inteko holding in Belgorod Region) by absorbing the shares into
charter capital (a procedure applied by Stoilenskaya Niva, also of
Belgorod), or by oligarchs buying up the land and property of bankrupt
agricultural firms. Agribusinesses have been created in Oryol and
Rostov using long-term agreements for land shares, as well as in
Stavropol and Krasnodar territories.
But investors in all regions are pumping money into agriculture and
creating larger business structures. In cases where sizeable farms
broke apart due to their inability to deal with competition from
domestic and foreign producers, rural residents left without jobs
were obliged to take care of their own gardens. Eventually land
share owners on such farms expanded their plots, a process that
has intensified over the last few years. In early 2006, roughly 10
million hectares of shared land had been added to market gardens,
and people were farming it themselves.
It was widely supposed that once land reforms took hold, large
Western-style organizations would replace collective farms. Although
such farms have appeared, they make up just 6 percent of gross
production. However large agribusinesses have developed rapidly,
and range from 10 to a 100 times the area of former collective farms.
On the other hand, most production over 50 percent is concentrated
in private market gardens, most of which comprise less than half a
hectare of land with one or two cows.
Although most Russians think farming has neither taken off in Russia
nor has a future, the dynamics of land redistribution suggest that
less and less land is being used by major agricultural organizations,
while the share of family farms in cultivated land is increasing. In
1990, these farms accounted for less than 2 percent of agricultural
holdings, but by 1995 this figure was 18 percent and by 2006, it had
risen to 28 percent.
In the socialist economy, the state set targets for agricultural
holdings and new area cultivation regardless of the suitability of
the plot. For example, land that eroded barely produced any crops,
yet was included in targets.
With the transition to a market economy, agricultural producers
stopped using 22 million hectares of available terrain. Between 1990
and 2006, the area used by agricultural businesses dropped by 72
million hectares, or 34 percent, while the proportion used by private
cultivators and farmers increased from 4 to 54 million hectares
(more than 13 times).
Much has been written about the drop in land use by agricultural
organizations, but few studies have analyzed which lands were abandoned
and in which regions. Published in 2003, Tatyana Nefyodova's book,
Fragmentation of Rural Russia, showed that such areas were located
mostly in the "non-Black Earth periphery," in other words, outside
Russia's most fertile agricultural region.
One study examined Russia's administrative districts by looking
at percentage change in land planted by agricultural organizations
between 1995 and 2003. Regions with a low bio-climactic potential
suffered reduced plowed and crop areas and low grain yield.
Similarly, the higher the yield and bio-climatic potential, the
smaller the reduction in cultivated land. It also became obvious that
agricultural organizations reduced the amount of land in use in an
attempt to produce higher return from their inputs.
The usage efficiency of agricultural holdings fell until 1998, but has
risen in recent years. However, this process has taken different forms
depending on the size of the producer. Agribusinesses have continued
to reduce the size of their plots while simultaneously boosting gross
production, leading to an increase in return of 35 percent in 2003
compared to 1998.
Despite different tendencies in return rates, family farms are using
land much more efficiently than agribusinesses. Each hectare used
by small landholders produces 4.5 times more gross product and 10
times more added value. Of course, such a difference in efficiency is
only partially explained by better land quality or by more intensive
cultivation and greater cattle density per area.
Besides these factors, another considerable influence is that people
make unlicensed use of land officially registered to agribusinesses, as
well as a significant amount of feedstock produced by agribusinesses
given to rural residents as part of the rental costs for their
land shares.
By Vasily Uzun
Russia Profile, Russia
Oct 31 2006
Land Reform Shows that Small Farms Can Produce Big Results
The transition from a socialist-style planned economy to a market
economy in Russia involved radical changes in land relations. In
the Soviet era, all land was exclusively the property of the state,
given for free to those who used it in perpetuity. Changes in the
way communal farms used land were permitted only with the approval
of federal and regional authorities.
The 1990s land reforms sought to improve resource use efficiency
through privatization of collective-farm land and liberalizing
the market for land plots. These privatization mechanisms, and
the subsequent trading of land, did have a positive effect on the
efficiency of agricultural land usage.
In the post-Soviet space, the privatization of collective farm land
was done in a variety of ways, depending on the region. In the Baltic
States, the land was returned to its former owners; in Armenia,
the land was allotted to families living in the villages at the time
of the reforms. In Russia, farm land was allocated to farm members
in standard parcels. If farm laborers then chose to leave the farm,
they would receive the same amount of land elsewhere in Russia.
One of the reasons restitution was technically impossible to carry
out in Russia in the early 1990s was because citizens did not have
documents confirming property rights. The idea of giving each family
a land plot was also considered, but was rejected on the grounds that
most communal farmers were unprepared to work on their own.
As a result of the reforms, some 120 million hectares, or 60 percent
of farm holdings, were divided into shares, and 12 million people
became landowners. Owners of land shares had the right to use
their segments to create or expand a farm business or to use them
as private gardens. Shares could also be sold, rented, given away,
used as capital, or passed on to descendants.
Before the reforms, virtually all Russian farmland, some 221 million
hectares, was used by communal farms. Only about 4 million hectares
functioned as private gardens. Following the introduction of reforms,
5 percent of communal farmers, as well as some city dwellers,
pooled land plots, obtained land from the state redistribution fund
or rented land parcels from shareholders in a drive to create their
own agri-businesses. By the start of 2006, this group of people held
19.5 million hectares of farmland.
There were huge variations in the ways in which land reform was
carried out in different parts of the country: many regions were able
to put off introducing private property for as much as 49 years,
according to a 2002 law on land trading; most villagers rented out
their land shares to nascent agribusinesses joint-stock companies
or cooperatives created from reformed communal farms; agriculture is
generally loss-making in northern zones, where not all agricultural
organizations have rental contracts with land-share owners, and
roughly a quarter of all land parceled out is used by agricultural
organizations without a signed agreement.
The method of land privatization adopted in Russia made it possible
for people who live in rural areas to assume land ownership rights
on a voluntary basis while allowing major farms to continue working
by renting land shares. This setup avoided strip farming as well as
the division of all of Russia into 5-by-10-hectare chunks.
But Russia's agricultural land privatization system had some obvious
drawbacks. For example, land shares are not accurately demarcated:
holders know roughly where their fields are but not the precise
location; agribusiness managers are able to use shared land without
signing agreements with the owners and, to this day, 15 years after
the reforms began, land share owners still do not clearly understand
their rights and responsibilities.
The authorities in many post-Soviet countries including Ukraine,
Moldova, Georgia, Azerbaijan, and Kyrgyzstan have already divided
up their land into plots. But these countries now face the problem
of consolidating the divided parcels into optimal-sized units. This
process is also slowly getting underway in Russia, but lacks the
necessary political or legal infrastructure.
In recent years, Russia has seen relatively active trade in
agricultural land. It is being bought up, rented out long-term or
added to the charter capital of agribusinesses. As of Jan. 1, 2005,
legal entities in the Moscow Region mainly agribusinesses and other
investors held more than 300,000 hectares of land, or roughly 25
percent of farm holdings in the region. Agribusinesses have also taken
control of most of the agricultural land in the regions around Moscow,
including Belgorod and Oryol regions.
Land can be transferred from a share owner to an agribusiness or
other investor based on buy-sell agreements (as is the practice
of Inteko holding in Belgorod Region) by absorbing the shares into
charter capital (a procedure applied by Stoilenskaya Niva, also of
Belgorod), or by oligarchs buying up the land and property of bankrupt
agricultural firms. Agribusinesses have been created in Oryol and
Rostov using long-term agreements for land shares, as well as in
Stavropol and Krasnodar territories.
But investors in all regions are pumping money into agriculture and
creating larger business structures. In cases where sizeable farms
broke apart due to their inability to deal with competition from
domestic and foreign producers, rural residents left without jobs
were obliged to take care of their own gardens. Eventually land
share owners on such farms expanded their plots, a process that
has intensified over the last few years. In early 2006, roughly 10
million hectares of shared land had been added to market gardens,
and people were farming it themselves.
It was widely supposed that once land reforms took hold, large
Western-style organizations would replace collective farms. Although
such farms have appeared, they make up just 6 percent of gross
production. However large agribusinesses have developed rapidly,
and range from 10 to a 100 times the area of former collective farms.
On the other hand, most production over 50 percent is concentrated
in private market gardens, most of which comprise less than half a
hectare of land with one or two cows.
Although most Russians think farming has neither taken off in Russia
nor has a future, the dynamics of land redistribution suggest that
less and less land is being used by major agricultural organizations,
while the share of family farms in cultivated land is increasing. In
1990, these farms accounted for less than 2 percent of agricultural
holdings, but by 1995 this figure was 18 percent and by 2006, it had
risen to 28 percent.
In the socialist economy, the state set targets for agricultural
holdings and new area cultivation regardless of the suitability of
the plot. For example, land that eroded barely produced any crops,
yet was included in targets.
With the transition to a market economy, agricultural producers
stopped using 22 million hectares of available terrain. Between 1990
and 2006, the area used by agricultural businesses dropped by 72
million hectares, or 34 percent, while the proportion used by private
cultivators and farmers increased from 4 to 54 million hectares
(more than 13 times).
Much has been written about the drop in land use by agricultural
organizations, but few studies have analyzed which lands were abandoned
and in which regions. Published in 2003, Tatyana Nefyodova's book,
Fragmentation of Rural Russia, showed that such areas were located
mostly in the "non-Black Earth periphery," in other words, outside
Russia's most fertile agricultural region.
One study examined Russia's administrative districts by looking
at percentage change in land planted by agricultural organizations
between 1995 and 2003. Regions with a low bio-climactic potential
suffered reduced plowed and crop areas and low grain yield.
Similarly, the higher the yield and bio-climatic potential, the
smaller the reduction in cultivated land. It also became obvious that
agricultural organizations reduced the amount of land in use in an
attempt to produce higher return from their inputs.
The usage efficiency of agricultural holdings fell until 1998, but has
risen in recent years. However, this process has taken different forms
depending on the size of the producer. Agribusinesses have continued
to reduce the size of their plots while simultaneously boosting gross
production, leading to an increase in return of 35 percent in 2003
compared to 1998.
Despite different tendencies in return rates, family farms are using
land much more efficiently than agribusinesses. Each hectare used
by small landholders produces 4.5 times more gross product and 10
times more added value. Of course, such a difference in efficiency is
only partially explained by better land quality or by more intensive
cultivation and greater cattle density per area.
Besides these factors, another considerable influence is that people
make unlicensed use of land officially registered to agribusinesses, as
well as a significant amount of feedstock produced by agribusinesses
given to rural residents as part of the rental costs for their
land shares.