Introduction to Doctoral Thesis

“Farm Business Management and Public Governance”

Adukov R.H., Doctor of Economic Sciences, Professor; Head of Division; All-Russia Research Institute of Agriculture Economy, Labor and Governance (VNIETUSH)

The thesis was defended in June 1998

Relevance of the study topic. A famous Russian philosopher and humanist N. A. Berdyaev wrote: “The society should be organized in such a way that bread should be for everybody, and then a religious issue will appear before a person in its full depth” (15. 151). It is difficult to disagree with this undeniable truth. The lack of bread reveals human vices and deadens truly valuable personal characteristics. It is known, that the majority of wars and associated sufferings were directly or indirectly caused by “the bread issue”. Also, undoubtedly the unsolved food security problem impedes the social and economic development of the society.

But the life has been going on. Since the mid-XX century, i.e. last 40-50 years, around 16% of the world economies succeeded to ensure the food security and to achieve food self-sufficiency. Therefore, for the first time in the mankind history selected nations (thanks to modernization of governance structure and public relationships, encouragement of R&D and production) succeeded to achieve the level that allowed “to feed” not only the elite part, but the majority of the population. It is important to note that these countries include many economies, which traditionally lagged behind Russia.

China occupies a special place among them. As a result of reforms this country has become the world leader in economic growth rates: its GDP has been increasing by 9–11% annually; the average living standard has raised by 2 times. These are tremendous results for such a large nation. Our theoretical and practical interest in China case is explained, first of all, because this country is the socialist one (as the USSR). In addition, China obviously lagged behind the USSR in R&D. However, the reform outcomes have not benefited Russia (and the USSR). For instance, by 1986 (in the first 7-8-years of reform period) the new economic policy in agriculture enabled China to provide food for its billion-size population. It is important to note that 21% of the world population lives in this country, while its arable land area comprises only 7%.

While more and more countries are facing food surplus problems, the domestic agricultural sector has experienced sluggish growth. Over 25 years (1966–1991) prior to the current social and economic reforms, 86 Communist Party and Government resolutions were adopted to improve the agricultural situation. As a result, dramatic positive shifts have occurred in agricultural input supply and financial support. By 1991 the USSR surpassed the USA in production of major agricultural machinery (tractors and harvesters) by 4 times. Overall, the large-scale farms experienced no problems in supply of fertilizers and plant protection chemicals. The farms had access to cheap loans.

Farmers did not experience lack of land resources as well. In the USSR there was 0.8 of arable land per capita. Only Australia exceeded us in terms of that indicator — 1.5 ha of arable land per capita. Moreover, according to the data of the Soil Research Institute named after V. V. Dokochayev, the USSR possessed 52% of the world deposits of the black soil — the most valuable types of soil (Russia accounted for 40% of the world deposits).

However those and other opportunities had not influenced positively the agricultural situation. For instance, in that period the cereal yields had increased by 70 kg only (1.37–1.44 t/ha). For comparison purposes: in the same period in the USA, France and Netherlands the average annual growth comprised 60, 132 and 128 kg correspondingly. Moreover, the yield growth in the mentioned countries was achieved from higher levels (3.0–4.5, 3.1–6.4 and 3.6–6.8 t/ha) that was much more difficult.

It was paradoxical, that the produced products were not be used efficiently. For instance, out of 400 million tones of the world output of wheat the USSR share was 90 million tones. Our per capita output of wheat was 12% higher than in the USA and by 1.5 times higher than in the EEC. Despite that the USSR annually purchased around 20 million of wheat that amounted to 20% of its world imports (262.2).

By 1990 the EEC member states with the population of 320 million people produced 90-95 million tones of milk, while the USSR with the population of 290 million people — by 10 million tons more (186.3). Therefore, the EEC members states succeeded to provide abundance of milk products despite their milk output per capita was lower by 1.23 times. While the USSR failed to solve the milk supply problem, as well as many other problems.

The arguments that Russia is located in the risky farming area and other excuses are refuted by the practice. In various regions of this country there are hundreds of farms which performance is comparable to the western operations. Business management, technological and other practices applied to improve farm business efficiency were not the secret for managers of lagging farm enterprises. Moreover, those practices were intensively promoted and disseminated, however, their wide application failed.

Instead of the anticipated growth the market reforms initiated in this country in the 90s resulted in dramatic agricultural decline. Over 6-year decline period the output of major products had decreased by 30–70%. The Russia’s share in the world output of cereals, sugar beet, milk, meat and eggs had reduced by 2 times.

The analysis demonstrates that agricultural sector problems are caused, first of all, by the inadequate public governance system. This is explained by the fact, that the governance system fails to keep pace and to adapt to changes in business environment and in farms (the latter transformed into business operations).

In the transitional period the scope and complexity of governance functions had increased substantially (the government support had been minimized, the competition with foreign suppliers had strengthened, the farms had to be engaged in marketing, etc.). These developments had set high requirements for the governance system performance.

The federal level agricultural authorities have faced new challenges, since economic regulation methods (inherent to the market environment) are more complicated than administrative ones.

Therefore, it has become imperative to enhance both the farm business management and the public governance in agriculture. The community of goals of these management systems and actual full dependence of the former from the latter necessitate their interlinked exploration.

In selecting research area the priority has been given to human factor in management, as the most relevant in the situation of acute deficiency of physical inputs.

The purpose of the study is to elaborate theoretical approaches, methodological and practical recommendations to adapt the farm business management and public governance systems to the market environment.

The objectives of the study. In accordance with the purpose the following objectives have been tacked:

• a nature of impact of public governance methods on the agricultural reforms outcomes in Russia has been identified; key shortcomings of the ongoing reform have been specified, causes, impeding the rural economy development have been revealed; factors, which affect farm business management, have been classified;
• a role of local self-government in rural economy development has been identified; recommendations for its enhancement have been elaborated;
• a role of human factor in management has been specified, as a result, the recommendations to improve farm manageability have been formulated;
• a methodology for appraisal and selection of farm managers and subject-matter specialists has been improved;
• a package of recommendations to improve management structure and methods to adapt farm management system to the market environment has been formulated;
• underlying principles of government — farm relationships between the have been articulated; a set of priority cost-efficient tasks for federal-level authorities has been formulated; approaches to address them have been proposed.

The study topic is theoretical, methodological and practical issues of establishment and performance of farm business management and public governance systems.

The study objects. The basic objects of the study include several large-scale farms in Moscow, Tula and Ryazan Oblasts.

The study methodology and methods. The study theoretical and methodological approaches are based on research findings of acknowledged national and foreign economists, various scientific centers, as well as on legal and regulatory acts.

In preparation of the thesis the historical, monographic, abstract-logical, sociological, computation-constructive, expert estimate, experimental and statistical research methods have been applied.

The scientific novelty is embodied in the following theoretical and practical findings of the study:

• the analysis of agricultural reforms in Russia has revealed that the key role in agricultural development is played by public governance methods;
• the factors, which impact farm performance efficiency, have been classified; according to the classification they are divided into 2 groups: external (specifics of public governance) and internal (specifics of farm manager and his performance, specifics of farm and farm workers);
• it has been found out that the rural economy development mechanism is based on ownership democratization and governance democratization processes; that is why they were assigned to the most important functions of the public governance in agriculture;
• the impact of local self-government on rural economy development has been identified; the recommendations for its enhancement have been formulated;
• the role of human factor in establishment of farm management system has been clarified, the new approach to the manageability theory has been formulated, recommendations to optimize farm parameters have been substantiated (in order to increase the manageability);
• the methodology for social and psychological appraisal of farm workers have been elaborated; the respective human resource classification has been prepared, the managerial staff models have been devised, the methodology for staff appraisal and selection has been improved;
• the recommendations for selection of farm business and legal structure have been formulated;
• the package of recommendations to improve farm management structure and methods has been elaborated in order to adapt to the market environment by engaging internal reserves;
• the principles of building mutually beneficial partner relationships between the government and the farm have been articulated; the set of priority low-cost tasks of the federal authorities to improve the agricultural situation dramatically has been defined.

The above listed research findings formed the basis of the dissertation approaches to be defended.

Practical importance of the study is that it contains applied recommendations, which may be used to adapt farm business management system to the market environment, as well as for educational and research purposes. The core proposals have been already applied and have been highly appreciated by farm managers, officials of district and regional agricultural authorities, the RF Ministry of Agriculture and Food.

Approbation. The study findings have been presented at international, national, regional and other scientific conferences, meetings and workshops. They also have been used to prepare over 20 research reports and recommendations on improvement of public governance in agriculture (the dissertation was prepared within research plans of “Management in AIS” Division for 1982–1997; VNIETUSH).

Key provisions of the dissertation have been presented in 40 scientific publications, including 9 books and leaflets, 9 methodological recommendations. The overall volume of topical publications is 39 printer’s sheets.

The human resource management methodology elaborated in the course of the research has been circulated by the RF Ministry of Agriculture and Food to all regional agricultural authorities to be used as the tool to appraise and to select managers of large-scale farms.

The study results have been applied at 23 agricultural enterprises and associations, including such well-known as “Novomoskovskoye” (Tula Oblast), “Povolzhskoye” (Samara Oblast), Matveeyevskoye“(Moscow Oblast), “Avangard” collective farm (Ryazan Oblast).

The study scope and structure. The dissertation is composed of introduction, four chapters and conclusion. It contains 27 tables, 10 figures and 4 annexes. The bibliography includes 267 items. The overall size of the thesis is 222 pages.

The study structure logic. The dissertation is composed of four interlinked, but relatively independent blocks. The last three of them tackle methodological and practical issues, as well as the theory. The main focus is on deliverables generated and applied in agricultural production with direct involvement of the author.

As many other researchers, the author supposes that the weakest component in scientific management is inadequate exploration of theoretical issues, especially relating to the human factor — the most important reserve in the business management system. Therefore, the author attempts, first of all, to tackle theoretical issues of the subject matter. At the same time, adhering to the famous rule “there is nothing more practical than a good theory” the study seeks to closely link all theoretical management issues with practice.

The specifics of the study is that it does not contain discussions concerning interpretation of various scientific terms and definitions relating to the subject matter, though the opinions of leading researchers in this area have been explored. Firstly, the terminology relating to the enterprise management system has been studied quite well. Secondly, today the issue is the fundamental solutions, rather than details. The agricultural situation creates a vast field for economic research and, first of all, in farm business management. In our opinion it is this area, where the main agricultural development potential is concentrated.