Posted March 1997
Bertinoro I
High-level Technical Seminar:
Private and Public Sector Cooperation
in National Land Tenure Development in Eastern and Central Europe
University Residential Centre
Bertinoro, Italy
1-5 April 1997
WE MAY take it for granted that there is general agreement among the participants in this seminar with regard to the importance of promoting and supporting an active market for farms and farmland in the so-called emerging market economies of Central and East Europe. But perhaps it might be worthwhile to remind ourselves of two fundamental reasons:
We may then postulate that - excepting informal transactions concerning small parcels between local relatives, friends or neighbors in a traditional rural society - a serviceable modern land market entails a series of prerequisites:
Finally, unless the demand for land is to be reserved for speculators (including those with large cash reserves of questionable origin), buyers and sellers must be able to count on suitable financial institutions (and these, in turn, must be able to count on a legal framework that at least limits their risk).
In order to serve the ends of both efficiency and equity, such institutions need to possess the following characteristics:
Emphasis on diminishing lender risk is one way of moderating the interest rate. As we are all aware, farming tends to produce comparatively low rates of return to land after remunerating labor and capital. Moreover, it has been shown that new, resource-poor entrants into this activity who need to finance the purchase of land wholly or largely with credit tend to be unable to pay both market price (typically influenced by other than agricultural productivity) and market interest rates without reducing their subsistence below the poverty line (See Michael Carter and Dina Mesbah, Annex I to Shearer et al 1991 and the various papers by Binswanger et al. cited in References). This is why public policy-makers almost invariably resort to direct or indirect measures for moderating, and in most cases, subsidizing, the (real) long-term interest rate for farmland loans. And this, in addition to services for monitoring and technical-managerial assistance to borrowers, is the place for fruitful cooperation between the public and private sectors.
As is true for other institutions concerned with support and services for the agricultural population, land market financing is most highly developed in the industrialized market economies. However, the extent to which even they rely on the private sector to finance the land market varies from country to country. Stringer reminds us that "in Europe, land banks date back to 1763", and that the Federal Land Banks system instituted in the U.S.A. in 1916 followed study of the European mechanisms by three presidential commissions prior to the First World War (1).
In many less-developed countries, including, for example, most of Latin America, long-term land purchase financing is virtually or totally unavailable, especially to the small operator, from either private or public sources, and externally-funded public and private schemes for promoting such schemes have at best remained experimental.
Some industrialized countries have created elaborate public or mixed private-public structures designed to make available long-term credit at "affordable" (typically, subsidized) interest rates to existing or potential family-farmers for purchasing farm land for expanding, or creating, a farm enterprise. In order to reduce the risk for the lending agency - and thus the interest rate - such loans may even comprise concurrent advisory services to, and/or periodic checkups on, the borrowers by personnel of the lending agency or by the equivalent of "extension" services (2). A supervised period of renting preceding a purchase transaction may also be proposed to both parties in order to give the prospective buyer (and lender) an opportunity to test his/her repayment capacity and further reduce the lender's risk. Creative arrangements for facilitating pre-inheritance transfer of farmland from one generation to the next, as well as providing loans for operating capital for new entrants into farming, are also generated by some of these institutions (3).
The countries of Central and East Europe are still in the process of creating financial institutions and restructuring their farm land tenure systems in response to the needs of their newly emerging market economies. Some are moving faster than others. All by now should be far enough removed from the wrenching revolt against the oppressive state setup to be able to put to profitable use their experiences with public institutions in order devise flexible mechanisms for promoting and supporting a sound and active land market in concert with the private financial sector.
There are no prescriptions for a single best arrangement that would fit the particular requirements and institutional structure of all countries, but, as indicated briefly above, there are many variants in the industrialized world that can be studied before by national teams of experts, just as the USA did at the beginning of the century, in order to feed the process of devising suitable alternatives to suit each country situation. International support for such study tours is easily obtained as part of programs or projects dealing with reform of the financial and agricultural sectors.
2. During the Depression of the 1930s, when many farmers were threatened with foreclosure on their mortgaged land, the USA also created the government-run Farmers Home Administration (FHA), "basically intended to make credit accessible to lower income people who lacked resources and the ability to make a substantial down-payment ... [and] to guarantee loans made by commercial banks or other lending institutions to farmers meeting FHA criteria.., [thus providing to] private lending institutions the assurance they need to enter into high-risk transactions." (Dorner and Salba, p. 29.)
3. A highly imaginative, flexible and thus successful plan is the Beginning Farmer Center at the Iowa State University in the USA, which coordinates and supports the programs and efforts of various State and federal agencies; "beginning farmer loans" from the federal Farmers Home Administration are administered by 67 county offices located throughout the State, and a parallel State-sponsored program financed by special bonds is channeled through private banks. (Details obtainable from Iowa State University, University Extension, Department of Economics, 560 Heady Hall, Ames, Iowa 50011-1070.)
DORNER, Peter and Bonnie Saliba, "Interventions in Land Markets to Benefit the Rural Poor", Land Tenure Center Research Paper No. 74, University of Wisconsin, Madison, WI, 1981.
SHEARER, Eric and Giuseppe Barbero, "Promotion of Family Farms in Italy", Public policy and finance, FAO, Rome, 1996.
SHEARER, Eric, Susanna Lastarria-Cornhiel and Dina Mesbah, "The Reform of Rural Land Markets in Latin America and the Caribbean: Research, Theory and Policy Implications", Land Tenure Center Paper No, 141, University of Wisconsin, Madison, WI, 1991.
|
