Studies on the Agricultural and Food Sector in Central and Eastern Europe Subsistence Agriculture in Central and Eastern Europe: How to Break the Vicious Circle? edited by Steffen Abele and Klaus Frohberg Subsistence Agriculture in Central and Eastern Europe: How to Break the Vicious Circle? Studies on the Agricultural and Food Sector in Central and Eastern Europe Edited by Institute of Agricultural Development in Central and Eastern Europe IAMO Volume 22 Subsistence Agriculture in Central and Eastern Europe: How to Break the Vicious Circle? Edited by Steffen Abele and Klaus Frohberg IAMO 2003 Bibliografische Information Der Deutschen Bibliothek Die Deutsche Bibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http://dnb.ddb.de abrufbar. Bibliographic information published by Die Deutsche Bibliothek Die Deutsche Bibliothek lists the publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the internet at: http://dnb.ddb.de. © 2003 Institut für Agrarentwicklung in Mittel- und Osteuropa (IAMO) Theodor-Lieser-Straße 2 062120 Halle (Saale) Tel. 49 (345) 2928-0 Fax 49 (345) 2928-199 e-mail: [email protected] http://www.iamo.de ISSN 1436-221X ISBN 3-9809270-2-4 INTRODUCTION STEFFEN ABELE, KLAUS FROHBERG Subsistence agriculture is probably the least understood and the most neglected type of agriculture. In a globalised, market-driven world, it remains at the same time a myth and a marginal phenomenon. Empirically, subsistence agriculture for a long time seemed to be restricted to developing countries, with only a few cases reported in Western Europe (CAILLAVET and NICHELE 1999; THIEDE 1994). Governmental support offered to subsistence agriculture was mainly done through agricultural development policies, the main objective being to have subsistence farmers participate in markets. The strategy was to make farmers produce more by introducing new technologies and consequently bring their output to the market. Failures of such attempts were numerous, yet attempts to understand the failures were few. This lack of understanding led to the change of politics towards already developed and market-oriented systems, hence to the neglect and marginalisation of subsistence-oriented systems. This picture changed when subsistence agriculture started to appear right at the door of the European Union: With the fall of the Iron Curtain, subsistence agriculture in Eastern Europe turned out to be an urgent case. Suddenly, there were and still are a large number of vulnerable small scale farmers, many of which will, at least by the date of EU enlargement, be entitled to receive funds from the CAP and thus compete with western farmers. Moreover, these poor rural people were subject to social discrimination, as no one likes to have a poor house right next to him in his neighbourhood. One of the now quite numerous attempts to address the problem of subsistence agriculture in Eastern Europe was a workshop held at the Institute of Agricultural Development in Central and Eastern Europe (IAMO) in May 2001. It gathered scientists from Western and Eastern Europe to discuss problems of subsistence agriculture, ways of analysing such systems and approaches to overcome subsistence agriculture. II Steffen Abele, Klaus Frohberg The workshop's overall objective was to contribute some answers to the main questions regarding subsistence agriculture in Central and Eastern Europe, but also everywhere else on the globe. These questions are: What is the definition of subsistence agriculture, and what are its characteristics? Is there a conclusive theoretical approach research can rely on? Is subsistence agriculture really a problem or is it, as so many other economic phenomena, just another efficient equilibrium? And if it is agreed upon among scientists to be a problem, what are possible solutions? We shall provide a brief overview of these issues and how they are addressed in the following contributions. Let us therefore start with the definition of subsistence agriculture. One of the major problems in dealing with subsistence agriculture is defining the term as such. Many of the authors in this book offer a definition, amongst them HEIDHUES and BRÜNTRUP, VON BRAUN and LOHLEIN, as well as LERMAN. It seems that the preferred definition of subsistence agriculture relates it to the share of marketed produce. The lower this share, the higher is the degree of subsistence orientation. Still, this definition is a relative one, as it can be assumed that there is no longer "one hundred percent" subsistence agriculture, either in Eastern Europe or elsewhere in the world. This assumption should be kept in mind, as it is important for the following theoretical discussion. The assessment of the characteristics of subsistence agriculture based on the above definition provides a link to theoretical aspects and political options to develop this form of agriculture. The first and most prominent characteristic is the high degree of own consumption of produce, mostly more than 50 percent. Subsistence farms are small (although smallness does not necessarily imply subsistence farming, as, for example, suburban horticulture farms may be small but quite market-oriented and efficient), and they have low capital endowment, which often contributes to low competitiveness. They also suffer from remoteness to urban centres and have poor access to markets, be it in physical terms (roads as well as other transportation routes and telecommunication infrastructure), or in terms of accessing factor markets, especially capital markets (which is a prerequisite for starting market-oriented production), and low on- and off-farm income. The latter especially shows an important aspect: Off-farm income opportunities are scarce and of low revenue for subsistence farmers (see especially the macro-economic assessment by VON BRAUN and LOHLEIN). This hints that macro-economic conditions are also important factors driving subsistence agriculture (which will be important for both the theoretical and the political discussion). We will find these characteristics throughout the contributions. KEGEL provides a case study on the problems of defining subsistence agriculture in Georgia. KOVÁCS gives a geographically based index system to categorize farming systems in Romania. Another question is the one whether farming systems in transition countries are really subsistence-oriented, Introduction III and if yes, to what degree. The latter question is especially closely related to the definition of subsistence agriculture, as LERMAN points out. In YEFIMOV's argumentation, we will find that the lack of market attendance found, especially in the former Soviet Union countries, is due to the institutional set-up of former Soviet agriculture, which, in terms of institutional economics, used hierarchies instead of markets to organise production and commodity exchanges. But that means that they do exchange products and factors, so are they really subsistence-oriented in the narrow sense of above, or do they just use other institutions to interact with the outside world? NEDOBOROVSKYY gives an appealing quantitative description of such hierarchy-integrated systems. The next problem is to provide a theoretical framework for subsistence agriculture. In theory, subsistence is seen as just an early stage of development that will perish once Ricardos' comparative advantages are perceived and result in wealth-generating trade (ROSE and SAUERNHEIMER 1995). Newer approaches provide different theoretical models to subsistence agriculture which are somewhat contradictory to each other; a broad scope of them is given by HEIDHUES and BRÜNTRUP. One of the theories described is based on the assumption of inverse supply reaction due to satisfactory behaviour in production which does not go beyond consumption needs, or (assuming that some share of the produce is marketed) liquidity requirements. This behaviour is seen as caused by strong preferences for leisure and has been brought up by authors like Chayanov, cited by HEIDHUES and BRÜNTRUP. Yet, this should be discussed critically, as incorporating leisure implies that people would reject higher incomes for the same labour input for the sake of more leisure and thus act irrationally in the strict sense of the homo oeconomicus model. Nonetheless, backward sloping supply functions have been explained by authors who point out that short-term post-harvest sales may increase with decreasing prices due to liquidity constraints, but that in the longer run, even subsistence farmers will react positively to increasing prices (HENZE 1994; ABELE 2001). Another, argument strengthened by HEIDHUES and BRÜNTRUP is the transaction cost approach, which says that high transaction costs in marketing make selling unattractive, and keep people from buying expensive products, which adds up to self-produced consumption. This may be so, and one could even add mere transportation costs to the list of trade impediments. But, at least as far as transaction costs and the resulting margins are concerned, one could as well assume that, when supply decreases, and farmers turn to their own subsistence production, traders would offer higher prices to producers and lower prices to consumers. This would then cover the transaction costs or reduce the margins, respectively, for consumers. Consequently, transaction costs can only be seen as a temporal explanation for subsistence agriculture. The next issue raised