Case Study: Azerbaijan Farm Privatization Project

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Case Study Azerbaijan Farm Privatization Project
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Agriculture in the 1990s

• High potential 1.4 million ha irrigated land,
  nine agro-climatic zones
• Macroeconomic instability until 1996
• Worsening terms of trade
• Import competition
• Deterioration of irrigation and drainage (ID)
• Reduced input supply
• Wage arrears in former sovkhozy and kolkhozy
  (FSKs)
• Slow reform downsizing of FSKs garden plots
  held in perpetuity more productive

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Output, Employment, Labor Productivity, and Crop
Area, 1990-2002 (1990 100)
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Objectives

• Restructure 6 state and collective farms in pilot
  areas and transfer their land and other assets to
  qualified households
• Furnish post-privatization support to newly
  created private farms
• Poverty alleviation through sector growth,
  off-farm job creation, and community-based social
  services
• Create models that can be refined and replicated
  elsewhere in Azerbaijan

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Components

• Mechanism for rapid, equitable, and accurate land
  allocation and titling
• Land registration system
• Rehabilitation of ID system in pilot farms
• Water User Associations (WUAs)
• Farm information and advisory services (FIAS)
• Seasonal and investment credit
• Community development
• Project Management Unit

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Land Privatization and Administration

• Pilot farms in early 1998, then nationwide in
  1999 upon the initiative of the Government
  distribution of 823,782 titles and privatization
  of 97 of earmarked agricultural land by 2002
• Voluntary, choice-driven, and participatory
  farmers sit on land reform commissions
• Transparent and universal information campaigns
  lottery-based land location
• Access to titles 10 Regional SLCC offices
• Correction and unification of cadastre
• Status and registration of municipal land
• Land market nascent few registered sales until
  recently

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Private, Municipal, and State Agricultural Land
in Azerbaijan in 2002 (ha)
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Post-Privatization Support

• Farm Information and Advisory Services
• Center in the Ministry of Agriculture
• Media, books, workshops, conferences,
  collaboration with research institutes
• Credit
• Information campaigns educated the population and
  commissions established transparency
• Agroprombank credit appraisal and information
  management improved
• Taxes were lowered and simplified
• Slow take-off and continuation under ADCP

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• Irrigation and Drainage Infrastructure
• System rehabilitation improved productivity
• Quality control issues addressed
• WUAs must maintain systems
• Water User Associations
• 6 under the pilot farms, later extended to 550
  the throughout the country serving over 50 of
  irrigated area
• Legal framework in need of refinement SAIC and
  WUA jurisdiction over on-farm ID systems
• Weak capacity in most of country
• Collection rate and water charges low (25)
• On-Farm ID Project to provide support

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• Community Development
• Hayat NGO weak capacity, focus upon business
  centers (later merged with FIAS)
• Project Management Unit identified priority
  needs drinking water supply and sanitation
• Establishment of community associations

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Impact upon Poverty

• Nationwide, due to scaling up of land
  privatization
• 1995-2001 share of households owning land from
  78 to 98, average size from 0.2 ha to 1.6 ha
• Surge in agricultural output, employment, and
  crop area labor productivity and yields per
  hectare rose gradually role of macro policies
  and stability.
• Rural poverty from 66 of households in 1997 to
  42.5 in 2001
• Livestock preferred by some farmers (women), due
  to ready market continued development of
  post-privatization support will further reduce
  poverty
• Non-income poverty rose, but community
  development component limited

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Political Economy Why No Reform Before 1996?

• War with Armenia occupation of 20 of the
  country
• Internal political instability two regimes
  before Aliev consolidated power in 1994-95
• Lack of experience in agrarian reform outside of
  the Soviet context

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Political Economy Support for the FPP

• President, Cabinet of Ministers, National
  Agrarian Reform Commission, and Ministry of
  Agriculture support agrarian reform few
  reluctant participants
• Oil and caviar, not land, are the main sources of
  Government revenue
• Attract foreign direct investment into
  hydrocarbons through liberalization of economy
• Bold moves possible in rural areas, not in
  cities urban riots overthrew previous two
  regimes
• Increase legitimacy among rural population Aliev
  as the savior of the nation

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Institutional Innovation and Capacity

• Project Management Unit becomes Agency for
  Support of Private Agriculture in Azerbaijan
• State Land and Cartography Committee and regional
  branches
• Ministry of Agriculture Extension Services Center
• Agroprombank
• Land reform commissions
• Water User Associations
• Rural credit commissions
• Town hall style meetings
• Informal institutions for cooperation for credit,
  acquisition of inputs, machinery services, and
  ID

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Learning and Experimentation

• Led to and facilitated the scaling up of land
  privatization and farm restructuring
• Response to contingencies adjusting various
  components
• Hands-on, participatory approach of task project
  team
• School of agricultural development continues to
  study and refine FPP components within the
  context of follow-up projects

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External Catalysts

• Macroeconomic stabilization in 1996 removed
  distortions
• Agricultural sector must be strengthened to
  withstand Dutch Disease and currency
  appreciation from oil revenues
• Devolution of power and transfer of agricultural
  land from district executive to elected municipal
  governments
• Relatively homogeneous ethnic composition and
  social responses
• World Bank task project team consultation and
  early results prompted Government actions

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Conclusions

• Models for land privatization and farm
  restructuring work only when they are tailored to
  specific national needs through learning and
  experimentation.
• Country ownership of the FPP was critical not
  only in terms of support for implementation, but
  also in terms of tailoring the model to fit the
  needs of both the Government and society.
• After the Government acquires ownership and ramps
  up a project, it must follow through with long
  term support for the endeavor.

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• Capacity enhancement for both the Government and
  beneficiaries gave the FPP a much better chance
  of success.
• Information campaigns and flexible participatory
  approaches are essential to increase transparency
  and to inculcate a strong sense of proprietorship
  in private farming.
• Post-privatization support services that require
  significant institutional and financial
  innovations are long term endeavors that require
  constant attention and adjustment to changes in
  the enabling environment.
• Community development is an integral part of land
  privatization and farm restructuring.