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III. CIS Countries: Transcaucasus States (Georgia, Armenia, Azerbaijan)

A. Policy and Legislative Framework

1. Land Ownership

In Armenia, Azerbaijan, and Georgia, private ownership of agricultural land is allowed and agricultural land is freely transferable. In all three countries, land from the former collective and state farms was distributed to farm members or rural citizens free of charge or for a very small sum of money.

2. Land Privatization

In both Armenia and Azerbaijan, most of the state-owned land was distributed to rural residents, including farm members, whereas in Georgia a portion of land was distributed to rural households for subsistence farming and a portion remained in state ownership for lease to larger, market-focused farms.

In Azerbaijan, the effect was a move toward ruralization, which occurred in the early 1990's as urban residents of rural origin returned to the countryside to exercise their new land rights. The rural population rose from 31% in 1990 to 33% in 1998. The agricultural sector provides livelihood and food security for about 45% of Azeri households and employs one-third of the entire population of Azerbaijan.61 Based on information form the State Land Committee, as of December 1, 1999 privatization of land in Azerbaijan was 96.1% complete.

In Armenia, the vast majority of agricultural land was privatized during 1991 and 1992. Approximately 70% of all arable land in the country was transferred in ownership to family farms while most of the remainder was leased to farmers, making state and collective farms almost entirely obsolete.62 The process of privatization in Armenia had four main characteristics. First, land was distributed only to village residents, superceding any claims of restitution by citizens who previously lost land in the collectivization drive. Second, each family with three or fewer members was granted one unit of land, those with four to six members received two units, and those with seven or more members received three units. Units were calculated by dividing the available village land by the number of entitlements, and calculations were carried out separately for the different types of agricultural land. This resulted in a certain amount of fragmentation as families received several parcels of different kinds of land. Third, a lottery was held to determine the location of family parcels in the village. Fourth, each recipient had to pay for the land received, but the payment was very low and mainly regarded as symbolic. For the first three years there was a moratorium placed on land sales, but after February 1994 it became legal to buy and sell land.63

In Georgia, as of the spring of 2001, the government had transferred approximately 60% of state-owned arable agricultural land in ownership to rural households.64

Georgia’s land privatization had a two-fold strategy. First a portion of state-owned land was distributed to households for subsistence farming.65 During 1992 – 1998 an agricultural “land reserve fund” of 930,000 hectares of state-owned land was distributed to the ownership of rural households. District authorities leased the remaining state-owned land to persons or legal entities.66 The goal was to create both a subsistence sector and a market sector of larger farms.67 Of the arable land, using 1999 estimates, 58% had been privatized, 27% was leased out by the State, and 14% was neither leased nor privatized.68

3. State-Owned Land Reserves

Azerbaijan has only a 5% agricultural land reserve because the country's policy was to distribute most of the arable land to rural residents.

In Armenia, the state land reserve is quite large: estimates range from 15% to one-third of arable land.69 The reserve land, which the State currently leases to farmers, is to be sold to private farmers in greater quantities in the future.70 However, leasing from the State has been the main way farmers have dealt with small parcel size. A survey carried out in early 1998 found that the average farm size was 1.99 hectares.71 Approximately 58% of farms are between 0.5 to 2.5 hectares and the median farm size is 1.5 hectares.

The State (through the village councils) is the primary source of leased land and most leases run from one to three years. Among farmers who lease land, 60% lease arable land, 40% lease hay meadows, and 7% lease pastures.72 However, because there is simply not much additional arable land to be leased from the State, the majority of land being leased is composed of hay meadows and pastureland.73 Thus far, leasing between individual parties has not yet developed, for the most part because the state land fund is so large and land from the fund is inexpensive and accessible.74

In Georgia, the State still owns approximately 40% of arable land. Georgian farmers are able to lease land from the State under a presidential decree.75 This decree established that remaining land not scheduled for privatization may be leased to individuals for up to 49 years.76 In addition, approximately 825,000 hectares are leased by the State to 46,000 legal entities to create larger, “market” farms. The leasehold is basically free, with only payment of the land tax required.77

In both Armenia and Georgia, state-owned agricultural land leased out to private farmers and legal entities overhangs and suppresses the private land market. In Georgia, the state owned land leased to legal entities, virtually free of charge, does not encourage market driven decisions regarding farm size and structure.

4. Farm Restructuring

Armenia and Azerbaijan have dismantled former collective and state farms, and their agriculture is now based primarily on family farms. Georgia has a dual system of household farms and larger farms leasing land from the State.

In Azerbaijan, a presidential decree established the State Commission on Agrarian Reform. This commission established regional and local bodies throughout the country to assist in the reform process.78 In total, more than 1.3 million hectares of land have been privatized to approximately 817,700 families.79 In addition, there are over 620,000 household farms, with an average size of 2.8 hectares and 4 family members. As of January 2001 the private sector produced 97% of agricultural goods in Azerbaijan.

In Armenia, by the end of 1992, over 300,000 new farms had been created.80 In 1998 about 99% of the total agricultural output was being produced by private farmers.81 A survey carried out in early 1998 found that 84% of farm households consisted of one family and most of the remainder consisted of two families, most often comprised of parents and their married children. The average farm size found in the survey was 1.99 hectares.82

In Armenia, the Regional Councils of Peoples' Deputies had the responsibility of implementing the Land Reform Law. Each council formed a special committee of representatives from the agricultural community or village sector. The committee followed a series of steps in the land disbursement process. First, they inventoried the land. Second, they determined the number of eligible families based on their previous land status. (Foreign residents were not eligible to receive land). Third, they calculated the land allotment per family. Fourth, they mapped and categorized the land into different types. Finally, they distributed the land through a lottery system.83 The payment for land was set at a very low level (70% of the “net profit” for two years, calculated on the basis of very lenient standards), and was regarded as symbolic.84

In Georgia, farm restructuring has been somewhat more limited due to the emphasis on creating and supporting large leasehold farms (but still 60% to individuals). There are two types of farms: small plots in private ownership; and larger farms, which are often restructured state or collective farms, which hold a ten-year lease on land.85 Only about half of the leased land of the larger farms is actually planted.86 Even with preferential access to inputs and credit in some cases, larger farms are not necessarily more productive than the small farming units in Georgia.87

5. Land Transactions

a. Purchase and Sale

In Armenia, less than 1% of the respondents to a nationwide survey reported buying or selling land.88 There are no legal barriers to land transactions.89 However, purchase and sale are constrained by the high cadastral value of land fixed by the government, which is well above current market prices, and the need to pay a substantial tax in cash based on the cadastral value when registering transactions.90

In Georgia, the Law on Agricultural Land Ownership91 has been amended making it easier for landowners to more freely sell, mortgage, and lease, and leaseholders to engage in transactions with agricultural land, even while leasing it from the State or private citizens. This law also contains a provision that makes it illegal for a foreign person (physical or legal) to own agricultural land, though such individuals can lease land from the State or private persons.92 Some earlier bureaucratic and technical impediments to private transactions in prior versions of this law have been done away with in subsequent amendments. These impediments included: (1) requirements that landowners obtain special permission from the State prior to selling their privately owned property; (2) price floors that fixed the price below which private landowners could not sell their parcels; (3) and prohibitions on the sales of agricultural land parcels smaller than 5 hectares.93

In Georgia, at least 3,000 agricultural land sales have taken place since the beginning of 2000, although this figure still represents less than 1% of agricultural land holdings and less than 2% of all agricultural households.94 While the first stages of privatization seem to have led to a certain amount of fragmentation (due to the fact that households were awarded small parcels of land totaling, on average, 1.25 hectares, but often consisting of 3 to 5 non-contiguous plots),95 this problem seems to be diminishing as people use land transactions to consolidate their holdings. Recent land sales have resulted in the consolidation of smaller parcels into larger, more economically feasible farming units, and the frequency of such transactions is increasing each month as farmers become more confident in the registration system.96

In Azerbaijan, the Law on Land Markets, which deals with a wide array of different aspects of land markets, specifically states that legal entities and persons of Azerbaijan can participate in the land market as owners, users, mortgage lenders and borrowers, participants of purchase-sale transactions and other transactions like leasing.97 The law also establishes that there will be market prices for land rather than fixed prices.98 The Land Code prohibits foreigners from buying land.99

b. Lease

In the rural areas of Azerbaijan, landowners are successfully leasing land and often receive payment in the form of harvested crops.100 The Law on Lease of Land establishes that state, municipal, and private land can be leased. Citizens and legal entities of Azerbaijan, and foreigners are allowed to lease land. Leases can be for made for short or long term use, and lease fees may be paid in cash or in kind.101

Many Armenian landowners are leasing land from the State (through the village council) to increase the size of their holdings. Private two-party leasing, on the other hand, is not commonly practiced.102 A recent survey of 1500 farmers found that leasing from private individuals is infrequent. Only 1% of the respondents reported leasing land to other users. These leases are usually less than one year in length and typically involve the landowner only leasing out half his private holdings. By contrast, 231 respondents (15%) had leased land from the State. Those 231 had a much larger total farm area, averaging 3.21 ha with leased land than those who did not lease in land (1.98 ha).103

Most lease terms are from one to three years; however, of the farmers interviewed, 15% reported lease terms longer than 5 years.104 Lease payments are made primarily in cash. The median rate is approximately 8,000 dram per hectare ($16 US), which is only somewhat higher than the land tax of 6,700 dram per hectare.105

In Georgia, farmers are permitted to lease land from the State or private owners. Over 1,000 private agricultural land leases have been recently registered. The bulk of these leasing transactions have involved retired farmers leasing their land to those who may be able to better use it.106 However, this number is still far smaller than the estimated 46,000 leases of state owned land. State land is much more attractive than private land because the payment is only the land tax.107

6. Mortgage

While mortgage legislation has been passed in the Trans-Caucasus states, few if any mortgage transactions are occurring.

In Azerbaijan, a law on mortgage was passed in August 1998.108 However, credit resources are few and the price of credit is very high. After a series of bad lending decisions, the state-owned Agroprom Bank is being restructured, and no loans are being granted to the rural sector.109 Agroprom is the only bank with rural branches, and no other banks serve farms and agricultural enterprises. The World Bank is promoting initiatives to develop local financial intermediaries such as credit cooperatives to serve rural areas.110

In Georgia, the number of agricultural parcels mortgaged totaled 121 as of March 2001.111 Most loans were borrowed to purchase movable property such as seed, fertilizers or equipment. Generally moveable property is used as collateral and land ownership provides additional collateral. Presently, it still seems that many financial institutions are hesitant to make agricultural land loans because of the small size of parcels and their relatively low value.112

Armenia passed a mortgage law in 1995. However, in a survey of 1,500 households conducted by the World Bank, 84% of people who borrowed money for agriculture in 1997 borrowed from relatives and friends interest free.113 Of loans given that required collateral (only 14% of loans in 1997), land was not a preferred form of collateral.114 High interest rates and a lack of an adequate land registration system restrict the use of land as collateral.115

B. Administrative Framework

1. Land Titling and Registration

Land titling has been a topic that both the World Bank and USAID have emphasized in the CIS. In Azerbaijan, land titling has been fairly successful. The total number of land titles to be issued is 790,000. As of 2000, 80% of these land titles have already been issued. The Law on Land Cadastre establishes the legal framework for the regulation of the land cadastre, land monitoring, and land development. The state land cadastre serves as the information center for land use, information on characteristics of land, and economic appraisal of land. Based on this law, there is one single centralized land cadastral documentation system that generates the state land cadastre and legal and technical documents.116 Through help from the World Bank, the State Land Committee also has plans to develop and implement computerized regional cadastre and land registration systems. There are also expansion plans already underway to create additional services that will include the registration of leases, rights of access and mortgages.117

In Georgia, the government privatized and transferred many land parcels to rural households, but only began to register them in June 1999. Under the Civil Code and Law on Land Registration, formal registration is a necessary requirement for establishing any type of land right.118 Land registration, therefore, is a crucial legal step in the process of land privatization and a significant component in the creation of a functioning land market.119 In spite of the importance of land registration as a fundamental step in the creation of land markets, the Georgian government delayed this process of registration for many years. Land management officials impeded the registration procedure by focusing on the needs of government and local officials instead of focusing on private transactions for individuals. Full ownership of transferred land was drastically restricted for an extended period due to the lack of registration.

A 1999 presidential decree established a framework for the rapid and fairly efficient initial registration of landholdings.120 Registration costs the farmers nothing and, the technical and bureaucratic processes were kept to a minimum.121 In the initial stages of registration, district chiefs who attempted to delay or corrupt the process were reprimanded or dismissed. Since 1999, nearly 1 million parcels of land have been registered and several thousand secondary land transfers between private landowners (over 3,000 sales and 1,000 leases; see discussion above) have taken place.122

The registration process is fairly simple and straightforward. A farmer wishing to register his land must submit three documents at the raion registration office: (1) the registration application (which is only one sentence in length); (2) official proof that the State transferred agricultural land to the applicant’s household; and (3) and an official sketch of the transferred land.

The second required document -- the official proof of land transfer -- is sometimes difficult to obtain. When land was transferred to private owners, the Georgian government was supposed to provide a “land receive-delivery act” to each new landowner. Unfortunately, many households never received this document. To overcome this hurdle, the presidential decree provides that the registry offices shall accept substitutions of the receive-delivery act. Landowners can prove land ownership on the basis of local land tax or distribution lists if an applicant has not received a receive-delivery act document. Furthermore, the fee that was associated with securing this document is no longer necessary since having a receive-delivery act is no longer a mandatory requirement.123 One other potential problem new landowners have faced was the difficulty of obtaining official sketches of the parcel. However, the decree made it possible to register without having an official government sketch. With some funding from USAID, private local surveyors were hired to prepare parcel sketches now used in the registration process.124

In Armenia, the cadastral and titling system is having great difficulty coping with the large number of individual landowners. It is at capacity at 300,000 individual landowners.125 Services must be expanded and the system revamped to accommodate the increasing number of landholders. Furthermore, the process of surveying and preparing titles has been markedly slow and inefficient. This has been due primarily to resource constraints and a lack of experience in cadastral issues. In addition, there are many cases of failure to place survey marks on the surveyed land, making property boundaries unclear. The lack of a centralized institutional framework further hampers the process; three separate agencies presently issue temporary certificates of ownership.

2. Roles of the Public and Private Sectors

Many state functions have been transferred to the local level in the Trans-Caucasus CIS states. Unfortunately, few private firms exist that provide services although several are beginning to develop.

In Georgia, the USAID Project to Develop Land Markets in Georgia hired private surveyors to move registration forward with some success. In addition, the Association for Protection of Landowners' Rights (APLR), a non-governmental organization that defends farmers' rights, has assisted with informing the rural population about the registration legislation.126 The APLR played a major role in working with the presidential administration to get laws passed, monitoring the status of the reform situation, and has been active in an education campaign to inform farmers of their rights.

In Armenia, there are several real estate companies that deal with sale and purchase of agricultural land, leasing of agricultural land, and valuation of property. In Azerbaijan, there are also a few private real estate agents and surveyor companies.

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