Structure and Performance of Agriculture in Central Asia

The five countries of Central Asia – Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan – became independent states in 1991-1992 with the dissolution of the Soviet Union (see Map 1). Immediately after assuming independence, the Central Asian countries embarked, together with the rest of the former Soviet Republics (the Commonwealth of Independent States – CIS), on a program of reforms intended to achieve a transition from a command economy to an economy more in line with market principles. The reforms in the agricultural sector aimed to eliminate the traditionally wasteful use of resources and thus improve productivity. For countries that in 1990 derived more than 30% of GDP from agriculture, improved agricultural performance was naturally expected to boost household incomes, especially in the poor rural areas. These goals were to be accomplished through the process of land reform and farm restructuring, implemented simultaneously with price and trade policy reforms. The reforms were basically expected to change the producer incentives, strengthening profit orientation and thus increasing personal involvement and motivation. One of the striking features of transition from plan to market in CIS agriculture is the dramatic shift from the predominance of large corporate farms (kolkhozy and sovkhozy, generally referred to as agricultural enterprises) to individual or family agriculture based on a spectrum of small farms (Lerman 2008; Sedik and Lerman 2008). The individual sector, combining the traditional household plots and the new peasant farms that began to emerge after 1992, accounts for most of agricultural production and controls a large share of arable land. This is a dramatic change from the pre-1990 period, when agricultural enterprises produced over 70% of GAO and controlled over 90% of arable land. These changes of farm structure, while consistent with the dominant mode in market agricultures, clash with the traditional Soviet philosophy of economies of scale. They also clash with the inherited ideology that views small family farms as an undesirable and even damaging deviation from the capital-intensive, highly mechanized, and commercially oriented mainstream. We therefore witness an ongoing debate, both among CIS decision makers and within the CIS academic community, as to the performance advantages of the two main organizational forms in agriculture – large corporate farms and small family farms. This continuing debate in effect ignores the well-known theoretical considerations that reveal clearly identifiable advantages of small family farms compared with large corporate farms Allen and Lueck 2002). There is generally no evidence of economies of scale in primary agricultural production, while individual or family farms are easier to organize and operate than corporations. Family farms are free from labor monitoring costs and are not prone to agency problems, contrary to large corporate farms employing hired labor and run by outside managers. These factors highlight the importance of individual incentives for farm efficiency and account for the predominance of family farms in market economies, where a family farm is not necessarily a very small farm: the optimal farm size is determined in each particular case by the managerial capacity of the farmer, and it may be quite large for highly capable individualsIn this study we assemble evidence that, in our opinion, shows that individualization of agriculture is associated with the post-transition recovery in CIS and that small family farms outperform the large enterprises, at least by measures of land productivity. The evidence is presented here for the five countries of Central Asia—Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan (Map 1). Previously similar results have been obtained for the Trans-Caucasian states—Armenia, Georgia, and Azerbaijan (Lerman 2006) and to a certain extent also for the European countries of the CIS (Lerman et al. 2007; Lerman and Sutton 2008; Lerman and Sedik 2013). The article is organized as follows. The introduction is followed by Section 1 that sets the regional context by discussing the importance of agriculture in Central Asia. Section 2 describes the three phases of agricultural development in Central Asia (and the rest of the CIS) and introduces the key concept of turnaround point, the year when agricultural production switched from decline to renewed growth. Section 3 discusses individualization of Central Asian agriculture in the process of land reform and examines the sources of renewed growth. Productivity of farms of different organizational types is analyzed in Section 4 and Section 5 establishes a link between policy reforms and agricultural performance. Conclusions present some concluding remarks.