Entkopplung - Auswirkungen

1
Agrarian structures after 20 years of transition
Determinants, trends, and challenges Alfons
Balmann
2
Some stylised facts

• Actual farm structures strongly differ from
  expectations
• "western type" family farms play almost nowhere a
  particular role
• In general dualistic farm structures
• large and very large farms
• relatively small in numbers
• high share in land and capital intensive
  production (e.g. cereals, granivores)
• often successors of former collective (and state)
  farms
• subsistence, semi-subsistence and small farms
• huge in numbers
• high share in labour intensive production (e.g.
  potatoes, vegetables, dairy)
• motives self-employment, self-sufficiency
• shares vary among countries
• shares changed only gradually after first years
  of transition

3
Some stylised facts
Source FAO
4
Some stylised facts
Ukraine dairy production
large farms
subsistence farms
delivered to processors

total production

years
Source Mykhaylenko 2008
5
Some stylised facts
Farm sizes and their land shares in Germany
(2005)
Source Agrarbericht 2007
6
Explanations

• Path dependence
• farm structures change very slowly
• sunk costs for assets and human capital, market
  frictions,
• with the exception of "catastrophic" events
  (bifurcations)
• institutional change is slow
• new institutions "don't fall from heaven" but
  evolve
• existing institutions in transition economies
  deviate from textbook assumptions
• interdependence of structures and institutions
• institutions and policies in favour of status quo
• existing structures affect institutional change
• structures are outcome of their history not of
  their superiority
• surviving large farms
• emerging (semi-)subsistence farms

7
Surviving large farms

• Profit orientation necessary for survival
• Employment reduction of successors of collective
  farms
• abolishment of public services
• reduction of hidden unemployment
• reduction in livestock production
• But employment reduction and profit orientation
  somewhat delayed
• existing assets for livestock production (sunk
  costs)
• identity of ownership and employment (sunk costs
  of human capital)
• avoiding competition with newly/re- established
  farms
• legitimisation strategy of managers
• to some extend "job maximization strategy"

8
Emerging subsistence farms

• Households continued farming as in socialist
  times
• Employment reduction of successors of collective
  farms
• Missing alternative employment opportunities in
  rural areas
• Subsistence, semi-subsistence and small farms
• a strategy to generate at least some income from
  own resources(particularly if land and local
  markets available)
• but (in general) rather a by-product of
  transition than a perspective (limited land
  availability, financial resources and market
  access)

9
Explanations

• Path dependence
• western structures outcome of their history not
  of their superiority
• biased view of own reality in the Western World
• transferring western "paradigm" to transition
  economies was misleading

10
Explanations

• Technological change
• ever increasing capital intensity
• ever increasing knowledge intensity
• agriculture as "biological manufacturing"
  (Boehlje 1999)
• investment and production driven by venture
  capital!
• Globalisation
• agriculture part of global food chains
• "supermarket revolution" also in transition
  countries
• farms have to be compatible with standardisation
  trends
• farms need strong local partners along the chain
• Both in disfavour of small farms, in favour of
  large(r) farms!
• Both processes continue!

11
Where are we heading?

• Traditional problems
• Agricultural treadmill
• Quasi-fix production factors
• Existing inefficiencies (farm level, sector
  level)
• Structural deficits

12
Specific case Germany

• "Political philosophy" competition of
  alternative farming types
• agreement of governing coalition in 1990
• integration of successors of LPGs in the main
  farmers' union "Deutscher Bauernverband"
• Huge financial support of East German agriculture
• EU membership

13
Specific case Germany
Selected figures of German FADN farms (financial
year 2007/08)

• Significant differences between East and West
• size differences
• intensity differences

14
Specific case Germany
Selected figures of German FADN farms (financial
year 2007/08)

• higher labour intensity per ha in the West
• slightly higher labour intensity per ESU in the
  East

15
Specific case Germany
Selected figures of German FADN farms (financial
year 2007/08)

• much lower capital use in the East
• very low equity in the East, particularly of
  large full-time farms
• deficit in venture capital in the East

16
Specific case Germany
Selected figures of German FADN farms (financial
year 2007/08)

• higher profits in the East
• partly due to lower rental prices
• but leverage effects

17
Specific case Germany
Selected figures of German FADN farms (financial
year 2007/08)

• in general, higher productivity of larger farms
• particularly high productivity of very large
  corporate farms

18
Specific case Germany

• In the East
• farms are efficient and profitable
• no ruinous competition on the land market
• but sector "suffers" from limited venture capital
• potential value added not exploited
• higher vulnerability (hired labour, land and
  capital need permanent payments)
• In the West
• farms are well equipped with equity capital
• but suffer from
• low profitability
• structural deficits
• ruinous competition

19
Productivity and profitability

• higher profitability because of lower costs
  (labour, land)
• but lower yield levels and lower prices

20
Productivity and profitability

• Efficiency of large wheat farms in Ukraine 2008
  (DEA)

21
Productivity and profitability

• Efficiency of large wheat farms in Ukraine 2008
  (DEA)
• huge productivity potentials
• important management, capital endowment
• less but also important size, legal form

Groups of farms Groups of farms Technical efficiency (CRS) Allocative efficiency Scale efficiency
All All 0.55 0.89 0.96
Region Kyiv 0.51 0.89 0.96
Region Poltava 0.56 0.90 0.96
Region Cherkasy 0.57 0.89 0.96
22
Productivity and profitability

• Profitability of wheat production in Ukraine 2006

23
Where are we heading?

• Traditional problems
• Agricultural treadmill
• Quasi-fix production factors
• Existing inefficiencies (farm level, sector
  level)
• Structural deficits
• Recent trends
• Globalisation and verticalisation
• Biological manufacturing

24
Globalisation and verticalisation

• International structural change in the pork chain
• Denmark (2007)
• 34 of all pigs in facilities with more the 5000
  pigs
• 20 of all pigs in facilities with more the
  10000 pigs
• US pork production (2002)
• 70 of pork from vertically integrated systems
• 53 of all pigs in facilities with more the 5000
  pigs
• 2008 40 of all sows held by the 10 largest
  enterprises
• Smithfield Foods
• USA gt 1 mill. sows
• Poland about 83.000 sows, gt1 mill. hogs in 2008
  produced
• Romania investments in pork chain with capacity
  for 4 mill. hogs

25
Globalisation and verticalisation
Pork production in Hungary after EU Accession
Source KSH, AKI
26
Globalisation and verticalisation

• Pork production in Hungary after EU Accession
  (Nyárs, AKI)
• Farm level
• genetic heterogeneity, few breeders which can
  deliver high quality piglets
• mainly outdated stables (often 20-25 years old)
• hygienic deficits and high veterinary costs
• high labour input necessary
• Underdeveloped processing sector
• coordinated actions require huge financial flows
• Macroeconomic deficits
• high interest rates, restricted land market,
• Geographical disadvantages
• high costs of protein feed (while grain is
  relatively cheap)
• high transportation costs to import markets

27
Globalisation and verticalisation

• German pork chain
• Relatively successful
• But in Eastern Germany
• pork production relatively low
• low value-added, low employment
• reasons
• enormous capital needs and low equity of existing
  farms
• public resistence against large facilities of
  external (alien) investors
• But in Western Germany
• structural deficits of the farrowing sector
• hog feeders demand for large units of homogenous
  piglets from one farm
• farrowers are relatively small

28
Biological manufacturing

• Increasing knowledge intensity of modern
  agriculture
• Example farrowing / piglet production in Saxony
• In 2006 average profit per sow was 300 higher
  for farms with more than 1000 sows compared to
  farms with less than 600 sows
• Success factors
• lower costs higher revenues
• strong positive correlation of number of sows and
  piglets per sow

29
Biological manufacturing

• Increasing knowledge intensity
• Economies of size result from better managing
  human capital and know how rather than just from
  decreasing average costs for facilities
• division of labour
• competent managers
• specialised employees
• knowledge transfer through supply chain

30
Biological manufacturing

• Increasing capital intensity
• Financial needs to create one job in livestock
  productionin Germany
• hog feeding 1 125 000
• facility per 2500 places at 350 each, current
  assets 100 per place
• farrowing 675 000
• facility per 250 sows at 2300 each, current
  assets 400 per place
• dairy farming 300 000
• facility per 50 cows at 4000 each, current
  assets 2000 per place

31
What are the challenges?

• Changing conditions of agricultural production
• Emerging markets
• bio-energy, fibres,
• emerging countries with fast growth
• New competitors
• New technologies bio-technology,
• Climate change
• Supermarket revolution and increasing vertical
  cooperation
• Agriculture in CEE is part of a globalized world

32
What are the challenges?

• Agriculture is a difficult business
• market and weather uncertainty
• treadmill, quasi-fixed factors, ruinous
  competition
• Towards the knowledge-based bio-economy
• "biological manufacturing"
• RD, innovation, skills
• enormous demand for venture capital
• Vertical integration/cooperation
• amplifies opportunities and threats
• Societal perception of modern agriculture
• "modern" farmers are a small minority, even
  within the sector
• slow and uncertain policy responses and
  institutional changes