responses to agrarian reforms in russia: evidence from novosibirsk oblast

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Journal of Rural Studies 22 (2006) 39–54

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Responses to agrarian reforms in Russia:Evidence from Novosibirsk oblast

Irina Davydova, J.R. Franks�,1

Department of Agriculture, School of Agriculture, Food and Rural Development, King George VI Builiding, Newcastle upon Tyne NE1 7RU, UK

Abstract

Interviews with Directors of restructured collective farms, private farmers, Rural Development Officers, and Agricultural

specialists in the Administration from Suzun raion, Novosibirsk oblast, central Russia revealed a regional response to recent

agrarian reforms. Distinct differences emerged between the objectives of the restructured collective farms (large-scale enterprises

(LSEs)) and the private (autonomous) farmers, particularly towards the employment of labour and commitments to supporting

rural infrastructure and village communities. Directors of the LSEs placed considerably more importance on supporting the villages

and rural economy with which their farm is historically linked, private farmers were less inclined to divert resources to these ends.

The oblast Authorities seek to maintain economic activity in rural areas through targeted financial support, by supporting mergers

between private farmers and failing LSEs, and buy-outs by urban investors. However, our survey shows that the private farming

sector will not re-hire all the labour thus released or contribute significantly to the maintenance of the rural infrastructure. The

break-up of the established village farm-villager symbiotic linkages will result in some other organisation having to pick up these

costs and responsibilities.

r 2005 Elsevier Ltd. All rights reserved.

1. Introduction

It is well known that Soviet agriculture was heavilysubsidised pre-1992. However this is true only for thelast two decades of the existence of the Soviet Union.Before the 1960s agriculture provided surplus capital forthe industrialisation process, and the rural populationwas subjected to ruthless exploitation (Lewin, 1968;Conquest, 1986; Nove, 1992; Fitzpatrick, 1994; Zaslavs-kaia, 1966; Timofeev, 1985; Pockney, 1994). It was onlyafter 1965, when government started to direct anincreasing amount of resources into agriculture, thatthe sector went from ‘being a source of accumulation ofcapital for investment in industry’ to being ‘a net burdenon the rest of the economy’ (Nove, 1992, pp. 378–379).

e front matter r 2005 Elsevier Ltd. All rights reserved.

rstud.2005.05.012

ing author.

ess: [email protected] (J.R. Franks).

f the research Occasional Lecturer at the University of

d Lecturer in the School of Agriculture, Food and

ent, University of Newcastle upon Tyne, respectively.

Despite a number of sporadic attempts to increase itsefficiency ‘a unique feature of the Soviet-style agricul-ture was the protection of economically weak farms’(Wegren, 1998, p. 25).

The agricultural reforms of the early 1990s wereintended to change this situation once and foreverthrough a radical transformation of the structure ofRussian farming. A principal objective was to fosterefficient, competitive agriculture based on private own-ership of land and other means of production (Serova,1998, pp. 561–588; Lerman, 2001). Given the brutalityof Russian collectivisation and the resentment it caused,it was assumed that after land and assets had beenprivatised, a family-based private farm sector wouldrapidly emerge (Spoor and Visser, 2001, p. 885;Amelina, 2000, p. 17). Market liberalisation formedanother element of the reform package, and support tofarmers was abruptly withdrawn. The producer supportestimate (PSE)—a measure of the gross value fromconsumers and taxpayer to support agricultural produ-cers—fell from 60% in 1991 to �95% in 1992 (OECD,

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ARTICLE IN PRESSI. Davydova, J.R. Franks / Journal of Rural Studies 22 (2006) 39–5440

2002, p. 48); so in 1992, the first full year ofprivatisation, agriculture was effectively taxed byGovernment policies rather than subsidised. Since thensupport to Russian farming has remained considerablybelow that received by farming sectors in other countries(OECD, 2002). Despite a series of debt restructuringprogrammes, the total value of debt in Russianagriculture in 2001 stood at RUB 229 billion—of whichRUB 165 billion was owed to input supplies and togovernment as penalties for late payments and unpaidtaxes (OECD, 2002).

The reforms did not deliver the expected results.Russia’s gross agricultural output shrunk and in 2002,after 4 years of relative prosperity and recovery, wasonly 68.7% of its 1992 level. Private farming also did notdevelop as expected.2 Today food in Russia is largelyproduced by two sectors: (1) former collective farmswhich are now large- and medium-scale agriculturalenterprises (sel’skokhoziaistvennye predpriatia), operat-ing under various legal titles (from now on large-scaleenterprises (LSEs)), and (2) household plots (khoziastva

naseleniia).3 In 2001, ten years after the Law on LandReform was passed, LSEs continued to use 79% of landbut produced about 43.9% of gross agricultural output,while household plots used 6% of land and produced52.4% of gross agricultural output: by 2003 thepercentage from this sector had increased to 58. Thereis some production from the third sector, private(autonomous) farmers (krestianskie/fermerskie khoziast-

va),4 which in 2001 occupied 8% of land. Although for

2In this paper, we use the term private sector to refer to farmers who

have removed their land-shares from the village LSE and who farm

either alone or in partnership, or which have become Holding

Companies following buy-outs by private organisations (e.g. pur-

chased by ‘‘urban capital’’). Although the reformed collective sector

(i.e. the LSEs) are now owned by individual share-holders and are

therefore nominally privately owned, we continue to regard these

farms as part of the restructured collective sector, and refer to them as

LSEs.3About 60% of Russian urban residents have a small area of land

which they use to produce food mainly for their own consumption in

dachas or small gardens (Ioffe and Nefedova, 2001, p. 389; Pallot and

Nefedova, 2003a, b). An even higher proportion of the rural

population have a household plot, consisting of the plot of land

which, during the Soviet period, was an entitlement of all members of a

collective farm (lichnoe podsobnoe khoziastvo), and now, after the

reforms, is the private property of the family. The family’s household

plot may also include a land-share withdrawn from the collective farm

after its restructuring. The size of land-shares was calculated by

dividing the area of the collective’s farmland by the number of people

entitled to receive a share (current and retired farm workers, therefore

not everyone in the village has a land-share). Individuals could (1)

leave their land-share with their collective farm, (2) withdraw their

land-share to farm it themselves, or (3) lease their land-share to a

private farmer. Production surplus to household needs is sold for cash

and forms an important component of the household budget.4These most closely resemble the private family structure of Western

agriculture most of which are family owned and run as sole-

proprietorships.

some crops their share of production was larger, onaverage private farmers’ contribution into Russia’s grossagricultural output was only 3.7% (Rossia v tsifrakh,2003, pp. 200–202).

There is a considerable amount of literature analysingthe causes of these failures. The politico-economicapproach directs attention to the wider contexts inwhich agricultural businesses operate: relationshipsbetween farmers and the local administration, thepolitical imperatives of the later, with power maximisa-tion alongside profit maximisation, within the new post-soviet network of relationships (Amelina, 2000, p. 18).We suggest a different focus of analysis—the internallogic of farm management in Russia. Believing thatknowledge of how agricultural businesses in Russia aremanaged is crucial for any assessment of the results ofthe reforms and for the delineation of future policies,this paper presents the findings of a survey intocommercial farm businesses in Suzun raion, Novosibirskoblast (Fig. 1).

It is structured as follows. Section 2 reviews theagricultural activity in Novosibirsk oblast and Suzunraion. Section 3 presents the survey methodology anddescribes the sample of farms surveyed. Section 4discusses the findings from the survey, focusing on thedevelopment of the management structures and prac-tices. In particular, it compares the business strategiesadopted by Directors of restructured collective farms(LSEs) with those used by private (autonomous) farm-ers. Section 5 discusses the implications of thesedifferent business practices on the integrity of the villageand the rural economy through their impacts on thesymbiotic relationship between farm and village. Section6 draws conclusions.

Fig. 1. Suzun raion and the study area.

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Table 1

Socio-economic background to Suzun raion (2001)

Population (thousands) Russia Novosibirsk oblast Suzun

% Population living in ‘‘rural areas’’ 145,181.9 2730.5 36.7

Number (000s) 39,219.5 714 19.8

Percentage 27.1 26.1 53.9

Percentage of pensioners 20.6 23.2a 21.6

Economically active population

Number (000s) 70,968 1308 20.7

Percentage 48.9 48.0 56.5

Number of people working in agriculture (000s) 7936 101.8 5.5

Percentage of economically active population 11.2 7.8 26.6

Unemployment rate 8.9 13.7 3%b

GDP (billion roubles) 7831.4 106.6 N/a

GDP/person (000s RUB) 53.9 39.0 N/a

Source: (1) Rossia v tsifrakh (2003); (2) Novosibirskaia oblast v tsifrakh (2002); (3) Rynok truda Novosibirskoi oblasti (2001) (data for the year

2000).aData for the year 2000.bOnly for registered unemployed, the actual number of unemployed could be much higher, for example in one of the surveyed villages 100 villagers

were unemployed but none of these were registered unemployed, in other village about 20 were non-registered unemployed.

I. Davydova, J.R. Franks / Journal of Rural Studies 22 (2006) 39–54 41

2. Farming in Novosibirsk oblast and Suzun raion

Suzun raion in Novosibirsk oblast, Western Siberia,was chosen as our survey area because of its rurality, itsdependency on agriculture, and availability of thebackground data needed to select a sample of farms tovisit.

2.1. Socio-economic and political background

Suzun raion is a predominately rural raion: 53.9% ofits population live in rural areas, compared with 27.1%for Russia and 26.1% for Novosibirsk oblast (Table 1).This suggests the importance of agricultural production,because people living in villages have little alternative toearning a living than through working on land.5 About20% of the population in Russia are pensioners (over 55years old for women and over 60 for men); Suzun raionhas a similar percentage of pensioners at 21.6%.Pensioners will generally have a household plot buttheir age reduces their ability to tend large plots. As aconsequence, pensioners’ well being frequently dependson the support of others in the village and the support oftheir urban relatives.

Novosibirsk oblast has a large agricultural sectorwhich contributes 33% to the oblast GDP (Novosibirs-kaia oblast v tsifrakh, 2002). The Administration ofNovosibirsk oblast is generally supportive of theagricultural sector and actively intervenes in agriculturalmarkets through three mechanisms: leasing of machin-ery, trade credit and the regulation of food prices, which

5The 70% of rural population in Russia continues to be associated

with agriculture in one way or another (Ioffe and Nefedova, 2002, p.

80).

are managed to a large extent through NovosibirskFood Corporation (Novosibirskaia prodovol’stvennaia

korporatsia).6

In terms of post-1991 land use, livestock numbers, thestructure of agricultural production, the dynamics ofagricultural output and of the number of private farms,Novosibirsk oblast is fairly representative of the state ofaffairs in Russian agriculture. However, Russia is a largecountry, and the outcomes of the reforms have beeninfluenced by the attitudes and responses of each oblastAdministration. Regional differences suggest that casestudy-based research may generate conclusions whichare not generalisable across Russia. Amelina (2002)identified two types of regional administration: thosewith an interventionist administration which have re-created or maintained the Soviet-type support forcollective enterprises, and regions in which the admin-istration has reduced its financial and managerialinvolvement, thus allowing a laissez-faire environmentto develop. The administration in Novosibirsk oblastfalls into the first category, suggesting that our findingsmay better represent the responses to the reform processin other interventionist oblasts. In the absence of anational-wide survey that would establish whether this isthe case, the findings from this research can be seen ascontributing to the picture that is gradually building upof the regionalisation of responses to the politicalreforms and market liberalisation policies that havegoverned agriculture since the early 1990s (Amelina,2002).

6For details of the working of Food Corporations see Amelina

(2002, pp. 270–271).

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Table 2

Agricultural background to Suzun raion (dates given in parenthesis)

Russia Novosibirsk oblast Suzun

Number of LSE farms (2001) 24,849 602 14

Number of private farms (2002) 265,500 4133 256a

Number of household plots (2001) 15,983,000 310,900 8053

Ratio of private to LSE farms 11:1 7:1 18:1

Land use (2001)

Area of sown (000s ha) 72,100 2801 103.6/134.7b

Area of cereals (000s ha) 41,000 1819 57.7

Percentage of area sown with cereals 57 65 56/43

Livestock numbers—all farms (2001)

Cows (000s) 12,700 369.5 13.466

Pigs (000s) 15,700 442 19.358

Sheep and goats (000s) 14,800 267.4 4997

aData supplied by AKKON.bAreas sown in Suzun raion. The first figure is that given in Novosibirsk oblast statistics (source (1)) and the second is from statistics on Suzun

raion.

Fig. 2. Location of Suzun raion and Novosibirsk oblast, Siberia.

I. Davydova, J.R. Franks / Journal of Rural Studies 22 (2006) 39–5442

2.2. The emergence of the private farmer and the

restructuring of the collective farms

Despite the interventionist attitudes and policies ofthe Novosibirsk Administration in support of LSEs,Novosibirsk oblast is not devoid of new forms ofbusinesses structure and ownership. The ratio of privateto LSE farms in Novosibirsk oblast (at 7 to 1) is lowerthan that reported across the whole of Russia (11 to 1,see Table 2), reflecting Novosibirsk’s Administrationsinterventionist policy and suggesting limited enthusiasmamong the population for establishing private farms.However, whilst the number of private farms isrelatively low, there has been dramatic restructuringwithin the sector that has resulted in a significantlyhigher percentage of larger private farms compared withother oblasts (Yamamura, 2002). Private farms havedeveloped predominantly in the south of the oblast andin areas relatively close to Novosibirsk City. Given thegeographical location of private farms within Novosi-birsk oblast (Fig. 2), we selected Suzun raion as thestudy area. It is located to the south, about 200 km fromNovosibirsk, and has 256 private farmers but only 14LSE, giving a ratio of 18 to 1 which is considerablyabove the oblast average.

The re-organisation of collective farms resulted in anumber of different legal forms (Table 3). As in Russiain general, the largest proportion of farms are closedJoint Stock Companies (JSC) at 46% of all LSE, with9% of open JSC. The distinction between an open and aclosed JSC relates to the tradability of its land- andproperty-shares; only current shareholders can purchaseshares in a closed JSC. The next largest category isagricultural co-operatives, followed by State enterprises;a few farms continue to trade as kolkhozes andsovkhozes.

The full significance of the intervention by theNovosibirsk oblast Administration becomes evidentwhen one considers the financial performance of LSEsbetween 1995 and 2002 (Table 4). A large proportion ofthese farms reported losses during this period. Even in2001, which was the best year, 30% of farms reported aloss. In 2002 the terms of trade deteriorated, e.g. petrolprices increased by 10.3%, fodder by 27.5%, agricultur-al machinery by 8.9% and electricity by 44.7%, whilstprices for agricultural outputs decreased; by 18.8% forcrops and by 1.3% for livestock and poultry (Osnovnyeitogi 2003, p. 6). The deterioration in the terms of tradehas had a negative impact on profitability, and the shareof loss-making farms increased to 60.8% (Table 4).Similarly, in Suzun raion, LSEs reported record

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Table 4

Summary of performance by LSE farms in Novosibirsk oblast

1995 1996 1997 1998 1999 2000 2001 2002

Number of LSE farms 541 539 550 583 585 602 568 549

Percentage of profitable farms 65.6 21.0 13.6 11.0 56.9 70.4 69.5 39.2

Profit (million RUB) 344.4 160.8 104.5 140.9 795.7 1326.2 1847.6 753.6

Percentage of loss-making farms 34.4 79.0 86.4 89.0 43.1 29.6 30.5 60.8

Loss (million RUB) �82.8 �545.8 �843.6 �897.4 �212.5 �266.5 �407.2 �813.7

Net profit 261.6 �385.0 �739.2 �756.4 583.2 1059.6 1440.4 �60.1

Source: Sel’skoe khoziastvo v Novosibirskoi oblasti (2001, p. 43, 44); Sel’skoe khoziastvo v Novosibirskoi oblasti (2003, p. 43).

Table 3

Distribution of LSEs by legal forms in Novosibirsk oblast

1998 1999 2000 2001 2002

State enterprises: number (%) 26 (4.5) 27 (4.6) 31 (5.1) 35 (6.1) 48 (8.7)

JSC (open type): number (%) 13 (2.2) 16 (2.7) 21 (3.5) 35 (6.1) 50 (9.1)

Partnerships with limited liability: number (%) 20 (3.4) 11 (1.9) 10 (1.7) 2 (0.4) 1 (0.2)

Agricultural cooperatives: number (%) 35 (6.0) 39 (6.7) 49 (8.1) 85 (15.0) 145 (26.4)

Kolkhozes: number (%) 35 (6.0) 38 (6.5) 43 (7.1) 45 (7.9) 31 (5.7)

Sovkhozes: number (%) 21 (3.6) 19 (3.3) 16 (2.7) 9 (1.6) 12 (2.2)

JSC (closed type): number (%) 402 (69.0) 398 (68.0) 401 (66.6) 334 (58.8) 251 (45.7)

Associations of private farms: number (%) 2 (0.3) 2 (0.3) 1 (0.2) 0 0

Other commercial organizations: number (%) 16 (2.7) 14 (2.4) 11 (1.8) 9 (1.6) 4 (0.7)

Branches: number (%) 5 (0.9) 2 (0.3) 2 (0.3) 2 (0.4) 2 (0.4)

State organisations: number (%) 0 1 (0.2) 1 (0.2) 1 (0.2) 0

Other forms: number (%) 1 (0.2) 1 (0.2) 0 0 0

All farms: number (%) 583 (100) 585 (100) 602 (100) 568 (100) 549 (100)

Source: Sel’skoe khoziastvo v Novosibirskoi oblasti (2001, p. 40); Sel’skoe khoziastvo v Novosibirskoi oblasti (2003, p. 40)


performances in 2001, based on high yields and buoyantprices, but in 2002 the number of loss-making LSEsincreased from 4 to 10 (Table 5).

2.3. Agricultural production in Novosibirsk oblast

In 2002 about 90% of planted land in Novosibirskoblast was used by LSEs, 3% by private farms and 7%by household plots (Sel’skoe khoziastvo v Novosibirskoioblasti, 2003, p. 11). However, and similarly acrossRussia, the share of production from these sectors doesnot match their share of land. Table 6 shows productionby the three main food producing sectors in Novosibirskoblast. LSEs produce most grain and milk. Householdplots specialise in producing the more labour intensivecommodities, such as potatoes and vegetables. They alsoproduce large quantities of milk, hand milking ratherthan using expensive mechanised milking parlours.Relatively little meat is produced by private farmers,but LSEs and household plots produce similar tonnages.

Key to understanding the relationship between landuse and productivity is the practice of LSEs paying apart of their workers’ wage ‘‘in kind’’7 and makingother benefits available to their workers (either gratis oron easy terms), which is used to support livestock

7This is payment by products and/or services rather than by cash.

production on the LSE workers’ private householdplots. According to some estimations, after the landused to grow the payment in kind is added to the area ofhousehold plots, the land used by this sector signifi-cantly increases. Thus the area of land used by house-hold plots in 1990 increases by about 10–16%, and theirshare in 1998 increases by about 26–32% (Ioffe andNefedova, 2001, pp. 399–400). The dependency of ruralhouseholds on their household plots to supplement theirwage income has created a strong dependency of therural farm worker on the LSE, which underpins therural economy and has helped maintain the populationof the local village community in Russia (Kopach, 2000,pp. 223–262; Fadeeva, 2003, pp. 225–231).

Although numerically relatively insignificant, privatefarms’ production in Novosibirsk oblast is characterisedby a high degree of specialisation. The majority ofprivate farmers in Novosibirsk oblast specialise in grainproduction (which accounted for 92.7% of private farmssown area in 2002 (Posevnye ploshadi, 2002)).

3. Research methodology and sample selection

Rather than adopt a large-scale survey and econo-metric analysis, a case-study approach was chosen todevelop insights into the impact of managerial and farm

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Table 5

Comparison of performance in Suzun between 2001 and 2002

2001 2002

Number of LSE 14a 14a

Number of loss making LSE 4 10

Taxable profit—JSCb RUB 50.014 million RUB 0.922 million

Taxable profit as a % of output 25.6 4.4

Range in profits

Maximum RUB 10.5 million RUB 6.4 million

Minimum RUB-1.2 million RUB-3.3 million

Income from crops RUB 39.190 million RUB 4.982 million

Income from livestock RUB 30.807 million RUB 4.982 million

Income from milk RUB 21.2 million RUB 5.6 million

Average wage/worker on JSC (including payment in kind but excluding payment for land-shares) 14,705 16,506

Source: Interview with the deputy of the head of Agricultural department in the Suzun raion administration. Census records are kept of the

production and profitability of private farmers, but this information is not publicly available.aExcluding ‘‘shell companies’’ (see Section 3).bIn 1997 LSEs generated profits of RUB 30.67 million.

Table 6

Production from JSC, Private Farmers and Household plots (thousand tons/million of eggs) in Novosibirsk oblast

1995 1996 1997 1998 1999 2000 2001 2002

LSE

Grain 2288.5 1626.8 1917.2 1430.3 1449.0 2323.1 3097.4a 2299.3a

Potato 26.7 10.187 18.3 11.7 6.4 10.3 13.0 9.4

Vegetables 43.1 30.3 40.9 25.2 27.1 29.4 29.2 22.3

Meat 78.2 78.7 68.6 59.0 44.0 46.5 46.8 66.5

Milk 694.0 645.1 535.6 472.5 443.9 474.1 553.4 587.1

Eggs 504.3 561.8 666.9 718.9 777.5 805.5 833.0 880.4

Private farms

Grain 126.5 89.5 132.1 107.3 120.5 195.6 301.1 263.2

Potato 6.93 3.6 7 3.4 1.9 5.2 5.9 6.1

Vegetable 0.6 0.8 0.5 0.6 0.2 0.9 1.1 3.1

Meat 0.9 0.9 1.2 1.3 1.4 1.3 1.3a 1.6a

Milk 11.7 9.9 9.4 9.4 9.7 9.9 10.7 9.4

Eggs 2 2.6 2.4 2.2 1.7 1.9 2 2

Household plots

Potato 780.4 716.5 916.5 434.0 417.0 798.6 874.6 601.7

Vegetables 217.8 199.7 226.8 206.6 306.0 357.8 429.4 398.8

Meat 76.7 75.3 75.1 74.4 62.8 59.9 60.9a 65.7a

Milk 388.8 412.7 404.0 391.9 405.6 436.7 434.8 421.1

Eggs 215.5 226.4 227.3 250.7 223.3 209.7 197.3 188.5

Source: (1) Novosibirskaia oblast’ v tsifrakh (2001, p. 67); (2) Sel’skoe khoziastvo v Novosibirskoi oblasti (2003, p. 46, 47, 51, 52); (3) Sel’skoe

khoziastvo v Novosibirskoi oblasti (2001, p. 21).aCalculated on the basis of percentage of the sector in total output.


structures on practices (Stake, 1994). Amelina (2002)shows that the context within which decisions are madeis important which recommends a case-study approach(Hussey and Hussey, 1997). A key concern with usingcase-studies lies with identifying the number of casesneeded to deduce general actions and responses (Proc-tor, 1997). It is difficult to identify especially where thereis relatively little information currently available.

The farm management perspective adopted in thisanalysis suggests sampling based on the legal farmbusiness form to reveal how these differences affectmanagerial attitudes and behaviour, if at all. It has beensuggested that differences within the legal forms of LSEscan be used as cover for maintaining similar businessarrangements rather that expressing any essentialinformation about its operational procedures and

ARTICLE IN PRESSI. Davydova, J.R. Franks / Journal of Rural Studies 22 (2006) 39–54 45

priorities (Lerman, 2001; Brooks et al., 1996). Ourinterviews with the Suzun raion Administration largelyconfirmed this: the deputy head of Suzun raionAdministration stated that the reorganisations of LSEssince 1997 were the result of growing debts. Forexample, in the face of certain bankruptcy, ‘‘new’’agricultural enterprises had been created to replace thefailed ones by virtue of a change in legal title. The newfarm business can retain the former’s employees and itsmost valuable assets, leaving the former business to existas a ‘shell company’ which winds-up a year or so later;there were five such shells in Suzun raion at the time ofthe survey. At the same time the ephemeral character ofthe legal forms in itself does not necessary imply thatLSEs have not transformed since privatisation. Someprocesses within JSCs, such as the trade in shares andtheir accumulation into the hands of relatively fewindividuals, while difficult to observe, have practicalimportance. Hence, the need to research into the waysLSEs operate to assess the degree of any transformation.

The sample was identified after discussion with theOffice of Rural Administration in Suzun raion. Eightsemi-structured interviews were conducted with theDirector/senior manager of the LSEs and with theowners of private farms. The information collectedduring the interview was supported by backgroundstatistical data and discussions and interviews withRural Development Officers at Suzun Town and withMunicipal Officers in each village of the farms wesurveyed. Additional information was supplied by thehead of the farmer extension service for Novosibirskoblast (AKKON).

Descriptive details for the eight case studies arepresented in Table 7. Four legal business forms weresurveyed: closed JSC, State (Municipal) Enterprise, aholding company (representing an investment fromurban investors of the type referred to as ‘‘urbancapital’’), and private (autonomous) farmers. The first

Table 7

Description of each case study.

Case code Farm business legal

form

Financial

performance category

N

su

1 JSC-closed Stable 2

2 Private Profitable N

3 JSC-closed Profitable 1

4 Private Stable N

5 Municipal enterprise Failing 2

6 JSC-closed Failing 1

7 JSC-closed Profitableb 2

8 Holding company Failed, recently

restructured

N

Na ¼ not applicable.aOfficial statistics for 2001.bMade losses in 2002.

two categories involve five cases: four JSCs and a formerJSC that was taken into Municipal ownership becauseof a history of poor performance. The latter twocategories, the two (autonomous) private farmers andthe privately owned holding company are examples ofnew business forms. Both autonomous private farmershad established partnerships as soon as they withdrewtheir land-shares from their village JSC in 1991 and1994, respectively. However, they had quite differentbusiness growth trajectories and management styles, andtherefore represent different types of private farmer.Case 2 has developed into a large business following anexpansionist business trajectory typical of an entrepre-neur, whilst case 4 has remained a relatively smallfamily-based farming partnership which employed onlya small number of waged workers. The holdingcompany, one of several investments made by aNovosibirsk-based company, is included to provide anexample of the objectives, management and businesspractices of a farm business owned by ‘‘urban capital’’.

4. Survey findings

Management of farm businesses require a broadrange of business, technical, marketing and labourmanagement expertise. It is essential that managers (ora Management Committee (Pravlenie, Direktsia)) iden-tify the farm’s objectives—which may include but arerarely limited to profit maximisation. Competent busi-ness management together with a strategic plan, coupledto strong managerial control, will determine the alloca-tion of resources within the business and this will heavilyinfluence the success with which a manager’s objectivesare met.

We found that many problems were common to LSEsand private farmers (Franks et al., 2004). The maincomplaint was about the deteriorating terms of trade

o. of villages

pported by farm

Total population of

villagesaNo. and % of

pensioners in villagea

(s)

1507 243 (16%)

one Na Na

1958 523 (26%)

one Na

1243 333 (17%)

(About) 700

1311 303 (23%)

one Na Na


and low prices for agricultural produce in 2002 (seeSection 2), which severely affected cash flows indepen-dently of business structure. But there were cleardifferences between the management techniques andattitudes displayed by LSEs on the one hand, and byprivate farmers and managers of the holding companyon the other.

4.1. Farm management structure

The business form, management structure, history ofrestructuring of the farm businesses after 1992 andattitudes towards the provision of local services arepresented in Table 8. JSCs are managed by a Directorwho is elected by a General Assembly of shareholderswhich meets at least once a year. The General Assemblyin theory has the rights typically associated withshareholders, and can vote the Director out. However,in practice, shareholders did not actively participate inthe governing of their JSC. Three out of the fourJSC Directors had been a Director or senior member ofthe farm’s Management Committee continuously sincewell before 1992; all three were stable or profitablebusinesses (Table 7). In the remaining case, the Directorwas the third elected since 1992 and that farm wasfailing.

Clearly the JSCs are not homogenous entities. ManyJSC are large and complex businesses, and their closeassociation with village communities has formed aplethora of social relationships which penetrate eco-nomic decision making. However this reality of internalpower relations, interest groups and conflicts is beyond

Table 8

Summary of management characteristics

Case code Business type Status of head of

business

Management

structure

1 JSC-closed Director -elected MC and GA

2 Private Self employed Partnership w

one other

3 JSC-closed Director-elected MC, RC and

4 Private Self-employed Partnership w

one other

5 Municipal

enterprise

Director-

nominated

Employee of

state, MC.

6 JSC-closed Director-appointee Employee of

private farm

7 JSC-closed Director-elected MC and GA

8 Holding company Director-

nominated

Appointed b

Holding Com

MC ¼Management committee (nominated by director, ratified by GA); R

shareholders). VSS is very strong support, SS is strong support, WS is weak s

names as well as changes of legal business form.aRanked by the research team, directors’ responses have not been confirmbHad supported village activities and infrastructure in the 1990s now suppcHad supported village activities and infrastructure now supports only sch

the scope of our study, which focuses on the manage-ment of farming assets and businesses.

Most farms had undergone a number of changes totheir business structure since 1992. Some of these weredirectly related to the debt restructuring programmesoffered since 1992 (see Section 3). Restructuring underthe first rounds of these programmes made few changesto the management structure of the business. However,the most recent restructuring programme has involvedsubstantial changes in the management and/or owner-ship of farm assets. Thus one of the surveyed farms (case5) has been transferred into Municipal ownership, whileanother (case 6) at the time of our visit was entering intoa partnership with the case 2 private farmer. Interest-ingly, both take-overs were facilitated by the Suzunraion Administration, as it seeks to maintain economicactivity in rural areas.

4.2. Support for the village community

Table 8 also indicates the relationship between thefarm business type and the village community. Typicallythe LSEs maintained a close relationship with one ortwo nearby villages from which it draws its labour force.For example, case 1 JSC supported two villages with ajoint population of 1507 people, of whom 16% werepensioners. This and the following two sections explorethe various forms this support took.

The Directors of JSC tended to be more supportive ofthe village and its infrastructure than private farmers.By doing so, these experienced Directors deliberatelysought to continue the two-way relationship that

No. of

restructurings since

1992

Attitude to

provision of local

social servicesa

No of changes in

main managers

since 1992

2 SS 0

ith 1 WS 0

GA 2 SS 0

ith 0 D 0

the 3 SSb 0

X2 Not ablec 3

1 VSS 0

y

pany

X3 D 3

C is revision committee (elected); GA General Assembly (property-

upport, D is disregards. Number of restructurings, includes changes of

ed from independent sources.

orts only school, kindergarden, and local ambulance.

ool and village club (dom kul’tury).

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8Noticeably, neither failing JSC (cases 5 and 6) invested in VAE

post-1992.


traditionally existed between the Soviet collective farmand the village: the farm draws its labour from thevillage and in return provides employment and main-tains essential utilities (Uzun, 2000; Fadeeva et al.,2002). Prosperous LSEs tend to provide more support,thus case 1 JSC maintained the water supply and boiler-house, provided free of charge a school bus andambulance, and kept the roads open in winter. Case 3gave financial support to the local hospital and villagehall (dom cul’tury), helped with transport and sponsoredsocial programmes. Case 7 maintained the water supply,built and kept roads under repair and open, andrepaired utilities. Even heavily indebted LSEs contrib-uted: case 5 provided free milk to the local school andkindergarden, and free petrol for the ambulance; case 6helped the local school and kindergarden. In addition tothese tasks, LSEs routinely assisted villagers in theireveryday problems. For example, case 1 JSC helped withtransport—of people and livestock—by making vehiclesavailable at below cost price, and offered preferentialprices for grinding flour at its mill. It is not unusual forthe Directors of JSCs to help villagers organise the saleof their produce, or to negotiate the payment ofoutstanding debts (e.g. cases 1 and 3).

The private farmers provided much less support to thevillage community. Their attitude was ‘we do not refusehelp when asked’. For example, case 2, the entrepre-neurial private farming business, was willing, inprinciple, to contribute to some rural developmentprogrammes:

We do not begrudge money for the village (case 2)

but in general preferred its support to be in the form ofpayment to a district or raion fund, providing thecontribution was fully accountable, rather than accept-ing direct responsibility for the upkeep and support ofvillage utilities and its social infrastructure. Examples ofassistance from case 2 include road repair and sponsor-ship of the local school. The private case 4 farmer didnot contribute to the provision of local services.

The difference in attitudes was summarised by aRural Municipal Officer:

I can’t say that private farmers make a significantcontribution to village life. They mainly provide fortheir families, and develop their business. Theymainly help the local Administration with machinery,such as when we were putting gravel onto the villagestreets. But these are single occasions (MunicipalOfficer, working in the village linked to case 7).

The Directors considered these expenditures to be anessential part of their business activities, maintaining theinterdependencies between the farm and the village. Theexpenses are necessary to maintain the infrastructure ofthe village and its connections to other communities.But by increasing costs to produce these public goods,

goods which the private farming sector benefits from butrefuse to help finance, the Directors put their businessesat a competitive disadvantage vis-a-vis the privatefarming sector.

4.3. Subsidised prices

Another form of support the LSEs offer their villagecommunity is produce from their value-added enter-prises (VAE) such as bread, butter, pasta, sausage and/or pelmeni, at below market prices. Five of the surveyedbusinesses ran some form of VAE; on four of thesefarms the enterprise started after 1992. For all the sourceof investment was retained profit,8 and the prime motivewas to increase profitability.

Nevertheless JSCs either failed to expand their VAEbeyond their immediate village market (cases 1 and 3),or have reduced the turnover of their VAE in recentyears (case 7). The later was because of increasingdifficulties marketing their produce, partly due to thedistance to the main markets in Novosibirsk City andpartly because of competition from cheaper imports.The Directors stated that the enterprises were main-tained largely as a service to the villagers. Bread thatwould cost RUB 6 in the local town was sold for RUB 3.Directors recognised that this support amounted to theprovision of a ‘‘social service’’ that reduced farmrevenue. However, this policy acted as a boost to wagepayments to their workers. Moreover, they wereconcerned for the livelihood of the pensioners in thevillages (who made up a large part of the JSCs’shareholders) and for others on fixed incomes whowould suffer increased financial hardship if prices forstaple goods increased.

In contrast, both cases 2 and 8, two of the morespecialised and commercially orientated businesses, haveexpanded their VAE in recent years. Both took thisdecision on commercial grounds; neither is linked to avillage community. Case 2 sold flour to bakeries andfood manufacturers, case 8 sold sausages and pork towholesalers and retailers. Their products were sold onthe urban market but neither company sold directly toconsumers.

4.4. Wages, payment ‘‘in kind’’, and payments for shares

The wages and other incomes received by farmworkers are presented in Table 9. Monthly cashpayments varied between farms, with one JSC payingRUB 600 and another RUB 2060. Employees alsoreceived wage payment ‘‘in kind’’; typically as grain,fodder and/or piglets in proportion to the earned cash-wage (e.g. 25 g of grain for each earned rouble) offered

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Table 9

Wages, payment in kind (PIK) and other earning and resources reported from the survey interviews

Case

code

Wages Land-share Property-share Households

RUB/

month

PIK Size

(ha)

Payment (per land-share) Dividends Number Livestock

Cows Pigs

1 2000 25 g/R wage and

discount grain price

12.8 1 t grain, 0.5 t hay Na 451 220 1397

2a 5000 0 Na 0.2 t grain/ha and 0.1 t hay Na Na Na

3 1700 Yes, but not disclosed 13 1 t hay and 0.5 t grain Between 1998

and 2002, not

currently

672 288 439

4 Na Na Na Na Na None

5 1000 To the value of RUB

400/month

17 No payment but

discounted prices

None ] 708 344 1658

6 Wage pool None 17 0.4 t grain and 0.3 t of

grain wastage

None

7 2060 Discounted prices for

grain, etc.

22 No payment but

discounted prices

None 431 179 350

8 Na None Na Na Not known Na Na

Notes by case code:

(1) More prosperous households might keep up to 50 pigs.

(2) Has flexible conditions of renting. Rents paid are 100 kg of wheat (if lower quality then more) and 100 kg of hay plus tax for land paid on behalf

of the landowner, or money (price of wheat due).

(3) Strong households have 2 cows 5–8 pigs

(4) Reported that he has less time to devote to his household plot since becoming a private farmer.

(5) These figures represent the payments made after the partnership was formed with Case 2 pensioners receive less for their land-shares.

(6) This business never had any land holding, and therefore land-shares have played no part in its restructuring.

(7) Na ¼ not applicable.aThese are payments made by the farm, and as land is leased from several villages, payments are averaged.


at discounted (cost) prices. In addition, shareholdersmight receive a payment for the land-share invested inthe farm, also normally paid ‘‘in kind’’, and there is thepossibility of receiving a dividend payment in goodyears.9

The benefits of maintaining preferential access to farmproducts at discounted prices (for the main inputs intothe household plots’ production) were well understoodby the directors:

Wages are very low—the farm is buried under taxes.But we give people fodder so they could produce themaximum possible in the households (case 1).

Statistical estimations of the LSEs’ contribution tothe productivity of household plots were discussed inSection 2.3. By paying wages ‘‘in kind’’ the LSEs reduce

9Table 9 reports the data provided by the interviewed managers and

Directors for what is clearly a sensitive item of information—namely

wages paid. Their responses are higher that the official statistics on

wages recorded for 2001; namely, for case 1 RUB 1513, case 3 RUB

1400, case 5 and 6, RUB 994, case 7 RUB 1349 (statistics provided by

Suzun raion Administration).

their cash expenditures, and, to some extent, this sheltersthem from unfavourable markets.

Director’s attitudes to paying shareholders for theland-shares used by the farm (i.e. a rent) varied, andtheir differences seemed to go beyond economicmotivation to reflect their individual ideological posi-tions. In principle, rent can be paid as cash, ‘‘in kind’’,and/or entitlement to farm products on easy terms. TheDirectors in cases 5 and 7 chose the third option. Case 5was technically bankrupt, but case 7 relatively prosper-ous though its Director explained his policy of notpaying cash rents:

Today one should not pamper people. Sure, we sellgrain to shareholders at cost price, we lease machin-ery and provide building materials on easy terms.(y) otherwise we would encourage spongers andhangers-on. Because then a person could own land,do nothing and believe that we, the collective farm,should bring everything to him on a plate, forexample, give him a ton of grain [as rent], but forwhat services? (case 7).

In identifying land owners who do not work as‘‘spongers and hangers-on’’, the Director personifies a


very old Russian peasants’ believe that land shouldbelong to those who work it;10 that ownership of land initself should not justify a claim of a share of itsproduction. According to him:

It would be fair if land-shares stayed in the hands ofthe people who worked it. So if you stopped workingthe land, the shares should be passed to those whocontinued to work (case 7).

Such beliefs are important given the growing percen-tage of farm workers who do not own land- or property-shares. For example, 15% of the case 1 workforce doesnot own either land- or property-shares, in case 7, 60%of the workforce do not own shares. For case 3, theproblem of rewarding owners of factor inputs is evenmore difficult:

In our JSC about 70% of shareholders are pen-sioners, and 30–40% or our workers do not haveshares, they are simply waged employees. So it isincreasingly the case the JSC has to support thepensioner shareholders. This is becoming a seriousproblem. Moreover, we must provide for workingshareholders and also for those who work but haveneither shares—not land-shares (case 3)

Poor profitability was given as a reason for not payingcash (or any other form of) dividend to share-holders:

If production was profitable, if there was enoughsupport from government, then yes, we could afford[to pay dividend payments]. Then land-shares wouldwork, there would be rent, and dividends would bepaid. But today we just manage to balance our books.If I pay dividends how will I pay those who work onthe farm? (case 7).

Within the current economic climate, Directors havechosen to prioritise remuneration to workers rather thanto land- and property shareholders; the main return toshareholders is through subsidised prices and serviceswhich are in any case available to all members of thevillage. Despite this, and luckily for the cash-strappedJSCs, the majority of share-holding pensioners andthose not working on the farm appeared to be content toallow the JSC to farm their land. Instead of demandingdividend and better payment for their land-shares, mostpensioners appear to accept the provision of care andsupport in lieu, thus allowing the JSC to preserve theSoviet-type payment system to its workers and ownersof its assets.

10This belief precedes the Soviet period and is based on Russian

Customary law. Russian peasants were traditionally able to secure use-

rights to unclaimed land simply by working it, but would lose this land

if they stopped working it, so labour itself established a right to land

(Atkinson, 1990; Davydova, 1999).

A recent development following the decrease in theuncertainties surrounding the land market presentedcase 2 with the opportunity to rent land from a groupof private individuals, mostly pensioners, who collec-tively withdrew their land-shares from their JSCs toseek higher returns. Case 2 pays similar rental values tothe JSCs, but offers more flexible terms, includ-ing payment in cash. The case 4 private farmer farmsonly his own land, but reported no difficulty inacquiring additional land if he wished to expand. Ingeneral, our survey showed there to be more thansufficient land available for rent to satisfy demand. Inaddition to land-shareholders looking to raise theirhousehold income, land was increasingly becomingavailable from failed JSCs. Therefore, even in theabsence of a market for the permanent transfer of land,acquiring land is no longer a major barrier to thedevelopment of the private farming sector in Suzunraion.

4.5. Labour management and its implications for the

rural economy

Finding ways to incentivise labour is a key managerialproblem of all large farm businesses (Allen and Lueck,1998; Schmitt, 1991; Fadeeva, 2003). Although pay-ments ‘‘in kind’’ boost wages and lowers LSEs’ cashoutgoings, they create other difficulties, namely the riskthat employees will concentrate on their household plotto the detriment of the farm’s activities, thus enjoying‘‘free rider’’ status, taking the benefits of employmentwithout contributing equally to the farm work (Ameli-na, 2002, p. 282).

As has been noted above, Directors of JSC use thecombination of wages, payment ‘‘in kind’’ and access tofarm products at discounted prices as a means ofmotivating workers to commit to the farm. However,part of the perceived problem of motivation is theavailability of social services to non-workers:

Today sometimes workers who are unemployed liveno worse than those who work every day. If thegovernment had addressed this problem at the outsetand started demanding payments for utilities used byall these never-do-wells (e.g. such a water supplies,upkeep of the village, road construction, etc.) thensomething may have changed. But for now suchpeople enjoy all the privileges of a worker of the JSC.They steal produce from our farm at night—andfatten their livestock with what they steal. Whywould such a person go to work? (case 7).

Motivating workers is a major concern of the largeprivate entrepreneurial farmer (case 2). This farmer hadto address this problem when he was considering taking

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11Yeltsin’s decree of March 1996 ‘On Realisation of Constitutional

Rights of Citizens to Land’, which clarified existing land rights.


over the management of 2800 ha of land from the case 6JSC. He commented:

Our main business problems now are with thevillagers in (case 6) village. Our existing land,911 ha in Kluchiki and 600 ha in Kargopolovo, iscultivated by people who have been with us for 12years. There is absolutely no problem there. Theyreceive good wages and are paid on time. But in (case6) village, the people are good people, but they do notunderstand that it’s much worse to steal than towork, [that one] should simply work and receive anormal wage, as it used to be, say in kolkhoz Kirov(case 2).

Private farmers implement different managerial tech-niques to maintain a disciplined workforce. Forexample, case 2 enforces strict rules on absenteeism:

If a worker was absent for a day, he at once losesRUB 500 from his [monthly] wage. We do not goback on this system of fines—despite the possibilitythat tomorrow this worker may leave and hiscombine harvester stand idle—in such an event,either myself or my partner will take over thecombining (case 2).

Private farmers and businesses bought by ‘‘urbancapital’’ are also more willing than JSCs to lay peopleoff. As part of the take-over a failing JSC (case 6), case 2started paying wages for the JSC employees and unpaidback wages, but it intended to reduce managerial staff(which accounted for 40 of its 70 employees) by 30% byintroducing a wage pool. Case 8, the holding company,has reduced its work force from 296 to 110 in the 2months to July 2003. Employees were selected forredundancy by examination based on their knowledgeof pig production and meat processing. The case 8manager considers labour as just a factor of production,and intends to increase or reduce the number of workersaccording to that required by the planned output, whichin turn will be determined by the profitability of thefarm. Directors of LSEs feel pressed to take back theirworkers, sacked for absenteeism or other indiscipline,and find it difficult to reduce their workforce. TheDirector of case 5 JSC would like to half his workforce(which would mean dismissing 100 people), but:

Employees do not voluntary leave the farm. If I sackthem, they would start to steal. So the problem seemsinsoluble (case 5).

The attitude of the management of case 8 towardslabour, if adopted by JSCs, would lead to massunemployment. Those labourers unable to find alter-native employment would most likely leave the village orbecome full-time pilferers. Mass redundancy wouldthreaten the foundation of the rural economy, but theworst-case scenario is the total bankruptcy of the JSC

without replacement by private farming. The collapse ofthe LSE would leave pensioners (as case 2 private farmerpointed out) particularly vulnerable:

ythis group [pensioners] would stay in the villageand have nothing. Young people can do the necessarywork themselves, but the old are not able to (case 2).

5. Discussion

Why, contrary to the blueprint for the agrarianreform in Russia, has the private farm sector notbecome an engine for agricultural and rural develop-ment? One reason suggested by the literature is thatprivate ownership of land was not properly established.There was considerable confusion over the legal entitle-ments of individuals over the use of their land- andproperty-share, partly caused by the 10-year suspensionof land transaction agreed in the same year the Law onLand Reform was accepted (Kalugina, 2000; Skyner,2001; Yamamura, 2002) and partly by the autonomyeach oblast region was given in overseeing the imple-mentation of these changes—which meant that landreform was sporadic and varied greatly across regions(Uzun, 2000; Norsworthy and Paluba, 2000; Skyner,2001). Despite the 1996 decree,11 there is evidence that adegree of confusion remains (Kalugina, 2002; Uzun,2000) which has resulted in the absence of a land marketand the slow growth in the market for leasing land(Rozelle and Swinnen, 2001). In the first years ofreforms this hindered the growth of the private farmsector. A number of surveys have shown that manyprivate farmers decided to work together—in informalco-operatives of between 3 and 4 private farm (Wegren,1996: citing Brooks and Lerman, 1994; Yamamura,2002). Spoor and Visser (2001) attribute the stagnationin land farmed by private farms to the state of theagricultural markets and macro-economy. Because of‘‘missing’’ markets, there was a tendency towards bartertrade and a withdrawal into self-sufficiency. However,our survey found that increasingly larger areas of landwere becoming available to rent, both from the land-share of pensioners and workers seeking larger returnsfor their assets, and from failed JSCs. It appears thatsufficient clarity now exists for land-shareholders toemploy their assets where they can secure the highestreturn.

Wegren (1996) attributes the slow growth in theprivate farming sector to the ending of state-subsidiesand other benefits which were initially offered to privatefarmers in 1993; problems with the acquisition ofsuitable inputs such as fertilisers and machinery; the


affordability of inputs (due to the deterioration inagricultural terms of trade); difficulty selecting betweenstate and private marketing channels (which were oftenunderdeveloped); problems relating to non-payment fordelivered goods; inadequate rural infrastructure, storageand transport; lack of land, and the poor quality of landallocated to them in terms of fertility and location. Healso argues that private farms have not been successfulat defending their interest. Attempts to strengthen theirposition by forging political alliances with similarinterest groups stumbled due to lack of a sufficientlycommon platform. Our survey found that there was noshortage in the supply of inputs, but that the mostimportant concerns of the farmers was the affordabilityof inputs, and identifying the creditworthiness of thepurchaser of their products.

To this list, Norsworthy and Paluba (2000) add thegeneral opposition to reforms by oblast and ruralleaders. This has led to a regional variation in theimplementation of reforms which has important con-sequences, as subsidies and other support for theagricultural sector is largely discretionary and remainswith the oblast Administration. They also draw atten-tion to changing demographic trends over the 1990s indifferent raions, and to differences in the initial resourcebase (important components of which are proximity tourban centres and transport infrastructure), and to thetendency for the urban population to convert landpreviously used for household plots into their countryresidence (dachas). We have characterised Novosibirskoblast as an interventionist Administration, and ourstudy showed that the raion Administration has activelysupported changes to business ownership in an increas-ingly urgent imperative to maintain some form ofeconomic activity in rural areas given the high percen-tage of LSEs reporting financial losses.

Among the issues Mathijs and Swinnen (1996)identify as factors governing the rate of ‘decollectivisa-tion’ is the negative impact of risk. Missing markets,lack of political support, uncertainty about the legalstatus of land ownership and land lease, an unstablemacroeconomic trading and financial environment,unequal access to support and subsidy payments sumto a substantial increase in uncertainty and mitigatetowards conservative behaviour.

Of all the explanations of the slow growth in theprivate farming sector, only the confusion regardingindividual’s legal entitlement over the use of their land-shares specifically benefits LSEs at the expense of theprivate farming sector. The other negative factors, suchas problems with the acquisition and affordability ofinputs (due to the deterioration in agricultural terms oftrade); demographic changes; the poor state of ruralinfrastructure; ‘‘missing markets’’, etc., affected LSEsjust as much as the private sector. Therefore, rather thanposing the question why has the private farming sector

failed to develop, a different question is suggested: whatare the reasons for the continuing existence of LSEs?

The survey pointed to the substantial social andeconomic costs that would be entailed after the break-upof an LSE. Firstly, the economic costs relating toagricultural production. These would involve thereallocation of large equipment between shareholders,and the break-up of the larger farms would result insubstantial losses in scale economies. Second, currentlyLSEs provide substantial support to social services inthe countryside. The private farmers and managers ofprivate companies pursue more profitable ways of doingbusiness and so largely reject the social welfare functionstill retained by the Directors of LSEs. There is anongoing programme to transfer the responsibilities formaintaining the rural infrastructure to the LocalAuthorities, which could be a first step towardsdisentangling the social and economic functions ofagricultural businesses. However, all the LSE Directorswe interviewed believed their businesses would still needto be involved in many of the tasks earmarked fortransfer to the Local Administration which, they believe,do not have sufficient financial, material and technicalresources to carry out the functions currently done bythe LSEs. Currently the Local Administration practice‘mutual payments’ (vzaimozachety), whereby LSEs aregiven tax deductions equal to the value of deliveries toor work done for local authorities. For example, LSEscan clean roads or supply and deliver building material,and receive tax breaks of an equal value. This practice isadmitted to being ‘very convenient in villages withstrong LSEs’ (Municipal Officer, case 7).

The third problem concerns the link between LSEsand household plots, which combined produce over90% of Russia’s agricultural produce. Since collectivisa-tion, household plots have played the major role inproviding livelihoods to the rural population (Nove,1992). But they were also ‘a conservative default optionthat allowed the state to increase food supply at themargins relatively easily and cheaply without reallychanging the structure of the rural economy’ (Wegren,1998, p. 43). It was sufficient to relax restrictionsconcerning household plots to get a significant increasein food production. Thus Gorbachev’s liberalisationresulted in an increase in meat output from personalplots of almost 11% during 1985–1990. In 1990 outputfrom household plots accounted for 65% of potato,33% of vegetables, 39% of meat, 28% of milk and 27%of eggs produced in the USSR (Wegren 1998, p. 45).However, this productivity is by no means independentof the LSE sector. Directors of LSEs rightly say that:

Today’s mass media talks about the development ofprivate farming, that it is a panacea. Well, eachfamily has a lot of livestock: 2–3 cows, 2–3 calves,and 10 piglets. This is only possible because there is a


collective farm [i.e. village LSE]. Without thecollective farm there would be no opportunity tokeep livestock in the households (y). The growth inhousehold production is not an achievement of therural families alone. It is also the collective farmwhich produced this meat too because it is thecollective farm from which villagers get hay, grain,and piglets (case 7).

This is an important consideration. The dismantlingof LSEs would not necessarily entail an increase in theamount of food produced by households and privatefarmers. In Novosibirsk oblast, private farmers tend tofarm combinable crops. It is also likely that a propor-tion of villagers would leave the village, reducing theproduction from household plots. It is the effect on thetotal productivity of the JSC and village system thatneeds to be considered should JSCs be allowed to gobankrupt and be replaced by private farmers.

The fourth problem is that LSEs are the major, oftenthe only, employers in rural areas, and therefore theirbankruptcy means mass unemployment. This problem iswell recognised by the Administration which, on the onehand, would like to reduce budgetary expendituresgoing to LSEs, but on the other dare not allow a wave offarm bankruptcies. This is evident from comments onthe Novosibirsk oblast Administration’s decree of thefifth of March 2004 which reduced the amount ofsupport to LSEs:

y the budget cannot be a donor for ever. Asconcerning the 155 loss-making farms which theoblast Administration will continue to support—well,this is understandable: there are 100,000 people livingthere, and they cannot be left to their own devices(Continent Sibir, 2004).

The reciprocal, symbiotic relationship between JSCand village is beneficial in some respects but disadvanta-geous in others for both sides. Thus JSCs effectivelyeconomise on cash paid as wages and have enjoyed, sofar at least, preferential access to land (which is officiallyowned by the villagers) but, on the other hand, itendures additional costs (provision of produce at belowmarket prices, providing social services to the villagersand maintaining the rural infrastructure). Workers andvillagers gain through subsidised or free social servicesand inputs to their household plots but, on the otherhand, have to accept very low wages.12

The LSEs have continued to exist, but they are nowunder threat as oblast budgets are no longer able tocontinue the Soviet practice of supporting all failingLSEs and as land-share owners look to increase theirincome. Allowing the Soviet ethos of rewarding labour

12The average agricultural wage is about 40% of the average in

Russia (Sel’skoe khoziastvo v Rossii 2002, p. 31).

rather than capital invested in the enterprise to prevail,in spite of the change of legal form which supposedlytransformed a collective farm into a JSC, has encour-aged owners of land-shares to look to increasingincomes. One option is to lease land to the privatesector. This illustrates a key problem for the market-oriented agricultural reforms: a significant part of theRussian rural economy that has not up to now beenmonetarised will become so. The development ofeconomically efficient, market-oriented food productionwill result in the commodification of very many aspectsof rural life.

6. Conclusions

Most of the farmers we spoke to wanted more stablemarkets and supported the re-introduction of produc-tion quotas and guaranteed prices, pointing to theEuropean Union’s Common Agricultural Policy as anexample of such policies. It is clear that Russianagriculture receives less support than European, Amer-ican or Japanese farmers (OECD, 2002). A keyargument advanced by the European Commission forsupporting agriculture is its importance to the ruraleconomy. This argument is particularly powerful inRussia, where the farms are closely tied to local villagesand rural communities, providing economic activity andrural infrastructure.

LSEs have four roles: commercial producers of food,employers, providers of inputs to workers’ and tovillagers’ household plots, and as providers of socialservices to the village community. The first role linksthem to the wider market economy, the remainder totheir local (village) community. Providing unpaidservices jeopardises their competitiveness vis-a-vis theprivate sector. But if LSEs are allowed to collapse thecosts of discharging these roles will fall to some otherorganisation. Unsurprisingly, an overwhelming concernof the Administration of Suzun raion was to keepagricultural enterprises functioning, so ‘‘people are notabandoned’’. To do this they have facilitated therestructuring of the collective sector, recently byfacilitating the expansion of private (autonomous)farms.

However, the success of the transformation to amarket economy depends on eliminating entrenchedproducers’ attitudes to state paternalism, and allowinginter-farm and inter-regional comparative advantage todevelop. Improving labour efficiency would reduce theworkforce, as would allowing the most financiallyimpoverished LSEs to be declared bankrupt, bothwould create rural poverty as, although the privatefarm sector could absorb considerable areas of land, itwill not employ much of the low skilled labour thusreleased.


Changing responsibility for the provision of socialservices from the LSEs to the Rural Administration is afirst step in reducing some of the barriers to moremarket-oriented management of LSEs. However, theshift of responsibility for social infrastructure fromLSEs to the Local Administration could lead to itsfurther degradation if the Administration does not havesufficient resources.

The recent reforms of the European Agriculturalpolicy have increased the support for the rural economy.In Russia, the rural economy depends on farming:removal of the symbiotic links between the village farmand the village will impose considerable costs on thesocial security budget and reduce the economic activityin rural areas. Any successful agricultural policy inRussia would have to take the symbiotic relationshipbetween LSE and village into account. The problem thereformers face today is not just how to foster market-oriented farming with a well-defined priority of profitmaximisation, but also how to tackle the inevitablesocial problems which will emerge when non-profitableLSE, which are crucial cornerstones of the villagecommunity, are allowed to go bankrupt.

Acknowledgements

We would like to thank Zemfira Kalugina and OlgaFadeeva, from the Department of Sociology, Institute ofEconomics and Industrial Engineering, Novosibirsk fortheir assistance in the fieldwork for this research. Wealso gratefully acknowledge the Farmers Club Chari-table Trust for the award of a Travelling Scholarship toallow this work to be undertaken. We are grateful to twoanonymous referees for comments on an earlier versionof this paper; the usual disclaimers apply.

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