Collective versus Individual Farms

Collective and State farms, and their variant known as production co-operatives, almost always have been created by land reform movements. They have been based either on State ownership of the land or a very restricted form of group ownership by those who work the land. They did not evolve out of existing communal forms of production but in effect they have been imposed on the beneficiaries of the reforms by governments, with perhaps the only exception being the kibbutzim of Israel. Their formation generally has been motivated by a belief in the existence of economies of scale in farming, a pursuit of socio-economic equity within the rural population, and sometimes by an ideological bias against private property.

As economic enterprises, most collective farms were born with a number of handicaps. Usually, their members were denied the right to mortgage their assets or to sell or rent out part of them. They also were legally denied the option of obtaining production finance from private banks,88 and all of their agricultural advisory services had to be supplied by the government. To offset these disadvantages, they usually have been heavily subsidized, especially through the provision of machinery and equipment, along with cheap credit from State institutions.

Whatever their benefits and constraining circumstances, their performance almost always has been weak in comparison with private farms. The experience of El Salvador with collective farms was evaluated after several years of operating experience and contrasted with the performance of small, individual farms adjudicated to former renters. The results of the evaluation are illustrative of the experiences of many countries with collective farms:

Among the cooperatives [i.e. collective farms] the land cultivated in collective form has steadily diminished and, to the contrary, the land cultivated in individual form, still prohibited by the Basic Law (Decree No. 153), has increased to almost 25 000 hectares, which represents almost 40% of the total of the lands

87. Ruth Meinzen-Dick, 'Peer Review of Land Policy and Administration: Lessons Learned and New Challenges for the Bank's Development Agenda', mimeo prepared for the World Bank, International Food Policy Research Institute, Washington, DC, USA, 2001.

88. The Honduran Agrarian Reform Law of 1975 was typical in this respect. It said, in Article 96, 'The lands adjudicated in conformity with this law cannot be used as collateral'. This clause and several others were eliminated or changed in the 1992 reforms.

cultivated in collective form. Likewise, the number of non-member campesinos who cultivate land rented [illegally] from the cooperatives continues increasing. In summary, the land cultivated in collective form fell from 91 361 ha in 1980/81 to 63 049 ha in 1986/87. . ..

Since the first evaluation of the cooperatives .. . carried out... in 1983/84, the amount of cultivable land which is unused has increased from 16000 to 20500 ha and the land classified as natural pastures (which represent an under-utilization of the land resource) have risen from 34000 ha to 51 000 ha...

In spite of the fact that [those who received rights to small plots they had been working as renters] received lands markedly inferior in quality to those of [the cooperatives], they managed to increase their yields relative to those of the cooperatives ... in three of the four basic grains. . .. The average size of the plots [received by the former renters] remained very small, at 1.05ha, while the same figure is 5.46ha [per beneficiary in the cooperatives]. Nevertheless, the net income per beneficiary is only 7% less [for the former renters] than for [the cooperative members].89

Michael Martin and Timothy Taylor conducted a survey of 28 collective farms of the agrarian reform in the grain-growing departments of Olancho and El Paraíso in Honduras. Among their findings were the following:

.. . most cooperatives have been financial failures. . . . One of the main institutional problems confronting farmers in the agrarian reform sector has been the requirement to work in a collective manner. Farmers complain that the intensity of work suffers on collective parcels because some farmers feel no incentive to work as hard as they would on individual parcels. No group in the survey works completely collectively. Most have apportioned at

The author visited a collective farm in the Department of Puno, Peru, in the late 1980s. The members and their livestock were undernourished, the stables were in bad repair, and their one breeding bull was too old to perform his duties. They complained that although the farm had far more land than was necessary to support their existing herds, legally they could neither sell nor rent part of the land, which was what they most wanted to do in order to raise capital to improve the operation on the remaining land.

least some of the adjudicated lands to cultivate individually. Some have abandoned collective production altogether.90

In Peru, the collective farms of the agrarian reform in the highlands, which were formed out of expropriated haciendas, collapsed spontaneously during the latter part of the 1980s, after many years of severe economic difficulties. In a reversal of the normal historical trend, most of their lands were absorbed by the indigenous communities which had a customary system containing communal lands and individual plots operated under rights of usufruct. Accordingly, the agrarian reform law which had created the cooperatives was repealed and a new agrarian code was developed in its place. The new code is more market-oriented and at the same time respects customary rights.

In the case of China, the first stages of the agrarian reform on mainland China created individual owner-operated plots, and only subsequently were associative forms of farming developed and progressively forced into the mold of collective farms. That experience is summarized by Niu Ruofeng and Chen Jiyuan and is worth reviewing for the light it sheds on the relative efficiency of collective and individual farms:

89. Roger D. Norton and Mercedes Llort, Una Estrategia para la Reactivación del Sector Agropecuario en El Salvador, FUSADES, San Salvador, El Salvador, October 1989, pp. 13 and 14 [author's translation].

90. Michael Martin and Timothy G. Taylor, 'Synopsis of Human Capital Research in Olancho and El Paraíso, Honduras', mimeo, University of Florida, Gainesville, FL, USA, February 1990, pp. 1 and 13.

The land reform was completed in mainland China between 1950 and 1952. This reform abolished the feudal system, confiscated the redundant land of landlords, and distributed it among landless peasants, or to those peasants with insufficient land [free of charge]. . . . thus the control over this land shifted to the tillers. .. . about 300 million peasants in mainland China acquired 50 million ha and other means of production. In addition, the new owners were freed from all debts in terms of rent and usurious borrowings.

Small private farms . .. became almost the only management form after the agrarian reform. .. . Agriculture .. . destroyed during the protracted warfare prior to 1949, recovered and was quickly revitalized. Total output rose by 14 percent annually in the early 1950s.

The government encouraged small farmers to create mutual aid groups (MAGs) and elementary agricultural producers' cooperatives (EAPCs) to overcome some of the difficulties faced by individual farmholders, such as lack of farm implements and draught animals.. . . MAGs were based on private ownership. Farm households helped each other with manpower, farm tools and draught cattle in fieldwork, but they could decide what to produce on their own land. .. .

[Subsequently] the socialist transformation of agriculture was conducted and, by the end of 1956 . . . had on the whole, been realized. A total of 740 000 advanced agricultural producers' cooperatives (AAPCs) were set up nationwide, covering over 90 percent of all farm households.. . . AAPCs were characterized by a fully collective management system and two-level accounting (at the cooperative and team levels). The land, draught animals and large farm implements were collectively owned. The private ownership of the cooperative members over these means of production was aban doned. . .. Their income came only from the collectives according to their man-days of labor, and rights to income based on their share of the assets assigned to the cooperative were abolished.

The reorganization of the EAPCs into AAPCs reached a high tide in the summer of 1955 and the growth rate of agricultural production began to slow down. . ..

The people's communes were created country-wide in the summer and autumn of 1958 . .. There were no economic incentives to stimulate the enthusiasm of farmers. In general, agricultural production grew slowly during the 20 years of communes, resulting in stagnation of the rural economy, per capita output and consumption levels. . .. agricultural production dropped sharply during the first three years of the commune era. . .. Farmers suffered most severely in these

years.91

Similar results were found through the estimation of a production function for Chinese agriculture by Justin Yifu Lin:

The findings indicate that the dominant source of output growth during 1978-1984 was the change from the production-team system to the Household Responsibility System. . . . many policymakers and scholars, not only in China but also in many other developing countries, consider collective farming an attractive method for land consolidation and productivity improvement. However, my findings suggest that the household farm has advantages of its own. Since the household farm leads to a more productive use of inputs, it may be a more appropriate institution for the growth of agriculture in developing countries, including

China.92

91. Niu Ruofeng and Chen Jiyuan, ' "Small farmers in China and their development', in G. H. Peters and B. F. Stanton, 1992, pp. 621-624.

92. J. Y. Lin, 'Rural reforms and agricultural growth in china', American Economic Review, March 1992, 82(1), pp. 47-48.

Table 5.1 Shares of land ownership, assets and value added (in %) by tenure type94 in Hungary

Feature

Co-operative

State farms

Individual

farms

units

Land

76.2

14.3

9.5

Farm assets

64.6

21.2

14.2

Value added

40.1

8.9

44.4

While adverse pricing policies also influenced the agricultural sector's performance during the collectivized period in China, the consensus is that the land tenure regime was the principal obstacle. The World Bank stated that much of the success of Chinese agriculture since 1978 was due to the promotion of individual land rights through a system of explicit or implicit long-term leases.93

In Hungary, too, a direct comparison of the performances of collective and individual farms favors the latter. Ferenc Fekete, Tamas Fenyes and Jan Groenewald have presented striking data for the year 1989 which showed the shares of ownership of land and of farm assets, and of agricultural value added, by type of tenure (Table 5.1).94 Collective farms failed also in Ethiopia in the period 1978-1985. According to research by Klaus Deininger, those collective farms ('cooperatives'):

received modern inputs and credit at subsidized rates, paid less head-taxes than independent farmers, were favored recipients of State extension services and could impose labor (corvee) requirements on surrounding peasant communities. Despite these advantages, their productive performance remained dismal: Yields for the five main cereals were consistently lower than yields obtained by smallholders. .. . Once government's difficulties forced it to loosen its grip on the cooperative sector in 1990, virtually all production cooperatives were rapidly disbanded. . ..

State farms were even more favored in terms of resource allocation. Although comprising only 4% of total area, they received 76.5% of chemical fertilizers, 95% of improved seeds, and 80% of the available credit. ... In contrast to an average farm size of 0.7ha in the family farm sector, the average area per worker in the State farm sector was 15 ha . .. The list of problems encountered by such farms is long, including slow centralized decision-making and high overhead costs, technical inefficiencies, use of inappropriate technologies . . . and severe motivational difficulties, attributed mainly to inappropriate bonus payment schemes and the inability of managers to dismiss workers. .. . Average annual losses incurred by the State farm sector in the 1978-1985 period amounted to $40 million .. . and it is agreed with the new government that abandonment, breakup, and liquidation of the remaining assets are the only economically feasible options.95

Deininger's paper reviews similarly disappointing performances of collective farms in Viet Nam, China, Cuba, Nicaragua, Peru and Israel. (In the case of the latter, the main economic problems with the kibbutzim have been the very large subsidies required to maintain them, and their high degree of indebtedness.) Poor performance also has characterized the production co-operatives in Cameroon, where it was observed that State management did not represent the interests of the

93. The World Bank, From Plan to Market, World Development Report 1996, The World Bank, Washington, DC, 1997, p. 58.

94. Ferenc Fekete, Tamas I. Fenyes and Jan A. Groenewald, 'Problems of Agricultural Restructuring in South Africa: Lessons from the Hungarian Experience', in Margot Bellamy and Bruce Greenshields (Eds), Issues in Agricultural Development: Sustainability and Cooperation, IAAE Occasional Paper No. 6, International Association of Agricultural Economists, Aldershot, UK, 1992, p. 232.

95. Klaus Deininger, 'Cooperatives and the Breakup of Large Mechanized Farms: Theoretical Perspectives and Empirical Evidence', World Bank Discussion Paper No. 218, The World Bank, Washington, DC, USA, 1993, pp. 33-34.

farmers.96 In light of their unsatisfactory results, the tenure status of collective farms, and lands on which cultivators work as tenants of the State, also has been transformed radically in Mexico, Chile and El Salvador, giving more scope to individual land ownership.

In summary, the empirical evidence on the form of collectivized farms is strongly negative. In marked contrast, the agrarian reforms of Japan, the Republic of Korea and Taiwan, which gave land to the tillers and which established small owner-operated farms, were much more successful in raising productivity. According to Platteau, the experience of South Korea:

... is a particularly instructive case to study, precisely because it has largely succeeded in achieving both equity and efficiency objectives not only in the short but also in the long term. ... it created a genuinely egalitarian base in the agricultural system. Its main thrust was the replacement of tenancy by owner cultivation and not a radical redistribution of land. ... the main impact of the reform was to affect production incentives positively as well as to widen the 'absorptive capacity' of the agricultural system for investment and technical change.97

Nonetheless, there have been exceptions, for example, in the case of some oil palm cooperatives in northern Honduras. Binswanger et al. point out that the conditions for successful collective farms, or production co-operatives, include economies of scale and a requirement for quick and well-co-ordinated movement of the product to port or market. Therefore, they suggest that oil palm and tea are especially amenable to plantation operations, and hence they are candidates for successful cultivation under production co-operatives or collective farms (Binswanger et al, 1995, p. 2696).

The widespread failures of collective farms, under their several variants, may be attributed principally to the following factors:

(i) Lack of ownership of the property and hence the inability of the farm members to exercise the normal options of sale, rental and mortgaging; sometimes, sale or rental of only part of the property would be necessary to maintain the economic viability of the unit.

(ii) A pattern of State interference in the management of the units, so that decisions often were not made on grounds of sound management of a farm enterprise. In the reforms of the Mexican ejidos, 'the legal foundation for government involvement in ejidos was dismantled, thus bringing an end to the much criticized bureaucratic paternalism of the State'.98 In the case of Cameroon, 'State control of [production] co-operatives has reached the point where they are run by government officials in an attempt to keep political power centralized and to use co-operatives as a source of patronage distribution'.99

(iii) The lack of an adequate internal structure of incentives to encourage farmers to work as diligently on collective plots as on their own. This is a fundamental deficiency, and consequently the only area in which the collective units have been able to be competitive with private units is in plantation agriculture, which in any case is operated on a basis of wage labor.

(iv) In some cases, incompetent management of the collective, either because the managers were political appointees without the appropriate qualifications or because of corruption.

96. Joseph Ntangsi, 'Agricultural Policy and Structural Adjustment in Cameroon', in G. H. Peters and B. F. Stanton, 1992, p. 272.

98. State of Food and Agriculture 1993, Food and Agriculture Organization of the United Nations, Rome, 1993, p. 138.

In addition, the paternalistic manner in which many agrarian reform production co-operatives have been managed by the State has given rise to other kinds of problems which cannot be solved simply by restructuring the enterprises. For example, the management of co-operatives often has given rise to an inappropriate attitude towards credit repayment on the part of farmers, as illustrated in the case of Zambia:

.. . most cooperatives were communal production units but. .. were soon defunct. . .. While cooperative marketing is still practiced in Zambia, the idea of communal production units has largely been dropped. It proved to be an extremely expensive experiment because very few of the substantial loans for items such as tractors were ever repaid. The idea that loans do not need to be repaid became widely accepted amongst farmers and has continued to undermine efforts to develop viable credit programs.100

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