THE DEVELOPMENT OF RURAL LAND MARKETS IN TRANSITION …eastagri.org/files/CEEandCIS1173087105.pdf · Properly functioning rural land markets are of vital importance to the development

Food and Agriculture Organisation of the United Nations Sub-regional Office for Central and Eastern Europe, Budapest, Hungary & Slovak University of Agriculture, Nitra

Faculty of Economics and Management

THE DEVELOPMENT OF RURAL LAND MARKETS IN TRANSITION

COUNTRIES

Johan F.M. Swinnen and Liesbet Vranken

1. Introduction

Properly functioning rural land markets are of vital importance to the development of rural areas and for agricultural growth. This holds in general, but is particularly relevant for the countries in transition in Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS), where land reforms and farm restructuring over the past 15 years have completely overhauled the existing structure of ownership and use of land. For this reason, much attention has been paid in the past decade to these processes. Many conferences have been organized and numerous papers and reports published on the subject of the land reform processes and the restructuring of the farms in these countries. Csaki and Lerman (2000); Lerman et al. (2004); Swinnen et al. (1997), and various chapters in these volumes provide overviews and discussions of the restructuring, privatization and land reform policies and their effects. International organizations such as FAO, the World Bank and OECD published various reports on this issue, including a recent FAO series of country studies on land reforms and the potential for land consolidation in Bulgaria, the Czech Republic, Hungary and Romania (Kopeva et al, 2002; Travniced et al., 2002; Biro et al., 2002; and Rusu et al., 2002). In addition, various studies have analyzed regulatory, administrative and legal constraints in land markets and of associated institutions. Excellent surveys of legal and policy issues related to land privatization, land transactions, mortgage, land registration, land taxation, are in Prosterman and Hanstad (1999); Prosterman and Rolfes (2000); Tanic (2000); and Riddell (2000). Dale and Baldwin (2000) highlight the importance of land registration and cadastre, valuation services, and financial services for the emergence of smoothly and formally operating land markets, and refer to them as the three regulatory pillars to support the development of land markets in Central and Eastern Europe. Finally, FAO produced a very useful report on “Good practices for agricultural leasing arrangements”, in which they emphasize the importance of fiscal and financial policies, and the role of a legal framework for land use (FAO, 2001). However, at this moment much has been accomplished. Many issues which were important in early transition have been resolved and policies and regulations have been implemented. For example, land reforms have been completed and land titles issued in many countries. This was an important prerequisite for land markets to emerge and grow. This process has received extra stimulus from the process of EU accession. Eight transition countries have joined the EU in 2004, and a few more are expected to join in the coming years. The accession process was associated with the introduction of a vast set of regulations and adjustments in their respective legal systems, with some important implications for the laws and regulations governing land ownership and land transactions.



Further east, other important developments have taken place in recent years. Several CIS countries have introduced new land reforms to address the perceived imperfections of the initial land reforms, including the share distribution system, which was implemented in many CIS countries. For example, Ukraine, Azerbaijan, Moldova and Kazakhstan have all introduced radical changes in their land policies between 1996 and 2004. In all these countries these changes have been accompanied with major changes in farm structure and land rights. That said, the situation in the land market and farm structures is very different from these in Central Europe. Taking all these developments together, it is important to step back for a moment and reflect on the key gaps in our knowledge and lack of understanding in the rural land markets, which are important to address important remaining challenges that face policy makers and advisors in 2005. At least three gaps stand out. First, much information is available on the land reform and the farm restructuring process and how land use has changed, as well as on the various policies and regulations that have been implemented. However, much less information is available, and certainly much less representative and systematically collected information, on the rural land markets and on how (i.e. how much, under what type of contracts, under which conditions, etc.) the exchange of land has developed in the various countries in the region, and what have been their constraints and effects. Second, much has been written on the need for a vast array of policies, regulations, institutions, reforms etc. which are presumably needed for an efficient land market to emerge. However, much of these arguments have been based upon how these policies, regulations, institutions, etc. play a role in developed market economies in Western Europe and the North America. Much less is know about their effect – or possibly lack of effect -- in the transition countries themselves; and about the possibility that the specific characteristics of transition countries would imply different constraints on their land markets – and therefore the need for different institutions. Third, the transition world has always been more heterogeneous than often recognized. This is certainly the case when looking at the current situation of farms and rural land institutions, property rights, etc. Clearly, the rural land and farm situation in the new EU member states of Central Europe is vastly different in many aspects from those in Russia or in the Caucasus or in Central Asia. Therefore, it is crucial to take the heterogeneity of all these countries explicitly into account when deriving conclusions on land markets and related institutions. The objective of this paper is therefore to address some of these gaps in our knowledge by drawing on a set of new empirical evidence and surveys to provide a comprehensive picture on land market developments and on how they have developed and on what constraints them; and on how these developments and constraints vary by country. The latter refers in particular to new or remaining constraints on the development of land markets, given that land reforms have been largely completed (at least in many transition countries). As we will show, these constraints take various forms, such as remaining property rights insecurities, transaction costs, lack of institutions for enforcing contracts, lack of transparency and information, imperfect credit markets, lack of profitability of agriculture etc.



This review will allow to assess the reality in the rural land markets, what has been achieved, what are the remaining problems, and what lessons can be learned from the successful developments in some countries for other countries where important problems remain. This paper is organized as follows. We start with a very brief discussion on land reform and farm restructuring, and provide an overview of land ownership and use in various countries. The next section presents data on the development of land sales and rental markets, and on what explains differences across countries. In the third main section we focus on the constraints in the land markets. The final section summarizes the conclusions and draws implications. In the analysis we explicitly focus on a set of countries which have very different land and farm characteristics in order to identify what is general and what is country specific. The country selection is also affected by the availability of data. For example, we will discuss extensively the situation in Slovakia and Czech Republic, Hungary, Bulgaria, Romania, Albania, Azerbaijan, Moldova, and Kazakhstan. Before continuing we should make a note on the data and information sources used. The analysis in this paper draws on a variety of sources including national statistics, data from international institutions (FAO, World Bank, European commission) and, most importantly, a series of surveys implemented by the World Bank, FAO and by European research institutions.1 These surveys have only now been analyzed in a comparative fashion and allow a unique and new perspective on the developments of land markets in the transition world.

2. Land reform, Farm Restructuring, Ownership and Use of Land Land reform

All transition countries have implemented some land reform and farm restructuring. However, there are significant differences among them. They differ regarding the land reform process (restitution, distribution, …), their farm structure (in particular the share of corporate and family farms), their “historical legacy”: CEE vs CIS, whether they are part of the EU or not, etc. The choice of land reform differed strongly between some countries, resulting in different ownership structures. The most important land reform choices were (see table 1): restitution, distribution in kind/plots, distribution in shares, or a combination: distribution in shares, then in kind. Restitution was the dominant land reform in Central and Eastern Europe. Distribution of land has been done by allocating physical plots (such as in Albania) or in shares (such as in Russia and Kazakhstan) or first in shares and later in physical plots (such as in Azerbaijan). An important difference between restitution of land to former owners and the distribution of plots or shares to farm workers and rural households is that with restitution a significant share of the land is (potentially) allocated to individuals who are not (or no longer) active in

1 The European surveys were partly financed by the European Commission, FAO and by the Foundation for Scientific Research of Flanders. The Policy Research Group at the Catholic University of Leuven coordinated the surveys. Other institutions involved in the implementation were the University of Athens, Greece; GTZ Tirana, Albania; the University of National and World Economics, Bulgaria; the Research Institute of Agricultural Economics, Czech Republic; the Budapest University of Economic Sciences, Hungary; the Slovak Agricultural University in Nitra; and the Institute of Agrarian Economics, Romania.



agriculture. They may be retired or living in urban areas. This implies a strong need for land markets, since retired and urban households are less likely to use land than rural households who are active in agriculture.

Farm structure and land use Land reform and the privatization of farm assets allowed the emergence of new forms of farms. We distinguish between several types of farms. Corporate farms (CF) include cooperatives, limited liability companies, etc. Family farms (FF) include both “unregistered” family farms (UFF) and “registered” family farms (RFF).2 Unregistered family farms include subsistence farms and household plots. In all countries unregistered farms are small (a few hectares on averages), while registered family farms can be quite large (see tables 2 and 3). In the Czech Republic the unregistered farms use less than 2 ha on average, while the registered farms use on average 55 ha. For example, in Azerbaijan and Kazakhstan, registered family farms are cultivating 140 and 555 hectares on average, respectively. Corporate farms are much larger. The average size of the agricultural enterprises is between 1,300 and 2,000 ha in Bulgaria, the Czech Republic, Hungary, and Slovakia (table 4). They are even larger in Kazakhstan (more than 5000 hectares), and somewhat smaller in Moldova (around 900 hectares on average).

2 Unregistered family farms: rural households cultivating land, natural persons engaged in agricultural without

setting up a legal activity Registered family farms (RFF): family farms who formally registered as agricultural producers



Ownership of land Land ownership is widespread in transition countries among rural households and family farms.3 Tables 2 and 3 show that the vast majority, and in many countries more than 90%, of the family farms owns land in transition countries. The average amount of land owned by rural households and family farms is small in most countries. Average land ownership is less than 7 hectares for most of the countries and most of the categories. Only registered family farms in Azerbaijan (12 ha), in Czech Republic (17 ha) and in Slovakia (17 ha) own more on average. Land ownership is even smaller in poorer countries with labor abundance in the rural areas, such as in Albania and Tajikistan where households own less than one hectare on average. Corporate farms own very little land in most transition countries, although “ownership” is not always well defined. In Azerbaijan, Bulgaria, Czech Republic, Slovakia and Hungary, large corporate farms own less than 5 percent of the land they operate. The situation is different in land abundant Kazakhstan, where average land ownership is more than 20 hectares for unregistered farms and more than 500 hectares for registered family farms. The situation of corporate farms in Kazakhstan is also somewhat different. The share distribution system together with bankruptcy proceedings allowed some corporate farms to acquire large areas of land before 2003 (Gray, 2001). However, many corporate farms still continued to rent land from households. The 2003 land code effectively transferred all land used by corporate farms into ownership of the corporate farms. In Czech Republic, Slovakia, Hungary, Bulgaria, Moldova and Kazakhstan, corporate farms are using much land which is owned by their members. In Bulgaria, 70% of the land used by corporate farms is owned by their members. This number was more than 96% in Kazakhstan in 2003.

Implications These differences in land reform and farm structures, as well as the differences in ownership, have important implications for the demand for land exchange and renting, and its efficiency and equity implications. In some countries many users are owners, in others not at all. Hence, we should expect important differences in the development of land markets. In addition, as reform progress differed significantly across these countries, the emergence of markets was affected hereby as well, further contributing to heterogeneity.

3. Land Markets Tables 2 and 3 summarize information on land sales and land renting in several surveys in transition countries. One should be careful by drawing conclusions since not all datasets provide information on all aspects of the land markets. That said a series of patterns can be identified.

Sales & purchases of land 3 The data should be interpreted with care because of the selection bias on this issue, but accounting for this, the conclusion is robust.



Few rural households or family farms in transition countries have sold land. Less than 5% of the rural households and family farms had sold land in all countries, and in many cases the share was below 2%. Very few unregistered farms purchased land. By 2004 less than 5% of unregistered farms had purchased land in Azerbaijan, Bulgaria, Moldova and Kazakhstan A significant share of the registered family farms purchased land, albeit relatively modest amounts. Land purchases by registered family farms were common, in particular in Bulgaria and Moldova were 30% and 23% of the RFF had purchased land. The average size of the land purchase was 8 hectares in Bulgaria and 3 hectares in Moldova. Since the start of transition until 1997, around 17% of the Hungarian family farms bought land and the average amount of land purchased was 12 ha. Recently, land purchases have increased significantly in Hungary and other EU accession countries. Corporate farms purchased some land but the amount is very small compared to the cultivated land area. Around one third of the corporate farms in Moldova and Bulgarian purchased land. Bulgarian corporate farms bought larger amounts of land than Moldovan (135 ha versus 44 ha). In Azerbaijan, 13% purchased on average 3 ha of land. In Kazakhstan, none of the corporate farms in the survey purchased land.

Renting (in & out) of land Renting is widespread in many transition countries. Figure 1 presents an aggregate indicator which we calculated of the importance of renting as a share of total land used. This indicator varies considerably among countries. In the Slovak and Czech Republic, more than 90% of used land is rented. In Kazakhstan, Estonia, Moldova, Hungary, Bulgaria and Lithuania, 50% to 60% of total agricultural land is rented. This indicator drops even further to less than 25% in Azerbaijan, Latvia, Slovenia and Albania. Variations by farm organization. Renting land varies strongly by farm type. All corporate farms are very active in the rental markets, and rent a large share of their land. Unregistered family farms are the opposite: few of them rent in land and if they do only small plots. Registered family farms are in between: a significant share of them rents in land, and often relatively large plots. Corporate farms rent a large share of their land. In Hungary, Bulgaria, Moldova, the Czech Republic, Slovakia, and Azerbaijan, 85% or more of the land used by corporate farms is rented. Corporate farms rent in form three sources: members4, non-members and the state. In Hungary, 20% of the land used was rented from state, while half of land was rented from members and almost 30% from outsiders. Renting from state or municipality is of minor importance in Bulgaria, Kazakhstan and Moldova. In the latter, the corporate farms rent in

4 Individuals are member of a cooperative farm if they bring in either land, machinery, labour or money (depending on the statutes of the cooperative and the country-specific legislation). In a cooperative, decisions are made according to the ‘one member-one vote’ rule. Legal entities such as joint stock companies are owned by partners who brought in part of the capital. The impact of the partners on the decision making process is based on the shares they own.



around 42% from members and a similar share from outsiders. In Bulgaria and Kazakhstan, farm members are important source of land renting by corporate farms.. In Bulgaria, 70% of the land cultivated by corporate farms is rented from members, while 23% is rented from outsiders. In Kazakhstan, even 96% of the cultivated area is rented from farm members. In Azerbaijan, the state owns the majority of land which is used by the corporate farms: 87% of the cultivated area is rented from the state or municipality and around 6% is rented from outsiders as well as from members of the corporate farm. An important issue is what is implied by “renting from members”. In countries as Bulgaria and Hungary, members receive rental payments for the land that is given to the corporate farms for cultivation. However, it is unclear whether, in Moldova and Kazakhstan, members receive rental payments and whether the corporate farm perceives to have more secure tenure rights when they use land that is owned by members than when they use land owned by outsiders or members. A large share of registered family farms are renting in (often large amounts of) land. In all countries where data are available for RFF, they show that many of the RFF are renting in land: Azerbaijan (93%), Bulgaria (39%), Czech Republic (54%), Moldova (23%) and Slovakia (46%). They often rent in large areas of land: on average 137 hectares in Azerbaijan, 20 hectares in Bulgaria, 71 hectares in Czech Rep, and 85 hectares in Slovakia. The exception is Kazakhstan where less RFF rent in land (15%), but those who do rent in large areas: more than 250 hectares on average. Family farms rent in almost only from other households, which can be members of their extended family, other farmers, retired people, or households no longer active in agriculture. Renting in of land is positively correlated with farm size. Figure 2 shows how the share of cultivated land rented in increases with farm size. Registered family farms of less than 50 hectares rent in around 50% of the land, which increases to around 90% for RFF more than 300 hectares, and for corporate farms. Unregistered family farms do not rent in much land. Few of them rent in and if they do, they rent in much smaller areas of land. In most cases less than 10% of UFF rent in land, and the area they rent in is only a few hectares on average. The exception is Azerbaijan, where the 5% of UFF that rent in, rent 17 hectares on average. Unregistered family farms are more likely to rent out land than to rent in. Tables 2 and 3 show how in almost all countries, more UFF are renting out than renting in land. In all cases they are more likely to rent out than registered farms. Among the countries for which data is available, most UFF are renting out in Bulgaria (40%), Czech Republic (61%), and Moldova (38%). These UFF are renting out mostly to corporate farms, and in the second place to family farms. In many of the countries (incl. Czech, Slovakia, Hungary, Bulgaria, Kazakhstan and Moldova ) more than two-thirds of the households that rent out rent a large share of their land to corporate farms. Renting in from the state is important only in a few countries. In Azerbaijan, renting by both corporate farms and registered family farms is mostly from the state, which seems to explain the high share of land renting by registered farms in Azerbaijan: 90% of the RFF rent land



from the state. Also in Poland and Kazakhstan the state is an important source of land for renting by farms.5 An explanation of country differences Despite these general conclusions as outlined above, there are large differences between countries. The variations are huge. In, for example, Slovakia and the Czech Republic more than 90% of the cultivated land area is rented. In Bulgaria, Hungary, Moldova and Kazakhstan, between 50% and 60% of the cultivated area is rented. In Azerbaijan, this number decreases to 35% and even to 10% in Albania (figure 1). To understand the causes of these variations, let us consider the extreme cases of Albania and the Czech Republic in more detail (table 5). The rental market is very active in the Czech Republic and all types of farms participate actively. Large corporate farms, who use more than 60% of the land in the country, rent in 99% of their land. Moreover, more than half the registered family farms rent in land, and more than 60% of unregistered farms rent out land. Not only are most farms and households involved in renting in the Czech Republic, they also rent large plots of land: the average size of land rented in by registered family farms is 71 ha, and the average area of land rented out by (registered and unregistered) farming households is more than 9 ha. The latter is very large, given the fact that the average area owned by all unregistered farming households is only 6.5 ha. The contrast with Albania is huge. The 1999 survey finds that in Albania, where virtually all the land is farmed by family farms, only 2% of farming households in Albania are renting land, either in or out, and the area is very small on average: 1 ha or less. A more targeted survey in 2003 of the land rental market indicates that these numbers are likely underestimating the rental activities, because there is considerable informal renting going on within extended families, which is not generally recognized as “renting”. However, even accounting for this, only 10% of the rural households, almost all of whom are farming in Albania, is renting land in and another 10% is renting out. These differences reflect a combination of factors: differences in farm structure, differences in land reform, and differences in the role of agriculture in employment. This stark contrast between these countries can be generalized. Figure 3 shows the very strong correlation between the share of renting and the importance of corporate farms in a country. The share of land rented is strongly correlated with the share of corporate farms in land use. The latter is affected by the pace of the reform process, the type of land reform and the relative production factor scarcities.

Renting versus buying A comparison of rental and sales markets (more specifically, comparing: renting in with purchasing, and selling with renting out) yields the following:

5 In Poland the privatization of state farms resulted in their land being leased to private farms.



On the supply side (renting out versus selling), there is a large difference: much more households and farms are renting out land than have sold land. The size of the difference varies with the amount of land exchange. In other words, in countries where many households or farms are providing land to others, the vast majority is through renting out. In countries where little land is rented out, even less is sold, but the difference is (obviously) also less. The main conclusion seems to be that few rural households are willing to sell land; if allocate land to others they do it through rental arrangements. On the demand side (renting in or purchasing), there is no general conclusion: the results differ by country (see figure 4). In Azerbaijan and Kazakhstan much more farms are renting in land than are purchasing land. (In the case of Kazakhstan land was neither sold nor purchased since it was not legal – see further). However, in Moldova and Bulgaria, by 2004 the difference was minimal: almost as many farms had purchased land than were renting in land. The main difference there is in the amount of land transacted: the amount of land rented in is larger than that purchased. For registered family farms, the amount of land rented in is on average around twice as much than that purchased (tables 2 and 3). The complementarity of renting and buying of land increases by farm size. Larger family farms are more likely to both rent and buy land. Figure 5 uses data from Hungary to illustrate how the amount of land bought and rented in both increase by size category. Moreover, our econometric analysis in Vranken and Swinnen (2004) confirms that for larger farms, buying and renting land is increasingly a complementary strategy. This observation is consistent with observations in Western Europe and the USA where commercial farms often combine renting and buying land to enlarge their farm operations.



The growth of land markets during transition One would expect that land exchanges would increase and land markets would develop during transition as land reforms are completed, property rights become more secure, and market imperfections are reducing. Whether this implies that land renting would increase or rather that land sales would mostly increase, or both is not immediately clear. Ad hoc evidence suggests that both land rental and sales increase with transition but there are relatively few data on the evolution of sales renting over time to analyze this. What we have, suggests that land renting increases over time (with transition). Figure 6 shows how in Bulgaria, the share of rural households (with owned land) who rented out land increased at a rather steady rate from 7% in 1991 to 27% in 1997.6 The Romanian surveys support the argument that land rental market participation increases with transition: in 1996 less than 2% of the rural households was renting in and 14% was renting out, while in 1998 around 8% was renting in and 20% was renting out. Also the average area of land rented in had more than doubled. However, in countries where land rental markets are well developed already, there is little change. Figure 7 shows how rental activities have not changed much over the 1999-2003 period in the Czech Republic.

Rental contracts Land rental contracts vary widely among countries and within countries. Tables 6 and 7 provide a set of empirical evidence on types of contracting for various countries and how they differ by users and owners. Contracts vary from a few months to many years, from verbal and informal to written and formally endorsed, some require cash payments, other payments in kind. Contract length. The average length of a land rent contract was around 1 year in Albania, Bulgaria, and Romania, all around 1997-99 (see Table 6). In contrast, the average rent length was between 5 and 15 years for the registered farms and the agricultural enterprises in Czech Republic and Slovakia in 1999. In 2004, in Azerbaijan, land rental contracts are also rather long: 9 years and longer for renting in and 3 years for renting out. In Kazakhstan and Moldova rental contracts are also several years (3 to 4 on average), although unregistered farms in Kazakhstan are different: they rent out for much longer (12 years) while renting in on annual contracts. Formality of contracts. In Romania in 1996, 92% of rental arrangements for renting in land by family farms was through informal contracts, only 8% was formally registered.. In contrast, Bulgarian households renting out land used formal contracts for 82% of contracts in 2004. Type of payment. Rental payments are made in kind, in cash, combined cash & kind, and as share cropping. Also for this contract characteristics there are large variations: almost all Kazakh family farms renting pay in cash, while almost none of the households in Azerbaijan get cash for their land (figure 8). There is little evidence on the role of sharecropping. Only for Romania do we find evidence that sharecropping was fairly important: in Romania in

6 An interesting observation from figure 7 is that while the rental markets grew strongly in importance in the 1990s, there was no such effect on land sales, which remained very marginal in Bulgaria.



1998 more than 40% of the rental contracts of rural households (both in and out) were with sharecropping arrangements. Causes of variations The type of rental contract (length, in/formal, payment conditions, …) depends both on the stage of transition and on the type of user and owner. Progress in transition leads to longer and more formal contracts. Compared to annual contracts in Albania, Bulgaria an Romania, even unregistered farms in the Czech Republic were using contracts for 2.5 years on average for renting in land. The two surveys in Bulgaria show that the average length of the rental contracts increased from 1 year in 1997 to around 3 years in 2004. Also the formality of contracts has grown over time: only 56% were written contracts in 1997, while this share increased to 82% in 2004.

The type of user and owner also have a strong impact on the length (and other characteristics) of the contract. Table 7 shows that typically, contracts between relatives are shorter and less formal, while contracts with formal organizations (corporate farms or the state) are longer and more formal. For example, in 1998, Bulgarian household renting out to other households was almost entirely based on informal verbal agreements. In contrast, renting land from the state/municipality was in 77% of the cases based on written contracts, while a written contract is signed only for around 23% of the agreements for renting in from individuals (Noev and Swinnen, 2004). These differences still exist in 2003, although contracting with registered family farms is now also for 80% registered and of the same length as with corporate farms. The informal character of intra-family is also illustrated in the contract term which is shorter (only 1 year on average for renting to members of the family compared to 3 to 4 years when renting to a registered farm or cooperative) and the rented area which is considerably smaller as well. In Moldova and Kazakhstan rural households (UFF) are mainly renting out to farm enterprises and these land transfers are in general based on registered contracts. Renting between households is less likely to be formalized. The long length of contracts in Azerbaijan is related to the state as the main source of land. The type of payment varies also by farm type. Rural households mostly pay cash for land that they rent in, but are paid in kind for land that they rent out (see figure 8). For example in Kazakhstan, cash payments account for 95% of total payments for land they rent in, while less than 24% of total payment is received cash for the land they rent out. The main reason for this striking difference is that corporate farms do not pay cash in many of the countries. The share of corporate farms paying (partially) in-kind are 100% in Azerbaijan, 98% in Moldova and 83% in Kazakhstan.

4. Constraints and Imperfections in Rural Land Markets We first present conclusions from surveys on land market constraints. Afterwards we discuss a series of specific market imperfections.

Survey evidence on constraints



Several surveys provide explicit information on the constraints in the land market. The survey findings are summarized in tables 8-13. There are both general findings and country specific results. Some of the key findings are the following: General conclusions Almost everywhere, buying and selling land is more difficult than renting land. The only exception is where they are almost equal because virtually all households express difficulties in both renting and selling. There are major problems in the land sales market. Between one-third and two-thirds of the family farms in the Czech Republic and Slovakia express difficulties selling and buying land. In Albania, the share is higher: 64%-74%, and in the other countries in Azerbaijan, Bulgaria, Moldova and Kazakhstan a very high share of all farms have difficulties buying land (the lowest share of any farm type in these countries is 87%). There are large differences between countries in problems in the land rental markets. Farms in the Czech Republic and Slovakia experiences few difficulties in renting land, especially in renting out land. In contrast, in Azerbaijan, Bulgaria, Moldova and Kazakhstan, a high share (more than 70%) of all farms express “difficulties to rent in land”, and this share is high in all farm categories. Problems in renting land Farms in the Czech Republic and Slovakia express few difficulties in renting land, and much less than in the other countries. In particular renting out is no problem for rural households. One-third of the registered family farms express difficulties renting in and the main reason is that is difficult to find people who want to rent out land. These difficulties may be caused by the dominant position of the corporate farms in the land market in both countries, making it difficult for family farms to access land. A high share (more than 70%) of all farms express “difficulties to rent in land”, and this share is high in all farm categories, in Azerbaijan, Bulgaria, Moldova and Kazakhstan. The reasons why farms in these countries have difficulties renting in land are (a) credit constraints and (b) country specific factors.

o Access to credit is an important constraint for family farms in Azerbaijan, Bulgaria,

and Moldova, and more so for the unregistered family farms. “No money to rent” is the most important problem for unregistered farms in these countries (for almost 90% in both Azerbaijan and Moldova); and also for registered farms in Moldova. Credit constraints are less of a problem for Kazakhstan farms in 2003, and for corporate farms in Bulgaria. However, also corporate farms in Moldova put credit constraints as their number one problem in the rental market.

o In Kazakhstan, the main problem for family farms is that “they do not know the

authority that deals with the land rental”. More than 50% of both registered and unregistered family farms and even 30% of the corporate farms identify this as a problem in Kazakhstan, while less than 5% of any farm type in the other countries identify this as a problem. This seems to reflect the continued important role that the



state is playing in the land rental market and the land reform implementation, which contrasts strongly with other countries where this is not a problem at all.

o Shortage of land supply is an important problem for farms in Azerbaijan. The share of

farms identifying that “nobody wants to rent out” is much higher in Azerbaijan than in the other countries. This reflects the strong growth in agricultural production and productivity, and the inflow of labor in agriculture, since the start of the land reforms in the second half of the 1990s (see Swinnen, 2004).

o Land fragmentation is an important constraint in Bulgaria, especially for the larger

farms. 43% of registered family farms and 69% of corporate farms identify “small and fragmented parcels” as an important problem. Land fragmentation is extreme in (some parts of) Bulgaria. For example, in North- and South-Central Bulgaria, rural households own on average 7 parcels of land with an average size of 0.5ha. High fragmentation together with co-ownership of land are having an important impact on household’s participation in the land rental market (Vranken et al., 2004).

o Lack of information and uncertainty on the land rental market seems to be a serious

problem in Moldova. Around 30% of farms say that they “do not know the rental price” and 20%-30% of the farms say that” the rental process is complicated and unclear”. This holds across all farm types and is significantly higher than in the other countries (except for Azerbaijan where the complexity of the rental process is also a problem for 30% of the farms.)

Problems in buying land The main difficulty in buying or selling land is “to find partners to transact with” in the Czech Republic, Slovakia and Albania -- countries where difficulties in the sales market are somewhat lower than in the other countries. The problem most identified by both buyers and sellers is “difficulties to find people to buy/sell land”. In all countries the problem is more important in selling land than in buying land. The second problem was that the price is considered too high for buying land. This is identified as a problem by 24% of farms in Albania and more than 30% of family farms in the Czech Republic. This “price problem” reflect profitability or credit market problems or both. In Slovakia, the complexity of legal procedures was an important problem for a quarter of the farms. The problems in the sales market are remarkably similar to those in the rental market in Azerbaijan, Bulgaria, Moldova and Kazakhstan, where a very high share of all farms have difficulties buying land (the lowest share of any farm type in these countries is 87%):

- The main constraint is credit. “No financial means to purchase land” is the most important problem across the countries, and identified by the vast majority of all farms in the countries, except Bulgaria where it is the main problem only for unregistered farms.

- For the larger Bulgarian farms (CF and RFF), the fragmentation of land parcels is the

main problem in buying land.



- As in the land rental market, a limited land supply is a problem in Azerbaijan,

especially for the larger farms.

- Uncertainty, complexity, and an expensive transaction process in buying land is a more important problem in Moldova than in the other countries.

Credit markets and profitability

These findings indicate that poor access to capital is a major constraint, not just for land sales markets but also for land rental markets. Lack of farm profitability and imperfect credit markets both constrain farms’ access to capital. There is an extensive literature on land markets showing theoretically and empirically (from various other countries) that credit market imperfections are a major cause of land market imperfections. Capital market imperfections may constrain the efficiency of land sales markets in several ways (refs …). First, where capital markets work imperfectly, land purchases typically have to be financed out of own savings. Second, where financial markets do not work well, or where confidence in money as a repository of value is low, land may be used to store wealth and may be acquired for speculative purposes. Third, land may be purchased, or held on to, as a hedge against inflation, or as an investment asset in the absence of alternative investments or hedging options. Fourth, with constrained access to credit, investments in land ties up much needed capital in land, and prevents farmers from using these savings for investments in technology, equipment, or quality inputs. These factors make that the sale price for land will typically be higher than the productive value of land. During the 1990s credit market imperfections were widespread across all transition countries. These problems have been mitigated substantially in the more advanced countries, in particular the EU accession countries where credit from banks, other rural financial institutions, and through contracts with agribusinesses have reduced credit constraints for farms. However in many poorer transition countries these constraints remain very important. Related to this, the profitability of agriculture plays an important role in land markets. When credit markets are imperfect, land transactions have to be financed out of savings. Obviously, when profitability is low in agriculture this is a major additional constraint. Profitability has improved in many countries in recent years because of either EU accession, increased productivity (sometimes as a consequence of land reforms, such as in Azerbaijan or Kyrgyz Republic), improved terms of trade (the latter in particular in countries being affected by the 1998 Russian financial crises which caused major exchange rate effects, such as Russia, Kazakhstan and Ukraine), or enhanced demand for their products with growth in the rest of the economy. The largest effect has probably been the impact of EU accession on the land markets in the CEE accession countries. The combination of security of rights and improved legal frameworks for transactions, inflow of foreign capital (directly in the land markets directly or indirectly through agri-food industry investments), increased prices and large land subsidies have caused a major impact on land prices in and land transactions in these countries. This process started already before transition and was strongest in the areas closest to the EU-15 borders. While there is limited systematic information on this process, several pieces of ad



hoc evidence present a coherent picture of dramatic changes in transactions and price increases in the accession countries rural land markets.

Corporate farms, transaction costs, and imperfect competition Several indicators in the survey findings point at remaining high transaction costs in land markets. This is consistent with findings of other studies. Several studies document that land markets in the transition countries, even the most advanced such as in Central Europe, are still characterized by the existence of significant transaction costs in the rural land markets, constraining land exchanges (Dale and Baldwin, 2000; Lerman et al., 2004). Furthermore, there are several indications that large farm corporations use their market power in local or regional land markets to influence land prices and rental contract conditions in their favor (eg. Ciaian and Swinnen, 2004). We will discuss these constraints (transaction costs and imperfect competition) here in more detail. The land reform process has created a class of new, sometimes absentee, land owners while land is used by a mixture of smaller individual farms and large-scale corporate farms. These corporate farms are mostly successor organizations from the former collective and state farms after farm privatization and land reform. They are, on average, between 300 and 1200 hectares, and their share of land use is around 90% in Slovakia, 75% in the Czech Republic, 50% in Bulgaria, 40% in Hungary, and more than 30% in Romania and Estonia (figure 9).7 Moreover, in most countries they use a more than proportionate share of the best agricultural areas of the country. Transaction costs Large scale corporate farms continue to use large parts of the land because of a variety of reasons. However, an important reason is that historically, the large-scale farms were the users of the land. New owners of the land may face significant transaction costs if they want to withdraw their land from the farms and reallocate it. Transaction costs include: bargaining costs, costs of enforcement of withdrawal rights, costs related to asymmetric information, to co-ownership and unknown owners, unclear boundary definitions, etc.. First, while the withdrawal procedure is usually stipulated by law, it is also determined by the willingness of the CF to implement it (Mathijs and Swinnen, 1998). For example, in Slovakia the CF has the right to give a plot of land to owners located in a different place than the one specified in the ownership title (based on former boundaries) if the plot affects the integrity of the CF's land operation. The landowner gets only usage right to this new plot while s/he keeps the ownership right to the original plot located in former boundaries. This asymmetry obviously increases the costs for the landowner, since s/he can be deterred from withdrawal by being offered a plot located far from his operation or the plot may be of lower soil quality. The laws in Bulgaria, Slovenia and Hungary contained similar transaction cost increasing features (see Bojnec and Swinnen, 1997; Mathijs, 1997; Prosterman and Rolfes, 2000; Swain, 1999).

7 Based on national statistical sources (see also table 1).



Second, CF managers typically have more information than landowners about the economic situation of farm and about regulations governing local land transactions.8 This is especially the case for landowners who have not been involved in agriculture, or are living outside the village where their land is located, or are pensioners (Swain).9 Third, other transaction costs follow from co-ownership of land, unclear boundary definition, and the problem of unknown owners. In many CEECs, land was never formally nationalized during the Communist regime, although effective property rights on land were controlled by the regime and the collective farms. Hence, legal ownership of land remained private (Swinnen, 1999). However, land ownership registrations were poorly maintained, if at all, and in many areas land consolidation was implemented, wiping out old boundaries and relocating natural identification points (such as old roads and small rivers). The loss of information on registration and boundaries produced a large number of unknown owners in some transition countries (Dale and Baldwin). In addition, unsettled land inheritance within families during the socialist regime caused a strong land ownership fragmentation and a large number of co-owners per a plot of land. Finally, other costs related to land transfers include notary fees, taxes and other administrative charges. For instance, the studies on Poland, Bulgaria, Lithuania and Romania, estimate these costs between 10% and 30% of the value of the land transaction (OECD, 2000; Prosterman and Rolfes, 2000; World Bank, 2001). Market power and imperfect competition The domination of large corporate farms also leads to imperfect competition in the land market, as large corporate farms use their regional monopoly power to influence contract terms and land prices. Impact The combination of imperfect competition and transaction costs has a strong impact on land prices and rental conditions. For example, Vranken and Swinnen (2004) find that in Hungary land prices are significantly lower in regions where corporate farms dominate. In several CEECs there is a large gap in rental prices between land used by corporate farms and land used by individual farms. Table 14 shows how in the Czech Republic and Slovakia land rents paid by corporate farms are generally much lower: most vary between 50% and 20% of the rents paid by family farms. Further, corporate farms also reduce payments by paying in kind instead of in cash. A study by IME (2000) also found that in Bulgaria, corporate farms generally paid their rents in kind, while family farms were much more likely to pay cash or mixed cash/in-kind.

Property rights imperfections and land markets Clearly, property rights imperfections have been a major constraint on land markets since the early 1990s. Many studies document this. At this point, when land reforms and titling have

8 For example, Swain describes how pensioner-members of co-operatives in Slovakia were “forced” to rent the land to the co-operative by being threatened of losing their pension. 9 In Hungary "passive owners" (this include village-based pensioners, landowners that are not active in the co-operatives and those living outside of the village where their land is located) received around 71% of agricultural land (Swain).



been completed in most transition countries, it is important to focus on new remaining forms of property rights imperfection. These may also have very important effects. For example, according to OECD (1997), in 1993 approximately 9.6 million plots were registered in Slovakia, which is 0.45 hectares per plot, and each plot was owned by on average 12 to 15 people. As Dale and Baldwin put it, “a single field of twenty hectares may have hundreds of co-owners”. In the Czech Republic, there were 4 million ownership papers registered in 1998 for 13 million parcels, with an average parcel size of 0.4 hectares. In Bulgaria, a recent study for FAO found that 50% of the plots were co-owned, often by several people (Vranken, et al. 2004). The average number of co-owners was more than two (excluding husband and wife co-ownership) (see figure 10). Some co-owners may be unknown, or may not be in the country, or may be scattered all over the country. This raises the costs of land withdrawal as land withdrawal from the CF normally requires agreement from co-owners. Property right imperfections, even after titling and well developed cadastre and land information systems, can have a strong impact on the allocation of land. Take the case of co-ownership in Bulgaria to illustrate this. The study by Vranken et al. (2004) finds that:

• Co-owned plots of land in Bulgaria are more likely to be abandoned or to be used by corporate farms, ceteris paribus (figure 11). Around half of the co-owned plots are rented out to a cooperative. Only one third of the parcels which are not in co-ownership are rented to a cooperative farm, while owner cultivation, renting out to a private company or household occurs will occur more.

• Moreover, the probability to rent out land to a cooperative or leaving land abandoned relative to owner-cultivation increases with the number of owners. The strong positive impact of “forced” co-ownership on renting out to a cooperative and negative impact on owner-cultivation indicates that the law concerning the minimum plot size strongly favours large scale farming organisations at the disadvantage of individual farmers.

• The importance of transaction costs through co-ordination problems is also confirmed by the fact that the impact of co-ownership depends on whether co-owners are living in or outside the village. The probability to leave the plot abandoned relative to owner-cultivation increases with the number of co-owners that are living outside the village, but the number of co-owners living inside the village does not affect the probability of abandonment. Clearly, co-ordination problems are higher when co-owners are living farther away.

In summary, these findings show that property rights imperfections – and associated transaction costs -- continue to have a major impact on land use and allocation. It affects both use and exchange of land. The Bulgaria case also has lessons on the sometime unwanted effects of regulation, and more specifically on undesired effects of legal initiatives to constrain land fragmentation. Land under co-ownership which is undividable by law, is more likely to be abandoned or used by large enterprises than cultivated by owners or other families. Paradoxically, these effects result from a legislation which was intended to prevent fragmentation of land and inefficient land use. The legislation is now the prime cause of the inefficiency of land use and allocation.



5. Conclusions Much has been achieved in land reforms and rural land markets in transition countries over the past decade. With the end of the land reforms and land titling, land markets have developed, slowly but steadily. However, there is large variation among countries. These variations reflect the different stages of reforms and economic development and the regional environments these countries operate in. For example, in EU accession countries, land prices and market activities have grown rapidly with the combination of new land legislation, increased demand due to higher subsidies, prices and productivity, and the inflow of foreign investment. Few of these developments have occurred in some countries further east. There is large variation among farm structures as well. Corporate farms rent in large areas of land, while subsistence farms operate mostly on owned land, and rent in small plots of additional land. Larger family farms operate on both owned land and rented land. They have typically enlarged their farm by both purchasing and renting land. The complementarity of renting and purchasing increases with the farm size. However, almost everywhere renting of land is a more important form of land exchange than selling of land. Rental contracts differ in length, formality, type of payment, etc. both across countries and across farm types. In general, corporate farms tend to have longer contracts, more formal, and are more likely to pay in kind and lower prices. Rental contracting between families is more likely to be in cash, for shorter contract lengths and informal. Preliminary evidence suggests that land markets have a positive effect on equity and efficiency, at least for renting between households and family farms (see Swinnen and Vranken, 2005 for more details). Households with more human capital access land through a combination of buying and renting land, and rental markets contribute to increased returns to labor on family farms. Older and less educated households rent out land to get additional incomes, and the surveys indicate that those who can rent out their land if they wish, have higher welfare. Land markets reduce inequality of access to land by transferring land from households with high land endowments to those with low land endowments. That said, our review finds important remaining problems in rural land markets. Some of these constraints are general, but many of these problems differ significantly from country to country. Specific constraints are transaction costs in the Czech and Slovak Republic and Moldova, fragmentation of land in Bulgaria, limited land supply in Azerbaijan, and lack of transparency and the involvement of local authorities in Kazakhstan. In general, households and farms in Central Europe have much less difficulties in renting land than in some of the CIS countries. Buying is more difficult everywhere but also in the land sales market there is an increase in difficulties ‘going east’. Access to capital is an important constraint for many farms in the land market, not only for buying land but also for renting land. The accession to the EU with increased demand, prices, productivity and subsidies has seriously reduced this constrained in the NEMS. The constrained remains very important in CIS countries, such as Azerbaijan.



A key concern in the land market is the nature of the land (rental) relationship between (small) landowning households and corporate farms. While corporate farms may be efficient farming organizations in some regions and for some farming activities, we find evidence that (a) transaction costs, (b) regional monopoly power of corporate farms in the land market, and (c) government policies are causing negative equity and efficiency effects. More specifically, compared to a situation with lower (or no) transaction costs and more (or perfect) competition in the land market, corporate farms are using more land (than efficient), pay lower rental prices than family farms, are more likely to pay rents in kind than family farms (who pay cash), have rental contracts of longer duration, and often use their political powers/relationships to influence policies that shift effective land property rights in their favor. These are very serious concerns, since the vast share of the land used by corporate farms is rented; and since, across countries, the importance of land renting is strongly correlated with land use by corporate farms.

We also find that problems with property rights imperfections may remain after full titling, cadastres and information systems have been introduced. These findings have important implications.

• They confirm the importance of credit markets and agricultural profitability for rural land markets. These are important structural conditions.

• Transaction costs remain important, and land-related institutions that help to increase

transparency, clarify and enforce property rights, , etc. will all help to enhance efficiency improving land exchanges.

• The relationship between large corporate farms and small owners is a cause of

concern. Providing better information, enhancing bargaining power of small owners and farmers, etc. will all contribute to both equity and efficiency in the land market.

• Be careful with legal initiatives in the land markets not to introduce undesirable side-

effects.

• There is a need for country-specific approaches to the rural land market problems, and general recommendations may not be applicable, except for some general principles.

• EU accession has been an engine behind the increase in land exchange and land

market activities in the accession countries, even before accession. 6. References

Biro, S., Remetey-Fulopp, G., Tanka, E., Toth, E. and G. Varga, 2002, “Land Fragmentation

and Land Consolidation in the Agricultural Sector. A Case Study from Hungary”, FAO working paper

Bojnec, S. and J. Swinnen, 1997, “Agricultural Privatisation and Farm Restructuring in Slovenia”, in: Swinnen, J., Buckwell A. and E. Mathijs (eds.), Agricultural Privatisation, Land Reform and Farm Restructuring in Central and Eastern Europe, Aldershot: Ashgate, pp.281-310.



Ciaian, P. and J. Swinnen, 2004, “Land Market Imperfections and Agricultural Policy Impacts in the New EU Member States : A Partial Equilibrium Analysis”, 2005

Dale, P. and R. Baldwin, 2000, “Emerging Land Markets in Central and Eastern Europe”, in Csaki and Lerman (eds.): Structural Change in the Farming Sectors in Central and Eastern Europe, WB Technical Paper, No 465.

FAO, 2001,Good Practices for agricultural leasing arrangements IME, 2004, “Aspects of Land Consolidation in Bulgaria.” FAO Comparative Study on Land

Fragmentation in Four CEECs: Bulgaria, Czech republic, Hungary and Romania, Institute for Market Economies, Sofia.

Kopeva, D., Noev, N. and V. Evtimov, 2002, “Land Fragmentation and Land Consolidation in the Agricultural Sector. A Case Study from Bulgaria”, FAO working paper

Lerman, Z. and C. Csaki , G. Feder, 2004, Agriculture in Transition: Land Policies and Evolving Farm Structures in Post Soviet Countries , Lanham, MD (USA): Lexington Books

Mathijs, E., 1997, “An Historical Overview of Central and Eastern European Land Reform”, in: Swinnen, J. (ed.), Political Economy of Agrarian Reform in Central and Eastern Europe, Aldershot: Ashgate, pp. 33-54.

Mathijs, E. and J. Swinnen, 1998, "The Economics of Agricultural Decollectivization in East Central Europe and the Former Soviet Union", Economic Development and Cultural Change, 47(1):1-26.

Noev, N. and J. Swinnen, 2004, An Empirical Analysis of Land Rental Markets in Bulgaria, mimeo

OECD. Review of Agricultural Policies, Slovak Republic, OECD, Paris 1997. OECD. Review of Agricultural Policies, Bulgaria, OECD, Paris 2000. Prosterman, R. and T. Hanstad (eds.), 1999, Legal Impediments to Effective Rural Land

Relations in Eastern Europe, WB Technical Paper No 436. Prosterman, R. and L. Rolfes, 2000, “Review of the Legal Basis for Agricultural Land

Markets in Lithuania, Poland and Romania” in Csaki and Lerman (eds.): Structural Change in the Farming Sectors in Central and Eastern Europe, WB Technical Paper, No 465.

Riddell, J., 2000, “Agricultural Land Leases and Development of Effective Land Registration Systems in Central and Eastern Europe”, in Csaki and Lerman (eds.): Structural Change in the Farming Sectors in Central and Eastern Europe, WB Technical Paper, No 465.

Rusu, M., Florian, V., Popa, M., Marin, P. and V. Pamfil, 2002, “Land Fragmentation and Land Consolidation in the Agricultural Sector. A Case Study from Romania”, FAO working paper

Swain, N. “Agricultural Restitution and Co-operative Transformation in the Czech Republic, Hungary and Slovakia.” Europe-Asia Studies 51(1999):1199-1219

Swinnen, J., 1999, "Political Economy of Land Reform Choices in Central and Eastern Europe", The Economics of Transition, 7(3):637-664.

Swinnen, J., 2004, “The Dynamics of vertical coordination in ECA Agri-food Chains”, World Band Report

Swinnen, J., Buckwell A. and E. Mathijs (eds.),1997, Agricultural Privatization, Land Reform and Farm Restructuring in Central and Eastern Europe, London: Ashgate Publishing

Swinnen, J. and L. Vranken, 2005, “Agricultural Land Rental Markets in ECA: Developments, Constraints, and Implications for Policy and WB Operations”, World Bank Report

Tanic, S., 2000, “The impact of Land Laws and Legal Institutions on the Development of Land Markets and Farm Restructuring in Hungary, Lithuania, Poland and Romania”, in



Csaki and Lerman (eds.): Structural Change in the Farming Sectors in Central and Eastern Europe, WB Technical Paper, No 465

Travniced, Z., Stolbova, M., Nemec, J., Horska, H., Drlik, J., Koutny, R., Spesna, D., Fiser, Z., Cihal, L. and T. Hemelic, 2002, “Land Fragmentation and Land Consolidation in the Agricultural Sector. A Case Study from Czech Republic”, FAO working paper

Vranken, L., Noev, N. and J.F.M. Swinnen, 2004, "The Impact of Property Rights Imperfections on Resource Allocation and Market Development: Co-ownership of Land in Bulgaria", Economists' Forum, Annual Bank Conference on Development Economics, Washington DC, May 3-5, 2004.

Vranken, L., N. Noev, and J.F.M. Swinnen, 2004, “Fragmentation, Abandonment and Co-ownership: Transition Problems of the Bulgarian Market”, Quarterly Journal of International Agriculture, 43: 391-408.

Vranken L. and J. Swinnen, 2004, “Emerging Institutions in East European Land Markets: Theory and Evidence from Hungary”, in Van Huylenbroeck, Guido, Wim Verbeke and Ludwig Lauwers (eds.), Role of Institutions in Rural Policies and Agricultural Markets, Amstedam: Elsevier, pp 305-322

World Bank. Poland, The Functioning of Labor, Land and Financial Markets: Opportunities and Constraints for Farming Sector Restructuring. World Bank Report No. 22598-POL, 2001.



Figure 1: Share rented land of total land used

0

20

40

60

80

100

120

Slov

akia

Cze

ch R

ep

Kaza

khst

an

Esto

nia

Mol

dova

Hun

gary

Bulg

aria

Lith

uani

a

Azer

baija

n

Latv

ia

Slov

enia

Alba

nia

Country

Shar

e re

nted

land

Figure 2: Share of rented land in total amount of land used according to size category, Czech Republic, 2003

Share rented according to size category, 2003

0.0

20.0

40.0

60.0

80.0

100.0

IFs 5ha-50ha IFs 51ha-100ha IFs 101ha-300ha IFs >300ha Corporate farms

Source: VUZE



Figure 3: Correlation between the share of renting and the importance of corporate farms

R2 = 0.9129

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

0.0 20.0 40.0 60.0 80.0 100.0

Share land use by CF

Sha

re re

nted

land

Figure 4: Percentage of family farms renting and purchasing land

Percentage of family farms that are renting and purchasing land

0102030405060708090

100

Azerbaijan Bulgaria Kazakhstan Moldova

Rent in _RFF Purchase _RFF Rent in _UFF Purchase _UFF



Figure 5: Land renting and purchasing by farm size (quintiles) - Hungarian family farms

0.05.0

10.015.0

20.025.030.035.0

Class 1 Class 2 Class 3 Class 4 Class 5

Farm size

Are

a re

nted

/bou

ght

Rent Bought

Class 1: 0-0.1ha; Class 2: 0.1-0.3; Class 3: 0.3-1; Class 4: 1-3; Class 5: 3< Source: Vranken and Swinnen (2004) Figure 6: Evolution of Renting Agricultural Land in Bulgaria, 1991-1997 Legend: 1/ Households who rent out as a percentage of households who own land 2/ Households who rent out as a percentage of all surveyed households 3/ Households who rent in as a percentage of households who cultivate land 4/ Households who rent in as a percentage of all surveyed households 5/ Households who sold land as a percentage of all surveyed households

0

5

10

15

20

25

30

1991 1992 1993 1994 1995 1996 1997

Year

% o

f hou

seho

lds

12345



Figure 7: Share of owned land in total amount of land used by individual farms, Czech Republic, 1999-2003

0

10

20

30

40

50

60

1999 2000 2001 2002 2003Shar

e ow

ned

land

in to

tal u

sed

land

5ha-50ha 51ha-100ha 101ha-300ha >300ha

Source: VUZE Figure 8: Share of cash payment in total payment for households in Azerbaijan, Bulgaria, Kazakhstan, Moldova

Share cash payment over total payment

0

20

40

60

80

100

120

AZ BG KZ MD

OUT IN



Figure 9: Share of corporate farms in land use

0.010.020.030.040.050.060.070.080.090.0

100.0

Slo

vaki

a

Tajik

ista

n

Cze

ch R

ep

Kaz

akhs

tan

Hun

gary

Bul

garia

Mol

dova

Est

onia

Lith

uani

a

Rom

ania

Latv

ia

Aze

rbai

jan

Slo

veni

a

Alb

ania

Sha

re o

f CF

in la

nd u

se

Source: Lerman et al., 2004 Figure 10: Number of owners per plot in Bulgaria

0

10

20

30

40

50

60

1 2 3 4 [5,+∞[

Number of owners per parcel

Shar

e of

par

cels

Source: Vranken et al., 2004



Figure 11: Allocation of land in Bulgaria by co-ownership type

0

10

20

30

40

50

60

No legally forced co-ownership Legally forced co-ownership

Owner-cultivation Rent out to cooperative Rent out to private companyRent out to rural household Abandonment

Source: Vranken et al., 2004



Table 1: Key characteristics of ECA countries Land reform Share of land cultivated by

family farms

Res

titut

ion

Dis

tribu

tion,

in

kin

d

Dis

tribu

tion,

in

shar

es

Dis

tribu

tion

in sh

ares

, th

en in

kin

d

Albania X 100 Armenia X 33 Azerbaijan X 96 Bulgaria X 56 Czech Republic

X 38

Estonia X 63 Georgia X 37 Hungary X X 54 Kazakhstan X 41 Kyrgyzstan 23 Latvia X 95 Lithuania X 67 Moldova X 56 Polandb - - - - 82 Romania X X 67 Russia X 13 Slovakia X 11 Sloveniab - - - - 94 Tajikistan X 23 Ukraine X 18 a The land policy was changed in Kazakhstan in 2003, turning land shares into ownership titles. However survey data used here capture the situation before the change in policy. b Mainly individual land holdings during the pre-transition era.



Table 2: Agricultural Land Ownership and Exchange by households Share of households that are Owning

land Cultivatin

g land

Renting in land

Renting out land

Selling land*

Purchasingland*

Albania (1999) 94.3 89.1 2.1 2.0 1.7 n.a.Azerbaijan (2004) RFF 84.6 100.0 93.9 0.0 0.0 7.7Azerbaijan (2004) UFF 100.0 98.2 4.3 9.5 0.3 0.3Bulgaria (1997) 85.0 93.8 8.3 27.1 0.9 n.a.Bulgaria (2004) RFF 100.0 100.0 39.1 13.0 0.0 30.4Bulgaria (2004) UFF 79.4 64.7 3.5 40.5 3.5 1.0Czech Rep (1999) RFF 96.0 97.0 54.0 13.5 2.8 n.a.Czech Rep (1999) UFF 98.5 97.0 7.1 61.1 5.1 n.a.Hungary (1997) 93.2 90.0 7.6 16.1 n.a. 16.9Kazakhstan (2004) RFF 96.6 100.0 14.6 1.1 0.0 0.0Kazakhstan (2004) UFF 100.0 100.0 10.5 6.0 1.0 0.7Moldova (2004) RFF 100.0 99.4 23.3 4.0 1.7 22.7Moldova (2004) UFF 94.7 99.8 4.2 38.0 1.8 5.0Poland (1999) 60.3 53.4 17.0 8.0 4.8 n.a.Romania (1996) 100.0 91.9 1.6 13.8 0.2 n.a.Romania (1998) 98.2 96.8 7.9 20.1 0.7 n.a.Slovakia (1999) RFF 85.0 92.7 42.7 23.5 0.7 n.a.Tajikistan (1999) 96.0 93.8 17.4 0.4 n.a. n.a.*Sales and Purchases are reported for the period: in Albania 1991-99; in Azerbaijan (2004 RFF), Bulgaria (2004 RFF), Kazakhstan (2004 RFF), Moldova (2004 RFF): since the registered farm was created in its present form until 2004; in Azerbaijan (2004 UFF), Bulgaria (2004 RH), Kazakhstan (2004 UFF), Moldova (2004 UFF) since the dismantling of the sovkhoz/kolkhoz/TKZS until 2004; in Bulgaria (1997 - FF) 1991-97; in Czech Republic 1989-99; in Poland 1995-99; in Romania only for 1996 and 1998, respectively; in Slovakia 1989-99. n.a. not available Table 3: Amount of land owned, used and exchanged by households Amount of land Owned Cultivated Rented in Rented out Sold* Purchased*Albania (1999) 0.97 1.72 0.65 1.00 0.43 n.a.Azerbaijan (2004) RFF

14.13 139.53 136.86 0.00 0.00 2.44

Azerbaijan (2004) UFF

2.21 2.64 17.37 1.94 4.63 5.5

Bulgaria (1997) 2.27 2.77 6.16 3.06 3.33 n.a.Bulgaria (2004) RFF 7 14.93 20.61 1.67 0.00 8.04Bulgaria (2004) UFF 2.06 0.9 3.7 2.64 1.33 3.33Czech Rep (1999) RFF

17.02 54.96 71.47 9.74 1.53 n.a.

Czech Rep (1999) UFF

6.54 1.57 1.6 9.18 3.52 n.a.

Hungary (1997) 4.5 4.84 17.68 4.59 n.a. 11.75Kazakhstan (2004) RFF

555.21 558.36 257.87 160 0.00 0.00

Kazakhstan (2004) UFF

22.54 1.72 2.29 19.96 4.58 6.52

Moldova (2004) RFF 3.81 5.52 7.74 1.56 1.09 3.25Moldova (2004) UFF 2.49 1.51 1.36 2.77 0.89 1.04



Poland (1999) 8.5 10.4 12 3.4 2.6 n.a.Romania (1996) 3.18 2.28 0.99 2.52 0.77 n.a.Romania (1998) 3 2.73 2.43 2.58 0.97 n.a.Slovakia (1999) RFF 16.5 46.45 84.93 10.9 0.52 n.a.Tajikistan (1999) 0.59 0.84 1.00 0.38 n.a. n.a.*Sales and Purchases are reported for the period: in Albania 1991-99; in Azerbaijan (2004 RFF), Bulgaria (2004 RFF), Kazakhstan (2004 RFF), Moldova (2004 RFF): since the registered farm was created in its present form until 2004; in Azerbaijan (2004 UFF), Bulgaria (2004 RH), Kazakhstan (2004 UFF), Moldova (2004 UFF) since the dismantling of the sovkhoz/kolkhoz/TKZS until 2004; in Bulgaria (1997 - FF) 1991-97; in Czech Republic 1989-99; in Poland 1995-99; in Romania only for 1996 and 1998, respectively; in Slovakia 1989-99. n.a. not available



Table 4: Land Use of Agricultural Corporate Farms

Czech Republic (1999)

Slovakia (1999)

Hungary 1997)

Azerbaijan (2004)

Bulgaria (2004)

Moldova (2004)

Kazakhstan (2004)

Area, ha Cultivated

1353.81 1989.32 1836.76200.3 1434.29 883.34 5413.23

Owned 21.84 15.72 84.71 0.4 53.21 15.19 50.2Rented 1341.4 1964.6 1810.63 199.8 1381.08 868.15 5363.03Share of land cultivated land area Owned 0.48 1.42 1.42 0.2 3.71 15.08 0.93Rented 99.52 98.58 98.58 99.8 96.29 84.91 99.07Main lessor

Members or partners

Members or partners

Members or partners

Municipality/state

Members Members Members

Table 5: Land reforms, land use and agricultural employment in Albania and the Czech Republic Albania Czech Republic Land reform

Distribution in plots Restitution

Share of land used by corporate farms (%)

0 62

Share of agriculture in total employment (%)

52 5

Table 6: Length of rent contract Renting in Renting out Years years Azerbaijan 2004 Unregistered family

farms Registered family farms Corporate farms

10 22 17

3 - -

Albania 1999 0.8 0.9 Bulgaria 1997 0.9* 1.1* Bulgaria 2004 Rural households

Registered family farms Corporate farms

- - -

4 2 1

Czech Republic

1999 Unregistered family farms

2.5 7-9*

Registered family farms 8 7-9** Corporate farms 8 5 Hungary 1997 - - Kazakhstan 2004 Unregistered family


1 3 3

12 1 .

Moldova 2004 Unregistered family 4 5




4 -

3 -

Poland 2000 - - Romania 1996 1 - Romania 1998 - - Slovakia 1999 Registered family farms 7 5-6 *** Corporate farms 13 5

* no significant difference between source of land (owners) or lessees (farm types) ** 9 years for renting to cooperatives; 7 for renting to others *** 6 years for renting to cooperatives; 5 for renting to others



Table 7: Type of rent contract _ Bulgaria 1998

Households renting land out to: CORPORATE

FARMS INDIVIDUALS

Shareholding Enterpr

ise a

Another enterprise

Relatives Non-relatives

Total

Share of different types of contracts per user of land, % Written & signed contracts, of which:

63.5 38.5 0.0 14.3 56.5

registered in the notary office 16.5 15.4 0.0 0.0 15.0 not registered in the notary office 46.0 23.1 0.0 14.3 41.5 Verbal agreement/informal contract 37.5 61.5 100.0 85.7 43.5 Total 100.0 100.0 100.0 100.0 100.0 Share of contracts with user of land in total number (per type of contract), %

Written & signed contracts, of which:

registered in the notary office 95.7 4.3 0.0 0.0 100.0 not registered in the notary office 96.2 2.3 0.0 1.5 100.0 Verbal agreement/informal contract 75.0 5.9 10.3 8.8 100.0 Total 86.9 4.2 4.5 4.5 100.0 Households renting land in from: INSTITUTIONS INDIVIDUALS State/

Municipality

Other Institution

s a

Relatives Non-relatives

Total

Share of different types of contracts per source of land Written & signed contracts, of which:

76.9 25 27.3 20.0 37.4

registered in the notary office 26.9 0.0 0.0 0.0 7.7 not registered in the notary office 50.0 25.0 22.7 20.0 29.7 Verbal agreement/informal contract 23.1 75.0 72.7 80.0 62.6 Total 100.0 100.0 100.0 100.0 100.0 Share of contracts with source of land in total number (per type of contract)

Written & signed contracts, of which:

registered in the notary office 100.0 0.0 0.0 0.0 100.0 not registered in the notary office 48.1 3.7 18.5 29.6 100.0 Verbal agreement/informal contract 10.5 5.3 28.1 56.1 100.0 Total 28.6 4.4 24.2 44.0 100.0 Source: Noev and Swinnen, 2004



Table 8: Problems of Renting In/Out Agricultural Land– Czech and Slovak Republic

Czech Republic RFF UFF

Slovakia Questions/Problems

in out in out in out Share of farmers willing to rent land but impeded to do so (%) 33 5 1 6 27 5Most important reason for not renting (more) land (%)

Difficult to find people renting out/in land 41.3 55.0 50.0 63.6 35.9 11.7Price is too high/low 5.8 25.0 0.0 27.3 29.6 80.0Rent land is not a common practice 0.0 0.0 0.0 0.0 0.0 0.0Boundaries are not well defined - 0.0 - 0.0 - 1.6Not enough capital in the household 8.3 - 0.0 - 14.1 -Not enough labor in the household and for hiring 6.6 - 0.0 - 5.6 -Land supplied is not appropriate for my farm 6.6 - 50.0 - 10.6 -Other problem 31.4 20.0 0.0 9.1 4.2 6.7Total 100.0 100.0 100.0 100.0 100.0 100.0

- not among possible answers Table 9: Problems of Renting In Agricultural Land – family farms in Azerbaijan, Bulgaria, Kazakhstan, Moldova Questions/Problems Azerbaijan Bulgaria Kazakhstan Moldova RFF UFF RFF UFF RFF UFF RFF UFF Share of households unable to rent more if they wanted 87.69 95.31

91.3196.99 76.16 88 97.1

468.6

Three most important difficulties for renting in land* Small and fragmented parcels - - 42.86 12.41 - - - -Agricultural is not profitable - - 23.81 32.93 - - - -Households keep their land for subsistence - - 9.52 6.90 - - - -

nobody wants rent out 70.18 17.91 0.00 1.03 19.70 6.4310.0

011.3

7don't know anyone wants to rent out 49.12 2.69 0.00 1.90 16.67 3.05 5.88 5.83

do not know rental price 8.77 8.96 4.76 8.79 16.67 10.6628.8

231.4

9do not know if legal basis for rental 0.00 6.57 0.00 1.03 8.33 3.05 3.53 7.58do not know authority that deals with rental 1.75 3.58 4.76 3.10 53.79 52.96 0.00 5.54



rental process complicated/unclear 8.77 10.90 0.00 6.55 2.27 1.6921.1

827.4

1

Land transaction process too expensive 29.82 29.10 0.00 4.48 15.91 8.1224.7

143.4

4

no money to rent 22.81 88.36 23.81 45.69 18.18 25.5556.4

7 89.5no tools to work on it - - - - - 67.17 - -

Other 1.75 8.36 0.00 14.14 - -18.2

4 -* Percentage of households who indicated the problem as one of the three most important ones - not among possible answers Note: No information available on difficulties to rent out land



Table 10: Problems of Renting In Agricultural Land – corporate farms in Azerbaijan, Bulgaria, Kazakhstan, Moldova Azerbaijan Bulgaria Kazakhstan Moldova Questions/Problems Corporate

Farms Corporate

Farms Corporate

Farms Corporate

Farms Share of corporate farms unable to rent more if they wanted 100 76.47 77.28 91.67 Three most important difficulties for renting in land*

Small and fragmented parcels - 69.23 - - Agricultural is not profitable - 15.38 - - Households keep their land for subsistence - 7.69 - - Nobody wants rent out 60.00 0.00 35.29 27.27 Don't know anyone wants to rent out 13.33 15.38 23.53 18.18 Do not know rental price 13.33 7.69 11.76 27.27 Do not know if legal basis for rental 0.00 0.00 29.41 0.00 Do not know authority that deals with rental 0.00 3.85 29.41 4.55 Rental process complicated/unclear 20.00 7.69 0.00 18.18 Land transaction process too expensive 40.00 30.77 0.00 22.73 No money to rent 40.00 19.23 17.65 36.36 Other 13.33 19.23 - -

* Percentage of households who indicated the problem as one of the three most important ones - not among possible answers Note: No information available on difficulties to rent out land Table 11: Problems of Buying/Selling Agricultural Land – Albania, Czech and Slovak Republic

Czech Republic Albania Registered Unregistered

Slovakia Questions/Problems

buy sell buy sell buy sell buy sell Share of farmers willing to buy/sell land but impeded to do so 74 64 44 59 35 64 42 43 Most important reason for not renting (more) land

Difficult to find people selling/buying land 32.8 47.2 38.2 66.4 45.6

85.25 38.7 59.8

Legal procedures are too complicated 10.3 10.4 12.7 10.5 10.3 2.46 26.0 20.7 Price is too high/low 23.7 20.7 30.1 8.7 36.8 8.2 17.9 11.5 There are conflicts over land I wish to buy/sell 6.4 0.9 6.9 1.7 5.9 0.82 11.0 0.6 There is no clear land title 8.3 14.9 - 0.4 - 0.0 - 5.2 Buyers are afraid other might claim the land - - - 2.2 - 2.46 - 0.6



Other problems 18.5 5.9 12.1 10.0 1.5 0.82 6.4 1.7 Total 100.0 100.0 100.0 100.0 100.0 100.

0100.0 100.0

- not among possible answers



Table 12: Problems of Buying Agricultural Land – family farms in Azerbaijan, Bulgaria, Kazakhstan, Moldova Azerbaijan Bulgaria Kazakhstan Moldova Questions/Problems

RFF UFF RFF UFF RFF UFF RFF UFF Share of households unable to buy more land if they wanted 96.82 96.59 86.96 97.33 92.70 94.67 97.14 98.60 Three most important difficulties for buying in land*

Small and fragmented parcels - - 40.00 10.31 - - - - Agriculture not profitable - - 25.00 28.18 - - - - Household keeps land for subsistence - - 0.00 8.42 - - - - Nobody willing to sell 71.43 18.70 10.00 3.95 - - - - Do not know who wants to sell land 46.03 4.86 5.00 2.41 32.73 16.02 11.18 7.51 Difficult to determine price 19.05 5.01 40.00 9.97 15.76 6.51 6.47 3.25 Foreigners can not buy land - - 0.00 0.69 - - - - Do not know if there is legal basis for purchasing land 3.17 3.83 - - 20.61 10.92 28.24 20.49 Do not know which authority deals with transactions 1.59 2.36 0.00 3.26 16.36 3.35 2.94 3.85 Complicated transaction process 11.11 2.95 5.00 4.98 1.21 2.99 2.94 1.62 Expensive transaction process 36.51 11.34 10.00 7.56 21.82 5.99 24.71 26.98 No financial means to purchase land 55.56 88.22 30.00 52.06 24.85 26.41 38.82 46.45 No tools to work on it - - - - 62.42 77.11 86.47 90.47 Other 4.76 7.81 20.00 10.14 - 61.97 - -

* Percentage of households who indicated the problem as one of the three most important ones - not among possible answers Table 13: Problems of Buying Agricultural Land – corporate farms in Azerbaijan, Bulgaria, Kazakhstan, Moldova Questions/Problems Azerbaijan Bulgaria Kazakhstan Moldova Share of corporate farms unable to buy more land if they wanted 100 94.12 86.36 94.67 Three most important difficulties for buying in land*

Small and fragmented parcels - 65.63 - - Agriculture not profitable - 3.13 - - Household keeps land for subsistence - 34.38 - - Nobody willing to sell 66.67 6.25 21.05 29.2 Do not know who wants to sell land 13.33 9.38 31.58 16.7 Difficult to determine price 13.33 18.75 26.32 16.7 Foreigners can not buy land - 0.00 - - Do not know if there is legal basis for purchasing land 13.33 - 21.05 0.0 Do not know which authority deals with transactions 0.00 0.00 5.26 0.0



Complicated transaction process 33.33 9.38 15.79 37.5 Expensive transaction process 53.33 12.50 15.79 45.8 No financial means to purchase land 73.33 25.00 73.68 66.7 Other reason 13.33 12.50 - 25.0

* Percentage of households who indicated the problem as one of the three most important ones - not among possible answers



Table 14. Land rents in the Czech Republic and Slovakia (the value of rents are in local currencies)

Individual farms A

Corporate farms B

IF Mark-Up A/B (%)

Czech Republic Average 1999 718 346 208 by region Corn growing region 1330 597 223 Sugar beet growing region 846 731 116

Potato growing region 447 174 257 Potato-oats growing region 761 158 482 Mountain growing region 205 68 301 Slovakia 2001 795 242 329 2002 816 333 245

Source: Czech Ministry of Agriculture; Research Institute of Agricultural Economics. Farm Accountancy Data Network. Bratislava, Various years.

Documents

THE DEVELOPMENT OF RURAL LAND MARKETS IN TRANSITION …eastagri.org/files/CEEandCIS1173087105.pdf · Properly functioning rural land markets are of vital importance to the development