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Land valuation and land rents in Hungary
Pergamon PIh S0264-8377(98)00013-1
Land Use Poficv, Vol. 15, No. 3, pp. 191-201, 1998 © 1998 Elsevier Science Ltd. All rights reserved Printed in Great Britain (1264-8377/98 $19.00 + 0.00
Land valuation and land rents in Hungary*
Anna Burger Introduction State and cooperative agricultural land had neither a market nor an assigned accounting value in the former socialist countries. This led to tremendous waste and underusage. For this reason, in the reform movements of the 1960a and 1980s a monetary valuation of land was demanded by some economists and several methods were worked out to determine this. After the political transition, private land ownership was reinstated. In Hungary, land was redistributed partly free and partly sold inexpensively in exchange for compensation bonds given for confiscated properties. The large number of owners not cultivating the land has created a plentiful supply. Owing to this, and to low agricultural incomes, rents are low. Selling prices of land are also low. These are determined by the low rents and the many would-be sellers who cannot sell their properties owing to the scarce demand for them. Since the demand for renting is higher than for buying and selling is controlled, rents are higher relative to prices than in countries where a free land market prevails. © 1998 Elsevier Science Ltd. All rights reserved
The objective of this paper is to evaluate the effects of land privatization on land rents and prices m Hungary. In the former socialist countries, and so in Hungary, the land of big cooperative and state farms had neither a market nor an assigned accounting value. The labour theory of value regards land as valueless, not being the product of labour, but a gift of nature. Land rent is a consequence of the higher incomes achieved on soils better than the marginal one which determines the prices of agricultural produce, according to Ricardian theory (Ricardo, 1817). Marx accepted the theory of Ricardo but regarded land rent as a part of surplus value produced in agriculture and distributed between the tenant and landlord. He attributed this type of rent to land of the worst quality as well, and called it absolute rent (Marx, 1965). Relying on the Marxist theory, socialist economists argued that goods without labour costs could not be priced and so it was with the land. This led to tremendous waste of land and underusage of it. For this reason, in the reform movements of the 1960s a monetary valuation of the land was seen as necessary and a number of methods were worked out to calculate it. The first part of this paper deals with previous land valuation efforts in the former socialist countries, the second with Hungarian land privatization, the third with the land use of different farms and the fourth with the actual land rents and prices after land privatization in Hungary.
*Due to circumstances beyond the Publisher's control, this article appears in print without author corrections.
Previous land valuations in socialist countries
Attila Jozsef University, Pf. 605, Hungary.
Szeged 6701,
The lack of money values for land hindered the functioning of socialist economies. Land values were needed for arm accounting, national accounting, the determination of agricultural prices, allocating production according to the maximum income per area, planning of investment, taxing, assessing national wealth, compensating state farms and cooperative farms for land expropriated for non-agricultural purposes, and last but not least, for some free turnover of the land. Thousands and thousands of hectares of good agricultural land were expropriated for industrial, urban and infrastructural needs. The lack of free turnover led to the underusage of those areas which were not suitable for efficient cultivation in certain cooperatives or state farms but would have been useful for others.
191
Land valuation and land rents in Hungao,: A Burger
The demand for land valuation emerged first in the reform discussions of the 1960s in the Soviet Union, Poland and Hungary. Economists argued that even a socialist economy needed prices for the means of production, where commodity production exists. Among these means of production are the basic means of agricultural production--the land. The discussions were not without ideological overtones, mainly in the Soviet Union. Both those who argued for land pricing and those who argued against it referred to Marx as did those who suggested different methods for valuation. The suggested methods of valuation were the following: (1) to base the valuation on the costs of the investment needed to turn the virgin land into cultivated land (Strumilin, 1967); (2) to base it on the difference between income from better quality land areas and those of the worst quality (Varga, 1964; Fekete, 1965; Wilensky, 1968; Bronstein, 1968); (3) combining thc above two methods, using the first method for the valuation of the worst quality, i.e. of the marginal land and the second for the better lands (Karnauhova, 1968); (4) valuing the land by the average net income per area (gross product minus material, wage and depreciation costs, possibly interest on capital) (Chercmushkin, 1967); (5) valuation of land by the cost of capital in substitution of new land which would otherwise be needed to increase production, as was suggested in some Polish and Hungarian literature (Rychlik, 1967; Burgcr, 1967, Burger, 1970); (6) valuing the land by shadow prices obtained from linear programming models of optimal allocation of production (Kantorovich, 1959; Simon and Kondor, 1965; Hachaturov, 1969; Fedorenko, 1973). Since reform aspirations failed in most European socialist countries, agricultural land remained without either market or assigned value. This was the case even in Hungary, where many other reform measures were introduced. There was progress in some countries in the classification and cadasterization of land by natural characteristics. The hundred-point classification system was introduced in Czechoslovakia and Bulgaria. In Bulgaria classification was also controlled by calculated land prices of capitalized net incomes. In Poland and in some Soviet republics, land classification was bascd on yields of some main crops or on net incomes. In Hungary, a hundred-point classification system was worked out too but it was not introduced in cadastcrs. From the 1970s high prices were charged on the cxpropriation of agricultural land for industrial use or mining in the GDR, Hungary, Romania and some other countries. In Hungary and Poland charges and rents were imposed on urban and rural land used for commercial and industrial purposes. With the strengthening of the reform movement again in the late 1970s and 1980s in Hungary, experimental calculations were started for money valuation of the land by a research group of the Hungarian Academy of Sciences. The aim of the calculations was to connect the natural classification system with an cconomic classification for cadastering. The following methods of calculation were used: (1) Net factor incomes of land were computed in 63 micro districts of the country by two methods. First, a calculated interest on capital (6%) was deducted from the net incomes. Second. incomes were computed in the function of land, capital and labour. Land was cxpressed in points of
192
Land valuation and land rents in Hungu~': A Bu~ger
land classification or in gold crowns 1 (further denoted as G('). The formula of the function was: y =f(px,x2)
where: y denotes the net income per ha; p denotes the points of land classification or GC; x~ denotes the capital needed for plant production; x2 denotes the labour per ha. (2) The regressions were extended by the factors of location according to the formula (Szucs, 1990):
y = f (p,x,, x2, x3, x4) where: x3 denotes the distance from the nearest market in kim; x4 denotes the local per capita food consumption. From the estimated functions, the Cobb-Douglas functions 2 gave the best results in the form of:
y =Zl)"X~'X~X~X~ where z,a,b,c,d,e are parameters. Hence, the annual rent of the land was y(a+d+e)
(3) The third experimental method was the substitution of capital for land (Burger, 1983, 1984, 1985, 1994a). For the sake of simplicity, the substituting factors were either the total annual costs or the annual fertilizer costs (Szab6, 1975) of the plant production chosen. The theoretical background of the first mentioned method is that the marginal cost of production equals the marginal price at the level of zero income. This cost is needed to increase the production by one unit on the same land instead of drawing other land into cultivation; it is land substituting. To obtain the total cost of one ha of land the marginal cost has to be multiplied by the volume of production per ha. The value of t ha of land was estimated from the parabolic function at the minimum or zero point income of a certain land quality, as below. The regression was computed for the different zones of the country, as follows: y = ax 2 +bxp + c x + z
where: y is net income; x is value of production per ha; p are points of the land quality of 1 ha; and a,b,c,z arc parameters. (4) Using another method for the substitution of capital for land, the linear regressions and Cobb-Douglas production functions were estimated, as below. From the parameters the costs of substituting one point (or one GC) of land were calculated and these were multiplied by the points of 1 ha of land. The formula of the linear regression was: x =ap+bC+z
and the marginal rate of substitution was 1The gold crown was the money of the former Austro-Hungarian Monarchy which was made use of for classifying agricultural land. For the explanation see below. 2The first experimental land valuing models of the Cobb-Douglas function were computed in two cooperative farms in 1972 (Beneth and G6czan, 1973). In that model however, y represented gross income.
6C
a
6P
b"
The formula of the Cobb-Douglas function is x = zpaC h
193
Land valuation and &nd rent,; in Hungary: A Burger
and the marginal rate of substitution a C
bp Multiplying this by the given points of l ha of land a C a -'--'p = -'C b p b In the formulas: x denotes the value of production; C denotes the cost; p denotes the points of land quality; a, b, and z are parameters. For all the methods, the magnitude of the factor of capitalization had to be decided to obtain the land value from one year's results. After discussions and calculations, an interest rate of 2.5% was chosen since the agricultural net income was about that much at that time. The computed land prices varied from H U F (Hungarian forint) 20 000 per ha (the worst land) to H U F 260000 per ha, (the best land). The average price was H U F 185 000 per ha, (the average land points were 46, the most frequent ones 39, the GC of ploughland varied from 1 to 30 per ha). The calculated land values were compared with the actual land prices. Small private farms and housing plots could be sold and bought at that time in Hungary. The selling prices were registered by the local revenue offices. National land-price statistics are not available, but data on prices were collected for one agricultural county in southern Hungary (as an example) (Csongrfid). 3 The average price of ploughable land was H U F 10695 per ha, in the period 1976-1983. Prices decreased from H U F 34 606 to 11 494 between 1976 and 1983. The average price of orchards, vineyards and gardens however, was H U F 212 000 per ha, and increased from H U F 66 900 to H U F 202 000 during the same period. 4 The average price of ploughable land per GC was H U F 744 in the same period and H U F 5488 for orchards, vineyards, and gardens. The valuations were attempted to replace market prices at that time. In a market economy, real market prices are available to support the valuation (Barlowe, 1986; Dovring, 1987; Britton et al., 1989). These prices failed in Hungary or were only sporadic. After land privatization of the early 1990s valuers hoped that the land market would revive and market prices would provide bases for valuation and cadastering. Hopes have not yet been fulfilled.
Land privatization 3Csongr&d county is a typical agricultural county on the Hungarian plain in southern Hungary. The author is teaching at the Attila J6zsef University, Szeged, the county town of Csongr&d where the research was recently carried out. 4The price trends might be explained by the decreasing agricultural population and the diminishing interest in cultivating field crops at that time. The interest of people of other occupations increased, however, in part-time farming for the production of fruit, wine and vegetables under plastic.
194
In most East-Central European countries land was privatized by restitution. Land was given back to former owners (from which it was taken in 1945 in Hungary) or their successors (many of whom had moved to the cities) within certain limits of size. The limit was 10 ha in Romania, 20 ha in Bulgaria on plain land and 30 ha in mountainous regions and 150 ha in the Czechoslovakian and Slovak Republics. If the restitution of the original land was not possible for some reason, another land parcel of similar size and quality had to be given in replacement. In Hungary, a mix of restitution, selling and redistribution was chosen for land privatization. Four compensation laws--Act XXV of 1991 (Magyar K6zl6ny, 1991 no. 77); Acts XXIV, XXXII and IL of 1992, and
Land valuation and &nd rents in Hungao,." A Burger
the transitional cooperative law of January 1992 (Magyar K6zl6ny, 1992 no. 6)--laid down that compensation bonds must be given for confiscated property, including land. Compensation bonds might be used by the former owners or their heirs to claim vouchers for bidding lk)r land held by production cooperatives, and a small part by state farms at compulsory auctions. Since the value of compensation bonds has fallen far short of any property expropriated by nationalization, or otherwise, in the case of land, the government offered subsidies for up to about 50 ha, provided that the buyer undertook to use the land for agricultural purposes for five years and not to sell it during that time. About 30% of the land area remained in the name of the production cooperatives' members after land was collectivized in 1960-1961. Many of them are retired now. Their rights of disposal over the land have been re-established. About two-thirds of the land of cooperatives was actually owned by the cooperatives. They bought it cheaply from their members or received it from the state as vacant land or communal land. Fifty % of this type of land was redistributed among the cooperatives' members and employees and state farms' employees with no compensation claims. Each of them received about 1 ha. The other 50% went to the compensation fund. State farms had to offer about 20% of state farm land for compensation purposes (Burger, 1994b).
The auctions The government declared a HUF 3000 target price and HUF 500 minimum price for one GC value of land sold by auctions. The GC value of agricultural land was determined in the 19th century for land registration and taxation. It was a complex measure of quality and net income of a cadastral hold land unit (about 0.6 ha) expressed in the gold crown money of that time. The GC value was determined for seven types of cultivation (ploughable land, garden, meadow, pasture, vineyard, forest, reedy) and eight quality classes. The ploughable land ranged from 1 to 20 GC/cadastral hold (from 1 to 35 GC/ha). This valuation is still valid in Hungary, though modified and updated in a number of cases. Most land was bought at the minimum price at auctions. The minimum price of a 20 GC/ha average quality land was not more than HUF 10 000/ha, i.e. about USD 100 at the official exchange rate at that time. The HUF 500/GC selling price was particularly weidespread, initially when few people owned compensation bonds and land supply was great. The provision of compensation bonds lasted from 1992 to 1994 and the auctions started in 1992. At the beginning, many people who possessed bonds had not yet decided to buy land. It was mainly well-informed people who bought land at that time. Selling prices did not even later exceed the minimum prices where land supply remained sufficient; they increased, however where the supply shrank. The development of prices depended more on location than land quality. Near to the cities, small towns and villages, along the roads and irrigation canals, land was sold more expensively than away from these facilities. The highest prices reached even millions of HUF/GC. These prices were, however, building-lot prices rather than agricultural land prices. Land parcels far from the centres were often not sold at all but redistributed free of charge amont members of cooperatives or shareholders of agricultural companies.
195
Land valuation and land rents in Hungary: A Burger
Land ownership and land use By 1995 almost all land of the country, except some state and communally owned land, had been privatized. While land ownership has become private, land use is not so private (see Table 1). Table 1 shows that almost 50% of the land is used (as opposed to owned) by companies--successors of former production cooperatives and state farms--and functioning production cooperatives and about 50% by individuals. Individual land sizes are generally small. Most individuals are household farmers or other part-time farmers. There are about 1.5 million land owners in this country of not quite 10 million people but among them only 51 000 are full-time farmers (statistical survey, 1995). The size distribution of individual farms is presented on Table 2. According to Table 2, 44% of the individually cultivated farms are under 5 ha and 6(1% under 10 ha. Land used individually over 50 ha, is only 15%. The average size of all the 1 650 000 individual farms is not more than 1 ha and the size of those which were bought by auctions, 4.4 ha. Farm economists regard a minimum of 100 ha, as the size for a viable mixed fulltime farm in Hungary. Farm sizes are limited by the law. Individual land ownership and land use are limited to 300 ha, land use by cooperatives and corporations to 25(10 ha. The law does not permit either cooperatives or any legal farming entities or foreigners to own land. 5 This does not mean however, that there does not exist unlawful land uses and ownership of both kinds. There are people who bought much more land than was allowed. There are also foreigners who own land illegally. Naturally these ownerships are not registered. Land registration is incomplete as yet. The marking of new land properties is not yet complete and much marking was badly done. A good part of the properties lie in scattered units. Privately used land parcels arc wedgcd in the land used by cooperatives and companies. There are many court cases in progress against the marking. Land consolidation and concentration are hindered, among other things, by the limitations on selling and buying. Those land parcels, the buying or marking of which were subsidized, may not be sold for five years and must be cultivated during this time. Land selling is heavily taxes.
Table 1. Use of cultivated land in Hungary in 1996 (in percentages) Agricultural companies Cooperatives Individuals a Gardens and houseplots b
28.1 21.6 45.1 5.2
alncluding small plots under 1 and 0.5 ha. blnside the communal areas. Source: Hungarian Statistical Pocket Book, 1996. Hungarian Statistical Office, Budapest 1996.
Table 2. Size distribution of individual farms in 1994
5parliament will decide on the lifting of these restrictions or a part of t h e m in the near future.
196
Farm size in ha
Percentage of farms
less than 5 5.1-10 10.2-30 30.1 .-50 more than 50
44.2 14.3 18.9 7.1 15.5
Source." Development of Food Sector in 1994. Hungarian Statistical Office, Budapest 1995.
Land valuation and land rents in Hunga@: A Burger
The new land market
~Both land rents and land prices of Csongrad county are more or less characteristic of the country as a whole, according to data from different articles. (Comprehensive land price and land rent statistics are still lacking in Hungary.) The only exception is the western border region where rents are higher than in the other parts of the country, owing to the relatively greater demand among Austrian citizens for land to rent.
In spite of the prevailing difficulties, land selling and buying have become more lively recently. In Csongrfid county, where our research was carried out, 7% of the agricultural land area was bought and sold from May 1994 to May 1995, while the comparable yearly figures of the Western countries, with steady farming and ownership conditions, were much less (2-5% in the U.S.A., according to the E R S Newsletter, 1987, and 1% in the U.K., according to Johnson, 1989). The selling prices are much lower however, than the land prices of the West European countries (see Table 3). 6 In 1991, the minimum land prices were £2000/acre in Austria, £500 in France, £1500 in West Germany (in 1995, land prices ranged there from 22 000 to 58 000 DM/ha), £4600 in northern Italy, £2500 in middle Italy and £2500 in the U.K. (vacant) (Farmers Weekly, 1991). Land prices depend on several factors in a market economy. One of the major factors is the land rent, according to the land rent theory, however actual rents are often influenced and lowered by government regulations. A more reliable determining factor is the net farm income, within the land rent being a part of it. In Hungary both farm incomes and land rents are low (see Table 4). In the different Western European countries, rents range from 1 to 4% of land prices. For example, in Germany's 'old L/inder' the average land price was DM 32 178/ha and the average rent DM 488/ha in 1995 (Statistisches Jahrbuch, 1996). Farm incomes were low even earlier in Hungary. Fixed agricultural prices were around world market level and subsidies were much lower than they were in the Western European countries. After the political changeover, the situation actually worsened. The cooperatives were deprived of their land by land privatization and much of their assets by asset privatizationi. Most of the state farms (previously farming on 15% of the agricultural land of the country) were dissolved. Many cooperatives, or the re-organized successor companies of former production cooperatives and state farms became heavily indebted and often bankrupt. Most private farmers were poorly equipped and lacked money. Subsidies have declined, and there were few cheap credits available. Input prices have grown significantly but even the liberalized agricultural prices have not exceeded the world market level owing to the falling domestic and foreign demand for agricultural produce. Demand was weak as a result of the declining GDP, falling wages and the collapse of the Soviet market. The sowing area and yields have declined and production has become more extensive. Private farmers, who had formerly produced most of the labour intensive crops and animals on their small areas with the aid and integration of the cooperatives, turned more to cereal production because of the lack of equipment and market opportunities. Many privatized orchards, and vineyards ceased to be cultivated and many forests were cut down. Though the registered work force in agriculture declined from 813 000 in 1990 to 280 000 in 1996, according to the Agricultural Statistical Yearbooks, many unemployed and poor retired people tried to live on subsistence farming. While the net farm income and the rent are indicators of the derived demand for land, i.e. the demand for its products, the supply of and demand for the land are direct determining factors for land-market prices. Privatization created an artificial abundance of land by providing it free of charge or inexpensively through auctions. A large proportion of the new land owners do not farm. Some of them, mainly those old cooperative members who received about one ha from the cooperative land, sold it at once or want to sell it now. Others, who bought land through auctions and 197
Land valuation and land rents in Hungao,: A Bu¢qer
do not cultivate it, are waiting for the lifting of controls on selling, and better selling opportunities, including higher prices. The prohibition on owning land by legal entities and foreigners and the 300 ha size limitation of private ownership do not allow demand to adjust to supply and hinders concentration of farm property. The relatively large supply dampens land prices. Table 3 shows that land prices were much lower in 1994 and 1995 than they were in the late 1970s and early 1980s in the same county, taking into consideration the creeping inflation of the previous decades and the 30-35% annual price rise in the early nineties. In 1983, in Csongnid county, for example, the average price of ploughable land was USD 254/ha and USD 4470/ha for orchards, vineyards and gardens at the official exchange rate of HUF 45.19/USD of that time, as against the present average prices of USD 173/ha for ploughable land, USD 187/ha, for gardens, USD l l3/ha for orchards and USD 142/ha for vineyards. The prices are comparable, since mainly small lots were sold in both periods. Much land is also available for renting. Absentee owners own four-fifths of the land used by the production cooperatives. There are many retired cooperative members who let land, as well. Cooperatives and companies rent land from both insiders and outsiders. Since agricultural incomes are low and owners are many, renters pay little or nothing for the rented land. If the new owners are obliged to cultivate the land for a while, it is often cheaper for them to let it free of charge than to cultivate it themselves (Hant6 and Sziics, 1994). Land rents seldom exceed the amount that cooperatives paid earlier to members having title to property. The prevalent rent equals the price of 15 kg wheat/GC. Cooperative members and employees, and occasionally, owners of excellent soils (Sztics and Tanka, 1994) get somewhat more, outsiders often less or nothing at all. As Table 4 shows, individuals pay still lower rents than enterprises, since they need less rented land. The relatively low prices and rents of orchards, vineyards and forests hints at the fact that these agricultural sectors arc not highly valued after the privatization. Rents, similar to land prices, are much higher near the urban areas, expressing rent of location. In these areas, agricultural land prices and rents sometimes approach the prices and rents of building lots. Land prices are still relatively lower than rents in Hungary, owing to the higher demand for land for rent than land for sale. In Western Europe rents move from 1.0 to 4.1% of prices, in Hungary from 12 to 49, and 25% on average. In Western Europe, the purchase price represents 25-100 years rent; in Hungary 2-8 years. Table 3. Land prices in Csongr=~d county from May 1994 to May 1995 Average price
Ploughable land Garden Orchard Vineyard Grassland Forest Reedy Uncultivated b All
Land size (ha)
HUF/ha
USD/ha a
260.57 0.25 5.24 4.46 185.36 30.00 5.00 44.84 535.72
19974 21600 13015 16368 8229 9567 5000 8978 15532
173 187 113 142 71 83 43 78 123
aBased on official exchange rate (HUF 115.41/USD). blncluding gardens inside the communal areas. Source: Statistical Office of Csongr&d county.
198
Land valuation and land rents in Hungaov A Burger Table 4. Land rents in Csongrad county from May 1994 to May 1995 Individuals
Ploughable land Garden Orchard Vineyard Grassland Forest Reedy Fish lake Uncultivated All
Cooperatives and companies
Land size (ha)
Average rent (USD/ha a)
Land size (ha)
Average rent (USD/ha a)
704.99 -0.14 -340.96
27 -74 -18
78261 1 116 178 8433 1501 243 761 2601 92095
36 69 38 32 10 11 21
--1.54 1047,63
-23 24
0 32
abased on the above official exchange rate. Source: Statistical Office of county Csongrad.
Conclusions For the development of a real agricultural land market in Hungary, and in all the East-Central European countries, settled land-tenure situations and profitable agricultural production conditions are needed. The latter depends on economic and agricultural growth, structural changes, development of trade networks and processing industries and higher domestic and foreign demand for agricultural products. The former depends very much on government decisions on removing the impediments to a free land market. Free market conditions could induce absentee owners and retired people to sell land. At the same time, those who need land for cultivation, such as companies, cooperatives, some foreign farmers and entrepreneurs, could buy it. In this way also, hidden agreements on selling and buying could be legalized and registered. Abundance of land and depressed prices and rents would successively disappear with the turnovcr in land. The German example shows that land rents are increasing mainly in the western aprt of East Germany, where the demand for land is high (Doll et aL, 1994). Similar tendencies can be observed in the Austrian border area of Hungary. Free land markets would promote concentration and consolidation of land holdings.
Acknowledgements I wish to thank the Hungarian Research Foundation, OTKA TO 12726 and T O 13903 for supporting the research, on which this article is based.
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Burger, A. (1983) Hogyan 6rt6keljiik a f61det? [How to evaluate land?]. Gazddtlkod(ls 3, 31-41. Burger, A. (1984) Land evaluation in centrally planned countries. A case study of Hungary. In Agricultural markets and prices. 4th European Congress of Agricultural Economists, KieL Working Group A 5 Papers, 103-111. Burger, A. (1985) Food Economics. Akad6miai Kiad6, Budapest. Burger, A. (1994a) Rural land valuation and land prices in Central-Eastern European countries. A case study of Hungary. FIG International Federation of Surveyor~ XX. Congress. Papers of 9 Commission. Melbourne, Australia, 84, 903. 4/1-4/14. Burger, A. (1994b) 7"heAgriculture of the World. Avebury, Aldershot. Cheremushkin, S. (1967) O stoimostnoy otzenke zemly [Economic valuation of land]. Economica Selscovo Hosiaistva 12, 1-12. Doll, H., G/inther, H. J. and Klare, K. (1994) Auswertung yon Daten aus Pachtvertriigen der Bodenverwertungs-und verwaltungs-gesellschaft mbH als Verpiichterin (Stand: Juni 1994). Institut f~ir Strukturforschung Bundesforschungsanstalt f/ir Land-wirtschaft, Braunschweig-V61kenrode. Dovring, F. (1987)Land Economics. Breton, Boston, Massachusetts. ERS Newsletter (1987) USDA 3, 6. Farmers Wcekly (1991) Britain Has Poor Showing In Euro Land Price Survey, 72. Fedorenko, N. P. (1973) Ekonomicheskie problemy optimizacii prirodopolzovania. [Economic problems of the optimization of natural resources]. In Ekonomicheskie Problem Optimizacii Prirodopolzovania. Nauka, Moscow, 8-21. Feketc, F. (1965) M6dszertani kis6rlet a kfil6nb6zeti f61@irad6k kisz~imit~is~ira IExperimental method for the estimation of differential rent]. Gazdflkod6s 1, 13-24. Hachaturov, T. S. (1969) Ob ekonomicheskoi ocenke prirodnih resursov. ]Economic valuation of natural resources]. Voprosi Ekonomiki, 66-74. Hant6, Zs. and SziJcs, I. (1994)A FOldhaszonb~rlet (The Land Rent). Agr~irgazdas;~gi Kutato 6s lnformatikai Int6zet, Budapest. Johnson, C. (1989) Farmland as a business asset. In The agricultural land market. Proceedings of The Agricultural Economic Society, One-Day Conference, 15th December, University of Newcastle upon Tyne, 8-29. Kantorovich, L. (1959) Ekonomicheski Raschot Nailuchshevo Ispolzovania Resursov [Economic Calculation of Best Use of Resources]. Izdatelstvo Economici, Moscow. Karnauhova, E. (1968) Economichescaia otzenka zemel v selskom hosiaistve ]Economic valuation of land in agriculture]. Voprosi Economici 8, 15-30. Marx, K. (1965) Capital Vols. l-III. Progress Publishers, Moscow. Ricardo, F. (1817) On the Principles of Political Economy and Taxation, London. Rychlik, T. (1967) W sprawie kosztovej metody oceny ziemi [The question of method of land valuation]. Zagadnienia Ekonomiki Rolnej 4, 21-39. Simon, Gy. and Kondor, Gy. (1965) Gazdas6gi Hat~konysdzg ~s Arny~k6rak [Economic Efficiency and Shadow Prices]. K6zgazdas~igi 6s Jogi K6nyvkiad6 Budapest. Statistical survey of individual farmers (1994) Hungarian Statistical Office, Budapest, 1995. Statistisches Jahrbuch iiber Ern~ihrung, Landwirtschaft und Forsten der Bundesrepublik Deutschland (1996) Landwirthschaftsverlag GMBH Mi.inster-Hiltrup. Strumilin, S. (1967) O tzene 'darovih blag' prirodi [The price of 'gift of nature']. Voprosi Economici 8, 12-24. Szab6, G. (1975) A mezOgazdasdtgi TermO~OId Gazdasdgi Ert~kel~se [Economic Evaluation of Agricultural Land]. K6zgazdas~igi Ertekez6sek. Akad6miai Kiad6, Budapest. Szfics, I. (1990 Verseny ~s Rendszerszeml~t a FOldhaszno-sit6sban [Competition and System Approach to Land Valuation] K6zgazdas~tgi 6s Jogi K6nyvkiad6, Budapest. Sztics, I. and Tanka, E. (1994)A FOldtulajdoni 6s a FOldhaszn6lati Rendszer Szerke-
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Land valuation and land rents in Hungary:A Burger zeti Atalakuldsa a Magyar MezOgazdasdg F6ld-reformja Nyom6n [Structural Changes of Land Ownership and Land Use Following the Hungarian Land Reform[. Ag~irgazdas~igi Kutat6 6s Informatikai Int6zet, Budapest. Varga, Gy (1964) Kis6rlet a kiil6nb6zeti f61dj~irad6k 6sszeg6nek megk6zelit6s6re [Experimental method of calculation of differential rent]. KOzgazdas(~gi Szemle 11, 8-21. Wilensky, M. (1968) Zemle-denedsnuiu otzenku ]Money valuation of land]. Voprosi Economici 3, 30-45.
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Land Use Poficv, Vol. 15, No. 3, pp. 191-201, 1998 © 1998 Elsevier Science Ltd. All rights reserved Printed in Great Britain (1264-8377/98 $19.00 + 0.00
Land valuation and land rents in Hungary*
Anna Burger Introduction State and cooperative agricultural land had neither a market nor an assigned accounting value in the former socialist countries. This led to tremendous waste and underusage. For this reason, in the reform movements of the 1960a and 1980s a monetary valuation of land was demanded by some economists and several methods were worked out to determine this. After the political transition, private land ownership was reinstated. In Hungary, land was redistributed partly free and partly sold inexpensively in exchange for compensation bonds given for confiscated properties. The large number of owners not cultivating the land has created a plentiful supply. Owing to this, and to low agricultural incomes, rents are low. Selling prices of land are also low. These are determined by the low rents and the many would-be sellers who cannot sell their properties owing to the scarce demand for them. Since the demand for renting is higher than for buying and selling is controlled, rents are higher relative to prices than in countries where a free land market prevails. © 1998 Elsevier Science Ltd. All rights reserved
The objective of this paper is to evaluate the effects of land privatization on land rents and prices m Hungary. In the former socialist countries, and so in Hungary, the land of big cooperative and state farms had neither a market nor an assigned accounting value. The labour theory of value regards land as valueless, not being the product of labour, but a gift of nature. Land rent is a consequence of the higher incomes achieved on soils better than the marginal one which determines the prices of agricultural produce, according to Ricardian theory (Ricardo, 1817). Marx accepted the theory of Ricardo but regarded land rent as a part of surplus value produced in agriculture and distributed between the tenant and landlord. He attributed this type of rent to land of the worst quality as well, and called it absolute rent (Marx, 1965). Relying on the Marxist theory, socialist economists argued that goods without labour costs could not be priced and so it was with the land. This led to tremendous waste of land and underusage of it. For this reason, in the reform movements of the 1960s a monetary valuation of the land was seen as necessary and a number of methods were worked out to calculate it. The first part of this paper deals with previous land valuation efforts in the former socialist countries, the second with Hungarian land privatization, the third with the land use of different farms and the fourth with the actual land rents and prices after land privatization in Hungary.
*Due to circumstances beyond the Publisher's control, this article appears in print without author corrections.
Previous land valuations in socialist countries
Attila Jozsef University, Pf. 605, Hungary.
Szeged 6701,
The lack of money values for land hindered the functioning of socialist economies. Land values were needed for arm accounting, national accounting, the determination of agricultural prices, allocating production according to the maximum income per area, planning of investment, taxing, assessing national wealth, compensating state farms and cooperative farms for land expropriated for non-agricultural purposes, and last but not least, for some free turnover of the land. Thousands and thousands of hectares of good agricultural land were expropriated for industrial, urban and infrastructural needs. The lack of free turnover led to the underusage of those areas which were not suitable for efficient cultivation in certain cooperatives or state farms but would have been useful for others.
191
Land valuation and land rents in Hungao,: A Burger
The demand for land valuation emerged first in the reform discussions of the 1960s in the Soviet Union, Poland and Hungary. Economists argued that even a socialist economy needed prices for the means of production, where commodity production exists. Among these means of production are the basic means of agricultural production--the land. The discussions were not without ideological overtones, mainly in the Soviet Union. Both those who argued for land pricing and those who argued against it referred to Marx as did those who suggested different methods for valuation. The suggested methods of valuation were the following: (1) to base the valuation on the costs of the investment needed to turn the virgin land into cultivated land (Strumilin, 1967); (2) to base it on the difference between income from better quality land areas and those of the worst quality (Varga, 1964; Fekete, 1965; Wilensky, 1968; Bronstein, 1968); (3) combining thc above two methods, using the first method for the valuation of the worst quality, i.e. of the marginal land and the second for the better lands (Karnauhova, 1968); (4) valuing the land by the average net income per area (gross product minus material, wage and depreciation costs, possibly interest on capital) (Chercmushkin, 1967); (5) valuation of land by the cost of capital in substitution of new land which would otherwise be needed to increase production, as was suggested in some Polish and Hungarian literature (Rychlik, 1967; Burgcr, 1967, Burger, 1970); (6) valuing the land by shadow prices obtained from linear programming models of optimal allocation of production (Kantorovich, 1959; Simon and Kondor, 1965; Hachaturov, 1969; Fedorenko, 1973). Since reform aspirations failed in most European socialist countries, agricultural land remained without either market or assigned value. This was the case even in Hungary, where many other reform measures were introduced. There was progress in some countries in the classification and cadasterization of land by natural characteristics. The hundred-point classification system was introduced in Czechoslovakia and Bulgaria. In Bulgaria classification was also controlled by calculated land prices of capitalized net incomes. In Poland and in some Soviet republics, land classification was bascd on yields of some main crops or on net incomes. In Hungary, a hundred-point classification system was worked out too but it was not introduced in cadastcrs. From the 1970s high prices were charged on the cxpropriation of agricultural land for industrial use or mining in the GDR, Hungary, Romania and some other countries. In Hungary and Poland charges and rents were imposed on urban and rural land used for commercial and industrial purposes. With the strengthening of the reform movement again in the late 1970s and 1980s in Hungary, experimental calculations were started for money valuation of the land by a research group of the Hungarian Academy of Sciences. The aim of the calculations was to connect the natural classification system with an cconomic classification for cadastering. The following methods of calculation were used: (1) Net factor incomes of land were computed in 63 micro districts of the country by two methods. First, a calculated interest on capital (6%) was deducted from the net incomes. Second. incomes were computed in the function of land, capital and labour. Land was cxpressed in points of
192
Land valuation and land rents in Hungu~': A Bu~ger
land classification or in gold crowns 1 (further denoted as G('). The formula of the function was: y =f(px,x2)
where: y denotes the net income per ha; p denotes the points of land classification or GC; x~ denotes the capital needed for plant production; x2 denotes the labour per ha. (2) The regressions were extended by the factors of location according to the formula (Szucs, 1990):
y = f (p,x,, x2, x3, x4) where: x3 denotes the distance from the nearest market in kim; x4 denotes the local per capita food consumption. From the estimated functions, the Cobb-Douglas functions 2 gave the best results in the form of:
y =Zl)"X~'X~X~X~ where z,a,b,c,d,e are parameters. Hence, the annual rent of the land was y(a+d+e)
(3) The third experimental method was the substitution of capital for land (Burger, 1983, 1984, 1985, 1994a). For the sake of simplicity, the substituting factors were either the total annual costs or the annual fertilizer costs (Szab6, 1975) of the plant production chosen. The theoretical background of the first mentioned method is that the marginal cost of production equals the marginal price at the level of zero income. This cost is needed to increase the production by one unit on the same land instead of drawing other land into cultivation; it is land substituting. To obtain the total cost of one ha of land the marginal cost has to be multiplied by the volume of production per ha. The value of t ha of land was estimated from the parabolic function at the minimum or zero point income of a certain land quality, as below. The regression was computed for the different zones of the country, as follows: y = ax 2 +bxp + c x + z
where: y is net income; x is value of production per ha; p are points of the land quality of 1 ha; and a,b,c,z arc parameters. (4) Using another method for the substitution of capital for land, the linear regressions and Cobb-Douglas production functions were estimated, as below. From the parameters the costs of substituting one point (or one GC) of land were calculated and these were multiplied by the points of 1 ha of land. The formula of the linear regression was: x =ap+bC+z
and the marginal rate of substitution was 1The gold crown was the money of the former Austro-Hungarian Monarchy which was made use of for classifying agricultural land. For the explanation see below. 2The first experimental land valuing models of the Cobb-Douglas function were computed in two cooperative farms in 1972 (Beneth and G6czan, 1973). In that model however, y represented gross income.
6C
a
6P
b"
The formula of the Cobb-Douglas function is x = zpaC h
193
Land valuation and &nd rent,; in Hungary: A Burger
and the marginal rate of substitution a C
bp Multiplying this by the given points of l ha of land a C a -'--'p = -'C b p b In the formulas: x denotes the value of production; C denotes the cost; p denotes the points of land quality; a, b, and z are parameters. For all the methods, the magnitude of the factor of capitalization had to be decided to obtain the land value from one year's results. After discussions and calculations, an interest rate of 2.5% was chosen since the agricultural net income was about that much at that time. The computed land prices varied from H U F (Hungarian forint) 20 000 per ha (the worst land) to H U F 260000 per ha, (the best land). The average price was H U F 185 000 per ha, (the average land points were 46, the most frequent ones 39, the GC of ploughland varied from 1 to 30 per ha). The calculated land values were compared with the actual land prices. Small private farms and housing plots could be sold and bought at that time in Hungary. The selling prices were registered by the local revenue offices. National land-price statistics are not available, but data on prices were collected for one agricultural county in southern Hungary (as an example) (Csongrfid). 3 The average price of ploughable land was H U F 10695 per ha, in the period 1976-1983. Prices decreased from H U F 34 606 to 11 494 between 1976 and 1983. The average price of orchards, vineyards and gardens however, was H U F 212 000 per ha, and increased from H U F 66 900 to H U F 202 000 during the same period. 4 The average price of ploughable land per GC was H U F 744 in the same period and H U F 5488 for orchards, vineyards, and gardens. The valuations were attempted to replace market prices at that time. In a market economy, real market prices are available to support the valuation (Barlowe, 1986; Dovring, 1987; Britton et al., 1989). These prices failed in Hungary or were only sporadic. After land privatization of the early 1990s valuers hoped that the land market would revive and market prices would provide bases for valuation and cadastering. Hopes have not yet been fulfilled.
Land privatization 3Csongr&d county is a typical agricultural county on the Hungarian plain in southern Hungary. The author is teaching at the Attila J6zsef University, Szeged, the county town of Csongr&d where the research was recently carried out. 4The price trends might be explained by the decreasing agricultural population and the diminishing interest in cultivating field crops at that time. The interest of people of other occupations increased, however, in part-time farming for the production of fruit, wine and vegetables under plastic.
194
In most East-Central European countries land was privatized by restitution. Land was given back to former owners (from which it was taken in 1945 in Hungary) or their successors (many of whom had moved to the cities) within certain limits of size. The limit was 10 ha in Romania, 20 ha in Bulgaria on plain land and 30 ha in mountainous regions and 150 ha in the Czechoslovakian and Slovak Republics. If the restitution of the original land was not possible for some reason, another land parcel of similar size and quality had to be given in replacement. In Hungary, a mix of restitution, selling and redistribution was chosen for land privatization. Four compensation laws--Act XXV of 1991 (Magyar K6zl6ny, 1991 no. 77); Acts XXIV, XXXII and IL of 1992, and
Land valuation and &nd rents in Hungao,." A Burger
the transitional cooperative law of January 1992 (Magyar K6zl6ny, 1992 no. 6)--laid down that compensation bonds must be given for confiscated property, including land. Compensation bonds might be used by the former owners or their heirs to claim vouchers for bidding lk)r land held by production cooperatives, and a small part by state farms at compulsory auctions. Since the value of compensation bonds has fallen far short of any property expropriated by nationalization, or otherwise, in the case of land, the government offered subsidies for up to about 50 ha, provided that the buyer undertook to use the land for agricultural purposes for five years and not to sell it during that time. About 30% of the land area remained in the name of the production cooperatives' members after land was collectivized in 1960-1961. Many of them are retired now. Their rights of disposal over the land have been re-established. About two-thirds of the land of cooperatives was actually owned by the cooperatives. They bought it cheaply from their members or received it from the state as vacant land or communal land. Fifty % of this type of land was redistributed among the cooperatives' members and employees and state farms' employees with no compensation claims. Each of them received about 1 ha. The other 50% went to the compensation fund. State farms had to offer about 20% of state farm land for compensation purposes (Burger, 1994b).
The auctions The government declared a HUF 3000 target price and HUF 500 minimum price for one GC value of land sold by auctions. The GC value of agricultural land was determined in the 19th century for land registration and taxation. It was a complex measure of quality and net income of a cadastral hold land unit (about 0.6 ha) expressed in the gold crown money of that time. The GC value was determined for seven types of cultivation (ploughable land, garden, meadow, pasture, vineyard, forest, reedy) and eight quality classes. The ploughable land ranged from 1 to 20 GC/cadastral hold (from 1 to 35 GC/ha). This valuation is still valid in Hungary, though modified and updated in a number of cases. Most land was bought at the minimum price at auctions. The minimum price of a 20 GC/ha average quality land was not more than HUF 10 000/ha, i.e. about USD 100 at the official exchange rate at that time. The HUF 500/GC selling price was particularly weidespread, initially when few people owned compensation bonds and land supply was great. The provision of compensation bonds lasted from 1992 to 1994 and the auctions started in 1992. At the beginning, many people who possessed bonds had not yet decided to buy land. It was mainly well-informed people who bought land at that time. Selling prices did not even later exceed the minimum prices where land supply remained sufficient; they increased, however where the supply shrank. The development of prices depended more on location than land quality. Near to the cities, small towns and villages, along the roads and irrigation canals, land was sold more expensively than away from these facilities. The highest prices reached even millions of HUF/GC. These prices were, however, building-lot prices rather than agricultural land prices. Land parcels far from the centres were often not sold at all but redistributed free of charge amont members of cooperatives or shareholders of agricultural companies.
195
Land valuation and land rents in Hungary: A Burger
Land ownership and land use By 1995 almost all land of the country, except some state and communally owned land, had been privatized. While land ownership has become private, land use is not so private (see Table 1). Table 1 shows that almost 50% of the land is used (as opposed to owned) by companies--successors of former production cooperatives and state farms--and functioning production cooperatives and about 50% by individuals. Individual land sizes are generally small. Most individuals are household farmers or other part-time farmers. There are about 1.5 million land owners in this country of not quite 10 million people but among them only 51 000 are full-time farmers (statistical survey, 1995). The size distribution of individual farms is presented on Table 2. According to Table 2, 44% of the individually cultivated farms are under 5 ha and 6(1% under 10 ha. Land used individually over 50 ha, is only 15%. The average size of all the 1 650 000 individual farms is not more than 1 ha and the size of those which were bought by auctions, 4.4 ha. Farm economists regard a minimum of 100 ha, as the size for a viable mixed fulltime farm in Hungary. Farm sizes are limited by the law. Individual land ownership and land use are limited to 300 ha, land use by cooperatives and corporations to 25(10 ha. The law does not permit either cooperatives or any legal farming entities or foreigners to own land. 5 This does not mean however, that there does not exist unlawful land uses and ownership of both kinds. There are people who bought much more land than was allowed. There are also foreigners who own land illegally. Naturally these ownerships are not registered. Land registration is incomplete as yet. The marking of new land properties is not yet complete and much marking was badly done. A good part of the properties lie in scattered units. Privately used land parcels arc wedgcd in the land used by cooperatives and companies. There are many court cases in progress against the marking. Land consolidation and concentration are hindered, among other things, by the limitations on selling and buying. Those land parcels, the buying or marking of which were subsidized, may not be sold for five years and must be cultivated during this time. Land selling is heavily taxes.
Table 1. Use of cultivated land in Hungary in 1996 (in percentages) Agricultural companies Cooperatives Individuals a Gardens and houseplots b
28.1 21.6 45.1 5.2
alncluding small plots under 1 and 0.5 ha. blnside the communal areas. Source: Hungarian Statistical Pocket Book, 1996. Hungarian Statistical Office, Budapest 1996.
Table 2. Size distribution of individual farms in 1994
5parliament will decide on the lifting of these restrictions or a part of t h e m in the near future.
196
Farm size in ha
Percentage of farms
less than 5 5.1-10 10.2-30 30.1 .-50 more than 50
44.2 14.3 18.9 7.1 15.5
Source." Development of Food Sector in 1994. Hungarian Statistical Office, Budapest 1995.
Land valuation and land rents in Hunga@: A Burger
The new land market
~Both land rents and land prices of Csongrad county are more or less characteristic of the country as a whole, according to data from different articles. (Comprehensive land price and land rent statistics are still lacking in Hungary.) The only exception is the western border region where rents are higher than in the other parts of the country, owing to the relatively greater demand among Austrian citizens for land to rent.
In spite of the prevailing difficulties, land selling and buying have become more lively recently. In Csongrfid county, where our research was carried out, 7% of the agricultural land area was bought and sold from May 1994 to May 1995, while the comparable yearly figures of the Western countries, with steady farming and ownership conditions, were much less (2-5% in the U.S.A., according to the E R S Newsletter, 1987, and 1% in the U.K., according to Johnson, 1989). The selling prices are much lower however, than the land prices of the West European countries (see Table 3). 6 In 1991, the minimum land prices were £2000/acre in Austria, £500 in France, £1500 in West Germany (in 1995, land prices ranged there from 22 000 to 58 000 DM/ha), £4600 in northern Italy, £2500 in middle Italy and £2500 in the U.K. (vacant) (Farmers Weekly, 1991). Land prices depend on several factors in a market economy. One of the major factors is the land rent, according to the land rent theory, however actual rents are often influenced and lowered by government regulations. A more reliable determining factor is the net farm income, within the land rent being a part of it. In Hungary both farm incomes and land rents are low (see Table 4). In the different Western European countries, rents range from 1 to 4% of land prices. For example, in Germany's 'old L/inder' the average land price was DM 32 178/ha and the average rent DM 488/ha in 1995 (Statistisches Jahrbuch, 1996). Farm incomes were low even earlier in Hungary. Fixed agricultural prices were around world market level and subsidies were much lower than they were in the Western European countries. After the political changeover, the situation actually worsened. The cooperatives were deprived of their land by land privatization and much of their assets by asset privatizationi. Most of the state farms (previously farming on 15% of the agricultural land of the country) were dissolved. Many cooperatives, or the re-organized successor companies of former production cooperatives and state farms became heavily indebted and often bankrupt. Most private farmers were poorly equipped and lacked money. Subsidies have declined, and there were few cheap credits available. Input prices have grown significantly but even the liberalized agricultural prices have not exceeded the world market level owing to the falling domestic and foreign demand for agricultural produce. Demand was weak as a result of the declining GDP, falling wages and the collapse of the Soviet market. The sowing area and yields have declined and production has become more extensive. Private farmers, who had formerly produced most of the labour intensive crops and animals on their small areas with the aid and integration of the cooperatives, turned more to cereal production because of the lack of equipment and market opportunities. Many privatized orchards, and vineyards ceased to be cultivated and many forests were cut down. Though the registered work force in agriculture declined from 813 000 in 1990 to 280 000 in 1996, according to the Agricultural Statistical Yearbooks, many unemployed and poor retired people tried to live on subsistence farming. While the net farm income and the rent are indicators of the derived demand for land, i.e. the demand for its products, the supply of and demand for the land are direct determining factors for land-market prices. Privatization created an artificial abundance of land by providing it free of charge or inexpensively through auctions. A large proportion of the new land owners do not farm. Some of them, mainly those old cooperative members who received about one ha from the cooperative land, sold it at once or want to sell it now. Others, who bought land through auctions and 197
Land valuation and land rents in Hungao,: A Bu¢qer
do not cultivate it, are waiting for the lifting of controls on selling, and better selling opportunities, including higher prices. The prohibition on owning land by legal entities and foreigners and the 300 ha size limitation of private ownership do not allow demand to adjust to supply and hinders concentration of farm property. The relatively large supply dampens land prices. Table 3 shows that land prices were much lower in 1994 and 1995 than they were in the late 1970s and early 1980s in the same county, taking into consideration the creeping inflation of the previous decades and the 30-35% annual price rise in the early nineties. In 1983, in Csongnid county, for example, the average price of ploughable land was USD 254/ha and USD 4470/ha for orchards, vineyards and gardens at the official exchange rate of HUF 45.19/USD of that time, as against the present average prices of USD 173/ha for ploughable land, USD 187/ha, for gardens, USD l l3/ha for orchards and USD 142/ha for vineyards. The prices are comparable, since mainly small lots were sold in both periods. Much land is also available for renting. Absentee owners own four-fifths of the land used by the production cooperatives. There are many retired cooperative members who let land, as well. Cooperatives and companies rent land from both insiders and outsiders. Since agricultural incomes are low and owners are many, renters pay little or nothing for the rented land. If the new owners are obliged to cultivate the land for a while, it is often cheaper for them to let it free of charge than to cultivate it themselves (Hant6 and Sziics, 1994). Land rents seldom exceed the amount that cooperatives paid earlier to members having title to property. The prevalent rent equals the price of 15 kg wheat/GC. Cooperative members and employees, and occasionally, owners of excellent soils (Sztics and Tanka, 1994) get somewhat more, outsiders often less or nothing at all. As Table 4 shows, individuals pay still lower rents than enterprises, since they need less rented land. The relatively low prices and rents of orchards, vineyards and forests hints at the fact that these agricultural sectors arc not highly valued after the privatization. Rents, similar to land prices, are much higher near the urban areas, expressing rent of location. In these areas, agricultural land prices and rents sometimes approach the prices and rents of building lots. Land prices are still relatively lower than rents in Hungary, owing to the higher demand for land for rent than land for sale. In Western Europe rents move from 1.0 to 4.1% of prices, in Hungary from 12 to 49, and 25% on average. In Western Europe, the purchase price represents 25-100 years rent; in Hungary 2-8 years. Table 3. Land prices in Csongr=~d county from May 1994 to May 1995 Average price
Ploughable land Garden Orchard Vineyard Grassland Forest Reedy Uncultivated b All
Land size (ha)
HUF/ha
USD/ha a
260.57 0.25 5.24 4.46 185.36 30.00 5.00 44.84 535.72
19974 21600 13015 16368 8229 9567 5000 8978 15532
173 187 113 142 71 83 43 78 123
aBased on official exchange rate (HUF 115.41/USD). blncluding gardens inside the communal areas. Source: Statistical Office of Csongr&d county.
198
Land valuation and land rents in Hungaov A Burger Table 4. Land rents in Csongrad county from May 1994 to May 1995 Individuals
Ploughable land Garden Orchard Vineyard Grassland Forest Reedy Fish lake Uncultivated All
Cooperatives and companies
Land size (ha)
Average rent (USD/ha a)
Land size (ha)
Average rent (USD/ha a)
704.99 -0.14 -340.96
27 -74 -18
78261 1 116 178 8433 1501 243 761 2601 92095
36 69 38 32 10 11 21
--1.54 1047,63
-23 24
0 32
abased on the above official exchange rate. Source: Statistical Office of county Csongrad.
Conclusions For the development of a real agricultural land market in Hungary, and in all the East-Central European countries, settled land-tenure situations and profitable agricultural production conditions are needed. The latter depends on economic and agricultural growth, structural changes, development of trade networks and processing industries and higher domestic and foreign demand for agricultural products. The former depends very much on government decisions on removing the impediments to a free land market. Free market conditions could induce absentee owners and retired people to sell land. At the same time, those who need land for cultivation, such as companies, cooperatives, some foreign farmers and entrepreneurs, could buy it. In this way also, hidden agreements on selling and buying could be legalized and registered. Abundance of land and depressed prices and rents would successively disappear with the turnovcr in land. The German example shows that land rents are increasing mainly in the western aprt of East Germany, where the demand for land is high (Doll et aL, 1994). Similar tendencies can be observed in the Austrian border area of Hungary. Free land markets would promote concentration and consolidation of land holdings.
Acknowledgements I wish to thank the Hungarian Research Foundation, OTKA TO 12726 and T O 13903 for supporting the research, on which this article is based.
References Barlowe, R. (1986) Land Resource Economics. The Economics of" Real Estate. Prentice Hall, Englewood Cliffs, N.J. Beneth, I. and G6cz~in, L. (1973) Kis6rlet Uj f61d6rt6kel6sre [New experimental land valuation]. KOzgazdasdgi Szemle 6, 31-48. Britton, W., Davies, K. and Johnson, T. (1989) Modern Methods" of Valuation of Land, Houses and Buildings, 8th ed. Estates Gazette, London. Bronstein, H. (1968) K voprosi o 'tzene' zemli [The question of the 'price' of land]. Voprosi Economici 5, 8-2(I. Burger, A. (1967) Land and fixed assets in agricultural price determination. The Farm Economist 6, 255-261.
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Burger, A. (1983) Hogyan 6rt6keljiik a f61det? [How to evaluate land?]. Gazddtlkod(ls 3, 31-41. Burger, A. (1984) Land evaluation in centrally planned countries. A case study of Hungary. In Agricultural markets and prices. 4th European Congress of Agricultural Economists, KieL Working Group A 5 Papers, 103-111. Burger, A. (1985) Food Economics. Akad6miai Kiad6, Budapest. Burger, A. (1994a) Rural land valuation and land prices in Central-Eastern European countries. A case study of Hungary. FIG International Federation of Surveyor~ XX. Congress. Papers of 9 Commission. Melbourne, Australia, 84, 903. 4/1-4/14. Burger, A. (1994b) 7"heAgriculture of the World. Avebury, Aldershot. Cheremushkin, S. (1967) O stoimostnoy otzenke zemly [Economic valuation of land]. Economica Selscovo Hosiaistva 12, 1-12. Doll, H., G/inther, H. J. and Klare, K. (1994) Auswertung yon Daten aus Pachtvertriigen der Bodenverwertungs-und verwaltungs-gesellschaft mbH als Verpiichterin (Stand: Juni 1994). Institut f~ir Strukturforschung Bundesforschungsanstalt f/ir Land-wirtschaft, Braunschweig-V61kenrode. Dovring, F. (1987)Land Economics. Breton, Boston, Massachusetts. ERS Newsletter (1987) USDA 3, 6. Farmers Wcekly (1991) Britain Has Poor Showing In Euro Land Price Survey, 72. Fedorenko, N. P. (1973) Ekonomicheskie problemy optimizacii prirodopolzovania. [Economic problems of the optimization of natural resources]. In Ekonomicheskie Problem Optimizacii Prirodopolzovania. Nauka, Moscow, 8-21. Feketc, F. (1965) M6dszertani kis6rlet a kfil6nb6zeti f61@irad6k kisz~imit~is~ira IExperimental method for the estimation of differential rent]. Gazdflkod6s 1, 13-24. Hachaturov, T. S. (1969) Ob ekonomicheskoi ocenke prirodnih resursov. ]Economic valuation of natural resources]. Voprosi Ekonomiki, 66-74. Hant6, Zs. and SziJcs, I. (1994)A FOldhaszonb~rlet (The Land Rent). Agr~irgazdas;~gi Kutato 6s lnformatikai Int6zet, Budapest. Johnson, C. (1989) Farmland as a business asset. In The agricultural land market. Proceedings of The Agricultural Economic Society, One-Day Conference, 15th December, University of Newcastle upon Tyne, 8-29. Kantorovich, L. (1959) Ekonomicheski Raschot Nailuchshevo Ispolzovania Resursov [Economic Calculation of Best Use of Resources]. Izdatelstvo Economici, Moscow. Karnauhova, E. (1968) Economichescaia otzenka zemel v selskom hosiaistve ]Economic valuation of land in agriculture]. Voprosi Economici 8, 15-30. Marx, K. (1965) Capital Vols. l-III. Progress Publishers, Moscow. Ricardo, F. (1817) On the Principles of Political Economy and Taxation, London. Rychlik, T. (1967) W sprawie kosztovej metody oceny ziemi [The question of method of land valuation]. Zagadnienia Ekonomiki Rolnej 4, 21-39. Simon, Gy. and Kondor, Gy. (1965) Gazdas6gi Hat~konysdzg ~s Arny~k6rak [Economic Efficiency and Shadow Prices]. K6zgazdas~igi 6s Jogi K6nyvkiad6 Budapest. Statistical survey of individual farmers (1994) Hungarian Statistical Office, Budapest, 1995. Statistisches Jahrbuch iiber Ern~ihrung, Landwirtschaft und Forsten der Bundesrepublik Deutschland (1996) Landwirthschaftsverlag GMBH Mi.inster-Hiltrup. Strumilin, S. (1967) O tzene 'darovih blag' prirodi [The price of 'gift of nature']. Voprosi Economici 8, 12-24. Szab6, G. (1975) A mezOgazdasdtgi TermO~OId Gazdasdgi Ert~kel~se [Economic Evaluation of Agricultural Land]. K6zgazdas~igi Ertekez6sek. Akad6miai Kiad6, Budapest. Szfics, I. (1990 Verseny ~s Rendszerszeml~t a FOldhaszno-sit6sban [Competition and System Approach to Land Valuation] K6zgazdas~tgi 6s Jogi K6nyvkiad6, Budapest. Sztics, I. and Tanka, E. (1994)A FOldtulajdoni 6s a FOldhaszn6lati Rendszer Szerke-
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