4

EASTERN EUROPE AND CENTRAL ASIA

REGIONAL SETTING

Characteristics of the region

The Eastern Europe and Central Asia region encompasses 28 countries with widely divergent levels of economic development1. With between 10 and 55 percent of the population dependent on agriculture, the countries of the region are at an intermediate stage of economic development. On average, the agricultural sector contributed 12 percent of GDP in value added terms in 1998, but individual country figures range from 4 to 54 percent. The average contribution of agriculture to exports was 11 percent2. During the past 10 years, the number of poor people has substantially increased. In 1997, five percent of the total population were living on less than US$1 per day, and one quarter on less than US$2 per day3.

Most countries within the region have experienced major economic reforms during the recent past. However, history, as well as proximity to the European Union (EU), has determined two sub-regions with significant differences in the progress and outcome of these reforms: (i) Central and Southeastern Europe; and (ii) the Commonwealth of Independent States.

Central and Southeastern Europe (CSEE)

This sub-region includes the Baltic States, Poland, Central and Southern European countries and Turkey. It covers a total area of about 210 million ha and has a rural population of 67 million, of which 38 million are economically active in agriculture. On average, population density is 90 inhabitants/km2, but there is significant variation depending, inter alia, on latitude. The most productive agricultural area lies in the moist subhumid agro-ecological zone. Mountain and hilly areas with more than 30 percent slope are widespread in the southern part of the sub-region.

On average, agriculture contributed 17 percent of GDP in value-added terms during 1998, but individual country figures range from around 5 percent for the Czech Republic and Poland to 54 percent for Albania. The Czech Republic and Albania represent the extremes in terms of the importance of agricultural labour; in 1990 agriculture accounted for 11 and 55 percent respectively of their national labour force. The average contribution of agriculture to exports was 11 percent. Besides the global trends that have influenced farming systems during the last decade, the countries of the CSEE sub-region have been passing through a complex transformation of their political and economic systems.

All faced similar underlying challenges and initially at least, espoused the same broad objectives. However, they embarked on the reform process with substantial differences in both the degree of prior market development and the level of political commitment to the transformation process itself. Consequently, the implementation of reforms has varied in pace and specific content. As a result, progress in achieving a market-based agriculture differs substantially from country to country. In broad terms, however, the change of political and economic systems during the last decade has led to a dramatic fall in output and a sharp rise in inequality, accompanied by a substantial increase in the number of people in poverty.

Commonwealth of Independent States (CIS)

This sub-region includes all former Soviet Union countries except the Baltic States, and covers a total land area of about 2180 million ha. The population of this sub-region is 284 million, of which 33 percent are rural. Population density averages 13 inhabitants/km2, but there is significant variation depending on the agro-ecological zone and latitude. Huge areas, covering more than half of the region, lie in the arid or dry subhumid north above 78° latitude, where permafrost and lack of moisture render them unsuitable for crop production, and where population density is less than three inhabitants/km2. Almost all of the regional forest cover is in the territory of the Russian Federation; the largest part of it in the taiga zone. The sub-region's most productive farming systems lie in the moist subhumid agro-ecological zone, in the west. The major part of the sub-region lies in the arid and semiarid zone and has only limited production potential, unless irrigated. For similar reasons to the CSEE sub-region, the CIS sub-region has seen a dramatic fall in output, a rise in inequality and an increase in the number of people in poverty. On average, in 1998, agriculture contributed only 10 percent of GDP in value-added terms - ranging from 7 percent in the Russian Federation to 46 percent in Kyrgyzstan4.

The countries of the CIS have all embarked on the complex processes of transforming their political and economic systems. They started at different levels of development, strategies have been diverse, and outcomes are also contrasting. In general, though, the results of the reforms have not yet met original expectations. In many countries, the major difficulty has been to create the basic ingredient of successful farming - the private farm. The reasons often relate to a reluctance to leave the protected environment of the former collective and state farms or co-operatives in order to face an unprotected world with no organised production, markets or rural services. To a large extent, the inherited large-scale collective farms have survived the transition, being reborn as production co-operatives or corporate holdings. The emergence of the family farm as a production unit has progressed only in countries where land has been distributed, but is still considered by many as too small to be efficient. Only rarely have truly commercially oriented family units been able to establish themselves.

For both sub-regions, the process of transforming underlying economic structures - particularly those relating to the rural sector - has proven to be a far more complex task than originally envisaged. Moreover, each farming system, with its distinctive natural resources, history, farm organisation and transition course, faces different challenges and prospects.

Major farming systems in Eastern Europe and Central Asia - MAP 1

Major farming systems in Eastern Europe and Central Asia - MAP 2

Major farming systems in Eastern Europe and Central Asia

There are significant differences in agro-ecological conditions among the farming systems in the region. The agro-ecologies vary from one of the world's most fertile regions in Southeast Europe, to poor, water-scarce regions of Central Asia. This agro-ecological diversity, plus the heterogeneity of political, economic and social conditions in the region, has resulted in the development of a wide variety of farming systems. Altogether eleven major farming systems, based on criteria outlined in Chapter 1, have been identified (see Table 4.1 and Map). The Urban Based system is dispersed throughout the region and is therefore not mapped. These farming systems are briefly described in the following paragraphs.

Irrigated Farming System5

This system occurs in scattered areas in the southern central and eastern areas of the region and covers an estimated 28 million ha, of which 10 million ha are cultivated and 8.6 million ha are irrigated, with an agricultural population of around 4 million. Medium to large irrigated farms, up to 500 ha in size, are found throughout the CIS countries and some areas of Romania. All have been severely affected by the increase in previously subsidised energy prices, as well as the loss of traditional markets for high value crops such as fruits and vegetables. In the warmer areas in Uzbekistan, Turkmenistan and Southwestern Kazakhstan, irrigation is largely used for cotton cultivation, with some rice being grown. With readily available markets, cotton-producing irrigation systems can be maintained and cotton exports provide capital to cash-strapped farming economies. However, overuse of water during Soviet times has caused extensive environmental degradation - including the drying out of the Aral Sea, desertification of the surrounding area and widespread salinisation.

Smaller-scale irrigated systems are typical of the Caucasus, Balkan countries and Turkey, but they are found in other countries as well. The average farm size is in the range of 2 to 10 ha, owned and operated by a single family and focused on the production of such crops as wheat, barley, cotton, tobacco, fruit and vegetables. Depending on family size and irrigated area, the farms can provide part or full-time employment, producing marketable surpluses which are a major source of cash income. Poverty is widespread where former markets for fruits and vegetables have been lost, particularly in the Caucasus. However, some farms are gradually recapitalising, in spite of their very limited size.

Mixed Farming System

This system is widespread in those Central European countries seeking accession to the EU and has a total estimated area of 85 million ha, principally within the moist subhumid agro-ecological zone. Rural populations are estimated to comprise between 25 and 35 percent of the total population, and are declining. It has an agricultural population of 16 million, and the conditions for agricultural production vary considerably. Most of the crop area of 35 million ha is located within intermontane lowland plains, and is largely dedicated to wheat, maize, oil crops and barley, combined with smaller areas of fruit and vegetables. Livestock production is dominated by dairy and beef cattle, plus pigs. Associated hill and mountain areas are used for grazing and forestry.

Many new family farms have emerged in the region, with the exception of Poland and the countries of former Yugoslavia where small family farms were already the most common farm type even before the transition period. A majority of these new farms originated from the privatisation and decollectivisation of large-scale state and collective agricultural units and a large variety of organisation and ownership types has emerged. In some countries the State still owns a significant part of the land, or continues to have a share in the capital stock of transformed farms. As a consequence, in terms of ownership and management, the system is characterised by two dominant subsystems: small to medium-scale private family farms and medium to large corporate or co-operative farms.

The incidence of poverty is low to moderate and is concentrated among the most vulnerable groups, such as ethnic minorities, unemployed and unskilled workers, and those farming in marginal areas.

Forest Based Livestock Farming System

This system is located in the northwest of the region in a moist subhumid agro-ecological zone and extends over an estimated 72 million ha, of which 25 million ha are cultivated, with an agricultural population of some 5 million.

Large farms, with holding sizes from 500 to 2000 ha, are typical in Belarus and Northwest Russia. They are characterised by co-operative or corporate ownership, with production focused on fodder, hay, cereals, industrial crops and potatoes. In the prevailing macroeconomic situation, these farms generate little or no cash income. Co-operative members or farm labourers depend largely on barter to sustain their livelihoods. In all probability, as political and economic reforms continue, many of these large farms will gradually be replaced by individually owned holdings6. Smaller holdings predominate in Baltic States.

Horticulture Mixed Farming System

This system covers 79 million ha of which 24 million ha are cultivated, and is typical of the Southern Balkans, Northern Turkey and the Caucasus. The system has an agricultural population of nearly 10 million scattered primarily on sloping lands in the dry subhumid agro-ecological zone, characterised by a Mediterranean climate. Although rural populations have been declining sharply in the Balkans over the last decade, they have actually risen in the Caucasus countries. The average farm size is small and has a diversified production pattern, including wheat, maize, oil crops, fruit and vegetables, combined with cattle, sheep and goats. Cultivation of fruit, nuts and vegetables, partly irrigated or produced in greenhouses or other protective structures, contributes significantly to the value of crop production and household income - although such cultivation occupies only about 15 percent of the cultivated land. In the Southern Balkans and the Caucasus, the farms and household plots resulting from privatisation are family owned and frequently operated part-time, with off-farm employment being common. Production of cereals and oil crops is in many cases for subsistence, while marketable surpluses of fruits, vegetables and animal products are a major source of cash income. The extent of poverty - partly arising from armed conflicts - is high; it primarily affects minorities, the unemployed and landless people in rural and urban areas, marginal groups (e.g. women, old people) and populations in marginal areas.

Large-scale Cereal-Vegetable Farming System

This system is typical of Ukraine, the southwest part of the Russian Federation and the Republic of Moldova. Covering an estimated 100 million ha, principally in the moist subhumid agro-ecological zone, it has an estimated agricultural population of about 15 million. Approximately 38 million ha are cultivated. Although the process of land privatisation has started, most of the farms are still large, ranging from 500 to 4000 ha. The dominant ownership is co-operative or corporate, although private ownership is gradually gaining in importance. Rural populations represent a relatively large proportion of total population in this system - probably about one-third - and are declining only slowly. As in the case of farms in Northwest Russia and Belarus, these farms generate little cash income and co-operative members or farm labourers largely depend on production from their household plot and barter to sustain their families.

Small-scale Cereal-Livestock Farming System

This system is located in the semiarid and dry subhumid and mountainous zones of Turkey with a growing period of less than 180 days. It contains an estimated agricultural population of 4 million and covers an area of 35 million ha, of which nearly 8 million ha are farmed by owner-managers or tenants. Private ownership has led to better farm management, intensification of labour use and diversification of production. However, many farms created by land distribution are very small and some are hardly viable. Tenancy arrangements foster neither short term productivity nor long-term resource management. The main cereals are wheat and barley. Unreliable precipitation means that yields, and hence production of these rainfed crops, vary considerably from year to year. Nevertheless, small or subsistence farmers within this system produce most of Turkey's grain. Farm households consume about half of the wheat crop; the other half is marketed through commercial channels. Barley is almost exclusively used for animal feed or for export. Sheep and goats are the main livestock and play an important role in the system; but some cattle are also raised. There is some crop-livestock integration arising from traditional practices. Animals forage on crop stubble, weeds, and grass on fallow land and uncultivable grazing areas. Overgrazing of grasslands, wasteland, forests and mountain meadows is common, with substantial environmental damage and low livestock productivity.

Although poverty is increasing, the declining rate of population growth has reduced the pressure for land reform, and industrialisation offers an alternative part-time or full-time livelihood for many farmers.

Extensive Cereal-Livestock Farming System

This system is found throughout the semiarid agro-ecological zone of the Russian Federation and Northern Kazakhstan, but also covers substantial areas in Southern Kazakhstan, Turkmenistan and Uzbekistan. This is the domain of the steppe, which traditionally was used by transhumant herders, until converted to cropping over the last few decades. The major outputs are wheat, hay and other fodder crops, combined with cattle and sheep. In the drier parts, with an annual rainfall of only 200 to 300 mm, the land is fallowed every two years. The system occupies a total of 425 million ha, of which about 107 million ha are cultivated. It contains an estimated human population of only 14 million people. Ownership patterns are in transition, from collective and state farms to co-operative or corporate ownership, with an increasing number of smaller family farms. Poverty is increasing among old people, young families and former co-operative members, as well as in urban areas.

Pastoral Farming System

This is a system which is typical of much of Southeastern Central Asia. It covers an estimated 82 million ha and has a sparse agricultural population of about 9 million people. Rural populations constitute a large proportion of the total population, reaching over 60 percent in Kyrgyzstan. Most of the pastures are in high mountainous areas or adjacent dry zones. Principal livestock species are sheep with some cattle. Although the dominant activity is pastoralism, about 14 million ha in mountain valleys with slightly more favourable conditions are used for cultivation of cereals, fodder crops and potatoes for subsistence. Herd management is based on spring and autumn grazing of communal pastures close to the villages. Summer grazing is on distant, often heavily overgrazed, mountain pastures, while in winter stall-feeding predominates. Due to excessive animal populations, poor pasture management and overgrazing, deterioration of natural vegetation and soil erosion are important issues. Wool production, which was a major output during the Soviet era, has fallen dramatically since the early 1990s, while meat output has increased as farmers have reverted to the sturdy traditional meat breeds. Poverty is particularly widespread in this system.

Sparse (Cold) Farming System

This system is found in Russia, north of the Extensive Cereal-Livestock System. With 1260 million ha of land occupied by a small agricultural population of perhaps 2 million, only about 23 million ha have been cleared for cropping, interspersed in the tundra and the taiga forests - mainly in the European part. The taiga remains the world's largest timber reserve. Natural conditions allow only limited cultivation of rye and oats, as well as of potatoes and some vegetables, possibly supplemented by pig raising. Farming is constrained by the short growing season, very low temperatures and poor soils. The dominant soil type is the podzol, characterised by intense nutrient leaching and acidity. Various indigenous groups, including the Yakut and the Evenk, practise reindeer pastoralism. This system has very limited potential for agricultural development.

Sparse (Arid) Farming System

The system covers 143 million ha and has an agricultural population of about 7 million. It is found to the south of the Eurasian steppe, in the southern part of Central Asia, including most of Turkmenistan and Uzbekistan, as well as a large strip of Kazakhstan. The driest parts are only used by nomads. In somewhat more favourable areas, extensive cereal cultivation, complemented by sheep raising, is practised on about 8 million ha - typically with a harvest every two years followed by a cultivated fallow to conserve soil moisture. Large-scale farms are the dominant production structure. They are heavily indebted and, unless irrigated, not viable now that most subsidies have been withdrawn. Where bankruptcy is allowed, as in Kazakhstan, the farms that are liquidated tend to be bought for their movable assets, such as tractors and machinery, leaving workers with no choice but to migrate to the cities. There is limited potential for development except where irrigation can be used, but existing water resources are already over-exploited. In the most arid parts, reversion to some form of pastoralism is unavoidable.

Urban Based Farming System

This system occurs within and surrounding cities in the region7. Although there are no statistical data available on urban agriculture, it is clear that its importance has grown recently, as a result of rising unemployment and poverty. The land used for farming is mostly private residential land, but may also include publicly owned land allocated to certain categories of beneficiary. Urban farming produces mainly vegetables, in particular leafy vegetables, but small livestock are also an important component. Like the farmers on small household plots in rural areas, many of the urban plot farmers produce for their own consumption, with occasional surpluses sold in local markets. However, a number of urban farmers engage in commercial agriculture.

Region-wide Trends in Eastern Europe and Central Asia

This section describes the most important region-wide trends in terms of: population, hunger and poverty; natural resources and climate; science and technology; trade liberalisation and market development; policies institutions and public goods; and information and human capital. At the end of the section, three of the regional farming systems described in the previous section of the Chapter are selected for further description and analysis.

Population, Hunger and Poverty

Unlike other low and middle-income regions, populations are stagnant at present. The total population of the region - 478 million - is projected to increase only marginally to 2015 and subsequently to decline again in the period to 2030.

In part, this lack of population growth may reflect the steep decline in living standards experienced within the region since the collapse of the centrally planned economic system in the late 1980s. Per capita calorie consumption, which in the mid-1980s was higher than in the industrialised countries, had fallen by nearly 15 percent a decade later. This is still well above the developing world average, but below both the industrialised world and the Middle East and North Africa region. Projections suggest a slow recovery over the next 30 years that will still leave average consumption levels marginally below those of the mid-1980s.

Poverty levels have increased even faster than hunger. A study of the impact of the transition, using household survey data, estimates that the total number of people in poverty in the region has climbed from 14 million in 1987-1988 to 147 million in 1993-19958. While poverty levels have risen only moderately in the Baltic countries and Central Europe, they are significant in Poland and the Balkans, and severe in the remainder of the region. Poverty in the Russian Federation alone has risen from 2 percent to 50 percent over this period, signifying a shift from 2 million to over 74 million people in poverty within a decade. Similar results are visible in Ukraine, Moldova and Belarus, while the Central Asian states have reached poverty levels as high as 88 percent (in the case of the Kyrgyz Republic), although from a higher initial level.

Natural Resources and Climate

Compared to many other developing regions, there is a favourable relationship between the potential of the available natural resource base and expected population growth. Land area is about 2.3 billion ha9, or 17 percent of the world's land, while the population of the region constitutes only 8 percent of the world total. However, there is very limited potential for expansion of agricultural area - although it is argued below that there is significant scope for increased production intensity. Even though some of the land is no longer cultivated, particularly in the Extensive Crop-Livestock System10, most is not suitable for cultivation and should revert to grazing land.

The highest population pressures on natural resources will continue to be in the Balkans, Central Asia, Turkey and the Caucasus. This will threaten conservation efforts unless different practices are adopted - such as the improved watershed management approach that has been introduced on the Anatolian Plateau of Turkey. The outcome of ongoing land reform in areas where large-scale farms still prevail, will also influence the way in which natural resources are used and will determine the risk of environmental degradation. Climate change will exert additional pressure, as recent studies point to a decline of precipitation and crop yields in Central Asia11 during this century.

Annual and permanent crops cover about 292 million ha, which includes some of the most fertile soils in the world - the chernozems. Past trends indicate a decrease in cultivated land use during the 1990s, with only 60 to 70 percent of potential land resources now being cultivated in areas such as the Extensive Crop-Livestock Farming System. The reasons for this include: (i) difficulties in access to machinery and inputs; (ii) marketing issues; and (iii) the loss of irrigation facilities due to lack of maintenance. However, this decline follows decades of large-scale expansion of ploughed land to the detriment of marshes, forests and steppes, often in areas unsuitable for sustainable agriculture. It is likely that cropping in some of the more marginal areas will be abandoned, even including irrigated land where this technique is not economically viable. In fact, in most of the region, land per se is not the limiting factor; the real issues are access to land, support services and farm management capacity. However, land is severely limited in some specific areas; for example in the Caucasus and in the narrow valleys of the Central Asia Mountains.

Irrigation covers almost 29 million ha in the region, of which almost 20 million ha are located in the CIS countries (Kazakhstan, Kyrgiz Republic, Tajikistan and Uzbekistan). A further 5 million ha are found in Eastern Europe, notably Romania (2.8 million ha), and the rest are in Turkey (4.2 million ha), where surveys have indicated that an extension of irrigated area up to 8.7 million ha would be physically possible. Due to a policy of expansion to compensate for stagnating agricultural productivity, the irrigated area in the region grew at an average annual rate of 2.8 percent from 1961 to 1990. A large part of that area is located in the Central Asian countries12, where 20 to 30 percent of the cultivated land is irrigated. Cotton has always been irrigated throughout the sub-region, but in recent years the technique has also been used more widely in grain production. The development of very large irrigation systems, combined with rapid population increases in the sub-region, has led to huge water withdrawals that have had widespread and negative environmental consequences (see Box 4.1).

Forest covers about 4 percent of the Central Asia part of the region, and other parts have more than 20 percent forest on the average. The Baltic States and the Russian Federation have the largest proportion of forest cover - 37 and 45 percent respectively. Most forest areas are still under state ownership but, in some CSEE countries, part of the forest resources are privatised. In most countries, the multiple benefits of forests are not recognised, leading to underinvestment in their protection and sustainable management.

Science and technology

Technological change has been the major driving force for increasing agricultural productivity and promoting agriculture development in all countries in the region. In the past, technologies were selected and adopted mainly to increase production and productivity, and agricultural research was directed towards resolving the problems arising in large-scale farming. Thus, there is a dearth of technologies adapted to sustainable small-scale family farming in the region.

Trends in crop area, yield and output are presented in Table 4.2 below. Crop output has been stable since 1995, and is possibly increasing in a few places, but this is not yet a general trend. Cropping patterns have changed to accommodate an increased share of food crops (wheat, potatoes and some vegetables) at the expense of forage and industrial crops. Crop yields have fallen and the main reason for decreased productivity has been the reduced or discontinued use of fertilisers. However, late ploughing, lack of irrigation and low seed quality are also important factors; together with inexperienced farmers where land has been redistributed to individuals. Fertiliser use is now only about 25 kg per ha of cultivated land - less than a quarter of the level before reform.

Changes in yields and cropping patterns occurred first in private farms, and these have proven their ability to adjust to changing market conditions. Large-scale farms, even after reorganisation, have tended to keep to a traditional crop mix and management style, and their yields are lagging behind those of private farmers. Yields are expected to increase in future, but only very slowly, catalysed by farm re-capitalisation, availability of improved technologies, and increasing experience in crop management in a non-subsidised low external input setting. Market-led changes in cropping pattern are expected, with a trend away from subsistence crops towards higher value crops. Where conditions are harsh, e.g. in the Siberian steppe, yields may not rise much above former levels - stabilisation of yields and reduction of production costs are the main areas for future improvement.

Fertiliser consumption has declined during the past decade: on average by 15.8 percent per annum in CIS countries and by 6.2 percent per annum in Central Europe. The main reasons for the sharp decline in nutrient applications were the loss of subsidised energy and the rising fertiliser prices that resulted; further worsened by the lack of operating capital and credit institutions. Low fertiliser application rates have led to decreased yields, particularly for crops sensitive to nutrient deficiencies, such as potatoes and sugarbeet. Yields have eventually stabilised at a low level in the CIS countries, while they are recovering slightly in Central Europe.

Trends in livestock populations and output are presented in Table 4.3 below. Livestock in the region include cattle (88 million); sheep and goats (117 million); pigs (78 million); and poultry (1100 million). During the last 10 years, the number of animals and livestock production has been decreasing. Forecasts up to 2030 indicate slow recovery and growth of animal numbers. The expected increase in meat production will therefore be generated mainly through increased productivity per animal.

The fall in livestock numbers has occurred across all farming systems, but possibly for different reasons. In the colder zones for example, cattle raising relied extensively on imported grain and is currently unprofitable. In the Caucasus, and even more in Southern Central Asia which have extensive grasslands and are better suited to low-cost livestock production, individual farmers were at first unable to keep all the animals released through the liquidation of the sovkhozes and kolkhoses. However, they are now keen to build up numbers again. Nonetheless, even with the renewed inclusion of fodder crops into the rotation, the finite range resources available in the vicinity of villages will limit the potential for livestock expansion in these areas. Overall, the scope for returning to former stocking rates is unclear, although there is potential for increased productivity through better health and feed management; specialisation is expected to become more widespread.

Trade liberalisation and market development

Due to the ending of economic ties within the former Soviet block, as well as to armed conflicts in some areas, many countries have lost their traditional markets. With the liberalisation of trade, domestic markets have been affected by rapidly increasing imports with which producers could not compete, even on the domestic market. This has particularly affected countries that were traditional exporters of horticultural produce (Bulgaria, Georgia, Moldova, Armenia, Macedonia). Reorientation to new regional and global markets has been constrained by the limited progress of economic reforms, as well as by the need for adoption and compliance with internationally recognised food quality and safety standards.

The dismantling of huge agro-food complexes has resulted in the breakdown of traditional marketing channels. In the absence of effective institutional and economic frameworks for agriculture and agro-processing, as well as of market support services, farmers are unable to sell their produce on local and regional markets. Marketing is sometimes constrained by local monopolies that are often the only available option for farmers to purchase inputs and sell their produce.

Low productivity and quality, as well as the absence of competition, were common features of agricultural systems in the region, thus restricting competitiveness in world export markets. With terms of trade for basic foodstuffs expected to decline over the next 30 years, the competitiveness of export commodities - especially those produced in irrigated areas - will remain a key problem. However, should major advances be made in farm reorganisation and management, the region in general, and in particular the Large-scale Cereal-Vegetable Farming System, offers potential for a substantial contribution to world cereal markets. Suitable agricultural policy measures in the Russian Federation, Ukraine and Moldova could transform world cereal markets by improving the competitive position of these countries with respect to the currently highly subsidised production in the EU.

Policies, institutions and public goods

All countries of the region have had to adapt in order to meet the requirements of the market economy. This has required change in all formal and informal institutions, and in the governmental, political, and organisational framework. Central European countries have advanced furthest and, with the prospect of joining the EU in sight, they are working towards completion of institutional and policy reforms within the framework of the EU accession process.

Although significant progress has been made in these countries, mostly in the areas of macroeconomic and trade policies, some areas of adjustment of farm structures, land policies and markets still require further deregulation and appropriate institutional arrangements. In the early years of transition, agricultural support fell substantially and policy instruments changed, as the role of central planning declined and trade barriers were reduced. However, in Central European countries, support for agriculture was gradually increased after the mid-1990s. In other countries of the region reforms began later and they are still engaged in land privatisation and establishment of property rights, restructuring of agricultural enterprises, and deregulation of markets. Some new policy instruments have been introduced, but the policy framework and institutional arrangements still need to be adapted to new market economy concepts.

Except in Poland and the countries of former Yugoslavia, where small family farms have always been the most common farm type, large collective and state farms have dominated agriculture during the past half century. These units, covering thousands to tens of thousands of hectares, employed hundreds to thousands of workers and were responsible for organising most of the life of these families - including primary production, marketing of products, and the provision of economic and social services. Moving from communism has often depended upon political willingness to dismantle these units13. The extent to which intent was translated into actual land reform - and the pace and procedures of this restructuration - varied considerably from one country to another. However, a common feature of these countries is the unforeseen complexity of this transformation process, linked to the extraordinary difficulty of `re-inventing' farming systems based on individual property and management.

Besides some resistance from the defenders of the previous system, the reasons for these difficulties mostly relate to the fear of many rural households of moving from a previously protected environment to a world full of uncertainties and risks, in which many institutions and support services have not yet been established. As a consequence, even though land is officially privatised in many countries, the new systems are far from being established on the ground. Whereas farm restructuring has hardly started in most of Russia and Ukraine, most other countries are at different intermediate stages of organisational change. This has led to the co-existence of a large variety of organisations and ownership forms such as: (i) joint stock companies; (ii) limited liability companies (these two types are in many cases managed as former collective farms); (iii) co-operatives (often involved in primary production); (iv) farm associations; (v) peasant farms (newly formed small groups of individual households); (vi) family farms; and (vii) household plots. In some countries the State still owns a significant part of the land, or has a share in the capital stock of transformed farms.

Land tenure is still a major issue, and in most countries, land titling is lagging behind schedule and property rights remain unclear. As a consequence, farmers are not able to use land as collateral. In other cases, although titles have been allocated, plots of land have not been distributed. So called `absentee ownership' is rather common. These absentees include those who are reluctant to leave the collective and an important proportion of retirees who have received land shares but do not wish to embark on production. In many cases, land markets are not operational due to legal constraints or titling issues. In some countries, the existence of efficient land markets is inhibited by legal restrictions on land transfers, as well as by government interference in the valuation of land and determination of land prices. Often, informal renting arrangements are found, but these are not transparent, and therefore do not favour long-term management of land resources nor investment in improvements.

One of the consequences of the land distribution process is the fragmentation of land (see Box 4.2). Individual recipients have received their land in the form of numerous plots which comprise various qualities of soils, as well as various perennial crops. The resultant production constraints mainly relate to use of farm machinery on small fields and increased transportation costs to scattered parcels. Over time, two types of land consolidation will occur: (i) producers will swap or exchange land either formally or informally; and (ii) the most active ones will concentrate larger quantities of land through renting or land purchase. These phenomena should be favoured through information campaigns, concerning the appropriate legal framework of these exchanges; but in no way should land consolidation be forced.

Another issue associated with farm restructuring is the distribution of farm assets, including farm machinery, buildings, stores, vehicles, and even processing equipment. In theory, farmers had the right to a certain share of these assets. However, they have largely been deprived of this right for a number of reasons including: (i) looted equipment; (ii) the difficulty of distributing large pieces of equipment or buildings to individuals; (iii) poor level of information concerning farmers' rights; and (iv) obsolete assets.

Finally, most of the large farms in the region have huge debts. The accumulation of these debts was in part due to a policy of write-offs, which came to be expected and which reduced farmers' interest in controlling their debts. In turn, these large debts have become a serious obstacle to restructuring collective agricultural enterprises in the region through bankruptcy15. Indebtedness has also inhibited the adoption of better technologies.

Information and human capital

Although initial steps have been taken towards more demand-driven agricultural knowledge support services, problems associated with the transformation of agricultural knowledge systems and their refocusing on the needs of market oriented farming are still widespread16. Severe budget cuts have weakened the existing, oversized research systems. Further developments will largely depend upon institutional reforms, as well as upon building a consensus among stakeholders concerning the basic principles that underlie demand-driven and cost-effective agricultural research and extension systems.

Following the end of central planning, it rapidly became clear that farmers needed access to information about technologies, farm management, business planning, markets and, in particular, prices. To address these needs, many countries have now established Market Information Services (MIS), usually with financial and technical assistance from outside donors. Several MIS are now finding that they lack the resources to continue a comprehensive service once donor funds have dried up. It is expected that various private channels of information and advice will develop but, unless a role for public support of extension is recognised, these will mostly target the better-off farmers, leaving the majority without proper information and advice.

Despite the deterioration of agricultural knowledge systems, there is still substantial human potential, particularly in technology-related fields, that can be used to develop and disseminate economically efficient and environmentally sustainable technologies. Further reforms and changes to agricultural research and extension systems - combining both public and private sectors - will be beneficial for expansion of technology options. These reforms, plus more participatory adaptation of new technologies and management practices by farmers, could decrease the cost of access to technology.

Rapid urban development during the last few decades, combined with the ending of formal restrictions on movement and settlement, has resulted in the wholesale migration of younger educated and skilled people from rural areas to cities, resulting in the ageing of the rural population. Due to the poor economic situation during the transition period, combined with restructuring of state and collective farms which included layoffs of surplus labour and the absence of employment opportunities in rural areas, these migration and ageing trends are continuing and even accelerating.

Past economic and social policies have contributed to over-employment on state-owned and collective farms, resulting in low labour productivity. As non-agricultural activities have largely collapsed, household plots have now assumed even greater importance for farm workers. In the deteriorating economic situation, agriculture will continue to represent the only possibility of maintaining a decent livelihood for most former farm members, and it will also need to absorb labour from other sectors.

Selection of farming systems for analysis

Of the eleven major farming systems identified in the region, three have been selected for further analysis on the basis of their potential for reducing poverty and increasing agricultural production; as well as their demographic and economic importance:

• Mixed Farming System;
• Large-scale Cereal-Vegetable Farming System; and
• Extensive Cereal-Livestock Farming System.

MIXED FARMING SYSTEM

Characteristics of the system

In terms of ownership, management, farming traditions and production patterns, the Mixed Farming System, covering some 85 million ha, is typical of those Central European countries that seek accession to the EU17. Although heterogeneous, Central Europe has generally good agro-ecological conditions. The types and quality of soils vary widely, from poor sandy soils to rich chernozems. Annual precipitation ranges from 300 mm in the southeast, to more than 3000 mm in the mountainous parts. In the warmer parts of the region, severe droughts sporadically affect crop production and yields. Despite this, the irrigated area accounts for little more than 10 percent of the 35 million ha of cultivated land. This land is located in the plains, which are separated by mountain and hilly areas more suitable for livestock production. There are an estimated 14 million head of cattle within the system.

The total population of the farming system is 99 million, of which 36 million live in rural areas with about 16 million economically active in agriculture. Although the incidence of poverty is low by regional standards, there are vulnerable groups exposed to more severe poverty, including minorities, marginal groups, unemployed and unskilled labourers, and people living in marginal areas.

Many private, family farmers cultivate land with obsolete machinery obtained from former co-operatives or at auctions, but those operating larger farms have succeeded in buying new machinery. In order to minimise costs, farmers frequently limit cultivation and apply low doses of fertiliser. The most important crops are winter wheat, sunflower, oilseed rape, fodder crops and a smaller proportion of spring barley and alfalfa. Corn, sugar beet and pumpkins are grown on the better soils. However, the area of high value crops is not great. Livestock production in stables often complements crop production and crops are partly used as feed. Smaller diversified farms (see Box 4.4) rely heavily on income from livestock. The system also contains a number of larger, specialised livestock farms, with animal numbers in the range of 30 to 70 pigs, 10 to 30 dairy cows or 15 to 40 fattening steers, depending on the species specialisation.

Trends and issues in Mixed System

The decline in input use and changes in cropping patterns resulting from land privatisation have affected yields. As the amount of land operated by private farmers has expanded, its use has generally become less intensive. In some parts of the system, crop production is also subject to frequent natural disasters (drought and floods), against which there is no effective insurance system. Due to the reduced levels of input use, crop yields have significantly decreased, especially on the small family farms. The relative price of inputs has increased compared to output prices, with consequent declines in the use of inputs. Although fertiliser use has generally started to increase, there are huge differences between countries due to different pricing policies. The cost of inputs is also affected by interest rates which are still high in many CSEE countries.

At present, many family farms are small and fragmented, but structural reforms and adjustment to the EU model of agriculture are expected to promote land consolidation and to increase farm size to a range of 20 to 120 ha. It is also expected that, wherever there are off-farm income opportunities, these will be used to supplement family incomes and that part-time farming will become common.

Farmers still cannot be certain that they will be able to sell their produce and receive timely payment. Access to inputs is also difficult, due to local monopolies created by uncontrolled privatisation of the non-land assets of former state and co-operative farms. The new owners, often former farm managers, lease out farm machinery, supply farmers with inputs, and also act as intermediaries in the sale of farm products. Increased commercialisation and linkage into the food distribution chain is inhibited; not only by the lack of market support institutions and information, but also by the lack of management capacity and knowledge. Efficient markets for farm inputs and products have yet to emerge and this impedes the successful operation of the newly privatised agricultural sector.

In the course of EU accession, the candidate countries are adjusting their institutional and policy frameworks. Although much progress has been made in a number of areas there is still insufficient awareness, particularly at the local and farm level, concerning the extent of necessary changes. It is essential to arrive at a clear definition of property rights, and to draft and implement related legislation that will enable the development of fully functional land markets and efficient rural credit systems. This would facilitate access to new technologies and improved farming practices, with a beneficial impact on yield and productivity, as well as on the environmental performance of farms.

Priorities for Mixed System

The priorities for improving the farm systems of poor farmers relate to: (i) intensification of existing production patterns; (ii) enterprise diversification; and (iii) increased farm size through better land tenure and land markets. In addition, off-farm income will be a further important source of poverty reduction.

Small and fragmented holdings reduce the efficiency of family farms but, since land markets are still not fully functioning, there is limited possibility of increasing farm size in the medium term. At the same time, in a number of countries, substantial areas of land are left unused, as many newly reinstated landowners have no interest in farming. It is, therefore, necessary to facilitate and improve the terms of land leasing in ways that poorer farm households can benefit. In the longer term, together with the improved functioning of the land market, land consolidation programmes should be developed. In conditions of restricted farm size, intensification - and in some cases specialisation - would be beneficial in order to improve competitiveness and to enhance income generating opportunities.

Marketing channels, designed for the large-scale production that existed in the past, have not been replaced by appropriate market support mechanisms, thus leaving newly established family farmers without efficient facilities to market their produce. Furthermore, there has been insufficient integration of production and post-production phases to assure food quality that could compete with subsidised imports. As a consequence, not only export but also domestic markets are difficult to access for small family farms. In many cases, development and promotion of local markets should be a priority measure. In order to exploit new market potential, farmers need better information and decision support services, as well as management and organisational skills. These services and skills can be promoted by better farmer co-operation and an increased participation by farmer' interest groups and organisations. There are positive examples of farmers organising themselves, even in situations where there is little government support or a suitable institutional framework.

The trend towards further restructuring of large corporate or co-operative farms, and enlargement of small family farms, should be accompanied by measures to increase off-farm employment opportunities in rural areas. In addition, the orientation towards the EU model of agriculture also implies an integrated approach to rural areas - not only to provide space for agricultural activities but also to create possibilities for development of a range of off-farm activities and services (e.g. rural tourism, protection of the landscape and the environment). In all countries that are candidates for accession, past and recent EU-supported programmes in agriculture have been used to support infrastructure and institutional development. Promotion of alternative and supplementary on-farm and off-farm activities is needed in order to facilitate new opportunities created by rural development programmes, to open new possibilities of income generation and diversify livelihood systems.

LARGE-SCALE CEREAL-VEGETABLE FARMING SYSTEM

Characteristics of the system

The Large-scale Cereal-Vegetable Farming System is typical of the less advanced transition countries with good agro-ecological conditions - for example Ukraine and Moldova - but can also be found in neighbouring countries. It covers a total of 100 million ha, of which just under 40 million ha are cultivated. Annual precipitation ranges from 360 mm (for example in the Crimean peninsula where irrigation is necessary to satisfy the summer crop water requirements), to 1600 mm in the Carpathian mountains of Northwest Ukraine. Droughts are frequent in the southern and eastern areas. However, only 10 percent of the cultivated area is irrigated and is found mainly in areas where the groundwater level has fallen significantly due to excessive drainage.

Total population is nearly 70 million, while the agricultural population is estimated at 15 million. Most farms range in size from 500 to 4 000 ha, but there are still examples of huge farms exceeding 10000 ha. These latter farms are associated with large rural communities of 500 to 800 persons, many of whom are employed there. Farm employees also work their household plots. The main crops are wheat, barley, maize, sunflower, sugar beets and vegetables. There are nearly 25 million cattle within the system.

Trends and issues in Large-scale Cereal-Vegetable System

The system is characterised by a remarkably high production potential. This potential was not fully utilised during the Soviet period and productivity has fallen since. The natural resource base that gives the system a high crop yield potential includes the chernozem and chestnut soils extending through Ukraine into neighbouring Russia and further into Central Asia. These soils are among the prime wheat soils of the world. Crop yield constraints are low annual rainfall and for wheat, high temperatures during the grain-fill period. Rainfall is not sufficient to allow any appreciable leaching, and very little of the rain percolating into the soil ever reaches the groundwater or the rivers. However, melting snow on frozen land can cause run-off with consequent erosion. During the 1980s, typical average yields achieved by the collective and state-owned farms were 3 t/ha for winter wheat and 25 to 30 t/ha for sugar beet18, but these have since declined to as low as 2t/ha for cereals and 10 t/ha for sugar beet. However, experience has shown that cereal yields, even on large collective farms, can reach 7 to 8 t/ha and can be maintained at that level without any apparent negative effects on the environment. Sugar beet yields can reach 60 t/ha with relatively simple technologies.

The technique that unlocked the production potential in the West European cereal farming systems in the late 1970s was the synergistic interaction between nitrogen fertiliser and modern fungicides19. The technology package is simple; involving moderate nitrogen and phosphate applications, a modern fungicide and a simple growth regulator. Available machinery can be used for cereals, sugar beet and oilseeds, but hydraulic sprayers frequently need an improved filter system and new nozzles. However, farm managers have not yet adopted these technologies, as the cost is high relative to current yields. Nonetheless, deep-rooting crops grown on deep, structurally robust and fertile soils are a highly efficient use of land in this system. In the black-soil belt of Ukraine, the ecological and technological potential is at hand for the recovery of the crop sector - possibly even in the short term. Winter wheat, spring malting barley, sugarbeet and oil crops, particularly sunflower, but also possibly spring oilseed rape, are crops that link in with the industrial processing sector and in which this system already has a competitive advantage or is likely to develop one.

The former organisation of labour, with an abundant labour force and limited individual responsibility, has left a legacy of poor motivation and appalling work practices, affecting workers as well as management. A culture of defensive management has developed, using information to deflect blame rather than to enlighten and improve management and productivity. This is perhaps the most intractable feature of the large farms in the system.

While in the long run business management and some form of empowerment training is critical, agronomy training - including training in Integrated Crop Management (ICM) - is even more crucial if sustainable agricultural practices are to be established and maintained. Established private farmers need access to the same kind of training programmes, concentrating on farm business management, crop production technology, ICM and marketing. A number of farm employees are not directly involved in agricultural operations, but work in activities such as catering, teaching, transport or machinery repair. Access to appropriate training can encourage these groups to provide services as small private enterprises. This can make it possible for large farms to divest themselves of these activities in order to concentrate on core agricultural operations.

Private farms have no access to agricultural extension services. The large corporate farms still have their in-house expertise, but this is unlikely to be adequate in an emerging free market system. An effective extension service is therefore needed to support both the private farmers and the large-scale farms with technical information and advice. This would cover the whole range of agricultural activities from livestock enterprises - most pertinent to small private farms - to crop production and marketing. A situation where the input supply sector alone would cater for information demand must be avoided. Agrochemical suppliers are already providing advice as part of their sales campaign, but can cover only a small segment of the total need and only with a certain amount of bias.

Priorities for Large-scale Cereal-Vegetable System

The main strategies for the reduction of poverty in small farm households are: (i) increased farm size (or at least, individually operated area); (ii) intensification of existing production patterns; and (iii) enterprise diversification.

Continuation of farm privatisation remains the highest priority with a view to creating well-managed family farms. This will provide a livelihood for most of the existing rural population and reduce poverty, as well as producing a significant share of the future overall agricultural value added. In the process, attention must be given to the distribution of land and asset shares to individuals in collective farm enterprises; as well as to the possibility of workers retaining these when they leave. However, this would still be insufficient guarantee to give complete confidence to all would-be new entrants. The reasons that farm workers are so hesitant to start their own farm - even though private farms are performing better than large-scale farms - need to be better understood, because this form of privatisation represents an important means of reducing poverty. For example, the possibility of providing some initial assistance, in the form of a small loan for working capital, might be explored.

In parallel, programmes to raise agricultural productivity through introducing efficient cereal growing technology from Western Europe will provide this system with the best chance of rapidly reviving agriculture. Success on this front would make farms profitable and allow them to re-capitalise, particularly in terms of soil fertility and equipment (see Box 4.7). Such programmes should emphasise: collaborative work between farmers and scientists to validate and adjust techniques; training and short visits to farms in Western Europe; plus access to technical assistance and specialised equipment parts. Private farmers are expected to respond faster than large farms and should be the primary group to be involved. Communication will also be important to build awareness and acceptance in the farming community, as well as in government circles and the private sector.

Human resource development is vital to turn around and diversify the Large-scale Crop-Vegetable System. Farm managers need training in financial and strategic business management, they also need courses in human resource development and management. Farm workers need technical skills, as well as empowerment training. It is from their ranks that private farmers can emerge.

EXTENSIVE CEREAL-LIVESTOCK FARMING SYSTEM

Characteristics of the system

The system is typical of semiarid regions of the Russian Federation and Northern Kazakhstan, but also covers some areas in Southern Kazakhstan and neighbouring Turkmenistan and Uzbekistan. The average length of the growing season is 125 days. Annual precipitation ranges from 200 to 400 mm per annum. Rainfall is most prevalent during spring and fall. Winters bring little snow (200 to 300 mm), many sunny days and strong winds. Summers are dry with hot, dry winds. This is the steppe area with natural grassland and soils that vary from black chestnut soils in the north to brown forest and lighter soils in the southern part of the zone. Historically, this area was the home of herdsmen migrating over long distances to avoid extreme winters and to seek seasonal pastures. There was very little sedentary agriculture. During the Soviet era, pastoralists were collectivised and livestock production intensified based on cultivated and irrigated fodder. By the mid-1980s, this approach had resulted in a large population of sheep, accompanied by serious degradation of pastures and reduced productivity of livestock operations.

The system extends over 425 million ha, of which 106 million ha are cultivated. The total population of the system is almost 100 million, but the agricultural population is estimated at only14 million. This region was famous for its huge state and collective farms, which were built through the legendary Virgin Lands Programme that literally transformed the steppe from grassland pastures to highly mechanised farms for wheat production. Wheat cultivation was characterised by a very input-intensive technology to smooth out variability arising from climate-induced changes in cropping conditions. Some farms were as large as 300000 ha, including croplands and extensive pastures. Farm and community were one and the same. During the restructuring reforms, former state and collective farms have been officially privatised and transformed into production co-operatives, partnerships and joint-stock companies, private farms and family farms. Farms are generally large, the average extent depends on the agro-climatic conditions of the area. Larger farms registered as production co-operatives have an average size of about 14000 ha, but there still are examples of much larger farms. Corporate partnerships and joint stock companies average about 8500 ha; and relatively small, so-called peasant, farms about 450 ha.

Production co-operatives, partnerships and joint stock companies account for as much as 80 percent of the total agricultural land. Within these large-scale farms, household plot production has assumed increased importance, accounting for about half of value-added in agriculture. Principal outputs are wheat and barley, hay and some industrial crops combined with traditional breeds of sheep, cattle and horses. Livestock production is based on summer pasture grazing and winter stall-feeding. As a result of livestock privatisation, about 85 percent of the animals are privately owned. Agricultural output fluctuates from year to year depending on weather conditions.

Trends and issues in Extensive Cereal-Livestock System

The productivity of labour and other resources within the system has been decreasing in recent years and is now very low. The decline in production is due to a number of factors, including initial confusion surrounding the transition, reduced purchasing power of the population following the drop in food subsidies and deteriorating economic conditions, the collapse of former domestic and export markets, declining input use, and deteriorating irrigation infrastructure and machinery stock, associated with the breakdown of the cash economy. Over decades of Soviet central planning, the system rarely used criteria of economic efficiency, regional specialisation or competitive advantage based on world markets. An additional factor contributing to the sharp decline in wheat productivity is the progressive degradation of the resource base, as a result of years of unsustainable cropping patterns. Some 20 percent of the land that is particularly unsuitable for cultivation has now been taken out of wheat.

The financial situation of large-scale farms has continuously deteriorated, resulting in a downward spiral of increased indebtedness, growing inability to buy inputs and reduced productivity. Wages are not paid regularly, paid in kind, or paid after months or years. Some farm workers have been reduced to half-time employment or sent on leave; receiving basic food rations and fodder as payment. As a consequence, the role of household plots in sustaining livelihoods has greatly increased.

Land reform measures have formally dissolved the Soviet-style collective farms, but farm restructuring has often been flawed. Farm members did not receive sufficient information about their rights to land and assets, nor were they adequately informed about possible choices related to the formation of new legal entities - including peasant or family farms. Many were not ready to engage in private farming, as they had insufficient experience in farm management or technical farm activities, and were concerned about lack of access to inputs and services. Because of these reasons and sometimes under pressure from the former manager21, many pooled their land and non-land assets to form new large co-operative farms, with little or no change in the former collective style of management. For most of these newly organised farms, restructuring has not brought about much efficiency gain and their financial condition continues to deteriorate. Moreover, land remains under state ownership, which makes access to credit difficult and also decreases incentives to invest in productivity-improving technologies.

However, the situation is improving in some areas. For example, in Kazakhstan, the new bankruptcy policy has led to the creation of thousands of new independent entities, most of which are peasant farms. This approach has two objectives: (i) to write off farm debts and so permit access to bank credit; and (ii) to accelerate changes in farm sizes, ownership and management so that they can become more efficient and viable. New forms of ownership and management have also been introduced, such as contract farming, or farm acquisition by large grain or industrial companies providing for vertical integration. The outcome is not positive everywhere as, after debt write-off, some farms still retain the former style of management. Restructuring is, however, proceeding fast in the southern areas, which have more favourable agricultural conditions and where the majority of the poor live; as well as in the irrigated zones of the northern part. Farms in less favourable areas seem to prefer to go bankrupt and close down. In the process, many farms are bought by outsiders and stripped of any valuable movable property, leaving the farm workers without equipment. Additionally, the ongoing restructuring involves the transfer of social services to local governments. This entails a risk of the poor losing access to health, educational and social services.

Constrained by a lack of working capital, farmers have reduced input use to low levels which may be unsustainable. The major problems are in the areas of fertilisers, pest control and seeds. Locust infestation has been particularly severe in the past few years. The seed sector may be hardest to revive, in the absence of a proper legal and regulatory environment and the lack of clear policies. The state of disrepair of agricultural machinery is also a cause for serious concern. Moreover, the type of equipment now needed is different from that formerly produced: it should be smaller, lighter, and more precise. Such equipment is not affordable by the majority of farms.

Agro-processing, distribution and marketing appear to be the weakest links in the agricultural system. Proximity to urban areas, and thus potential direct access to markets, is an important factor influencing the profitability of farms. There is sufficient processing capacity in the region but most of the units are antiquated and inefficient. Inadequate and poor-quality equipment for storage, processing, transportation and product handling contributes to heavy post-harvest losses and low prices for producers. Former state-owned enterprises continue to enjoy a monopolistic position in the industry and constrain producers' access to free, competitive markets, as well as restraining entry of new capital, technology and management. Barter still dominates trade, representing over 80 percent of total sales.

Priorities for Extensive Cereal-Livestock System

The main strategies for poverty reduction are: (i) increased size of smallholder farms and livestock herds; and (ii) intensification of existing patterns of production. Although average farm sizes have been reduced, there are still many very large farms, and only some have been divided into family units. Completing the land reform and restructuring process is a major priority in order to increase farm sizes of poor households.

Because of the agro-climatic conditions in the crop-livestock regions - low and extremely variable precipitation combined with strong winds - improving wheat cultivation requires agronomic and soil conservation practices that enable moisture retention during the winter, utilise summer precipitation efficiently, and address serious wind erosion problems resulting from cultivation. Because weed control and efficient use of moisture have been identified as essential in improving the productivity of grain production, conservation tillage is a potentially useful technology. It has already been developed successfully in similar agro-ecologies in other countries and should be explored further for this system. Alternative rotations and crop diversification, that would provide farmers with greater flexibility and protect the resource base, should also be investigated.

The major constraints to livestock development are the insufficient feed base, poor animal health management resulting in high morbidity, and generally poor technical and financial management. Traditional breeds are well adapted to the local conditions and the more extensive management that is now required. For sheep breeds, the promotion of those selected for wool quality may not be in the interest of small-scale producers until local prices for wool improve. The traditional fat-tailed meat breed requires less fodder during winter, can be maintained on grazing in semiarid areas, and is more profitable. There is a large potential for using natural pastures to cut production costs, by improved grazing management; for rehabilitation of forage seed production; and for distribution of new forage species to livestock producers. Considerable work is required on developing a policy and legal framework for more efficient pasture use with a focus on enhancing and preserving pasture variability, preventing land grabbing by the influential, and ensuring security of tenure and user rights of small-scale producers.

Agricultural research has remained largely in the Soviet pattern and research activities have dwindled due to lack of funding. The system is greatly oversized and needs to start responding to the needs of both large and peasant farms through more practical and demand-driven research programmes. Competitive grant schemes would enable governments to use available budgetary funds more effectively for agricultural research, and to mobilise private-sector resources. There is a large gap in the agricultural advisory services in the region. In the Russian Federation, there was no need for an independent extension service as former state and collective farms used their own technicians, in addition to the technical services provided by the government specialists. However, following farm restructuring, farm technicians have started to operate their own farms and are no longer available to advise other farmers who need their services. There is an urgent need for efficient, market-based advisory services in agriculture; these will require partial public financing, at least initially and particularly for small family farms, as described in Box 4.10.

STRATEGIC PRIORITIES FOR EASTERN EUROPE AND CENTRAL ASIA

This section highlights some of the major challenges in the region and suggests possible approaches and investment opportunities. Table 4.2 ranks the potential of each system for agricultural growth and for poverty reduction, and indicates the relative importance of five major household strategies for poverty reduction. The assessments are based on expert judgement, and the score for the region has been calculated as a weighted average based on proportion of agricultural population (see Table 4.1).

There is substantial scope for both agricultural growth and poverty reduction, although the two are not necessarily completely inter-dependent because of, inter alia, the distribution of land. With regard to the strategies of poor households for escaping poverty, production intensification holds the greatest promise on a regional scale, followed by an increase in farm size (among poor farmers). Much of the size gain is expected to derive from further land distribution, although improved land market functioning (both formal and informal) are likely to contribute over the next 30 years. It is also expected that substantial numbers of households will leave agriculture for other occupations. The following public actions are designed to support households in implementing these strategies. These conclusions need to be interpreted in the context of declining and ageing rural populations24.

Since future developments are expected to include further privatisation, structural adjustments and market liberalisation, it is likely that some of the systems characterised by small size and private or family ownership will gain in significance. After almost 10 years of reforms, the differences between the CSEE and Baltic countries on the one hand, and the CIS countries on the other, have been accentuated. Due to the adoption of more comprehensive transition policies the transformation of agriculture is most advanced in Central Europe and the Baltic, agricultural production has started to pick up again, and labour productivity is increasing - thanks in part to the creation of alternative job opportunities outside agriculture. In contrast, the transformation of agriculture in the CIS countries is still in its early stages. The large-scale farm units have still survived in many of those countries, and distortions in production, pricing and marketing of `strategic' products continue. For these reasons, emphasis is given below to discussion of the CIS countries, where many of the issues are far more acute and solutions are less readily at hand.

Policies, institutions and public goods

Attempts to reform large-scale farms through a number of international projects in Russia and the Ukraine25 have not been particularly successful so far. The restructured farms are still too large for efficient management, and are only marginally more efficient in terms of yields and market orientation. In most cases, only a handful of family farms were created in the restructuring process.

If reforming the core farm management structure fails, a different approach is needed; one that would take into account the whole farm community. It is significant that household plot production has increased sharply during the past decade and now represents almost 50 percent of total output value. However, household plot farmers are not yet ready - or not allowed - to become private farmers. Rather, a symbiotic relationship tends to develop between the small production units and the mother farm26, the former possibly specialising in labour-intensive activities and the latter in providing services (access to inputs, tractors, and sometimes marketing). Farm workers need household plots to feed their family, while farm managers' positions appear to depend more on the relationship they maintain with the workers' community than on their actual performance in managing the corporate farm. Such a form of association might provide a possible framework for transforming large-scale farms, even if it entails the creation of a large number of family farms that are perhaps, initially too small to be economically efficient. This may be preferable to the alternative of large-scale liquidation of the mother farms, if in the process those farms are stripped of all valuable assets and workers forced to leave - as is happening in marginal areas of Kazakhstan.

In countries where farm restructuring is not complete it is suggested that other avenues for farm restructuring be tried, giving more emphasis to social dimensions and less to the need to retain large farms for the sake of increasing national output. Even in relatively marginal areas of the Extensive Cereal-Livestock Farming System, a farm with 40 to 50 ha of cultivated land with access to pastures, provides a family with a better livelihood than can be obtained within the large farm; and the family farm contribution to the national economy is greater. The requisite minimum land area can fall to less than five ha in the higher-potential areas of the Cereal-Vegetable Farming System.

The best arrangements, final outcomes and ways to reach them, will differ from place to place. Two other ways could be envisaged; one leading to small private farms serviced by a medium-sized corporate farm27, leasing its land from ex-members and providing contractual services. The alternative would lead to fully independent small farms; services being provided by individuals among them (e.g. tractor owners for machinery services) or by various co-operation mechanisms. The first solution would have the merit of retaining certain core services requiring specialised skills and capital-intensive equipment (e.g. mechanical workshops), until the private sector can effectively provide them. Specific issues that would need to be addressed to promote such solutions would again differ with location, but generally include the need to write off the debt of the former large farm. Land tenure arrangements would preferably ensure freehold and free transferability of titles, at least for the cultivated land. For pasture land, communal leasing arrangements may be preferable for optimum management and to avoid exclusion of the poorest.

Although structural change in the farming sector is not yet complete in the CSEE countries, most of the land is now controlled and farmed by individuals in all but two of those countries. The share of land under state control remains high in some countries, however, and land markets are generally only weakly developed, although this is now rapidly evolving, particularly in the countries moving towards EU accession. The basic requirement is to develop a land tenure system that facilitates secure and equitable access to land. This will comprise land administration functions that are generally provided by the public sector in developed market economies; including registration, plus valuation and planning - together with support for their associated institutions. It also includes capacity-building related to the appropriate professional skills and professional institutions that are associated with these and other activities related to land markets in the private sector. With the basic land registry now being compiled, attention is focusing on the enhancement and strengthening of land administration structures to support market transactions. Mechanisms are required to ensure fair, transparent and secure access to land and natural resources - whether through ownership or leasing - and to protection property rights.

New professional skills need to be acquired, particularly in the market-related fields of valuation and real estate management. The main focus will therefore need to go beyond the current emphasis of establishing formal land tenure institutions of modern cadastres - plus land registration systems - although these will continue to be important priorities. There will be a need to extend this support to include the development of the other institutions broadly considered under land administration, in order to produce relevant professional skills and institutions. Given the globalisation of capital and the rapid development of international accounting and valuation standards, valuation skills are seen as an important issue in this context.

Land reform policies that focus exclusively on creating efficient large farms, hoping that workers will find work either within those farms or elsewhere, may be doing more harm than good. Any agricultural policy - particularly in countries where large-scale farms still prevail - needs to be tested for its potential impact on labour and poverty. Specific rural poverty alleviation policies are needed which, inter alia, must improve access of the poor to objective information on land and non-land property rights; as well as involving civil society in protecting the rights of the poor. In designing rural poverty alleviation initiatives, the importance of rural communities and rural livelihoods must be recognised. In particular, attention should be given to non-agricultural aspects of rural life, such as health, education, infrastructure and non-agricultural economic activities. Participatory methods, involving NGOs where possible, can facilitate such an integrated approach to local development and poverty alleviation.

Trade liberalisation and market development

Marketing of agricultural products is one of the major bottlenecks faced by producers in the region, particularly in light of the importance of diversification for poverty reduction. However, the current situation differs between the two sub-regions.

In the CSEE countries, the macro-economic environment has become more favourable in recent years (except in most of the Balkans), and prices are to a large extent open to world market influences. While support for agriculture and protection of domestic markets has increased in the past 4 to 5 years, it is generally below EU levels. Increased convergence is expected in the years to come. The challenge will be to retain methods of support that serve efficiency and competitiveness, rather than protecting inefficient farm structures.

In most CIS countries, the situation appears much worse than it was before transition. Economic reform has often meant the collapse of the previous system, based on state controlled allocation of raw and processed products and the consequent specialisation of certain regions or republics in the production of agricultural products. However, a predicted process of `natural' transition to a market economy appears - after 10 years - to have failed to establish an alternative marketing infrastructure or associated support services. This has contributed to increased poverty amongst producers and the development of a barter economy during the 1990s. Entire countries, whose economies are based on agriculture and which have seen their traditional allocated or centrally-determined production and distribution mechanisms disappear, have fallen into poverty. This is the case in Moldova, Armenia, Georgia (specialised in horticultural products such as fruits, vegetables, juices, wines) and to a lesser extent in Macedonia.

The root causes of this situation include: (i) the overall economic crisis throughout the region, leading to a dramatic decrease of purchasing power among the population and hence lower demand for agricultural products; (ii) the inefficiencies and obsolescence of local large scale, often technically bankrupt, processing industries, and their obstruction of alternatives approaches to marketing and market development; (iii) various trade barriers common throughout the region, which reduce competition among intermediaries, hamper exploration and testing of new market opportunities, and in general, limit the opportunities for farmers to specialise in activities where they have a comparative production advantage; (iv) the current inability to penetrate other markets such as the Western European countries for a number of reasons such as protection measures, difficulties in reaching quality standards, lack of trade development strategies, and difficult transportation conditions; (v) on the production side, the weak position of producers - being scattered, producing small quantities, of a limited range of products of uneven and often low quality; and (vi) lack of market information.

It seems very difficult to find successful marketing projects in the region that could serve as examples. At policy level, while price and trade policies will need further attention and improvement, understanding the workings of informal barriers to trade - and how these could be lowered - is equally important. Policies should also consider addressing legal impediments to market development, the need to improve quality by inter alia promotion of standards, and favouring the emergence of new types of private smaller scale processing industries. Ultimately, however, policies can do little without effective implementation. Barriers to entry and growth of new enterprises frequently exist in contravention of national legislation and policy declarations, and are linked to established power groups unwilling to see the evolution of systems outside their control. In this respect, the problems faced in developing an efficient and functioning marketing sector in the region is inextricably tied to the progress of open and efficient private enterprise in general - an area with ramifications far beyond agriculture.

Strengthening local institutions will also be of the utmost importance in trying to encourage and support the development of new marketing structures. This could include the development of producers' organisations (e.g. co-operatives, marketing groups) and of professional organisations organised around specific products or ranges of products and which would aim at improving the flow of information between actors (e.g. market requirements) and facilitating their contractual arrangements.

Information and human capital

In addition to political will and financial resources, the renewal and vitalisation of the agricultural research systems, discussed below, will require a major focus on training and education. Farmers and their service providers will need training in: technical and agronomic aspects of their respective enterprises; planning and management; accounting and administrative skills; and marketing. This massive task can only be achieved if the efforts and the costs are distributed across government, local training and advisory services and the beneficiaries themselves.

The former command economy was operated without an extension system: technical specialists were available on the farm and used prescribed techniques to meet centralised orders. So, while research is dilapidated, extension is still non-existent. Advisory services need to be actively developed, particularly for small family farms. Their role should not be limited to technical aspects, though these are important. Due to the paucity of well-adapted techniques, advisors need to develop skills in simple, farmer-participatory experimentation in order to test such things as different varieties, or new systems of resource management and conservation. Their work should also cover training and advice in farm management; business plans; accounting and book keeping; and credit, applications. Some of these services could be partially paid for by the farmers. Farmers should also become active in a new farm advisory system by developing networks to exchange information, plus arranging meetings and visits to share new knowledge, not only of production systems but also of planning for the market.

Most services will need public funding, at least in the initial stages. However, the pitfalls of large public extension systems should be avoided, as they are too expensive for national budgets to support. This situation can be avoided through quasi-market mechanisms ensuring that advisors work for the benefit of farmers. Various formulae can be used to this end, including coupons - although cumbersome - competitive grants, or payments to providers according to a work programme that has been established with groups of farmers. A gradual and flexible development of the system, allowing close adaptation to local situations and emphasising quality services, should be preferred over quick coverage. Programmes to support development advisory services need to place a very strong emphasis on training, particularly in participatory methods and in farm management.

For large farms, private services must be envisaged from the start, but publicly funded training for providers is justified, as well as some start-up financial assistance. Information services also need to be developed to reach large number of farmers and provide them with information they can use directly. One of the main domains to consider is awareness building concerning farmers' rights, e.g. regarding land, public health and market information.

Science and technology

The potential for overall productivity improvement through better technologies is generally high and thus intensification of family farm production is considered to be the most important pathway, at regional level, to poverty reduction. Some of the best opportunities lie in developing conservation agriculture in semiarid zones, particularly in the Extensive Cereal-Livestock Farming System; and everywhere introducing reduced tillage and more precise land preparation and sowing practices. Another promising avenue of improvement is the intensification of grain production in the Large-scale Cereal-Vegetable Farming System, through introducing and adapting some of technologies developed in Western Europe. However, this should proceed with caution as many farmers in Western Europe, after 40 years of intensification and specialisation, are facing surpluses, environmental damage and the breakdown of rural communities.

Re-instating fodder crops in crop rotations - and developing feed and pasture management systems well adapted to local situations - is one way of combating these effects, while at the same time reducing dependency on grain for livestock feed and benefiting from better systems of crop-livestock integration. A further source of improvement is through better water management in irrigated systems; in order to reduce overall consumption, limit environmental damage, and increase productivity.

Research systems can be revitalised. They need to be reorganised and properly funded, even though this is a slow process requiring a long-term investment. Starting with incentives to change ways of working and address practical farmers' problems is a sound strategy, and is being effected with some success in several countries by means of competitive grants. This change must be accompanied by efforts to improve farmer participation in priority setting and engagement in the evolution of national research strategies. Significant investments are justified in infrastructure, equipment, training and core programmes once there is agreement on objectives, priorities and strategies. There should be a clear realisation that a few well-equipped centres are superior to a large number of dispersed and specialised facilities; especially as a growing proportion of experimentation will be done on farmers' fields. A network of on-farm research activities by farmers' groups, based within distinctive agro-ecological or socio-ecological regions, could be linked to these key centres. In revitalising research it is important to introduce more social scientists into the system and to move away from the highly centralised technocratic approach to research and technology development.

Rehabilitating research systems is a long-term process. Farmers cannot wait for the research centres to produce the requisite technologies so shortcuts are needed. Part of the technology can be borrowed from elsewhere and adapted to local conditions. Horticulture and irrigated agriculture, for example, could benefit from technology transfer. In the CSEE, technologies suited to local situations can generally be borrowed and adapted with relative ease from EU countries, when not already available locally. This is hardly the case for most of the CIS countries. Agro-climatic conditions that are close to those found in the region's Extensive Crop-Livestock System, for example, may be seen in northern America where large farms also dominate. However the socio-cultural and economic context is very different and a simple transfer of technology is generally not feasible. Even where adaptation is relatively easy, as in the case of the Large-scale Crop-Vegetable System, introducing better cereal technology to farm managers has been difficult. Again, there are important lessons to learn from the rapidly changing structure of agriculture in Europe; and from the United States, which might soon see the development of very different technologies to those that have dominated agriculture for the past 30 years.

Rainfed cropping under a variety of moisture, soil or temperature constraints - and limited capital resources - needs careful adaptation to local circumstances. This is a case where Participatory Technology Development (PTD) may be the most effective way to produce, verify, adapt and disseminate new technology. In such an approach, farmers themselves are trained in experimentation, and with the help of scientists decide on objectives and methods. Admittedly, there are still only few examples of successful PTD in CIS countries, and the current evidence (e.g. from Swiss-funded extension projects in Kyrgyzstan) is that PTD takes time and significant technical assistance in order to be successful. But in a number of domains there is no alternative to local technology development. Areas that would benefit most from a PTD approach include conservation agriculture (including zero or reduced tillage), improvement of livestock feeding systems and improvements in farm management.

Natural resources and climate

The challenges raised by the excessive expansion of irrigated systems, and the difficulty of rehabilitating and maintaining them, have already been mentioned. Solutions to contain further degradation and develop sustainable systems, particularly on-farm, through the establishment of participatory management systems are being successfully developed in several countries. At the same time, it must be realised that a significant part of these systems was developed in areas that can be successfully cultivated without irrigation, even though this will require drastic improvements in agricultural practices. Conservation agriculture, explored by a number of USSR scientists but not favoured under the previous system, will allow better use rainfall water, increase yields, and reduce drought risks and production costs. This is in addition to its benefits in terms of soil conservation and build-up of soil organic matter. It should not be forgotten that these systems were primarily developed for the production of cash crops, such as cotton and sugar cane. The markets and prices for these products been weak in recent years and the net returns from continuing to grow them are likely to be low and risky. Alternatives include reducing irrigation in order to develop more sustainable systems and rehabilitate the environment, or switching to intensive food crop production in order to improve the health and income of local people, or some combination of both.

Scarce resources and poor pasture management have put severe pressure on the natural resource base in the Pastoral Farming System of Central Asia, resulting in the deterioration of natural vegetation and extensive soil erosion. The challenge is to develop new systems of pasture management that preserve the resource base and regulate access without excluding the poor. Such systems will differ according to local conditions, and need to be developed jointly with concerned communities. They would generally emphasise protection and rehabilitation of areas of intense grazing close to the villages and fuller exploitation of remote pastures. For the farmed areas, individual management through cut and carry `meadow' systems may be preferable to common grazing. More remote resources would remain under local administration or state responsibility, which generally allows for a range of grazing management interventions - taking into account the user rights of nomadic and transhumant groups. Technical interventions may include enrichment of grazing areas and degraded slopes through sowing well-adapted species, with or without minimum cultivation, in conjunction with livestock control and concurrent re-introduction of fodder crops. To implement such systems successfully would require a parallel development of communal range management systems (see the case study from the Syrian Steppe in the Middle East and North Africa region in Chapter 3), in which resource users have an active role in planning, implementing and policing the system. Such systems also require strong social capital and organisation to be effective.

Conclusions

There is substantial scope for both agricultural growth and poverty reduction in the region. With regard to the strategies of poor households for escaping poverty, production intensification holds the greatest promise on a regional scale, followed by increased farm size. Although it is impossible, based on the foregoing regional analysis to prescribe specific national actions, the overall challenge of reducing hunger and poverty in the region demands three strategic initiatives. These are all concerned with building the capacities of local institutions - both in the public and private sectors - in order to take advantage of farm restructuring and economic liberalisation. In the public sector, this implies acquiring the capacity to switch from a planning role in a command economy system to a supporting and guiding role. In the private sector, it means acquiring the knowledge and skills to operate within an open economy. Moreover, mechanisms are needed for farmers to access and participate effectively in new institutions, including producer groups. Other measures, such as the rehabilitation of viable irrigation schemes and the establishment of rural finance mechanisms, also merit regional priority. However, they will not operate effectively unless local capacities in related areas are first enhanced.

The inter-linked initiatives are as follows:

Improved resource access. Improved land tenure systems are needed to encourage the efficient use of land and the emergence of viable private farm units. Components include: completing land distribution processes; continuing support and broader development of land administration systems; encouraging formal transfer of land (through renting, leasing or sale) and through appropriate valuation; and developing real estate management skills.

Re-oriented and strengthened agricultural services. Viable farming systems require new types of post-privatisation services. Components include: the provision of mixed public/private sector advisory services; training; and the dissemination of information in order to improve technical, managerial and marketing skills of privatised farms.

Expanded market development. Functional markets are essential for food and other agricultural products, agricultural inputs and for labour. Components include: supporting efficient organizations of producers, traders, processors; investing in market infrastructure (including market and price information systems); improving the quality of food products in order to comply with international norms; and addressing legal impediments to efficient marketing.

1 See Annex 3 for a list of countries in the region which for the purpose of this analysis includes Turkey.

2 World Bank 2000f.

3 World Bank 2000f.

4 World Bank 2000f.

5 The Irrigated Farming System refers to regions served by major irrigation systems and includes surrounding rainfed areas. It excludes smaller schemes and scattered irrigation associated with predominantly rainfed farming systems, which are discussed in relation to those rainfed systems. The more important concentrations of irrigation within rainfed areas are shown on the Map as hatched areas.

6 As mentioned elsewhere, there is resistance among some officials to the implementation of these reforms.

7 There are certain similarities to the traditional dacha system.

8 Milanovich (1998) applies nationally defined poverty levels which are significantly higher than the commonly used international standard of US$1 per day.

9 This land area excludes the 0.1 billion ha of inland water bodies in the region.

10 In Kazakhstan, cultivated area declined from 34.9 million ha in 1991 to 21.8 million in 1997, and it is estimated that

30 percent of the land under cereals reverted to pasture.

11 Fischer et al 2001.

12 Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

13 This policy faces resistance in a number of countries (e.g. Russia, Ukraine, etc.).

15 The issue of accumulated debts is also one of the factors behind tax evasion. Situations when companies did not have sufficient funds to pay taxes were sometimes used by local authorities as an excuse to resist restructuring initiatives.

16 See Rolls (2001) for a comprehensive review of advisory services in Eastern Europe.

17 Although the Baltic States (Estonia, Latvia and Lithuania) have similar characteristics with respect to accession, due to the differences in agro-ecological conditions and natural resource base the dominant farming system variant in those countries is based on fodder for livestock and forestry production (see Forest Based Livestock Farming System).

18 By way of comparison, West European yields were approximately double those levels and continue to rise.

19 The acceptance and use by farmers of this new technology spread very rapidly and created a demand for much increased extension services. The quantity of fungicide to be applied is limited and raises no environmental risk, particularly given the reduced soil leaching.

20 Martinenko 2001.

21 World Bank 2000d.

22 Meng 2001.

23 The World Bank assisted Agricultural Post-Privatisation Assistance Project, ADB-assisted Agricultural Support Programme, and the proposed ADB-assisted Farm Restructuring Sector Development Programme.

24 Contrary to expectation, some studies suggest that older people fare better than younger couples with children (D'Avis, pers. comm).

25 Lerman and Csaki 2000.

26 Serova 1998.

27 In Russia, many agricultural officials are exploring ways of maintaining large-scale units, provided they are efficient and can attract, foreign direct investment and improved technologies (D'Avis, pers. comm).