LEIBNIZ INSTITUTE OF AGRICULTURAL DEVELOPMENT IN TRANSITION ECONOMIES

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LEIBNIZ INSTITUTE OF AGRICULTURAL DEVELOPMENT IN TRANSITION ECONOMIES Agricultural Transitions along the Silk Road April 5, 2016

Land Reform in Transition: The Effect on Kazakhstan s Land and Credit Markets Vasyl Kvartiuk, Martin Petrick IAMO Agricultural Transitions along the Silk Road April 5, 2016 Almaty, Kazakhstan

Introduction 200 Land Reforms in the CIS: 150 o Between 1990 and 2000 145 million ha were transfered in private ownership; 75 years 100 10 years o However, the extent of reforms varies greatly: 50 30 years o Land sales are legally limited: Ukraine, Belarus; 0 CIS Mexico Brazil o Land sales legally allowed: Moldova, Kazakhstan; o Kazakhstan implemented a set of liberal land reforms in 2003-2005. www.iamo.de 4

Introduction The aspirations of liberal land reforms: o Efficiency improvements; o Better access to land for the poor; o Land as a collateral for credit access. However, transition context is known for: o Transaction costs; o Risk associated with vague property rights; o Thin land markets Land rental markets may initiate land flows and provide access to land for undercapitalized farmers (Sadoulet, Murgai & Janvry, 2001; Deininger & Binswanger, 2001). www.iamo.de 5

Introduction Kazakhstan is an interesting natural experiment to observe the effect of reforms on land rental and credit markets. o Law on Land 1995: o Conditional land shares ; o Short-term and permanent tenancy; o Sub-leasing was possible. o Land Code 2003 (implemented in 2005) o Short-term and permanent tenancy and private ownership recognized; o Sub-leasing was outlawed; o No land distribution. o Individual farms, households, and corporate farms co-exist; www.iamo.de 6

Research Questions How did land reforms affect land rental markets? What are the implications of the reform for credit markets? www.iamo.de 7

Theory Modelling farmers decisions to participate in land rental market based on Yao (2000), Vranken & Swinnen (2006), and Deininger & Jin (2005): o Utility maximization framework; o A farm is more likely to rent in if o Land endowment is smaller; o Rental payments and transaction costs are lower; o Marginal cost of labor supervision is lower and credit constraint less strict; o Marginal productivity of land is high (agricultural ability, nature of agriculture, climatic conditions, etc.) www.iamo.de 8

Theory Credit-rationing framework (Boucher et al. (2009); Petrick, Oshakbaev, & Wandel (2014)) o Quantity rationing (collateral or cash flow constraints); o Price rationing (interest rate); o Transaction cost rationing (bureaucratic procedures); o Risk rationing (riskiness of returns). One of central reform aspirations: using owned land as a collateral for credit access. www.iamo.de 9

Empirical Strategy Data: o Two waves of survey conducted in 2003 by WB and in 2012 by IAMO; o Akmola and Almaty region; o In total 600 households, 341 individual farms and 69 commercial farms were interviewed; o Logit, Tobit models along with descriptive statistics and non-parametric regressions. www.iamo.de 10

Results: Land rental markets Meaning of land ownership in 2002: o Conditional land shares; o Permanent land rental; Meaning of land ownership in 2011: o Full ownership (permanent land rental automatically recognized as ownership after reforms); o Conditional land shares as shares in agricultural enterprises; o Permanent land rental. www.iamo.de 12

Dynamics of farms distribution by tenancy status and farm type 100% 80% 60% 40% 20% 0% 100% 80% 60% 40% 20% 0% 100% 80% 60% 40% 20% 0% Almaty region A B C D E F Almaty region A B C D E F Almaty region A B C D E F 2003 2011 A landless who don t rent in; B landless who rent in; C own land and don t rent in or out; Households Individual Farms Agricultural Enterprises www.iamo.de 13 60% 40% 20% 0% 100% 80% 60% 40% 20% 0% 80% 60% 40% 20% 0% Akmola region A B C D E F Akmola region A B C D E F Akmola region A B C D E F D own land and rent in; E renting in and out; F own land and rent out.

Results: Land rental markets Who do individual farms rent in land from? www.iamo.de 14

Results: Land rental markets Dynamics of land tenure composition among individual farms. Year Total owned/ Total used Total purchased/ Total used Total CLS/ Total used Rented land/ Total used 2002 91.1% 0.6% 89.5% 5.8% 2011 51.4% 2.7% 46.1% 54.4% www.iamo.de 15

Results: Land rental markets Lowess smoothers of the probability of renting in for individual farms. Source: Authors elaboration based on World Bank and IAMO Surveys. www.iamo.de 16

Results: Land rental markets Renting in behavior by individual farms Tobit Thousand ha rented in Tobit Thousand ha rented in AGE (manager s age) 4.060 (0.877) 18.762 (0.456) EDU (manager s education, 1 to 8 scale) 406.035 ** (0.013) 495.109 ** (0.013) LAND (owned land, ha) -0.783 (0.263) -6.704 *** (0.001) LAND 2 0.000 (0.732) 0.000 (0.989) REGION (Almaty 1, Akmola 0) -1606.457 *** (0.006) -2381.391 *** (0.000) YEAR (2011 1, 2002 0) 1238.716 ** (0.046) 1859.305 (0.565) LIVESTOCK (livestock index) 3.779 *** (0.001) 5.810 *** (0.001) ASSETS (non land assets, bln KZT) 0.000 (0.963) 0.001 (0.189) AGRIEDU (special ag. education 1, none 0) -637.434 (0.110) -397.153 (0.348) FARMAGE (number of years since establishment) 35.713 (0.441) 14.134 (0.760) COOP (joint activities with other farms) -703.079 (0.202) -596.789 (0.234) PROFIT_HA (profit per ha) -0.153 (0.300) -0.025 (0.861) YEAR*LAND 23.594 *** (0.001) YEAR*EDU -492.295 (0.337) www.iamo.de Observations 267 267 18

Results: Credit markets Lowess smoothers of a probability of making investments using loans for individual farms. Source: Authors elaboration based on World Bank and IAMO Surveys. www.iamo.de 19

Results: Credit markets Dynamics of perceived credit rationing over a decade. Individual farms No problems Price rationed Transaction costs rationed Quantitiy rationed Risk rationed 0% 10% 20% 30% 40% 50% 2002 2011 Source: Author s elaboration based on World Bank and IAMO Surveys. www.iamo.de 20

Results: Credit markets Making investments using loans by individual farms Logit, Dummy for having made investments (odds ratios) Logit, Dummy for having made investments (odds ratios) AGE (manager s age) 0.941 * (0.066) 0.944 * (0.057) EDU (manager s education, 1 to 8 scale) 1.190 (0.471) 1.124 (0.597) LAND (owned land, ha) 1.000 (0.965) 0.999 (0.311) LAND 2 1.000 (0.766) 1.000 (0.562) REGION (Almaty 1, Akmola 0) 0.769 (0.433) 0.587 (0.431) YEAR (2011 1, 2002 0) 7.758 *** (0.006) 10.267 (0.139) LIVESTOCK (livestock index) 1.002 * (0.075) 1.007 ** (0.020) ASSETS (non land assets, bln KZT) 1.000 (0.539) 1.000 * (0.089) AGRIEDU (special ag. education 1, none 1.093 (0.640) 1.218 (0.701) 0) FARMAGE (number of years since 1.000 (0.141) 1.000 (0.431) establishment) COOP (joint activities with other farms) 0.825 (0.739) 0.903 (0.878) PROFIT_HA (profit per ha) 1.000 (0.646) 1.000 (0.307) YEAR*LAND 1.005 (0.266) YEAR*ASSETS 1.000 *** (0.006) YEAR*LIVESTOCK 0.977 ** (0.033) Constant 0.093 (0.280) 0.083 (0.232) Observations 267 267 www.iamo.de 21

Conclusion o Reforms were a step in the right direction but not sufficient; o Individual farms tend to rent in more land after the Reforms (more so in Akmola region because of nature of agriculture); o Connection between the Reforms and flows of land to more educated producers is vague; o Land as a collateral did not improve access to credit market. www.iamo.de 22

Implications o In transition context land rental markets can have important efficiency and equity implications; o Land sales markets should be stimulated (higher rent, reduced bureaucratic burden, etc.) o Credit markets may need to be stimulated by other instruments www.iamo.de 23

Land Reform in Transition: The Effect on Kazakhstan s Land and Credit Markets Thank you for your attention! Questions? Comments? Save the date and contribute! IAMO Forum 2016 Rural Labor in Transition: Structural Change, Migration and Governance 22-24 June 2016 Halle (Saale), Germany www.iamo.de/forum/2016 www.iamo.de 24