In pursuit of institutional reform of rights and markets, and in the wake of financial and fiscal restructuring that frequently cause severe budget shortfalls, transitional governments have often reduced investments in and maintenance of the infrastructure that agriculture needs to be productive. In China, for example, central government investment in water and agricultural research plummeted in the first decade after reform. Several studies show that total factor productivity has been negatively affected by reduced investments . Observations from almost all transitioning countries report this fall in investment . One needs to be careful, however, to equate a drop off of government investment as a net fall in total investment, since in some cases the private sector will pick up the slack. In other cases, such as in Vietnam, instead of investing in its own agricultural research and development, its new open door policy has allowed better access to the international agricultural research system’s technology.Despite the possibility in some instances of substituting private for public capital, in agricultural some of the most expensive, but most productivity-enhancing projects are public goods. In these cases, it will be the role of the state to make the investments. In fact, if one examines agriculture productivity in the long run, by far most of the rise in TFP of successful agriculture economies in both developed and developing economies ultimately depends on investments in water control and public agricultural research and extension. One of the most often debated types of question is why have some countries adopted one set of policies or a certain reform strategy and others have not. In its most fundamental form, this is a question of what determines a country’s choice of reform strategy.

While there are a number of idiosyncratic factors that might be identified as the main reason for adopting a policy, we believe that the political necessity, or the nature of a country’s political economy, and initial conditions frequently determine policy choice. In this section we examine how political ideology and initial conditions help determine the choice of reform strategy. Before we do, however, we first want to raise a cautionary warning about how when addressing questions like this we often oversimplify a nation’s reform strategy, trying to group countries into a well-defined category. Using the example of Big Bang versus Gradualism, we show how the choice of reform strategy is not usually clear cut, but in reality is often more subtle. After the fall of the Berlin Wall, the debate on optimal reform for transition countries focussed on policy sequencing. China was often referred to as an example of a successful reform strategy, which combined an initial reform of property rights with a gradual liberalization process and thus created growth without the negative effects of disruptions. Others argued that the initial conditions and the economic structure of China were so different from Russia and CEECs that little could be learned from China and that the best policy in those countries was to liberalize and reform everything at once: the so-called “Big-Bang” option. Looking back, the insights emerging from the experience of transition countries so far suggest that the road to successful transition is more subtle.

Given the extraordinary growth in China’s economy, the resulting increase in income, and the wholesale reduction of poverty, the experience in China between 1980 and 1995 has been referred to as possibly “the greatest increase in economic well-being within a 15 year period in all of history” . Even if such a statement is only a fraction correct, it is hard to dispute the conclusion that China’s so-called “gradualist approach” to reform has been successful. However, several studies comparing economic performance of transition strategies in the non-Asian economies seem to come to a different conclusion. If one takes into account differences in initial conditions and external factors, such as regional conflicts, those countries which have reformed earliest and most radically are now doing best . Such a finding, if true, would suggest the superiority of radical reform. Based on our analysis, we believe that, first, the successful transitions in Asia and Europe have elements of both gradualism and rapid, one-stroke reform, and second, that to reconcile these apparently conflicting conclusions one needs to look at both the political environment and the initial conditions at the time of reform.In China, the successful reforms were initiated by a Communist Party that remained and continues to remain very much in charge of the nation. Especially in the early stages of reform, there was relatively little political change that coincided with the economic initiatives. Initially, agricultural reforms were implemented by the Communist Party as an attempt to reduce pressure from the rural population following dramatic failures of the Cultural Revolution. Although there was a turnover in power from Mao to Deng that gave the opportunity to implement a new set of policies, the directives and implementation of the reform measures were designed, tested, and revised within the context of a continuing government-party hierarchy. Somewhat paradoxically, while the reforms in China are often referred to as “gradual,” the initial property rights reforms in some ways led to more radical reform of land use rights and more complete decollectivization than in either Russia or CEECs. Because of the sharp, decisive change, affecting the incomes and livelihood of more than 70 percent of the population, the agricultural reform had a tremendous impact on the whole economy. The rise in food production and increases of supplies in the countryside and city took the pressure off the government. In addition, the rise of incomes created an immediate surge in demand for non-food products. Ironically, these actions, which initially looked like moves away from Socialism,hydroponic gutter probably did more to consolidate the rule of the Communist Party than any other measures taken during this period. In contrast, pre-1989 attempts by Communist Parties in some European countries to give more autonomy to collective farms were much less radical and had little impact. Even if agricultural reforms had been successful, fewer people would have been affected since only a relatively small share of the population was still employed in agriculture, and they were unlikely to satiate the demand for significant changes in the rest of society.But while this is a general characterization of what happened in the non-Asian transition states, in fact, the speed and the extent of the reforms differed dramatically between CEECs and the former Soviet Union. Perhaps unsurprisingly, political and administrative feasibility played an important role. As Wyplosz concluded: “With hindsight, the old debate, Big Bang versus gradualism, is more a question of feasibility“. In terms of political feasibility, the one factor that certainly has played an important role in determining the speed and extent of reform is the political and social consensus to move towards a market economy and democratic political institutions. For a variety of political, geographical, and cultural factors, the consensus was much stronger in CEECs, including the Baltic countries. Simply put, after decades of Soviet domination these countries were strongly motivated to move towards “the West.”

The same push and lesser opportunities made such radical moves less compelling for Russia. In terms of administrative feasibility, optimal policy sequencing of a gradual reform strategy, especially in more developed economies in Europe , would have required extensive information on the transformation process and the economy. Most observers question the feasibility of plotting out a rational, systematically-executed reform path ex-ante. As McMillan puts it: “If it were possible to plan the transition it would have been possible to plan the economy.” Moreover, in some key agricultural reforms, institutional constraints and explicit political objectives affected the final choice. For example, one of the most hotly disputed policies in agriculture was land reform. In CEECs the proposal to restitute farm land to former owners, many of whom were no longer active in agriculture, was vehemently opposed by collective farm managers and workers, and by many economists and advisors who supported land-to-the-tiller policies. However, a combination of institutional constraints — as individuals had retained nominal title of their land in most CEECs any other land reform procedure would have required land expropriation by the market-minded governments — and political objectives — in the Baltics restitution ensured that Russian immigrants would be excluded from land ownership — made land restitution the most common process of land reform in Europe from the Baltics to the Balkans .Although other factors also played a role, the initial technology played a decisive role in creating the success of the break- up of China’s collective farms .Agricultural production in China was much more labor-intensive than in CEECs or Russia. With labor intensive technology, the cost of a break-up of the collective farms in terms of losses of scale economies was smaller, and the gains from improved labor incentives from the shift to family farms were larger. The length of time under Socialism also matters. Central planning and Communist rule was imposed for a much longer time in Russia and most other former Soviet states and has certainly affected both the emergence of new institutions and the response of individuals to new opportunities and incentives. The lack of experience with market institutions decreases the demand for institutional change. Furthermore, surveys confirm that responses from households and individuals in regions where a tradition of private farming existed clearly differs from where this was not the case. Similarly, pre-reform trade patterns had an important impact. Repkine and Walsh show that across sectors recovery in the CEECs is primarily driven by companies that had links with Western markets before the reforms. Investment demand shocks marginalized companies and sectors producing for CMEA markets. At the same time, a gradual expansion in products of companies traditionally producing for Western markets occurred. With the FSU countries depending much more on CMEA markets than the CEECs, countries like Russia and the Ukraine experienced a stronger disruption of their demand system, and consequently suffered greater output declines. Finally, the pre-reform differences in the relative price faced by producers relative to those that prevailed in international markets can account for a significant part of the initial differences in performance of transitional agricultural economies. In China, shifting prices more towards international levels meant a favorable rise in the output to input price ratio for many crops.When prices were moved up towards international price levels, producers responded favorably. In contrast, in CEECs and Russia, where agricultural producers were heavily subsidized under the old regime, the removal of subsidies meant a steep plunge in the real price of output relative to inputs. Hence, even without the collapse of procurement and supply channels, one would expect rational producers in Europe and Russia to cut back on input use and reduce output. So, does the importance of initial conditions reduce the responsibility of reform era leaders for the poor performance that some transitioning countries have suffered? In some sense, the answer has to be yes.

Cotton is the most important field crop. Recent introductions of pima varieties have augmented traditional upland cotton production but total cotton acreage has fallen due to poor profitability. The region is an important producer of most field crops . Irrigation and a long growing season have also led over time to increased vegetable production . Summer melon production is important, as is seasonal production for many of the major vegetables . Some seasonal production is timed to fill marketing niches as the fresh produce industry moves in the spring from desert to coastal areas and in the fall back toward the desert. Of the major categories, nursery products and cut flowers appear relatively insignificant in comparison with the total value of agricultural commodities .This region of the state is very similar to that of the North, being largely dominated by livestock and livestock-related economic activity an private and leased public lands. The Mountain region covers about 15 percent of the state’s land area, and land is mostly in public ownership; less than 10 percent of the total land area is in farms. Together, livestock , livestock products , and field crops—mainly range land and pastureland production —, amount to about three quarters of the value of the region’s agricultural activity in 1995. In truth, the dominance of these commodities in the region’s agricultural economy is larger because the geographic location of fruit and nut production , and nursery products recorded for the region, actually occur on the west slope, foothill “valley” portions of several mountain counties.This area is still a base for significant agricultural production despite progressive development with a large urban population.

Los Angeles County was once the most important agricultural county in the United States, measured by the value of its agricultural production. Los Angeles County was ranked as California’s number one agricultural county into the 1950s. Despite urbanization, 21 percent of the region’s land area remains in farms, with often intense and complex interactions between agriculture and urban constituencies. The average size of farms is the smallest among state agricultural production regions, while the average value of farm products sold per acre is the highest. With 69 percent of cropland irrigated, production is mostly high valued nursery products, fruits and vegetables. High-valued crops grown in the South Coast area are those suitable to its moderate climate and usually frost-free growing seasons. High values are needed to rationalize the application of some of the highest-cost irrigation water in California. Nursery products, foliage and flowers are the most important economically of all product categories, making up 35 percent of the regional value of 1995 production.San Diego County alone produced $585 million of nursery products, foliage and flowers in 1995. Avocados and citrus , strawberries, and wine grapes are the main fruit crops . Vegetable production, some of which is seasonal before and after the winter desert production season, includes broccoli, celery, lettuce, and bell peppers. Egg production and dairying are the two major intensive livestock product enterprises.Including the eastern areas of the Los Angeles area , this region also extends across the more remote desert valleys—the Coachella, Palo Verde, and Imperial Valleys—irrigated by early diversion rights to Colorado River water. Only 28 percent of the land area is in private ownership, and only 10 percent of the land area is in farms. Because of the severe climatic conditions, a high proportion of cropland is irrigated . The western San Bernardino and Riverside areas include remnants of the once-dominant citrus and dry lot dairying industries, which are gradually being displaced by urban expansion.

Livestock and livestock product activities contribute the greatest proportion of the value of production in the South Coast region by capitalizing on the region’s proximity to markets and a long tradition of cattle feeding in the Imperial Valley and other desert valley areas. Vegetable production , predominantly in the irrigated desert valleys, includes important winter and early season production of asparagus, carrots, lettuce, melons, and sweet corn. Highly productive desert lands with irrigation benefit from temperate winters and nearly frost-free growing seasons to produce a variety of high-valued fruit and vegetable crops that are in supply during the off- and early seasons of the major production regions. Fruit production is mainly in the western areas and in the Coachella Valley . Field crop production includes alfalfa hay production for the region’s livestock activities, cotton, sugar beets, and wheat, including durum.Risk is substantially greater in the production and marketing of perishable fruits and vegetables than in more stable commodities.15 Investments in permanent plantings are large and must be paid back over the period of economic production. Figure 2 shows the pronounced change in the distribution of field crop, tree fruit and nut, and vegetable acreages and value of production over the decade of the 1980s. In 1980, production of fruit, nuts, and vegetables contributed over half of the value of production , but only used 27.9 percent of the acreage in production. In 1990, these more intensive, higher-valued, higher-risk crops amounted to 73 percent of the value of production, while using 38.7 percent of acreage. The residual nature of field crops is evident as farmers and ranchers seek more intensive production enterprises. Shifts toward increased acreages of vegetables and permanent plantings continued through the decade of the 1990s, most noticeably with substantial increased acreages of nut crops , deciduous tree fruits , and wine grapes. The composition of California agricultural production is compared for the years 1955, 1975 and 1995 in Figure 3. Total value of agricultural production grew three-fold from 1955 to 1975, from $2.68 to $7.43 billion. Change in composition between 1955 and 1975 was not as dramatically different as that which has occurred over the last period, 1975-95, partly due to an overall increase in irrigated acreage through most of the first period.By 1995, high-valued fruit and nut, vegetable,planting gutter and nursery and greenhouse products contributed 60 percent of the aggregate value of production for the state, and total value of agriculture production amounted to almost $22 billion. Field crop and livestock/livestock product categories were reduced by about one-half and one-third, respectively, in terms of their relative contribution to the value of California agricultural production. In 2001, the value of nursery, greenhouse and floriculture exceeded the value of field crops, and the dairy sector alone accounted for 17 percent of the state’s value of agricultural production . As a consequence, the share produced by livestock, poultry, and products actually rose from 25 percent in 1995 to 28 percent in 2001.The shifting composition of agricultural production is also reflected in changes in the state’s “Top Twenty” agricultural commodities over time. Table 2 shows the “Top Twenty” commodities ranked by gross farm income for the 2001 crop year, with comparisons for 1981 and 1961. Comparison of the 1961 and 2001 lists shows that whereas there were a total of 12 livestock/livestock products, and field crops identified in 1961, only 5 were on the 2001 list. In sharp contrast, there are now 13 fruit, nut, and vegetable crops on the 2001 list, compared to only 8 on the 1961 list. Nursery products and foliage and cut flowers have been added since 1961, appearing on both the 1981 and 2001 lists.California is now the number one milk producer in the United States. California’s dairies and the dairy processing sector are part of a dynamic system that has progressively become more efficient, larger, and more specialized over its history. Herd sizes are, on the average, ten times larger than the national average, and cows are, on the average, significantly more productive.

Dairy processing capacity has more than doubled during the 1990s. The state’s dairy industry evolved from “local” dairies that originally provided fluid milk to nearby growing population centers in the San Francisco and the Los Angeles area milk sheds. The San Joaquin Valley milk shed was first a center for lower-valued manufacturing milk used mainly for butter and cheese production. With improved transportation systems and reduced land available for dairies in or near the main population centers, the San Joaquin Valley is now the major source of fluid milk serving both the Bay Area and the Los Angeles Basin. Processing continues to be concentrated there as well. Continuing urbanization and waste disposal challenges have caused more dairies to move into Central Valley and South desert areas, principally into the San Joaquin Valley. California’s dairies are highly specialized. As the number of dairies decreased, their size has become significantly larger, requiring more capital-intensive specialized production systems based on genetics, herd health, nutrition, and high levels of management. Urban expansion in the Los Angeles area led to the development of the dry lot, feedlot style dairy using concentrates and feed stuffs often grown in other areas. Modern dairies often milk 3,000 or more cows daily and use waste effluents and solids on silage and forage crops on adjacent cropland.Wine grape production occurs throughout the state. California’s premium wines come from grapes grown predominantly in cooler, coastal valleys, most notably in the Napa Valley, but also in other North Coast areas as well as in some Central Coast areas. Higher yielding vineyards in the San Joaquin Valley produce standard and mid-quality table wines often marketed in larger-sized bottles and containers. The California wine-grape vineyard and wine-production industries have grown sporadically over the last half century. Following World War II, about 80 percent of the wine produced was in the fortified appetizer or dessert wine category with production chiefly in the San Joaquin Valley. Americans did not then know much about quality wines, but gradually, as tastes changed, the industries also changed toward the production of both standard table and world-class premium quality wines. Bearing acreage increased from about 120,000 acres in the early 1960s to over 300,000 acres by the mid-1990s. Rapid expansion occurred in the 1970s and again in the 1990s. By 2001, there were 480,000 bearing acres of wine grapes with an additional 90,000 non-bearing acres. The specter of oversupply is real, affecting marginal plantings, particularly in the San Joaquin Valley, as new and potentially higher yielding vineyards incorporating disease-resistant root stocks and up-to-date trellising, irrigation, and management systems come into production. Marginal plantings are often removed out of economic necessity during periods of oversupply. Some grape varieties are better for fresh use because of certain combinations of characteristics: attractive appearance, large berries, good eating quality, and resistance to injury when handled, shipped, and stored. Fresh grapes are among the nation’s most popular fruits in terms of quantity consumed, and they are second, following bananas, in sales value. California table grapes are harvested from late May through late fall. Harvest begins in the desert regions, primarily in the Coachella Valley in Riverside County, and continues in the San Joaquin Valley, beginning first in Kern County and moving northward through the summer and fall. With careful treatment, California grapes may be enjoyed through March of the year following harvest.