INTERNATIONALBANK FOR WORLD BANK R E T C N O E N STRUCTION PM AND DEVELO October 2004 No. 55 A regular series of notes highlighting recent lessons emerging from the operational and analytical program of the World Bank`s Latin America and Caribbean Region COLOMBIA: LAND POLICY IN TRANSITION Klaus Deininger and Isabel Lavadenz Background are not effective in transferring land from large to small producers, implying continuing concentration, driven largely The harmful impact of inequality--on incomes, assets, voice, by violence and displacement. and opportunities--in Latin America is well recognized. Land inequality is associated with Data from about 800 municipalities show that high land higher violence and lower land inequality is associated with greater expansion of livestock productivity. Even using land valu- farming into ecologically fragile areas un- ation (avaluo) instead of physical suitable for farming, and underutilization area, land inequality in Colombia of agricultural land. This inhibits Colom- remains high, with a Gini coeffi- bia from realizing its comparative advan- cient of 0.85 (compared to Korea tage in perennials and high-value-added with 0.35, or Japan with 0.38). crops, and reduces the agricultural sector's Successful land policy could help contribution to economic growth. Higher break the vicious cycle of inequal- land inequality is also associated with ity, violence, underutilization of lower public spending on investment. And productive resources, and poverty. violence is much higher in highly unequal A multipronged strategy is needed, municipalities. A growing literature argues including (a) direct measures to that where high inequality undermines reduce violence and its conse- household access to economic opportuni- quences; (b) more use of markets ties, guerrillas, paramilitaries, or organized to improve competitiveness and crime more easily find cheap recruits. correct deep-rooted structural in- equalities; and (c) measures to complement markets Land Policy Can Help Reduce Involuntary and/or improve their functioning, to better benefit small Displacement producers, foster diversification and rural growth. Colombia's experiences with market-assisted land reform pilots (Höllinger 1999) and projects that put land reform Colombia ranks alongside Angola, Sudan, Afghanistan, and within the context of broader entrepreneurial development Iraq in numbers of internally displaced people (IDPs). (Rojas and Urbina 1999) provide important lessons for CODHES estimates that about 4 million hectares of land has moving forward. been abandoned by IDPs; three times the amount redistrib- uted through government land reform efforts since 1961 Land utilization patterns (Global IDP Project 2003). Displacement has thus brought about massive agrarian counterreform, and is likely to con- tribute to significant and unproductive land concentration in Only 30 percent of land suitable for agriculture is utilized for some areas. Higher land inequality is one factor that signifi- crops (with significant regional variation). More than double cantly increases the number of displaced people. This causes the area suitable for pasture is used for livestock grazing, with untold human suffering, and, because land abandoned by negative environmental consequences. Although markets IDPs often is not effectively utilized by those taking over, provide land access to poor and productive producers, they significantly reduces land use productivity. 1 A high share (60 percent) of displaced households relied on 5 Facilitate return where desired: Others, especially those land as a primary source of livelihood in their place of origin. that owned land or were in agriculture, will have a high These people suffer more and longer from the shock of propensity to return. Improving physical security to leaving their place of origin than those who earned their allow voluntary and group-based return, with assistance living outside agriculture because their agricultural skills are to maintain agricultural skills and property rights and to of little use in the urban or peri-urban areas to which they are start up production, can help them do so. driven. Redistributive land reform has suffered from a The number of displaced people was significantly higher in number of shortcomings 2001/2002 than 1999/2000. A greater share had left their homes in response to a specific threat, were female headed households or originally employed in the agricultural sector. Large amounts have been spent on redistributive land reform Far fewer were able to find jobs at their destination. All this in Colombia, especially since Law 160 passed in 1994. There suggests increased "severity" of displacement. Assistance to is broad social consensus on the importance of redistributive the displaced population, through government, church, non- land reform to reduce structural inequality and governmental organizations (NGOs), and others, now covers underutilization of land. The principle of this law--giving more than two-thirds of the sampled households, compared to grants to supplement beneficiaries' efforts and allow them to less than half earlier. acquire land without intervention of a government agency-- is sound. But success has been below expectations, for Effective policies to prevent displacement are an urgent several reasons. priority, and need to achieve five key things: Flawed process: "Quick fixes" were pursued without first 1 Address three structural factors establishing the need for and scope underlying displacement: (a) of land reform at the local level. This land inequality, (b) low public was exacerbated by the imposition of spending, and (c) insecurity and inappropriate collective landowner- targeted acts of violence. The ship structures, without beneficiary government has made com- participation and often against their mendable progress in addressing will. security, (such as through the Sistema de Alertas Tempranas Legal issues and design flaws: [Early Warning System]), which Grants could by law be used for land should be further expanded. acquisition only, not complementary investments. This focused attention 2 Strengthen the local on developed land, instead of high population's ability to resist: potential underutilized land. Making Government policy recognizes that mechanisms to grants proportional to land values (up to a maximum value) strengthen household tenure security in a participatory encouraged overpayment and collusion. Beneficiaries ac- way can be effective in reducing the probability of being quired more land than they could farm, exacerbated by displaced or at least improving the chances of return or working capital constraints and rental restrictions. No thought the ability to later dispose of their assets rather than just was given to exit options for unsuccessful beneficiaries. losing them. Implementation has, however, been limited to pilot activities that have not been evaluated systemati- Centralized implementation: Instead of trying to move in cally. concert with local development plans, INCORA (Instituto Nacional Colombiano de la Reforma Agraria, or National 3 Provide prompt assistance to displaced persons: Quick, Institute of Agrarian Reform) pursued a punctual approach, effective assistance, such as a fund to partly compensate which redistributed properties with scant regard for the municipalities that effectively deal with large inflows of broader environment. Limited local government and private displaced people, provides significant benefits and in- sector involvement restricted beneficiaries' ability to gain creases households' propensity to return. access to productive and social infrastructure, markets, and technical assistance. De facto exclusion of civil society and 4 Help those unlikely to return, to integrate: Some NGOs reduced transparency and independent monitoring and groups, such as households headed by widows, are evaluation. unlikely to return under any circumstances. It may be better to recognize that fact and help them integrate into Making Land Reform More Effective labor markets at their destination, while providing them legal assistance to facilitate the transfer of their assets to others. The government's land reform program has been less effec- 2 tive than markets in transferring land to productive, small, or producers is that lack of infrastructure or high levels of landless producers. Case studies support this finding, identi- violence often limit ability to make productive use of land. A fying high levels of indebtedness, inability to access credit, program combining public investment with private support and large-scale desertion as underlying the limited productiv- (which might involve donations) to improve productivity ity impact of the traditional land reform program. Potential (and land access by small producers) is a key task for local programs to improve access to land by the poor or landless governments attempting to catalyze markets. Central Govern- should complement, not substitute for, what can be achieved ment support is likely to be needed. through land markets. Regulatory environment for markets. The contribution of Utilizing Land Markets to Enhance Land Transfers land rental markets to investment and structural change is to Small Producers restricted by high transaction costs of short-term (annual) contracts. These constraints can be alleviated by measures to increase availability of land price information; reduce trans- Markets have helped provide land access to the poor and action costs (for example, through model contracts); actively more productive. Studies show that, before adjustment in the promote long-term contracts; and improve financial market early 1990s, land markets were driven by functioning. Where land concentration is due speculative land acquisition that reduced pro- to noneconomic factors (for example, vio- ductivity and access of the poor to land. This lence and laundering of illicitly acquired is no longer the case. Rental and sales mar- monies), other measures are needed. Accu- kets now facilitate access to land by smaller rate inventories of actual and potential land and often more productive producers. How- use, and participation by the major stake- ever, greater land access may not decrease holders in negotiated solutions will be essen- overall land concentration for three reasons. tial but difficult challenges. First, most land market transactions occur within the same size class, rarely shifting Dealing with unproductive National land from large to small farmers. Second, one INCORA lands: Large amounts of land dis- purchase by a large farmer can affect land tributed in past reforms through INCORA, concentration more than many small transac- suffer from restricted property rights, default tions. Finally, displacement and associated on (often collective) debts, and restrictions abandonment of land that subsequently often on transferability that limit investment and is incorporated into larger units create a land effective land use. To unlock this potential accumulation dynamic that can easily out- and increase the welfare of many poor house- weigh the impact of market-mediated holds, guidelines are needed on (a) transfer- deconcentration of landownership or access. ability of this land through rental or sales; (b) low-cost ways to substitute original land reform beneficiaries; Although land markets work better than before, many im- and (c) ways to settle debts, especially those incurred by provements are still needed. Land rental markets could have members who have left or related to payments that clearly more impact on land productivity if: (a) contracts were exceed the reasonable value of the land. Once agreed, these longer-term to encourage investment and production diversi- guidelines should be implemented rapidly, combined with fication; (b) there were more transfers from large-scale to individualization of land tenure by those affected wherever small or landless producers; and (c) transaction costs and this is the desired course of action. restrictions fell. Policy Implications and Lessons from Experience Better access to capital markets (and financial instruments to facilitate this) would increase the limited scope for participa- tion in land sales markets by small producers or landless Programs to improve utilization of land and access by the people. This could also increase access to complementary poor need to incorporate the lessons from experience and be assets and enhance land productivity -- working capital firmly linked to local government initiative and activities, constraints make many small owners, especially those that together with participation by civil society and the private benefited from past land reform, unable to make the most use sector. of the land they own. Planes de Ordenamiento Territorial (POTs, or land use Revenue from more effective collection of land taxes could plans) can help address shortcomings of past reform. POTs be used to provide local public goods, such as security or have been introduced to provide a technical basis for long- roads, which increase land values. Tax coverage needs to be term spatial planning in the context of the government's expanded, avaluos (valuations) updated regularly, and short- decentralization policies. They offer a number of advantages: comings in collection addressed. (a) they link local policies and initiatives with vetting by the Corporación Autonomas Regional (CAR, or Regional Au- A key factor limiting market land transfer from large to small tonomous Corporations, a deparment-level planning author- 3 ity) that transcends sectoral interests, integrating pro- posals into a comprehensive local development strat- What Have we Learned in Rural Development? egy; (b) they can provide information needed to implement national policies. to improve land utiliza- [extract from "Reaching the Rural Poor: A Rural Development Strategy tion in a coherent way. However, guidelines, mini- for the Latin America and Caribbean Region, July 2002"] mum standards of technical quality for analysis of land tenure issues and technical support to assist Need to find the right balance. This ruralAction Plan argues that LCR implementation are needed. cannot succeed in its poverty alleviation efforts without the contribu- tion of the rural sector. However, finding the right balance is still a Bringing underutilized land into production by trans- challenge. The development community has gone from one extreme ferring it to small producers can have high economic to another, searching for the appropriate instruments and approaches returns. Successful projects exhibit various organiza- to translate a holistic vision into effective actions. Too often, imple- tional arrangements, from cooperatives to profit-shar- mentation capacity fell short of conceptual sophistication or poor ing joint ventures, and do not always involve transfer policies kept good projects from bearing fruit. It suggests that the of landownership. Successful cases share three char- approach must be holistic but the balance between macro and micro acteristics: and among different elements of the complex development agenda is critical. Sound governance through a competent and respected eco- · participation by the private sector, and benefi- nomic technocracy is also essential to deliver results on the ground. ciary decision on the land to be used and opera- The 1970s. Back in the 1970s, practitioners recognized the complex- tional structure to be adopted; ity of the process; the need for integration among many things and at many levels, in particular policies, and the delivery of public goods · long-term economic viability through land prices and services in different sectors; and the need for strong coordination in line with productive capacity, individual land at the center and for decentralization in implementation.29 While tenure, access to working capital and credit; Integrated Rural Development Projects were right about integration, they were wrong about the way they were implemented. IRDPs were · integration with access to technology, markets, implemented top-down, with no participation, no decentralization and and transport. in an adverse policy environment. However, there is much that we can recover from the concept of integrated rural development in the new There are considerable opportunities to improve land context of decentralization, differentiation, democratization and better utilization and local economic development and agri- policy framework that characterizes most of LCR countries today. cultural competitiveness in Colombia. But this re- quires coordinated action from various levels of gov- The 1980s and part of the 1990s. In the 1980s and part of the 1990s, ernment, within an incentive-compatible framework, a leaner but less integrated approach was undertaken seems inevi- and drawing on civil society and the private sector. table, some countries in East Asia have succeeded in achieving high, sustained, broad-based growth. Since 1975, they have succeeded in ********** lifting some 370 million of people out of poverty, nearly twice the total number of poor in LCR (some 188 million in 1996). They combined equity with sustained high growth. They applied a holistic, market- and export-oriented strategy, supporting smallholder agricul- ture, enforcing an equitable land distribution, and building the human capital assets of the rural and urban poor. They combined a holistic About the Authors vision with solid implementation capacity. This note was prepared by Klaus Deininger, a Lead In sum, rural development can make the strategic difference. The Economist with the Research Group of the Develop- stark contrast between the rich natural resource endowment of rural ment conomics Department (DECRG) and Isabel areas, the opportunities provided by the macro and trade framework Lavadenz, a Senior land Policy S[pecialist with the and the reality of much of rural life should be a call to action. That South Asia Agriculture and Rural Development De- very contrast is also grounds for optimism if the existing opportunities partment (SASAR) can be harnessed and the existing development potential can be tapped. The region and the Bank have a unique opportunity. The For more information see response to the challenges of globalization, urbanization, democrati- http://www.worldbank.org/rural zation and decentralization will trace the development path of the region for decades to come. A rural strategy anchored in worldwide lessons of experience in rural development can make the strategic About "en breve" difference between a shared and sustainable or an exclusive and socially destabilizing growth path. Subscribe to "en breve" by sending an email to en_breve@worldbank.org 4