Discussion Paper 57: Gejza Blaas1), Axel Wolz: Terms of Trade, Farm Income and Structural Change in Agricultural Production after 1990: The Case of Slovakia

Diskussionsschriften der Forschungsstelle für Internationale Wirtschafts- und Agrarentwicklung eV (FIA), Nr. 57, Heidelberg 1997



This paper is based on a research project which was jointly executed by the Research Centre for International Agrarian and Economic Development, Heidelberg and the Research Institute of Agricultural and Food Economics, Bratislava during July 1994 and June 1997. This project has been financially supported by the Volkswagen Foundation.

It had been prepared for the XVII Congress of the European Society for Rural Sociology, which will take in Chania, Greece, 25 - 29 August 1997. At shorter version of the paper will be presented in Working Group 10: Local Responses to Global Integration: Experiences and Lessons from Central and Eastern Europe




1 Introduction 

2 Development of Agricultural Income 

2.1 Brief remarks on methodology 

2.2 The "big bang" period (1990-1992) 

2.3 Period of adaptation 

2.4. From 1995 onwards -- The beginning of stabilisation 


3 The structural change 

3.1 Transformation of co-operatives 

3.2 Business companies 

3.3 Individual private farmers 


4 Conclusion 




In all Central and Eastern European countries reform policies after 1990, based on economic liberalisation, set agriculture under economic pressure which resulted in a serious decline of farm incomes. Within this paper the process of deterioration of agricultural terms of trade in Slovakia is analysed based upon time series. It is shown that in reviving market forces a gradual recovery could be witnessed during the last years. In the paper the evolution of terms of trad e is classified into three stages: (1) the "Big-bang" period in 1990-1992, (2) the period of adaptation in 1993/1994, and (3) the period of stabilisation since 1995. Nevertheless, an ultimate recovery of the agricultural production units still h as to come depending on a radical change in farm efficiency and on supporting agricultural policies.

The situation of not sufficient farm income is also inhibiting a genuine farm re-structuring. In this paper the evolution of farm structures in Slovakia is further analysed. It is looked at the reasons why this process is partly deviati ng from similar processes in neighbouring countries. Similarly, it is tried to identify the role of the "local" in the global structural change.


1 Introduction

The aim of this paper is to give insight into the process of agricultural adjustment during the early period of the transition to a market economy in Slovakia. Two particular topics will be examined, namely (a) changes of farm incom e and profitability, and (b) developments in farm re-structuring.

In the former Czechoslovakia, after the political upheaval in autumn 1989, a radical economic reform had been started by January 1991. The main policies implemented under the frame of the reform, were price and trade liberalisation, fis cal and financial restriction, currency devaluation and privatisation. The overall objective was getting right economic relations, which had been highly distorted under the command economy of the past, and setting up a new balance led by market forces. It was aimed to promote re-structuring and technical re-furbishing of industries to achieve higher productivity and competitiveness.

Among two possible ways - implementation of a gradual reform or a shock therapy -, the political leadership opted for the latter. >From the perspective of six years that have been passed since then, it cannot be given a final judgement a bout the success or failure of the chosen approach. There is a general understanding, that the macroeconomic achievements can serve as an evidence for the rightness of the decided way. On the other hand, on the micro level fierce problems are still sustai ning and most of industries have not managed to meet the requirements of a competitive economic and financial environment yet.

It was clear from the very beginning that agriculture had to cope with a significant contraction of output and with the necessity to rise efficiency in the utilisation of resources. Privatisation and the structural change were considere d as significant pre-requisites for the efficiency gains to come. In spite of the fact, that private ownership rights have been re-established, individuals have been confirmed in their rights, legal instruments have been implemented to promote new pattern s in agricultural production, the inherited agricultural structure has shown a notable sustainability. (Blaas, 1993)

There is the question, whether this effect has been due to a specific conservatism of social actors, lack of alternative models, or lack of incentives. It might be a quite appropriate assumption, that low returns, which are to be attain ed from agriculture under current policies do not encourage a structural innovation. Low returns may result from various factors, like e.g. low efficiency of farm management, unfavourable terms of trade, financial strain, constrained demand and overcapaci ty, scarce governmental subsidy, etc. The first part of the paper analyses several of those elements.

In the second part we present a view on developments related to the structural change. Our point is to stress what has been specific for the country in this process and to give some explanatory facts and remarks.

2 Development of Agricultural Income

2.1 Brief remarks on methodology

Several factors were influencing agricultural income in the period between 1990 and 1995. First, the newly introduced market factors led to a rapid deterioration of the so called terms of trade (i.e. widening of the gap between inpu t and output prices, shrinking consumer demand, increasing financial costs due to money supply restrictions, etc.). Second, a declining productivity could be witnessed. This was partially due to the impairment of farm management capacity and partially due to a reduced use of production inputs. Third, there were less countable factors such as the collapse of former marketing and supply networks. In addition, cuts in governmental subsidy at the start of transformation and the impaired access of farms to fin ancial sources had a not detrimental impact upon the agricultural income.

Timewise, we can distinguish three periods in the evolution of the income level in the agricultural sector in Slovakia: (a) The "big bang" between 1990 and 1992; (b) the adaptation period from 1993 to 1994; and (c) the beginni ng of stabilisation from 1995 onwards.

In recent years, it has become difficult to do medium- to long-term assessments of corporate economic data, which rely upon complete time series. The methodology of statistical reporting and the scope of access to farm business data has changed. Until 1992 aggregate data drawn from profit and loss accounts and balance sheets of all agricultural entities were available. However, economic analyses carried out in later years could rely only on sample surveys that have been organised by the state administration. Unfortunately, they have some shortages which limit their purpose. Uncontrolled samples neither meet representativity criteria, nor do they guarantee the year to year compatibility of the collected data. They also do not cover econo mic data of farms run by physical persons ("private or family farms"). Nevertheless, we consider them reliable enough to indicate sectoral trends. It just can be mentioned at this stage that a farm accounting data network, compatible with the on e of the EU member countries, is currently under preparation.

2.2 The "big bang" period (1990-1992)

Due to the sharp decline of demand caused by price liberalisation (launched 1st January 1991) as well as by phasing out consumer subsidies in summer 1990, nominal revenues in agriculture decreased fairly dramatically. While in 1990 they just declined by relatively modest 2.8% on year-to-year basis, they fell sharply in 1991 by 31.7% and in 1992 more gradually by 6.5%. This brought the volume of nominal revenues down to 62.3% of the 1989 level. The decline in real terms was even stee per if we consider the inflation rate of 61.2% in 1991 and 10% in 1992. Besides these factors mentioned the decline in total revenues is also attributable to the cessation of off-farm activities, formerly often pursued by co-operatives.

In reaction to this, farming entities dramatically restricted their operational input- and labour-investments. At the same time, consumption of industrial fertilisers in pure nutrients decreased from 239.7 kilograms per hectare in 1989 to 123.1 kilograms in 1990. In 1991 and 1992, it fell to 63.9 and 41.2 kgs respectively. Between 1989 and 1992, the number of people employed in the farming sector fell by 32.4%. However, due to the rise of prices on the input side, they managed to reduce their expenses in monetary terms only marginally. In 1991, total expenses decreased by 12.2% compared to 1990 and in 1992 by 7.1%. Input costs and labour expenses per hectare of agricultural land in 1992 were 6.5% and 10.3% lower than in 1990, respective ly.

Despite the sharp reduction in applying inputs, the aggregate profit of 2.1 billion crowns posted by all farms in 1990 (based on full-cost calculation), turned into aggregate losses of 11.6 billion in 1991 and 10.3 billion in 1992. This , in practice, brought capital investments and replacement of assets to a halt and diminished repair and maintenance investments in buildings and equipment. More than 90% of farms reported losses in 1991 and 1992.This was also a period of substantial cuts in government subsidies. The volume of direct payments in 1992 was only half of the amount disbursed in 1990.

The "income shock" suffered by the agricultural sector was primarily attributable to the developments in prices. Price liberalisation and monetary measures (i.e. devaluation of the crown) had a different impact on industrial, agricultural and consumer prices. Out of all links in the food chain, the share of primary producers on the general price increase was negligible compared to those of processors and distributors. Supply in agricultural products still outweighed demand due to the contracted purchasing power of consumers. The liberalisation of trade and the introduction of internal convertibility of the crown (for imports) allowed the foreign competitors to enter the national market of processed food, thus contributing to t he already tough market strains. The strength of the price influence is shown in Table 1.

Table 1: Price indices 1991-1992 (nominal prices, 1989 = 100)




Agricultural producer prices, total



of which - plant products



- animal products



Industrial products



of which - fuels



- energy



- industrial fertilisers



- pesticides



- compound feedingstuffs



Foodstuffs wholesale prices



of which- dairy products



- animal and meat products



Foodstuffs consumer prices



of which - meat and meat products



- milk and dairy products



Non-food consumer goods



Source: Green Report 1994, MoA

The above figures show that while operational expenses (i.e. costs of energy, fuels, fertilisers and pesticides) approximately doubled, the prices of agricultural products just rose by 10 percent. Consumer price indices explain w hy mainly meat and dairy revenues decreased and an oversupply occurred. Their steep rise for the consumers created a demand barrier that hindered price adjustments of these products on the farm level. In 1991 the most remarkable price drop was recorded fo r beef. Farm gate prices of bulls for slaughter fell to 79.4% of the 1989 level. The decline continued through 1992 (75.9% of the 1989 level).

Farmers' response to the price squeeze was to cut their loss-making operations. The output of milk shrank from 1,995 million litres (in 1989) to 1,330 million litres (in 1992), the number of dairy cows decreased by 18.3% and the annual milk yield by 21%. Output of beef fell from 110,700 tons in 1990 to 89,800 tons in 1992. Similarly, pork output went down from 304,200 to 253,800 tons over the same period. The output of poultry and eggs similarly declined.

Gross agricultural output (at constant prices) in 1992 reached only 74% of the 1989 level, i.e. 38.5 billion SK compared with more than 52 billion SK at that time. Gross plant production contracted to 80% of its former level (i.e. from 23 billion to 18.3 billion SK) while gross animal production output fell to 69.3% of the 1989 level (i.e. from 29 billion to 20 billion SK).

Such a reduction of output occurred not only because of producers adjusted their supply to a shrinking demand, but also due to the steep increase in input costs. Therefore, inputs were applied at a minimum level which led to the decline in the overall productivity of the sector. The stagnation and reduction of production volume impaired the cost-return factor, which fell from 5.8% in 1989 to minus 19.8% in 1991. It only slightly improved (by one percentage point) to minus 18.8 in 1992.

However, this decline in agricultural production helped to bring supply and demand on the market into a balance within a short period. In 1993 already, demand even exceeded supply, which contributed to the recovery of prices and improve d the income relations in the following years.

2.3 Period of adaptation

For the first time after the system change, agricultural production units in Slovakia reported an annual growth in revenues in 1993 although production volumes decreased due to an extraordinary drought that year. Gross agricultural output, measured in current prices, rose by 24%. Annual growth in revenues of the agricultural production units increased by 18.0% from 1992 to 1993 and by another 8.7% from 1993 to 1994. The growth in revenues was accompanied by slower growth in expenses , which increased by 8.0% from 1992 to 1993 and just another 2.5% from 1993 to 1994. This led to a substantial reduction in the losses. The farm accounts showed a loss reduction by 34% and 50% in 1993 and 1994 respectively. Unlike in previous years, impro vements on the cost accounts were no longer achieved by input cuts. On the contrary, physical input even started to rise slightly (i.e. utilisation of materials and energy in 1994 rose by 10%). However, the farm managers continued reducing their labour co sts. This, in 1993, brought employment further down by 10 percentage points. On the other side, labour productivity, measured as output per employee, increased by about 15%, i.e. from 198,663 SK to 228,699 SK. Despite the still critical situation among mo st agricultural production units wages rose annually by 11% and 14% in 1993 and 1994, respectively. However, these increases lagged well behind those of the other sectors which increased, on average, by 17.5% and 16.5% in 1993 and 1994, respectively.

Problems with financing investments further deepened. Overdue liabilities rose by 9.5% (1993) and the debts to assets ratio had reached 0.35 while the bank loans to assets ratio reached only 0.113. The access of the agricultural product ion units to bank credits continued to be very limited. Similarly, the payment morale of the downstream sectors was quite bad which caused severe cash flow problems. More than 50% of all farms reported higher outstanding payments than their own debts.

Therefore, the main reason why there has been a revenue growth in 1993 had been the disposal of assets. The volume of current assets in 1993 dropped by 10.7%, of which livestock and inventories fell by 20%. The equity ratio of corporate farms decreased by 15%. Their total equity value fell to 87.4% of the previous year. Developments in 1994 were more favourable, with the total value of equity falling by only 7% (or half of that value recorded in 1993). At the same time, reductions in th e volume of current assets were brought almost to a halt with a moderate increase of stocks and inventories. The value of fixed assets slipped by only 2.6%.

Over the two years, aggregate losses of the agricultural production units went down 6.8 billion SK in 1993, and 3.4 billion SK in 1994 (compared with the 10.3 billion SK loss in 1992). In 1994, as many as 40% of all farming entities rep orted a profit, again.

In 1994, a distinctive differentiation between particular legal types of farming entities had been occurring. Business companies recorded almost a 400% increase in profits. Unlike in transformed cooperatives, the value of fixed and curr ent assets and of equity in these companies had been growing. The amount of bank credits extended to this dynamic group of farms rose by 15%, while lending to other types of entities stagnated.

In 1994, investments in the sector started to revive modestly and reached 4,489 million SK, i.e. an increase of about 9% compared to 1993. With about 28% investments in machinery grew most notably, in most cases in second hand machines. A major portion of investments came from own funds (81%), while government subsidies accounted for 11% and credits for only 5.5%.

During this period of economic decline affecting the agricultural sector the government tried to balance their repercussions in providing financial support and subsidies. However, due to severe budget constraints the volume of direct su bsidies in absolute terms stagnated and thus fell in real terms. In 1993, direct-support payments accounted for 10.6% of all farmers' revenues in 1993 and 9.1% in 1994. Comparing this with previous years, direct support payments represented 13.6% of reven ues in 1991 and 10.5% in 1992. In other words, subsidies did not represent a substantial contribution to the growth of revenues. The direct non-investment subsidies to producers, expressed in nominal amounts (in millions SK) between 1991-1994, developed a s follows:

Table 2: Subsidies between 1991 and 1994 (million SK)









Source: Green Report, MoA, 1995

The relatively faster growth of revenues compared to the rise of expenses between 1993-1994 leading to improved farm incomes were possible due to accelerated price development of agricultural products in a flexible reaction to ma rket demand. Farm managers were still reluctant to increase the application of inputs in the production process. After a certain stagnation in 1992, input prices increased again quicker than prices for agricultural output. In 1993, a relatively high growt h of crops prices occurred mainly due to a drought, which was followed by a considerable rise in the prices of animal products in the following year. The recovery of prices for animal products kept pace with the rise of prices for agricultural input costs . This development is shown in Table 3 below that shows absolute differences between annual price indices compared to the basic price-level of 1989.

Table 3: Price indices, 1990 - 1994 (1989 = 100)

Prices of:
















Agricul. Products, total
- Crop products
- Animal products










Supplies to agriculture










Industrial products










Source: Green Report, MoA, 1995

Among the crops, the price recovery in 1993 was particularly notable in the case of common wheat (price increase by 27.5%), durum wheat (32%), and malting barley (33.6%). In 1994, the prices for crop products more or less stagnat ed, whereas prices for all animal products grew remarkably. Prices for live bulls for slaughter and heifer (Class A) rose by 23%, live swine for slaughter by 15.8%, chicken for slaughter by 22.5% and milk by 7.3%.

However, influence of these price developments upon the level of agricultural incomes was considerably damped by the ongoing increase of input costs, particularly of agricultural origin (e.g. the cost of seeds between 1993 and 1994 rose by 35.6% and compound feedingstuffs by 16.7%)

One must be very careful in evaluating the influence of policy measures upon the growth of incomes and improvements of farm accounts, since no exact quantitative analysis of this particular influence is available. From the beginning of 1993, market as such ceased to determine milk prices because a fixed price for milk was introduced. This policy (along with quality premiums which added to the revenues from milk sales) resulted in an overall increase and stabilisation of dairy producers’ incomes. In addition, export subsidies enabled dairies to buy milk in quantities above the level of domestic demand. In 1993, export subsidies paid on dried milk and dairy products amounted to 230 million SK and the volume of subsidised exports reached 1 6,240 tons, while total exports of dairy products reached 29,500 tons (i.e. 199,800 tons recalculated on milk). Domestic consumption recalculated on milk was 887,000 tons (including 135,000 tons of imports). In 1994, when the volume of exported surpluses fell, export subsidies amounted only to 217 million SK. There is a general trend of decline in the volume of exports and amount of export subsidies paid on dairy products.

Quality premiums increased revenues from milk sales (amounting to 5,584,000 thousand SK in 1993 by additional 8% (or 451,700,000 SKK in absolute terms). In 1994, when sales went down (but quality improved), the total of quantity premium s paid to farmers increased to 488,800,000 SK.

The level of beef prices was determined by the continuously shrinking supply. Moreover, export subsidies (although paid on insignificant quantities of beef) even added to the rise of prices. Activities of the State Fund for Market Regul ation on the domestic market, namely interventions carried out during the monitored period, had no significant impact upon the development of prices. Their role was to stabilise the level of producers' proceeds during seasonal sways.

Since the general level of prices in the country stands well below the level of world market prices, changes of border measures had no significant impact on agricultural incomes. On the contrary, the system of export licenses for the mo st important commodities (not exercised in mutual trade with the Czech Republic) had a silencing effect upon price levels. Certain measures, introduced to control imports (e.g. in 1993 during the price-drop of potatoes), applied only to very few commoditi es and their effect was not always up the expectations.

2.4. From 1995 onwards -- The beginning of stabilisation

In 1995, macroeconomic developments were favourable, with GDP growing by 6.5% following a 4.8% increase in 1994. Agricultural output increased by 2.1% in 1995, with crop production rising by 2% and livestock production by 2.2%. Howe ver, the gap between input and output prices widened, again. Nevertheless, revenues continued to grow faster (by 5.1%) than expenses (by 4.7%) which led to a 4% reduction in the aggregate loss for the entire farming sector. However, the growth in total re venues was attributable to the increase in proceeds from the sale of fixed assets (up by 14.2%) and subsidies (up by 15.8%) rather than to the increase in proceeds from sales of products (up by just 2.6%). In 1995, more than half of all farms made a profi t and aggregate losses were reduced to about 2.8 billion SK.

The income situation varied among the major types of organisations in agricultural production. Differences between agricultural producer cooperatives and business companies were still quite sharp. While the business companies showed an increase of their gross income by 11%, their costs have risen by 12%. Their expenses for wages and salaries increased by 19%. The average gross income of the agricultural producer cooperatives showed a slower growth of 5%. On the other side, their costs i ncreased by just 4%. Therefore, the difference with respect to the economic performance of both types of organisations has been balanced, slightly. However, the difference is still quite big. While after-tax profit per hectare agricultural land of busines s companies fell to about one third of the 1994 level (i.e. from 657 to 216 SK), losses of the agricultural producer cooperatives declined by about 3.4% (i.e. from 1,059 to 1,023 SK). This figure also shows that many agricultural producer cooperatives are not at the end of the restructuring process, yet.

The number of entities in black figures increased to 45.6% of the total. Around one-tenth of farms with a surplus balance invested a portion of their profits in securities, which was reflected in the growth of financial investments in t he sector, as a whole, by 3.9%.1)

In 1995, government subsidies contributed to the agricultural income more substantially than in the years before. The absolute amount of direct-support payments rose by 1 billion SK (up 19%) and accounted for 10.4% of total revenues in the sector. Both the input subsidies and milk premiums increased in particular and thereby reduced the aggregate loss in the sector, which would be otherwise higher due to the unfavourable development of prices. According to calculations carried out by th e Research Institute for Agricultural and Food Economics, subsidies reduced the average loss per hectare of land by 69.4% and improved the cost-return factor by about 10%.

Despite the still unfavourable state of farm accounts and the increasing share of subsidies in farm incomes, the growth of capital investments in 1995 could be viewed as a promising sign of stabilisation. Annual growth of capital invest ments came up to 20%. While the cooperatives increased their investments by 17.8%, business companies expanded their's by even 30.8%. The highest dynamic of growth amounting to an increase of 30.8% was recorded for investments in machinery and equipment. Bank credits as financing source of investments almost doubled which was certainly a positive signal. Investment grants to transformed cooperatives increased by 22%. The use of own funds rose by 10%. Business companies primarily used bank credits for inve stments sources which more or less tripled. The revival of loan financing of capital investments can probably be credited to the State Support Fund for Agriculture and Food Industries which, in 1995, extended more than 810 million SK in soft loans and iss ued loan guarantees worth about 300 million SK.

No doubt, the current level of farm income neither meets the need of a sound replacement of assets, nor for attaining a higher productivity through implementation of high value operational inputs or providing for a competitive compensat ion of labour. Furthermore, there are striking differences in the efficiency of utilising production factors by the various agricultural production units. This gap is certainly attributable to the quality of management practices. Nevertheless, this indica tes that there is an internal potential of growth, whether in terms of income, productivity or efficiency.

Recent developments show that the agricultural policy pursued by the current government is giving less priority to the growth of farm income through increased sales revenues which would incur price rises. The government rather appears t o be in favour of public transfers. There is an attempt to provide minimum necessary funds by budgetary means, which support the access of the agricultural production units to operational and investment inputs in order to keep agricultural production just on such a level to ensure the food security of the country.

3 The structural change

The aim of this exercise is neither to describe legal procedures, which created the framework for the transformation of the old structures into new business entities, nor to give statistics on outcomes of this process. Within this c hapter some sociological implications of the structural change which has been taking place in Czech and Slovak Republics since early 1990s will be discussed. The fact, that a single legal system had formed the transformation of the agricultural production units in both states until 1993 when the Czechoslovak Federation split into two successor states, gives a unique opportunity to compare local responses to one uniform institutional system. That is why we try to elaborate on some ideas and facts, which ma y explain the sometimes divergent behaviour of social actors’ in one or the other republic, which could be observed during the transformation process.

3.1 Transformation of co-operatives

The land area under operation of transformed co-operatives has declined in both Czech and Slovak Republics and the number of cooperatives increased. The contraction of land used by the transformed cooperatives was more remarkable in the Czech Republic (decline by 22.8%) than in Slovakia (decline by 5.4% only).

However, not all cases of fragmentation of cooperatives into smaller units had been stemming from the transformation procedure. The political climate, especially in 1990-1991 encouraged rural communities to restore collective farms in t heir original boundaries as they used to be before mergers in the 1970s. These movements had been in line with efforts of municipalities attain their self government. Very often mayors were initiators or strong supporters of such divisions only because th ey wanted to have their "own" collective farm, which was expected to sponsor the municipality according to the same pattern as the (socialist) co-operatives used to do. In fact, expectations of this sort proved to be false later, when the econom ic decline of co-operatives began.

Newly emerged local leaders easily persuaded the co-operative members, that the only right way is to cut themselves off from the neighbouring village or villages and to go on independently. Decisions of this sort had not been economical ly founded and later developments revealed this sufficiently. Many current economic problems of individual farming cooperatives that are stemming from overdue debts, overcapacity of assets, etc. refer to that fever of divisioning. The rate of growth in th e number of cooperatives in Slovakia (59%) is higher than in the Czech Republic (39%). It is difficult to find an unanimous explanation, without more familiar knowledge of the Czech situation, but two facts must be taken into account: In general, with res pect to the rural settlement structure in the Czech Republic the high number of very small villages is typical. Many of those are not more viable from demographic and economic point of view, so it would not be sensible to expect these villages starting in itiatives towards separate farming. On the other hand, efforts for launching an individual farm business had been more significant in the Czech Republic, which might have led to a higher portion of collective farms being dissolved during transformation.

In this connection the question comes up, why people in Slovakia do stick more intensively to their cooperatives than people in the Czech Republic? The most general explanation refers to the fact that the rural population is more depend ent on this economic entity. This dependence can be decomposed into two components:

1 The share of population dependend on agriculture in rural communities is higher in Slovakia, when merely looking at the statistics.

2 For those who earn their living by an agricultural job the probability to find an alternative source of subsistence off the co-operative is lower. This is true especially for marginal segments of population like lower skilled, el derly and handicapped people.


Of course, alternatives are different for those, who own land and in the course of transformation attained a large allotment of the property shares from the co-operative, and for those, who have received nothing or only a little propert y shares. The number of those, who have got nothing is surprisingly high, especially among active members. More than 60% of members entered the transformation without land and for this reason attained a very scarce share on property. For those people (wit h exception of some few individuals with higher education, who may find another job, maybe as a capitalist farm manager, or start a business of their own) hardly exists any other employment opportunity off a corporate farm. In this connection, it may be w ell noted that under the former regime the generous subsidisation of farming provisioned jobs for just everybody in a village.

The other group (i.e. the owners of land) has not better prospects, either. In Slovakia, the occurrence of those, who own (or are would own by heritage) land of a size allowing a meaningful farming is very limited among local dwellers. The crucial point of the Czech-Slovak cleavage in the transformation story, which is rooted in the legacy of history may be just in here. In Bohemia, Moravia and Silezia, well-heeled big peasants who held large fully equipped farmsteads belonged to the co mmon picture in the pre-collectivisation period, but not in Slovakia, where such cases were quite a rare phenomenon. The core social problem of Slovak agriculture was - and still is - the extreme fragmentation of land ownership. The current operators of s uch big holdings (and of former capitalist estates, "residual estates" 2) represent the core of emerging individual farming in both Slovakia and the Czech Republic. Thus, the pre-socialist legacy of the holding structure is much more b eneficiary to newly emerging private farming in the Czech Republic than in Slovakia. The Czech statistic is showing approximately ten times more individual farmers than the Slovak one. Of course, this number comprises ten thousands of smallholders, but al so a significant number of individuals operating lands over 1000 hectares, who are - assumingly - tenants farming land belonging to former state farms.3) Since the most frequent peasant holding in Slovakia during the pre-war period accounted fo r approximately 5 hectare, which, at present, simply restored could not be bigger, only smaller. The estimated number of landowners in Slovakia accounts one million and the multitude of individual plots seven million.

The situation may vary from village to village, but currently the best option for owners is to let their land and property operated by the co-operative. For those who are working there this is the best legitimisation for retaining their workplace. For those owners not working for the co-operative (and in most of cases having non-agricultural jobs and are living outside the village) this is the cheapest way of preserving their property for the future without any additional cost, since th e property tax is being paid by the tenant. This is not an economic decision - the reward for this lease is usually small (since rents are generally poor and dividends non existent), but a decision which stems from the lack of an alternative opportunity. However, many cooperatives try to compensate owners by rendering them benefits in kind, which are of great value for the rural population of any profession and social status.

The survival of co-operatives is a typical transition phenomenon that will last as long as significant amounts of capital will not be invested in agriculture, enabling the concentration of land and assets in few private hands to pursue profitable farming. In other words, strong interest groups are needed, which would feel confident to enter leasing contracts on land, to conduct investments and organise highly commercial profit-making ventures. Currently, the most co-operatives, having u ndergone the transformation as formal as possible, behave very similar to family farms: In spite of low income and negative returns they keep on working because of social necessity. 4)

On the other side, it can be observed that a number of cooperatives rented their land and inventory to private individuals and business companies. In general, the membership realised the disadvantages of these contracts after one time o nly. Several case studies (Buchta, 1996) give excellent evidence of spontaneous collective resistance against this attempt of systemic drain of co-operative equity in favour of a private owners. In the understanding of the members this approach is regarde d as an illegitimate "expropriation" of the property shared by them. This realisation gives them the strength and social justification to fight for survival and the sustainability of transformed co-operatives. That is why their role in the trans ition may be worth analysing and re-thinking, what is a challenging task.5)

The impact of the amendment to the Transformation Law 42/1992 6) on further development of co-operatives is controversial from the view of what has been said above. On the one hand, it lifted the menacing drain of workin g assets, which would appear if previous legal provisions on release of property shares to their holders were applied. Thus the amended law improved the future survival prospects of the transformed co-operatives. On the other hand, by implementing equity bonds it introduced a twofold equity sharing. Besides members’ shares, linked with classical co-operative rules of voting, equity bonds were introduced, which may yield for their holders rights equal to shareholders' rights in capital companies. By this, a significant move has been done towards converting co-operatives into a sort of capital company. Co-operatives may render in their statutes voting rights proportionate to the value of bonds held by the individual investor. Bonds can be traded at capital markets. At this stage, it may be premature to draw conclusions, since there is no experience with the turnover of these bonds yet. Nevertheless, already fears from this step have been expressed in public media, claiming, that very easily speculative buy- outs can occur. These might be eased by the current market price of bonds, which is rather low. Controversial to principles of co-operatives is also the provision of the amendment, mandating co-operatives to admit bond holders as members if they apply.

3.2 Business companies

The dynamic evolution of business companies is the most typical feature of the restructuring process in agriculture. As the outturn of the legal transformation of (socialist) co-operatives, nine limited liability companies and twelv e joint stock companies had been established at the beginning of 1993. Since then, the number of business companies has been continuously increasing. The recent most reliable data (based on the statistical census of 1995) show 98 limited liability compani es and 29 joint stock companies. The average acreage of limited liability company has been 650 hectares of farmland while the one of joint stock companies stood at 1270 hectares 7). Nevertheless, the total area operated by these companies comes up to five percent of the total farmland (but 6.5% of arable land), although it has to be admitted that the development during the last two years seems to indicate a higher percentage. Their share in the overall production is significantly higher, since m any of them specialise in animal production, which, especially in case of pork and poultry enterprises, does not require much land.

Limited liability companies operate, with small exemptions, rented land only. 96.7 % of the agricultural and 98.2 % of the arable land cultivated by them is rented. Only few of them are green field establishments. The majority of these newly formed business companies in agricultural production is making use of assets (including land) of privatised state farms and of transformed cooperatives. In general, four different categories with respect to the access to assets can be distinguished:

(1) Purchase under terms of privatisation of state farms. This type has not been very frequent until the second half of 1995 due to the slacking pace of privatisation of state farms. A significant speeding up has taken place toward s the end of 1995 and in 1996.

(2) Lease of assets from transformed cooperatives. Legally, there have been contracts between the owners of the newly formed company and the management of the cooperative. In reality, the relationship between these two groups seems to be very close. Actually, the managers and the owners of these newly formed companies often happen to be the same persons. In some cases, lease contracts were combined with contracts on sales of fixed assets and inventory on instalments.

(3) Provision of assets by a transformed cooperative to a newly formed business company as material equity contribution, i.e. the cooperative owns (at least a part of) the company.

(4) Withdrawal of assets from the cooperatives by individuals or groups of individuals in compliance with the legal provisions of restitution and transformation. These persons are establishing the new company. They prefer this type of organisation due to specific (e.g. taxation) reasons.


In several cases the newly arisen entities have been a follow up of former profit centres in the agricultural production cooperatives which had been set up during the late 1980s in compliance with the internal self-accounting system.

We had informal access to some data on farm conversions that took place during first 6 months of 1996. They represent an uncontrolled sample, so that generalisations can be only cautious. Nevertheless, this information can give an idea about the most recent trends in structural changes. The sample comprises 25 transformed co-operatives, 5 state farms and one business company. All of them have undergone changes, like conversion into an other business form, shifts in size of land use or s plitting up into several independent business entities during the observed period. 8) Along with cases of mere land consolidation, i.e. the settlement of land withdrawn from the co-operatives by individual owners (7 cases) or land use associatio ns (1 case), 23 cases comprised an inception of new farming entities. Two of them were split off co-operatives and all other business companies. There was one case of a private farmer operating 110 hectares of land among the new entities. Five limited lia bility companies (Ltd.s) arose from the privatisation of five state farms. All other Ltd.s did split away from existing co-operatives or even replaced co-operatives by taking over their property. In addition, some limited liability companies have been set up due to a split-up of already existent business companies. The above described developments indicate several trends:

(1) Transformed co-operatives when converting into another organisation of agricultural production most likely opt for a limited liability company.

(2) Entities, which split away from transformed co-operatives can be both cooperatives and business companies. Only in exceptional cases private farms will be established.

(3) Already established business companies are subject to further splits or other changes.


Economic results of business companies are strikingly good. Their profit is several times higher than the profit (better loss) of transformed co-operatives, they are investing more and they are more likely served by bank credits9) . Aggregated statistical data do not distinguish between specific types of business companies. So there may be quite a significant divergence between business companies established in line with the Transformation Law 42/1992 and those established lat eron on singled-out assets or production units. The success of the later is obvious, when taking into account, that they in general operate the most productive assets, the simplified management incurs lower overhead costs and their recruitment of labour d oes not need to obey social considerations as it is still the case with many transformed co-operatives.

The motivation of the management of transformed cooperatives to switch over to the legal entity of a business company may be different. The strong and well-motivated top managements already in early stages of the social turn-around disc overed, that the producer co-operative - which in fact operates on principles of functional hierarchy of executive power and hired labour - comprises an internal contradiction to stated co-operative rules and declared rights of members. Their assumption, that the restoration of landownership rights will enhance this contradiction - which proved to be true, by the way - led them trying to switch to another business form, which would allow less interference of owner's governance with executive management. W e know some few cases of this type of conversion that had taken place already before the inception of the economic reform and transformation. The establishment of shareholders’ companies has been urged by innovative, successful, partially authoritarian, b ut well performing managements. They had also a strong professional attachment to large-scale farming and the motivation to keep it working. They managed to overcome particularistic interests of the larger landowners - if any occurred - who gained power b y the transformation. In general, they enjoyed the benefit of low intervention by the working members 10) .

The major reasons why the management of transformed co-operatives wanted to set-up satellite limited liability companies (Hungarians would call them "holdings"11) can be summarised as follows:

(1) The top management realised that a continuation of a centralised management is over their capacity. Therefore, they tried to provide for a consequent decentralisation of the various production activities in establishing genuine economic units among middle and bottom level managers. This concept has been often put through by force from the top, against the will of those involved.

(2) The division of the transformed cooperatives into economic independent sub-units had been realised as a rescue operation to allow the economic survival of viable parts of the property, to continue operations and to keep employm ent. This approach has been adopted in a situation when cooperatives had been squeezed by overdue debts, their inability to pay and/or by excessive claims of landowners and property shareholders.

(3) Hypothetically, it can be assumed that some managers realised the opportunity to privatise a part of the property of the cooperative by channelling it step by step into their personal accounts or business through advantageous c ontracts.


However, in quite some cases, cooperative members, particularly the owners of land and assets have started to realise that they have been pretty much deceived and an empty shell will be left behind for them. As a matter of fact, contrac ts established between the transformed cooperatives and business companies have been mostly disadvantageous for the first, what became obvious only after a certain period of time. So far, court appeals remained unsuccessful, when the (newly elected) manag ement boards of the cooperatives were trying to remedy the effects.

Statistical figures on the various types of organisations in agricultural production in the Czech Republic have been showing a higher portion of business companies among all farms. Their number is close to the number of co-operatives. T he situation there was significantly influenced by the decision on leasing state farm units to individuals and private ventures already in early 1990s. Therefore, the number of private entities increased rapidly. They were in the position to operate state owned assets without any delay, which would appear otherwise if the process of the identification of land- and property owners and the settlement of privatisation claims had to be completed. An other hypothesis can be raised, too. The "breaking-up&q uot; of collective farms was sped up by a quite unfavourable political climate, hostile to co-operatives, which was in the Czech Republic more apparent than in Slovakia. This climate encouraged the management and staff of co-operatives to convert them int o other types of legal entities.

3.3 Individual private farmers

It is still an open question who actually is a private farmer in Slovakia. Family, or private farming became paradigmatic in ideology and in political practice of many Central and Eastern European countries immediately after the sys tem change, so as in Slovakia. Restitution, restoration of ownership rights and governmental support to fresh farm entrepreneurs had been believed to be sufficient for generating social sources necessary for putting this paradigm into reality. However, wh en considering the numerical occurrence of individual farmers, they are still more or less a marginal phenomenon in Slovakian agriculture. Obviously, the support proved to be not sufficient. In summary, the main reasons are the following ones; the fragmen tation of land ownership, ownership titles to land mostly with the non rural population, lack of skills among the agricultural labour force, lack of initial capital, sharp decline in consumer demand for food and so on.

While private farming is still of marginal importance, the statistical data on their number are confusing and controversial. Data drawn from statistical registers offer a following time series about their number, as it is shown in Table 4.

Table 4: Number of farms run by physical persons ("private farms")









Source: Statistical Yearbook of Slovakia, various years, Company Register of the Statistical Office of SR

This figures deviate from data released by the same Statistical Office in 1995, referring to the Agricultural Census 1994. According to this source, the number of farmers is 7,581. Obviously, there is a lack of a clear definition of individual and private farmers. Currently, the legal status of a private farmer can be achieved by simply reporting to the Municipal Office. The Census, which was conducted in cooperation with municipalities used an operational definition of private f armer. This definition allowed to include in this category those private farmers only who were producing for the market (for sale), but not just for self consumption. The implementation of this criterion might have been quite loose, in practice.

In addition, it cannot be neglected that approximately 300,000 smallholders (with holdings under 0.5 hectares) exist in Slovakia as a permanent long term phenomena. The boundary between them and commercial farmers is quite flexible, esp ecially in case of high value added products like greenhouse vegetables, berries, orchards, etc. This group represents an optional source for expansion of commercial farming. In fact many of these smallholders could extend their holdings (being heirs or p otential owners of rented out land) if they wished or were forced to do so.

The approximately 20,000 "official" private farmers are a very heterogeneous group. Using a modest assessment about half of them can be regarded as subsistence farmers. Often, their registration has reasons stemming from trans formation and restitution legislation.12) Those about 7,500 private farmers covered by the Agricultural Census are more or less genuine farmers. On average, they operate 15 hectares of land. The share of leased land is considerably high. About two thirds (or 63.3% of agricultural and 65.5% of arable land) has been rented. This figure seems to imply that a large portion of private farms is not a simple continuation of traditional peasant farming.(interrupted by 40 years of collective farming) ba sed on family owned land and property, but a new business venture of a scale far exceeding the size of peasant holdings of the past.

The suggestion seems to be quite legitimate, that a certain proportion of these private farms are holdings (farm units) rented out by co-operatives to physical persons under leasing contracts. The scale of these operations do not deviat e too much from those run by limited liability companies. Only the legal status of the contractor makes the difference. Review on size distribution of private holdings presented in Table 5 seems to support this assumption.

The size distribution of surveyed farmers is showing a highly heterogeneous picture. Approximately two thirds of farms (or 61.5%) operate an area of up to 5 hectares of land. This sub-group just occupies about 7.6% of the total area far med by private farmers. It is difficult to assess their socio-economic status, but it can be presumed that they are part-time and subsistence farmers who are just selling some surplus production for cash.

Table 5 Size of holdings of agricultural land (hectares)

Size group

0.01 - 1.00

1.01 - 2.00

2.01 - 5.00

5.01 -10.00

10.01 20.00

20.01 50.00

50.01 100.0

100.1 500.0

500.1 1000

1001 plus

Number of holdings: 7,581











Share of holdings (%)











Share on land (%)











Source: Agricultural Census 1995, Statistical Office of the SR. Data relate to 31st December, 1994.

Just 4.8% of all private farmers, as covered by the Agricultural Census, cultivate 50 hectares and more. However, these farmers occupy 59.2% of all land cultivated by private farmers. This sub-group comprises family farms as well as larger estates stemming from restitutions and leases from transformed cooperatives. Especially farms larger than 100 hectares can be suggested as based on lease, considering the high proportion of leased land in the entire sample of private farmers. S everal of these large holdings still have links to the transformed cooperatives by enjoying specific services provided by the cooperative (e.g. accountancy, machinery services) and by leasing certain assets, e.g. buildings, animals, etc. It can be assumed that these ties will diminish step-by step by either buying out the respective assets of the cooperative or replacing them with own investments. Operations of this size (i.e. 100 hectares and more) are technically the same as those owned by business comp anies.

The share of individual private farmers in the total agricultural production has been increasing since 1990, as it is shown in Table 6. Estimates by the Statistical Office give evidence about considerable high shares of privately grown products, like vegetables, fruits and potatoes. Nevertheless, figures provisioned by statistics include the output of household plots and subsistence farms too, so these data can hardly be considered as reflecting the true marketed output of commercial pr ivate farms.

Table 6: Share of individual private farms in specific farm products (%)











































Source: Statistical Yearbook, various years

The size distribution of private farms, which already has been discussed above, infers that private farms comprise a wide scope of farming patterns, which must be inevitably reflected by the production structure as well. Surprisi ngly, the specialisation of farms is of a quite high degree, as it is shown in Table 7 below. The majority of farms specialise on cropping (about 61%), in particular on cereals growing. Among those who specialise on animal production (about 26%), cattle b reeding and sheep and goat rearing are most common. Mixed farms are not very frequent: Only about 12 per cent of farms deal with both cropping and animal farming.


Table 7: Main production orientation of individual private farms


No. of farms

Share (%)

Plant production
Animal production



Plant production only



Combined crops
Vegetables and flowers



Animal production only



Sheeps and goats



Source: Agricultural Census 1994. Statistical Office of SR, 1995

An overall conclusion on specialisation of commercial individual private farming may be as follows: The majority of farms concentrate their production activities on cropping, especially on cereals. Among those who specialise on a nimal production, two enterprises are of importance: cattle breeding and sheep and goat rearing. That means, that cereals, cattle and sheep are typical products of individual private farms in Slovakia.

The findings on production structure offer some more in-depth knowledge on the surveyed farms. However, farms covered by the Statistical Census are commercial farms and data reported on type of produce presumably relate to marketed item s. This suggests, that the former conclusion about the subsistence character of a part of covered farms, which was derived from the information on the size structure, must be corrected. Little sized farms may well represent vegetable and other not land ba sed specialised farms. An more detailed picture on the importance of private farms was given in Table 6 for plant production and is presented more specifically for animal products in Table 8.

In addition, it becomes obvious that the production volume generated by commercial private farms (covered by the Census) is not the same as the overall volume of agricultural production raised by individual private sector. The differenc e is being grown and reared on household plots and by various smallholders. This "unofficial" produce is by volume going far beyond the production level recorded by commercial private farms. The following example can prove this conclusion: We ha ve compared statistical data on livestock heads which have been said to be reared by private farmers in 1994 (including households and smallholders) with census data on private farmers. For this occasion we consider census data as reporting on commercial farms. In Table 8 a comparison of the total private animal stock with the commercial private animal stock in 1994 is given.

Table 8: Animal stock in 1994 (thousand heads)


Farm sector total

Private farming (incl. smallholders)

Commercial private farming

Share of priv. farming to total (%)

Share of com. priv. farming to total (%)

All cattle












All pigs












All sheep












All poultry






Laying hens






Source: Statistical Yearbook 1995, Agricultural Census 1994

Data shown above allow to conclude, that the output of private commercial farms only represents a minor share on farm production that is produced by private households, non commercial farming and private commercial farms together . In this respect, it can be doubted whether an overall move towards increased proportions of agricultural production generated by private farms can be considered as a positive indicator of the successful transformation of the organisations in agricultura l production. As a matter of fact it seems to indicate just the opposite, viz. a destruction process of farming structures. The annually increasing production share of private farms has been an outcome of the general deterioration of the social situation of rural population due to increased living costs and high unemployment. During the recent 4-5 years production factors (i.e. land, capital or inventory) were being withdrawn from agricultural production units (particularly from the transformed cooperativ es) producing for the market in favour of a type of farm aiming at meeting the subsistence needs of the farm families. This trend could be reinforced in the future, if financial and economic strains in agriculture continues and rural unemployment remains high. Evidently, this is not the way leading to an efficient and competitive private farming sector.

4 Conclusion

The farm re-structuring in Slovakia has been an open-end process so far. The Soviet model of organising agricultural production which has been adopted by coercive means during the 1950s still determines the organisational structure after 1990 to a large extent. The socio-economic situation of the main actors involved seems to represent the main factor responsible for the current evolution. The present situation cannot be analysed without reaching to the specific historical developme nt of Slovakia. There is nothing like a paradigmatic guidance to serve as a conceptual target neither among policymakers nor among social scientists. Nevertheless, the current situation is not optimal, yet. The on-going pressure for globalisation and inte gration into the world-market system will push for further re-structuring. A market driven recovery of the farm economy is needed to keep the structural change on its immanent rail. Distortive policies will not be helpful.


1) Research Institute of Agricultural and Food Economics, Bratislava, Slovakia

2) Investments in securities are more or less marginal and represent cases, when farms try to attain a better revenue from their temporarily free funds rather than keeping them on a bank account. In some cases, farms also acquired share s of processing companies in the course of privatisation.

3) The first land reform limited the size of holdings at 150 hectares of agricultural and 250 hectares of any other land. Residual estates were holdings, which had been left after the detailing of feudal estates. Residual estates were a llotted mostly to the political and bureaucratic elite of the first republic and to their friends.

4) The issue of state farms will be discussed later.

5) Agricultural production co-operatives never had been established in order to attain profits, but for protecting the poor against the mighty. It is interesting to observe, especially today, how differently a community based venture ac ts compared to a merely profit oriented capitalist enterprise.

6) As a matter of fact, to see clearly the transition and post transition role of co-operatives is not an easy task. Under the strained rural economy, they cannot survive without applying management methods focused on highest returns with minimum costs , i.e. they have to act like capitalist enterprises. No other considerations like job security for members etc. can be observed. This capital-oriented management is appreciated by co-owners not involved in farming themselves, because this way of business ensures profits on equity. But what about the majority of those who are earning their living by working on the transformed co-operatives? They will stick to the co-operative and insist on implementing their rights as members in the direction which might b e contraproductive to its economic prosperity. These members can hardly be advised to start their own business taking land and assets out of the cooperative, because these assets are only rarely sufficient for starting a sustainable farm venture, not to s peak about the ability of the persons concerned to run an private farm. At present, the continuation of co-operatives brings much more security for land owners, workers and rural dwellers, than a radical change to other forms of farm business. Several exa mples have been proving, that efficient executive managements are successful in securing the prosperity of the transformed cooperatives, when utilising advantages like concentrating their capital, diversification of operations, extension of activities tow ards downstream industries etc., which are merits not of the co-operative business form, but those of large scale capitalist farming. Just to cut short: Co-operatives as a business form in agriculture seem to be transition phenomena which will be wound up . In Slovakia, too, they will either be managed like large-scale capitalist farms or they will collapse.

7) In November 1995 the "Law of the National Council of the SR No 264:1995 by which the Law No 42:1992 shall be amended" was adopted. The law mandates transformed co-operatives with issuing negotiable securities, called "co-operative equ ity bonds" which will replace equity shares attributed to non-members. The amended law also gives members the option to receive equity bonds up to that value of their property share which exceeds their mandatory (minimum) membership deposit. At the s ame time, equity bond owners have been legitimated by law to join the co-operative and attain membership rights.

8) Figures on land represent information on land use only, but not on land ownership. Business companies mostly rent their land under operation, with some few exceptions of those individual owners who prefer to run a business company rather than a priv ate personal company due to specific (e.g. taxation) reasons.

9) Those cases are registered which require an official redefinition of their land tenure in terms of size and value.

10) As it was shown in the second chapter of this paper, the turn-over of business companies fluctuate from year to year. The reason for this may be, amongst others, the varying composition of the observed sample.

11) The traditional authoritarian relationship between the "boss" and the "worker" is still persisting.

12) We did not happen to find any single case of a genuine holding. All cases we learned had been leasings to legal entities established by private individuals (mostly by the managers of the co-operatives) without equity participation o f the co-operative itself. These land renting contracts were mostly combined with contracts on sales of fixed assets and inventory on instalments.

12) Provisions of Acts No 229/1991 and 42/1992 made property restitution claims depending on an evidence about the intention to establish a private farm. In these cases registrations have been acknowledged by authorities.



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BUCHTA, S.: Recent History of the Co-operative in M. A Case Study. unpubl. manuscript, Bratislava, RIAFE, 1996

Ministry of Agriculture, Food, Forestry and Water Management (ed.): Report on Agriculture and the Food Industry in the Slovak Republic 1995 (Green Report). Bratislava, Academic Electronic Press, 1995

Ministry of Agriculture, Food, Forestry and Water Management (ed.): Report on Agriculture and the Food Industry in the Slovak Republic 1996 (Green Report). Bratislava, Academic Electronic Press, 1996

Statistical Office of the Slovak Republic (ed.): Agricultural Census 1994, Bratislava, 1995

Statistical Office of the Slovak Republic (ed.): Statistical Yearbook 1995, Bratislava, 1995