4.1. Policy Reforms
4.2. Transitional Issues
4.3. New Market Compatible Policies
The general direction of the reforms that codify access to land has been to end or greatly restrict the old systems of state-managed land confiscation and redistribution. Limits placed on the size of land ownership have been relaxed or removed. Communal or state owned agricultural land are frequently being distributed to the users of the land. There have also been dramatic changes in laws governing land markets. New laws have been passed permitting the sale, rental, and sharecropping of all land. Laws have been changed to permit foreign and corporate leasing and ownership of land. There have also been land titling initiatives to encourage land registration. New laws permit the use of land as collateral in credit transactions.
In Colombia, the state land reform agency, INCORA, was phased out of its role in purchasing and redistributing land. In Mexico, the 1992 reform of Article 27 of the Constitution and the new Agrarian Reform Law put an end to fifty years of redistributive and restitutive land reform. By contrast, the "reform of the reform" allows to title individually, sell, and rent land formerly owned by the ejido, allows foreign corporations to own and lease land, and increased the permissible landholding limit (Randall, 1996). A land titling program, PROCEDE, was created to assign certification titles (preliminary titles) to the ejidatarios in ejidos that request this procedure. By July 1996, 25% of the ejidos had completed this process, 40% were in progress, and 35% had not initiated procedures. However, only 258 of a total of 29,135 ejidos had demanded that these certification titles be transformed into private property titles allowing the unrestricted sale of land. This lack of progress toward final titling was due to a variety of causes, including ejidatarios' fear of abuse by powerful caciques in final titling, desire to preserve the agrarian community intact with the advantages it confers in compensating for market failures for labor and insurance, interest in maintaining the privileged attention by government which the ejido has historically enjoyed, fear that a land tax would be imposed upon privatization, lack of perceived benefits in areas where the land has only marginal economic value, and disinformation by entrenched old-style ejido leaders. In Peru, the Agricultural Investment Promotion Law of 1991 liberalized the sale and lease of land to individuals and corporations regardless of nationality. The law raised the maximum land holding limit and permits sugar cooperatives to restructure into corporations. In Chile, where land ownership had been capped under the Frei and Allende governments to 80 hectares of basic irrigated land, limitations on land ownership have now been eliminated and lands in the former land reform sector have been privatized.
Over-valued land. In many countries, land values have been inflated by policies that encourage investment in land for non-agricultural reasons. The price of land may exceed the capitalized value of future agricultural profits if the land is being used as a hedge against inflation, as an asset that can be liquidated to smooth consumption in the face of risk, as collateral for access to loans, as a tax shelter, or as a means of laundering illicit funds. In Chile, land was used as a hedge against inflation before the advent of indexed savings systems and developed capital markets. Distortionary policy interventions in credit, factor, or product markets, as well as biased access to public services such as information and technology, that inflate agricultural profits will also inflate land values. If these distortions create differential benefits, particularly associated with scale, inflated land values prevent those who do not benefit from the distortions to bid for land on land markets, the landless and smallholders in particular. Getting land markets to work for the landless and smallholders thus requires eliminating policy distortions that create benefits that cannot accrue to them.
Tenancy laws and deforestation. Economic conditions and population pressures in some countries have led to the rapid expansion of crop and livestock frontiers with concomitant environmental degradation and deforestation. Some countries have land tenancy laws that encourage excessive deforestation and land clearing. For example, in Ecuador the Law on Unused Lands requires, for maintenance of ownership, that at least 50% of the land be cleared, that cleared land be cultivated for five years, and then that the other 50% be cleared. Similarly, the Law on Colonization requires settlers to clear eighty percent of the land or risk repossession. Lack of secure property rights discourages long term investment in land and forests.
Land registration and titling. In many countries, particularly in the Caribbean, a high share of smallholders do not have formal titles to their land. This creates uncertainties regarding continuous access to land that discourage long term investment and induces mining of the land. It also prevents these producers from using the land as a collateral for loans. While several countries accompanied changes in land legislation with land titling programs, others continue to have land registration and land titling projects that discourage the use of formal land markets. This is because transactions costs associated with obtaining a title are often too high, creating a need to simplify and streamline registration procedures. This is the case with the PROCEDE program in Mexico where procedures may well be too costly and complex for the poorer, more isolated, and indigenous ejidos (World Bank, Mexico Agricultural Memorandum, 1995). Individual titling is, however, not always the best answer for a more efficient use of the land. When risks are high and there are significant market failures for credit and insurance (like in ranching) or when there are economies of scale (like in forestry), common property resources, if communities are able to cooperate in the management of these resources to avoid overuse, may be a more effective form of property rights than individual titles. In this case titling can be collective. This is the option that has been chosen for the common property resources in the Mexican ejido which will remain community property while individual plots are privatized. It, however, raises serious questions about who in the community will have access rights to these lands and what complementary programs should be put into place to induce communities to develop the necessary cooperative behavior which, for the moment, is more often missing than not.
Land distribution. Liberalizing the land market will most likely lead to a concentration of land assets. There is, for instance, evidence of worsening land distribution in Paraguay as a consequence of the operation of land markets. In the presence of market imperfections, especially in the credit market, land could become concentrated in the hands of producers who are not necessarily the most efficient, even from a private standpoint. For example, smallholders may be unable to purchase land because they lack access to long term credit, even though they are more efficient producers because an inverse relation between total factor productivity and farm size exists. In this case, this should induce a dual process of concentration of land ownership in the hands of those with advantages in accessing capital and of atomization of operational units through tenancy contracts with peasant households who have an advantage in accessing cheap family labor.
The challenge exists to either (i) remove the distortions that create disadvantages for smallholders and thus make land markets work for them, or (ii) design institutions and projects that provide access to land for smallholders inspite of market distortions. Making land markets work for smallholders requires existence of a set of complementary market and institutions that insure their competitiveness and give them access to long term financing for buying land. Importantly, this suggests that there is a sequencing in agricultural reforms, where institutional reforms must be completed before the land market is liberalized so that institutional biases against the competitiveness of smallholders are removed before competition for access to land is opened to all. In 1994, Colombia initiated a grant and loan program for the redistribution of land. Law 160 provides to landless peasants grants of up to 70% of the price of a family farm, and credit for the remaining 30%. In Mexico, the land reform will only succeed in creating a successful smallholder sector if the complementary reforms to insure their competitiveness are in place by the time the land market is activated. Otherwise, the land market will help expedite the process of reduction of farm population and elimination of the middle sector. Whether the rural development efforts initiated by the ministry of agriculture will prove sufficient for this purpose remains to be seen (see de Janvry et al., 1995). In general, given the highly diversified sources of income that characterize Mexican farm households, a successful approach to rural development requires going beyond agriculture and thus calling on a broad array of participatory institutions, a process that is still absent in Mexico.
Liberalizing land markets is not sufficient to assist the landless and smallholders gain access to land. To help them, several countries have initiated land banks (bancos hipocaterios, Fondo de Tierras in Guatemala) where the government accumulates land from the public domain, by legal confiscation of illegally appropriated lands (e.g., by recognized druglords in Colombia), state purchases of lands on the open market using public funds and by contracting special loans from international lending institutions, use of lands donated to the program by foreign governments and organizations, and expropriation in cases permitted by the Constitution. In other instances, land transactions between large and small farmers have been managed by NGOs. This is the case of the Penny Foundation and the Fondo Ecuatoriano Populorum Progressio in Ecuador (Navarro, Vallejo, and Villaverde, 1996). In all cases, the determinants of success of these schemes are (i) the price at which land can be acquired from large farmers and (ii) the cost of long term credit for buyers. The first is tricky when there are capital market distortions and public goods biases favoring large farmers and if land reform interventions in the land market put upward on the price of land. The second is usually costly given the high interest rates that currently prevail in Latin America, requiring an element of donation to beneficiaries. Land market-based land reforms are for this reason still in an experimental phase that will need close monitoring to establish conditions for success.
Land rental markets have in general been badly suppressed under the Latin American land reform initiatives as they were considered exploitative of peasant households, particularly sharecropping and rent in labor services arrangements that were once widespread throughout the continent. The new institutional economics has contributed to restoring at least the efficiency value of these contracts in a context of market failures. Sharecropping is a risk sharing device that may induce greater efficiency in resource use when insurance markets fail and both landlord and tenant are risk averse. When other markets such as for labor supervision and farm management also fail, sharecropping may be superior in efficiency to both wage labor contracts and fixed land rental contracts (Eswaran and Kotwal, 1985). Land rentals transactions may go from peasants to agroindustries, as in Peru and Mexico, when the latter have superior access to markets, and working adults in these peasant households may find themselves hired as wage workers on their own farms, cashing both a wage and a rent. When there is an inverse relation between total factor productivity and farm size due to the ability of smallholders to overcome moral hazards in labor efforts, it is in the best interest of large landholders to break their farms into small tenures, a practice that is typical of Asian agrarian relations. And for young tenants, when capital markets fail to deliver access to long term credit, future access to land may be achieved through an "agricultural ladder" where capital accumulation under rental arrangements eventually allows the subsequent purchase of land. Land rental contracts are thus locally efficient (i.e., from the standpoint of the landlord), even though equity implications depend on the relative bargaining power of the two parties. From a policy standpoint, making land rental markets more competitive and increasing the bargaining power of tenants are effective ways of reconciling the efficiency and equity gains that such markets can offer.