Agrarian structures after 20 years of transition: Determinants, trends, and challenges Alfons Balmann

1. Agrarian structures after 20 years of transition: Determinants, trends, and challenges Alfons Balmann

2. Some stylised facts • Actual farm structures strongly differ from expectations • "western type" family farms play almost nowhere a particular role • In general: dualistic farm structures • large and very large farms • relatively small in numbers • high share in land and capital intensive production (e.g. cereals, granivores) • often successors of former collective (and state) farms • subsistence, semi-subsistence and small farms • huge in numbers • high share in labour intensive production (e.g. potatoes, vegetables, dairy) • motives: self-employment, self-sufficiency • shares vary among countries • shares changed only gradually after first years of transition

3. Some stylised facts Source: FAO

4. Some stylised facts Ukraine:dairy production large farms subsistence farms delivered to processors total production years Source: Mykhaylenko 2008

5. Some stylised facts Farm sizes and their land shares in Germany (2005) Source: Agrarbericht 2007

6. Explanations • Path dependence • farm structures change very slowly • sunk costs for assets and human capital, market frictions, … • with the exception of "catastrophic" events (bifurcations) • institutional change is slow • new institutions "don't fall from heaven" but evolve • existing institutions in transition economies deviate from textbook assumptions • interdependence of structures and institutions • institutions and policies in favour of status quo • existing structures affect institutional change • structures are outcome of their history not of their superiority • surviving large farms • emerging (semi-)subsistence farms

7. Surviving large farms • Profit orientation necessary for survival • Employment reduction of successors of collective farms • abolishment of public services • reduction of hidden unemployment • reduction in livestock production • But employment reduction and profit orientationsomewhat delayed • existing assets for livestock production (sunk costs) • identity of ownership and employment (sunk costs of human capital) • avoiding competition with newly/re- established farms • legitimisation strategy of managers • to some extend "job maximization strategy"

8. Emerging subsistence farms • Households continued farming as in socialist times • Employment reduction of successors of collective farms • Missing alternative employment opportunities in rural areas • Subsistence, semi-subsistence and small farms • a strategy to generate at least some income from own resources(particularly if land and local markets available) • but (in general) rather a by-product of transition than a perspective (limited land availability, financial resources and market access)

9. Explanations • Path dependence • western structures outcome of their history not of their superiority • biased view of own reality in the Western World • transferring western "paradigm" to transition economies was misleading

10. Explanations • Technological change • ever increasing capital intensity • ever increasing knowledge intensity • agriculture as "biological manufacturing" (Boehlje 1999) • investment and production driven by venture capital! • Globalisation • agriculture part of global food chains • "supermarket revolution" also in transition countries • farms have to be compatible with standardisation trends • farms need strong local partners along the chain • Both in disfavour of small farms, in favour of large(r) farms! • Both processes continue!

11. Where are we heading? • Traditional problems • Agricultural treadmill • Quasi-fix production factors • Existing inefficiencies (farm level, sector level) • Structural deficits

12. Specific case: Germany Selected figures of German FADN farms (financial year 2007/08) • Significant differences between East and West • size differences • intensity differences

13. Specific case: Germany Selected figures of German FADN farms (financial year 2007/08) • higher labour intensity per ha in the West • slightly higher labour intensity per ESU in the East

14. Specific case: Germany Selected figures of German FADN farms (financial year 2007/08) • much lower capital use in the East • very low equity in the East, particularly of large full-time farms • deficit in venture capital in the East

15. Specific case: Germany Selected figures of German FADN farms (financial year 2007/08) • higher profits in the East • partly due to lower rental prices • but: leverage effects

16. Specific case: Germany Selected figures of German FADN farms (financial year 2007/08) • in general, higher productivity of larger farms • particularly high productivity of very large corporate farms

17. Specific case: Germany • In the East • farms are efficient and profitable • no ruinous competition on the land market • but sector "suffers" from limited venture capital • potential value added not exploited • higher vulnerability (hired labour, land and capital need permanent payments) • In the West • farms are well equipped with equity capital • but suffer from • low profitability • structural deficits • ruinous competition

18. Productivity and profitability Efficiency of large wheat farms in Ukraine 2008 (DEA)

19. Productivity and profitability Efficiency of large wheat farms in Ukraine 2008 (DEA) • huge productivity potentials • important: management, capital endowment • less but also important: size, legal form

20. Productivity and profitability Profitability of wheat production in Ukraine 2006

21. Where are we heading? • Traditional problems • Agricultural treadmill • Quasi-fix production factors • Existing inefficiencies (farm level, sector level) • Structural deficits • Recent trends • Globalisation and verticalisation • Biological manufacturing • …

22. Globalisation and verticalisation International structural change in the pork chain Denmark (2007) 34 % of all pigs in facilities with more the 5000 pigs 20 % of all pigs in facilities with more the 10000 pigs US pork production (2002) 70 % of pork from vertically integrated systems 53 % of all pigs in facilities with more the 5000 pigs 2008: 40 % of all sows held by the 10 largest enterprises Smithfield Foods USA: > 1 mill. sows Poland: about 83.000 sows, >1 mill. hogs in 2008 produced Romania: investments in pork chain with capacity for 4 mill. hogs

23. Globalisation and verticalisation Pork production in Hungary after EU Accession Source: KSH, AKI

24. Biological manufacturing Increasing knowledge intensity • Economies of size result from better managing human capital and know how rather than just from decreasing average costs for facilities • division of labour • competent managers • specialised employees • knowledge transfer through supply chain

25. Biological manufacturing Increasing capital intensity • Financial needs to create one job in livestock productionin Germany • hog feeding: 1 125 000 € • facility per 2500 places at 350 € each, current assets 100 € per place • farrowing: 675 000 € • facility per 250 sows at 2300 € each, current assets 400 € per place • dairy farming: 300 000 € • facility per 50 cows at 4000 € each, current assets 2000 € per place

26. What are the challenges? • Agriculture is a difficult business • market and weather uncertainty • treadmill, quasi-fixed factors, ruinous competition • Towards the knowledge-based bio-economy • "biological manufacturing" • R&D, innovation, skills • enormous demand for venture capital • Vertical integration/cooperation • amplifies opportunities and threats • Societal perception of modern agriculture • "modern" farmers are a small minority, even within the sector • slow and uncertain policy responses and institutional changes