The political economy of private farming in Russia.
Since 1991, the Russian agricultural system has experienced significant
change. In the post-Soviet period, these changes have affected food
producers, food processors, and the food trade system. Agrarian and land reforms
have witnessed the reorganization and destatization of agricultural enterprises
(state and collective farms). An offshoot of the reorganization of large farms
has been the creation of a private farming stratum, based upon private
ownership of land. Land privatization in turn has given rise to the
development of a primitive land market. In addition, the privatization of
food processors has been accompanied by a liberalization of the food trade
system and the development of a food wholesale market, in particular
agricultural commodity exchanges. The result of these changes has been a
notable break from the Soviet agricultural system.(1)
Of the many components of Russian agrarian reform, the promotion and
growth of private farms seems to have received the most attention. Despite the
attention that private farming has drawn from scholars, few analysts have
addressed the broader and more important question: what will the future Russian
agricultural system look like and how does private farming fit in? Analyses of
Russian private farms have evolved in two main directions, although the
respective approaches have been more implicit than explicit. The first approach
has emphasized the legal foundations of privatization, concentrating on laws,
decrees, and resolutions that emanate from Moscow regarding land privatization
and private farming. Based on this approach, one set of analysts recently
concluded that "the prospects for growth of peasant farming [are] substantially
more encouraging than at any time in the past three years.... The potential for
very substantial growth of the peasant farming sector in Russia can now be
seen" (Prosterman, Mitchell, Rorem, 1997, 32-33). These authors based their
optimism on Russian President Yeltsin's March 1996 decree which allowed
private farmers to purchase or lease land shares held by members of a
collective or joint stock farm (Rossiyskaya gazeta, March 12, 1996, 5). The
second approach to understanding the development of private farming considers
broader social, demographic, and economic factors, as well as the policy
environment and its effect on private farming.
We see this article serving a twofold purpose. One of the goals is to
examine the assumptions of different approaches and to assess their
utility for understanding the development of private farming in Russia. That
is, at theoretical level, we want to address what factors and considerations
should an analyst emphasize? How much significance should be placed upon
the ability of the center to push private farming forward through decrees and
laws, and to what degree should we be looking at broader sociological,
psychological, and economic influences to understand the farmer movement? In
short, how much influence does the center have in post-Soviet Russia to shape
the countryside? A second goal consists of assessing the development of
private farming in Russia and evaluating the prospects for private farming in
the near to mid-term. Thus, the article seeks to address both theoretical and
substantive issues. These issues are important because they lead directly to
significant policy questions:
1. To what extent can Moscow stimulate and implement rural change?
2. To which sectors of the rural economy should aid and investment be
3. Which component of the rural economy -- large farms or smaller
private farms -- will likely provide the resurrection of Russian agriculture?
In order to address these questions we examine several factors that
affect private farming in the sections below. Our analysis is intended to
provide a basis for understanding the prospects for private farming over the
next 5-10 years.
The Legal Environment for Private Farming
Are "the prospects for growth of peasant farming substantially more
encouraging than at any time in the past three years"? In answering this
question many Western analysts continue to pay a great deal of attention to the
legal and legislative in Russia (Prosterman, Rolfes, and Mitchell,
1995). Thus, we will begin with an assessment of how the legal environment
affects private farming. We will argue first, that despite a legal environment
that has become less restrictive and more permissive since 1992, the evidence
is mixed as to the effects of legislation on the development of private farming.
Second, we will argue that the legal and legislative environments are not
sufficient to overcome broader social, economic, and political obstacles.
On the one hand, some evidence suggests that the "right" signals from
the center do exert influence on the calculations of private farmers and
would-be private farmers. For example, the number of private farms grew quite
rapidly during 1992-1993 after Yeltsin's December 1991 decree allowed farm
members to resign from a parent farm and receive land and property shares
upon their exit. Starting in 1992 and during most of 193 the number of newly
created private farms averaged over 10,000 per month. Furthermore, the legal
environments has changed, as have the terms of the debate. Through
presidential decrees, governmental laws, the 1993 Constitution, and the 1994
Civil Code, private property and the right of private land ownership have been
successfully institutionalized (for a review of legislation see Lerman and
Brooks, 1996). The debate is no longer about whether private property should be
allowed, or whether private ownership of land should be permitted. Even the
Communist Party and other parties on the left have officially recognized the
right to private property. The main questions today are how should be private
property be used and what should be the rights of disposal.
On the other hand, surveys among rural residents reveal a deep
ambivalence about directives from the center. For example a survey of private
farmers and farm managers by the All-Russian Center for Public Opinion
(VTsIOM) in early 1994 indicated that 34 percent of private farmers and 47
percent of farm managers felt that Yeltsin's December 1991 decree (On
Urgent Measures for the Implementation of Land Reform) had no effect on
economic activities.(2) When asked about the influence of Yeltsin's October 1993
decree which introduced the right to buy and sell land, 27 percent of private
farmers and 29 percent of farm managers answered that the decree had no
influence (All-Russian, 1997, 74).(3)
There are other reasons to doubt the efficacy of legislation as the main
criterion of reform success. Despite more permissive legal environment since
1991, private farming has stagnated quantitatively and has failed to develop
into a significant contributor to the nation's food supply. There were fewer
private farms in July 1997 than in October 1994, and overall the movement
attained just over one-half the number of farms that were forecast in 1992. To
illustrate: on January 1, 1994 there were 270,000 private farms throughout
Russia. By October of that year the number had increased to 285,000.
However, by January 1, 1997 the number of private farms had decreased to
278,600, before rebounding somewhat to 280,000 by July 1, 1997.(4)
Moreover, since 1992 private farmers have failed to produce more
than 2-3 percent of the nation's gross food supply (measured in ruble prices),
despite possessing 6 percent of agricultural land and as much as 15-17 percent
of the agricultural labor force (Durgin, 1994, 230). Production and sale trends
from private farmers are indicated in Table 1 below.
Percentage of Food Production and Food Sales from Private Farmers
in Russia (for selected commodities)
1992 1993 1994 1995 1996 Grain production Sugar beet production 2.1 5.2 5.1 5.0 4.9 Sunflower seed production 2.0 3.9 3.5 3.7 3.5 Potato production 5.8 9.9 10.2 14.4 13.1 Vegetable production 0.8 1.0 0.9 0.92 0.93 Meat and poultry production 0.7 1.1 1.6 1.6 1.7 (dead weight) Milk production 0.5 1.1 1.5 1.5 1.6 Egg production 0.1 0.2 0.3 0.4 0.4 Milk sales 0.3 0.5 0.5 1.5 1.5 Egg sales NA NA NA 0.4 0.4
Sources: Goskomstat, 1995, 9-11; Goskomstat, 1997b, various pages; and
author's calculations from Goskomstat, 1997c, 297, 299, 300.
Considering the evidence above, we conclude that the legal
environment was undoubtedly important, especially during the early reform years
1991-1992. However, it is not the most important nor the sole factor
exerting influence on the development of the rural private sector. If the legal
environments were the main criterion for reform success, quite different results
would appear than what were portrayed in Table 1. Despite a more permissive
legal environment over time, private farming has stagnated and remained a
marginal food producer. Because private farming results are not what one would
expect if analyzed only from the legal angle, it stands to reason that other
factors are also important in influencing the private farming sector.(5) The
sections below survey factor affecting private farming that are commonly
overlooked by Western analysts.
One of the most common mistakes that analysts make is to forget that
reform begins with, is influenced by, and ultimately is constrained by the
base of human capital. In short, people matter. People are all the more
important because of the serious decline in rural stock since 1990. Under the
normal development patterns, over time rural capital replaces rural labor,
allowing the rural labor force to decline. This pattern was evident the
Soviet period, particularly during the last fifty years when the rural labor
declined from 31 million in 1941 to 19.4 million in 1990. The supply of
tractors (to use just one indicator) increased from 500,000 in 1940 to 1.59
million in 1985. However, since 1990 the rural capital stock has plummeted,
as the number of tractors produced has dropped from 143,700 in 1990 to just
over 9,000 in 1996. Similar declines have occurred for trucks, grain
combines, harvesters of all types, milkers, excavators, and bulldozers. Given
the deterioration in equipment and rural capital stock since 1990, if private
farming were to be successful a sufficient demographic base would be
necessary. Specifically, we will see below that the base of human capital
eroded during the Soviet period and continues to do so in the post-Soviet
period. The only way for private farming to be successful is to increase the
stock of equipment and machines, both to substitute for the lost power and to
supply private farmers with needed inputs. The data above, however, showed
that an increase in capital stock has not occurred since reform was begun.
The erosion of the base of human capital has been a long-term
process, spanning several decades, among the rural population in the USSR. Thus,
within the RSFSR alone, the rural population declined by more than 46
percent, from 72 million to 38.9 million between 1939-89. Central Russia was
especially affected, experiencing 42 percent reduction in the rural
population in the non-black zones of Russia between 1959-84 (Pankov, 1985, 20).
We should be clear that a large portion of the rural-urban exodus fit normal
patterns experienced by all nations during industrialization and economic
development. Nonetheless, by the time Brezhnev came to power in 1964 the
Soviet leadership was increasingly concerned about rural outflow. Starting in
March 1965, a series of resolutions and programs were adopted to try to stem
the rural outflow, signaling a policy shift from encouraging rural
out-migration to one that expressed concern about rural depopulation. Despite
party and government efforts that extended for more than 20 years, there is
little evidence to suggest success. During 1979-88, outmigration from rural
areas in the Russian Republic averaged over 422,000 persons a year
(Demograficheskiy ezhegodnik, 1996, 25). Importantly, among the groups most
affected by rural outmigration were the skilled and the young, leaving behind
the unskilled, the elderly and the infirm.
The significance of Soviet rural out-migration patterns was acutely
felt when the agrarian reform program was formulated in 1990 that stressed the
creation of a new stratum of private farmers. In effect, the countryside was
demographically unprepared for agrarian reform. The population base was
not strong enough to support a new stratum of productive farms founded on
private ownership of land. In particular, we can identify several ways in which
Soviet-era demographics affected reform potential in the 1990s.
First, as a result of the departure of the rural young, the age structure
of the rural population became older. The aging of the rural population had an
effect on the potential private farm cohort. Various surveys and studies have
shown that men owerwhelmingly start private farms, and the common
age range for a man to start a private farm is between 20-39 (Goskomstat,
1994, 4; Brooks and Lerman, 1994, 37; Puzanovskiy and Ivantsov, 1994,
63-66). If we consider demographic trends among rural males it is clear that
prospects for private farming were disadvantaged from the beginning. Quite
simply, the cohort of rural males in younger age brackets declined while the
cohort of older males increased. For example, from 1959 to 1987, the number of
rural males aged 10-14 decreased 27 percent, rural males aged 15-19 declined
37 percent, rural males aged 20-24 declined 47 percent, rural males aged
25-29 declined 42 percent, and there were 33 percent fewer rural males aged
30-34 (Population, 1988, 52-53). To put it somewhat differently, if private
farming had been legalized in 1959, a potential cohort aged 20-34 would have
consisted of 6.9 million rural males; by 1987 the actual number of rural males
in that age range was just over 4 million. As a result of declines in the number
of young rural males, in 1996 only about 30 percent of rural men fell within
the most common age range to begin a private farm. The table below shows
higher percentages of older persons: in 1996 28 percent of rural men were 45
or older, as were 38 percent of rural women.
Age-Sex Distribution of Rural Population in Russia, 1996 (in percent)
Age (years) Total Rural Rural Rural population men Women 15-19 7.3 8.0 6.6 20-24 6.1 6.7 5.4 25-29 5.8 6.0 5.5 30-34 7.4 8.2 6.7 35-39 8.1 9.0 7.3 40-44 6.9 7.6 6.3 45-49 5.3 5.6 4.9 50-54 3.2 3.1 3.2 55-59 6.6 6.3 6.9 60-84 18.6 13.4 23.3
Note: Numbers have been rounded up
Source: Author's calculations from Demograficheskiy ezhegodnik (1996), 41.
Second, a weak rural demographic base partially explains
governmental efforts to recruit private farmers from social groups other than
collective farm members. In April 1992 the government adopted a program to
attract urban people to the countryside. According to the program, the federal
government would provide a one-time payment to the head of the household
and each family member who relocated to rural areas. Following the
establishment of a federal program to train and educate private farmers in
1993 (State Program, 1993, 699-706), the sum was increased from 10,000
rubles for a head of family to 75,000 rubles, and for family members from
2,500 rubles to 15,000 rubles (Rapetskiy, 1993, 31). Thereafter the sum paid
to relocating families was indexed to inflation in subsequent years. Following
the adopting of the 1993 federal training program, similar programs were
adopted for individual oblasts. For example, in August 1993, Prime Minister
Chernomyrdin signed a resolution that stipulated the federal government would
pay the cost of transportation for a family (up to 2 tons per family) to
into a rural area in Rostov Oblast, one of the most productive agricultural
regions in the country. The resolution also recommended to local governments
to assist new arrivals with housing, fuels, social services, to obtain building
materials, and to acquire land plots and livestock (On Advantages, 1993,
A third consideration, and related to point two above, is that a weak
rural demographic base explains why an estimated 75 percent of early private
farmers were ex-urbanites. Early in the private farm development process
members of state and collective farms comprised only 5-7 percent of private
farmers, while migrants (largely from the near abroad), "romantics of the rural
way of life," and demobilized military personnel accounted for the remaining
20 percent of private farmers (Sazonov, et al., 1996, 134). However, financial,
tax, and credit policies led most urban residents-turned-farmer to stop their
activities or to continue their farming activities on a nominal basis, using
status as a "private farmer" to obtain various advantages (such as exemption
from value added taxes and land taxes and land taxes). By in 1996 it was
estimated that former
urban residents comprised no more than 15 percent of all private farmers, and
about 25 percent of that number were actively engaged in agriculture (Sazonov
et al., 1996, 135).
Finally, a weak rural demographic base is a least a partial cause for the
small number of private farms per 1000 persons, as we will examine below.
An older rural population was both more risk averse in attitude and less
physically able to tolerate rural social conditions, the backwardness of the
countryside and the rueling labor demands inherent to private farming.
The Popularity of Private Farming
Flowing from the effects of rural demography, it is important to note that
attempts to develop a private farming stratum have occurred within the
context of rural conservation. This conservatism has been manifest in several
ways. The first way in which rural conservatism has been manifest in the
consistent finding among analysts regarding the relative unpopularity of private
farming as a reform option. It has been clear since at least 1989 that the
rural population was not very enthusiastic about land leasing -- a reform much
conservative than private farming. Likewise, surveys and polls since 1990 have
shown the rural population to be at best ambivalent about land reform and
decollectivization (see Wegren, 1994). It has also been clear for years that (1)
the rural population has not embraced risk-taking inherent to private farming,
and (2) that the willingness to engage in private farming has decreased over
time, reflected by a decrease in the number of persons indicating a desire to be
a private farmer (Durgin, 1994, 233).
While it has been clear for several years that the rural population has not
embraced land reform in general or private farming in particular, the
interesting question is why. Some Western writers have blamed farm managers, and
raion and oblast agricultural officials for resistance and outright opposition
private farming (see for example Van Atta, 1993). While it is certainly true
that early in the land reform process farm managerial staff and agricultural
officials at the raion and oblast level obstructed land reform and private
farming, their resistance decreased over time. By 1994 farm manager resistance
private farming was no longer the main constraint, so much so that by 1994 a
World Bank survey in five Russian oblasts found that 85 percent of farm
managers supported the allocation of land of private farming (Brooks et al,
That survey, sponsored by the World Bank with cooperation from the
Agrarian Institute in Moscow polled farm managers, farm workers, and
private farmers in 1994. Among the questions asked was "why not become a
private farmers?" Only 6 percent answered due to restrictions on buying and
selling land, and 15 percent cited inadequate land. Instead, economic and
psychological reasons dominated: 74 percent cited insufficient capital, 60
percent mentioned difficulty obtaining farm inputs, and 56 percent responded
were afraid of risk (Brooks et al., 1996, 54).
Results from the World Bank survey were confirmed by an opinion poll
conducted by VTsIOM in 1994. Private farmers and farm managers were asked
the source of the greatest limitation on their work. Both groups
overwhelmingly answered "the government" which in the context of the question
meant the federal government. Both groups also answered the "tax
inspectorate" as the second most popular answer. Significantly, private farmers
oblast and raion-level administrations and land committees less than the
federal government and the tax inspectorate. How does the government
"interfere" in agricultural work? In a different question both groups blamed
policy, high taxes, high interest rates, and difficulty obtaining credit as the
worst problems. In addition, neither private farmers nor farm managers were
optimistic about economic conditions in agriculture. In a question that asked
whether economic conditions had changed for the better or for the worse, only
18 percent of private farmers and 5 percent of farm mangers answered for the
better; 45 percent of private farmers and 64 percent of farm managers
responded for the worse (All-Russian, 1994, 73-74).
The second way in which rural conservatism has been evident is through
the lack of decollectivization. Despite clear evidence of rural conservatism
and lack of enthusiasm for private farming, one of the surprises for many
Western analysts has been the lack of spontaneous and complete
in the Russian countryside. For years the assumption had been that given the
opportunity Russian peasants would exit the parent farm in large numbers.
However, reality did not bear out these expectations. The World Bank found
in its 1994 survey that 30 percent of large farms in their five oblast survey
experienced zero departures, while nearly two-thirds had between 1-9 exits
(one to three families) (Brooks et al, 1996, 33). Some analysts still cling to
vision (and hope) of massive decollectivization. However, by now it should be
clear that given choices, members of collective farms have "voted with their
feet" and opted to remain within a larger farming enterprise or to intensify
their private plot activities. Responses by farm members to remain within a
collective are due to a variety of reasons including access to social services,
hostile economic environment, and because the farm represented not just a
production unit but a social community.
The third way in which rural conservatism has been manifest was
demonstrated during the 1993 and 1995 Duma elections, as well as during the
1996 Presidential elections. These elections demonstrated clearly that rural
voters preferred communist and anti-reform candidates (Clem and Craumer,
1995a, 1995b, 1996; Orttung and Paretskaya, 1996). The electoral evidence
has been so strong and so consistent that analysts who argue that rural opinion
has liberalized and become pro-reform are simply wrong (Reisinger, 1995).
Thus, since 1993 the central question to understanding private farming is not
"what are the legal impediments" but rather "do peasants want to undertake
In answering that question, gross numbers of private farms reveal little
because they often reflect the size of the region's population or the amount of
agricultural and available. In order to circumvent these problems, Table 3
examines the number of private farms per 1000 per persons in each of the
economic regions in European Rusia. The table clearly shows that in all of
the regions of European Russian private farming was not very popular, that is,
one finds an extremely low rate of farms per 1000 persons. At the beginning of
1997, only one region (the Northern Caucasus) had more than four farms per
1000 persons, and only two regions had more than two farms per 1000
persons, suggesting that the difficulties of private farming made this a
unattractive option in comparison to other food growing alternatives.(6) We may
conclude based on these data that the "saturation" of private farms in the
countryside is rather negligible.
[TABULAR DATA 3 NOT REPRODUCIBLE IN ASCII]
The Land Market
Would-be private farmers have been able to obtain land in several ways.
Persons ways. Persons exiting a parent farm have been able to obtain land and
property shares to use as start-up capital for their private farm. Non-farm
members have been able to obtain land from raion land funds. Both of these
sources are limited, however, in that the quantity of land that can be obtained
is limited to raion-level norms which are usually quite small. In addition,
raion land funds in the south of Russian have been reported to experience
shortages of land for distribution because fewer former collective farms
disbanded during reorganization and due to the demand for land to be used
for private plots, dacha plots, collective fruit and vegetable gardens, and
small-scale individual use (land funds are used to distribute land for a variety
of purposes, not just private farming). Therefore, because land allotments have
tended to be small and land is sometimes not available in high demand areas,
the emergence of a land market has become quite important for existing
private farmers to expand land holdings or for beginning farmers to hold land.
noted above, land reform legislation established the foundation for a
rudimentary land market, although in reality Russia has a system of land
a genuine land market. Legislation regulating land transactions, namely
presidential decrees in October 1993 and March 1996, allowed land shares to be
purchased and sold, but only with various restrictions. Land shares from
collective enterprises were subject to restrictions on who could obtain land
and land use. Privately owned land such as private plots and private farms may
be bought and sold, but faced restrictions only on land use -- agricultural
had to remain in agricultural use. To date the land market in Russia, as it
consists mostly of the sale and purchase of very small plots of land such as
private plots or dacha plots (Wegren, 1997). Transactions involving large
of farm land are quite rare, as are transactions involving land shares as we
Some analysts see the emerging land market as a key source for the
future development of private farming. For example, Prosterman argues that
"the land share now plays a more central role [in private farmers
obtaining land], while the raion land funds have ceased to be the primary
of land for the creation of private farms (Prosterman, Mitchell, Rorem, 1997,
5). In essence, this line of argumentation maintains that legislation which
liberates the land market will inherently lead to a growth in private farming.
Perhaps this position will become true over the longer term, but current
evidence does not support this position. Let us consider several aspects of the
land market which impinge upon the development of private farming.
Private farmers report that most of their land came from the parent farm
from which they resigned. This means that once private farmers left their
parent farm they had to turn to the land market to obtain additional land.
Leasing additional land by private farmers is much more prevalent than
purchasing additional agricultural land, particularly in the south where demand
for land is
higher. The problems confronted by private farmers who want to lease or
purchase additional land are threefold.
First, most collective farms and their legal successors have retained
control of most of their land, or have obtained land trough post-reorganization
lease arrangements. During the farm reorganization process (1992-1994) a
farm member had a one-time opportunity to convert his/her land shares to a
specific, tangible plot of land or to lease the land shares back to the
(a February 1995 government resolution allowed farm members to a reconsider
their decision after three years, in effect giving them a second chance to
redeem their land shares). It is clear that in the overwhelming number of cases
farm members assigned their land shares back to the collective. The problem
with leasing possibilities is that among non-reorganized farms there is
virtually no desire to lease land share.(7) For example, a survey of
in Orel Oblast by the Agrarian Institute in Moscow found that 98.5 percent of
farm members in pilot farms had leased their land shares or signed lease
arrangements with the parent farm, as had 82.4 percent of farm members in the
second wave or reorganized farms. Among non-reorganized farms in the oblast,
only 1.4 percent of farm member respondents had leased their land shares
(Uzun, 1997, 86-87). Similar findings were reported in other oblasts as well.
Prosterman and his co-authors present data which show that only 10,900
hectares out of 190,863 (5.7 percent) had been leased to private farmers during
March-December 1996 in Samara Oblast (Prosterman, Mitchell, Rorem, 1997,
9). While farm reorganization seems to bring a greater inclination to lease land
by the land share holder, the problem is the small number of farms that have
reorganized. As of mid-1996, only about 1175 farms in Russia had privatized
according to the national privatization model adopted in July 1994 out of more
than 24,000 farms that were eligible (Wegren, 1998, 13-14).
A second problem is that the desire to sell land for private farming is
low in many regions. Affecting sales of agricultural land is the possibility of
confusion at the local level.(8) Regarding the sale of land shares, the Agrarian
Institute survey cited above found that among reorganized and
non-reorganized farms in Rostov Oblast, less than five percent of farm
members in both types of farms desired to sell their land shares (Uzun, 1997,
88).(9) Prosterman and his co-authors were not able to confirm any land sales
to private farmers in their 1995 report or their 997 report in which they
traveled to a number of different oblasts (Prosterman, Rolfes, and Mitchell,
1995, 180: Prosterman, Mitchell, Rorem, 1997, 13). Affecting the desire to
sell a land share is the disposition of the land share holder. If a farm
member sold his land shares he would have to leave the parent farm. Because a
significant percentage -- usually from one-third to one-half -- of farm
members are pensioners, they are
often reluctant to leave a parent farm. The economic environment is hostile
and uncertain and land is a hedge against inflation. Farm pensioners often do
not want to lose their land rights and do not want to move from the area they
had lived and worked.
A third problem is that the demand for land to undertake private farming
is low. Data from Roskomzen indicate that the demand for land to conduct
private farming is extremely low, and as the economic environment remains
hostile the desire has declined. National-level data on land purchases from
local governments for private farming during 1993-1995 showed a straight
line decline: 763 purchases in 1993, 380 in 1994, and 175 in 1995. To put the
demand for private farming land in context, the number of land sales from
local governments for individual dwelling construction, private plots, dacha
plots, and collective gardens totaled 134,794 in 1993, 109,894 in 1994, and
62,481 in 1995 (Krest'yanskiye vedomosti, No. 29, 1996, 8). Given the fact
that private farm profitability has declined significantly since 1994 (see
below), that farm bankruptcies have increased dramatically, and that private
farmers cultivate on average only one-half of the land area they possess, it is
wonder that demand for additional land is low in many areas of Russia.
Financial Realities of Private Farming
In order for private farming to be successful, privatization must be
accompanied by supplementary measures, including improved technology,
development of credit systems, adequate mechanization of farms, resolution of
deficiencies in infrastructure, and the creation of a market environment. To
achieve these goals the state can and must play a major role, and for that
reason the final factor analyzed in this paper that influences the
development of private farming is the role of the state, in particular the
provision of financial
resources and credit to private farmers.
The first six years of agrarian reform have shown that private farms
developed most rapidly when state support was strongest, and for that reason
one could argue that the role of the state is perhaps the key variable affecting
the growth of the movement. During 1992-1993, when the Russian
government offered subsidized credits at very low (negative) interest rates the
number of private farms expanded quickly and significantly. After October 1993,
when subsidized credits were ended, the number of private farm bankruptcies
began to increase and the rate of new farm creation fell dramatically (Wegren,
Since 1992 a large number of government resolutions and programs
have been adopted, all intended to stimulate the development of a private
farming stratum.(10) On paper the state seems to have provided extensive
support for private farming. In reality, financial state support for private
farming has been plagued by several problems. The first problem is the decline
the level of support.(11) Federal budgetary allocations to private farming
in nominal terms, but in real terms financial support declined every year since
1992. According to AKKOR reports, in constant rubles financial support per
private farm in 1991 averaged 30,000 rubles, 4,500 rubles per farm in 1992,
and only 1,000 rubles per farm in 1993 (Finansovyye izvestiya, No. 15, 1994,
3). When calculated in dollars, state support for private farming declined from
42.3 million dollars in 1992 to 6.9 million dollars in 1995 (not including
production subsidies and compensations).(12) Similar declines in capital
also occurred in agriculture since 1991. State investments to agriculture
declined by a factor of 20 since 1991 when computed in constant rubles (Korneev
and Kuznetsov, 1997, 83-88).
A second problem has been a shifting of the financial burden. State
support for agriculture may come from either the federal budget or local (oblast
or kray) budgets. The trend since 1992 has been to reduce federal
expenditures, putting more of the budgetary burden on local budgets. Some
regions are able to provide adequate support for private farmers (Rostov
on-the-Don, Volgograd, Samara, and Belgorod Oblasts, and Stavropol and
Krasnodar Krays are prime examples). With the exception of those few regions,
most local budgets simply do not have the resources to provide sufficient
support to private
farmers. In 1995 for example, budgetary allocations from regional budgets
totaled 140 billion rubles, or 500,000 rubles per farm -- $100.00 per private
farm. This level of financial support was 10-15 times less than recommended
by government experts. Some regions, such as Tartarstan and Bashkortostan
did not allocate any financial support to private farmers at all (Popov, 1996,
The third problem that has confronted state programs and all types of
state support to private farming has been that what existed on paper did not
necessarily translate into tangible support. In short, there has been a
considerable gap between theory and reality. Budgetary allocations indicated
amount authorized, in reality only about one-half to two-thirds of total
budgetary assignments were actually distributed each year, and much of the money
was used to cover previous loan payments. Direct subsidies fared even more
poorly, as only six percent of the 240 billion rubles assigned in 1996 actually
reached farmers. During 1996 the Ministry of Agriculture reported that just
over 50 percent of the funds allocated to agriculture were received
(Krest'yanskiye vedomosti, No. 49, 1996, 2). These shortfalls affect
production as fuels cannot be obtained and machinery cannot be leased. In
included in budgetary allotments to private farmers are sums intended to be
used to pay off past debts.
With declining state support and unable to rely on outside sources of
financing, private farmers became increasingly vulnerable to increases in
input prices. As is well-known, prices of industrial products and farm inputs
increased at a far faster rate than purchase prices for food products during the
years of reform. For example, from 1991 through 1995 prices for industrial
goods used by food producers increased 2,230 percent, while purchase prices
for agricultural products rose only 752 percent (Zemlya i trud, No. 8, 996, 3).
Faced with disadvantageous prices, private farm profitability steadily declined.
One Russian academic reports that whereas "nearly all" private farms were
profitable in 1992, in 1994 less than 20 percent were profitable (Sazonov,
1995, 57-58). A recent study published by the Agrarian Institute in Moscow
found that private farm profitability from agricultural production declined from
+ 178 percent in 1992 to -66 percent in 1995. Furthermore, the relationship
between income and expenses changed fundamentally for private farming as a
whole (Sazonova, 1996, 131-134).
Financial trends such as those described above created tension in the
relationship between the government and private farmers, even though private
farmers remained the main source of rural support for the Yeltsin
administration (Wegren, 1996a). From the very beginning, private farmers were
disappointed by the level of state support. In 1992, a pro-reform/pro-private
farming paper threatened that if the voice of peasants continued to be ignored,
peasant protests would transform into strikes, blockages of transportation
arteries, and non-delivery of foodstuffs (Rossiyskiye vesti, October 1, 1992,
Several years later, after little had changed for the better, the president of
AKKOR, Vladimir Bashmachnikov, charged that the Minister of Agriculture
and the Minister of Finance were involved in a "secret agreement against
private farmers" (Krest'yanskiye vedomosti, No. 2, 1996, 2).
This article has addressed theoretical and substantive issues
surrounding the development of a rural private farming sector in Russia. Some
continue to view the development of private farming through the prism of
decrees and laws emanating from Moscow. The assumption of those analysts
is that legal acts taken in Moscow are a significant factor influencing the
development of private farming. Based upon a series of Presidential decrees,
those analysts are optimistic about the near-term rapid expansion in the
number of private farms.
We agree that a favorable legislative environment has been important,
however, the period in which legislation was the most important aspect of
private farming passed several years ago. As was demonstrated above,
participants in agrarian reform are divided as to the efficacy of legislation
from Moscow. Moreover, most government programs, resolutions, and policy
decisions exist only on paper and are not translated into reality. Therefore, we
argue that the key to understanding the future of private farming no longer
should emphasize directives from the center. In contrast to a legalistic
approach, this article examined a series of factors which constitute serious
obstacles to the further development of the rural private sector. The implicit
is that a correct understanding of private farming must take account of
broader sociological, demographic, financial, and economic influences.
The factors we analyzed are more complex and more difficult to
resolve than issuing decrees or passing laws. Those factors may be divided into
"people" and "resources." In the "people" category, the demographic base for
private farming is quite weak. There is a relative shortage of rural men aged
20-39 -- the largest component of private farmers. In addition, an older, more
conservative rural population is less disposed to using the land market in ways
that would benefit private farmers -- and that assumes that private farmers are
able or are interested in acquiring more land. National data show that average
private farm sizes have not increased substantially despite the presence of a
land market, and this fact reflects both supply and demand circumstances.(13)
In the "resources" category, a harsh financial and economic
environment, as well as rising bankruptcies have contributed to the
private farming as a reform option, measured by the small number of private
farms per 1000 persons. The financial and economic climate are not likely to
improve until -- and unless -- the government is able to translate its policies
that exist on paper into tangible and adequate support for private farmers.
There is little evidence of an ability to do so during the first seven years of
agrarian reform. Moreover, private farms remain undercapitalized when
compared to other developed nations. Private farms have too few tractors, too
trucks and other means of transport, and too few buildings for animals and
storage. The fact that GDP has declined by 50 percent since 1990 suggests
that the Russian economy will be unable to produce the machinery, the
buildings, and the capital stock needed by private farmers.(14)
Thus, unless the trends analyzed herein in somehow drastically change,
there is little reason to expect private farms to increase in number or to
production significantly in the near to mid-term. Food production from private
farming will remain of secondary significance compared to collective farms,
join stock farms, and production from the population. According to the United
States Department of Agriculture, about 48 percent of food production in 1996
came from the "private sector" which includes private farms and production
from the population's personal plots. In reality, 46 percent of "private"
production came from the population's agricultural plots, and only 2 percent
private farms (Economic Research Service, 1997, 43,45). With 6 percent of
the nation's agricultural land and 2 percent of output, private farming has not
proved to be a realistic alternative to larger agricultural enterprises, despite
government support and a more favorable legal environment. The significance
of our analysis is that the Russian agrarian system and agricultural production
are likely to remain dominated by large agricultural enterprises.
(1.) For instance, in July 1997 it was reported that 94 percent of all
were considered private (Izvestiya, July 31, 1997, 2). Other aspects have of
changed as well, such as the rural wage structure and rural social policies,
but those are
policy reforms, not institutional changes in the agricultural system.
(2.) On the same question, 40 percent of private farmers answered that the
influence was positive and 34 percent of farm managers responded that the
(3.) The most common response to this question by private farmers was "too
hard to answer" (29 percent); and "influenced negatively" (47 percent) by
(4.) As the rate of farm creation was stagnating, private farm bankruptcies
dramatically: 5,000 in 1993, 14,000 in 1994, 26,000 in 1995, and more than
1996. During 1995, 25 regions of Russia experienced a net decline in the number
private farms; in 1996 that number rose to 49. During 1996, for every 100 farms
96 went out of business (Terent'ev, 1996, 94).
(5.) Private farming has been susceptible to many of the same problems that have
the entire economy: non-payment for production, inflation, price disparities
agricultural and industrial goods, ineffective financial, credit, and tax
consumer demand, and unfulfilled budget financing. In addition, private farmers
confronted a range of specific problems, most of which have been well-documented
and need only be mentioned here. These include problems obtaining fuels,
technology, and farm equipment; affording land reclamation; and deficiencies in
infrastructure. In addition, private farmers often have difficulty obtaining
loans to finance start-up or operational costs, and despite the existence of
farmers find it difficult to obtain mortgages on their property (Durgin, 1994;
1994; Wegren, 1996b).
(6.) In contrast to private farms, by the end of 1996 over 16 million land plots
privatized for private plot usage, as were more than 20 million plots in
gardens, dacha plots, and other small-scale individual activities.
(7.) In this discussion, "reorganized farms" refer to farms that implemented the
Novgorod Model" of farm privatization, which was adopted as a national program
farm reorganization in July 1994. "Non-reorganized" farms refer to farms that
not adopted the national model.
(8.) The State Duma, within two weeks of Yeltsin's March 1996 decree, adopted
resolution that declared Yeltsin's decree to be illegal. Although the Duma
was non-binding and had no legal force on the president, according to one
academic the effect was to create confusion among local rural residents and to
local officials greater latitude in regulating the local land market
(9.) The study did point out, however, that the desire to sell land shares was
among members of reorganized farms due to dissatisfaction with leasing
The survey reported that in a majority of cases the farm management dictated
of the lease. With few options, the leasing market was not competitive and thus
members felt compelled to comply, even though their participation in
been minimal (Uzun, 1997, 86-89).
(10.) Federal financial support to private farms has consisted of several kinds:
(a) direct subsidies and compensations to producers;
(b) credits in-kind which allocate resources, usually fuels, to food
have to be repaid after the harvest;
(c) preferential credits, which allow producers to borrow at subsidized
and which must be repaid at a future date; and
(d) a leasing program, introduced in 1994 which allowed producers to lease
machinery while the state subsidized the cost.
(11.) This problem plagued agriculture as a whole, not just private farming.
As a percent
of the federal budget, the amount allocated to agriculture dropped from 17.4
1992 to about three percent in 1997. We should note that the declines are even
than the percentages indicate because of the fact GDP has also declined
(12.) Using average of ruble-dollar exchange rate for 1995.
(13.) In European Russia during 1993-1997, of the eight economic regions,
decreased in average size in three regions, one region showed no change, one
one hectare in average size, one gained two hectares, and one gained three
Only the Volga region showed a significant increase in average size, rising from
hectares in 1993 to 91 hectares in 1997.
(14.) In January 1997 the number of cattle was down by some 40 percent from its
level; cows 22 percent, pigs 50 percent; and sheep and goats over 60 percent.
agricultural machine supply had similarly been depleted. Acquisition of tractors
food producers declined steadily: from 143.7 thousand in 1990 to 9.1 thousand in
1996; trucks from 97.6 thousand to 4,700, and grain combines from 37.8 thousand
4,700. With depreciation exceeding replacement by a factor of 1.9-2.2 the number
tractors and combines in 1997 is one-third smaller than in 1990, and only 70
are operational. Fertilizer applications have declined from an average of
per hectare during 1986-1990 to 10 kg per hectares in 1997. It is estimated that
are extracting 4.5 times as much nutrients from the soil as they apply and there
fears that soil degradation could become irreversible in some grain growing
Land reclamation and improvement work has virtually ceased. The rate of
of the irrigation systems exceeds the replacement rate by a factor of 10. In
example, while only 5,500 hectares of new agricultural land were cultivated and
hectares improved, more than 200,000 hectares of agricultural land were taken
service. Overall, more than 8 million hectares of cultivated agricultural land
grain-growing have been withdrawn from production since 1992. Private farmers as
well as larger agricultural enterprises are affected by these aforementioned
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|Author:||Wegren, Stephen K.; Dugin, Frank A.|
|Publication:||Comparative Economic Studies|
|Date:||Sep 22, 1997|
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