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Summary of Main Findings

34. This section presents a summary of the main findings of the baseline SA. The SA is a dynamic process and these findings, therefore, are subject to change as the farm privatization progresses further and conditions change. The results presented here establish baseline conditions from which future social impact monitoring and evaluation efforts can evolve.

35. In the five regions covered by the SA, household incomes and living standards are low but absolute poverty is not widespread; this is reflected both in income calculations based on cash and in-kind income and in expenditure patterns. Rural households, despite their current difficulties, have savings. Most households still keep their privatization vouchers to use in the future. A significant portion of them might be willing to use these vouchers as collateral for agricultural credit in the future; they also indicate that they can use these to form production associations or buy farm machinery.

36. A rural transition from a wage-based society to a peasant society has taken place and the role of the family in cushioning adverse impacts of transition has increased. Rural households rely on multiple sources of income for their sustenance, with their members developing greater interdependencies. Household reliance on garden plots has increased, as did unemployment, especially among women. The land distributed to households consists of less than 2 hectares for a family of 3-5 persons and is insufficient to sustain a family even if the major constraints to farming are removed. Farmers, as a result, are keen to learn ways and means of intensifying agricultural production. Land shortages encourage small holders to form voluntary production associations with neighbors, family members and/or ex-managers of state farmers but little information is available on their dynamics.

37. There is a high level of seasonal and long-term emigration from rural communities; work in Russia and Baku is common. Many households heavily rely on remittance income. The great majority of households point to the need to have regular employment, with land and livestock providing additional income, to curtail further rural exodus. Unless the agricultural sector is developed rapidly, this is likely to become a larger phenomenon, creating high levels of social disruption and further draining the rural economy of its work force.

38. Farmers confront multiple constraints in their efforts to cultivate their newly acquired private plots. Inability to have access to good quality seeds, fertilizers, pesticides, farm equipment, and irrigation water top the list of priority needs; the lack of adequate knowledge and know-how are also perceived as important. There is also a lack of quality control in farm inputs and there are hardly any local buyers for goods produced; attempts to market the produce outside, on the other hand, are hindered by transport problems and roadside corruption. The inadequacy of the pre-transitional institutions to facilitate the delivery of key inputs for farming and to facilitate marketing requires a consolidated focus on institution building.

39. Most independent farmers do not have access to formal credit facilities but many borrow from relatives and neighbors without interest¹⁰. Rural people say that even though they need credit, without improvements in access to agricultural inputs, transport services and marketing facilities they would be cautious to borrow¹¹. Although most farmers would like to receive credit, they are also concerned about high interest rates and payback problems. Because in some regions people were told that credit would be made available to formal groups, many registered themselves with the Ministry of Justice as agricultural “firms” to qualify for credit. There is fear that credit would be made available only to managers of the previous era who have succeeded in organizing other farmers into collectives or who have established private farms of larger size prior to the more recent land distribution process.

40. Inadequate rural infrastructure constrains the agricultural production process and hinders people’s ability to improve their living standards. The priority rural infrastructure needs identified by the people consist of transport services, electricity and irrigation. Most households have electricity only for a few hours a day. The shortages of electricity further disrupt the functioning of already-dilapidated irrigation systems. It also limits access to the mass media. The sharp deterioration of social infrastructure is yet another major source of reduced living standards in the countryside and a strong push factor for the out migration of able-bodied persons. The adverse impacts of this situation on women and the elderly are already evident.

41. There is low trust in the procedures and outcomes of farm restructuring in areas where privatization is not completed. Outside the Pilot Project’s scope, the land distribution process is unevenly completed. Some households are given their land share and identifiable plots; others are not yet given their plots. None of the land is registered; as a result, there is lack of ownership security and of land markets. While people strongly support the notion of private land ownership, the insecurity of ownership, on the one hand, and the inability to trade land, on the other, is hindering people’s ability to expand their agricultural activities. Therefore, there is need to expedite the process of land distribution and land registration.

42. The privatization and distribution of farm assets is incomplete in most rayons¹². There is confusion about the evaluation and distribution of these assets. This is a major concern since redistributed assets constitute the much-needed working capital and input for independent farmers. It is, therefore, advisable to consider the cancellation of state farms’ debt to the State and institute transparent mechanisms for distributing farm assets to avoid rent seeking behavior. Agricultural reform efforts currently appear to be limited to land distribution; as such people have difficulties in being able to anticipate broader benefits to privatization. There is lack of understanding of these potential benefits even among the local leaders. It may therefore be beneficial for the Bank to finance a consultative workshop with local leaders to facilitate sharing of experience among them of local costs/benefits of agricultural reform and to bring global knowledge to their attention as possible solutions to local problems.