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During the land reform of 1946, farms with more than 100 ha were dispossessed, and 2.6 million hectares of this agricultural land were redistributed to 200,000 new farmers (mainly refugees), who received an average of 8.5 ha to establish new farms. Further, 335,000 people with less land (small farmers) received an average of 1.5 ha. The remaining 500,000 ha became public property in a so-called national land fund, and were redistributed to state-owned farms with an average size of around 600 ha in 1960 (HENKEL, 1993). Small farmers became full owners of the additional land. However, the land of the new farmers would be returrned to national land fund if they stopped farming (LEHMBRUCH, 1998). Thus, the share of agricultural land in the national land fund grew again to more than one million hectares. By July 2007, the BVVG made restitutions of around 712,000 ha of agricultural land. A further 460,000 ha were sold to farmers. In July 2007, the BVVG still rented out 10 % of the total UAA in East Germany (550,900 ha). In Saxony, 6 % (or 53,600 ha) of the total agricultural land was still owned by the BVVG in 2007.

The original owners and farmers have, as outlined in the Compensation and Indemnity Act (EALG = Entschädigungs- und Ausgleichsleistungsgesetz), the possibility of buying land for 35 % lower than the market price. The purpose of this law was to compensate those affected by dispossession during the GDR era, and to enable tenants who did not have the possibility of buying land in the GDR to do so. Thus, the law should strengthen the economic situation of farmers in East Germany. Since 1992, 280,800 ha of agricultural land was sold at a reduced price, which amounts to 29 % of the total land sold during that time (BVVG, 2007, STATISTISCHES BUNDESAMT b). Applications for buying land within the Compensation and Indemnity Act (EALG) must be made by the end of 2009, because the EU-Aid Regulation limited the aid for farm land to 10 % of the current market value (NL-BZAR, 2007). By July 2007, the BVVG received 5,100 applications from farmers in East Germany to buy approximately 175,000 ha land at a reduced price. Furthermore, the BVVG plans to sell 25,000 ha annually. That means the remaining 375,000 ha owned by the BVVG should be sold before 2022 (BVVG, 2007).

The transformation of the agricultural sector, especially the restructuring of cooperatives and the access of new farmers from West Germany and the Netherlands, caused a large fluctuation in the land market. For example, in West Germany only 0.4 % of the agricultural area was sold annually, whereas in East Germany this number is 1.5 % (SIEGMUND, 2007). Farm restructuring is also influenced by the privatisation of farm land. Farmers, whose rental contracts with the BVVG have ended, can be threatened by the loss of land, which could be sold and bought by other farmers.

The reduction of old debts inherited from the communist era has played a role on the land market. Immediately after the reunification, farmers in East Germany could not afford to buy land due to these debts. Now, the financial situation of the farms has improved and the problem of these debts has been managed. Thus, farmers are beginning to consolidate their enterprises Impact of the introduction of decoupled payments on functioning of the German land market 71 and trying to increase their share of owned land. The demand for land increases as shown in Figure 31.

Figure 31: Land transactions and land prices in Saxony

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Figure 31 also shows the prices per hectare of agricultural land and the land sold under the conditions of the Compensation and Indemnity Act (EALG), as well as prices paid for this land.

The Compensation and Indemnity Act was enacted in December 1994, while the Land Purchase Regulation (Flächenerwerbsverordnung) became effective in December 1995. Thus, purchases in the frame of the Compensation and Indemnity Act began in 1996. In 1998, they were stopped by the European Commission, because the Compensation and Indemnity Act was not confirmed within EU-regulations. In 2000, the German Parliament changed the law and the purchases began again.

For land sales that do not fall under the conditions of the Compensation and Indemnity Act (approx. 375,000 ha in the former GDR), the BVVG worked out a new concept to accelerate privatisation. The main idea of this concept is that land under contracts with remaining duration of two years has to be publicly offered for sale and for rent. Thereby, the farmer with the highest bid will receive the land. On the one hand, the former tenant must buy the land if he does not wish to lose it, and on the other hand, prices for land sold by the BVVG are rising. The interviewed experts have criticised this practice of the BVVG and fear that the prices for land sold by private persons will also increase in the future. However, by 2006, the sales prices for land in Saxony were relatively stable. In contrast, even after 1994, they were declining rather than increasing (see Figure 31). During the first years after reunification, the land sales prices were higher due to the effects of influence from the West; in West Germany at that time, farmers paid an average of €14,000/ha for agricultural land.

In contrast to sale prices, rental prices have constantly increased since reunification (Table 16).

In 1991, the average rental price for arable land in Saxony was €72/ha, which by 2005 had increased 71 %, to €123/ha. However, farmers are actually willing to pay more than €200/ha for renting arable land.

Lioudmila Möller et al.

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A.3.5. Drivers of land values Experts have shown that land sale prices in the Saxonian Loess Area are influenced by market forces rather than by policies like decoupling, rural development and other measures.

Agricultural commodity prices and productivity have a stronger impact, just as they do in the whole of Germany. More specific to the Saxonian Loess Area and East Germany is the increasing demand for land and the relatively low supply from private owners, which leads to an increase in land sales prices. On a more political level, the BVVG’s land sales practices have also been a driving force. The BVVG offers land for sale which will be free from rental contracts within two years, and sells this land for the highest price. This leads to farmers making high bids to keep the land which they previously rented.

Another regulation which has an impact on rental prices in some areas is the Harz IV law, which regulates aid to unemployed people. An important stipulation of this law is that unemployed people receive no aid if they own any property. In regions with a high unemployment rate, this can lead to unemployed people selling their land, usually at very low prices because they cannot afford to wait for a better offer.

Just as all over Germany, taxes, the development of interest, and inflation have a low influence on land sales prices.

The influence of non-agricultural investors, for example from the bio-energy sector, is less important in the Saxonian Loess Area than in West Germany or the rest of East Germany, because the agricultural ministry of Saxony is very restrictive in its use of the Law on the Sale of Agricultural Land (Grundstücksverkehrsgesetz). The aim of this law is to support existing agricultural structures and it is possible to prohibit land sales to non-agricultural investors if a farmer is interested in the land. However, this special situation may change in future; due to administrative reforms, the agricultural ministry will lose its responsibility in overseeing land sales.

In the rental market in Saxony, a steady price increase can be observed since the reunification (see Table 16). One reason for this is the initially low average rental price of €65/ha in 1991.

The average rental price for West Germany was at that time €217/ha. Experts have stated that in the long-run, increases in agricultural productivity and inflation influence rental prices.

However, the actual increases in commodity prices led and will lead to an additional increase in the rental prices. Only two of eight experts have said that decoupling had or will have an influence on rental prices. The only influence it could have is on rental prices for grassland, because payments for grassland did not existed before decoupling and the introduced payments will even increase from €111/ha to €359/ha by 2013 (BAUERNVERBAND, 2008). Other policy measures, such as environmental or less favourite area payments, have had no impact on rental prices. The same holds for taxes, the development of interests, and informal institutions.

Aside from the Law on the Sale of Agricultural Land (Grundstücksverkehrsgesetz), which has had little influence on the rental market, no regulation on rental markets exists.

Impact of the introduction of decoupled payments on functioning of the German land market 73 Furthermore, there are only certain infrastructural projects in the Saxonian Loess Area which influence rental or sales prices locally. Most of these major infrastructural projects were carried out in the 1990s after reunification. An important characteristic of the Saxonian Loess Area, as well as all of East Germany, is the migration of people mainly to West Germany, where there is a stronger labour market. Thus, there is low urban pressure only in the big centres in the Saxonian Loess Area, such as Leipzig or Dresden.

A.3.6. Distribution of direct payments From 1993 to 2003, Saxonian agriculture received an average of €234 million coupled, direct payments per year. Around 90 % of these payments were paid for crops and the rest for livestock.

During that time, direct payments grew from €111 million to €272 million. In 2004, they again increased to €288 million due to the introduction of the milk payment.

With decoupling, a share of the livestock payments was redistributed to the grassland in Saxony.

The remaining livestock payments were added to the payment entitlements of the farms which had previously received livestock payments. Thus, and due to the different payments for arable land (€310/ha) and grassland (€111/ha), the average face value per entitlement payment varies between €111/ha and more than €500/ha between municipalities.

Figure 32: Average face value of payment entitlements per municipality in the Saxonian Loess Area Source: ZID, 2005.

The average face value for all of Saxony is €352/ha (ZID 2005). In municipalities with a high face value of payment entitlements dairy or beef fattening farms dominate. From 2009 until 2013, the differences in face values will be adjusted gradually and it is estimated that the final regional payment for Saxony will be €359/ha (BAUERNVERBAND, 2008).

A.3.7. Effects on structural change In East Germany, structural change is mainly caused by the restructuring of former cooperatives and the privatisation of land. Problems occurring with non-agricultural investments or infrastructure projects have thus far been buffered by the redistribution of state-owned land (BVVG areas).

However, when the privatisation of land finishes as planned in 2022, the pressure on farmers will increase, as there will be no possibility to compensate such land losses.

In general, various developments concerning the number of farms in Eastern Germany can be observed since 1991. Figure 33 shows the development for Saxony. After reunification, many Lioudmila Möller et al.

new farmers started businesses and a more or less steady increase in number of farms can be observed in Saxony until 1998. Between 1998 and 1999 we have a break, due to a change in the regulation on how and which farms should be counted, statistically. After a peak in 2002, the number of farms began to decline. However, not all of these statistically-counted farms applied for direct payments by 2005. Of the 7,819 farms that were statistically counted in Saxony in 2003, 6,890 applied for direct payments. With the introduction of the dynamic hybrid decoupling scheme, farmers can also receive payments for grassland. Thus, 472 more individual farms (125 full-time and 342 part-time farms) applied for payments. This did not lead to a change in the number of farms in total; it was only a change in the number of farms which applied for payments.

Figure 33: Development of the number of farms in Saxony 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Source: STATISTISCHES LANDESAMT SACHSEN.

Thus, one cannot say that decoupling had an impact on the number of farms, nor on the average farm size.

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