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Rasa Melnikienė: 3.5% of farms operate 50% of farmland in Lithuania

21 February 2019

Lithuania, an EU member since 2004, tends to follow the paths of a number of post-socialist countries with regard to the development of farm structure. Large enterprises become increasingly dominant in the agricultural production and land use of the country. How does the farm structure in Lithuania look like today? What were the preconditions for the process of farmland consolidation? The first part of the interview with Dr. Rasa Melnikienė, Director of the Lithuanian Institute of Agrarian Economics, provides answers to these questions.

What is the “large farm” in Lithuania? How much land should a farm in Lithuania operate to be considered as "large"?

There is no official definition in Lithuania of what kind of farm is classified as a large farm. The attitude of the farmers' representatives is determined by the high differentiation of farms with a considerable number (89.3%) of farms with less than 30 ha on the market and a small number of farms (0.4%) managing 500 and more hectares. The representatives of smaller farms say a large farm is over 100 hectares, while in the opinion of representatives of large farms a competitive farm has to manage 300 hectares. The State by law limits the amount of land such that a farmer and related persons can own no more than 500 hectares. However, there is no limit to how much land a farmer can rent from other owners. This leads to a rapid process of concentration of agricultural land.

When assessing the structure of farms, Lithuanian researchers use the grouping of farms presented in the Eurostat Farm Structure Survey, where the largest group of farms is defined as managing more than 100 ha. The conception of a large farm in Lithuania can be explained by statistics that show that the average area of land in a group of farms of over 100 ha in size is 273 ha and is, for example, by 12.2% higher than in Denmark, by 25.9% higher than in Sweden, and by 15.2% higher than in Ireland.

What share of the total agricultural land do such large farms operate in Lithuania? How has farm structure (by size) changed over the last decades in Lithuania?

In 2010, farms of over 100 ha accounted for 1.9% of the total number of farms. These farms managed 41.6% of agricultural land. By 2016, the share of these farms increased to 3.5%, and the agricultural land under their management went up to 50.0%. It is important to note that some of the large Lithuanian farms are legal entities managed as groups of companies. In this way, thousands of hectares as well as agricultural production are often concentrated in a group of companies while there are also large family farms.

In which sub-sectors are large farms most active in your country? What is their specialization – crop production or livestock production or both? What is their share in agricultural GDP?

The major share of family farms with more than 100 ha specialize in the production of cereals and rapeseed. Meanwhile, agricultural companies traditionally carry out multifarming, including livestock farming alongside crop production. Agricultural companies contribute 20% to the total agricultural production.

What were the factors that led to the development of large-scale agriculture in Lithuania?

Preconditions for the formation of large farms were determined by the privatization of land and the process of restitution. During the agricultural reform, a part of the kolkhozes and sovkhozes were transformed into co-operative structures, i.e. agricultural companies, whose employees became their shareholders. These companies, in many cases, retained the land management practices that had existed before the land reform. Currently, there are 860 such agricultural companies that manage 13.5% of the total agricultural land.

The second factor is the entrepreneurial activity of some farmers who took advantage of the fact that due to restitution there was a large supply of land on the market. Many landowners lived in cities and wanted to sell or lease out land. The price of land was low, but there was a lack of financial resources to buy it. Larger farms, due to economies of scale, had more resources than smaller farms.

An additional impetus to farm consolidation was provided by the Lithuanian agricultural policy, supporting the prevailing view that small farms are uncompetitive, and the EU support model applied in the new EU countries, i. e. the single payment scheme. In 2007, Lithuania and other new EU countries implemented a direct payment model that supports the area of land under management. This increased the ability of large farms to acquire or rent more land, and small and medium-sized farms were unable to compete with them on the land market. This model of direct payments turned on the circle of farm enlargement: the more land a farm manages, the more direct payments it receives, whereas the amount of direct payments increases with the increase in land under management.