Zin.publikācijas

The Basic Principles of Argarian Reform in the Republic of Latvia

R.Zile report in Finnish-Baltic Joint Seminar, Vilnius, Lithuania, published in 'State Regulation of Agricultiral Production' (1992) Agricultural Economics Research Institute, Finnland, ISBN 952-9538-24-3, ISSN 0788-5393, pages 69-76 Oriģinālajā salikumā lasāms PDF fails pielikumā

The economic life of Latvia entered a new phase after the restoration of independence in 
August of 1991 and after the disintegration of the USSR. This period is characterized by 
a decrease in gross national product, by deterioration of living standards, by essential 
structural changes, by hyperinflation caused by monetary emission by an alien country, 
etc. The economic reforms should be based on acquisition of strategical targets, altough 
this would prolong the crisis for a certain period of time. The economic reforms in Latvia 
are so closely linked with legal, political and demographic problems as it hardly is in any 
other post - socialism country in Eastern and Central Europe. 
In accordance with the Hague convention and other international agreements, the rebirth of the Latvian Republic as an independent state claims to observe the principle of 
inviolability of property rights during the Soviet occupation. It means that in the Latvian 
Republic one should respect the property rights of Latvian citizens and other persons 
whose property had been nationalized or illegally expropriated after June 17, 1940. 
A decree "On Land Nationalization" issued on the 22nd of Jane 1940 in the Latvian 
SSR followed by other acts of nationalization and illegal confiscation had a major impact 
upon property rights. But a distinctive feature of processes that took place in Latvian 
agriculture was forced collectivization under which people' s property rights were taken 
over the state, but by a limited rural comune, thus depriving the owner of the right to act 
freely. It was presented as if carried out on a "voluntary" basis. As a result of this, the 
socialist way of management has led to a decrease in the acreage of agricultural lands by 
1 million ha (see Figure 1), to destruction of the traditional rural environment, and in recent 
years, to the drop of production (in 1991 the gross agrieultural product dropped by 15% 
compared with 1990, see Figure 4). It might be interesting to note that before the year 1940 
agriculture was the most important branch of the national economy. According to many 
indices Latvia was one of the leading countries in agriculture. 
Because property was expropriated both through collectivization and nationalization, 
property conversion should be conducted in the Latvian Republic in two ways: 
I. Restitution of nationalized property rights (having restored the rights to land use, 
land tenure can be restored in accordance with the decree "On Land Reform in the 
countryside", as Figures 2 and 3 demonstrate the difference in land distribution between 
land users in 1991 and farm operators in 1935). Property rights can be restored if the 
formerly owned property is given back or if compensation is paid, including also the 
property equal in value (to the expropriated property). All property preserved in 
agriculture as well as nationalized or illegally expropriated property is subject to 
conversion only after the term of feasible demands for the property has expired. 
69 
II. Personalization of collectivized property (in Latvia the collectivization process that 
took place in 1949 - 50 was not judicially based). This collectivized property may be 
considered as one of the constituents of our farming property (since only the methods of 
collectivization are acknowledged to be illegal). Hence, it is unnecessary to carry out the 
property restoration, but property rights for part of the fixed assets of an enterprise. The 
above concepts form the basis for the agrarian reform with regard to ownership. 
The Supreme Council has passed the following laws in order to carry out a conceptual 
agrarian reform in the Latvian Republic: 
Law of Land Reform in Rural Areas (10-07-90), 
Law of Privatization of Agricultural Enterprises and Collective Fisheries 
(21-06-91), 
Law of Land Use (15-06-91), 
as well as several acts (including those of the Presidium of the Supreme Council) dealing 
with separate issues mostly concerning the first phase of the agrarian reform (i.e. the period 
until the year 1996). 
New Legislation and the First Step of Land Reform 
The basic law in this sphere is the law "On Land Reform in Rural Areas". It was a highly 
disputed law because it was the first law about ownership conversion in Latvia. Next, the 
Supreme Council accepted the law "On Land Use" and then began to consider the next 
law "On Compensation for Land Property". 
What is the substance of the land reform legislation? - The land reform is divided in 
two phases: the first takes place in the years 1990 - 1996, the second, in a period of 10-
15 years, starting January 1, 1993. 
In the first phase, ali land petitioners: legal owners (who possessed the land before the 
occupation of Latvia in 1940), the present users and the new land petitioners handed in 
their requests for land allocations before June 20, 1991. Ali the district land use projects 
had to be developed and ratified, and the land had to be assigned by January 31, 1992. In 
the second phase, the land users can obtain or renew (legal owners) their land ownership 
rights. 
Both the most important and the most disputable item was a point in paragraph 12, 
where the priorities for satisfying land petitions were determined: 
Priority Number 1, to the legal owner, except when on his previous land holding or a 
part there are: 
developed farms or subsidiary plots 
obtained or built residential homes 
situated environmentally protected objects, historical, cultural and archaelogical 
monuments etc. appointed by the Republic 
autonomously requested land 
land necessary for the needs of selection and trial 
situated constructions, buildings or orchards with production of social significance 
belonging to other owners (collective farms and state farms inclusive) with acreage 
defined by the regulations, if the beneficiary of priority Nb. 1 does not compensate the 
owner for his real estate value throuhg mutual agreement. 
70 
Priority Number 2 in the following sequence: 
for expansion of existing individual farms and subsidiary plots if the petitioner has 
a residential home on the plot and if he has none 
for the construction of individual homes 
for the needs of inhabitants 
- to legal entities - the present users of the land. 
The following situation with land requests has developed after applying this law in 
practice: 
- the total acreage subject to land reform is 6.3 million ha, 3.9 million ha of agricultural 
lands inclusive 
- collective farms and state farms have petitioned for 2.7 million ha. This comprises 
74% of the acreage, these farms are using at present 43% of the land subject to the 
reform 
77 thousand individual farms have reserved land for the year 1996, the total acreage 
being 1 8 million ha, 35 thousand individual farms have requested land for the year 
1992 in order to establish medium size (24 ha) farms, the total acreage of these farms 
is as much as 607 thousand ha 
100 thousand subsidiary plots have been requested with total acreage of 616 thousand 
ha. The average size of a subsidiary plot is 6 ha 
- 100 thousand plots for home workshop needs have been requested with total acreage 
of 240 thousand ha. The average size is 2.4 ha 
the former landowners, or their heirs, comprise 101 thousand or 36% of ali the land 
petitioners. The city dwellers comprise 29 thousand or 29%, those living abroad 
(mostly in the USA, Canada, Sweden, Germany) 1.400 or 2%. 
The total acreage of requested land is 8 million ha which exceeds the average submitted 
to land reform 1.27 times. The amount of land in the rural areas that has not been requested 
by anyone is insignificiant. If the land user who has been allocated the land according to 
the decision of the land comission does not till the land for a year, it can be alienated. 
The draft law "On Compensation for Land Property" envisages compensating the 
former landowners for the unclaimed or unallotted land plots. Evidently, the compensation 
will take the form of securities which may later be used in the privatizing process of other 
branches. At present, it is impossible to judge on the size of compensation, but the main 
idea is to compare it to rye yield from the particular plot of land and its price at the moment 
when the process of compensation begins. 
What is the prognosis of the results of the land reform? Currently no one knows how 
many of the requests will be satisfied and how the land will be distributed between the 
groups of requestors. However, the experts forecast that the average size of private farms 
and plots will be approximately 12 - 15 ha, but former collective (state) farms will have 
an average size of approximately 1500 ha. When the former collective farms (new 
company) distribute their assets in the future, this 1500 ha will be distributed among 
individuals who buy cattle sheds or cow farms, etc. and the acreage of these private farms 
will range from 50 - 500 ha each. 
The basic problem in the future will be small plots whose total acreage will be 15 - 17% 
of the agricultural land. Requestors for small plots mainly think from an economic point 
of view. Interests of these requestors are: 
71 
to get small plots for family food and the "black" market, 
- to keep the former collective farm because this is a place from which these requestors 
can obtain cheap resources for home workshops, 
to keep food prices high because they produce work intensive and expensive food. 
The perspectives of these plot owners can be forecasted from the analysis of changes 
in the number of peasant farms in neighboring lands such as Finland, Sweden and 
Denmark. 
Privatization of State and Collective Farm Assets 
The conversion of nationalized and illegally expropriated property in rural areas will be 
regulated by the law adopted in the Latvian Republic "On Land Reform in Rural Areas", 
the legislation "On Conversion of State Property" and "On Denationalization of Real 
Estate", sections of legal acts on nationalized property and the norms of judicial acts on 
denationalization. The law "On Privatization of Agricultural Enterprises and Collective 
Fisheries" envisages to regulate the process of privatizing movable property and real 
estate, which were not nationalized. The objects of this law are collective farms and state 
agricultural enterprises that have been set up on the basis of peasants' expropriated 
property. 
Taking into account the contradictory legal status of the present day Republic of Latvia 
and the political socio-economic and demographic situation, the law "On Privatization of 
Agricultural Enterprises and Collective Fisheries" contains the mechanisms for regulating 
the privatization process so that it can correspond to the varied aspects of the problem. The 
economic principles of the law are the following: 
while changing the character of entrepreneurship and ownership in agriculture, it 
is necessary to maintain the existing production capacities, 
the principle of publicity should be observed when the property of an enterprise is 
being privatized, 
gradualness must be observed in the transition from collective (with limited liberty) 
business activities to private businesses (farms, service enterprises and so on), 
owing to the fact that the methods of collectivization are illegal and some other 
considerations it is admissible to buy the capital certificates with the current currency and 
other means of payment, 
specific articles from the collective farm property (tractors, cattle, buildings) can 
be obtained in one' s private ownership if the holder of the certificate becomes an 
entrepreneur (in any form of private initiative), however, movable property has to be 
divided in the way necessary to manage the real estate (see Figure 5), 
certificate is meant as a means to get free of charge property for starting 
entrepreneurship, not as a means for consumer payments (for there can be a situation in 
the process of privatization that the certificates of those who do not want to start private 
business activities can lose their initial value), 
guaranteed rights to all shareholders to obtain in their possession or to participate 
in a closed auction (if there are other pretenders) when a technically or technologically 
integral object is being privatized, in other words, we cannot allow "the dog to sit in the 
manger". 
72 
The problem of estimating the privatizable capital has existed in ali East European 
countries. Great attention is being paid to this problem in the Baltic Republics resulting 
in too much time and money being wasted. The following principle is well known: the 
privatizable property costs that much as it is paid for and how profitable it is for the state 
to privatize the enterprise, in other words how prepared the both sides are to sell and buy. 
In the Republic of Latvia this problem is deepened by the lack of its own money. The 
estimation of the capital of agricultural enterprises will be performed according to the laws 
existing in the Latvian SSR, which determine that the property of a collective farm belongs 
to its members. In Latvia the folloving order will be observed when estimating the property 
of the privatizable collective farm and that of the state enterprises being equalled to them: 
fixed assets are assessed according to the remaining value of the balance (i.e. without 
the sum of amortization), 
- other assets according to the data of bookkeeping. 
The total sum of these assets must equal the sum of the privatization certificates in the 
enterprises, since ali assets are the property of the members of the collective according to 
the existing legislation. 
Therefore the concrete fixed assets can be revaluated according to their real value in 
case the previously determined balance is being observed. The total capital is equal to the 
sum of the certificates. In the law "On the Privatization of Agricultural Enterprises and 
Collective Fisheries" it is envisaged that in case the property of the agricultural enterprises 
is being privatized by the entrepreneurs, the holders of the certificates, market relations 
will be used, including the prices. The essence is as folows: 
the shareholding company is founded on the basis of the collective farm according 
to the law its code of articles offers to this participants the property included onto the 
fixed assets, 
- the offered initial price for the concrete property is the price which is obtained in the 
course of inventory and included in the calculation of the certificates, 
if the farmer or any other entrepreneur hands in the request to the executive body of 
the shareholding company, that he wants to acquire a tractor, a farm or any other thing 
and if in a month' s time after the public announcement there are no other competitors, 
then this thing becomes his property, if he pays for it initially by the means of the 
certificates or in any other means of payment, 
if it has other competitors then the executive body arranges an auction, receiving 
certificates or any other means of payment including payments in the form of a loan 
from the shareholding company in auction prices (above the initial prices), 
if the shareholding company considers it necessary to privatize an unprofitable 
enterprise it can be announced for sale for a price which is lower than the initial price 
to arrage a diminishing sale. 
As the sociological rating (by the end of 1991) of the collective farmers shows in the 
majority of cases, in the case of total privatization of the property of a shareholding 
company, the executive person receives a lower price than the assessed value received 
during the inventory (the real value of the thing is lower than its initial price). 
However, taking into consideration the hyperinflation of the rouble at the end of 1991 
and the beginning of 1992, this process will take a turn in the opposite direction and that 
might be a tremendous stimulus for privatization and for the speeding up of this process 
73 
1 
0 
1935 1940 1950 1960 1970 1980 1990 
1111111 waste meadow fields 
Thousand Hectares 
4 
¥il§! 
•••••••," 
3 
2 
in the countryside. If the basic means, and together with it the sum of the shares 
(certificates) of a company will be recalculated according to the rate of inflation, it is 
impossible to predict the actual speed of privatization of agricultural enterprises. The 
specific methods refer to the service and processing enterprises of the collective farm 
(mechanic shops, dry houses, meat processing shops and so on). 
It must be guaranteed that in the course of privatization the entrepreneurs who are 
engaged in the basic agricultural production (cultivation of plants and animal husbandry) 
receive the right to obtain the control packet. The mechanism of their guarantees can be 
diverse: proportional to the managed area of land, proportional to the shares or other rights 
or to the value of the certificates, although while there are no mortgage solvent institutions 
in Latvia, when finishing the activity of the enterprise both in the case of bankruptcy and 
according to the decision of the owner the liquidators have to observe the agricultural 
specificity prescribed by law, including the fact that the certificates (shares) in this 
particular case serve to determine the liquidation quotas. 
This specificity appears also in the following way: after the demand of third persons 
are observed, the property is auctioned so that the running of perspective real estate is 
preserved to the maximum. 
The main task of the privatization of collective and state farms is to form within the 
borders of the pagasts (small rural districts) the following scene: 50-60 farms about 20-
40 ha large mutually cooperated and specialized 5-10 share companies or private 
enterprises which run the big farms and produce fodder for sale on the land which is not 
asked for by the farmers and parties concemd on the basis of the former collective farms 
service enterprises (mechanical shops, dry-houses, shops for processing food-stuffs). 
pasturage perennial grases 
Figure 1. Dynamics of land resources. 
74 
Subsidiary plots 129 
Individual farms 109 
Forest organisations 41 
Special state land 5 
Other users 50 
State farms & 
enterprises 826 
Sharecroppers 2% 
State post holders 3% 
Owners 85% 
Collective farms 1409 
Figure 2. Agricultural land resource distribution among users. 
Tenants 11% 
Figure 3. Farm operators in 1935. 
75 
kilograms 
1200 
1000 
600 
400 
Different forms of 
ownership a shareholder may consider 
services & industry 
MEM 
1 
operating 
units 
Q2' 
150 bulls/shed 3000 pigs/farm 
Holding company 
(former collective farm) 
•••.1 14,41 
10 
200 cows/farm 
public 
infrastructure 
>to sell for money 
potatoes 
cellar ) 
.532 
fish bond 
• 
200 
o 
1940 1965 1970 1975 1980 1985 1990 
Grain —H— Vegetables X Milk 
Potatoes —E— Meats Eggs (number) 
Figure 4. Annual per capita production of basic agriculture products in Latvia. 
items units 
- local govemment own 
- individual shares 
other enterprises shares 
private ownership 
- cooperatives property 
- pensioners or other shareholder 
own who don't work there 
[II trucks 
apartments 
apartments 
1111111111 
Figure 5. Opportunities for shareholders to manage their shares.