Implementing agrarian reform in the Russian Far East.

Duncan, Jennifer ; Ruetschle, Michelle

Introduction

Agriculture is the Achilles heel of Pacific Russia. Its Northern climate and remote location restrict commercial agricultural production to a few Southern regions in the fertile Amur River valley and low lands of Southern Primore. Yet, even there, the legacies of Stalin's collectivization and deportation of East Asian peasants persist. (1) On the eve of economic reform in 1990, the small agricultural sector was organized into giant sovkhozes (state farms), kolkhozes (collective farms), and agricultural subsidiaries of industrial factories. However, most households depended on tiny private plots or communal gardens for their produce. (2) Although the giant Soviet era organizations received massive capital inflows and subsidies, their measured productivity was little different from the productivity of pre-revolutionary peasant agriculture in 1913. If peasant farmers in Amur territory produced an average of 0.9 tons per hectare of grain and 7.4 tons per hectare of potatoes in 1913, the same region produced average yields of 0.7 tons per hectare of grain and 6 tons per hectare of potatoes in 1986-1990. (3)

Thus, on the eve of reform, observers hoped that a series of laws and decrees intended to underpin privatization of agricultural land, beginning in 1991, would provide the institutional basis for new private agricultural units and structural change of production, creating a productive, expanding agricultural sector. However, the reality of reform in agriculture has diverged from these initial expectations.

Beginning in 1997, the Rural Development Institute in Seattle, Washington undertook a study of the process of agricultural reform in the RFE, conducting interviews with territorial (oblast/krai) and county (raion) officials, peasant farmers, managers of agricultural enterprises, land shareowners, and rural pensioners. A 1997 paper by Bradley Rorem and Renee Giovarelli based on the 1997 field work concluded that implementation of large-scale agricultural reform was proceeding slowly, while new private farms faced major institutional barriers, including burdensome taxes and regulations and weak property rights. (4) (Similar field research was conducted in 15 other territories in Western Russia and Siberia.)

In October 1999, the present authors, both legal specialists on land legislation and property rights, conducted a month-long follow-up study in Khabarovsk and Amur territories in the RFE, investigating the impact of land privatization and farm reorganization on agricultural performance. Our interviews with jurists, legislators, and local officials were supplemented with extensive site visits and interviews with farm managers, private producers, and peasant shareholders. Local officials provided and interpreted relevant local legislation and implementing regulations and supplied economic data. While the interview data may be viewed as "anecdotal," the full, in-depth access that we had to officials and managers and the consistency of reports with the 1997 RFE study leads us to conclude that our informants attempted to provide us with a full and accurate picture of emerging institutional and structural changes.

Our research investigated how local farmers, agricultural managers and government officials were actually implementing an emerging body of legislation redefining ownership rights in land. We sought evidence on changes in the internal governance of agricultural units and restructuring of farm management, collected data on land transactions and land leasing, as well as formation and disappearance of new farms, and studied changes in cropping, marketing, employment, input use, investment, and government policies to provide explicit or implicit subsidies to rural producers. The picture that emerges shows major changes in the rural sector of the RFE, but it documents that institutional barriers in the establishment and exercise of ownership rights to land remain the most important barriers to agricultural reform in Pacific Russia, and, by implication, in other regions of Russia as well.

Agriculture in the Russian Far East

The commercial agricultural sector in the Russian Far East employs a small and declining share of the labor force. Since 1990, official employment in agriculture has fallen from 14 to 6 percent of the labor force. (5) Primary crops are Soybeans, oats, wheat, barley, potatoes, tomatoes, cucumbers, cabbage and livestock fodder crops. Meat, milk, eggs and honey are also produced in the RFE. (6) Agriculture in the RFE accounts for one percent of the total grain production in the Russian Federation, five percent of the potato and vegetable production, 50 percent of the honey production and 74 percent of the soybean production. (7)

Soviet policies from the 1960s through the 1980s propelled the expansion of agricultural production in the Far East through creation of very large collective and state farms. (8) The total amount of plowed land in the RFE peaked at 2,756,000 hectares in 1988, bolstered by heavy subsidies from Moscow that propped up agriculture. (9) Even while highly subsidized, however, the collective and state farms were unable to produce at the level realized in market economies with similar northerly locations, such as Finland and Canada. (10)

Commercial agriculture is concentrated in the South, in Amur, Primore, Khabarovsk, and Jewish Autonomous Republic. Amur, alone accounts for nearly 60 percent of the agricultural land and one-half of the region's agricultural production.

Since the early 1990s, agriculture has experienced several shocks. First, subsidies and federally mandated investment were slashed. Second, there was a drastic fall in the purchasing power of the population. Third, local producers were impacted by the availability of low-cost, competitive foreign products--US chickens, New Zealand lamb, and Chinese vegetables. In consequence, total agricultural output in the RFE declined steadily from 1992-1998 as production of grains, meat, and dairy products fell to less than half of former levels. Only a few products, such as soybeans and potatoes remained competitive.

The precipitous fall in the value of the ruble in 1998, provided some stimulus to domestic production, but under-capitalized farms facing rising fuel prices have been slow to respond. Through out the period, small household private plots played a unique role in household food consumption, accounting for some 86 percent of potatoes, 74 percent of vegetables, and almost half of meat and milk production. (11) Heavy reliance on food imports leave the region vulnerable to fluctuations in exchange rates, high domestic tariff barriers, and rising transport costs.

Summary of the Agrarian Reform Process in the RFE

A series of laws and decrees, issued in 1991, ushered in the privatization process in the agricultural sector in Russia. (12) As a result of the reforms, the majority of land held by collectives and state farms was to be allocated into land shares privately owned by farm members. (13) Some of this land was later withdrawn by shareowners to start peasant farm enterprises, or PFE's. A portion of land from each collective also went to the raion land redistribution fund, to be re-allocated by the raion governments to PFE's. Finally, the reforms left household plots under the control of individual families, and provided for full ownership rights to these plots.

Agrarian reform legislation also called for privatization of nonland assets of collective and state farms. (14) This legislation directs state and collective farms to determine the value of their total non-land assets (known as property shares) by deducting net liabilities from net assets, then dividing this total net value into shares among several categories of people including farm workers, workers temporarily absent from the farm, and pensioners. (15) Shares to eligible individuals were to be determined by their former contribution to the fund (e.g., by the relative number of hours worked). Persons withdrawing from a collective or state farm have the right to withdraw their property share in kind. While most farms originally completed the process of dividing up non-land property and assigning monetary value to individual shares, they have often prohibited individuals from withdrawing a reasonable property share in-kind.

Nevertheless, following privatization, a private agricultural sector emerged with three types of producers: large agricultural enterprises, peasant farm enterprises, and household auxiliary plot owners.

Large Agricultural Enterprises

Agricultural enterprises are former collective farms now registered as agricultural production cooperatives, joint stock companies, limited liability companies or, in some cases, even (mistakenly) as PFEs. Most of these farms had barely changed in structure or productivity, with only a cosmetic name change and the distribution of shares (on paper) to reflect their quasiprivatization. One former collective we visited had managed to make more significant changes through a radical change in leadership. Such instances are rare, however. In 1998, Khabarovsk Krai had 58 large agricultural enterprises (down from 76 in 1993), and Amur Oblast had 54 agricultural enterprises. (16)

One typical former collective we visited in Khabarovsk Krai controlled 11,000 hectares, all of which were under production in 1999. It was negotiating to acquire more of the neighboring land; however this was difficult because that land was divided into land shares and required the consent of numerous shareowners. The enterprise had undergone some reorganization in 1991, when the collective's land was converted into shares. In 1999, the enterprise rented shares from 500 people, while only 280 people actually worked on the farm. The enterprise has three-year rental contracts with the shareholders, many of whom are pensioners. Rental compensation was in kind, in the form of one ton of grain per year, as well as various services, such as transportation and plowing of household plots. Workers were paid additional monthly wages, including advance and post-harvest payments, and received favorable purchase rates for farm produce.

This enterprise, like many others in the region, is slowly failing. (17) Workers are not paid on time, and may only be paid in-kind after harvest. Many enterprises have had their bank accounts frozen for failure to make timely payments to government budgets, forcing these enterprises to operate almost completely through barter arrangements. In 1997, one Khabarovsk Krai official estimated that approximately 50 percent of all agricultural enterprises in the krai had their bank accounts frozen pursuant to a 1996 Presidential Decree. (18)

While large agricultural enterprises use the majority of the RFE's agricultural land, (19) these enterprises generally do not have formal ownership rights. Rather, ownership rights are formally exercised in common by individual share owners who are permitted to dispose of their shares by permanently contributing them to the enterprise charter capital, temporarily contributing them (for use) to the enterprise, leasing them to the enterprise or to a peasant farm, or withdrawing them to create a peasant farm, add to an existing peasant farm, or to augment an existing small plot. (20) In the mid-1990s, some 108 million hectares, or 49 percent of Russia's 222 million hectares of agricultural land, were transferred into this form of ownership. (21)

The majority of land share owners in the Russian Far East have been unable to formally dispose of their shares, and enterprise management continues to use them with no written agreement to the share owner. (22) For example, one female pensioner interviewed in the village of Korsakov near Khabarovsk believed that her land was being used but did not dare to request compensation from the boss of her former collective farm. This same woman was also unable to afford the surveying cost to ascertain the exact location of her land. Based on this and other fieldwork findings, the absence of a written agreement often signifies that the lessor/land share owner is in fact receiving little if any compensation for the use of his or her land by the enterprise, and, thus, derive no economic benefit or rights from "ownership."

Peasant Farm Enterprises

Peasant farms occupy about six percent of Russia's agricultural land, and represent roughly the same percent of all agricultural households. The relative size of the peasant farm sector in the RFE roughly mirrors that of Russia as a whole, although the average size of PFE's is larger in the Russian Far East. (23) In Amur, for example, the average size of a PFE was 148 hectares. This average was misleading, however, due to the registration of some large, former collectives as PFE's. Most PFE members were formerly collective farm members who had withdrawn their shares from the collective farm, often leasing in or purchasing additional land.

A consolidation trend has emerged within the peasant farm sector in the RFE as in the rest of Russia, where the amount of land owned and leased by peasant farms has increased over recent years while the number of peasant farms has decreased slightly. (24) This consolidation trend has been especially prominent in Amur where the number of PFE's decreased from 2,783 in 1993 to 1,926 in 1999 (a 31 percent drop). The exception is Khabarovsk Krai, where both the number and size of PFEs fell. One reason for this deviation from the national trend may be the high concentration of PFE's producing livestock rather than crops.

On one PFE that we visited in Khabarovsk, the farmer had to travel some distance to his 98-hectare farm. He began his PFE in 1992 by purchasing virgin land from the rural administration. He purchased land in parts, beginning with 30 hectares and gradually expanding. This farmer was deeply discouraged by high fuel prices and feared that his farm would fail as a result. Competition with middlemen purchasing cheaper potatoes from Amur made it impossible to raise price enough to cover his fuel costs. The farmer raised pigs as well as potatoes and soy. However, he was unable to slaughter the 20 pigs he had prepared for sale because he could not afford fuel to transport the meat to market. He was also unable to afford the fuel necessary to harvest and transport his soy crop.

Reported reasons for falls in the number of peasant farms included lack of funds or credit for machinery, receipt of poor quality land from the land redistribution fund, and a formal deregistration of many PFEs, whose owners continue their farming activities in the informal sector. Peasant farms in the RFE that have grown in size have done so by leasing land from shareowners, from agricultural enterprises, or from the land fund rather than increasing their nominal ownership.

Small Auxiliary Plots

Household auxiliary plots (or "small plots," which include garden plots, household vegetable plots attached to houses in former collective villages, and household vegetable plots located in a field some distance away from the family house) constitute the most intensively used agricultural land in the RFE. Almost all interviewees obtained some significant portion of their daily subsistence food from their household plot.

The only sector in which a nearly functional land market is emerging in the RFE, and in Russia as a whole, is that of small plots, which have been "owned" in the full sense for more than seven years. The minimal capital requirements for small plot cultivation contribute to higher market demand for small plot land. The ability to transact small plots allows their allocation to more efficient users and sustains high levels of production on these plots. More importantly, tenure security encourages investment on this land.

Household plots are larger in the RFE than in Russia as a whole, reflecting the high ratio of arable land per RFE resident. In Khabarovsk, for example, garden plots are 1200 square meters on average, compared with 600 square meters in Moscow oblast, according to one krai official. In Khabarovsk and in Amur, as in the rest of Russia, household plots produce a great quantity of high-value crops, such as vegetables and potatoes. In 1995, household plots provided 86 percent of the potatoes, 74 percent of the vegetables, and almost half of the meat and milk. In contrast, private farms accounted for 2 percent of the potatoes, 4 percent of the vegetables, 6 percent of the meat, and 4 percent of the milk produced in the region. (25)

Families producing on private plots consume most of their own production, occasionally selling surpluses at local markets. Many vendors we interviewed at the Khabarovsk central market, for example, were selling pork from their family pigs or milk from a family cow. Small plot vegetable growers sell potatoes, beets, carrots, and other products along the roadside near the central market, since the central market stalls are taken by vendors selling imported products.

Many families located in villages on former collective farms receive some degree of subsidy for their small plots from the collective farm management. This subsidy often takes the form of free plowing and sometimes of reduced-cost inputs for planting. In some cases, collectives offer to plow their members' household plots as a lease payment for the use of the members' land shares. Resource transfers (both explicit and implicit) from collectives to farm members for their household plots, although of immediate benefit to small plot owners, discourage members from withdrawing their land shares for private farming, as this would terminate the flow of resources from the collective.

Issues Related to Land Privatization and Farm Restructuring

Any attempts to raise the productivity of regional agriculture will require major institutional changes in order to provide clearer title to land and expanded rental markets. This is true for three reasons. First, while much land currently goes unused, the supply of well located, readily cultivable land that does not require a large initial investment (in leveling or clearing) is limited. Second, the size and location of available land plots are often undesirable. Existing land claims are held in very small or very large parcels, far different from the desirable scale of unit that private farmers would choose if credit and capital markets were well developed. Plots near urban centers or adjoining existing parcels are also scarce. Third, the transactions costs of acquiring and assembling land parcels from current share owners or PFEs may be high. Due to a poorly functioning land market, parcels are usually available only from the raion land redistribution fund. Significant barriers, therefore, remain to the transfer of land away from less successful to more promising users, even if access to capital improves.

Privatization and Farm Restructuring

Where collectives have been "privatized" into land shares, share owners are often unable to exercise their rights to their shares in any meaningful way. Most collective farms have undergone a superficial restructuring at best, and continue to operate as collectives with over 5,000 hectares. (26) Few operate productively, nor would they be able to operate productively even with more capital. Most have retained the exact dimensions and characteristics they had as collectives in the past, including size (many remain as large as 10,000 to 12,000 hectares), a large number of employees, methods of production and decision-making. In most cases the only change during the 90s has been a marked drop in production resulting from the ending of state subsidies. (27) While most managers we interviewed acknowledged that workers and pensioners now hold ownership rights in the form of land shares, they rarely compensated these land-share owners in any way for the continued use of their shares.

Moreover, some collective farms in Khabarovsk Krai have done no restructuring and have not been divided into land shares, as directed by agrarian reform legislation. (28) According to the Khabarovsk land committee, 23 out of 53 former collective farms in the krai (representing 29,700 hectares, or about 14% of the total agricultural land in the krai) have been "reorganized," but without privatizing the land and property that are supposed to be owned by the members. It is unclear why this has happened. (These 23 enterprises are distinct from those enterprises exempted from privatization for purposes of specialized state production.) Officials attributed such arrangements to the adoption of a provision in the new enterprise charter that allows all land shares held by individual members to be permanently contributed to the new enterprise. This explanation is not sufficient, however, as these shares should then have been included among the official tallies of "permanently contributed shares." Instead, it appears that land shares were never even calculated on the twenty-three farms, depriving farm members of all rights to the land to which they were entitled.

One of the defining characteristics of agrarian reform in the RFE relative to anywhere else in Russia is the great amount of land that regional governments have retained in the land redistribution funds. In fact, the majority of agricultural land in the RFE remains unprivatized in the raion land redistribution funds. In 1999, Khabarovskii krai held 93,900 hectares of arable land in its fund, while Amurskai oblast held over 900,000 hectares of arable land. In 1999, the Amur land committee leased out 251,176 hectares from the fund to agricultural enterprises and only 700 hectares to peasant farmers. (29) The amount of land held in the land fund in both regions has increased since 1997 (in Amur by 13 percent and in Khabarovsk by 45 percent). (30)

It is unclear exactly how the land funds in Khabarovskii krai and Amurskaia oblast became so large. In Amur, the size of the fund may be related to the oblast land committee's aggressive policy of land monitoring and penalties pursued in the years following reforms. (31) It may also be related to an oblast-wide policy limiting land shares to ten hectares each, which caused large amounts of land on some farms to be classified as unallocated "residual" land slated for the land fund. It also reflects a depressed demand for agricultural land, which in turn is related to the economic inefficiencies of farming in the Far East given current input/output price ratios and, above all, lack of credit.

The notably high level of land held in state control through the land funds in the RFE indicates that the oblast and raion-level officials in the RFE have only partially implemented federal privatization and agrarian reform policies. The purpose behind the funds was to redistribute land to peasant farmers, not to hold it en masse at the local or regional level. Reform-oriented legislators certainly did not anticipate that over 50 percent of the arable land would be withheld from privatization in the land funds.

Land Transactions

Working land markets function as a powerful tool for moving land and capital to higher value users. Rather than allocate ownership of this land to agricultural enterprises or PFEs, regional governments have chosen to lease some of it out on five-year terms (for free or, at most, nominal rates), retaining the option to terminate the lease at the end of the term in the event of misuse or nonuse. The Amur land committee has shifted its policies over the last two years to encourage more land to be in production, partly by allocating land in lease (or use) to almost anyone who applies for it. In some cases the land committee has allowed immigrant farmers from China, Korea, Holland, and the United States to lease land in the fund for farming.

The strategy of Amur oblast appears to be to maximize agricultural production by retaining ownership of most arable land and allocating it to private users for short terms. This policy, coupled with strict management policies toward land held in private ownership, is justified by the local bureaucracy as an attempt to reduce inefficient land use by private owners, reflecting the bureaucratic bias, which assumes the supremacy of central state planning.

The policy of retaining most arable land under state control is harmful for several reasons. First, it assumes the state is a better regulator than the market for moving land into efficient use. Second, the resource wealth retained by the raion and oblast-level governments creates opportunities for corruption and nepotism. Third, the government accrues administrative costs for monitoring the land, making and reviewing lease contracts, and executing penalties. (These costs could, of course, be considered advantageous from the perspective of the oblast and raion-level officials whose employment currently depends on them.) Fourth, short-term leases fail to provide the type of security of rights required by farmers to make long-term investments to boost productivity. Any government policy of strict monitoring and intervention into the nonuse of privately held land is also likely to decrease farmers' incentives to make these longer-term investments.

Finally, holding large quantities of land in state ownership, available for lease at subsidized rates (quoted as anywhere between zero and five rubles per hectare per year) creates a non-transparent alternative source of land, which retards emergence of genuine markets. A market for agricultural land would allow farmers to acquire collateral and to borrow for investment.

Lack of a market for land also imposes transactions costs on the ability of labor to move between activities. With commercial labor markets, land owners could lease out or sell their land, leaving the farming sector. This may be especially important for pensioners and for people wishing to migrate to urban settings. Without real land privatization and the development of a functioning land market to facilitate the movement of agricultural land from inefficient to efficient users, obsolete farm units will continue to sit on large tracts of land and production will continue to stagnate. Furthermore, banks cannot accept land for collateral in the absence of a land market, impeding farmers from leveraging credit for major infrastructure improvements. Clearly, the best way to hasten the development of a functional agricultural land market in the Russian Far East would be to privatize the great majority of land that is currently contained in raion land redistribution funds.

One particularly vulnerable group of farms is made up of the peasant enterprises established on land-fund land at the start of reform. These "pioneer" peasant farms received extremely low quality land. Thus, even in cases where they received subsidized credit for purchase of machinery, they have little prospect of long-term survival. One official in Khabarovskii krai estimated that only 70 out of 307 PFEs in one raion land any long-term prospects of survival due to their poor land.

A final problem with privatization and restructuring in the RFE, is the inclination of large farm enterprises to impede people from withdrawing property shares in kind when they leave to start a peasant farm. Property shares are still a largely untapped source for machinery and equipment for peasant farms, and the laws regarding property share valuation and withdrawal are largely ignored. Presently, individuals who leave agricultural enterprises continue to have great difficulty exercising their right to withdraw property in kind or to receive the cash value of their property shares. Many agricultural enterprises hold small stocks of working machinery, much of it in poor repair. Nor do the enterprises have sufficient funds to redeem the property shares for cash. Moreover, property shares on the great majority of farms have not been adjusted for inflation for several years, so the denominated value of property shares is ridiculously low, sometimes being undervalued by a factor of several thousand, making it difficult for share owners to demand high values for their land rights in the absence of any true market measures.

Government Regulation of Privately Held Land

The land committees in both Khabarovsk krai and Amur oblast continue to monitor privately held land used by PFEs for nonuse or what they term "irrational use", whether this land is leased from the land fund or owned. Punishment for irrational or nonuse by a lessee is refusal to renew the lease contract upon its expiration; punishment for irrational or nonuse by a private owner ranges from warnings or fines to outright confiscation. Although land committee personnel in both Khabarovsk and Amur strongly believe they have the legal right to enforce land use regulations on farmers who hold land in ownership, they have become increasingly reluctant to do so since the amount of land not being cultivated has increased steadily. (32)

Between 1997 and 1999, the threat of confiscation seems to have fallen. In our fieldwork in fall 1999, farmers did not appear to be concerned that the land committee might fine them or confiscate land for failure to use it properly. However, it is important to note farmers' concerns in interviews in 1997 that the land committee could fine them or withdraw their land if they did not use it in a manner that satisfied the land inspector. The threat of withdrawal affected the manner in which peasant farmers chose to expand their operations. The difference between 1997 and 1999 in perceived threat of land committee interference appears to be due to oblast/krai decisions to relax strict monitoring and penalties on private land.

Lease

A land share lease market is developing in the RFE in place of outright ownership. The most common type of lease agreement between private actors takes place when a land share owner leases out his or her share to the agricultural enterprise (former collective farm) that occupies it. Sometimes an agricultural enterprise leases land from shareowners on a neighboring enterprise. In a few instances, peasant farmers also lease land from shareowners, usually at a higher rate than the average paid by agricultural enterprises.

Lease agreements between land share owners and large enterprises vary greatly in their terms and level of payment. In most instances, terms are for three to five years, with an option to renew at the end of the term. Terms offered by at least one former collective we visited were much longer, however, ranging from 10 to 49 years. Payment ranged from zero to 10 percent of the gross production and was usually in kind, offered in a combination of grain, soy, and discounts on items such as hay and coal (bought in bulk by the enterprise). Payment sometimes also included plowing the lessor's household auxiliary plot. Some farm managers also cited payment of land tax as part of their lease payment to the land share owner.

Many lease transactions take place between the land fund (making the raion government the lessor) and private farms as lessees, including both former collectives and PFEs. In a few instances, peasant farmers work out informal "sublease" arrangements where one larger, wealthier farmer leases land from the land fund and smaller, neighboring farmers use part of this land for a very nominal fee paid to the primary lessee.

Where former collectives produce on only a portion of the land they possess, they generally provide lease payments for only those shareowners whose shares are located in the fields under production (if they provide lease payments at all). This is true even though a land share represents a right to common ownership of the enterprise land: if one hectare of land is cultivated, that hectare represents a minute part of everyone's land share. At a former collective in Amurskaia oblast, for example, one pensioner told us she had approached the farm management about lease payments on her land share, which the farm was currently using. The manager, who was also the chairman of the former collective, responded that if she demanded payments, he would simply stop cultivating her land and shift production to another field where shareowners did not make such demands. This response underscores the imbalance of power between the management of agricultural enterprises and former collective farm members who are now land share owners and indicates a low level of organization among former members/shareowners. Most importantly, this response exposes illegal activity by the enterprise management.

Further reports by land share owners at the same farm in the RFE attested to the level of coercion employed by management in avoiding payments for use of land shares. One pensioner couple reported that their shares were located in a field the farm management was not currently cultivating. The couple approached the farm manager, asking him to lease in their shares. Management responded with an offer for a ten-year lease at 1,000 rubles ($40.00) per year. This, said the couple, was "crazy!" The manager went on to say that he would only lease the land on these terms if and when the couple convinced the additional ten people who owned land shares in their field to lease out on the same terms.

A final problem relating to the lease market is that even when farm managers do make lease agreements, they often breach them without suffering consequences. In several cases we encountered, farm managers (of agricultural enterprises and, in one case, a peasant farm) claimed they were "unable" to pay the in-kind lease payments they had contracted to, and so did not plan on making any payments in that year. In another case, the manager of a former collective in Amurskaia oblast planned on "renegotiating" the terms of his five-year leases with shareowners after only three years. The first shareowners selected for termination of the lease agreement or who received reduced payment would be those who were no longer employees of the farm, and the last shareowners selected would be pensioners, he said.

Inheritance

Inheritance transactions are, and will continue to be, an essential component in transferring the lasting benefits of agrarian reforms to rural households. Of the roughly 108 million hectares, or 49 percent, of Russia's 222 million hectares of agricultural land that were transferred into private ownership through land shares in the early to mid-1990s, about 40 percent of these shares went to pensioners. By 2010, it is likely that rights to roughly three-quarters of these pensioner-owned land shares, representing about 32 million hectares, will have passed by inheritance to their children.

Despite the importance of inheritance as a means of transferring land rights within rural households, apparently only 158,512 "successions" (inheritances), with an average size of less than one-third hectare each, were formally registered in all of Russia in 1997. (33) Virtually no inheritances of land shares, which are likely the principal source of land for new and expanded family farms, are being formally documented and registered. Many collective farm managers currently attempt to restrict the inheritance of land shares, leading to additional delay, expense, and discouragement for the heir attempting to claim his or her rights to the land share or to sell or lease out those rights.

In the RFE, however, many heirs simply do not claim inherited land shares or plots. This may be because land taxes are extremely high and, with an insecure legal framework about their rights to dispose of the land through sale or lease, they may view assuming rights to the land as a net liability. This scenario is especially likely for heirs living in urban areas who are unable to benefit from farming the land themselves.

Purchase and Sale

As in the rest of Russia, a market in agricultural land purchase and sale has been slow to develop in the Russian Far East. (34) A number of factors impede the development of a market in the purchase and sale of agricultural land in the RFE. First, farmers and officials are unclear about legal rights to purchase and sell land. Current legislation does not provide a solid framework for buying and selling agricultural land and land shares. On one hand, Article 36 of the Constitution of the Russian Federation establishes a right to dispose of land, and presidential decrees clearly provide for private purchase-sale transactions in agricultural land. However, new legislation adopted by the Duma legalizing the sale of urban land specifically excludes agricultural land. This absence of parliamentary law (zakon) has led many rural residents to believe these rights are not secure. The unclear legality of purchase-sale transactions depresses demand for land in two ways: people do not want to buy land for fear the transactions could be revoked at a later time; and people do not want to own land because, although they must pay high taxes on it, they are not certain they would be able to sell it in the future. Perceptions that it is illegal for PFEs to lease out their land also reduce the demand for land purchases and ownership.

Even when share sales are taking place, the transactions costs are high. Share owners must go through a time-consuming and difficult process to obtain approval from farm management and/or the farm's general meeting to sell their shares. The widespread availability of land at subsidized rates from the raion land fund creates little incentive for purchase.

Mortgage and Credit Markets

The federal law "On Mortgage" explicitly prohibits the mortgage of agricultural land. (35) Even if mortgage becomes legal, until a stronger agricultural land market develops in the RFE, it is unlikely that banks will engage in mortgage transactions. Meanwhile, farmers are unable to secure credit for machinery and inputs, which would foster higher productivity and thus contribute to increased land values. The majority of peasant farmers in Khabarovsk and Amur were familiar with the concept of using land for collateral, and many expressed an interest in mortgaging their land if federal law allowed. Most farmers would use credit secured through mortgage for the purchase of much-needed machinery or processing equipment.

Registration

The registration and mapping processes in Russia give rise to several issues that affect sale transactions, including delays in and costs of demarcation and registration of land plots, and broader institutional shortcomings related to the establishment of a new registration apparatus under the Ministry of Justice. The 1997 law "On Land Registration" and accompanying regulations transferred land registration functions from the land committee to the Ministry of Justice. (36) The ministry has been working to set up registration offices (known as "chambers") in every raion in Russia. According to officials in the land committee and Ministry of Agriculture, the Amur oblast government has yet to implement the new chambers, with the result that the land committee continues to perform registration functions, as well as to manage and allocate state and privately held land. Maintaining both functions allows a consolidation of a large amount of authority within one branch of government, an outcome the new system avoids.

In Amur oblast and Khabarovskii krai, procedural requirements related to demarcation and registration may deter some land share owners from selling their plots, according to reports by pensioners and other shareowners. Anyone wishing to sell his or her land must first confirm the boundaries with the oblast/krai land committee, then register it with the land committee (or in the case of Khabarovsk, with the Ministry of Justice). The registration process costs 200 rubles ($8) and takes two to three days, according to krai officials. Perceptions of the demarcation/registration process by land share owners vary from straightforward and fairly efficient to extremely onerous, expensive, and time-consuming.

Bankruptcy

It may be possible to use bankruptcy as a tool for transferring land and other resources from broken, inefficient agricultural enterprises to productive new or existing enterprises. (37) Officials in Amur have, in fact, exercised bankruptcy on roughly 20 farms. In some cases, outside buyers have purchased farm resources (often one or two of the "productive sections" of the former collective) from the state after it has carried out bankruptcy proceedings.

An important question relates to the outcome of individuals' rights to land and property shares in the event that the state declares bankruptcy of an agricultural enterprise. According to federal legislation, land shares that have not been formally contributed to the charter capital of the agricultural enterprise belong to the individual land share owners (not the enterprise), and can be withdrawn or transferred at any point through the liquidation process in accordance with Presidential Decree No. 337. Land shares that have been contributed to an enterprise may still be withdrawn if allowed by the enterprise's charter. In this case, however, the land to be allocated in kind may be subject to some debt, since the land was "owned" by the enterprise (subject to withdrawal rights). What has actually happened to shareowners' rights in the 20 cases of bankruptcy in Amur oblast is not clear.

Machinery

Farmers cited inability to acquire machinery as their most significant impediments to effective land use. Particularly in the Far East, where land is abundant and farms are larger, an aging arsenal of farm machinery has significantly constrained growth and production. Statistics show a steady decline in agricultural machinery available and in use throughout the Russian Far East. Throughout the region, tractor supplies have decreased 47 percent and grain harvesting combines 44 percent between 1991 and 1997. Taking into account the deteriorating condition of the remaining supply, this sharp decline in machinery reduces the plowing and harvesting potential of the region by almost half. (38)

With the passage of time, the situation has only grown worse. The price of farm machinery and equipment across Russia rose more rapidly than food prices between 1990 and 1997. Some farmers predicted that they would only continue to farm for a short time before the inevitable breakdown of their machinery. Without access to new machinery in the near future, those farmers still able to farm at all will be forced to work smaller and smaller plots of land with fewer and fewer modern agricultural aids. In Amur oblast, lack of machinery was cited as the main cause for the removal of 200,000 hectares from production between 1997 and 1999.

Most farmers have not purchased new machinery since the beginning of the land reform in 1991-92, when subsidized credit was widely available. Others had received their machines as property shares from their former collectives. This option is also largely obsolete today, as many of the most valuable machines have already been distributed among the earliest shareowners to withdraw from collective farms. What machinery remains is decrepit and unsuited to the smaller parcels farmed by peasant (farm) enterprises. In fact, unusually large numbers of farmers stated that they had sufficient machinery, but that it was of poor quality or unsuitable for their needs. Moreover, due to the mismatch between inherited equipment and current production activities, many agricultural enterprises, including small farmers, used tractors and combines well in excess of their recommended capacity--in some cases more than double the standard amount.

Lack of access to long-term credit prevents farmers from purchasing appropriate small-scale machinery. In 1999, rates of credit from banks could be obtained with interest rates as high as 180-200 percent, when the underlying rate of inflation was about 37 percent, for the maximum period of one year. The fragile state of Russia's undercapitalized and institutionally unstable banks has contributed to unpredictable and often very high interest rates. Moreover, agriculture is seen as a risky investment due to the low profitability of farms. The credit histories of small farmers further discourage loans, and mountains of paperwork hamper even the initial application process. As noted, land cannot be used as collateral under the existing moratorium on mortgages, and the practice of using the new machinery itself as collateral for loans is still uncommon and unreliable.

Lack of machinery and high prices of soy relative to other crops leads to a draw-down of land fertility by creating incentives to produce a single crop, which draws down soil fertility. To grow soy over an extended period of time, it must be rotated annually with other crops. Without fertilizers, soy can be grown on only two-fifths of the land each year. Even under ideal circumstances with fertilizers, it can be grown on only one-half of a farmer's arable land. Currently, farmers often violate crop rotation norms by increasing the relative amount of land grown in soy. Overuse endangers the already fragile quality of the soil and the sustainability of production.

Storage

Inadequate storage further reduces farmers' profitability. Where storage is available, farmers are able to increase profits by storing their produce until spring, when prices are higher. Where storage is not available, however, farmers attempt to sell all their produce (at lower prices) in the autumn, leaving any surplus to spoil. In some cases, vegetable farmers without access to storage report losing up to 45 percent of their production to rot. Meat-producers also have difficulty finding storage for their fodder hay through the winter season.

Farmers living near former collectives sometimes have the option of leasing storage space from the collectives. The cost of leasing was often deemed excessive, however. The possibility of cooperation in building and sharing storage facilities, while attractive, is considered unrealistic.

Chinese farmers across the border do trade in the Russian market to reduce seasonal variability in prices, buying produce in the fall and selling in the spring. According to reports from farmers and officials in the RFE, Chinese farmers purchased vegetables at low prices from the Russians in the autumn and sold their own produce on the Russian market at higher prices in the spring. One farmer complained that even though he managed to save his produce for the spring, the early sale of large quantities of Chinese products that spring drove down prices, reducing his profit, but providing benefit to consumers.

Seasonal Production Inputs

A rising disparity between the high costs of inputs and the low prices of agricultural products threatens farmers' profitability. Fuel prices, for example, went up twice as fast as prices of produce. With profits already slim, these differential increases between expenses and returns have been sufficient to seriously harm farmers. Some were unable to use their machines or harvest their entire crops because they could not afford fuel. Other farmers located far from urban areas and markets were still more hard-pressed because of the high cost of transporting their produce.

In addition to high fuel costs, high costs of fertilizers and herbicides raise farmers' production expenses. Prohibitively high prices force many farmers to abandon using these inputs altogether. Since fertilizer is both difficult to obtain and expensive, farmers often mulch with hay or use crop rotation to maintain fertility. The 1998 fall in the value of the ruble greatly increased the price of herbicides, which are imported from Japan, Germany, and the United States.

Cooperation among farmers may help to reduce the cost of inputs. In Romnetskii raion in Amur, for example, the Organization of Peasant Farms and Cooperatives of Russia (AKKOR) purchased large quantities of fuel at reduced prices from wholesale suppliers and resold them at no profit to member enterprises. Again, one of the underlying problems is lack of available short-term credit at reasonable rates to purchase inputs. Many farmers are forced to rely on contracts with state organizations or processors at disadvantageous rates of exchange to receive the desired inputs.

Processing Facilities

As in any economy, processing greatly increases the value and profitability of agricultural products in the Russian Far East. Without adequate capital or access to credit, however, the agricultural processing industry has grown slowly. The processing facilities that do exist appear to exercise monopoly power in the sector, forwarding farmers fuel and other inputs in exchange for a promise from the farmers to deliver produce after fall harvest at prices substantially below market levels. Most farmers we interviewed complained bitterly about these future contracts with processors, saying they paid dearly in the fall for advances of fuel and fertilizer the previous spring. Many, however, said they had no other option either for obtaining seasonal credit for planting or for selling their products.

In Amur, for example, there is no local processing capacity and several processing plants in Irkutsk, Khabarovsk, and Ussuriisk dominate soy processing. We found one exception in Romnetskii raion, where several farmers purchased their own small-scale soy processing equipment. The AKKOR helped these farmers to obtain loans to purchase processing equipment from an agricultural bank at an interest rate of just 18 percent, with the AKKOR serving as the guarantor. After ensuring capacity to process their own raw soy, the equipment owners give priority to other farmers in the raion, and then to farmers from neighboring raions.

A few firms have received foreign direct investment for food processing equipment. When the ruble collapsed in August 1998, some processors in the RFE realized net losses due to the increased loan repayment burden to foreign investors, during a period when they could have benefited from the increased demand for domestic production created by the high cost of imports. (39)

Public Infrastructure

Several farmers located in more remote areas complained of lack of road access to fields. Roads once actively used by collectives are now falling into disrepair as more and more land falls out of production. Electricity supply lines often do not reach remote "homestead" farms, and many farmers operate without reliable electricity or are forced to invest in their own power sources. In one garden plot community, all the electric power lines had been stolen and (reportedly) sold in China, leaving the community without electricity. One enterprising farmer had installed his own wind propeller to produce an increased amount of electricity to his remote farm.

Credit

Farmers reported that commercial bank credits were affordable or easily obtained. A much more common form of credit is the "budget loan," a state-subsidized loan from a commercial bank at a fixed low interest rate of approximately 18 percent. These can enable significant capital purchases and investments to those who qualify, although qualification (requiring solid credit history, a lengthy application procedure, and proof of sufficient collateral) may elude many farmers. Cooperative loan efforts with AKKOR-type assistance may be an effective means to overcome the stringent requirements needed to receive state subsidized bank loans.

Another type of credit involves contracts with state organizations. In Khabarovsk, for example, the krai administration helps farmers with spring planting in return for delivery contracts with state organizations. Farmers who agree to deliver a fixed amount of their production to a state institution such as a military barracks, hospital, or public school may be eligible for these contracts. The state agrees to pay for the delivery in two parts: an initial payment for operating expenses (fuel, fertilizer, herbicide) in the spring and a second payment in cash upon delivery in the fall. The agreement resembles a commercial forward contract; the advantage to farmers is low interest rates for the value of the forwarded inputs.

In practice these contracts have been problematic. Most noticeably, the state repays contracts late, often one to three years after delivery. With high inflation rates, these delays cause payments to be virtually worthless. Furthermore, state payments generally consist of in kind deliveries of fuel or other inputs or offset of old loans. Thus, if farmers need cash for any other needs, state delivery contracts are not an option.

An alternative form of credit available mainly to soy producers is a future contract with a processing enterprise. Under these contracts, processors lend farmers in kind operating expenses (such as fuel and fertilizers) for the spring planting season and charge high interest rates that must be paid by the farmers upon delivery of their goods. Farmers who participate in these contracts (only some of which are written) receive inputs in the spring for no cash up front but receive lower than market price later. (But exchange at low nominal prices allows both partners to reduce tax obligations.)

The formation of credit cooperatives may offer an alternative means for farmers in the RFE to secure credit. Although these are not common among farmers in the Far East, we did encounter one example of a successful credit cooperative in Amur. Membership in the cooperative consisted of 12 PFEs, one former collective, and AKKOR. Members contributed machines and cash as charter capital and collateral.

While this innovative method of credit access appears promising, it still faces considerable hurdles. The law of the Russian Federation "On Cooperatives" (40) is tailored to production cooperatives rather than "secondary" cooperatives (such as credit, marketing, or service cooperatives). The paperwork is complicated and a cooperative's income may be subject to double taxation (as income to the cooperative enterprise and to the individual members). In a period where taxes are not always collected, the threat of double-taxation may not be a significant detriment to the individual cooperative, but it will most certainly discourage the proliferation of such organizations in the future. In an attempt to address some of these gaps, a federal law on credit cooperatives that defines its legal status, goals, specific features and basic principles of operation was finally approved by the Russian government in January 2001.

Marketing

Farmers in the Russian Far East market their products through a variety of channels, including foreign importers, domestic processors, stalls at central or local markets, and roadside trucks. Sale of agricultural production directly to consumers is a prime means of cash for farmers. Many farmers reported, however, that they could not afford the time or transport costs of selling at consumer markets. Some farmers sold their goods at the roadside or to an established round of customers.

The middleman sector in the RFE has grown over the past decade. By purchasing goods in bulk from farmers at less than retail price middlemen are able to be profitable after deducting transport and marketing costs. Despite additional marketing choices presented by an evolving middleman sector, many farmers view middlemen as corrupt, usurious, or monopolistic. Middlemen often gain access to premium stalls in local markets that are inaccessible to farmers, and some farmers suspect collusion between market operators and middlemen. Some middlemen also import goods at lower rates from other areas, thereby creating competition for local farmers and benefiting consumers. In the spring, middlemen representing big processing firms are able to make deals with cash-hungry farmers who have few other means of access to processing equipment.

The market for soy products has seen the strongest development because of strong foreign demand. Seventy percent of soy oil exports from the region go to China. Soy meal is exported to Japan, Holland and Israel. A Danish-designed soymilk facility is under construction in Khabarovsk, which will have a strong price advantage over expensive imported baby food products.

The domestic market for other food products has been volatile, even after the fall in the value of the ruble in August 1998. Competition from U.S. chicken drumsticks had virtually wiped out local poultry producers until the fall of the ruble in August 1998. For a brief period after August 1998, Russians could not afford the U.S. chicken, and Russian poultry factories began to work in full swing again. Later, drumstick prices from the European Union dropped dramatically to compete with local prices. It remains to be seen whether inefficient domestic producers will remain competitive in the face of rising domestic inflation and potential reductions in domestic tariffs on food imports.

Taxation

Farmers cite agricultural taxes, which they claim absorb from 68 to 90 percent of gross receipts, as a major burden. Land share owners who were considering withdrawing their land to start a PFE feared taxes, as much for their complexity as for their actual financial burden. Support for a uniform tax appeared widespread. While former collective farms have been able to maintain accountants, smaller PFEs often negotiate the maze of financial obligations alone.

The Russian agricultural tax structure, which includes profit taxes, value-added taxes, road fund taxes, income taxes, property taxes, and land taxes, remains complex and discretionary. (41) The most significant payments required of agricultural enterprises are the compulsory deductions for extra-budgetary funds such as the pension, social security, medical insurance, and public employment funds, amounting to a total of 31.1 percent of gross revenues.

As a final note, tax enforcement appears inconsistent. While most farmers deemed the tax burden onerous, we interviewed several peasant farmers and managers on former collectives who had paid no taxes for several years.

Labor

Low labor productivity also impedes agricultural production in the new market system in the Russian Far East. Several enterprising farmers complained that they had difficulty finding workers willing to labor more than eight hours per day. Some PFEs in the Russian Far East hire Chinese laborers to supplement their work force. These seasonal workers usually work in exchange for a percentage of the crop, which they then take with them to sell in China upon their return. The Chinese workers, according to officials and farmers, are hardworking and willing to work for lower wages than Russians. They often bring with them useful techniques to maximize production. Particularly in soy and melon production, Chinese and Korean laborers have particular expertise. The official numbers of such immigrants are relatively few, however. In Khabarovsk, for example, officials reported that only 200-300 Chinese agricultural workers participated in farming in 1998. There are severe administrative restrictions on the use of foreign agricultural labor in the local economy.

Immigrant laborers do not have the benefits of land tenure security available to Russian farmers through ownership or long-term leases. Russian law does not provide for foreign ownership of land. Furthermore, at least some of the foreign laborers lack valid immigration documents, increasing their vulnerability to low wages and reducing their security in crop-sharing arrangements. A policy of leasing out land-fund land to foreigner cultivators would be one way to increase the local food supply and local government revenue.

Property Rights and Economic Development

While only six percent of the RFE population labors in the formal agricultural sector, much of the variety in the local diet is provided by households, which supplement low money income with small-scale subsistence food production. The emergence of more efficient private farming awaits national legislation on ownership of land and major changes in the discretionary regulatory, management, and tax practices of local government agencies.

Even without national legislation, policymakers in the RFE have the power to make key changes in the way in which laws are implemented. Such changes include:

* privatizing and/or leasing the large fund of land currently held by the raion land funds, most of which is not in production;

* providing information and enforcement supporting the exercise of land shares owned by farm households and used by large agricultural enterprises. Such exercise may take the form of leasing, sale, or small-scale production, but enforcement of rights is a crucial element in this strategy;

* adopting policies to encourage foreign farmers with access to capital to lease unused, nonprivatized land from the raion land funds.

Long-run improvement in agricultural productivity will require a strengthening in property rights in land at the federal level. Federal laws must:

* provide clear property rights in agricultural land, ensuring that purchase and sale, lease, and inheritance of agricultural land are clear, widely understood, and enforced at reasonable cost;

* amend the Law on Mortgage to allow the use of agricultural land as collateral.

In the Amur River Valley, national boundaries place severe constraints on use of fertile agricultural land. At the moment, there seems to be no way to bring together the abundant land of Russia with Chinese and Korean labor and capital. As an alternative to increased international migration, a program of homesteading combined with modest rural credits would allow households to relocate from the Russian Far North and the former Soviet Republics to Russia's borderlands with China.

Can Russia find a way to develop the fertile Amur River Valley and border regions of Pacific Russia without placing political control of the region at risk? Regional policymakers view with alarm both the steady outflow of Russians from Pacific Russia and a prospective inflow of Chinese and Korean farmers and workers. Agriculture is one of many sectors where the gap between actual and potential resource use creates enormous incentives for institutional change, and yet the barriers to needed change are enormous.

Prospects for Policy Change

In 2001, the Putin administration is drafting a new federal Development Strategy for Pacific Russia (reminiscent of the era of Five Year Plans.) Although the strategy is still in draft, its outlines for agriculture draw on a federal document, Strategy for the Development of the State to the Year 2010, prepared under the leadership of V.I. Ishayev, Governor of Khabarovsk in November 2000. (42)

The Ishayev report gives the state primary responsibility in three areas--the military-industrial complex, infrastructure, and agriculture. It recommends, "Taking into account that one-third of the population of Russia lives in rural areas, the state ought to provide this population with direct financial assistance, with respect to natural gas supplies, electrification, road construction, education and health care." It should also address the monopoly practices of agricultural processors and create a "civilized land market" (not further defined. Thus, barriers remain to building a strong land market through clear and enforceable property rights and increased access to credit and capital. Without any changes, agriculture will remain an Achilles heel in the Russian Far Eastern economy.

Table 1:
Total Sown Acreage in Southern RFE

Province 1985 1990 1995 1998

Total (Thous hectares)
Primore 433 389 358 345
Khabarovsk 163 61 61 71
Jewish Autonomous Republic n/a 94 90 70
Amur 1269 1096 728 575
Total 1865 1640 1237 1061
Soy (Thous hectares)
Primore 144 113 107 90
Khabarovsk 65 19 13 10
Jewish Autonomous Republic n/a 38 33 19
Amur 478 425 292 221
Total 687 595 445 340
Soy (%)
Primore 33.3 29 29.9 26.1
Khabarovsk 40 31.1 21.3 14.1
Jewish Autonomous Republic n/a 40.4 36.7 27.1
Amur 37.7 38.8 40.1 38.4
Total 36.8 36.3 36 32

Alexander Sheingauz, et. al. "The Competitive Position of the
RFE in NE Asia," in Thornton and Ziegler, ed. Region at Risk;
Security Implications of Political and Economic Developments
in the Russian Far East.
Table 2:
Amur Agricultural Output

(Thous Tons) 1992 1993 1994 1995 1996 1997 1998

Grain 710 473 433 259 315 318.5 304.8
Potatoes 358 205 360 338 316.7 358.8 397.8
Vegetables 62 54 58 98 83.1 79.6 102.3
Soy 170.4 156.3 169.5 161.5
Meat (slaughter 62 51 42 31 26.5 26.4 21.8
 weight)
Milk 355 330 264 232 236.3 217.2 203.3
Eggs (mil) 222 226 210 164 153.9 138.2 125.3

Goskomstat Rossii. Regiony Rossii 1999.
Table 3:
Primore Agricultural Output

(thous tons) 1992 1993 1994 1995 1996 1997 1998

Crops 403 359 164 163 187 187 180.1
Potatoes 368 384 329 466 475.4 370 536.9
Vegetables 82 115 82 123 124.2 90.2 126

Meat (slaughter 52 46 39 28 26.9 21 18.7
 weight)
Milk 278 270 228 182 164.9 149.8 146.1
Eggs (mil units) 471 405 383 361 349.9 295.3 260.4

Goskomstat Rossii. Regiony Rossii 1999.

Notes

(1.) Collectivization saw the forced relocation of rural peasants from dispersed villages to a small number of state-controlled kolkhozes (collective farms), logging camps, mines, and construction sites. (Bruce Grant, In the Soviet House of Culture. Princeton, New Jersey: Princeton University Press, 1995, 92.) Stalin's fears of Japanese expansion, lead to expulsion or forced relocation of East Asians from the region, such as the removal of 135,343 Koreans on sixty trains from Vladivostok in 1937-38. (John J. Stephan; The Russian Far East; a History. Stanford, Ca: Stanford University Press, 1994, 191, 213.)

(2.) In 1990, the RFE had 761 sovkhozes, 84 kolkhozes, 1289 subsidiaries of industrial factories, plus 1.3 million individual farm plots and 700,000 garden-farm associations. (Pavel Minakir, ed. The Russian Far East; An Economic Handbook. Armonk, NY: M. E. Sharpe, 1994, 61.

(3.) Pavel Minakir, ed. The Russian Far East; An Economic Survey. Khabarovsk: RIOTIP, 1996, 438-439.

(4.) Bradley J. Rorem and Renee Giovarelli, Agrarian Reform in the Russian Far East. RDI Report 95 (October 1997), processed.

(5.) Goskomstat Rossii. Regiony Rossii 1999, Vol 2, 80.

(6.) Bulletin: Development of Economic Reforms in Primorskii Krai from January to June 1997 (Primorskii Krai Committee on Statistics), 20; Amur Region: Guidebook for Businessmen (Vostokincenter, 1994); The Russian Far East: A Business Reference Guide, (3rd Ed., 1997-98) 156-157; As cited in Rorem & Giovarelli, op. cit.

(7.) Discussions with officials in Khabarovsk Krai and Amur Oblast Land Committees (October 1999).

(8.) By the mid-1960s the Soviet government had expressed it intention for a "massive" extension of agriculture in the RFE. In 1967, it publicized a plan to reclaim 1.2 million hectares of swamp land to create 75 state farms, manned by new immigrants. Despite initial claims of success, this plan was never fully realized. It did, however, result in substantial increases in area planted in grain and soy. E. Stuart Kirby, The Soviet Far East 65-67 (1971). From 1986-1990, Soviet policy again dictated an expansion of Far East agriculture through land reclamation, resulting in an increase of 824,000 hectares, or 12 percent of all agricultural land. Pavel A. Minakir, The Russian Far East: An Economic Survey (1996).

By the 1980's state and collective farms in the former Soviet Union cultivated an average of 5,400 hectares of land, which is enormous by world standards. Collectives in the Far East were even larger, frequently upward of 10,000 hectares. In comparison, Canada's farms averaged about 242 hectares in size, while Finland's farms averaged about 13 hectares, and in both countries nearly every farm was operated by a single household. Rorem & Giovarelli, op. cit.

(9.) From 1986-1990, for example, the Soviet government spent 3.5 billion rubles (equivalent to $3.5 billion at the official exchange rate) on the development of the agro-industrial complex of the Far East. (Minakir, (1996) 97

(10.) Even when agriculture was more heavily subsidized by the Soviet Union, it did not achieve yields at levels experienced by non-collectivized agriculture in countries with agro-climatic conditions similar to Russia. Between 1985 and 1989, state and collective farms of the Russian Soviet Federated Socialist Republic (RSFSR) produced grain yields averaging 1.7 tons per hectare. Grain yields in the RFE during this period were 1.2 tons per hectare. Minakir, (1996) 438. During the same period, Canada's farms produced an average of 2.2 tons per hectare, and Finland averaged 2.7 tons per hectare. Id. (internal cites omitted). Rorem & Giovarelli, op. cit.

(11.) Pavel Minakir. Dal'niy vostok rossii; ekonomicheskiy potentsial. Vladivostok: Dal'nauka, 1999, 541.

(12.) See, e.g., the law of Russian Soviet Federated Socialist Republic, "On the Peasant (Farm) Enterprise" (as amended January 5, 1991) (giving collective farms, state farms and subsidiary agricultural operations the right to divide up farmland among their permanent members, and giving members and workers the right to leave agricultural enterprises with their share of the land and property to start peasant farms); Presidential Decree No. 323, "On Urgent Measures for Implementation of Land Reform in the RSFSR" (December 27, 1991), art. 6 (requiring collective and state farms, and other agricultural enterprises, to distribute land held in permanent use into "private, collective-share, or other form of ownership in accordance with the Land Code of the RSFSR"); Government Resolution No. 86, "On the Procedure for Reorganization of Collective and State Farms" (December 29, 1991) (clarifying the rights of collective farm members, state farm workers, and pensioners to receive land and property shares, and providing the size of the property share would be based upon work contribution). Prosterman et al, "Prospects for Family Farming in Russia," Europe-Asia Studies, Vol. 49, Number 8 (December 1997) 1384-385.

(13.) Each land share on a particular enterprise is of equal size and represents its holder's ownership, in common with the other land share owners, of the land being used by the enterprise. Each recipient of a land share was entitled to receive a land share up to the `raion norm' for free distribution of land established by the raion administration. (Raion norms were calculated by dividing the amount of agricultural land in the raion by the entire rural population, rather than using the smaller denominator of agricultural workers and pensioners in the raion.)

(14.) Of particular relevance for the remainder of this paragraph are articles 13-17 of the regulations, "On Reorganization of Collective and State Farms and Privatization of State Agricultural Enterprises" (approved by Resolution of the Government of the Russian Federation No. 708 of September 4, 1992).

(15.) Farms also had the option of extending the categories of people entitled to receive property shares to social sphere workers and former employees.

(16.) Official from the Khabarovsk Krai Ministry of Agriculture (for Khabarovsk); International Market_Insight Reports, interview with Anatoly Bonetskii, head of State Committee on Land Resources and Land Tenure for Amur (October 1999).

(17.) The Economic Research Service of the USDA estimated in 1997 that 75 percent of former state and collective farms in Russia were unprofitable in 1995, even if all subsidies were included in revenue. "International Agriculture and Trade: Newly Independent States and the Baltics" (USDA: Economic Research Service, May 1997) (as cited in Rorem & Giovarelli, op. cit., 32.

(18.) Presidential Decree No. 1212, "On Measures to Improve the Collection of Taxes and other Mandatory Payments and Streamlining Cash and Noncash Money Turnover" (August 18, 1996).

(19.) In 1997, for example, 62 enterprises in Khabarovsk Oblast controlled 78,300 hectares of arable land, while 207 enterprises in Amur Oblast controlled over one million hectares of arable land.

(20.) For legislative authority, see Presidential Decree No. 1767, "On the Regulation of Land Relations and Development of Agrarian Reform in Russia" (27 October 1993); Presidential Decree No. 337, "On Realization of Citizens' Constitutional Rights to Land" (March 7, 1996).

(21.) Russian Federation State Land Committee, 1996.

(22.) Data from Primorskii Krai (the second largest agricultural region in the RFE) gathered in 1997 shows that nearly 45 percent of all shares in this region (37,765 out of a total of 86,021 shares) are used without consideration by agricultural enterprises. Of even greater notice, as of 1997 Primorskii Krai had issued only approximately 45 percent of shares to entitled owners in the region. Rorem & Giovarelli, op. cit., 16 (Table 5).

(23.) In areas of the RFE where livestock constitute the primary agricultural production, requiring less land mass, the average size may be smaller. In Khabarovsk Krai, for example, the average size of a PFE was only 20 hectares in 1999.

(24.) Some of the recorded decrease in the number of peasant farms may be attributed to de-registration of smaller farms to operate as household plots rather than as PFE's. (Reasons to de-register include tax advantages and less bureaucracy.) See, e.g., V. Ya. Usun, Privatization of Land and Farm Restructuring: Ideas, Mechanisms, Results, Problems 6, August 23, 1999. Rural Development Institute working paper (processed).

(25.) Pavel Minakir. Dal'niy vostok rossii; ekonomicheskiy potentsial. Vladivostok: Dal'nauka, 1999, 540-541.

(26.) One example of"superficial" or "cosmetic" restructuring is a number of collective farms in Amur Oblast now formally registered as PFE's. These farms, like other former collectives now registered as joint stock companies, production cooperations, or limited liability companies, have undergone no meaningful managerial or structural change at all from the former collective period. In some instances they re-registered as PFE's in order to take advantage of certain low-interest credit opportunities extended to PFE's during the initial reforms.

(27.) These findings are consistent with those reported throughout Russia. A 1996 study showed that perhaps 95 percent of former collective farms in Russia have "reorganized," most into shareholding enterprises. However, these enterprises continue to be managed internally like collective farms. Experience from the reform period has shown that the collective nature of reorganized agricultural enterprises is shed only when they divide into much smaller units. Karen Brooks, Elmira Krylatykh, Zvi Lerman, Aleksandr Petrikov, and Vasilii Uzun, Agricultural Reform in Russia: A View from the Farm Level, World Bank Discussion Paper 327 (June 1996), at 2.

(28.) See especially regulations, "On Reorganization of Collective and State Agricultural Enterprises," (Approved by Resolution of the Government of the Russian Federation No. 708 of September 4, 1992).

(29.) Data from Amurskaia oblast State Committee on Land Resources and Land Tenure, October 1999.

(30.) In 1997 Khabarovsk had 65,000 hectares and Amur had 779,000 hectares of arable land in their respective land funds. Ibid.

(31.) Rorem and Giovarelli, Agrarian Reform in the Russian Far East, 22-30.

(32.) In fact, legal authority for some land-monitoring activities is lacking. Federal legislation includes irrational use, but not nonuse, as a violation. See Rorem and Giovarelli, Agrarian Reform in the Russian Far East, 23-30, for a detailed discussion of legislative authority for land monitoring.

(33.) Evgenia Serova, "The Impact of Privatization and Farm Restructuring in Russian Agriculture" (September 1999), 21.

(34.) The only sector in which a market in land turnovers is functioning well in the RFE is the small plots (household auxiliary plots, dacha plots, garden plots). A law adopted by the Russian parliament in late 1992, complemented by a regulation on how to actually carry out such sales issued in May 1993, has given potential buyers and sellers high confidence in the legality of such transactions. As mentioned above, the ability to freely transact small plots has probably contributed to their high productivity.

(35.) Law of the Russian Federation, "On Mortgage" (June 24, 1997).

(36.) Law of the Russian Federation, "On the State Registration of Rights to Immovables and Real Estate Transactions "(June 17,1997); Resolution No. 1378 of the Government of the Russian Federation "On Measures to Realize the Federal Law on State Registration of Rights to Immovable Property and Transactions With It "(November 1, 1998).

(37.) See, for example, V.Ia. Usun, "Privatization of Land and Farm Restructuring," 5.

(38.) Figures from V.A. Uvarov, Agriculture of the Russian Far East:Choosing the Form of Production, Rosseskogo Dalnego Vostoka:Khabarovsk (1998), 315.

(39.) FT Asia Intelligence Wire, International Market Insight Reports, October 21, 1998, 6.

(40.) Law of the Russian Federation "On the Consumer Cooperative System in the Russian Federation" (July 1992).

(41.) Interview with Sergei Egorov, Chief Specialist on Peasant (Farm)Enterprises, Khabarovskii krai Agro-Industrial Committee (October 18, 1999).

(42.) Strategy for the Development of the State to the Year 2010, prepared by Presidium of the State Council of the Russian Federation (published in English by Executive Intelligence Review, Vol. 28, No. 9, 2 March 2001.)

Jennifer Duncan Rural Development Institute, Seattle, Washington

Michelle Ruetschle Rural Development Institute, Seattle, Washington