The Impact of Land Reform on Economic Development in Rural Kazakhstan

FINAL POLICY REPORT

Impact of Land Reform for Economic Development in Rural Kazakhstan.

Paper Objectives

Despite the agricultural production share of Kazakhstan GDP is very low (7, 9 percent in 2002) Kazakhstan is still very much agrarian and rural demographically, because approximately 43,7 percent of country population (total 14,9 million) live in rural area. Since 1990 the Kazakh officials tried to reform land relations several times in order to achieve some goals, which would contribute to the development of rural Kazakhstan by the intention of the lawmakers. These goals are privatization of the state and collective farms, establishment of the efficient farm and farming methods, creation of the new class of private landowners and private land market for land of agricultural use. All these established goals would necessitate the growth of rural resident’s welfare and the increase of efficiency of agricultural production and sustainability of farming entity. But the process of land reform has spanned more than 14 years and the result of land reforms are still not foreseen for the nearest future. Thus, the land reform has proved to be a very complicated issue. The policy paper intends to make a critical analysis of some crucial points of the current land reform and propose some alternative solutions for further development of rural area in framework of the current land reform. The proposals are to mitigate the consequences of introduced land reforms for rural residents and other social vulnerable group of people in rural area.

 
 Background

Land reforms in Kazakhstan began in May 1990 with introduction of life inheritable land tenure for a land plot for private family farms, based on labour contribution of each member and joint ownership on the productive tools and property. The land plot under life inheritable tenure is not divisible and it could not be sold, leased, exchanged and transferred to external persons. The Land Code in November 1990 ensured the peasants with the right of possession for life of the land plot for farming. The granting of land plot for life was conducted under state ownership for land of agricultural use and a number of newly established private family farms and land areas, occupied by them were inconsiderable and the majority of the agricultural land remained in possession of state and collective enterprises. 

The next stage of land reform established the basic norm of land redistribution as regards state enterprises privatization and the reorganization of collective farms and it was provided by the 1991 Law “On land reform in the Kazakh Soviet Republic”. This Law intended to create the economic and social conditions of effective functioning of various business entities, involved in farming and ensure the rational land use. The further two Presidential decrees of 1994 outlined the legal framework for land tenure by rural residents and legal entities with introducing short  and long term temporary land use rights (5 and 99 years, relatively)  by purchasing and renting of these land use rights from the state and legal status of these temporary land use rights. According to the land legislation citizen and legal entities had a right to sell, rent out or pledge their various land use rights as collateral. Thus, the land use rights became the subject of sales, purchases and other property transaction and these decrees advanced land relation to market conditions and created legal basis for a land market.

In 1995, the Law “On Land” provided citizen and legal entities with the right to acquire a land parcel into private ownership and therefore the lands was recognized as real estate and all transactions were permitted with these land parcels. But the farmland remained under the state ownership and citizen and legal entities had the right to acquire the land of agricultural use with permanent land use rights and secondary land use rights and land tenure for foreigners were allowed on scheme of temporary land use rights for between 3 years up to 99 years. The new property institutions such as the right to private ownership on lands, permanent land use rights, and the right for limited use of other land parcel have appeared in the land legislation of the Republic of Kazakhstan. A substantial number of legal acts were adopted for support and reinforce private ownership on land, use of land by non-state legal entities, the creation and defence of the land market, and for ensuring state control for the purpose of rational land use. These legal acts were adopted for transforming land relations in compliance with emerging market conditions.

The  Law “On Land” of 2001made change in land use rights significantly and the permanent land use right of citizens and non-state legal entities was cancelled and the duration of long term temporary land use rights was reduced from 99 years to 49 years. The Law “On Land retained the possibility of permanent land use right only for state users while the non-state legal entities and citizens were granted only temporary land use rights. The non-state legal entities and citizens were allowed to alienate their land use rights by their own discretion, to rent out their land use rights, pledge the land to another and implement all other deals with respect to their land use rights while state legal entities as permanent landusers were restricted in such business deals and it was possible only with the consent of the authorized state bodies. Thus the non-state landusers with its temporary land use rights had a status, very close to private ownership.  As matter of fact, the rights of farmers were worsened by this introduced law, because in the early 1990s they had the right of inheritable land tenure for life, then they were given permanent land use rights and finally they were allotted only temporary land use rights.

 Current situation

In 2003, the temporary and permanent land use rights were supplemented with the introduced private land ownership by adoption of the Land code.  This Land code established legal framework for these two forms of land tenure. The main objective of this land reform is to establish the efficient system in the agricultural sector, which would contribute to the growth of agricultural production, rural resident’s welfare and development of land market. The rural economy and agricultural production incurred to substantial changes such as concomitant fall in agricultural production, losses of markets for agricultural commodities, appearance of some constraints to sell agricultural products at appropriate prices. The conducted restructuring and privatization of state and collective enterprises did not lead to establishment of sustainable agricultural production and hence, the rate of unemployment grew up significantly. The existed farms and agricultural enterprises provided employment only for small part of rural residents, because they are interested to sustain only profitable farming activity and they do not care about providing the employment opportunities for rural residents.

The privatization of state and collective farms was set in 1992 and legislation on equitable principle and each current, retired and ancillary employee entitled to get land share, providing the equal amount of land. Similarly, the property of state enterprises was allocated in the form of asset shares expressed in monetary terms taking salary, years of service and professional skills into account. By the beginning of 1997 all these state farms were privatised by the former employees of these state farms. But the majority of these state enterprises were heavily indebted and employees with property share found themselves partly to the debt share of enterprise. In this situation agricultural employees were often refused from their property shares and in some cases they forced to sell or transfer their land shares to the creditors. Only small part of rural residents were able to organize the farm and the majority of rural residents had to stay with their land shares, because the property shares were given to the creditors in order to not take the debt shares of state farms.

Since 1997 the majority of the rural residents had to rent out their land shares to agricultural enterprises and the lease payment was paid mainly in kind. These lease payments provide the rural residents with meaningful benefit, because the main products, which received as payment in kind, are grain, animal feed, hay, flour and forage. These agricultural products are mainly used to feed their household cattle, sheep and other animals. Thus, despite income from lease payments accounts for less than 10 percent of the total household income it helps the rural residents to maintain raising livestock for own consumption and sales. This lease payment is very crucial for rural residents, who do not have enough cash for purchase of animal feed, forage and other inputs for cattle breeding.  

The new Land code terminated the lease of the land shares and land use rights to agricultural entities and farms and established the ways and procedure of how these land shares and land use rights would be utilised by the owners of these land shares and land use shares. The lease of land use rights is exceptional cases in the rural area and the termination of the secondary lease of land plot under land use rights (primary lease is use of a land plot under land use right) was not so harmful for rural residents as for the owners of land share. Thus, the owners of land share had to contribute their land shares into a statutory fund of the agricultural enterprises, which might be established in the form of partnership, production co-operative and joint stock companies.

 
Identified deficiencies.

The Land code did not provide the all residents with opportunities to realize their rights on land shares on proper manner as it was prescribed in the provisions of the current land legislation. Some agricultural enterprises were not able re-register in compliance with requirements established by the land legislation.  The cancellation of secondary land leases limits the right of land users and the tenants on such land plots must start farming otherwise they will lose their right to the land. This provision does not meet the international standard of land legislation and it contradicts to the civil law principle of entrepreneurial activities freedom. A fairer alternative would be to allow sub-lease for secondary landuser for terms less than their principal agreement with the state.

The Land code aimed to prevent the concentration of agricultural land in the hand of a single owner or legal entity by establishment the maximum size of land plot in each raions, because the some farms have in possession several thousands of agricultural land by lease of land shares. The Land Code allows some owners of enterprises or legal entities have land in possession considerable area of agricultural lands in different raions. The concentration of land areas in hand of certain businesses or individuals might be prevented by introducing the definition of “affiliated legal entities and persons” and this Land code does not have such provision, which was intentionally omitted by the lawmakers, because this definition is used by the banking legislation of Kazakhstan.

The delegation of so much power to local executive bodies, particular in the allocation of land to citizens and legal entities revokes some concern about fair management in land relations. When the process of state governance and local management is not transparent and the officials might make a decision according to its own discretion the Land code are to have provision stipulating the grounds on which an application might be refused. Moreover, land legislation does not provide any criteria for ranking applicants and it provides that the process of land granting became non-transparent. It is very important, because the land plots in good condition and in appropriate locations are always in demand and land tenure in the requested place would be refused due to reluctance of local executive body to allocate this land plot. The land legislation only requires that any refusal must be justified and it might be easily performed by local executive body in such situation.

Another crucial issue is absence of any precisely determined the procedure of appraisal of land share and the recommendation of the Research Centre under Presidential Administration is based on a finding that the share of land use rights in statutory fund of business entities in the majority of cases is between 5-10 percent. On the abovementioned finding the Research Centre proposed that the share of land shares should be 20 percent of total statutory fund of partnership, because in these cases the owners of land share should receive dividends at one fifth the net profit of business. This assumption does not have any economic grounds and it is incorrect, because required capital for establishment of a partnership or other legal entities and farm assets are considerable less than cost of land use rights, established by the current land legislation. Main deficiencies are that the land legislation does not specify the way how to determine the cost of the land shares and does not describe the procedure for land share evaluation as well.

It is possible to determine the market value of land in the absence of a land market for arable land and hence, the market value of land could not serve as basis for evaluation of land share. The lack of legally established procedure for determining market value of land and land shares allowed the agricultural entities to determine the value of land shares by their discretions which means at lowest cost in the majority cases. The value of land shares varies from 89 tenge up to 23 852 tenge in Atbasar raion and the size of land share and quality of soil are the same. It proves that a fair appraisal of land share is needed, because appraisal provided by the current land legislation such as agreement by parties does not work properly in the rural area, because the rural residents do not have any options in majority villages. The appraisal by conclusion of auditors is not possible, because there is no the determined criteria and methodology of a land share appraisal.

The decision-making process in the area of land relations is highly centralized and it definitely slows the process of land granting although despite the decision on land granting is to be made within three months by the land legislation. For getting land tenure the applicant has to apply different state agencies, which are mainly located in the oblast centre. And it is quite long distance for rural residents and it will be about 300 kilometres and more from some remote villages. It creates inconvenience to applicants because the rural residents would not be able to register their land use rights in the state agencies without having own transportation means due to the absence of public transportation network and properly organized  public transportation services in rural areas. 

Currently, only the Republican Farms Association with its territorial branches is involved in the support of the farms and small agricultural producers. The level of support to farms depends mainly from the activity of a chairman and farms, who are the member of branches of Farm Association. The Farm Association are public organization. This Farm Association and its territorial branches do not have any assess to state funds and international credits, because the Government implements its current state programs through its established legal entities in most cases fully owned by the state. The Government does not realize the potentiality of using the branches of the Republican Farm Association in implementation of state programs directed to support and development of rural areas and does not foresee the future a role of non-governmental organizations such as the Farm Association.

The micro-finance organizations, established by the support of the external donors, currently operate might support the government programs, directed for development of rural areas. These micro-finance organizations are mainly established in Almaty and some of these organizations work successfully in rural areas and hence, they established their branches in the other regions of Kazakhstan. These micro-finance institutions have started their operations from technical assistance and support, provided by international donors such as the Mercy Corporation, ACDI VOCA and others. Nobody from the Kazakh officials is interested to acquire the experience of these micro finance entities in establishment of credit delivery mechanism to farms and agricultural producers. These NGOs tries to propose their skills and experience in the development of rural areas under state programs, but the Government diverged proposals each time. Thus, the Government never expressed any interest to work with these organizations on programs, aimed for the further development of rural area.

Despite the Government has the limited presence of the government agencies only through the branches of the Ministry of Agriculture and the Agency for Land the Government does not want to employ the existing institutions of non-governmental organizations.  The Government ignores the branches of Farm Association, which might serve as agent in promoting state policy in rural area on the state programs. The use of branches of the Farm Association will provide the Government with more efficient implementation of the state programs, because the staff of these organizations knows the farms, their capacity and local conditions for farming.

Despite the Land Code and with other normative acts provide a whole legal framework, governing the land relations the rights of land share owners are not defended by the Land Code. The land share owners do not have any workable mechanism for defending their rights although the Land Code has foreseen three alternatives to these rural residents: purchase of land for private ownership; acquiring the land plot for farming under land use rights; contribution of a land share to the statutory fund of partnership or other legal entities. The rural residents, who intended to organize own farm had already taken this possibility for starting own farming. The majority part of rural residents has only option to put their lands shares to a statutory fund of partnerships and other legal entities.  Thus, there is lack of system in organizing the process of management with the land shares.

It is unlikely that any owner of business entities desire to have several hundred or thousand participants in their business and such number of share holders or participants in the partnership. Such number of participants will hamper the process of management and making strategic decisions. For example, if and agricultural enterprise intend to get a credit the approval of all participant of this enterprise is needed in accordance with the current business legislation and will slows the process of getting credit from the commercial banks.

The owners together with managers of such company will try to find the solution for avoiding such complicated process of making the management decisions and finally they will try to reduce number of owners by purchase of shares from these new participants of company. Thus, the right of land share owners could not be defended fully by the current land legislation, because the land share in the statutory fund of these legal entities will be governed by the civil legislation and the land share might repurchased by and agricultural enterprise itself, because business share of new participants are subject of sales as other securities and properties.  The data on the re-registration of agricultural entities, which were obtained during conducting field research in Atbasar raion show the value of these appraised land shares is insignificant and any agricultural enterprise may easily repurchase the business shares of new participants without any further financial consequences for enterprise.

All those unsolved issues are crucial to the further development of rural areas and the creation of a competitive agricultural production. Some of these issues, which are key technical issues of the land legislation, are to be solved urgently in order to create the workable legal framework of the land legislation. The remained issues might be solved only by introducing the relevant state policy in a regard to the rural sector of economy of Kazakhstan and changing the current practices of state and local administration.

Policy Recommendation

In order to response to the present inconsistencies in the land relations and to stimulate people-oriented strategy of land reform is necessary to introduce the policy, aimed to improve significantly the living standards of rural residents, to contribute the economic growth of agricultural production and the further development of rural area. On the basis of the conducted research the following steps are to be undertaken in order to achieve these goals: development of farming entities; strengthening the raion branches of the Agencies for Land Resources Management; assistance to the rural residents in getting land tenure; the legislative proposals, which might be introduced into the Land Code and the current land legislation.

Development of farming entities

Only a small number of farms were able to develop in the proper manner and a key of their success was ability of them to get financing from the banks due to having liquid collateral. These farms increased the scale of production by taking the additional agricultural lands in their possession under land use rights or by rent of land shares. The increase of sowing areas contributed to the financial viability of these farms and it provided them with sufficient earning. Then these farms were able to acquire the new machinery and other necessary agricultural equipments by borrowing from commercial banks and partly from own earnings.  

The agricultural development of rural area might be implemented by providing support to the farms through the branches of the Farm Association, because these branches currently provide support to small farmers in many rural areas.  The current activities of branches of Farm Association might be reinforced through technical, institutional and financial support from state and international donors. Also, the branches of Farm Association may establish a Farm Support Service Centre. 

 In order to provide with these services the proposed FSSC should have qualified staff, which might be trained by specialized training programs under state budget financing. Also, these FSSC under Farm Association should be recognized by the state bodies, responsible for development of agricultural sector i.e. the Ministry of Agriculture. The recognition of FSSC should be confirmed by signing the bilateral agreement between those parties, allowing to the Farm Association with its branches to act as an agent in agricultural development of rural area under the state and donor support programs.

The diversified network of Farm Support Service Centre should be established in each raion where branch of the Farm Association operate and these FSSC would be subsidized by the state in order to make these units operational. It is desirable if the state subsidies will be applied for period of three years and more and then these FSSCs would be able to operate without financial aids. Thus, the financial support is to be applied while these FSSCs would become financially viable and would be able to sustain in their business operations.  Then, the source of income of FSSCs would be fees for consulting services. In order to provide with the wide range of services to farmers FSSC should have a number of these consultants at least a farm management specialist, economist- financier and technical specialists such as agronomist, land and marketing specialist.

The role of policy and legislation are to provide with an efficient framework, but this framework must have an operational capacity and these branches of Farm Association with FSSC would contribute to development of operational capacity at least in transformation of farming entities into profitable enterprise and restructuring of agro-enterprises, in access to rural credits and creation marketing infrastructure. Thus, the main task of Farm Association with its FSSC would be the assistance to the farms in getting sustainable operations.

The Farm Associations are to be involved in attracting the farmers for co-operation in purchase of inputs and getting financing from commercial traders. Thus, the activity of branches of Farm Association would contribute to co-operation of small farmer not only for purchase of inputs and getting seasonal financing, but also they would help to farmer to unit into a group of farms for joint work in farming such as rent of machinery, sales of agricultural commodities products in large quantities, in storage and processing and etc. Finally, the farmers would come to idea to organize some public organization such as the co-operatives or associations of agricultural producers with involvement farmers and processors.

 
Assistance to Rural Residents in Getting Land Tenure for Farming

According to the current land legislation the applicant, who intends to get land tenure, is to submit in addition to the basic documents additional documents such as a brief program of supposed farming, proof of experience in agricultural production or presence of relevant education or passing special training in the farming.  

Required submitting these additional documents might be obstacles for applicants, because no any applicant  are able to prepare the brief program for supposed farming without help of consultants or agricultural specialists. A number of agricultural specialists, who is able to prepare such documents, are very limited while consultants are hardly available in the raion centre.

But more serious obstacle in getting land tenure for farming is requirement for having agricultural experience or presence of special education or training in agricultural production. The applicant, older than 35 years old have some proves of involvement in agricultural production due to records in the Work book, which was a required document in time of the Soviet Union. But in regards of applicant under 35 years old it is not clear how they could provide proves of their engagement in agricultural production, because they do not have such proof, because this recording in the Work book was not longer applicable after failure of the Soviet system. 

As concern young people, who never been involved in agricultural production, only one option is to get a relevant studies or special training in farming. These young people are not able to get such training, because such training is very expensive for them  and cost of living in the oblast centre is very high. Thus, the land legislation allows to rural residents to have land tenure for organising farm, but some established requirement makes it is impossible to rural residents, particular to young people.

This problem might be solved through providing special training in farming of applicants at the expense of the state budget. This special training would be provided with the Agricultural University and almost all agricultural regions have own Agricultural Universities or Institutes, area of specialisation of which is very close to agriculture, for example, Institute for Water Irrigation in Dzambul city. In case of absence of an appropriate high educational establishment this special training might be established within an agricultural college.

The rural residents, wishing to be a farmer are to submit the application to the local administration, which in turn would inform the regional administration about the number of participant for special training in farming. The regional administration would make decision on organising a special training in farming either in the certain raions or in the regional centre. It is better to organize the training in the regional centre, because the number of trainees in any raion would be not enough to conduct such training.

The selected educational establishments for providing such special training in farming should have farm business faculty with relevant teaching staff in farming.  The recent establishment of farm business faculty in the Agricultural University in Astana might serve as example of a proposed educational establishment, supposed to be involved in training in farming and farm management.

The regional state budget would contract such educational establishment or at least reimburse the expenses of these educational establishments in conducting the special training to these applicants.  The option of contracting would be appropriate, because in this case the high educational establishments would be have the certain liabilities in providing training for farmers, which might be established in the contract.

Such training might be extended to applicants of all ages and to current farmers, who has a need in the special training in farming.  The significance of organising such training to rural residents would be difficult to estimate and such initiative would give to rural residents some hope in establishment of their own farms and therefore they would be able to improve their living conditions by the involvement in the agricultural productions.

Instead of cancellation of educational and professional requirements for applicants it is more reasonable to provide the applicants with necessary knowledge and qualification, because the people are to be trained or educated before organising own farm and starting farm operation.

Strengthening of Agency for Land Resources Management raion Branches

According to the land legislation the raion branches are responsible for current land management such as monitoring of the appropriate use of land by landusers and the quality of land and providing data for land cadastre while regional branches are involved in the process of decision making in land plot granting. The raion branches were responsible for implementation some provisions, related to land share issues and secondary sub-leases and provide helps to farming entities and farmers with implementation their rights and liabilities under the current land legislation. 

As a raion branch of the Agency for Land Resources Management conduct work, relating to proper implementation of the state policy in land relations and know better the situation in land issues in their raion than the regional branch it is reasonable to delegate some responsibility in the current process of land granting. Moreover,  a regional branch of ALRM implements only technical work mainly in regards of technical possibility to provide the applicants with the requested land plot by the request of local administration, who is empowered state body to make a decision on land granting and this decision is made by discretion of land committee, headed by akim of raion. Thus, it would reasonable to authorise the raion branch of ALRM to implement the all technical work, related to granting land tenure to applicants.

The authorisation of raion branches of ALRM to conduct work, relevant to land granting process such as search of a suitable land plot, contract preparation and acceptances of payments would accelerate the process of consideration of application for land granting, because there is no need to send the application to oblast centre and it will save money and time of applicants. The preparation project design and physical identification of land plot also might be implemented by the raion branch of the specialised state agency. Also, the state agency for registration of real estate and deals is presented on each raion and therefore the all work, related getting land tenure might be implemented on raion level.

The objection against providing the raion branches with such authorisation might be that raion branch staff does not have enough capacity to implement such work on proper manner. In order to overcome such limitation in capacity of staff the additional training might be done in the framework of the proposed institutional strengthening of raion branches of ALRM. The staff of raion branches are to be capable for further training due these specialist have college and university degree and  some of them are qualified specialists with relevant experience in land issues. Therefore, the further training of these specialists will prepare them for more responsible work in the area of their expertise.

This institutional strengthening might include the increase a number of specialists and the necessary equipping of raion branches, changes of the relevant provisions on the raion branch, under which the more responsibility might be provided to the raion branches. The latter issue might be settled by the Agency for Land Resources Management by taking some consent of the Government in some issues. The training of staff of raion branches, the increase of number specialists and the necessary equipping might be implemented on additional financing from the state budget.

The institutional and technical strengthening of the raion branches of the Agency for Land Resources Management would not possible without getting the approval from the Government it is unlikely to introduce some serious changes in the delineation of powers between raion and regional levels of the ALRM., because this would weaken the centralised system of governance by opinion of the Kazakh officials. Thus, delegation more responsibility to structural units at the raion level is rather a more political issue than a subject of technical implementation.  

 
Proposals for Introducing Changes in Land Legislation

As it was noticed by the land specialists the private land market is not organized until the present time in all regions of Kazakhstan, except on irrigated lands in the southern regions although the land legislation provides to purchase the land on discounted price up to 75 percent of cadastre value and on delayed payments for 10 years. Thus, the development of private land market is highly doubtful in the nearest future. Other reason, affecting on this issue is high established prices for agricultural land and low incomes of rural residents.

An attempt of deputy in May 2003 to introduce provisions regarding the allocation of land plot to rural residents on unpaid basis has been rejected by the Government, because this would create the danger for 140 thousands agricultural enterprises, which rent the land shares by the explanation of the officials. Nowadays, when the private ownership for agricultural use land is granted on paid basis it is unlikely to come back to idea of granting land to rural residents for free.

While the cost of arable land in the rainfeed regions is high (approximately 370 USD per I hectare) the development of the private land market is under doubts. For stimulating the creation of private land market on rainfed agricultural lands it is necessary to reduce the cost of agricultural land significantly, because on such prices no any rural resident and agricultural entities would be able to buy the agricultural land for private ownership. The cost of irrigated land in the southern regions is in range of 556 and 655 USD and the difference between non-irrigated and irrigated land in prices for land acquisition is not significant. But in term of possible crop failure risk due to the weather conditions this comparison is not to the favour of owners of non-irrigated land. Due to low risk of crop failure on irrigated land the development of private land market has started in the southern regions, where the irrigated agriculture is prevailed in rural areas.  Thus, the Government is to reduce the cost of non-irrigated agricultural considerably by introducing the change in the Resolution of the Government # 890 dated 2 of September 2003otherwise agricultural entities and farmer would continue to keep the land use rights for agricultural lands.

According to the business legislation new participants of these agricultural enterprises, who contributed their land shares into statutory fund of these enterprise have the right to sell their shares to any buyers, including to this entity itself. As their shares were appraised at low value in the majority farms (average price about 90 USD in Atbasar raion per 1 land share, which comprises 32 hectare of agricultural land including arable land of 20 hectares) the agricultural enterprises might purchase these shares from the rural residents. Therefore, if the agricultural entities would intend to release from these new participant they can purchase the business shares of new participants at low cost for them. Thus, the rural residents face with the problem that they would lose their shares in the agricultural enterprises and hence they would not able  to get any payments as they used get from rent of land shares before.

In order to prevent from that the land legislation is to be supplemented with some provisions, forbidding the sales of these shares and stating that the shares of agricultural entities participant must be regulated only by the land legislation. The Kazakh legislation on partnership contains provision, stating the sales of partnership share is allowed if the current legislation does not make any restriction. Thus, lawmakers had foreseen some possibility, when business share may govern by other legal acts. The same restriction might be introduced on the legal acts, governing the activity of joint stock company and production co-operative. Definitely, introducing such provisions would defend the right of these people from loosing by themselves their ownership rights in the agricultural enterprises.    

As regards of a fair appraisal of land shares it is necessary to introduce the methodology and procedure of the appraisal of these land shares. The proposed approaches for appraisal of land shares such as by agreement of parties and by evaluation of auditors are not applicable, because no any operating agricultural entities used the auditors in determining value of land share and all deals were made under absence of any alternative proposal for rural residents, except in some villages there were only two or three options without any significant differences. A fair appraisal of land share was possible in relation of newly established entities where the land shares were appraised on equitable basis.

The data on re-registration of agricultural entities in Atbasar raion has proved impossibility to bind the appraised value of land share with statutory fund of agricultural entities. The assessed value of land share should be so low otherwise the share of new participants would take a significant share of statutory fund. Therefore the significant part of business entities profit must be paid to new participants and it would not make a sense to founders of such entities to keep these new participants as owner.

Also, it is impossible to take the cadastre value of agricultural land as a base for appraisal of land share, because the various numbers of participants and amount of statutory fund make it impossible. The relation of the land cadastre value to the statutory fund of agricultural entities varies in the range from 4 times up to 516 times and therefore there is no any proportional dependence between these two indicators. Such divergence of these indicators makes impossible to use the cadastre value of land as base for appraisal of land shares, contributed to the statutory fund of agricultural entities.

One possible solution for finding appropriate approach and procedure for determination of appraised value of land share is to calculate the possible profit, which might provide a land share to agricultural entities. This income would be defined through development of the crop budget on the basis previous years data of agricultural production such as yields, cost and sales prices.  This approach might be used by a state agricultural research institute or other consulting institution by request of the Ministry of Agriculture.

In 2003, the Republican State Enterprise “Scientific research institute of economy of agro industrial complex and development of rural territories” elaborated methodological recommendation on the organisational economic models of agricultural entities in the Republic of Kazakhstan. This recommendation comprises the different farm models of the various specialization of agricultural production for all regions of Kazakhstan. In other words, specialists of this institute have elaborated the budget of main type of agricultural production for all regions of Kazakhstan, including crop growing.

In this recommendation the farm budget has all economic and financial data including yields, revenue, cost and profit. The latter might be used for appraisal of land share, which was contributed to a statutory fund of agricultural entities. This farm model budget of cereal production in the northern region is calculated for farm with 840 hectares of agricultural land. The profit of abovementioned model farm is 21.7 thousands USD according to estimates of above mentioned institute in this recommendation and hence a model farm would get 26 USD from 1 hectare of the agricultural land. This amount of estimated profit from 1 hectare might serve as base for establishment of appraised value of land share.

The rural resident by contributing land share in amount of 30 hectares of agricultural land would provide the agricultural farm with additional profit on amount 775 USD. Thus, this profit might be taken as an appraised value of land shares and half or one third ratio parts of this amount should be paid to rural residents as dividends for contributed land share. If you take one third ratio the farm must pay to each participant of its entity fixed payment on amount of 258 USD annually. Such approach should be established by relevant legal acts, because land share is an artificial arrangement, invented by the Government during conducting privatization of state farms and therefore applying the techniques of appraisal of any assets would not be correct. Thus, the procedure of appraisal of land share must be solved by the legal act of the Government and it will provide the rural residents with some benefit for their contributed land shares at fixed amount.

More important issue is payment of earning to new participant of agricultural entities. The appropriate way of earning payment determination would be paying at the fixed rate on appraised value of land shares something like paying on privileged shares. This fix rate on earning paying would be equal to estimated net profit ratio of relevant model farm. In case of Atbasar raion the model farm has revenue from sales of agricultural commodities on amount of 79.6 thousands USD and cost of production is 57.9 thousands USD and profit amounts 21.7 thousands USD. Therefore, the net profit on sales of this model farm is 27,2 percent and this figure might be established as fixed rate for payment dividends to new participants of their land share to this agricultural entities. The farm must pay to each participant of its entity fixed payment on amount of 28.3 thousands tenge (211 USD) annually.

Another option might be introduced by the Government by taking the amount of possible sales of agricultural products from one hectare and it would be considered as assessed value of land share. This amount of revenue must be multiplied on coefficient of net profit sales, which is 27.2 percent and finally the received profit should be divided on three and it means that one third earning would be paid to participants of these entities and two third of earning would remain in hand of agricultural farm owners. In this case the farm would pay to each participant a fixed payment on amount of 307 USD. The allocation of earning between these parties should be made on the mutually beneficial base, otherwise the farm owners would think about releasing from these participants.

The second option is more preferable to new participants, because they can get more earning from agricultural entities. But the agricultural entities are reluctant to pay a high price for land share, because they paid before rent payment in range 10-12 thousands tenge (75-90 USD) and then they might come to another alternative opportunity to rent the agricultural land from state directly. In case of high rent payment it would be difficult to convince the farm owners to agree with making payment at that fixed rate, because they would insist on some failures, which may occur to weather conditions.  Both options would provide rural residents with increase in getting payments from farms in 2.4- 2.8 times in the first option and 3.4-4.1 times in the second option to compare with previously received lease payments.  

The agricultural entities have some legally established privileges such as transference of losses during three years and other legally established tax reporting techniques, which allow them to work unprofitable for long period without any punishment from tax inspectorate.  Moreover, auditing is not compulsory for agricultural enterprise and rural residents are not aware about how to check the plausibility of farm accounting. Thus, the possibility to get payment at fixed rate from the assessed value of contributed shares, which is to be established legally would defend the rural residents from cheating them by agricultural entities by conducting double accounting and other business techniques.

One of these above mentioned approaches must be introduced by the Government resolution by using the recommendation of authorised research institute such as above-mentioned state research institute. Also, the Resolution of the Government must comprises some provisions, obliging the compulsory paying of so-called dividend for contributed land shares at fixed rate to rural residents in cash or in kind by the discretion of recipients with introducing the liabilities for agricultural enterprise for avoiding making such payments otherwise these rural residents would not get anything from agricultural entities.