Subsistence Agriculture in Central and Eastern Europe: How to Break the Vicious Circle?
Creators: name: Abele, Steffen
name: Frohberg, Klaus
name: Abele, Steffen
name: Frohberg, Klaus
Publisher: name: Unknown
Year: 2004
Subjects: Agribusiness
Community/Rural/Urban Development
Consumer/Household Economics
Farm Management
Financial Economics
Institutional and Behavioral Economics

description: Subsistence agriculture is probably the least understood and the most neglected type of agriculture. In a globalised, market-driven world, it remains at the same time a myth and a marginal phenomenon. Empirically, subsistence agriculture for a long time seemed to be restricted to developing countries, with only a few cases reported in Western Europe (CAILLAVET and NICHELE 1999; THIEDE 1994). Governmental support offered to subsistence agriculture was mainly done through agricultural development policies, the main objective being to have subsistence farmers participate in markets. The strategy was to make farmers produce more by introducing new technologies and consequently bring their output to the market. Failures of such attempts were numerous, yet attempts to understand the failures were few. This lack of understanding led to the change of politics towards already developed and market-oriented systems, hence to the neglect and marginalisation of subsistence-oriented systems. This picture changed when subsistence agriculture started to appear right at the door of the European Union: With the fall of the Iron Curtain, subsistence agriculture in Eastern Europe turned out to be an urgent case. Suddenly, there were and still are a large number of vulnerable small scale farmers, many of which will, at least by the date of EU enlargement, be entitled to receive funds from the CAP and thus compete with western farmers. Moreover, these poor rural people were subject to social discrimination, as no one likes to have a poor house right next to him in his neighbourhood. One of the now quite numerous attempts to address the problem of subsistence agriculture in Eastern Europe was a workshop held at the Institute of Agricultural Development in Central and Eastern Europe (IAMO) in May 2001. It gathered scientists from Western and Eastern Europe to discuss problems of subsistence agriculture, ways of analysing such systems and approaches to overcome subsistence agriculture. The workshop's overall objective was to contribute some answers to the main questions regarding subsistence agriculture in Central and Eastern Europe, but also everywhere else on the globe. These questions are: What is the definition of subsistence agriculture, and what are its characteristics? Is there a conclusive theoretical approach research can rely on? Is subsistence agriculture really a problem or is it, as so many other economic phenomena, just another efficient equilibrium? And if it is agreed upon among scientists to be a problem, what are possible solutions? We shall provide a brief overview of these issues and how they are addressed in the following contributions. Let us therefore start with the definition of subsistence agriculture. One of the major problems in dealing with subsistence agriculture is defining the term as such. Many of the authors in this book offer a definition, amongst them HEIDHUES and BRÜNTRUP, VON BRAUN and LOHLEIN, as well as LERMAN. It seems that the preferred definition of subsistence agriculture relates it to the share of marketed produce. The lower this share, the higher is the degree of subsistence orientation. Still, this definition is a relative one, as it can be assumed that there is no longer "one hundred percent" subsistence agriculture, either in Eastern Europe or elsewhere in the world. This assumption should be kept in mind, as it is important for the following theoretical discussion. The assessment of the characteristics of subsistence agriculture based on the above definition provides a link to theoretical aspects and political options to develop this form of agriculture. The first and most prominent characteristic is the high degree of own consumption of produce, mostly more than 50 percent. Subsistence farms are small (although smallness does not necessarily imply subsistence farming, as, for example, suburban horticulture farms may be small but quite market-oriented and efficient), and they have low capital endowment, which often contributes to low competitiveness. They also suffer from remoteness to urban centres and have poor access to markets, be it in physical terms (roads as well as other transportation routes and telecommunication infrastructure), or in terms of accessing factor markets, especially capital markets (which is a prerequisite for starting market-oriented production), and low on- and off-farm income. The latter especially shows an important aspect: Off-farm income opportunities are scarce and of low revenue for subsistence farmers (see especially the macro-economic assessment by VON BRAUN and LOHLEIN). This hints that macro-economic conditions are also important factors driving subsistence agriculture (which will be important for both the theoretical and the political discussion). We will find these characteristics throughout the contributions. KEGEL provides a case study on the problems of defining subsistence agriculture in Georgia. KOVÁCS gives a geographically based index system to categorize farming systems in Romania. Another question is the one whether farming systems in transition countries are really subsistence-oriented, and if yes, to what degree. The latter question is especially closely related to the definition of subsistence agriculture, as LERMAN points out. In YEFIMOV's argumentation, we will find that the lack of market attendance found, especially in the former Soviet Union countries, is due to the institutional set-up of former Soviet agriculture, which, in terms of institutional economics, used hierarchies instead of markets to organise production and commodity exchanges. But that means that they do exchange products and factors, so are they really subsistence-oriented in the narrow sense of above, or do they just use other institutions to interact with the outside world? NEDOBOROVSKYY gives an appealing quantitative description of such hierarchy-integrated systems. The next problem is to provide a theoretical framework for subsistence agriculture. In theory, subsistence is seen as just an early stage of development that will perish once Ricardos' comparative advantages are perceived and result in wealth-generating trade (ROSE and SAUERNHEIMER 1995). Newer approaches provide different theoretical models to subsistence agriculture which are somewhat contradictory to each other; a broad scope of them is given by HEIDHUES and BRÜNTRUP. One of the theories described is based on the assumption of inverse supply reaction due to satisfactory behaviour in production which does not go beyond consumption needs, or (assuming that some share of the produce is marketed) liquidity requirements. This behaviour is seen as caused by strong preferences for leisure and has been brought up by authors like Chayanov, cited by HEIDHUES and BRÜNTRUP. Yet, this should be discussed critically, as incorporating leisure implies that people would reject higher incomes for the same labour input for the sake of more leisure and thus act irrationally in the strict sense of the homo oeconomicus model. Nonetheless, backward sloping supply functions have been explained by authors who point out that short-term post-harvest sales may increase with decreasing prices due to liquidity constraints, but that in the longer run, even subsistence farmers will react positively to increasing prices (HENZE 1994; ABELE 2001). Another, argument strengthened by HEIDHUES and BRÜNTRUP is the transaction cost approach, which says that high transaction costs in marketing make selling unattractive, and keep people from buying expensive products, which adds up to self-produced consumption. This may be so, and one could even add mere transportation costs to the list of trade impediments. But, at least as far as transaction costs and the resulting margins are concerned, one could as well assume that, when supply decreases, and farmers turn to their own subsistence production, traders would offer higher prices to producers and lower prices to consumers. This would then cover the transaction costs or reduce the margins, respectively, for consumers. Consequently, transaction costs can only be seen as a temporal explanation for subsistence agriculture. The next issue raised by HEIDHUES and BRÜNTRUP is that risk keeps subsistence farmers from developing their business, be it production risk based on climatic factors or market risks based on price volatility. But it seems that risk has to be considered as a two-way process, affecting and being caused by subsistence agriculture: autarchy is prone to production risks that cannot be buffered by functioning markets. In fact, this argument may rather hold for developing countries in the tropics than for of mid-European climate. However, PETRICK and TYRAN show, in their contribution about Polish subsistence farmers, that market-oriented farmers are less risk averse than subsistence-oriented farmers. This is most probably because market-oriented farmers can afford to take risks – they are covered by markets, cash reserves earned from markets or based on credit lines from banks. Both MISHEV and KOSTOV and KOPEVA and NOEV emphasize the function of subsistence agriculture to buffer hardships arising from the economic transition process. This means that subsistence agriculture can also be seen as insurance against economic risks – albeit a fragile one. The latter argument brings us back to the macro-economic environment of subsistence farmers that has already been addressed above: subsistence agriculture is applied because there are no alternatives. To conclude this section, we may come back once again to HEIDHUES and BRÜNTRUP who discuss this "fuzziness" of theoretical approaches to subsistence agriculture and the research gaps that still exist. The decisive point in their discussion is the statement about the presumed non-economic behaviour of subsistence farmers, which they prove to be wrong. In the words of Ruttan, "They claim that one has to understand economic systems before judging them." One of the first steps of organising this workshop was to justify why subsistence agriculture is a problem at all. Some authors see subsistence agriculture as a sustainable economic system because of its autarchy (DOPPLER 1991). Others would argue that it cannot be a problem because if it were inefficient, it would not exist. Finally, a third group would argue that subsistence agriculture is no problem at all but rather a solution, as it provides relief from the curses of globalisation and modernisation. In fact, the subsequent contributions to the seminar will prove that all of them are wrong. In the first place, the organisers of the seminar argued that subsistence agriculture is critical for two reasons: First, autarchy is prone to production risks that cannot be buffered by functioning markets. This has already been discussed in the theory section. The second argument raised by the organisers was that subsistence agriculture yields lower incomes than market-oriented agriculture. It is again PETRICK and TYRAN who point out the relationship between income on- and off-farm and subsistence orientation: Subsistence farms seem to have a lower agricultural income than market-oriented farms, but they also seem to have lower income from off-farm employment. LERMAN comes to the same conclusions. The same phenomenon is picked up on the macro-economic level by VON BRAUN and LOHLEIN, who prove that the lower the national income is, the higher is the number of subsistence plots. It is thus easy to conclude that subsistence farmers are overall disadvantaged, and that subsistence agriculture really is a problem. The next point to discuss is the future of subsistence agriculture: in the contributions from Central Europe by PETRICK and TYRAN, as well as NOEV, ways of getting out of this stage of farming are discussed: investment in agriculture and subsequent farm growth will help subsistence farmers to become market-oriented. The same findings are highlighted for both Central European and Central Asian countries assessed by LERMAN. He also describes ways and solutions for the development of subsistence farmers, namely, improved access to input and output markets, but also to credits as well as services (especially extension) to ensure the potential for farm size growth. This also requires the proper functioning of factor markets, both land and labour, as both factors have to be re-allocated during the commercialisation process. Organisations are seen as a crucial factor of farmers' empowerment, as they may strengthen farmers' positions on markets, and they may also provide the utilization of economies of scale without the need to re-allocate factors. A last point to improve agriculture and make it more market-oriented is given by WEHRHEIM and WOBST: They claim an improvement of institutions, namely markets and trade policies, would foster trade and reduce transaction costs, so that incentives for farmers would be given to producing and marketing more of their product. Making farms more efficient is a necessary but not a sufficient solution to the problem of subsistence agriculture. As many of the authors will show, subsistence agriculture is also driven by a lack of alternative income sources, mainly in rural areas but also in urban sites. YEFIMOV points out that Russian subsistence farmers might as well resist a restructuring of post-Soviet agriculture, because that would, even while making agriculture more efficient, make them lose their only income source, as there is no alternative in Russian rural areas. That leads to the point that creating income alternatives in rural areas is a decisive prerequisite for overcoming subsistence agriculture. This argument is strengthened by the analysis of VON BRAUN and LOHLEIN as cited above. But how to address this? NUPPENAU's contribution provides an overview: better linkages of agriculture to the downstream sector will increase both primary production profits and create off-farm jobs, thus increasing economic wealth in rural areas. This might be feasible, but it has to be stated that this cannot be done by agricultural policies alone. Structural policies must aim to develop rural areas, improve infrastructure and the climate for investments, and finally create a favourable environment for the downstream sector and other industries that will provide a labour market for those who have to quit agriculture. Structural policies also have the task of facilitating factor mobility, which is a crucial point for rural development. But let us now leave the introductory remarks and go for a journey through Eastern Europe and its subsistence farming systems. We will start with the keynotes, which discuss theoretical approaches of subsistence agriculture, and possible institutional and political solutions. We will then go from the West to the East, starting in Poland, down to the Balkans, crossing over to Central Asia and ending up in Russia, where the most interesting systems, but also a tremendous pace of change, are found. By travelling this way, we shall, so is the hope of the editors, find some answers to the questions raised above, and also find some sympathy for those who have to struggle for their livelihood by farming their small plots. These people probably need the assistance of scientists and politicians more than anybody else.