Large and Small Business in Russian Agriculture: Adaptation to Market
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Large and Small Business in Russian Agriculture: Adaptation to Market VASILII UZUN VIAPI – Institute of Agrarian Problems and Informatics, Moscow, Russia. E-mail: [email protected]
Russian farms are classified into large and small agricultural businesses depending on both their volume of operations and organisational form. The article examines the development of these two groups of farms during the transition and their adaptation to the new market conditions. The effect of regional factors and agricultural policies on the changing farm structure is analysed. Government support policies are shown to have a pronounced large farm bias, which is inconsistent with a market economy. The relationship between large corporate farms and rural household plots is quantified. The partial productivity of land and labour is compared between corporate and individual farms. Comparative Economic Studies (2005) 47, 85–100. doi:10.1057/palgrave.ces.8100078
Keywords: Russian agriculture, transition economies, farm structure, individual farms, corporate farms, farm productivity, agricultural policies JEL Classifications: O130, P250, P260, P270, P320, Q120, Q150, Q180
INTRODUCTION The main agricultural producers in Russia are large and superlarge corporate farms, on the one hand, and small or very small family farms, on the other. This article describes how the farms in these two categories evolve and adapt to market conditions. The term ‘small agricultural business’ is used in this article to denote individual and family farms, as well as small agricultural enterprises – legal persons with up to 60 permanent workers. All other agricultural enterprises (corporate farms) are included in the rubric of ‘large agricultural business’. In market economies, most of the agricultural output is produced by small business. The predominance of small business in market agriculture
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has been widely discussed in the literature. Economic theory explains the sustainability and efficiency of family farms by the higher motivation of the owner compared with that of a hired worker, by the orientation towards family consumption instead of profit maximization, by the psychological value of working on one’s own farm, and by the unity of work and family life. Large agricultural business develops in response to economies of scale. However, the inevitable increase of management difficulties, transaction costs, and ecological hazards with the increase of farm size limits the growth of large business in agriculture. Modern institutional economics describes these limits to size in terms of moral hazard or opportunism of hired workers. Williamson (1985) defined opportunism as ‘self-interest seeking with guile [which] includes but is scarcely limited to more blatant forms, such as lying, stealing, and cheating’. Opportunism can be counteracted by provision of appropriate safeguards in labour contracts and by increased monitoring of the workforce. However, it is impossible to con
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