Nafziger Economic Development (4th ed)

246Part Two. Poverty Alleviation and Income Distribution

AGRARIAN REFORM AND LAND REDISTRIBUTION

Although land is the most important asset that families in most societies have or aspire to having, in most LDCs arable land per person of the agricultural population declined between 1965 and 2004. Many LDCs have exhausted their land frontier; in other countries, the cost of new land development was too high to be economically viable (Jazairy, Alamgir, and Panuccio 1992:105–106).

Moreover, in many LDCs, land holdings are severely concentrated: A small fraction of landholders own the bulk of the land. However, most holdings are less than two hectares apiece. The U.N. Food and Agricultural Organization indicates that in Latin America, the region with highest concentration, 1.3 percent of the landowners hold 71.6 percent of the land under cultivation. In Bangladesh, India, Indonesia, South Korea, Nepal, Sri Lanka, Yemen, and many other Asian countries, as well as Kenya, marginal farmers, those with less than one hectare of operational land holdings, hold more than half of the land but substantially less than half of cultivated land (ibid., pp. 107, 110).

Land inequality contributes to low income and high inequality (Binswanger, Deininger, and Feder 1995), which are major sources of LDC rural conflict. A longsimmering set of tensions caused by inequality in the distribution of land provided the tinder for internal wars in El Salvador, Guatemala, and Nicaragua. El Salvador’s agrarian structure is indicative of the tensions that contribute to political violence: a highly unequal land distribution combined with a proletarianized labor force, maintained in the face of popular resistant by “intimidation, bloodshed, and other forms of organized violence” perpetuated by the ruling oligarchy that controlled the state (Pastor and Boyce 2000:367–370).

The rural poor can increase their income if they are provided access to productive resources, the most important of which is land. According to the International Fund for Agricultural Development, the rural poor can improve their access to land “through land redistribution (from larger holdings above a certain size), adjudication of traditional land systems (basically privatization of land previously held under customary tenure), settlement schemes (setting up poor families on newly developed and/or government-owned land and allocating land to them for cultivation and/or grazing), and . . . establishment of individual usufruct [use] rights or community rights” (Jazairy, Alamgir, and Panuccio 1992:106). These measures can reduce income inequality.

Yet poverty stems not only from unequal land distribution but also from low farmer productivity. Frequently, the land tenure system provides the cultivator little incentive for innovation, long-term investment, harder work, increased fertilization, and improved seeds. And, in many instances, landowners raise rents and crop shares when production goes up. The cultivator gains little from higher production.

Giving the poor more land has been tried in a number of countries, with mixed results. Land reform has frequently failed because of the political opposition of landlords (as in India), the transfer of holdings to relatives, or because the new landowners do not have access to credit, water, fertilizer, extension assistance, and other services. The World Bank and some OECD donors are willing to support market-assisted land

reform, where willing buyers negotiate deals with willing sellers, with the hope, usually illusory, that “government would facilitate the process by providing incentives to potential sellers and by helping potential buyers to acquire the means to buy.” The World Bank (1996b:15) also sees market-assisted reform as feasible during a “farm debt crisis when land prices are depressed,” but for political reasons the Bank and external donors have rarely supported this fundamental “structural adjustment” in agriculture land redistribution.

However, in the early 1950s Japan, Taiwan, and South Korea were under pressure and had assistance from the United States for land reform. In these three countries, where land redistribution was coupled with credit and extension services for small farmers, incomes rose substantially and discontent fell. In India, in contrast to the northern states of Punjab, Haryana, Bihar, Orissa, Andhra Pradesh, Assam, Meghalaya, and Nagaland where rural unrest festered in the midst of the absence of significant land reform and redistribution, Kerala state undertook radical, comprehensive land reform and redistribution in the 1970s that reduced the number of discontented landless or land-poor people (Berry 1997). “Operation Barga, a tenancy reform in the Indian state of West Bengal in the late 1970s and early 1980s, is one of the few examples of large-scale transfers of property rights not accompanied by major social upheaval. The operation was associated with an 18 percent increase in agricultural output in the state” (World Bank 2001f:57).

By the 1960s, economists believed that redistributing land to small farmers led to lower crop yields. However, research by Albert Berry and William Cline (1979) find an inverse relationship between the size of plot and land productivity. Land redistribution to the poor usually increases LDC agricultural output, at least after a period of adjustment, for two reasons: (1) A small farmer who receives security of ownership is more likely to undertake improvements; (2) small farms often use more labor per hectare – labor that otherwise might not have been used; and (3) households have more ways to smooth their incomes over the year. Generally, small farms have higher productivity because of fewer problems of supervision and a greater incentive to earn (especially relative to absentee-owned large farms in Latin America and collective farms in the former Soviet Union) (Berry 1997).

Berry (1997) recommends land reform and redistribution, with relatively low ceilings on plot size to discourage post-reform re-concentration of land, inclusion of tenants and landless workers, rapid and clean implementation of land redistribution, and a package of complementary support in infrastructure, credit, and technical assistance. These measures can increase incomes of the rural poor and reduce rural discontent and violence.

Despite the lack of effort to complement reform with better extension, credit services, or distribution of water rights, land reform begun in Iran in 1962 transformed a society of extremely wealthy landlords and virtual serfs into a more equal system of small peasants and increased output. The smalland medium-sized farms created in Iran’s reform had twice the productivity per hectare of large farms even though a smaller percentage of the small farms was irrigated (Aresvik 1976:96–100; Berry 1997).

248 Part Two. Poverty Alleviation and Income Distribution

Where there is political will, land redistribution, coupled with credit and services for small farmers, can reduce poverty and inequality in agrarian societies. But even more modest land reforms can be effective in reducing poverty. Timothy Besley and Robin Burgess (2000) show that where vested interests block land redistribution, more moderate agrarian reform, such as reform of the terms of tenancy and the abolition of intermediaries between owner and tenant, as in Kerala, has a major impact in reducing rural poverty. And donors and international agencies can often provide the additional resources, making land redistribution or at least tenancy reforms feasible.

When small-sized farms have lower productivity per hectare, it may be because farmers are illiterate and thus tend to adopt technological innovations more slowly. However, it may result from lack of access to credit or extension help, or prudent risk-adverse behavior (see the earlier section on peasant farming). Furthermore, land fragmentation eventually inhibits productivity.

Frequently, however, land redistribution is not to the cultivator, the landless worker, or tenant, but to urban elites and affluent farmers who are influential with political elites. Distributions by East African governments from Europeans to Africans are examples of this problem. Zimbabwe’s land distribution, 2000–04, has emphasized the politically connected rather than the cultivators. And from 1954 to 1974, Kenya replaced the colonial land tenure system with a new system in which Africans acquired land from Europeans in the central and western highlands. The governmentassisted Africanization, purchasing land from the former owners and redistributing land to smallholders under the “one million acre settlement program.” Thousands of hectares were transferred to Africans through land settlement schemes, large-scale individual purchases, land buying companies, and cooperatives. The landless were not the main beneficiaries. Indeed, many tenants, squatters, and other landless peasants were evicted with land privatization. For the political leadership redistributed most of the land to itself, allies, and clients, many of whom had no experience in farming. The Kenyan case illustrates how politics can limit the success of programs that ostensibly redistribute land to the cultivator.

Alternatives to distributing individual land parcels center on creating cooperatives or revising land tenure or rental rules. But these methods are limited. Quite often cooperatives are dominated by money lenders and landed interests, or they have management and incentive problems.

Changing rental systems is difficult. Many LDC tenants farm the landowner’s land under a sharecropping system. Sharecropping may include tenure arrangements where the landlord provides the land, some equipment, and a proportion of seed and fertilizer in exchange for a proportion of the final crop. However, in West Bengal, India, the most common pre-1975 sharecropping arrangement was one where the landlord only leased land to the sharecropper, lived away from the village, and returned to the village periodically to collect the share of the crop, often payable in kind (Kohli 1987:133).

Revised land tenure rules that give the tenant farmer greater security, and thus more incentive to invest, are hard to enforce. Numerous landless workers may be willing to replace existing tenants and forego the revised rules, and landlords may

try to make up for lost rent in other tenant transactions. They may raise interest on money lent to tenants or lower wages. Or as Inderjit Singh (1990:1) notes in India: “In areas where redistribution is most desirable there is little land available to distribute.” Despite the difficulties, land and tenure reforms can still be used to reduce poverty in many LDCs, especially where increased capital per farmer and improved technology enable the cultivator to gain without the landowner losing (Ahluwalia 1974:24; Berry and Cline 1979; Zuvekas 1979:220; World Bank 1980i:43; Nafziger 1988:47, 170; Jazairy, Alamgir, and Panuccio 1992:112).

SECURE PROPERTY AND USUFRUCT RIGHTS

LDCs face a tradeoff between equitable land distribution and the need for secure property rights. Remember Chapter 4, in which we discussed de Soto’s contention that formal and secure property rights are the major explanation for differences between DCs and LDCs. Property rights assign the rights to and rewards from using resources to individuals, thus providing incentives to invest in resources and use them efficiently. Given the high cost of supervising agricultural wage labor, clearly allocating land rights to owner-operators generally increases the efficiency of farm production (Binswanger and Deininger 1997).

The failure to define property rights to agricultural land may adversely affect land use and improvement. As Theodore Panayotou (1993:35) contends:

Property rights are a precondition for efficient use, trade, investment, conservation, and management of resources [such as land]. No one would economize on, pay for, invest in, or conserve a resource without an assurance that he has secure and exclusive rights over it, that he can recover his costs through use, lease, or sale, and that such rights will be enforced.

Sub-Saharan Africa suffers more than Asia and Latin America from insecure and uncertain land rights. Sara Berry (1984:92) observes that:

In Africa, unfortunately, many insecurities now exist presently around the land because the land laws passed by many governments are ambivalent, confusing, inconsistent, inapplicable or badly applied. As a result access to, and control of land takes place . . . within a framework of conflicting legal and political principles and practices.

However, the World Bank economists Hans Binswanger and Klaus Deininger (1997) admit that private property rights may not produce the most efficient farming arrangements where information costs are high and markets for finance and insurance are imperfect. Moreover, the emphasis by the IMF, World Bank, and LDC elites on the abrupt shift from traditional use rights to individualized titling from purchases and sales in a land market has reduced agricultural efficiency, torn safety nets for the poor, and increased risk.

Under most traditional community or village systems, farm families not only have inheritable use rights to cropland, pastures, and forests, but these land rights are

250Part Two. Poverty Alleviation and Income Distribution

highly transferable. These systems provide tenure security at low cost, thus not discouraging individuals from investing in the operation (ibid.).

Agricultural intensification from population growth gives rise to pressure for increasingly formal private property rights. But the precipitate registering of individualized land titles, in the name of modernizing land-rights systems, reduces tenure security in the short run, as the number of land disputes surge, as rural masses, unaware of the implications of registration, are outjockeyed by clever, well-informed, and powerful individuals. Women rarely owned land or had customary tenure right recognized by political authorities in Afro-Asia, thus lacking collateral, credit, and investment in productivity improvements, hurting their families’ health and nutrition (U.N. Development Program 2003:90). Generally, in the longer run, the high costs of land registration and lack of familiarity with the government bureaucracy displace weak or politically marginalized groups and redistribute land to the commercial and estate sectors, increasing the concentration of land holdings.

As an example, Kenya’s systematic, compulsory individualized titling of all farmlands since the 1950s contributed to a substantial gap between the control of rights reflected in the land register and recognized by most local communities, providing opportunities for affluent town dwellers to establish property rights though land registration. In Nigeria, since 1960, under cover of national development projects, state officials granted extensive land tracts to friends, dispossessing many villagers from their customary lands. Redistribution through individualized titling on demand not only increased inequality but also reduced labor intensity, capital formation, and innovation, contributing to the inverse relationship between farm size and yields (Cornia 1994; Platteau 1996; Berry 1997), and the potential for agrarian discontent.5

In Ethiopia, political conflict, land insecurity, and environmental degradation have formed a vicious circle. The insecurity and conflict of the past quarter of a century has compelled people to concentrate in safer zones, thus intensifying the process of degradation of the available local resources, especially for people living on the razor-edge of survival. In light of these problems, in Ethiopia and other sub-Saharan African countries, secure property and use rights may sometimes mean maintaining the tenure security but highly transferable land rights of traditional community or village land systems. Secure property and usufruct rights contribute to safeguarding environmental resources and agricultural land productivity but also reduce the potential for political instability (Kibreab 2002:115–130).

CAPITAL

Agriculturalists have often assumed that the success of mechanization in raising production in the United States and Canada can be duplicated in LDCs. However, as Chapter 9 contends, technology developed for DCs frequently is not suitable for LDCs, where labor tends to be low cost and capital is expensive. In these countries,

5To avoid undesirable effects, Binswanger et al. (1995:2721) recommend that “titling programs should be accompanied by publicity campaigns to ensure widespread knowledge of the rules and procedures. Both equity and efficiency considerations argue that titling programs be systematic rather than on demand.”

252Part Two. Poverty Alleviation and Income Distribution

self-supporting and have limited success (Hunter 1978:83). Still there are a few exceptions, successful group lending schemes that lend to small farms and enterprises, such as the Grameen Bank of Bangladesh (see Chapter 6).

POWER SOURCES

FAO (2003:151–157) classifies sources of power for agriculture into stages. SubSaharan Africa in 1997–99 was still at the stage where humans are the predominant source of power, with modest contributions from draft animals and tractors. These are countries where two-thirds of the workforce and generally more than one-third of GDP are in agriculture.

In East Asia 40 percent of the area was cultivated by hand and 40 percent by draft animals, whereas in South Asia the figures were 30 and 35 percent, respectively. Those regions with draft animals as the predominant source, such as South Asia, had a higher intensity of cultivation for farm land and a larger percentage of the area under irrigation.

In Latin America and the Middle East/North Africa, tractors were the predominant source of power. High levels of tractorization were generally associated with relatively well developed economies and the production of cash crops. Agriculture employs less than half of the workforce and generates less than one-fourth of GDP. In many of these countries, the absolute number of people working in agriculture has begun to fall (FAO 2003:153–154).

In the late 1990s, in LDCs, 35 percent of harvested area was by hand (that is, human power), 30 percent by draft animals, and 35 percent by tractors. By 2030, FAO expects that 55 percent of harvested area will be tilled by tractors and only 25 percent by hand (ibid.). Mechanization, however, is not the cause but the effect of agricultural development, or in some instances the result of increased cropping intensity, the production of cash crops, and relatively higher levels of nonagricultural development (ibid.). It is a mistake to advocate tractors and machinery where labor is abundant.

RESEARCH AND TECHNOLOGY

According to Yujiro Hayami and Vernon W. Ruttan’s (1985:4–5) “induced innovation” model, technical and institutional changes are spurred “through the responses of farmers, agribusiness entrepreneurs, scientists, and public administrators to resource endowments and to changes in the supply and demand of factors and products.” The relative supply of land and labor is critical in determining appropriate agricultural technical change. Agricultural growth eases the limitations on production imposed by inelastic land and labor supplies. Which factor is scarcer determines whether new technology should be laboror land-saving. For the Hayami-Ruttan model to work, market prices need to be effective in signaling technology development, and agricultural institutions need to be transparent and accountable.

Research-led technological change in agriculture contributes to high rates of return and has a substantial impact on reducing poverty in Afro-Asia. Colin Thirtle, Lin Lin, and Jennifer Piesse (2003:1959–1975) find that an increase in agricultural yield of 1 percent reduced $1/day poverty by 40 percent in South Asia, 46 percent in

sub-Saharan Africa, and 24 percent in LDCs generally. However, agricultural growth in Latin America is not pro-poor as extreme inequality in income and land distribution prevents the poor from gaining.

Chapter 8’s section on the food-population balance will emphasize the importance of research and technology, especially as generated by an international network of agricultural research centers in cooperation with counterparts in national research stations, in improving agricultural technology. Here we want to stress that the technology used should depend on available resources. For example, Japan, with a ratio of farm workers per cultivated hectare almost 50 times as high as that of United States, has emphasized biological and chemical technology (such as new seeds and fertilizer) rather than mechanical technology. For the majority of LDCs with high worker–land ratios, the Japanese approach is more sensible than that of the United States (Hayami and Ruttan 1971:111–128).

Nonagriculture, by absorbing agricultural labor and supplying technology substituting for land and labor, helps determine relative prices and the path of technical change. How farmers, research institutions, farm supply companies, and agricultural department bureaucrats and politicians interact in response to prices generates a unique pattern of agricultural technical change and growth in LDCs (Hayami and Ruttan 1985:4–5).

Externalities from conveying to farmers valuable information about new technology may justify its subsidization (Stiglitz 2000b:336). Yet the introduction of new technology in rural areas is often quite risky. Understandably, farmers are reluctant to accept change unless their risks are adequately covered. From long experience, peasants have reason to be skeptical of the findings of experimental research farms. When family survival is at stake, it is more important to avoid any probability of crop failure than to maximize long-run output.

In a number of instances in LDCs, peasant income has fallen, sometimes threatening household survival, when innovation occurred. Too often, the new methods were not adapted to local farming conditions: They were inadequately tested in a different soil, climate, and environment and had adverse side effects that destroyed any benefit they may have had. In other instances, the methods failed to consider social, economic, or institutional realities.

Clearly, introducing new technology requires active initial monitoring, so that probable social and economic effects are foreseen: Whereas on-farm tests are required, small farmers are free to experiment with only a fraction of their land holdings, using the remainder to produce food by the old techniques in case the experiment should fail.

Perhaps China best illustrates the importance of adequate agricultural research policies. From the 1950s through the late 1970s, China had a very slow growth in food output per person. During that period, Chinese agricultural institutes were isolated from international institutes and did little applied or adaptive agricultural research. During the height of the Cultural Revolution from 1966 to 1970, some leading agricultural scientists were sent to rural areas to learn from the peasants and workers. At about the same time, the matriculation of agricultural students was disrupted because the educational system was shut down. Deng Xiaoping, China’s

254Part Two. Poverty Alleviation and Income Distribution

foremost political leader during the late 1970s, 1980s, and early 1990s, argued that lagging research and low-quality education, especially in agriculture, constitute the “greatest crisis” in contemporary China (Howe 1978:26–27, 81). China’s dilemma underscores the importance of fundamental agricultural research, either undertaken in local research institutes or borrowed and adapted from abroad.

The World Bank (2001e:184) observes how things turned around after Mao. “Anyone who doubts the impact of agricultural research on farm income and household food security (and thus poverty) should visit rural areas in Guizhou, the poorest province of China.” Researchers introduced quality protein hybrid corn to Guizhou in 1994. This corn not only is higher yielding than conventional varieties but also has essential amino acids for child growth. The 25,000 local families are better fed and have used surplus grain to produce pork to raise income and food security. Neighboring provinces also have adapted this variety of corn (ibid.).

Chapter 8 also discusses agricultural research, stressing the importance of technology that matches resources and social conditions. Farmers need to be more directly involved in selecting research topics. Also, the LDC agricultural institutes must develop and adapt technology suitable for small farmers and laborers and disseminate this technical information (Hunter 1978:78–82; World Bank 1990:69). Additionally, institutes need to stress research on foods, such as cassava and millets, that loom large in poor people’s budgets (Besley and Kanbur 1993:81).

The scope of research and technology to increase agricultural productivity is broad. Innovations in institutions, improvements in human capital, and embodiment of technology in new biological and physical capital can transform agricultural development and improve productivity (Bonnen 1998:271). The issue of bioagricultural technology is important enough to be treated in a separate section later.

EXTENSION SERVICES

Much agricultural information, technology, and investment in human capital are public goods that government can facilitate or provide. Extension personnel can take the results of agricultural research and information to the farmers. The role of the agent is crucial and varied, and he or she is accountable to the farmer. Agents must contact and speak with farmers; pass on simple technical information; be able to demonstrate it personally; identify difficulties; know sources of technical advice and training; identify farmers who are good credit risks; arrange for fertilizer, seeds, and other inputs from government depots; and clearly report farm problems and characteristics to researchers and planners. And all this can be done more effectively where information and communication technologies are available.

The World Bank (2004a) has identified

the need to develop agricultural extension systems as institutionally pluralistic networks of institutions providing varied information and innovation services to rural peoples. Such extension systems must be demand-driven with closer linkages to clients, must become more efficient, and must develop more sustainable sources of financing.

Unfortunately, agricultural extension programs in LDCs are not very successful. Extension agents are often few and far between, ill-paid, ill-trained, and illequipped to provide technical help. In many instances, they are beholden to the large, influential farmers and neglect the small farmers, who have far less education and political power. They especially neglect women, even though women manage a sizable proportion of farm activities, particularly food crops, in traditional agriculture.

Extension services based on the U.S. model are not effective. Edward B. Rice has found that in Latin America and other LDCs, the independent extension service based on the U.S. model introduces few innovations and contributes little to rapid growth. He suggests that extension personnel might be more effective if integrated with development organizations, such as loan banks, irrigation authorities, seed and fertilizer distribution centers, agrarian reform agencies, or cooperative organizations (Rice 1974; World Bank 1978:43; Lele 1979:62–63; Besley and Kanbur 1993:55; Antholt 1998:360).

In other instances, “private entities – such as management consultants, nongovernmental organizations, farmers’ groups, trade organizations, and commercial input suppliers” might more effectively respond to farmers’ demands. However, economic returns are rarely sufficient to induce private units to provide services, especially to small farms and the rural poor. Because extension is a public good, government may have to set rules and correct market and policy failures, sometimes by providing funding (World Bank 2004a).

ACCESS TO WATER AND OTHER INPUTS

Irrigation increases agricultural productivity. It enlarges the land area under cultivation, permits the growth of several crops per year, and regulates the flow of water. However, investment in irrigation and focus on water distribution vary substantially between the two continents with a predominantly agricultural population:35 percent of cropland in Asia is irrigated, but only 5 percent in Sub-Saharan Africa (Tomich, Kilby, and Johnston 1995). Still, even in Asia, water access and availability can often be problematical for small farmers. For example, in Pakistan’s century-old irrigation system in the Indus River basin, large, influential farmers get first chance at available water, wasting it, as cost is unrelated to the amount used. Indeed, water-right reform is often necessary for land reform to be successful. But even were water access not a problem, the small farmer seldom has the savings, credit, or incentive to invest in wells and other water projects.

Usually the marginal cost of irrigated water is low and the cost of monitoring water usage is high, making water projects public goods and probably justifying government provision (Stiglitz 2000:336). When government funds are inadequate, water courses deteriorate. Obviously, water rights management and user fees must be planned to avoid inequity and inefficiency.7 Competent technical management

7The World Bank (2003d:99) contends that property rights to water need to emerge, at least in situations of scarcity.