Decline of Corporate Enterprises in Transitional Agriculture: Evidence from Lithuania
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Decline of Corporate Enterprises in Transitional Agriculture: Evidence from Lithuania DIRK J BEZEMER1, DONATAS STANIKUNAS2 & ROMUALDAS ZEMECKIS2 1
Department of Economics, University of Groningen, The Netherlands. E-mail: [email protected] 2 Lithuania Institute of Agrarian Economics, V.Kudirkos 18, LT-2600, Vilnius, Lithuania
In most transition economies, agricultural reforms have led to the emergence of family farms and household food production and to the decline of corporate farms. This study explores that trend for the case of Lithuania based on secondary information and primary survey data. The structure of corporate farms and links to the economic environment are explored. Specific hypotheses on the reasons for the profitability crisis in corporate farms are developed and tested. The paper concludes with a critical discussion of current changes in farm structures in the transition economies. Comparative Economic Studies (2006) 48, 156–182. doi:10.1057/palgrave.ces.8100146
Keywords: transition, agriculture, enterprise restructuring, survey data, ordered probit model JEL Classifications: P46, Q12, R20, O12, O18
INTRODUCTION An important aspect of the economic transition in the formerly socialist economies is the change in the structure of enterprises within agricultural sectors. Following the agricultural reforms, such as privatisation of farm land and assets, in the early 1990s, traditional socialist farm structures (collective and state farms) have generally been transformed into corporate farms: capitalist enterprises with the legal labels of partnerships, joint-stock companies or limited liability companies. Simultaneously, in all of the transition economies millions of private individual farms – family farms –
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have emerged, often operating on a very small scale and satisfying much of rural household food consumption (Swinnen and Macours, 2000; Lerman, 2001). Corporate farms, in contrast, have declined in number and, it appears, also in economic viability. Evidence from various countries suggests that corporate farms are suffering from low profitability, high debts, and high liquidation or bankruptcy rates, even in those countries where policies towards the different farm structures are officially non-discriminatory (EBRD, 2003; Lerman et al., 2002). In this paper, we will examine the possible reasons for these problems besetting corporate farming in many transition economies, and explore their relevance for corporate farms in Lithuania. This question is an interesting one for several reasons. Theoretically, the market reforms in agriculture were driven by a distinct view on the inadequacy of corporate enterprise structures in agriculture within a market economy, and the desirability of replacing them with family farms, which were deemed to be inherently more efficient (Schmitt, 1993). To enable this transformation to occur was a major aim of the land privatisation programmes in the early 1990s. The common perception
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