Agricultural Cooperatives In Transition

Csaba Csaki, Yoav Kislev

• Publisher: Routledge
• Year: 2021
• ISBN:
  9780429715846
• Edition: 1
• Topic: Sciences sociales
• Subtopic: Sociologie

Originally published in 1993, this is a study of agricultural co-operatives. The farming structure in transition countries has shifted from dominance of large corporate farms to family smallholdings. Smallholders everywhere experience difficulties with access to market services, including sale of products, purchase of inputs, and acquisition of machinery; they suffer from credit shortages and have limited access to information and advisory services. The barriers to market access prevent smallholders from fully exploiting their inherent productivity advantages. Best-practice world experience highlights farmers' service cooperatives, created by grassroots users, as the most effective way of improving the market access of small farmers. Service cooperatives also help smallholders overcome market failures, when private business entrepreneurs are unwilling to provide services in areas that they judge unprofitable or unfairly exploit users through monopolistic practices. These difficulties and market failures are prominent in transition countries and scholars accordingly expected rapid development of agricultural service cooperatives in response to smallholder needs. The present volume explores gaps between expectations and reality.

PART ONE Transformation of Socialist Agriculture

DOI: 10.4324/9780429041693-1

The cooperatives in the socialist economies were command cooperatives — a contradiction in terms. Surely the founders of the cooperative movement did not even imagine that members would ever be forced to participate in cooperative associations. Indeed the collapse of the compulsory cooperatives testifies to the failure of their ideological and conceptual foundations. Still, it is all too easy to fall into the trap of viewing the Soviet cooperatives as an exception that does not even deserve consideration. Across the spectrum of cooperative structures and organizations in developing and developed countries, the Soviet model was but one specimen, even if at the far end of that spectrum. While the newly emerging market economies scrutinize Western experience, lessons drawn from the East can be useful for cooperatives in other parts of the world.

1 Land Reform and the Future Role of Cooperatives in Agriculture in the Former Socialist Countries in Europe

DOI: 10.4324/9780429041693-2

Csaba Csaki*

Zvi Lerman**

Farmers are not rushing to leave the large-scale socialized structures and establish independent farms on private land. Instead the large-scale farms are reorganizing into associations of smaller productive subdivisions owned by team members which continue to rely on cooperative supply, marketing, and financial services provided by the central farm structures. The new independent farmers are also forming cooperative organizations to help them overcome the difficulties caused by nonexistence of input and product markets. The farming structure is developing toward private production, both on family farms and in multi-family enterprises, which may be supported by nets of service cooperatives.

The former European socialist countries, including the Soviet Union and the countries of Central and Eastern Europe, are undergoing a fundamental economic and political transformation. Far-reaching changes that surpass all previous reform attempts are taking place in the agrarian economy of these countries where the creation of a new agricultural structure based on private ownership, true cooperatives, and a market economy has begun. All the countries in the region are striving to overcome serious economic difficulties with comprehensive political and economic reforms. They are in a process of transition: many details have yet to be clarified and there is much uncertainty regarding the future. These changes will fundamentally reshape agriculture in the region and deeply affect its functioning and its role in international agrarian relations.

*Budapest University of Economics and The World Bank, Washington, DC, USA.

**Department of Agricultural Economics, The Hebrew University of Jerusalem, Rehovot, Israel.

The transition from socialist to market-based agriculture is a complex and multi-faceted process that raises many difficult questions. The major issues include privatization of land and other productive assets, development of a new incentive framework, establishment of a market-controlled system with a working market for agricultural inputs and products, redefinition of the role of government in agriculture, and implementation of appropriate institutional changes and reforms. These topics have been examined in the literature in various contexts (see a selection of relevant sources in the Reference section), but there are no textbook solutions and the process of transition is shrouded in uncertainty. The next few years will be characterized by fluidity and change as the former socialist countries move toward new goals and structures while simultaneously searching for their own solutions, possibly taking account of the diverse world experiences. Analysis of alternative trajectories of change is an important and timely task that can help decision-makers to formulate relevant policies.

The objective of this paper is much more modest. We focus on the process of change as it is actually unfolding in the former socialist countries and provide a comparative review of two main issues: an account of the land reform process and an overview of the attempts to restructure and privatize the collective and state farms, with a special reference to the future role of cooperatives.

Common Heritage of Socialist Agriculture

Agriculture in all former socialist countries in Europe was organized on similar principles of a centrally planned economy with a pervasive administrative command system. The philosophy of controlling agriculture by plans and administrative commands created a farming structure based on dominance of large-scale farms.

The large-scale farms in these countries are a product of the collectivization process, which began in the Soviet Union in 1928-1929 and was copied to the countries of Central and Eastern Europe after World War II.

TABLE 1 Number and Average Land Size of Socialized Agricultural Organizations (1985 data)

	State Farms		Collective Farms
	Number of farms	Average area (hectares)	Number of farms	Average area (hectares)
Albania	70	2,400	420	1,270
Bulgaria*	536	9,692	NA	NA
Czechoslovakia	226	6,204	1,677	2,605
GDR	465	945	3,904	1,370
Hungary	128	7,598	1,270	4,195
Poland	1,258	2,665	2,342	297
Romania	419	4,895	4,363	2,093
USSR	22,690	16,051	26,660	6,370

*Total number of agricultural units in 150 agro-industrial complexes. Source: N.J. Cochrane, Agricultural Statistics of Eastern Europe and the Soviet Union, 1965-85, USDA Economic Research Service, Statistical Bulletin No. 778, Washington, D.C., July 1989.

Table 1 shows some major indicators of large-scale socialized farming in the European socialist countries. Collectivization of agricultural production was promoted as a means of achieving central management (it also, of course, ensured political control). In most countries in the region, 90100% of all agricultural land was ultimately (mid-1980s) organized in socialized (state and collective) farms, although there were local differences in execution and different structures emerged across the region. Poland was the only socialist country in Europe that escaped total collectivization: here less than 30% of land had been collectivized and private farms retained their predominance, although the government impeded their progress for a long time.

Outside of Poland few classical private farms survived the socialist reorganization of agriculture. However, despite the virtually total absence of a traditional private farming sector, individual production survived in all countries (except Albania where collectivization was complete) in the form of household farms with part-time farming. The subsidiary household farms in the former Soviet Union and in Hungary consistently accounted for around 30% of total agricultural product. In Bulgaria individual farming contributed about 25% of total agricultural product. The rate of private production was the lowest in Czechoslovakia and the former GDR (about 10%). No reliable figures are available for Romania. The small private producers specialized primarily in labor-intensive enterprises such as livestock and vegetables, while grain and other scale crops were concentrated almost exclusively in the capital-intensive socialized farms. The political attitude toward these semi-private farming activities changed frequently. It is only in Hungary that subsidiary household farming was tolerated continuously and often even supported by the socialist system.

Collectivization of agriculture was implemented against a backdrop of changes in land ownership relations and policies. In the Soviet Union all land was nationalized within days of the October 1917 Revolution. After that state land was given to farmers for lifetime use and no private land ownership was recognized. Albania also nationalized land after its transition to a socialist regime. In general, however, land in Central and Eastern Europe was not nationalized, although it was subsequently collectivized. In addition to state property, cooperative or collective land ownership thus emerged, while private land continued to exist in various forms, especially in Hungary, Poland, and Czechoslovakia. Traditional municipal ownership of rural land for common pasture and social infrastructure totally disappeared.

Although private land ownership was preserved in some countries, property rights became a mere formality over the years. Land markets were abolished, the value of land was no longer listed in the registry of agricultural implements, nor was the price of land calculated among the production costs.

Need for Reform

Decades of socialism manifested in central planning, administrative commands, and collective ownership produced a similar legacy for agriculture in the Soviet Union and in the countries of Central and Eastern Europe:

• large, inefficient farms with high production costs, suffering from lack of individual initiative and "free-rider" attitudes;
• elimination of incentives for efficiency improvement due to institution of cost-based procurement prices and deeply subsidized unrestricted credits;
• food price subsidies, producing an excess demand for food at the subsidized prices and a high level of food consumption relative to countries of comparable wealth in market economies;
• pervasive monopoly of the state in food processing and distribution and in farm input supply, leading to destruction of economic intermediation mechanisms and total dependence of producers on centrally allocated inputs;
• macroeconomic distortions, including a chronic budget deficit, inflation, and mounting foreign debt.

This negative legacy is a natural consequence of the ideological goal of controlling all agricultural production, distribution, and consumption. The economic distortions introduced by the administrative command system became apparent fairly early and triggered periodic reform attempts across the region. However, the weakness was endemic to the system: the various reform attempts failed to resolve the major shortcomings of the system and to produce the desired improvements in agricultural performance. The central command system collapsed throughout the region between 1989-1991.

Following the political changes in socialist Europe in 1989-1991, efforts to create a completely new agrarian structure replaced the superficial cosmetic reform attempts. The change in agriculture is most discernible in the former GDR, Hungary, Poland, and Czechoslovakia where the introduction of a true multi-party system ended the communist monopoly. Changes are also occurring in Romania, Bulgaria, and Albania, but agricultural development is more uncertain in these countries because the post-communist parties, although still fairly stable, appear to be losing their power. The dissolution of the Soviet Union has created the political conditions for a real change in agriculture in the former fifteen republics. However, a detailed agenda for the transformation of Soviet agriculture began to emerge only in the first half of 1992, and consistent strategies for agricultural transformation still do not exist.

Land Ownership Reforms

One of the most debated political and economic questions in the region concerns land ownership and the creation of land markets. The land reform process involves three distinct issues:

• the establishment of a legal framework for private land ownership and land markets;
• the decision on actual eligibility and allocation of land to new owners;
• the creation of a new farming structure including the restructuring of existing large-scale farms in line with the new ownership patterns and the principles of a market-based economy.

At the very beginning of the transition to new political and economic conditions in the region, several proposals were made to change the inherited land ownership and tenure structure. The main alternative proposals were the following:

• retain the state ownership of land and allow individual use of land through leasing;
• make the land the property of those who wish to pursue agricultural production, while limiting the right to sell and lease out the land during a certain transition period;
• allow private ownership of land by farmers without any restrictions on immediate sale or leasing;
• grant land ownership based on pre-collectivization property rights to those who want to farm and compensate financially the previous owners who are not active farmers;
• restore pre-collectivization land ownership relations without any restrictions;
• treat land ownership as an integrated element of an overall compensation and privatization package.

These multiple possibilities are further complicated by the issue of payment for land: should land be granted free to eligible individuals or should they be required to pay. Issues of former ownership and restitution are relevant mainly for the "western" countries in the region where private land ownership existed until after World War II and the original land owners or their descendants are identifiable to this day. In the former Soviet republics where the traditions of private ownership were never strong, the major issue is eligibility and the pattern of distribution: should land be given to everybody or only to those who currently work the land; should there be a ceiling on land holdings or should an individua...