Tropentag, October 5 - 7, 2004 in Berlin "Rural Poverty Reduction through Research for Development and Transformation"

Determinants of Commercial Orientation of the Individual Farms in Romania

University of Bonn, Economics and Technological Change, Germany

Abstract

In Romania during the transition period towards the market economy the performance of the agricultural sector has decreased while poverty has increased. These negative aspects have been related to the reforms in the agricultural sector, including the privatisation of land and the emergence of individual farms. Individual farms now possess the largest part of agricultural land as compared to other production entities, however they are constrained in their development by the lack of necessary assets and undeveloped output and factor markets. As a result of the constraints, individual farmers have increased self-consumption at the cost of marketed output sometimes to the extent that they do not sell output at all. The predominance of asset poor and market constrained individual farmers in Romania has contributed to the deterioration of the overall performance of the agricultural sector. Still it is little known what factors determine the commercial orientation of the individual farms in Romania, essential for increasing the performance of the agricultural sector in general and the living standards of the poor households in particular. The paper seeks to answer this question, specifically how the endowment of the households with factors of production and market imperfections through transaction costs influence commercial orientation. The methodology employed in the study consists of descriptive statistics and econometric analysis. The econometric analysis relies on a two-stage selection model, in a first stage the decision of sales and in the second stage the percentage of sales from total agricultural production are regressed on the different factors determining commercial orientation. The analysis is based on an agricultural household survey from 2003 collected as part of a Phd research. The study concludes what factors are important for moving out the individual farmers of the subsistence trap and increase commercial orientation, beneficial for the agricultural sector and for the poor.

Keywords: Transaction costs, agriculture, commercial, individual farming, Romania, transition economies

Contact Address: Borbala Eszter Balint, University of Bonn, Economics and Technological Change, Walter-Flex-Straße 3, 53113 Bonn, Germany, e-mail: babeszteryahoo.com