The Role of Social Capital Among Household Plot Farmers in Ukraine

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The Role of Social Capital Among Household Plot Farmers in Ukraine Does Cooperation Pay? The Role of Social Ca pital among Household Plot Farmers in Ukraine . Does Cooperation Pay? The Role of Social Capital among Household Plot Farmers in Ukraine Axel Wolz, Jana Fritzsch, Gertrud Buchenrieder, Andriy Nedoborovskyy* Abstract: Social capital matters, not the least in determining individual welfare. It is argued that it functions similar to traditional production factors. However, there are not many empirical analyses about this issue at the farm- household level in general and in post-communist countries in particular. Whether or not social capital affects farm income is tested using micro-data from 255 household plot farmers in Ukraine. The data reflect 23 social capital indicators. These are merged in four separate index variables. The index variables reflect the theoretical dimensions of social capital, namely form, i.e. structural and cognitive, and relationship, i.e. bonding and bridging. By adopting multiple regression analysis, it can be shown that social capital in the form of bridging is indeed a significant factor for determining the level of agricultural income. However, the findings also underline the multidimensional side of social capital. Both bonding and cognitive social capital show no immediate impact on agricultural income among household plot farmers in Ukraine. Keywords: empirical survey, household farming, agricultural income, social capital, Ukraine JEL: O13, P32, Q12, Z13 DOI: 10.2478/v10033-010-0015-2 1. Introduction In general, the transition of the agricultural sector As an additional reason, it has been argued that the poor from a centrally planned to a market economy has not and disappointing results of the transformation process been as successful as originally anticipated in most countries of Central and Eastern Europe (CEE) and the * Axel Wolz Commonwealth of Independent States (CIS). A number of Leibniz Institute of Agricultural Development in reasons have been given, which can be summarised as Central and Eastern Europe (IAMO) follows (ROZELLE and SWINNEN 2004; BEZEMER 2002): E-mail: [email protected] underdeveloped rural financial systems and complicated modes of farm restructuring led to limited access to loans Jana Fritzsch owing to a lack of profitability, collateral problems, risks Leibniz Institute of Agricultural Development in and uncertainty. Similarly, the farm sector was Central and Eastern Europe (IAMO) characterised by a weak human capital structure, Gertrud Buchenrieder fragmented land ownership, rapid changes in agricultural Martin Luther University Halle-Wittenberg policies and an incomplete legal framework (for a summary of the impediments and achievements of Andriy Nedoborovskyy transformation in the agri-food sector see BUCHENRIEDER et Leibniz Institute of Agricultural Development in al. 2009). In this respect, the risk-averse behaviour of Central and Eastern Europe (IAMO) economic agents like farmers was seen as quite rational. November 2010 5555 Does Cooperation Pay? The Role of Social Ca pital among Household Plot Farmers in Ukraine . Corporate farms Peasant farms Household plots Number of units 17,700 43,000 ~ 5,500,000 Share of agricultural land (%) a) 58.7 8.2 33.1 Average size (hectares) 1384.0 80.0 2.5 Share of gross agricultural output (%) b) 35.8 3.9 60.3 Source: LERMAN et al. 2007, pp. 1-2, 21, 29 Note: a) Total area: 42 million hectares b) At 2000 prices Table 1: Distribution of total farm number, size and production in Ukraine (2004) have been due to a low level of social capital (e.g. PALDAM peasant farmers. Subsequently, it can be stated safely and SVENDSEN 2000). that agricultural production is still dominated by so-called Over the last few years, the number of studies of the household plot farmers. They provide about 60 percent of role of social capital in CEE and CIS has increased. For the total gross agricultural output. Business-oriented example, a very comprehensive overview of research on farms play a minor role. social capital in CEE has been presented by MIHAYLOVA The main reason for the strong role of household plot (2004). However, while the number of studies about the farms seems to be the necessity of securing the family’s impact of social capital on rural development is rising, food consumption.1 Moreover, surplus production forms there are just a few focusing on the agricultural sector. an important source of income and helps to improve Researchers are just starting to look in more detail into standard of living. While LERMAN et al. (2007) described the concept of social capital and its relevance for these farms as semi-commercial, one could also call them agricultural development. Among others, CHLOUPKOVA semi-subsistence farms. Obviously, household plot and BJORNKOV (2002), HUDECKOVA and LOSTAK (2003) and farmers do not form a homogeneous group. Some seem WOLZ et al. (2006a) analysed data from the Czech to be more economically successful than others. In Republic; FORGACS (2008) from Hungary, WOLZ et al. general, a varying adoption of production factors, i.e. (2006b) from Poland, LERMAN and MIRZAKHANIAN (2001) land, labour and capital is identified in economics as and KASARJYAN (2010) from Armenia. All these studies being of influence. Additional factors might be the level confirm that social capital in one form or the other is of human capital, particularly age and educational level. significant in increasing agricultural income. However, it has been observed that similar endowments Up to the break-up of the Soviet Union and its of production factors do not necessarily lead to similar independence, agricultural production in Ukraine was economic results (see e.g. SLANGEN et al. 2004; LEE et al. characterised by state (sovkhoz) and collective farms 2005). Therefore, we argue that there is an additional, so (kolkhoz). The subsequent reform process has been far under-rated factor of production, which significantly lengthy and in many ways a difficult process. The first affects agricultural income among household plot round of reform in 1992-93 initiated privatisation of land farmers in Ukraine. We will test this hypothesis in making through the distribution of paper shares to the rural use of farm survey data from 255 household plot farmers population and mandated the transformation of former in Ukraine, and which had been gathered in autumn state and collective farms into shareholder structures. The 2006. With this paper we intend to contribute to the second round of reforms started in late 1999 when clarification of the concept of social capital in agricultural corporate farms were obliged to convert their paper development. shares into fully titled land plots. Hence, nearly seven Our contribution is structured as follows: in the million rural residents became owners of physical land beginning we discuss the concept of social capital, its plots (LERMAN et al. 2007). Following these two rounds of dimensions and definition. The major part of the study reform the agricultural sector a dual land tenure structure emerged. On the one hand, about 17,700 large-scale 1 DAVIDOVA et al. (2010) convincingly showed for several countries in CEE corporate farms cultivate, on average, about 1,400 ha per (Bulgaria, Hungary, Poland, Romania, and Slovenia) that non-marketed farm production (in other words subsistence income) lifts semi- farm, and on the other hand, about 5.5 million (more subsistence farmers above the national poverty line. They found that, on subsistence oriented) household farmers cultivate, on the one hand, subsistence income is substantial, amounting to 58.5 average, about 2.5 ha per household (Table 1). In- percent of household income, and that subsistence income, on the other hand, is more important for households that are below the between there is a relatively small group of about 43,000 poverty line. Especially in Bulgaria and Poland, subsistence income shifts a large share of the farming population from poor to non-poor. 56 SEE Journal Does Cooperation Pay? The Role of Social Ca pital among Household Plot Farmers in Ukraine . will be made up by an analysis of the empirical farm economists” anymore (GOETZ and RUPASINGHA 2006, p. survey data investigating whether social capital has an 1304). influence on their material welfare. A short concluding Therefore, the major challenge has been to develop a section follows. ‘lean and mean conceptualisation’ when applying the concept (WOOLCOCK 2002) or to follow a ‘narrow focus’ 2. Concept of Social Capital (DURLAUF and FAFCHAMPS 2005). One promising option is to focus on its sources. Like capital in general, social The concept of social capital, although adopted rather capital represents a stock of assets that yields a flow of recently in social and economic sciences, has become benefits, like e.g. income streams. We follow this very popular. In broad terms, it can be defined as approach by referring to SPORLEDER and WU (2007, p. 3) networks, norms and trust which facilitate information who define social capital as “the sum of the actual and sharing, collective decision-making and collective action. potential resources embedded within or available Its usefulness has been derived from the observation that through a network of relationships that is possessed by social networks are vital in managing one’s daily life. an individual or a firm”. To improve the operationalisation These networks, however, are not naturally given. of social capital, GROOTAERT and VAN BASTELAER (2002) Investments in the institutionalisation of group relations propose to focus on its dimensions. Basically, three major are necessary. The group relation might then be usable as dimensions can be distinguished: They are (1) its scope a source for other benefits (PORTES 1998). But researchers (or unit of observation), (2) its forms (or manifestations) disagree, among other things, whether it should be and (3) its type of relationship through which social attributed to the individual (e.g. BOURDIEU 1983) or capital affects development: considered group property (e.g. COLEMAN 1988; PUTNAM • With respect to scope, the micro, meso and macro 1993) aggravating commonly accepted theory building.
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