40 CHOICES Second Quarrer 1995 lin Short I. by Craig L. Infanger

Reforming Russia's Agriculture: A Slow Path from Plan to Market

The author served as expatriate policy as that of the United States, Russia has view by party officials supeIYising offi­ advisor in the Russian Ministry of Agricul­ operated fewer than 26,000 farms-the cial visits. ture from November 1992 through Decem­ same number of farms found in Colo­ Russia's sovkhoz/kolkhoz are more ber 1993. He advised on agrarian policy rado. These state (sovkhoz) and collec­ than just large farms. In many respects issues, land reform, privatization, agricul­ tive (kolkhoz) farms operate essentially they form the social and economic fab- tural credit, extension education, and as "industrial farms, " where professional World Bank negotiations. The author was bureaucrats implement Moscow's plans in Russia under the "Resident Policy Ad­ and supervise worker cadres. Despite seventy years of visor Program, " one of the technical as­ A visit to a rypical Russian farm massive public investment, sistance experiments included in the leaves one impressed by the daunting USDA 's Emerging Democracies Program. scale of production: a sovkhoz may even a short sojourn in have 20,000 acres, 2,000 cattle, 50 trac­ Except for the brief period of the tors, and 400 workers; a kolkhoz Russia reveals a food system Stolypin reforms prior to World War 15,000 acres, 1,650 cattle, 40 tractors, characterized by low I, agriculture in Russia has never been and 300 workers. State budget subsi­ market-oriented with privately owned dies, subsidized credit, and commodity productivity, legendary land and family farmers. Throughout sales comprise the farm income. Worker waste, mediocre quality, most of Russian history, nobility con­ income includes salaries, bonuses, and trolled the countryside and serfs farmed in-kind income. No one's job is seri­ shockingly poor sanitation, it. In this cenrury Stalin's government ously at risk because of poor perfor­ collectivized farming and broke the mance. Despite access to most of the and distorted prices. "kulaks" (successful peasants), to mold technology of modern agriculture, waste a centrally-planned agriculture. and inefficiency are legendary and no ric of rural Russia. Farm headquarters On a cropland base about the same longer carefully hidden from public are villages, and the farm management bureaucracy is the lowest level of Rus­ sian government. The farm provides the rural social infrastructure: housing, roads, gas/electric utilities, kindergar­ tens, cafeterias, culture halls, and other municipal facilities. Despite seventy years of massive pub­ lic investment, even a short sojourn in Russia reveals a food system character­ ized by low productivity, legendary waste, mediocre quality, shockingly poor sanitation, and distorted prices. This poor performance has some im­ portant consequences. Millions of Rus­ sians actively pursue small-scale food production on private plots to over­ come supply instability and poor qual­ ity. Russian consumers spend an inordinate amount of time shopping, hoarding, and preparing food. Finally, The face of Russia's traditional agriculture. price liberalization and inflation mean CHOICES Second Quarter 1995 41

families now spend a large proportion of household income on food-39% in 1990, rising to 46% in 1993. Thus, there is an understandable Russian preoccupation with food and agricultural policies. Visualize harassed Russians searching well-stocked kiosks, traditional stores, and new private mar­ kets for affordable foodstuffs amidst the inflationary spiral of economic reform.

The slow path of reform Fundamental reform of Soviet-planned agriculture began in 1989. The minis­ ter of agriculture, Victor Khlystun, ar­ ticulated a vision of a market-oriented agriculture as a key component of agrar­ ian reform. The Russian parliament passed the legislative basis for reform in ] 990: the Law on the Peasant Farm and the Law on Land Reform. These A new dacha plot owner in central Russia. laws were intended to promote private farming, individual land ownership, and farmers (e.g., $2/acre); and independent cent of Russia's agricultural land, pri­ reorganization of the sovkhoz and farmers must market milk, meat, and vate household production accounts for kolkhoz. grains through private channels, or face 78 percent of potato, half of vegetable, Unfortunately, many Russians and the local processing monopolies because and about a third of milk and meat Americans gauge reform by the growth competitive marketing structures are production. Observers ofren overlook in private farm numbers. In the begin­ emerging so slowly. this segment of Russia's agriculture. Yet, ning, private farm numbers increased Private farmers are only half the story substantial privatization is occurring as rapidly-from 50,000 at the beginning of private agriculture in Russia. House­ dacha plot owners receive ownership of 1992 to 260,000 by mid 1993- hold production plots have a long his­ documents, and regional governments with land holdings totaling just over tory. It is typical for urban residents to establish new dacha areas. 27 million acres (5 percent of agricul­ have a "dacha plot," a small land hold- Although private farmers have tural land). Government officials trum­ emerged and household production is peted these numbers as evidence that an essential proportion of total food agrarian reform was succeeding. It is typical for urban supply, the absolute core of Russian ag­ In the second half of 1993 the riculture remains the sovkhoz/kolkhoz growth in private farm numbers stalled, residents to have a «dacha farms. They have been the focus of con­ adding only another 10,000 new farms plot,)) a small land holding siderable privatization policy. Russian and 741,000 acres to the private farm President Yeltsin's 1991 reform decrees land holdings. It is unlikely that fur­ outside the city with a order farm directors to permit workers ther significant growth will occur. Even simple residence) small to withdraw land and property shares though sovkhoz/kolkhoz members have to establish private farms. In addition, the right to withdraw land and prop­ orchard and large garden. new laws directed the sovkhoz/kolkhoz erty shares to become private farmers, farms to reorganize and reregister be­ they have overwhelmingly voted with fore the end of 1992 into one of sev­ their feet to stay put. Perhaps they fear ing outside the city with a simple resi­ eral alternative forms: closed joint stock the risks of private entrepreneurship or dence, small orchard, and large garden. companies (no outside investors), open feel intense social and political pres­ Sovkhoz/kolkhoz members have also joint stock companies (outside inves­ sure to remain on the sovkhoz or been allowed control over land plots, tors permitted), agricultural coopera­ kolkhoz. But there are other economic called "subsidiary holdings," where they tives, associations of private farms, influences: reform dramatically raised could produce livestock or crops. subsidiary farms of industrial enter­ the costs of capital equipment and other There are now over 32 million dacha prises, or other special forms (i.e., re­ inputs; during 1993 politicians rationed plots and subsidiary holdings on 18.5 search, military, or municipal farms). subsidized credit in some regions to million acres. Their role in the food About 24,000 farms have reregis­ provide only token amounts to private system is essential. On about 3.4 per- tered into new administrative forms, 42 CHOICES Second Quarter 1995

predominately the closed joint stock funds, not deposits or debt securities. old mythology and conventional wis­ company model (11 ,338 farms) . Cen­ Russia's agriculrural reforms to this dom about markets and competition tralized planning, production quotas, point have created a "parastatal" agri­ as more Russians are exposed to West­ and mandatory marketing have been culture-a chaotic system somewhere ern economic systems, but this will oc­ terminated, but the terms "sovkhoz" between the moribund Soviet agricul­ cur slowly. Admitting that privatization and "kolkhoz" are still customary and rure and the goal of a market-oriented will not happen rapidly, policy makers many farm workers remain unaware of agriculture. Despite all the tumultuous and advisors should adopt a long-run reorganization and its potential conse­ change created by the initial wave of perspective and focus on key institu­ quences. But how does one assess the privatization, Russia's agricul tural sec­ tions, particularly fmancial institutions. practical impact of sovkhoz/kolkhoz re­ tor is not fully assuming the manage­ Public finance and public adminis­ form? Consider just three questions: (1) ment and capital risks of a competitive tration expertise should be harnessed Did reorganization establish "legal en­ market economy. This parastatal agri­ to help transfer fiscal responsibility for tity" status for workers to establish bank culrure remains dependent on Moscow rural infrastrucrure from the sovkhoz/ accounts and own land? (2) Was the for financial and legal support. kolkhoz to local government. Western farm's land and property distributed to agencies are already offering technical individuals or does it remain in some Whither agricultural reform assistance and some financial support collective or mutual ownership form? in the Russian democracy? for a new land titling system essential and (3) What was the disposition of Russia must now face a second stage of to meaningful land reform and a mort­ the social infrastructure? agricultural privatization. In the first gage-backed credit system. If the new Overwhelmingly, the answers ro Russian legislarure and government are these questions reveal that reorganiza­ willing to resolve budget deficit and in­ tion has been superficial. Most farm Russia's agricultural reforms flation issues, then a rational banking workers still do not have legal entity system can be strucrured around West­ status and remain wholly dependent on to this point have created a ern-style debt instruments and depos­ the farm bureaucracy for legal and fi­ "parastatal" agriculture­ its. But this type of fundamental nancial dealings. Most workers have institutional change will take several been given documents signifying mu­ a chaotic system somewhere years and require a political stability tual ownership in undivided share of between the moribund not seen in Russia since 1991. land and property. Perhaps the most Ultimately, despite all the offers of telling measure of the current state of Soviet agriculture and Western technical assistance and lim­ privatization is the disposition of the ited financial aid, the pace and narure social infrastructure. In all but a hand­ the goal of a market­ of agriculrural reform rests in the hands ful of known cases, the sovkhoz/kolkhoz oriented agriculture. of the Russians themselves. To this farms still provide housing, utilities, point, it appears to be a slow path from roads, and other public functions. plan to market. [!l Over three years into the reform pro­ stage (1990-93) the government ter­ cess the sovkhoz/kolkhoz farms remain minated the old centralized plaftning • For more information fmancially dependent on the state bud­ system, the private farmer movement get. Massive budget subsidies, includ­ emerged, limited land privatization was Prosterman, R, et al. "Russian Agrar­ ing tax exemptions, still flow to the allowed, prices began to reflect true re­ ian Reform: A Status Report From the sovkhoz/kolkhoz farms for production source costs, and the sovkhoz/kolkhoz Field." Rural Development Institute costs, social infrastructure, and twenty­ farms were superficially reorganized. Report #84, Seattle, WA, August 1994. four other categories of state support. My experiences do not leave me op­ Much of this support is funneled timistic about the pace of any second­ Van Atta, D., ed. The "Farmer Threat'~· through the agricultural banks, creat­ stage agriculrural reforms. Few Russians The Political Economy of Agrarian Re­ ing a co-dependency between sovkhoz/ have a vision of the possibilities for a form in Post-Soviet Russia. Boulder: kolkhoz farms and the banking sector. new agriculture and rural society. The Westview Press, 1993. Most of these "privatized" banks are legislature and bureaucracy are willing seriously undercapitalized and operate only to reorganize the old structures Craig L. Infanger is an extension professor in on Central Bank credit lines and gov­ without dramatic changes in functional the Department of Agricultural Economics at the University of Kentucky. ernment flows-of-funds for loanable relationships. Education may erode the