One of the main differences between Russia and Ukraine where productivity fell and some of the CEECs, such as Hungary and the Czech Republic, where productivity increased strongly, is not so much the scale of the farm operations, but rather the degree to which their management structure was restructured. In the CEECs, farm enterprise budgets were hardened and on-farm decision making became independent and primarily concerned with turning a profit. Restructuring induced sharp shifts in input use, effective management reforms, and efficiency increases . In contrast, farm restructuring in Russia and in several other FSU countries has been mostly superficial. For example, while the outside imposition of production plans is officially abolished, local authorities continue to influence farm management through informal relationships . The inability to restructure farms has caused a decline of farm efficiency . Differences in restructuring are linked to land reform. In many CEECs land was either restituted to former owners, distributed to farm workers in delineated boundaries, or leased to new farms. Although the land reforms in these countries were complex and difficult to implement, they ended up with stronger and better defined property rights for the new landowners than most of the FSU countries. In the FSU countries, in contrast, land was distributed as paper shares or certificates to workers of the collectives and state farms. Individuals can not identify the piece of land that belongs to any given share, causing weak land rights for individuals and undermining their ability to withdraw land from the large farms. As a result, family farming is emerging only slowly,led grow lights and large farms have little incentive to restructure .Hence, there have been significant differences in the approaches of countries to land reform and the creation of property rights in rural areas.
Good rights and the incentives they created certainly were behind positive performance . Poor ones undoubtedly contributed to the poor performance and will continue to adversely affect future performance. All transitional countries also experienced some form of price and subsidy policy reforms. In China, leaders administratively increased agricultural output prices following decollectivization. The rise in prices in the late 1970s and early 1980s partly explains the increase in farm profits during this period, as it did in Vietnam a few years later . Price reform was much bolder outside of Asia. In most CEECs, leaders dismantled planning system by decontrolling agricultural prices and dramatically reducing subsidies in the early 1990s . In Russia, reformers also liberalized prices in the early reforms, although substantial subsidies to agriculture have continued. Unlike in the case of Asia, however, reforms did not lead to a large price increase and stimulate production. Falling incomes put downward pressure on domestic prices. In many countries the combination of the fall in the real price of output and the rise in the real price of inputs led to a crisis for the agricultural sector . Changes to the trading regime occurred at the same time and were equally decisive in all but the Asian economies. The collapse of the CMEA trading system led to trade disruptions in many countries, especially in those where CMEA trade integration was strongest. Access to some inputs was disrupted. The shift to hard currency payments for imports and falls in income led to a reduction in the demand for foreign agro-food products. In contrast, the early trade reforms saw only limited changes in China . Vietnam also slowly liberalized trade, but rice, one of the nation’s most important post-reform export products received special treatment by leaders. Disruptions in the agri-food chain compounded the agricultural crises in the countries of the FSU and the CEECs .
Pre-transition systems were strongly vertically integrated. The central planner directed both sides of transactions and enforced contracts involving exchanges between the various agents in the chain. The reforms removed state control over planning and resource allocation . In conjunction with reform in the rest of the economy, the strategy in agriculture involved rapid privatization and restructuring of upand down-stream enterprises. However the removal of the central planning and control system, in the absence of new institutions to enforce contracts, distribute information, and finance intermediation caused serious disruptions and negatively affected output throughout the economy . In this aspect China’s reforms deviate the most from those in other parts of the world . In the initial phase of property rights reforms, Chinese leaders chose not to disrupt agriculture any more by reforming the up- and downstream sectors. In essence, the procurement and input supply systems remained fully under the control of the state during the early reforms. The same state-run input supply channels that provided inputs to the communes channeled inputs to farmers. Likewise, the same procurement system that purchased the output of the commune and transferred it to the cities remained virtually unchanged and banks continued to finance these transactions. Sector officials carried out transfers of food from producer to consumer regions according to nearly the same plan as before reform. Even though the maintenance of the system of planned procurement and supply in China caused substantial allocative irrationalities, the benefit of such a strategy was that it did provide farmers access to inputs and product outlets during the period of property rights reforms and farm restructuring . With improved farm productivity it actually allowed increasing the supply of food to urban consumers. The leadership’s emphasis on stability mandated the gradual strategy . The deregulation of the input and output marketing was only allowed to take place at a more gradual pace several years after the initial reforms . The gradual liberalization strategy, called the dual track pricing system, allowed enterprises to reap the informational benefits from price liberalization while avoiding the disruption associated with the breakdown of the planning system.
It also allowed space for traders to slowly develop networks and figure out ways to finance commodity trade . The importance of creating new institutions to facilitate the exchange of inputs for outputs and the trade of commodities can also be seen by observing the differences in the recent performance of the CEECs and Russia. While output in Russia continued to decline, the output fall in the CEECs halted as these economies had begun to find new ways to undertake transactions in the food economy . In other words, an important source of increased productivity in transition economies has been the emergence of new institutions for information, product exchange, and contract enforcement. Such institutions have come in a variety of forms. The most successful ones have frequently depended on private enforcement mechanisms within the framework of specially designed contracts or institutional arrangements . Contracts between private agents act as substitutes for missing or imperfect public enforcement institutions . Successful institutions have offered enough flexibility to allow producers, suppliers,nft hydroponic and buyers to adjust to the continuously changing environment during transition. For example, while land lease contracts initially often took the form of short, single-season informal contracts, gradually they have evolved into more formal and longer-term contracts, reflecting reduced uncertainty and improved understanding of the market environment by both the owner of the land and the tenant. Leasing of equipment is another example of an institutional innovation adapted to transition as it mitigates farms’ collateral problems in financing new equipment. Foreign direct investment has played an important role in the reemergence of the institutions of exchange in some CEECs . Beyond supply of capital, foreign firms have offered producers a number of arrangements to encourage greater production and marketing and to overcome constraints that have limited economic activity since the onset of transition. For example, food processors have negotiated contracts with banks and input suppliers to provide farms with inputs that enable them to deliver high quality products to their company. Similarly, input supply firms have been involved with assisting farms to find guaranteed outlets for their products in order to stimulate farms’ demand for the company’s products.While an analysis of general transition is beyond the scope of this paper, it is impossible to ignore entirely the economy outside of the agricultural sector because it has had important effects on agricultural transition. General reforms have affected agricultural transition in a variety of important ways. We focus here on some key aspects. First, macro-economic stabilization, including the reform of fiscal and monetary institutions, is an essential element for sustainable growth. A recent comparison of overall performance of the CEECs and FSU countries concludes that rapid overall liberalization and sustained macroeconomic stabilization have laid the basis for gradual institutional change in the more advanced transition countries . At the same time, the report states that the persistence of soft budget constraints in less advanced countries has jeopardized stabilization. But far from disappearing, the state has a major role to play in the formation of macroeconomic policy.
Transition from a socialist to a market economy does not imply a withering away of the state, but rather a fundamental redefinition of the role of the state in the economy . The state must play a strong and leading role in developing market institutions. Interestingly, both in China and in the most advanced CEECs, the state has been able to do this, although often in different ways. In Russia, however, the state has not redefined its role. Instead, in many aspects, the Russian state has withered away and has been unable to fulfill some key roles for the development of a market economy . The state has eroded in establishing the rule of law, as private enforcement has gained the upper hand in Russia . In many sectors, non-state entities have begun to collect taxes and establish the basic conditions for macro-economic stability. For example, estimates put the share of transactions which are carried out as barter or with money substitutes at 75 to 85 percent in Russia . Obviously these developments have strongly affected the climate in which the agricultural transition has taken place, since farm producers, like agents in any industry, need stability, clear legal codes, and can benefit from investments made by the state. The nature of a good macro-economic environment may also attract or deter outside interests from entering the local economy. For example, the flow of FDI and foreign technology and know-how into the agri-food chain has been important in the CEECs, but less so in Russia. One of the main reasons for the high level of outside interest in some CEECs has been narrowed to the progress of the general reforms, the macro-economic situation, and the prospect of EU accession . Macro-economic stabilization and reform progress have not only improved access to foreign capital, technology, and know-how, but also access to domestic credit and capital sources for the farms. Credit markets have developed notoriously slow in the CEECs and FSU countries. Disruptions by privatization and overall restructuring severely limited farm credit access for investment purposes and working capital .The success of the recovery in some CEECs is at least partially due to improvements in the capital situation for the farms. Enterprise privatization also has had important impacts on agriculture. While land reform and farm privatization procedures were specific to agriculture, the privatization of companies involved in supplying inputs and credit to farms as well as food processing and distribution companies followed the general privatization procedures, a process that has differed significantly among countries. In a review of the successes and failures of privatization, Kornai concludes that three aspects of privatization strategies contributed to successful privatization. First, it is necessary to create favorable conditions for bottom-up development of the private sector, including the creation of new companies. Second, selling of state companies to strategic investors has led to more satisfactorily results than strategies based on some form of give-away, e.g. through vouchers. Finally, de facto privatization occurred by hardening the budget constraints of companies . All of these strategies have had a major impact on the performance of the agri-food sector. For example, Hungary, a country that has sold most of its food processing companies to foreign investors, received the highest per capita inflow of FDI in the agri-food sector, and has consequently experienced some of the greatest growth in output and productivity . Finally, external economic conditions, as well as government policies, have affected the outflow of labor from agriculture during transition, a trend that has major implications for agricultural productivity and rural incomes.