Farm restructuring and rural incomes Zvi Lerman The Hebrew University of Jerusalem, Israel Agricultural transition along the Silk Road, IAAE Inter-Conference Seminar, 4-6 April 2016, Almaty

Restructuring = changes in land use and farm structure during the transition 2

Poverty headcount rate decreases across CIS since 2001 Poverty headcount rate at national poverty lines dropped from average 43% in 2001 to 14% in Source: WB World Development Indicators

Land reforms increase income growth rate – thus reducing poverty Deininger et al., “Land reforms, poverty reduction, and economic growth: Evidence from India,” J. Dev. Studies, 45(4): (2009): 5000 observations over 20 years 4

Striking feature of restructuring in CIS: sweeping individualization of agriculture TajUzb Kyr Kaz 5

Slower individualization in European CIS UkraineRussia 6

Russia: Massive shift of ag labor from enterprises to individual farms 7

Changing role of individual farms Share of arable, %Share of GAO, % Kaz Kyr Taj Tur593 Uzb Average Russia Ukraine Azerbjn

Individualization created very small farms in land-poor countries… Average farm size, hectares Armenia1.38 Georgia0.96 Azerbaijan1.86 Kyrgyzstan3.80 Tajikistan3-5 Turkmenistan4-5 Land-rich countries Ukraine20 ha Russia40 ha “The Curse of Smallness” 9

… And yet growth is faster in countries that have more land in individual use 10

Russia: Faster growth in regions with more land in individual use 11

Four approaches to raising rural incomes for smallholders: my conjectures Increases in productivity (output per unit of land or per head of livestock) – intensive approach (advisory services, government supported R&D, ownership incentives) Increases in endowments (land, livestock, machinery, fertilizer) – extensive approach (important role for land markets) Increases in commercialization: improved access to market channels (service cooperatives) shift to higher value-added products (advisory services) Diversification across agricultural products (crops, livestock) and into non-agricultural activities in rural areas (entrepreneurship) 12

Effect of land reform: farm size, income, wellbeing 13

Income and per capita income increase with farm size Tajikistan (TajLSMS 2003)Uzbekistan (WB 2006) 14

Income increases with farm size across different org forms: household plots and farmers in Uzbekistan Family Income Income per one family member Farmers Dehkans Income of family, thousand sum Plot, hectare Farmers Dehkans Income per one person, thousand sum Plot, hectare Source: 2007 survey of dehkans and farmers, MinAg, Tahlil, and Mashav 15

Family income and well-being increase with farm size Georgia Household Survey 2009: income and farm size Azerbaijan WB survey 2003: well- being and farm size 16

Wellbeing increases with farm size: Tajikistan Level of wellbeing HH plots (ha) Family dehkan farms (ha) Low0.58 Medium1.010 Comfortable2.310 Source: May 2011 PPCR surveySource: 2008 FAO survey 17

Relative income level rises with farm size Above average in the village AverageBelow average in the village Cultivate land? Yes (100%)39%55%6% No (100%)23%57%20% Mean cultivated, ha12109 Animals, st. head Source: USAID/WB Taj survey

Effect of land markets: Leasing increases farm size and income Without leasingWith leasing Household plots, ha0.720 Family dehkan farms, ha3.228 Family income, somoni Per capita, somoni2527 Source: land FAO Taj survey 2008; income Taj LSMS

Commercialization: income, wellbeing, farm size 20

Commercialization increases household income ($/year) Armenia Azerbaijan 21

Moldova 2000 Georgia 2003 Commercialization increases family income 2 ha 1 ha 22

Income and wellbeing rise with commercialization Tajikistan (2011 PPCR)Uzbekistan (2007 UNDP) 23

Commercialization increases with farm size 24

Households sell: Commercialization increases with farm size Armenia, AzerbaijanGeorgia 25

Households sell! Milk in Uzbekistan More produced, more sold …but sales channels are underdeveloped Activities Milk selling farms (“sellers”) 36% Share of output sold by “sellers” 60% (1600 kg) Sale channels: Neighbors, friends 53% Market (direct) 36% Middlemen 33% Source: 2007 UNDP Uzb survey 1.1 cows 1.2 cows 1.5 cows 1.9 cows 26

Factors increasing family income (Tajikistan) Positive effect of capitals FactorsEffect Human capital Family sizе+ Age of HH head+ Years of schooling+ Physical capital Plot size+ HH leases land+ HH has machinery+ Effect of land leasing Without leasing With leasing Household plots, ha Family dehkan farms, ha Family income, somoni Per capita, somoni2527 Source: Taj LSMS

Diversification reduces risk and increases income 28

Diversification: standard tool to reduce risk and vulnerability Diversification of income sources Wage jobs outside agriculture Entrepreneurial activities: Processing Non-agricultural cottage industries Business development Diversification of crop mix Less monoculture (cotton/wheat) More horticulture (vegetables, fruits) Ideal for home processing: canning, jams, dried fruits 29

Rural families typically diversify their income sources… … and diversification increases family income Source: 2006 rural employment survey, Russia (Lerman et al., Journal of Peasant Studies, 2008) 30

Rural families still highly dependent on farm income: must diversify 31

In Russia, rural family income is now mainly derived from non-ag activities Source: data from 2006 AFE survey of 800 rural families (see “Rural Employment and Family Incomes in Russia,” 102nd EAAE Seminar, Moscow, May 17-18, 2007). 32

Summary: The benefits of restructuring for the rural population More land to smallholders Higher well-beingHigher commercialization 33

Policy directions to implement the four approaches to higher incomes Endowments: Emphasize land distribution to family farmers: starting point for increasing rural incomes Productivity: Support agricultural R&D, extension, and veterinary services (public goods to improve yields and productivity) Commercialization: Create favorable conditions for farm sales by smallholders (infrastructure: transport, markets, service cooperatives; remove administrative constraints) Diversification: Encourage other entrepreneurial activities (training and information, credit breaks, streamlining legislation) 34

The entrepreneurial spirit is above all policy measures: can it be cultivated? 35