Discussion Papers 1999.
Spatial Research in Support of the European Integration 121-133. p.
TRANSFORMATION OF STATE FARMS IN POLAND
121
TRANSFORMATION OF STATE FARMS IN POLAND:
OWNERSHIP PATTERNS
WLODZIMIERZ ZGLINSKI
INTRODUCTION
The process of systemic transformation in Poland has caused a breakdown and liq-
uidation of state-owned farming which, over a forty years period represented a major
constituent part of the Polish landscape, in particular in 11 northern and western
voivodships. As a consequence of these changes, 230 gmina (communes) — those where
state farming used to dominate — require a total restructuring of rural regions, whereas
further 585 gmina where the share of the state sector in agriculture was significant —
should also be included in the general strategy of rural development.
The transformation of state agriculture in Poland differs fundamentally from the
de-collectivisation of agriculture as carried out in other post-socialist countries of East-
Central Europe, namely:
-
it includes neither restitution of property nor reprivatisation;
-
it includes only state-owned agriculture, and not co-operative property;
-
it is a regional, and not a nation-wide process;
-
it does not include the whole sector of agriculture. (In fact, it concerns
only one fifth of arable lands, one fifth of global agricultural production
and one fifth of the total agricultural output.)
It should, however, be emphasised that the process of restructuring and privatisa-
tion of the state sector of agriculture involved 4.5 million hectares of land — an area
much larger than the territory of Belgium, somewhat smaller than the territory of
Holland, or approximately half the size of the Czech Republic.
One should also point out that state-owned farms (PGR), apart from their main
function, namely agricultural production, used to fulfil other important tasks. They
created an infrastructure and settlement network in rural areas, developed social and
cultural activities, provided jobs for 440,000 people. As the livelihood basis of 2 million
people — the employees and their families — state-owned farms contributed in one way
or another to socio-economic development.
State-owned agriculture accounted for a substantial share of the total output of
farm products. In particular, it was important with respect to the supply of oil plants,
grains, potatoes, meat, milk as well as in the production of qualified seeds and animals
kept for breeding. In the years 1986-1990, with 19% of the total farming land in
Poland, the state sector accounted for 18% of the total agricultural output, over 18%
of the gross final use production and 21% of the marketable production. Although

Wlodzimierz Zglinski : Transformation of State Farms in Poland: Ownership Patterns.
In: Spatial Research in Support of the European Integration. Pécs: Centre for Regional Studies,
1999. 121-133. p. Discussion Papers. Special
122
WLODZIMIERZ ZGLISISKI
farming land on state farms was showing less productivity (i.e. the value of total pro-
duction per hectare) than on private farms, with respect to the yields of marketable
agricultural produce the situation was the opposite.
A measure of the role performed by state agriculture in 1991 was the share of its
deliveries in the so-called centralised purchasing system of agricultural products. State
farms supplied 64.8% of rape, 38.0% of grain, 30.9% of potatoes, 24.5% of pigs, 20.0%
of cattle, 14.3% of milk, 13.5% of sugar-beet, as collected in the system.
The "shock therapy" rules introduced by Leszek Balcerowicz allowed little possibili-
ty of a gradual adaptation of the centrally-planned economy to market economy; the
volume of state farms production rapidly diminished and social consequences of the
breakdown became drastic. The total area under crops decreased in the years 1989-
1993 by 39.5%; the area of grain cultivation went down by 19.1%, potatoes by 16.7%,
sugar-beet by 36%, and rape by 70%. Animal production also decreased significantly.
The cattle stock decreased by 60%, cows by 56%, pigs by 52%, and sheep by 80%. The
production of milk decreased by a half, the sale of cattle by 70%.
Large areas of fallow land, some 300,000 unemployed; unused farm buildings suf-
fering devastation; huge liabilities exceeding the value of working assets and at times
the value of state subsidies; half of the total farm land under provisional management;
these are among the measurable consequences of the political changes.
While the picture presented above is an objective representation of reality, its nega-
tive features are also results of the generally disadvantageous economic situation in the
period during which the restructuring and the ownership transformation of agriculture
took place. The state sector of agriculture, a beneficiary of governmental subsidies,
was not prepared to face the revolutionary transformation. Through the liberalisation
of prices for agricultural products (1989) and the introduction of market economy
rules (early 1990), all the structural and social weaknesses of state farms came to light.
The most severe problems included: inefficiency of organisation and central managing
systems; over-employment; over-investment (especially with respect to building infra-
structure); an overburden of social functions. State farms have proved not very resis-
tant to the changes of basic economic parameters. In the years 1990-91, as a result of
introduction of high interest rates on credits, the financial liabilities of state farms
grew rapidly, which additionally had a negative impact on their situation. In 1992 fur-
ther difficulties appeared, mostly of an agrotechnical nature, resulting from the limita-
tion of mineral fertilisation and liming, and the reduction in the use of qualified sowing
grains and pesticides. The decrease of rentability of plant production on poor soil or
soil difficult to cultivate resulted in large areas of land in state farms lying fallow.
TRANSFORMATION STRATEGY CREATIVE DESTRUCTION OR A CHANCE
FOR IMPROVING AGRICULTURE MANAGEMENT?
Privatisation strategy, as applied to state-owned agriculture, can be evaluated from
two different perspectives. According to the first, privatisation is a process based upon
a political doctrine. State farms as an element of the socialist, privileged sector, had to

Wlodzimierz Zglinski : Transformation of State Farms in Poland: Ownership Patterns.
In: Spatial Research in Support of the European Integration. Pécs: Centre for Regional Studies,
1999. 121-133. p. Discussion Papers. Special
TRANSFORMATION OF STATE FARMS IN POLAND
123
be liquidated in shortest possible time. According to the other perspective, state farms,
with all their structural and economic characteristics, were incapable without state sub-
sidies of adapting to the rules of market economy. The transformation which took
place was only a consequence of this fact.
Without going more deeply into the question of which of the assumptions presented
above was actually applied to set the transformation process in motion, it should be
emphasised that neither of them was based upon rational premises, nor they consid-
ered socio-economic consequences, the eventual territorial disintegration of state
farms, the size of market demand for land etc.
There is little doubt, however, that the pure political objectives and the neo-liberal
economic policy applied brought about the rapid bankruptcy of state farms. Their liq-
uidation did not have to comprise an autonomous goal, one justifying the rule: privati-
sation for privatisation's sake. Conversely, it should follow from rational objectives of a
general agricultural development policy.
There is no credible answer to the question whether state farms had actually a
chance of surviving and adapting to the rules of market economy, as they have not
been given such a chance.
It should, however, also be emphasised that in 1989 — as well as at present — there
were neither theoretical models nor practical solutions concerning the transformation
of centrally-planned economy into market economy. The dispute still continues
between adherents of the "invisible hand" of the market and those of state interven-
tionism, between adherents of the "shock therapy" and followers of the evolutionary
transformation path, between liberals and the followers of Keynes' theory, between
adherents of the classic market economy and those of the social market economy.
According to the assumptions underlying "shock therapy", as introduced by Leszek
Balcerowicz, socialism cannot be an effective economic system — in spite of changes in
its structure. This thesis was in fact confirmed over time and through the experiences
of other post-socialist countries.
Controversial, however, is the question of the effectiveness and legitimacy of the lib-
eralisation pattern applied, and carried through radically, as the only existing form of
transition to market economy.
The privatisation of state agriculture proved to be a difficult undertaking. Contrary
to initial assumptions, it has not been a quick process; it has so far brought no radical
changes in the size structure of farms. In addition its economic consequences have
been not as significant as they were expected to be. Instead, privatisation resulted in a
complete destruction of local economy in large regions of Poland, creating the painful
problem of structural unemployment.
TASKS OF THE AGENCY FOR TREASURY AGRICULTURAL PROPERTY
IN THE PRIVATISATION OF STATE FARMS
An important factor which created foundations for the regulation of the transforma-
tion of agriculture was the law introduced on October 19, 1991, the Act on

Wlodzimierz Zglinski : Transformation of State Farms in Poland: Ownership Patterns.
In: Spatial Research in Support of the European Integration. Pécs: Centre for Regional Studies,
1999. 121-133. p. Discussion Papers. Special
124
WLODZIMIERZ ZGLIS1-  SKI
Management of Landed Properties Belonging to the Treasury, and the creation of the
Agency for Treasury Agricultural Property on January 1, 1992.
The Agency is a trust institution charged by the Treasury with executing the proper-
ty law with respect to state property in agriculture. The Agency accomplishes these
tasks through self-financing; its elementary source of income are dues in virtue of sale
and rent-charge for lease and utilisation of property being part of the Treasury
Agricultural Property Fund.
Beginning on January 19, 1994, the Agency has carried out its activities on the
grounds of the above-mentioned law, amended on December 29, 1993, based upon the
parliamentary document:  Foundations of the socio-economic policy for rural areas, agri-
culture and food industry until the year 2000.  The Agency is charged with tasks which
would improve the size structure of farms. It is also to support the Fund in taking over
all the state farming land, and gradually developing a management policy with respect
to this land.
The restructuring and privatisation of the property .having been taken over, now
proceeds generally along two paths. The first one consists of transforming the state
farms or their constituent parts into new economic subjects — Treasury-owned farms
managed by leaseholders, administrators and joint stock companies owned by the
Agency, which could independently function within the rules of taxation and market
economy. The size of these farms is to be determined on the grounds of restructuring
programmes and should guarantee an effective use of farm buildings and other fixed
assets.
The second path consists of initiating the process of land turnover — its sale to own-
ers of family farms, in order to create new private farms and increase the size of the
existing ones.
Privatisation, i.e. change of ownership, takes place only in the case of sale, or, grad-
ually, in the case of leasing of land. Otherwise, only the user changes while the land
still remains property of the State, represented by the Agency. If the quality of land
makes it unprofitable for cultivation, it is possible to turn over the land, free of charge
to State Forests, to afforest the land or leave it in fallow. Farming land and other assets
can also be transmitted to the communes  (gmina)  and used for infrastructure invest-
ments.
The diversity of solutions concerning the restructuring and the management of
property and the variety of subjects taking part in the privatisation process should con-
tribute to a rational and a reasonably rapid transformation of state agriculture.
THE PROCESS OF RESTRUCTURING AND PRIVATISATION OF
STATE-OWNED AGRICULTURE
Property transfer
The transfer of property to the Treasury Agricultural Property Fund constituted the
first step of restructuring and ownership transformation in state agriculture.

Wlodzimierz Zglinski : Transformation of State Farms in Poland: Ownership Patterns.
In: Spatial Research in Support of the European Integration. Pécs: Centre for Regional Studies,
1999. 121-133. p. Discussion Papers. Special
TRANSFORMATION OF STATE FARMS IN POLAND
125
Since the establishment of the Agency until the end of 1996, the total area of all
1,666 liquidated state farms, covering 3,750,000 hectares, was transferred to the Fund.
At the same time, 570,000 hectares of land belonging to the State Land Fund (PFZ) —
a resource created in the communist days and constituting farmland ceded to the state
by farmers in return for retirement pensions — as well as 186,000 hectares of land
belonging to other users, was taken over by the Treasury Agricultural Property Fund.
The total area of land transferred to the Fund, according to official records,
amounted to 4,506,000 hectares; of which 3,804,000 hectares consisted of farming land,
328,000 hectares of land under water (lakes and ponds) and 146,000 hectares of
forests.
The largest area of farming land has been transferred to the Fund in the Olsztyn
voivodship (402,000 hectares) and Szczecin voivodship (382,000 hectares), the smallest
area in the voivodships of Bielsko-Biala (6,000 hectares), Ostroleka and 1.15d2 (7,000
hectares each). In 11 voivodships of Western and Northern Poland the total of
2,900,000 hectares of farming land (77.5%) has been transferred from 1,190 state
farms (72%; Figure 1).
The transfer of property from state farms and the State Land Fund to the Agency,
and the process of their restructuring differed with respect to time and space. It took
the shortest time to convert state farms in the first half of 1993. Beginning in late 1993,
the Agency has been taking over more and more devastated property and derelict
farming land, waste land, farms which were heavily indebted, with usually discontinued
animal production.
Along with the farming land taken over from the state farms, the Agency has
received other components of their property, such as housing estates with related
infrastructure, workers' flats (330,000), farm buildings (mostly accommodated large-
scale farming, presently to a great extent out of use and subjects to rapid deteriora-
tion), storage, commercial and industrial buildings, as well as monumental objects
(such as palaces, parks, manorial estates).
The value of land taken over by the Agency amounted to 7.04 billion PLN, i.e.
approximately 2 billion USD. The value of land was specified as the average price of
land sold by the Agency in 1996 which made 1,874 PLN (530 USD) per hectare of
land.
The net book value of all fixed assets of state farms amounted to 7,303.4 million
PLN, whereas the value of working assets totalled 1,295.5 million PLN. The total value
of property of state farms taken over by the Agency (farming land, working and fixed
assets) amounted to 15.63 billion PLN, i.e. 4.46 billion USD.
Along with the rights and duties related to the transferred property, the Agency was
burdened with debts. On June 30, 1995 the liabilities of the Agency amounted to 2.1
billion PLN and exceeded the value of the working assets by 0.75 billion PLN. This
means that every hectare of land taken over was on average equalled a burden of 538
PLN.

Wlodzimierz Zglinski : Transformation of State Farms in Poland: Ownership Patterns.
In: Spatial Research in Support of the European Integration. Pécs: Centre for Regional Studies,
1999. 121-133. p. Discussion Papers. Special
TRANSFORMATION OF STATE FARMS IN POLAND
127
of 1996. The remaining part, i.e. 3,980,400 hectares of land, still belongs to the Agency
and is either leased, temporarily used, given in tenure, or its future appropriation is
still not settled. (Figures 2, 3)
Sale
By the end of 1996 the Agency had sold 432,000 hectares of land, 83% of which had
belonged to state farms. The land has predominantly been purchased by private farm-
ers. Of the total of 53,000 transactions concluded, 28,500 (53%) were contracts for the
purchase of plots of land smaller than 1 hectare, 18.8 thousand (35%) for 1-10 hectares
and 6,000 agreements (12%) concerned pieces of land between 10-100 hectares. Only
480 sale contracts concerned units of over 100 hectares; these, however, constituted as
much as 43.3% of the total land area sold (389 hectares per contracts on the average;
Figure 4).
The relatively small demand for the land of former state farms stems from such fac-
tors as lack of capital, low rentability of agricultural production, and high concentra-
tion of the farm land available in the regions where relatively large private farms
predominate. Foreign investors have purchased, despite low prices of land (though
with strict regulations), only 150 hectares of land (0.03%); out of this the plot of 60
hectares has been sold for the purpose of constructing a General Motors factory. A
larger area of land, almost 14,000 hectares, has been purchased by commercial compa-
nies with minor shares owned by foreign capital.
Despite preferential prices and other privileges, only 207,000 flats have been sold by
the end of 1996 out of the total of 330,000 units taken over by the Fund. In general,
only a rather small fraction of non-productive assets of the former state farms have so
far been sold by the Agency.
Free-of-charge transfer
85,000 hectares of land have been transferred, free of charge, to other subjects:
39,000 hectares to State Forests, 28,000 hectares to the Church (represented by legal
persons), 7,000 hectares to communes. The latter have also taken over the total of 946
flats.
Leasing land
A much more effective way of managing the land of former state farms, without
changing its owner, proved to be land lease. By the end of 1996, 171,000 lease agree-
ments had been concluded, concerning 3,433,000 hectares of land (76.2% transferred
land), of which 3,139,000 hectares consisted of land of former state farms. With respect
to agreements concluded, the dominant type of plots leased, were units smaller than 1
hectare (48% of all agreements), as well as plots in the size of 1-10 hectares (40% of all
the agreements; Figure 5).

Wlodzimierz Zglinski : Transformation of State Farms in Poland: Ownership Patterns.
In: Spatial Research in Support of the European Integration. Pécs: Centre for Regional Studies,
1999. 121-133. p. Discussion Papers. Special
TRANSFORMATION OF STATE FARMS IN POLAND
129
Figure 3
Use of land at the disposal of the Agency, January 1, 1997
i
••
/
;;;,,,1"."`-•,,,,-..
c...., ,--,-,„/ •k

,
.
.
i
-
i
(11 ) 4,
,
.i--
)
3.
,,,,.. •
$--r-
4.
Jr
.4,
.:.J  A,,
)
:,'..'
...k-',  ---..
1.
410 000 hectares '' Vs"'
,''
yam
205 000
,_,„,.....,.....e,
r- -' l.....,
t./
,
f
0 /  611
"' j  A/
s

,,,,,,-..,:;  -.7,
1
FT; 2
•
t3
LA
,,.,„
4
,..
C, 5
1— land under temporary management and land left fallow to be put in use later on, 2— land administered,
3 — land under management and long-term tenure, 4 — land rented out, 5 — land transferred free of charge,
6 — land sold
companies with German, Danish, Dutch, British and French capital are the most
numerous.
By the end of 1994 a systematic increase of the area under lease had taken place
(with a small number of contracts terminated), while in the years 1995-96 the expan-
sion of leased area became smaller and the process of return of leased farm land
became more intense.
Treasury policy regarding land administration
Administration of land represents a type of agreement, the objective of which is the
improvement in the management of farms belonging to the State Treasury. According

Wlodzimierz Zglinski : Transformation of State Farms in Poland: Ownership Patterns.
In: Spatial Research in Support of the European Integration. Pécs: Centre for Regional Studies,
1999. 121-133. p. Discussion Papers. Special
TRANSFORMATION OF STATE FARMS IN POLAND
131
to the assumptions of the Agency for Treasury Agricultural Property, the administra-
tion contracts are always of temporary character and will in future be replaced by sale
or lease. Therefore, this form of transformation has seldom been applied; its imple-
mentation is preceded by an allocation by tender which proves that there are no poten-
tial buyers or leasers of the property. By the end of 1993 only 42 contracts concerning
the administration of 92,796,000 hectares of land were concluded. Not till the law
(introduced on December 29, 1993), was amended, initiating changes which put land
administration on the level compatible to sale and lease, did this form of property
management — successfully applied in Poland of the inter-war period — become more
popular.
According to the data recorded at the end of 1996, the total of 199 farms were in the
above category including: 132 agricultural farms and 29 fishery farms. These farms
were using the property of the Treasury Agricultural Property Fund: 268,000 hectares
of land, 40,000 hectares of lakes, 12,000 hectares of ponds. Also other properties, such
as commercial and industrial buildings, as well as manorial estates and palaces (347 in
number), were also managed under administration contracts.
One-person companies of the Agency for Treasury Agricultural Property
State farms which maintained animal or plant production, considered of importance
to biological progress in agriculture, as well as other, highly effective farms with large,
integrated territory, were transformed into one-person companies represented by the
Agency.
The Agency apportioned 6,000 hectares of land to the companies; in particular built
up land and other assets. 283,000 hectares of land (10% of the total leased land) were
leased by the companies. Of these companies 38 specialise in plant production, 65 in
animal production, 3 companies train racehorses and 37 commercial companies carry
out various agricultural, commercial and manufacturing activities.
Management and long-term tenure
Some parts of the land still being property of the Treasury (65,000 hectares) were
converted by the Agency to state institutions with no separate legal status (42,000
hectares), as well as to State Forests and National Parks (11,000 hectares). 13,000
hectares land were given in permanent tenure.
Farms under temporary management
In 1994, for the first time since the establishment of the Agency, owing to changes in
land management, the area of land under temporary management and awaiting devel-
opment was smaller than the area of land under fixed management. The former area,
however, was still half the size of the territory of the Netherlands, which gave no rea-
son for satisfaction. Five years after the breakdown of the centrally-planned system,

Wlodzimierz Zglinski : Transformation of State Farms in Poland: Ownership Patterns.
In: Spatial Research in Support of the European Integration. Pécs: Centre for Regional Studies,
1999. 121-133. p. Discussion Papers. Special
132
WLODZIMIERZ ZGLINSKI
the appropriation of land of the former state farms was still not settled, which con-
tributed to a growing deterioration of the national property. By the end of 1996, deci-
sions about the appropriation of 719,000 hectares of land (16% of land taken over by
the Agency) were still to be taken.
CONSEQUENCES OF PRIVATISATION OF STATE FARMS
The restructuring and privatisation of state farms has so far not resulted in funda-
mental changes in Polish agriculture. As a consequence of the above-mentioned
processes, the share of farm land as state property has only slightly decreased, whereas
the corresponding share in terms of land management has decreased by 6.7% (19.8%
in 1989). Nor has size structure of private farms changed radically. The size of private
farms has increased mainly in the northern and western regions of Poland — where
large private farms had already existed, before the systemic transformation took place.
Owing to the sale and lease of farming land (the plots smaller than 100 hectares)
about 215,000 farmers had the opportunity to enlarge the area of their farms by an
average of 4 hectares. The sale and lease of land blocks of the size of over 100 hectares
led to the establishment of 5,700 farms belonging to individuals as well as legal persons
(this includes companies of the Agency for Treasury Agricultural Property) of the aver-
age area of 480 hectares approximately. The average size of the territory of converted
state farms exceeded 2,200 hectares. It is estimated that the transformation of these
farms has allowed to maintain about 100,000 jobs — almost one quarter of the total
employment in state farms as of 1989.
Therefore the ownership transformation of state farms has caused a significant loss
of employment. Approximately 260,000 people have lost their jobs (180,000 before the
process of restructuring had actually began). The concentration of unemployment in
the northern and western regions constitutes a serious social, economic and moral
problem. With the liquidation of state farms in these regions, the former employees
and their families have lost the only possibility of earning their living. Support in the
form of unemployment benefits, as well as various policy measures aiming at employ-
ment growth and increasing labour participation have mitigated the problem only to
some extent.
The economic and financial condition of large-size farms that have emerged out of
the former state farms is highly differentiated. Although some of the new farms have
earned some profits over the last three years, and continue the process of adaptation
to market economy, the majority faces serious difficulties. The problem concerns in
particular those farms which are based on the lease of land. A number of farms in this
category now seek new external investors (including foreign investors); they require
further restructuring and new forms of management. In general, while Treasury-owned
farms are still yielding losses, one-person companies of the Agency and those farms
under temporary administration have yield the profit of 80 million PLN in 1996. A
large fraction of these farms should to be privatised in the future through lease of land.

Wlodzimierz Zglinski : Transformation of State Farms in Poland: Ownership Patterns.
In: Spatial Research in Support of the European Integration. Pécs: Centre for Regional Studies,
1999. 121-133. p. Discussion Papers. Special
TRANSFORMATION OF STATE FARMS IN POLAND
133
Treasury-owned farms under temporary management, on the other hand, continue to
bring financial loss.
As a result of the conversion and liquidation of state farms, a significant diminishing
of cultural and educational activities in the rural areas has taken place. Nurseries and
kindergartens were closed down, and so were libraries, cultural, recreational and sport
facilities. In regions with a large share of state farms, these facilities constituted an
important and often the only available network of social infrastructure and contributed
to social security and the development of social and cultural activities among the
inhabitants of numerous communes. The separation of the sphere of social services
from the sphere of economic activity, and the lack of resources needed for the mainte-
nance and preservation of public services have created a social and cultural gap — a
change for the worse in the living conditions of the local population in the rural areas.