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					                                  International Conference:
                            European Rural Policy at the Crossroads
                                     Thursday 29 June – Saturday 1 July 2000

                           The Arkleton Centre for Rural Development Research
                                  King's College, University of Aberdeen
                                                 Scotland



     What sort of agriculture should the EU back in the
     candidate countries?
     by Anna Burger
     Un i v ers it y of S ze g e d
     Hu n gar y




                                                Abstract


             The la nd wa s n ewl y allo tted i n t hose Central European f ormer
     socialist co untries the agricul tures of which were do minated b y
     production co-o pe ratives a nd st ate f arms be f ore th e de mocr atic
     changeover. Land privatizatio n was undoubtedl y an ur gent need but
     the manner of its f ulf ilment w as e ssentiall y p olitical l y motivate d,
     based on the ideology of different peasant parties , tha n on ec ono mic
     consideratio ns. Mi llions of peop le r eceived ge nerall y, s mall parcels
     of ten in more pie ces, and man y of them, the heirs of the f ormer
     owners, ha d never worked in agricult ure and di d not li v e even in r ural
     areas. Scattere d land ownershi p w as not suitable f or up to date
     f arming, it could not be well equip ped, mechanise d and cultivated.
     The avera ge siz e of these f arms la gs f ar behind the average s mall
     f arm’s siz e of the EU count ries w hic h must also b e hig hl y subs idised
     f or survive. It is evident that th e E U is reluctant t o take over the



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     subsidising of such an inefficient farm structure in the candidate
     countries af ter the ir entr y into the c ommunit y. The rea l situation is,
     however, no t so bad. Land us e is mu ch more concentrated than
     ownership. A part of the big farms have survived either a s rename d and
     restructured co-op eratives or as different companies organised from
     the former co-operatives and state farms in most CEC -s. The y c ultivate
     f rom 30 to 50 per cent of the land and keep a great part of the lives tock.
     In the s mall f ar m sector a signif i can t concentra tion wa s also ca rried
     out. Accor ding to our represen tative surve y in 11 coun t ies of Hungar y
     in 1998, 60 - 70 pe r cent of the land of small f arms is cultivated b y
     f arms larger than 50 hectares. The y produce, to gether with the lar ge
     f arms, the bu lk o f the marketed pr oducts. Far ms un d er 10 ha. are
     mo stl y part -ti me f arms or f arms of retired an d une mp lo ye d pe ople.
     These f a r ms h a v e mo r e o f a s o c i a l t ha n a n e c o n o mi c s i g n i f i c a n ce a n d
     have to b e d e a l t n o t a s an e c o n o mi c b u t a s a s o c i a l p r o b l e m . T he EU
     has to dif f erentiate between th e stru cture of land owne rship and la nd
     use     of    the     candidate       countries         a nd    between     their     commodit y
     producing and subsistence sectors. To decrease the future costs of
     subsidisation          it    should      back         the      bigger   f a r ms    and     further
     c o n c e n t r a t i o n i n agriculture.




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                                      Macroeconomic situation


          The politi cal s ys tem of the Centra l European countr ies (CEC),
   allies of the Sovi et Union sin ce th e second worl d w ar, changed to
   mu ltipart y d e mocr ac y i n 1990 -9 1. T he econo mies of these countr ie s
   have gone throu gh signif icant chang es. The central planning system
   was abolished. Deregulation, liberalization and privatization have been
   started and more or less completed.
          The first part of this paper deals with the decline and recovery of
   the Hungarian economy in the transition period, the second with the
   agricultural transformation, the land redistribution and land use and the
   role of agriculture in the economy and the third with the current
   situation of farms classified into different land -size groups.


   The decline of the economy


          The transitio n of the econo m y was acco mpanied b y i ts decline
   almost ev er ywhere . The weaker the economy of a country had been
   earlier on the deeper the decline. In some countries the fall of GDP was
   30-40 per cent, in other ones 10-20 per cent. That of Hungary fell by 15
   per cent between 1990 and 1993. It reached the 1989 level only in 1999.
   In 1994 a recovery started in most countries (except in Poland where it
   had already begun in 1992). The growth was 1 -2 percentage between 1994
   and 1997 in Hungary and reached the 4-5 percentage level only from 1997
   on.




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          There have been many discussions about the causes of the decline
   worldwide and in Hungary, as well. (Kornai, 1993, Kádár, 1995,
   Berend, 1996, Kolodko, 2000).
           The major causes were likely to have been the following in
   Hungary, and more or less the same in other Central European countries
   as well:
          1.) The en ding o f the COMECON , the trade or ganis ation of the
   Eastern Euro pean countries wh ich ha d f ormerl y pro m ot ed their mutual
   trade, secu ring c h eap energ y f ro m the Sovie t Uni on f or the m and
   taking thei r indus trial and f ood pro ducts, of ten of bad qualit y. Th e
   ending of the CO MECON and the c ollapse of the Sov iet Unio n f orced
   these count ries to sell most of their e xport prod ucts to We st Euro pea n
   countries. These, however, have not taken man y products of the of ten
   not co mpe titive an d obsolete indu stri es. The a gricultur a l protectio nis m
   of the European Union has hindered the selling of agricultural prod ucts.
         2.) Decline of production of those firms and farms which had
   produced earlier mainly for the Soviet market.
         3.) Difficulties of producers were aggravated by the growing
   competition of liberalized imports.
         4.) Owing to the decline of production the financial situation of
   enterprises worsened. Most of them fell into debt. They owed money not
   only banks but for goods and services bought from each other, as well.
   This has developed a debt cycle and even those enterprises became
   insolvent which had good marketable products.
        5.) The 1991 law on bankruptcy and the new accountancy law based
   on European rules forced many enterprises, unable to pay their debts in
   90 days, to go into bankruptcy. Many of them were liquidated.
        6.) State subsidies were curbed. Thi s together with the rise of input -
   prices, including the formerly cheap energy and               raw    materials,


e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc   Page 4                          July 2000
   increased producers’ costs. Owing to higher costs, even formerl y
   competitive goods became uncompetitive in foreign, particularly in
   Western, markets.
        7.) Increases in interest rates contributed to rises in cost. Interest rates
   rose partly owing to accelerated inflation, partly to reach their real level.
   Formerly the income withdrawn from enterprises was reallocated b y
   cheap credits in Hungary. Targeted investme nt and also a part of the
   working assets of enterprises were financed by credits. This sort of
   reallocation mechanism has ceased to operate. Interest on earlier debts
   was raised. This has further damaged the financial situation of
   enterprises. Providing soft credits by state owned banks was not ended,
   however (Kornai, 2000).
          8.) Budget deficit and state indebtedness have grown because of higher
   outlays for state administration, social, educational purposes, etc. in
   relation to incomes gained. The balanc e of payment deficit also grew
   owing       to    newly       liberalized   imports,   exceeding   exports.   Foreign
   indebtedness which was high already in the eighties has grown still more.
   All these factors led to accelerating inflation.
          9.) Higher energy prices and liberal ized agricultural and food
   prices (in Hungary most of the industrial producer and consumer prices
   have not been state controlled since 1968) raised inflation, as well.
           10.) Owing to the economic decline and inflation, real wages have
   diminished and unemployment grown. As a result domestic consumption
   has decreased causing still more shrinkage in production.
           11.) Disarray induced by privatization caused significant losses of
   capital and contributed to economic decline.
          12.) High imbalances in the economy led to strict restrictive
   measures enacted in 1995. Decreases in social, cultural and educational
   costs, lay offs, increases in taxes, sharp devaluation of the currency and


e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc       Page 5                            July 2000
   the introduction of sliding devaluation rectified the fiscal imbalance but
   further       decreased         consumption,    and    consequently   production      and
   contributed to inflation.
          The consequences of fiscal restrictions are much debated in the
   economic literature both in Hungary and abroad. In Hungary some argue
   that the restrictions have le d to the recovery, others say that they caused
   further deterioration in the economy (Köves , 1995/a , b , Antal, 1998, Köves-
   Szamuely, 1998). It is very likely that the recovery was not so much the
   consequence of restrictive measures but rather of rapid privat ization.
   Being afraid of the financial crisis the socialist government sold most
   of the large state-owned factories, banks, communal services, etc. for
   cash, mainly to foreigners, during its term of office. Privatized
   enterprises have been quickly moderniz ed and restructured.


   The recovery


          There has been much less study of the reasons for recovery than
   decline.
          The most probable reasons were the followings:
          1.) According to historical experience, after serious falls (owing to
   war, severe crises, etc.) economic growth returns to its earlier rate in a
   relatively short time when the causes of decline are removed ( Jánossy,
   1975). The reason for return is that the knowledge and skills of people
   surviving the catastrophes are not destroyed with the wea lth and they
   are capable of recreating it.
           2.)     Western        export   requirements    and   the   increasing    export
   possibilities created by the European Agreements between the EU and
   Central European countries boosted the restructuring of industries.




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          3.) Widening and modernization of trade, banking, information and
   other service sectors started at the very beginning of the transformation
   process and not only contributed to growth of GDP, but also provided a
   base for the modernization of other sectors.
        4.) Privatization and foreign direct investment contributed to
   restructuring and growth.
         5.) The world economy recovered in 1994 providing greater export
   possibilities. West European countries were not even hit by the East
   Asian and Russian financial crises in 1998.


                                           Agriculture


   Share of agriculture in the economy


         The significance of agriculture has diminished during the nineties in
   Hungary as with other Central European countries at about the same level
   of development. Its contribution to GDP fell from 18 per cent (including non
   agricultural activities of farms) or 13 per cent (without these activities)
   in the late eighties to 5 per cent by 1997. Non agricultural industries and
   services of farms are few now.
            Agricultural employment had fallen from 18 per cent (with other
   activities) or 13 per cent (without them) to 7 per cent by 1998. There are
   some doubts about the recent statistical data on employment collected
   according to ILO norms. Probably more people are farming (retired,
   unemployed people, part-time farmers on tiny plots) than the statistical
   data show.
        The share of agricultural foreign trade in total trade has decreased
   from 22 to 12 percentage by 1998, keeping however, the positive balance



e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc     Page 7                   July 2000
   between exports and imports. The major reason for decline in t he
   position of agriculture in the total exports of the country is the strong
   increase in manufactured goods exported by transnational companies.
         Agricultural production has declined in Hungary even more than
   GDP. There was some recovery in plant producti on from the base of
   1993 but not in animal production (see Table 1).
                                                                                      Table 1
              Volume indices of agricultural production in Hungary.
                                             1989 = 100
                           Plant production        Animal production            All
           1990                     90.7                    98.8               95.3
           1991                     94.4                    84.3               89.3
           1992                     70.1                    73.7               71.4
           1993                     63.7                    66.0               64.5
           1994                     69.9                    63.2               66.5
           1995                     71.2                    65.4               68.2
           1996                     76.7                    64.3               70.6
           1997                     75.1                    60.4               67.9
           1998*                    77.1                    66.5               71.6

             * 1990 = 100
             Sources: Facts and Data, 1997 and Statistical Yearbooks of
                      Agriculture 1997, 1998.


          Many reasons for the decline were the same as those for the
   economy as a whole: the shrinkage of Soviet market, once a major buyer
   of     Hungarian          ag ricultural    pr oduct s,    high   i mport   co mpetitio n,
   declining do mestic consumption, diminishing state subsidies, increasing
   input prices, indebtedness and bankruptcies of farms. The worsening
   financial situation of agriculture led to less use of fertilizers and

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   pesticides and shrinkage of sowing areas. The main reason was
   however, the disarray caused by privatization.


   The privatization


          In the agriculture of most Central European countries, unlike other
   sectors, restitution became the major form of privatization. In fact, in
   Hungary a mix of restitution, land selling for compensation bonds,
   provided for the former landowners, and some small red istribution of
   land for present employees of state farms and members of production
   co-operatives were the methods chosen for land privatization. Peasant
   parties with significant influence in Parliaments decided to recreate the
   smallholder agriculture preva iling before collectivization. The results
   were: millions of scattered parcels of land, which could not be
   mechanized or only at great expensive and which could not be
   productively cultivated, plus thousands of new owners, some retired,
   some heirs of former owners. They were no longer engaged in agriculture
   and most of them did not live in rural areas. Instead of cultivating the
   land they rent it to the farmers making their production still more
   expensive. Many new owners do not even know exactly where thei r
   parcel of land is owing to the slow marking and registration of land.
   The land market is weak, partly because of the often lacking
   registration and the restrictions concerning the selling of newly
   acquired land, partly because of the prohibition of buyin g land by co-
   operatives, companies and foreigners. Owing to the weak land market,
   land prices are low and many owners wait to sell for higher prices
   (Burger, 1998).
        It is true that the injustice of forced collectivization had to be cured
   and private ownership restored. However better methods of land


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   privatization (e.g. privatizing it to the benefit of active members of
   production co-operatives and compensating former owners in other
   ways) could have been found which would have not created such an
   inefficient agricultural structure. Collectivization, once completed, also
   had advantages. It created economies of scale, better possibilities for
   using machines, modernizing production, raising productivity. Large
   size was not the reason that these possibilities w ere not be used
   sufficiently or at all under socialism. Bureaucratic management,
   prescribed forms of organization, mistaken central directives, targeted
   investment and production, lack of interest, and forced farm -mergers
   creating excessively large farms t o take advantage of size were all
   factors.
         It has to be mentioned that while the agriculture of most CECs
   was weak that of Hungary differed in many senses from the others. There
   have been successive reform measures since the e c o n o m i c r e f o r m o f
   1 9 6 8 . Pr i c e s w e r e p a r t i a l l y l i b e r a l i s e d , p l a n d i r e c t i v e s a b o l i s h e d a n d
   both indust rial f irms and f arms rece ived signif icant in dependence i n
   their decision making.
        Agriculture became one of the leading sectors of the country in term
   of productivity and modernisa tion. Yields were at the Mid -Western
   European level. More than thirty per cent of the production was exported.
   Agricultural wages were relatively high and they were supplemented by
   incomes from household farming. A series of reforms, mainly in the
   eighties, gave rise to the labour intensive production being carried out b y
   contract with members of the co -operatives, either on their smallholdings
   or on land and with machinery rented from the large farms. In many
   production co-operatives, only the cultivation of the highly mechanised
   arable crops remained common and they became combinations of
   production, purchasing, contracting, marketing and service co -oper atives


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   (Burger, 1994). Their fall and the decline of agriculture were closel y
   connected.


   Land Use


        The people who drafted the laws on the privatization of agriculture
   forgot about economies of scale, throwing out the baby with the
   bathwater. Fortunately the structure of land use did not became as
   inefficient as that of land ownership. Many rural peo ple of several
   CECs have voted a gainst land break -u p (see Table 2).
                                                                                    Table 2

       Distribution of farm land by organisation form in CECs in 1998

                                  Collective/co-        State     New         Individual
                                 operative farms        farms   corporate       farms
                                                                 farms
      Albania                                      -       20             -             80
      Bulgaria                                 42           6             -             52
      Czech Republic                           43           2            32             23
      Slovak Republic                          60          15            20              5
      Hungary                                  28           4            14             54
      Poland                                       3        7             8             82
      Romania                                  12          21             -             67


   Source: Agricultural Policies in Emerging and Transition Economies
                 1999 Vol. I. OECD Paris


          Table 2 shows that co -operative farms and companies organized
   from the former co-operatives and state farms (together corporate


e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc      Page 11                               July 2000
   farms) still occupy a great part of the land in Bulgaria, the Czech and
   Slovak Republics and Hungary (even in East Germany close on 50 per
   cent).
           What are the reasons of the persistence of corporate farms in these
   countries?
          1.) Although collectivization was forced large farming subsequentl y
   became accepted by rural people. The new generation was born into this
   environment and it was natural for them.
         2.) Workers of large farms were not accustomed to risk taking
   instead of wage earning and social security.
          3.) They lacked sufficient expertise in running farms.
          4.) They lacked sufficient capital for it.
         5.) Most of the individual farms wo uld have been too small to be
   cultivated efficiently.
         However, the rate of individual farming is growing (in Hungary eg.
   from about 40 per cent of the early nineties to about 55 per cent)
   corporate farms still have a great significance. They are smaller in size
   and in employment than earlier but more efficient.
        Individual farms are seemingly also going to concentrate. According
   to the Hungarian statistical data there are 1.8 million landowners among
   the 10 million inhabitants of the country on the 8 mill ion ha. of
   agricultural and forest area who own on average 4.4 ha. 11 per cent of the
   owners own less than 1 ha. and 60 per cent less than 10 ha. Additionally
   there are 1 million people who cultivate small household farms or
   gardens. Land use is however, m uch more concentrated. As mentioned
   earlier, 45 per cent of the land is cultivated by corporate farms 96 per
   cent of which are larger than 300 ha. and 47 per cent of the individual
   farms are larger than 30 ha. Altogether more than 70 % of agricultural




e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc   Page 12                     July 2000
   land is cultivated by farms of over 50 ha. (Statistical Yearbook of
   Agriculture, 1998 and Individual farming in agriculture, 1995).


                            Farming – According to our survey


        It seems, that there is also a recovery in the farming sector in spite of
   its former defeat. This is due to its excellent and well educated old
   management staff which still manage those production co-operatives and state
   farms which have survived and a great part of the large individual farms,
   being owned or rented or both, by them. This is proved by the survey below.


   The method of the survey


         Our research group at the University of Szeged, Department of
   Economic Geography carried out a representative survey by interrogations
   of farmers in 1988, using questionnaires and interviews with the aim of
   examining the economic situation and perspectives of farms classified
   into different size groups (Burger et al., 1999). A total of 309 farms
   were interrogated, among them 248 family farms and 61 agricultural co -
   operatives and companies, in 11 Hungarian co unties. Random sampling
   was used but some conditions of the survey such as choice of such
   regions which represent all the different characteristics of the country,
   representation of farms according to density of agricultural population,
   etc. did not suffic iently satisf y the classical rules of representation. The
   interrogations were carried out in places which could easily be reached
   by our teachers and students on autumn practice, by experts of
   extension services and by questionnaires sent to 198 farms in C songrád
   county, the county of my university, of which 77 were returned.
   Farmers replying, were mostly from the intelligent ones and they


e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc   Page 13                       July 2000
   presumably farmed intelligently. The interrogations involved mainly
   farms over 1 ha and only some horticultural and po rk raising farms,
   producing for sale, under that size.
   Results of the survey:
   Land concentration


          The survey produced important data concerning agricultural land use
   and the role of farms of different sizes as follows:
         Despite the scattered and, on ave rage, small size of land ownership
   there has been a significant concentration in land use since the
   redistribution of land of the earl y nineties.
         Table 3 shows a reverse rate in numbers of farms and their area. 23
   per cent of family farms, cultivating mo re than 50 ha., use 72 per cent
   of the agricultural land and 12 per cent of them, cultivating more than
   100 ha., use 57 per cent. At the same time, more than 30 per cent of the
   farms under 10 ha. use only 4 per cent of the land area. A similar
   reverse tendency can be seen with corporate farms.


                                                                                         Table 3

                         Number and area of farms according to size


                  Individual farms                                   Corporate farms
   Farm sizes Number               Area Average Farm sizes Number Area                   Average
                                             area                                         area
        ha.              %           %       ha.           ha.          %         %        ha.
        Under 1              2.8       0.0         0.1   Under 500          3.4   42.6       115.2
              1-10         32.3        4.0         5.8   501-1000           6.1   13.2       679.5
           11-20           18.9        6.3     15.3 1001-2000             21.0    21.3     1446.6



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           21-50           23.0      17.2       34.8 2001-5000       29.7   14.7        2960.6
         51- 100           10.9      17.0       72.3          -     -       -             -
      Over 100             12.1      55.5      2l2.0 Over 5000       39.8       8.2     7131.3


          Land concentration takes place mainly by renting. Rented land
   increases with the growth of the farm size. Farms under 10 ha., included
   in our survey, rent 14 per cent of their land area, those between 50 and
   100 ha. 72 per cent, and those over 100 ha. 40 per cent (see Table 4). 90
   per cent of corporate farms rent their land, since a law of 1992
   prohibited them owning land and assets.

                                                                                 Table 4
                          Owned and rented area of individual farms


       Farm sizes in ha.                   Owned area     %       Rented area      %
                      Under 10                            85.6                        14.4
                            11-20                         74.9                        25.1
                            21-50                         72.4                        27.6
                          51-100                          72.3                        27.3
                       Over 100                           60.4                        39.6



   Production


        The production of the farms is fairly extensive. About 80 per cent of
   their land is arable with grain on a major part o f it (see Table 5). Both
   individual and corporate farms have few horticultural and forest areas.


                                                                                       Table 5




e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc        Page 15                                July 2000
                               Sectors of production in percentages


     Farms                        Arabl           Vineyard     Fruit    Grassland     Forest
                                           e
                                   land
     Individual                     80.1                0.2      0.6         13.9         5.2
     Corporate                      79.3                0.2      0.4         13.5         6.6


        According to the statistics, 76 per cent of the agricultural area in
   Hungary is arable land and 63 per cent of that is given over to cereal
   production. The situation in those EU countries which possess relatively
   large agricultural areas respectively is the following : in Denmark 60, 56
   per cent, in France 33, 45 per cent, in the Netherlands 24, 22 per cent, in
   Germany 34, 53 per cent in Great Britain and Ireland 25, 51 per cent
   (Statistisches Jahrbuch für das Ausland, 1996). If Hungary wants to fit
   into the production structure of                    the EU it will have to overcome        its
   agricultural extensiveness.
         Data on animal rearing show (see Table 6) that the extensiveness of
   farms grows with the land size. Smaller farms keep many more animals than
   the bigger ones and they also produce more fruit, vegetabl es and plants under
   plastic. Smaller corporate farms keep more animals than bigger ones, as well.

                                                                                       Table 6

               Livestock per 100 ha.* of individual animal rearing farms


      Farms sizes in ha.                   1-10       11-20     21-50      51-100   Over 100
     Cattle                                89.3         51.9     51.8        30.1       39.0
       From which: cows                    61.5         21.4     24.0         8.3       22.0
     Pigs                              224.1           209.1     71.7       121.2       54.0


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       From which: sows                    52.2       25.6         11.9        16.7           5.7
     Sheep                               131.1       102.3        276.3          6.7        102.6
     Poultry                            1025.6       408.7        266.2        56.2         674.9
     Horses                                26.9       18.1          9.1          3.1          5.5
        From which:
        Draught-horses                     26.9       14.1          6.3          2.4          1.0

          * arable and grassland



   Factors of production


          The smaller the farms are the more labor they support (see Table 7).

                                                                                         Table 7
                                        Labor of individual farms

         Farms sizes in ha.                Labor per ha.     Permanent labor      Part-time
                                                             from total   %       farmers     %
                          Under 10                   0.48                 81.1                34.5
                              11-20                  0.23                 67.7                55.3
                              21-50                  0.08                 71.9                43.9
                             51-100                  0.07                 45.7                40.7
                          Over 100                   0.03                 39.7                23.3
                                  All                0.08                 63.3                39.9




           Table 7 shows that labor per area decreases with the growth of the
   farm. Smaller farms support more family members and pensioners per
   land unit than bigger ones. The bigger the farms are the more seasonal
   workers they employ. With the growth of land -size the share of full -time

e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc          Page 17                                July 2000
   farmers grow as well, as in the case of Western Europ ean countries. Co-
   operatives and corporations have less labor per area on average (0.06 per
   ha.) than family farms.
          The machines requirement is also declining with the growing land
   size. Table 8 shows that the number of machines per farm is growing,
   that per land unit is decreasing however, with the growing size of farms.
          The bigger the farm is the more productive both the labor and the
   machinery are.
   Marketing


            Bigger farms are producing more for market than smaller ones.
   Corporate farms sell all their products. Individual farms sell only a part.
   We asked the individual farmers whether they produce mainly for their
   own consumption or for marketing. Table 9 shows that the bigger the
   farm the more produce mainly for sale.
                                                                        Table 9
                       Percentage of farms producing mainly for sale


                  Farm sizes in ha.                             %
                                               1-10                            43
                                              11-20                            43
                                              21-50                            70
                                            51-100                             78
                                           Over 100                            77
                                                All                            58


         Grain, potatoes, sunflower seed and animals are the major products
   sold by the farms. The trade is not sufficiently organized. Less than half
   the family farmers contract outside buyers, however about 70 -75 percent


e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc      Page 18                  July 2000
   of the common farms do. Direct market sale to consumers is high for
   horticultural products both from individuals and corporations (see Table
   10). Corporate farms sell more vegetables to processors than individuals
   since the latter produce more quality products. The integrating role of
   big farms is traditional. It originates from the past when production co -
   operatives organized and managed production of household farmers and
   other smallholders, supplied them with input and bought up their
   products. About 40 percent of large farms, included in our survey, carry
   out still some integrating activity in the field of production, trade and
   servicing of family farms.
                                                                                 Table 10
                       Market orientation of the sellers in percentages


                                           Vegetables        Fruit          Ornamentals
    From individual farmers sell to:
        Buying up trade                               38.5           46.1              33.3
        Processors                                     9.6           15.4                     0
        Consumers’ markets                            46.1           35.9              66.7
        Integrating farms                              5.8            2.6                     0
    From corporate farms sell to:
        Buying up trade                               14.3           28.6                     -
        Processors                                    35.7           14.3                     -
        Consumers’ markets                            42.9           57.1                     -
        Integrating farms                              7.1             0                      -



   Financial situation


          Examining the financial situation of farms, it was revealed that their
   debts per land area equal about one to two years of their net income.

e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc    Page 19                               July 2000
   Debts are growing with the growing size of farms. The highest share of
   debts of family farms are credits given for buying machinery and
   investment. This is a sign of intention of development on the part of
   family farms. A major part of credits given for common farms serves
   however, to finance their current expenses, which shows the existence of
   some problems of liquidity.
           The number of subsidized farms is also growing with the farm size
   (see Table 11). All interrogated corporate farms are subsidized.
                                                                               Table 11

                    Subsidized individual farms as a percentage of total


                         Farm sizes in ha.                              %
                                                        1-10                      35.0
                                                    11-21                         46.8
                                                    21-50                         66.7
                                                   51-100                         88.9
                                                Over 100                          83.3
                                                         All                      56.5

         Among the subsidies, given to farms, su pport for investment, buying
   machinery and support of interest payments take the highest share,
   showing also the inclination of farms to develop (see Table 12).

                                                                                Table 12
                                 Types of subsidies in percentages


      Subsidies for                          Individual farms         Corporate farms
      Interest                                                 17.4                29.0
      Credit guarantee                                          5.5                 8.8



e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc      Page 20                              July 2000
      Buying of machines                                          32.0                   25.7
      Investment                                                  16.2                   23.0
      Plantation                                                   5.2                    3.4
      Other                                                       23.7                   10.1

         Most farmers questioned regard farming as profitable or zero
   balanced. Profitability grows with the farm size. Among t he corporate
   farms there are more which regard themselves profitable than among the
   individuals (see Table 13).



                                                                                      Table 13
                               Profitability of farms in percentages

                                     Profitable             Loss maker        Zero balanced
       Individual farm
            sizes in ha.
                         1-10                     28                     10                62
                       11-20                      34                     17                49
                       21-50                      45                     27                28
                      51-100                      36                      9                55
                   Over 100                       60                     28                12
                           All                    38                     17                45
       Corporate farm
            sizes in ha.
                 Under 500                        52                     30                18
                   501-1000                   100                         -                   -
                 1001-2000                        73                     18                   9
                 2001-5000                        50                     38                12
                 Over 5000                    100                         -                   -



e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc          Page 21                                July 2000
                           All                   66                23                 11



   The perspectives


           The intention of farmers to develop depends on the farm -size, as
   well. Only 33 per cent of farms below 10 ha. want to develop the farm
   and 20 per cent want to reduce activity. However, 60 per cent of farms
   over 50 ha. want to develop and only 10 per c ent to reduce. Most co -
   operative and corporate farms want to develop (see Table 14).
                                                                                    Table 14
                    Development intentions of farms in percentages

                            Want to        Does not want to Want to develop     Want to cut
                            develop            develop      and also cut back     back
  Individual farm
       sizes in ha.
              Under 1                29                    43              14              14
                   1-10              33                    43               4              20
                 11-20               40                    38               9              13
                 21-50               56                    25               9              10
                51-100               67                    26               7                   -
             Over 100                60                    13              17              10
                     All             46                    32               9              13
  Corporate farm
      sizes in ha.
           Under 500                 65                    27               4                   4
            501-1000                100                     -               -                   -
           1001-2000                 61                     8              31                   -
           2001-5000                 56                     -              44                   -



e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc         Page 22                            July 2000
           Over 5000                 60                   20                  20                    -
                     All             67                   15                  16                    2



           The      main       development    aims       are:   buying      and    renting   land,
   construction of farm buildings and increasing live -stock. Co-operatives
   and corporate farms want to buy first of all machines, the n increase land,
   construct and then increase the amount of live -stock. Even corporate
   farms would like to buy land in spite of the prohibition. The enlargement
   of farm size retains an important place among the development intentions
   both of individual and corporate farms.



                                                                                         Table 15
                     Types of development intentions in percentages

                                                       Individual farmers    Corporate farms
  Buying land                                                        13.5                     8.1
  Renting land                                                        8.2                    14.0
  Increasing land area otherwise                                      0.7                     0.7
  Planting fruit                                                      4.3                     2.9
  Planting vines                                                      1.6                     1.5
  Planting forest                                                     5.5                     3.7
  Increasing livestock                                               13.0                    10.3
  Constructing farm buildings                                        16.4                    16.9
  Constructing plastic greenhouses                                    2.2                     1.5
  Constructing glass houses                                           1.9                     0.7
  Buying machines                                                    20.6                    28.7
  Buying lorries                                                      4.6                     5.9



e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc     Page 23                                    July 2000
  Buying cars                                           3.9                0.0
  Creating processing industries                        0.7                1.5
  Developing existing processing industries             0.5                2.9
  Other                                                 2.4                0.7




     Consequences


            Political transition in Hungary was accompanied by great economic
     decline and loss of material wealth. Intellectual wealth, skills and
     expertise were not lost however, and these helped to restructure and
     restore the economy.


         Agriculture was hit by almost all factors which harmed the macro -
     economy; however, the disarray of/ land privatization was the worst
     among these. Law -makers intended to destroy the well-functioning big-
     scale farming system and change it into a smallholding system. Millions
     of people received generally small parcels often in several pieces, and
     many of them, the heirs of the former owners, had never worked in
     agriculture and did not even live in rural areas. Scattered land
     ownership was not suitable for up to date farming, it could not be well
     equipped, mechanized and cultivated.
        Fortunately however, people have chosen more concentrated land use
     than law-makers wanted. A part of the large farms have survived either
     as renamed and restructured co -operatives or as companies organized
     from the former co-operatives and state farms. They cultivate 45 per
     cent of the land and keep a great part of the livestock. In the small
     farms sector a significant concentration was also carried out. According
     to our representative survey in 11 countries of Hungary in 1998, 60 -70

e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc   Page 24                   July 2000
     per cent of the land of small farms is cultivated by farms larger than 50
     hectares. They produce, together with the l arge farms, the bulk of the
     marketed products. Farms under 10 ha. are mostly part -time farms or
     farms of retired and unemployed people. These farms have more of a
     social than an economic significance and have to be dealt not as an
     economic but as a social problem.
           It seems from the survey that large farms which have survived the
     disarray of transition are going to be stabilized. About half the family
     farms believe in the future and want to develop. The most viable farms
     seem to be those which are over 5 0 or 100 ha. and among the small
     farms those which are intensive.
          Agriculture has much less weight in the economy than it had earlier.
     But thanks to the well educated managers of common farms and of large
     private farms it is going to recover.



     Acknowledgements



     My thanks to the teachers, students and experts who helped to carry out
     the research which forms the basis of this paper and to the following
     Hungarian agencies OTKA, OKTK and FKFP which supported it with
     grants.




     19 May 2000



                                           References




e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc   Page 25                   July 2000
     Agricultural Policies in Emerging and Transition Economies 1999.
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     Burger, A. 1994: The Agriculture of the World, Avebury, Ashgate,
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     Burger, A. 1998: Land valuation and land rents in Hungary. Land Use
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            pp. 53-58.
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            March pp. 197-214.


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            Közgazdasági Szemle July-August pp. 569-599.
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            szocialista országokban.) Közgazdasági Szemle January                 pp. 1-22.
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     Köves, A. 1995/b: Dilemmas and Options of the Hungarian Economic Policy
            after the Bokros Package. (Gazdaságpolitikai dilemmák és lehetőségek
            a Bokros-csomag után.) Külgazdaság No. 11. pp. 4-18.
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     Statistisches Jahrbuch für das Ausland, 1996. Statistisches Bundesamt.
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e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc   Page 27                                  July 2000
e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc   Page 28   July 2000
                                                                                                                Table 8
                                                           Mechanization of farms

                                            Two-axles tractors         Combine harvesters                Lorries
                                           per farm   per 100 ha.     per farm   per 100 ha.      per farm per 100 ha.
                  Individual
                farm sizes in ha.
                         Under 1                  0,3             -          0,0             -          0,1          -
                              1-10                0,7          12,2          0,1           1,1          0,2        3,5
                             11-20                1,2           7,7          0,2           1,0          0,3        1,8
                             21-50                1,3           3,6          0,3           0,8          0,4        1,3
                           51-100                 2,0           2,8          0,4           0,5          0,4        0,5
                        Over 100                  2,5           1,2          0,6           0,3          0,5        0,3
                               All                1,3           2,7          0,2           0,5          0,3        0,7
                  Corporate
                farm sizes in ha.
                       Under 500                  2,4           2,1          0,4           0,3          1,2        1,1
                        501-1000                  6,6           1,0          2,5           0,4          1,4        0,2
                       1001-2000                 11,3           0,8          3,8           0,3          5,0        0,4
                       2001-5000                 19,1           0,7          6,3           0,2          7,2        0,2
                      Over 5000                  73,6           1,0         18,4           0,3         28,8        0,4
                               All               13,2           0,9          3,7           0,3          5,2        0,4




e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc         Page 29                              July 2000
e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc   Page 30   July 2000
e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc   Page 31   July 2000
                                                                                                           Table
                                      Number and area of farms

                                             Number                Area, ha.             Average area
                                                                                         per farm, ha.
Individuals                                          248              11,471.0                      46.2
Co-operatives                                         29              50,479.4                   1740.7
Companies
(LTD, joint-stock company, etc.)                         32           39,059.6                     1220.6




                                                                                                       Table 3
                         Number and area of farms according to size

                  Individual farms                                     Corporate farms
   Farm sizes Number               Area Average Farm sizes Number Area                             Average
                                             area                                                    Area
        ha.              %           %       ha.              ha.          %               %         ha.
        Under 1              2.8       0.0         0.1    Under 500                3.4      42.6       115.2
              1-10         32.3        4.0         5.8    501-1000                 6.1      13.2       679.5
           11-20           18.9        6.3     15.3 1001-2000                  21.0         21.3     1446.6
           21-50           23.0      17.2      34.8 2001-5000                  29.7         14.7     2960.6
         51- 100           10.9      17.0      72.3            -               -            -          -
      Over 100             12.1      55.5     2l2.0 Over 5000                  39.8          8.2     7131.3




e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc       Page 32                                              July 2000
                                                                                           Table 4
                          Owned and rented area of individual farms

     Farm sizes in ha.                      Owned area       %              Rented area    %
                      Under 10                               85.6                                14.4
                           11-20                             74.9                                25.1
                           21-50                             72.4                                27.6
                          51-100                             72.3                                27.3
                       Over 100                              60.4                                39.6



                                                                                             Table 7
                                     Labour of individual farms

         Farms sizes in ha.                Labour per ha. Permanent labour              Part-time
                                                                 from total    %       farmers     %
                          Under 10                   0.48                       81.1              34.5
                              11-20                  0.23                       67.7              55.3
                              21-50                  0.08                       71.9              43.9
                             51-100                  0.07                       45.7              40.7
                          Over 100                   0.03                       39.7              23.3
                                  All                0.08                       63.3              39.9




                                                                                             Table 5
                               Sectors of production in percentage

    Farms                         Arabl         Vineyard            Fruit     Grassland      Forest
                                           e
                                    land
    Individual                       80.1              0.2            0.6          13.9            5.2
    Corporate                        79.3              0.2            0.4          13.5            6.6


e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc          Page 33                                      July 2000
                                                                                        Table 6
                Livestock per 100 ha.* of individual animal raising farms

        Farms sizes in ha.                 1-10          11-20   21-50       51-100   Over 100
     Cattle                                89.3           51.9    51.8         30.1       39.0
       from that: cow                      61.5           21.4    24.0          8.3       22.0
     Pigs                              224.1             209.1    71.7        121.2       54.0
       from those sow                      52.2           25.6    11.9         16.7         5.7
     Sheep                             131.1             102.3   276.3          6.7      102.6
     Poultry                          1025.6             408.7   266.2         56.2      674.9
     Horses                                26.9           18.1     9.1          3.1         5.5
        from those: draught-
       horses                              26.9           14.1     6.3          2.4         1.0
            arable and grassland


                                                                                      Table 9
                       Percentage of farms producing mainly for sale

                Farm sizes in ha.                                        %
                                                  1-10                                    43
                                              11-20                                       43
                                              21-50                                       70
                                             51-100                                       78
                                           Over 100                                       77
                                                   All                                    58




                                                                                               Table


e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc             Page 34                             July 2000
                 Percentage of the contracting farmers among the sellers

                                           Plant contractors     % Animal contractors %
From individual farmers
Contracting                                                     45.0                   48.9
  of latters contracting:
  with trade                                                    23.3                   12.4
  with processors                                               17.5                   30.7
  with integrating big farms                                    15.3                   10.2
From corporate farms
Contracting                                                     70.0                   75.0
  of latters contracting:
  with trade                                                    36.0                   21.9
  with processors                                               36.0                   50.0
  with integrating big farms                                    37.1                   12.5
   Note: The sums of percentages are cumulated because the same farms might contract
         with several contractors.
                                                                         Table 10
                  Market orientation of the sellers in percentage

                                           Vegetables          Fruit          Ornamentals
From individual farmers sell to:
   Buying up trade                                 38.5                46.1            33.3
   Processors                                       9.6                15.4                 0
   Consumers’ markets                              46.1                35.9            66.7
   Integrating farms                                5.8                 2.6                 0
From corporate farms sell to:
   Buying up trade                                 14.3                28.6                 -
   Processors                                      35.7                14.3                 -
   Consumers’ markets                              42.9                57.1                 -
   Integrating farms                                7.1                  0                  -




e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc         Page 35                               July 2000
                                                                                                                                       Table

                                                        Mechanization of individual farms

                        Two-axles tractors                Combine harvesters                   Lorries                        Cars
Farm sizes in ha.
                      per farm        per 100 ha.        per farm     per 100 ha.       per farm     per 100 ha.       per farm    per 100 ha.
         Under 1               0.3                  -           0.0                 -        0.1                   -         0.4               -
              1-10             0.7           12.2               0.1            1.1           0.2              3.5            0.7          11.5
            11-20              1.2            7.7               0.2            1.0           0.3              1.8            0.6           3.9
          21—50                1.3            3.6               0.3            0.8           0.4              1.3            0.8           2.4
           51-100              2.0            2.8               0.4            0.5           0.4              0.5            1.1           1.5
        Over 100               2.5            1.2               0.6            0.3           0.5              0.3            0.8           0.4
                All            1.3            2.7               0.2            0.5           0.3              0.7            0.8           1.6




e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc            Page 36                                   July 2000
                                                                                                                             Table
                                                   Mechanization of corporate farms

                       Two-axles tractors             Combine harvesters               Lorries                        Cars
farm sizes in ha.
                     per farm per 100 ha.            per farm     per 100 ha.   per farm    Per 100 ha.    per farm     per 100 ha.
     Under 500                2.4          2.1              0.4           0.3         1.2            1.1         0.7            0.6
       501-1000               6.6          1.0              2.5           0.4         1.4            0.2         0.5            0.1
     1001-2000              11.3           0.8              3.8           0.3         5.0            0.4         2.6            0.2
     2001-5000              19.1           0.7              6.3           0.2         7.2            0.2         2.1            0.1
     Over 5000              73.6           1.0             18.4           0.3       28.8             0.4         7.0            0.1
               All          13.2           0.9              3.7           0.3         5.2            0.4         1.8            0.1




e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc         Page 37                               July 2000
e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc   Page 38   July 2000
                                                                                     Table
                                   Types of credits in percentage

               Credit for                     Individual farms         Corporate farms
 Buying of land                                                 0.0                      0.0
 Constructing                                                   6.6                      1.6
 Buying of animals                                              9.1                      0.3
 Current assets                                                30.3                  68.2
 Buying of machines                                            45.2                  18.1
 Other                                                          8.8                  11.8



                                                                                          Table
                 Percentage of the contracting farmers among the sellers

                                           Plant contractors     % Animal contractors %
From individual farmers
Contracting                                                     45.0                 48.9
  of latters contracting:
  with trade                                                    23.3                 12.4
  with processors                                               17.5                 30.7
  with integrating big farms                                    15.3                 10.2
From corporate farms
Contracting                                                     70.0                 75.0
  of latters contracting:
  with trade                                                    36.0                 21.9
  with processors                                               36.0                 50.0
  with integrating big farms                                    37.1                 12.5
   Note: The sums of percentages are cumulated because the same farms might contract
         with several contractors.


e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc         Page 39                             July 2000
                                                                                        Table 11
                              Subsidized farms in percentage of all

                  Individual farm sizes in ha.                                  %
                                                             1-10                          35.0
                                                         11-21                             46.8
                                                         21-50                             66.7
                                                        51-100                             88.9
                                                    Over 100                               83.3
                                                              All                          56.5

                                                                                       Table 12
                                  Types of subsidies in percentage

    Subsidies for                              Individual farms             Corporate farms
    Interest                                                        17.4                   29.0
    Credit guarantee                                                 5.5                    8.8
    Buying of machines                                              32.0                   25.7
    Investment                                                      16.2                   23.0
    Plantation                                                       5.2                    3.4
    Other                                                           23.7                   10.1

                                                                                       Table 13
                               Profitability of farms in percentage

                                           Profitable          Loss maker       Zero balanced
    Individual farm sizes
                    in ha.
                                    1-10                28                 10                62
                                   11-20                34                 17                49
                                   21-50                45                 27                28
                                 51-100                 36                  9                55


e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc      Page 40                                   July 2000
                              Over 100                      60                  28                    12
                                      All                   38                  17                    45
    Corporate farm sizes
                   in ha.
                             Under 500                      52                  30                    18
                              501-1000                  100                      -                     -
                            1001-2000                       73                  18                     9
                            2001-5000                       50                  38                    12
                             Over 5000                  100                      -                     -
                                      All                   66                  23                    11




                                                                                                Table 14
                     Development intentions of farms in percentage

                            Want to         Does not want to          Want to develop       Want to cut
                            develop             develop               and also cut back        back
  Individual farm
       sizes in ha.
              Under 1                29                          43                  14                14
                   1-10              33                          43                   4                20
                 11-20               40                          38                   9                13
                 21-50               56                          25                   9                10
                51-100               67                          26                   7                     -
             Over 100                60                          13                  17                10
                     All             46                          32                   9                13
  Corporate farm
      sizes in ha.
           Under 500                 65                          27                   4                     4
            501-1000                100                           -                     -                   -




e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc          Page 41                                       July 2000
           1001-2000                 61                  8                31                   -
           2001-5000                 56                  -                44                   -
           Over 5000                 60                 20                20                   -
                     All             67                 15                16                   2




                                                                                  Table 15
                     Types of development intentions in percentage

                                                     Individual farmers   Corporate farms
  Buying land                                                      13.5                  8.1
  Renting land                                                      8.2                14.0
  Increasing land area otherwise                                    0.7                  0.7
  Planting fruit                                                    4.3                  2.9
  Planting vine                                                     1.6                  1.5
  Planting forest                                                   5.5                  3.7
  Increasing livestock                                             13.0                10.3
  Constructing farm buildings                                      16.4                16.9
  Constructing plastic green houses                                 2.2                  1.5
  Constructing glass houses                                         1.9                  0.7
  Buying machines                                                  20.6                28.7
  Buying lorries                                                    4.6                  5.9
  Buying cars                                                       3.9                  0.0
  Creating processing industries                                    0.7                  1.5



e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc   Page 42                                 July 2000
  Developing existing processing industries                              0.5             2.9
  Other                                                                  2.4             0.7




                                                                                        Table
                                      Number and area of farms

                                            Number           Area, ha.   Average area per
                                                                            farm, ha.
Individuals                                         248         11,471.0              46.2
Co-operatives                                        29         50,479.4            1740.7
Companies
(LTD, joint-stock company, etc.)                        32      39,059.6             1220.6




                                                                                        Table
                        Types of intentions of cut back in percentage

                                                         Individual farmers Corporate farms
  Selling land                                                            12.3           0.0
  Leasing land                                                            17.8           0.0
  Decreasing land area otherwise                                           8.2           7.1
  Cutting down fruit trees                                                 2.7           0.0
  Cutting down vine stock                                                  1.4           7.2
  Cutting down forest                                                      1.4           7.1
  Decreasing livestock                                                    21.9          14.3


e41eb6f4-86a5-45af-b9f3-4b63717afd1d.doc      Page 43                              July 2000
  Reducing farm buildings                                    1.4        35.7
  Ceasing plastic greenhouses                                5.5         0.0
  Ceasing glasshouses                                        0.0         0.0
  Diminishing number of machines                            15.1         7.2
  Decreasing number of cars or selling all of them           6.8        14.3
  Cutting back processing industries                         0.0         0.0
  Ceasing processing industries                              0.0         0.0
  Other cut back                                             0.0         7.1
  Giving up farming                                          5.5         0.0




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