The Impact of Land Reform on Economic Development in Rural Kazakhstan

Interim Report

   Introduction

The Republic of Kazakhstan has a territory of 2 724,900 sq. km, which makes in the ninth largest country in the world, roughly the same size as western Europe. Kazakhstan is totally landlocked (11). The country is one huge plain, sloping from north east to south west. The plain is bordered by extensive mountain ranges on the east and south-eastern borders. Its neighbours are Russia in the north and west, China in the east, and Kyrgyzstan, Turkmenistan and Uzbekistan in the south.  Rural Kazakhstan accounts for over 95 percent of Kazakhstan’s territory, or approximately 260 million hectares (6). Kazakhstan lies between the Siberian Taiga in the north and the Central Asia deserts in the south, the Caspian Sea in the west and the mountain range of the Tien-Shan and Altay in the east. 

Kazakhstan has a continental climate; average temperatures in the north  – 18C in January, while average temperatures in the south are  of –3C in January.  Summers are generally dry and the average temperature in July increases gradually from 19C in the north to 28-30C in the south. Precipitation in plain areas is generally low from 400 mm annually in the north to 100 mm annually in the southwest. In the mountainous regions, the precipitation ranges from 400-1600 mm (5).

As a result of these factors, Kazakhstan has three principal ecosystems: desert areas, accounting for approximately 55 percent of rural areas; the steppe (grassland), accounting for approximately 30 percent; and mountains and foothills, accounting for the remaining 15 percent (6). These ecosystems provide a varied base for rural economic development encompassing agriculture, fishing, hunting, recreation/tourism, extractive industries and the further processing of natural raw materials (5). 

The Kazakhstan’s climate makes possible to cultivate wheat, barley, oats and rye in most regions. Irrigated land in the southern regions provides the growing temperature sensitive crops such as cotton, tobacco, rice, sugar beet, grapes and other fruits. Natural pastures accounts for 187, 9 million of hectares of land, which is enough to feed 70,5 million head of sheep or 7,05 million cattle. Kazakhstan’s climate is favourable for live-stock farming.  It is traditional occupation of Kazakh people and most pastures have been utilised during the year as a forage base (11).

Agriculture in Kazakhstan is the largest industry in the national economy occupying an important position in the social-economic politics of the state. Approximately 43, 7 percent of the population (total 14,9 million) live in rural area and 30,9  percent of the rural  population live on less than the minimum subsistence income (approximately $ 35 USD per month) (6). At present, the total farmland is 222 million hectares and the average population density is under 6 people per square kilometre. Approximately 84,5 million hectares of agricultural land has been distributed to land users, including 20,5 million hectares of arable land.

In 2003, Kazakhstan has introduced the private land ownership by adopting a Land Code. According to this Land Code the temporary and permanent land use rights for agricultural land have been supplemented with private land ownership. Thus the Land Code outlined the forms of land tenure for agricultural lands both land use right and private ownership. The objective of this land reform is to establish efficient system in agricultural sectors, which will contribute to growth of agricultural production, people welfare in rural area and development of the land market.

Economic transformation of the Kazakhstan economy has brought many changes to the agricultural production and the rural economy. Employment opportunities have been severely affected by disintegration of economic relations between former republics of the Soviet Union and the concomitant fall in production. Further problems originated with various constraints on the ability to sell agricultural commodities on the internal and external market at appropriate prices. The numbers of unemployed people have increased significantly after conducted restructuring and privatization of state and collective enterprises and the abilities of the state to help such people are very limited. Thus agricultural reforms, including land privatization are considered an important and key issue in the overall transformation of the economies of the former socialist world (15).

-    providing food security;
-    a gradual increasing in agricultural production and the growth of sales on either
-    the internal market and international market;
-    establishment of proper living conditions in the countryside (7).

Irrespective of whether the Government spends sufficient amount of funds on existing state support programs, the main tasks of agrarian reforms at this stage are the completion of   rural land reform and the creation of the necessary legislative base for private landowners to use the land efficiently. The land use rights together with uncertainty and instability of recent land legislation did little to stimulate or enhance the quality of land and attract long term investments in the agrarian sector (7).

1. Land Legislation Development in Kazakhstan

 1.1. Overall Review of Land Legislation Development.

        As in other countries of the CIS, the land reform in Kazakhstan, is concerned with developing a legal and institutional framework, which will allow the transfer of real property assets (land and structures built on land) from state control to a variety of legal entities(4). This transference of land and property assets was made by means of land and property shares as in other CIS countries.

         The Law on Land and Land Relations has been replaced several times by authorised legislative acts such as the Presidential Decrees and Laws of the Republic of Kazakhstan. The first attempt to reform land relations was taken by the Supreme Council of the Kazakh Soviet Republic with introduction of the Land Code in November 1990. Despite this Land Code maintaining the dominance of state ownership of land, it did ensure various essential changes in land arrangement some of the key features by providing citizens with the right to possession for life of land plot for a peasant farm, for construction, for subsistence production, horticulture and cattle breeding, summer cottage construction and traditional handicraft.

Before the Land Code was introduced, the Law “On Peasant Farm in the Kazakh Soviet Republic” (21, May 1990) established the peasant farm (private family farm) as an independent farming entity, provided peasant farms (private family farm) an independent farming entity ensuring that it would enjoy equality with other business entities in agriculture. This meant that the organizational and the legal form of non-state agricultural farming entity were introduced into the practice of the country. The Law set out the principles of organization, the activity of peasant farms, declared its business independence and stated that produced commodities and received income are the property of peasant farms and could used by their own discretion. Life inheritable tenure for a land plot was introduced for private family farms, based on labour contribution of each member and joint ownership on the productive tools and property.

According to this Law the land plot under life inheritable tenure is not divisible and it could not be subject of a sale, exchange, lease and transference as a gift to external persons. The land plot might be transferred to member of this family peasant farm due to inability of the head of peasant farm to work because of achievement of pension age or losing the ability to work.  The land plot should be inherited to successor in case of deaf of the head of the peasant farm. All those transfers of land plots to inheritors were made possible by the introduction of the Civil Code at the end of 1994. When the Civil Code took an effect on March 1995, those who had been granted lifetime inheritable tenure status were allowed to sell, gift or lease their land. The same legislation allowed the transfer of life inheritable tenure rights to the capital stock of an enterprise (4).        

The Presidential Decree “On Some Issues of Land Relation Regulation” (# 1516, 24 January of 1994) provided that land parcels could be granted to citizens and legal entities for temporary use for up to 5 years (short-term rent) and up to 99 years (long term rent). In both cases, the user would need to pay rent. This decree also set out the rights of citizens and legal entities for purchasing land use rights or renting them in the case of privatization of non – agricultural real estate.  

The 1994 Presidential Decree “On Further Improvement of Land Relations” (#1639, 5 April of 1994) allowed that citizens and legal entities could sell, rent out or pledge their various lands rights as collateral. They were also entitled to sell these abovementioned rights to statutory fund of joint stock companies, to partnerships, co-operatives, including those that included foreign participation. In this way, land use rights became the subject of sales, purchases and other property transaction. This decree could be seen as a significant step in adapting land relations to market conditions and created legal basis for a land market.

The Presidential Decree (having the force of law, in this case) “On land“ was adopted December 22^nd 1995 and was the first the first legislative act on land relations, which complied with the basic legislative acts such as the Constitution of Republic of Kazakhstan and the Civil Code, (in effect in March 1995). Thus the new introduced institutions of land ownership were legally bound to the abovementioned basic legal act.

In this Law “On land” citizens and legal entities had the right to acquire a land parcel for private ownership and land was recognized as real estate and all transactions were permitted with these land parcels. At the same time forest land, and land relating to water resources fund, land under settlements and especially protected natural reserves remained under the state ownership. Land parcels were granted to citizens for certain purposes, such as conducting own subsidiary farms, horticulture and summer residence construction. As concerned legal entities land parcels were granted to them for technological needs, particular for the construction of structures on land and construction of living houses.

Farmland remained under the state ownership. Non-state legal entities and citizens had the right to acquire land plots with permanent land use rights while secondary land users and foreign entities had the right to possess land plots on a scheme of temporary land use rights for between 3 years and up to 99 years.

The new property institutions such as the right to private ownership on lands, permanent land use rights, the right for limited use of other land parcel (servitude) and condominium have appeared in the land legislation of the Republic of Kazakhstan.

The third stage of land reform legislation in Kazakhstan was characterized by the adoption of a substantial number of legal acts. After introducing the Law “On land” approximately 100 legislative acts were adopted, creating the legislative infrastructure for market land relations. This has not been changed significantly by further laws and measures. Some acts were introduced to 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 safe and rational use of land. All these legislative acts were brought in to transform land relations in conjunction with emerging market conditions (9).

            Despite its breadth the Law ”On land” was limited by the Constitution of Kazakhstan, which provided that the Presidential Decrees were valid until the relevant law was adopted by the Parliament of the Republic of Kazakhstan. The necessity to issue the Presidential Decrees at the end of 1995 was explained by fact, that the Constitutional Court recognized the election of deputies to the Parliament as illegitimate by its decision and therefore the Parliament was dissolved by the President. Then the President had taken the power to issue laws in the form of a presidential decree. On 24^th January 2001 the Parliament adopted a new Law “On Land” and this Law replaced the previous Law ”On Land” of 1995.   

After adopting the Law “On land” of 2001 the institution of land use rights was changed significantly. 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. At the beginning of the land reforms peasant farms had the right of inheritable land tenure for life, subsequently, they were given permanent land use rights and finally they were allotted only temporary land use rights. The Law “On Land” of 2001 retained the possibility of permanent land use right only for state land users. Thus the rights of landuser, particular the peasant farms were worsened by this introduced law.

Some essential differences in land tenure between state and non-sate landusers were established by the new legislation. The latter 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. Thus the non-state landusers with its temporary land use rights had a status, very close to private ownership.  On the contrary, state legal entities as permanent landusers were restricted in such business deals and only can do it only by the consent of the authorized state bodies. This Law enlarged the sphere of responsibility in land relations.

While increasing the scope of legal freedom also this Law enlarged the sphere of responsibility in land relations. New sanctions were introduced in the form of more sophisticated property penalties that took into account the type of infringement, the size of damage and the degree of public danger. 

In addition to these measures land zoning was introduced in this law. Accordingly, ten zones were determined on the territory of Kazakhstan and these vary from forestry to steppe zone to central Asian mountain and southern Siberian mountain, including deserted and subtropical-deserted zones. This zone specialization of land in Kazakhstan has had a strong influence on the development of land legislation, binding other interrelated legal norms and documents. 

            In 2003, Kazakhstan introduced private land ownership by means of adoption of the Land Code. According to this Land Code the temporary and permanent land use rights, which were established previously in land tenure for agricultural land were supplemented with the addition of private land ownership. The Land Code of 2003 outlined the forms of land tenure for agricultural land and provided for farms and faming entities to enjoy land tenure by means of private land ownership or temporary land use right. The aim of the introduction of private ownership for agricultural lands was to further promote the development of market relations in rural areas and so help to create a land market, which will facilitate the transition of agricultural land to efficient agricultural producers.

 1.2 Ownership of Land.

By introducing the Civil Code in 1994 made significant change step towards a Roman definition of ownership. However, in practice all land transaction such as purchase, sale lifetime inheritable tenure agreements remained the subject to administrative approval. Similarly, the local administration retained the right to determine the value and other terms of any sale (4).  The main weaknesses of this approach was that the actual granting of land to citizens for creating peasant farms was conducted at the discretion of the local representative bodies and subject to their to regulate and control all transactions.

Articles 24 of the 1991 Land Code contained a long list of reasons why an individual could be deprived of previously granted land rights. Many of these conditions were couched in broad term that gave local authorities considerable interpretative freedom. There were cases of individuals having their land rights rescinded or changed hereby introducing uncertainty into the process (4).

The Civil Code (legally in force March 1995) provided the legal basis for private sector entrepreneurial activity such as the right to non-state ownership, the right to establish business enterprises and etc. However, with respect to land the Civil Code (Article 193) reiterated the exclusive right of the state to such ownership. This position was consistent with both previous legislation and the Constitution at that time (4).

The introduction of a new Constitution of Republic of Kazakhstan, adopted by national referendum on August 30th 1995 provided that in addition to state ownership of land, there was the possibility of agricultural land being held under private ownership.   The new Constitution guaranteed the equality and equal defence of state and private ownership. These constitutional norms became the ground for the creation of new, more market oriented land legislation.

This constitutional norm enabled a Presidential Decree “On Land” to be issued in December 1995 on which limited private ownership of land was introduced. Private ownership was allowed for personal households plot, gardens and dachas. However, land of agricultural value (except for the households plots previously mentioned) may not be granted for private ownership status and this included peasant farms. At that time peasant farms fell into the category of permanent use and were provided with permanent land use rights.

The administrative regulation and control of land transaction were weakened by the adoption of this Law “On Land”. Henceforth, it was possible for two parts to legally agree the purchase or sale of a land plot between themselves at a mutually agreed price and to have the transaction notarised without administrative interference. This legislation sought to limit administrative abuses such as changing or rescinding land rights yet  ownership and use rights could still be rescinded for certain offences, such as violating land use assignment categories, using agricultural land for non-agricultural purposes, causing ecological damages or as a sanction for a criminal convicted of a criminal offence (4).

The next Law “On land“ in 2001 did not make any substantial changes in the concept of ownership. Permanent land use rights were replaced by long term and short terms temporary land use rights with state enterprises being granted the permanent land use right. Non-state land users held the right to rent out their land use rights for periods not exceeding their lease period with state. Also, the non-state land users had the same rights to sell, exchange, gift and pledge as collateral. These temporary land use rights are very close to previously established permanent land use rights although from an economic and common sense perspective the switch from permanent to temporary land use is difficult to understand.  The replacement of permanent land use rights was made without any clear explanation and no commentators have been able to find any reason that could explain this change in land use rights.

The land legislation began in 1990 with the introduction of the concept of lifetime inherited land tenure. Then Government introduced permanent land use rights. This was promising in terms of developing a land market. The introduced temporary land use right    undermined the sustainability of land tenure and it gave less confidence to owners that their land plot would not taken by officials some time in the future or that the conditions of land tenure would not renewed as they had been granted. Thus the Government changed land legislation to the direction, which has deteriorated the status of landusers.  

It is necessary to note that provisions of “On land” of 1995 and ”On Land” of 2001 did not contain the legal norms for the obligatory replacement of documents, proving the land tenure. The 1995 Law “On Land” provided the legal documents, proving the right of citizens and legal entities and issued before adoption of this edict would be remain in force while the 2001 Law “On Land” provided that the process of renewing documents from permanent to temporary status would be at the request of the landusers.

Despite these provisions on the status of pre-existing documents various state bodies forced landusers to change their legal documents from the permanent land use right and lifetime inheritable possession to the temporary land use rights both for legal entities and peasant farms. Thus the Kazakh authorities they did not respect the plurality of land ownership, which were promulgated in previous land laws.

 1.3. State Farm Privatization.

Farm privatization took place in several phases as in other CIS countries. Although the farm privatisation was concerned with transforming state agricultural enterprises the privatisation legislation concerned other forms of agricultural enterprise as well. It should be noted that the farm privatisation legislative framework evolved in a piecemeal approach rather than introducing a single comprehensive set of laws with determinate outcome.

Early farm privatisation phase began in 1990 with adopting the Law on Peasant Farms and the entire process was placed in the hands of local administrations. Land for creating these peasant farms was either appropriated from state agricultural enterprise or allocated out of a special land fund established for this purpose. The legislation contributed to creation of several hundreds farms in the form of individually or family owned farms. As this process was made without having all the necessary guidelines and procedure the implementation of farm privatization was highly subjective (4). The result was that not so many people believed that the lifetime inherited land tenure would remain in the business environment, which remained under state control and maintained the principle of the command economy. In addition, employment in the state agricultural enterprises was self-sufficient for many and preferable to taking the entrepreneurial risks, associated with private farming.

This legislation had limited success. One of the reasons why the privatisation of state agricultural enterprises did not meet the intended expectation was that enterprise legislation, allowing the creation of various types of business was not adopted. Only the Civil Code, which came into force in March 1995, laid down the basic freedom of entrepreneurial activity and defined the various forms of business enterprises including: partnerships, limited partnerships and joint –stock company. These forms as well as productive cooperatives were described in the Civil Code but during 1992 -1994 farm employees had very restricted legal options and were often unaware about all the options available to them (4).

By 1994 it was clear that farm privatisation legislation was not succeeding in creating significant numbers of viable new farms. The majority of former state agricultural enterprises merely underwent a change of name. In an attempt to speed up the process new legislation was passed (4). The Presidential Decree “Concerning the Transference of sovkhozes Property Part to Director Ownership” (1585, March of 1994) allowed the transfer of 10 % of the land shares of an enterprise to the farm director, who had held the position of director for twenty years. A further 10 % could be allocated on a temporary basis and then transferred to full ownership after five years of satisfactory performance. The Government Resolution (216, February of 1994) also allowed the sale of selected agricultural enterprises to individuals through closed tender. Some 34 sovkhozes were selected and about 20 sovkhozes were sold into private ownership. Each buyer was allocated 20 % of the equity and employees 49 %. The remaining 31 % was held by the state and allocated to the buyer under certain conditions. The buyer was required to assume the debts of the farm. These two procedures were temporary measures which were not longer applicable, because the conditions of closed tenders were not appropriate to potential owners of these state and collective enterprises.

In 1995 the farm legislation framework became more consistent, when various parts of legislation were put together. This farm privatisation legislation was based upon the same principles of equitable distribution of land and assets shares, but with the added benefit that the various forms of business enterprise, which could be adopted, had a basis in the civil law. Broadly, the various forms of business had definitions similarly to those in market economies.

By the middle of 1996 and according to official statistics 2332 state agricultural enterprises had been privatised and 6050 new farming entities had been established by new owners on the territory and farmland of these state enterprises. The conversion rate of approximately 1:2,6. The most significant types of non-state farming entities were collective enterprises, small enterprises and co-operatives. The term of collective enterprise was used by local authorities to distinguish a new voluntary association of shareholders from the old state agricultural enterprises. In practise, these associations usually conveyed a change of the name and modest re-organization and little else. The same management and farming activities were pursued.  These called collective enterprises and joint stock companies retained about three quarters of the land and assets of the privatised state agricultural enterprises. In other words, three quarters of agricultural production assets did not change their economic and social status. The conversion of state agricultural enterprises into peasant farms did not proceed at the desired level and the number of newly created peasant farms amounted to only 1591 units for the same period, which was less than the actual number of privatised agricultural enterprises (4). All those newly established farming entity obtained the land under permanent land use rights. As these collective enterprises have been owned by   

The further stages of farm privatisation were characterised that restructuring, mainly of these collective enterprises was left by “market forces” with the increasingly active involvement of private businesses. The relevant market legislation had been developed by legislation and farm privatisation and restructuring took its place in the framework of civil legislation with additional legislative acts, considering the specific features of agricultural production. Where climatic and marketing conditions were favourable some farms were successfully restructured by their management and private businesses. Considerable proportions of farms though were subject to bankruptcy and liquidation procedures.

A significant number of private trading businesses were suppliers of input for agricultural production mainly in the form of fuel and seed. They were often involved in informal financing of agricultural enterprises or barter trading. The terms of seasonal financing and trading barter were largely unfavourable for agricultural enterprises. Owing to the predatory terms of barter contract and short-term financing provided by trading companies the collective enterprises were usually heavily indebted.  It was the only option for agricultural producer under trading companies and furthermore there was no assess to either state or banking financing.  The result was that many of these agricultural collective enterprises failed to meet their contractual obligations under such contract with the trading companies and the majority of these enterprises were acquired by creditors. The shareholders and workers of these enterprises could withdraw the land designated in their land shares alongside their property shares but they were obliged to take part of debts of agricultural enterprises in an amount of corresponding to their share of participation. The result was that   shareholder and workers had to leave their land shares in business entities, established by these private businessmen. In this way private businesses entered into the agricultural sectors and assumed a dominant position in agricultural production.  

As result of these actions shareholding became to concentrate in the hand of former senior personnel, administrations or private businessmen. And additional reason was that many land shareholders, particularly pensioners and social workers used their land share rights for leasing. For this they received rental payments, mainly in kind, which covers the basic needs in food and animal breeding such as feed and hay.

A mutual economic dependency developed between land share owners and newly established private enterprises. Land shareowners require inputs (animal feed, seed end etc) acquired from private enterprises to sustain their personal subsidiary plot and cattle breeding activities. Also, the decision to transfer land shares to large private entities in the form of a lease was based on the possibility that the land share owner could be employed by this farm either permanently or temporarily for seasonal work. This employment provided rural citizens with cash, which was very important because of the absence of other alternatives in the rural area. Thus, farm privatization legislation contributed to the creation of new private agricultural enterprises, which occupied considerable farmland for agricultural production mainly through the lease of land shares from rural inhabitants.

In 1998 all newly appeared non-state enterprises of different categories were required to be re-registered in order to be comply with the Civil Code.  By the end of 1998 in percentage, 69, 3 % of the agricultural and arable land belonged to large-scale enterprises such as limited partnerships, agricultural co-operatives and joint stock companies (2). These large-scale enterprises are the backbone of agricultural production at present. In many cases, the ownership or majority of shares of this type of enterprises are in the hand of one person or certain business groups. Thus farm privatization ended with up with emerging private businesses, which had sufficient funds and funding from commercial banks and access to local and republican authorities. At the same time huge number (95 460 as of 1.01.2002) of peasant farms appeared in the agricultural sectors. This amount However, the amount of agricultural land under the land tenure of peasant farms is considerably less than that held in private business entities.

1.4 Land Sharing

The land sharing mechanism was designed to be a tool for the equitable distribution of land and assets of former state agricultural enterprises in the framework of the state properties privatization program among rural inhabitants and former workers of these enterprises. Thus the land share mechanism was an attempt by legislators to distribute the state property to formers workers of this enterprise and other people, involved directly and indirectly in this enterprise or living in the village, where the enterprise had operated. 

Employees of former state agricultural enterprises, employees of enterprise of social infrastructure and retired workers were entitled to obtain a share of the farm’s land and the assets of their enterprises, which were firstly mentioned in the farm legislation of 1992. This land and assets shares may be identified physically or may remain as a paper shareholding depending upon the choices of the employee and the corporate nature of the privatised enterprise.

The average size of land share was determined by dividing the total land area of an agricultural enterprise by the number of those entitled. The right to a land share was determined by the privatized enterprise which presented a list of those entitled to the head of local administration. Once approved, the list was used by the regional branch of Land State Committee to issue land share certificates, which represented a nominal right to obtain a land plot of state or collective enterprise owned agricultural land.  The final size of an individual land share depends upon the agro-ecological zone and type of farm, but is commonly between 20-50 hectares on the northern region whereas in the southern region, the average size of land share varies between 2- 15 hectares. The smallest land shares are those for irrigated land (4). 

The invention of the “land share” was common to many countries of the former Soviet Union reflected some of the former rules and principle of the socialistic system. The definition of “land share” together with “property share” was first mentioned in the Resolution of the Government (№ 633, 20, July 1993) “On Measures on Implementation of the Presidential Decree “On the National Program of Privatization in the Republic of Kazakhstan for 1993-1995 years (№ 1135, 5, March 1993)”, which specified that rural inhabitants may have the land and property share of state enterprise in framework of the national program of privatization. The rural inhabitants have a right to own land as “collective” property and they may withdraw their “land share” in kind. Also, these land shares were eligible to lease, bequeath it, but not to sell it.  The Resolution of the Government «On approval the procedure of concession of land share on privatization of state agricultural enterprises” (№ 611, 10, June 1994) allowed sales and transference of property shares and only the concession of the land shares to other member of collective enterprise for using these land shares for agricultural production. This provision provided the safeguard the wholeness of agricultural property complex in collective ownership.

The Civil Code did not specify the land shares rights as an independent legal element with specified attribute and right to ownership. The land legislation made no provision for the land share to be registered officially and only a land share certificate ought to be issue. This land share certificates did not provide the precise location of land plot with a demarcated land border and other attributes of land plot and it provides the holder only size of land plot. Thus the land share existed in framework of collective enterprises and served as a legal arrangement for transferring the property and land from state to private businesses. Later an Article 82 of the 2001 Law “On Land” defined the legal status of land shares and it reiterated the same essence of land sharing mechanism that was promulgated in the early land legislation. 

A huge number of rural habitants became the land share owners since the start of agricultural reforms in 1991. According to the statistics approximately 2.3 million land share were distributed to rural people. Approximately 60 % of those land shares were transferred to workers of liquidated, privatized and restructured state enterprises and 40% to workers, serving these enterprises and living in its territory and pensioners.

Only a small proportion of peasants took the opportunity to become landowners and work on land. Large proportions however hold the same rights for lands, but are unable to actually farm the land. Those people faced with the problem of how to manage their land shares. The number of such people has been increasing every year due to the retirement of older people and migration to urban area and others reasons. These circumstances provided the private legal entities with possibility to lease land shares from rural habitants. This lease agreement provided the land share holders with lease payments, which usually are very low and mainly paid in kind. Also, the current land legislation did provide the holders of land share with the possibility of withdrawal of their land share in order to establish an individual farm or to pool their shares or to take the land plot for the establishment of partnership, co-operative or joint- stock company.

The division of land into shares allowed for the creation of large private enterprises and the owners of these newly appeared enterprises were able to accumulate the shares of those rural habitants, who did not realise their rights were being used for organizing large scale business. Land share privatization provided an opportunity for land consolidation in the hand of private business entities without any physical division of farmland, thereby allowing private businesses to retain large areas of farmland for agricultural production.

Thus, the distribution of land shares was an important instrument for restructuring the agricultural sector by transferring from state ownership into private ownership, which is basis for a market economy and the further development of land relations.

2. Rural Kazakhstan

2.1 Land Resources.

In 1990 the total area of farmland in Kazakhstan was about 220 million hectares. Out of this figure 35 million of land was cultivated and over 180 million hectares of steppe was utilised as grazing pasture for cattle breeding (2). Following land and agrarian reforms the agricultural economy suffered a deep financial crisis that lead to a decrease of the total area of cultivated land. Farmland decreased in 2002 by 2,5 times in comparison with 1990 year and the total area of farmland is currently about 84,5 million hectares with arable land accounting for 20,5 million hectares and the remaining land are used for  pasture and hayfields, amounting to 59 million hectares and  2 million hectares respectively(2).

The actual area of sustained competitive rainfed agriculture remains an unanswered question. The area of good quality soils is about 12 million hectares, mostly in the north of the country, but the area with quality soils and normally adequate annual rainfall for arable farming is less. The area suited to rainfed agriculture is mainly concentrated in the north and east. Even in these areas the expectation is that one year in three or four will be one of inadequate rainfall. Thus, rainfed arable agricultural activity in Kazakhstan is not only restricted, geographically, but faces high risks from climatic uncertainties, which impact on the productive capacity of farming entities (5).

The natural resource base provides the opportunity to irrigate substantial areas of reasonable quality soils, which is one way of reducing production risks.  In the early 1990s Kazakhstan had 2.3 million hectares of irrigated land, which accounted for 6 % of total sown area, yielding up to 30 % of crop production. Subsequently, the area of irrigated agriculture has been reduced to 1.2 million hectares due to water shortages and deterioration of the infrastructure systems and yields have fallen 1.5-2 times. Most of the irrigated area is concentrated in the southern part of the country and has also undergone a contraction. The land reclamation qualities of soil have been deteriorating, while the technical condition of water stations has also worsened (11).  

The third natural resource category is permanent pasture (mostly steppe), which is the dominant natural vegetation of Kazakhstan. This category covers 90% of the country, but the quality of the pasture varies considerably depending on soil quality, temperature and rainfall regimes. The foothills of the mountains and parts of northern Kazakhstan support quality pasture but large areas are arid and support only scrub vegetation. The scale and range of quality of the natural grasslands determines that livestock systems must be the dominant form of agricultural system over much of the country (5). 

The natural environment that supports agricultural production systems is fragile due to past inadequate attention to sustainable production practices which meant that substantial areas of lands suffered from saline soils, water logging, soil erosion and desertification. The loss of quality topsoil over the past 30 years is well recognised and parts of the black soil area have lost up to 30% of their humus content (5).

The introduction of market norms through land legislation has substantially affected the reallocation of land categories in the agrarian sector. The introduction of private ownership, land tax and land use rights have forced landusers to optimise the size of their lands. The category of farmland has incurred to substantial changes and its land area has decreased to 136,2 million hectares in 2002 (2). Besides, the land tax, other reasons of land users refusal from land tenure were declining the sowing area due to high risks from climatic uncertainties and decrease of livestock production.  Thus the return of these agricultural lands to land reserve fund has taken place, mainly on pasture in semi-desert and desert area and on arable land in dry lands.  The total area of this fund has increased in 7 times to compare with 1990 and its accounts for 127,3 million hectares as of 1, January 2002 (2). 

2.2. Rural Development Policy in Kazakhstan.

The process of agricultural reforms in the country can be broken down into four stages. The period of 1992-1194 was characterised by the rapid reform of agricultural entities. At this stage the creation of a new legal framework for privatisation and land reforms were the main goal of reformers, leading to the adoption of laws on land, privatisation and peasant farms (11).

By the end of 1994, as a result of the privatization of collective and state agricultural enterprises the number of agricultural entities had increased. But, total agricultural output did not increase despite the establishment of alternatives forms of farming entities such as peasant farms and production co-operatives. The reason which has been described in detail above were a mixture of economic, legal and social factors which inhibited the efficient production and rational use of land (11).

The majority of the rural population were unready to accept reforms, which represented fundamental changes in the rural life-style (11). Existing technological links in the production and in the procurement of inputs and machinery were disrupted. The more serious problem of price disparity between industrial and agricultural products emerged as a direct result of government regulations whereby prices of industrial goods and services were liberalised whilst prices for agricultural commodities were fixed (4).         

When agricultural prices were finally liberalised in 1994 the higher prices led to a fall in consumer purchasing power. Subsequently, high inflation led to the loss of current and partly fixed assets, mainly livestock as livestock owners slaughtered cattle to raise the cash. This was a starting point of rural out-migration.

The principle of continuity of technological processes on farms, service providing farms and similarly enterprises was broken.   Several factors such as the accelerated privatisation of state agricultural enterprises, storage processing and service entities, limited business forms of organization, high inflation and unbalanced nature of sectors made the integration of agriculture impossible, further reducing the efficiency of the production process.

The funds provided under a framework of loan financing for newly established farms were insufficient. Furthermore, the state budget did not allocate additional funding for the rural sector in the framework of the 1991 Law ”On Prioritised Development of Auls, Villages and Agriculture”, which aimed to soften the consequences of market transition for rural economy (11).   

In this way, inadequate implementation of market reforms in agriculture from 1992-1994 led to a fall in agricultural output, the deterioration of the asset base and an increase in negative tendency in both production and social sector. It also led to a significant increase in the migration of the rural population to cities (11).

The period of 1995 -1997 was characterised by an increasingly rapid fall in agricultural output due to declines in the cultivated area and decreasing livestock numbers and as well as low yield and productivity (11). 

The private farms accounted for 93,5 % of all agricultural enterprises while the numbers of production co-operatives and agricultural  enterprises were also increased. Before 1992 several hundred farms were set up with sufficient resources base, but during “mass privatisation” in period 1993 -95 the condition of privatisation changed and most state agricultural enterprises were deprived of state support, thrown into free market and found themselves in debt. A 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 forced to sell or transfer their land use rights almost unconditionally and in many cases to creditors.

The already seriously complicated situation in the agricultural sector was exacerbated by the transference of the accounting system from cash methods to accrued methods by Resolution of Government “On transition to Accrued Methods in Tax Accounting” (1001, 20 June 1997).  This resulted in the bankruptcy of many insolvent farmers, because the income tax on accrued method was considerable more than the actual profit, which farmers had at the reporting date (11).

Investments in the agricultural sectors were substantially reduced, because of sudden policy changes and the transition from state distribution of investment resources to market mechanisms. Farms were generally not profitable and they could not get a loan from the banking sector due to the instability and crisis in agricultural sector. Government measures were very limited and not very effective. Between 1995 -1997 gross agricultural output declined by 38 % compared with 1992-1994, a fall made up of a 26 % reduction in crop farming and a 55 % drop in livestock farming output (11).  

This decline in agricultural output inevitably caused adverse social effects. Social tension and migration away from rural area, particularly younger people intensified. Average wages in agriculture were 3,8 times lower than in industry. Social infrastructure in the majority of villages was inadequate and did not satisfy basic needs. After the “optimisation” of education and health care sectors nearly 60 % of villages lost their medical care stations, libraries, clubs and more 50 % of rural settlement did not have any post offices (2).

The period of 1998-2000 saw several positive changes in rural life since independence. More state support was made available for agricultural producers and agricultural enterprises began to receive the favourable loans and advance payment within the state procurement programs. 1999 was remarkable for the fact that agricultural production grew for the first time in several years and growth was at 28 % compared to 1998. The decline in the number of cattle and horses slowed, while the corresponding number for pigs, sheep and goats began to increase (11).

Nevertheless, agricultural producers were still constrained by the lack of guaranteed assess to local wholesale food markets, the low purchasing prices for their product, the largely depreciated asset base, limited financing options, high taxes, depletion of natural resources and low consuming power. Falling living standard and higher unemployment rates led to an increase in “self-employment”, which amounted to 2 million people by 2001, although whether these people were able to provide with sufficient income was doubtful. Increased migration led to a significant drop in the country’s population, including in the rural areas (11).

In 2001-2002 the government adopted two-level grain purchasing scheme. In accordance with the Law ”On Agricultural Corporation and their Associations” (December of 2000)   the Agricultural Corporation was established. This corporation is 100 % owned by the state and is able to mandate the establishment of credit partnerships in rural areas. During this period the government made a number of key decisions such as ensuring lower prices for fuel, providing subsidies for seed-farming, livestock breeding, crop protection and veterinary programs (11).

In 2002 the state allocated 15,6 billion tenge for agriculture, a figure which was 1,5 billion tenge more than in 2001. The state portfolio of agricultural loans grew up to 12,3 billion tenge in 2002 compared with 8,42 million tenge in 2001.

Positive changes appeared in the rural social sector and the number of rural settlement without a medical care facility or attendant dropped during 2001. In the same year 70 first aid centres were re-opened, as well as 17 medical-obstetric centres and 27 rural hospitals. But, the quality of medical care and the resource base of rural medical centres still leave much to be desired. Similar problems remain in rural education and the same measures have been taken by the state in education and in other area of rural sector development (11).  In 2001 new secondary schools were built in the rural area, which provided additional 12 799 places for school attendance. Regarding the pre-school institutions only 162 additional place in rural were provided by authorities (2). Despite that economic development of a rural area remained the government priorities the President announced the National Rural Development Program for 2004- 2010 under which the sufficient funds are supposed to allocate for creation of a social infrastructure in the selected rural areas.   

This data represents a decline in the rural population of approximately 0,6 million people over the past decade while the overall population declined by 1,4 million of people. The overall rural population density is low, at less than 6 persons per square kilometre while the rural population density is very high in the southern regions. The rural population densities within most oblasts reflects on the resource endowments within these administrative units and the area with favourable climate conditions for agriculture it is much higher compared with to those areas with unfavourable conditions.

This table shows the highest proportions of population with income below the living minimum subsistence level are seen in Mangistau (59.9 %),  Atyray (44 %), Kyzyl-Orda  (42,2 %) and Aktobe (35,5%). These oblasts are regions with huge oil deposits and the economy of these regions has substantial growth and is one of the main contributors to the GDP of the country. Thus, impressive economic results do not always lead to improvement in the conditions of the poor in rural areas.

Wages in agriculture have always been lower than industry, but the gap has never been so significant. For example, in 1985 and 1991 agricultural workers earned 89 % and 78 % of industrial workers respectively. By 1994 this had dropped to 37 % and compared with nation’s average salary it was 60 %. This downward trend in agricultural versus industrial wages has persisted, falling to 28 % in 2001, or only 39 % of average wages nation –wide. In the last three years wages in agriculture remained the low. In comparison with other wages in other sectors agricultural wages are one fifth of salaries in the finance sector or slightly over 30 % in the transportation and communication sector employees. The above ratios are true for all regions. Recently government policy prioritised industry development and it has led to a serious deterioration in the living standards of rural population and caused the migration of significant number of the younger and working age population to the cities (11).

   

3. Implementation of Land Reform

3.1. Land Reform Concept.

The Land Code of 2003 establishes two form of land ownership for agricultural land –private land ownership and land possession under temporary or permanent land use rights. In addition, the Land Code recognises equal protection for state and private land ownership. This Land Code provided the legal framework for land privatization and its conversion into tradable commodities. The owner of land has the right to possess, to use and to dispose of their own land at their own discretion and will. The definition of “private ownership for land’ by Land Code is the ability to possess, to use and dispose of a land plot on the base, conditions and limits, established by land legislation. This definition complies with the principle of ownership within Roman Law and consequently with Kazakh civil legislation. 

The Land Code gives the priority for purchasing state owned agricultural land to rural residents, who will conduct farming by their own actions and who have specific agricultural knowledge and experience in working with land plot. Citizens and legal entities have the right to buy land at the reduced prices in size of 75 percent of cadastre value, established by Government Resolution. In case of purchase of land for ten years the land could be used as collateral after 50 percent of the purchase price has been paid with only the repaid amount of land being pledged as collateral. 

The Code also establishes the maximum size of land plot that can be purchased, something which varies from region to region. The following limits of maximum size of land plot established: for the citizen of Kazakhstan – from 30 hectares up to 25 000 hectares, including irrigated land – from 1 hectare up to 1400 hectares; for non-state legal entities and its affiliated entities-  from 150 hectares up to 240 000 hectares including irrigated land- from 5 hectares up to 19 000 hectares. 

Explicit criteria for determining of maximum sizes of land plot were not incorporated in the land legislation. Most probably the government established the maximum size of a land plot on the basis of prevailing peasant farms size in the regions.

3.2. Procedure of Land Allocation and Entitlement. 

The application should be considered within three months from time of actual acceptance of the application. By the order of the local executive body the regional Agency for Land Resources Management should determine whether the request is in conformity with territorial zoning and should organize the preliminary search for a suitable land plot. Then the proposal should be considered by the committee, which could be created by the local executive body and made up of local deputies, representatives of Agency for Land Resources Management and other state agencies and persons, appointed by the executive local body.

The decision concerning the land plot should be sent to the applicant during seven days after the decision has been made. Any refusal to grant land must be supported by full and written reasons. Following a decision to grant land the regional Agency for Land Resources Management should prepare the contact for land purchase and receive payment. This contract for land purchase should become the official basis for issuing the legal documents and be accepted as proving the land right.

The physical identification of the land plot shall be implemented by specialised legal entities and citizens, who are licensed to carry out such work. The work on physical identification of land plot comprises the initial elaboration of the land plot scheme and a strict definition of the land plot with demarcated border and other land attributes and finally execution of the project with all attendant documentation. The use of land before the defining of the land plot is not permitted and violation of this provision is subject to administrative remedies.

The legal documents, that establish land use right are provided by the state Agency for Land Resources Management. These documents together with the land project, prepared by specialised legal entities, should be presented to the regional state agency for registration of real estate and deals. After checking all documents, proving the land use right this agency shall register private ownership right. In accordance with current registration, any rights on the property and other ownership should be registered and will come into force after this registration. Thus, the land use right will be certified by legal act in the form of a deed, which should be registered. In addition, this agency records all other encumbrances on the land such as mortgage, leases and other restrictions, thereby showing  complete inventory of legal rights on the land.

The Land Code provides provisions for acquiring land into the private ownership in cases where it is currently used for agricultural production under temporary land use right. In this case, the applicant should submit additional documents, such as the dead of temporary land use right, a copy of business registration certificate, inquiry from tax inspectorate on absence of debts, inquiry from the centre for registration of real estate and deals. The regional land state committee should identify the land plot, determine the cadastre (assessed) value of land and prepare the draft of decision about granting private ownership on land plot.  This decision should be made within one month period from the date of applying.   

The granting of land plot for private ownership or under temporary land use right for the creation of peasant farm is considered in this Land Code. In addition to the documents listed previously the applicant should also submit a brief program of the proposed farming, documents, proving the work experience of the peasant farm head in agricultural production and relevant agricultural education, copy of taxpayer certificate and address of the head of peasant farm. The document, proving the right to the land plot should be given to the head of the peasant farm with a list of names of all the member of the peasant farm.

The Land Code also provides an opportunity to receive land plot for private ownership or temporary land use right, when it is currently occupied by agricultural entities under lease contract. The application of citizen concerning the withdrawal of land under use by an agricultural enterprise should be submitted to this agricultural enterprise and considered within one month if the citizen applied before sowing or after the completing harvesting. In some cases receiving a land plot from the agricultural enterprise will only be possible with the consent of the agricultural enterprise. Thus, legislation defends the right of the agricultural producer to refuse to cede land plot, which was sowed by them. The legislation does not guarantee the right of citizens to land from the agricultural enterprise and there are no particular provisions to ensure that plot applicant are given good plots of land.  Even if these applicants are and share holders they do not have any right for certain plots of land plot because their land shares do not specify the location of land plot, but only their size.

The local executive body does not consider such application and thus decisions to grant land should be made on the basis of land location project and with the consent of agricultural enterprises. All disputes arising may be considered by the court. However, these appeals to court do have their own limitations. Court procedures are costly and take significant amounts of time before a decision is made. Court trials are not the best solution for citizens, wishing to get land plot from agricultural enterprise.

The Land Code contains some provisions, which secure the right of members, who possess the land plot under “joint ownership”, which means possession of land by two or several owners. Such members have the right to exit the collective with a physical land plot, corresponding to the individual share of collective property. It will not be possible in cases when the land plot is not divisible and the person, who exits the collective can sell their land share to outside people. But before doing this he/she should notify the other members of the collective in writing concerning this deal and those people have priority on purchasing this land share. Division of land plot under collective ownership should be made after a preliminary decision determining the land share of each member. The provisions of Land Code establishes a mechanism for transferring land from joint ownership to private and guarantees the individual’s freedom of choice.  In such a way, individuals are entitled to leave the collective taking their share of land with them.

 
 
3.3. Restrictions on the Rights of Landowners and Landusers.

Land use rights could also be terminated by the expiry of a term of granting land plot or lease contract.

The Land Code regulates land use and land relations in order to further the rational and effective use of land and also, because the land is considered a natural resources rather than simply an asset. The Code gives priority to land protection as a necessary component for the safe use of land in agricultural production. The owners of land plot can possess, use and freely dispose with land plots, but their rights can be terminated by non-sanctioned changes of use or following infringements, which cause, damage and deterioration in the quality of land. In such cases, the regional Agency for Land Resources Management brings a suit to court and the decision to withdraw land will be made by the court. Landowners have the right to defend their right in court.

The Land Code intends to defend the public interest in land relations. A number of provisions provide individuals and legal entities with opportunities to own a land plot. However, the Land Code also restricts the rights of owner in case of conflict with public interest.  Land can be withdrawn from private hands by means of compulsory purchase in the following cases: to meet international commitments; for needs of defence, park zone or recreational centre; where minerals are found under the land; for the construction of roads, infrastructure building and related installation.

In accordance with the Land Code in these cases the state should buy the land at a price, agreed with the owner of the land plot. If the owner refuses to sell their land plot at a reasonable price, the local executive body has the right to bring a suit to court regarding the purchase price. Land legislation gives priority to the local executive body rather than the land owners when it comes to determining the price for the plot sought for public needs.   

The Land Code establishes certain restrictions on the acquisition of land plot into ownership in particular foreign citizens and entities are not permitted to buy either land of agricultural value and non-agricultural land. The land legislation does allow foreign citizens and person without citizenship to receive a land plot of agricultural value under temporary land use rights for 10 years.

In accordance with Government Resolution citizens and legal entities have the right to buy land at 75 percent of cadastre value. But in this case the new owner will not able to make any deals normally allowed by civil legislation for a period of 10 years. These owners can only pledge their land plot as collateral. The same restriction applies to owners of land, who bought land plot on a delayed payment for 10 years either at the basic price or reduced prices. As regards pledging as collateral they have right to pledge both as collateral after repayment of 50 percent of land cadastre value and only on the repaid amounts in both cases. The landowners are also restricted from any deals with their land except using it as collateral unless they repurchase the land use right from the state.

 3.4. Restrictions to Land Shares Owners.

The previous land legislation envisaged that some land shares will be given for lease to legal entities and peasant farms and consequently land plots, which were intended to allocate among the owners of land share would be cultivated by leasehold owners. According to the Agency on Land Resources Management of 1, January 2004 about 628.6 thousands land shares were given to legal entities and peasant farms under lease contract, covering a total area of 26.3 million hectares. Approximately 60 percent of these land shares are located in northern regions, where the cereal productions prevail due to the climatic conditions (7).

If the landuser does not fulfil one of listed options for realising their rights under land tenure the cancellation of the sub-lease contract and the termination of temporary land use right will be ordered by of a court procedure following application by the regional Agency for Land Resources Management. Following such a decision their land plot will be transferred to special local land fund by the decision of a court. 

The owners of land shares may transfer these to farming entities by creating an informal partnership on the basis of a contract of joint business activity. In the first stage, the owners of land share must submit their application to the legal entity, where they have decided to place their land shares.

In the second stage the legal entities must make a decision to change their charter because of the appearance of new participants. The decision to change a charter must be taken by authorised bodies such as the general meeting of member of the production cooperative, general meeting of participants in the partnership or for joint stock companies a general meeting of shareholders. On the decision of these authorised bodies the business entities must prepare the relevant legal documents and identify the participation of new members in their business. In case of partnership the additional contract must be signed by both parts. In all business entities amendments to their charter must be made and it should reflect changes in the numbers of participants. 

In the third stage an evaluation of these land shares ought to be performed by an assessment of auditors or by agreement between the parts.  The Land Code does not specify exactly how the assessment of land share could be made. The manual on Land Code, prepared by the Research Centre under Presidential Administration only recommended some procedure for evaluating land shares. 

In the fourth stage the land project of these business entities should be checked by the state Agency for Land Resources Management. The executive state body will make a decision regarding the granting of the land plot to this business entity.  Then land plot will be physically allocated and all State Acts (deeds) for land use will be given to this business entity.

Finally, registration of this business entity should be made in oblast branches of Ministry of Justice. The share issuance must be made for joint stock companies.

 
 
 3.5. Land Payment

Despite the fact that agricultural land was given to farmers for temporary land use without any payment, the land plots under temporary land use are subject to land tax in accordance with the Tax Code. The Tax Code (12^th, June 2001) establishes two tables of tax rates based on the variability of land quality across the regions. The first table is relevant to land on the steppe and dry steppe with usual and southern chernozem, chestnut and dark-chestnut soil and piedmont area with chernozem, dark gray soil and chestnut. The second table covers all other types of land, including semi-desert, desert and dry piedmont areas with all type of soils in those areas. The range within the first table, containing the more favourable lands for agriculture varies between 0,48 tenge per 1 hectare for the lowest quality of land to  202,65 tenge per hectar for the highest quality of land soil. Tax rates for the majority of lands for agricultural production are within a tax range of 14 tenge and 34 tenge per hectare. The range of the second table varies between 0,48 tenge per 1 hectare  for the lowest quality of land and 50,18 tenge per hectare for the highest quality soil.

This land payment applies to land plot, which have been allocated for temporary use under lease. Lease payments are linked to land taxes and the annual lease rate is determined by Resolution of Government (No 890, 2, September of 2003) within the range of 100-120 percent of basic rate of tax payment for land. The size, condition and the schedule of payment of the lease contract is determined within the actual contract, but the size of the lease payment should not exceed this established range.

The cadastre value is determined by the regional state Agency for Land Resources Managements on the basis of base payment rates for land plots. They were established by a Resolution of Government of Republic of Kazakhstan (No 890, 2nd, September, 2003) and depend on the type of farmland and the actual regional location. The base rates of payment for land are established per hectare and differentiated by type of land soil.

 


 3.7. Deficiencies Identified in the Land Code.

The land legislation being a comprehensive set of legal and normative acts, embracing all aspects of land relations, has some disputable provisions. One such provision, which provokes disputes and disagreements among politicians and land specialists, is the regulation, cancelling sub-lease agreements. A second disputed provision concerns the owners of land shares who according to the relevant provisions have to make a decision on their land share. In both cases the last date is 1 January 2005.

The land reform is one complicated part of agrarian reform and it usually takes a significant amount of time to implement a new law and many factors determine the speed of land reform. The Land code itself is a whole legal framework with complicated institutional and financial aspects that themselves exert a significant influence over the progress of land reforms. Social and historical factors are also a key issue and land reforms in Kazakhstan have proved this the case. When the legislators introduce the next legislative acts in the form of laws and presidential decrees the peasants could not response immediately. It takes time for the rural population to make adequate decisions and act on the proposal and regulation, established by land legislations. For example, the result of the land reforms proposed by the  Law “ On Land ” of 1995 only became visible and achievable in 2001 yet the result of this reform  was soon cancelled out by the introduction of the new Law ”On land” in 2001.

In this current proposed schedule it is obvious that many peasants will try to make a decision concerning their land or land shares . However, it is likely that not all of them will be able to implement all the necessary steps that will entitle them to the land rights. Despite the Land Code being promulgated on June 2003 it was not possible to implement the land reform, because the Land Code did not contain guidelines concerning the procedures for introducing these changes.  The relevant provisions of the Land Code could be applied after the issuing of the Manual on Land Reform on March 2004 b y the Research Centre under Presidential Administration. The result was that peasants have less than 9 months to conduct all the legal procedures, stipulated in the land and civil legislation.

Only a couple farms were able to re-register by the end of March of 2004 as required by current legislation in Atbasar raion of Akmola oblast, which was a project area for conducting social and economic survey for this research. By the beginning of October only several farms of this raion have re-registered and the majority of farms in this rayon are at the stage of performing the legal procedures for re-registering their farms. Nevertheless, these farms were able to meet the dead line of 1^st January 2005.

 The latter figure revokes some concern because this official statistics does not provide any breakdown by more detailed explanation of this category. This figure shows that more 60 thousands of rural residents were not able to realize their right, which was given by land share. It might some rural residents, who were not able to manage on time with their land shares, in some extend it might be some so- called “morally degrading” people some kind of vulnerable group of people, who does not take any cares about own. Most likely some farms missed to meet  the deadline for official re-registration and  peasants in some remote areas with severe conditions for crop growing had no opportunity to contribute their land shares to a farming business, because of the absence such entities. Currently, it is very difficult to believe to Kazakh statistics now, particularly on some sensitive issues such land relations, even this published data does not give 100 percent in total (miss of 1,3 percent). In case of Atabasar raion this data on percentage of unused or refused land shares might be true, because the local branch of Agency for Land Resources Management was headed by qualified specialist in land relations and the region was attractive for crop growing.  And it is very difficult to imagine the situation in others regions, where crop growing is very risky due to climatic conditions.

Another critical point might be the cancellation of secondary land leases, which will considerably limit the freedom of landusers. The tenants on such land plots must start farming otherwise they will lose their right to the land. This provision goes against with the civil law principle of freedom of entrepreneurial activities. A fairer alternative would be to allow sub-lease for secondary landuser for terms less than their principal agreement with the state.

At the initial stages of agricultural land market development the lease could be serve as an alternative means for transferring land from less to more productive producers. In the experience of other countries encouraging of land rental markets coincides with measures to reduce the credit and insurance market imperfection in rural areas. The high risk in agricultural production in rural Kazakhstan means that the development of both these markets is hampered. Alongside increasing the productivity of agricultural production leasing land could be cautious step for tenant farmers to start business.

The majority of agricultural land remains in the possession of non-state agricultural enterprises. These entities rent land from the owners of land shares and therefore these entities possess a considerable part of the agricultural land, which accounts for several thousands hectares of agricultural land in northern regions, favourable for cereal productions. The Land Code aims to prevent such concentration of agricultural land in the hand of single owner or legal entity by establishment the maximum size of land plot in each raions.  Some owners of enterprises or legal entities have land in possession in various regions. The Land Code does not regulate whether legal entities or individuals can own land in different raions. Also, the definition of “affiliated legal entities” is not introduced in the Land Code.  Thus the introduced provision on maximum size of land plot does not prevent from the concentration of land areas in hand of certain businesses or individuals.

A certain concern exists around the delegation of so much power to local executive bodies, particular in the allocation of land to citizens and legal entities. In Kazakhstan, the process of state governance and local management is not transparent and as a result the local executive bodies, having powers in local management, may make a decision according to its own discretion. The Land Code gives the right to local executive body the right in land allocation and yet the legislation does not stipulate the grounds on which an application might be refused and the land legislation only requires that any refusal must be justified. The actual process of land plot allocation is important as lands in good condition and in appropriate locations are always in demand.  An applicant may find that he or she is refused land tenure in the requested place due to reluctance of local executive body to allocate this land plot. Moreover, land legislation does not provide any criteria for ranking applicants and it provides that the process of land granting became non-transparent.  

Another issue that was omitted in this Land Code is that the evaluation of land share is hampered by the absence of real market value of agricultural land. The recommendation of the Research Centre under Presidential Administration is based on a finding that the share of land use rights in business entities is about 20-25 percent of the statutory fund and they stated that in the majority of cases it is between 5-10 percent. This assumption is incorrect, because required capital for establishment of a partnership or other legal entities is considerable less than cost of land use rights, established by land legislation. As an example, the Research Centre suggested 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. All these assumption do not have much economic realities, because the cost of land use rights is significant in comparison with the actual assets of farm. But at the same time, the land legislation does not determine the cost of the land shares nor describe the procedure for land share evaluation.

The majority of those, who organized farms, who made own cash contribution to business, secured financing from banks and inputs from supplier, who carried all the entrepreneurial risks associated with farming do not agree with the idea of comparing cost of land use rights to the value of the farm assets. As example, one interviewed head of farm in neighbouring raion of the same oblast told me that he removed from urban area to one village and took the land under land use rights. The residents of this village had one option to rent out their shares to single farm, which was not profitable. This entrepreneur was able to organize sustainable farm and provide the rural residents with paid in cash work. He completely disagrees that the land share will take a significant share in his business.  Thus, such entrepreneurs were able to get the significant share in their business to compare with share of all other participants with their land shares. This issue of appraising the value of land share is pending with no criterion even suggested by the legislators.

It is difficult to determine the market value of land in the absence of a land market for arable land. After introducing private ownership on agricultural land no transaction occurred in the raion, where the research and the survey were conducted. It is most likely a similarly situation in other raions in the northern regions. The lack of any legally established procedure for determining market value of land and land shares allows the dominant agricultural entities to determine the value of land shares by their discretions which means at lowest cost. The value of land shares varies from 89 tenge up to 23 852 tenge and the size of land share and quality of soil are the same.  It emphasize that a fair appraisal of land share is needed, because appraisal by agreement by parts is not always fair and it does not correspond to the economic costs of a land share.   

The average size of a rural family in the country is about 4, 4 persons and approximately 48 percent of all families consist of between four and five persons (12). Small families with one or two persons, which are basically families without children and families of elderly people over 60 years of age, account for 31 percent. This is significantly higher than the number of households with three persons, which accounts for 20 percent. The families with four and five and more persons amount for 22 percent and 26 percent, respectively (2). This data shows that the demographic profile of rural areas has significant number of rural households with small number of family member, which is about 51 percent. The main reason for such a demographic structure is out migration by young people from rural area to cities and urban areas.

Most family members are adults (58,3 %) of normal working age, which is between the age of 19 and 60, youth under the age of 19 account for 31,4 percent of family members and elderly people account for 10,3 percent  in the country as of  1^st  January 2002 .  The proportion of households with one and two children accounts for 45 and 34 percent relatively while households with three and four children account for 14 and 7 percent, respectively. In other words this data shows that the majority of rural families have one or two children (2).

The number of male and female in the rural population is approximately equal - 49, 9 percent is male and rest female. The head of household is male in 61 % of cases and female in 39 % of cases. Women are reported as head of household where families are without males or males of normal working age and where other males are either minors or seniors (12).

Among adults of normal working age, a considerable number of these are employed by the local farm enterprise. The percentage of males employed is considerably higher than the percentage of females employed on the farm. The main occupations of females who work in the village are social services, teachers, medical personnel or staff of the local administration. In rare cases, agricultural farms employ the females on their ancillary production facilities. The official statistic of employment concerning agriculture looks very unrealistic, reporting that the rate of employment account for 92,6 percent in rural areas in Kazakhstan (3).  A certain number of males in the rural areas are engaged in agricultural production on a permanent basis, but not all of them. And only a small number of females are involved in any employment. The high rate of employment most likely comes from the way of official reporting that considers the unemployed rural people as a category of people engaged in self- production activities. The presence of cattle or a subsidiary land plot is a crucial factor for considering them as employed workers.     

 4. 2.Comparative Analysis of Households Income. 

The size of the household budget varies according to the number of adults, but it is more affected by the status of adults. Highest earning usually are found in families where both adults have employment in state organisations whereas the lowest level of income is relevant to pensions and families, where the adults do not have permanent employment. The structure of income according to the main categories of household is presented in the following table. 

 It should be noted that employment in the local state organizations provides the family with a 21 percent higher income than employment in agricultural farms and pensioners get approximately 18 percent more income compared with those rural people, who do not have permanent employment.

4.3. Budget of Rural Households.

The structure of the average household budget for 2003 in Atbasar rayon, where the survey was conducted, is shown below.

Household annual budget for 2003

The average household income in the sample is about 1430 USD in 2003 and the family derive its income mainly from wages, their household plots and rent payments. Some households have additional income from the sales of cattle and other animals. The wage income and the sales of meat are primarily cash while the rent payments usually are paid in kind. The output from the household plot output is consumed by them as foodstuffs, because the household plot is mainly used for growing potatoes, vegetables.

The salary is considered as the main source of farms income and it accounts for nearly 46, 2 percent of their total income. The share of income from the sales of livestock products and pensions is about 18 percent and 17 percent, respectively. The income from lease payments accounts for less than 10 percent of the total household income. The main products, which received as payment in kind, are grain, animal feed, hay, flour and bread, but the rural residents prefer to get animal feed, hay and forage as payment in kind in order to feed their household cattle, sheep and other animals.

The largest items of household expenditure are the expenses for food, clothes and utilities and they account for 52 percent, 18,7 percent and 16,9 percent of total household income respectively.  The food expenses comprise the cash and non-cash expenses, which is mainly livestock product and vegetables from a subsidiary land plot.  The category of utility items includes the expenses for electricity and the purchase of coal, wood for heating their house during cold periods. Only employed workers and civil servants can afford to pay for the education of their children and the purchase of consumer goods and on average these amounts are small. Expenses for cattle breeding and vegetable growing are mainly non-cash expenses, which are made in kind and rarely, rural people can afford to buy seeds for vegetables to grow on their subsidiary land plot.    

The average household budget shows saving to the amount of 3800 tenge (approximately 27 USD at rate of 2003 end). The level of actual spending is 98,1 percent of the total  income and it emphasises that the rural residents have only small amounts of saving and they spend almost all their incomes in order to cover the basic needs for food, clothes and appropriate living conditions. The families with higher incomes can afford to make expenses for education of their children and purchase of consumer goods, but the number of such households is insignificant. In this regard rural residents have only little savings, because they need spend most of their incomes on consumption.  

 4.4. Identified Social and Economic Problems in Rural Area.

The conducted survey in Atabasar raion of Akmola oblast, in an area of cereal production, is an attempt to assess the recent significant changes in rural life and to investigate the scale of problems faced by the rural residents in the period of political and economic changes in Kazakhstan. This survey is aimed to assess the economic and social problems in rural areas based on people’s perception and expert opinions. The sociological survey of rural raions, conducted by UNDP in 2002 identified several serious issues such as environmental problems (37 % of respondents), limited prospects for youth (41 %), access to drinking water (59,2 %), the poor status of roads (70,3 %) and unemployment (83 %) (12). Except for the poor status of roads these abovementioned problems were all expressed by rural residents during this survey. The roads in this area are in a good condition compared with other rural raions of Kazakhstan and the problem with drinking water was mentioned in the survey by residents of one village in the Atbasar raion.

The methodology of the survey was based on the principle of random selection.  According to this principle each tenth rural resident was interviewed by interviewers in two different counties. Rural residents of various ages, occupations and professions, responded to the questions. Some questions received very similar answers and others were answered differently by the respondents. In general, the answers of interviewed rural residents allow some conclusion to be made concerning social and economic issues in the rural areas and identifying the problems faced by rural residents during the period of transformation of rural economy from the Soviet system to the market economy. 

In addition, the breakdown of survey respondents by age group presented below:

The 40-49 year-old group contains the highest percentage, followed by the 20-29 and 50-59 year old age groups. Some survey respondents in the 20-29 years-old group received land share certificate as a bequest from deceased relatives. All these respondents contributed their land share into the statutory fund of partnerships.

The UNDP sociological survey of rural areas showed that the rural residents incurred to poverty. This poverty situation in rural Kazakhstan is conditioned by many factors: economic recession, decline in real wages, increased unemployment rates, deteriorating social benefits, low income and increasing inequality. According to the survey of poor households “Causes and Conditions of Poverty in Kazakhstan for 2002” conducted by the state statistical agency, the main reasons for poverty are the following: low wages (43,7% of respondents), inability to secure sustainable employment at the place of residence (17 %), no jobs at all (13%), lack of employment (7,5 %), presence of dependents (5,4 %), poor health status (4,1 %). 

In the survey, conducted in Atbasar raion, the respondents reported on question concerning well being in the following ways.

Level of rural residents well being.

The result of the survey shows that about 15 % of rural respondents earn incomes that cover only their needs in food and are not enough to meet other needs.  About 42 percent of rural respondent have incomes, which are enough for meeting needs in nutrition, clothing and footwear, but are not enough for paying for services. Only around one fifth of respondents are able to buy services to some extent and about 8 percent of respondents are able to buy some consumer goods. 

Regarding the causes of poverty 74 % of respondents reported that main causes of poverty are low salaries. Other causes of poverty are the following:  absence of permanent work (56 %), no jobs at all (16 %), poor health status (14%), absence of any social aids (36%), not enough educational background (8 %) and unfavourable condition of living place such as poor economy of region or environmental problems (6%). Some respondents indicated two or three causes, but on average all respondent identified, at least two reasons of poverty. Respondents of working ages below 50 years old reported that the main cause of poverty is low salaries and the absence of permanent work and in some cases absence of any jobs. For female respondents and pensioners reported the main cause of their bad financial status is the absence of any social aids and poor health status.

Correspondingly, the main factors that would, according to respondents of working ages, improve their financial status are increased wages and permanent work (in both cases 78% of respondents). Respondents were asked to select up to three possibilities that would contribute to improving their financial status. The third option for this group varies from the necessity of securing initial capital for opening own business (22 %), improving the possibility to get credit (40%) to the importance of receiving a land plot into private ownership and land use right (10 %). The oldest respondents reported that main factors that would improve the financial status were increased pensions (24 %), improvement of medical care (32 %) and increase of social aids (20%).

Approximately half of respondents (48 %) expressed the opinion that they would not foresee any changes in their financial status and further one fifth of respondents believed that their financial status would improve only insignificantly.  Only a very small group of respondents (4%) is optimistic, believing that their financial status would improve significantly. The remaining part of respondents (32 %) had difficulties in answering this question. 

Regarding the expected ways of improving financial status the majority of respondents (90 % of respondents) stated that they believed in their own power, while the oldest respondents indicated applied that is improvement with the help of relatives and friends (42 % of total responses). Some of the youngest respondents believed that the deputies and heads of local executive bodies would help in improving their financial status, in both cases 6 % of responses.

The survey showed that the rural areas face serious problems and future prosperity is not visible unless the government undertakes measures to ensure the economic development of the rural areas. Regarding the future perspectives of their villages the respondents responded differently and negatives responses prevailed in their answers. Approximately, 31 percent and 40 percent of respondents reported that the number of rural residents steadily would steadily decline and the village would not have any future perspectives respectively, while 27 percent of respondents reported that village did have the opportunity for development of agricultural production. Only 2 % of rural respondent believes that the future of their village will be good for rural residents.

The main problem for rural areas is out migration of rural residents. The main reasons for this are the absence of work opportunities in the rural areas (92 % of responses) together with the lack of money for starting their own business (64% of responses). Only a few respondents (4%) indicated that the unsatisfactory condition of school, medical establishment and poor services were the reasons for rural out migration.

Almost all residents (94 % of respondents) consider the main obstacle to the development of their villages is the absence of initial funds for further growth of agricultural production. Only a few respondents (6 %) reported that the principal obstacles are remoteness from the main automobile roads, the low fertility of land and remoteness of markets for sales of agricultural commodities.

  4.5. Attitude of Rural People to Private Land Ownership and Land Shares.

The survey was intended to get some idea regarding the perception of rural residents on private ownership of agricultural land.  The survey showed that rural residents accept the private ownership for agricultural land with two thirds of respondents expressing a positive attitude towards private ownership. Only 16 % of respondent responded negatively towards the introduction of private ownership, while another 18 % of respondents had difficulties in answering this question. It is necessary to note that when the respondents were asked about what type of land tenure should be used for agricultural land only 26 % of respondents stated that private land ownership with the right to sale was appropriate. More than half of respondents (58 %) stated that ownership should be in the form of lifetime inheritable land tenure. Some respondents (12 % of respondents) had the opinion that agricultural land should remain under state ownership with 4 % of respondents finding difficulties in answering this question.

Rural residents were asked by the survey about their desire to receive a land plot. Two third expressed the desire to secure land tenure for land plot. Out of these respondents only one third stated that they would prefer to get the land tenure in the form of private land ownership whereas two thirds would prefer to receive use right for the land plot. About 33 % of respondents declared that they did not want a land plot. The most frequent explanations were old age and inability to work the land. In addition, those respondents, engaged in employment with state bodies, stated they would not desire to get the land tenure.

All those respondents that were owners of a land shares were asked about the obstacles to securing land tenure for agricultural land. The respondents were allowed to indicate more than one reason. The vast majority (90 % of respondents) stated that the absence of money is the main obstacle to getting a land use right or purchasing land plot into private ownership. The other answers were following: lack of time and money for travel to raion and oblast centre for getting a title for land (2 % of responses); complicated procedure for getting land tenure (10% of responses); unaware of procedure for getting land tenure (12%).

Only 42 % of respondents believe that the process of providing new titles for land will contribute to the growth of family welfare. Correspondingly, 4 % and 14 % of respondents answered significantly and insignificantly improvement.  Only 2% of respondents answered negatively concerning possible improvements in their family financial status while 36 % of respondents had difficulties in answering the question. From this data it might be concluded that rural residents do consider land ownership as a means improving their financial status although the actual receipt of land for either private ownership or under use right will not provide substantial benefits.  

The land share owners are rural residents of various ages, social statuses and professions, who are unable to enter independent farming and so who look to rent out their land shares to agricultural enterprises. The current legislation allows to owners of land shares to do this. The respondents were asked their opinion concerning the importance of lease contract for family income. The survey showed that many rural respondents (56 %) expressed their dissatisfaction with the term and conditions of their lease contract for land shares. Less than half of respondents (40 %) stated that they consider the lease payment as important source of family income and while 4 percent of respondent had difficulties in answering.

The survey asked the respondents about the importance of lease payments compared with total incomes. The result was that (56%) stated that income from the land share lease is less than 10 percent of the total family income. For another group of respondent (34 %) income from land share lease account for 10 percent of total income whilst 10 percent stated that lease payments are equal to 15 percent of the total family income.

Another way to assess the income from leases is to ask whether lessees are fulfilling their obligations to pay for lease in the amounts agreed and to pay on time. The majority of respondents (92 %) stated that lessees did fulfil their obligation on the contract in front of them while 8 % of respondents responded that lessees fulfilled their obligation on the lease of land shares.

A significant number of respondents (44 %) reported that they were not satisfied with the lease terms and another half of respondents stated that they were only partly satisfied with the lease term. Only 4 % of respondents expressed satisfaction with the lease terms. Mainly, it was the pensioners and elder respondents who expressed part satisfaction with the lease terms.

Respondents were asked about their reasons for concluding lease contract with agricultural entities. The following responses were obtained: no alternative options for renting out the land shares (38 %), it was the sole beneficial proposal for the lease of the land shares (8%) and it was possibility to get benefits from the lease of the land shares (46 %).  On the basis of this result it is evident that not so many farming entities work in the rural area and that the market for leasing land shares is not competitive. A few farms are interested in renting land shares and they offer similar terms of land share lease in their proposal. It is proved by prevailing responses on absence of alternative options.  

As one positive sign for agriculture could be the considerable number of operating peasant farms and therefore the respondents were asked whether they would establish a peasant farm. This question is very important, because this would give some ideas about the future situation in the agricultural sector in Kazakhstan.

First of all, land share owners were asked about their future use of land if they would receive land tenure into private ownership or by use right. The majority of land share owners (74 %) intended to rent out their land plot and out of this group a considerable part (58 %) intended to rent out to those who would pay more. Thus the owners of land shares prefer to get lease payments rather than be involved in farming. It is explicable by the fact that many respondents are elderly or pensioners and they are not able to conduct private farming. Only a small numbers of respondents (22 %) expressed the desire to be engaged in crop growing and only 4 % of respondents intended to use the land plot for cattle breeding. Thus, it is not surprising to get such a result on the desire of land share owners to establish peasant farm.  The majority of land share owners (67 %) responded negatively concerning the establishment of a peasant farm and the remaining respondents answered that they did not know whether they would establish peasant farm. 

The responses of land share owners showed that the main obstacle to establishing peasant farms is the financially burdened procedure (72 % of respondents) and the other main obstacle is the bureaucracy of local state bodies concerning the registration of peasant farm (10 %). A small group (10 %) had difficulties in answering while the remaining respondents gave other reasons, such as lack of interest, inability to work with land and elder age.

Finally, the owner of land share were asked about whether the peasant farm might unite to form cooperatives and  unions for  joint activity in the purchase of agricultural inputs such as seed, fuel, fertilizes, rent of agricultural machinery and sales of agricultural commodities. A majority (78 %) answered positively while only 2 % of respondents answered negatively. But 16 % of respondents stated that they did not know about the possibility of uniting peasant farms into cooperatives and union and 4 % of respondents had difficulties in answering.

Those who responded positively were asked to indicate the number of persons they would unit with for joint work. Among these respondents approximately 51% respondents stated that they would unit with, at least with five farmers, 23 % and 18 % of respondents said three persons and ten persons, respectively. The remaining respondents had difficulties in determining the number of participants. Thus, the land share owners expressed that they would be able to cooperate with other farmers and the most frequently mentioned ideal number of participants was five. 

4.6. Conclusion on conducted survey.

The survey showed that the distribution of land shares to rural residents did provide them with a meaningful benefit. Despite land share owners reporting that they receive an insignificant benefit from rental payment compared with total family income these rental payments did provide rural residents with feed and forage for their household’s cattle and animals. In case of the termination of these rental payments the rural family members, who already have low cash incomes, would have to buy winter feed and forage for cattle at market price or to hire some machinery for cutting grass and preparation of forage. These are considerably higher compared with lessee prices. Thus the rental payment is crucial for rural residents.

The majority of land lessees are large private enterprises and they have more possibility to provide the owners of land share with forage and other agricultural commodities. In this sense they can afford to sell the forage and hay at prices, which are considerably lower compared with market prices.

5.1. Characteristics of Agriculture of Kazakhstan.

Agricultural Output by Producer (%)

 Thirdly, a significant proportion of agricultural producers operate at suboptimal efficiency levels. This research, conducted by Scanagri in 2003 has shown that 83 % of total Kazakhstan’s farms operate on suboptimal efficiency level, including 2738 farms are located in steppe zone and it accounts for 63 % of total farms, operating in this climatic zone. The optimal farm size varies from 10 hectares in river flood plain up to 5000 hectares in desert area. As regards for cereal production the optimal size is 500 hectares in steppe area and 200 hectares for north moist steppe and other zones, suitable for crop growing. 

Fourth characteristic of Kazakhstan’s agricultural sector is the high proportion of inefficient production.  The table presented below provides a breakdown by oblast of its proportional contribution to agricultural production, the proportion of crops and livestock in the agricultural output of each oblast, and the profitability of the agricultural sector in each oblast.

 Relative Agricultural Performance of Oblasts

 This table shows that agricultural production in Kazakhstan has low profitability and out of  5 oblasts that contribute over 10 percent of agricultural output  only three show relatively good ratios of return on costs (Akmola – 9.9 percent, Almaty - 11.2 percent and Kostanai - 11.8 percent).  Also, four oblasts recorded losses, while one reported a return on costs of only 0.3 percent.  Together these five non-profitable oblasts accounted for 23.7 percent of agricultural output in 2002 (6).

It is obvious that one solution to addressing rural poverty would be to increase agricultural production and its efficiency. Kazakhstan’s current levels of agricultural production are already sufficient for the domestic market.  Therefore significantly increased agricultural production and efficiency on a significant scale would have a positive effect on the economy. The desired economic growth results might be achieved if Kazakhstan could increase its agricultural export capacity by increase of access to international markets. Improving such access raises a range of issues including improving transportation networks, achieving international quality certification, and addressing agricultural protectionism of agricultural producers and potential import partners.

5.2. The Government Policy and Strategy in Rural Area.

The Government of Kazakhstan has created a range of programs and strategies, which aimed to reduce the gap between standards of living in rural and urban areas. The creation of the National Rural Development Program for 2004-2010 is the main state program within the overall context of the Government’s strategy for recovery of a rural area. The objective of this program is establishment of proper conditions for living to rural residents on the basis of an optimized rural settlement. The key element of this National Rural Development Program is the classification of Kazakhstan’s 7660 rural settlements into four economic potential of development based on 81 variables covering demographic, economic, social and environmental issues.

 The categorization of rural settlements was made into the three groups such as high, medium and low scores and the results of classification are as:

The total approved budget for 2004-2006 to implement this program is 67.5 billion tenge from the central budget; another 74.8 million tenge from the local budgets; and 34.8 billion tenge from other sources according to National Rural Development Program. Thus, the total amount of fund designated under this program accounts for 177.1 billion tenge (the US dollar equivalent is approximately 1.36 billion at the current rate KZT 130/ USD). No any cost and benefit analysis were made under this proposed National Rural Development Program.    

The National Rural Development Program identified that the majority of rural settlement are lacked with the basic infrastructure. According data provided by this program the percentage of settlements without water pipeline varies from 51.4 percent in Akmola oblast up to 88.6 percent in Pavlodar oblast. Regarding post office services percentage of settlement without stationary post office is in range from 35 percent in Mangistau oblast and 76.6 percent in South Kazakhstan and mail delivery in 78 percent of rural settlements takes place than 10 times per month. The majority of rural settlement does not have the paved roads and assess to communication services. Thus, rural areas are needed in providing the basic services and those would be provided by state funds for creating a basic infrastructure network.  

In 2005 the Ministry of Agriculture has recognized that 595 rural settlements have low potential of development although originally the National Rural Development Program identified approximately 800 rural settlements. The Government allocated 51.3 billion tenge from central and local budgets in 2004. The funds were spent for construction and repairing school, rural medical centres and facilities of potable water supply. Also, funds were spent for modernization of communication network, post offices and reconstruction of roads in rural areas. Thus, the implementation of the National Rural Development Project has started in 2004 as it was originally intended by the Government. Despite the Government spent sufficient funds on this program it was noticed that no any improvement and modernization of rural infrastructure and other investments were made in Atbasar raion, particular in villages where the survey was conducted. Most likely it is explained by facts that these settlements have some basic infrastructure and this Atbasar raion recognized as high potential of development although the quality of available basic services to rural residents at the low level and numbers of these services are very limited. For example, no any of these surveyed villages has a fuel station and it was possible to buy fuel only in the raion centre or in one village, where the director of farm is kept the infrastructure from time of the Soviet Union and distance in both directions is about 100 kilometres.

The other major Government program in agricultural sector is the State Agrofood Program of the Republic of Kazakhstan for 2003-2005. This program has three objectives: ensuring food security, establishing an efficient agribusiness system, and increasing the sale of raw and processed agricultural products domestically and internationally. This program currently is implemented by Ministry of Agriculture through its ongoing efforts to facilitate financing in the agricultural sector. According to information provided by the Agrofood Program allocations to agriculture from national budget represent 0.7 percent of GDP and this will reach at least 1.8 percent of GDP starting in 2005 and will account for 15.9 USD in support per hectare of arable land.

The role of Ministry of Agriculture is to reduce risk in financing producers and processing enterprises and its approach depends on the type of a borrower and it is determined as follows: large companies by means of reducing risk as appropriate; medium sized companies by means reducing risk and encouraging more banks to finance; individual entrepreneurs and farmers by means of creation of credit union and microfinance mechanisms. Currently, the Ministry of Agriculture focuses on the large and medium sized companies and they are the main recipients of the state support programs.

In order to increase the use fertilizers and elite seeds the Ministry of Agriculture established the programs for subsidies of purchases of seeds and fertilizers. The recipients of these programs are commercial and trading companies, providing the procurement of these inputs to agricultural producers. Thus, these programs allow to agricultural producers and farms to buy the fertilizers and seed on the subsidized prices from these companies.

Another activity of Ministry is subsidies, directed to reducing risk of the agricultural processor and the following program has been established:
- subsidized interest rate charges to processors by the banks, both for working capital and for the modernization of equipment;
- subsidized lease finance to the processing industry, provided Kazagrofinance.

 Kazagrofinance, the state owned leasing company was established by Ministry of Agriculture. In addition to abovementioned lease program for processors this company provides the lease of agricultural machinery such combines and tractors to agricultural producers. Funding of Kazagrofinance is made from state budget and this allows to company keep the low interest rate in leasing agricultural and processing enterprises, which accounts for 7 percent per year. This factor makes Kazagrofinance very competitive on the lease market while other financial entities should make own funding at this rate and higher either domestically or internationally.

Also, Ministry of Agriculture introduced the warehouse receipt program through the Receipt Insurance Fund, a government agency under Ministry’s responsibility, which insures grain receipts for its members. The activity of Receipt Insurance Fund is regulated by Law on Grain and the private insurance funds also might be established by current legislation and operate in framework of this law.

The Gosprodcorporatiya, a state owned business entity, which purchases grain for the Government’s reserves and provides price stability in  the market by introducing purchase prices for grain, on which the grain could be bought from the agricultural producers. The Gosprodcorporatiya also provides working capital for purchase of input for sowing under guarantee of commercial banks and farmers in turn should sell its harvest to this state entity on before agreed price.

 In order to increase the production of livestock the Ministry of Agriculture created the state company “Mal Onimderi”, which is intended to provide the price stability in the livestock industry by purchasing livestock as well as creating livestock brand and promoting export. Also, this company is to be providing assistance producers in organizing the further processing of meat and other livestock products and to help those companies to sell these products both on the internal and international markets.

At the beginning of 2004 the Ministry of Agriculture elaborated the Law on Mandatory Crop Insurance for Natural Disaster and this was adopted by Parliament in March of 2004. The Ministry of Agriculture is going to give a priority in providing assistance through state programs to those farms and producer, who have already insured their crops for natural disasters. Thus, the agricultural producer and farmers have incentive to be insured by insurance company. In Atabasar rayon the farmers were insured by one insurance company and some farmers expressed the doubt that this insurance company will have enough funds to cover all losses of farmers. Another doubtful point is whether this insurance company has a desire to fulfil their obligation under its insurance contract.

In addition to its efforts to reduce the risk in agricultural finance, the Ministry of agriculture actively encourages the commercial banks to lend to the agricultural sectors through different programs such lending program of the World Bank, other donor organizations and agencies. 

The third category of borrowers, which are individual entrepreneurs and small farmer are the category for which state microfinance program has started only in May 2005. This microfinance program intends to be large on amount of 5 billion tenge (approximately 36 million USD) in its first year and to extend the credit on amount from 70 thousands tenge (approximately 500 USD) up 140 thousands (approximately 1000 USD). 

ADB regional project “ Rural Finance in Central Asia“ in 2004 stated several potential design elements of this draft microfinance program, which are causes for concern in the future implementation of this program. First, the rapid roll-out of the program indicates the serious underestimate of the necessary infrastructure and training required to implement such microfinance program. As prove of it, currently the representative of this program in the Atbasar raion is managed by a person, who is a civil servant of a raion executive body. Second point, the objectives of this proposed program are not clear, particularly the degree to which potential borrowers are essentially grantees versus viable borrowers, who simply do not have access to finance.  Third, there is apparently the preference to diminish the rate, at which the rural sector loan will be made. This contradicts to best practice in international microfinance, which has shown, that microfinance borrowers should be able and willing to pay market rates of interest and low market rate threatens the long term sustainability of the microfinance providers. All microfinance organizations in Kazakhstan charge the market interest rate, which allows them to be operating and profitable. Finally, the experience of NGO Microcredit, a Government owned MFI created in 1998 gave a cautionary lesson. NGO Mircocredit’s loans are disbursed on the recommendation of the local Akim and council of elders in the rural area, thus credit decisions were made on connection rather than business acumen. Therefore, it is expected that the repayment rate of this program was approximately 81 percent on loan portfolio of approximately 9 million USD. This compares badly with that of the best donor-funded microfinance institutions in Kazakhstan.        

Another strategy of Ministry of Agriculture in microfinance mechanism development in a rural area is creation of the Agricultural Credit Corporation specifically to initiate the esatblishment of rural credit unions by providing equity and debt financing.  In order to be eligible for ACC participation, a rural credit union must have a minimum of twenty-one members, each with a minimum contribution of approximately 700 USD (the minimum capital requirement is 3 million tenge, which is approximately 20 thousands USD). The Agricultural Credit Corporation also provides equity financing in range of 39-59 percent in each credit union.  As of 1 of January 2004 79 rural credit unions operated with ownership of the Agricultural Credit Corporation and out of this 49 credit unions have received licenses of National Bank of Kazakhstan and are entitled to borrow from commercial banks. The Agricultural Credit Corporation intends to create a total of 90 rural credit unions by 2005 and a total of 120 by 2006. It is supposed that the Agricultural Credit Corporation will exit from the ownership of credit unions, although there is no stipulated time frame for doing it.

As the ADB regional project noted that a positive outcome of the Government’s rural credit union program is that it has a demonstration effect and provides the actual experience in the functioning of credit unions. Nevertheless, this program has some deficiencies, which are follows: only well connected rural inhabitants are able to join to these credit unions; not only minimal capital contribution requirement is a constraint for many potential members, but the subsidized financing term inevitable create rent seeking incentive. According to the current Law on Credit Unions (28, March 2003) credit unions are not allowed to take a member deposit and therefore the further growth of these entities are limited. Also, the credit union can not lend money outside of the credit union membership.

It is evident that for an ordinary farmer the access to direct state assistance is quite complicated issue, because almost of those programs are directed for large agricultural enterprises and processor. Those ordinary farmers might be eligible to investment or short-term financing for under state programs if they could provide appropriate collateral such as new or non-obsolete machinery, real estate in urban area and high liquid assets. Also, the process of allocating funds is not transparent at least in some programs. Thus, the actual implementations of these state supports program are so far from providing state assistance to small farmers.

 5.3. Analysis of Crop Growing Production.

As the northern region of Kazakhstan is favourable for crop growing the almost all agricultural entities use mainly cereal farming system. It is explained by facts that grain is main exportable agricultural commodities while other products sell only on the internal market. A small number of private farms is involved in cattle breeding, particular in steppe areas under pasture farming system. Within cereal/pasture farming system the main commodities are cereals, meat products, dairy products, hides and skin and wool.

Currently the vast majority of cereal producing enterprises is operating a low input. Therefore, this is low input production system. Seed, fertilisers, herbicides, and fuel/spare parts are the principal needs. The majority of farms purchase only fuel and spare parts while large agricultural enterprises purchase all above mentioned inputs. Although the purchased quantities are consistent with needed requirements  and the amount of used fertilisers and herbicides are limited. It is explained by the climatic constraints of northern Kazakhstan and an average yield of 1.4 tones/ha is the most that could be expected with timely completion of all operations. This yield level remains marginal for sustainable cereal production. The productivity levels could be significantly raised only by use of irrigation. The small amounts of additional water (about 200-250 mm) with use of higher levels of fertiliser and herbicide could provide yields up to 4 tones/ha. Thus, depending upon the cost of providing supplemental water such cereal production system could be highly profitable. Without additional water the average yields in most area of northern Kazakhstan, are unlikely to be enough to meet the substantial cost of investing in modern equipment (4). But the investment cost for development of irrigation system would be significant burden for agricultural farms, which would not be covered for short term period. Thus, the prospect of many large farms, continuing the historical farming system of cereal production would be limited by abovementioned reasons.

 Another characteristic of farming system in northern Kazakhstan is that the relatively extensive cereal farming system requires only a small labour force, but considerable mechanization. The current farming system would be efficient if the size of farms is more than 3 thousands hectares by opinion of many farmers and agrarian experts. In time of Soviet Union state and collective farms used to have such squares of agricultural lands under cereal production. The expenses in sowing and harvesting, particular fuel would be less on large land plots than on small land plots.  The tractor or combiner will make less turns and will be able cover more area by one round.

In order to form a farm with size of 3 thousands hectares it requires 120 people assuming that average land share is 25 hectares. Only 15 people would employed by farms initially and eventually 10, because under this farming system one man per 200 hectares is realistic initial ratio gradually increasing to at least 300 hectares per employees and the rest of people would out of economic activity under agricultural production. Thus this is economic reality which requires the serious consideration should be given to assessing the needs and prospect of those who would not employed by farms.

 In same farms the small number of workers would be required by ancillary productions such as workers of social infrastructure: canteen, workshops, public bath and etc. But such farms are more exceptional cases that the common cases not each large farm are willing to take extra financial burdens, particular when no any local authorities force them to take the responsibility for creating social facilities for needs of rural residents. The employment of all rural residents under agricultural farms is likely not possible and therefore the unemployed rural residents have to be engaged in other economic activity such as self-engagement or entrepreneurial activities.   

Almost all small farms work independently without any help from the state and they had to operate on a low input system. Small farms purchase only the seeds and fuel while they large farms used to buy fertilisers and herbicides in limited quantities. Only a few farms in project area conduct the preparatory work with land before sowing and other works with land and only one farm in the Atbasar raion conducts all work with land, specified by the technology of cereal production. This allows to this farm to have a good yield to compare with other farms although this farm has low quality land. Thus, the low yield in cereal production is revoked not only by low level of used input but it is caused by improperly work with land before sowing and after harvesting.

The inability of small farms to conduct all needed work with land required by technology is explained by lack of financial and technical facilities. The main supplier of financial resources is Gosprodcorporatiya although some private entities also provide financing the farmers for seasonal works in some regions. These private entities are more flexible and propose to farmers more convenient terms for working capital financing. They accept the farms machinery as collateral although commercial banks these farms machinery are considered by banks as ineligible assets for taking it as security for farms financing, except newly bought  machinery.

A competition between state and private entities provides small farmers with short term financing for planting and harvesting. It is supposedly that increase of competition would provide more appropriate terms and conditions for financing farmers. As example, the price for fuel is lower in Atbasar than in Astana or oblast centre although this raion centre is removed from both cities approximately on 240 kilometres in both directions. It is explained that several supplier of fuel operate in this raion centre and some of them is from other regions. It is explained that Atabasar is main cereal production region among others and has potentiality to grow with developed infrastructures: rail way and road connection, sufficient numbers of elevators and other facilities for storage and processing of cereals.

Thus, the farmers of this cereal production area may survive without getting assistance from the state support programs. But those small farms are not competitive with large farms, because the cost of agricultural production is very high and overhead expenses per hectare will be high for them. The crop failure in last year revoked the losses of small farms. Hence, these farms became insolvent. The private business entities have to continue financing these farms in order to that these farmers would be able to repay these debts of previous years from the harvest of next year. Such behaviour is reasonable for private entities because they do not intend to work on land and they are only interested on purchase of cereals on appropriate price for them and thus they are not interested in bankruptcy of these farms although they can bring a suit to court for initiating the bankruptcy of these insolvent farmers. 

The small farms agricultural production of cereals is inefficient due to small size of land plot, lack of machinery and facilities for storage and keeping wheat in good conditions and high cost of financing. The machinery and storage service are demanded in cash, but the farmers prefer to pay in kind due to absence of cash. By paying in kind the farmers usually lose more than if they do in cash. The sustainability of small farms depends directly from level of yield and as they have to pay, mainly in kind for provided services to business entities and therefore farmers have less wheat for sales on the market. Thus high yield of cereals gives to the small farmers more profit on the cereal agricultural production and farmer’s sustainability depends also from external factors, contributing to a good yield such as sufficient level of precipitation, rainfall, condition of soils and etc.  

 

5.4. Inconsistency of Legal and Institutional Frameworks.

 The process of decision-making on land granting is in the hand of local administration and the raion branch of the Agency for Land Resources Management is responsible only for land administration and the relevant branches of the Ministry of Agriculture stay apart from this issue and they are responsible mainly for procurement of farms with inputs under state programs although the amount of state funds and subsidies, which reached to the raion level are insignificant.

The decision-making process in area of land relation is allowed to be made within three months by land legislation and it definitely slows the process of land granting.  Kazakhstan has clear defined procedure for a state registry and compiling a land cadastre. But this system highly centralized and it creates inconvenience to applicants, because following decision on land grant the rural residents for getting land use or ownership rights have 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. Also, it will take time and money, but it is more crucial for applicants is the absence of public transportation network, which allows them to get to this oblast centre from place of their living  and currently operating public transportation means are not enough to serve the rural residents in delivery them to the oblast centre. In this context it is not clear how the rural residents would be able to register their land use rights in state agency without having own transportation means.

Currently, there are no institutions and organizations, responsible for support of farms and agricultural development.  Only the Republican Farms Association with its territorial branches involves in support of farms and small agricultural producers. The level of support to farms depends mainly from the activity of chairman and farms, who are the member of branches of Farm Association. The Farm Association and its territorial branches are public organization and there is no state involvement in statutory fund of these organizations. This Farm Association does not have any assess to state funds and international credit, because the Government implements its current state programs through its established legal entities in most cases fully owned by state. The same procedure is applied to other programs related to agriculture, funding of that is made through borrowing from international financial institutions. 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.

The Ministry of Agriculture and the Agency for Land Resources Management and others such as Gosprodcorporatiya and the Receipt Insurance Fund are responsible for certain part of a state policy program and they have clearly determined functions and there is no conflict between those state bodies and entities for having more power and influence in governance of rural sector of Kazakhstan. Only the Agency for Land Resources Management and Ministry of Agriculture has a presence in the raion centre of rural area. The operational activity in these branches is governed by republican or regional offices and these branches have limitation in management and making decision, particular raion branch of Agency for Land Resources Management does not empowered in making decision of land granting.

The Government does not foresee the future a role of non-governmental organizations such as Farm Association and other micro-finance organizations, currently operating by the support of donors and external borrowing from commercial banks. These micro-finance organizations operate mainly in the southern part of Republic of Kazakhstan and some of these organizations work successfully in rural areas. One of successful operating micro-finance institutions, extending credit in rural areas is Fund for Support of Entrepreneurs. The predecessor of this Fund was Winrock International, who established program to support farmers in Almaty and West Kazakhstan Kazakhstan in 1998. Then Winrock International made some technical assistance and financial contribution in establishment of new Farm Credit Funds in other four regions of Kazakhstan and all these established funds work successfully now in their region.

All currently operating 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. This provided the micro-finance institutions with sustainability and most of them currently operate financially independently now. It seems that the officials diverges the experience of these micro finance entities in establishment of credit delivery mechanism to farms and agricultural producers, because the Government never expressed any interest to work with these organizations on programs aimed for development of rural area.

Thus, the Government does not want to employ the existing institutions of non-governmental organizations and has limited the presence of government agencies only through establishment of two basic institutions branches in each raion of  (MoA, AfLRM), which were mentioned early. As prove of the Government reluctance might be ignorance of the branches of Farm Association, which might serve as agent in promoting state policy in rural area through state programs. The use of branches of Farm Association will provide with more efficient implementation of state programs, because the staff of these organizations knows the farms, their capacity and local conditions for farming.

Currently, some branches of Farm Association work with farmers and small farmers understand that it is very important for them to unit around these farm associations. In the Atbasar raion local branch of Farm Association has about 70 farmers (it is less than half of all registered farms, not each registered farms currently operate now) as a member of this organization. These farmers pay to this Farm Association an annual membership fee and staff of Farm Association provides the farmers with inputs on the conditions, which suitable and acceptable to farmers. Moreover, these farmers are eligible to state programs by various reasons such as lack of capital, absence of acceptable collateral and small size of production and etc. For example, Gosprodcorporatiya provides the farms with short term financing under guarantee of commercial banks, who in turn request the liquid collateral from farmers for securing liability of farmers under provided Bank's guarantee. And not each farmer has liquid collateral such as a flat or house in cities, new machinery and market demanded assets. The farms from this region, which were able to get financing under state programs used to have the flat or house in Astana. The majority farms do not have such collateral and they are not accepted by commercial banks for providing credit or guarantee.   

In order to overcome these obstacles the Farm Association of Atbasar raion found one buyer of grain and this trading company provides short term financing on the same scheme as Gosprodcorporatiya does, except that this trading company accepts as a collateral the obsolete machinery of farms and other assets of farmers, which is not so attractive and liquid by consideration of commercial banks. The conditions of contract between farms and this trading company are more suitable to farmer, particularly on the price of grain, because it influences on farm profitability. Thus, the Farm Association helps to farmers in their current farming activities and provides the farmers with appropriate scheme of financing.

The Land Code and with other normative acts provide the whole legal framework governing land relation, but this land legislation does not contribute to further development of land market in extend, which initially was intended by legislators. The Land Code itself does not respond to the needs of farms, who are main stakeholders in land relations and the introduction of the Land Code was revoked by political will of Kazakh authorities and desire of business people, involved in grain business.

The main task the Land Code is to provide the defence of rights of land owners and land share owners and the latter does not have any  workable mechanism for defence their rights although the Land Code foreseen three alternatives to these rural residents. The majority of rural residents, who intended to organize own farm have already taken this possibility for starting own farming. The remained part of rural residents has only option to put their lands shares to a statutory fund of partnerships and other legal entities.  It means that there is problem lack of system in organizing the process of management with land shares. It is likely that no any owners 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 or members in production cooperative will create complication in making some strategy decisions, where the approval of all owners is needed in accordance with business legislation.

Such cases might be applying for getting credit from the commercial banks, sales of a company shares, mergers and etc. Getting approval from several hundred participants will slows the process of management and making decision by company managers. The owners together with managers of such company will try to find the solution to avoid such complicated way of getting approval and most likely 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 civil legislation and it means the land share could be tradable commodities and value of these shares will be determined by agreement of two parts of this deal.      

It should note that land share owners do not have sufficient level of knowledge of such transactions legal procedure and situation has worsened by the absence of clear procedure of land share evaluation. Besides, to the proposed approach of land share appraisal, based on receiving dividends by land share owners at one fifth the net profit of business, the Research Centre suggested that determination of the value of land shares must be made by conclusion of auditors or by agreement of parts. The appraisal of land shares by agreement of parts does not work properly, because the rural residents do not have any options in some villages.

 The approach in appraisal of land shares, which was recommended by the Research Centre, has not been used by all agricultural entities and in some villages the indication for determining land share value was an amount of previous rent payments for lease of land share and it is evident in case of re-registration of “Elena” Ltd, “Hrushevka” Ltd. Some agricultural entities followed to official recommendation (“Panfilofskoe” Ltd, “Orlan” Ltd). The re-registration of rest companies, mainly newly established supposed to be made on equitable basis and only “Karazhar” Ltd was registered with equal shares of each participant in the statutory fund of partnership.

Also, this proposed recommendation is not difficult for implementation, but it would not provide the same amount of appraised value of land share in different enterprises and therefore there is no economic logic, when the value of same amount of land and same quality would be appraised differently within one raion. The amount of these agricultural entities statutory fund varies from 90th.tenge (670 USD) to 8.5 million tenge (64 thousands USD) and they have in possession various squares of agricultural lands. Thus, proposed recommendation seems to be incorrect, because there is no economic logic between that land use rights should be 20 -25 percent of statutory fund and the required amount of statutory fund for partnership is considerable less that cost of land use rights. Also, the cost of land use rights or private land ownership and cadastre (evaluated by state) value is much higher than the value of appraised land share in agricultural entities and it is shown in the table below (last column). No any methodology for determining the cost of land shares has been suggested by the relevant bodies, including non-governmental organizations and agricultural scientists.

The following data on the re-registration of agricultural entities were obtained during conducting field research in Atbasar raion and it is presented below.

The data presented above on agricultural entities in Atbasar raion, re-registered according to requirement of the Land Code proves that approach, based on Recommendations of the Research Centre is not correct, because the various amount of statutory fund of business entities and number of participants with their virtual amount of land share make impossible to use such approach by diversion of land share value more than hundred times. It is nonsense when the same amount of land appraised has such range. Thus, the necessity to introduce a fair system of appraisal of land shares is urgently needed.

All those unsolved issues are crucial to the further development of rural areas and creation of competitive agricultural production. Some of these issues, which are key technical issues of land legislation, ought to be solved urgently in order to create workable legal framework of land legislation. The remained issues might be solved only by introducing relevant state policy in regard to rural sector of economy of Kazakhstan and changing the current practices of state and local administration. The unsolved issues such as absence of transparency in account of land and in procedure of making decision on land management, including granting land granting and absence of land infrastructure and control over lands are derived from the established procedure of state administration, conducted by the civil servants. Authorities of Kazakhstan both republican and local are much concerned with decision making rather with process of further administration. They more stressed on the resources allocation procedures, because they empowered to make such decision without any control from public and society and any legally established clear defined criterion a for ranking received applications and grounds for refusal or approval. It is relevant to other sensitive issues of pubic management and not only for land legislation. Previously, it was mentioned that land legislation delegated so much power to a local administration and it is provided by the established state governance practices of the Republic of Kazakhstan.

It should be noted that currently the basic legislative acts itself of Republic of Kazakhstan has been elaborated on satisfactory level. Some legal acts in public management are based on concept, which does not respond to market economy and are very close to the previous system of a command economy in some sensitive issues as example, administrative licensing, trading. But this Land Code meets the international standards to some extends and does not contain any evident drawbacks. Moreover the Kazakh legislative system precisely delineate the responsibility and functions of each state body and there is no overlap of state bodies functions  in the administration both on republican and local levels, particlar  in land relations. Therefore it is very difficult to find some issue in the land legislation, such overlap could be met. But it is evident that so much concentration of power in hand of the Government, presented by oblast and raion administration. Therefore, the other relevant state bodies have not empowered to content any decision of local administration and they implement only technical work on administrative decision of local authorities. It is relevant to administration of local authorities in area of land relations.

It is very difficult to criticize the introduced Land Code, because this legal act contains some provisions, which meet the general requirement of land legislation and respond to technical aspects of this issue. But this Land Code has been elaborated by legislators without taking into account the current status of rural residents, existing facilities in rural area and ability to rural residents and stakeholders to be involved in the process of land circulation as it was intended originally by officials. Also, this land legislation would not diminish the abuse from local administration against of land users and rural residents, wishing to be involved in farming, because there is no precise rule, on which particularly land granting decision would be assessed. Thus, the legal framework on land relation need to be improved to some level, which would allow to rural residents, who are capable for farming to be a land tenant.

6.   Needed Supporting Strategies in Land Reform

The attempt to introduce supporting strategy in the land reform is justified not only by necessity of the agricultural development, but also low level of living conditions of people in rural areas. The rural focus can also explained that rural territory account for 97, 2 percent of Kazakhstan’s territory and share of agricultural production in GDP of Kazakhstan diminished from 34 percent in 1990 to 8,7 percent in 2001 and to compare with 1995 it declined from 12.3 percent to 7.9 percent in 2002. This share of agricultural production remains very low among other GDP of the Central Asia Republics (Tajikistan- 25 percent, Turkmenistan -29 percent, Uzbekistan -37 percent of their country GDP). 43.7 percent of population of Kazakhstan, living in the rural areas produce less than 8 percent of GDP. This means almost half population stay apart of economic production and rural residents do not make any contribution in the development of country.

Among of the non-Baltic former Soviet Republics the Government of Kazakhstan has an impressive overall track of records. As examples of that might the implementation of the most successful banking sector reform, reduction of inflation to fewer than 10 percent per annum by 1998, following the hyperinflation of the early 1990s, creation of a National Oil Fund to guard against Dutch disease by conservation of some oil earnings for future generation, implementation of a three pillar pension program, privatization and attraction of foreign investment in key industries such as oil, non-ferrous metallurgy and etc. These conducted reforms together with substantial growth of prices for oil and metals allowed to the Government of Kazakhstan to provide the economic stability and substantial growth of GDP with increase of production and export, mainly crude oils and metals.

On the contrary the agriculture of Kazakhstan encountered with serious problems, which caused the abovementioned fall of agricultural production. These problems are a significant number of inefficient operating small farms, the price disparity, when prices on industrial inputs exceed the prices of agricultural products, lack of working capital, inability of farmers to provide themselves with machinery, seeds and fertilisers and other chemicals and etc. Although rural sector began to recover since 1999 the overall situation is still complicated. There is decrease of birth rate although it was traditionally a high rate of birth in rural areas. The rate of mortality is still high, including deaf of children and mothers. The continuous emigration of rural residents to urban area calls for improvement of demographic situation, which in turn depends from social and economic environment of rural area.  The decrease of state expenses for needs of health and irrationally conducted “optimization” of medical establishments in rural area have deteriorated the health status of rural residents.   

 Despite on presence of the announced state programs for development of rural area and agricultural sector by officials there are no substantial improvements in the living conditions of rural residents. Hence, the implementation of this strategy does not lead to social and economic development of rural areas and consequently to the growth of rural residents welfare. Also, it was stated in UNDP Human Development 2002 “Report Rural Development in Kazakhstan: Challenges and Prospects” that the living standard of every individual in rural areas  is unsustainable from social, economic and environmental points of view. “Nowadays no any doubts the facts that analysing the economy, social sector or administrative reforms from human development perspective allows us to better assess the effect and ultimate goals of given changes”.  Any reforms remote from people may bring only temporary benefits and it would be unwise to ignore the human aspects. Also, the sustainable development would not be achieved without securing the living conditions for the whole population of rural areas (11).

Consequently, in order to stimulate people-oriented strategy for economic growth and social development it is necessary to introduce the strategy aimed to improve significantly the living standards of rural residents in all aspects and to strengthen the state administration and other state agencies and organizations, involved in agricultural production, which will lead to increase rate of employment of rural residents with adequate remuneration for work engagement.

The concept of supporting strategy in the land reform with involvement of relevant state bodies at the central level and local level should be considered by the Government the Republic of Kazakhstan. This supporting strategy is to be implemented by the Ministry of Agriculture under guidance of the Government of the Republic of Kazakhstan. The involvement the Agency for Land Resources Management is necessary in the implementation of land reform in land relations. The formulation and implementation of supporting strategy in the land reform could be supported by technical assistance from donors or contracting consulting companies.  

This strategy in the Land reform will be integrated into a single program and this program would fund as integrated package rather isolated elements. Each region might have an integrated regional program, but these regional programs should coincide with strategic direction of a national program. The program might be implemented through state financing and international borrowing, if it is needed to have funding from donors.  

The proposed supporting strategy in the Land reform would include the following components such as development of farming entities, strengthening the raion branches of the Agencies for Land Resources Management and assistance to the  rural residents in getting land tenure and the legal components comprising proposal, which might be introduced into the Land code and land legislation.

6.1. Further Development of Farming Entities.

The supporting strategy in the land reform comprises the strategic direction of  farm development in rural areas, which was neglected by officials of Kazakhstan. It was a few attempts from Asian Development Bank since 1997 to introduce farm development strategy through the pilot project in some selected oblasts of the Republic of Kazakhstan. It was intended by consultants of ADB to provide a support to farms in the framework of this proposed development project. The project preparatory work had been done by the end of 1997 and development project had been submitted by the Bank to the officials of Kazakhstan. Finally, the Government of Republic of Kazakhstan rejected this project and then they started to prepare own state support programs, where farmers were not considered as targeted beneficiaries. The recipients of these state support programs are mainly trading companies and large agricultural farms. Thus, the small farmers, which appeared after privatization of state and collective enterprises, had to operate without any state supports.

The previous period of reforms has shown that only small part of newly appeared farms were able to develop in proper manner and the  key of their success was ability of them to get financing from the banks due to having liquid collateral. Also, these farms tried to increase the scale of production by taking additional land in possession under land use rights or by rent of and shares and it provided these farms to operate on large scale production. The increase of sowing areas contributed to financial viability of these farms and provided them with sufficient earning. Then these farms have made investments for acquisition of new machinery and other necessary agricultural equipments through borrowing from commercial bank and partly through own earnings.

The reforms proved that without any active support from state and other donors the villages is bound to be poor in market economy conditions. A key to many current rural problems - such as unemployment, poverty and poor infrastructure- is the development of agriculture, which might be part of a multi-faceted state rural policy. The agricultural development of rural area might be implemented by providing support to farms through state bodies and other non-governmental organizations, related to agricultural sector.

The support to farms might be implemented through the branches of the Farm Association, because some branches currently provide support to small farmers in their current operations in some rural areas.  The current activities of branches of Farm Association in collaboration with farmers might be reinforced through technical and financial support from state and international donors. Also, this support to Farm Associations might be supplemented on the institutional level and the branches of Farm Association establish a Farm Support Service Centre.     

The core issue of proposed strategy for agricultural development is the creation of viable farms, which would be able to grow and enlarge the scale of production. This enlargement of some farms would create employment, increase of tax collection from rural areas, growth of salary of rural workers, which might be revoked by needs in qualified workers. Also, the increase of farms income will allow them to use the advanced technology and increase of use fertilizers and chemicals in order to get a high yields. Thus, the assistance to farmer would be made with goal to help some of them, at least to grow to the level of efficient production and some of them would be able became large scale farming entity. It does not mean that less capable farmer would stay without any help under this strategy and all farms would have the equal access to support from FSSC. But the farmer who would be able to use the effective way of farm management likely would be successful. Also, it requires the flexibility and capacity to learn to best practices on farming and farm management. Thus, Farm Support Service Centre should serve not only as a centre, which helps to farmer in their farming activities and it should be a centre, where the consultancies on the best farming and farm management practices would be available and latest information on the market prices as well. These assistances to farmers would contribute to further development of farming entities, especially small farms in rural Kazakhstan. 

Not all applicants, wishing to be a farmer would be able to prepare the  brief program for supposed farming without help of external persons such as consultants or agricultural specialists. The number of agricultural specialists, who is able to prepare such documents, is very limited while consultants are hardly available in the raion centre and this consulting assistance to farms might be provided only in the oblast centre.

The 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. Almost all people, 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, where any work engagements were recorded with indication the position and name of employer. But in regards to people under 35 year old it is not clear how they could provide proves of their engagement in agricultural production, because after failure of the Soviet system it was not required to make records in the Work book and from this period many farms were incurred to bankruptcy or were closed by various reasons and only a small number of farms could survive after period of collapse of agriculture, which was in 1993-1998 and they still operate in rural areas. These farms would be able to provide only a certificate of employment and consequently only part of rural residents, who had a chance to work for such farms, would be eligible to get land tenure. Regarding young people, who never been involved in agricultural production, the land legislation does not provide any visible solutions. One option exists to such young people, if they never had a land share, is to get a relevant study or special training in farming. These opportunities are hardly visible, because such training could be provided only in oblast cities on paid basis and this amount of paying together with cost of living are huge amount of money, which ordinary rural residents never had before. 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 and farming management of proposed trainees at the expense of state budget. This special training would be provided with Agricultural University and almost all agricultural regions have an Agricultural University and in case of absence of such University such courses might be established in other Universities or Institutes, area of specialisation of which is 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, who expressed desire to be a farmer should submit the application to the local administration, which in turn have to inform the regional administration about number of participant for special training in farming. When collection of application will be completed the relevant department of regional administration would make decision on organising a special training in farming and farm management either in the certain raions or in the regional centre.  This decision should depend on number of proposed trainees.  Most likely, these courses would be better to organize in the regional centre, if a 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 and training facilities.  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 special training to future farmers.  The variant 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 need in 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 involvement in agricultural productions. As the current land legislation requires from applicants to have at least some relevant education or training and it is more reasonable to provide the applicants with necessary knowledge and qualification than to try to cancel this provision in the land legislation. Also, the cancellation of such requirement would be difficult and there is no common sense to give land tenure to people, who would not have a basic knowledge in farming and farm management.    

6.3. Strengthening of Raion Branches of Agency for Land Resources Management.

 The raion braches of the Agency for Land Resources Management are not empowered in the process of decision making in land granting although they are involved in the current process of land administration according to land legislation. In accordance with land legislation the regional branches of the Agency for Land Resources Management conduct all  work in land granting while the raion branches  are responsible for current land management such as monitoring the appropriate use of land by landusers and the quality of land and providing data for land cadastre and regional branches. Also, the raion branches were responsible for implementation some provisions, related to land share issues and cancellation of sub-leases and providing 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 is the responsible agency for implementation state policy in land relations it is reasonable to delegate some more empowerment in the current process of land granting. As raion branches conduct work with landusers and they are aware better about the situation in land issues in their raion than the regional branch of ALRM and therefore it would reasonable to give more empowerment to raion branches, particular in the process of land granting to rural residents. A regional branch of ALRM is involved in process of land granting only in technical issues mainly in regards of technical possibility to provide the applicants with the requested land plot in the certain area. Therefore, as a regional branch of ALRM makes only technical decisions and all other issues, affecting to making a land granting decision are considered by the local administration. As this decision is made by discretion of land committee, headed by akim of raion it would reasonable to authorise the raion branch to conduct all work, related to technical issues of the land granting process.

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, acceptances of payments would accelerate the process of consideration of application for land granting as there is no need to send the application to oblast centre. Therefore the farmers would be benefited, because they can save money and time. The preparation project design and physical identification of land plot also might be implemented by the raion branch of specialised state agency. All those involved technical agencies are represented in raion centres including state agency for registration of real estate and deals and therefore the decision on land granting might be implemented on raion level.

The objection against providing the raion branches with such authorisation might be that these raion branches do not have enough capacity to implement such work on proper manner. It is correct in some extend, but the raion branches of ALRM  employ the specialist with college and university degree and  some of them are qualified specialists with relevant education in area of land relations. Therefore, the staff of raion branches must be capable for further training due their professional occupation and educational background for more responsible work.

The proposed training is to be done in framework of proposed institutional strengthening of raion branches of ALRM. This institutional strengthening in addition to proposed training might include the increase a number of specialists and technical reinforcement of raion branches with additional equipments and facilities,changes of regulating provisions in regards of delegation of more responsibility to raion branches in land management. The latter issue might be settled by the Agency for Land Resources Management itself by changing the certain provisions, regulating the function of structural levels of this Agency and in some other points, where it is need by consent of the Government. Also, the training of staff of raion branches might be implemented on the current expenses of the ALRM or on additional financing from the state budget. As concerning the increase of number specialists and technical reinforcement by providing additional equipments it is necessary to develop the budget for institutional reinforcement of these raion branches of ALRM.

The precise amount of additional state financing would be determined after conducting revision of existing equipments and facilities, which are in use by these branches  and on the basis finding the needed amount of equipment and other facilities would be proposed to state financing in framework of proposed program for  strengthening raion branches of ALRM. The same approach might be used in getting the state financing for additional staff of raion branches. These issues might be solved with close co-operation with the Agency for Land Resources Management. Without getting the preliminary agreement from the Government it is likely to introduce some serious changes in current  delineation of empowerment between raion and regional levels of the ALRM., because such changes would weaken the centralised system of governance by opinion of the authorities. Thus, delegation more responsibility to structural units at the raion level is rather a more political issue than the subject of technical implementation.

 
6.4. Proposal for Introducing Change in Land Legislation

 The introduced Land Code comprises the all necessary attributes of land relations, which contributes to proper land management under market conditions and regulates the interactions between main participants of land market and also defends the land form against deterioration of land conditions by introducing sanctions and mechanism for withdrawal of a land tenure from them, who unconscientiously use agricultural lands.

In May 2003, the deputes of the Parliament introduced in the first draft a provision regarding allocation of land to rural residents on unpaid basis, but later the Government had withdrawn this norm from the Land Code and they explained that introducing such norm would create the danger for 140 thousands operating agricultural enterprises. Nowadays, when private ownership for land of agricultural use became paid it is unlikely to be possible to come back to idea of granting land to rural residents for free.

 In order to stimulate 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 into private ownership. For example, the cost of arable land in Akmola oblast is 49.4 thousands tenge per 1 hectare (approximately 370 USD) and while the cost of the irrigated land in this area is 71.9 thousands tenge (approximately 537 USD). As regards of southern region the costs of irrigated land are in range of 74.5 and 87.8 thousands tenge (approximately 556 and 655 USD). Thus, the difference between non-irrigated and irrigated land in prices for land acquisition is not significant. But in term risk of possible crop failure due weather conditions this comparison is not to favour of possible owners of non-irrigated land, because risk of crop failure under irrigated land is insignificant to compare with non-irrigated land.  If the officials are eager in development of private land market on non-irrigated land they have to reduce the cost of land otherwise agricultural entities and farmer would continue to keep the land use rights for agricultural lands. It might be implemented by introducing the change in the Resolution of the Government # 890 dated 2 of September 2003, which serves  as implementing regulation for the Land Code.

But more important issue to rural residents is to not lose their shares in the agricultural enterprises, which they acquired by contributing their land shares to statutory fund of these enterprises. Also, it is important to them to get, at least the same benefit as they used get by rent of land shares before. In accordance to obligatory contributing the land shares into statutory funds of business entities the owner of shares became as participants of these partnerships, members of production co-operatives or peasant farms and shareholder of joint stock companies. These new owners of these business entities have the right to sell their shares to any buyers, including to this entity itself. If the new participants of such business entities would sell their shares they will get insignificant benefits, because the average assessed value of 1 land share (it comprises 32 hectare of agricultural land including arable land of 20 hectares) in presented data on farms of Atbasar raion approximately about 90 USD in while the highest value is 178 USD and the lowest is 0.7 USD.

Therefore, if the agricultural entities would intend to release from these new participant they can purchase the business shares of new participants at low price, because the assessed value of land share is small. Thus, there is urgent need to introduce some provision, forbidding the sales of these shares and stating that shares of such participant of agricultural entities must be regulated only by land legislation. The general legislative framework on partnership of the Kazakh Civil Code contains provision, stating the sales of partnership share is allowed if the current legislation does not make any restriction. The same restriction might be introduced on shares of joint stock company and contribution of production co-operative. Definitely, introducing such provision, restricting rights of participant of agricultural entities would defend the right of these people from loosing by themselves their ownership rights in such entities.  

Another crucial issue for new participants of agricultural entities is the absence any provision, determining the ways and procedure of the appraisal of land shares. As it was mentioned before the Research Centre under the Presidential Administration proposed alternatively that evaluation of contributed land shares into statutory fund of business entities must be made by agreement of parts or conclusion of auditors. As matter of fact, no any operating agricultural entities used the auditors in determining value of land share and all deals were made under absence of any alternative options, except in some villages there were only two or three options, but their proposed values of land share were at the same level without any large differences. In relation of newly established entities there were possibilities to appraise land shares 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. It is explained by fact that there is no any proportional dependence between land cadastre value and statutory fund of agricultural entities. And it is proved in early presented data on agricultural enterprises of Atbasar raion, where relation of amount of land cadastre value under possession by these entities to statutory fund amount varies from 4 times up to 516 times. Therefore, such divergence of this parameter 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 possible profit, which might provide a land share to agricultural entities. This income would be defined through development of budget of certain type of crop production on the basis previous years data of agricultural production such as yields, cost and sales prices.  This approach might be used by state agricultural research institute or other consulting institutions 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 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.

The recommendation contains the farm model budget of cereal production in northern region and this proposed farm model is calculated for 840 hectares of agricultural land. This farm model 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. The profit of model farm, involved in cereal production in the northern region is 2.91 million tenge (21.7 thousands USD) according to estimates of above mentioned institute in this recommendation and hence a model farm would get 3.46 thousands tenge (26 USD) from 1 hectare of agricultural land. This amount of possible profit from 1 hectare might serve as base for establishment of appraised value of land share, contributed to a statutory fund of agricultural farm.

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 of 104 thousands tenge (775 USD). Thus, this amount would be taken as an appraised value of land shares, contributed to statutory fund of agricultural farm. This contributed land share could not be considered as tangible asset, because this 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 administrative decision of the Government, because this issue is subject of the Government concerns and they have to provide the rural residents with some benefit for their contributed land shares.

Another important issue is payment of earning to new participant of agricultural entities. The appropriate way of earning payment 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 10.67 million tenge (79.6 thousands USD) and cost of production is 7.76 million tenge (57.9 thousands USD) and profit amounts 2.91 million tenge (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  41.1 thousands tenge (307 USD). The allocation of earning between these parts might be made on equal base, but in this case 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 the second options it would more difficult to force the farms to agree with making payment at fixed rat, because they  would insist on some failures, which may occur to weather conditions.  Definitely, the farms would not agree with the first option, but paying would be less than on the second option. 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.  

 
7.  Analysis of Policy Scenarios and Implication for Rural Area.

The land reform, introduced by the Government, approach of donors in assistance of agrarian reform and proposed alternative land reform might be analysed by comparing policy scenarios and its implication for rural areas. This analysis is needed in order to predict the consequences of various policies in agrarian reform and assess the possible impact for rural residents and farm entities. Also, this analysis of policy scenarios is supposed to foresee the future development of rural area and predict all possible negative and positive changes to which rural areas and rural residents might be incurred.  

In order to conduct such analysis  it is necessary to employ the  data on farms of Atbasar raion and other information, related to land relation, social economic status of rural residents and all these data were collected during conducting field work.  Second, this analysis would be conducted in context of certain established social and economic goals, which should be achieved by introducing the land reform. Third, it is supposed to determine efficiency of probable scenarios of land reform for development economy of rural areas and how and in what extent these possible scenarios would solve the social and economic problems in rural areas. Forth, this analysis would consider consistent and realistic perspective on the role of government in land reform. Finally, the possible undesirable social outcomes would be identified in order to diminish the negative impact to rural areas from the government interventions by means of introducing regulative acts, relevant to land relations.

Thus, the analysis of policy scenarios would be an assessment of current land reform and proposed alternative agrarian reforms, comprising land relations. This assessment would take into account the feasibility of successful implementation of these agrarian reforms. These assessments are supposed to contain some results and facts to which some policy scenario in the agrarian reform might lead and these outcomes would serve as a basis for making a conclusion on the policy scenarios with describing consequences, which would affect to rural residents and development of rural areas.  

7.1. Introduced Land Reform by Government.

 The Land reform, introduced by the Government  is intended to develop the private land market in the rural area by the adoption of private ownership for land of agricultural use, which would contribute to increase of agricultural production and facilitate assess of farmers to the credit and other type of alternative financing. Despite the Government of Kazakhstan has established the legal framework for acquiring land plot into private ownership nowadays no any transaction of a purchase of agricultural land into private ownership from state has occurred in Atbasar region. This means that the development of private land market in the rural area is under doubt particular in the region of rainfed agricultural lands while it promises to be organized on the southern region, where the irrigated lands are always attractive for farming.

The land reform with its transitional provisions has obliged the owners of a land share to make a decision with their land shares and the majority of the rural residents have contributed their land shares to a statutory fund of agricultural entities. These contributed land shares were assessed at the low price and the founders of these entities have a significant share in these entities. The share of founders varies in the range of 51 -90 percent of a total business statutory fund. The newly established agricultural entities have assessed the contributed land shares higher in comparison with the assessed value of a land share in the existed agricultural entities. Hence, a share of founders in the existed entities is in range of 80-90 percent while a share in the newly established agricultural entities is in range of 51-60 percent. But the lowest appraised value of contributed land shares would give an opportunity to the founders of these entities to repurchase the shares of these new participants at low costs for them.

As it was noticed before that a significant number of agricultural entities participants hamper the process of management decisions, where the approval of all entities participants is needed and it could be a reason to the main founders of these entities for releasing from such number of participants. Another reason for releasing from these new participants might be appeared after a few years of successful farming when the founders would be reluctant to share with their profits with the new participants and, in turn the latter would expect to get adequate dividends on their shares, because they would know that the agricultural entities have good profit. Thus, this business relation would work only on a period, when farms would not be able to get good profit and in this case the founders of these agricultural entities would have some justification for not paying the adequate dividends for contributed land shares to new participants of these entities for their contributed land shares. The crucial factor, which would undermine this fragile relation between these new participants and founder, is legally established compulsion on the founders of these entities to accept these owners of land shares as a participant of their agricultural entities. It contradicts to the main principle of organizing any business that the establishment of business entities must be done by group of people on a voluntary basis. As matter of fact, the participants of any business entities have some close relation to each other and this does not exist between the founders and new participants in these agricultural entities.  

The agricultural entities had to follow to this direction and finally they would release from the excessive number of new participants. The proposed techniques would be based on the general provisions of the civil legislation, which allow the sales, exchange, beneath and other deals with shares of any business. After several years of paying a small amount of dividends or not paying any dividends the new participants of these agricultural entities would have sell their business shares to the business entities itself in order to get something. There are so many possibilities legally to reduce the profit to minimal level such as sales of agricultural commodities to the affiliated companies  at low price or increase the cost of production  by purchase of inputs, machineries and services from the affiliated company at high price. These possibilities are visible to implementation for the large agricultural companies, because as a rule the founders of such companies have some involvement in other business, related to agricultural production such as a participation in the ownership of elevators, trading companies, providing the procurement of main agricultural inputs.

Thus, the rural residents would lose their share of a participation in these agricultural entities after sales of these shares to the agricultural entities and they would not have any means for living, as they previously had such as a rent payment for lease of land shares, mainly in kind. These rent payments provided the rural residents with feed for animals such as cows, sheep, horses and etc. The absence of such meaningful benefit would jeopardise the rural residents in loosing their livestock, because these rent payments provided the rural residents with feed for animals. Under such circumstances the rural residents would have less potentiality to be covered with their needs in the food, clothes, coal and other expenses for proper living. The financial status of such rural residents would be worsened and it is likely that the employment in the rural area would be on the same level as it is now. Hence, it is not clear how the rural residents would be able to survive under such conditions. Most likely, this proposed scenario would contribute to the growth of poverty among rural residents while the Government of Kazakhstan reports the increase of Kazakhstan GDP up 2000 USD per capita in 2005, which would be provided mainly by sales of crude oils and other raw materials such non-ferrous metals, coal and other minerals.   

This proposed scenario is based on the previously mentioned data on farms, which were collected in Atbasar raion and reluctance of the large agricultural farms in acceptance of these new participants was proved by fact that these agricultural entities completed legal procedures for re-registration of their business entities just before deadline as it was prescribed by the land legislation. Also, it was some cases when these agricultural entities refused to take land shares from some rural residents due to personal non acceptance of these people and sometimes by the reason of diminishing the number of participants in their business entities.

By introducing the land reform the Government has not been succeeded in establishing the efficient system in agricultural sectors, which will lead to the growth of agricultural production and people welfare in the rural area. The cancellation of land shares lease  has created the inconvenience to agricultural farms in 2004, because they were forced by the land legislation to take the new participants instead of continuing the rent of land shares from rural residents. Now these large agricultural farms became a business entity with bulky management due to a significant number of participants, who do not make any significant influence for operation of farms, but their approvals on some management decision are needed by the current business legislation. Hence, this requirement would not contribute to establishing the efficient system of agricultural production, because it slows the process of farm management. Also, the growth of rural resident’s welfare is under high doubts, because if a farm reports the losses nobody would have the right to claim for getting dividends according the general rule of a business law.  If a large farm would report the losses or low level of profitability the budget of raion would have inconsiderable tax collection from these farms. Thus, this possible scenario would not solve the social and economic problems in rural areas.

As matter of fact, the role of the Government in the land reform is limited only by monitoring of activity of land users through the raion branches of the Agency for Land Resources Management although the Government announced the number of farm supported programs. Presently, the Government does not have any network on the raion level for providing assess of small farmers to these program. And the recipients of these programs are only the large farms and allocation of funds under these programs is made at the republican and regional levels. Although the Government reports on allocation of the significant amount of budget resources in the agricultural sector and actually these funds were allocated mainly among large farms. Therefore, the Government does not undertake any measures to support small agricultural producers and entrepreneurial initiatives in rural areas.

It is evident that the undesirable social outcome would be further worsening of the financial welfare and social status of rural residents and this would be negative impact to rural areas from this introduced land reform. Besides, these rural residents would be unemployed group of people without any earning and financial support from the state such as social aid because of losing the lease payments for land share rent. Under such circumstances, which were created by the state agrarian policy it is unlikely that the Government would not be able to provide these rural residents with any possibility of employments and other means of getting money for their proper living and increase of their living standards.     

  7.2. Approach of Donors in Agrarian Reforms.

The UNDP specialists recognize the importance of land reform completion and emphasize the necessity of state support of individual households and development of social policy in rural areas (11). But actually these strategies are implemented separately by the various international financial institutions such as the World Bank, the Asian Development Bank with involvement in the agricultural and infrastructure development strategies.

Currently the World Bank implements some projects, which are supposed to contribute to the agricultural development such as the Second Agricultural Post-Privatization Project and Agriculture Competitiveness Project. A few projects are under analysis of the World Bank consultants and these projects are relevant to development of some sectors of agricultural production such as livestock sector, fisheries. On the contrary, the Asian Development Bank implements some projects aimed to create the rural infrastructure such as the Rural Area Development project and the Water Supply and Sanitation project while other donors such as USAID and EU Delegation, implement mainly advisory technical assistance projects.

All these projects appeared by the request of the Government of Kazakhstan, because any proposed development and investment projects need the approval of the officials of Kazakhstan before starting its implementation. As these international financial institutions lend money to the Government of Kazakhstan the implementation of these projects is conducted only by the authorized agencies of the Government and these project interventions are incurred to some changes and influence from the Government. Therefore, these development projects are the part of the Government strategy in rural areas.

It is known fact that the Government does not take any concern about the status of the majority of rural residents, who are not employed or involved in entrepreneurial activities. As matter of fact, the Government with its agricultural development strategy intends to support some large agricultural companies by providing them with access to cheap borrowing. Other components of development strategy such as access to international market and strengthening the industrial competitiveness by means of enhancing quality of agricultural commodities, introducing new technologies are under projection. As regards of the Agricultural Post Privatization project only the half of recipients of loan out of 119 borrowers were farms although the total disbursed amount of fund was more 13 million USD. Also, this program intended to a create rural advisory centre, but none of these created rural advisory centre in oblast centre works now. Most likely, this forthcoming Second Agricultural Post privatization project would be successful in achieving established goals, but  these projects would not contribute to increase the number of sustainable small agricultural producers and the growth of entrepreneurial initiatives in rural areas.

As regards of ADB activities the current infrastructure development project aimed to create proper living conditions in rural areas by  providing the rural residents with clean drinking water in some villages of the northern and central regions of Kazakhstan. The Rural Area Development project intends to support the National Rural Development Program for 2004-2010 and therefore the funds under this project are supposed to spend for building a rural infrastructure.

As these all proposals of donors are considered by the Government the development projects have to coincide with the policy and strategy of the Government. Therefore, the interventions of donors in the form of development projects have not be differed significantly from the policy of the Government and nobody from the Kazakh officials have expressed any concern about providing the support to small agricultural producers and the social policy development in rural areas. The positive impact from these development projects would inconsiderable and these projects would embrace only viable farms and business in rural areas. Small farmers and unemployed rural residents would stay out of scope these donors. Thus, the probable scenario is that these attempts of donors would not affect significantly on the financial welfare and social status of these groups of people. 

7.3. Proposed Land Reform with Supporting Strategies.

The proposed land reform with supporting strategies intends to cover some deficiencies of the current land reform and this also would mitigate the negative impact from conducted agrarian reforms in the last years. This strategy intends to facilitate access to land tenure, to provide the support to small farmers and to propose some legislative proposals in land relations.

The proposals to the current land legislation intend to provide the rural residents with some dividend on their contributed land shares and to prevent the rural residents from losing their share in business entities. The introduction of paying dividends at fixed rate from the amount of contributed shares would provide the rural residents with some income. Also, the adoption of the unified procedure for appraisal of land shares would help to make a fairer appraisal of contributed land shares to a statutory fund of business entities. These proposed changes would defend the rural residents and provide them with stable income. Therefore, this would provide payable demand for services and goods. Thus, these legislative proposals in land relation would contribute to the growth of rural resident’s purchasing power. This would create the business environment for entrepreneurial initiatives; increase the number of self-employed people. Thus, the further development of small business in rural areas would provide the rural residents with employment opportunities.

The proposed delegation of more empowerments to the raion braches of the Agency for Land Resources Management and establishment of the Farm Support Service Centre on the basis of existed braches of the Farm Association together with providing special training to rural residents in farming would be supplementary efforts from the state in the creation of business environment under which any person, wishing to be involved in farming, can start farm operation. The rural residents would have option to start farming or to be involved in entrepreneurial activities in addition to opportunity of seeking employment in the farm or to be involved in the public services. This is very important for rural residents of workable age particular to young people, because they can provide a family with additional income, which will provide more savings in family budget.

The key issue of this proposed strategy is that the current land reform ought to be supplemented through the state support. The proposed Farm Support Service Centre would a agent in providing this support. Besides, the getting access to state support programs the farmer would be able to unit for achieving some beneficial offers from the supplier of inputs and service providers for agricultural production. The further development of farms would depend on the ability of farmers to use the efficient methods of farm management and advanced production technologies, which would match to appropriate climatic zones. The efficient transference of these farm practices and new technologies would be possible only among people, who work closely and therefore they have some good relations with each other. 

The further growth of these farms would provide them with sustainable operation and therefore these farms would diversify their farming activities and increase their scales of production and some workers of non-viable farms would be employed by these sustainable farms. Thus, the co-operation of farms for joint work would help to solve some problems, which might appear in farming activities and FSSC might help them on this issue.  These FSSC also will help  to processing factories, financial establishments and trading companies to get a business link with farms as the Atbasar Farm Association does in its current work. Thus, the proposed integration between agricultural production and processing factories, trade companies and banks would be visible under activities of proposed FSSC. 

The introduction of this proposed strategy would facilitate access of small farmers to the state programs without creation of any additional network in rural areas.  Hence, the recipients of state and donors programs might be small farmers and the state support to small agricultural producers would be provided by these proposed FSSC, which should be established as a public fund. This public fund is a non profit organization by the Kazakh civil legislation, which means that all earned profit would be used only for established goals and objectives of this fund and therefore these funds are not keen in getting high profits.

The proposed land reform suggests that the further development of farm entities would be implemented under competitive environment without any protection of any farms or any interference in the current activities of viable farms from the state bodies and local authorities. These FSSC are supposed to be public fund and the chairman of these Farm Association and FSSC would accountable in front of the state bodies only on actual implementation and use of state support programs funds. Thus, the best way in the development of farms is to give empowerment to public organizations, because they have to earn money and they are interested to make unfair performance on these programs. In case of  latter the local authorities would be eager to get the power for implementation these state  programs, because the administrative control over farms would reinforced by presence of financial means directly in the hands of local administration or indirectly through affiliated legal entities.  

 
7.4. Conclusion on Analysis of Policy Scenarios.

 It is evident that undesirable social outcome from the introduced land reform is further worsening financial welfare and declining the social status of rural residents. This proposed outcome would be mitigated by introducing the alternative strategies of land reform.

The current land reform would not benefit the rural residents by the following reasons, which were mentioned early and one of most harmful provision for them is cancellation of sub-lease of land shares and land plot, therefore expiring validity of land shares, if the owners would not able to manage before 1 of January 2005. The powerful political party” Asar”, which has some influence to the Kazakh officials, would not be able to cancel these provisions by collecting needed number of signatures for cancellation of these provisions. This proposal was blocked by the head of agrarian committee in the Parliament of the Republic of Kazakhstan, who is the largest owner of agricultural land in the cereal producing areas. It is not possible also by another reason that the key issue of this land reform is the conversion of land shares in the way, proposed by the land legislation. This would cause negative impact to rural areas, because if agricultural entities do not pay dividends for their contributed land shares and the rural residents would remain without any earning and financial support from the state.

The approach of donors through some proposed development project would not make significant improvement on the welfare and status of rural residents, because these programs are the part of current policy of the Government in regards of rural areas. The agricultural and rural infrastructure developments are implemented by these donors in ways, which are suitable for the Government. It is known fact that the state authorities desire to establish the efficient agricultural production and they ignore the needs of ordinary rural residents.

Although the Government declares its desire to fight against poverty the current practise of the Kazakh officials is so far from these declared objectives and the Kazakh officials, including local administration are not able to provide with additional employment in rural areas. If the rural residents do not have any earning any constructed faculties and services in rural areas would be not demanded by them and therefore these established infrastructures would be unused. 

The alternative land reform with supporting strategy would help to solve problems in rural areas in some extent, because the strategy aimed to help to the small farmers and unemployed rural residents. In the situation when the created state policy of the Government in regards of rural areas, particular in agricultural development does not consider the small farmer and ordinary rural resident as a subject of state support programs and only large farms get all these subsidies from the state budget the importance of such land reform is very high.

The land reform with supporting strategies would give some hopes and possibilities to the rural residents to improve their living conditions through involvement in farming or  employment  business and the proposed changes in the land legislation with other proposed institutional proposals and providing adequate training for farming  would help to create the employment in rural areas and hence, the rural residents would be able to earn money for covering basic needs in food, clothes and needed services. Thus, the proposed land reform would have some advantages against the current land reform, because the Government and donors approaches do not give incentive and support to entrepreneurial initiatives in rural areas and the Government uses the same mechanism of implementation of agrarian reforms that unsuccessfully was used by them in the last years since failure of the Soviet Union. 

8.  Summary of Main Conclusions and Policy Recommendations.

The introduced Land Code with some provisions, relating to cancelling the lease of land shares would bring the rural residents to new changes of their living conditions. The research showed that likely these changes would have a negative impact, because the rural residents besides the weather conditions and market prices on agricultural commodities would depend from desire of farms owner in getting some benefits from their contributed land shares. As the rural residents do not have enough the financial resources it would not clear how they could survive under absence of any financial means.

The intention of this research project is to investigate the current status of the poor part of rural residents, who are not employed on permanent base in farms or public services and are not farmers. The overwhelming majority of rural residents are such people. The project area was taken deliberately in order to embrace the less adoptable rural residents to market environment such as the rural residents of villages in the northern regions, who were involved previously in an ordinary work in large state farms and hence, they do not have working capacity for farming and propensities to entrepreneurship due to historical traditions and prevailing mentality of these people.

The research showed that the established legal framework in land relations does not allow the rural residents to get a land plot for farming although the number of people, who expressed desire to start farm operation is insignificant. It is might explained partly that these people think that they would not able work properly in farming and they fear to take risks in a farming adventure. But the main obstacles for them are their mentality and they think that somebody have to take care about improvement of their financial status. Other obstacles are absence of any of financial means, including banking financing and necessary machinery for farming. The latter might be provided by specialized machinery service centres although the conditions of this machinery service centre is predatory and prices for it reaches up to 30 % of crop harvests. This possibility has been worsened by the complicated procedure for getting land tenure, because the all relevant state bodies are located in the oblast centre, except a raion local administration. The undeveloped public transportation infrastructures with remote location of oblast centre incur the potential applicants to serious difficulties in reaching the state bodies and to considerable expenses, including transportation cost. 

The invented procedure of land shares conversion into a share of business entity is not supported with relevant regulative acts, which are necessary for the proper implementation of transaction, required by the land legislation. The main deficiencies are absence the economically reasonable methodology for an appraisal of the land shares, which were contributed into a statutory fund of the business entities. Following to the recommendation of the Research Centre under the Presidential Administration lead to some nonsense when the contributed land share costs less than I USD and this recommendation does not provide with a fair appraisal of the contributed land shares. Thus, necessity for elaborating a fair procedure of contributed land share appraisal is needed, because these land shares might be repurchased by the business entity itself or the rural residents might get a small amount of earning for their contributed land shares.

Another crucial point was identified by the research that the small farmers are not eligible for any state support programs and instead of support the development of small farmers all a substantial amount of the state funds at subsidised rate were allocated among the sustainable large farms, which are competitive on the market without these subsidies from the state. The small farmers are supported only by the local branches of Farm Association, because they are members of these associations. Nobody take cares regarding encountered problems in front of small farmers in their farming.

The proposed policy in the land reform has been elaborated in order to solve abovementioned problems, because these are crucial for proper implementation of the land reform. The progress of land reform depends from the proper established legal framework and the procedures for land granting to applicants and actual conditions, that the rural residents find themselves in. Any established legal regime would not provide good results without having workable environment, which comprises a status of land users and rural residents, an adequate infrastructure for business activities and visibility of the proposed land reform concept. The latter it is very important, because the legislators could propose some effective solutions, but in reality these provisions are not workable due to presence of external factors, which affect on actual implementation of these proposed solutions.

The proposed solutions have been identified during conducting the research and these solutions are derived from the data and other information, which were collected through the surveys, interview, official data and other source of information. Also, the proposal of research does not require substantial institutional changes such as creation of a new state agency or significant changes of the concept of the land reform. This is an attempt to propose some changes, which would be visible if the Government decided to apply some “political will” to change the situation in rural areas. It requires only acceptance of non-governmental organizations such as the Farm Association and micro finance establishments as an authorised partner on the state and donor support programs. The latter is possible, because the current Kazakh legislation does not forbid for considering NGO as an agent or a partner on the state programs.

The proposed land reform with supporting strategy aims to contribute to further development of the small farmers and growth to optimal efficiency level of operation, which would allow them to be sustainable. This could be done through the Farm Association through establishment of the Farm Support Service Centre, which would provide the farmers with needed consulting services in farm management, legal and financial issues. The local braches of the Farm Association would be intermediary units in providing access of these farms to the state support programs and organising short-term financing from the financial establishment and trading companies. Also, these branches might be driving wheel in the creation of the small agricultural producers co-operatives in sales of agricultural commodities and this co-operation would be applied in the purchase of inputs in the large quantities, because these would provide a good price both cases.

The facilitation of the rural resident’s access in getting land tenure is needed, because the current legal framework for getting land tenure makes it impossible to the ordinary rural residents. The land legislation established some requirements to the applicants in getting land tenure such submittal of the business plan, proofs of the agricultural experience and presence of the relevant education or completion of special courses in farming. The strategy proposes to provide the rural residents, who wishing to be involved in farming with relevant training at a specialised high establishment and college, because these requirements, established by the state are reasonable. Hence, before granting land tenure the state is to provide these people with the relevant training in farming at expenses of the state budget.

In the framework of state governance announced decentralisation the further strengthening the Agency for Land Resource Management raion branches would be logical. If these branches would be authorised to issue land tenure to the applicants it is necessary to provide them with additional facilities and necessary empowerment. The training, additional increase of staff would be a key part of proposed institutional strengthening of these branches. The delegation of more empowerments to the local branches in conducting the all relevant work such search of a land plot, a contract preparation would speed the process of land tenure granting. The proposed institutional strengthening of raion branches would be made through additional state financing and this also would be a subject of “political will” of the Government. Currently, the staff of raion branches is involved in the current process of land management, except process of land granting, which is priority of the Agency for Land Resources Management regional branches.

As this research project is relevant to the legal issues the proposed land reform suggests proposals for introducing some changes in the land legislation. The proposals are served to defence the poor part of rural residents against the harmful provisions of the introduced land reform. The proposed provision, forbidding sales of these rural residents business share in the agricultural business, would defend these people from loosing their business shares for getting money for their living.

The proposal for reducing the cost of land plot acquisition into private ownership would stimulate the purchases of the agricultural lands in the regions, where climatic conditions are not so favourable for crop growing. The more complicated issue is an appraisal of the contributed land shares into a statutory fund of the business entities. This issue revokes the necessity to introduce fairer methodology of these contributed land shares appraisal, because it would provide the rural residents with the adequate financial means for covering their basic needs for proper living. 

The research paper intends to prevent the poorest part of rural residents from negative impact from the introduced Land Code with its harmful provisions in regards of the land shares, which were given by the state during the privatisation of former state farms. The introduced Land Code advances the land reform and embraces the all aspects of land reform, but the legislators did not take into consideration the all possible social outcomes for ordinary rural residents. Therefore, the current land legislations is to be supported with some provisions in the land legislation, defending the rights of the ordinary rural residents and proposals for strengthening the public institutions and local braches of the Agency for Land Resources Management, which would contribute to the development of rural areas in Kazakhstan and to the growth of well- being of the rural residents.

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