FINAL REPORT TONATIONAL COUNCIL FOR SOVIET AND EAST EUROPEAN RESEARCH

TITLE: Policy, Organization and thePerformance of Bulgarian Agriculture,1960-1985

AUTHOR: Dr. Michael L. Boyd

CONTRACTOR: The University of Vermont & State Agricultural College

PRINCIPAL INVESTIGATOR: Dr. Michael L. Boyd

COUNCIL CONTRACT NUMBER: 802-07

DATE: October 1988

The work leading to this report was supported by funds provided bythe National Council for Soviet and East European Research. Theanalysis and interpretations contained in the report are those ofthe author.

CONTENTS

Executive Summary . v

I. Summary and Introduction 1

II. Policy and Productivity: 1960-1985 . . . . 6

III. Empirical Approach and Data 14

IV. Results and Interpretation 20

V. Implications for Reform in Eastern Europe . . 36

Appendix A 40

Appendix B 45

References 52

iii

EXECUTIVE SUMMARY

This study examines the impact of different enterprise

organizational structures on agricultural performance in Bulgaria.

In evaluating the policies chosen and the policy options available

in Bulgaria, I pay particular attention to: (1) how differing

organizational structures of productive units affected output and

productivity growth; (2) how organizational reforms interacted

with technological change; (3) the prospects for continued reform

and improved performance in Bulgarian agriculture; and (4) the

implications of Bulgarian reforms for both agricultural and

economy-wide reforms in the Soviet Union and Eastern Europe. This

project has produced two principal sets of conclusions. The first

relates to the formulation of policies and their impact and the

second constitutes the technical results on which the policy

analysis is based.

Policies and Their Impact

The policy implications of this study may be summarized as

follows:

1. Agricultural policies in Bulgaria were strongly in-

fluenced by the desire to improve performance by changing the

organization of production. In the 1970's, reforms were pursued

which formed large, integrated agricultural production units

(APKs) in the hope that these would increase efficiency and raise

v

output and productivity growth. In the 1980's, organizational

reforms (the New Economic Mechanism or NEM) were introduced which

tried to decentralize elements of decision-making to improve

agricultural performance.

2. Neither the APK nor the NEM reforms were particularly

successful, as measured by rates of growth of labor, land and

capital productivities and output. Both the APK and the NEM

reforms had a negative effect on the rate of growth of technologi-

cal change, indicating that both sets of reforms reduced the

ability of agricultural producers to adopt and utilize new

technologies. The NEM reforms were better than APK reforms in

this respect.

3. Bulgarian agriculture exhibits strongly increasing

returns to scale, confirming the fundamental assumption of

policies geared to increase output by increasing the size of

productive units. The sources of increasing returns varied over

time, being related to land and livestock in the 1960's and more

to machinery in the 1970's and 1980's. In each period, increasing

intensification of production was required to adapt to the steady

outflow of labor from agriculture.

4. Despite the existence of increasing returns to scale, the

decline in technological change was strongest under the reforms

specifically designed to take advantage of such returns (the APK

reforms). This shows that simple increased size of agricultural

production does not guarantee the benefits of increasing returns

to scale. This also indicates that management and communication

vi

difficulties may have outweighed the technological benefits of

increased size.

5. The existence of increasing returns to scale does not

necessarily imply that the decentralizing NEM reforms must imply

poorer performance. First, decentralization does not require

significant reduction in the absolute size of production units

where increasing returns are important. Second, benefits of

improved management and information flows due to decentralization

may offset losses due to decreased production unit size. Com-

parison of the hypothetical performance of APK and NEM reforms

indicates that the NEM reforms were more effective.

6. The performance of the NEM reforms may be used to assess

the prospects and problems of perestroika-type reforms in the

Soviet Union and Eastern Europe. Although the results of the NEM

reforms to 1985 are disappointing, it would be mistaken to

conclude that the prospects for this type of reform in Eastern

Europe are unequivocally bleak. The Bulgarian experience shows

clearly that such reforms are difficult to implement and subject

to setbacks. That the NEM reforms were not pursued completely and

vigorously to 1985 shows how difficult it is to promote thorough-

going institutional reform in Soviet-type systems, but it also

limits the degree to which the observed poor performance can be

blamed on the NEM reforms themselves. It is in fact possible that

the NEM reform declines in production and productivity were due to

the failure to implement these reforms, rather than to the reforms

themselves. Although this is not a positive endorsement of NEM-

vii

type reforms, it indicates that it is too early for a full

assessment of the effect of such reforms on the performance of

Soviet-type economies. The ultimate success or failure of such

reforms depends critically on the methods of and commitment to

their implementation.

Technical Results

The technical conclusions on which the above policy analysis

is based, derived from an aggregate production function investiga-

tion, are:

1. The organizational reforms of the 1970's and 1980's had a

negative impact on the rate of technological change. This effect

was significantly negative for the APK reforms, while the NEM

reforms implied no growth due to technical change. Both of these

effects were in marked contrast to the large rates of growth

exhibited in the 1960's.

2. Bulgarian agriculture exhibits strongly increasing

returns to scale, which indicate that policies geared toward

increasing the size of productive units should increase produc-

tivity and output. This theoretical prediction is contrary to

observed performance, which indicates that the source of poor

performance lies in other aspects of farm environments, such as

management, planning and information availability and usefulness.

3. The implications of increasing returns for the NEM

reforms are not unequivocally negative. The most important

mitigating factor is that large, decentralized production units

vii i

could capture the benefits both of increasing returns to scale and

of improved management and information flows.

4. Changing patterns of input coefficients over time

indicate that the primary sources of increasing returns and

technological change lie in land-augmenting and mechanized

technologies. Given the continuing decline in the size of the

agricultural labor force, further development of labor-replacing

technologies will be important for the future growth of Bulgarian

agriculture.

5. Comparing hypothetical production under the three policy

regimes with actual performance and with each other suggests that

the initial policies of the 1960's were better than both the APK

and the NEM reforms. Comparing the NEM and APK reforms indicates

that the NEM reforms are more effective.

Empirical Approach and Data

These results were based on an analysis which combined

evaluation of the qualitative factors affecting performance

associated with organizational policies with quantitative estima-

tion of aggregate production functions. This analysis began with

a description of policies over the years from 1960 to 1985 which

identified three distinct subperiods: (1) In the 1960's policy

makers worked to consolidate and rationalize the large-scale

collective and state farms formed in the mid- and late-1950's with

policies which presumed the existence of increasing returns to

scale which would increase output and productivity through

ix

increasing size. (2) In the 1970's a second phase of organiza-

tional policy, referred to as the APK reforms, began which

extended and expanded this consolidation. The goal of these

reforms was to produce a small number of very large, horizontally

integrated agricultural production units and to link these

vertically with enterprises in food processing industries to form

agro-industrial complexes (APKs). It was expected that both

increasing returns and the benefits of streamlined planning

procedures would improve agricultural performance. (3) Beginning

in 1979, the New Economic Mechanism reforms were introduced in

agriculture. Policy makers retreated from the pursuit of increas-

ing concentration and began to decentralize decision-making and to

introduce increased flexibility for managers, with rationalized

prices and a focus on profits as an incentive mechanism. Although

the NEM reforms marked a distinct break with past policies, they

were clearly undertaken within the framework of collectivized,

state-directed production.

To evaluate the impact of these policies and identify the

effects of other factors, aggregate production functions were

estimated. These examined the impact of policy on the effects of

regional environments, on technological change and on the ways in

which inputs affected output. These production functions,

estimated at the national level, were based on data from the 28

okrugs or counties of Bulgaria. Combining this regional variation

with temporal variation over the 26 years from 1960 to 1985, there

were 728 observations per variable.

Conclusions

This study leads to the conclusion that the organizational

policies pursued by the Bulgarian government had a definite,

negative impact on agricultural performance. That the problems

with organizational reforms had less to do with technological and

more to do with managerial and informational factors indicates the

direction in which further reforms will have to move in order for

the continuation of the NEM reforms to have a significant effect

in improving Bulgarian agricultural performance. These results

also suggest that the prospects for reform in Eastern Europe and

the Soviet Union are neither unequivocally bleak nor absolutely

rosy. The process of reform being undertaken is a difficult one,

although its ultimate rewards may definitely be worth the prospec-

tive costs. Nevertheless, the existence of significant costs to

these reforms means that their successful pursuit will be doubly

difficult.

Copies of the machine-readable database which was constructed

for this project, with accompanying documentation, are available

from the author on request. Inquiries should be directed to:

Professor Michael L. BoydDepartment of EconomicsThe University of Vermont479 Main StreetBurlington, VT 05405

x i

I. Summary and Introduction

This study examines the impact of different enterprise

organizational structures on agricultural performance in

Bulgaria. In considering Bulgarian experiences with

organizational reform, I examine the implications of these

reforms both for the development of the Bulgarian economy and for

their applicability to the agricultures of other East European

economies. In evaluating the policies chosen and the policy

options available in Bulgaria, I pay particular attention to: (1)

how the differing organizational structures of productive units

have affected output and productivity growth; (2) how

organizational reforms interacted with the process of

technological change; (3) the prospects for continued reform and

improved performance in Bulgarian agriculture; and (4) the

implications of Bulgarian reforms for both agricultural and

economy-wide reforms in the Soviet Union and Eastern Europe.

The results of this study may be summarized as follows:

1. Agricultural policies in Bulgaria were strongly influenced

by the desire to improve performance by changing the

organization of production. In the 1970's, reforms were

pursued which formed large, integrated agricultural

production units (APKs) in the hope that these would

increase efficiency and raise output and productivity

2

growth. In the 1980's, organizational reforms (the New

Economic Mechanism or NEM) were introduced which tried to

decentralize elements of decision-making to improve

agricultural performance.

2. Neither the APK nor the NEM reforms were particularly

successful, as measured by rates of growth of labor, land

and capital productivities and output.

3. Both the APK and the NEM reforms had a negative effect on

the rate of growth of technological change, indicating that

both organizational reforms reduced the ability of

agricultural producers to adopt and utilize new

technologies. The NEM reforms were, however, better than the

APK reforms in this respect.

4. Bulgarian agriculture exhibits strongly increasing returns

to scale, confirming the fundamental assumption of policies

geared to increase output by increasing the size of

productive units. The sources of increasing returns varied

over time, being related to land and livestock in the 1960's

and more to machinery in the 1970's and 1980's. In each

period, increasing intensification of production was

required to adapt to the steady outflow of labor from

agriculture.

5. Despite the existence of increasing returns to scale, the

decline in technological change was strongest under the

reforms specifically designed to take advantage of such

returns (the APK reforms). This shows that simple increased

size of agricultural production units does not guarantee the

3

benefits of increasing returns to scale. This also

indicates that management and communication difficulties may

have outweighed the technological benefits of increased

size.

6. The existence of increasing returns to scale does not

necessarily imply that the decentralizing NEM reforms must

imply poorer performance. First, decentralization does not

require significant reduction in the absolute size of

production units where increasing returns are important.

Second, benefits of improved management and information

flows due to decentralization may offset losses due to

decreased production unit size. Comparison of the

hypothetical performance of APK and NEM reforms indicates

that the NEM reforms were more effective.

7. The performance of the NEM reforms may be used to" assess the

prospects and problems of perestroika-type reforms in the

Soviet Union and Eastern Europe. Although the results of

the NEM reforms to 1985 are disappointing, it would be

mistaken to conclude that the prospects for this type of

reform in Eastern Europe are unequivocally bleak. The

Bulgarian experience shows clearly that such reforms are

difficult to implement and subject to setbacks. That the

NEM reforms were not pursued completely and vigorously to

1985 shows how difficult it is to promote thoroughgoing

institutional reform in Soviet-type systems, but it also

limits the degree to which the observed poor performance can

be blamed on the NEM reforms themselves. It is in fact

4

possible that the NEM reform declines in production and

productivity were due to the failure to implement these

reforms, rather than to the reforms themselves. Although

this is not a positive endorsement of NEM-type reforms, it

indicates that it is too early for a full assessment of the

effect of such reforms on the performance of Soviet-type

economies. The ultimate success or failure of such reforms

depends critically on the methods of and commitment to their

implementation.

Agriculture is a key sector for determining overall levels

of performance in all East European economies. The organization

of agricultural production strongly influences productivity in

this sector and changes in agricultural productivity directly

affect the ability of East European countries to increase incomes

and develop their overall productive capacity. Because of the

chain of cause and effect which runs from agricultural policy to

organization to the performance of agriculture to the performance

of the economy as a whole, East European governments have

frequently adopted policies to alter the organization of

agricultural production in the hope of raising output and

productivity.1 The scope of these reforms is constrained both by

factors specific to individual countries (such as endowments of

land, labor and other resources and historic patterns of land

use) and by ideological concerns, which generally preclude

An excellent overview of both the motivations for andthe mechanisms of agricultural policy in Eastern Europe throughthe 1970's is found in Wadekin (1982).

5

serious consideration of particular non-socialized alternatives.

These facts make it clear that understanding the interrelations

among agricultural policy, organization and performance is

central to understanding the problems of and the potential for

economic development in Eastern Europe.

For three reasons, Bulgarian agriculture since 1960 presents

a particularly useful case for studying the interactions of

policy, organization and performance. First, the Bulgarians have

pursued a number of distinct organizational policies since 1960,

within the framework of a fully socialized, large-scale

agriculture. Thus, Bulgarian agriculture presents a relatively

wide range of specific organizational forms, clearly developed

within the overall structure of the basic Soviet model. Second,

because the Bulgarian experience has been consistently within the

Soviet model of centrally-planned economic organization,

successful policies can be viewed as providing a guide for more

widespread organizational (and hence productivity) changes in

Eastern Europe. Third, the most recent set of organizational

reforms in Bulgarian agriculture which date from the late 1970's

represent an actual example of the kind of decentralizing changes

that form the centerpiece of Mikhail Gorbachev's perestroika

reforms in the Soviet Union and thus may contain useful

information regarding the prospects and problems of those broader

reforms.

In the next section, I describe the policies which were

implemented with respect to agricultural organization from 1960

to 1985 and the trends in labor, land and output productivities

6

which accompanied them. Based on these descriptions, I identify

the general outline of the effects of policies on performance,

although this analysis does not allow me to evaluate the

mechanisms by which policies affected performance. In section 3,

I describe the aggregate production function approach I use to

account explicitly for the effect of policies and organization on

performance and the data I use in this investigation. I present

and interpret the results of analysis in section 4 and in section

5 draw some conclusions with regard to the implications of the

Bulgarian experience for the Soviet Union and Eastern Europe.

II. Policy and Productivity: 1960 - 1985

Since 1960, Bulgarian agriculture has undergone three

distinct phases of policy regarding the organization of

agricultural production. The phases, the rationale for their

development and their effects on performance may be summarized as

follows:

1. In the 1960's policy makers worked to consolidate and

rationalize the large-scale collective and state farms

formed in the mid- and late-1950's. These policies presumed

the existence of increasing returns to scale which would

increase output and productivity through increasing size.

As the 1960's proceeded, rates of growth of output and

productivities began to decline.

7

2. In the 1970's a second phase of organizational policy,

referred to as the APK reforms, began which extended and

expanded this consolidation. The goal of these reforms was

to produce a small number of very large, horizontally

integrated agricultural production units and to link these

vertically with enterprises in food processing industries to

form agro-industrial complexes (APKs). It was expected that

both increasing returns and the benefits of streamlined

planning procedures would improve agricultural performance.

Output and productivity growth fell sharply in the early

1970's and recovered weakly in the late 1970's.

3. Beginning in 1979, the New Economic Mechanism (NEM) reforms

were introduced in agriculture. Policy makers retreated

from the pursuit of increasing concentration and began to

decentralize decision-making and to introduce increased

flexibility for managers, with rationalized prices and a

focus on profits as an incentive mechanism. Although the NEM

reforms marked a distinct break with past policies, they

were clearly undertaken within the framework of

collectivized, state-directed production. Output and

productivity growth declined further in this period.

After the initial collectivization of agriculture in 1954-

1956, the Bulgarians proceeded to promote consolidation of

existing farms into much larger entities. By the end of 1958,

the number of farms was 2 5% of its previous level and this

process had increased the number of state relative to collective

8

farms.2 The basic rationale for this process lay in the

application of the standard Soviet model of economic development

to Bulgarian agriculture. Agricultural production was to become

more capital intensive with the increased size of productive

enterprises expected to create and allow exploitation of

increasing returns to scale. Further, the reduction in the

number of farms was expected to improve plan formulation and

implementation. However, by the late 1960's these expectations

were not being realized. In particular, the average annual rate

of growth of gross output declined from 5.0% per annum for 1961-

1965 to 1.2% p.a. for 1966-1970. Similarly, productivity

declined in this period as the average annual rate of growth of

output per worker fell from 8.3% p.a. for 1961-1965 to 4.5% p.a.

for 1966-1970; of output per hectare fell from 3.8% p.a. in 1961-

1965 to 1.5% p.a. in 1966-1970; and of output per unit of

capital fell from 17.8% p.a. in 1961-1965 to -11.0% p.a. in 1966-

1970.3

Weidemann (1980), p. 98. At this point, I put thegeneral references on which the following description of theevolution of agricultural policies is based and will not repeatthem throughout this section, except for specific, factualpoints. In addition to the work just cited, this section is basedon Allen (1977), Cochrane (1986), Cook (1986), Feiwel (1977),Grozev (1987), Jackson (1981) and (1986), Kinov (1974), Lampe(1986), Mishev (1987), Popov (1969-1980), Tanov and Mishev(1987), Todorov (1981), Wadekin (1982), Weidemann (1982) andWyzan (1986) and (1987).

These figures are based on author calculations of grossoutput,labor, land and capital described in Appendix B. Thefigures presented are based on three-year averages centered onthe beginning and ending years of the periods given. These dataare found in Appendix A tables Al and A2. For comparison, averageannual rates of growth of gross output based on data fromLazarcik (1973) and Alton, et al. (1983) were 4.3 from 1960 to1965 and 0.4 from 1965 to 1970, and for output per worker were

9

These declines led Bulgarian policy makers to shift in 1970

to a new approach, the fundamental premise of which was to

increase further the size of agricultural entities. Although to

a certain extent the rationale for these reforms was a logical

extension of the commitment to capital intensiveness and

economies of scale that provided the foundation for

organizational changes in the 1960's, there were additional

reasons for the policies designed to form the APKs and PAKs.

Most notably, the Bulgarians sought to increase the value-added

in agricultural exports via increased processing of agricultural

products and to increase the supply of agricultural goods to the

domestic urban population, while accommodating the continuing

decline in the agricultural labor force (Lampe (1986), p. 207;

Weidemann (1980), pp. 106-111). Regardless of the rationale, the

effect of the APK reforms on the organization of production was

clear. Over the period 1970-1971, the 744 collective and 56

state farms originally existing were combined into 161 complexes

(most of which were APKs) with an average size of 24,000 hectares

and number of members of 6,500. By 1977, as the process of

integration was refined, the number of APKs fell to 148 and their

size increased by one-third (Lampe (1980) pp. 207-208). Clearly,

the effect of the APK reforms was to move Bulgarian agricultural

organization to a new, higher plane of integrated production.

The effect of the APK reforms on agricultural performance

was definitely not what was desired. Gross output growth dropped

8.4 from 1960 to 1969 and 4.0 from 1965 to 1970 (again, allfigures are in % per annum).

10

to 0.3% p.a. in 1971-1975 and rose only to 2.0% p.a. in 1976-

1980. Although this does indicate improvement in the late

1970's, gross output growth barely reattained the levels of the

early 1960's. Productivities in general showed a similar

pattern, with the average annual rate of growth of output per

worker at 3.6% p.a. for 1971-1975 and 3.8% p.a. for 1976-1980; of

output per hectare at 0.3% p.a. in 1971-1975 and 2.3% p.a. in

1976-1980; and of output per unit of capital at 9.1% p.a. in

1971-1975 and -12.7 % p.a. in 1976-1980.4

As with the disappointing performance of agriculture in the

late 1960's, poor performance under the APK regime led the

Bulgarian leadership again to consider reforms. Beginning in

1979 with the transformation of the Ministry of Agriculture and

the Food Industry into the National Agro-Industrial Union (NAPS),

the New Economic Mechanism (NEM) was introduced. This process

began in agriculture and was extended after 1982 to the rest of

the economy. The major agricultural reforms associated with the

NEM were: (i) decentralization of decision-making, with

responsibility devolving to the okrug-level agro-industrial

unions (OAPS), below them to the APKs (now reduced in size by

about one-half from their late 1970's form) and within the APKs

to the labor brigades; (ii) a reduction in the number of plan

indicators, increasing the role of the market; (iii) increasing

4 As with the figures presented above, these are based onthe data in Appendix A tables Al and A2. For comparison, the datain Lazarcik (1973) and Alton, et al. (1983) show that the averageannual rate of growth of gross output (in % per annum) was 5.9from 1970 to 1975 and -3.4 from 1975 to 1980, while that ofoutput per worker was 10.0 from 1970 to 1975 and -1.3 from 1975to 1980.

11

the role of profitability (stopanska smetka, comparable to the

Russian khozrashchet) in linking earnings to performance and in

particular reinforcing material incentives to increased

productivity at the level of the labor brigades; (iv) increasing

emphasis on contracts for allocating production and inputs, on

regional food self-sufficiency and on production from private

plots; and (v) increased producer prices.

These reforms represent an attempt to alter the fundamental

organization and performance of Bulgarian agriculture. In many

respects, they are similar to the reforms Mikhail Gorbachev

implemented in Soviet agriculture in his tenure in the Ministry

of Agriculture and which he is trying to extend to the rest of

the Soviet economy through his perestroika reforms. As such, the

performance of these reforms in Bulgaria carries a strong

cautionary tale. For the period 1981-1985, gross output and

labor, land and capital productivity all show virtually no

growth. The average annual rates of growth for this period are:

-2.7% p.a. for gross output; -0.7% p.a. for labor productivity;

-2.6% p.a. for land productivity; and 5.4% p.a. for capital

productivity.5 As is obvious from the data in Appendix A table

Al, a major influence on these negative growth rates was the

extremely unfavorable weather in 1985. Nevertheless, as the data

in tables Al and A2 make clear, Bulgarian agricultural

performance throughout the early 1980's was weak. Based on these

partial productivities one would conclude that the reforms since

Comparable figures from Lazarcik (1973) and Alton, etal. (1983) are 4.7% p.a. from 1980 to 1982 for gross output and6.1% p.a. from 1980 to 1982 for labor productivity.

12

1970, and in particular the NEM reforms of the 1980's, do not

represent successful variations of the basic Soviet model of

agricultural organization.

The data in table 1 provide a more complete picture of the

performance of Bulgarian agriculture from 1960 to 1985. These

data show both the high degree of variability of growth and how

in general growth was concentrated in the 1960's. Gross output

grew by 36% in the 1960's and increased only another 22% from

1970 to 1983 (the last good weather year for which data are

available). Labor productivity more than doubled in the 1960's

and increased by just over 60% from 1970 to 1983. Output per

hectare increased by 31% from 1960 to 1970, but only grew by 25%

from 1970 to 1983. Capital productivity, which showed much

greater variation than any of the other measures, more than

doubled to the mid-1960's, tapered off into the mid-1970's (so

that in 1969 it was only half again as high a level as in 1960)

and then increased again only to stabilize in the early 1980's at

levels of the mid-1960's. That productivity growth concentrated

on labor reflects the steady decline of the agricultural labor

force and suggests that changes in agricultural technology have

served to counteract this outflow by improving the other inputs

used with labor.

These data are suggestive, but they sketch only the outline

of the relationships among policy, organization and performance.

Taken together the description of policy and the aggregate growth

figures indicate a connection between the policies pursued and

the performance of Bulgarian agriculture, but the impression is

13

Table 1

Indices of Bulgarian Agricultural Production andLabor, Land and Capital Productivities

(3-year averages; 1961-1963 = 100)

Year

196119621963196419651966196719681969197019711972197319741975197619771978197919801981198219831984

GrossOutput

100100107114128135137136136144152159 "154152154159158163167176179180180161

Output perWorker

100104116129152167175180189209229245244253274298309326338360374386398364

Output perHectare

' 100100105109121128130128130137145152147145148152152157161171174176176157

Output perUnit Capital

100115136200243231212152151134136117118147214322249186150171196244216243

Source: Author construction; Appendix A tables Al and A2; datafrom Appendix B

clearly not of a positive correlation. The attempts to improve

agricultural performance associated with the APK and NEM reforms

do not appear to have produced the desired effects on output or

productivity growth. In order to understand these relationships

14

better, in the next two sections I conduct an aggregate

production function analysis of the performance of Bulgarian

agriculture. The results of that investigation, coupled with the

productivity data and policy analysis presented here, allow me to

consider in the concluding section some broader questions which

the Bulgarian experience raises, such as: How have organizational

changes affected the ability of agricultural producers to

increase output and productivity? What factors have influenced

the growth and fluctuations of Bulgarian agriculture? and, What

conclusions can be drawn, based on the Bulgarian case, regarding

the potential for reform to improve performance in Bulgarian

agriculture and in the agricultures of other East European

countries?

III. Empirical Approach and Data

In order to identify separately the effects of policy,

environment and inputs on performance, i.e., to examine the

factors underlying the changes in productivities described in the

previous section, I use an aggregate production function

analysis. This approach also allows me to consider the

mechanisms by which policies have affected productivities. I

begin by estimating an aggregate production function for

Bulgarian agriculture covering the years 1960 to 1985. The basic

specification I use for this production function is a loglinear

Cobb-Douglas form which permits useful specification of policy

15

and environmental effects (following Koopmans and Montias (1971)

and Hewett (1980)) through its disembodied technological change

component.6 In this formulation, the aggregate production

function is given by:

6 Although the Cobb-Douglas is a useful specification, itdoes impose strict assumptions regarding substitutability andmay, therefore, not be the most appropriate form. For thisreason, other specifications were examined (CES and translog),but they proved unable to produce statistically significantresults based on the data available. Details of the results fromestimating these alternative specifications are available fromthe author on request.

where the natural logarithm of gross output;

the regional dummy variable (one for observations

on region r, zero elsewhere; these regions are

made up of groups of okrugs);

the policy (time) dummy variable (year for

observations in subperiod t, zero elsewhere);

the natural logarithm of the ith input (some

combination of labor, land, livestock, machinery

and/or capital);

okrug (county), the basic regional observational

unit;

year, the basic temporal observational unit; and

the error term.

16

All inputs are assumed to be quality-adjusted so that the

remaining factors affecting output (the main one being the

weather) do so randomly via u.7

The first three terms on the right-hand side of (1) break

down the disembodied technological change component of the Cobb-

Douglas form into three separate effects. measures the base

level of production (with all inputs hypothetically set at zero)

in the base region in 1960. The base region comprises the

mountainous okrugs of the southwest. The dummy variables

measure the differential impact of regional environment on

performance. The specific regions used represent combinations of

the 2 8 okrugs for which data are gathered. These groupings were

determined based on information on soil and climatic variations

and examination of crop and livestock production patterns. The

regions used (in addition to the base, Southwest) are:

Southeast/Central; Northwest; and Northeast.8 The dummy

variables are defined to capture the effects of differing

policies on the rate of growth of technological change. The

discussion in section 2 indicated that the years from 19 60 to

1985 could be subdivided into three distinct policy periods: the

consolidation of collectivization and promotion of large-scale

7For potential problems related to quality adjustment ofinputs, refer to the discussion of data construction in AppendixB. Although this may be a problem for certain inputs (notablymachinery), the lack of quality adjustment in this variable oughtnot to introduce significant biases in the estimates.

8For more detail on the construction of the regional andtemporal groupings for dummy variables, see Appendix B, parts 7and 8. The locations of the regions in Bulgaria are shown on MapAl in Appendix A.

17

production units in 1960-1969; the extension of this emphasis on

increased size with the APK reforms of 1970-1979; and the

decentralizing NEM reforms of 1980-1985. These are the three

policy subperiods used to define the time trend dummy variables.

The role of both regional and temporal dummy variables in this

formulation is to capture, quantify and control for the effects

of policy and environment on performance as distinct from the

effects of inputs.

One issue of particular importance in evaluating the impact

of policies on performance is whether or not Bulgarian

agriculture exhibits or has exhibited increasing returns to

scale. Because this issue is central to the questions

investigated here, I do not restrict the sum of the coefficients

on the . An alternative specification of (1) which permits

direct testing of the existence of returns to scale is obtained

by replacing the natural logarithms x and the z's (except for

labor) by the natural logarithms if those variables per unit of

labor. This version of the Cobb-Douglas form generates identical

coefficient point estimates to that for the form presented in

(1), except that the coefficient on the logarithm of labor is one

minus the sum of all input coefficients. In this case, the

standard t-statistic on this coefficient tests directly for non-

constant returns to scale.

Estimation of (1) by Ordinary Least Squares (OLS) would

yield biased estimates due both to simultaneity and to potential

errors-in-variables. While the serial nature of agricultural

production decisions and results can provide a theoretical

18

resolution to the problem of simultaneity (e.g., as in Hoch,

1962; Mundlak, 1963; or Mundlak and Hoch, 1965) such arguments

are not strictly applicable to even the low level of aggregation

used here. An alternative method to deal with simultaneity is to

use Instrumental Variables (IV) estimation procedures. IV is not

only a conventional way to deal with problem of non-zero

covariance between the error term and the RHS variables, but is

also a standard correction procedure for measurement and other

errors-in-variables. It is the method of estimation used here.

A full description of the data used in the production

function analysis, their sources and methods of construction, is

found in Appendix B. Table 2 presents summary statistics for the

main series used in the tables and estimation: part A for the

basic data and part B for the natural logarithms of each

variable. Gross output was constructed by the author as the

geometric mean of two output series, one using 1965-1967 average

prices and the other 1981-1983 average prices, based on gross

physical production of sixteen crops and four livestock

products.9 The labor series measures average number of workers

employed in agriculture and land shows hectares of working land,

adjusted for regional differences in land quality. Livestock is

an aggregate of the actual stocks of cattle, swine, sheep, horses

and poultry and machinery measures tractor horsepower available.

The series on agricultural capital was constructed from an

9 The crops are wheat, barley, oats, corn, rice, beans andlentils, cotton, sugarbeet, tomatoes, green peppers, onions,potatoes, apples, plums, grapes and strawberries and thelivestock products (measured as slaughter weight) were for beef,pork, sheep and poultry.

19

Table 2

Descriptive Statistics for Data used in Estimation

A. Basic Data*

Units for the data in part A are: gross output - 1,000 leva;labor - workers; land - 1,000 hectares (adjusted, seeAppendix B#3; livestock - livestock units (an aggregate of theactual number of different types of stock; see Appendix B#4for aggregation weights); machinery - tractor horsepower;capital - 1,000 leva. Natural logarithms in part B are takenon the variables measured in basic units. The unit ofobservation is the okrug (county), of which there are 28, andthe year, of which there are 26. These statistics are basedon the full number of observations, 728.

Source: Author construction; for more detail, see Appendix B.

Series

Gross OutputLaborLandLivestockMachineryCapital

Mean

161,09651,6611,656

121,96078,37955,097

StandardDeviation

102,31733,070

88145,88348,06925,299

Maximum

682,187220,1644,160

317,253229,400119,731

Minimum

19,5784,282

13535,7952,760

85,142

B. Natural Logarithms*

Series

Gross OutputLaborLandLivestockMachineryCapital

Mean

18.6610.6514.1111.6311.0517.68

StandardDeviation

0.7390.6490.7480.3990.7330.588

Maximum

20.3412.3015.2412.6612.3418.60

Minimum

16.788. 3611.8210.487.9215.95

20

estimate of the 1960 capital stock and the annual amounts of

fixed investment, utilizing a 10% rate of depreciation.

IV. Results and Interpretation

The policy implications of the aggregate production function

analysis may be summarized as follows:

1. The organizational reforms of the 1970's and 1980's had a

negative impact on the rate of technological change. This

effect was significantly negative for the APK reforms, while

the NEM reforms implied no growth due to technical change.

Both of these effects were in marked contrast to the large

rates of growth exhibited in the 1960's. This implies that

the effect of organizational reform in increasing

productivity and improving agricultural performance was the

opposite of that hoped for by policy makers.

2. Bulgarian agriculture exhibits strongly increasing returns

to scale, which indicate that policies geared toward

increasing the size of productive units should increase

productivity and output. This theoretical prediction is

contrary to observed performance, which indicates that the

source of poor performance lies in other aspects of farm

environments, such as management, planning and information

availability and usefulness.

3. The implications of increasing returns for the NEM reforms

21

are not unequivocally negative. Although reforms aimed at

decentralizing decision-making would appear to imply

decreased production and productivity due to lost returns to

scale, this need not be the case. The most important

mitigating factor is that large, decentralized production

units could capture the benefits both of increasing returns

to scale and of improved management and information flows.

4. The changing patterns of input coefficients indicate that

the primary sources of increasing returns and technological

change lie in land-augmenting and mechanized technologies.

Given the continuing decline in the size of the agricultural

labor force, further development of labor-replacing

technologies will be important for the future growth of

Bulgarian agriculture.

5. Comparing hypothetical production under the three policy

regimes with actual performance and with each other suggests

that the initial policies of the 1960's were better than

both the APK and the NEM reforms. Comparing the NEM and APK

reforms suggests that the NEM reforms are more effective.

As presented, equation (1) admits alternative combinations

of inputs and dummy variables. Tables 3 and 4 present

coefficient point estimates for the particular specification of

equation (1) which, given the data available, provides the best

description of the relation between output and inputs. Although

the inputs included (labor, land, livestock and machinery) do not

comprise a complete set of the factors which influence the level

22

of output, they do account for almost all major categories of

inputs.-1-0 Alternative specifications which utilized the

reported inputs with the available measure of agricultural

capital, as well as other combinations of capital and subsets of

these inputs did not provide meaningful estimates.11 The

specific forms of the regional and temporal dummy variables

reported are based on the description of policy in the preceding

section for time dummies and on assessment of regional

environmental factors for regional dummies.

Tables 3 and 4 together provide the basic information

required to assess the impact of policies on performance and to

consider the mechanisms by which policies affected performance.

Table 3 presents the coefficient estimates for the base version

of the aggregate production function in which only the time

trends, which measure the rate of growth of disembodied

technological change, vary between policy periods. Table 4

presents estimates for which all coefficients were allowed to

vary in each of the three policy periods. The F-statistic for

comparing the constrained version of the aggregate production

function in table 3 with the fully unconstrained version in table

1 0 The principal missing category is fertilizer orchemical/biological technology. This would have been included,but there was no adequate series of data available givingregional chemical fertilizer consumption for the years underinvestigation and there was no suitable method for distributingthe national aggregate data that were available.

1 1 The basic difficulty was that the available data did notcontain sufficient variation to produce significant pointestimates of production function coefficients with morecomplicated forms. Details of the alternative specificationestimates are available from the author on request.

Estimated Aggregate Production Function for BulgarianAgriculture, 1960 - 1985: Base Estimate,

Trend Variation Only (a)

Regional Intercepts

SouthwestSoutheast/CentralNorthwestNortheast

Time Trends (c)

1960-19691970-19791980-1985

Inputs

LaborLandLivestockMachinery

Sum of InputCoefficients (d)

3.123.333.313.37

0.0160.0120.010

0.090.500.430.19

1.22

(5.05) (b)(7.05)(6.98)(7.12)

(2.29)(3.25)(3.65)

( 3.79)(19.51)( 6.10)( 4.01)

(6.21)

Number of observations 700R-squared 0.94S.E. of regression 0.22Sum of squared residuals 32.67

See notes to tables 3 and 4 at end of table 4

23

Table 3*

See notes to tables 3 and 4 at end of table 4.

24

Table 4*

Estimated Aggregate Production Functions for BulgarianAgriculture, 1960 - 1985: Separate Estimation by

Policy Period (a)

RegionalIntercepts

SouthwestSE/CentralNorthwestNortheast

Time Trends (c)

1960-19691970-19791980-1985

Inputs

LaborLandLivestockMachinery

Sum of InputCoefficients (d)

Number ofobservations

R-squaredS.E. ofregression

Sum of squaredresiduals

1960-1969

2.20 (2.77)2.26 (2.70)2.27 (2.73)2.27 (2.71)

0.044 (5.68)

0.002 ( 0.04)0.62 (13.64)0.61 ( 5.27)0.01 ( 0.17)

1.25 (4.07)

2520.91

0.21

10.33

1970-1979

(b) 3.80 (4.87)4.12 (5.20)4.07 (5.06)4.19 (5.26)

-0.013 (2.07)

0.09 ( 2.62)0.43 (10.48)0.46 ( 3.53)0.22 ( 2.64)

1.19 (3.03)

2800.93

0.21

11.56

1980-1985

2.70 (3.86)2.82 (3.79)2.79 (3.77)2.81 (3.78)

-0.011 (1.14)

0.08 (0.87)0.45 (6.67)0.46 (2.71)0.31 (2.53)

1.30 (5.17)

1680.93

0.21

6.74

25

Notes to Tables 3 and 4

(a) All equations were estimated by instrumental variables in

which the instruments were all regional and temporal dummy

variables included in the regressions and the one year

lagged values of the inputs.

(b) Figures in parentheses are t-statistics for the difference

of the estimated coefficient from zero, except for the sum

of input coefficients, which is as described in (d) below.

(c) Time trends in table 3 are measured by a dummy variable

which takes the value 1 in 1960, 2 in 1961, etc. to 26 in

1985. Policy period rates of disembodied technological

change must be multiplied by the relevant year's value to

obtain the impact on output. Time trends in table 4 are

measured by dummy variables which take the value 1 in the

first year of the period covered, 2 in the second, etc. up

to the appropriate value for the last year of each period.

(d) Point estimates for returns to scale were obtained by re-

estimating the regression equation using all dependent and

independent variables (except labor) measured as the natural

logarithm of the variable per unit of labor, as described in

section 3. These reported t-statistics are for the

difference of the sum of input coefficients from one (i.e.,

for the difference from constant returns to scale).

Reported input coefficients may not sum to their reported

sum due to rounding.

26

4 is F(19, 673) = 4.32, which indicates that the version in table

4 has statistically more significant explanatory power.-1-2 Thus,

the coefficients reported in table 4 are the preferred set.

Comparing the point estimates in tables 3 and 4, in

particular the way in which the estimated coefficients vary

between the two versions and over time in the version reported in

table 4, sheds light on the mechanisms by which policy affected

performance. In the base version, although the differences among

the regional intercepts is small in some cases (notably between

Southeast/Central and Northwest) these differentials are

statistically significant. The reason for this can be seen most

clearly by examining the changing patterns of regional intercepts

in table 4. This shows that in the 1960's and in the 1980's,

regional differences in basic production levels are weak and that

the levels themselves are lower than they were in the 1970's. In

the 1970's, when regional intercepts were at higher levels, they

were also characterized by significant regional variation. It is

these hidden temporal variations in regional intercepts that lie

behind the significant, though small differences reported in

table 3. The strong upward shift of the production function in

the 1970's indicates that the APK reforms did have a positive

basic impact, with a significantly more beneficial effect on the

12 In addition to the fully unconstrained version of theproduction function reported in table 4, other partiallyunconstrained versions were estimated (e.g., allowing only theinput coefficients and time trends to vary for differentcombinations of the policy subperiods, etc.). Results of thesecomparisons are available from the author on request, but noother version supplied as much explanatory power as that reportedin table 4.

27

Northeast and Southeast/Central regions.

The differences in time trends among the three policy

periods in the two estimated versions of the production function

are also illuminating. In table 3, a clear pattern of relatively-

small and declining rates of growth of technological change

characterizes the agricultural production function. In the

1960's, the rate of output growth due to technical change was

1.6% per annum; this rate declined to 1.2% per annum with the APK

reforms and dropped further to 1.0% per annum with the NEM

reforms. Although this could simply imply that inputs were being

measured more effectively over time, it is more reasonably

interpreted to indicate that the organizational changes brought

about by the reforms of the 1970's and 1980's caused a decline in

the ability of Bulgarian agriculture to generate output growth

through adoption and effective utilization of advanced

technologies. The implications of this interpretation become

even more stark when the results in table 4 are considered. Here

we see a high level of technological change growth in the 1960's

of 4.4% per annum. The rate of growth of technological change

became significantly negative during the APK reforms at -1.3% per

annum, which provides a substantially more negative impression

of the effects of these reforms than the decline in the still-

positive rate shown in table 3. For the NEM reforms of the

1980's, table 4 shows a continued negative rate of growth of

technological change, although one that is not significantly

different from zero. Thus, the NEM reforms performed better than

the APK reforms in this respect, although both sets of reforms

28

had serious negative effects on the adoption and utilization of

advanced technologies.

The input coefficients in table 3 show a small but

significant effect of labor on output (each input coefficient

represents the elasticity of output with respect to that input),

large effects of land and livestock and an intermediate impact of

machinery on production. The effect of all inputs taken together

shows strongly increasing returns to scale. This provides strong

confirming evidence for the belief in increasing returns which

underlay policy formulation in the 1960's and 1970's. The input

estimates in table 4 show similar patterns, although again

temporal variation provides insight into the mechanisms by which

policy affected performance. In the 1960's, the period with high

rates of technological change, labor and machinery coefficients

are effectively zero and land and livestock each account for

roughly half of the impact of inputs on output. In this case the

high rate of growth of technological change could be the result

of poor measurement of all inputs, as reflected in their widely

varying coefficients. Alternatively, although the Cobb-Douglas

functional form cannot measure directly embodied technological

change, the large coefficients on land and livestock could

indicate that there was significant land- and stock-augmenting

technical change. Such augmentation could have increased the

point estimates for these variables and swamped the impact of

labor and machinery, reducing their coefficients to

insignificance, and it is also consistent with the observed high

rates of growth due to technological change.

29

Concerns about the effects of technological change vanish in

the 1970's as the APK-reform input coefficients closely mirror

those in table 3. In this period the impact of technological

change is strongly negative, indicating that either problems in

utilizing technology or the managerial and communication effects

of organizational change made output grow more slowly than it

would have due to growth in inputs. It is interesting to note

that increasing returns to scale are reduced slightly, although

such returns are still strong, and that the continued existence

of increasing returns did not offset the other factors which

implied a strong negative rate of growth of disembodied

technological change. Although the data do not permit me to

identify these other factors distinctly, they clearly imply that

the effect of organizational change associated with forming the

APKs contributed to this decline. In the 1980's, the main

changes in input coefficients are the return to insignificance of

the labor estimate and the increase in the machinery coefficient.

These changes in input coefficients indicate that mechanized

technology has become more important and that the sources of

increasing returns have varied over time. The "improvement" in

the rate of growth of technological change to zero and the rise

in increasing returns indicate that the NEM reforms did have an

important effect on agricultural performance, although some of

this is masked by poor performance in 1985 due to bad weather.

That increasing returns have become stronger has important

implications for the progress of the decentralizing reforms of

the NEM which will be considered in more detail in the concluding

30

section.

Utilizing the point estimates in tables 3 and 4 and figures

on rates of growth for inputs and output derived from Appendix A

table Al, the sources of growth of output and selected

productivities for Bulgarian agriculture can be examined. Table

5 presents the results of these calculations for the entire

period from 1961 to 1984 and for the policy subperiods

corresponding to different organizational structures for

agricultural production. Each of the reported measures shows a

pattern of steadily declining growth over the three policy

periods. As noted earlier, in the period 1980-1984 actual growth

of each of the quantities described was somewhat higher than

reported here, because 1985 was an extremely bad weather year.

Nevertheless, a general pattern of declining productivity does

describe the development of Bulgarian agriculture appropriately.

Over the entire period from 1961 to 1984, inputs as measured

accounted for about one-half of gross output and land

productivity growth and roughly four-fifths of labor productivity

growth. As with the estimated coefficients, however, variation

in the temporal patterns of explanation are illuminating. In the

1960's, almost 90% of output growth and over 100% of land

productivity growth were due to the residual, observations

consistent with the high rate of growth of disembodied

technological change in this period. The fact that almost 60% of

labor productivity growth was explained by inputs as measured

further confirms the interpretation suggested above that the

technological change of this period was most likely land- and

Table 5

31

Sources of Growth of Agricultural Output, Outputper Worker and Output per Hectare: Bulgaria,

1960 - 1985 (percent per annum)

Source: Author calculation; Columns A are calculated using table3 estimated production function coefficients and columnsB using table 4 coefficients. All growth rates calculatedon three-year moving averages for each aggregate variableseries.

I. Gross Output

1961-19841961-19691970-19791980-1984

II. Output per

1961-19841961-19691970-19791980-1984

III. Output per

1961-19841961-19691970-19791980-1984

ActualGrowth

1.94.01.5

-1.8

Worker

5.27.74.80.2

Hectare

1.83.51.6

-1.7

Explainedby Inputs

A

1.01.21.7

-0.3

4.35.44.91.7

0.90.71.8

-0.2

B

_

0.51.9

-0.3

4.55.21.7

_

-0.51.9

-0.2

ResidualGrowth

A

0.92.8

-0.2-1.5

0.92.3

-0.1-1.5

0.92.8

-0.2-1.5

B

_

3.5-0.4-1.5

3.2-0.4-1.5

_

4.0-0.3-1.5

(Residual÷Actual)xl00

A

4770

-1383

1730

- 2-750

5080

-1388

B

_

88-2783

42- 8

-750

_

114-1988

32

stock-augmenting.

In the 1970's, under the APK reforms, the rate of growth of

technological change was significantly negative and the ability

of inputs as measured to account for output and productivity

growth declined dramatically. In this period, input growth

implied greater growth of production and productivity than was

observed, with the difference being most pronounced for gross

output. In the 1980's, with the NEM reforms, the situation for

gross output returned to its 1960's configuration, with inputs as

measured accounting for about one-fifth of measured growth. For

this period, the interesting point to note is that actual output

declined and so this measure indicates that most of this decline

was not due to declining inputs. The figures for land

productivity in the 1980's are almost identical to those for

gross output and differ only slightly from the 1960's figures,

although again with the qualification that in the NEM period,

land productivity was declining. Output per worker in the 1980's

grew very slightly, while the growth implied by input growth was

7.5 times that actually observed. Thus, under the NEM reforms,

the main impact of policy was to cause output and land

productivity to decline much more and labor productivity to grow

more slowly than was implied by changes in input levels. Again,

these results imply that the declines in output and

productivities under both the APK and the NEM reforms did not

arise from purely technological factors, but rather from

difficulties associated with implementing organizational

change.

33

The estimated production functions can also be used to

compare actual and hypothetical outputs under different policy

regimes. The estimated coefficients in table 4 suggest that

shifts in policy associated with reforms produced significantly

different production functions in each period. Because regional

intercepts, time trends and input coefficients all vary among the

three policy periods it is difficult to evaluate the combined

impact of all three sets of factors (i.e., environment, policy

and inputs) by simply comparing the estimated coefficients.

Table 6 addresses the issues involved in a complete comparison of

policy performance. Presented here are ratios of actual and

hypothetical measures of Bulgarian agricultural output. Actual

output is taken from table Al, Appendix A, the three-year moving

average of gross output constructed as described in Appendix B.

Three different sets of hypothetical three-year moving average

gross output were constructed, based on the actual, okrug-level

inputs on which the production functions were estimated. The

series labelled Basic uses the estimated production function

coefficients from table 4 for the period 1960-1969; the series

labelled APK uses the estimated coefficients in table 4 for the

period 1970-1979; and the series labelled NEM uses the

coefficients for 1980-1985. Each of these series measures the

hypothetical aggregate output that Bulgarian agriculture would

have produced if each of the three different policy regimes had

been in effect over the entire period from 1960 to 1985.

Columns 1 through 3 compare the hypothetical output that

would have been produced under each of the three policy regimes

Table 6

3 4

Ratios of Actual and Hypothetical OutputMeasures, Bulgarian Agriculture: 1961 - 1984*

Year

196119621963196419651966196719681969197019711972197319741975197619771978197919801981198219831984

(1)BasicActual

98102100999 4939599

10099

100101110119128133138141145148152156163190

(2)APK

Actual

1261251181131029 79 695938 78 381858890898 885837 9777 47380

(3)NEM

Actual

12012111611210410099

100999289879 297

100100999694908 7848 391

(4)APK

Basic

12812311811410910510097938 88380777470676460575350484542

(5)NEMBasic

1221191161141111071041019894898684 .8278757268646157545148

(6)NEMAPK

969 798

100101103104105106106107107108110111112113113113114114114114114

Source: Author construction.

All figures are ratios of aggregate gross output for three-yearmoving averages centered on the year, times 100. Actual isactual output as reported in Appendix A table Al. Basic ishypothetical output constructed using the coefficients for1960-1969 in table 4. APK is hypothetical output constructedusing the coefficients for 1970-1979 in table 4. NEM ishypothetical output constructed using the 1980-1985coefficients reported in table 4. All hypothetical outputswere constructed using the actual, observed input levels fromthe okrug-level data.

35

to actual production. The Basic regime of the 1960's produced

roughly comparable output growth up to the early 1970's, after

which it would have produced substantially more output than was

realized under the actual two reform programs. By 1984, the

Basic policies would have produced almost twice as much output as

actual policies did. Both the APK and NEM reforms would have

produced higher levels of output than were actually realized in

the early 1960's, but by the late 1960's each would have produced

less. For the APK reforms, this relative deterioration in

performance is fairly steady, so that by 1984 this regime would

have produced only 8 0% of actual output. The NEM reforms

performed better than the APK. Although hypothetical output

continued to decline relative to actual after the late 1960's,

the rate of deterioration was slower so that by 1984 this regime

would have produced 9 0% of actual output.

Columns 4 and 5 compare the hypothetical performance of the

APK and NEM reforms with the policies of the 1960's. In each

case, the pattern is similar to that for the APK and NEM reforms

compared to actual performance, although the deterioration after

1965 is more rapid and deeper. This is due to the fact that the

Basic policy regime implied higher than actual output growth,

while the reform regimes implied lower than actual growth.

Finally, column 6 compares the hypothetical performance of the

APK and NEM reforms. This shows that while the APK reforms

implied slightly higher output to 1964, the NEM reforms would

have consistently outperformed them after that year and implied a

10% to 14% higher level of output from the early 1970's onward.

36

These comparisons suggest that the initial policies of the 1960's

were better than both the APK and the NEM reforms and that the

NEM reforms were more effective than the APK reforms.

V. Implications for Reform in Eastern Europe

The results presented warrant several interesting

conclusions with regard to the questions raised at the end of

section 2. First, it is clear that the APK and NEM reforms of

the 1970's and 1980's did not produce the desired effects on

agricultural producers' ability to increase production and

productivity. As each piece of evidence (partial productivity

growth rates; production function coefficients; sources of growth

analysis; comparison of actual and hypothetical outputs) has

shown, both the APK and the NEM reforms failed in particular to

stimulate productivity growth. Although the general thrust of

the NEM reforms appears to fail to take advantage of the

increasing returns to scale exhibited by Bulgarian agriculture,

it remains true that in this period, the rate of growth of

technological change did improve compared to its 1970's levels.

Further, comparing hypothetical performance under the APK and NEM

regimes shows that the NEM reforms worked better, although

neither set of reforms did as well as the basic policies of the

1960's.

Evaluating the implications for agricultural policy of the

strongly increasing returns to scale which this study identified

37

is complicated by the fact that the decline in total factor

productivity was strongest under the APK reforms, which were

specifically designed to take advantage of such phenomena. This

indicates that simply increasing the size of agricultural

production entities is not sufficient to reap the advantages of

increasing returns to scale and that other factors related to the

implementation of these organizational reforms, such as

managerial performance and the flow and utilization of

information must also be taken into account. These latter

factors appear to have hindered performance and offset the

advantages of increasing returns to scale under the APK reforms

and may produce benefits to offset potential losses from reducing

the scale of production units with the NEM reforms. Although the

data presented here do not permit direct testing of this

hypothesis, this may be the source of the hypothetically better

performance of the NEM compared to the APK reforms.

The production function coefficients and sources of growth

analysis provide insights into the factors which influenced the

growth and fluctuations of Bulgarian agriculture. These suggest

that in the 1960's, land- and livestock-augmenting technological

change was the most important source of output and productivity

growth. After 1970, under the APK and NEM reforms, the

importance of mechanized inputs grew and the role of

organizational and other factors which influenced disembodied

technological change growth became negative. The effects of both

land-augmenting and mechanized technological change on production

and productivity growth have been important, in particular since

38

the intensification of agricultural production has had to

increase as the agricultural labor force has continually shrunk.

The organizational effects of the major reforms of the 1970's and

1980's have been equally important, although their effects have

generally been negative.

Finally, what do these Bulgarian results suggest for the

prospects for current organizational reforms in the Soviet Union

and Eastern Europe? Although the described effects of the NEM

reforms, which are in principle similar to the decentralizing

reforms at the heart of Gorbachev's perestroika in the Soviet

Union, are disappointing, it would be mistaken to conclude that

the prospects for this type of reform are unequivocally bleak.

The Bulgarian agricultural experience shows clearly that this

path to improved performance is difficult and subject to setbacks

and it indicates some of the more important sources of potential

problems. But, it must also be noted that the NEM reforms were

not fully implemented between 1980 and 1985 and that the weather

in 1985 was particularly bad. That the reforms were not pursued

completely and vigorously shows in part how difficult it is to

promote thoroughgoing institutional reform in Soviet-type

systems, but it also limits the degree to which the poor

performance of the early 1980's can be blamed on the NEM reforms

themselves. Certainly, current Bulgarian actions (in particular

their recent commitment to continue with and to expand this type

of reform) suggest that it is possible that the declines in

production and productivity of this period were in fact due to

the failure to implement these reforms, rather than to the

39

effects of the reforms themselves. Although this conclusion is

not a positive endorsement of NEM-type reforms, it does indicate

clearly that it is too early to reach a final assessment of the

impact of such reforms on the performance of Soviet-type

economies and that the ultimate success or failure of such

reforms depends critically on the methods of and commitment to

their implementation.

40

APPENDICES

I. Appendix A: Supplementary Tables and Maps

Table Al

Agricultural Output, Labor, Land, Capital Stock,Livestock and Machinery: Bulgaria Total (3-year moving averages)

Year

196119621963196419651966196719681969197019711972197319741975197619771978197919801981198219831984

Gross Output(m. leva)

3, 1103, 1203,3303,5503,9904,2104,2704,2204,2304,4704,7104,9404, 7804,7204,7904,9404,9305,0805, 1905,4605,5605,5905,6105,000

Labor(X 1,000workers)

2,1272,0531,9631,8781,7951,7231,6681,6051,5301,4621,4101,3821,3381,2781,1961,1341,0911,0661,0501,0381,017

992965940

Land(X 1,000hectares)

45,47945,51246,37647,48048,25148,17748,12948,05347,72347,58147,44447,59947,53947,47847,40847,38447,36147,32147,07946,83146,59646,55946,53946,533

Capital(m. leva)

1,8601,620

. 1,4701,070

9821,0901,2101, 6601,6702,0002,0802,5202,4301,9201,340

9171,1901,6402,0701,9101,7001,3701,5601,230

41

Table Al (continued)

Agricultural Output, Labor, Land, Capital Stock,Livestock and Machinery: Bulgaria Total (3-year moving averages)

Year

196119621963196419651966196719681969197019711972197319741975197619771978197919801981198219831984

Livestock(1000 Livestock

units

3, 1943,2683,3033,3263,2883,2453,1763,0822,9952,9533,0463, 1613,2243,2963,4513,5933,6443,6683,7353,8043,8373,8443,8563,827

Machinery(1000

horsepower)

847962

1,0981,2181,3331,4261,5431,6661,7751,8401,9011,9472, 1372,3852,6792,8542,9563,0293,0613,0643,0523,0353,0102,972

Source: Author construction; see Appendix B.

4 2

Table A2

Bulgarian Agricultural Output per Worker, perHectare and per Unit of Capital: 1961 - 1984 (leva per

unit of input; 3-year moving averages)

Year

196119621963196419651966196719681969197019711972197319741975197619771978197919801981198219831984

Output perWorker

1,4631,5191,6981,8922,2212,4452,5602,6292,7673,0613,3433,5743,5693, 6934,0024,3514,5174,7704,9435,2645,4665,6425,8155,317

Output perHectare

68.468.571.974.882.687.488.887.888.794.099.4

103.7100.599.4

101.0104.2104.0107.4110.2116.7119.3120.2120.5107.4

Output perLeva of Capital

1.671.922.263.344.063.863.542.552.53.2.232.271.961.962.463.575.384.153.102.502.853.274.083.604.06

Source: Author construction; based on table Al.

4 3

Table A3

Regional Land Quality Adjustment Coefficients

1.2 .3 .4.5-6.7.8.9.

10.11.12.13.14.15.16.17.18.19.20.21.22.23.24.25.26.27.28.

Region

BlagoevgradBurgasVarnaVeliko T'rnovoVidinVratsaGabrovoK'rdzhaliKyustendilLovechMikhailovgradPazardzhikPernikPlevenPlovdivRazgradRuseSilistraSlivenSmolyanSofia CitySofiaStara ZagoraTolbukhinT'rgovishcheKhaskovoShumenYambol

(a)SeriesA

0.680.790.900.850.990. 670.930.251.161.160.971.170.531.131.451.021.321.351. 110.910.920.681.080.960.881.220.880.87

(b)Series

B

0.640.810.920.831.010.620.950.241.371.161.001.120.541.141.341.061.301.281.120.800.890.651.081.030.901.200.900.91

(c)AdjustmentCoefficients

0.660.800.910.841.000.640.940.251.261.160.991.140.541.141.401.041.311.311.110.850.900.661.080.990.891.210.890.89

Construction: Series A and B (cols. a and b) were each formed asthe ratio of regional crop output per hectare (based on seriesA and B for alternative price weight schemes described inAppendix B#l, respectively) to the national average cropoutput per hectare for 1960 for that set of price weights. Theadjustment coefficients used are reported in col. (c) formedas the geometric mean of series A and B.

Map Al

For key to okrug names associated with the numbers on the map,see Appendix B#7 below.

44

Bulgaria, with Okrugs

4 5

II. Appendix B: Data Sources and Construction

The principal source of the data used in this study was the

Statistical Yearbook of the People's Republic of Bulgaria

(referred to as SGNRB year). Volumes for the years 1960 to 1986

were used, in particular the section on agriculture by okrug.

The data obtained from SGNRB were compared with and corrected by

those taken from other sources, including Lazarcik (1973), Alton,

et al. (1983), Cochrane (1986), Cook (1986), Jackson (1986),

Lampe (1986), Tanov and Mishev (1987) and Wyzan (1986, 1987).

The following sections discuss the particular sources and

construction for each major series used and the regional and

temporal dummy variables.

1. Output

The series used for agricultural product measures gross

output of wheat, barley, oats, corn, rice, beans and lentils,

cotton, sugarbeet, tomatoes, green peppers, onions, potatoes,

apples, plums, grapes, strawberries, beef, pork, sheep and

poultry (livestock products measured as slaughter weight). For

each of the crops, the level of gross output was available for

each region in SGNRB1961 to 1986 for the preceding year. For

livestock production, no separate regional figures were available

for each product. Instead, national aggregate levels of

slaughter weight meat production for beef, pork, sheep and

46

poultry were distributed by regional shares in total national

stocks of each of those categories of animals. This assumes that

regional yield per animal exhibits no systematic variation.

Aggregate output series were obtained using three sets of

prices: 1968 producer prices (from Lazarcik (1973) p. 37,52);

1965-1967 average prices (SGNRB1971, p. 308); and 1981-1983

average prices (SGNRB1978. p. 345 and SGNRB1984, p. 372 and Tanov

and Mishev (1987) pp. 403-406). The 1965-1967 series did not

contain independent observations for prices on cotton, sugarbeet

and strawberries. These were interpolated using the ratios of

cotton and sugarbeet (strawberry) prices from the 1968 producer

prices to the 1968 producer prices for rice and beans and lentils

(apples) and multiplying these factors by the available data for

1965-1967 averages for rice and beans and lentil (apples). A

similar process was used for beef, sheep and poultry price

relative to those for pork.

Of these three series, the latter two were combined as a

geometric mean to form a single series incorporating both early

and late period price weights. The objective of this procedure

is to reduce the impact of index number biases associated with

the choice of one or another set of prices (see Ames and Carlson

(1968). I examined both the geometric mean series and that based

on 1968 producer prices and found that they showed substantially

the same patterns of growth rates of output and productivities,

although the levels of output were quite different. Because of

the ability of the geometric mean series to deal with index

number bias problems, this series was preferred and is the one

47

reported in all tables and used in estimation.

2. Labor

This series measures all persons employed in agriculture on

state and collective farms in a given year. The basic data were

taken from SGNRB1961 to 1986 for employment, augmented by the

series for collective farm employment for the years for which

that is reported separately. The total series obtained from

these regional level data were adjusted to produce totals

consistent with alternative estimates (e.g., from Lazarcik (1973)

and Alton, et al. (1983)). This series has not been adjusted to

account for hours of work or the changing age/sex composition of

the agricultural labor force and thus reflects the number of

full-time worker years available in the sector.

3. Land

Land measures the number of hectares of working land taken

from SGNRB1961 to 1986. In calculating the reported series on

land productivities, this measure was not adjusted to account for

regional variations in quality. In estimating the production

functions (and in the data description in table 2), the land

measure used was adjusted for regional differences in quality by

multiplying the actual number of hectares per region by the

regional land quality adjustment coefficients reported in

Appendix A, table A3. The basic assumption made in this

48

adjustment is that early year (1960) regional differences in crop

output per hectare were due primarily to regional differences in

land quality and not to other factors (such as more and better

inputs). To the extent that this assumption is not valid, it

will lead to a transfer of some of the measured effects of

regional differences in environment to the land variable.

4. Livestock

This measures the aggregate standing stock of all cows,

bulls, pigs, sheep, goats, horses and poultry in the region in

the year, taken from SGNRB1961 to 1986. These livestock were

aggregated using weights from Hayami and Ruttan (1971), p. 313,

which were turn derived from those developed by the FAO. The

weights used were: cows and bulls, 0.8; pigs, 0.2; sheep and

goats, 0.1; horses, 1.0; and poultry 0.01.

5. Machinery

This series measures the stock of tractor horsepower

available in the region at the beginning of the year, obtained

from SGNRB1961 to 1986. This was derived by taking the actual

number of tractors in the region evaluated at an average level of

3 0 horsepower per tractor. Because this captures only one aspect

of available mechanization, it is best interpreted as a proxy for

the impact of mechanical technology rather than as a strict

measure of the impact of available mechanized horsepower on

49

production. Also, this measure is not adjusted for variations in

utilization rates.

6. Capital

This series was constructed from a base level of capital for

1960 taken in aggregate from SGNRB1983, p. 126, and distributed

by the regional share in national total 1958-1960 accumulated

investment (these shares were used due to the absence available

data on the 19 60 regional distribution of the aggregate capital

stock). These data were then augmented sequentially for each

year by the data for agricultural fixed investment from SGNRB1961

to 1986, using a 10% rate of depreciation to obtain the reported

series on the regional agricultural capital stock. Because of

both the lack of initial data and the nature of the gross

investment series used in construction, this is the least

satisfactory of all constructed variables. Further, the

weaknesses in construction may account for the inability of this

variable to contribute significantly to production function

estimates.

7. Regional Dummy Variables

The data used in this study were gathered at the level of

the okrug or county, of which there are 28 in Bulgaria (one of

which is the city and immediate environs of Sofia). The location

of these okrugs is identified by the following numbers on map Al

50

in Appendix A. The okrugs are:

Based on information on geography, soils and primary product

types (from Lampe (1986), SGNRB, author constructed data and

Vulkov (1973)), these 28 regions were combined into the four

composite regions reported in estimation. These composite

regions and their okrug makeup are:

1. Southwest: Blagoevgrad, Gabrovo, K'rdzhali, Kyustendil,

Pazardzhik, Pernik, Smolyan, Sofia, Sofia City.

2. Southeast/ Central: Burgas, Plovdiv, Sliven, Stara Zagora,

Khaskovo, Yambol.

3. Northwest: Veliko T'rnovo, Vidin, Vratsa, Lovech,

Mikhailovgrad, Pleven.

4. Northeast: Varna, Razgrad, Ruse, Silistra, Tolbukhin,

T'rgovishche, Shumen.

8. Policy Period Dummy Variables

The data utilized have variation not only by region, but

also by the 26 years from 1960 to 1985. As described in section

1.2.3.4 .5.6.7 .8 .9.

10.11.12.13.14.

BlagoevgradBurgasVarnaVeliko T'rnovoVidinVratsaGabrovoK'rdzhaliKyustendilLovechMikhailovgradPazardzhikPernikPleven

15.16.17.18.19.20.21.22.23.24.25.26.27.28.

PlovdivRazgradRuseSilistraSlivenSmolyanSofia CitySofiaStara ZagoraTolbukhinT'rgovishcheKhaskovoShumenYambol

51

2 of the main text, these years can be divided into subperiods

associated with different policies relating to agriculture in

general and agricultural organization in particular. These

subperiods are: 1960-1969, the initial period of consolidation of

the collective and state farms formed in the 1950's; the APK

reforms of 1970-1979; and the NEM reforms of 1980-1985. The

temporal dummy variables used in estimation were constructed to

measure the differential effects of these policies. For the

estimates in table 3, the basic time dummy variable takes the

value 1 in 1960, 2 in 1961 up to 26 in 1985 and the differential

dummy variables for the periods 1970-1979 and 1980-1985 take the

relevant year value for each of the years in the subperiod and

zero elsewhere. In the estimation procedure used for table 4,

the time dummy for each subperiod takes the value 1 for the first

year, 2 for the second, etc. up to the appropriate number for the

last year of the subperiod.

52

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