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Institutional barriers also constrain producers from moving into individual farming

The overall objectives of our proposed paper is to: systematically document the post-reform trends in agricultural performance in Asia, Europe, and the Former Soviet Union; identify the main reform strategies and institutional innovations that have contributed to the successes and failures of the sector; analyze the mechanisms by which reform policies and initial conditions have affected the transition process in agriculture; and draw lessons and policy implications from the experiment and identify the gaps in our understanding of the role and performance of agriculture in transition. As part of this effort, we attempt to address a number of intriguing and important questions on the performance of individual countries or regions during transition. Why has China been so successful in its reforms, while Russia has not? Why is it that some CEECs have rebounded and showing robust productivity growth, while others have not? Why has agriculture in so many FSU nations continued to perform so poorly? In addition, we will address questions about the process of reform. Why has land restitution predominated in Europe but not in Russia or China? Why did institutions of exchange collapse in the non-Asian economies in the early stages of reform but continued to function in Vietnam and China? What explains the apparent divergence in the performance effects after the first year of reform in China and Vietnam, on the one hand, and much of the rest of the transitional world on the other? In particular, how have land reform and rural input-supply/ procurement enterprise restructuring affected productivity? Which institutions of exchange and contracting have or have not emerged, and why? How has the structure of the economy at the outset of transition, and other initial conditions, affected the transition process? To meet our objectives and answer some of the questions,stacking pots we will begin by laying out the record on performance — examining the main bodies of data that demonstrate the changes in agricultural output, income, and productivity in the years after transition.

In doing so, we will show how some of the countries have recorded similar performances, while others have developed quite differently. We will identify several “patterns of transition” based on these performance indicators and much of our subsequent discussion will analyze the success of transition according to these classifications. Next, as the first step in our search for answers as to what explains these different patterns, we examine differences in the points of departure of the transition countries as well as the nature of the policy reforms that have affected agriculture. The initial conditions that we hypothesize may explain part of the transition period’s performance include the nature of agricultural technology at the beginning of the reforms , the structure of the economy , the extent of collectivization, and the magnitude of trade distortions. The key policy interventions that we should expect to affect agriculture’s performance during transition include land right reforms and farm restructuring; price and subsidization policies; the approach to the liberalization of agricultural commodity and input markets; general macro-economic and general institutional reforms; and the attention of sectoral leaders to the level of new and maintenance-oriented public goods investment . After documenting the dramatic differences in initial conditions and in reform policies among the transitional countries, we seek to demonstrate which of the differences determine the path a country’s agriculture takes. In other words, we offer answers to the question why transition in agriculture in some countries has been successful and not in others. Here, we seek to generalize about the main causes for differences between the countries and the mechanisms that have affected performance. In particular, we argue that the debate on the optimality of Big-Bang versus gradualism oversimplifies the reform problem. The empirical evidence suggests that the road to a successful transition is more subtle and successful transitions in Asia and Europe have elements of both gradual and radical reforms.

To explain the reform successes and failures we emphasize the role of the political environment in the early reform years and the potential for agricultural growth that exists at the start of reforms. We find that both have not only influenced the choice of the reform policies, but also the effect of the reform policies. We also conclude that the initial level of price distortions and the pace of market liberalization were especially influential in explaining differences in the early stages of transition but that the influence of the factors has diminished over time. Investment, land rights, and farm restructuring policies, in contrast, are assuming a more important role as the agricultural reforms have matured.In the last section we draw policy implications and lessons from the agricultural transition experiences. We argue that one should be careful about which indicator to use for measuring success and failure of transition. We conclude that all reform strategies in order to be successful need to include some certain policy ingredients . However, a powerful lesson is that although all the pieces are ultimately needed, there is a lot of room for variation in the form of institutions that can be successful, and optimal policies and institutions may vary according to initial conditions. In other words, there is no single optimal transition path. Whatever the reason—either initial conditions, reform policies, or both—remarkable differences can be observed when examining the performance of agriculture in the transitional countries during the first decade of reform . From the start of the reforms, output increased rapidly in China. After 10 years output had increased by 60 percent. In Vietnam, output also rose sharply, increasing by nearly 40 percent during the first decade of reform.Output trends followed a different set of contours outside of Asia. Production fell sharply in the first 5 years of transition in both the CEECs and in the FSU countries. Since the mid-1990s, output stabilized in most of the CEECs. In Russia and Ukraine, however, the fall continued declining to nearly 50 percent of pre-reform output. Productivity trends, while similar to those of output in certain countries, diverged in others . For example, for the entire reform period, labor productivity in the agricultural sectors of China and Vietnam, measured as output per farm worker, rose steadily like output. The productivity trends for Russia and Ukraine also mirror those of the nation’s output: labor productivity fell over 30 percent between 1990 and 1999. Productivity trends for some CEECs, however, differ from those of output. For example, output per worker almost doubled over the first decade after transition in Hungary.

Labor productivity also rose strongly in the Czech Republic and Slovakia in the 1990s, even as output was falling. While reliable estimates on total factor productivity are scarcer, the general picture is similar as the one described by the labor productivity trends. In China and Vietnam, TFP rose during the reform era . In several CEECs, TFP in crop production started increasing early on in transition . What has been behind the observed trends? To the extent that we can better understand the sources of growth, decline, and recovery, we may be able to more precisely predict what is in store for the future and derive more accurate policy implications. We start by examining initial conditions,grow lights since they may affect how a country proceeds after a change. Next, we examine the impact of policy actions taken by reforms: the record on property rights, price and subsidy policies, and a large number of measures that can be labeled as actions taken to promote the emergence of institutions of exchange, including markets. The final subsection briefly examines the record of countries in the management of agricultural investment. Although comparisons of economies in transition are reasonable, given their common reliance on central planning and shared transition era goals of liberalization and faster growth, differences in initial conditions at the outset of reform may temper comparisons. In general, the Asian economies had a much lower levels of development than the transition countries in Europe. For example, the share of agriculture in employment was more than 70% in China and Vietnam. In contrast, less than 20 percent of the working population in Russia and most of the CEECs is employed in agriculture. The demographic structure of the countries also affects the way output is produced. Farms in China and Vietnam are much more labor-intensive. The man/land ratio was more than five times higher in Asia than in Central Europe or Russia . The length of time under collectivized agriculture also may affect transition. Although pre-transition agriculture was characterized by the dominance of large-scale farms in almost all the countries,the collectivization of agriculture occurred early this century in Russia, while only after the second World War in the CEECs and East Asia. Experience with private farming and any understanding of markets was more likely completely lost during several generations under Communism in most of the FSU nations. In contrast, private farming survived in rural households in many other countries.Land ownership prior to reform also differed among the countries. In China, the collective retained legal and effective property rights both before and after the implementation of HRS.

In Russia and other FSU countries, however, land was nationalized during Communism. In many CEECs much of the collective farm land was still legally owned by individuals, although effective property rights were controlled by the state or the collective farms . Paradoxically, while these legal differences probably had little impact on the operation of the land in the various countries in the pre-reform era, they had a much stronger effect on land reforms afterward liberalization. In particular, pre-reform ownership can be quite closely linked to the demand for land restitution in the CEECs . Finally, pre-reform tax, subsidy and trade policies differed significantly among the countries. In China and Vietnam, authorities heavily taxed agriculture . In contrast, leaders in most of the CEECs and the FSU nations supported agriculture with heavy subsidies . Moreover, while some of the taxes and subsidies were direct, some differences in rates of taxation and subsidy were related to trade policies. Trade policies also affect the degree of access that consumers and producers have to world markets and how much producers are subject to global competition. For example, FSU countries were strongly integrated into the CMEA system, and traded mainly with other communist countries. The share of CMEA exports as a percent of GDP amounted to around 30 percent in Russia and Ukraine. The CEECs also traded with other countries, but CMEA exports still made up around 10 percent of GDP in countries like Hungary and the Czech Republic. In contrast, China and Vietnam mainly traded with nonCMEA countries.The reforms in China and Vietnam started with radical decollectivization and reshuffling of property rights. Reformers in China re-allocated land rights from the communes, brigades and teams to rural households and completely broke up the larger collective farms into small-scale household farms. The resulting changes in incentives triggered both strong growth of output and a dramatic increase in productivity . Doi Moi, Vietnam’s reform program in the 1980s closely followed China’s strategy and land reform also positively affected the nation’s agricultural output . In contrast, many large-scale farm organizations survived the transition in the FSU and the CEECs. Large-scale farms, under a variety of legal organizations, still cultivated more than 75% of the land in Russia, Ukraine, most of the FSU nations, and a number of CEECs five years after the start of the reforms. The break-up of the former collective and state farms into individual farms has been strongest in countries in which the collective and state farms were least efficient and most labor intensive . Importantly, the shift also was higher in regions where at least some private farming survived during Communist rule. Although the share farmed by large corporate farms has fallen gradually over the past decade in most transition countries, it is a slow process and it is not obvious that they will disappear in the near future. In some countries, such as Russia and Slovakia, policies still heavily favor large corporate farms.The corporate farms also may be providing services that provide up- and downstream activities substituting for missing markets . In many countries, such as Hungary and Bulgaria, a dual farm structure is emerging with some large-scale farms and many small-scale individual farms .

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The co-op could also help increase demand by advertising and developing new markets

The wage differentials with traditional producing countries in the Mediterranean Basin were much larger, with California farmers paying roughly 4 to 8 times more. Moreover, most fruit and nut crops were characterized by high labor-to-land ratios. For example, the U.S. Department of Agriculture estimated that in 1939 producing almonds on the Pacific Coast required 96 hours per bearing acre, dates 275, figs 155, grapes 200, prunes 130, and walnuts 81 hours; this compared with only 6.6 hours of labor per acre of wheat.Underlying the Hechsher-Ohlin analysis is the notion that wheat farmers competed directly with fruit and nut growers for the labor and land. But this notion needs to be qualified in ways that help explain the success of California fruit producers. On the Pacific Coast, the labor requirements of both activities were highly seasonal and their peak harvest demands did not fully overlap. In California, for example, the wheat harvest was typically completed by early July whereas the raisin and wine grape harvest did not commence until September and continued through late October. Hence, a worker could, in principle, participate fully both in the grain and grape harvests. Rather than conceiving of the different crops as being competitive in labor, we might be better served by considering them as complimentary. As an example, in the lush Santa Clara Valley harvest workers would migrate from cherries to apricots to prunes to walnuts and almonds over a roughly six month season. Adding other semi-tropical crops, such as cotton and navel oranges, stretched the harvest season in large sections of California into the winter months. By filling out the work year and reducing seasonal underemployment, the cultivation of a range of crops in close proximity increased the attractiveness to labor of working in Pacific Coast agriculture. The succession of peak-load, high-wage periods allowed California workers more days of high-intensity and high-pay work in a year than was possible in most other regions.It is also important to recognize that the land used for grain and fruit crops was largely “non-competing.” Prime quality fruit lands,led grow lights with the accompanying climatic conditions, were so different from the lands that remained in grain production that they constituted a “specific input.”

Differences in the land values help bring these points home. According to R. L. Adams’ 1921 California farm manual, the market value of “good” wheat land in the state was approximately $100 per acre in the period immediately before the First World War.“Good” land for prune production was worth $350 even before planting and valued at $800 when bearing. The “best” land for prunes had a market value of $500 not planted and $1000 in bearing trees. Similarly, “good” land for raisin grape production was worth $150 raw and $300 in bearing vines; the “best” sold for $250 not planted and $400 bearing. Focusing on physical labor-to-land ratios in comparing wheat and fruit production can be seriously misleading because the acreage used for fruit cultivation was of a different quality than that used for grains.A further reason why horticultural crops could compete was that, unlike the key agricultural staples, many fruit and nut products enjoyed effective tariff protection during the late-19th and early-20th centuries. Tariffs almost surely sped up the growth of Mediterranean agriculture in the United States and were strongly supported by domestic producers, railroads, and packers.One of the recurrent justifications for tariffs offered by domestic growers was to help offset high transportation differentials. Almost across the board, Mediterranean producers enjoyed lower freight rates to the key markets of the northeastern United States than their American rivals did. For example, circa 1909, shipping currants from Greece to New York cost 17 cents per hundred weight while the freight on an equivalent quantity of California dried fruit averaged about one dollar.For the Pacific Coast fruit industry, the cost of transportation remained an important factor, shaping production and processing practices. This is reflected in an observation that has entered textbook economics, that the best apples are exported because they can bear the cost of shipping. It also helps explain one of the defining characteristics of the region’s fruit industry, its emphasis on quality. Local producers and packers devoted exceptional efforts to improving grading and quality control, removing culls, stems and dirt, reducing spoilage in shipment, and developing brand names and high quality reputations. This focus makes sense given the high transportation cost that western producers faced in reaching the markets of the U.S. Atlantic Coast and Europe. To a large extent, the ability of Californians to compete with the growers in southern Europe depended on capturing the higher end of the market.With only a few exceptions, California dried fruits earned higher prices than their European competition because the state’s growers gained a reputation for quality and consistency.

As an example, the U.S. produced far higher quality prunes than Serbia and Bosnia, the major competitors, and as a result American prunes sold for roughly twice the price of the Balkan product in European markets. Not only were California prunes larger, they also enjoyed other significant quality advantages stemming from the state’s better dehydrating, packing, and shipping methods.Similar quality advantages applied virtually across the board for California’s horticultural crops. It is interesting to note that at least some of California’s current problems with foreign competition stem directly from the ability of others to copy the state’s methods. After the California horticultural industry established its strong market presence, the message eventually got through to other producers. The extensive efforts that producers in other New Areas and in Europe made to copy the California model provides another indicator of the importance of superior technology and organization in establishing California’s comparative advantage.California agriculture was uncommonly successful with collective action. By the 1930s, the state’s farmers supported a powerful Farm Bureau, organized labor recruitment programs, numerous water cooperatives and irrigation districts,vertical grow system and a vast agricultural research establishment. Here we will focus on the state’s experience with cooperatives designated to provide farmers with an element of control over the increasingly important marketing, middleman, and input supply functions. One of the most notable was the California Fruit Growers Exchange organized in 1905. By 1910 it marketed 60 percent of the citrus shipped from California and Arizona under its Sunkist label; in 1918 it marketed 76 percent of all shipments, and for most years between 1918 and 1960 Sunkist accounted for over 70 percent of citrus shipments.The Exchange also entered the farm supply business through its subsidiary, the Fruit Growers Supply Company. In the late 1920s it was purchasing for its members $10,000,000 a year worth of nails, tissue wraps, fertilizer, orchard heaters, box labels, orchard stock and the like. The company also controlled 70,000 acres of California timber land and manufactured huge quantities of boxes.Other co-ops emerged catering to California’s specialized producers. After more than 20 years of unsuccessful experiments, raisin growers banded together in the California Associated Raisin Company in 1911. Between 1913 and 1922 the CARC handled between 87 percent and 92 percent of the California raisin crop, successfully driving up prices and members’ incomes. But success brought Federal Trade Commission investigations and an anti-trust suit, which the CARC lost in 1922. In 1923 CARC was reorganized into Sun Maid Raisin Growers of California.

Although that brand name still survives, the co-op was never again as successful as it was in its first decade. Co-ops potentially offered their members several services. First, they could help counteract the local monopoly power of railroads, elevators, packers, banks, fertilizer companies and the like by collectively bargaining for their members; or as in the case of the California Fruit Growers Exchange, the co-op could enter into the production of key inputs and offer its own warehouses, elevators, and marketing services. Several coops representing various specialized crops have developed very successful marketing campaigns that have significantly increased consumer awareness and consumption. While perhaps providing countervailing power and overcoming market imperfections on the output side, many co-ops strove to introduce their own imperfections by cartelizing the markets for agricultural goods. A leader in this movement was a dynamic lawyer, Aaron Sapiro, who had worked with several of California’s co-ops in the early twentieth century. His plan was to convince farmers to sign legally binding contracts to sell all of their output to the co-op for several years. If a high percentage of producers in fact signed and abided by such contracts, then the co-op could act as a monopolist limiting supply and increasing prices. Since the demand for agricultural products is generally thought to be highly inelastic, farm income would rise. The surpluses withheld from the market would either be destroyed or dumped onto the world market.The whole scheme depended on: avoiding federal anti-trust actions like that which hit the raisin growers between 1919 and 1922; preventing foreign producers from importing into the high priced American market; and overcoming the free rider problem. Even if these problems could be solved in the short-run, the longer-run problems of controlling supply in the face of technological change and increasing productivity in other countries would still exist. The first two problems were fairly easily dealt with. The cooperative movement received federal encouragement in the form of highly favorable tax treatment and considerable exemption from anti-trust prosecution with the passage of the Capper Volstead Act in 1922. Subsequently, the Cooperative Marketing Act of 1926 and the Agricultural Marketing Act of 1929 further assisted the cooperative movement by helping to gather market information , and by helping co-ops enforce production and marketing rules. In addition, the 1929 Act provided up to $500 million through the Federal Farm Board to loan to cooperatives so they could buy and store commodities to hold them off the market. The federal government also provided a shot in the arm to the cooperative movement through a series of tariff acts that separated the domestic and foreign markets. The tariffs were in large part endogenous because co-op leaders and California legislators lobbied furiously for protection. But overcoming the “free rider” problem was a harder nut to crack. Every farmer benefited from the co-op’s ability to cut output, and every farmer would maximize by selling more. There was thus a tremendous incentive to cheat on the cartel agreements or to not sign up in the first place. The early California fruit co-ops were successful in large part because they dealt with crops grown in a fairly small geo-climatic zone for which California was the major producer. Many growers were already members of cooperative irrigation districts and thus linked by a common bond. These factors made it much easier to organize and police the growers, and it reduced the chance that higher prices would immediately lead to new entrants who would, in a short time, drive the price level down. The fact that most output was exported out of the state via relatively few rail lines also made monitoring easier. If California raisin prices increased, it was not likely that Minnesota farmers would enter the grape market; but if Kansas wheat farmers banded together to limit their output, farmers in a dozen states would gladly pick up the slack. For these reasons the success of cooperatives in California was seldom matched elsewhere in the United States.California agriculture defies simple, accurate generalizations. This chapter gives the reader two of many possible cross-sectional views of the state’s agriculture to portray the diversity and complexity which make simple descriptions impossible. California’s agriculture has always been sufficiently different from farming and other related activities found elsewhere in the United States, or in the world for that matter, to befuddle visitors and the uninformed. When discussing farming with visitors from the other 49 states, and places even more afield, my father, a life-long Yolo County farmer, always proudly stated, “Anything that can grow anywhere, can grow somewhere in California!” He was right, of course. The state’s agriculture, founded on self-sufficiency goals of early Alta California missions, developed in less than two centuries from a predominantly livestock grazing economy, providing wealth to large, Rancho land holdings from the sale of hide and tallow products in the early 1800s, to today’s agriculture which includes highly capitalized, intensively managed firms as well as a large number of “small” and part-time farming operations.