Key features of the agrarian transformations in the former German Democratic Republic

Source: Statistisches Jahrbuch ьber Ernдhrung, Landwirtschaft und Forsten 2015, Mьnster-Hiltrup Jahr 2015, p. 46.

Large-scale agricultural enterprises in general had no access to favorable credits. To further complicate the investment question, they lacked guarantees to get credits. The most crucial problem was that they were not land proprietors and needed at least a six-year leasing contract for a feasible production model, while Treuhand or BVVG gave them land on lease on shorter terms in the first years. To complicate things even further, often the new large-scale enterprises were not even proprietors of the land their buildings were on. Moreover, their opening balances often were full of old debts (from the GDR period), but this money could be used for capital investments. It was part of the money the new enterprises used in the adverse conditions for necessary investments in machinery and to modernize the equipment. However, the most important source for survival were manipulations with the balances such as understatement of money for distribution as shares. The successor enterprises worked with enforced credits from their shareholders for they could not be claimed to be paid out directly (except for establishing a private farm) -- the shareholders were getting only interest rate.

Therefore, many members of the former APC sold their shares to get cash -- this was an additional reason for concentration of capital in certain hands, often of the managers of the new enterprise. They expected the value of the shares to rise in the future and therefore were willing to buy others' shares. The situation was similar to the Russian experience of “minor privatization” in the early 1990s: many shareholders did not understand the real value of their shares or needed cash. Therefore, today the shares are unequally distributed, and many former members no longer have shares. The total number of shareholders decreased significantly, while some new managers hold a significant part of the shares. The interest paid out annually in general is above the today's average interest rate in Germany (at least 4% vs. an average zero). However, in the early 1990s, nobody could foresee such outcomes for it took several years to solve the problem of short-term land leasing and solving the question of “old debts”.

The contemporary research of the agricultural economy is very critical of the regulations and frameworks set by the German government that is blamed for being responsible for many serious development constraints [15; 16; 17. P. 139--141; 18; 21]. The managers of new large-scale enterprises did complain about the excess duration of the combination of land property and real estate for the land registry was overloaded with work. They complained about the short-term leasing contracts with Treuhand that reduced their chances to get capital for investments. They could not pay off the old debts and criticized the lack of state subsidies for large enterprises [18]. Many registered APCs owned only 2% of land, resettled farmers -- 7%, while the registered APC rented only 46% of their land on long terms, and the same share for resettled farmers was 90% [18. P. 89--93]. The APCs wanted to get rid of old debts and needed investments to buy agricultural machinery. They calculated the necessary investment in 1991--1993 as 1000 to 3000 DM per hectare, and the successor enterprise would not have profit in these years.

Rost and Schmidt [15] emphasizes the shortcomings of the state subsidy policy supporting only resettled private farms. They claimed that the political framework did not give all types of enterprises equal chances: the large-scale production was discriminated in terms of access to credits and subsidies (also by the rental policy of Treuhand), and had problem with poorly trained consultants. They needed advice of managers of the successor enterprises and mostly in the legal sphere, while most consultants were giving advice on production and management. Gampe and Heller [7. P. 73--77] and Bayer [4] underline the need for consultants under the transition for they significantly influenced the local choice of the legal form for the new large-scale enterprise. Thiele emphasized the consultant's lack of knowledge about the variety of legal forms: the usual choice of registered APC was determined only by the fact that cooperatives were a better-known form. In fact, re-registration started soon in favor of companies with limited liability.

Thus, the key risks for the successor enterprises were determined by the uncertain status of their land and by old debts. If there was no land on lease, the large-scale enterprise could cease to exist. The claim to pay off old debts in a short term could lead to the bankruptcy of the successor enterprise. Both problems were solved in the early 2000s. BVVG reduced its discriminating rules of the mid-1990s and started leasing land for six years. After a decade of disputes with the German government, the old debts were finally cancelled. Other problems were solved even faster such as getting the property rights to the land their buildings were on. Thus, the period of politically set uncertainty for the successor enterprises lasted for about ten years, although the period of real despair was shorter.

Thiele [17] does not believe that the new structure of agricultural enterprises was determined by market forces. On the contrary, he argues that it was mainly the result of political interference by legislation (the agricultural adjustment act -- AAA), privatization by the state agency (first Treuhand and then BVVG) that followed the state guidelines, beneficial credits for family farmers and discrimination of larger enterprises, and by the controlled access to the agricultural markets (quotas) still in force in the early 1990s. In his report on the region of Brandenburg, Bayer [4] provided a legal assessment of the transformation process. He argues that the property issues were very complicated and generated conflicts. For instance, the legal form chosen for the large-scale enterprises at the beginning proved not to be an optimal one especially considering the “registered cooperation”. The latter form was usually chosen as the most close to the former GDR APCs. Later it became evident that the legal entity with full viability was risky and not flexible. Therefore, cooperatives are re-registered as Ltds (Table 1), which is rather a change of the legal form not affecting the organization of agricultural production.

Many case studies show the restructuring of the APCs in 1992 [7; 19] due to the dramatic situation in 1990--1991: the end of guaranteed purchases, a sharp drop of prices, problems with marketing under the surplus production, poor quality and poor packing of products, etc. To prove the diversity of the transformations' results, Wissing and Rost described the development of three APCs starting from 1991 when seven former GDR plant and animal production APCs united. In 1992, 31 successor or new enterprises were established based on these three APCs. In the first case, the initial APC was still operating on 5600 hectares, while four four farms with 160 hectares in total were resettled focusing on plant production; nonagricultural branches of the APC (construction, packing, electric services, and timber production) were privatized separately. In the second case, the previous APC broke up again: the plant production was reduced from 4020 to 2738 hectares; there are also were four resettled farms with 486 hectares, and an association of 25 fruit producers. In the third case, the APC was liquidated and 4 farmer cooperatives were established based of the former villages and combining plant and animal production: the APC had 5920 hectares, the four new village cooperatives -- 1851, 1369, 1201 and 950 respectively. As a holding company, the four cooperatives formed an Ltd. There also were seven resettled farmers with 459 hectares in total [19]. In general, under the restitution of property rights the peasants' perception of independent private farms did not change significantly: only very few restituted landowners took the risk of having a family farms; while the majority preferred to keep a large-scale agricultural enterprises with wageworkers. In three mentioned regional cases, after restructuring in 1992, 7 registered APCs cultivate 14,129 hectares; 1105 hectares (7%) are cultivated by 15 family farms -- 7 are full-time farms, 8 -- part-time farms [19. P. 26].

Land property played no role in the GDR. During collectivization APCs were founded, no formal transfer of property rights to them took place: the local land registry kept the previous proprietors in their records. The APCs in the beginning paid small compensations to the contributors of land. In a certain sense, the APCs thus worked with leased land. Some peasant buildings were demolished or no longer used especially when new paddocks were built for large-scale animal production. About 5% (334,000 hectares) of the arable land in the GDR stayed private including the church land and small private holdings in Thuringia. Another 5% was used as private plots (Table 1) [4. P. 7; 20].

In West Germany, the structure of the agriculture was different. Most family farms had their own landed property. With smaller holdings becoming unprofitable, more and more farmers gave up, and leasing the land to those who were still producing became widespread instead of selling or buying land as not reasonable. The land for agricultural use is quite cheap; therefore, the landholders prefer to keep their landed property in case the price increases except for the situation when they are in dire need of money. For those who want to use the land, long-term leasing contracts are also the best option providing more flexibility. In West Germany, the average size of family farms increased from less than 20 hectares in 1989 to 39 hectares in 2013, while the share of the leased land -- from 34 to about 55% (Table 2).

In the former GDR, under the restitution of the land, at the beginning more than 90% of the agricultural production used the leased land. In the 1990s, one could buy land from BVVG at a bargain price if the buyer was a private person and wanted to buy the land he had leased before. The share of production on the landed property increased first to about 20% by the mid 2000s, and to about 30% today. All large-scale agricultural enterprises have only a small share of their land as property; the majority of their land is leased from local landholders, sometimes from hundreds of them for each owns only a few hectares.

The crucial question is how the land market functions, and what is the role of the state. Table 2 shows a significant increase in leasing prices in the new countries. This is not a surprise for in the early 1990s there was hardly a land market. Catching up with the prices of West Germany is a factor, but there also regional differences of prices determined by the quality of the land (leasing prices are lower in Brandenburg and in the low mountain ranges in the south). In general, there is an alarming trend of the increase in prices for land and land leasing over the last decade. The negative consequence of the state subsidies for renewable raw materials to produce energy is that the land use violates the principles of sustainability: it expands the production of corn that reduces fertility of the soil. In regions with competing agriculture and production of renewable raw materials, the price of new leasing contracts increased significantly [8]. The European subsidies for the investments in biogas or solar energy production offer farmers guaranteed prices for selling the energy to the state. In 2013, 2.4 million hectares of agricultural land in Germany was used in such a way: the share of biogas production was about a half, or 6.2% of the total arable land -- 0.83 million hectares are occupied by corn (a third of the area corn is used for energy production). Thus, such state subsidies have negative consequences for the agricultural use of land for the prices for land leasing in these regions are too high to use the land for agriculture.

The situation became even worse in 2009 (Table 3), when an amendment to the law introduced privileges for producing renewable energy. This led to the boom in constructing new biogas plants in 2009--2011, obviously influencing the prices of land leasing. In 2012, with the next amendment to the law, the privileges were reduced and stopped the boom. Gravert and Schmitz found out that in the new countries the regional influence of biogas production on prices is obvious -- in the regions with a high share of biogas production the prices are much higher [8. P. 32--33]. Latacz-Lohmann, Hen- nig and Dehning [11] argue that the influence of biogas production on land prices is still insignificant except for the local prices for land lease. They mention the “astronomical prices” of BVVG for the privatization of its land. Balmann [3] also points to some contradictory outcomes of the last decade: average prices for leasing land jumped by 30-- 50% in the new countries (Table 2). The prices of the newly leased land are even additional 25--50% higher. BVVG raised its prices for leasing land by auctions for land plots of more than 5 hectares between 2011 and 2013 from 520 to 840Ђ per ha; land leasing for renewing contracts costs 420 Ђ per ha, while newly leasing land is 600 Ђ per ha. Prices for buying land in Saxony-Anhalt jumped from 5000 Ђ in 2007 to 13,000 Ђ in 2014.

Table 3 Periodization of the agrarian transformations, 1989--2017

Thus, the agrarian transformations in the former GDR were a success in the economic sense: there was privatization prescribed by the government, and the new agricultural structure competitive at the domestic and international market. However, the transformations did not create many medium-sized family farms the German government preferred due to the reluctance of the majority of rural employees with the restituted land property to start a private farm, and due to the contradictions of the state policy reclaiming the old debts of the GDR's APCs from the new assets owners. In general, the GDR agricultural workforce showed little interest in private farms and risky economic activities. The former GDR APC-managers rarely established private farms for they expected large-scale agricultural enterprises to be superior in facing future challenges. The economic success was determined not by the state policies, but rather by the lack of state control, i.e. by the time pressure set politically, uncertainty about the future, and economic constraints. While in the German old countries, there is an ongoing ousting of smaller farms, the new countries since the early 2000s have kept a stable agricultural structure. The state subsidies in Germany in the 2000s favored biogas energy production and often had negative consequences for both the sustainability of agriculture and prices for land leasing or buying, which became unaffordable for agricultural use. The German agricultural policy still provides little real incentives for ecological and sustainable agricultural production.

Notes

(1) The total size of the land in the GDR was 6.17 million hectares; Treuhand/BVVG had at their disposal 1.7 million hectares: 0.5 million hectares were restituted, 1.1 million privatized (sold into private hands). In 2014, BVVG still had 156,000 hectares to be privatized until 2030 [4. P. 7; 20]. Among the land without an owner one can mention the land of the 1945 land reform no longer used by those who got it. The land of the relatively small number of state farms was privatized by Treuhand without restitution. Thus, about two thirds of the agricultural land of the former GDR were restituted to private owners. The other land, mostly in Brandenburg and Mecklen- burg-Pomerania, was given to BVVG for privatization. The lawsuit over the land expropriated under the 1945 land reform took more than ten years, and the landholders lost the European Law Court, after which BVVG started the privatization of this land.

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