Transformation, Restitution, Privatization in Agriculture Prof. Ing. Ji Tvrdo CSc. Characteristics of development of agriculture till 1989 The installation of a communist dictatorship after 1948 meant the beginning of conscious discrimination against and destruction of natural relationships in the agricultural sector. This sector, based on a wide spectrum of private-ownership relation and entrepreneurially organized, was the outcome of long-term and stable development which had started with historical changes in the mid-nineteenth century. Agriculture at that time, based on a farming class, had over the century built up a very progressive framework. The communist regime severed this continuity, of development, liquidated everything that had been linked with previous ownership relations and entrepreneurial structure ans instead of the tried and tested market economics established a centralized, planned system of the Soviet type. The basic instrument of the regime collectivization, which took place in several waves ( , ) and the forcible concentration of production in unmanageable organizational units after 1970. In addition to the establishment of concerns of a formally co- operative character (essentially similar to the Soviet "Kolhoz") the state to a large extent managed to carry out the misappropriation of farmers' property and its restructuring in the form of large state-owned farms. After 1966 there were signs of a relaxation of directive forms of management and a gradual extension of market relations, but the Soviet occupation and subsequent "normalization" policy arrested this process. Gross agricultural production in 1980 had grown by 21.6% in comparison with 1970, but the surplus of agricultural products was supplied to the former USSR and Soviet armed forces for inflated payments. The rise in agricultural production, however, elicited a disproportionate subsidy for agriculture from the state budget. The main consequences of the period for agriculture can be summarized as. follows: a) the liquidation of farmers as a class, of private ownership relations and the whole entrepreneurial structure, b) the establishment of a collective and state-managed form of organization of production, expressed in the alienation of the farmer from the land and other property and his transformation into a waged employee, c) the liquidation of the best farmers - these were branded as 'kulaks' and driven from the villages, and often physically attacked, d) the creation of a confused situation in relation to property right relations, which is now hampering the process of restitution, e) the creation of marked overproduction of food at massive subsidies and economic losses. This overproduction covered not only food self- sufficiency within the republic but also supplies of food for export. To a significant extent this was a matter of export to eastern European countries and meeting the needs of the foreign armed `forces on Czechoslovak territory, f) the establishment of centralized production-technical base in agriculture, especially through the amalgamation of strips of land, the construction of high-capacity facilities for breeding farm animals, and the merger of primary production enterprises in agriculture, g) the progressive emergence of new generations of workers in agriculture, who obtained higher qualifications but who entered the production process with concepts of labour and agriculture that had crystallized in socialist conditions, h) change in the form of agricultural management brought a series of predominantly negative influences to bear on the countryside, i) One of the - biggest negative consequences is the global orientation of the education and training of young people to the socialist form of management in agriculture. This has created deep-rooted mental tendencies which can only be changed over a long period (e.g. wa i ting for directives from above, lack f independence In decision - making etc.) Summary of Changes In the centrally directive system, agriculture was one of the sectors given strong preference, and this was the reason for its disproportionate size and low efficiency. The transfer to a market economy has meant heavy pressure on agriculture to adapt, in terms of size, structure and performance, to the new economic conditions and market possibilities. Material Aspects of the Changes: the hinge of reform was the settlement of legal property relations in agriculture. This involves three processes: 1) Restitutions. On the basis of upheld claims there have been 246,000 of these, of which 88,000 have related to state-owned farms - there is no figure comparable in other sectors agricultural property in state-owned estates to the value of 13.7 billion K has been returned. 2) Privatization. 971 state concerns and state limited companies to the value of billion K (after subtraction of property not subject to privatization, property designed for restitution and restitution compensation payments). Was privatized. The progress of privatizing agricultural primary production concerns was partialy down by restitutions. The unprivatized property of farms in direct state ownership was leased pending privatization While the decision on how to privatize was made centrally for each SOE, everybody was free to draft a project" for a company proposing the application of one or more privatisation methods. Large-scale privatisation thus amalgamated decentral (drafting of projects) and central (decision making) elements. Privatisation projects could cover one or more of the following standard and non- standard methods: 1.public auctions or tenders, 2.direct sales to predetermined buyers, 3.free transfer to municipalities or social securities bodies and 4.transformation into joint-stock companies and subsequent distribution of shares (e.g. through the voucher scheme or standard methods). 3) Transformation. This entailed the transfer of the property of co - operatives into the private ownership by legal and natural entities co-operatives with a total area of 2.55 million ha. of land and an average area of 2,117 ha. have undergone this transformation As a result 1,658 new co-operative or commercial subjects have come into being, managing 2.33 million ha of agricultural land with an average of 1,408 ha. The number of workers in agricultural co-operatives fell to 180,000 by 30 Sept. 1993, and this represents a fall of 16.7% from the beginning of 1993: By 30 Sept entitled persons had been compensated for the loss of property to 66%, representing property of 12.7 billion K. Transformation of collective farms -- to leave the property in the transformed co-operative and remain or become a member of the co-operative, leasing their land to the co-operative; -- to leave the property to be used by the transformed cooperative on a rental basis (the owner is not a co-operative member); -- to withdraw 2 the property from the use of the co-operative and operate it as an individual farmer, or as a group of farmers forming a new agricultural enterprise; or -- to withdraw the property from the use of the co-operative and lease it or sell it to another enterprise in agriculture (individual farm, corporate farm or other co-operative). The most important and sensitive phase of collective farm transformation was the transfer of collectively-owned property. This property was essentially the additional assets accumulated over the years of the collective farm. For all collective farms, a transformation plan had to be drawn up and approved by a majority of persons concerned. These included: -- members of co-operatives, if they were members before 30 November 1991; -- owners of land and owners of other property (to an accounting value greater than CZK ) used by the co-operatives, provided they applied for ownership within three months of the transformation law coming into force. In these plans, the net asset value of the collectively- owned property of the farm (which excluded all land and other privately-owned property that had originally been put into the co-operative) was calculated in accordance with the latest quarterly financial statement preceding presentation of the transformation plan. For this calculation, account was taken of such items as debts, the value of holdings in joint agricultural companies, investment liabilities and a provision for outstanding property restitutions. The result was the modified net asset value. 25 per cent of this amount was offered to members in the form of shares for sale at what was assumed would be an attractive price, but very few shares were sold. Any shares not taken up were returned to the share pool. All remaining shares in the pool were then distributed to individuals according to the following criteria: per cent in proportion to the area of land originally put into the collective farm; per cent in proportion to the value of other property originally put into the collective farm; per cent in proportion to the number of years worked on the collective farm by members or workers. The number of co-operatives increased by 40 percent, but the land area used by the co-operatives fell by 11 percent. The average area of a collective farm before transformation was hectares; immediately after transformation, the average area of a transformed co-operative was hectares. At the start of the process, it was expected that most collective farms would be transformed into business entities as private individual farms rather than into new co-operatives. So far, this assumption has proved to be wrong, as the majority of members of the original collective farms decided to adopt the new co-operative form. b) The excess of supply over demand dating from the 1980s was the basic problem of agricultural primary production at the beginning of the transformation. There was a fundamental fall in the entire market with eastern European countries.- From the beginning of 1993 the volume of trade with the Slovak Republic decreased. This was particularly marked in relation to the supply of traditional commodities - sugar, potatoes, meat, and dairy products. At the same time the food market in the Czech Republic contracted. This occurred as a result of several reform measures which influenced prices: the removal of negative taxes on turnover, the liberalization of prices, the withdrawal of consumer subsidies in other fields, change in the system of taxation. Self - supply of food among consumers increased. Meanwhile habits in food-consumption remained entrenched. c) There has been major change in the dimensions of agricultural production. By 1992, in comparison with 1989, the number of workers in agricultural production had fallen by more than 43%, the value of the basic products in purchase prices has decreased by cca 10%, and numbers of livestock have fallen, especially cattle (by 15.7%). d) An important negative influence on the income situation has been the pre- privatization effect of state enterprises, an effect which is still widespread, especially in relation to state-owned estates. e) The influence of differential yield on the restructuring of agricultural primary production has so far been to a considerable extent masked by movements in supply and prices. It is, however, already beginning to have a discernible effect on contributing to changes in the distribution of production f) Significant currency devaluation has had a fundamental effect on the price of imported inputs. Agnculture has not been able fully to exploit the opportunities for improving exports which have been provided by devaluation. This is because of protective measures (import quotas and compensatory subsidies, reference and threshold prices) by the importer states, especially the states of the European Community. g) The interest rate has risen sharply. New credits are not easily accessible for agricultural producers. They are provided maximally for the middle-term. Longterm loans do not exist. h) Another partial factor has been the influence of the government of the CR's radical reduction of duties and subsidized on a range of commodities, for example, starch, fruits. Competition from imported subsidized products has put substantial limits on the sale of local industrial potatoes, including industrial seed potatoes. Reduction in production of the market has not been accompanied by any equivalent response, particularly from European Communities. Their protec tive policies in agricultural commodities have prevented us from exploiting the advantages of the radical devaluation at the beginning of our economic reforms for the export of agricultural surplus. The worldwide economic recession has also had an impact on traditional, areas of production and the processing of agricultural products (e.g., wool), i) The social and demographic dimension has also seen striking changes from 1989 to In comparison with the starting year 1989, when the average number of registered workers employed in agricultural primary production concerns was 531,000, there was a marked fall - in 1991 to 403,000, and in 1992 to 300,000 persons. In addition in 1989 there were approximately 60,000 workers employed in secondary production, and these are not included in the figures given above. 1.State of Czech Agriculture as of December 31, 1995 Czech agriculture became stabilised in 1995, the decline of agricultural output was stopped and it experienced a revival. The growth of national economy continued in 1995 and created a space for the growth of agriculture while maintaining its share on GDP. The 1995 developments in the Czech economy confirmed that the period of adjustment accompanied by the decline of economy in the first four years of transformation had ended. The transition has started to economic growth with macroeconomic structural adjustments reflecting the requirements of the gradual integration of the Czech Republic among developed countries. The growth has taken place in an acceptable social environment. For the first time since the beginning of transformation, gross agricultural output experienced an increase compared to the previous year. In 1995, agriculture accounted for 3,1 % of GDP, 4,6 % of total employment in the civilian sector of national economy, 5,6 % of investments by entrepreneurial sector and 3,7 % of total credits. The macroeconomic importance of agriculture is substantially higher when measured by the share of household expenditures spent on food, which is still some 30 %. Ownership changes in agriculture have been mostly completed As of December 31, 1995, the Land Fund of the Czech Republic ilnplenlented 406 of the total of 422 approved privatisation projects for state agricultural enterprises. Of the total of 316 state farms and similar state enterprises operating on agricultural land that had entered the privatisation, 161 were dissolved as of December 31, By the same date, the Land Fund was renting to leaseholders 937,293 hectares of agricultural land and other state owned immovable assets in the value of CZK 15 billion. The share of settled restitution claims in agriculture increased from 57,8 % on December 31, 1994 to 81,9 % on December 31, The remaining 18,1 % of restitution claims are subject to legal proceedings or to a complicated process of entitlement documentation. Adjustments in the structure of agricultural businesses continued through 1995 There was an increase in the number of farms run by natural persons (by 9,1 % according to the Register of economic subjects) and in the number of corporate farms (by 14,2 %). A decline continued of the number of state farms and co- operatives. State enterprises operate 1,7 % of agricultural land. Private sector operates 98,3 % of agricultural land. 1995 A high share of leased land is a characteristic feature Leased land accounts for 95 % of the total land farmed by entrepreneurial subjects, including bigger sized natural persons (above 500 hectares).