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The transition process and European Union accession

Land tenure is an important aspect of the workings of the land markets. The durable nature of land enables different forms of tenure to develop because access to land can be granted by an owner for a limited period of time and then recovered. Legal interests in land of different durations can be created by dividing the freehold into a series of shorter leases or licences, which can be held under a variety of different terms and conditions. Investment markets in land can exist alongside markets for purchase and renting. Certain tenures may be better suited to particular economic and social conditions than others. Optimal tenure patterns take time to evolve, for example, because of the duration of leases or the time taken to achieve changes in ownership. There is a potential role for governments to intervene in land markets and encourage appropriate tenure patterns using such instruments as taxation and grants, as well as changes in tenancy, ownership and inheritance laws.

The Central and Eastern European countries that have achieved, or are in the process of preparing for, EU entry, have been going through a transition from centrally planned to market economies. Accession to the EU could be regarded as the culmination of the transition process, since membership should only be possible if a country is regarded by the EU as having a functioning market economy and is able to open up its markets to foreign competition by adopting the EU’s laws concerning the single internal market.

A cornerstone of the transition process has been the creation of private ownership of land and the development of markets in which land can be bought, sold or rented. Private land markets have been created through the privatization of state land and the restitution to its previous owners of land expropriated by Communist governments. This has been associated with the creation of secure land tenure and property rights (Rembold, 2003). Different countries have used different policies to create private property rights. For example, in Albania, land use rights on former state lands were converted into full ownership (FAO, 2004), while in Bulgaria restitution has been used to restore land to its former owners and their heirs (FAO, 2003b). The consequence of these policies has been significant changes in land tenure. In Hungary, land in state ownership fell from 32 percent in 1990 to 20 percent in 2001, and that owned by cooperatives declined from 61 percent to 7 percent. During the same period, land in private ownership increased from 7 percent to 64 percent (FAO, 2003c). Even in Poland, where private ownership of farmland was the dominant tenure during the Communist period, the proportion of arable land in privately owned farms increased from 77.5 percent in 1983 to 91.2 percent in 2000 (FAO, 2003d).

Privatization of land has created millions of new land titles, many for small badly shaped parcels of land unsuitable for commercial exploitation, as land that was restituted has been further divided among the heirs of the original owners (FAO, 2003a; Rembold, 2003). Among the consequences of this has been underinvestment in agriculture, rural poverty, rising rural unemployment and an ageing rural population as the young migrate to urban areas in search of work. The situation has varied among different countries. For example, in the Czech Republic, there has been a high level of leasing because many of the new owners either lacked the skills to farm their land or were no longer connected with agriculture and so were willing to rent their land to large farming businesses (Ciaian, 2002). By contrast, in Bulgaria farm sizes were lower in 1998 than at the end of the nineteenth century, and subsistence farming has increased (Rembold, 2003; Kostov and Lingard, 2002). In Hungary, leasing has became the dominant form of tenure, accounting for 57 percent of arable land in 1999, as owners have rented out land to form viable units (FAO, 2003c), but there has also been net in-migration to remote villages by what appear to be “industrial refugees … seeking lower costs of living and opportunities for self-provisioning in rural locales” (Brown and Schafft, 2002, p. 243).

Security of property rights plays an important part in rural development by, for example, encouraging investment and allowing land to be used as collateral for loans, particularly from financial institutions. However, it is only one aspect of a land tenure policy. It is also important for there to be flexibility in land markets so that efficient farm units can be created. This may require a balanced land-tenure policy that not only provides for security of property rights by owners, but also encourages the leasing of land, so that holdings of an efficient size can be created. It must also support security of tenure for tenants so that they undertake investment. The problems of unbalanced land tenure and the need for flexibility are not confined to the countries of Central and Eastern Europe, but are also to be found in pre-2004 EU Member States with high levels of owner occupation. Lack of flexibility can make it difficult for farmers to put together holdings of the size needed to compete internationally or to undertake diversification if they are not able to gain access to land through the rental market as well as by purchase. In Ireland, for example, where owner occupation accounts for over 80 percent of agricultural land, the agriculture sector is characterized by ageing farmers, many of whom are unmarried, and underemployment on farms. The land market is relatively inactive, with a small rented sector. During the 1990s, the annual volume of land coming on to the market fell by over 70 percent. Farmers were reluctant to sell land, and inheritance became one of the main means of gaining access to land. Since it is difficult to develop viable holdings, farm families are obliged to derive increasing proportions of their income from non-farm sources, such as employment in the construction industry (Commins, 2000; Frawley and Phelan, 2002). The Irish Government's response has been to try to increase transfers of land from current farmers to younger ones by means of early retirement schemes and tax relief on land sales and leasing to unconnected farmers (Department of Agriculture, Food and Rural Development, 2002).

The transition process has brought a number of challenges for land administration, including the management of privatization and restitution programmes, the creation of the infrastructure for efficient property markets (such as land registration and titling), the need to create an appropriate legal system and problems from upheavals in the market, such as rural depopulation, land fragmentation and the growth of subsistence agriculture. Membership of the EU will bring further challenges because the EU is a single internal market without barriers to trade, investment or the migration of firms and people. Countries joining the EU must adopt and implement the EU single internal market laws and must dismantle any remaining barriers to the free mobility of trade, labour, capital and enterprise with the EU countries. Such barriers were an integral part of their centrally planned economies and included restrictions on foreign ownership of land. EU entry is therefore likely to bring additional pressures on rural areas in the new Member States, for example as farm businesses and individuals from elsewhere in the EU seek to acquire land and rural housing, encouraged by lower prices. The countries joining the EU will therefore need effective data-monitoring systems about land tenure and land ownership that can be used to develop appropriate policies.

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