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Farm Management Survey: Preliminary Results Marina Garadzha 1. The present day agricultural reform is intended primarily to promote efficient farming, resuming the work begun in the early part of the century by Stolypin. The emergence of efficient farming, or ñfirmly establishedò farmers as they termed it then, is the key to solving the problems of agriculture, including political problems. The question is, who can farm efficiently? According to Stolypin, only independent citizens willâor canâ achieve this goal. For this to occur, Stolypin believed it was necessary for firmly established peasant farmers to be able to withdraw from a land-holding community and become independent owners: without independent ownership it was impossible to have independent citizens. In this sense, Russian farming needed to take on some of the characteristics of Western farming. Current context of agrarian reform 2. Agrarian reform is currently being implemented in a post- communist, market economy. The nature of this economy will not be discussed here, but it should not be forgotten as the backdrop for reform. Basic features of this background are an existing large-farm system, the breakdown of the state management system of agricultural production and pricing, and an undeveloped market structure of sales and services in agriculture and other sectors. 3. The privatization of collective and state farms carried out in 1991æ93 may be regarded as the first stage of the reform transferring ownership rights from the government to the farm collectives. However, during this stage no efficient owners of production means emerged as by and large the reform did not affect the internal structure and management of the farms. It was this specific deficiency that the Program of Farm Reorganization launched in Nizhny Novgorod in 1993âand since implemented in Orel, Ryazan, Rostov and other regionsâhas attempted to remedy. What it means to be an efficient farmer 4. An efficient farmer is characterized by two basic features. The first, the ability to make independent business decisions, is based on private ownership of the means of production. At the least, a farm that is generating a profit should have the opportunity to use it for its own development, instead of supporting nonprofitable farms. The second feature, the ability to efficiently manage farm assets and ensure profitability, depends on farm leadership and management capability. Good managers are needed to establish efficient production and develop a farmðs full market potential. 5. In the current reorganization process, new enterprises are formed from former collective and state farms and take over the land and property in private ownership. In this context, private ownership is understood as non-state ownership, meaning in general that the government no longer is responsible for distributing the products produced by the farms. Immediately, therefore, the necessity for efficient management of the new enterprises arises. But how can a new owner-farmer efficiently distribute his products under immature market conditions? Who can aspire to manage efficiently these new farms under these new conditions? Reorganization presents opportunities for capable workers from the former collective or state farms to create their own farms, by themselves or in partnership, and through skill, hard work and willingness to learn achieve the efficient management that yields a profitable business. The farmer-entrepreneur 6. Any manager of an enterprise in the process of reorganizing into a private, non-state enterprise can be said to be an entrepreneur. However, a true entrepreneur is a manager who uses the business practices needed to operate a private enterprise in a market environment. In other words, an entrepreneur is a person who can efficiently manage his/her enterprise under market conditions. 7. A narrow definition of the term ñentrepreneurshipò is also used in Russia to describe commercial trading activity. This carries a negative connotation to farmers: a farmer-entrepreneur may not like hearing his business identified with a street- pavilion seller. 8. The process of entrepreneurship that emerges in rural areas is of great interest. Sometimes a farm may change ownership form without changing management methods, business strategy or directors. In that case, the director could hardly be called an entrepreneur. It is therefore important to determine whether there are managers who fulfill the requirements of true entrepreneurship, who efficiently manage private farms of various organizational forms and sizes under market conditions. Who are the present-day farmer/entrepreneurs? Do they exhibit common characteristics in their attitudes and business practices? And finally, is their management efficient? These were the major questions targeted in the present study of the operation of more than 40 farms that emerged in the reorganization of the 5 pilot farms in Nizhny Novgorod oblast in 1993æ94. 9. The study uses data collected for an economic analysis of the operation of these farms soon after reorganization and a year later in the summer of 1995. For the survey, 482 workers from the 5 reorganized farms (Association Pravdinsky, Joint-Stock Company Emelyanova, Limited Liability Partnership Niva, Collective farm 60th Anniversary of October, and Joint-Stock Company Yelkinskoye) and 204 workers from 4 nonreorganized farms were interviewed. In all, 42 managers of all new partnerships, peasant farms and individual farms were interviewed. A total of 16 interviews with managers of partnerships and 3 interviews with managers of large peasant farms were conducted. Who becomes a leader of a reorganized farm? 10. In theory, any individual entitled to property and land under the current law may set up a worker-owned farm or a peasant farm. In practice, the people who usually take on the management responsibility are those who are already experienced in management and, more important, have sufficient authority to be able to head the enterprise. However, leaders do not necessarily need to be the directors of the former collectives or state farms. For example, a specialist or a former head of one of the operational units may become a leader. Quite often, collective or state farm workers who possess drive and initiative are willing to start their own business even under the current difficult farming conditions. 11. According to the survey data, the current roster of farm managers was derived as follows: 12% were either the directors or the chairmen of the former collectives or state farms; 22% were managers of operational units; 25% were specialists; and 40% were workers (see Table 1 for a profile of managers). Most frequently, former farm workers headed the peasant farms or became individual farmers, and former farm managers and specialists headed the partnerships. 12. The education level among the new managers varied: 54% graduated from advanced education institutions, 16% from secondary schools, and 24% from secondary professional schools; 6% have had at least some secondary education. The age span of new managers was from 28 to 69, with an average age of 40. Table 1. Profile of new enterprise managers Occupation on former farm Directors or chairmen 12% Manager of operational unit 22% Specialist 25% Worker 40% Level of education Graduate of advanced institution 54% Graduate of secondary school 16% Graduate of professional secondary school 24% Some secondary education 6% Age Range (42 managers) 29-69 Average age 40 Profile of reorganized farms 13. The size of the enterprises created from the five pilot farms that these new leaders manage varies widely. Most of the land and property was transferred to large farms: peasant farms received only 5% of the land and 6% of the property. Most of the land was accumulated by mixed partnerships (on average >5,000 hectares) managed as a rule by a small number of members. 14. It is at the stage of the formation of a new farm that a prospective leader defines the nature of the future enterprise. The managers and their colleagues determine then how much land and property and of what kind are required, what specialization the farm will have, what specialists and workers are required, and so forth. Motivation and attitudes of new leaders 15. Farm managers expressed various motives for having participated in reorganization.. Even prior to reorganization some of them were genuine entrepreneurs and their major objective was to maximize their profit. For them reorganization was just a way to achieve this goal. For example, one manager of a partnership said, ñA long time ago we started to look for possibilities to reorganize our farm. That is why, when reorganization was launched I was ready for it and I knew exactly what kind of enterprise would be profitable.ò [from an interview] 16. Other managers were initially opposed to reorganization but changed their minds during the process of reorganization. As one manager of a partnership said, ñI started reorganization because of pressure from my colleagues. But once I started, there was no way back....I would not want to go back to a collective farm. My partnership retained the gained potential, it even increased it, whereas some other partnerships lost what they got. It is those partnerships that want to reunite now.ò [from an interview] 17. A third group of managers tried to realize ambitions that could not be achieved under a collectivized system. For example, one of the partnership managers who was a former collective farm director stated that he could not realize all his objectives as his collective elected another director at its general meeting. However, he had been sure that together with those workers who trusted him he would be able to create an efficient farm. 18. Many entrepreneurs, especially the farmers, were not satisfied with their work on the collective farm and were looking for independence. The head of large peasant farm said, ñI made up my mind to set up my own farm so that [I could] work by myself, manage by myself and use the operational results by myself.ò [from an interview] 19. The attitude of these new farm managers to reorganization can be summarized by saying that most do not want to return to a collective form of farming. Only three of the 42 managers interviewed expressed that they are ready to go back to the former system. Identification of targets by the managers 20. Seventeen of the 19 managers of large partnerships and peasant farms that were interviewed identified themselves as entrepreneurs, although they interpreted this in different ways. Usually, they defined an entrepreneur as a ñperson who devotes every minute of his time to gaining profit. Sometimes the potential for gaining profit is obvious, sometimes a detailed analysis is required.ò [from an interview] 21. Some managers who are efficiently running their farms in practice do not identify themselves as entrepreneurs, however, due to the negative connotation of ñentrepreneurò described earlier. Others believe that apart from gaining profit one of the main goals of entrepreneurship is to maintain and improve the quality of land. There is no contradiction here. It is characteristic of farmers to work the land in such a way that it will feed them in the future. ñI want to let the land we work on live normally. We donðt want to leave a deserted land to our children.ò [from an interview] 22. Some new farm managers basically continue to work as they used to, not realizing the necessity to introduce changes. Their goals remain about the same as those for traditional collective/state farms. For example, a dairy farm located in an industrial center, where it would have been very profitable to sell milk at the local market, continues to deliver all its products to a milk processing plant that buys at very low, monopolistic prices to the producer. The dairy farm management thus exhibits the strong influence of habit over any self- interest or profit motive. This mind-set was confirmed in the interviews. 23. New farm managers appear to be affected by doubts concerning the stability of changes and fear of unpredictable consequences. These doubts may be expressed in different forms. For example, the managers of two mixed-partnerships that must re-register under the new Civil Code are reluctant to do soâat least, not before the elections for the State Dumaâas they are not sure whether there will be drastic changes in the political course. Who is efficiently farming? 24. The analysis of the economic variables of the reorganized and nonreorganized farms of Nizhny Novgorod oblast showed that on average the farms began to operate better after reorganization. However, the averages level some unevenness in farm-by-farm development; in fact, differences in the operation of new reorganized farms are very significant. Thus, for example, for two farms of nearly the same, sales proceeds for one of the best farms increased sixfold within a year while there was a tenfold decrease in the sales proceeds of one of the weakest farms. 25. For the analysis of the 1995 operational results of 16 reorganized farms, the farms were classified into two categories as ñmore efficientò farms and ñless efficientò farms. Criteria used were: gross income per worker, per 100 rubles of fixed assets, and per 100 rubles of costs; profitability; and the ratio between subsidies received and budgetary payments. The farms divided out at seven farms in the less efficient category and nine in the more efficient, with five of these being clearly the most efficient. 26. The responses of the managers of these farms were then compared with the efficiency of their operation in order to draw conclusions as to what factorsâwhat operational methods and what management principlesâyielded an overall successful operation of the farms. These principles constitute a kind of philosophy of farming. 27. Due to a lack of sufficient statistical data on peasant and individual farms, their management styles were analyzed less thoroughly than those of the collective farms. However, the business philosophy of managers of peasant and individual farms is generally more straightforward since having started their businesses practically from ground zero, they faced the market right away and survived strictly on their own business sense. At the same time, their share of the land and property of the reorganized farms is significantly less. Business philosophy or basic principles of farming 1. Identity as entrepreneurs. ó Six out of nine managers of the most efficient farms identify themselves as entrepreneurs and believe that their primary target is to make a profit. 2. Investment activity. ó The efficient farms have usually reinvested profits back into production development. Four out of nine farms decided not to pay dividends for the last year. ó Investments considered most profitable by farmers are trade, their own processing and construction. ó Some farmers consider bakeries to be profitable and either have already started or are planning to bake their own bread. ó Six out of nine managers of efficient farms consider the expansion of their trade to be one of the basic elements of an efficient operation under present conditions. It is assumed that in the future this situation may change. Example: Limited Liability Partnership ñIstokò is a profitable farm. The farm manager, the chief economist of the former state farm, believes that the direct sale of his own products without any middlemen is the best practice for efficient farm operation. Istok would not and does not deliver its milk to a milk processing plant setting monopolistically low prices for producers. The farm is located near industrial centers where it owns three food stores and sells its milk and meat in these outlets as well straight from lorries. The farm manager has primarily targeted an increase in milk production as he considers the dairy business the most promising. ó Farmers consider investments in the purchase of special breeds of cattle and seeds to be very profitable since they are both very well subsidized by the government and they fetch higher prices. ó The largest financial investments for all types of the farms went to the purchase of agricultural machinery. Nearly all the farmers stated that a major problem was the lack of good machinery and the difficulty and cost of upkeep. 3. Production. ó Farmers strive to introduce new, more effective production lines and technologies and to get rid of nonprofitable productions. For example, they might reduce the area under nonprofitable crops such as linen and expand the area under more profitable crops like vegetables, potatoes or cereals. ó Managers of the efficient farms strive to diversify their activities by undertaking handicrafts (or similar businesses of this type) and other commercial activity. In doing so, they try to lower the risk of production. Example: The head of a peasant farm bought and repaired a closed canteen on the former farm, turning it into a town cafe. The cafe provides good services to the people and makes a profit for the farm. ó At the same time it is worth mentioning that of the five most efficient farms three are small, specialized farms, specializing in plant growing (1) and vegetables (2). ó Nearly all the farmers consider labor intensification to be one of the best ways to increase production efficiency. One of the basic principles identified by the farmers is to use less manpower and to operate more efficiently. Example: ñWe try to run our farm employing fewer people. All workers have to play different roles simultaneously. If we have to unload a lorry, both my deputy and my driver will be doing that.ò [from the interviews] ó The farmers identified careful saving on fuels and oils, spare parts and manpower as the primary means for decreasing production costs in 1993æ95. 4. Management methods. ó Eight of nine managers of most efficient farms state that the most important financial and operational decisions are taken only after discussion with the specialists, although this does not mean that they never resort to an authoritarian management style. Some of the farm managers turn to various consulting agencies for advice. ó The farm managers consider the correct selection of employees to be very important. The best farms achieved success mostly due to intensive and well-coordinated work by their carefully selected and, as a rule, small group of workers. ó All of the farm owners believed that labor motivation is highly important. To reinforce the motivation, they use labor evaluation methods based on results, a system of incentives and penalties, and moral encouragement. Example: ñThere was no one to work with calves. I invited a pensioner and told her, I will pay you 200,000 rubles without any deductions plus in autumn you will get [for your own use] the best calf if there is no loss of calves. I brought 58 calves. She is doing well as of now; there is no loss of calves as yet. It is beneficial both for me and for her. The better she looks after the calves and feeds them, the better calf she would getò. ó An important labor management mechanism is the possibility to lay off negligent workers. Some farm owners said they would like to switch to a contractual labor system. ó Under extreme farming conditions, the farm owners are distinguished by resourcefulness and an ability to find nonstandard solutions in complicated situations. Example: ñThe farm gains its major income from potato production. I made one of the truck vans warmer and all through the winter, when other farms could not sell their potatoes if there was frost, we delivered to six food stores in Nizhny Novgorod and other cities and towns and sold at a good price. Thanks to that, the farm was able to purchase fuel, oil and mineral fertilizers in the winter at a low price and still have some funds left.ò [from the interviews] ó Most farm owners strive to optimize the ownership structure of their farms by buying out the participation shares and land shares from shareholders (primarily, pensioners). All nine farm owners believed it was necessary to reduce the number of shareholders in order to improve the production management system. Only three of nine farmers strive to increase their personal share in the charter capital. Others wanted the land and property to be owned by their farm as a legal entity. 5. Marketing. ó Seven of nine managers of efficient farms stated that they devoted most of their time to establishing business relations and expanding their sales market. Four farms already have a commercial director or a commercial department. At small farms, the managers take on these marketing functions, but they would like to be able to hire specialists to do them. ó Most farm owners prefer direct deliveries of products under contract and barter. Example: ñThe farm sells its products not to the state but directly to customers under contract. Only direct deliveries. I do not understand what the state is, something indefinite, no leaders, no responsibilities. We have some permanent customers who pay in advance. That is the kind of cooperation I am striving for.ò [from the interviews] ó Some farm owners have marketing information systems, but for most them this is still a major problem. Usually they get information by calling the markets and food stores in the region. Example: ñI get information on prices for agricultural products in the region from the Department of Agriculture every week. By analyzing last year's information, I am able to make projections for this year.ò [from the interviews] 28. The above analysis indicates that the farms operating more efficiently post-reorganization are more advanced in the use of business methods and management strategy, allowing them to react more flexibly to changes in the market environment. This is one of the basic factors of success. One of the most striking features distinguishing farm owner/entrepreneurs and farm managers oriented toward old farming methods is their attitude toward trade. The farm owner/entrepreneurs realize that, whether they like it or not, they will not be able to achieve maximum efficiency unless they resolve the problems related to products sales, trade and marketing. Labor motivation and behavior in reorganized farms 29. The success of the most economically efficient farms is ensured not only by the economic factors but by social and psychological as well. This is confirmed by the results of the sociological survey conducted at five pilot farms. 30. Workers on the leading farms are more highly motivated and more involved in the production management as compared with workers on other farms. Workers on the less efficient farms have changed little or not at all in their attitude toward the farm in spite of the fact that they are its co-owners. 31. Compared with workers on other farms, workers of the leading farms are more interested in the results of their labor. Responding to the question, ñHas discipline changed after reorganization?ò they state that discipline has not become worse: either it has remained the same (34%) or has improved (61%). There are fewer cases of drinking and theft. 32. The role of a manager in changing worker attitude toward labor is significant. The reorganized farms started their businesses at a critical moment with outstanding debts, worn-out machinery, low-quality manpower, etc. Under these conditions, dividends can hardly be expected. The art of management is to motivate labor under such severe circumstances using the potential presented by the new organizational and legal structure of the farm. Conclusions 33. In summary, it can be concluded that the most efficient farms were those in which the managers succeeded in overcoming a mental inertia to change their own and the workers' style of work. They realize to a higher extent the philosophy of an entrepreneur and the business strategy. They are more flexible and dynamic in adjusting to new market economy. They managed to rally their workers, to motivate labor. 34. It can be said that the market made entrepreneurs emerge. A chairman of a former collective farm or a director of a former state farm had to ensure the production of products under a state order, but a manager of a private farm must ensure the profitability of his/her farm. The new goals bring out creative management strategies and principles. The importance of farm reorganization is that it accelerates these changes and stimulates the process of farm adaptation to a market economy. 35. Reorganization spurs the process of the emergence of new leaders who take upon themselves the responsibility of decisionmaking under the risk incurred by the market. Reorganization also stimulates competition between enterprises and entrepreneurs. As a result, land and property of noncompetitive enterprises may be transferred to stronger farms or more efficient owners. Reorganization encourages the gradual improvement of the farm ownership structure through the buying out of entitlements by farms that are able to do so, bringing about a change in the composition of partners. 36. The type of entrepreneur described above is clearly an idealized entrepreneur. An entrepreneur is a type of economic businessman, rationally running his/her business. The farm managers in the survey correspond to this ideal only to a certain extent. The current economic situation in Russian agriculture is very complicated, characterized by low capital turnover. Therefore, a farmer/entrepreneur would not attract the Mafia or bankers investing in agricultural land. In addition, rural life is more static than urban and traditions and habits are much stronger there. A farmer/entrepreneur therefore does not look like a new person in the rural areas. He is the same specialist, manager or worker he used to be, and he is foremost a laborer. The old and new values are mixed up in his mind and sometimes they may be contradictory. However, today the times themselves force him to change and he is succeeding in this better than others. References Uzun, V. 1995. òNizhny Novgorod Model of Farm Reorganization.ò Voprosyi Ekonomiki, No.1. Simon, G.A. 1993. òRationality as a Process and Product of Thinking.ò Mir Cheloveka, No.3. Dr. Marina Garadzha is a sociologist on the staff of the Russian Land Privatization Project and a Candidate of Philosophic Sciences, Sociologist. 2 Farm Management Survey: Preliminary Results/Garadzha Russian Land Privatization Project 13