Chapter 3
THE STRUCTURE OF AGRICULTURE

I. Introduction

A. Basic Concepts

The concept of “structure” comes from the Latin and today usually means the set of mutual relations of the constituent parts of a subject or a system. In this case the structure is being treated as the inner basis of the system's way of functioning, specifically, the legal and economic basis of production and entrepreneurship in agriculture in the sense of forms of ownership.

Clearly, the structure of agriculture is intimately related to many factors, including the organisation of rural society, the nature of financial institutions and their policies, the conditions of international trade, and the physical agroclimatic conditions of production. Nevertheless, a fundamental element in determining the pace and shape of agricultural development is the framework of property and its ownership, particularly for agricultural land and farm buildings and other physical structures. The evolution of this framework, and the policies that guide it, are the subject of the present chapter.

B. A Long-Term Perspective on Agricultural Land Tenure in Estonia

Over the very long term, five stages can be mentioned in the establishment of different forms of land tenure for agricultural production in Estonian territory (Table 3-1). The first stage had a long history and may be associated with the Great Nation Movement.

The second stage was based on laws adopted in 1848 and 1856. According to these laws farms could be bought in perpetuity. More than 10,000 farms with a total area of 400,000 hectares were established in less than half a century. In addition, before 1921 in Estonia there were 1,149 estates with an average size of 2,113.ha (Tables 3-2, 3-3). Thus, both large- and small-scale production forms co-existed in agriculture.

The third stage development of production forms was initiated by the Land Act adopted in October, 1919. An agrarian reform was put into effect, in the course of which estates were parceled out into individual farms. During the next ten years the total number of farms increased to 133,387, and during the following 10-year period, to 139,984.

The data of the land cadastre of 1939 show that farms generally had less than 30 ha of land but were quite variable in size. Together, they held 3,179,438 ha of land, including 1,117,811 ha of arable land and kitchen plots, 1,626,782 ha of grasslands and pastures, and 188,498 ha of forest.

Table 3-1
Põllumajanduse Struktuur ja Selle Areng Eestis
Structural Development of Agriculture in Estonia

Thus, the size of an average farm in 1939 was 22.7 hectares, including 8.0 hectares (35 %) of arable land and kitchen plot, 11.6 hectares (51 %) of grasslands and pastures and 1.3 hectares (6%) of forest. The remaining 1,8 hectares (8 %) was unprofitable land (yards, roads, sandy areas, etc.). Table 3–4 gives the distribution of farms by total area and area of arable land on the eve of World War II. Many of the farms at that time consisted of scattered plots, sometimes as many as 5 or more. This historical fact causes difficulties in applying the present Land Reform Law, which requires that the land be restored to its former owners in its previous boundaries.

In the fourth stage, a programme of collectivisation was initiated first on a partial basis and then imposed on a massive scale. After 1947, private farming was considered to be inconsistent with communist ideology and was tolerated only to a limited extent. Families were permitted to cultivate a plot of about 0.5 ha on their own and to keep a small number of animals. In spite of their small size, these private plots produced a remarkable amount of food, sometimes with significant inputs from the farms on which the plot-holders worked. In the scarcity economy of the day, this became a significant source of both sustenance and, in semi-legal farmers' markets, income for rural families. The land used by State farms and collective farms decreased progressively and significantly from decade to decade, as shown in Figure 3–1.

Table 3-2
Talude ostmine Eesti kubermangus 1854 – 1899. a.
Purchase of Farms in the Province of Estonia 1854 – 1899

J.Kivistik, V. Jullinen, “About the Possibilities for the Development of Family Farms In Estonian SSR”; Collection: “Family Farm Possibilities”, Finnish-Baltic Common Seminar, Helsinki, Finland, 1990 lk. 39 – 44

Table 3-3
Maa kasutamine enne maareformi Eestimaa kubermangus (1917.a. piirides)
Land Use before the Land Reform in Estonia (1917 Borders)

Th. Pool “Maauuendus Eestis ja selle tulemused” Tallinn, 1936, lk 4 – 7

* Ilma Petseri ja Narvataguse maata, mis 2.veeb. 1920 a. Tartu rahulepingu järgi jäid Eesti vabariigile (without Narva and Petseri communities)

Table 3–4
Size Distribution of Farms and Farmland in 1939

The fifth stage, of restoration of the previous structure of agriculture, began in 1989. The law on economic autonomy approved by Supreme Soviet of the USSR opened the way for the “Farm Law” enacted in December, 1989, which provided permanent land use rights to individuals who wanted to establish private farms. Under the ownership constraints imposed by Soviet law the land was inheritable, but not tradable, and it had to be used for farming. Land which was not regarded as essential for the operations of State and collective farms was allocated to the applicants, in many cases to those with prior claims to the land.

To determine the future of the State and collective farms the “Property Law” of 1990 and the “Law on the Principles of Property Reform” of 1991 supplied the legislative tools for breaking with the policy of State ownership. These laws also resolved the issues of indemnification of former owners, repayment of debts to the State and partition of remaining property among the staff of the formerly collectivised production units.

In 1991 and 1992 new laws were promulgated on “Agricultural Reform” and “Land Reform.” They stopped the establishment of private farms on the basis of the “Farm Law” of 1989 and instead authorised local communities to allocate land to an estimated two to three hundred thousand applicants. The “Land Reform Law” (1991) provides for full private ownership of land by individuals. It gives former owners and their legal successors first priority to claim land.

Figure 3–1
Maafondi dünaamika sovhoosides ja kolhoosides 1950 – 1989 a.
Land Use in State and Collective Farms, 1950 – 1989
(tun. ha)
(1000 hectares))

There were 10, 152 private farms registered in the cadastre as of 1 January 1993. The average farm at that time had 25 ha land, of which 11 ha was arable land and 8 ha of forest. It had 3.4 cattle and 1.6 pigs. The vast majority of these farms (around 8,300) were established on the basis of the pre-independence. Law on Peasant Fanning that provided use rights but restricted the possibilities of buying and selling land (and therefore limited investment incentives). The establishment of these private farms was done in an environment in which considerable advice and support was available through State or collective farms and under price relations that were favourable for agriculture and with markets for farm produce that seemed to be lucrative and unlimited. Many of those farms have been able to make the transition and some are now debt free.

By March 1994 there were already 10,178 private farms established. Together they owned about 265,000 ha or an average of 26 ha per farm, of which about 12 ha were arable. About 75,000 ha of the total area was drained. Of the 10,178 farmers, only 200 had titles to their lands usable as collateral for bank loans and about 2,100 were in the process of receiving titles! The remainder had only temporary titles. Another 90,000 farmers have requested land under the Land Reform Law, of which 40,000 applications have been accepted so far. By August, 1994, the land cadastre already included 3,500 private farmers, with a total farm area of 59,579 ha.

Private family farmers in Estonia today can be classified into four different groups:

• Individuals from State and collective farms who were in management positions and have the skills and contacts to make a private farm work. These people have the best chance for making the transition.

• Individuals from State and collective farms who were in operational jobs such as tractor drivers, milk attendants, or lab technicians, and who now want to start their own farms. These individuals will have more difficulty due to lack of knowledge and skills outside their narrow specialisations, but they do have a basis for starting farming on their own.

• Families on household plots who have farming skills but generally limited financial resources. Their farms are more productive than the national average, and to the extent they can concentrate their production in specialty crops and/or acquire more land, they have a reasonable chance of surviving economically.

• Individuals from non-farm jobs who have decided to start farming, usually because they can reclaim land which their family held before. These people face the biggest challenges, given increasing competition in the agricultural sector, the corresponding need for efficient farming operations in order to maintain profitability, and the frequent lack of capital.

C. The Present Situation of Agricultural Land Use

The current documentation of the status of land can't keep up with the changes being carried out through the land reform. Although in the Law of Land Cadastre (see § 20 sec. 1) there is a regulation that “municipal corporations and parish councils are committed to present the data of land use in their administrative boundaries, belonging to the State, to the cadastre-keeper”, this regulation has not been respected in practice. In most cases the bottleneck is the question of where to find a land registry specialist for each local administration, and also where to get the money to pay for his or her services. A lot of registry work has been left undone and many new data about land use are missing. For the above-mentioned reason the publication of the yearbooks of the land cadastre has not been kept up to date. The last one published is “The Yearbook of Estonian land Cadastre, 1993”, which provides cadastral data as of 1 January 1994.

On the basis of these 1993 data Table 3–5 has been compiled to show the situation of land use of agricultural units by county. That table includes land used by all types of agricultural enterprises and farms, by category of land use or vegetal land cover. (The yearbook also reports data at the level of parishes.)

In 1939 agricultural land users held about 3.2 million hectares in total (including forest land), and in 1993 the corresponding figure was 2.6 million hectares. The decrease is partly attributable to assignment to State forests of lands that became covered with woods. To a lesser degree this change is also due to the fact that about 200,000 hectares of land in Petserimaa beyond the Narva river, including 40 thousand hectares of agricultural land, were taken over by the Russian Federation.

Table 3–5
Maakasutus maakondade lõikes
Land use by counties
(01.01.1994) ha

A more accurate reflection of the shrinkage of agriculture is found in the fact that agricultural land per se declined from 2.65 million ha before the war to 1.47 million ha in 1989. The location of arable lands has also changed, owing to extensive amelioration activities. In addition to the decline of cultivated land, there has been a big change in the area of natural grasslands. In 1939 there were 1.6 million hectares of meadows and pastures and in 1993, 244,000 hectares. Due to poor management, grasslands have become covered with, brushwood or forest. Another expression of this change is the rise of share of woodlands from 6% to 32% of the total area in agricultural enterprises and farms.

II. Past and Current Policies

A. Land Policy in Estonia, 1919– 1939

On 17 February 1919 the Estonian Interim Government passed a law declaring all noble manors within the borders of the Republic of Estonia to be State property and subordinating them to the Ministry of Farming. At that time, 1.87 million ha, or 44.7% of the total rural land, was in the possession of estates and 2.32 million ha, or 55.3%, was being used by smallholders (purchased and tenant farms).

There were three main thrusts of the rural policy of the time:

1. the formation of new farms;
2. the formation of State manors;
3. the formation of settlement farms.

1. The Formation of New Farms

On 10 October 1919 the Constituent Assembly passed the Land Law for the formation of State land reserves and for the implementation of land reform. On the basis of this law, all estates within the borders of the Republic of Estonia and all land designated by the Baltic Special Law were expropriated, together with their accessories and suitable agricultural inventory. The State land reserves consisted of 2.3 million ha. lnitially estate land was expropriated without compensation. Later, on 5 April 1926, the lower house of the Estonian Parliament passed a law on compensation for land expropriated during the creation of the State land reserves, on the basis of which the State was obliged to pay for the value of the land within 60 years.

The Republic of Estonia was endeavouring to liquidate the numerous estates through land reform and to replace them with individual smallholdings. Land was to be given to farmers working their own farms. This proceeded from the premise that farmers are better than estates at cultivating land and that therefore agricultural production would develop more quickly. This in turn was grounded in the truth that rural people would be encouraged to work harder on their own farm than they would in the estate fields.

The independence of the new Republic of Estonia depended greatly on the process of land reform. It was felt that the most certain foundations for a nation are peasants cultivating their own land. The greatest wish of the peasants was to get land so that they could build their own farms. With the allocation of estate land, tenant farmers hoped to become farm owners.

The liquidation of estates and the consolidation of new farms enabled land to be given to those who had served their country, above all to participants in the War of Independence. According to the kind of service, land was given free or it had to be bought.

Managing the land which was expropriated and adjudicated to farmers became the task of the Land Exploitation and Forest Council at the Ministry of Farming as well as of its local land administrators. A State land exploitation commission was set up in every county. .The compiler of the consolidation project - the land surveyor - took part in the work of the commission. The objective was to consolidate nationalised estate land into “normal farms”. This meant farms where at least one family made its livelihood on the farm and where the land could be cultivated by two horses. The maximum area of such farms was 50 dessiatines (54.6 ha), of which at least 10 ha were to be arable land. The large number of applicants for farms showed that the State land reserves would not be sufficient to provide normal farms for all of them. Therefore, smaller one horse farms also had to be established. The majority of farms were between 15 and .25 ha in size.

The land surveyor familiarised the local inhabitants and all other interested individuals with the farm consolidation project. As well as presenting the consolidation project to interested parties, the farms were marked out with temporary boundary markers. The period of appeal was one month. After that, farms' boundaries were delineated with permanent markers. The applicants for land had to have farming experience. Initially they had to work as tenants on the land for six years. Farmers who managed to prove their abilities were granted the right to use the farm in perpetuity. This was later changed to favourable purchasing rights.

Compared to later legislation (regarding the managing of private rented land on the basis of the cottager's law, consolidation of private land, etc.), the land reform which divided estate land into farms was the most comprehensive in the Republic of Estonia.

2. The Formation of State Manors

There was an article in the land law passed by the Constituent Assembly which enabled the State to keep land at its own disposal for agricultural purposes. In 1922, a decree was issued which provided for the advancement of agriculture through the construction of experimental stations, institutions of agricultural education and other State farms.

State manors were initially subordinate to the State Manor Administration of the Ministry of Farming. Thereafter two groups of State manors developed with differing methods of tenure:

• those working under the tenure of the State itself;
• State manors let out.

By the spring of 1938, 12 State manors were under the management of the State Manor Administration of the Ministry of Farming and 8 were being used as tenant farms. At the same time, 15 estates were under the direct administration of the Schools Farming Board at the Ministry of Education and 20 tenant farms operated under the supervision of the same Board. Two State manors belonged to the Ministry of War. By the start of 1938, a total of 57 State manors belonged to the three Ministries, of which 29 were under direct State administration and 28 were let out but still under State supervision.

3. The Formation of Settlement Farms

The period 1930–1940 in Estonia saw an increase in the numbers of those wanting land. Therefore areas of reclaimed land began to be brought into use as farms but considerable land amelioration work was necessary for this to become possible.

Settlement capital was generated in 1929 from the sums of land purchase and rent charges and was used for the organisation and financing of settlement operations. A settlement commission was formed at the Ministry of Farming. It was the job of the commission to find suitable areas, to carry out land amelioration work using the settlement capital, to construct farm buildings and to sell them to those wanting land. In January 1938 the settlement commission was changed into the Settlement Board and State land and assets were passed over to it.

Settlement operations consisted of compiling a settlement schedule for areas chosen by the state, building approach roads, carrying out land amelioration and constructing buildings before the handing over of the land. Settlement was organised in unpopulated areas and the population of sparsely inhabited areas was increased through farms. Settlement farms were planned to be around 20 ha and places of manual work usually 5 ha in size. A new farm had to have at least enough land suitable for cultivation so that a family could earn its livelihood there.

There were different opinions regarding settlement operations. Should new farms be created or old ones brought into working order? It was recommended that settlement capital should be invested more in old farms, above all in the amelioration of natural grasslands, in order to increase the economic potential of the farms. In round figures, 2,000 farming households were formed by settlement operations between 1929 and 1939.

Due to the abundance of those wanting land and the very small amount of arable land suitable for agricultural use still waiting to be allocated, the Ministry of Farming was given the right to permit the planning of farms on suitable land from the forest fund. In this way the total area of land planned for farms exceeded 1.2 million ha. With such a dense farm network, it was possible to settle a considerable number of people in the countryside. The land reform of the time still headed mainly in the direction of the so-called two-horse farms where outside labour often had to be used in addition to the family.

The law on the use of State land in perpetuity and on its being given into ownership limited the area which could be given to one individual to a maximum of 50 ha of land suitable for agriculture. Farms of over 50 ha which had been planned and given over for use before this law had been passed remained as they were. At the same time, the creation of very small farms was avoided, in that land could not be separated from a settlement farm without the approval of the farmer if the area of the farm was less than 12 ha.

Between 1919 and 1939, 56,203 new farms were created by land reform and settlement activities, somewhat more than the total of privately-owned farms at the beginning of the independent period. As a result of the relatively intensive development of agriculture, settlement farms created during the process of land reform rose to the same level of the previously existing farms within 10 years.

The intensive development of fanning altered the whole structure of agricultural land utilisation. The tendency towards livestock farming received a fresh impetus which was in itself due to the relatively high prices of agricultural products. The production and distribution of grain remained in the background in Estonia until 1930. The reduced possibilities for selling animal products in foreign markets and the establishment of tariffs in 1930 for the import of cereals increased the relative importance of grain in the following years.

The form of ownership of the farms was divided as follows:

• 74.6% of the farms on the basis of sole proprietorship;
• 11.8% of the farms on the basis of joint proprietorship;
• 7.7% of the farms on financial lease;
• 1.4% of the farms on the metayer, or sharecropping, system (in which the land owner receives half the produce of the land);
• 4.6% of the farms on the basis of a service contract or other basis.

This period of rural policy was characterised by the attachment of people to property in order that as many people as possible could be given the possibility to become land owners.

B. Land Policy in Estonia 1940–1989

In connection with the commencement of the Soviet period, the period of rural policy in Estonia being based on property ownership came to an end. This period can be divided into three subperiods in terms of land tenure policy:

1. 1940 – 1944

After land was declared to be public property, any area in excess of 30 ha on a farm was expropriated and added to the State land reserves for the formation of new farms and for making smaller additional allotments.

According to their own understanding, the main principle guiding the organisers of this land expropriation and redistribution was to allocate such land to farms as would help to maintain more complete farms. Land reform was a political assignment of paramount importance to the new authorities in this period. The idea was that during the redistribution of land both newly created farms and ones remaining with their former owners should be viable. This policy caused resistance in areas where the land was. more valuable. In areas where the land quality was worse, the reduction of the size of farms and their reallocation to homesteaders did not cause as much reaction.

Throughout this period, land reform actually considerably weakened the former large farms but, at the same time, homesteaders were not able to increase their production to the same extent to compensate for the loss. The average size of new farms created by the 1944 Soviet land reform was only 10.4 ha, of which only 4.6 ha were fields.

2. 1944 – 1947

In this period the implementation of the Soviet land reform, which had been suspended during the war, continued. In 1945 the area of Estonia decreased by 4.9%, an area which included some 10,200 farms. During the continuation of the reform process a large proportion of land was taken away from its former cultivators but only 50% of this expropriated land was redistributed in the former of individual farms, as there simply were not more people who wanted land. Land which was then available was used to form sovkhozes and household plots as well as to increase the State land reserves.

The feeling of security amongst farmers had wavered because of the land reform and the tax and standard obligations and so, in order to increase it, preparations began to be made in 1946 for the handing over of land in perpetuity to farmers. However, this laudable initiative ended in 1947 with the commencement of collectivisation. This change in policy also marked the beginning of the liquidation of private fanning.

3. 1947 – 1989

This period could be named the period of collectivisation, which began in 1947. It represented the mass liquidation of private farming. The first kolkhozes had already been formed before the war, the first on 23 September 1940, but until 1947 their presence did not signal the end of private farming.

From 1947 onward, policy explicitly tried to ensure that private farming would not play a role in the future development of agriculture. This was to be guaranteed by implementing socialist large-scale production in the form of the kolkhozes and sovkhozes. The main emphasis in the transition to collective production was placed on collectivisation but this did not fit together with the existing idea of cooperation in Estonia. The Estonian leadership wanted to begin developing collectivisation on the basis of agricultural cooperation over a long period of time. This was not however acceptable to the all-Union authorities. They decided the matter through a resolution of the all-Union Communist (Bolshevik) Party, issued on 21 May 1947 and entitled “The creation of kolkhozes in the Lithuanian, Latvian and Estonian Soviet Socialist Republics”.

The first post-war collective farm was formed on the island of Saaremaa. On 6 September 1947 The V. Kingisepp kolkhoz was founded in Valjala municipality in the village of Sakla. The formation of the kolkhozes was one of the most revolutionary changes in the lives of the Estonian farmers. To the farmers of the time, collectivisation simply meant the renunciation of their position as their own masters and the “voluntary” (i.e. forced) handing over of their assets to the kolkhozes. Only a yard or small allotment land was left for each kolkhoz family. The former master of his own fate became a wage-labourer.

The ever increasing tax burden on farms and the mass deportations of March, 1949, of those who refused to cooperate with the new policy gave an added impetus to joining the kolkhozes. By the summer of 1950, 81.8% of private farms had been collectivised. By 1951 collectivisation had just about been completed and the previous system of private fanning liquidated.

A large number of small kolkhozes were initially created in Estonia. By the end of 1949 there was a total of 3,122 such farms. From there on, their numbers began to decrease continually because of kolkhozes being joined together.

The main land, users were these large-scale farms (56.1%) and State forestry concerns (34.7%). The State land reserves together with water fund land comprised 4.1% of the total area. As of 1989, settlements made up 1.6% and other non-agricultural land users 3.5%. In 1990, there were 197 agricultural and fishing kolkhozes and 119 State farms in Estonia.

A separate expression of land policy in the Soviet period was the household plot. The attitude towards this has been different at different times. The central problem that gave rise to the household plots has been the need to accommodate both individual and social interests. In the early years of the kolkhozes when collective production was still underdeveloped and payment for work was rather symbolic, the kolkhoz family's primary concern was, understandably, satisfying its primary consumption requirements. At the beginning of 1960 there was considerable pressure for the liquidation of household plots. A programme of building a communist society was put on the agenda and household plots were regarded as remnants from the past which were hindering the development of this programme. A new rise in household plots appeared in the 1970s and 1980s. Farming on those plots took on such forms as subordinate cooperatives and cabbage and beet cultivation. Taking the Land Reform Law as a basis, the land reform started in Estonia in 1991. But under public pressure the change in land relations had already started 3 years earlier. On 22 March 1988 the Central Committee of the Communist Party of Estonia and the Council of Ministers of the Estonian Soviet Socialist Republic adopted the regulation no 144 “About individual labour activity in agriculture”.

On 16 February 1989, the Council of Ministers ,of the Estonian Soviet Socialist Republic passed decree no.71, “The primary means for the development of farming”, which again provided a basis for the restoration of individual farming. Small-scale production began to be supported alongside large-scale production but in a way which was based on State property in the countryside. This period can be considered to have ended when the “Farming Law of the Estonian Soviet Socialist Republic” was passed on 6 December 1989. Here, farms were based on land either given by the State or received on a tenure contract. Therefore, this period which began with the liquidation of private farms ended with their restoration.

C. Land Policy in Estonia, 1989 - Present

1. The Legislative Framework of Land Reform and Agricultural Reform

The new framework for property rights in agriculture has two principal components: the “agricultural reform, ” which privatised the buildings, other structures and equipment owned by the former State farms and collective farms; and the “land reform” proper, which deals with the transition to new forms of land ownership.

After the path-breaking legislation of 1989 on farming, a number of essential laws regulating land relations were approved. The first important new legislation about property in general, and not just farms, was the “Property Law of the Estonian Republic,” passed on 13 June 1990. It represented a decisive shift toward establishing an economy based on private property, by defining the basic forms of property: an individual's private property, a legal entity's private property, municipal (county) property, and property of the Estonian Republic.

The decree “The implementation of land reform” passed on 28 June 1990 by the Supreme Council of the Republic of Estonia can be taken to be the next significant legislative act. In the act it is remarked that land reform is one of the most essential ingredients of the economic reform under way and that its principal objective is the transformation of property relations taking into account historical, economic-political and socio-psychological aspects. The implementation of land reform is conceived as a long-term and flexible process and is tightly connected with administrative reform and the creation of a system of administration by local authorities.

On 27 August 1990 the Estonian government passed decree no.181 entitled “Primary means for the development of settlement activities.” The time-honoured utilisation of both land and farms is mentioned here. At the same time, however, the large socialist farm households also wanted to ensure their own future. An example of this was decree no. 184 passed by the Estonian government on 03 September 1990, “The creation of a State farm household system.” In that decree it could be read that many State farm households wanted to perpetuate themselves on former private land. Fortunately, this decree was suspended shortly afterwards (08 November 1990).

The establishment of “The temporary procedure for the granting of land for utilisation” by decree no.3 of the National Land Board of the Estonian Republic on 03 September 1990 aimed to promote the formation of farms. This decree regulated the granting of land for the formation of farms until the enforcement of the Law on Land and Land Administration. It was complemented by decree no .7 on 22 November 1990, “Temporary directions for the granting of land to farms for utilisation”. An important change here was that documents proving the ownership of or right of succession to a farm began to be required.

Governmental decree no.237, issued on 20 November 1990 “Procedure for taxing the utilisation of nature,” laid the foundations for the valuation of land and taxation upon that basis. The decisions of the Estonian Supreme Council, “The restoration of the continuity of rights of possession” and “Land reform,” taken right at the end of the year (19 December 1990 and 20 December 1990, respectively) began to indicate the change of policy orientation toward private property.

The most important legislative acts for changing property relations in 1991 can be said to be the “Law of the Principles of Property Reform,” of 13 June 1991 and the “Estonian Land Reform Law,” of 17 October 1991. These put in place a base for the reconstitution of land as private property, on the one hand in the form of the restitution of alienated assets and on the other through the possibility to become a land owner by purchasing land, though still permitting the method of remaining a land user by means of a contract of tenancy. Compared to the previous year, a more concrete step was taken towards the restitution of property. Decisive change in this direction was confirmed when the Supreme Council on 20 August when the decision for the reindependence of Estonia was passed.

The “Law on The Principles of Property Reform” states that expropriated properties, including land, will be given back to the previous owners. The law provides a legal framework for the restitution process and defines the rights and obligations of the parties involved. This law has been revised on a number of occasion, most recently in April, 1994, when mechanisms for compensation were defined.

The “Land Reform Law” builds upon the Principles of Property Reform Law and defines the forms of ownership, rights of relevant parties and the methods of privatisation. The latter includes restitution, compensation and replacement. Restitution, however, is to be the main method until all claims have been processed. If a third party's property has been erected on the land, or the land has been given for perpetual use under the 1989 Farm Law, or if physical restitution is not desired by the claimant, the original owner of the land is to be compensated according to the original value or is to be given land of comparable value. Land that is not returned to original owners and that does not belong to the state will be privatised either for money, National Capital Bonds or Compensation Securities. The Farm Law was revised in April, 1993, to more clearly define the rights of previous owners and additionally gives them more guarantees.

Subsequently, other fundamental laws related to agricultural land tenure and use were approved. They include the following:

“Law on Agricultural Reform.” This law, which proceeds from the Principles of Property Reform Law, was passed in March, 1992, and regulates the return and compensation of collectivised property in agriculture -mostly buildings and equipment- and the reorganisation or liquidation of collective enterprises. In the course of agricultural reform, agriculture is to be transformed primarily to private fanning and other enterprises based on private ownership. However, for this goal to be achieved it is necessary to complete the process of privatising the land itself, in addition to buildings and equipment. The Law on Agricultural Reform conferred extensive powers on parish councils for the implementation of the process of privatising former State and collective farms, and for deciding when all legimitate claims arising from the process have been satisfied.

“ Decree of Land Leasing.” The decree was passed in June, 1992. It regulates the legal basis for contractual use of state, municipality and privately owned land. The lease value is defined on the bases of the land tax value. This has now been superseded by provisions contained in the Property Law.

“The Property Law.” The Property Law, passed on 9 June 1993, prescribes types of ownership, their context, genesis, nature and term of validity, and it also provides grounds for other ownership regulation laws.

“Law of the Real Estate Registry.” This law sets out the practice and procedures for the registration of title in the Registry of Real Estate kept at the title offices at county and municipal courts and was passed on 15 September 1993.

“Law of Compensating and Conveying the Ownership of Former Ground Rent Land (obrok land). This law, passed in December, 1993, enacts the rights to convey the former obrok land into the ownership of the previous holder of the obrok land or the legal successors, or provides for corresponding compensation.

“Law of Land Value.” This law was passed on 9 February 1994. It provides the basis and rules for land evaluation.

“Law of Land Taxation.“ This law, passed in May, 1993, and amended in March, 1994, regulates the taxation of land. The law introduces a national and local land tax of 0.5% and 0.3 – 0.7%.

Additional laws of relevance for the land reform process include the following:

The Law of Land's Price (9 July 1992, now invalid);
The Law for Application of the Property Law (27 Oct. 1993);
The Law of Land Cadastre (12 Oct. 1994);
The Law of Organisation of Land Exploitation (25 January 1995); and
The Law of Planning and Building (14 June 1995).

2. The Privatisation of Agro-Industrial Enterprises

Two laws have formed the main basis for privatisation of agro-food enterprises in Estonia:

• “The Privatisation Law for Small-scale Enterprises” (13 December 1990). It provides for the privatisation of enterprises with a valuation under 600,000 kroons.

• “The Privatisation Law” (17 June 1993), on the basis of which the State enterprises of medium and large size are privatised by the Estonian Privatisation Agency. The Privatisation Agency has the right to make contracts in the name of the Estonian Republic.

Other legislation which also prescribes rules for the privatisation of enterprises producing and processing agricultural products consists of the abovementioned Law of the Principles of Property Reform (1991), Land Reform Law (1991), Law on Agricultural Reform (1992), and Property Law (1993); and, in addition, The Law of Bankruptcy (1992), The Law of the Stock Market (1993), an Act of the National Government entitled “The Procedure of Open Tender of the Stocks of State Enterprises” (1994), The Business Law (1995), and The Law of Public Property (1995).

The privatisation of government enterprises in agriculture has been accomplished in stages. In the first stage the government enterprises were changed into government corporations and then they were privatised by selling shareholdings in them. The main privatising methods have been:

• offering all an enterprise's assets, or its component parts, or shares in it, for sale by tender with exploratory negotiations;

• offering an enterprise's assets, or its component parts, or shares in it at public or restricted tender;

• the open sale of shares.

The approach of restitution of property has been used very little in the privatisation of the industry supplying agriculture and processing agricultural products. On the basis of investments made in the Soviet period, very large enterprises were developed and it was no longer possible to separate the former private property, which was the basis of the foundation of some of the enterprises, from the newer investments made by the Government. Therefore, instead of pursuing the restitution channel, compensation was paid to former owners and their successors.

Privatisation of smaller enterprises was carried out by the open tender procedure which started in 1991 after the approval of the law of small-scale enterprises. The enterprises manufacturing foodstuffs and supplying inputs to agriculture were generally too big to be covered by that law and were privatised mostly in 1994–1995. The Estonian Privatisation Agency was established for privatising enterprises of medium and large scale. It is financed by the Government budget and falls under the jurisdiction of the Ministry of Economics. The Privatisation Agency carries out the privatisation programmes that are approved beforehand by the Government.

Under the previous economic regime, the State enterprise the Estonian Association of Agricultural Technology was dominant in agriculture and had 27 smaller subordinate enterprises with activities throughout the rural areas. Through restructuring and privatisation 120 enterprises were-established which are supplying and serving agriculture, 20 % of which are relatively large. They produce mostly for domestic market. Farmers also depend on the services rendered by cooperatives and limited companies, although the Soviet-era equipment and technology of these companies is out of date and badly in need replacement, but the limited availability of financial resources is constraining the needed actions.

Another important constraint on agro-industry is the set of restrictive conditions on production, employment, firm location and other variables that were placed on the newly privatised firms by the Privatisation Agency. This issue is discussed further in Chapter 4 of this Strategy.

3. Agricultural Reform

The legal basis of agricultural reform was by the approval of the Law of Agricultural Reform on 12 March 1992. Derived in part from the Law of Principles of Property Reform of 13 June 1991, this law regulates the restitution and compensation of collectivised property in agriculture and the reorganisation or liquidation of collective farms.

This law does not deal with problems connected with land. The law of Agricultural Reform is a framework law, therefore very flexible. Varying interpretations are possible for each case.

The law became effective at once and already by 1 October 1992 the agricultural reform commissions were working in 360 collective farms1. By the time of the approval of the law, the reform had practically been put into effect in 6 collective fishing enterprises.

¹ In this section, as throughout the chapter, the phrase “collective farms” also refers to State farms.

For each collective farm, the agenda of reforms must be approved in a general meeting of the members of the farm;this agenda is essentially a local legal act. Therefore, the reform agenda is different in every collective farm, both in subject matter and quality. The.main responsibility for managing agricultural reform is put on local municipal officials, although representatives of the national Government participate in the process. The Ministry of Agriculture plays a coordinating role. The first tasks of reform commissions have been:

• Carrying out an inventory of the collective farm's property and the farm's regulations that formerly governed its use and disposition.

• Determining the State's share in the property.

• Ascertaining the legitimate beneficiaries of agricultural reform and determining the shares of the property belonging to them.

• Ascertaining the cost of the property and the required restitution or compensation to be made to former owners.

• Determining the recipients of labour shares, which are claims to the assets of the collective farms based on the amount of time worked on it.

• Determining the amount of labour shares.

• Determining the amount of property corresponding to each labour share.

• Drawing up a statement of the debts of the collective farm.

• Establishing the financial claims which the collective farm has against other enterprises.

• Forming a reserve fund for covering the expenses for implementing the reform.

• Carrying out the reorganisation and liquidation of the collective farm.

The nature of the legislation encouraged a very large number of persons to claim compensation or labour shares.

New cooperatives, corporations and other enterprises that emerged in the process of agricultural reform had financial difficulties from the beginning. In the process of restitution and compensation the collective farms' stocks of machinery and equipment, and their herds of livestock, were drawn down. The existing loans and other liabilities often went unpaid because with the remaining assets, frequently very much depreciated, it wasn't possible to form economically viable enterprises. Real producer prices were falling (see Chapter 2) and liabilities increased rather than decreased.

The privatisation process itself created additional liabilities for the new enterprises, in the form of obligations to pay compensation in the amount of 377 million kroons (to 99,231 qualified claimants) and to recognise labour shares valued at 987 million kroons (for 185,500 entitled former workers). The assets of the new enterprises have mostly been registered as collateral for some of these obligations, and only by liquidating the outstanding liabilities will the newly formed enterprises become the complete owners of their property.

In order to carry out the agricultural reform 361 commissions were formed and the value of collectivised property has been determined in 350 collective farms. As of 1 January 1997, 320.1 million kroons of the required compensation of 377 million kroons had been paid.

If the property of a former State farm or collective farm doesn't suffice to meet the obligations for compensation, the remaining sum will be compensated by privatisation bonds issued by the Government. As of the beginning of this year, the Ministry of Agriculture, in coordination with the Ministry of Finance, has provided compensation in this form for 32 former State farms and collective farms, in the value of 16,742,864 kroons.

Labour shares can be paid in kind, money, or shares of a corporation, or they may be exchanged for privatisation bonds. As of 1 January 1997, labour shares with a value 812.1 million kroons have fully been issued, shares with a value of 49.6 million kroons partly issued, and 112.5 million kroons of labour shares have been replaced by privatisation vouchers. Therefore in the Republic as a whole full compensation to former workers on collective farms, through the mechanism of labour shares, has been made in the value of 924.6 million kroons. Labour shares remain to be issued in the amount of 62.8 million kroons.

The reform commissions also have clarified the amount and status of the remaining governmental property in the collective farms. According to a review by the Ministry of Agriculture as of 1 January 1996, decisions had been confirmed about governmental property in 330 collective and State farms (91,4 % of the total). The commisions have identified 7,535 objects of governmental property, with residual value of 102 million kroons. (According to the Agricultural Reform Law these valuations are calculated at the prices of 1 January 1992.). Of that total, 4,230 objects have been passed to municipal ownership, 2,240 replaced with other municipal assets on the account of private owners' partial equity, and 200 objects are being presented for privatisation to the Estonian Privatisation Agency. A total of 730 objects have been given to remaining State farms and State enterprises (Estonian Power, Estonian Gas, road administrations, Security Union, etc.), and 135 objects (dwellings) have been put up for privatisation on farms on the basis of the Law of Privatising Dwellings.

According to the Agricultural Reform Law, the reform process on a given collective farm or State farm will be finished when the parish council decides that all demands of qualified claimants have been satisfied and the conditions established by the Ministry of Agriculture for finishing the reform have been fulfilled. On the basis of data as of 1 January 1997, the agricultural reform was completed in 178 state farms. It was well advanced in most of the remaining farms.

In accordance with the Amended Law of Agricultural Reform (12 June 1996), the Ministry of Agriculture has the right to appoint a reform manager for bringing the reform to an end either on his own initiative or at the suggestion of a county government or local administration. So the reform managers have been appointed to 10 collective farms to finish the reform. The agricultural reform has been finished by a reform manager in 5 farms, and bankruptcy proceedings have been started in the case of 22 former collective and State farms.

Since the legal framework didn't prescribe specific procedures finishing the agricultural reform, until the Amended Law of Agricultural Reform was approved, in some collective farms the final stages of the reform process have been delayed, particularly in terms of registering the new documents and paying compensation. Unmet tax obligations also prevent the completion of agricultural reform. These debts have increased steadily in recent years because the fines for unpaid taxes have accumulated. The total debts of former collective and State farms owed to the National treasury were 51.5 million kroons on 1 July 1994, 75.3 million kroons on 1 January 1995, 140.1 million kroons on 1 May 1995, and 210.5 million kroons on 1 January 1996. In addition, as of the latter date, these new enterprises owed 5.8 million kroons for heating, power and gas.

The new enterprises haven't managed to sell sufficient buildings and other assets, mainly because there is no market for them or their market value is insufficient to cover the debts to which the assets are attached as collateral. On several occasions the Ministry of Agriculture has recommended Government assistance in canceling or paying off these debts, but the recommendations have not been heeded.

As noted, the reforms have been fully implemented in 178 collective farms. The data of the counties show that on an additional 88 collective farms the reform process has effectively been ended but the final decisions of the parishes about completing the reforms are still pending. In most cases this has occurred because, owing to lack of financial resources, the commissions have stopped their work leaving the documentation incomplete and unregistered. In light of these circumstances, 1.25 million kroons were provided from the reserve fund of the Estonian Government in September, 1996, in order to make contracts with persons who would bring the reform process to full completion. It should be completed in almost all of the new agricultural enterprises by the date of the publication of this document. It has been estimated that, taking into account the debts and financial prospects of many of. the former State and collective farms, full completion of the agricultural reforms may require the liquidation of as many as 100 of them.

The principal concrete steps through which the agricultural reform has been carried out may be summarised in the following categories:

• Formation of a “reform commission” for each state and collective farm. These commissions were made up of three private farmers, three members of the managing staff of the unit to be privatised, three representatives of the local community and one member trained in law representing the State. An inventory of the property had to be made and a valuation determined under the law. All the details of privatisation were proposed in a reform plan elaborated by the reform commission and were subject to approval of the general meeting of staff and former owners.

• Buildings and facilities not connected directly with agricultural production went to the State or to the newly formed community. These include blocks of flats, schools, kindergartens, buildings units, central heating plants, etc.

• Individual houses have been sold to persons who lived in them.

• Separate production units such as greenhouses, sawmills, carpentry shops and workshops and petrol stations are privatised and work on their own. Privatisation means only in very few cases that an individual person became an entrepreneur on the basis of the privatised assets; usually the employees of the special unit formed a cooperative or “shareholding company”.

• The remaining buildings went to several individual enterprises, joint-stock companies, etc. There are up to 17 different companies in a single former large-scale farm.

While the 117 state farms and 212 collective farms in operation in 1990 have all been restructured into 2,864 large farms organised mostly as limited liability companies or shareholding enterprises, and service and processing enterprises, the operational efficiency of these farms has quite often not improved. In fact, due to uncertainty about the future course of land reform, weak internal management, low worker morale, and their own doubtful prospects for commercial viability given market conditions, there has more often been a deterioration in productivity. These farms have generally not undertaken new investment, and even existing assets have not been well maintained. Many farm enterprises have not been able to pay salaries, which has resulted in livestock and machinery being sold to raise funds. Government efforts aimed at maintaining employment and preventing a crisis in agriculture by supporting these descendants of the State and collective farms sometimes have had the effect of delaying necessary restructuring.

D. The Results of Land Reform

According to Land Reform Law (LRL), in § 38, “the land reform is being carried out by the National Government and local administrations on the basis of the present law in the established order.” Some amendments were accepted which essentially established new procedures of restitution and privatisation, e.g., according to § 15, item 2, the entitled subjects will start paying for the land's restitution. Before that the restitution of land was carried out on the expense of taxpayers. Much preparatory work for privatisation was put on local administrations. The land advisor is responsible for carrying out land reform in his administrative borders.

The economic mechanisms of the land reform have been codified in the Land Reform Law and the Land Price Law. According to § 36 of the LRL those land users who haven't registered their land under possession by 1 January 1998 will start paying to the State additional land taxes.

Table 3–6 shows the progress of registering land in the cadastre.

Table 3–6
Maade katastrisse registreerimise dünaamika
The Dynamics of Registration in Land Cadastre

The number and area of registered cadastre units have increased many times with each succeeding year. Land surveyors, local administrators, land advisors, and others have been learning their jobs rapidly. Table 3–7 expresses the degree to which the different possibilities given by Land Reform Law have been used, where the word “privatised” has a specialised meaning.

Table 3–7
Maade tagastamise, privatiseerimise munitsipaliseerimise ja natsionaliseerimise dünaamika The Dynamics of Land Restitution, Privatisation, Municipalisation and Nationalisation (hectares)

Source: Estonian Land Board

*  privatised - paid off land by new owners

** nationalised - mostly State forest land

The data of Table 3 7 show that of the existing possibilities under the Land Reform Law, practically only restitution has been used so far.

According to the situation reflected in the last land cadastre the restituted land constitutes 91.6% of the area registered in the cadastre. The so-called “privatised” area, preliminarily with preemption, makes up another 1.3% of the registered area. Privatisation in this sense has not been used much up to now since potential privatisers with preemption opportunities have been waiting for price concessions (to pay the land by the medium of national vouchers).

Leaving land under State possession (the land owned by the State before 1940) has gathered speed in the present year. In 1995 a little bit under 1,500 hectares were left under State possession; in the first nine months of 1996 this number is about 25 thousand hectares. Such a rapid increase has been due to re-registration of woodlands that belonged to the State before 1940. The area left under State possession makes up 6.9% of the area registered in the cadastre, and 0.2% of the registered area has been transferred to municipal possession.