Armenia's Private Agriculture: 1998 Survey of Family Farms

54 Pages·1999·0.18 MB·English

EU Phare ACE and The World Bank/ECSSD/DECRG
A Working Paper Series on
Micro Economic Analysis of Rural Households
and Enterprises in Transition Countries
Working Paper No. 2
November 1999
Armenia’s Private Agriculture:
1998 Survey of Family Farms
Zvi Lerman
Mark Lundell
Astghik Mirzakhanian
Paruir Asatrian
Ashot Kakosian
This working paper series is a joint effort of several organizations: the World
Bank’s Environmentally and Socially Sustainable Development unit (ECSSD) and
Development Economics Research Group (DECRG), the EU Phare ACE research
projects “Farm Restructuring in Central and Eastern Europe: Causes, Efficiency
and Policy Implications (1997-1999)” and “Micro-Economic Analysis of Farm
Restructuring in Central and Eastern Europe” (1999-2000), and a group of
academic and research institutions in the EU and CEE-FSU countries.*
The objective of the series is to publish and distribute micro-economic studies of
rural households and enterprises in transition countries based on data collected
through farm- and household-level surveys.
The findings, interpretations, and conclusions are the authors’ own, and should
not be attributed to the World Bank or any World Bank member country.
Submissions to the series should be sent to Erik Mathijs, Policy Research Group,
Department of Agricultural and Environmental Economics, Katholieke Universiteit
Leuven, W. de Croylaan 42, 3001 Leuven, Belgium (tel. [phone] – fax
[phone] – e-mail: [email protected]).
The working papers can be downloaded from two sites:
http://www.agr.kuleuven.ac.be/aee/clo/mart.htm
http://wbln0018.worldbank.org/ECSSD/ECSSDPartner_DocLib.nsf
*These institutions include:
• Research Institute of Agricultural Economics (VUZE), Prague, the Czech Republic;
• Research Institute of Agricultural Economics (VUEPP), Bratislava, Slovakia;
• Slovak Agricultural University, Nitra;
• Institute of Agricultural Economics, Bucharest Romania;
• University of World and National Economics, Sofia, Bulgaria;
• University of Athens, Greece;
• Deutsche Gesellschaft für Technische Zusammenarbeit, GTZ Office, Tirana, Albania;
• Katholieke Universiteit Leuven, Belgium.
Preface
ECSSD is constantly monitoring the progress of land reform and farm restructuring in the
former socialist countries in Europe and Central Asia. One of the main tools is farm-level surveys
of the rural population, which are regularly conducted to provide a comprehensive coverage of the
farm sectors in the region. These farm-level surveys generate unique insights into the micro
functioning of farms in transitional economies, and are especially valuable in view of the inadequacy
of the traditional statistical data-collection procedures in the new emerging environment. The survey
results are analyzed and published to provide the World Bank and the local governments with
relevant and timely empirical information for policy making. Previous farm-survey publications
cover Russia, Ukraine, and Moldova. Analytical reports for Georgia and Turkmenistan are
forthcoming in the near future. The present report provides a detailed analysis of the 1998 farm
survey conducted in Armenia.
The survey was sponsored by the World Bank and implemented by a professional team from
the Department of Statistics of the Republic of Armenia in Yerevan. The local team, including
Astghik Mirzakhanian, Paruir Asatrian, and Ashot Kakosian, were responsible for questionnaire
development, sample design, and field interviews. They also collaborated to produce a draft
Russian-language report with a preliminary analysis of the survey data. Database design and data
entry were supervised by Gurgen Azatian. Levon Aghamian, head of the World Bank Agricultural
Support Project in Yerevan, provided local coordination. On the part of the World Bank, Mark
Lundell acted as task manager, Sharon Holt participated in questionnaire development, and Zvi
Lerman provided overall scientific guidance with design and analysis. Csaba Csaki, Nilufar
Engamberdi, Norval Stanley Peabody, and Laura Tuck commented on earlier drafts of the report
during the peer review process in the World Bank. This version of the report was written by Zvi
Lerman.
iii

Table of Contents
Preface ..................................................................... iii
Summary and Conclusions .................................................... ...1
1. Introduction ................................................................7
2. Overview of Armenian Agriculture: 1990-1997 ....................................9
3. Land Use and Irrigation .......... ............................................13
4. Production ................................................................21
5. Commercial Orientation ..................... .................................27
6. Farm Resources ............................................................31
7. Farm Finances ................................................. ............37
8. Social Issues ...............................................................45
Figures in Text
Figure 1: Gross Domestic Product ...........................................10
Figure 2: Gross Agricultural Product .........................................10
Figure 3: Farm Size Distribution ............ .................................13
Figure 4: Frequency of Irrigated Farms by Marz ..................... ............16
Figure 5a: Structure of Irrigated Holdings: Number of Farms ........... ............16
Figure 5b: Structure of Irrigated Holding: Area of Land ................ ............17
Figure 6: Perceived Demand for Water at Various Prices .............. ............20
Figure 7: Farm Specialization ...............................................21
Figure 8: Distribution of Sales Volume by Channels .............................30
Figure 9: Relationship Between Farm Size and Farm Labor ........... ............35
Figure 10: Distribution of Outstanding Farm Debt ................................37
Figure 11: Structure of Household Income ......................................42
Figure 12: Changes in Family Well-Being Between 1990 and 1998 ..................48
v
Tables in Text
Table 1: Sample Structure ..................................................7
Table 2: Structure of Land Ownership: January 1,1997 ...........................9
Table 3: Cropping Pattern and Livestock Herd: 1990-1997 ........................9
Table 4: Change in Harvest and Cropped Area between 1990 and 1997 .............11
Table 5: Average Farm Size With and Without Land Leasing .....................13
Table 6: Structure of Land Holdings by Tenure .................................14
Table 7: Average Farm Size With and Without Irrigation .........................16
Table 8: Yields on Irrigated and Unirrigated Land ..............................17
Table 9: Farmers’ Assessment of Irrigation System in the Village ..................18
Table 10: Demand for Water Elicited by Hypothetical Questions about Prices .........19
Table 11: Profile of Farms With and Without Crop Production .....................21
Table 12: Cropping Pattern for Farms With and Without Irrigation ..................22
Table 13: Frequency and Number of Livestock in Household Farms .................23
Table 14: Use of Different Kinds of Animal Feed ................................24
Table 15: Payment for Grazing Rights in 1997 ..................................24
Table 16: Non-Agricultural Business Activities .................................25
Table 17: Distribution of Output Between Different Uses for Farms With and Without
Irrigation ........................................................27
Table 18: Proportion of Farm Output Consumed and Sold by Households in the Sample .28
Table 19: Proportion of Farm Output Consumed and Sold by Producers Who Sell Some of
Their Output .....................................................28
Table 20: Main Sales Channels ..............................................29
Table 21: Marketing Difficulties .............................................29
Table 22: Purchased Inputs and Supply Channels ................................31
Table 23: Difficulties with Purchased Inputs ....................................32
Table 24: Access to Farm Machinery..........................................33
Table 25: On-Farm Storage Capacity .............................. ............33
Table 26: Areas of Cooperation Among Farmers ................................34
Table 27: Labor on Household Farms ........ .................................35
Table 28: Frequency of Different Forms of Collateral ................. ............37
Table 29: Actual and Planned Investment of Family Farms ........................39
Table 30: Structure of Farm Revenue for an Average Farm in 1997 ..................40
Table 31: Structure of Production Costs .......................................41
Table 32: Net Cash Income of Households in the Sample .............. ............42
Table 33: Sales, Costs, and Labor for Farms of Different Sizes .....................43
Table 34: Estimation of a Cobb-Douglas Type Production Function .................44
Table 35: Structure of Family Income from Non-Farm and Non-Business Sources ......45
Table 36: Nutrition of Rural Families .........................................46
Table 37: Family Income and Diet ............................................47
vi
Armenia’s Private Agriculture: 1998
Summary and Conclusions
Agriculture in Armenia was fully privatized in 1991-1992. Since then, practically all land
is cultivated by 320,000 small family farms, averaging between 1.5 ha and 2.0 ha of arable land. Yet
nearly one third of arable land and virtually all pastures remain in state ownership, and this land is
available to individuals through leasing. Traditional statistics designed in the Soviet era of large-
scale farm enterprises are inadequate for the new environment with smallholder agriculture. To gain
insights into the micro functioning of family farms in Armenia, the World Bank conducted in
February-March 1998 a farm-level survey of 1,500 farm households in 75 villages randomly
selected in all 11 marzes (provinces). This section summarizes the main findings of the survey.
Land Use: Leasing from the State is a Tool to Adjust Farm Sizes
The mean farm size in the survey is 2.2 ha, divided into 3 parcels. About 10% of farms
control more than 5 ha, but half the farms do not exceed 1.5 ha. Arable land and orchards account
for 83% of total holdings; the rest is hay meadows and pasture. About 15% of privately owned land
in the survey is not cultivated. Households with underutilized land have significantly larger
endowments, while the family size is practically the same. This suggests that farms with
underutilized land have a larger proportion of poor quality land, which cannot be profitably
cultivated and is therefore left idle.
No buying-and-selling of land is reported, and leasing of state land is the only mechanism
practiced for the adjustment of farm sizes. Land leasing is reported by 15% of respondents. The
average size of farms with leased land is 3.2 ha, compared with only 2.0 ha for farms that do not
lease. The entire difference in farm size is leased land, as the own land component is on average the
same for all farms. Land leases are primarily taken on hay meadows and pastures, which make up
the majority (83%) of state-owned lands available for leasing. Land is leased primarily through the
village council for terms between 1-3 years.
Irrigation Supports Higher Productivity and Profitability
Nearly 60% of farms in the survey have an irrigation network, which covers about half the
farm area (0.7 ha). The frequency of irrigation varies across marzes, depending on natural
conditions. Farms with irrigated land are much smaller than farms without irrigation: 1.4 ha
compared to 3.2 ha. Yet these farms generate almost 60% more sales per hectare than farms without
irrigation (for each combination of inputs and labor). The higher productivity of irrigated farms is
reflected in higher yields of all crops.
1
2 Armenia’s Private Agriculture: 1998 Farm Survey
Total water usage averages 5,200 cu.m per hectare, at a cost of 6 dram per cu.m. Rough
estimates suggest that the incremental value added from irrigation is between 9 dram and 18 dram
per cubic meter of water. The price of 6 dram per cu.m is thus not too high, and there is a
justification for raising the price substantially. Further analysis is required to establish regional
differences in benefits from irrigation and thus refine the price formula.
Despite the efficacy of irrigation, farmers allow themselves to run substantial arrears for
water charges. Only 45% of respondents paid their water bill in full. The rest paid less than half the
bill. The general payment discipline is difficult to improve, however, because most farmers in
arrears report no penalty for nonpayment.
Production: Diversified Agriculture with Increasing Role for Grain
Armenian farms are diversified operations that on average produce 5 commodities: 3
different crops and 2 livestock products. Three-quarters of farms produce both crops and livestock,
20% of farms specialize in crops without livestock, and only 2% of farms specialize in livestock
without any crops. One-quarter of farmers report various non-agricultural business activities,
including processing, mechanical and transport services, trade, and marketing intermediation.
Nearly 60% of cropped land is allocated to grain (mostly wheat and barley). Hay and grasses
for animal feed account for 20% of cropped area. The rest is under potatoes, vegetables, fruits, and
grapes. Among households with livestock (about 80% of the sample), the average household has 3
head of cattle, of which 2 are cows. Milk yields in Armenia are very low by Western standards:
1,200 kg of milk per cow per year. A possible reason for low milk yields is poor genetic stock, as
artificial insemination is used by only 2% of farmers. The main reason for not using artificial
insemination: the service is not available in the village.
Animals are mostly fed hay and graze mainly on communal pastures. Leasing of pastures
is a rare phenomenon. Because of heavy reliance on communal pastures, farmers express an
overwhelmingly negative opinion of the privatization of pastures: 74% of respondents are opposed
and only 9% support the suggestion.
Commercial Orientation: Sales Shifting to Private Marketing Channels
Despite their small size, the Armenian family farms are not pure subsistence operations.
Fully 80% of farms report sales of some farm product. On average, farms sell 30% of the output
(25% is sold for cash, 5% is bartered). The rest is consumed by the family or remains on the farm.
Farms with irrigation have a higher degree of commercialization, selling 38% of their output
compared with 22% for unirrigated farms. This is the result of the higher productivity of irrigated
farms, as reflected in higher yields and higher sales per hectare. Farmers reporting sales produce
more of each commodity that the average for all farms in the sample. The greater production volume
of these farms creates tradeable surpluses, after satisfying family consumption needs.
Three-quarters of farm sales go through private channels, specifically direct sales to
consumers and sales to private traders and commercial firms. State procurement and consumer
Summary and Conclusions 3
cooperatives are no longer a factor in sale of farm products. Processors provide a (marginal)
marketing channel only for grain and grapes. Own shops as an outlet for farm products are very rare
among Armenian farmers: a total of 7 respondents in the entire sample reported selling through an
own shop. Main obstacles to sale of farm products include difficulties with transport and delivery
to the market, as well as low prices received. Despite the conception of low prices, one-third of
producers report that it is difficult to find a buyer for their products.
Purchased Inputs: Private Individuals are the Main Source of Supply
The small Armenian farmers use purchased inputs and outside services on a fairly wide
scale. Purchase of fuel is reported by 70% of respondents; half the respondents purchase fertilizers,
seeds, and animal feed; one-third of respondents purchase plant protection chemicals. Veterinary
services and drugs are purchased by half the respondents. More than 60% of respondents purchase
mechanical field services to compensate for lack of own farm machinery.
Private individuals are the dominant source of supply for all farm inputs. State organizations
play a marginal role as suppliers, except for veterinary services. Commercial firms still do not play
an important role in input supply. High price of farm inputs is the main difficulty for farmers.
Availability of inputs is not a problem, and fully 20% of respondents state that they have no
difficulties with the purchase of farm inputs.
Farm Machinery: Access Through Cooperation and Rental
Although very few farmers own machinery, actual access to farm machinery is much less
problematic than suggested by low ownership numbers. While only 14% of farmers report that they
own farm machinery of any kind, nearly 70% use “machinery owned by others”, which ensures
access to mechanization for 80% of respondents. Joint use of machinery is reported as one of the
main forms of cooperation among farmers (19% of respondents). Rental markets for machinery and
machine services apparently exist in rural Armenia, and this provides strong evidence of how
functioning markets for equipment replace the traditional need to own farm machinery.
Labor: Reliance on the Immediate Family
Armenian farms are true family farms, relying on the pool of household members for labor
resources. The total labor force of an average farm is 3.7 people, of which 3.0 are immediate family
and another 0.5 are extended family (relatives and friends). About 12% of farms hire labor (mainly
seasonal workers). The average number of workers on farms with hired labor is 6, compared to 3.4
on farms without hiring.
Debt and Credit: Informal Lenders Instead of Commercial Banks
Two-thirds of respondents have outstanding debt (mostly small amounts between 10,000 and
55,000 dram, or $20 to $110). Half the respondents borrowed money for farm operations in 1997
(median borrowing less than $200). The borrowing is not restricted to short term. One-third of
respondents report borrowing money for more than one year. Relatives and friends are the main
4 Armenia’s Private Agriculture: 1998 Farm Survey
source of borrowing (84% of those who borrowed in 1997), and loans from this source are generally
interest-free. About 13% borrowed from private individuals who lend money at an interest. The role
of standard commercial banks and the state in 1997 borrowing was negligible. Collateral is used
seldom, as friends and relatives do not require this form of protection. Only 14% of loans in 1997
were collateralized, with preference given to highly liquid collateral, such as gold, silver, and
jewelry. Since collateral is not an overriding concern, the ability to mortgage an official land title
is not appreciated.
Half the farmers expect that they will need to borrow in 1998. These are not the same
farmers who borrowed in 1997: 40% of those who borrowed in 1997 do not anticipate a need to
borrow in 1998. The situation is definitely not one in which farmers are permanently in debt. The
perceived demand for borrowing in 1998 is much greater than the actual borrowing in 1997: $1,000
compared to $200. The desired interest rate is 5% per month, half the actual rate paid in 1997. The
desired term is 12 months to 24 months, consistently with the term pattern in 1997.
Investment: Mainly Plans for the Future
Only 8% of farmers made some investment in their farm in 1997. The total amount invested
was 100,000 dram ($200) per farm, and most of it went to purchase of livestock, new household
construction and major household repairs, purchase of farm machinery, and new farms buildings.
More than one-third of farmers expect to make investments in the next two years. The median future
investment is 500,000 dram ($1,000). Major investment needs are purchase of livestock, purchase
of farm machinery, construction of new farm buildings, and new perennial plantings. Farmers
anticipate returns between 15% and 50% on their investment in the farm.
Half the respondents indicate that they expect to finance the investment through bank credits.
This is an unrealistic expectation given the extremely limited spread of bank lending to farmers.
Also the expected returns on investment are far from being sufficient to pay the interest rate charged
by commercial banks (around 10% per month).
Revenues and Costs: Consumption of Farm Products Overshadows All Other Sources of Income
The average revenue from sale of farm products in 1997 was 210,000 dram ($420), half of
it from crops. Most of the revenue was from cash sales, and only 10% derived from barter
transactions. After production costs and other farm expenses (labor, land tax, lease payments, water
and grazing charges), the average farm is left with net income of 36,000 dram ($70) from farming.
Family income from non-farming sources (salaries, pensions, allowances, and a small amount of
non-farm business income) contributes another 140,000 dram ($280), bringing the total net cash
income of the average household to $350 in 1997.
Since farmers on average sell 30% of their total output, the total value of farm products
consumed by the family is estimated at 500,000 dram ($1,000), three times the net cash income. The
total family income in 1997, allowing for the value of farm products consumed in the household,
was thus around $1,400, of which 25% came from non-farming sources, 5% from farm net income,