IX Agricultural Reform

János Somogyi, and Anthony Boote
Published Date:
March 1991
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Agricultural policy in the early 1950s concentrated on extracting resources from the farm sector to underpin a rapid expansion of industry. After two major drives to establish agricultural cooperatives in the early 1950s and during 1959-61, more than two thirds of arable land was shifted from private hands to cooperatives, and the share of socialist ownership—by state farms and cooperatives—rose to 99 percent. This agricultural policy led to a stagnation of output and a major exodus of labor from farming in the first half of the 1950s.

The authorities decided to overhaul farm policy in 1957. They replaced compulsory delivery of products to state procurement agencies at low prices with contracts; they also introduced greater flexibility in marketing agricultural products. About 80 percent of products were delivered to the procurement agencies on a contract basis and some 20 percent traded directly in the market. In 1966, the Government abolished mandatory plan directives regarding production for agricultural cooperatives and in 1968 for state farms, but it continued to intervene informally. Nevertheless, farm prices were kept low relative to industrial prices, given the priority accorded to low food prices. Together with an incomes policy objective of maintaining a rough parity of incomes between agriculture and industry, the operating surplus of farms relative to industrial enterprises was compressed. The profitability of the two sectors was roughly equalized, through fiscal policy, at about one third of value added. Budgetary assistance to the agricultural sector included subsidies for various forms of investment, energy use, and other farm inputs; for the promotion of exports; and for farms operating at higher costs and lower yields than average, owing mainly to poor soil conditions or insufficient mechanization. Whereas agriculture was subject to the same taxes as industry, rates for farms were generally lower.

The notable improvement in Hungary’s agricultural performance in the 1970s was attributable largely to greater managerial freedom accorded to state farms and cooperatives, and to a new pragmatic attitude toward small-scale farming operations on household plots and auxiliary farms of the population. Advanced farming technologies were introduced from abroad; these technologies resulted from initiatives of farm managers that introduced agro-industrial activities and joint ventures between state and cooperative farms. Greater managerial freedom and initiative also led agricultural enterprises to compete in nonagricultural activities with enterprises in other branches. This led to the rapid growth of ancillary industrial, construction, and service activities—particularly by cooperative farms—whose share rose to 31 percent of gross farm output in 1987 from 3.5 percent in the 1960s.

The transformation in farming was most pronounced in the privately operated household plots of cooperative members and auxiliary farms of employees of other sectors. The legal limits on the size of household plots were maintained, but restrictions on keeping animals and owning machinery were lifted. The initially hostile attitude of the agricultural administration and cooperatives toward household farming turned favorable, and a pragmatic division of labor and coordination of activities evolved between cooperatives and individuals operating household plots. Farming (on 11 percent of Hungary’s arable land) by small producers on private farms, household plots, and auxiliary farms accounted for one third of gross agricultural output in 1987.

Gross agricultural output grew at an annual rate of 3.2 percent from 1970 through 1983. Output stagnated in the subsequent period, however, only partly because of bad weather, and the authorities initiated a review of medium-term agricultural priorities and strategies. They concluded that farming needed structural renewal, based on a reinvigoration of market forces to guide managerial decisions. They took steps to widen the scope of free producer and consumer prices for farm and food products, particularly in early 1990 when most food prices were freed from controls.

The new Government took further steps to liberalize consumer and producer prices for agricultural products at the beginning of 1991 (see Section IV). The objective of its land reform is to link ownership with agricultural production. New legislation seeks to regulate cooperatives, and private land ownership will be promoted.

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