Thought for food

Kazakhstan’s farm problem roots in a failed land market


Over the past year, prices have tripled for such staples of the Kazakhstani diet as meat, grain and beets. A large bakery in Petropavlovsk suspended bread deliveries because it could not recover cost increases with higher bread prices, reports a newspaper, Delovoy Kazakhstan.

Immediate causes of the food shortages include bad weather and the growing demand of Chinese consumers. But we went through this exercise in 2008. What are the long-run causes of recurring shortages? What, if anything, should the government do about them?

Although Kazakhstan accounts for nearly a third of the farmland in the transition economies of Europe and Central Asia, the importance to it of agriculture has been shrinking over the decades. While four fifths of our land is agricultural, farming accounted for just 8% of the economy (measured as gross domestic product) in 2005, having dropped 40% in gross output since 1990. After the twin crises of 1998, when the Russian ruble and the price of oil collapsed, agriculture failed to recover as strongly as the rest of the national economy, noted an agricultural economist, Zvi Lerman, and the Food and Agriculture Organization of the United Nations.

This is disproportionately unfortunate for Kazakhstan: Nearly half of its population is rural, and a quarter survives on subsistence farming, according to the World Bank.

Kazakhstani farms can produce more than they do. Farm labor productivity here had led the Soviet states from 1965 to 1990 -- 8,400 rubles of farm output per worker, nearly a tenth higher than Russia could manage, according to raw data from Lerman and coauthors. Why isn’t productivity higher now?

One problem may be the land market. When it works well, entrepreneurs can buy farms losing money and make them more efficient. In Kazakhstan, the farmland market has developed haltingly.

Novel markets

In the early years of the republic, the government owned most farmland. Land reform in the mid-Nineties sought to encourage entrepreneurs to take over the 2,500 soviet farms, including the sovhoz (averaging 95,000 hectares) and the kolhoz (38,000 ha), noted Steven Hendrix. But individuals could own plots of only up to 1 hectare; the government continued as the nominal owner of larger farms, noted Lerman and coauthors.

Belatedly, the government permitted a land market. This enabled family farms to increase their share of agricultural output from 28% in 1990 to 75% in 2000, according to the World Bank. The number of peasant farms increased from 3,300 in 1992 to 58,400 in 1999. At that time, their share of agricultural land, nearly one eighth, was unusually high for the post-Soviet region, noted Max Spoor and Oane Visser. Today, there are more than 91,000 peasant farms. Even this may be an underestimate, since subsistence farms and household plots tend to be unregistered, according to the World Bank. Most rural families surveyed by the World Bank in 1996 reported that they maintained plots on their own, such as a backyard. Of the livestock herd, family farms claimed 90% in 2002, compared to 29% in 1990, according to Lerman and co-authors.

These trends are encouraging. A study of the 23 transition economies between 1992 and 2004 found that agricultural growth increases with the share of land owned by individuals. But corporate farms (including cooperatives and limited-liability farms) still dominate, especially in the north, accounting for 60% of agricultural land in recent years, estimated Johan F. M. Swinnen and Liesbet Vranken.

To some extent, corporate dominance results from geography. Kazakhstan is land-intensive, with 114 hectares of agricultural land per farm worker in even the late Eighties, before the emigrations of the Nineties. The average registered farm here is 10 times larger than in the Czech Republic, according to the World Bank.

Block that market

But the most important reasons for corporate dominance seem institutional. Under the land code, the collective could deny the individual’s claim for land and offer cash instead, Hendrix noted. The code justified such barriers to breakups of estates as protection of the environment.

The unequal distribution of land shares also led to corporate concentration. A 1994 decree of the Cabinet of Ministers permitted closed auctions of state farms to small groups of educated specialists. A presidential decree allowed farm directors of 20 years’ standing to receive a fifth of the capital shares, but this was dropped after public protest, according to the Food and Agriculture Organization. Under the 2003 land code, corporate farms could claim ownership to properties that they had rented, said the World Bank.

To some degree, this could have improved farming. Some collectives reorganized as limited partnerships. Healthy corporate farms in north Kazakhstan – especially grain operations that integrated several stages of production – took over bankrupt properties, said the World Bank. But this vertical integration stemmed from a government decision to let farms buy cheap shares in the enterprises that processed their products, according to the Food and Agriculture Organization. Such control of suppliers may give a farm undue power in the food market – power that it may exercise by restricting output in order to sustain high prices. Soft budget constraints on reorganized farms – politically powerful in their regions -- discouraged efficiency. In the mid-Nineties, large farms in Kazakhstan had about the same yield per hectare as small farms but incurred higher costs, said Hendrix. The farms had yet to replace their old machines.

A farmland market exists, barely. As of 2004, fewer than 5% of rural households and family farms had sold any land. Fewer than 5% of unregistered farms had bought land, and no corporate farm had done so. They rented from farm members, although it is not clear that the latter received payments, noted Swinnen and Vranken. Cash payments to unregistered farms averaged 500 tenge for a fifth of a hectare, estimated the World Bank. Generally, corporate farms paid in-kind rent to households. Nearly half of the farm workers received payment only in kind, according to a World Bank survey in 2000.

More than 70% of farms surveyed in recent years reported difficulties in renting in land, estimated Swinnen and Vranken. More than half of family farms, and 30% of corporate farms, said the main problem was identifying the authority in charge of land rents – a virtually unknown problem in other CIS countries surveyed. Among corporate farms, nearly 30% reported that they didn’t know if they could rent legally; 35% said they couldn’t find anyone to whom to rent.

The creaky operation of the land market is not the only problem. Of family farms surveyed, nearly two-thirds said they didn’t buy more land because they lacked farm tools. Finding spare parts was also troublesome. But such markets may fall into place if the main one – the land market – worked more smoothly. – Leon Taylor, tayloralmaty@gmail.com

Good reading

Kelley Cormier. Farm restructuring in Kazakhstan: An institutional economics approach. Michigan State University, Department of Agricultural Economics, Agricultural Economics Report 612. December 2001. http://www.aec.msu.edu/aecreports/aec612.pdf.

Yulia Dubovytskyx. Tseni vzyaly razgon. Delovoy Kazakhstan. February 11, 2011. Page 1.

Steven E. Hendrix. Legislative reform of property ownership in Kazakhstan, Development Policy Review 15: 159-171. 1997.

Zvi Lerman. The impact of land reform on rural household incomes in Transcaucasia and Central Asia. Hebrew University of Jerusalem, Center for Agricultural Economic Research and the Department of Agricultural Economics and Management. Discussion paper, 9.05, 2005. http://departments.agri.huji.ac.il/economics/lerman-vol.pdf

Zvi Lerman, Csaba Csaki, and Gershon Feder. Agriculture in transition: Land policies and evolving farm structures in post-Soviet countries. Lanham, Md.: Lexington Books. 2004. http://www.agri.huji.ac.il/%7Elermanzv/book/Ch1Heritage.pdf

Max Spoor and Oane Visser, The state of agrarian reform in the former Soviet Union. Europe-Asia Studies 53:6. 2001.

Johan F. M. Swinnen and Liesbet Vranken. The development of rural land markets in transition countries. The Food and Agriculture Organization of the United Nations. http://www.fao.org/regional/seur/events/landmark/docs/swinnen.pdf

United Nations Food and Agriculture Organization. A profile of Kazakhstan’s agricultural reforms. 1995. http://www.fao.org/docrep/v6800e/V6800E0h.htm#A%20profile%20of%20Kazakhstan's%20agricultural%20reforms

World Bank. Untitled book, chapter 3: The role of labor markets and safety nets. http://siteresources.worldbank.org/INTECA/Resources/ch3-poverty.pdf

World Bank. Emerging challenges of land rental markets: A review of available evidence for the Europe and Central Asia region. March 2006. http://siteresources.worldbank.org/INTECA/Resources/EmergingChallengesofLandRentalMarkets_FullReport.pdf