Azerbaijan : Farm Privatization Project

1. IntegratingCommunity Driven Development in Farm Privatization Projects: Some Experiences From Azerbaijan and Tajikistan

2. Azerbaijan : Farm Privatization Project • Before Independence (1990), the agricultural sector in Azerbaijan contributed to 36% of the labor force, responsible for 26% GDP, and generated about 30% of total exports ‑ from cotton, wool, meat, vegetables, and fruits. • Traditionally, agricultural production was confined to 2020 state and collective farms. About 1/3 of the total agricultural land (4.2 million hectares) is used for annual crop production. 75% of this agricultural land depended on irrigation; the remainder was used for rain‑fed agriculture and natural pastures.

3. AZERBAIJAN Total Population 8 mil Rural Population 56% Total Area 8.6 mil ha Agriculture area 4.5 mil ha Arable land (% of agr. area) 32% Irrigable land (% of agr. area) 70% Permanent pasture (% of agr. area) 31% Forested (% of total area) 12%

4. Immediately after independence, by 1996, the agricultural production declined by more than 30%, the use of agricultural inputs declined by 60 to 70%. Agricultural terms of trade deteriorated drastically, and profitability of these government budget run 2022 centrally administered farms took to downturn. • Income of the farm workers, constituting majority of rural community drastically reduced, with a sharp fall in the standard of living, leading to urban pull and rural push for livelihood.

5. Country became net importer of grains, with growing pressure from government run bread industry (Azkhlebprodukt) to meet the bread demand of the population. • Need for reforming and restructuring the agricultural sector was vital for improving the standard of living of the rural population, constituting nearly half the country's total population. Increasing agricultural productivity is important, and will continue to be important, to counter the increasing dependency on oil exports, prevent the Dutch disease, urban pull and rural push and exports to recover.

6. Government Agenda:  To reverse the depressing declining trends in agriculture, the government of Azerbaijan took the initiative to restructure and privatize the agricultural sector, with the specific goal to privatize majority of the state and collective farms over the next few years. “Off the shelf” experience in privatization of state run farms were absent at that time, the Government was searching for dependable solutions and procedures for the privatization of the state run farms and sought the financial help of the Worldbank and to tap on the global experience.

7. IDA came up with an idea of piloting the FPP for evolving the mechanism and concomitant policies for the privatization of the farms in Azerbaijan.

8. Farm Privatization Project was designed to: • (a)   help the government develop and implement suitable guidelines, procedures and policies for privatization of Government farms; • (b)  design better farm privatization procedures; • (c) provide replicable modes for privatization in the rest of the agricultural sector.

9. FPP Objectives • 1. Restructure 6 state and collective farms on pilot scale. • 2. Transfer land and non‑land assets to the local community into individual private ownership among the local farm workers’ community; and • 3. Provide post‑privatization support to allow the new privatized units to operate as independent entities

10. Map of Azerbaijan Showing the location of the Pilot farms

11. Project Components: • A.     Farm Privatization Services: Provide essential services needed for privatization at the pilot farm level Raion and at the national level:  • Consist of two sub-components: • (i)   Land Registration System Support: • (ii)   Farm Level Support Services; • B. Post-Privatization Support to Private Farm units. • (i) Irrigation & Drainage network improvement - on farms & inter farm; and • (ii) Provision of Credit Facility to meet capital needs to begin sustainable farming .

12. Land Registration System Support: • ·  To evolve an acceptable mechanism for Privatization of farms, legal and social, to divide the farm in to smaller entities to transfer the ownership of land and non-land assets to individuals, group of individuals; • ·        To provide an accurate, cost‑efficient system for mapping and recording ownership and other interests in land to serve as a basis for the creation of a land market (offer as collateral) ·       

13. To develop Institutional capacities to provide technical services to go through the privatization process; • - such as surveying, mapping, aligning the borders of shares, processing of papers for approval by Raion Administration, preparing and issue of the land ownership certificates to individual, registration, etc.

14. Farm Level Support Services • Provide guidance and services to farm community of workers to go through the privatization process; FIAS : • · Evolve easy to understand guidelines and disseminate to mobilize the community at the grass root level, information dissemination for privatization; and • · Advisory services to the farm members, explain rights and responsibility of private farmers, • ·Formation of water user's association (WUA), preparation of business plans, • ·   Advise on selection of appropriate farm technologies, • ·Preparation of business plans and financial arrangements, etc.

15. Project cost $ 28,82 mln IDA IFAD Government of Azerbaijan Privatised Farms Project started in June, 1997

16. Features. • The farm privatization process is  • ·        Voluntary. It was based on the farm members’ decision to reorganize as a community collectively. • ·        Choice‑driven. Farm members were allowed to decide which activities to undertake, to determine how to manage their newly acquired farm assets, and to reconstitute themselves as individual farms, family farms, joint family farms, Associations, joint stock companies, partnership and lease holders’s farms with right to exit.

17. ·        Transparent. Community members actively participate, Discuss openly the pros and cons of organizing farm structures with right to exit and resolve disputes in an open environment. Members received information, advice and guidance to help them make informed decisions during privatization and of their farms. Voluntary formation of ownership grops, Village Akshakals were elected to resolve disputes.

18. Results on the Ground • Dismantling of the former state and collective farms. Under the project all the six former state and collective farms were dismantled; the land (along with land ownership certificates) was distributed to eligible farm members land share location decided through lottery system. A strong sense of private ownership emerged, motivating new owners to maximize earnings from their newly acquired land. • Privatizing farm units. Land assets were transferred into private ownership with full immediate rights to engage in land transactions.

19. Titling. By the end of June 1999, entire 6 pilot farms and other adjacent farms land ownership titles with clearly defined boundaries were issued to private individuals, families, or groups of individuals, titles to land with UPI number. By the end of 1999, about 750,000 land titles were distributed, with UPI numbers, thus completing the privatization of all the former state and collective farms (a total of 2020 farms), except the animal pedigree & state seeds farms, country wide.

20. Establishing WUAs. Each of the six former sate and collective farms now has a WUA registered and operated by the farmers themselves to manage all water related issues, including cost recovery of operations and maintenance (O&M) for irrigation infrastructure by early 2000. By June 2002, nearly 550 WUAs were formed in the entire country following the models evolved for the pilot farms. Provision of working capital to newly privatized units.To date, almost S $1.5 million has been disbursed, and the repayment rate is 92%.

21. Land Reforms in Pilot Farms Municipal Property – 39% 10 458 ha 7 616 ha 1 301 ha Retained as State Property – 7% Privatised land share given as Private Property – 54% Total 19 375 ha 19 375 ha

23. Lessons Learned for Scaling up: ·       A massive information campaign (hand holding) to farm workers as community informing them of their rights and opportunities and involving the community in the process was a key for success factor in this project. Strong political commitment from the top (in this case the President) was important .  ·     The lottery system was perceived as very fair and transparent approach for participation of the entire community with equal rights for creating ownership and hence mustered support from within.

24.  · Provision of credit and infrastructure rehabilitation and Provision of credit (post privatization support ) was critical to make the community for continued and active involvement for the system to be operational.  • ·  Severance from old strangle holds and administrative limitations - old state and collective farm debts, limitation on mortgage, freedom for transfer of ownership, to sell land parcel, was essential for the process to move forward. •  ·      Complementing the privatization with a titling and registration system, where the new owners could actually see their land rights legally specified on paper, generated added commitment from the community and instilled confidence in the process, incentive for wider participation.

25. Wheat – 266% Tomato – 197% Fruits – 159% Lucerne – 284% Increase of Productivity of Agricultural crops in Pilot Farms (1996-2001)

26. Live Stock Production – 145% 16 000 2001 1996 11 000 43 300 2001 23 200 1996 Sheep and Goats - 187% Increase of livestock production in Pilot Farms

27. Given for the Municipal Ownership – 31,5% 2 721 500 ha 3 820 000 ha 2 100 000 ha Retained as State property – 44,2% Agril -Land Privatized – 24,3% Land Reforms in Azerbaijan Republic Total Land Area – 8 641 500 ha

28. Experience from Tajikistan Farm Privatization Support Project

29. Comparative Picture • Tajikistan Azerbaijan • Total Population 6.2 mil 8 mil • Rural Population 73% 56% • Total Area in ha 14.3 mil 8.6 mil • Total Agriculture area - 4.4 mil 4.5 mil • Irrigated Cropped area - 0.6 mill 1.45 mil • Irrigable Arable land area 78% 70% • Pasture (% of agr land. area) 80% 32% • Forested (% of total area) <5% 12% • Total farms (1990) 610 2020

30. The main objective is to support the Government program for land reform and restructuring of the state and collective farms in a systematic and transparent manner and to provide models for wider geographical replicability. • project consists of three components: • (a)    Farm Restructuring Services; • (b)    Rehabilitation of Critical Main and Field Level Irrigation and Drainage Works; • (c)    Provision of On-time Grant and Creation of Rural Savings and Credit Association; and

31. Farm Restructuring Services: • consist of the following sub-components: •  ( i ) Land Use Rights Registration Services: This component will not only ensure that the 10 farms in the 6 raions are privatized and land is transparently distributed and legally registered, and also will establish a national land registration system and training center that will enable all land rights to be registered in a modern and effective registration system throughout the country.

32. (ii) Rural Information and Advisory Services : • (a)   Strengthen MOA’s institutional capacity for provision of rural information and advisory services: MOA Capacity building for providing training and information for development of private extension services. • (b)  Field level demonstrations in appropriate farm technologies: in the application of improved seeds, farming practices in a few representative private farms through the research institutes. New and improved crop production technologies using off-the shelf modern varieties developed by the international crop research institutes (i.e. ICA RDA, CIMMYT, CIP, etc.), multiple cropping systems., economically optimal rates of agricultural inputs of fertilizers, management of pests (IPM).

33. Establishment of a farmers’ information services desk in the MOA: to provide regular information on critical agricultural issues related to production and marketing through the existing mass media - TV, radio, video, brochures and “Farmers’ Weekly” paper. The farm connected -technical topics and contents for the Radio broadcasts and papers generated by the consultants and technical specialists of MOA and agricultural research institutes, through Information Unit’s Press Center in the MOA.

34. ii. Rehabilitation of Irrigation Infrastructure of Project Area • (a) Repair or replace the critical irrigation and drainage facilities in the pilot farms so as to create and sustain privatized agriculture; • (b)  Assist in the establishment of water users' associations (WUAs) that are community based, self-sustaining and effectively manage irrigation facilities; These WUA's are empowered, both legally and financially, so that they can collect irrigation service fees from system beneficiaries and be able to use the funds for proper system operation and maintenance.

35. Provision of One-time Grant and Creation of RACS • The project provide for a one-time grant to the private "family farms" to enable them to obtain most critical agricultural inputs for farming to jump-start the newly acquired land asset. This grant is limited to $300/ha to each registered family farm subject to a maximum of $600/farm family. • Eligibility criteria: • (i)possession of a clear land use rights certificate; (ii) account in the Amanatbank (iii) membership in the WUA and an access to assured and timely supply of water for agricultural activities; and (iii) engaged in agricultural activity as the main source of livelihood. (iv) would invest in the RACS when formed (to the extent of 50%).

36. Results on Ground • . All the ten farms have been privatized and the lands certificates are issued • All the project rehabilitation works of the irrigation infrastructure has been awarded and four are completed and are being handed over to the water users associations.  Nine WUA s have been formed for 10 pilot farms . The pioneering work of the FPSP in the creation of community oriented WUAs in Tajikistan is beginning to generate an awareness among dekhan farmers and a corresponding interest in development of WUAs beyond project areas. These initiatives are undoubtedly encouraged by the facilities and support offered by the FPSP to the pilot WUAs.