DRAFT
AGRICULTURAL & FORESTRY SOEs
IN KOSOVO
ASSESSMENT
PROPOSED REFORM INITIATIVES
August 2003
Contents
Executive Summary
1. Background
1.1 Overview
1.1.1 Agriculture and forestry in GDP and demography
1.1.2 Land use in Kosovo
1.1.3 Structure of land ownership
1.2 Analysis of SOEs
1.2.1 Legal status and sectoral analysis
1.2.2 Operational status
1.2.3 Financial status
1.2.4 Employment
1.3 History and Outlook
1.3.1 Emergence of current SOE structure
1.3.2 Agricultural reform options
1.3.3 The UNMIK privatisation programme
1.3.4 Conflicting claims to SOE agricultural land
1.3.5 KTA and agri-forest SOEs
2. Subsector Analysis
2.1 Primary Agricultural Production
2.1.1 Cereals and oilseeds
2.1.2 Horticulture/Viticulture
2.1.3 Livestock husbandry
2.2 Agri-food Processing
2.2.1 Milling and bead production
2.2.2 Dairy and meat processing
2.2.3 Beverages
2.2.4 Other
2.3 Forestry & Wood Processing
2.3.1 Forestry
2.3.2 Wood processing
3. Proposed Privatisation & Reform Initiatives
3.1 General
3.1.1 Legal analysis
3.1.2 Engagement with partner organisations
3.2 Proposed Procedures for Agricultural SOEs
3.2.1 Pilot phase SOE selection
3.2.2 Protection of agricultural land
3.2.3 Cadastral records, maps and survey work
3.2.4 Structure of agricultural land transactions
3.2.5 Policy on existing lease/investment contracts
3.2.6 Information campaign
3.2.7 Roll-out across Kosovo.
3.2.8 Post-privatisation land ownership scenarios
3.2.9 Agri-food processing SOEs
3.2.10 SOE Veterinary stations
3.2.11 Agricultural cooperatives
3.3 Forestry Sector Reform Strategies
3.3.1 Legal issues
3.3.2 Potential reform strategies
Acronyms
ABUAgro-Business Development Unit (EAR agri-credit institution)
AKAAlliance of Kosovo Agribusinesses (Private Sector)
ASPAUKAgricultural Statistics and Policy Advisory Unit Kosovo (EAR/MAFRD)
BDPAAssistance Program to the Cooperative Sector (NGO)
DAFRDDepartment of Agriculture, Forestry and Rural Development (ex-MAFRD, Pillar II)
DRADirectorate for Rural Affairs (UNMIK, Pillar II)
EAREuropean Agency for Reconstruction (EU)
KFAKosovo Forest Authority/Agency (PISG, Pillar II)
KTAKosovo Trust Agency (UNMIK, Pillar IV)
MAFRDMinistry of Agriculture, Forestry & Rural Development (PISG, Pillar II)
MFEMinistry of Finance and Economics
MISManagement Information System (KTA database of SOEs)
OLAOffice of the Legal Adviser (UNMIK SRSG)
PCAParliamentary Committee for Agriculture (PISG, Kosovo Assembly)
POEPublicly-owned Enterprise
SCSCSpecial Chamber of the Supreme Court (UNMIK, Pillar I)
SIDASwedish International Development Agency
SOESocially-owned Enterprise
SOKStatistical Office of Kosovo
UNDPUnited Nations Development Program
UN/FAOUnited Nations Food and Agriculture Organization
Executive Summary
Introduction. The agri-food sector in Kosovo accounts for some 30% of GDP or 35% if forestry and wood processing are involved. Its importance to Kosovar economics and demographics is further underscored by the fact that an estimated 60% of the Kosovar population are considered rural.
Landholdings. The total land surface of Kosovo is almost 1.1m hectares of which approximately 50% (0.6m ha) is classed as agricultural and 40% (0.4m ha) forest. Current sources for land ownership patterns show that approximately 10% (65,000ha) of agricultural land are held by SOEs, the vast bulk of land remaining in huge numbers of small private subsistence farms of some 2.5ha. In forestry, social-ownership is more pronounced, accounting for some 60% (266,000ha) of forests in Kosovo.
SOE overview. Of the 194 enterprises listed by KTA in the agri-food and foresty-wood sectors, a total of 130 (67%) are categorised as engaged in primary cultivation of agricultural or forestry products, while the remaining 64 (33%) are engaged in processing of agricultural produce and wood. The total amounts to 35% of the overall portfolio of enterprises administered by KTA. The legal status of these enterprises is currently undergoing a process of verification. This explains the inclusion of 19 enterprises with ‘unknown’ legal status and allows for the figures to change as new companies come to light or existing enterprises are analysed more closely.
Operational status. Analysis of information available shows that overall 43% of agricultural and forestry enterprises are at least partially operational. In a selected region 13 out of 31 agricultural enterprises were listed as inactive and of those that were operating at some level, an average of 40% of incomes were derived from rental of assets, primarily land. Total recorded employment on agri-food SOEs is currently some 4,700, 40% of its level in the early 1990s. Even this figure, however, is likely to be inflated given the discrepancy between book employment figures and active/paid worker numbers.
Privatisation/reform initiatives. Initiatives proposed in this paper include the following:
- Legal analyses. A number of issues are identified as requiring further legal analysis in order to provide a clearer picture of the current situation relating to agri-forestry SOEs and allow informed decisions on optimal privatisation/reform procedures. These assessments of the history of land nationalisation; of the land consolidation policy of the 1980s; of the land/forestry reform initiatives of the 1990s; of the legal and ownership status of agricultural cooperatives; and of agri-forestry reforms in former Yugoslav states.
- Engagement of partner organisations. Given current, insufficient resources in the KTA Agriculture & Forestry Department, it is proposed to engage support from the recently started EAR Privatisation Support Project. In addition, the political and economic importance of reform initiatives in this sector require close coordination with PISG organisations and maximal information dissemination both to stakeholders and to the public at large.
- Initiation of a pilot phase of privatisation of primary agricultural production assets. Initiation of privatisation in the agricultural sector requires the focused application of a pilot phase on a small number of well-selected farms. This will illustrate that reform is both possible and beneficial and allow experience to be gained prior to rolling out the program across Kosovo.
- Specifics of agricultural privatisation. A number of key features requiring attention during the process of agricultural privatisation and land reform are highlighted. These include land-specific selection criteria for farms, land use restrictions, cadastral work, farm size considerations, policies on existing lease/investment contracts and the agricultural cycle, the information/public awareness campaign. This sections ends with an analysis of potential post-privatisation landholding and farming scenarios, all of which underline the key feature of the KTA model: the central importance of the transferable and encumberable long-term leasehold system for investment and production improvements.
- Agricultural cooperatives. Agricultural cooperatives in Kosovo, whilst they are appear to have a distinct legal status from SOEs, nevertheless appear for the most part to be operating almost exclusively with socially-owned assets. Further analysis of this issue is recommended in order to clarify the mandate of KTA with respect to these enterprises, particularly in the light of the recent promulgation of the Law on Farmers’ Cooperatives.
- Forestry. This sector has for several years been contested between forestry SOEs, which historically exploited socially-owned forests relatively independently, and the fledgling Kosovo Forest Authority, established formally under MAFRD by the 2003 Law on Kosovo Forests. Having come under KTA only in mid-2002, the forestry sector requires careful consideration to ensure that both the trustee responsibilities of KTA with regard to SOEs and their assets are adhered to and at the same time that adequate controls are in place in the struggle against illegal logging.
The paper analyses a number of potential reform scenarios, including a compromise solution under which non-forest SOE assets are spun-off to form the basis of a small number of commercial forestry companies operating on a long term concession/license to exploit commercially viable tracts of socially-owned forestland. This system incorporates elements of the 2003 Law on Kosovo Forests in that it transfers more limited forest exploitation rights and allows for the involvement of the Kosovo Forest Agency (KFA) in regulatory and policing activities and the maintains the licensing system established by the law.
1. Background
1.1 Overview
1.1.1 Agriculture and forestry in GDP and demography
The agricultural sector accounts for a significant share of overall economic activity in Kosovo. In 1995, primary agricultural production (crops, livestock, orchards, vineyards) accounted for 30% of GDP, 35% with the inclusion of forestry and food processing. Sources at both SOK and MFE suggest that these figures remain representative of the role of agriculture and forestry in post-conflict Kosovo.
As the role of agriculture and forestry in GDP suggests, Kosovo has historically been characterised as a predominantly rural economy, with as much of 80% of the population in 1945 being ‘rural’. While this figure was reduced by socialist industrial development, the figure in 1990 remained 63%. Recent estimates by the World Bank show the post-conflict rural population still at 60% of the total Kosovar population.[1]
1.1.2 Land use in Kosovo
According to a post-conflict study by the World Bank, the total surface area of Kosovo is almost 1.1m hectares (ha), of which 82,000ha (8%) are urban/communication and just over 1m ha (92%) rural.[2] This latter category is characterised by 577,000ha of agricultural land (primarily arable land – 69%) and 430,000ha of forest (just over 60% being state or socially-owned). Table 1 below provides this breakdown in hectares and percentage terms.
Table 1. Land Use in Kosovo
Source: World Bank Assessment, May 2000
1.1.3 Structure of land ownership
Table 2, below provides the pre-conflict structure of rural land ownership in Kosovo. It can be seen that while SOEs accounted for only 9% (37,377ha) of available cultivated land, they nevertheless controlled 71% (127,435ha) of Kosovo’s pastures. Importantly, 10% of all orchards and nearly 50% of vineyards were run by SOEs.
Table 2. Rural Land Ownership
Source: Federal Republic of Yugoslavia, Official Yearbook, 1997
The vast bulk of farmland in Kosovo (some 71% or 412,000ha) has historically been characterised by small subsistence farms (some 150,000 households), with average land holdings of 3.2ha, 2.4ha agricultural and 0.8ha forested. On average such land holdings are divided between 5-10 dispersed parcels.[3] Agricultural land is generally divided between basic crop rotations of wheat and maize, used to feed the rural household and their livestock. Given their small size and large number of household members, very little produce from the private sector reaches the market.
Thus, although SOEs account for a relatively small proportion of overall agricultural land, they cover some of the most fertile areas of the territory and account for the only large contiguous land parcels and production units, allowing for economies of scale in farming. This underlines the vital importance of SOE land to the development of commercially-viable farming in Kosovo, which is able to produce marketable surplus and contribute to the process of import substitution in agri-food products.[4]
1.2 Analysis of SOEs
1.2.1 Legal status and sectoral analysis
Analysis of the KTA Management Information System (MIS), which lists all SOEs, POEs and enterprises, over which the KTA mandate is considered to extend, showed a total of 194 enterprises (excluding POEs) in the agriculture and forestry sector as of mid-May 2003 [see Table 3, below]. This constitutes 35% of all enterprises under the responsibility of the KTA SOE division.
Of the total, 130 enterprises (67%) are categorised as engaged in primary cultivation of agricultural or forestry products, while the remaining 64 (33%) are engaged in processing of agricultural produce and wood.
Table 3. Agricultural & Forestry SOEs and Related Enterprises
Activity / SOEs / JSCs / Coops / Unclear / TotalPrimary Agriculture / 84 / 2 / 4 / 19 / 109
Agri-food Processing / 32 / 9 / - / 4 / 45
Forest Management / 18 / - / - / 3 / 21
Wood Processing / 13 / 3 / - / 3 / 19
Total / 147 / 14 / 4 / 29 / 194
Source: KTA MIS, May 2003
The legal status of the enterprises is currently undergoing a process of verification. This explains the inclusion of 19 enterprises with ‘unknown’ legal status and allows for the figures to change as new companies come to light or existing enterprises are analysed more closely.
Nevertheless, current information suggests that the vast majority (147 or 75%) are SOEs and are therefore subject to privatisation by spin-off or liquidation according to established KTA procedures. Of the remainder there are 14 JSCs, primarily the agriculture/forestry representatives of the ‘Gjakovo JSCs’, transformed under the Markovic laws of 1989-90. Pending recognition of their JSC status and acknowledgment of their transformation, these remain a subcategory of SOE.
Only four enterprises are classed as agricultural cooperatives in the KTA MIS. This number appears erroneously small given that the database includes at least 90 of the 151 members of the pre-conflict League of Cooperatives of Kosovo, the bulk of which are likely to remain registered in commercial courts as cooperatives. Through verification, it is therefore anticipated that the proportion of cooperatives will grow at the expense of the SOE category. [see section 3.2.10 below for a full exegesis of the status of agricultural cooperatives]
1.2.2 Operational status
Analysis of current information available at KTA shows that overall 43% of agricultural and forestry SOEs are classed as at least partially operational [see Table 4, below].[5] The spread of companies between the four main activity categories shows that 55-60% of agri-food and wood processing enterprises are considered operational while only 30% of primary agricultural production SOEs (farms) are active. The large number of primary agricultural SOEs classed as unknown (55 or 50%) reflects the major data gap relating to agricultural cooperatives, which in many cases have not yet even been visited to ascertain their continued existence.
Table 4. Operational Status
Source: KTA MIS, May 2003
1.2.3 Financial status
As the process of gathering financial information on SOEs is still in its early stages and remains patchy for Kosovo as a whole, the Gjilane region is used as an example in this paper given its relatively advanced position in data provision [see Table 5 below]. The picture provided is nevertheless likely to be skewed, particularly given the small number of respondents in the forestry and agri-food sectors (three SOEs covered in each category). It is considered that finances in the former category is likely to be optimistic through the access of one of the SOEs included to grant assistance, while those in the agri-food sector are likely to be less good than in reality, through the exclusion of relatively prosperous commercialised enterprises such as Ferizaj’s Minex and oilseed factories.
Table 5. Sample SOE Cash flow, Gjilane
Source: KTA Control & Supervision, May 2003
The picture is fuller, however, for the agriculture sector, with a large proportion of farms in the region accounted for in the data. This shows a total of 31 enterprises including 13 listed as inactive. The gross income and cashflow across the whole category is minimal and little better when focused purely on ‘operating’ farms. Across the category rental of SOE assets account for 40% of total income.
1.2.4 Employment
Pre-1990s employment figures for agricultural SOEs shows significant levels of employment on agrokombinats. The figure rises from just under 10,000 in 1986 to nearly 12,000 in 1991 with roughly consistent proportions of permanent labour (65%) as against seasonal labour (10%), agricultural specialists (15%) and economists/accountants (10%).
Table 6. Historical Employment (agriculture & agri-food SOEs)
Source: Federal Republic of Yugoslavia, Statistical Yearbook (1986-1996), KTA MIS (2003)
Between 1991 and 1996, however, numbers fell dramatically, probably as a result of layoffs of Albanian workers and increasing lack of investment in the socially-owned sector by the enterprises themselves and the state.
The figures in Table 6 for 2003 are taken from KTA information on worker lists provided by ‘active’ agricultural and agri-food SOEs and show that the decline of the 1990s has now bottomed out at some 4,500 employees. Nevertheless, even employment figures today at 40% of their early 1990s levels is likely to be an overestimate as current worker lists include large numbers of employees who are either unpaid or who have long ceased to work at the SOE.
Table 7, below provides a further breakdown of current information available on SOE employment. It shows a total ‘book’ employment of over 7,200 workers overall in agriculture and forestry. 1,700 of these (24%), however are on SOEs classed as inactive, leaving potential current employment at some 5,500. The lion’s share (nearly 3,250 workers or 60%) of this potential is, however, in the agri-food processing sector, with the Peja beer facility alone accounting for over 500 jobs. It is therefore to be expected that immediate post-privatisation staff restructuring will result in still lower overall levels of employment.
Table 7. Current Employment
Source: KTA MIS, May 2003
One positive aspect of this analysis is that, relying on SOE worker lists, it does not take into account the large numbers of private individuals and agricultural SMEs renting land and processing facilities from SOEs. Indeed this is the group likely to benefit most from privatisation and likely to lead the sector in employment generation in the medium term.
Relative to overall employment in the sector, current figures are available only for primary agriculture and forestry combined, the processing sectors not being broken out from manufacturing as a whole.[6] In this respect, the 1,730 employees at active SOEs account for 24% of employees engaged in registered businesses, an additional 5,500 or 76% being employed by private SMEs.
When compared with MFE estimates for the number of farmers engaged in subsistence agriculture, however, (one full-time worker for each of 142,000 rural households) the SOE share falls to 1% of total employment in agriculture and forestry. Thus in the overall sector even registered business activity is small, but nonetheless important as the only realistic source of viable commercial farming and surplus production for the market.
1.3 History and Outlook
1.3.1 Emergence of current SOE structure
The SOEs engaged in primary agricultural production and agri-food processing in Kosovo were originally part of the state agri-food system AgroKosovo. This included some 20 agrokombinats across Kosovo, which acted as vertically-integrated input supply – production – processing – packaging – marketing conglomerates, their sub-units engaging in everything from primary arable production to livestock rearing and flour-milling to wine production. In 1989 individual units of the kombinats were entitled to register as distinct SOEs with the result that dairies and arable units previously falling under one kombinat are now often legally distinct.[7]