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Investigation 22 Nov 12

Collective Punishment: How a Socialist Farm Lost its Way to Market

BIRN digs deeper into the sale of a once-successful Croatian farm that went the way of many privatisations in the region – leaving workers jobless and out-of-pocket.

Ana Benacic
BIRN
Retkovci

A few hundred sheep are all that remain where there was once a busy farm.

Beyond the long grass lies a runway where the planes no longer land. It was owned by the villagers here, along with the farm and the fields.

The crop-dusters flew away when the farm went bust. In the following years, the villagers’ shares in their business also vanished, seemingly into thin air.

For Ivan Zivkovic, who worked at the farm, the disused airstrip is a neglected piece of an unsolved puzzle. “We never found out who owns it now, or what they paid for it,” he says. “There is no trace of the money.”

The collapse of his farm is part of an even larger puzzle – the catastrophic decline of agriculture in the breadbasket regions of the former Yugoslavia. Food imports and prices are rising in countries that once fed themselves comfortably.

In the lush plains of Serbia, farmers are getting poorer, while their children migrate to the cities for work. In Croatia, agriculture today accounts for three per cent of the Gross Domestic Product (GDP), compared to almost 20 per cent two decades ago.

Trade liberalisation and the current economic crisis bear some of the blame, as do the conflicts that tore the former Yugoslavia apart. But across the region, experts say it is corruption and mismanagement that have brought agriculture to its knees.

No soldiers traded gunfire over Zivkovic’s farm in eastern Croatia. Instead, its workers spent the 1990s fighting businessmen and lawyers for their tractors and orchards – the spoils of a privatisation deal gone wrong.

“It was like a small war zone,” says Marko Tominac, an insolvency manager who tried to settle the farm’s accounts among Zivkovic and his colleagues. “Everybody was screaming that everybody else was getting the bigger part – including the workers.”

The privatisations of the last two decades were largely – but not universally – disastrous. A handful of the region’s largest collective farms have changed ownership and remained productive.

But most of the small and medium-sized concerns did not survive the transition from socialism. They were treated as the low-hanging fruit of the privatisation boom – bought cheap, stripped bare, and discarded – by men who had little interest in agriculture.

In Serbia, the alleged drug baron, Darko Saric, funded the purchase of Mitrosrem, a collective farm now hovering on the brink of bankruptcy. Saric denies the charges against him and is on the run from the law.In Slovenia, agriculture’s contribution to the GDP has shrunk to a quarter of what it was 20 years ago. The country’s privatisation was “tycoon-oriented, wild and idiotic”, according to Ales Kuhar, an associate professor in food economics at Ljubljana University.

In Croatia, where privatisation is commonly referred to as “legalised theft”, a state audit published evidence of hundreds of bad deals from the previous decade. The audit was completed in 2004, and the statute of limitations relating to the deals has since been removed, allowing any privatisations from that period to be investigated.

However, prosecutors say they are only investigating 31 people at the moment, and have yet to file any indictments. The country’s judiciary is routinely singled out for criticism by the European Union, which Croatia is scheduled to join next year.

According to Mario Ivekovic, a Croatian trade union leader who campaigned for national audit to take place, the state has only provided an “inventory of the crime”. It has not cancelled the privatisations or compensated the victims, as the public had hoped.

“Nothing happened afterwards,” he says. “The years are going by, and it will become harder to get to the bottom of these cases.”

This report by BIRN pieces together how a single collective farm fell apart, using interviews with workers and managers, as well as court and government documents.

Mismanagement appears to be the main culprit in the farm’s demise, yet many questions remain. Who got what share, and how much did they deserve? If the answers are hazy, it is partly because the very definition of ownership was up-for-grabs during Croatia’s chaotic transition to a market economy.

Nevertheless, from the messy specifics emerge elements that will be familiar to farmers across the former Yugoslavia: the loss of shared assets, the whiff of wrongdoing, and the missing pot of money for which no one has been held accountable.

Partial privatisation

Zivkovic is an energetic man in his late sixties, who owes his furrowed face and gnarled hands to a lifetime spent working outdoors.

He worked at PP Retkovci, an agricultural collective named after the village where it was based, in the plains of Slavonia, eastern Croatia.

THE MITROSREM AFFAIR

The privatisation of Serbia’s Mitrosrem collective farm is notorious – even for a country where one in four privatisations of agricultural companies have been cancelled over irregularities.

The firm was bought in a public auction in 2006. A tobacco company, owned by the tycoon Zoran Copic, paid €15 million for it. Two years later, Copic agreed to sell his shares to Darko Saric. The deal ran into difficulty, however, because the Serbian authorities had accused Saric of running an international drug-trafficking ring. In 2010, the government seized Mitrosrem’s assets and shares in mid-sale.

Mitrosrem now has debts of €4 million and has lost nearly two-thirds of its workforce. Union leader Stevan Jovanovic says the firm is struggling to survive in limbo, tarnished by its association with Saric. “We are not state-owned, we are not privately owned,” he says.

Like thousands of farms in Yugoslavia, PP Retkovci was part-owned and managed by its workers. It was blessed by rich yields from an arable soil – and by the generosity of a socialist state.

“We appeared on TV!” says Zivkovic. “We were the first agricultural company with an advanced drainage system in Yugoslavia.”

The employees of PP Retkovci were enthusiastic stakeholders, regarding their workplace as an investment. By the 1980s, the farm employed some 200 workers – the equivalent of a fifth of the local population. It was a symbol of the village, a source of pride as well as wealth.

The Yugoslav era came to an end in 1991. Croatia declared independence and was at war with its neighbours soon after. At the end of that year, PP Retkovci employed around 125 people. Its value at the time was around €1.5 million.

The farm’s accounts were in the black, but its ownership structure was in flux. The new Croatian state had assumed full control of all collectives, including PP Retkovci. This was intended as a stopgap measure, paving the way for the eventual privatisation of the old socialist state’s assets.

The villagers continued to work at the farm, believing they would be compensated for their stake in the old company by its eventual new owners, or by the state.

PP Retkovci was opened up to private investors in 1993. However, the state did not put all the farm’s assets on the market. Instead, it only offered shares in the buildings and the equipment. As with other collective farms, the fields were set aside, to be redistributed later by the local government. In this sense, only part of PP Retkovci would be privatised.

Missing harvests

The farm attracted the interest of Vinko Markovic, a prominent supporter of Croatia’s nationalist HDZ party. In 1994, he acquired a 15 per cent stake in PP Retkovci. The other shareholders included various funds, and the farm’s 189 workers, who had received 50 per cent of the shares between them.

Between 1994 and 1996, Markovic expanded his share to nearly a third, buying stock from some of the workers. But while his holdings grew, the farm itself seemed to be sinking. The wars had battered the Croatian economy, and the agricultural sector was struggling.

Moreover, the state had only returned half the land originally attached to PP Retkovci. The remainder was given to the local government, which divided it among individuals in the area. The workers now faced the prospect of having to lease half of the land they had once owned.

Ivan Zivkovic is still bitter about the loss of the farm.

In 1995, the workers say the farm stopped paying their wages. They carried on working without pay, hoping that the business would recover.

It was not to be. In 1996, the stockholders met and agreed that PP Retkovci should file for bankruptcy. Today, many of the workers say they opposed the move. At the time, however, they did not block it.

Markovic also asked a state privatisation fund to annul the original contract for the share he had purchased in the farm. The fund had been created to manage all the privatisation deals taking place around the country. Private investors who suspected they had bought shares under a flawed contract could complain to the fund. Where they could prove that the stake had been mis-sold, the fund would offer compensation.

In December 1996, the fund’s records reveal that it “broke up” Markovic’s contract. It also gave him €147,000 in compensation for his stake.

Years later, a state audit would cast suspicion on the timing of this move. Most investors who asked for compensation had reported flaws in their contracts shortly after signing them. However, Markovic asked for compensation and for the annulment of his contract after PP Retkovci had gone bankrupt, under his management.

In the space of six years, a successful business had been privatised and ruined. Markovic blamed the farm’s troubles on the state’s failure to redistribute its land fairly. But subsequent proceedings in an insolvency court suggested there were also other culprits.

Markovic appointed Marko Babic, a lawyer from the nearby town of Vinkovci, to manage the insolvency process. If the bankruptcy order had been the farm’s death sentence, Babic would be the executor of the will.

He was expected to oversee the auction of the assets, finding the best price for the equipment and buildings. The proceeds would be divided among the remaining companies and individuals who were owed money by the farm – including the workers. While the bankruptcy meant all stocks in the farm were technically worthless, the workers believed they were still owed a share of the farm’s assets. They wanted severance payments, as well as more than a year’s worth of unpaid wages, accrued in the period leading up to the bankruptcy. The payroll records from the period are unclear.

During the insolvency hearings, the workers claimed Markovic and several of his fellow managers had stolen produce worth half-a-million euros.

Antun Kasteljan, a farm employee, told BIRN truckloads of grain had disappeared during the Markovic era. When he asked where the trucks were going, he says he was told to mind his own business.

The workers also questioned how the managers had taken over an orchard that they believed belonged to the farm.

“How could this have happened? How could it be possible for them to have acquired that?” Zivkovic, the farm worker, asked the court.

The employees demanded an investigation into the previous management. They also criticised Babic, accusing him of delaying the insolvency process by missing key sessions. But their complaints were ignored by the judges at the commercial court.

Selling off the kit

The rancorous bankruptcy sessions reflected tensions outside the courtroom. The workers claimed a man named Vlado Loncaric, appointed by Babic to guard the farm, had mishandled the auction of equipment.

“Some of the machines – combine harvesters, tractors, trailers and parts of the gear – have been stolen and undersold by Vlado Loncaric,” the workers told the court in May 1998. “There are no auctions and no one is keeping a record.”

FARMING IN DECLINE

“Families in Serbia spend 42.9 per cent of their income on food, while the same figure in the EU is about 18 per cent,” says Vojislav Stankovic, an official from the Chamber of Agriculture.

Branislav Gulan, an associate at the chamber, says the collapse of farming has de-populated the countryside. “There are at least 200,000 empty houses in Serbia, and most of them are in Vojvodina” – the ‘breadbasket’ region.

According to Darko Znaor, an agricultural consultant who worked with the World Bank, Croatia’s conglomerates today cover the whole production to distribution chain – “like the big Yugoslav companies”.

“But it is much more profitable for them to import – the margins are bigger,” he says. He also blames the unfair allocation of state subsidies for the decline in agriculture.

Babic responded by accusing farm employees of trying to sabotage the auction by stealing machine parts. “Everything the workers are telling you is a lie,” he said in court.

The insolvency process would deal a series of blows to the employees’ hopes of recompense.

An audit by a local firm ascribed a far lower value to the farm equipment than previous estimates. For instance, a machine for spreading fertiliser, originally valued at €4,000, was sold for €5. A company bus was sold for €330, while a combine harvester, only a couple of years old, was sold €750.

Babic said the employees’ theft of machine parts had reduced the value of some equipment. Nevertheless, he told the bankruptcy court, the sale of machinery had been the “most successful part of the auction”. Overall, he said, equipment with a total value of €156,000 had fetched only slightly less: €136,000.

During a phone interview with BIRN this summer, Babic defended the auction and said he was not responsible for the values determined by the local auditor. “I did not want to have anything to with it,” he said, referring to the pricing.

With the workers clamouring for his dismissal, Babic told BIRN he too was just as keen to hand over management of the insolvency. The whole process had “irritated” him, he said.

Viktor Palic, a presiding judge at the bankruptcy court, also told BIRN that Babic had been under pressure from the workers. “The employees kept attacking him,’’ he said.

The audit, ordered by Babic and completed in 1998, showed that the farm had lost half its value since 1991. The equipment and the buildings were now only worth around €700,000.

Neither estimate – from 1991 and 1998 – takes into account the value of the surrounding fields, whose ownership is harder to establish since the Croatian government took control of the collectives.

Throughout the Nineties, agricultural land originally managed by the Yugoslav-era collectives was broken into plots and redistributed to smallholders, including war veterans, peasants and loyalists of the HDZ party, which governed Croatia after independence.

Stipan Bilic, an agricultural expert in Croatia, argues that this was more harmful for the old farms, such as PP Retkovci, than the mismanaged privatisations.

“The company was stripped of its capital assets,” he said. “They could not obtain loans any more.”

‘Missing documents’

The workers were bitterly frustrated with the insolvency process – but worse was yet to come.

In August 1998, Babic told the court that some €150,000 of the farm’s funds – including money from the sale of the equipment – were no longer accessible. The money had been placed with Glumina Bank, a creditor of PP Retkovci, which had gone bust the previous month. The workers were furious and again claimed that Babic had mismanaged the insolvency. However, Babic pointed out that he had made the deposit with the approval of the court.

The workers doubted if they would see their money again. They also feared losing what little was left of their share.

All the assets of the Retkovci farm, including these buildings in a nearby village, have been sold off.

They made a fresh appeal for Babic to be relieved of his duties. In early 2000, a higher commercial court in Zagreb responded to their complaints. The judgement was scathing about the insolvency manager, as well as the court officials working with him, accusing them of “numerous omissions”.

Essential paperwork regarding the farm’s assets was “unclear”, and the manager’s reports were “incorrect”, according to the Zagreb court. Invoices did not show how much money had been paid for equipment, or what had happened to the listed price.

The judgement said the value of equipment for sale had not been assessed properly. Prices should not have fallen below half the real value “unless there were several unsuccessful auctions”. The basis for the decision to deposit funds with Glumina Bank was criticised as unclear. Babic’s report that the money was “blocked” after the bank’s collapse was also questioned.

The court concluded that Babic should have been relieved of his duties at the very outset. “It is clear that the insolvency manager either does not want to, or cannot, do his job,” the judgement said. It described Babic’s absence from key insolvency sessions as “unthinkable”.

A new insolvency manager, Tominac, took over from Babic. He confirmed the Zagreb court’s ruling, complaining that his predecessor had left an incomplete paper trail. Struggling to wrap up the bankruptcy, Tominac told the hearing that Babic and his accountant had informed him that “a lot of the documentation has ‘disappeared’”.

In 2002, the insolvency process entered its seventh year. The spiralling legal costs were eating into the remainder of the money owed to the employees.

In June, the workers announced they had contacted the police to file criminal charges against Babic, hoping to punish him for the “omissions’’ cited in the Zagreb ruling. However, the investigation was later dropped on the basis – according to Babic – of evidence he had submitted. The police have confirmed this.

Back in 1999, the workers had also brought criminal charges against the former managers whom they claimed had stolen from the farm. A further charge of theft was brought against Loncaric, the security guard hired by Babic after the bankruptcy.

Markovic died later that year, and the case against him was abandoned. Of the other cases, only three made it to the courts. In 2002, charges against one of the managers, Kresimir Roncevic, were dropped. Another manager, Ivan Zgela, confessed to stealing a sprinkler and received a suspended six-month jail sentence. His lawyers nonetheless instructed him to appeal, and the conviction was overturned in 2004.

Only Loncaric, the security guard hired by Babic who had been accused of selling off machinery illegally, faced any sanction. However, on account of the value of the equipment in question, he only received a suspended six-month jail term for forging auction sales receipts.

‘Perpetual debt’

The insolvency process was finally concluded in 2004. It had cost €35,000 – a sum that was deducted from the pot of the money out of which the workers expected to be paid. The possible payout had already been reduced by €150,00, which had been lost in the collapse of Glumina Bank. Further deductions were made to repay creditors.

In the end, 62 workers received an average of around €1,100 from the collapse of PP Retkovci – roughly a quarter of what they had expected to get at the start of the bankruptcy process. Despite all the litigation, no one has been held accountable for their losses.

In 2004, the state concluded its investigation into some 1,500 suspicious  privatisations from the 1990s. Evidence of irregularities were found in all but 75 cases.

PP Retkovci was included in the audit. It did not get a clean bill. The move to compensate Markovic was singled out for criticism. The audit questioned how he had managed to claim €147,000 from the privatisation fund for his shares in PP Retkovci. The claim was approved after the farm had been declared insolvent – which meant that his shares were practically worthless.

“The bankruptcy means that the value of the stocks was very low at the point when the money was returned,” says Sulejman Tabakovic, an expert in privatisation law who runs an organisation that helps small stockholders. He adds that the fund had no obligation to pay Markovic, and in doing so, it had made an unfair exception for him. Thousands of other stockholders whose privatised companies faced bankruptcy during this period were not able to make such claims.

The fund was replaced in 2011 by a new agency, known by its acronym, AUDIO. Erik Mohorovic, the agency’s director, told BIRN he had only studied the fund’s work since 2005 – and had not been aware of the PP Retkovci case, or any others like it. He says no one at the institution had a clear explanation for what had happened.

However, he believes cases such as this were commonly accepted as “anomalies of the privatisation and transition process”. Back then, “the legislation, market and institutions were not ready for such complex tasks”.

While modern laws are more sophisticated, he says, “today’s instruments cannot solve the problems created 15 or 20 years ago”.

Djuro Perica, a founder of the HDZ, says that neither Markovic, nor the government of the time, should become scapegoats for the failure of PP Retkovci.

“Nobody stole the land in Retkovci,” he said. He conceded that mistakes had been made during the privatisation – but said he had opposed the “wrong moves”.

“Of course I know production fell, and it hurts my soul to see what’s happening in agriculture,” he told BIRN.

Babic refused BIRN’s requests to discuss the details of the PP Retkovci affair, saying court documents from the time contained all the necessary information. He is currently a judge with the constitutional court, the highest judicial body in Croatia.

In the complex that was once the heart of the Retkovci collective farm, all that remains today are about a hundred sheep, whose care provides employment for about five people. Kasteljan, the former worker, says the villagers “live in perpetual debt, hoping to make ends meet”.

Ivekovic, the Croatian trade union leader, says he is losing hope of justice for the victims of privatisation.

“When I’m really depressed, I wonder if we should have an amnesty for all these crimes,” he told BIRN. “At least it would put an end to the matter.”

 

Ana Benacic is a Zagreb-based journalist. This article was edited by Neil Arun. It was produced as part of the Balkan Fellowship for Journalistic Excellence, an initiative of the Robert Bosch Stiftung and ERSTE Foundation, in cooperation with the Balkan Investigative Reporting Network.

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About the project

The recipients of this year’s fellowship are considering subjects as diverse as hooliganism, activism and migration in search for employment – all under the broader theme of “communities”. Read more about the project on the official Fellowship web site >>