# **1. Introduction**

Over the past decades, many countries in Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS) have undergone tremendous structural and policy changes. Large collectives and state farms, the building blocks of socialist agriculture, were transformed into more market-oriented structures but the process and result of doing so varied widely across countries. In a massive, quick, and equitable process of distributing plots to private households, Albania implemented what is arguably the region‟s most radical program in this respect. While the reform is acknowledged to have been critical to averting a food crisis in the early 1990s, it is also widely believed to have saddled the rural sector with three disadvantages. First, dismantling of communal infrastructure is seen to have led to neglect and deterioration of key public assets such as irrigation systems. Second, high levels of out-migration made the rural economy dependent on transfers and remittances but rarely translated into productive investment, given the lack of attractiveness of the agricultural sector, which is often viewed as a refuge for the sick, old, and poor (Miluka et al, 2010). Third, the notion of Albania‟s land ownership structure being too fragmented to allow realization of the country‟s full productive potential led experts to recommend government-sponsored programs to consolidate holdings.<sup>1</sup> An alternative perspective on the second and third issues is that these problems may be due to inadequacies in the land tenure arrangements.

This paper uses information from the 2005 Albania Living Standards Survey (LSMS) to explore the impact of fragmentation on productivity of land use and, in doing so, help advance the debate and derive policy-relevant conclusions. We focus on three issues that could be associated with fragmentation: First, cultivating many fragmented plots may reduce efficiency on land currently cultivated through, for example, higher transport- and setup-cost, or the inability to use machinery. To explore whether this is relevant in practice, we estimate a stochastic production frontier that includes the number of fragments as a determinant of the technical efficiency of production. This provides interesting insights about the dynamics of Albanian agriculture, but does not support the hypothesis that the number of fragments -the only measure to be readily constructed from the data- affects efficiency of agricultural production. This is consistent with the fact that the number of plots cultivated often corresponds to the number of types of land available. In this case, meaningful consolidation may entail a loss of diversification-related benefits from the simultaneous use of different types of land and would be desirable only if accompanied by higher levels of specialization, integration into value chains, and access to other means of insurance. In

> 1 In the context of this paper, consolidation is understood to imply a reduction in the number of plots for any given size of land ownership and fragmentation is the exact opposite, i.e. an increase in the number of plots for a given size of land owned. Both are distinct from increases or decreases in farm size or land ownership.

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