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

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

Alfons Balmann

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

Some stylised facts

Agricultural business types and their land shares, Russia 2006

0,23 0,8

79,20

17,4

3,4

98,96

0102030405060708090

100

Agricultural enterprises Private farms & individualentrepreneurs

Private households

%

Share ofagriculturalbusiness types

Share of plantedland

Source: FAO

0,0

5000,0

10000,0

15000,0

20000,0

25000,0

30000,0

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006

Jahre

Tsd

. t

Landwirtschaftliche Großbetriebe (LGB)*

Subsistenzbetriebe (SB)**

Zulieferungen an die Verarbeitungsindustrie

Gesamtmilchproduktion

Ukraine: dairy production

years

large farms

subsistence farms

delivered to processors total production

Some stylised facts

Source: Mykhaylenko 2008

Some stylised facts

Source: Agrarbericht 2007

Share of land

0% 10% 20% 30% 40% 50%

2-10

10-20

20-50

50-100

100-500

500-1000

>1000

ha

EastGermany totalWest

Share of farms

0% 10% 20% 30% 40%

2-10

10-20

20-50

50-100

100-500

500-1000

>1000

haEastGermany total

West

Farm sizes and their land shares in Germany (2005)

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 superioritysurviving large farmsemerging (semi-)subsistence farms

Surviving large farms

• Profit orientation necessary for survivalEmployment reduction of successors of collective farms

• abolishment of public services• reduction of hidden unemployment• reduction in livestock production

– But employment reduction and profit orientation somewhat 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"

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)

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

Number of dairy cows <=25 25< <=50 50< <=75 75< <=100 100< <=150 >=150

Farms represented 86.527 110.075 49.022 20.406 14.852 8.415

Milk yield - kg/cow 6.303 6.543 6.935 7.131 7.573 7.688

Total receipts from milk* 328 306 300 300 307 296

Total costs* 490 384 343 322 314 304Margin over total inputs with coupled payments*

-162 -78 -43 -22 -7 -8

* in €/ton** European Commission: EU DAIRY FARMS ECONOMICS - 2008 REPORT

Milk production costs and margins for specialised dairy farms in EU 15 in 2006 **

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!

Where are we heading?

• Traditional problems – Agricultural treadmill– Quasi-fix production factors– Existing inefficiencies (farm level, sector level)– Structural deficits

Selected figures of German FADN farms (financial year 2007/08)

Significant differences between East and West• size differences• intensity differences

Specific case: Germany

Land Labour

unitsUnit ESU ha WU €/ha €/ha € % €/haFull time Lower Saxony 104 75 1,9 11 876 9 303 53 732 2,4 316> 100 ESU 171 108 2,5 10 736 7 956 83 168 4,9 332Full time Meckl. Pomerania 174 276 3,0 2 358 712 94 230 27,3 133> 100 ESU 261 393 3,9 2 436 641 138 965 36,8 139Corporate farms 1 001 1271 22,6 3 377 1 945 202 590 9,2 128> 2000 ESU 3 042 2825 64,1 3 958 2 426 667 994 10,3 159

Rental price

Profit Return on equity

Figure Farm size Total assets

Equity


higher labour intensity per ha in the West slightly higher labour intensity per ESU in the East


Land Labour


Rental price



Equity


• 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


Land Labour


Rental price



Equity


higher profits in the Eastpartly due to lower rental pricesbut: leverage effects


Land Labour


Rental price



Equity


in general, higher productivity of larger farms particularly high productivity of very large corporate farms


Land Labour Wheat Milk Piglets

units yield yield

Unit ESU ha WU €/ha dt/ha kg/cow per sowFull time Lower Saxony 104 75 1,9 11 876 68 7713 23,7> 100 ESU 171 108 2,5 10 736 69,6 7893 24,5Full time Meckl. Pomerania 174 276 3,0 2 358 64 7808 18,8> 100 ESU 261 393 3,9 2 436 64,1 7880 18,8Corporate farms 1 001 1271 22,6 3 377 62 8285 26,7> 2000 ESU 3 042 2825 64,1 3 958 67 8550 25,8



• 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

Productivity and profitability

Efficiency of large wheat farms in Ukraine 2008 (DEA)

0

0,2

0,4

0,6

0,8

1

1 10 100 1000 10000 100000

ha wheat production

Tech

nica

l effi

cien

cy (C

RS)

Productivity and profitabilityEfficiency of large wheat farms in Ukraine 2008 (DEA)

huge productivity potentials important: management, capital endowment less but also important: size, legal form

Groups of farmsTechnical

efficiency (CRS)Allocativeefficiency

Scaleefficiency

All 0.55 0.89 0.96

Region

Kyiv 0.51 0.89 0.96

Poltava 0.56 0.90 0.96

Cherkasy 0.57 0.89 0.96

Productivity and profitability

Profitability of wheat production in Ukraine 2006

-50

0

50

100

150

200

250

300

0 2000 4000 6000 8000 10000 12000 14000size of wheat production in ha

UAH/

ha

profit rental price

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– …

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

0

1000

2000

3000

4000

5000

6000

tota

l pig

s (in

10

00

)

220

240

260

280

300

320

340

360

380

sow

s (in

10

00

)

total number of pigs thereof sowsSourceSource: KSH: KSH, AKI, AKI

Pork production in Hungary after EU Accession

Globalisation and verticalisation

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

Biological manufacturing

Increasing capital intensity• Financial needs to create one job in livestock production

in 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

Biological manufacturing

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

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

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