Land management challenges in the private sector in Hungary and possible solutions

 Irén Tassy, Hungary

F I G Commission 7, Annual Meeting 1996,Budapest, Hungary

One Day International Conference, 18 June 1996

"Land Management in the Process of Transition"



 The privatisation of agricultural land in Hungary started in 1992 fundamentally based on former agricultural co-operative owned land.

 Co-operatives owned 3,4 million hectares of land. Two thirds of this land had to be allocated for compensation purpose the one third of land was given to members, employees of co-operatives.

 Co-operatives used additional 1,8 million hectares of land owned by members of co-operatives. Co-operatives had to reallocate the land physically to the owners. In this case it didn’t mean privatisation of land, because these coop members owned the land during socialism, but they couldn’t use it personally. The privatisation of agricultural land hasn’t completed yet but the results till now are already suitable to conclude for the final result of compensation acts.

 Figures about Compensation Act

During auctions

No of new owners 630 350

Area 2,16 million hectares

Value of land 38,5 million golden crown

Average area of land 3,3 hectares/new owner

Structure of land by compensation auctions

 0 - 1 hectare 34,82 % 752 000 hectares

1 - 5 hectare 37,36 % 807 000 hectares

5 - 10 hectare 12,72 % 275 000 hectares

10 - 30 hectare 11,34 % 245 000 hectares

30 - hectare 3,76 % 65 000 hectares

 The majority of above lands (1,6 million hectares) has already surveyed and set out on the site. The survey will be completed at the end of 1996.

 The total area of land, reallocated to co-operative members has been 3 million hectares, the number of owners 1,8 million. The average area/owners 0,83 hectare. It’s estimated by the end of compensation procedure the numbers of new owners will be increased and the average area/person will be decreased (there are still 80 billion Forints value of compensation voucher is claimed).

 The estimated result of agricultural land privatisation procedures:

 4,8 million hectares

4 - 5 million new parcels

2,4 million new owners

 As a result of land privatisation based on experience, LV Act/1994 about agricultural land holds out the prospect of implementation of a land consolidation law. 

In the meantime different laws encourage the voluntary land consolidations.

As a result of land privatisation 80-82 % of land became private and 18-20 % of land remains state property.

 The present condition and outlook of land turnover

 Conditions of acquisition of land property

LV.Act/1994 about agricultural land strictly regulates the limit of purchasable land and the range a rightful clients for acquisition.

Native individual can own a maximum of 300 hectares or 6 000 golden crown value of agricultural land.

Native legal persons or other organisations can’t acquire the ownership of agricultural land.

Exception Hungarian state, Local government, public fund can owns land unrestrictedly. Churches can also acquire unrestricted size of agricultural land.

Foreign person or legal person can’t get the ownership of agricultural land.

 Actual land turnover

The actual land turnover has started simultaneously with the implementation of compensation auctions. Claimants have sold compensation vouchers (entitlement) but not the land itself. There are a lot of transactions concerning compensated lands, but the majority of ownership is not registered. According to compensation law, compensated land can’t be sold within 3 years. In case of selling the land legally the seller has to pay a high income tax. This is the reason that the Land Registry can’t give us an up-to-dated information about the real turnover. Transactions with other privatised land are not restricted, even the transfer duty is quite reasonable.

 Relating to the dimension of last year’s purchase of agricultural land, authentic data’s are not available; however studies based on different summing ups show that the majority of private farmers - though planned - didn’t increase the area of their land and today it doesn’t occur among their plans. But the increasing of instrument supply does,

in which nowadays - in the spirit of effort to decrease market defencelessness - the claim to get hold of warehouses, barns, stores gets greater emphasis. Naturally, this is only typical of the relatively bigger farmers possessing 30-50 hectares of land, the smaller farmers possessing land under 10 hectares (because lack of capital) can only think reasonably in subsistence farming.

 Experience shows that the privatisation of agricultural land didn’t bring the possibility of rising to the villagers which was promised to land - owning. Such a settling of compensation, which opened up for getting of land property for each compensated person apart from what kind of damage’s they got their compensation voucher for, - suffered the consequences that the resident people and those who want or have to farm couldn’t get enough land for the family’s living, while the major part of the agricultural land got into the property of towns-people leaving far from the village. (Villages are known where the resident population couldn’t buy the 10 % of the land which got to the compensation sale!) The resident farmers can of course lease the land of these owners, but the farm rent and its tax gets away from the village and agriculture, impoverishing both. So the interest of the villagers and the country’s development is that the land should get into the property of the resident population and farmers. And because within reasonable time income isn’t produced for them, the state can’t evade to urge and help the buying of agricultural land for resident farmers with long term, preferential interest credit. ‘The fight for the possession and acquisition of the land gave rise to social conflicts, turn the inhabitants of several villages against each other, destroyed the farmer tranquillity of families. It can be that this process will last for long and as a result strong ownership differentiation will take place, edging the tension in the country society’.

 The other statement: the actual "private farms created employment opportunities, but it couldn’t and will not fill the employent gap created by the reduction of industry, mining and especially the damage large -scale co-operative sectors."

 The state hasn’t got money now - and within reasonable time - to help the farmers in buying agricultural lands with long-term credit. The state and new landowners spend billions of Forints now and continuously for surveying and registration of the compensated land to Land Registry. At the same time, a week ago on the "Land ‘96" conference, a competent public servant stated that the Ministry of Agriculture will bring in a bill about the general procedure of land consolidation. This foreshadows the unfortunate result, that the billions, which the state will and the citizens would like to spend on forming new land parcels, will mainly be a waste of money. However, if this money or a part of it would urge the buying of agricultural land, then this would be a tool for a land-concentration process before they implement a general land consolidation process reducing the potential expenses of the future

 procedure. And as a further effect, concerning the objective conditions it would decrease the difficulties and restrictions to develop an effective bank credit system.

 The situation of agricultural land usage

 It follows from the said things that agriculture farming today essentially based upon the dominance of land lease. In private farms the rate of lease is 30 %, in the case of farmers working on 20-50 hectares near 50 %, in the case of more than 50 hectares it’s over 50 %.

 Another group of farmers: co-operatives and agricultural companies - as a result of the ban for acquisition of agricultural land - only work on land taken on lease.

 According to official statistics, 41 % of agricultural land is in individual use, 40 % in co-operative an 19 % in the use of agricultural companies. How the extent of lease is really divided between the affected is not known by anyone, since they aren’t obliged to record the lease-contracts.

 But the process of lease development provides an opportunity to draw conclusions which are not indifferent to the aspect of national economy.

 During the compensation sales it was typical that the future landowners long before the sale, asked for assurance from the local agricultural co-operative that the land they’ll buy on the sale the co-operative will lease them. This was in connection with the general doubtfulness the new landowners pass through in the questions "What should I grow?", "Who can I sell it to?", but it was also in connection with the lack of financial and productive instruments as well as the fact that the co-operative - in which well-qualified agrarian experts worked - promised to be more reliable farmer and rent payer then the new farmers, not mentioning the fact that the latter showed very little interest towards the lease of the lands.

 The co-operatives which were in possession of all tools and resources necessary for production and farming, could take in hand not only the cultivation of lease lands but with mechanical supply could help the individual farmers without machines and tools.

 With the slow but continuous improvement of the private farm’s machinery-supply, the tenancy also starts to change. The professional farmers - whose number is estimated 54 000, according to the statistics - to extend their farms they took the opportunity of leasing lands. Among the landowners, private farmers prove to be more popular than co-operatives, owing to the fact that in case of co-operative land lease the farm rent is imposed with subtract of income-tax, but the private tenant can pay the farm rent from his pocket without any payment of taxes. And while the increase of private farm lands is pleasing - both on the level of villages and the national economy - we have to face the problem which appears as a result of the decrease of co-operative land lease. (In case of some co-operatives, the area taken on lease decreased with 1/3 compared to last year.) Such results: under - utilisation and depreciation of co- operative productive capacity, decrease of co-operative workers (increase of village unemployment) and in  relation to this the decrease the payment of social insurance and taxes, together with this, the increase of those in need of social provision.

The farming based on lease - though the agrarian sphere can only count on this for a long time - has become unstable and it seems that the development and confirmation of private farms has been declared as home affairs of the villages, which the villagers - independently of their intention - can only carry out at each other’s cost.

While strength and co-operation should be concentrated on challenges like

in 1995 on the 2/3 of the country’s plough-land half of the fruit gardens and vineyards hasn’t got any plant protection because of money shortage

the livestock from every breed stands on the 50-60 % of the 80s

because of the deterioration of the tools, the machines are under the value of 30 %

the private farms classify the suitability of their own technical equipment 38 % and finally

compared to the yearly investment of 32 billion before the change of regime, the 230-250 billion unrealised investment between 1989-95 "shows" the active capacity and competitiveness of our agriculture at the entrance of the European Community.

It is obvious that the "let’s leave the whole thing" can’t be an alternative for us. It is also obvious, that to these challenges such an agrarian - and land political government conception should give answers, which rests not on fictions and political dreaming, but on the Hungarian reality.