VÝVOJ TRHŮ S PŮDOU V ZEMÍCH STŘEDNÍ A VÝCHODNÍ EVROPY

the development of land markets in Central and Eastern European countries

Vývoj trhů s půdou v zemích Střední a Východní Evropy

Eberhard Schulze, Peter Tillack

Address:

Institute of Agricultural Development in Central and Eastern Europe (IAMO)

Magdeburger Str.1, Halle/S., Germany

tel: +49 345 500 81 25, +49 345 500 81 30, fax: +49 345 517 06 11

e-mail: schulze@iamo.uni-halle.de, tillack@iamo.uni-halle.de

Summary:

Land and land leasing markets are an essential precondition for the development of an efficient and competitive agricultural sector. They are the only possibility for farmers, as the predestined users of the soil, to acquire land. The paper describes the development of land and land leasing markets in Poland, Czechia, Slovakia, Hungary and Bulgaria.

At the beginning it is underlined that land privatization has provided the basis for setting up land and land leasing markets. This is followed by a more detailed consideration of sold or leased farmland and the realized prices which are compared between single countries. Above this, the relationship between land purchase and leasing prices is highlighted. The emergence of land and land leasing markets is most advanced in Poland.

Anotace:

Existence trhu se zemědělskou půdou a jejího pronájmu jsou základními předpoklady pro zdárný vývoj efektivního a konkurenceschopného agrárního sektoru. Jsou jedinou možností pro zemědělce při získávání zemědělské půdy. Studie se zabývá vývojem trhů se zemědělskou půdou a jejím pronájmem v Polsku, ČR, Slovensku, Maďarsku a Bulharsku.

V úvodu autoři přisuzují velký význam procesu privatizace zemědělské půdy jako základního předpokladu pro vznik a vývoj trhu s půdou. Dále se detailně zabývají otázkami týkající se zprivatizované a pronajímané zemědělské půdy včetně jejího oceňování v jednotlivých zemích. Porovnávají podmínky při koupi půdy a jejím pronájmem. Docházejí k závěru, že mezi sledovanými zeměmi má nejvyvinutější trh se zemědělskou půdou Polsko.

Keywords:

privatization, land market, leasing of land, landrent

Klíčová slova:

privatizace, trh s půdou, pronájem půdy

1. Introduction

Agriculture in free market systems involves mainly private farms and private ownership of land and other farm assets. Owner and entrepreneur need not necessarily be the same person; moreover, the entrepreneur may lease or rent both land and other farm assets from natural and legal persons or even public institutions (municipal or government property). Leasing and purchasing of land allow to overcome historically grown farm borders and to extend farms to optimum sizes. For this reason, land and land leasing markets are a decisive precondition for successful farming and higher benefits from technological, biological and organizational progress.

The paper focuses on the development of land and land leasing markets in Poland, Czechia, Hungary and Bulgaria since the beginning of transition.

For better rating of the development prospects of land and land leasing markets it seemed to be advisable to determine the portion of already privatized farmland in the total agricultural area. Ensuing from this, land purchase and sale as well as land rents were analysed.

2. Private land ownership, land purchase and sale

Table 1 shows 1) the share of the privatized farmland in the total area, 2) the portion of land owners who have already received documents of ownership, and 3) the portion of land owners whose property has already been entered into the Land Register or similar records.

Table1: Private farmland, land owners with documents of ownership and entry in the Land Register in %

Source: Own studies (see Footnote 1).

Table 1 reveals that land privatization has already advanced to the point where land markets can emerge. Yet, limiting conditions exist in the rights associated with land ownership. As a rule, farmland must not be sold to foreigners, in Hungary not even to corporate bodies. In Poland foreigners are authorized to buy land provided they have established a Joint Venture with a Polish partner in Poland. The same rights are enjoyed in Czechia by so-called hard currency residents. Regarded as such are, according to Land Law No. 229/1991, foreign citizens with permanent residence or corporate bodies (legal persons) with principal place of business in Czechia (VOLTR, 1998). Foreign legal persons with main office in Slovakia are also allowed to purchase land (BLAAS et al., 1998). In all five countries land purchases are subject to reporting requirements in order to enter ownership changes in the Land Register or a comparable register. Thus, the public hand is able to check the observance of legal provisions.

Land prices are no subject of government control except for Slovakia, where the state exerts direct influence via standard prices. By abstaining from long-term efficiency assessment of land input/handling/transfer, which is reflected in the land rents forwarded by the leasing partners, an essential allocative criterion of market economy is not (yet) made use of. This, on the other hand, involves the danger of inefficient land allocation (DOLL, KLARE, 1998).

In the other countries no official government influence on land allocation and land prices is observed, however, certain legal provisions act indirectly, for example via ceilings for private land property (300 ha in Hungary), the prohibition of land sale to legal persons (Hungary) and foreign citizens or land purchasing by the government on the basis of public land rating (Bulgaria).

Thus, the demand for land gets generally limited with the consequence of declining land prices. The same effect have monopsonies which develop on territories without land competition, for example if the agricultural area is exclusively managed by large farm enterprises and if unfavourable natural conditions prevail (SCHMIED, 1997, TILLACK et SCHULZE, 1998). In Bulgaria, however, government price fixing for land has led to excessive land prices (see Chapter 4).

Table 2 demonstrates the extent of farmland sold in Poland, Czechia and Slovakia in the last years. No information was available for Hungary and Bulgaria. The mean land prices per hectare have been given in the local currency and, for better comparison, in DM and in tons of wheat (calculated on the basis of the average domestic prices), including also Bulgaria.

Table 2: Sale of farmland (ha) and land prices

* - bread wheat

Source: own surveys (see Footnote 1), prices and exchange rates acc. to http//www.bcmag.com (Business Central Europe -Bulgaria), OECD (1997), DIW (1997).

Table 2 reveals that the extent of realized land, apart from Poland, is low and that land prices differ notably. In 1995 68.1 % of sales and purchases of land in Poland took place between farmers, 32.8 % between farmers and legal persons, i.e. mainly the National Land Fund (OSTROWSKI, 1966).

If hectare prices (in DM) in Poland are set equal to 1, we get for Czechia and Slovakia the factors 2.01 and 2.04 for 1995 , and 1:2.04 and 1.7 resp. for 1996. Converted into bread wheat per hectare, we get for both countries in 1995 a ratio of 1:2.96 and 2.8 resp., for 1996 1:3.1. Taking the 1995 yield as yardstick, one hectare land in Poland cost the 1.8fold annual yield, in Czechia and Slovakia even the 3fold yield. For comparison: In eastern Germany 2.6 to 3.9 annual yields were required, this included a land price of 5.363 DM/ha (mean land price in Mecklenburg-Outer Pommerania 1996) up to 9.705 DM/ha (mean price in Thuringia 1996), a price of 24 DM per dt of bread wheat, an EUcompensatory paym. of about 600DM/ha and yields between 60and80dt.

The comparison makes clear that the relative land prices in Czechia and Slovakia rank on about the same level as in the new German federal states, yet, they are much lower in Poland. Table 3 shows the variations of land prices and mean, minimum and maximum prices per hectare of cropland, grassland and viticultural areas.

Table 3: Hectare prices of cropland, grassland and viticultural areas in selected

central and eastern European countries

* - Lowest or highest mean in a Voyevodina.

** - The same values result because land exceeding the value of 200.000 Crowns is regarded as potential building land.

Source: Own surveys (see Footnote 1), prices and exchange rates acc. To http//www.bcmag.com (Business Central Europe -Bulgaria), OECD (1997), DIW (1997).

Land as security for short, medium and long-term loans has so far been accepted only in Poland, in Hungary only short-term loans are granted.

3. About land leasing markets

For characterizing the situation on land leasing markets the extent or percentage of leased land and the term of land tenure are interesting. Table 4 shows the portion of leased out farmland as well as the conventional, minimum and maximum leasing period.

Table 4: Percentage of leased land in the total agricultural area and term of land tenure

Source: own calculations (see Footnote 1), DOLL, KLARE 1998.

Poland has the lowest percentage of land tenure due to the missing impact of collectivization on peasant farm structures. In countries standing out for low-structured land property, yet larger farm sizes, the share of leased land is much higher. Apart from eastern Germany, in Poland terms of lease are longest extending over 8 years. Thus, Polish farmers enjoy the highest economic security. Terms of lease over 1 to 3 years, as practised in Hungary, are unfavourable for farm management. Such short contracts are advantageous only for the lessor, as he can better cope with price changes.

Table 5: Mean land rents and ratio between land prices and land rents

* - There is no average land rent. Historically based, land quality is indicated in gold crowns. 1 ha cropland has an average ”gold crown” value of 20-21, grassland 6-12. The most frequent rents paid per hectare of cropland would thus be equivalent to 3.4-4.1 dt wheat. Source: own surveys (see Footnote 1). Prices and exchange rates acc. to http//www.bcmag.com (Business Central Europe -Bulgaria), OECD (1997), DIW (1997).

However, long-term leasing contracts with settled rent adjustment can be signed as well. There are no restrictions concerning the legal status of the tenant, that means both natural and legal persons are authorized to lease land. Leasing land to foreign citizens is allowed in Poland, Czechia and Hungary, not yet in Slovakia and Bulgaria. In Slovakia, however, permission is granted to foreign legal persons with residence in the country. In all five countries there is no supervision of the leasing contracts by government authorities. Neither are they subject to reporting requirements. In Poland only leasing contracts have to be reported to the National Land Agency for registration. In none of the surveyed countries rents are controlled by the government, however, there is an indirect influence via lease of state-owned land. In no country banks accept land leasing contracts as security for loans. Table 5 shows the mean land rents per hectare and the ratio between land prices and land rents

The relationship between land purchase price and rent of approx. 20:1 in Poland and Bulgaria corresponds, on the basis of compound interest calculation, to a yearly interest rate of 3.5% for the capital invested in land, which seems to be normal in the sector of agriculture.

In Slovakia interest rates are much lower, obviously caused by public fixing of land prices. The same holds true for Czechia. The cited relationship of 82.6:109.3 between land price and land rent for 1 shows that in both countries land and leasing markets are not yet existing.

For comparison, attention is drawn to the new German federal states where leasing prices rank between 100 DM/ha in the case of a field valuation index of 20 scores, and 400 DM/ha at 80 scores (DOLL, KLARE 1997). This approach also yields a ratio of 20:1 for the relationship between land purchase price and land leasing rent.

Table 6 demonstrates the differentiation of land rents for cropland and grassland. Whereas in Poland rents for arable land (cropland) exceed those for grassland by about 25% only, they reach the 5 to 6-fold level in Slovakia. This might be due to stronger territorial division between typical cropland or grassland regions in Slovakia, on the basis of the natural conditions.

Table 6: Leasing prices (rents) per hectare cropland, grassland and viticultural area in selected countries of central and eastern Europe

Source: own surveys (see Footnote 1). Prices and exchange rates acc. to http//www.bcmag.com (Business Central Europe -Bulgaria), OECD (1997), DIW (1997).

4. Factors influencing land purchase prices and land rents

Winding up, some remarks on the determinants for land prices and rents. Major influence is exerted by the land quality, climatic conditions (temperature regime, precipitation and their distribution), land improvement measures, the actual yield potential under fertilization and plant protection measures as well as supply and demand. A detailed consideration is available from DOLL and KLARE (1997). In Russia, analyses of supply and demand and their effect on price development were made by BELENKY (1998). Estimations have been made of the actual land availability, the actual demand and the purchase prices (incl. land for building).

In some regions supply exceeds demand and vice versa, with corresponding impact on prices.

GRIGORIEV et al. calculated the development of land average prices for Bulgaria on the basis of the yield potential increases since 1939. They arrived at the opinion that land prices in Bulgaria show the same tendency as the worldwide trend. Considering the development of the yield potential to 216% as well as gold prices and dollar parity with gold, we come to a nominal land price of 6 332 500 leva per hectare in 1990. If we also consider the spending power of dollar and leva, we get a value whose order of magnitude is equal to the land price given in Table 2. However, taking into account the lack of capital for the purchase of fertilizers and plant protection agents and the ensuing drastic decline of yields since 1990, land and land leasing prices are supposed to have been much too high in the last years. This was obviously the reason for a downward correction in 1998. Now they rank at an average of 2500 to 3000 DM per hectare, the price for the highest land category being 6330 DM/ha, for the lowest 402 DM/ha (Bulgarski Fermer 1998).

Summarizing the development of land and land leasing markets in the five sampled countries, it can be stated that the process is most advanced in Poland. Privatization of land should be accomplished in all countries as soon as possible, with subsequent liberalization of land markets .

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