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Agricultural land and regulation in the transition economy of Russia.

JEL Classification CIO * L33 * 057 * Q00

This research note explores the link between farmland conversion and existing land regulation in Russia. We conclude that land regulation is lagging the new market trends in the transition economy of Russia. As market forces continue to penetrate the economy, apparent managerial and statutory problems with regard to local landuse planning and regulation preclude more effective use of land. Responding to the need for attracting investment in agriculture, the Russian Ministry of Science and Education provided funds for our research project that involves primary data collection and econometric analysis of the interdependencies between governmental policies and farmland loss. Our unique dataset contains socioeconomic, demographic and spatial geographic 2010 data for 39 municipal districts in the Moscow metropolitan region. The econometric analysis of this data set is used to explore the relationship among farmland quantity, its assessed value, the share of privatized farmland, farmland tax, and land-use zoning in the simultaneous equations framework.

While the Russian market for real estate has developed quickly, the market for agricultural land is still thin. Farmland deals are limited, partly because of the lingering uncertainty about farmland property rights. The state-owned farmland is still significant. Our Moscow regional data suggest a strong positive relationship between the fraction of privatized farmland and farmland acreage, although the fraction of individually and collectively privatized farmland is only 57 %. The direct sale of farmland to foreigners is prohibited decreasing potential foreign investment as well. As a result, the area occupied by agricultural lands has been steadily decreasing and deteriorating in quality. During the period 1990 to 2005, tillable lands in Russia have shrunk by 10.5 million hectares (7.9 % of tillable lands).

Lacking experience and adequate knowledge, local governments are stuck with the land conservation policies available to the former USSR. In particular, in an attempt to contain the loss of prime farmland, the regulators retain old land-use zoning laws prohibiting the change of land status. However, strong development pressures and widespread corruption often annihilate the desirable effect of zoning. The results of our econometric analysis indicate that the proximity to Moscow city and population growth both have a significant negative effect on the amount of farmland, even in the strictlyzoned-for agriculture districts, suggesting strong urban pressure in the capital region of Moscow. The estimated elasticity of farmland acreage with respect to population growth is -0.3. A corrupt practice of illegal changes in land status is reflected in the fact that the lands still classified as farmland in the Federal Register of Land are turned into residential or industrial areas. This signals a management problem which could be perhaps resolved by the introduction of more flexible zoning and an increase in the range of responsibilities of local governments and their property rights to land.

The other economic instrument indispensable in land policy, land assessment, is also based on the former practices of the Communist period following a federally mandated general formula that takes into account soil productivity criteria, topographic features of the landscape, and the presence of irrigation, but still has little in common with the market price of farmland. When the agricultural land tax is calculated as the percentage of the assessed value of farmland, which is often below its real market value, local authorities are not interested in developing local agricultural infrastructure or increasing agricultural land base because they will not be able to reap any significant tax benefits from it. Coupled with the low federally mandated upper limits on tax rates (0.3 % of the assessed value of agricultural and residential lands) this leads to insufficient local tax revenues and overreliance on intergovernmental transfers. According to our data for the Moscow region, although localities tend to impose the maximum allowable tax rate, the average share of land tax revenues in local budgets is a mere 5 %. It is not surprising as the average assessed value of farmland across municipalities is 1000 times less than the ongoing average sales price, according to data we collected.

The insignificant local land tax revenues caused by the underestimated land value lead to insufficient local infrastructure investment, which further suppresses the value of farmland and hastens its conversion. The results of the econometric analysis indicate lack of statistical significance between the assessed value of farmland and farmland quantity in the Moscow region, making the farmland tax rate an ineffective instrument in land policy. This missing link between the farmland quantity and existing land policies may render these policies not just ineffective but even wasteful. Innovative approaches such as the retention of development rights by the government might represent a temporary solution. The increasing reliance on local governance in solving local problems would imply improved land-use and public finance planning and, perhaps, a slower farmland conversion trend.

Acknowledgments Research was supported by the Ministry of Education and Sciences of the Russian Federation, project #1.5, 2012-2013, No.8178.

DOI 10.1007/s11294-015-9535-y

Ekaterina Gnedenko (1) & Michael Kazmin (2)

Published online: 7 July 2015 [C] International Atlantic Economic Society 2015

[mail] Ekaterina Gnedenko

Michael Kazmin

(1) Department of Economics, Tufts University, Medford, MA, USA

(2) Department of Geography, Moscow State University, Moscow, Russia
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Title Annotation:RESEARCH NOTE
Author:Gnedenko, Ekaterina; Kazmin, Michael
Publication:International Advances in Economic Research
Article Type:Report
Geographic Code:4EXRU
Date:Aug 1, 2015
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