Case Study: Azerbaijan Farm Privatization

Project

Agriculture in the 1990s• High potential: 1.4 million ha irrigated land, nine

agro-climatic zones • Macroeconomic instability until 1996• Worsening terms of trade• Import competition• Deterioration of irrigation and drainage (I&D)• Reduced input supply• Wage arrears in former sovkhozy and kolkhozy

(FSKs)• Slow reform: downsizing of FSKs; garden plots

held “in perpetuity” more productive

01020

30405060

708090

100110

120130140150

160170180

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Output

Employment

Labor Productivity

Crop Area

Output, Employment, Labor Productivity, and Crop Area, 1990-

2002 (1990 = 100%)

Objectives

• Restructure 6 state and collective farms in pilot areas and transfer their land and other assets to qualified households

• Furnish post‑privatization support to newly created private farms

• Poverty alleviation through sector growth, off-farm job creation, and community-based social services

• Create models that can be refined and replicated elsewhere in Azerbaijan

Components

• Mechanism for rapid, equitable, and accurate land allocation and titling

• Land registration system• Rehabilitation of I&D system in pilot farms• Water User Associations (WUAs)• Farm information and advisory services (FIAS)• Seasonal and investment credit• Community development• Project Management Unit

Land Privatization and Administration• Pilot farms in early 1998, then nationwide in 1999

upon the initiative of the Government: distribution of 823,782 titles and privatization of 97% of earmarked agricultural land by 2002

• Voluntary, choice-driven, and participatory: farmers sit on land reform commissions

• Transparent and universal: information campaigns; lottery-based land location

• Access to titles: 10 Regional SLCC offices• Correction and unification of cadastre• Status and registration of municipal land• Land market nascent: few registered sales until

recently

0

500000

1000000

1500000

2000000

2500000

3000000

Cropland Perrenials Fallow Hayfields Pastures

Private

Municipal

State

Private, Municipal, and State Agricultural Land in Azerbaijan

in 2002 (ha)

Post-Privatization SupportFarm Information and Advisory

Services• Center in the Ministry of Agriculture• Media, books, workshops, conferences,

collaboration with research institutes

Credit • Information campaigns educated the population and

commissions established transparency• Agroprombank credit appraisal and information

management improved• Taxes were lowered and simplified• Slow take-off and continuation under ADCP

Irrigation and Drainage Infrastructure• System rehabilitation improved productivity• Quality control issues addressed• WUAs must maintain systems

Water User Associations• 6 under the pilot farms, later extended to 550 the

throughout the country serving over 50% of irrigated area

• Legal framework in need of refinement: SAIC and WUA jurisdiction over on-farm I&D systems

• Weak capacity in most of country• Collection rate and water charges low (25%)• On-Farm I&D Project to provide support

Community Development• Hayat NGO: weak capacity, focus upon

business centers (later merged with FIAS)• Project Management Unit identified

priority needs: drinking water supply and sanitation

• Establishment of community associations

Impact upon Poverty

•Nationwide, due to scaling up of land privatization•1995-2001: share of households owning land from 78% to 98%, average size from 0.2 ha to 1.6 ha•Surge in agricultural output, employment, and crop area; labor productivity and yields per hectare rose gradually; role of macro policies and stability.•Rural poverty from 66% of households in 1997 to 42.5% in 2001•Livestock preferred by some farmers (women), due to ready market; continued development of post-privatization support will further reduce poverty•Non-income poverty rose, but community development component limited

Political Economy: Why No Reform Before 1996?

• War with Armenia: occupation of 20% of the country

• Internal political instability: two regimes before Aliev consolidated power in 1994-95

• Lack of experience in agrarian reform outside of the Soviet context

Political Economy: Support for the FPP

• President, Cabinet of Ministers, National Agrarian Reform Commission, and Ministry of Agriculture support agrarian reform; few reluctant participants

• Oil and caviar, not land, are the main sources of Government revenue

• Attract foreign direct investment into hydrocarbons through liberalization of economy

• Bold moves possible in rural areas, not in cities: urban riots overthrew previous two regimes

• Increase legitimacy among rural population: Aliev as the “savior of the nation”

Institutional Innovation and Capacity

• Project Management Unit becomes Agency for Support of Private Agriculture in Azerbaijan

• State Land and Cartography Committee and regional branches

• Ministry of Agriculture Extension Services Center• Agroprombank• Land reform commissions• Water User Associations• Rural credit commissions• Town hall style meetings• Informal institutions for cooperation for credit,

acquisition of inputs, machinery services, and I&D

Learning and Experimentation

• Led to and facilitated the scaling up of land privatization and farm restructuring

• Response to contingencies: adjusting various components

• Hands-on, participatory approach of task project team

• “School of agricultural development” continues to study and refine FPP components within the context of follow-up projects

External Catalysts• Macroeconomic stabilization in 1996 removed

distortions• Agricultural sector must be strengthened to

withstand “Dutch Disease” and currency appreciation from oil revenues

• Devolution of power and transfer of agricultural land from district executive to elected municipal governments

• Relatively homogeneous ethnic composition and social responses

• World Bank task project team: consultation and early results prompted Government actions

Conclusions

• Models for land privatization and farm restructuring work only when they are tailored to specific national needs through learning and experimentation.

• Country ownership of the FPP was critical not only in terms of support for implementation, but also in terms of tailoring the model to fit the needs of both the Government and society.

• After the Government acquires ownership and ramps up a project, it must follow through with long term support for the endeavor.

• Capacity enhancement for both the Government and beneficiaries gave the FPP a much better chance of success.

• Information campaigns and flexible participatory approaches are essential to increase transparency and to inculcate a strong sense of proprietorship in private farming.

• Post-privatization support services that require significant institutional and financial innovations are long term endeavors that require constant attention and adjustment to changes in the enabling environment.

• Community development is an integral part of land privatization and farm restructuring.