Agrarian structures after 20 years of transition:
Determinants, trends, and challenges
Alfons Balmann
Some stylised facts
• Actual farm structures strongly differ from expectations
– "western type" family farms play almost nowhere a particular role
• In general: dualistic farm structures
– large and very large farms
• relatively small in numbers
• high share in land and capital intensive production (e.g. cereals, granivores)
• often successors of former collective (and state) farms
– subsistence, semi-subsistence and small farms
• huge in numbers
• high share in labour intensive production (e.g. potatoes, vegetables, dairy)
• motives: self-employment, self-sufficiency
– shares vary among countries
– shares changed only gradually after first years of transition
Some stylised facts
Agricultural business types and their land shares, Russia 2006
79,20
98,96
17,4
0,23
Agricultural enterprises
Source: FAO
Share of
agricultural
business types
Share of planted
land
%
100
90
80
70
60
50
40
30
20
10
0
0,8
Private farms & individual
entrepreneurs
3,4
Private households
Some stylised facts
Ukraine: dairy production
30000,0
Landwirtschaftliche
Großbetriebe (LGB)*
large farms
25000,0
Subsistenzbetriebe
(SB)**
subsistence farms
Zulieferungen
die Verarbeitungsindustrie
delivered toanprocessors
Tsd. t
20000,0
Gesamtmilchproduktion
total production
15000,0
10000,0
5000,0
0,0
1990
1995
1999
2000
2001
2002
Jahre
years
Source: Mykhaylenko 2008
2003
2004
2005
2006
Some stylised facts
Farm sizes and their land shares in Germany (2005)
Share of farms
Share of land
ha
East
Germany total
>1000
500-1000
West
ha
>1000
500-1000
100-500
100-500
50-100
50-100
20-50
20-50
10-20
10-20
2-10
2-10
0%
10%
Source: Agrarbericht 2007
20%
30%
40%
East
Germany total
West
0%
10%
20%
30%
40%
50%
Explanations
• Path dependence
– farm structures change very slowly
• sunk costs for assets and human capital, market frictions, …
• with the exception of "catastrophic" events (bifurcations)
– institutional change is slow
• new institutions "don't fall from heaven" but evolve
• existing institutions in transition economies deviate from textbook assumptions
– interdependence of structures and institutions
• institutions and policies in favour of status quo
• existing structures affect institutional change
 structures are outcome of their history not of their superiority
 surviving large farms
 emerging (semi-)subsistence farms
Surviving large farms
• Profit orientation necessary for survival
 Employment reduction of successors of collective farms
• abolishment of public services
• reduction of hidden unemployment
• reduction in livestock production
– But employment reduction and profit orientation somewhat delayed
• existing assets for livestock production (sunk costs)
• identity of ownership and employment (sunk costs of human capital)
• avoiding competition with newly/re- established farms
• legitimisation strategy of managers
 to some extend "job maximization strategy"
Emerging subsistence farms
• Households continued farming as in socialist times
• Employment reduction of successors of collective farms
• Missing alternative employment opportunities in rural areas
 Subsistence, semi-subsistence and small farms
– a strategy to generate at least some income from own resources
(particularly if land and local markets available)
– but (in general) rather a by-product of transition than a perspective
(limited land availability, financial resources and market access)
Explanations
• Path dependence
– western structures outcome of their history not of their superiority
 biased view of own reality in the Western World
 transferring western "paradigm" to transition economies was misleading
Milk production costs and margins for specialised dairy farms in EU 15 in 2006 **
Number of dairy cows
Farms represented
<=25
25< <=50 50< <=75 75< <=100 100< <=150
>=150
86.527
110.075
49.022
20.406
14.852
8.415
6.303
6.543
6.935
7.131
7.573
7.688
328
306
300
300
307
296
Total costs*
490
384
343
322
Margin over total inputs with
-162
-78
-43
-22
coupled payments*
* in €/ton
** European Commission: EU DAIRY FARMS ECONOMICS - 2008 REPORT
314
304
-7
-8
Milk yield - kg/cow
Total receipts from milk*
Explanations
• Technological change
– ever increasing capital intensity
– ever increasing knowledge intensity
 agriculture as "biological manufacturing" (Boehlje 1999)
 investment and production driven by venture capital!
• Globalisation
– agriculture part of global food chains
– "supermarket revolution" also in transition countries
 farms have to be compatible with standardisation trends
 farms need strong local partners along the chain
 Both in disfavour of small farms, in favour of large(r) farms!
 Both processes continue!
Where are we heading?
• Traditional problems
–
–
–
–
Agricultural treadmill
Quasi-fix production factors
Existing inefficiencies (farm level, sector level)
Structural deficits
Specific case: Germany
Selected figures of German FADN farms (financial year 2007/08)
Figure Farm size Land
Unit
Full time Lower Saxony
> 100 ESU
Full time Meckl. Pomerania
> 100 ESU
Corporate farms
> 2000 ESU
Labour
Total
assets
Equity
Profit
Return on Rental
equity
price
€/ha
€/ha
€
%
€/ha
ESU
ha
units
WU
104
171
75
108
1,9
2,5
11 876
10 736
9 303
7 956
53 732
83 168
2,4
4,9
316
332
174
261
1 001
3 042
276
393
1271
2825
3,0
3,9
22,6
64,1
2 358
2 436
3 377
3 958
712
641
1 945
2 426
94 230
138 965
202 590
667 994
27,3
36,8
9,2
10,3
133
139
128
159
 Significant differences between East and West
• size differences
• intensity differences
Specific case: Germany
Selected figures of German FADN farms (financial year 2007/08)
Figure Farm size Land
Unit
Full time Lower Saxony
> 100 ESU
Full time Meckl. Pomerania
> 100 ESU
Corporate farms
> 2000 ESU
Labour
Total
assets
Equity
Profit
Return on Rental
equity
price
€/ha
€/ha
€
%
€/ha
ESU
ha
units
WU
104
171
75
108
1,9
2,5
11 876
10 736
9 303
7 956
53 732
83 168
2,4
4,9
316
332
174
261
1 001
3 042
276
393
1271
2825
3,0
3,9
22,6
64,1
2 358
2 436
3 377
3 958
712
641
1 945
2 426
94 230
138 965
202 590
667 994
27,3
36,8
9,2
10,3
133
139
128
159
 higher labour intensity per ha in the West
 slightly higher labour intensity per ESU in the East
Specific case: Germany
Selected figures of German FADN farms (financial year 2007/08)
Figure Farm size Land
Unit
Full time Lower Saxony
> 100 ESU
Full time Meckl. Pomerania
> 100 ESU
Corporate farms
> 2000 ESU
Labour
Total
assets
Equity
Profit
Return on Rental
equity
price
€/ha
€/ha
€
%
€/ha
ESU
ha
units
WU
104
171
75
108
1,9
2,5
11 876
10 736
9 303
7 956
53 732
83 168
2,4
4,9
316
332
174
261
1 001
3 042
276
393
1271
2825
3,0
3,9
22,6
64,1
2 358
2 436
3 377
3 958
712
641
1 945
2 426
94 230
138 965
202 590
667 994
27,3
36,8
9,2
10,3
133
139
128
159
• much lower capital use in the East
• very low equity in the East, particularly of large full-time farms
 deficit in venture capital in the East
Specific case: Germany
Selected figures of German FADN farms (financial year 2007/08)
Figure Farm size Land
Unit
Full time Lower Saxony
> 100 ESU
Full time Meckl. Pomerania
> 100 ESU
Corporate farms
> 2000 ESU
Labour
Total
assets
Equity
Profit
Return on Rental
equity
price
€/ha
€/ha
€
%
€/ha
ESU
ha
units
WU
104
171
75
108
1,9
2,5
11 876
10 736
9 303
7 956
53 732
83 168
2,4
4,9
316
332
174
261
1 001
3 042
276
393
1271
2825
3,0
3,9
22,6
64,1
2 358
2 436
3 377
3 958
712
641
1 945
2 426
94 230
138 965
202 590
667 994
27,3
36,8
9,2
10,3
133
139
128
159
 higher profits in the East
 partly due to lower rental prices
 but: leverage effects
Specific case: Germany
Selected figures of German FADN farms (financial year 2007/08)
Figure Farm size
Unit
Full time Lower Saxony
> 100 ESU
Full time Meckl. Pomerania
> 100 ESU
Corporate farms
> 2000 ESU
ESU
104
171
174
261
1 001
3 042
Land
Labour
ha
75
108
276
393
1271
2825
units
WU
1,9
2,5
3,0
3,9
22,6
64,1
Total
assets
€/ha
11 876
10 736
2 358
2 436
3 377
3 958
Wheat
Milk
Piglets
yield
dt/ha
68
69,6
64
64,1
62
67
yield
kg/cow
7713
7893
7808
7880
8285
8550
per sow
23,7
24,5
18,8
18,8
26,7
25,8
 in general, higher productivity of larger farms
 particularly high productivity of very large corporate farms
Specific case: Germany
• In the East
– farms are efficient and profitable
• no ruinous competition on the land market
– but sector "suffers" from limited venture capital
• potential value added not exploited
• higher vulnerability (hired labour, land and capital need permanent payments)
• In the West
– farms are well equipped with equity capital
– but suffer from
• low profitability
• structural deficits
• ruinous competition
Productivity and profitability
Efficiency of large wheat farms in Ukraine 2008 (DEA)
Technical efficiency (CRS)
1
0,8
0,6
0,4
0,2
0
1
10
100
1000
ha wheat production
10000
100000
Productivity and profitability
Efficiency of large wheat farms in Ukraine 2008 (DEA)
Groups of farms
Technical
efficiency (CRS)
Allocative
efficiency
Scale
efficiency
All
0.55
0.89
0.96
Kyiv
0.51
0.89
0.96
0.56
0.90
0.96
0.57
0.89
0.96
Region Poltava
Cherkasy
 huge productivity potentials
 important: management, capital endowment
 less but also important: size, legal form
Productivity and profitability
UAH/ha
Profitability of wheat production in Ukraine 2006
300
250
200
150
100
profit
rental price
50
0
-50 0
2000
4000
6000
8000 10000 12000 14000
size of wheat production in ha
Where are we heading?
• Traditional problems
–
–
–
–
Agricultural treadmill
Quasi-fix production factors
Existing inefficiencies (farm level, sector level)
Structural deficits
• Recent trends
– Globalisation and verticalisation
– Biological manufacturing
–…
Globalisation and verticalisation
International structural change in the pork chain
•
Denmark (2007)
– 34 % of all pigs in facilities with more the 5000 pigs
– 20 % of all pigs in facilities with more the 10000 pigs
•
US pork production (2002)
– 70 % of pork from vertically integrated systems
– 53 % of all pigs in facilities with more the 5000 pigs
– 2008: 40 % of all sows held by the 10 largest enterprises
•
Smithfield Foods
– USA: > 1 mill. sows
– Poland: about 83.000 sows, >1 mill. hogs in 2008 produced
– Romania: investments in pork chain with capacity for 4 mill. hogs
Globalisation and verticalisation
Pork production in Hungary after EU Accession
6000
360
5000
340
4000
320
3000
300
280
2000
260
1000
240
total number of pigs
00
7
12
.2
00
7
04
.2
00
6
08
.2
00
5
12
.2
00
5
04
.2
00
4
08
.2
12
.2
04
.2
Source: KSH, AKI
00
3
220
00
3
0
thereof sows
sows (in 1000)
total pigs (in 1000)
380
Biological manufacturing
Increasing knowledge intensity
 Economies of size
result from better managing human capital and know how
rather than just from decreasing average costs for facilities
• division of labour
• competent managers
• specialised employees
• knowledge transfer through supply chain
Biological manufacturing
Increasing capital intensity
• Financial needs to create one job in livestock production
in Germany
• hog feeding: 1 125 000 €
• facility per 2500 places at 350 € each, current assets 100 € per place
• farrowing: 675 000 €
• facility per 250 sows at 2300 € each, current assets 400 € per place
• dairy farming: 300 000 €
• facility per 50 cows at 4000 € each, current assets 2000 € per place
What are the challenges?
• Agriculture is a difficult business
– market and weather uncertainty
– treadmill, quasi-fixed factors, ruinous competition
• Towards the knowledge-based bio-economy
– "biological manufacturing"
 R&D, innovation, skills
 enormous demand for venture capital
• Vertical integration/cooperation
– amplifies opportunities and threats
• Societal perception of modern agriculture
– "modern" farmers are a small minority, even within the sector
– slow and uncertain policy responses and institutional changes