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COPAC Open Forum
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Voluntary owned and controlled producer groups, formed to provide maximum benefits to producer members, can work and compete effectively within a market economy. Logically these groups should provide answers to many of the rural problems faced by the transitional economies of central and eastern Europe and the former Soviet Union. Yet few exist in a pure form and their evolution seemingly cannot be divorced from wider economic, historical, political and social considerations.
Over the past decade the average GDP of transitional economies has almost halved and the rural sector has suffered the most. Key indicators suggest that successful market orientated reforms require a clarity of purpose and commitment to a civil society, supported by, the systematic strengthening of institutions, macro-economic stabilisation, price and market liberalisation, all enforceable by the rule of law.
Progress in Poland has been the most impressive and largely bouyed by growing investments and clear economic decisions taken in the early part of the ´90s. A sense of purpose, discipline and direction has been further instilled into political and commercial life through the signing of a pre-accession treaty with the European Union in 1997.
But Polish agriculture remains a stubborn, structural and social issue. Agriculture accounts for a small proportion of GDP, but more than a quarter of the livilihoods of the population. It will require systematic transformation, with potential consequences, not only for Poland, but eventually for the whole of the European Union.
Polish farmers, not used to huge subsidies, have learnt to compete and are learning to co-operate. With domestic and export market opportunities in abundance and a primarily private farming sector the foundation for market focused producer group development has been established. New groups are forming and are beginning to trade, but they need to mature. Clarity of purpose, ownership and investment are sometimes confused and membership agreements to commit produce to agreed specifications are rare.
In Moldova, a former ´garden´ of the Soviet Union, the future is not so clear and effective farmer groups are weakly rooted. Despite a radical land privatisation programme, few countries have suffered as extremely over the past decade. With a fracticious Parliament and immense bureacracy the country half heartedly stutters towards a market economy. Farm privatisation urgently needs to be supported by institutional reform to encourage investment and allow farmers better access to markets, input supplies, finance and technical assistance.
In Uzbekistan caution prevails, alongside experimental and controlled ´privatisation´ and reform. Less than 5% of farmland is outside of collective farm management. Private farmers are supported by a semi independent Private Farmers Association and informal family based groups are common. The extent to which the government enables further liberalisation remains to be seen but it could decide the complexion of central Asia for some time to come.
2. Economic reforms in Central and Eastern Europe over the past 10 years
Few people could have envisaged the changes in central and eastern Europe over the past 10 years. Just under a decade ago the Poles elected their first non communist Government. At the end of September 1989, Leszek Balcerowicz the new finance Minister, went to Washington and outlined to the IMF and the World Bank the Government plan for giving the country a market led economy. In 1990 the transformation began and creating a domino affect throughout the Socialist economies of eastern Europe and the former Soviet Union.
It has been a long and difficult road, but last year the gross domestic product of Poland was 17% higher than when transition began. Its economy has grown at between 5-7% a year in every one of the last five years. Russia by contrast has lost close to half of its output and has experienced negative economic growth in every year since transition. This year according to World Bank forecasts the domestic product of Russia will be a mere $167 billion USD which would make it smaller than that of Belgium.
This contrast with Poland defines a decade of transition. Turning a socialist dictatorship into a market economy is feasible but hard. Some have managed, others have failed and some have not really tried (figure 1).
FIGURE 1: TO BE OR NOT TO BE?
However the halfway house between reform and the status quo seems to be worse than either extreme. The Russian experience is by no means the worst. The divergence in outcomes between countries real levels of GDP compared to 1989 is shown as figure 2.
The contrast between Russia and Poland is part of a wider divergence between central Europe and, including the Baltics, and the rest of the former Soviet Union (figure 3). In summary the former have reformed with greater determination and consistency, they have experienced substantial initial declines in GDP, but then recovery. The latter have sustained declines with no reversal.
Recent conclusions by the World Bank suggest that market orientated reforms have to be combined with social reform, institutional strengthening, macro-economic stabilisation, price liberalisation and the rule of law. Most important however there also needs to be a supportive political culture as well as a level of human resource within the country able to absorb, understand and accept change.
Certainly the upheaval involved during the fragmentation of the Soviet Union was much greater than anything that happened in most countries of central and eastern Europe. But within all countries the rural sector has suffered greatest from change. Traditional markets have disappeared and real concerns have appeared for rural communities. In particular these include; access to finance and markets, supplies of inputs and provision of technical assistance, as well as the wider rural community and social infrastructure issues.
There is no easy solution to these problems. Solutions and approaches vary widely between countries. Rural co-operation is often seen to be a universal answer. The following provides comparative approaches to rural development in three countries, Poland, Moldova and Uzbekistan. Each has each with widely differing approaches to reform and to co-operation. This paper looks at one area in particular, marketing.
3. The concept of producer marketing groups
Throughout central and eastern Europe and the former Soviet Union there is an immense confusion over the interpretation of the words (and concepts) of producer groups, organisations, co-operatives, collectives or associations. Producer marketing groups (or organisations in standard EU terminology) have a distinct structures and forms and should not be confused with Ministry intervention, state marketing boards or trade representational bodies.
A true producer marketing group is open to the same market and economic forces facing all types of business and can expect to compete with other producer groups and companies. They, like all other businesses, require proper planning and market analysis, good buyer relationships, proper financing and well trained, motivated and visionary management.
In other important ways, producer marketing groups are unique and different. In particular, a producer marketing group is an enterprise voluntarily owned and controlled by private, individual producers. Most importantly, the main objective of a producer marketing group is to provide the maximum benefit to producer members, in proportion to, the amount of produce they market through the group and not on the basis of investment. Without a strong base of market minded producer members working to ensure its success and willing to commit produce of defined qualities, it is likely to fail. Control should be in the hands of these committed producer members.
Producer marketing groups do provide an opportunity for farmers to access higher value markets by adding value to production and are managed in order to obtain better prices or obtain improved services for their producer members. They may simply market a single crop to a single defined market, or employ an agent, to market produce, on their behalf.
The benefits to a producer member are most clearly measured according to the increased financial rewards obtained from being able to access higher value markets either through being able to;
Seemingly the most successful groups also conform to a number of other basic criteria. In particular,
The follow is a review of progress in Poland, Uzbekistan and Moldova using these criteria as a base.
4. Agriculture and producer marketing groups: Poland
On the face of it the remarkable transformation of Poland almost seems complete and the main strategic political and strategic objective of the country is now integration within the European Union. In July 1997 the EU Commission recommended, at the request of the Polish government, that negotiations for their accession into the EU should be opened. An accession strategy has been prepared with precise indications of priority adjustment activities, together with a timetable for their implementation until 2002.
With respect to agriculture the following priorities have been formulated;
Within agriculture 14 working groups have been given responsibility for implementing this programme and for recommending to Government the necessary changes to legislation. Each area of activity is screened through regular visits by working group representatives to relevant EU departments. The Polish government also maintains close contact with the European Union and prepares quarterly reports evaluating the economic situation within the country with particular respect to implementing the accession programme.
Preparations for the entry of Poland into the EU have aggravated an already deep seated problem. Before 1990 Poland was largely fortunate in having a predominately private and individual farming sector. Only 19% of arable land was state owned. Even so, a hefty 27% of poles still work in the fields compared with just 2% in Britain and 5% in Denmark. Yet farmers contribute only 5% to Polish GDP and this is steadily decreasing (11.8% in 1988). One problem is that many farmers are smallholders. Of the 2 million farms in Poland 55% are under 5 hectares compared with an EU average of 17 hectares. The government also estimates that there are a further 2 million unemployed persons living in rural areas.
Polish farmers have been hit by a series of body blows since subsidies were withdrawn in the early 1990s as post communist Governments ended the guaranteed market for their produce and made agriculture subject to a western style market economics. Meanwhile farm subsidies within the EU have quadrupled over 20 years to about 45 billion USD per year, around 50% of the EU budget (20 USD per week for the every EU tax payer) despite farming accounting for less than 5% of employment and 2% of GDP.
The EU bolsters prices by means of suitable customs policies, licencing and export and production quotas, intervention purchases, export refunds, compensatory payments, credit preferences, production subsidies and preferential tax policies.
Polish farmers are not used to high subventions and refunds and have faced much tougher and harsher market conditions compared to EU farmers in recent years. But the Poles are learning fast. Current interventions focus upon compensatory payments and targeted credits. However the Ministry of Agriculture and Food and associated agencies have developed their knowledge of the mechanisms of the EU Common Agricultural Policy and are starting to improve their capacity to implement and eventually enforce it. Using the current support mechanisms, Polish entry into the EU could add a further 30% to the total bill.
In the meantime the flood of cheaper imports from the European Union, particularly cereal crops, dairy produce and pork, coupled with the loss of the Russian market have seriously hit farming incomes. The scale of the crisis dwarfs anything experienced by agricultural communities in other European countries.
A Polish pig in 1999 fetched an average of only 74 USD but costs at least 90 USD to feed and a further 18 USD for labour heating and shelter. The average price per tonne of wheat was in 1999 set at 100 USD, including an agreed 15 USD subsidy from Government, but still 25% below prices achieved in 1998. Prices barely cover input costs, many of which have risen by 30% over the past year (fertilisers and chemicals). Many small farmers are having to seek work in nearby towns in order to supplement incomes or are attempting to diversify activities.
Polish agrifood trade continues to show a deficit which in 1998 amounted to 742 million USD. 48% of imports and 42% of exports (an increase of 18% over the previous year) being with the European Union. Compared to 20.5% exports with Russia. Food products account for 11% of total exports and 9% of total imports.
Polish agriculture requires systematic transformation. It is not that Poland has poor farmland. Poland also has many efficient farmers most of them in the north and west. But in east Poland the world is far removed from the new found prosperity of many urban areas. Over half of the smallholdings lack running water, four fifths are without telephones and electricity is patchy at best. Few smallholders can afford to invest in farm machinery, so the land is still worked by hand. Most are likely to remain poor and inefficient and will be unable to compete with EU farmers without help.
Such changes take time but the smallholders are impatient. They also carry political clout and last year organised very effective roadblocks leading to the Government meeting may of their demands, at least half way by buying 50,000 tonnes of pork at a decent price.
The task is not only to upgrade farming but also to turn the countries abundant produce into something more valuable. Much of Polish food processing is still largely state owned and has changed little from communist days. Plants are relatively small, reflecting the scattered pattern of farms and their condition is deteriorating, largely as the state cannot muster the necessary investment.
To date sponsored wholesale markets have been the main Government support policy for market development. This programme was approved in 1996 and to date the Government has spent 30 million USD (half of the total cost) primarily on supporting 23 markets. The aim has been to shorten the distribution channel between producer and consumers and enable farmers to access professional storage, processing, warehousing and packaging facilities and quality control facilities.
Over the same period the country has experienced considerable direct foreign investments primarily into the development of the food processing and retail sectors. Retail supermarkets and hypermarkets now account for around 15% of total food sales, while the wholesale supply sector remains bouyant and continues to supply more than 200,000 small local shops, a threefold increase compared to 1989.
Market opportunities seem to be in abundance for suppliers able to provide a regular and consistent supply of specified produce and develop good buyer relations. Many EU farmers have even begun renting land from Poles in the belief they can make good money from farming in a lower cost country, but most smallholders are suspicious of pooling assets in local co-operatives after their experience with communist collectives. Instead many prefer to continue selling on traditional open air markets and even to try to eke out a living from subsistence farming.
The Government is well aware of this problem and is increasingly promoting the concept of producer groups, primarily through agricultural chambers (obligatory membership but self-governing bodies of farmers, funded from the national budget) and the agricultural advisory services (ODRs).
More than 100 new groups have been registered in recent years, but less than 10% are probably operating with real commercial affect. Some have developed strong supply links with export and domestic buyers, such as Pakoslaw (vegetables to Holland), Debowa Lace (pigs to Morliny and eventually McDonalds) or Opole (grain to Cargills). Groups may register as associations or companies with limited liability. Associations are not allowed to conduct any type of trade activity and are largely ineffectual.
The structure of many limited liability groups does seem to confuse ownership between investment capital and produce commitment. Ownership and control is often invested in non farmers as well as farmers (including employee and some continuing state ownership with regard to former state and ´restructured´ process plants). Others are developed from buying groups formed to obtain better bulk purchase prices from input suppliers. In most cases this creates a lack of clear purpose and conflict of objectives.
Although buyer contracts do exist, membership agreements, in the main, do not. Groups tend to rely on byelaws as the main management contract for the group. The Government is presently trying to introduce a producer co-operative law aimed at further resolving many of these issues. But probably of even greater use will be their recent promise to introduce incentives which further stimulate, both the understanding and commercial establishment of, these business types.
Tax exemptions for mutual status presently do not exist but are under consideration. So too are targeted credits based on farmer groups adding product value or clearly committing produce or long term finance to the group activity.
In summary Poland has come a long way since 1989, but to some extent, the rural community has lagged behind despite a growing economy, new investment and ever widening market opportunities. The rural community, (predominately smallholder farmers), comprise a major part of the population if not the GDP.
The seed for commercial development of effective producer groups has been planted. A few new and interesting groups are under development, based on truly voluntary producer led co-operation. Their further growth and development will depend on the extent to which these groups are seen, by other farmers, to provide real financial benefits to their members. It will also depend on whether the Polish Government is able to stimulate (rather than over protect) their growth. Possibly of equal importance is whether the EU Common Agricultural Policy can be restructured and so enable true co-operation, competition and marketing to develop across an ever widening Europe.
5. Agriculture and producer marketing groups: Moldova
The Republic of Moldova is a small (33,700 km2) rather densely populated country on the western edge of the Commonwealth of Independent States (CIS). The country became independent on the 27th August 1991 and formed as a Republic with a democratically elected President and Parliament. The country is landlocked and bordered by Ukraine and Rumania. Its capital is Chisinau. Over 50% of the ethnically diverse population of 4.4 million live in rural areas. 67% are ethnic Rumanians, 14% Ukrainian, 13% Russian, 4% Gagauz (a christian Turkish people) and 2% Bulgarian.
Moldova looks to be stuck in a wretched economic and political plight. It is one of the poorest countries in Europe and the CIS with a GDP/capita income of 35 USD per month (when wages are paid), unemployment at 20% and inflation at 27% according to official figures.It has no oil or gas few (4.3 million people) and an economy worth only $1.6 billion USD per year -no bigger than an average European town- and shrinking. In Europe only Albania is poorer.
Transformation has not been easy and recent statistics from the European Bank for Re-Construction and Development (figure 2) forecast the level of GDP in Moldova for 1999 will be less than one third of that of 1989. This places Moldova as the worst performer in economic terms of all transition economies of Europe and the CIS during the 1990s.
After recording a positive GDP growth rate in 1997 (the first time since independence) the Russian economic crisis of 1998 undercut gains made through privatisation and output fell by 9% that year virtually destroying Moldovas priority wine and brandy export market overnight. The International Monetary Fund estimate that the external debt (primarily to Russia for energy and historical debt repayments) will exceed $1.1 billion this year of which service charges cost around $230 million per year, two thirds of budget revenues.
Moldova has also negotiated free trade agreements with 10 countries and The European Union has granted Moldova a ´generalised system of preference´ enabling tariff reductions on selected products, but the country will continue to largely depend on the prosperity of its larger neighbours, Ukraine, Russia and Rumania for some time to come.
Moldovas biggest asset is its soil. Moldova is predominately an agriculturally based economy. Agriculture and the agro-processing industry contribute around 40% of the GDP and half of employment. Fertile, black chernozem soil covers 80% of the country and makes agriculture highly productive. The country has a temperate continental climate, with short and relatively warm winters and long hot summers.
Moldova has some of the highest crop yields of the CIS but despite this yields are, on the average less than 50% of those of Western Europe, fertility yields of livestock a third lower and feed conversion ratios less than half of Western standards.
It is not as if the country has not followed a reformist path. Since independence the country has gradually established the basics of a constitutional and legal framework for a market economy, with the adoption of more than 400 enabling laws. These (often overcomplex and restrictive) laws cover a wide range of areas including property, enterprises, entrepreneurial activities, anti monopoly and restrictive trade practices, competition, foreign investments, banking activities, bankruptcy and liquidation, leasing and purchase laws and taxation.
The number of Government officials has doubled since 1992 with a queue of applications for jobs for which payments are officially less (when wages are paid) than the national average. A small rural company can expect to receive more than one visit per month from Government officials representing the tax inspectorate, the fire, electric and sanitary departments as well as the economic ´police´. Registering a new business will mean liaising with 7 different authorities.
The countries land privatisation plan is one of the most radical in the former Soviet Union. Some 500,000 former workers on collective or state farms are due to get about 1.6 hectares of land each. For most rural based citizens the land quota remains their only revenue source or social security.
By the end of 1998 out of 950 large scale former kolhoz farms, 74 had been dismantled with land titles provided to their new private owners. A further 67 farms are in the process of restructuring. The financial situation of a great number of many un-restructured farms is not good. Many are effectively bankrupt or return on assets are less than the rate of inflation. A legislative framework for enabling farm liquidation and bankruptcy proceedings is underway.
This has resulted in considerable agri-sector debt with a total tax collection for agriculture at 37% compared to a national average of 60%. The agricultural sector is responsible for 38% of all outstanding tax and social fund arrears to central and local Governments.
The World Bank and the IMF promise more help if the Government continues to privatise land and sell off state assets. But ongoing reforms will depend on political stability that a fracticious parliament and Government are struggling to provide it, with an old guard communist party having a large minority in parliament and a centrist coalition with a bizarrely scraped up majority of one seat.
It will also depend upon the will of the people to accommodate further reforms. While generally welcoming land privatisation, the break up of land to individual units has created a period of enormous uncertainty in rural areas. The reform has led not only to the break up of the Kolhoz but also to a break down of the community and social infrastructure.
For newly independent farmers there are immediate post privatisation concerns, particularly in relation to, inputs supplies, markets, finance and technical advice. Large state monopolies have traditionally controlled the supplies of feeds, chemicals, fertilisers, seeds and animal health products.
Local (including former Soviet Union) fertiliser and agro-chemical production has declined dramatically from its 1990 level. Mineral fertiliser applications have more than halved and phosphorous applications reduced by almost three quarters. High quality pesticides and potassium and potassium based fertilisers may be imported. However largely due to cost and lack of availability are, on the whole, not used. For smaller farms, supply and cost considerations are further compounded by the lack of available guidance on chemical applications and management, including integrated pest management.
Manufactured feeds no longer contain a significant share of protein meals and feed additives. In the past few years, due to a shortage, increasing amounts of relatively low density energy content feedstuffs has been fed to animals and shortage of roughage are common, especially during long winters and the spring feeding periods.
Access to a wider variety of quality seeds and plants is also not so easy for farmers. There is little information on their availability or growing conditions. Farmers are reliant on personal contacts
As purchase of seed from the street, wholesale market, retail shops, or even certified seed companies, is likely to result in low germination.
There is almost total absence of suitable mechanisation. In February 1997 a World Bank report on agricultural mechanisation in Moldova concluded that the current agricultural machinery stock in Moldova was dating rapidly and that there was an acute lack of investment in agricultural machinery within Moldova. This is graphically shown in figure 4.
At the present time, land is not a wholly tradable commodity and cannot be used as collateral against a loan. Access to loans are therefore very limited for farmers and rural entrepreneurs. Savings levels are low and most farmers have insufficient equity or assets to purchase inputs or to add product value. Some farmers have increased their land areas either through forming a farming association or by leasing or buying land from other owners. Farmers associations have largely developed from the necessity to share machinery or manage larger land areas, rather than to market produce.
Markets are underdeveloped and there has been little foreign investment in recent years.
Barter remains an important form of trade and the informal economy operates on a large scale. Intermediary agents regularly visit larger farms, with payments made in cash. These agents sort and transport products from the farm and deliver to buyers in both domestic and export markets. Monopolistic structures and Government interference continue in most domestic and export markets.
A great deal of produce is prepared in a semi-processed form (pickled, salted or smoked) and often for the personal consumption of the producer. A number of retail markets have begun to develop in larger towns, which are managed through municipal authorities. In many markets there is insufficient space for new stalls and unauthorised street trading occurs, with small quantities of goods sold from household plots.
The processing sector is largely inefficient. Despite being "privatised" most processors have seen little new investment from their new owners which often comprise of employees, the former Kolhoz as well as the state and private investors. Most remain unprofitable (albeit supplying often very profitable ´marketing´ agents). Delays in payments by processors to farmers are common if payments are made at all. Last minute changes to prices can and does occur and guaranteed payments in cash can be transformed to payment in kind.
Most production still follows former state directives and there are considerable opportunities to expand the range of products and varieties grown in Moldova. In particular toward high added horticultural soft fruit and other added value crops, requiring labour intensive production. Labour is relatively cheap compared to other costs.
The CIS GOST standard remains the dominant measurement of food quality. These standards seem to be particularly wide in relation to product size, stage of maturity and uniformity. There is a lack of adequately designed and controlled cold stores, or cooling facilities, for either storage or transport of produce, particularly with respect to air circulation or humidity control. There are also few facilities for post harvest handling and distribution which are adequate to deliver a good quality product to identified markets.
In summary, Moldova has been through a dreadful decade resulting from the break up of the former Soviet Union and primarily due to the subsequent loss of key export market sales for agricultural produce. Falling incomes have led to serious poverty in many rural areas.
The primary agricultural policy in recent years has been towards land privatisation and re-structuring of former Kolhozes, but the future challenge will need to focus on the development and establishment of a sustainable post privatisation infrastructure able to support a burgeoning privatised farm sector. This will be no easy or inexpensive task and will require some innovative solutions from Government and the rural community.
Since 1996 the World Bank have supported a rural and savings and credit association programme aimed at loaning relatively small amounts of capital to savings and credit groups and in order to develop rural based initiatives. This project has had some success and is a small contribution to a major problem.
Farmers associations based on production are likely to break up further as members agree to lease land or further subdivide assets. To date no proper producer marketing group has been commercially developed despite significant encouragement from western donors. Experience of collectivised structures remains in the minds of most farmers, with most still unable to perceive how independent farmers can effectively market together.
On a more positive note, local self help programmes aimed more at social development, may eventually lead to increased trust, greater independence from authority and eventually joint marketing. This may take time, but the potential for Moldovan agriculture is well recognised worldwide. It may be that the economy is over the worst and can be rejuvinated, if lawful trading confidence can be established and domestic and foreign investments encouraged. In this scenario farmers may quickly learn the need to create effective produce supply groups.
6. Agriculture and producer groups: Uzbekistan
With a population of 23 million and land area of almost 450,000 sq kms, Uzbekistan is a leading country of central Asia in terms of economic potential and regional political influence. Native Uzbeks account for 75% of the population, the remainder being 6.5% Russian, 4.8% Tajik, 4.1% Kazakh and 10.1% other nationalities including Tatars, Karakalpaks, Koreans and various groups of European origin.
With the demise of the former Soviet Union influential clans (already influential within the former Soviet Union) have increased their power at the heart of the Uzbek state. These are normally informal regional groups centred on powerful families and now largely in control of the main natural riches of the country, cotton, gold and gas.
Almost three fifths of the Uzbekistan land area is desert steppe broken by irrigated, fertile oases along the banks of two main rivers. Even so, agriculture accounts for approximately 30% of GDP of which cotton is predominant. The country is the worlds fifth largest producer and second largest exporter. Cereal and tobacco are increasingly Government priorities.
Uzbekistan has mild winters, hot dry summers and an average rainfall of less than 20 cms per year. With access to irrigation this creates excellent growing conditions for fruits and vegetables and this is probably of greater interest to most rural inhabitants.
The country is divided into 12 regions. The most fertile area being the Ferghana valley (about the size of Ireland) with six million inhabitants and the key to the production of cotton and grain as well natural gas and oil. It is also home to many devoutly Islamic people. Although few, of Central Asias traditionally moderate Muslims, share a passion to build a fundamental Islamic state what happens over the next winter could decide the complexion of central Asia for some time to come.
The economic, political and social management of Uzbekistan remains largely as it was before the collapse of the Soviet Union albeit from Tashkent rather than Moscow. The Government boasts a policy of careful and structured reforms and points to a decline in GDP well improved on that of other CIS countries (Figure 2).
The media, freedom of movement and information remain largely controlled. Property rights and an independent judiciary are weakly rooted. For the ordinary citizen the state maintains a semblance of law and order, but can confiscate almost anything it wants. This includes household savings through unrealistic currency and price controls and generally poor economic management, to the lives of its citizens, through forced labour, such as mandatory cotton picking, or non payment of wages.
Although most Uzbeks tolerate, in silence, a degree of official lawlessness and corruption in their country, there is no evidence that they actually like it. In the Ferghana too much promotes dissent and breeds rebellion. On a superficial level the structures and values of legality are in place and nobody is above the law. But reality is often different from what is visible and corrupt officialdom pervades.
Only the most steely nerved and well connected foreign firms are probably able to survive. Build a factory you will pay one lot of bureaucrats to get it going and another to keep it running. These are straightforward commercial arrangements which may typically run at about 10-15% of profits. The resulting protection is a hybrid of insurance, security, a guaranteed national or regional monopoly, a lawyer and friendly civil servant. If you skimp you risk paying large and unpredictable costs.
Movements of almost all tradable goods inside and outside the country are controlled and the majority of local food processing companies remain unprivatised. But few managers can be accused just of incompetence if compared to the constraints under which they are expected to work. This includes a requirement to sell (at uneconomic prices) some product to the Federal Government, a need to export something into a hard currency market and set up barter arrangements, while at the same time as providing municipal services and trying not to make a profit. Customers are served only by chance if at all. Indeed the best thing for many businessmen to do is nothing. Hyperinflation and currency depreciation quickly reduce debts.
Collective farms continue to maintain considerable influence in agriculture. Collective farms and account for 90-95% of land area. Each collective managing an average farm size of 2000 hectares. Since 1998 farmers have been able to apply in respect of obtaining leasehold land from the collective for private farming purposes. This requires an agreement from the local Khokimiat (local Government) as well as normally the collective farm manager.
Around 50,000 farmers have obtained land and are normally allocated less than 10 hectares. They can grow and sell whatever they want. Even so private farmers are still largely dependant on the state and the local collective for access to machinery, fertilisers, chemicals and improved seeds as well as access to markets, credit and crop insurance. Few farmers are self reliant in agricultural machinery or have a full range. Supplementary equipment may be leased from the state managed agency, but with unpredictable scheduling and access delays and although well stocked with equipment it is primarily suitable for large farms.
Following a presidential decree 9th April 1998, regional private farmers associations (PFAs) were established at rayon level. These have the objective of implementing and monitoring legislation related to the establishment and management of private farms, including completing financial audits. They also aim to ensure that private farmers have access to inputs and loan finance and assistance in carrying out marketing activities.
148 farmers associations are therefore represented at national level. The federal PFA chairman reporting directly to the Cabinet of Ministers. On average 8 persons are employed by each association (1 for every 42 farmers in the region). PFAs do not compete against each other for members. Each has a defined region of operation.
Technically PFAs have voluntary membership but in reality it is difficult for farmers to access the inputs or advice they require from outside the associations unless they have other strong personal connections. Farmer members pay around $20 per hectare to the PFA for each year of membership and 2% of their audited profit.
Farmer support for PFAs vary greatly and is largely dependant upon the extent by which they are able to provide services to farmers. This ability varies considerably between regions. Most farmers are resigned to supporting their role, particularly in relation to representing private farmers in the complex inter-relationships between the Hokimiat, collective farms, machinery and chemical suppliers and processors.
PFAs certainly play a useful role in assisting newly privatised farmers to understand the some of the legal nightmares and pitfalls likely to befall them as well as their mountain of documentation and administrative paperwork they need to complete. More recently PFAs have attempted to become more closely involved in trade activities. The Government has allowed them special tax exemptions of up to 50% for exported product.
Marketing is a specific problem although few farmers openly complain. All trade has to be made by bank transfer and many payments are either delayed or not paid. Most farmers prefer to deal directly with agents visiting farms and paying in cash. These agents are primarily sourcing fresh produce for the Tashkent or export (Russian) market. In reality the agent also needs to pay an additional 10% to get official licenses or unofficial access to any transfer money in the bank.
Other marketing options are relatively limited. A number of diverse and small retail buyers and caterers exist and are serviced mainly through agents. Most farmers have debts of over two years with the processing factories or receive payment only in returned and semi-processed product. Trade documentation is time consuming and bureaucratic, particularly for sales outside an immediate region.
Local markets are bouyant and trade in small quantities directly to consumers. Produce is of a reasonable quality, and range. Traders are often garden growers or farmers selling surpluses. Women are often involved in these trading activities and prices are sometimes lower than can be purchased directly from the field by agents. Indeed agents often visit local markets in order to identify growers with surplus product.The Government also provides state directives on private farmer production over 10 hectares primarily for cotton and wheat. 100% of cotton has to be sold to the state and 65% of the wheat produced.
There are few examples of formally registered, voluntary and independent producer groups as would be understood in western Europe, other than those supported through donor programmes.
Informally many privatised producers are sharing and buying equipment or exchanging information and advice at village level and across families, but there is considerable reluctance to register them as legal entities.
Realistically, the commercial and economic development of competitive, independent and voluntary farmers groups in Uzbekistan is likely to take some time to develop, unless there is a significant acceleration in the land privatisation or economic reform programme.
The Government is continuing to follow a policy of controlled and cautious reform but probably cannot fail to note the increase in productivity from individual farm production. It is unrealistic to expect wholesale change of the Kolhoz structure for some time yet, but experimentation does continue. With the approval of the Hokimiat, experimental collective farms around Samarkand are now able to divide their own land into individual responsibility plots on a 10 year lease. All activities and costs of each individual plots are recorded in order to compare performances. The results may provide for an interesting analysis.
John Millns - Mr Millns has since 1990 primarily been involved in agriculture and rural enterprise re-structuring programmes in central and eastern Europe and the new independent states of the former Soviet Union. His main areas of work have focused on enhancing rural incomes and employment, primarily through supporting the development of a privatised agricultural sector, promoting the development of producer groups and encouraging rural enterpreneurship. The views expressed in this paper are the views of the author and not necessarily those of the Plunkett Foundation.
The Plunkett Foundation is an independent charitable trust based near Oxford in the UK. It has been established for more than 80 years with the remit of furthering rural cooperation.
Special thanks are due to the advice provided by Edgar Parnell, The Plunkett Foundation and David Button, Genesis Business Consultants in providing background to this paper. References and data have been obtained from the Economist magazine, the Financial Times newspaper, the European Bank for Reconstruction and Development, The World Bank, the Agency for Restructuring Agriculture in Moldova and the Carana Corporation.
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Updated: 19 November 1999
