Friday, April 9, 2010

Nuttynomics

Today's Minister of Agriculture, Valeriu Cosarciuc, has released his master plan for agriculture:

  1. Land will only be able to be owned by physical persons
  2. The maximum size of a holding will be 500 ha
  3. Land can only be sold to people who will work it
  4. The state will subsidise interest payments on loans contracted by farmers
I am, frankly, shocked by these proposals from someone who should know better but seems detached from reality.

Changes in Moldovan agriculture

Peasant agriculture in Moldova is dying.  Working-age people are leaving the land in droves for manual jobs in other countries.  Only a very small proportion of them will ever return to their villages and resume farming.  Moldova's villages are shrinking and many of them will cease to exist altogether.

At the same time, smallholdings are gradually being accumulated into units of economic size.  Capital is being formed locally or introduced from abroad and invested in secondary processing plants.

These are natural processes which cannot be stopped or reversed.  Cosarciuc cannot stand Canute-like in the fields and order the return of peasant farming.  It just isn't going to happen.

Whether you like it or not, the future for Moldovan agriculture is labour-extensive commercial farming.  The sooner we get there, the better, as agriculture must be the motor that powers the rest of the economy.  But what do I mean by commercial farming?
  1. The achievement of efficiencies & economies of scale by allowing large land-holdings.
  2. The introduction of foreign capital, know-how and marketing expertise through foreign (as well as local) ownership of land.
  3. The heightened use of technology in place of (fast disappearing) manual labour.
  4. The establishment of agribusinesses on a fully commercial basis, without government support.
What's wrong with the plan?

Cosarciuc's plan is a recipe for disaster and needs to be taken off the table quickly.  Taking his points one by one:
  1. Land should not be owned by physical persons only - farmers must have the right to organise themselves as companies so that they can be managed in the same way as every other business and benefit from the same tax deductions for expense.
  2. Farmers, and not the state, should establish the appropriate size of the landholding for their business.  A 500 ha limit will create unnecessary inefficiencies.
  3. Ownership of land and use of the land should not be mandatorily tied together (i.e. by requiring owners to also work the land).  This will hit young farmers particularly hard, as they have the skills, ideas and energy to create an agribusiness, but not the capital.
  4. Subsidisation of interest payments will make a large number of substandard business plans viable.  I would suggest that this is actually a bad thing and that attention should instead be focused on business activities which stand on their own merits.  Otherwise we'll find ourselves with lakes of cheap wine and mountains of rotting nuts that nobody wants but that someone in Government once thought would be a good idea to grow.
Foreign Ownership

It has to be mentioned that Cosarciuc's proposals come as a response to equally nutty ideas from our friends on the left.  They are particularly concerned about foreign land ownership and can be expected to behave ferociously should the AIE decide to allow foreign land ownership.  They are already actively building the image of the nasty foreign capaitalist corporation coming in and devouring the poor Moldovan peasant.

The truth is that foreign capitalist corporation will create jobs, pay taxes and facilitate the sale of Moldovan produce at good prices.  The truth is that the foreign capitalist corporation will pay the Moldovan peasant a significantly higher price for their land than they could receive elsewhere.  In fact, freeing up the ownership laws would be the single easiest way of increasing the wealth of Moldova's hundreds of thousands of rural poor.

Conclusion

So Mr Cosarciuc, instead of a whole lot of illiberal nonsense about restricting this and subsidising that, how about instead we create an agricultural sector capable of powering the economy for decades to come.  Close the door on the peasant and collectivist past.  Welcome agribusiness.  Welcome foreign investment.  Welcome Moldova's transition to modernity, efficiency & success.

4 comments:

  1. Just to mention how much I agree with all this. It's sad really, to see how protectionst the center-right AIE is on so many issues.

    ReplyDelete
  2. The fact about land sales is that it's not actually the dirt you are buying, but the geographical coordinates. Geographical coordinates cannot be moved to another country even if the land is owned by foreigners. Moldova can continue to levy taxes on land even if it is owned by foreigners. Moldovan workers will still work the land even if it is owned by foreigners.

    ReplyDelete
  3. Just one other thought: Should Moldovans have the right to purchase land in other countries? It's hardly fair that Moldovans can purchase land in the EU and elsewhere with no hassle while protecting their own market.

    ReplyDelete
  4. I'm happy to hear about Cosarciuc's incompetent proposal that will keep moldovan agriculture underdeveloped and cheap for some more time - since I'm a "foreigner" who wants to invest in Moldovan land, but I haven't gathered the money yet :-)

    ReplyDelete