This section briefly summarizes the broad observations made for each of the country groups and presents the various policy issues and options that fall out of the conclusions. The issues are organized around the topical subdivisions that were contained within each country group section. Where the issue applies only to specific countries or regions, those countries or regions are noted.
The Western CIS countries, with the exception of Moldova, are still struggling over meaningful private ownership of agricultural land and the right to sell land, to mortgage land, and to use land to its best use without interference from the State.
All of the Western CIS countries are still primarily farming as large collective farms with little benefit afforded to individual landowners. Except for Moldova, few purchase and sale transactions are taking place, and the majority of those land transactions that do occur even in Moldova, involve leasing back to the barely altered successors of the collective farms from which the land was allocated or divided.
For these countries, with the exception of Moldova, there is effectively no political will for reform, even though the farmers themselves are interested in a land market and land ownership. Recommendations suggested for the Western CIS countries are meaningful only to the extent the political situation in particular countries comes to allow it.
Azerbaijan, Armenia, and Georgia are leading the CIS in terms of privatization and farm reorganization and are ahead of some of the EU accession states in these areas. The Trans-Caucasus plus Moldova are also much further along in terms of land market legislation and development of a land market. These countries share several common factors. First, and most importantly, each of these countries has the political will to privatize land and move toward a market economy. All four countries devolved some land management responsibility to the local level. In addition, they passed legislation clearly allowing for land transactions. Armenia and Azerbaijan prioritized privatization and farm break-up and accomplished them simultaneously, while Georgia accomplished both to a significant degree.
Now that the basic legislative framework has been developed and implemented, the second stage of privatization must be implemented. This includes further development of the registration systems, privatization of at least a portion of the state land funds, development of private market services (surveying, real estate agents, valuation), and public information on land transactions and land markets.
Before such programs are developed, field research needs to be conducted to determine what is currently happening on the ground (outside of the donor programs) and what effect privatization of the land fund will have on the poor and on consolidation efforts.
The rural land markets in these countries are not only influenced by economic transition issues, but also by ethnic strife, political instability, and war. None of the surveyed countries has avoided the sapping of energy and resources that might have otherwise been directed (at least in part) toward land market development goals.
In some ways (land registration infrastructure, potential for transactions, supportive legal milieu, private sector support, and others), Albania leads in the kinds of reforms that could help to create a vibrant land and mortgage market. This relatively progressive status might be attributable to Albania’s relative freedom from sustained armed conflict within its borders over the past ten years (although the collapse of financial pyramid schemes in early 1997 triggered severe social unrest that led to more than 1,500 deaths, widespread destruction of property, and a 7 percent drop in GDP).
As all of the surveyed countries except Albania were Yugoslav republics during the post-war years when collectivization was attempted and then abandoned, privatization and private farming has been and remains in an advanced state. However, some socially owned and state owned farms remain.
The EU accession countries have struggled less with the ideology of a market economy than many of the CIS countries, so privatization of land was not disputed. However, in some cases, EU accession countries have chosen to continue support for large collective-style farms, and much less farm break-up has occurred in such cases than in Armenia, Azerbaijan, and Georgia. While there are many contributing factors, it does appear that in countries where independent private farmers are not the dominant sector, the land market is functioning at a lower level than in countries with a larger number of private farms. Poland and Lithuania, for example, have an active land market, while Hungary, the Czech Republic, Bulgaria, Slovakia, and Latvia less so.
As always, some policy options are more difficult or more expensive than others to implement. Some are difficult to monitor. Others require high levels of cooperation between agencies, ministries, and even governments. Field interviewing and data collection is needed in some countries to identify existing conditions and to confirm descriptions of situations. Several ideas about how to improve agricultural land markets and mortgage lending follow.
The term “land privatization” has been used to describe a wide range of processes in Eastern European countries. Full privatization includes a transfer, from the state or collective to private parties, of rights to separately demarcated parcels of land, which are the functional equivalent of full ownership. These rights include: permanent or long-term rights of possession; freedom to decide on the use of a land plot, subject to reasonable land use regulation; and freedom to sell, lease, bequeath and mortgage the land. In the Western CIS countries, many of these rights do not accompany the privatization of land. For these countries, meaningful privatization must be a first step.
In the EU accession countries, the privatization issues are related to the restitution process primarily. Potential claims of former owners, conflicting laws regarding the restitution process, and unclaimed land have all slowed down the privatization process.
a. Issue: Limited ability to choose to farm independently or with neighbors
In Russia and Ukraine, while land is privatized in the sense that land shares have been issued, citizens enjoy few of the rights normally associated with land ownership. At most, citizens enjoy the rather abstract right to demand demarcation of an agricultural parcel. Individuals rarely exercise such rights, in part because the individual is likely to receive the very worst land, in terms of quality and location. Even in Moldova, where land was demarcated and landowners enjoy rights normally associated with land ownership, it is difficult for owners to exercise full rights to arable land located in the middle of large fields. In addition, in all four countries, the former leadership of the defunct collective farms continues to exercise largely unchecked power, making it difficult for land owners (and land share owners) to exercise their rights.
b. Issue: Members of farms or sometimes restituted owners who received their land in the middle of the field with no access to roads or infrastructure have little choice but to lease their land back to the former collective farm.
c. Issue: Potential claims of “real” owners overhang the restitution process
With the restitution process, there is always the possibility that individuals or groups of individuals will present clear and indisputable claims to land they formerly held and that is now in someone else’s ownership.
d. Issue: Where conflicts exist regarding rights to land, boundary disputes, or disputes regarding rights of heirs, the restitution and registration process has been very slow
e. Issue: In Estonia where there is a large quantity of unclaimed land, outright sale might encourage land speculation, keeping land out of production
f. Issue: In Estonia household plot owners do not have title to their land.
During the privatization process, many countries chose to hold back an amount of land in state ownership. Some countries created a Land Fund where state land was held in reserve and leased out to private farmers or large collective-style farms. Other countries held back land for the specific purpose of leasing it out to former collective or state farms to create “market-sized” farms (Hungary, Georgia).
In either case, as long as large quantities of agricultural land are available for lease at no cost, or practically no cost, agricultural land will continue to have very little, if any, market value. A land market can assist in the creation of wealth in rural areas. Unless land has some commercial value, land share owners will find it difficult to exit the farming sector. This may be especially important for pensioners and for people wishing to migrate to urban settings. Without real land privatization and the development of a functioning land market to facilitate the movement of agricultural land from inefficient to efficient users, obsolete farms will continue to sit on large tracts of land and production will continue to stagnate.
a. Issue: Several countries have quite large state-owned land reserves that may overhang the private lease and sale market for agricultural land.
Russia, Ukraine, and Belarus have large amounts of land still owned by the State and held in reserve that is readily available and inexpensive or free. In these Western CIS countries, where parcels of land are large enough to establish private farms, the State does not need to be involved in land consolidation efforts and does not need to hold land back for this purpose.
However, large state land reserves do exist in smaller countries with less arable land (Armenia, Lithuania) and are now the primary way that land plots are enlarged and consolidated. This process should be examined closely and considered when selling state land.
b. Issue: Where land has been held back from privatization and leased to larger legal entities at a very low cost, the private lease and sale market suffer and some of this land remains unused. (Hungary, Czech Republic, Georgia)
Individual or family farms are the dominant organizational form in agriculture in developed market economies. Collective farms occupy a very small percentage of the world’s arable land outside of the former Soviet Union and Eastern Europe. Indeed, collective farms are virtually non-existent in other industrialized countries.533 Where collective farms do exist outside market economies, their formation was almost always non-voluntary and their continued existence is often contingent on government subsidies of state monopolies in factor or output markets.534
Lack of farm reorganization is an impediment to market development in the four Western CIS countries and many of the EU accession countries that restituted agricultural land to its former owners. Farm size in a market economy is an economic variable that reflects market signals. Providing a legal and policy framework in which individual farmers can adjust farm size to respond to market signals is crucial. The policy and legal framework should not only allow, but also encourage farm reorganization into units of whatever size is chosen by farmers and private farms should receive equal, if not preferential access to credit.535
In the Western CIS countries and many of the EU accession countries land privatization and farm reorganization did not occur together, and even when land was actually demarcated and titled, little farm reorganization occurred. In the Western CIS, farmers did not withdraw their land from the collectives (see privatization recommendations), and in the EU accession states many of the new owners were not farmers or even rural residents, and therefore leased their land back to the collective.
In countries where successful farm reorganization has occurred, there has been political will to at least create a level playing field if not encourage private farms, and often there have been local government committees, supported by the federal government but made-up of specialists, government authorities (elected if possible) and community leaders that assist villages with privatization and farm reorganization (Armenia, Azerbaijan).
a. Issue: Federal and local governments continue to support and encourage collectively-operated agricultural enterprises, even those that are insolvent, with subsidies.
In Russia, the continued existence of many large, collectively-operated agricultural enterprises can be attributed, in part, to continued support from the federal and local governments. As support to agriculture from the federal government has declined, support by regional governments increased. Also, Russian agriculture continues to be indirectly subsidized by the government policy of providing soft loans to farms, meaning that the loans are typically written off at some future date.536 These soft loans go almost exclusively to large, “cosmetically” reorganized farms. In Moldova direct and indirect subsidies were substantial during the period 1994 to 1996. State and collective farms were permitted to generate large payment arrears (amounting to more than 2 billion Moldovan lei, nearly 20% of GDP) to the state budget and state controlled companies.537 In Hungary and Slovakia, the majority of subsidies have gone to support the larger collectively-operated farms.
The disadvantages of withdrawing subsidies to the remaining large farms include possible production decreases early in the process, social impacts created by the failure of new enterprises, near-term economic impacts created by the failure of new enterprises, and near-term impacts to upstream and downstream agro-businesses that either are created during the privatization process or are in existence at the time of privatization.
b. Issue: Without local level support for farm break-up, recalcitrant farm bosses and local administrators can and have impeded the process of farm break-up and individual withdrawal of land. (Russia, Ukraine, Moldova, Belarus)
c. Issue: When restituted owners are not responsible for paying the land tax, they often lease their land to the collective at very low rates until a tax is imposed.