Discussion Paper  58: Wolz, Axel, Iveta Namerova, Stanislaw Buchta: The Transformation of Agricultural Production Co-operatives in Slovakia - The View of the Management


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, Brat islava during July 1994 and June 1997. This project has been financially supported by the Volkswagen Foundation.

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



1 Introduction 

2 Agricultural Producer Co-operatives and Their Role in Slovakia 

2.1 General Remarks on the Development Perspectives of Agricultural Producer Co- operatives 

2.2 Major Regulations with Respect to the Transformation of Agricultural Production
Co-operatives in Slovakia according to Law 42/1992 

3 Analysis of Transformation Based on Four Selected Case Studies 

3.1 Main Characteristics of These Selected Cases 

3.2 Initiator of Transformation 

3.3 Repercussions on Membership and Decision-Making 

3.4 Major Effects of the Transformation on the Economic Position, Business Activities
and Employment 

4 Conclusions 

5 References 



With the implosion of the socialist regime in the Central and Eastern European countries it was assumed that the agricultural production co-operatives set-up by coercive means during the 1950s will decollectivise into p rivate farms relatively quickly. Slovakia was not supposed to be an exception. However, according to the statistics, transformed agricultural producer co-operatives still are the dominant organisation in agricultural production. In this respect a specific role of agricultural producer co-operatives claimed by Oppenheimer seems to be confirmed. In order to get a more precise picture about the transformation process in Slovakia an in-depth analysis of four selected successor organisations of former agricult ural production cooperatives, i.e. three agricultural producer co-operatives and one joint stock company had been undertaken between late 1994 and Spring 1996. The findings reveal that in all four production units analysed the management enjoys a high deg ree of decision-making power. Investments have the highest priority. At a more closer look both transformed agricultural producer co-operatives and joint stock companies seem to be managed in the same manner and the co-operatives adopt the characteristics of business companies. Therefore, there is no specific role for agricultural producer co-operatives as they act like any business organisations already. With the adoption of Law 264/1995 which amends the Transformation Law 42/1992 of former Czechoslovaki a this process will even be fostered.

1 Introduction

With the implosion of the socialist regime the discussion about the future prospects of agricultural producer co-operatives has re-emerged with new strength. The (socialist) agricultural production co-operatives were required by the Transformation Law 42/1992 to transform themselves up to the end of 1992 into a legal entity which is compatible with the market economic system or they had to be dissolved. Individuals were given the option to start private farming. Within this paper it is assessed why the transformation process in Slovakia did not follow the line outlined by the more theoretical analysts and the example of most other formerly socialist countries in Central and Eastern Europe. Based on four case studies the reasons for the predominance of agricultural producer co-operatives after the transformation are deduced. Finally, it will be discussed whether these co-operatives do have a specific development perspective in Slovakia or whether they have already or are changing int o another type of organisation.

2 Agricultural Producer Co-operatives and Their Role in Slovakia

2.1 General Remarks on the Development Perspectives of Agricultural Producer

In a market economic system and pluralistic society the agricultural producer co-operatives compete with family farms on the one side and large-scale farms with hired labourers, mostly organised as companies limited by shares, on th e other. With respect to producer co-operatives, the members of the co-operative group are not only the owners, i.e. shareholders contributing "paid-up shares" either in cash or in kind, but also at the same time the co-workers of the co-operati ve enterprise. The double characteristic of membership innate in the co-operative - the "identity principle" - thereby rests in the concurrence between co-entrepreneur and co-worker, or between employer and employee on the individual level. With respect to decision-making each member has the same rights based on their person ("one member - one vote") and not on the level of their capital investment (Dülfer, 1994: 517).

An agricultural producer co-operative is characterised by the fact that members are not only contributing their labour, but also their agricultural land and capital (e.g. animals, machines, buildings). Agricultural production is carried out in the form of co-operative farming on the basis of joint use of land, or to put it differently, "the processes of agricultural production themselves, i.e. the processes of farming and animal husbandry, are .. carried out in common" (Schill er, 1969: 5). In this respect, agricultural producer co-operatives are distinguished from classical service co-operatives. It is the purpose of a service co-operative to promote the earnings of the member-farms. The members provide capital and exercise th eir voting rights, but the actual work is being done by hired labour. In the agricultural producer co-operative, however, member-farms do not exist and its activity is meant to serve the purpose of promoting the earnings of the common farm. The members no t only exercise their voting rights but also provide labour and hence work on the co-operative farm. The production process has "the characteristic of team production in the sense that the fraction of output attributable to the labour of any particul ar team member is undefined because output is a joint product of many hands" (Putterman, 1989: 319).

Concerning their size agricultural producer co-operatives have to compete with large-scale capitalist farms which also take advantage of potential economies of scale. This type of organisation can be understood as a hierarchically organ ised legal entity whereby the owner(s) or his manager(s) decide on the work activities while the hired labourers execute their directives. It is their economic objective, as for all business enterprises, to maximise the profits. Legally, a capitalist farm can be organised in various forms. Basically, the partnership (including large-scale family farms with hired labourers) and the company limited by shares can be distinguished. The main difference concerns the question of liability: While in a partnership the entrepreneur is liable with his/her total personal assets and wealth, he/she is just liable with his/her invested shares in a business company. Companies limited by shares can be differentiated into limited liability companies (Ltd.) and joint stock companies. The main difference refers to the number of shareholders and the decision-making structure. While with respect to limited liability companies the number of shareholders is quite small and, usually, one or several of them act as managing directo rs, the number of shareholders of a joint stock company can be quite large and employed managers who do not have to be shareholders themselves, take the decisions. In general, they have to defend their decisions at the annual general assembly of all share holders. The number of votes of each individual shareholder is based on the respective value of his/her shares.

Producer co-operatives in the agricultural as well as in the non-agricultural sectors have a long tradition. But experiences with this type of organisation during the 19th century led to the conclusion that it is not of a lasting nature . Producer co-operatives seemed to be subject to a rule that they inevitably dissolve after some time. This "Law of Transformation" described by Webb-Potter and Oppenheimer at the end of last century states that producer co-operatives either col lapse, if they exhibit a lack of competitiveness which might lead to a decollectivisation process or transform themselves into capitalist enterprises after a successful initial phase. However, it is remarkable that Oppenheimer explicitly excluded the agri cultural producer co-operative from this development path. Rather, he regarded this type of co-operative as a sensible way to solve the agrarian question of that time (Beckmann, 1993: 218-219; refers to Webb-Potter, 1891 and Oppenheimer, 1896).

However, when looking back at this century there have not been that many experiences with agricultural producer co-operatives based on a voluntary membership. This type of organisation did not seem to provide a prospective development p ath for small-scale farmers. Actually, Schiller observes "It is remarkable that after more than 100 years of intensive co-operative activities neither in Germany nor in other countries of Western Europe can any example be quoted for the transition of farmers of an old settled village to co-operative farming with joint use of land" (Schiller, 1969: 5-6) There have been some examples of agricultural producer cooperatives based on common social and religious values; the most important one is the Ki bbutz-movement. In addition, there have been a few examples of agricultural producer co-operatives established on a voluntary basis or as the result of agrarian reform in some developing countries. In general, these examples are not located in traditional ly settled areas. On the one side, these have been newly established and externally supported settlement schemes where land ownership rights were not yet defined and the management generally was in the hands of civil servants. The classical principles of the co-operative movement were mostly bypassed. On the other side, in times of radical political change large-scale farms were nationalised and handed over to the (formerly landless) agricultural labour force. Similarly, labourers have taken over large-sc ale farms on their own. But all these approaches of common farming have not been successful on a larger scale. Today, there are just a few agricultural producer co-operatives based on voluntary membership operational.

The most important model of agricultural production co-operatives have been and, to some extent, still are the collective farms of the Soviet type. However, these co-operatives have not been based on voluntary membership by the farmers, but on an enforced one. They have been created and controlled by the state and party machineries and left little latitude for internal decision-making. Actually, they have been described as "pseudo-co-operatives", as voluntary membership, parti cipatory management, autonomy of the enterprise and other essential characteristics of a true co-operative association could not be found there (Ibid: 182).

Therefore, most theoretic analyses (see for a more detailed discussion: Bonin, Jones, Putterman, 1993: 1292-1314; Schmitt, 1993: 151-157; Deininger, 1993 and Beckmann, 1993: 217-231) conclude that an efficient co-ordination of economic activities within enterprises under conditions of uncertainties and risks so typical in market economies can only be accomplished by hierarchical decision-making. The direct democratic decision-making based on the rule "one member - one vote" is associated with very high transaction costs. Therefore, agricultural producer co-operatives will not be competitive and any specific role for them is rejected, contrary to what has been claimed by Oppenheimer. At best those agricultural producer co-opera tives will be of a lasting nature, if their membership is small and quite homogenous. However, capitalist large-scale farms are also seen less efficient than family farms. Therefore, for most analysts, the historical development pattern of the (socialist) agricultural production co-operatives has been evident with the implosion of the socialist regime: They dissolve in form of decollectivisation, i.e. they will be transformed into family farms. The development in China and Vietnam at the end of 1970s and the middle of the 1980s respectively, has confirmed this conclusion, impressively.

2.2 Major Regulations with Respect to the Transformation of Agricultural
Production Co-operatives in Slovakia according to Law 42/1992

Contrary to the conclusion of the theoretical analyses and the development elsewhere, this development path does not seem to be confirmed in Slovakia. Private land ownership rights have been restored, but land ownership is highly fragme nted. All (socialist) agricultural production co-operatives had to be transformed into economic units compatible with the market economic system in line with the Transformation Law 42/1992 up to the end of 1992. While the agricultural land had been return ed to individual private owners the value of all assets of the co-operatives (e.g. buildings, machines, animals etc.) had to be estimated. Out of the gross equity debts were deducted and some provisions for the anticipated restitution claims and for the r eserve fund were made. The net equity of the assets had to be transferred to the entitled persons which were regarded as the rightful owners of the co-operative. The entitled persons comprised all former members (both active and retired) and those persons who owned land and/or inventory which the co-operative used to work with. The Transformation Law stipulated a specific share-out key for the assets among the entitled persons: 50% were distributed among those who had contributed the land, 30% among those who had contributed inventory and the final 20% among those who had worked on the co-operative. Each entitled person received shares according to the value of his/her assets. With the transformation all entitled persons had the option to join the newly e stablished legal (successor) entity. But there was no obligation to join. Some persons took the option to get their land and other assets returned to start private farming. Others did not want to join due to personal reasons. In that case they generally r ented their land to the transformed entity and left their assets with it, too. However, the Law required that their asset shares will have to be converted into cash by the transformed entity upon their request seven years after the transformation.

With respect to the legal entity the Transformation Law provided the option to transform into a genuine agricultural producer co-operative, a joint stock company or a limited liability company. Up to the end of 1992, the 630 (formerly s ocialist) agricultural production co-operatives were transformed into 952 agricultural producer co-operatives, 12 joint stock companies and 9 limited liability companies. Two aspects which have not been fully realised by most managers at the time of trans formation have been:

(a) The right of those who wanted to take up private farming to get returned their assets within 90 days upon their request, either in cash or in kind; and

(b) the requirement to pay out all those who wanted to convert their asset shares into cash seven years after the transformation.

It is evident that all those persons expected to get their shares in nominal value at the prices of 1992. The implications for the agricultural producer co-operatives have been only understood in the following years. With respect to the companies limited by shares all those who wanted to leave were, right after the transformation, entitled to the real value only which is just a fraction of the nominal one. Therefore, there has been an immense pressure by the representatives of the agric ultural producer co-operatives on the government to amend the Transformation Law 42/1992. Otherwise, most of them were expected to have to file for bankruptcy. The Law has been amended in late 1995 by the Act 264/1995. From March 1996 the asset shares are to be converted into equity bonds which can be traded at the market. These bonds however are traded according to their real value. Those who buy have the option of joining the co-operative as member. This transfer into equity bonds implies that those who want to take out their assets in order to take up private farming only get their bonds but no assets in kind anymore. Similarly, all those who want to convert their assets into cash in 1999 will be paid according to the real value of their bonds.

Even six years after the implosion of the socialist regime agricultural producer co-operatives are the dominant type of organisation in agricultural production (European Commission, 1995: 26). About two thirds of the total agricultural land in Slovakia is managed by agricultural producer co-operatives. Private farming has not been taken up that enthusiastically as anticipated by theoretic analysts. Less than 10 percent of the agricultural land is managed by them. Most private farms whic h have been set-up are too small to ensure an adequate level of income. Some land is still cultivated by the state farms which are being privatised since late 1995. However, since 1993 companies limited by shares are gaining in importance in agricultural production. While the number of joint stock companies increased somewhat, the number of limited liability companies increased rapidly. Due to unreliable statistical figures their number can only be guessed at, but conservative estimates put their numbers at 29 joint stock companies and about 180 Ltd.s at the end of 1995. Most state farms are privatised as limited liability companies. Similarly, new Ltd.s are set up by groups of individuals which are renting land and assets from transformed co-operatives.< /P>

In analysing this development two questions come up: Do agricultural producer co-operatives have a specific development option as an exception to the Law of Transformation as has been claimed by Oppenheimer? Or are these organisations j ust co-operatives in title, but gradually changing or actually have been transferred de facto into another type of organisation? To shed light to the answer of these questions, four transformed agricultural production units were selected and analysed in-d epth on their proceedings with respect to the transformation.

3 Analysis of Transformation Based on Four Selected Case Studies

The following sample comprises four agricultural production units which have been transformed in late 1992 - in line with the Transformation Law 42/1992 - into three agricultural producer co-operatives and one joint stock company, r espectively. Since most managers of the agricultural production units were very reluctant to talk to outsiders during this period of organisational readjustment and economic uncertainties, these four units were selected among those which had some contacts with RIAFE during the last years. Due to time and financial constraints the selected units had to be located within a distance to Bratislava (up to a maximum distance of about 150 km) to ensure that the visits could be done within one day each. In this r espect there might be a small bias towards the economically more successful units, since the units in the Danube Plain used to be better off. Each of the four units has been visited several times. Both the general manager and the chief economist of the re spective unit were interviewed. In addition, the management provided some documents which could be analysed in-depth in Bratislava. The interviewing and analysis has been done between late 1994 and Spring 1996. The analysis which follows refers to the sit uation at Spring 1996.

Within this analysis it was the main objective to show how the transformation has been actually implemented at the co-operative level. The main source of information has been the present management. However, within two units of our samp le the management changed since 1989, within one it changed even twice. It is surprising that after a few years a lot of information is no more available, particularly the reasons why the management opted for a transformation into a genuine co-operative o r a joint stock company. Similarly, it is difficult to understand in retrospective the reasoning of renting out production assets to third parties. In most cases written records were not kept and the events had to be remembered by the various parties conc erned. Therefore, in case of change of management, it was tried to check the findings with a member of the former management.

3.1 Main Characteristics of These Selected Cases

For the selection of the analysed agricultural production units it has not been important that they were regionally equally distributed. Rather it was looked for units which were characteristic for different paths of development sin ce the transformation. The four selected units can be characterised as follows (see for a summary of the main characteristics Table 1 at the end):

- The co-operative R stands for those which adjusted their legal status, but the management and the organisational set-up more or less remained the same. Similarly, the membership did not change much since all non-working persons e ntitled by the Transformation Law 42/1992 were deterred from joining due to a high membership fee amounting to SK 15,000 payable in cash.

- The co-operative F similarly adjusted its legal status, but rented out more than half of the agricultural production factors to private entrepreneurs and companies. As with co-operative R all non-working persons entitled to join were required to pay an entrance fee of SK 6,000 in cash. Therefore, the number of members remained more or less the same at the time of transformation. However, the then management adopted a strategy of buying out members so that the overall number has b een reduced significantly since 1993. Since 1995 the new management is pushing for a return of most assets.

- Already right after the collapse of the socialist regime the former managing director of co-operative M left and was replaced by somebody else of the then management. Membership was open not only to the entitled persons but also to companies which were collaborating with the co-operative. The democratic rule of decision-making was given up in favour of multiple voting rights based on the value of the asset shares. Maximally one member disposes of 17 votes. After the transformatio n into a genuine co-operative the management rented all agricultural production factors to private entrepreneurs and companies. The role of the co-operative was reduced to a book keeping unit for these independent enterprises. In September 1995 the manage ment changed again. The new one opts for a return of most production assets to the co-operative in the years to come. In 1996, it started with the first production activities again.

- The joint stock company MZ is one of the 12 cases in Slovakia whereby a former agricultural production co-operative opted for a transformation into this type of company limited by shares. The members became shareholders. Most of those persons who were entitled to join due to their ownership titles of land became shareholders. This group forms by far the majority in relation to the former members of the production co-operative. Shares can be traded at the market at their real valu e although not much trading is ongoing, so far. In this respect, this type of transformation had been a clever method at that time in avoiding the pressure of paying out all those who wanted to liquidate their shares in 1999.

The economic position of most of the agricultural production units analysed seems to be better than the national average. All of them, with one exception, showed profits in 1995. In this respect there seems to be a bias for the better-o ff units since still more than half of all large-scale agricultural production units in Slovakia showed losses for that year. However, some units analysed recorded losses during the years 1990 - 1994, but except for co-operative F they used to be not very large. On the other side, the joint stock company recorded profits during all these years which has been exceptional in Slovakia.

3.2 Initiator of Transformation

When it comes to the implementing force which actually pushed the transformation at the enterprise level it has always been the then management which did so. According to the Law 42/1992 all entitled persons (i.e. all working member s plus all those who had inherited land and other inventories which had been used by the co-operative in the past) had to be invited for a general assembly. During this assembly they were briefed about the rules and regulations of the Law. They were requi red to elect a Transformation Board with the task to draft a transformation project for the co-operative. Within this transformation project it had to be defined into which type of legal entity the co-operative is supposed to be transformed. In addition, a preliminary economic development plan had to be prepared. Although in all cases those persons, who had not been member before, held the majority of all entitled persons, they always opted to elect members from the established management to do the job. I n some cases the transformation board comprised one or two members representing the newly entitled members.

In this respect, the newly entitled members never seemed to regard themselves as a homogenous group. Rather they seemed to be a number of individuals who just happened to have inherited a piece of land or inventory which has been handed over to the co-operative more than three decades ago. But they did not seem to have developed a great degree of personal commitment for the agricultural production unit within this short period of one or two years to which they became attached by the abr upt change of the political system and by inheritance. Most of them did not live in the area where the co-operative is located and professionally they were working in other fields. However, most of them had family relations to the respective areas so that they were informed to some extent during all the years what was going on at the co-operative. Nevertheless, the idea that they had become owners of the co-operative or the successor organisation was totally strange to them at that stage. Therefore, they did not feel the need to loosely organise themselves and to push for their common interests as land owners vis-à-vis those of the workers or the then management.

On the other side, those members who used to work in the co-operative farm and were still active or retired followed, as during the socialist days, their trusted management. Among this group there were some who also owned some land and inventory which had been used by the co-operative farm. However, most of the working members had been employed during the 1970s and 1980s, and they did not own or inherit any assets. The group of the working members also did not develop any commitment as co-owners of the co-operative or the successor organisation up to the time of transformation. During this period of economic uncertainties it was most important for them to keep their jobs. They accepted that most of the retired persons who used to work p art-time in the co-operative farm had to be dismissed already before the transformation. But concerning those in working age, they followed any proposal which promised to guarantee their employment opportunities.

Therefore those in the position of the management had an easy play to follow their own ideas. They were regarded as competent to show a way out during this period of economic uncertainty. They were elected as members of the Transformati on Board and they had the necessary contacts to the officials at the Ministry of Agriculture and to the banks. In theory, not only the Transformation Board, but any entitled person had the right to prepare a transformation project. But nobody else did so. Therefore, there have never been any competing proposals which had to be discussed thoroughly at the assembly. There was always one proposal which had been accepted. Most of the entitled persons could not assess the implications of the transformation pro ject anyway.

The transformation project had to be accepted by the general assembly of the entitled persons. Only then the inaugural assembly of the successor organisation could be held at which only those participated who wanted to become member of the successor organisation. At that assembly the managing and supervisory board had to be elected which appointed in most cases the general manager of the newly established legal entity. This entity had to be registered with the commercial court and, lega lly, the transformation process had been completed.

3.3 Repercussions on Membership and Decision-Making

The Transformation Law 42/1992 has been very specific on the procedure of the transformation process, the options for legally accepted successor organisations and the timing. However, it had been rather vague about the implementing provisions. It left a large margin of discretion for the then management or more specifically the Transformation Board to specify the regulations for the respective successor organisation. Whether this had any repercussions on the membership structure and the decision-making process will be discussed below.

Membership Structure

According to the Transformation Law all entitled persons had the option to join the successor organisation. Roughly three groups could be distinguished:

(a) working members, still active

(b) working members, already retired

(c) non-working members who had inherited ownership titles of land and/or other inventory which had been used by the co-operative

Some entitled persons did not want to join, either because they wanted to start as private farmers or due to personal reasons. In all four agricultural production units analysed the share of those who wanted to take up private farming h as been very small. On average, the agricultural production units had to return about 100 - 200 ha each. Those who started farming on their own just cultivate areas of up to 2 - 3 hectares. There are very few who cultivate more than 20 hectares. Therefore , private farmers are not posing any thread of competition to the large-scale production units, so far. That thread might come from limited liability companies which are renting production factors from the co-operatives, as it is discussed below.

But also not all entitled persons who remained joined due to varying criteria of admittance. As part of the transformation project the nominal amount of one share of the successor organisation had to be specified. In our sample the valu e of one share was set between SK 6,000 by co-operative F and the joint stock company MZ and SK 30,000 by co-operative M. In general, the value of the asset shares of most entitled persons which they received as part of the transformation process was high er than the minimum amount needed. The asset shares were converted into membership shares with respect to the agricultural producer co-operatives and name and bearer shares with respect to the joint stock company. However, this was not done in all success or organisations. The transformation boards in the co-operatives of R and F took the liberty to stipulate that all those entitled persons who did not use to work for it, were required to pay the nominal amount of one share in cash. Although this group for med the majority at the respective general assemblies when it was voted about the transformation project, this stipulation had been accepted. But nobody bothered to pay this minimum sum in cash. In this respect, the management succeeded in keeping all new comers out of the decision-making process, e.g. in co-operative R there were about 1,200 entitled persons due to land ownership compared to about 400 working members. Concerning co-operative M a number of newly entitled persons joined but they were still outnumbered by those who used to work there. Only with respect to the joint stock company MZ the transformation board encouraged all entitled persons to join. Here, about 60% of all shareholders are made up by those who did not work there before. In this respect, the membership structure of this production unit comes close to the general pattern of all transformed entities in Slovakia.

With respect to the number of members within the various agricultural production units no clear pattern can be deduced. Theoretically, both co-operatives and joint stock companies are characterised by the rule of "free entry and fr ee exit" of their members although certain minimum regulations have to be observed. In our sample the number of members either remained stable or declined within the period from the end of the transformation process up to early 1996. The number of me mbers more or less stagnated in co-operative R. In co-operative M the number of members declined by about 10% when the former management lost a vote of confidence and all those who had opted for and profited from the approach of that managing board left. As a special case can be regarded the co-operative F. There, the then management followed the strategy of buying out members in order to reduce their number as much as possible. According to the law the management has no power to cancel the membership of any person. However, due to its respected and acknowledged position, the management could convince members to renounce their membership. As arguments it has been put forward the protection of the economic survival of the co-operative and of jobs. In addit ion, some cash allowances were paid to support such a decision. Almost no one resisted to this reasoning. Therefore, the membership of co-operative F declined within three years by about two-thirds. However, with the change of the management in March 1995 a few persons re-joined as members.

Only with respect to the joint stock company MZ the number of members remained the same. However, there have been a few exists of those who wanted to take up private farming which was balanced by a few new entries. The management active ly encouraged those persons who were entitled to join at the time of the transformation but did not want to and also did not take up private farming. In early 1996 the management undertook its last campaign to convince the last ones who still did not join , so far. According to the management, it was their objective to tie all those to the company who worked for it as well as those who rented land to it. Only in this way they felt secure that land owners will not rent their land to other bidders in the fut ure.

Summarising the change of the number of members it can be concluded that, on average, their number declined since the transformation. Some left voluntarily on their own will, others had to be convinced by the management to leave. Even t hose who had to be convinced did so with their consent since they could not be dismissed. On the other side, there were not much new recruitment. The option of joining an agricultural producer co-operative or a joint stock company in agricultural producti on has not been very attractive to outsiders. Investments in agricultural production have not been very remunerative during the last years. The most easy way of joining an agricultural production unit is to buy bearer shares of the joint stock company fro m those wishing to sell. The real value has declined tremendously during the last three years. However, not much trading of these shares with respect to joint stock company MZ has been on-going, so far. Actually, the regulations of admitting new members a re not clearly defined with the various agricultural production units. But, in general, the management is in a powerful position to scrutinise those who would like to do so. The units analysed can be characterised as a ‘closed-shop’ with relatively easy e xit, but difficult entry opportunities. All managing directors did not see any perspective in admitting new members e.g. as passive shareholders in order to enlarge their capital base. Only the joint stock company MZ handed out some name shares to outside rs, but not as a source of capital, but to co-opt important decision-makers to the company. However, those 13 workers which had been newly recruited at the end of 1995, were not offered any name shares. The co-operative M left the option in their statutes that other companies could become members but this approach did not materialise, so far.


Up to 1989 the workers, both active or retired, have been the members of the (socialist) agricultural production co-operatives. In those days the workers constituted the members. But they could neither elect their management nor did they have any say in decision-making. With the transformation the internal decision-making rules had to be adjusted to those of the market economic system. According to the economic and legal theory the general assembly is the highest decision-making bod y of both organisations, agricultural producer co-operatives and joint stock companies. It is supposed to be convened at least once a year. The daily decisions are taken by the management which is supported by the board of directors and the supervisory bo ard. Members of both are elected by the general assembly. The decision-making rules at the general assembly are based with respect to co-operatives on the democratic principle of "one member - one vote", with respect to joint stock companies on the principle that the number of votes of each shareholder is derived from the value of his shares. In reality, the transformation boards had a high degree of liberty to modify this classical rule as part of the transformation project.

Both, the co-operatives R and F did not change the classical principle of members’ voting rights. They sticked to the rule "one member - one vote". In co-operative M a system of multiple votes per member has been adopted. Up t o 17 votes per member are possible depending on the value of shares in the co-operative society. In this respect, the voting rules of this co-operative society become similar to those of a joint stock company. In fact, we can classify such a co-operative society as "co-operative joint stock company". On the other side, the joint stock company MZ limited the voting rights of those with a high number of shares. While in theory this type of organisation does not allow upper limits in voting shares, this company issued both name and bearer shares. Every founding shareholder received one share registered in his name, only. These shares carry preferential rights, like the right to vote on the major rules and the dissolution of the company. The transfe r of name shares is restricted. They can only be returned to the management. It can decide to hand out name shares to any third person who might be of interest to the company. In addition, each shareholder disposes of a certain number of bearer shares. Wi th these shares it is voted on the planning of future activities and how the profits will be distributed. These shares can be traded on a personal level. In this respect, the voting rules of this joint stock company become similar to those of a co-operati ve society. It is ruled out that one group, due to their majority in shares, can dominate the decisions into their favour.

However, regardless of the voting rules at the general assembly, the management enjoys a very high degree of liberty in taking decisions. In most cases, the general assembly is informed about the decisions already taken or the future pl ans. But seldom is there any debate or even controversial arguments. In co-operative F the general assembly has not been convened for more than two years after the transformation. In general, the management is free to act to their best knowledge without a ny interference by the members. The members are not used to their role as co-owners or co-entrepreneurs. They do not see their role in supervising and controlling the management. In general, they accepted all activities of the management as long as it was ensured that the number of unemployed did not rise too much. Similarly, the members acknowledged that the management had the necessary contacts to officials at the Ministry of Agriculture, the co-operative union and the banks which have been vital in sec uring the survival of the common enterprise.

On the other side, the general assembly cannot be pushed over all the time as it has been shown by the events in co-operative F and M, respectively. In both co-operatives, the management which worked out the transformation project pushe d for a business strategy of renting out production factors to private companies and individuals. In co-operative M all production factors were rented and it had been reduced to a book keeping unit for these private enterprises. The co-operatives themselv es adopted the role of a middleman, in combining the assets of a very large number of asset owners and of renting these to a few enterprises. The members accepted this approach since they were assured that all sub-units rented out would have to keep their workforce. In addition, it was said in co-operative M that the co-operative society would become the major shareholder of most of the companies which were renting assets and this would be an excellent way to save taxes. Soon, it was realised that these p romises were not kept and most private companies and entrepreneurs who rented assets from the co-operative society were closely connected with the then management, if not the members of the management itself.

In both of these co-operatives the management was replaced by a new one. But those who pushed for a change were different groups.

- In co-operative F an outsider who used to work in the co-operative during the 1980s wanted to rent the dairy farm of the co-operative. However, he was convinced by officials from the Ministry of Agriculture to become member and t o push for a complete change of the business approach. There was enough annoyance among the members that his proposal of a revival of the co-operative society has been enthusiastically accepted in March 1995. The former management resigned and he took ove r as the new general manager. However, concerning his management style he did not act in a different manner compared to his predecessor. He did not discuss the termination of a lease contract of 800 ha to a private entrepreneur at the general assembly. He just convened a meeting of the workers of that respective production unit and asked them whether they wanted to return to the co-operative society if they were paid higher wages. They accepted his proposal and the lease contract was terminated over night , just after the spring cultivation. The lessee saw no way to protect his rights. However, the termination of the lease contract was sweetened for him as he was re-employed as chief agronomist by the co-operative. It seems that the membership replaced one patriarchal figure with another one who promised better economic benefits to the working members. But the economic prospects do look much brighter now.

- With respect to co-operative M the general manager changed twice since the implosion of the socialist regime. First, the then general manager left the co-operative in early 1990 to follow other business activities. He was replace d by somebody else from the managing board. The second change had been more profound. After the transformation it were the land owning members who realised first that the implemented business approach of renting all assets to private companies and individ uals would soon lead to the bankruptcy of the co-operative society. However, it took these members who joined the co-operative with the transformation process more than one year to convince the others that they were heading for disaster if they continued to follow this approach and this management. While they were arguing with lost jobs and income their main argument was their declaration that "outsiders were becoming rich at the expense of the locals". The "outsiders" were the members of the then management who had been employed by the co-operative during the 1970s and 1980s but had come from other parts of Slovakia. The "local people" comprised both the working members and those who had inherited land, most of whom had fami ly relations to the villages. In this respect, the new members managed to set-up a coalition based on feelings of a common local identity. In September 1995 the former management had been replaced by a new one, comprising mostly new members who have had n o experience in managing agricultural production units, so far. They aim for a return of most production factors to the co-operative, but the former management had enough time to make sure that this will not happen too soon. Whether the general assembly w ill play a more important role in the future remains to be seen.

In this respect, it can be concluded that in those cases when the management kept on with the more classical approach of management, i.e. quite hierarchical, but ensuring employment and income, the members followed their line without qu estion. When the management adopted new areas of business approaches with respect to agricultural production and employment opportunities started to decline opposition came up. At that stage it became evident to all members that these new business approac hes have been to the benefit of the private entrepreneurs at the expense of the co-operative society. However, the leaders of the opposition never come from the working members although they are those who have most to lose. Opposition has been led either by outsiders who have an interest in the co-operative and are supported by officials or by non-working members who are employed elsewhere but fear about the loss in value of their assets in the co-operative society.

3.4 Major Effects of the Transformation on the Economic Position, Business
Activities and Employment

The transformation of the (socialist) agricultural production co-operatives had to be executed in a period of economic decline and re-adjustment. Therefore, the economic activities had to be streamlined, but the various agricultural production units adopted different approaches. The repercussions on the economic situation and employment have been profound in all units analysed. Within this chapter, emphasis is laid on the respective changes of the economic position, the business act ivities and employment during the years after the transformation.

Economic and financial position

The general economic decline had severe repercussions on agricultural production. The prices for agricultural products stagnated, while those for agricultural inputs increased, significantly. In addition, state subsidies were reduce d to a large extent and the payments of the down-stream sectors were usually very late. Compared to most other (socialist) agricultural production co-operatives in Slovakia the four selected ones entered the transformation process in a relatively good pos ition. They all recorded profits at the end of the socialist period and not one had to carry over debts. From 1990 onwards the profit and loss situation looked different with respect to the various production units.

Both co-operative R and the joint stock company MZ, actually those two units which did not change their management pattern, were recording profits during all these years. Particularly, crop production activities proved to be very succes sful. Animal husbandry activities were recording losses, with respect to the joint stock company MZ already since the socialist days. But profits in crop production, particularly due to vegetable and fruit production, were that high that they easily outpa ced the losses recorded by animal husbandry. In 1995 the overall profits stood at about SK 10 million. With respect to co-operative R the overall profits were not that high. All profits recorded in crop production were wiped out by the losses made in anim al husbandry. However, the off-farm activities were still profitable enough to ensure black figures. In 1995, the overall profits stood at SK 4.3 million. The high profits of the joint stock company are even more surprising given the fact that the outstan ding payments by the down-stream sectors accumulated to more than SK 25 million in 1995, whereas with respect to co-operative R they just came up to about SK 1.5 million. The main reason for the low profitability of animal husbandry seemed to be, besides low prices, an outdated technology which did not attract any skilled workers. Those who worked in this field were not highly motivated and mortality rates of the animals have been very high. Since the transformation the joint stock company MZ heavily inve sted in buildings and machines to improve animal husbandry and in 1995 first profits were recorded. In total, more than SK 50 million were invested in buildings and machines during the period of 1993 - 1995. Most of these investments were earmarked for th e improvement of animal husbandry. The co-operative R started with first investments in 1995 amounting to more than SK 10 million. It concentrated on the improvements in dairy farming, like a new milking parlour and new buildings, as well as tractors and other equipment for crop production.

Both companies received investment subsidies which came up to about 20% of the amount invested. In addition, both companies were successful in receiving production subsidies by the state mainly for the promotion of crop production and d airy farming. Without these subsidies both units would have recorded slight or no profits at all. Nevertheless, both are in a very good position to become even more profitable in the years to come. Both units did not give up their social funds, as did mos t other agricultural production units in Slovakia. Also in this field there has been not a big change from former times. The co-operative R is subsidising a canteen and supporting local sport clubs and health care activities. The joint stock company MZ is subsidising cultural activities, summer camps for the children and summer holidays of the shareholders.

Both other co-operatives analysed opted to rent most or all production factors after the transformation. Both units recorded profits at the end of the socialist regime, but those of co-operative M immediately turned into losses which am ounted CSK 12.4 million in 1991. With respect to co-operative F profits declined significantly, but no losses were recorded. This drastic decline in the economic well-being seemed to convince the then management that the development prospects of the co-op eratives were very limited. Therefore, they opted to rent the production factors to private entrepreneurs with the hope that these would make profits and the co-operative will participate through the rents paid. Those who rented the assets were mostly mem bers of the then management. These private entrepreneurs did not invest much but just kept on with the production activities. Most of them were recording profits with less and less staff while the economic situation of both co-operative societies remained at the same level or with respect to co-operative F losses jumped to SK 6.2 million in 1994. In 1995 only, the majority of the members of both co-operatives has been convinced that this approach will lead to the bankruptcy. The then management has been r eplaced by one which is actively promoting a revival of the respective co-operative society. With the election of the new management in co-operative F it immediately cancelled the contract to one entrepreneur who cultivated 800 ha. Since crop production h as always been profitable during the last years, these profits were needed to improve the overall financial position of the co-operative society. Similarly, the management started to invest more than SK 15 million, besides in some new machines and spare p arts for crop production mostly in the improvement of dairy farming and pork production. Although co-operative F was plagued by high outstanding payments of the downstream sectors which accumulated to more than SK 30 million in 1995, it was in a favourabl e position due to its reserve funds which amounted to more than SK 11 million in 1995. With this fund the losses of 1994 could be balanced and investments could be started. The management has had no problems in securing investment credits from the banks b ut it has been not successful, so far, in receiving investment subsidies from the state. In 1995 profits amounting to SK 1.5 million were recorded. The situation in co-operative M is worse since the new management only took over in September 1995 and all production factors have been rented for a five year period. Therefore, it is difficult to get some assets back within a short-term period. It is only in a position to raise the rents. In 1995 the losses still came up to close to SK 1 million. No investmen ts have been done so far.

One aspect which has been intensively discussed with respect to producer co-operatives is the thesis that members as co-owners will opt for that business approach which promises high wages and the distribution of profits as dividends an d bonuses. This consumption-oriented behaviour, it was argued, is one of the main reasons why producer co-operatives collapse after some time since there are not many funds left for investments. Therefore, large-scale producer co-operatives cannot compete with companies limited by shares. With respect to our sample this argument cannot be confirmed. In both co-operative societies which recorded profits in 1995, namely co-operative R and F, respectively, the management is in the same strong position as the one of the joint stock company MZ to push for investments. But both co-operatives started their investment drive in 1995, only, due to limited funds available, as in co-operative R or due to then adopted business approach, as in co-operative F. The joint stock company MZ was emphasising investments during all the years, but it has been in the best economic position of all units analysed. On average, about 20% of the profits are distributed as dividends and bonuses and the other 80% are invested for impro ving agricultural production activities. Both, members of the co-operatives and the shareholders of the joint stock company are supporting this approach. They all know very well that without investments the agricultural production unit will not proceed ec onomically in the long run.

In this respect, it can be concluded that there does not exist a dichotomy between consumption and investments of profits. Rather, there seemed to be a division of the management: On the one side, there is the management which is workin g for the economic benefit of the overall production unit. All activities, both farm and, if applicable, off-farm activities, are carried out under one management as during the socialist regime but adapted to a market economic environment. On the other si de, there has been the management which did not see any development prospects in the common production units but which first privatised most off-farm activities as independent companies. Then, it rented most or even all agricultural production factors to private entrepreneurs or companies. The co-operative just existed more or less on paper, only. Since most of these private entrepreneurs have been members of the management of the respective co-operatives, this has been a clever way to privatise the profi ts to the detriment of the co-operative society. In both cases analysed, the members could stop this approach, but both co-operatives have lost their competitive edge and a lot of funds for necessary future investments.

Streamlining of Economic Activities

During the socialist regime most agricultural production co-operatives in Slovakia not only concentrated on crop and animal production, but maintained large divisions specialising in off-farm activities, e.g. construction or metal w orkshops, etc. In many cases the co-operatives used to work as sub-contractors for large state factories. With the change of the economic system and the general economic depression, most co-operative societies had to give up these activities even before t he transformation. In general, these divisions were privatised as limited liability companies and the former staff took over although on a much smaller turn-over than the years before. In some cases the co-operative society went on with some off-farm acti vities, but in a scaled-down manner. All agricultural production units concentrated on crop production since with these activities some money could be earned even during the years of economic decline. Animal husbandry had to be reduced significantly due t o stagnating prices but sharp rising costs. In most agricultural production units all types of animal husbandry have become loss making activities. However, if costs can be cut significantly, animal husbandry is seen to have good economic perspectives.

With respect to the units analysed the picture looks as follows:

- The management of the co-operative R did not change much in crop production and animal husbandry. The co-operative cultivates an area of arable land amounting to 2,480 ha. The cropping system, comprising annual crops only, has be en changed just slightly. Animal husbandry, including dairy farming, cattle fattening, pig breeding and fattening has been reduced by more than 50%. While crop production is showing profits, animal husbandry is loss making during all the years since 1990. Off-farm activities have been a major source of income for this co-operative during the socialist regime. The co-operative maintained a metal workshop doing welding as a subcontractor to the metal industry. These activities had to be reduced, but were no t privatised. Actually, the co-operative has been successful in diversifying its off-farm activities after the transformation. Besides pursuing some trading activities the co-operative has become the sale representative for machinery spare parts for a Cze ch company which includes a repair workshop. The management does not see any need to expand its activities in the down-stream sector. It mainly aims at rationalising on-going production activities in agriculture, particularly dairy farming and cereal and sugar beet cultivation. On the other side, cattle fattening might be given up due to the sharp fluctuating prices which make any investments highly risky.

- In co-operative F the cropping system comprising mainly annual crops remained more or less the same. The co-operative has about 2,238 ha of arable land at its disposal. Animal husbandry comprising dairy farming, pig breeding and fattening had to be reduced significantly due to record losses. Besides the low prices the high mortality of animals due to negligence contributed to this bad performance. In addition, the dairy and the abattoir were always late with their payments, so th at short-term loans had to be taken to bridge the cash flow problems. With the transformation the management adopted the strategy of renting production factors to private companies or entrepreneur. The main units that had been rented included two plots of land comprising 800 ha and 923 ha, respectively and a pig fattening stable with a capacity of 4,000 places. With the election of a new management in March 1995, it is aimed to get all these production factors back. The immediate termination of the lease contract for the plot of 800 ha in May 1995 has been the first step. Right after the transformation all four units specialised in off-farm activities were privatised as limited liability companies. The former managers became the new owners. In the future the newly elected management sees good development prospects in animal husbandry, but not in off-farm activities. However, good prospects are seen in investing in the down-stream sector to link production and processing. To reduce the dependency of the do wn-stream sector the co-operative together with 27 other ones bought a majority stake of the local dairy.

- The then management of co-operative M introduced the most profound changes. The co-operative has about 2,040 ha at its disposal. While most land is covered by annual crops, more than 100 ha are devoted to vineyards and fruit tree s. Already before the transformation the machinery and equipment of the co-operative had been rented to the former staff who had to become private entrepreneurs. During the one and half years after the transformation all agricultural production factors ha ve been rented to private companies and entrepreneurs, i.e. all land, dairy farm, pig breeding and fattening as well as the petrol station and repair shop. The main reason, it was said, was to save taxes in this way. The co-operative society itself just h andled the book keeping for most of these private units. In early 1996, there were 3 limited liability companies and 17 private entrepreneurs managing the assets of the co-operative. However, neither the production programmes nor the supply links did chan ge much compared to the socialist days, e.g. the company which is managing pig breeding and fattening depends on the company which is managing crop production, which itself gets the organic fertiliser from the pig production company. However, all private units employ less staff than before. With the election of a new management in September 1995, it is planned to get back most assets to the co-operative, again. However, this will take a number of years until the lease contracts expire. The co-operative so ciety still has some funds at its disposal to make new investments, but they need to set-up a basis for production first. Some land has been returned to it in early 1996. During the next time it is planned to take up fodder crop production and viticulture , again.

- The joint stock company MZ has been in the most favourite position. During all the years before and after the transformation this company recorded profits. However, animal husbandry comprising dairy farming, cattle fattening as w ell as pig breeding and fattening had been a loss maker during the socialist days, already. Contrary to most other (socialist) production co-operatives in those days this one did not undertake any off-farm activities. Besides the cultivation of cereals an d potatoes the co-operative concentrated on vegetables, grape and fruit production which proved to be very profitable. With respect to crop production there have been no changes following the transformation. The joint stock company cultivates an area of 3 ,369 ha. Vegetables and fruits are still the major sources of income. The management concentrates to improve animal husbandry. Through heavy investments in modern technology and attractive wages it boosted workers' morale which resulted in a sharp reducti on of losses of piglets and calves due to negligence. Dairy farming and pig fattening showed first profits, already. In addition, it was invested in farm machinery, e.g. tractors, a belt-conveyer, harvester, tresher, etc. In 1994 some off-farm activities have been taken up. Since then the co-operative has become the national repair and maintenance centre for a German farm machinery company which is highly profitable. Nevertheless, the management will concentrate on the classical production activities in t he future. It does not see any need to invest in the down-stream sector. However, it bought a 34% stake in a limited liability company which produces seeds.

In conclusion, two different development strategies can be made up in our sample. On the one side, both co-operative R and the joint stock company MZ did not change their organisational set-up and production programme much and succeeded in overcoming this period of economic depression during the early 1990s. They rationalised the production processes, particularly with respect to animal husbandry which was depressed by low prices and a low working morale among the staff. Both units see good prospects in expanding in animal husbandry in the years to come. Co-operative R did not give up its off-farm activities. The management was successful in diversifying these activities. Similarly, the management of MZ took up some off-farm activities in 1994, although there has been no tradition in these activities before the transformation. While the management of co-operative R does not see any need in investing in the down-stream sectors, the management of the joint stock company MZ bought a stake in a seed producing company.

On the other side, the then management of co-operatives F and M opted to rent or to lease most or even all production factors to private companies and entrepreneurs. The co-operative society was supposed to be reduced to a holding compa ny with little decision-making power, anymore. However, the private companies stick on with the traditional production programme and technology, but with less workers. Only after some time the members realised that this approach will lead to the end of th e co-operative society and they elected a new management. Due to this renting of production factors the co-operatives have lost quite some income which could have been invested for the improvement of production activities. The private companies and entrep reneurs, although most of them made profits, did not invest much. With the new management in charge, emphasis is laid on a sharp improvement of dairy farming in co-operative F. It has pushed for a vertical integration with a dairy in which it has bought s hares. With respect to co-operative M, the situation does not look very good since the new management took over in September 1995, only. The production factors will be rented for a number of years. However, the management sees an option in fodder crop pro duction, grape growing and, even, wine production.

Effects on the Labour Force

Already before the transformation the number of workers and employees had been reduced. Most of those activities which were not directly related to agricultural production had been shed and privatised as limited liability companies. But also those workers directly concerned with agricultural production had to be dismissed. However, social considerations were taken into account when reducing the labour force. In general, those who received a pension and used to work part-time were th e first to retire. In addition, those with a very low working morale and who could not be dismissed during the socialist period were fired. But these have been a few persons only, so far. Finally, those with the least number of working years were dismisse d first, because it was assumed that they as young and relatively good educated persons could cope best with the changing requirements of the labour market. In this respect, it did not seem to be a problem that, in general, most of these persons had been members, too. On the other side, a few employees left voluntarily due to better employment prospects elsewhere or to start as private entrepreneurs.

While, on average, the workforce among the large-scale agricultural production units in Slovakia has been reduced between 1989 and 1995 by more than 50%, the situation looks different in the various units analysed. The co-operative R an d the joint stock company MZ reduced their staff by about 45%; i.e. in those two units which did not change their management, organisational and production structure that much, the lowest reduction of staff was recorded. The joint stock company MZ even re cruited 13 workers in late 1995. In comparison, regarding co-operatives F and M a different approach has been taken. There, the then management opted to rent out most, if not all production factors to private companies or individuals. Therefore, the workf orce has been reduced even more although those who rented the production factors were required to take over the respective staff. In order to compare the employment figures the number of staff at the co-operative was added to those of the companies and in dividuals which made use of the assets of the co-operative. While this comparison can be at best only a rough indicator, it can be deduced that the workforce has been reduced by about 75% in co-operative M and by about 85% in co-operative F. Particularly, with respect to co-operative M it has to be stressed that most of the remaining workforce is employed by private entrepreneurs.

With the reduction of the workforce the structure changed. During the socialist period great efforts were undertaken to improve the rural infrastructure and to increase agricultural wages in order to attract young persons for this field . The results have been quite impressive since the age structure became very balanced and a lot of well-educated persons joined this sector. The massive reduction of the workforce after 1990 led to a dismissal of particularly the old and the young ones. T herefore, those aged 40 - 60 years prevail by now. This unbalanced age structure might lead to problems in the future once these workers have to adopt to modern technologies which includes that they have to take over greater responsibilities in the produc tion process. When employing new workers both the joint stock company MZ and the co-operative F recruited young persons in late 1995 with a somewhat higher educational background.

However, working conditions are just in the process of being adjusted to the market economic system. The agricultural production units in general had to face the fact that morale among the staff declined due to the economic uncertaintie s after the implosion of the socialist regime and the transformation. Thefts of tools and equipment occurred very often. Those divisions responsible for animal husbandry have been particularly plagued by a low workers' morale which resulted in a high mort ality of piglets and calves. The reasons seemed to be the high degree of manual labour due to the outdated production technology applied. Therefore, jobs in this field have been less attractive than those in crop production. Those workers with higher skil ls tried to get transferred as soon as possible or they left. But, even in these days, it is very difficult to find skilled persons willing to work in these activities. Therefore, the management of most agricultural production units agreed to pay high wag es to the work force. Wages in co-operative R, the joint stock company MZ and since 1995 in co-operative F are more or less at the same level as average national wages or about 25% higher than the average wages in agricultural production. However, workers or groups of workers are now made responsible for their respective work performance. In this respect, theft and losses due to negligence could be reduced, significantly. In addition, workers are transferred more easily from one division to another in ord er to better balance labour peaks and slack periods. Workers can be employed more productively. Nevertheless, the management of the three production units mentioned invest heavily in animal husbandry. They all see a development perspective in these activi ties, if the costs can be cut. Similarly, they know that skilled labourers can only be attracted if modern technology is applied. The private companies and entrepreneurs use to pay in line with the average wages in agricultural production. Similarly, the wages for the book keeping staff in co-operative M are on the same level as the average wages in agricultural production.

4 Conclusions

In line with the Transformation Law 42/1992 most (socialist) agricultural production co-operatives in Slovakia were changed into agricultural producer co-operatives. Just a few opted for a change into a company limited by shares. Pr ivate farming only plays a minor role in agricultural production. Therefore, at a first glance, the Law of Transformation has not been confirmed in that sense that the agricultural production co-operatives will decollectivise into private family farms or, at least, will change into business companies once the political pressure and the heavy financial support are gone. Rather producer co-operatives are still the dominant type of organisation in agricultural production. Oppenheimer who stressed the special role of agricultural producer co-operatives seems to be confirmed in Slovakia. In this respect, it might be said that large-scale agriculture introduced with coercive means will be now continued on a voluntary basis but with adjusted rules and regulation s. The transformation process did not imply a decollectivisation leading to individualised farming. But compared to formerly collective farming, it implied private property rights, personal responsibility of one's own work and an incentive system which re wards and motivates individual performance (Brooks/Lerman, 1994: 26).

However, the agricultural producer co-operatives presently existing in Slovakia neither fully conform with the approach discussed by Schiller nor the one discussed by (mostly neo-classical) economists. Implicitly it is assumed in these discussions that a certain number of persons deliberately join together to an agricultural producer co-operative in a market economic system and this organisation will have to compete with other types of organisations. However, in 1992 the (socialist) agr icultural production co-operatives have been the commonly accepted form of agricultural production for a number of decades in Slovakia, with which most members associate highly positive reflections. Therefore, it has been the most easy way to transform in to that type of organisation which met two preconditions: It had to be legally compatible with the market economic system and it had to be well accepted by the membership. The transformation into an agricultural producer co-operative has been the obvious choice.

However, the agricultural producer co-operatives do not seem to correspond to the definition in a strict sense. Those transformed cooperatives in Slovakia are not characterised by the fact that the members are at the same time co-owners and co-workers. Actually, only a share of the members is actively working in the cooperative farm. But also the joint stock companies in agricultural production ensure each shareholder more equal co-determination rights than the value of their shares wou ld indicate. De jure they are both registered at the commercial court as different legal entities, de facto they adopt some characteristics from each other. The law leaves a large margin of discretion to the management and the general assembly of the resp ective organisation to define the organisational set-up. Both are characterised by the following facts:

(i) The position of the management in decision-making is very strong. In both types of organisations members leave it, in general, to it to determine about the production programme, the dismissal of workers or the rent of productio n factors. However, if the members realise that the promises by the management cannot be kept and the common enterprise is going to become bankrupt they elect a new one. In general, the management can act in a patriarchal manner.

(ii) The management puts heavy emphasis on investments. About 80% of the profits are invested to raise the productivity. This approach is supported by the members or shareholders since they all know that without the economic develo pment of the common agricultural production unit they either will lose their jobs or the value of their assets will become worthless. In case the management worked more for their own personal benefit than of that of the common enterprise, it is dismissed.

(iii) The size and composition of the members and shareholders varies to a large extent. The management had a large say on who actually was supposed to join during the transformation. For example, it could ask for an entrance fee i n cash from all those who were entitled by the Law to join, but did not use to work there. In another co-operative the management started right after the transformation with a buy-out scheme for members in order to reduce their number. On the other side, membership does not have to be open for private individuals only, but also for business companies. The management of the joint stock company has the option to hand out name shares to those persons which might be of business interest.

(iv) The rules of voting at the general assemblies does not follow a strict line, either. While the classical decision-making of the agricultural producer co-operatives is based on the rule of "one member - one vote", the one of joint stock companies is based on the relative value of the shares at one's disposal. However, in reality these classical rules might be changed. Agricultural producer co-operative take the option to introduce a system of multiple voting. On the o ther side, joint-stock companies distinguish between name shares and bearer shares. Each shareholder only gets one name share which imply larger decision-making rights. In addition, he/she gets a number of bearer shares depending on the value of one's ass ets. In both, co-operatives and joint stock companies in agricultural production the decision-making power of the individuals at the general assembly is fairly equally distributed. Individuals or small groups of individuals cannot get a majority in the de cision-making process through their shares but through their arguments only. The size of their respective shares is simply too small to dominate decision-making.

The leading persons of both, co-operative society or business company are of utmost importance for its prosperity or decline. In case members or shareholders realise that the management is working for the benefit of the common entity th ey provide their full support without long discussions. They are glad to leave all details to the management. In case members or shareholders understand that the management is working for its personal benefit only they make use of their co-determination r ights. They do revolt, withdraw their confidence and elect a new management. The motives and drive of the key-persons is highly decisive, the legal form of organisation is of minor importance only. Actually, both types of organisation, i.e. agricultural p roducer co-operatives and joint stock companies in agricultural production have overlapping characteristics. Except for their legal registration, it is difficult to distinguish them from each other. Agricultural producer co-operatives seemed to have adopt ed more features from joint stock companies than vice versa, particularly when the Act 264/1995 is fully implemented. It can be assumed that they will change their legal registration in the years to come.

5 References

Beckmann, Volker: Zur ökonomischen Theorie der Transformation von Produktivgenossenschaften.  In: Zeitschrift für das gesamte Genossenschaftswesen, Vol. 43 (1993), pp. 217 - 231

Bonin, John P., Derek C. Jones and Louis Putterman: Theoretical and Empirical Studies of Producer Cooperatives: Will Ever the Twain meet? In: Journal of Economic Literature. Vol. 31 (1993), pp. 1290 - 1320

Brooks, Karen and Zvi Lerman: Agrarreform in den Transformationsländern. In: Finanzierung und Entwicklung, Vol. 31 (1994), No. 4, pp. 25 - 28

Deininger, Klaus W.: Cooperatives and the Breakup of Large Mechanized Farms. Washington D.C., World Bank, 1993, Discussion Papers 218

Dülfer, Eberhard: Joint-production Co-operatives. In: International Handbook of Cooperative Organizations. Göttingen, Vandenhoeck & Ruprecht, 1994, pp. 517 - 521

European Commission (ed.): Agricultural Situation and Prospects in the Central and Eastern European Countries - Slovak Republic. EC/DG VI, Working Document, Brussels, 1995

Oppenheimer, Franz: Die Siedlungsgenossenschaft. Versuch einer positiven Überwindung des Kommunismus durch Lösung des Genossenschaftsproblems und der Agrarfrage. Leipzig, Fischer, 1896

Putterman, Louis: Agricultural Producer Co-operatives. In: Bardhan, Pranab (ed.): The Economic Theory of Agrarian Institutions. Oxford, Clarendon, 1989, pp. 319 - 339

Schiller, Otto M.: Cooperation and Integration in Agricultural Production. London, Asia Publishing House, 1969

Schmitt, Günther: Why Collectivization of Agriculture in Socialist Countries Has Failed: A Transaction Cost Approach. In: Csaki, Csaba and Yoav Kislev (eds.): Agricultural Cooperatives in Transition. Boulder, Westview Press, 1993, pp. 143 - 159

Webb-Potter, Beatrice: The Cooperative Movement in Great Britain. London, Allen & Unwin, 1891


Table 1: Main Characteristics of the Agricultural Production Units Analysed (early 1996)

Legal entity

Co-operative R

Co-operative F

Co-operative M

Joint stock company MZ

Short description of actual status

organisational pattern did not change at all with the transformation

rented out most assets to private entrepreneurs and companies; after the election of a new management first steps undertaken to re-take more assets

rented out all assets to private entrepreneurs and companies; after the election of a new management first steps undertaken for a return of all assets

transformation into a joint stock company; two types of shares: name shares (not tradable), bearer shares (tradable); no changes of the organisational pattern

Rules for membership

potential new members were kept out due to a high membership fee to be paid in cash (SK 15,000)

potential new members were kept out due to a high membership fee to be paid in cash (SK 6,000); buy-out of members by the management;

membership open to individuals and legal entities; up to 17 votes per member possible according to the value of asset shares

members have become shareholders; voting according to their share value; name shares issued to those only accepted by the management

after transformation
- working
- retired
- other entitled persons

- 212
- 190
- -

- 68
- 119
- -

- 18
- 200
- 182

- 263
- 348
- 899

Changes of management since 1989


once: March 1995

twice: early 1990 and September 1995


Farm size

2,582 ha


2,400 ha

3,452 ha

Arable land

2,480 ha

2,238 ha

2,040 ha

3,369 ha

Share of land rented to private entrepreneurs or companies


approx. 75%



Tenancy rate paid to the individual owners by the agricultural production unit

775 SK/ha

1,500 SK/ha

500 - 800 SK/ha

1,100 SK/ha

Length of tenancy contracts with the individual owners

5 years


1 - 5 years

5 years

Number of employees





Value of company property


approx. SK 120 million

approx. SK 40 million

approx. SK 60 million


since 1995 heavily, mainly financed through profits and subsidies

since 1995 heavily, mainly financed through credits and subsidies

nil; all assets are rented out, but plans for the future

heavily over all the years, financed through credits, subsidies, and profits

Significance of credit

negligible, but good contacts to the banks

up to 1995 need to cover cash flow problems; since 1995 for investments

nil; no need for the time being

available for investments, good contacts to the banks

Long-term debts from the socialist period





Profits in 1995

SK 4.3 million

SK 1.5 million; but loss of SK 6.2 million in 1994, balanced by reserve fund

losses of SK 0.9 million

SK 10.4 million

n.a. = not available
Source: Own Survey