Land reform and farm restructuring in Moldova - progress and prospects

WORLD BANK DISCUSSION PAPER NO. 398 Work in progress D PS for public discussion ; M;t Land Reform and Farm Restructuring in Moldova Pro g,rZfs sa (1/1( Prospa- Is 2 lor-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I. iro 1I loo,:( , (#:\t/l)tz~~ ~~~ (*: ,,/ t~ ~~ 'f(9/}lo  Recent World Bank Discussion Papers No. 325 Institutional and Entrepreneurial Leadership in the Brazilian Science and Technology Sector:Setting a New Agenda . Edited by Lauritz Holm-Nielsen, Michael Crawford, and Alcyone Saliba No. 326 The East Asian Miracle and Information Technology: Strategic Management of Technological Learning. Nagy Hanna, Sandor Boyson, and Shakuntala Gunaratne No. 327 Agricultural Reform in Russia: A Viewfrom the Farm Level. Karen Brooks, Elmira Krylatykh, Zvi Lerman, Aleksandr Petrikov, and Vasilii Uzun No. 328 Insuring Sovereign Debt Againist Default. David F Babbel No. 329 Managing Transboundary Stocks of Small Pelagic Fish: Problems and Options. 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Anjali Kumar, Nicholas Lardy, William Albrecht, Terry Chuppe, Susan Selwyn, Paula Perttunen, and Tao Zhang (Continued on the inside back cover)  WORLD BANK DISCUSSION PAPER NO. 398 Land Reform and Farm Restructuring in Moldova Progress and Prospects Zv Lerman Csaba Csaki Victor Moroz The World Bank WashinSon, D.C.  Copyright C 1998 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing August 1998 Discussion Papers present results of country analysis or research that are circulated to encourage discussion and comment within the development community The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to mem- bers of its Board of Executive Directors or the countries they represent. The World Bank does not guaran- tee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this vol- ume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. ISSN: 0259-210X Cover photo: "Woman with vegetables," Mihai Potarniche (Moldova 1997). Zvi Lerman is a professor at Hebrew University, Jerusalem. Csaba Csaki is lead agricultural adviser in the Rural Development/Environment Sector Unit of the World Bank's Europe and Central Asia Region. Vic- tor Moroz is deputy director of the Agricultural Restructuring Agency of Moldova. Library of Congress Cataloging-in-Publication Data Lerman, Zvi, 1941- Land reform and farm restructuring in Moldova: progress and prospects / Zvi Lerman, Csaba Csaki, Victor Moroz. p. cm. - (World Bank discussion paper, ISSN 0259-210X; no. 398) Includes bibliographical references (p. ). ISBN 0-82134317-3 1. Land reform-Moldova. 2. Agriculture-Economic aspects- Moldova. 3. Farms-Moldova. 4. Privatization-Moldova. I. Csaki, Csaba. II. Moroz, Victor, 1950- . III. Title. IV. Series: World Bank discussion papers; 398. HD1333.M629L47 1998 333.3'1476-dc2l 98-27897 CIP  Contents Foreword ....................... ix Preface ..xi Abstract ....................... xv Executive Summary ..xvii Chapter 1 Privatization of Agriculture in Moldova: Main Findings. Chapter 2 Current State of Land Reform: National Overview ....................... 11 Chapter 3 The Legal Fiamework for Land Reform and Farm Restructuring ..... ....... 27 Chapter 4 Reorganization o:f Large Collectives: A Break with Socialist Tradition? ...... 37 Chapter 5 Members of Large Collectives in the Midst of Reform .................... 57 Chapter 6 Peasant Farms: The Emergence of True Private Agriculture ..... ........... 69 Chapter 7 Rural Social Services in Transition ................................... 91 Selected References on Land Reform and Farm Restructuringin Transition Economies .. 95 List of Figures Figure I Annual Family Income: 1996 .............. ................. xviii Figure II Disposition of Land Shares ................................... xx Figure 1.1 Members' Assessment of Reorganization Outcomes ................ 4 Figure 1.2 Product Mix: Collectives and Private Farms ........ ............... 5 Figure 1.3 Commercial Orientation of Producers: Percentage of Output Sold and Consumed on Farm .................................... 6 Figure 1.4 Change of Family Situation Since Becoming a Farmer ...... ......... 9 Figure 1.5 Expected Changes of Family Situation in Next 2-3 Years ..... ....... 9 Figure 1.6 What the Family Income Buys? ................................. 9 Figure 2.1 Land Ownership ........................................ 13 Figure 2.2 Land Tenure by Sector: 1990-1997 ............................. 13 Figure 2.3 Gross Agricultural Product: 1990-1996 .......................... 21 Figure 2.4 Share of Individual Sector in Production ......................... 22 Figure 4.1 Reorganization Rate of Farm Enterprises: 1991-1997 ...... ......... 37 iii  Figure 4.2 Land per Farm: 1990-1996 ................................... 38 Figure 4.3 Number of Employed: 1990-1996 .............................. 38 Figure 4.4 Exits of Members and Creation of Private Farms from Collectives .... 38 Figure 4.5 Official Documents of Land Ownership ....... .................. 40 Figure 4.6 Structure of Land Use in Farm Enterprises ....... ................ 45 Figure 4.7 Payroll Arrears in Farm Enterprises ......... .................... 53 Figure 4.8 Distribution of Losses and Profits: 1996 ......................... 54 Figure 5.1 Household Income in 1996 ................................... 57 Figure 5.2 Sources of Lending for Employee Households .................... 60 Figure 5.3 Size Distribution of Household Plots: 1990-1996 .................. 62 Figure 5.4 Farm Employees' View of the Future ........ ................... 68 Figure 6.1 Establishment/Registration of Private Farms by Year ..... .......... 69 Figure 6.2 Structure of Land Use in Private Farms . . ........................ 71 Figure 6.3 Size Distribution of Private Farms ......... ..................... 71 Figure 6.4 Average Labor per Farm .73 Figure 6.5 Labor-to-Land Ratio vs Farm Size ............ ................. 73 Figure 6.6 Availability of Farm Machinery to Private Farmers ...... .......... 81 Figure 6.7 Off-Farm Employment of Private Farmers ....................... 83 Figure 6.8 What the Family Income Buys? ............... ................. 84 Figure 6.9 Change of Family Situation Since Becoming a Farmer ...... ........ 84 Figure 6.1 0 Expected Change of Family Situation in Next 2-3 Years ..... ....... 85 Figure 6.11 Desired Borrowing Term for Future Credit .87 Figure 6.12 Size Distribution of Farmers Associations .88 List of Tables in Text Table A Sample Structure: 1997 Survey .......... ..................... xii Table I Privatization of Land in Moldova: 1992-1997 ................... xvii Table II Family Well-Being: Private Farmers and Member-Employees .... ... xix Table III Responsibilities of Central Management in Corporatized Farms ..... xix Table IV Commercial Orientation of Individual Producers ...... ............ xx Table 1.1 Progress with Farm Reorganization .......... .................... 2 Table 1.2 Disposition of Land Shares as Reported by Managers and Members of Large Farm Enterprises. 4 Table 1.3 Average Number of Animals per Individual Farming Unit and Frequency of Units with Livestock ............. .................... 5 Table 1.4 Cropping Pattern: Collectives and Private Farms ...... ............. 6 Table 1.5 Sales Channels for Farm Enterprises and Individual Producers ..... ... 6 Table 1.6 Difficulties with Sale of Farm Products ......... .................. 7 Table 1.7 Farm Inputs: Sources and Purchasing Difficulties ...... ............. 7 Table 2.1 Land Tenure: Agricultural Land as of January 1998 ................ 12 Table 2.2 Land Tenure: 1990-1997 ..................................... 14 Table 2.3 Distribution of Land Shares: 1996-1998 ......................... 15 iv  Table 2.4 Applications to Receive Land and Actual Allocation of Land Plots: 1996- 1998 ............................................... 15 Table 2.5 Land Holdings of Private Farms: 1996-1998 ...................... 15 Table 2.6 Privatization Rate by Zone: 1996-1998 .......................... 16 Table 2.7 Privatization Rate by District: 1996-1998 ........................ 16 Table 2.8 Privatization of Non-Land Assets as of December 1997 ..... ........ 17 Table 2.9 Distribution of Privatized Assets to New Organizational Forms ....... 18 Table 2.10 Farm Reorganization as of October 1, 1997 ...................... 19 Table 2.11 Characterization of Organizational Forms ........................ 19 Table 2.12 Land and Production in the Individual Sector ..................... 21 Table 2.13 Gross Agricultural Product, Agricultural Labor, and Productivity of Labor: 1990-1996 ...................................... 22 Table 2.14 Buying and Selling of Garden Plots as of January 1997 ...... ....... 23 Table 2.15 Farm Debt Levels: 1993-1997 ................................. 24 Table 2.16 Current Indebtedness of the Agro-Industrial Complex: December 1996 26 Table 3.1 Chronology of Land Reform and Farm Restructuring Legislation in Moldova ............................................ 28 Table 3.2 Procedures for Determination of Land and Asset Shares ..... ....... 29 Table 3.3 Procedure for Registration of Private Farms ...................... 31 Table 4.1 Organizational Forms of Large Farm Enterprises in 1996 ..... ...... 38 Table 4.2 Change in Farm Size between 1990 and 1996 ...... ............... 38 Table 4.3 Progress with Distribution of Land Shares ....................... 39 Table 4.4 Assignment of Land Shares to Beneficiaries of Various Categories .... 40 Table 4.5 Rights Associated with Land Shares and Asset Shares ..... ......... 41 Table 4.6 Disposal of Land and Asset Shares by Individuals ...... ........... 41 Table 4.7 Responsibilities of Central Management and Subdivisions ..... ...... 42 Table 4.8 Resources in Subdivisions ............. ....................... 43 Table 4.9 Average Gross Product per Farm: 1994-1996 ...... ............... 43 Table 4.10 Change in the Number of Animals in Large Farms in the Sample: 1994-1996 . ......................................... 43 Table 4.11 Livestock Production Per Farm, Profitability Assessment, and Future Production Plans ............. ........................ 44 Table 4.12 How to Improve Profitability of Livestock Operations ..... ......... 44 Table 4.13 Cropping Pattern of an Average Farm Enterprise ...... ............ 45 Table 4.14 Crop Production ............................................ 45 Table 4.15 Profitability Assessment of Crop Production and Future Production Plans ............................................... 46 Table 4.16 Organization of Irrigation ............ ........................ 47 Table 4.17 Yields on Irrigated and Unirrigated Land ........................ 47 Table 4.18 Structure of Farm Sales ...................................-.47 Table 4.19 Processing and Other Non-Agricultural Activities ....... .......... 48 Table 4.20 Payments in Kind from Processors ............................. 48 Table 4.21 Frequency of Commercial Producers and Percentage of Output Sold for v  Large Farm Enterprises ................................ 48 Table 4.22 Main Marketing Channels by Product ........................... 49 Table 4.23 Difficulties with Sales of Farm Products ......................... 49 Table 4.24 Distribution of Exports by Type and Destination .................. 50 Table 4.25 Export by Commodity ....................................... 50 Table 4.26 Sources of Farm Inputs ...................................... 51 Table 4.27 Farm Enterprises Acting as Suppliers of Inputs ................... 51 Table 4.28 Difficulties with Purchase of Inputs ............................ 52 Table 4.29 Joint Purchase of Inputs with Other Farms ....................... 52 Table 4.30 Structure of Employment on an Average Large Farm: 1990-1996 . 52 Table 4.31 What to Do if No Money to Meet Payroll? ....................... 53 Table 4.32 Average Monthly Salaries in 1996 ............................. 53 Table 4.33 Financial Results of Farm Enterprises: 1996 ...................... 54 Table 4.34 Structure of Liabilities and Current Assets of an Average Farm: 1996 . . 54 Table 4.35 Forms of Collateral Provided by Borrowers ...................... 55 Table 5.1 Sources of Income of Farm Employee Households in 1996 by Income Quartiles ............................................ 58 Table 5.2 Income by Family Size ...................................... 58 Table 5.3 Income from Household Plot by Plot Size and Family Labor ..... .... 58 Table 5.4 Sources of Household Income by Number of Seniors in the Family .... 59 Table 5.5 Payments in Kind and Subsidized Purchases from Farm Enterprise ... . 59 Table 5.6 Assessment of the Family's Purchasing Power by Income Quartile ... . 61 Table 5.7 Assessment of the Present and Future Expectations of Farm Employees .......................................... 61 Table 5.8 What Can Significantly Improve Your Standard of Living? ..... ..... 61 Table 5.9 Attitude Toward Buying and Selling of Land by Education of Head of Household .......................................... 63 Table 5.10 Diversification of Production and Sales in Employee Households ..... 63 Table 5.11 Average Number of Livestock in Households ..................... 63 Table 5.12 Household Production and Sales ............................... 64 Table 5.13 Sales Channels for Household Products ......................... 64 Table 5.14 Legal Status of Farm Enterprises in 1996 ........................ 65 Table 5.15 Progress with Distribution of Land and Assets ...... .............. 66 Table 5.16 Future Use of Land and Asset Shares ........................... 66 Table 5.17 View of Private Farming Expressed by Employees of Farm Enterprises 67 Table 5.18 Changes after Reorganization of Farm Enterprise .................. 68 Table 6.1 Structure of Land Tenure and Land Use in Private Farms ..... ...... 72 Table 6.2 Characteristics of Farm Employing Family and Hired Labor ..... .... 74 Table 6.3 Livestock in Private Farms ..... ............................. 74 Table 6.4 Sources of Animal Feed Used by Private Farmers ................. 74 Table 6.5 Livestock Production Per Farm, Profitability Assessment, and Future Production Plans ......................... 75 Table 6.6 Cropping Structure on Private Farms ......................... 76 vi  Table 6.7 Crop Procluction on Private Farms .......... .................... 76 Table 6.8 Crop Production on Private Farms: Profitability Assessment and Future Plans ............................................... 77 Table 6.9 Yields on Irrigated and Unirrigated Land ........ ................ 78 Table 6.10 Sources of Farm Inputs . ...................................... 79 Table 6.11 Difficulties with Purchase of Inputs ......... ................... 79 Table 6.12 Machines in Private Farms ................ .................... 80 Table 6.13 Providers of Mechanical Field Services .......................... 80 Table 6.14 Sales of F'arm Products . ...................................... 82 Table 6.15 Main Sales Channels by Product ........... .................... 82 Table 6.16 Difficulties with Sales of Farm Products ........ ................. 83 Table 6.17 Processing and Other Activities Reported by Private Farmers ..... ... 84 Table 6.18 Estimate of 1996 Private Farm Income ........ .................. 85 Table 6.19 Future Expectations of Profitability and Current Profit from Sales .... 85 Table 6.20 Sources of Funds for Farm Operations ........ .................. 86 Table 6.21 Accounts Payable and Accounts Receivable of Private Farners ....... 86 Table 6.22 Potential Sources for Short- and Long-Term Borrowing . ............ 87 Table 6.23 Investment Plans for the Next Two Years ........................ 87 Table 6.24 Mode of Operation of Private Farms in Associations ...... ......... 89 Table 6.25 Cooperation Profiles of Farmers Associations ....... ............. 89 Table 6.26 Cooperation Among Private Farmers ........................... 90 Table 7.1 Social Services and Benefits for Employees of Farm Enterprises: Views of Farm Managers and Farm Employees .92 Table 7.2 Social Services and Benefits for Private Farmers: Before and After Exit from Farm Enterprise .92 Table 7.3 Farmers' Difficulties with Access to Social Services: Actually Experienced and Anticipated ......... ................... 93 Table 7.4 Transfer of Nonproductive and Social Assets to Local Authorities .... 93 vii  I  Foreword Agriculture in transition economies accounts for a much greater share of employment than in industrialized countries of Europe and North America. Agricultural reforms, including privatization of land and farm restructuring, are therefore an important cornerstone for overall transformation of the economies of the former socialist world. The World Bank closely monitors the progress of these reforms so as to evaluate the achievements, learn from experience, advise member governments on best practices, and help design programs for investment and external support. Farm-level surveys provide one of the most effective monitoring tools that make it possible to penetrate beyond the anonymous curtain of official statistics. The World Bank, in cooperation with local research institutions, has launched an extensive series of farm surveys in many of the former Soviet republics, including Russia, Ukraine, Moldova, Armenia, and Georgia. Farm surveys are also being conducted across East Central Europe and in Central Asia. The results of these surveys are regularly published in the form of analytical reports in the World Bank Discussion Papers series. This paper summarizes the current status of land reform in Moldova. There has been clear progress in creating a market-based agriculture and food sector in Moldova. Since 1996, land privatization and farm restructuring have gained a new momentum. Current reform efforts in Moldova have led to the emergence of new, fully privatized farming structures. The results of this study indicate that genuine restructuringand transition to full-fledged private farming have resulted in improved profitability and higher incomes for private farmers than those achieved by traditional collectives. The survey reveals a highly positive impact of private farming initiatives on the well-being offarmer families. On the negative side, the rapid changes in rural area associated with the dismantling of large collectives have led to disruption of social services. Local governments still have no budgets to take over the responsibility for social infrastructure. The findings and conclusions of this paper should provide a useful tool for the Government of Moldova in assessing the accomplishments and identifying future steps in land reformn. They also will be useful to international institutions designing financial and technical assistance, and to scholars studying the unprecedented process of transformation in transition economies. The World Bank will continue its commitment to provide the international community with similar analytical reports for other countries in transition. Kevin Cleaver Roger Grawe Sector Director Country Director Rural Development and Environment Sector Unit Czech Republic, Hungary, Moldova Europe and Central Asia Slovakia, Slovenia Europe and Central Asia Ix   Preface Agricultural reforms in Moldova began in the lists provided by local municipalities. The detailed first quarter of 1991, more than six months before structure of the sample is shown in Table A. the dissolution of the Soviet Union and the declaration of that country's independence. After a Scientific and Technical Team very sluggish and politically indecisive start, the pace of reform accelerated dramatically following The survey was managed as a cooperative the constitutional court's watershed decision of effort by ARA in Chisinau and a World Bank task January 1996. The present study attempts to capture team. James Parks, the World Bank Resident the recent changes in Moldovan agriculture through Representative in Moldova, and Ion Palii, the ARA an extensive farm-level survey, rather than standard Director, oversaw the organization and the official statistics. implementation of the project in Moldova. The Moldovan team conducted the field work, carried Survey Design out data processing and analysis, and assembled up- to-date aggregate and legal information from The survey was conducted in February-April official sources. The World Bank team provided 1997 as a joint effort of the World Bank and the support in areas of survey design, data processing, Agricultural Restructuring Agency (ARA), a and analytical methodology. The World Bank team Moldovan non-governmental organization also produced the present English-language established by international donor support. The publication, based on information provided by the survey was based on a uniform methodology Moldovan counterparts and on independent analysis developed by the World Bank for its agricultural of the survey data. reform monitoring program in the former Soviet The Moldovan team was headed by Victor Union (FSU) and East Central Europe (ECE). It Moroz, ARA Deputy Director and co-author of this included three distinct questionnaires administered report. Farm data collection was done by two local to private farmers, managers of large farm organizations led by Feodor Bajura and enterprises, and member-employees of large farms. Iosif Cobzac. Serguei Angelov of ARA was This design ensured a comprehensive coverage of responsible for data entry and database both new and traditional components of the rural development. Veronica Cazacu and Felicia Izman, setting in Moldova. the two ARA economists, assisted with data The survey covered villages in 28 out of 36 collection and preliminary analysis. Alexei Mihai districts, representing the three major geoclimatic provided professional input concerning land reform zones (North, Center, and South) and a wide range legislation. Ambros Dotzer, a long-term foreign of distances from the capital. In total, the survey adviser to ARA stationed in Chisinau, provided included 161 managers of farm enterprises, 808 valuable comments in the report-writing stage. member-employees of farm enterprises, and 1043 The World Bank team included Csaba Csaki, private farmers. The sample of farm managers and Florian Grohs, and Zvi Lerman, who were closely private farmers for each district was proportional to supported by the staff of the Chisinau World Bank the total number of units in the respective Resident Mission. Zvi Lerman directed the design categories. The sample of member-employees was and the methodology of the survey and was the based on five respondents per farm enterprise. The principal author of the English-language report. farm enterprises included in the sample were Csaba Csaki provided scientific and policy guidance selected from district-level lists. All individual throughout the project and co-authored the present respondents (member-employees and private report. Florian Grohs acted as the task manager for farmers) were selected at random from village-level the World Bank coordinating administrative and  xii Moldova: Land Reform and Farm Restructuring financial issues. Valuable assistance wilh collection comments were made by Arup Banerji, Gershon and analysis of background materials was extended Feder, Roger Grawe, Florian Grohs, and Laura by Antonio Nucifora, then a doctoral candidate at Tuck as part of a World Bank review process. Alan Oxford University, during his tenure as a summer Zuschlag in Washington prepared the report for intern at the World Bank in 1996 and two publication. subsequent missions to Moldova. Insightful Table A. Sample Structure: 1997 Survey* Zone and district Distance from Managers of farm Member-employees of Private farmers Chisinau, km enterprises farm enterprises Northern Zone I Briceni 230 7 35 13 2 Glodeni 177 7 35 20 3 Donduseni 197 7 35 20 4 Drochia 165 7 35 15 5 Edinet 202 7 35 15 6 Singerei 108 7 36 20 7 Ocnita 240 7 35 15 8 Riscani 166 7 35 17 9 Soroca 160 7 38 17 10 Falesti 125 7 33 22 11 Floresti 131 7 36 19 12 Soldanesti 120 7 35 17 Total Northern Zone 84 423 210 Central Zone 13 Calarasi 49 5 24 66 14 Hincesti 36 4 22 61 15 Criuleni 43 4 20 87 16 laloveni 15 4 20 65 17 Nisporeni 80 4 21 59 18 Orhei 46 4 20 61 19 Straseni 23 4 20 59 20 Telenesti 102 4 20 71 21 Ungheni 107 7 35 20 Total Central Zone 40 202 549 Southern Zone 22 Vulcanesti 200 7 32 15 23 Stefan-Voda 120 4 20 60 24 Cantemir 125 4 20 60 25 Causeni 88 4 21 60 26 Comrat 105 7 35 -- 27 Taraclia 165 7 35 18 28 Cimislia 75 4 20 71 Total Southern Zone 37 183 284 National total 161 808 1043 *The regions presented above do not correspond to the current official zone structures.  Preface xiii Organization of the Monograph Previous Publications The monograph starts with a sumnmary chapter The early phase of agricultural reforms in that presents the main findings of the study Moldova has been covered in a number of previous (Chapter 1). The next two chapters, based on World Bank studies, which are listed in the official sources, provide an overall review of the references section at the end of the monograph. The recent developments in the agricultural sector in main source is Moldova: Agriculture Sector Review Moldova (Chapter 2) and discuss the legal (1995), which provides an agricultural perspective framework for land reform and farm restructuring and augments the earlier macroeconomic review (Chapter 3). The introductory material is followed Moldova: Moving to a Market Economy (1994). by the empirical core of the study, presenting the Internal World Bank publications that have a direct detailed findings of the 1997 farm survey. The bearing on the subject of land reform and farm presentation is organized around the three main restructuring in Moldova in previous years include groups of respondents: reorganization of large farm Moldova Agriculture Policy Update (1996), With enterprises as reported by managers (Chapter 4), Farmer's Eyes: A Grassroots Perspective on Land the participation of farm-enterprise employees in Privatization in Moldova (1996), and Land Reform the process of reform (Chapter 5), and the situation and Private Farming in Moldova (1997). of private farmers (Chapter 6). The main topics The general context of land reform and farm covered in each chapter include land use and tenure restructuring in other countries of the former Soviet during reform, production and labor in a changing Union and East Central Europe is provided by environment, adjustment of marketing and supply numerous World Bank publications that have channels to new conditions, and farm finances. The emerged from an extensive ongoing program of last chapter examines the changes in provision of monitoring surveys, originally begun in 1992. These and access to social services in the process of and other related publications listed in the ieference reorganization (Chapter 7). section should enable the reader to compare the Throughout the monograph, tables and figures achievements of Moldova, as demonstrated by the presented without an explicitly identified souice are present survey, to other countries in the region. based on survey data.   Abstract The most prominent outcome of agricultural farmers: they are much better off and more reforms in Moldova is the elimination of the optimistic than the families of rural residents who monopoly of the state on ownership of land. As of decided to remain in collectives. January 1998, the state owns 18% of agricultural The transition from collective to individual land, and the rest has been privatized. Yet private agriculture in Moldova has not resulted in a decline ownership does not necessarily mean individual to subsistence farming. The individual farm sector ownership. Most of the privatized land remains in has developed a distinct commercial orientation. collectives and various corporatized farms, while Fully 80% of private farmers surveyed report some the individual sector accounts for only 20% of - revenue from sales of farm products, and on agricultural land. average they sell nearly 30% of their output. The While initially the agricultural reforms in growth of private farming is accompanied by Moldova stagnated because of internal fractiousness emergence of various market services, which and political indecision, there has been a definite primarily include commercial private channels for acceleration in the pace of reform since 1995. The sales of farm products and supply of farm inputs. number of exits from collective enterprises Even the collectives and various large corporatized increased, and the land holdings of private farms farms are moving away from exclusive use of state established outside the collectivist framework more procurement and processing, and are beginning to than trebled during the last two years, reaching 8% rely to an increasing extent on private traders. of agricultural land. The case of Moldova before and after 1995 The study reveals a definite relationship indicates that political indecision is lethal for between the economic conditions of collective reform. Yet, once the government decides to farms and the willingness of individuals to risk remove the basic obstacles to change, pressure from independent private farming. The reorganization of below, from the grassroots, can be counted on to collectives was merely "a change of the sign on the produce rapid and accelerating movement toward door," and their failure to adjust to the new reality private farming and market-oriented services. While has resulted in rapidly deteriorating profitability. the government certainly has a role in providing This, in turn, stimulated vigorous establishment of public goods and services in a market environment, private farms by former members of collectives, the experience of Moldova since 1995 shows that who now report improved profitability and higher the process of transition to the market does not incomes. Land reform in Moldova has produced a require tinkering by government bureaucrats. highly positive impact on the families of private xv   Executive Summary February 1998 marked the seventh-year analytical assessment of changes in land ownership anniversary of land reform in Moldova, and the and farming structures and to evaluate the impact of beginning of attempts to transform the agriculture farm privatization on farm performance and rural and food sector into a more productive and efficient incomes. system based on market principles and private ownership. In addition to land reform and the Acceleration of Land Reform restructuring of traditional collective and state farms, the agenda of sector reforms includes Early attempts at land reform and farm liberalization of the market environment, the restructuring in Moldova began already in the first privatization of agroprocessing and trade, and the quarter of 1991, fully six months before the country creation of a new institutional framework for became independent. Yet the first five years, 1991- agriculture. 1995, were characterized by very sluggish and There has been clear progress in creating a ineffective reforms due to the lack of a clear market-based private food and agriculture sector in commitment on the part of the political Moldova. The pace of agricultural reform, however, establishment, which induced indecisiveness and has been characterized by a continuous struggle inconsistency at the executing levels. between pro-reform and conservative forces since The pace of reform changed dramatically after independence. This tension has seriously delayed the landmark decision of the constitutional court in the implementation of a consistent set of policies January 1996, which ruled that some restrictive required to address properly the most critical issues provisions of the Land Code were unconstitutional of transition. The delay in agricultural reforms has and thus cleared the way for rapid privatization of had a negative impact on the overall Moldovan land and distribution of holdings to individuals. economy, as agriculture generates almost half the Land in the individual sector rose to 20% of all country's GDP. Since 1996, however, the reforms agricultural holdings in 1997, while the share of in the agriculture and food sector have gained a new state sector declined to 18%, most of it kept in momentum. The reform measures have not yet reserve for further privatization (Table I). resulted in a robust sectoral recovery, but the improvement in the overall agricultural performance Table I. Privatization of Land in Moldova: 1992-1997 in 1997 reveals first positive impacts of the (percent of agricultural land) transition process. 1992 1997 Land reform, which is always one of the major State sector 25 18 components of the process of agricultural reforms, State farms 20 1 is the primary focus of this study. In an attempt to Reserve fund 0 14 review the current status of land reform, the World Corporate sector 63 61 Bank in cooperation with the Moldovan Collectives 59 15 Agricultural Restructuring Agency (ARA) New corporate farms 4 43 conducted a survey of 2,000 respondents, including Farrners associations -- 3 private farmers, managers of large farm enterprises, Individual sector 12 21 and members of large farms in 28 out of 36 Peasant farms 0 8 districts. The survey was carried out in February- Peasants 0 8 April 1997 according to a uniform methodology that Household plots 12 13 had been developed by the World Bank for its Source:Cadastrallandbalances,endofyeardata. ongoing monitoring efforts in the former Soviet The decision of the constitutional court and t.e Union and East Central Europe. The objective of the study was to prepare a rigorous empirical and pressurescreatued birease conomic difficulties of unrestructured large farms, combined with the  xviii Moldova: Land Reform and Farm Restructuring progress in overall reforms in the country, produced markets. It is the cost savings in these factors of a new push for meaningful privatization of farns. production, and the higher sales prices, that have The legal framework and the implementation resulted in improved profitability of private farms. procedures for genuine restructuring of large farms Judged by total factor productivity, and not just by have been significantly improved. Farm physical yields (factor productivity of land alone), restructuring is now supported by the government private farming is already showing signs of greater and also receives significant donor assistance. efficiency than collective structures. Higher The donor-sponsored projects for farm profitability of private farming translates directly restructuring implemented after 1996 (mainly in into higher family incomes: families of private Nisporeni and Orhei districts) have succeeded in farmers earn double the national average, while developing new farming structures that are fully families of member-employees in collectives are privatized. These pilot projects have initiated a farm below the national average (Fig. I). restructuring process that is clearly superior to earlier restructuring efforts in Moldova and to Annual Family Income: 1996 approaches used in some other FSU republics. The essence of this approach is the full privatization of land, followed by issue of land titles to the 10 thousand lei beneficiaries. The land transferred to individual private ownership typically remains in various new 8 . - --- farming organizations that provide a conducive 6 . - -- --- framnework for further restructuring and support continued modification of land use. Based on the 4 experiences of the donor-sponsored pilot projects, 2 a national farm restructuring program has been initiated by the government. This program hopefully 0 National average Prvate farnera will lead to a positive example of agricultural Figure I transformation in the former Soviet Union. The survey reveals a highly positive impact of Genuine Restructuring and Full-Fledged Private private farming on the well-being of the families of Farming as the Real Alternative private farmers. Both quantitative financial data and qualitative individual assessments clearly divicb the One of the most important findings of this rural population into losers and winners in the study indicates that genuine farm restructuring in process of reform. Large farm enterprises and their Moldova resulted in new forms of farming with member-employees are much worse off as a result improved profitability and higher incomes for of the recent economic and organizational changes. farmers. The crop yields and livestock outputs still Private farmers, on the other hand, are the clear do not reveal any clear productivity advantage for winners: they are happy, optimistic, and relatively the new private farms compared with the traditional prosperous (Table II). This dichotomy between the collective farming structures. Yet private farmers conservative and the reform-minded provides a report significantly higher profitability for both crqp clear incentive for Moldovan peasants to leave the and livestock production than the traditional collective and strike on their own as independent collectives. Higher profitability achieved with private farmers. roughly the same level of physical yields and Economic failure of the existing traditional without new capital investments implies more organizations has provided the strongest impetus for efficient use of other resources, such as labor and vigorous development of private farming in purchased inputs, and higher sales prices achieved Moldova during the last two-three years. It is cited by marketing their products mainly through free by the majority of survey respondents (both private  Executive Summary xix farmers and member-employees) as the main characterizes most large farm enterprises in all motivation for the establishment of a private farm or countries of the former Soviet Union. impending withdrawal from the collective. This is in striking contrast to the situation in Russia and Changes at the Farm Level Ukraine, where the economic policies allow the traditional large farm enterprises to muddle on The farm survey was designed to penetrate without reaching an actual crisits, and private beyond the official statistics and to capture farming is stagnating. information on the progress of land reform at the farm level. Interviews with managers of large farms Table II. Family Well-Being: Private Farmers and with individuals in rural communities provided and Member-Employees (survey data)* first-hand evidence on major characteristics of the Private Member- reform process, as viewed from different angles. farmers employees The survey addressed the following main issues: How has the economic situation of the family changed in the last 2-3 years? * Does reorganization go beyond a mere Better 61 3 "changing of the sign on the door" in large No change 25 13 farm enterprises? Worse 14 84 What are your expectations for the next 2-3 years? On the whole, the large-scale farms continue 1o Better 72 18 operate in the traditional mode, without radical No change 16 42 internal restructuring toward market-based Worshange 12 35 organization. Most farms retain a central Worse 12 35 management that controls the major business What does the family income buys? functions (Table III). As a result, the large farms, Below subsistence 21 39 despite their modern-sounding corporate names, Minimum necessities 54 52 continue to accumulate losses at an alarming rate. Food and clothing 22 9 No material difficulties 3 0 Table III. Responsibilities of Central Management *Frequencies normalized for undecided. in Corporatized Farms (survey data) Percent of However, rapid growth of private farming and respondents increasing frequency of exits from collectives do Production planning/management 60 not signal the end of cooperation among peasants. Coordination of subdivisions 62 Nearly one-third of private farmers surveyed report Provision of farn services 57 that they are members of associations. Association Provision of professional and 60 members manage their farm operations mostly administrative services through a combination of individual and collective Input purchasing and marketing 53 arrangements. Despite the extensive scope of joint Relations with banks 47 activities, practically all association members feel Managing labor relations 46 that they are true owners of the fruits of their labor The main significant change that has and the revenue from product sales. Associations accompanied the transition to new organizational thus act as service cooperatives, while members acmaidtetasto onwognztoa supplement the cooperative endeavors with forms is the indisputable right of individual sniiupplemen activit. c ratver' eeassoi s win shareholders to leave the collective with their share individual activity. Farmers' associations i of land and assets. The observed downsizing of the Moldova have progressed far beyond the initial traditional large farms is probably the result of the stage of "changing the sign on the door," which  xx Moldova: Land Reform and Farm Restructuring process of departure of former members with land, proportion of their output to outsiders (Table IV). rather than an outcome of planned restructuring. Even the tiny household plots, originally designed The only radically new organizational forms to provide a supplementary source of food for rural are farmers' associations, many of which operate families, sell part of their production in the market. like service cooperatives of independent private Growing individualization of agriculture in producers. Unfortunately, there are still only about Moldova has not led to a reversal to subsistence 200 such associations in Moldova, and they farming. represent but a small fraction of land and assets that other corporate farms control. Table IV. Commercial Orientation of Individual Producers (survey data) * How far have the individuals in rural Private Household communities advanced toward assuming farms plots responsibility for their property rights in Percentage of output sold 27 9 land and assets? (average for all respondents) Main sales channels (percent ofrespondents) The distribution of paper certificates State procurement/processors 20 11 representing individual shares in land and assets of Market or individuals 63 84 the large collectives is quite advanced. The Private trade and others 7 distribution in kind, however, is still in a very early stage. While peasants are leaving the former How accessible are various market services collectives in increasing numbers with their share of land and assets to establish independent family farms, most rural residents still remain in a Farmers, both individual and collective, are collectivist framework, entrusting their land and beginning to make an increasing use of various asset shares to joint cultivation and management emergent market services. This is especially evident (Fig. 1-). in the growing role of private trade as suppliers of i of Land Shares farm inputs and channels for the sale of farm Di(percent of benefiaaes in 1997 survey) products. Both private farmers and large collectives resort on an increasing scale to non-state channels Future private farm for input purchases and product marketing (Table Leased outV) Even the traditional collectives begin to make / | | |l k 3% use of private commercial firms and the market as 8% an outlet for their products and a source of supplies. * What are the main obstacles to further expansion of the individual sector? Old collective While access to market services does not Figure 11 appear to be a major obstacle, shortage of capital and unavailability of rural credit are definite To what extent doethconstraints on the development of individual enTogwhat extent dommescithe individusector farming. Insufficiency of land, most of which is stllU engage in commercial, as opposed to locked in large collectives, is another factor that subsistence, farming? restricts the potential growth of family farming. The individual sector has a clear commercial Lastly, the administrative procedures to establish a orientation, as producers sell a significant fully registered private farm remain complex,  Executive Summary xxi despite some laudable recent attempts to simplify * Full implementation of the new legal the mechanism. framework governing farm restructuring, land ownership, and transactions in land What are the Prospects for the Future? An improved and supportive legal framework The accomplishments of Moldova in is now in place. This simplifies the registration transforming its agriculture, and particulars in land process for private farms and allows for accelerated reform, are quite significant. However, the bulk of farm restructuring and land transactions. The critical farm restructuring has yet to be completed. By issue now is full and uncompromising early 1998, less than 100 of some 900 large-scale implementation of the legal provisions. Some of the farms have been transformed into genuine private local authorities are not supportive of reform and operations. The completion of farm privatization is thus delay or obstruct the implementation of the obviously a major determinant of a full scale new regulations. The farmers are not always aware recovery of the food and agriculture sector in of their rights and opportunities. An information Moldova. Yet it is not the only relevant component campaign to increase awareness and opportunities of the recovery program. To ensure further progress for assistance is needed to facilitate the with land reform and achieve a speedy transition to implementation. Proper disciplinary enforcement market-based agriculture, the govemment of and court intervention must be applied to counteract Moldova must address effectively the following the harnful resistance of local authorities to reform. major issues: * Improvements in the market environment * Continuation of restructuring of former collective and state farms to create market- Although the creation of functioning market conforming, efficiency-motivated units institutions takes time, the regulatory and market environment can be further improved by removing Farm restructuring has to be continued the remnants of the central planning system, according to the pattems developed by the donor- especially the remaining monopolistic features in sponsored pilot projects. The national farm the grain and input markets, as well as the continued restructuring program envisages the full intervention of the regional authorities in farm-levI restructuring of at least 500 large-scale farm by the decisions. To promote agricultural markets for both end of 1999. In the implementation of this progran, private and state-owned enterprises, all state the methodology developed under the pilot project agricultural procurement needs to be carried out on needs to be used without compromise, thus ensuring a competitive basis, through open tenders and genuine reorganization based on market-oriented purchases on commodity exchanges. Intermediaries operation and incentive systems that encourage and marketing enterprises need to be encouraged to individual accountability. Strict financial discipline participate more widely in market transactions to must be enforced to initiate changes in all farming increase competition for output from agricultural organizations that are unable to operate efficiently. enterprises. Any settlement of outstanding debts should be made on the condition of general restructuring as well. In * Rehabilitation of agroprocessing and input addition to efforts promoting independent family supply farming, the creation of other genuinely private producer structures and service cooperatives must Post-privatization restructuring in these receive more attention. subsectors should be accelerated to create transparent ownership and management structures. It is especially important to create secondary markets for the shares of agroprocessing companies  xxii Moldova: Land Reform and Farm Restructuring owned by the farms being restructured. Without an institutions are essential for providing short-term internationally competitive agroprocessing sector, and long-term funds to agriculture. Strict financial primary agriculture cannot develop its full potential discipline should be imposed on both upstream and Transition from former state monopolies to new downstream enterprises, so that accumulating private monopolies, as it is often practiced today, is arrears do not undermine the reforms and distort not a solution. Foreign investment needed for incentives to which managers respond. technological improvement in agroprocessing will occur only if investors are able to function in a * Creation of a new supportive institutional business-oriented competitive environment. framework Modernization of agroprocessing, marketing, and input supply is outside the purview of land reformn. The strengthening of public institutions and Yet the current situation indicates that a modem improvement in the provision of public goods and competitive agroprocessing industry is an essential services (such as extension services, market precondition for the success of land reform information, and quality public services) for programs. privatized agriculture is also an essential condition for the ultimate success of land reform. Technical * Creation of a supportive environment for assistance for the creation of "Western-type" new private farms service and marketing cooperatives needs to be an essential component of support services. Functioning markets for farm inputs and If these issues are addressed effectively, products have not yet fully emerged, which impedes Moldovan agriculture will be able to advance to the successful operation of the new privatized second stage of the overall land reform and farm agriculture. The financial sector is in disarray, few restructuring program, which involves creation of banks are able to provide mortgages, and few market-oriented, profit-motivated structures based landowners are willing or able to offer land as on clear individual ownership of land and assets collateral. Strengthening emerging credit and an incentive system thatencourages individual cooperatives is important, as is the use of the responsibility, and rewards individual effort. resources of international financial institutions, such As the results of the first real restructuring as the World Bank Rural Credit Project, to improve efforts indicate, the new farm structures are taking financing for emerging private farms. Mortgage a variety of forms. Some persons exit individually finance is an important instrument of agricultural with shares of land and assets and establish private lending for private investment, but its development farms. Others pool their shares and create small requires security of tenure, legal title to land that partnerships or cooperatives for farming. Yet others can be used as collateral, and existence of land choose to lease their land to more enterprising markets that provide an objective valuation of land. producers and assume the role of "inactive Fully functioning land markets, including investors," or alternatively focus on development of unconstrained purchase, leasing, and mortgage of private farm-support services. The former land, are necessary if Moldova is to develop its collectives are breaking up into individual farrns potential for high-yielding, high-value agriculture and small farming groups, where production is consistent with its natural endowment. based on privately owned land and assets. These new producers need to be supported by financial, Reform in financial services and availability marketing, and advisory services, some of which of capital will be provided by new private entrepreneurs (individually or in groups), while others may be Financial sector reforms should be based on former collective management structures accelerated, in parallel with the rehabilitation of that will redefine their role as service firms or agroprocessing and trade. Functioning financial cooperatives.  1. Privatization of Agriculture in Moldova: Main Findings Early attempts at land reform and farm * To what extent does the individual sector restructuring in Moldova began already in the first engage in commercial, as opposed to quarter of 1991, fully six months before the country subsistence, farming? became independent. Yet the first five years, 1991- * How accessible are various market services to 1995, were characterized by very sluggish and agricultural producers? ineffective reforms due to the lack of a clear * Who are the winners and losers of the process commitment on the part of the political of reform in rural areas? establishment, which induced indecisiveness and inconsistency at the executing levels. The pace of The present chapter summarizes the main findings reform changed dramatically after the landmark from the survey that answer these questions. decision of the constitutional court in January 1996, which ruled that some damagingly restrictive Tenure and Ownership of Land provisions of the Land Code were unconstitutional and thus cleared the way for rapid privatization of In Moldova, as in Russia and Ukraine, the most land and distribution of holdings to individuals. prominent outcome of agricultural reforms is the In an attempt to review and summarize the elimination of the monopoly of the state on progress of agricultural reforms before and after the ownership of land, which was a feature of the 1995 constitutional court ruling, the World Bank in Soviet system for more than seven decades. As of cooperation with the Moldovan Agricultural April 1998, the state owns 18% of all agricultural Restructuring Agency (ARA) conducted a survey of land in Moldova, down from 100% prior to 1991. 2,000 respondents, including private farmers, The rest of the agricultural land has been transferred managers of large farm enterprises, and members of into private, non-state ownership. large farms in 28 out of 36 districts. The survey was Yet in Moldova, as in the rest of the FSU, conducted in February-April 1997 according to a private ownership does not necessarily mean uniform methodology that had been developed by individual ownership. Most of the privatized land the World Bank for its ongoing monitoring efforts remains in collective ownership, which constitutes in the former Soviet Union and East Central Europe. an intermediate stage in the transfer of land from the It was designed to penetrate beyond the official state to the individual. Thus, although nationally statistics and to capture information on the progress 82% of agricultural land has been privatized, only of land reform at the farm level. Interviews with 21% is in individual ownership (household plots managers of large farms and with individuals in and independent family farms) and the remaining rural communities provided first-hand evidence on 61% is owned by various corporate farms that major characteristics of the reform process, as succeeded the traditional collective and state farms. viewed from different angles. The survey addressed In an average large farm participating in the 1997 the following main issues: survey, about 15% of its 2,000 hectares of agricultural land is under individual cultivation in * How far have the individuals in rural household plots and practically all the remaining communities advanced toward assuming land is identified as "collectively owned by farm responsibility for their property rights in land members." and assets? A highly important attribute of collective * Does reorganization go beyond a mere ownership of land is the right of each member to "changing of the sign on the door" in large exit the collective with a physical plot of land, farm enterprises? corresponding to the individual share of collective  2 Moldova: Land Reform and Farm Restructuring property. Appropriate legal provisions establish a bodies are freely negotiable, and administratively fundamental mechanism for transfer of land from prescribed normative prices have been retained only collective to private ownership, and guarantee the for transactions in state-owned land. individual's freedom of choice, whether in the present or in the future. A collective is no longer a Transfer of Property Rights closed entity, as it was during the Soviet era, and individuals are now entitled to leave the collective Transfer of land from state to collective taking their share of land with them. ownership is only a first step in the process of Peasants in Moldova are recently taking reform, which ultimately should lead to transfer of advantage of this right in increasing numbers, as the property rights to individuals. In Moldova, as in economic situation in collectives deteriorates and Russia and Ukraine, the legal mechanism for rural families look for a chance to improve their lot transfer of property rights to individuals prescribes as independent private farmers. Based on the distribution of paper certificates of entitlement to a responses of farm managers in the 1997 survey, share of land and other farn assets to each member there are on average 130 independent private farms in a collective. Distribution of paper shares, per large farm enterprise, created by former combined with the legal right of exit from the members who have left the collective with their existing collective, establishes a fundamental share of land. For comparison, managers surveyed mechanism for meaningful restructuring of the farm in Russia and Ukraine report on average 5-10 sector. It is an interim mechanism, which is private farms around each large farrn enterprise. ultimately expected to lead to physical distribution Exits from collectives in Moldova are thus much of land plots and farm assets in kind. more frequent than in its two large neighbors, and the establishment of independent private farms by Table 1.1. Progress with Farm Reorganization (percent of former employees of collectives proceeds much respondents in 1997 survey) more vigorously. Leaving the farn enterprise with Managers Members a plot of land is apparently not a very difficult Farm registered in new 87 72 undertaking in Moldova: nearly 45% of managers organizational form indicate that individuals do not need any special permission to exit with land and assets (not even the Land shares deternined 99 93 approval of the general assembly). Asset shared determined 80 51 Despite the vigorous creation of private farms by forrner members of collectives, 85% of Average land share 1.5 ha 1.5 ha employees prefer to remain within the collective Average asset share 3,000 lei 4,300 lei framework, entrusting their land and asset shares to ($650) ($900) joint use. Initially, Moldova followed the accepted legal Over 90% of respondents among both practice of Russia and Ukraine by prohibiting the managers and member-employees of large-scale right of private land owners to sell their land. This farms in the 1997 survey report that land share severe restriction on property rights was ruled certificates have been distributed to individuals unconstitutional in January 1996, and Moldova has (Table 1.1). There is some disparity in the recently made a major step toward liberalizing land distribution rate of asset shares as reported by markets in its Law on Normative Price of Land and managers and by members: while managers report Procedure for Sale and Purchase of Land. The new distribution of asset shares on 80% of the farms, law, passed in July 1997, allows land to be bought only 50% of the members confirm that asset shares and sold among private individuals and legal have indeed been received. This disparity may be entities, albeit only for active farming. The prices of attributable to the greater interest that individuals land in transactions among individuals and legal attach to land than to other property; they follow  Privatization ofAgriculture in Moldova: Main Findings 3 very closely everything that concerns land, and are reorganization is then followed by internal less informed about buildings, equipments, and restructuring that involves reallocation of resources machinery. The distribution rate of land shares in (land, assets, labor) to relatively autonomous Moldova is substantially higher than that reported in market-oriented subunits. the 1996 survey in the neighboring Ukraine, where The procedure for external reorganization has land shares had been distributed in fewer than 50% produced a much greater diversity of organizational of the cases. The distribution rate of asset shares is forms than previously. A monolithic sector about the same in both countries. consisting of Soviet-style kolkhozes and sovkhozes Although land shares are reported to have been (traditional collective and state farms) has been distributed in virtually all the farms, the process is replaced with a mix of agricultural cooperatives, still very much in the stage of "conditional paper joint-stock societies, limited liability partnerships, shares". Only 20% of farm managers report that various associations, as well as farms that have boundaries of land plots corresponding to individual chosen to retain the original collective form of shares have partially been marked on the general organization. The dominant organizational forms map of the farm enterprise. In these farms, however, today are agricultural cooperatives and closed joint- the mapping process appears to be quite advanced, stock societies (over 60% of all farms surveyed). as almost two-thirds of the land allocated in land Based on non-tradable shares held by members shares is actually marked on the map. rather than on individual ownership of land and All active workers and all pensioners in large assets, these new legal forms differ very little in farm enterprises are entitled to receive land and spirit from the former collectives. The one main asset shares. Other rural workers employed in difference, as noted previously, is that the new village services are assigned shares only collectives guarantee the right of exit of their occasionally. The average land share reported in the members with land and assets in one form or survey is 1.5 ha, and the average asset share is another. between $650 as reported by farm managers and Despite the retention of predominantly $900 as reported by members (Table 1.1). collective organization, the large farms have Practically all land holdings and all capital undergone substantial changes in the last few years. assets of large farms are distributed in shares to The most notable change to an outside observer is individual beneficiaries. Less than 10% is left in an the significant downsizing of the large farm undistributed reserve. Contrary to original concerns enterprises, both by the amount of land and by the expressed by many experts, managers do not abuse number of employees. In the 1997 survey, the the legal option to keep land and assets in amount of land managed by an average farm undistributed form in an attempt to continue their enterprise declined by more than 25% between 1990 direct control of resources. and 1996, while the labor force decreased by nearly 15%. Both land and labor have shifted largely into Farm Restructuring the individual sector of private family farms. But downsizing is mainly an external change. Privatization of land is inseparably linked with Internal reorganization in large farm enterprises restructuring of the traditional large-scale farm appears to have been minimal. Over 90% of farm enterprises. The first stage, which may be called managers report that the members' land and asset external reorganization, requires the farm enterprise shares have been invested in or leased to the to re-register in one of the legally recognized collective enterprise. Among the shareholders, 75% organizational forms (even if the decision is to keep report that they intend to leave their shares in the old form). This external reorganization is a existing enterprise (Table 1.2). This is, of course, prerequisite for the transfer of land from state to the path of least resistance for the new shareholders. collective ownership and subsequent distribution of There are very few instances of active decisions by land and asset shares to individuals. External members concerning the disposition of shares, such  4 Moldova: Land Reform and Farm Restructuring as leasing to a specifically chosen operating Members Assessment of Reorganization Outcomes subdivision or group. In line with the observed movement from collectives into independent ment of resposes farming, fully 14% of individual shareholders 60 P surveyed report that they intend in the future to use 50 -. i - their land and asset shares to establish an 40 . ----i-l independent fann (meanwhile their shares remain in the collective enterprise, with all the rest). 20 - - - - - - I - - - - - Table 1.2. Disposition of Land Shares as Reported by 10 Managers and Members of Large Farm Enterprises --0 (percent of respondents in 1997 survey) worse Better Unchanged/Undecided Disposition of shares Managers Members Som: 1997 survey; avemge frequency score by three measums Figure 1.1 Entrusted to collective 98 75 enterprise relations within the farm enterprise, and in the Entrusted to new 1 8 motivation and interest in work before and after the reorganization. By a composite index of these Leased out 1 3 measure, about half the respondents characterized the situation as unchanged or could not decide if Tbusfopvtfrn N1 there had been a change for better or worse since the reorganization. According to 30% of eince most shares are vested collectively in the respondents the post-reorganization situation was farm enterprise, internal regrouping of resources worse than before, and only 12% reported an appears to have been minimal. The farms surveyed improvement (Fig. 1.1). The generally pessimistic report between S and 12 subdivisions each, but evaluation of the process of reorganization by the these are mostly operating units of the large farm, members is certainly attributable to the frustration with little independence of decision making. The caused by the prevailing sense that nothing really subdivisions are still quitemlarge: about 60tworkers has changed in the farm enterprise despite the and 360 hectare each, reminiscent of the traditional reforms. The assessment of farm reorganization brigade in a socialist collective. Over 70% of farms outcomes in Moldova is almost identical to that in the sample have retained a central management observed in the 1996 survey among farm members structure, which is responsible for planning and in Ukraine. In Moldova, however, a much higher managing production, coordinating the activity of proportion of peasants have left the collectives to internal subdivisions, providing the subdivisions establish private farms, and their assessment of the with farm services, marketing and input purchasing overall situation is entirel different from that of the services, maintaining relations with banks on behalf ov em mplonees erely in collective (se of te sbdivsios, nd een akig hiingand member-employees remaining in collectives (see of the subdivisions, and even making hiring and Figs. 1.4-1.6 below). firing decisions for the subdivisions. The role of central management remains very strong in all Production in Collectives and Private Farms: farms surveyed. Different Scale and Different Product Mix The reorganization of farm enterprises does not appear to have produced tangible positive results so Collectives as well as individual private farms far for those who have chosen to remain in a are diversified crop and livestock producers. Yet the collective. Member-employees of large farms were large collectives emphasize crops to a greater extent asked to evaluate the change in the economic than the small private farms (Fig. 1.2). In situation of the farm enterprise, in the interpersonal collectives livestock production accounts for 15%  Privatizat ion ofAgriculture in Moldova: Main Findings S Product Mix: Collectives and Private Farms plots that strongly rely on livestock and land-rich collectives that emphasize crop production. l00% All three categories of livestock producers achieve roughly the same milk yields: 2,000 kg per 809% -2-| | | | --- - - - cow per year. This is of course very low by Western standards, and contrary to expectations the reported _Livestock results fail to reveal any efficiency advantage for 40% _ l | ll l _ - individual producers. 20% - l | | _ Table 1.3. Average Number of Animals per Individual _% l I 1|11 _ _ M Farming Unit and Frequency of Units with Livestock (1997 Collecbves Pdvatefanns survey data) Soue: 1997 survy Private farms Household plots Figure 1.2 l Cows 1.1 (61%) 1.1 (57%) 6 of total value of output, while in private farms the Pigs 2.1 (83%) 1.7 (81%) share of livestock products is one-third. Sheep, goats 7.6 (46%) 12.8 (46%) This finding is in contrast to what is typically Poultry 27.8 (95%) 21.6 (96%) observed in other countries of the former Soviet Union, where the product mix in collectives has a Private farmers, contrary to farm managers, much greater share of livestock than that in private regard livestock production as profitable. While farms. This is usually explained by differences in r d oc prodcina as proftable.eWhile accessibility to capital for the large collectives and onlyt7% of fam anaer repor tha live the maler rivte arm: th latermayfin it production IS profitable, fully 53% of private the smaller private farms: the latter may find It farmers are satisfied with the profitability that they difficult to raise the capital necessary for keeping achieve in livestock. Since milk yields are similar in livestock, and thus prefer to concentrate in crop large farm enterprises and private farms, the production. In Moldova, on the other hand, private different assessment of profitability is probably farms are simple extensions of household plots that attributable to higher prices that private farmers at a certain juncture decided to sever their receive for their milk in the open market and the relationship with the collective and became lower level of fixed costs associated with the independent. The tiny household plots always had smaller herd size in private farms. to rely mainly on livestock production because of slr h private farms. the smallness of their land allotments, and since the For pri vat far a large farm , . , ~enterprises, crops account for a bigger share of private farms in Moldova are not much bigger than - ~output than livestock despite the tremendous household plots (2.4 ha and 0.4 ha, respectively), difference in land allotments. The cropping patterns they continue to follow a similar product strategy- for farms of both categories are presented in Table Indeed, the average number of animals and the 1.4. The main difference in cropping patterns is that frequency of units reporting animals of various private farmers keep a very small percentage of species are practically the same for private farms their land under feed crops primarily because the and household plots (Table 1.3). Nevertheless, given the larger land allotment of private farms, the animals onaaneaverage farmismal the numerofnialspe het re of lan is animals are allowed to graze on communal pasture, end i and around 60% of own grain is used as animal significantly higher in household plots than in feed. The differences in other major crop groups a private farms. Private farms thus occupy an intermediate position by both "livestock intensity ke and land allotment between land-poor household keep more of their land under vegetables (an important subsistence product for families) and  6 Moldova: Land Reform and Farm Restructuring under grain (much of it is a substitute for standard r - - Commercial Orientation of Producers: feed crops). Percentage of Output Sold and Consumed on Farm Crop yields achieved by private farners 100% present a mixed picture, and simiilarly to milk yielch the observed results still do not reveal any clear 80% efficiency advantage of the small private farms compared with the large collectives. There is no 6Consumed relationship between estimated yields and 40% availability of machinery on private farms, probably because even farmers who do not own machinery 20% have adequate access to suppliers of mechanical 0% lle Pvt a ld _lots field services. Collectives Pnvatetfarrns Househcld plots Soure: 1997 survey Figure 1.3 Table 1.4. Cropping Pattern: Collectives and Private Farms (percent of respondents in 1997 survey) Collectives Private farns food production for rural families. Today, the large Grain 39 54 collectives maintain their predominantly commercial orientation: nearly 60% of their output Industrial crops 21 20 is sold (Fig. 1.3). Household plots indeed produce Vegetables 2 6 mainly for subsistence, but they have also IGrapesand fruits 19 18 developed a certain commercial orientation: nearly Grapes 10% of their output is sold to outsiders. Finally, the Feed crops and grasses 19 2 new category of private farms is becoming an | Total cropped area 1,700 ha 3 ha increasingly important factor in commercial markets for food. Fully 80% of private farmers surveyed As with livestock, private farmers give a higher report some revenue from sales of farrn products, profitability assessment of crop production than the and on average they are selling nearly 30% of their managers of large farms. The frequency of output. These are mostly cash sales, and barter respondents reporting that crop products are transactions play a negligible role for private profitable is 42% for private farmers and 35% for farmers. large farmn managers. Yet despite the generally agher profarmtanage. Yetsdest the gro all Table 1.5. Sales Channels for Farm Enterprises and higher profitability assessment of both crops and Individual Producers (1997 survey)* livestock, private farners are more reluctant to l l expand production than large farm managers, State and Market or Trade, probably because private farmers risk the future of processors individuals others their family by allocating resources to expansion Farm enterprises 68 23 24 while large farm managers can painlessly commit Private farms 20 63 7 anonymous, collectively owned funds. I l Household plots 11 84 -. Product Sales and Input Purchases: * Frequency scores calculated as percent of respondents averaged over all commercially sold products. The numbers are Increasing Use of the Market not expected to add up to 100% because of multiple answers and missing values. Originally, under the Soviet regime, the large farm enterprises were the backbone of commercial The large farm enterprises continue to rely on agriculture, whereas individual production in state procurement and processors as the main household plots was tolerated strictly from marketing channel for their products (Table 1.5). subsistence considerations, as a necessary source of Nevertheless, even these collective producers are  Privatization ofAgriculture in Moldova: Main Findings 7 beginning to make an increasing use of the nearby and inputs always can be purchased from one of the market and commercial traders as an outlet for their sources if funds are available. farm products. Thus, more than 20% of farm Fully 45% of private farmers surveyed indicate managers report that they sell in the market and a that they purchase inputs from various sources similar percentage sell through commercial trade (average frequency score over all inputs). Private channels. Individual producers, on the other hand, farmers thus access markets for both sale of sell mainly in the market or directly to the products and purchase of inputs. They sell more consumer. Private farms and households make only than one-quarter of their output to outside users and marginal use of state procurement and processors, report respectable, although not universal, use of mainly for grapes, sunflower, and grain. purchased inputs. Both attributes clearly suggest that private farms in Moldova have moved away Table 1.6. Difficulties with Sale of Farm Products (1997 from subsistence farming toward (partially) survey)* commercial production. Farm Private enterprises farmns Table 1.7. Farm Inputs: Sources and Purchasing Difficulties Hard to find a buyer 22 29 (1997 survey)* Low prices 76 68 Farm Private farms enterprises Untimely payment 46 18 Sources: Difficulties with transport 10 26 S * Frequency scores calculated as percent of respondents averaged over all commercially sold products. The numbers are Farmn enterprises 12 6 not expected to add up to 100% because of multiple answers. Commercial sources 27 21 Finding a buyer for farm products is not Own production 32 -- considered a major difficulty by any of the Other sources 7 8 producers. Yet both farm enterprises and private farmers complain that the prices received for farm Main dWficulties: products are too low (Table 1.6). Untimely High prices 68 43 payments are more of a problem for farm Not available 4 2 enterprises than for private farners. This is understandable, because farm enterprises sell Other difficulties 4 4 mainly to state procurement and processors, which * Frequency scores calculated as percent of respondents are notorious for payment delaying practices, while averaged over all purchased inputs. The numbers are not private farmers sell mainly for cash in the market. expected to add up to 100% because of multiple answers. Transportation, on the other hand, is a greater Farm Finances and Rural Incomes: difficulty for private farmers than for farm enterprises, as the latter have their own trucks that can be used to deliver the products. The large farm enterprises do not appear to be A similar pattern is observed with the purchase viable in the new environment. Fully 80% of farm of farm inputs (Table 1.7). While farm enterprises enterprises surveyed reported a net loss position in rely on state suppliers to a much grater extent than 1996. For an average farm enterprise, the operating private farmers, they also are beginning to use loss in 1996 reached one-third of sales revenue, a commercial sources and private individuals with truly crushing result. increasing frequency. The main complaint is about Unable to generate enough cash for their high prices of inputs. Availability is not a problem, operations, all farm enterprises carry substantial outstanding liabilities. Almost half the total  8 Moldova: Land Reform and Farm Restructuring liabilities of an average farm enterprise are tax is over 370 lei per person, which is double the arrears and payroll-related obligations to the social average salary in Moldova in 1996 (186 lei). fund. In all fairness, it should be stressed that the inability ofthe farms to pay their obligations to the Impact of Reform on Welfare of Rural Families state budget stems, at least in part, from the draconian tax rates and other statutory deductions The survey made it possible to compare imposed by current laws, which according to the between the two groups of rural families - families respondents reach 32% of gross sales revenue. This of private farmers and families of members in farm is a truly astonishing taxation level. Since the tax enterprises - by a number of additional, strictly burden matches the 1996 loss in percent of sales qualitative measures. revenue, it can be argued that an appropriate tax Among private farmers, three-quarters of the reform will substantially alleviate the financial respondents actually report that their economic difficulties of farm enterprises. situation today is not worse, and in most cases The gloomy financial situation of the farm better, compared with what it had been before they enterprises is reflected in the income of their became independent. Among farm-enterprise member-employees. Salaries are the main source of members, on the other hand, fully 80% judge their income for families of member-employees in farm situation today to be worse than in the past (Fig. enterprises. They represent 55% of total income for 1.4). families surveyed, with the household plot The different assessment of the recent changes contributing another 33% and the remaining 12% in the economic situation of the families leads to derived from various other sources (pensions, entirely different expectations for the future. Thus, dividends, etc.). The average annual income of a half the private farmers are quite optimistic about member family from all sources was 4,000 lei the future, and believe that the material situation of ($900) in 1996. The national average salary in 1996 their families will improve even further within the was 186 lei per month, or around 4,800 lei per year next 2-3 years (Fig. 1.5). Among farm-enterprise for a family with two working adults. The income of members, on the other hand, only 14% expect the member families from all sources is thus about 20% material situation of their families to improve in the less than the national average salary. The usual near future, while one-third do not expect any argument is that rural employees may receive bwer change for the better and another one-third salaries because they have alternative sources of anticipate a deterioration. fann income from the household plot. But in Private farmers are also quite optimistic in their Moldova of 1996 the supplementary sources do not expectations of future profitability of their farm. produce enough income to bring the employees of Fully 40% of farmers expect profits to increase in large collectives even to the average salary level. 1997 and another 20% anticipate that there would The new private farmers appear to be in an be no change for the worse in farm profits. Only 8% entirely different financial situation. The family indicate that they expect profits to drop in 1997. income from the farm (including the value of There is a clear relationship between the outlook on internal consumption of farm products) is estimated the future and the profit earned today: farmers with at 800 lei per month, or $175. Since income from the highest profit today are also those who expect the farm accounts for 80% of total family income, the profits to grow in 1997. As is usual in human and the remaining 20% is derived from off-farm behavior, success breeds expectations of more sources, adjustment for the off-farm component success. brings the estimated family income to more than The pessimism of farm-enterprise members 1,000 lei per month. Based on an average number of and the optimism of private farmers are of course a 2.7 working family members among the private direct outcome of the gap in family incomes noted farmers surveyed, the monthly contributicn to labor above. The income differential is also reflected in the respondents' subjective assessment of their  Privatization ofAgriculture in Moldova: Main Findings 9 Change of Family Situation Since Becoming a Farmer covers only the barest necessities of life, and for another 20% the income is insufficient even for basic subsistence needs (Fig. 1.6). Yet comparison Navtertiow tfor | | l, , with the corresponding responses of member- employees in large farm enterprises in the same diagram shows that private farmers are actually not Ncww"thanbdom - stoo badly off. Among member-employees, fully 40% report that their family income is insufficient Undecided even for basic subsistence needs (compared to 20% 0 20 40 so 8 10 among private farmers), less than 10% can afford to Perent of respondents buy food and clothing (compared to over 20% Figurel .4Frmers Employee among private farmers), and nobody reports a comfortable standard of living without material difficulties (compared to about 5% of private Expected Change of Family Situation in Next 2-3 Years farmers in this category). Expect imprvement [ __al| Both quantitative financial data and qualitative No change exp-cted individual assessments clearly divide the respondents into losers and winners in the process Expdebriorabon _xPect , of reform. Large farm enterprises and their UndO KIedd 1- l 'member-employees are obviously much worse off I ~ i -- as a result of the recent economic and 0 10 20 30 40 50 I0 Percentof respondents organizational changes. Private farmers, on the fDFermee WEmployaeal other hand, are clear winners: they are happy, Figure 1.5 optimistic, and relatively prosperous. This dichotomy between the conservative and the reform-minded provides a clear incentive for What the Family Income Buys? Moldovan peasants to leave the collective and strike on their own as an independent private farmer. Economic failure of the traditional collective farm Below suelet ie -e I is cited by 60% of respondents (both private farmers Minimum -eces- ;es and member-employees) as the main motivaticn for Minimumn cssi1es- -- - , -I the establishment of a private farm or impending Food end cloth_ing withdrawal from the collective. Paradoxically, failure of the existing traditional organizations has No meteial imcuities provided the strongest impetus for vigorous a 10 20 30 40 so e development of private farming in Moldova during Percent of nepondents the last two-three years. This is in striking contrast Figure 1.6 li3Famrles mEmployeesi to the situation in Russia and Ukraine, where the economic policies allow the traditional large farm enterprises to muddle on without reaching an actual purchasing power. Taken on their own, private crisis, and private farming is stagnating. farmers report a fairly low standard of living, However, rapid growth of private farming and despite the favorable income estimates. For more increasing frequency of exits from collectives do than half the private farmers the family income not signal the end of cooperation among peasants.  10 Moldova: Land Reform and Farm Restructuring Nearly 30% of private farmers surveyed report that purchasing - mostly through a combination of they are members of associations. Associations individual and collective arrangements. Despite the range in size from 2 to over 1,000 member farms, extensive joint activities, over 90% of farmers in with a median size of 50 member farms. associations feel that they are true owners of the Associations differ from traditional collectives in fruits of their labor and the revenue from product one fundamental respect: the land in associations is sales. Associations thus act as service cooperatives, not simply privatized but is also physically held and while members supplement the cooperative managed by the members. In 82% of the endeavors with individual activity. Farmers' associations surveyed, all land has been physically associations in Moldova have progressed far distributed to the members. In 78% of the beyond the initial stage of "changing the sign on the associations all members are registered private door," which characterizes most large farm farmers. enterprises in all countries of the former Soviet Association members manage their farm Union. operations - cultivation, product sales, input  2. Current State of Land Reform: National Overview Land reform in Moldova, as in all former state farms have been reluctant participants in the Soviet republics, involves transfer of land from state process of change. This explains in part the slow to private ownership, followed by allocation of progress with farm restructuring and with the individual entitlements to land and, ideally, development of independent private farming. restructuring of the traditional large-scale The reforms virtually came to a standstill in the enterprises into market-oriented farnning units. The late 1994 with the introduction of additional new farming units may represent a wide range of bureaucratic and technical constraints in the organizational forms, including various associative legislature. Given the lack of clear commitmnent of structures as well as individual farms. The process the political leadership, the process of land of land reform in Moldova has proceeded slowly privatization and farm reorganization in Moldova until quite recently. Administrative support for land advanced with minimum changes, retainingmuch of privatization and farmn restructuring has been the inherited structures. The pace of reforms has relatively weak since the beginning of reform in accelerated since the removal in February 1996 of 1992, and the managers of former collective and the previous legislative constraints, and many Moldova: A Historical Snapshot Moldova, the second smallest republic in the former Soviet Union, occupies the Dniester-Prut interfluve (Bessarabia) with an additional, relatively small area on the eastern bank of the Dniester (Transnistria). The Prut is the western border of Moldova with Romania, while Ukraine encircles Moldova from the three other directions, blocking its access to the Danube delta and the Black Sea. Transnistria had always been part of Czarist Russia and then of the Soviet Union, whereas Western Moldova or Bessarabia was ceded by the Ottoman Empire to Russia in the Treaty of Bucharest in 1812. After the Bolshevik revolution, in January 1918, Bessarabia declared independence, and soon after that, in March 1918, voted for union with Romania. Transnistria went through a series of fluctuating regimes during the Civil War of 1918-1923, which typically reflected the "government of the day" in Ukraine, and in 1924 it became the Moldavian Autonomous SSR within the territory of Ukraine. Bessarabia remained under Romanian rule from 1918 to 1940. Romania introduced land reform legislation, limiting the maximum holdings to 100 hectares, but it took absolutely no interest in Bessarabian wine, grapes, fruit, and grain (which directly competed with Rumanian agriculture), nor did it make any effort to develop communication and infrastructure. Bessarabia lost its traditional Russian markets and Romania did not provide any alternatives, allowing Bessarabian agriculture to go to virtual ruin. In June 1940, following the Molotov-Riebentrop pact, the USSR issued an ultimatum to Romania demanding cession of Bessarabia. Moldavian SSR was formed in August 1940, combining Bessarabia and large parts of the former Moldavian Autonomous SSR in Ukraine. Less than one year later, in July 1941, the territory was returned to Romania, Germany's ally in World War 11. In 1944 the Red Army drove the German and Romanian forces out of Moldova. Because of this tumultuous and uneven history, the Soviet economic and agricultural model began to be introduced in most of Moldova only after 1944. Limited nationalization and distribution of land was accomplished in some areas of Bessarabia during the brief period between the Bolshevik Land Decree of October 1917 and the union with Romania in March 1918, but this was reversed by the agrarian reform subsequently introduced by the Romanian authorities. While Transnistria was completely collectivized as part of Ukraine with the rest of Soviet agriculture in 1929-1932, the ten months of Soviet rule in Bessarabia between 1940 and 1941 had not been sufficient to make major changes in the organization of the farm sector. Individual farmers cropped 90% of the sown area as recently as 1940. The situation had reversed by 1950, when collective and state farms jointly cultivated 89% of the sown land. In one decade, between 1940 and 1950, individual agriculture shrank to the status of subsidiary household farms, and farming in Moldova was brought to conformance with the standard Soviet model. Moldova became an independent country in August 1991, almost exactly 51 years after the creation of Moldavian SSR within the former Soviet Union.  12 Moldova: Land Reform and Farm Restructuring significant, fundamental changes are now taking chernozem) and high cultivation intensity compared place in the organization of the agricultural sector in with the other former Soviet republics. During the Moldova. last decade 1985-1995, agriculture consistently Land reform is particularly important in accounted for 25% of the total economic activity in Moldova because this is largely an agricultural Moldova (as measured by gross social product). country. Three-quarters of the territory of Moldova The contribution of agriculture to the gross product is agricultural land, most of it arable or land under did not decline in recent years despite adverse orchards and vineyards. Moldova was the vineyard changes in terms of trade and other macroeconomic of Czarist Russia and one of its richest grain- adjustments associated with transition. The role of bearing regions. More recently, in 1990, Moldova's agriculture as an employer appears to be increasing, share of gross agricultural product in the former as the proportion of employed in agriculture Soviet Union was double its share of arable land. increased from 33% in 1990 to 43% in 1996 (while Moldova consistently ranked highest among the the proportion of rural population remained static). former Soviet republics by agricultural product per Successful land reform is thus expected to have hectare of farmland, and in 1987 it was nearly 40% major impacts on the well-being of the population ahead of its nearest competitor, Belarus. All this and the overall economic performance of the provides clear evidence of above-average fertility of country. agricultural land in Moldova (75% of all soils is Table 2.1. Land Tenure: Agricultural Land as of January 1998 Thousand ha Percent State owned land 451.3 17.7 state land cultivated by enterprises 76.8 3.0 state farms 26.4 1.0 educational and other enterprises 43.6 1.7 collective gardening societies 6.8 0.3 reserve land 358.1 14.0 other municipal land 16.4 0.6 Privately owned land 2104.4 82.3 private land in corporatized farms 1568.7 61.4 collective farms 387.1 15.2 joint stock societies 305.9 12.0 agricultural cooperatives 631.9 24.7 farmers' associations 82.4 3.2 other corporate forms 161.4 6.3 private land in individual cultivation 535.7 20.9 peasant farms 200.6 7.8 household plots (incl. privatized gardens) 335.1 13.1 Total agricultural land 2555.7 100.0 Source: Cadastral land balance for January 1, 1998.  Current State of Land Reform: National Overview 13 Changes in Land Ownership Land Ownersmp-(Janu-ay 1998) The two main features of the process of land Collectves reform in Moldova, as of the end of 1996, are the 15% dramatic reduction in state ownership of land and State+Reserve virtually complete distribution of land entitlements ("land shares") to the rural population. In parallel, there has been a substantial acceleration in the Other corporate physical allocation of land plots to individuals and 43% Households families who leave the collectivist framework. 13% Despite these encouraging trends, however, the Peasantfarms+assoc. individual sector still manages only 20% of 11% agricultural land in Moldova, and the rest is Figure 2.1 controlled by various collective and corporatized structures. According to land balance data for January 1992. The state farms practically disappeared 1997, the state retains ownership of 18% of during this period, as almost all of them transformed agricultural land (450 thousand ha out of total 2.6 into collectives and received their land in ownership million ha). Of 450 thousand ha in state ownership, from the state. Many collectives in turn registered in only 75 thousand ha is permanently allocated to new organizational forms. As a result, the structure various agricultural enterprises, and 360 thousand of land tenure has undergone a dramatic change ha is in a reserve fund for future needs (Table 2.1). (Table 2.2): in 1990, state farms controlled 27% of The reserve land is not left idle: it is leased by the agricultural land and collectives another 60%; in state to various producers, but only for temporary 1997, state farms control a mere 1% of agricultural use, pending future allocation decisions. land, collectives control 15%, and the new Most of the agricultural land is formally corporatized farms that have emerged in the process classified in private ownership (as opposed to of reform control fully 46% of agricultural land. "public ownership" by the state). Private ownershig The share of land cultivated in large-scale farms however, does not mean individual control of land. (both state and others) thus declined from 87% in Of 2.1 million ha in private ownership (82% of 1990 to 62% in 1997, mainly due to transfer of land agricultural land), individuals cultivate about 540 to the individual sector (household plots and peasant thousand ha, or 21 % of agricultural land (Fig. 2.1). farms) and the reserve fund. Figure 2.2 illustrates This is the land in household plots (340 thou. ha) the changes over time in the three main categories and in independent peasant farms (200 thou. ha). The remaining 61% of agricultural land is managed Land Tenure by Sector: 1990-1997 by large-scale structures, some of which are still registered as traditional collective farms (400 thousand ha, or 15% of agricultural land), while others are organized in various new forms, which 80% are basically corporatized shareholder structures *0% C3lEiiil lal with collective cultivation of land (joint stock 8codvda societies, agricultural cooperatives, limited liability 40% Estate companies, etc.). The changes in the structure of land tenure 20% since 1990 (Table 2.2) reveal a significant increase a% in subsidiary household plots as a result of the first 1990 1991 1992 1993 1994 1995 1996 1997 phase of so-called "small privatization" in 1991- Figure 2.2  14 Moldova: Land Reform and Farm Restructuring of land tenure: state land, collective and corporate have to come through distribution of reserve lands land, and land in the individual sector. to individuals. Comparison of land data for 1995-1997 indicates that "privatization" of land, i.e., transfer of Privatization of Land and Creation of Private land to non-state ownership, has stabilized Farms temporarily. There was practically no change in the proportions of state-owned and privatized land Privatization of land in Moldova began with during 1996-1997. The main changes involved the process of "small privatization," which resulted reallocation of land between different corporatized in overall increase of household plots from about farms, as these re-registered in new organizational 180 thousand ha in 1990 to 300 thousand ha in forms. Thus, over 600 thousand ha (more than 20% 1992. This initial phase was followed by the main of all agricultural land) shifted during 1996-1997 land privatization program, which affected the from the category of collective farms to the agricultural land cultivated by large-scale farm. The category of agricultural cooperatives, simply "large privatization" program in turn consists of tw because many collective farms passed a decision to stages: (a) distribution of land shares to individuals reorganize as cooperatives. In addition to in the form of paper certificates; and (b) physical reallocation of land among various corporatized allocation of plots of land to individuals or families forms, collectives and other large farms lost about who wish to start independent private farming. 100 thousand ha to individual peasant farms, which Privatization through distribution of land more than trebled their total land holdings since shares covers 1.5 million ha out of total 2.5 million 1995 through exit of individuals from collectives ha agricultural land. The remainder is land in and establishment of new peasant farms. The household plots, reserve land, and other land in state individual sector thus continued to grow since 1995 and municipal ownership. There is a total of 1 at the expense of the large-farm sector, which is million claimants to privatized land, and the averaS clearly demonstrated in Fig. 2.2. Creation of size of a land share is thus about 1.5 ha. The process peasant farms was not accompanied by a reduction of distribution of land shares is virtually complete: of the reserve fund, which did not change in 1996- 95% of individual claimants received provisional 1997. Further reduction of state-owned land will ownership certificates as of April 1998 (Table 2.3). Table 2.2. Land Tenure: 1990-1997 (percent of agricultural land) 1990 1991 1992 1993 1994 1995 1996 1997 State sector 32.3 26.7 25.2 31.2 30.1 16.7 17.2 17.7 State farms 27.0 23.4 20.4 14.6 12.8 0.1 1.0 1.0 Reserve fund 0.0 0.0 0.1 12.7 13.3 13.4 13.6 14.0 Corporate forms 59.4 63.0 63.0 56.2 56.8 67.9 64.8 61.4 Collectives 59.4 63.0 58.8 49.2 45.2 39.3 23.1 15.2 New corporate forns 0.0 0.0 4.2 6.2 8.9 27.6 38.9 43.0 Farmers associations -- -- -- 0.8 2.7 1.0 2.8 3.2 Individual sector 8.3 10.3 11.7 12.6 13.2 15.3 18.0 20.9 Peasant farms -- -- 0.0 0.3 0.7 2.4 4.8 7.8 Household plots 8.3 10.3 11.7 12.3 12.5 12.9 13.2 13.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Cadastral land balances, end of year data.  Current State of Land Reform: National Overview 15 Table 2.3. Distribution of Land Shares: 1996-1998 always cultivated. The new farm holdings are about I Oct. 1, 1996 |Apr. 1, 1998 75% arable land and 25% vineyards and orchards. Privatization fund, ha 1,527,888 1,530,000 Less than half of the 200,000 land plots Pndivatidalsntion f, ha 1,527 1,53,000 distributed to individuals have been registered by equivalent land share their new owners (Table 2.5), although the legal Individuals with 907,186 984,136 provisions allow simple, fast-track registration of provisional ownership individual land owners who do not seek to become certificate 90% 95% legal bodies (see Chapter 3). The relatively low Average land share 1.52 ha 1.48 ha registration rate may be linked to tax considerations: Source: Department of Statistics, Computational Center. new land owners do not register to avoid the attention of tax inspectors. This conjecture is Distribution of land shares, however, is supported by the fact that not all registered land "ownership on paper." The owner of a land share owners also applied to register their private farm as does not possess a specific plot of land, and the land a legal entity. Of the nearly 100,000 registered land plots corresponding to provisional ownership owners in April 1998, there were only 68,000 certificates are not marked on any map. To realize private farms registered as legal bodies. their property rights, individuals must apply to Iccal authorities with a request to receive a plot of land in Table 2.5. Land Holdings of Private Farms: 1996-1998 exchange for the land share they hold. As of April Oct. 1996 Apr. 1998 1998, some 280,000 share holders, or 27% of all Land in private ownership, ha 120,433 248,219 beneficiaries, had filed an application to receive a , , 7 physical plot of land, and 200,000 individuals (19% Arable, % 76.1 76.6 of all beneficiaries) had actually received land Orchards, % 10.2 10.0 (Table 2.4). Thus, 70% of applications have been Vineyards, % 13.6 13.4 processed, and there are no indications of Number of private landholders 112,874 198,047 significant delays in physical distribution of land to Not registered 43,547 102,095 applicants. Yet the application rate to receive land Registered 69,327 95,952 among the beneficiaries is not very high. Registered as private farms 36,908 68,485 Table 2.4. Applications to Receive Land and Actual Average plot size, ha 1.07 1.25 Allocation of Land Plots: 1996-1998 Source: Department of Statistics, Computational Center. Oct. 1, 1996 Apr. 1, 1998 Individuals who applied 160,758 277,970 Nationally 19% of entitled individuals have to receive their land share been allocated physically identified plots in private in physical form ownership (198,000 out of 1 million beneficiaries), Individuals allocated land 112,874 198,047 but the "privatization rate" shows considerable in private ownership variation across districts. Chisinau district boasts the Applications as percent of 16% 27% highest privatization rate: around the capital, 64% of entitled individuals beneficiaries have received land in private Applications fulfilled 70% 71% ownership. In eight other districts (Straseni, Source: Department of Statistics, Computational Center. Nisporeni, Orhei, laloveni, Causeni, Criuleni, Calarasi, Hincesti ), the privatization rate is over A total of 250,000 ha was distributed to 30%. All these districts are in central Moldova, 200,000 individuals against land shares as of April forming a band around Chisinau. The privatization 1998, more than doubling the land in private farms rate declines rapidly with distance north and south since October 1996 (Table 2.5). This land is in from Chisinau. In the relatively remote northern and addition to the household plots that rural families southern districts the privatization rate averages  16 Moldova: Land Reform and Farm Restructuring 8%-9%, compared to 30% in the central districts. Table 2.7. Privatization Rate* by District:1996-1998 This effect is clearly visible in Table 2.6, which District Zone+ October April gives the average distance from Chisinau for the 1996 1998 districts included each of the three zones (the I Chisinau C 55.4 64.0 negative correlation of the privatization rate with 2 Straseni C 40.3 58.9 the distance from the capital is highly significant). 3 Nisporeni C 26.4 46.6 4 Orhei C 31.6 46.5 Table 2.6. Privatization Rate by Zone: 1996-1998* 5 laloveni C 31.0 42.8 Average Oct. Apr. 6 Causeni C 27.4 42.1 distance from 1996 1998 7 Criuleni C 22.9 38.1 capital, km 8 Calarasi C 42.1 33.0 North 158 3.2 10.1 9 Hincesti C 22.9 31.0 Center 53 24.8 34.6 10 Telenesti N 7.6 22.3 South 130 4.9 12.2 11 Cahul S 4.3 22.2 National average 11.2 19.2 12 Donduseni N 4.7 20.8 Privatization rate is the ratio (in percent) of the number of 13 Cimislia S 5.6 20.1 individuals who have received a physical plot in private 14 Leova S 7.4 20.1 ownership to the total number of individuals entitled to land 15 Ungheni C 9.3 19.6 shares in the respective districts. Source: Computational Center, Department of Statistics. 16 Basarabeasca S 10.2 15.7 17 AnneniiNoi C 6.6 15.1 Since the privatization rate is highest in the 18 Cainari C 8.9 14.9 densely populated central districts, where the land 19 Cantemir S 8.4 14.6 endowment per person is relatively low, 19% of all 20 Vulcanesti S 8.4 12.2 beneficiaries received only 16% of the privatization 21 Singerei N 2.3 11.1 reserve as of April 1998. As a result, an average of 22 Briceni N 1.9 10.7 1.25 ha has been allocated per land share so far (see 23 Falesti N 4.4 10.0 Table 2.5), which is less than the average land 24 Stefan Voda C 5.1 9.3 share of 1.5 ha for all Moldova. 25 Soldanesti N 4.0 9.1 Detailed information about privatization rate 26 Rezina N 7.1 9.0 by district is presented in Table 2.7. Most districts 27 Glodeni N 2.6 8.4 report substantial advances in privatization between 28 Floresti N 3.2 8.0 1996 and 1998. Particularly remarkable progress is 29 Riscani N 2.1 7.7 observed for the two non-central districts of Cahul 30 Soroca N 2.7 7.5 (south) and Donduseni (north), which in eighteen 31 Edinet N 2.6 7.1 months moved from about 4% privatization rate to 32 Camenca N 0.4 6.6 over 20%. These developments, including the spread of privatization beyond the central districts, 33 Drochia N 1.7 6.5 are a clear outcome of the general change in 3 aguia N 0.8 4.7 government policy and attitude toward privatization 35 Ocnita N 0.7 2.2 and ditibto of land.... 36 Tar7aclia S 0.0 0.9 and distribution of land. *For the definition of privatization rate, see note to Table 2.6. + C - Central, N - Northern, S - Southern zone. Source: Computational Center, Department of Statistics.  Current State of Land Reform: National Overview 17 Privatization of Non-Land Assets and accounting share value does not faithfully represent Asset Shares the effective or market value of the assets, most of which are old, worn out, and of not much use for While 90% of individuals entitled to land production. shares have received at least a provisional Asset shares are calculated net of outstanding certificate of land ownership, only 50% of the obligations. The deductions on account of individuals entitled to asset shares in large-scale obligations are not large, however, and are about farms have received a certificate of ownership and 700 million lei out of total balance sheet value of about two-thirds of these certificates have been 5.8 billion lei. Spread over all farms nationally, the confirmed and registered by local authorities (fable burden of debt is insignificant, and it is more than 2.8). The value of non-land assets distributed to offset by the value of shares that farms hold in individual beneficiaries as of December 1997 is processing enterprises. about 60% of the total value earmarked for Transfer of responsibility for social assets and privatization. The distribution is merely in the form services to local authorities is an essential of paper certificates of value, and so far does not component of the asset privatization program. It is involve division of physical assets. intended to relieve the newly reorganized large The average value of an asset share in farms from their traditional responsibility for Moldova (after the 1996 revaluation of assets) is maintaining rural social services and to enable them 4,700 lei, or about $850. Prior to revaluation, the to concentrate on productive business-oriented average asset share was 2,712 lei (or about $600 in activities. Yet this part of the privatization program April 1996). The increase in asset share value is has not progressed at all: merely 12% of the target merely a technical outcome of the accounting has been transferred from the large-scale farms to revaluation farm assets, which are listed at their local authorities as of December 1997 (Table 2.8). historical cost in farm balance sheets. The Table 2.8. Privatization of Non-Land Assets as of December 1997 Number of Percent April 1996 individuals Individuals entitled to asset shaires 1,094,656 100 100 Active rural workers 543,182 50 51 Pensioners 385,091 35 34 Former rural workers 166,383 15 15 Shares calculated 701,608 64 37 Certificates issued 543,406 50 30 Of these: registered by local authorities 356,535 33 12 000 Lei Percent April 1996 Value of assets for privatization* 5,128,341 100 100 Value of privatized assets 3,016,023 59 36 Average asset share 4,685 Value of social assets 542,186 100 100 Of these: transferred to local authorities 62,835 12 7 *Net of 678,218,000 lei in obligations. Source: Department of Statistics.  18 Moldova: Land Reform and Farm Restructuring Although the distribution of asset shares to the holders that have created independent farming units rural population has advanced much more slowly (whether registered as private farms or not). The than the distribution of land shares, comparison of transfer of assets to the large-scale organizations is the official data for December 1997 with those for virtually complete: they have received over 90% of April 1996 reveals a significant progress during the the assets represented by the entitlement shares of last two years (Table 2.8). Thus, the number of their members (Table 2.9). The individual farmers, beneficiaries for whom asset shares had been on the other hand, have received less than 60% of calculated grew from 37% in 1996 to 64% in 1997, their asset entitlement from the parent farms (still, the distribution of certificates increased from 30% this is an improvement compared to 40% in 1996). of the beneficiaries in 1996 to 50% in 1997, and the Among the new organizational forms, joint- number of certificates confirmed and registered by stock societies and agricultural cooperatives are the local authorities rose from 40% of the large farms with around 1,000 members and 4-5 certificates issued to 66%. The value of privatized million lei in assets (Table 2.9). Based on the assets increased from 36% to nearly 60% of the number of members and the average land share in total value targeted for privatization. Finally, there Moldova (1.5-2.0 ha), the land holdings of these has even been a significant progress with the farms can be estimated at 1,500-2,000 ha. In terms transfer of social assets during the last year: the of size, they are thus reminiscent of the traditional proportion ( by value) of social assets transferred to collective and state farms despite their new local authorities grew from a negligible 7% in 1996 sounding names. Farmers associations and limited to a more respectable (but still very low) 12% in liability societies appear to be much smaller, with 1997. The increased impetus of land reform has 100-200 members on average (Table 2.9), and thus apparently extended itself also to the sphere of asset constitute a truly new intermediate form between distribution, although with a certain delay. the traditional large-scale farms and the small peasant farms. Restructuring of Farms A full census of different organizational forms in Moldova as of October 1997 is presented in The privatized assets valued at over 3 billion Table 2.10. A brief characterization of the various lei have been transferred to a mix of new organizational forms is given in Table 2.11. The organizational forms, representing about 900 large- distribution of farms in Table 2.10 is different from scale structures (joint-stock societies, limited that in Table 2.9, because the two sets of numbers liability societies, agricultural cooperatives, and come from different sources within the Department farmers associations) and 160,000 individual land of Statistics. Although the numbers are of the same Table 2.9. Distribution of Privatized Assets to New Organizational Forms (December 1997) Individual Farmers Agricultural Joint stock Limited Total landholders associations cooperatives societies societies Number of new organizations 163,865 259 439 198 32 Privatized assets, 000 lei 270,528 75,598 1,511,586 981,828 76,483 3,016,023 Number of members with shares 148,110 34,517 331,875 228,707 10,932 754,141 Entitlement to assets, 000 lei 476,544 98,554 1,731,514 987,147 80,452 3,374,211 Percent of assets distributed 57 77 93 99 95 89 Averages per farm Members with asset shares 0.9 133 756 1,155 342 Assets received, 000 lei 1.6 292 3,671 4,958 2,390 Entitlement to assets, 000 lei 2.9 381 3,944 4,986 2,514 Source: Department of Statistics.  Current State of Land Reform: National Overview 19 orders of magnitude, the differences clearly Table 2.11. Characterization of Organizational Forms highlight the difficulties faced by statistical organs Joint-Stock Society (Company): A business entity created by in collecting information of this kind. two or more investors (physical or legal bodies), who acquire shares in the company by contributing funds or assets to its equity capital. A shareholder wishing to leave a joint-stock Table 2.10. Farm Reorganization as of October 1, 1997 society has to find a buyer for his share. The company has no NumberINumber of obligation to redeem the shares for cash or assets in kind. The o Number Number of shareholder's liability for the company's debt is limited to the ofIunits units in 1991 investment in share capital. The voting power is proportional to Traditional forms: the number of shares held by the shareholder. In a closed joint- State farms 103 389 stock society, shares are transferrable only among members. In an open joint-stock society, shares can be bought by outsiders. Other state enterprises 26 -- Collective farms 203 600 ~~~~Limited Liability Society (Company): Similar to a joint-stock Collective farms 203 600 society, except that when a member chooses to leave, the other Interfarm cooperatives 20 96 members redeem his share of investment for cash. New forms: Partnership: The partners bear full, unlimited liability for the Joint stock societies (closed) 213 obligations assumed by the partnership. When a partner decides Limited liability societies 33 to leave, the partnership is usually dissolved and the assets are Agricultural cooperatives 45E divided in kind among the partners. The voting power is proportional to the investment of each partner. Farmers associations 26