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WVORKINGPAPERS B
AgriculturalPolicies
LatinAmericaandtheCaribbean
Technical
Departmentandthe
Agriculture
andRuralDevelopmentDepartment
TheWorldBank
July 1993
WPS1164
Public Disclosure Authorized
Power,Distortions,
Revolt,and Reform
in Agricultural Land Relations
Public Disclosure Authorized
HansP.Binswanger
KlausDeininger
and
GershonFeder
Public Disclosure Authorized
PoUcyRcarch Wosking Papczsdisseninatothe findings of work in progress andencourage the exchange of ideas among Bank
staff and
alodtcsintrestedindvelopmentisues Thesepapers,disuibutedbytheRescarchAdvisoyStaff,carry thenamesoftheauthors5reflect
ordytheirviews,andshouldbouseda ndcitedaccordingly.Thcfindings,interpreutions.andconclusionsamtheauthors'own.nTcyshould
na be attributedto the World Bank. its Board of Directon, its management,or any of its member countries.
l ~~Polloy
Research
Agricukural
Policese
WPS1i64
Glossary
Introduction
Epilogue on Methodology
Bibliography
i
GLOSSARY
Irrespectiveof their historicaland culturalor Ideologia origins, the followingterms are used In this
paper with the definitiongivenbelow:
Radenda. A manorialestate in whichpart of the land is cultivatedas the homeharm of t'e owner
and part as the familyfarms of serfs, usufrctuauryright holders, or tenants.
Home Farm: That part of the manorialestate or large ownershipholdingculdvated'Jy the lord,
landlordor owner under his own managementusing corvdeand sometimespartly remuneratedlabor.
1
choiceor are bound by restrictionson their mobility. Manorialestatescan be organizedas ha,<indas
or as landlordestates.
Reservraon udiky or reserwtion wage.The level of utility (includingthe risk ataibutes)or the wage
whichis availableoutsidethe manorialestate to a potentialtenantor workeron a manorialestate.
Sharecontract:A rental contractin whichthe tenantis payinga portion or all of his rent by
deliveringa certainproportionof the output, the crop share, to the landowner.
SatJbnws: A farm belongingto the state andoperatedlike a Junker estate or a large commercial
farm under a singlemanagementwith a largely residentlabor forcepaid in wages,and sometimes,
profit shares in cash or in kind. Laborersmay be allocateda smallgarden plot.
2
INTRODUCTION
This paper beganas an inquiry into the efficiencyand equity consequencesof rental
and sales marketsfor agriculturalland In the developingworld. Mostof the workon the relationship
betweenfarm size and productivitystronglysuggeststhat farms that rely mostlyon familylabor have
higherproductivitylevelsthan large farms operatedprimarilywith hired labor. If that Is so, why have
marketsfor the rental and sale of agriculturalland frequentlynot reallocatedland to famUyfarmers?
Why do extraordinarilyunequaldistributionsof ownershipand operationalholdingspersist in many
parts of the world?Why has land reform seemedto be necessaryto changetheseland ownership
distributions?
What beganto emergefrom this studywas the clear sense that the great variationsin
land relationsfound acrossthe world and over time cannotbe understoodin a simplepropertyrights
and marketsparadigm.Section2 explainsthe idealizedsequenceof the emergenceand definitionof
propertyrightswhichoccurredin only few areasof the developingworld. As that paradigmwould
have it, increasingland scarcityleadsto better definitionof rights, whichare then traded in sales and
rental marketsthat are equallyaccessibleto all players.The outcomeshouldbe the allocationof land
to the most efficientuses and users. Yetthis oftendid not happen,as great observeddeviationsfrom
efficiencydemonstrate.
3
BIecse land ownershipdistributionhas often been determinedby power relationships
and disortions, and becuse land sales marketsdo not distributeland to the poor (the key pointof
secton 5), land reform has oftenbeen necessaryto get land Into the hands of efficientsmall fazily
owners (section4 showsthat they are indeedefficient).The successesand failuresof reform in
marketand socialisteconomiesand the perversior of reforms In both these systems,manifestedin
large commercialfarms or collectives,are discuss&;3 section3. The social cost of failingto
undertakereform-peasantrevolt and civil war-arealso considered.
I (...oa _ned
1986),rgi and urbonplniig, andthe dorminant of lad values(RndallandCastle1985).7he
rifarmis citedprovidea goodoveviewof thislitratr
4
oprated by tent as smallfamilyfarm units. Regulatingtenancyor outlawingit has perverse
efficiencyand equity effectsfor the poor.
The sectionsof the paper are groupedin k ee parts. Part I coversthe historyof land
analyticalcontroversiessurrounding
relationsand the legaciesit leavestoday. Part II coversthe whree
economiesof scale, and the efficiencyof the land rental and the land sales market. Part m discusses
the major land policy issuesleft behindby the variousdistortionsand successfuland unsuccessful
reformsin the developingworld. These inicludeland registrationand titling, lar.d taxation,regulations
limitingland sales and land rentals,fragmentationof land, redcstributiveland reform and
Policy implicationsare discussedusing the insightsgainedin the previoussections.
decollectivization.
S
Virtuallyall the systemsof land tenure found to exist before the emergencyof private
property in land seemto have ihis one feature in common:certain familiesare
recognizedas havingcultivationrigihtswithina givenarea of land whileother families
are excluded.... 'Free' land disappearsalreadybefore the agriculturalstage is
reached.Tribes of food collectorsand huntersconsiderthat they have exclusiverights
to collectfood and to hunt in a particulararea....
Under the systemof forest fallow,all the men,bersof a tribe .... have a generalright
to cultivateplots of land.... Tbis gerera' right to take part in the cultivationof the
land whichthe group dominates- or imaginesto dominate- can never be lost for any
memberof the cultivatorfamilies.They may voluntarilyleave the territory for a time,
but they can then reclaimtheir right whenthey return ....
6
Hunter-gatherer T e r r i t o r i a I r i gh ts t o hunt and g a t he r
3~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
4 I grater 'rigl
to efol il"|o [*
to
Permanent t 15
unrestricted greater rlghtJ to overlords
cropping right to sell Abolition ol
I y
~~~~~~~slavir
croppingLndroorrr
. ._
Land reformTen1
Junker Estate
*am.s3vI@Iei I lowner-operated\
r*eht is s@el 12|
4 Land reform \
7_____________6_________ subsldlde
ol ectlve an Contract
Contemporary Family Farm Large mechanize
Titilng and Land RKegletrlom Dooollooltlwhallea Eliminatlio of subslidie ReodltrlbutlI Lead Note,
POLICY aegulatlsa of Land S01e s RedlelilbatlvO Land Retori Land Ta:atleu
Resulallef e* Laud R1at1le Teneasy regatatlos c"*.sol l
QUESTIONSFlagmemtltloead Co
aoollidmtis land ait iloa
Land Taxatlsn
At this stage, whenthe attachmentof individualfamillesto Individualplots becomes
more permanent,the customof pledgingland is also likelyto emerge.If a family
does not need to use a givenplot for a certainperiod It maypledgeit to another
family .... subjectto the condit:onthat the land must be returned, uponrequest....
Thiscustomo; pledging.... must be distinguishedsharplyfrom the sale of land
where the former occupierof the land losesall rightsin it.
9
Even wherecommunalland rightsand managementsystemsprevail, as in indigenous
communitiesof the Americas,or tribal communitiesin Asia and Africa, familieshave strong specific
laud rights. These rightsp;ovidesubstantial'ownership' securityas long as the plots are farmedby
individualfamilyunits (Noronha1985;Downsand Reyna 1988).Land rental and sales usually occur
withilnthe community, especially among close kin.
10
numerousforms and left historicallegaciesin the distributionof land once land rightsbecamefully
private. Again,Boserup(1965)says it best:
11
3 Coercionis no longer necessary.Utilitycan be reducedby changingthe free peasants
cultivation.
accessto high qualityland. Large landownerscan also try to increase the supplyof labor or tenantsto
their holdingsby Influencinggovernmentsto intervenethroughdifferentialtaxationof owners and
workersin large and smallholdings,or by limitationson marketaccessthat drive downprnfitabillty
for independentpeasantsand thus reducethe reservationprice of labor. Such economicdistortions
increasethe rent that goes to large-scalefarmersat a cost to the economyof lower productive
efficiency.
12
tenantshave few incentivesto invest, and landowners'cultivationof the home farm entailslabor
supervisioncost. Thesepointsare more fully elaboratednow.
Economicdistortions
7 Mesailloux (1991) also shows that these systems of merchan slavery were dependent on
slaves for systems of aristocratic slaveiy which engaged in the reproduction of the slave
populbaonthrough raids and warfire on widelydispersedsubsistence-onentedpeasant
populapions.
14
bondage.With identicaltechnologyand a competitiveoutput market, cultivationof the home farm
with wage labor wouldnot be competitivewith the free familyfarm becauseof incentive
disadvantagesand labor supervisioncosts.
* ItImposing
d5iferendoJ
taxationby requiringfree peasantsto pay tribute, hut, head or
poil taxes (i cash, kind, or labor services)whileoftenexemptingworkersor tenats
in manorialestatesor taxing them at muchlower rates. Suchsystemswere used
widelyin WesternEuropeduring the feudalperiod, in ancientJapan, China, India and
the OttomanEmpire, and by all colonialpowers (table 1). Tributesystemsin Eastern
Europe and Japan survivedinto the secondhalf of the nineteenthcentury.As long as
free peasantscan pay tributeor taxes in kind or cash and have equalaccessto output
markets, taxationalonemay be insufficientto bring forth a supplyof workersor
tenants.They were thereforeoftencomplementedby output marketinventicas.
15
Table 1: Intervention to Establish and Suort LargIeFarms.
Jap Ecludve lnd rights to developed wsteland; 723 Tribute exemptionfor cleared and temple land; 700
Io and Sumata Ad grant to companies; 1870 Indentued labor. 19th cenuy
Culivation System; 19th century
iwpimnes Lan grSts to mostic ler; 16th ce_y Encomienda
Rimioato
Tax exemptionfor haciendaworen ; 16thcenatry
EUROPE.
Pnusa Land rams; from 13th conuy Monopoes on millig and alcobol
Retorictionson hbor mobility, 1530
Land form legisations; 17S0-180S
Ruwsa lAnd grAs; from 14thcentury Resictions on pe mobility:
Service tem ; IS65 - Exit fees;1400/50
- Pobidden yea; 1588
- Bnerfwnt- 1597
- Tndabiliy of secr 1661
Hoan farm w pt from taxata1580
Debtpompge; 1597
Monopoly on commee; until 1830
S. AMERICA:
Chai Land grant (ereda de m); 16th ceouy Eionends; 16th century
Labor ervic (Wt); 17th centy
bIport dutis on beef; 1890
Subidies to mechanizstiom 19S50i6
El Salvdor Gra of public land; 18S7 Vesnay lws; 182S
dli of commu nd; 1882 Exenption from public an miitary smo for
___ ___ ___ ___ __ ___ __ _lu__ _lbandm s endthi workers; 1647
16
AICAs
A a MMng; co 1840 Tax oxemptionfo worker on Eluopen fm; 1849
Landgru under ettlmentprogms; 1871 CreditproviskinfowvLP
-|"t settlerc
'Sealers' law' 1873
17
Coipningagrlcidturalpublicgoodsandservices(roads,extension,credit)jo the
fawmsof the rudersor subsidizingthesefarms directlywas anothermeansof incaeasing
their profitabilityrelativeto peasantfarms.'
18
additionas part paymentfor their labor. Often, the residentlabor force is complementedby
seasonallyhired wage workers.
19
1973:204).Labor productivityand total productionon the patrons' plots were abouthalf that on
tenants' plots in Peru and one quarterin Ecuador (Pearse 1975:91).
What explainsthe total amountof tribute, surplus,or rent that couldbe extracted
from the peasantson the manorialestate?The predominantexplanationfor Europeanestateswas a
demographic-economic
model based on Malthusand Ricardo(see, for example,Postan 1973;Le Roy
Ladurie 1966, and 1985;North and Thomas1971;Brenner1985;Holton 1977)that relatestribute
burdensto relativescarcitiesof land and labor. Beforeruling groupscontrolledmost of the land or
were able to coerce labor, attractingor retainingpeasantsto manorialestatesin areasof low
populationdensity requiredthat peasants'utility on the manorialestate exceededtheir reservation
utility for subsistencefarmingin the bush or in areasfrom whichthey had to be inducedto emigrate.
In Europe east of the river Elbe such terms usuallyincludeda grant of hereditaryusufructrights.
Initially,most corveelabor was devotedto the constructionand maintenanceof infrastructure.
This simpledemographic-economic
model falls to explain,however,why European
regions reactedso differentlyto the plague-induceddeclinesin populationin the fourteenthcentury.
The associateddrop in tribute contrbuted to the erosionof serfdom in WesternEurope, but led to the
reimpositionof serfdom in EasternEurope. In the debateover the demiseof feudalismin Europe,
Bremner(1976, 1982)clearly establishedthat economicfactors such as populationdensity and market
access alone are insufficientto determinethe incomedistributionbetweenpeasantsand lords in the
manorialestate. At best, they determinenot the actualamountof tributeor surplusthat couldbe
extractedfrom peasantsbut rather the maximumpotentialamount The lords' successin extracting
tribute dependedon their politicalpower to claimthe land, monopolizemarkets, and controlthe
movementof peasantsrelativeto the power of peasantsto resist these efforts.
20
Barganing between peasants and lords and the distribution of Income
21
each havingits own incentiveproblems.He can choosethe amununt
of land allocatedto home farm
cultivation,knowingthat incentivesare requiredto bring for,"% effortand that supervisionis costly.
He can choosethe size of the plot allocatedto the tenants, knowlingthat familyfarms providehigh
incentivesto producebut may lead tenantsto concentrateon dt'wrownplot and not supplysufficient
effortfor homefarm cultivation.
22
were highlyvariable.There are many other examples,however,of frontiersocietieswithoutexternal
marketsin whichtributewas collectedin kind.
Conclusion
23
interpretsthe emergenceof capitalistfarmingand the loss of rights to tributeas the consequenceof
increasedpopulationdensityalone, whileSweeney(1976)emphasizesthe role of increasedaccessto
markets. Brenner(1985)showsthat these explanationsalone are inadequate,arguingthe need to
introducethe cohesivenessof the two groups and the strengthof the coalitionsthey can form witk
lings or urban groups.Holton(1977)also discussestheseissues, as well as broader non-economic
theories).In particular,Brennerstressesthe importanceof the cohesivenessof the peasantcommunity
in resistingattemptsby the lords to increasethe instrumentsavailableto them or the intensityof their
use.
Since land reform involvesthe transferof land rents from a ruling class to tenantworkers, it
is not surprisingthat most largescale land reformswere associatedwith revolts(Bolivia),revolution
(Mexico,Chile, China, Cuba, El Salvador,Nicaragua,Russia)conquest(Japanand Taiwan),or the
demiseof colonialrule (EasternIndia, Kenya, Mozambique,Vietnam,Zimbabwe).Attemptsat land
reform withoutmassivepoliticalupheavalhave rarely succeededin transferringmuchof a country's
24
land' (Brazil,CostaRica, Honduras)or have done so very slowlybecauseof a lackof political
commitmentto providethe fundingto compensateowners(see section5).
26
By substitutingsubsidizedcapitalfor labor, the Junkerestate was transformedinto a
large-scale
mechanized
commercialfarn(arrow 11) that no longer dependedon large amountsof
labor. Intensivemechanizationof large commercialfarms reducesthe potentialfor land reform since
there are not enoughfamilieswith farmingskills and implementsavailableon these capitalintensive
farms to result in the establishmentof efficientsmallfarms ableto rely on low-costfamilylabor. A
similarresult can be achievedby convertinghaciendasor junker farms to livestockranches,which
requiresvery little labor.
27
agricultureand that the incentiveproblemsassociatedwith supervisinghired or corvdelabor far
exceedthe efficiencylossesassociatedwith long-termwhole-farmtenancycontracts.To compete
successfullywith familyfarms, Junker estateshad to find waysto reducetheir labor costs or to
increasetheir revenues.Havinglost their rights to rent or labor servicesfrom tenantsor workers,
landownersoften soughtto securerents from the expandingurban and inJustrialsectorsthroughtrade
barriersand subsidiesfor mechanizingproduction(de Janvry 1981).Trade barriers, by banningor
reducingforeignagriculturalcompetitionforced consumersto subsidizeJunker estatesor commercial
farms. Examplesincludethe GermanZollvereinat the end of the nineteenthcentury(Gerschenkron
1965),tariffson beef importsin Chile in 1987(Kay 1992),and selectiveprice supportto products
from large-scaleunits in Kenya,Zimbabwe,and SouthAfrica (Deiningerand Binswanger1993).
Subsidiesfor mechanizationled to the transformationof nearly all Junkerestates into mechanized
commercialfarms(arrow 11). Huge sums were providedeither through direct mechanization
subsidies,as in Kenya,or through cheapcredit, as in SouthAfrica, Zimbabwe,and virtuallyall of
SouthAmerica,wherereal interestrates were even negative(Abercrombie1972). Mechanization
eliminatedthe need to rely on hired labor and resultedin widespreadtenant evictionseven in
countrieswith cheaplabor - hardly an optimaltransformationfrom a socialpoint of view.
28
13), In whichland is ownedand operatedjointly, under a singlemanagement.Familiesdo not operate
their own plots as they do in systemsof communalownership.
29
in collectivesas in haciendas(Boninand Putterman1986;Putterman1989). The poor performanceof
agricultureunder a collectivemodeof productionis well documentedand It is not surprisingthat the
expectedincreasesin productionfrom economiesof scale were not usually realized(see, for example,
Colburn 1990for Nicaragua;Ghai, Kay, and Peek 1988for Cuba;Ghose 1985,Wuyts 1982, and
Griffinand Hay 1985for Ethiopiaand Mozambique,Lin, 1990for China). Once giventhe chanceto
do so, membersof collectivefarms oftenvotedto redistributeplots to family-szed farms.'2 True
economiesof scale wouldinduceeconomicallyrationalfarmersto establishcollectiveforms of
production(Puttermanand Giorgio 1985). In the absenceof otherpossibilitiesof insurance,
collectiveforms of productionwouldbe chosen,due to the implicitinsurancethey provide against
noncovariaterisks, even in the absenceof economiesof scale (Carter 1987). However,cooperative
productiondoes not insureagainstcovariaterisks. Empiricalevidenceindicatesthat socialties may
be a less costlywayto insureagainstrisks that are not covariate(Walkerand Ryan 1990).
30
Mechanizationof these large farms had occurredand had reducedthe numberof workersor tenan
before their collectivization.When thesecollectiveswere turnedover to their relativelyfew remaining
workers,the resultingfamilyfarms were relativelylarge and unlike in China and Vietnamcouldant
be operatedefficientlywithoutadditionalhired workersor high levelsof mechanization.But hiring
additionalworkersdilutesthe incentivesadvantageof the familyfarm, and the farms had neitherthe
accessto subsidizedcredit nor the large amountsof equityneededto financehired labor or the
mechanization.To make reform workunder thesecapital-constrained
conditionsand reap the
efficiencybenefitsof familyfarmingmayrequire includingmorebeneficiaryfamiliesin the reform
programthan those employedon the highlymechanizedfarms, by resettlinglandlessor near landless
workersfrom outsidethe farms (Part III).
13 Quantitaiveestimates
of thisefficiencylos amrscare,but Loveman(1976)estimatethat Chilecould
havesavedroughly$100milliona year in agricultualimportsduring 1949-64had the40 percet of land left
Ucutiva byw l ndlordsbe cutimVated
31
smallerfamilyfarms couldhave providedrural employmentand self-employmentopportunitiesfor
many of thesepeopleand gainfullyabsorbeda substantialshare of the rapidlygrowingpopulation.
32
* In Guatemala,communallandswere In effectexpropriatedin 1879by a law giving
proprietorsthree monthsto registerland titles after whichthe land wouldbe declared
abandoned.Most of the "abandoned"land was then allocatedto large coffeegrowers.
Redistributionattemptsin 1951-54were reversedfollowinga militarycoup in 1954, when
virtuallyall the land whichhad been subjectto land reform was returnedto the old owner and
farms expropriatedfrom foreignerswere allocatedin parcelsaveragingmore than 3,000
hectares(Brockett1984).Sincethen, there has been a repeatedpatternof suppressinnand
radicalizationof resistance.Suppressionof the cooperativemovementsof the 1960sled to
formadonof the guerrillaarmyof the poor (EGP)in 1972, with Its mainbase in Indian
highlands.Peasantsrespondedto a waveof government-supported assassinationsin 1976with
the formationof the committeefor peasantunion(CUC)in 1978. Governmentmassacresof
protestingpeasantsfollowed(Davis1983).Almost40 years after the firstattemptat reform,
continuingpeasantdemonstrationssignalthe cost of failure.
33
1920sto more coordinatedtenantactionsby the late 1920s.Whilevariouskinds of reform
legislationwere consideredduringthe 1930s,the law finallypassedin 1936vested rights in
previouslypublic lands *ith large landlordsrather than the tenantscultivatingthe land (Le
Grand 1982).A series of tenantevictionsfollowed,leadingto a quarter centuryof violence
(1940-65)during whichguerrillasrecruitedsupportfrom peasantgroups. Land reform
legislationin 1961and 1968regularizedpreviousland invasionsbut did nothingto improve
the operationaldistributionof land holdingsand far fewer peasantsbenefittedfrom the
reformsthan had previouslybeen evicted(Zni.osc 1989).Peasantland invasionsintensified
duringthe early 1970s,leadingto the declarationof a state of emergencyafter 1974. Regional
mobilizations,strikes, and blockadesflaredup again in 1984, indicatedthat the conflictis not
yet resolved.
Much of the rural supportfor the ShiningPath guerillasin Peru can be tracedto the exclusion
of most of the highlandIndiansfrom agriculturalbUnefitsand the benefitsof agrarian reform
of 1973whichbenefittedprimarilythe relativelyfew workersin the coastalarea. As a result,
more than half the departmentsin ae countryhave becomevirtuallyinaccessibleto
governmentforces (McClintock1984),and public investmentin theseregionshalted, inducing
further economicdecline and large-scalemigrationsto the cities, thus exacerbatingsocial
tensionsand conflicts.Poor economicmanagementduringthe 1980sand continuedactivityby
ShiningPath have led to capitalflightand economywide decline.
PARTU.: ANALYTIC
CONTROVERSIES
34
equalizingthe ownershipdistributionor breakig up collectiveor state farms Intofamilyfarms would
enhanceboth efficiencyand equity. In examiningthe relationshipbetweenfarm size and
productivity,we look firstat the sourcesof economiesof scale: economiesof scaIein processing
plantsthat are transmittedto the farm and generatewageplantations,lumpyinputsthat cannotbe
used belowa certainminimumlevel such as farm machineryand managementskills, and advantages
in the credit marketand in risk diffusionarising from larger ownershipholding(section4). We then
summarizethe empiricalfindingson scale economiesand diseconomies.
This leadsto the secondcentralquestionfor land reform: if, as we find, large operational
holdingsare usually inefficient,why do large landownersin marketeconomiesnot rent to family
farmers (section6)? Tbe rental markethas historicallybeen the most importantmechanismto
circumventthe diseconomiesof scaleassociatedwith large ownershipholdingsdespitethe incentive
ssues associatedwith tenancyand sharecroppingwhichare reviewedin Section6. Yet the history of
land reform showsthat long-termrental of entire farms often impliesa high risk of loss of land to
tenants, and long term tenancyis no longeran option. Short-termrental of parcelsof land cannot
createsmall family-operatedholdings.But if tenancyis no longer an option, what preventsthe land
sales marketsfrom bringingownershipholdingsin line withthe optimaldistributionof operational
holdings? Our analysisin Section5 showsthat it is the result of imperfectionsin other markets,
broughtaboutby land-creditlikagtes andpolicy distortions.
35
Labor is the largestcomponentof total costs. Grigg (1974)and Courtenay(1980)
discusshow the ability to use labor nearly year-roundfavoredthe organizationof productionof these
crops under plantations,rather than with tenantsor outgrowers. Tree crops such as oil palm, rubber,
and tea have the most even demandfor labor. Labor demandis more seasonalfor sugar and coffee,
althoughirrigation(for sugar) or specificprocessing(for coffee)can help even out demand.
36
of the world's largestowner-operationsare bananacompanieswhoseholdingsincludedozensof
plantationsoperatedby hired managersand workers. In CentralAmerica,whenlegislationmade it
more difficultfor multinationalsto own plantations,the majorbananacompaniesincreasedtheir
suppliesby buyingfrom contractfarms.These farms typicallyhave hundredsof hectaresand their
contractsare so tight that they virtuallyremainmanagedby the multinationals(Ellis 1985).
37
Introducedinto existingsmallholdersystems,contractfarmingprevails.Processorsseemnot to have
found it profitableto form plantationsby buyingout smallholdersand offeringthem wage contracts.
This suggestseither that the coordinationproblemassociatedwith plantationcrops can be solved at a
relativelylow cost by contractfarmingor that imperfectionsin land sales marketsare so severethat it
is prohibitivelyexpensiveto createlarge ownershipholdingsby consolidatingsmallfarms (section5).
Lumpy inputs
14 BinsuwaWr
andRosenzweig
(1986)discussthelimitsto natalmarketsimpsed by moa hazardsnd
msonality.
38
are not as problemfree as those for threshers(WorldBank 1984). Rao's (1975)analysisof India,
shows that smallfarms' productivityadvantageover large farms initiallydisappearedfollowingthe
introductionof tractorsin NorthwestIndia, but once the size of operationalholdingswas adjusted
upwards,the smallerfarms re-emergedwithhigherproductivityrates.
39
Land, becauseof its immobilityand robustness,has excellentpotentialas collateral,
makingaccessto credit easier for the ownerof unencumberedland (the issue is discussedIn detail in
section5). Rural credit marketsare difficultto developand sustain.There is thereforesevere
rationing,whichcan be partly relievedby the abilityto provideland as collateral.The high
transactioncosts of providingformalcredit in rural marketsimpliesthat the unit costs of borrowing
and lendingdeclinewith loan size. Manycommercialbanks do not lend to small farmersbecausethey
cannotmake a profit. Raisinginterestrates on small loans does not overcomethis problem, since it
eventuallyleads to adverseselection(StiglitzandWeiss 1981).For a givencredit value, therefore,
the cost of borrowingin the formalcredit market is a decliningfunctionof the amountof ownedland.
Land ownershipmay serve as a sign of creditworthinessin informalcredit marketsas well.
40
Farmers and workerswith little or no accessto credit can attemptto diffusetheir risk
by relyingon accumulatedreservesand wealth,social relationships,and risk-sharingarrangementsin
land, labor, output and input markets(Jodha 1978;Bidingerand others 1990;Rosenzweig1988;
Deaton 1990;Sharp 1990).Wealthyindividualscan self-insuremuchmore easilythan the poor both
directly,as a consequenceof their wealth,and indirectly,becausegeographicallydispersedsocial
networkson whichthey can rely in years of (ocally covariate)poor harvests.Wealthyfarmersshould
thereforebe better able to accumulateprofit-maximizing
portfoliosthan poorer farmers,givingthem
5 In land-scarceenvironments,the
an allocativeefficiencyadvantage." bulk of a farmer's wealthis in
the form of land, so large ownershipholdingsare correlatedwith a better abilityto diffuserisks
throughthe wealtheffectand land's robustnessas collateralfor credit. Forescano(1969)suggeststhat
in high risk environments,the superiorabilityof land-richindividualsto diffuserisk throughstorage
and better accessto credit marketsmighthave been an importantreasonthat otherwiseunprofitable
demesnecultivationsurvivalin the faceof competitionfrom familyfarms.
is As explained
in Binswanger
andRosenzweig
(1986),theyarenotableto provideicsran to small
farmersbocausecovunanceof inome wouldrequirelargereservesin order to be able to offercraedible
conrct.
41
U-shapedrelationship.Eswaranand Kotwal(1985)obtain an inverse relationshipby addinga fixed
cost of productionto labor and credit market imperfections.Generally,the presenceof multiple
marketfailurecan explaina varietyof farm size distributionand productivitystructures.
42
* Sincethe supervisioncostsvary withthe operationalholdingsize whilethe capitalconstraint
is relatedto the ownershipholdingsize, the separateeffectsof operationaland ownership
holdingsshouldbe distinguishedin any test of the farm size-productivityrelationship.To
eliminateerrors resultingfrom the raw correlationof farm size andhouseholdsize,
regressionsof an efficiencyindicatoron operationaland ownershipholdingsize shouldalso
includethe numberof adultfamilymemberswho can act as supervisors.None of the existing
studieshas taken full accountof these distinctions.
43
unneeswary16- or if the differencesarise from farmerinvestmentsin tubewells,land
levelling,drainage,or the like.
44
TABLE2: Farm-sizeproductivitydifferences,selectedcountries
Fam size NorthuatBrazil Punjab,Pakistae Muda,MaLkydi
45
* Introductionof the green revolutiontechnologyin India led to a weakeningbut no the
disappearanceof the raw productivitydifferentials(Bhallaand Roy 1988).
Three studiescame closer to the specificationin equation1. For the Muda River region
of Malaysia,Berry and Cline (1979)found that valueaddedper unit of investedcapitalfor the second
smallestfarm size group exceededthat of the largestfarm size group by 65 percent, more than the
differencein valueof outputreportedin table 2. The use of valueadded adjustsfor costs of
purchasedinpUts,but thismeasureis still likelyto bias the test in favor of small farms to the degree
that smallfarms use labor more intensivelythan do large farms. But since the resultholds for raw
output, the negativerelationshipwouldprobablyhold as well if the test were based on net farm
profits. The resultssuggestthat well-developedrental markets, as in the Muda area for tractorsand
threshes,enablesmall farmersto circumventthe economiesof scale associatedwith tractors, leaving
labor supervisioncosts to dominate."
In the secondstudy, Berry and aine (1979)firstsplit the data for NortheastBrazil (see
table 2) into agroclimaticzones, whichsharplyreducedthe observednegativerelationship.'Social'
profitswere then calculatedby imputinga real opportunitycost of 15 percentto capitaland valuing
familylabor at 0, 50 and 100 percentof the minimumwage, a wagerarely paid in agriculture.Even
when familylabor is valuedat the full opporuity wage, socialprofitsare dearly higherby 23 to
150 percent for the secondsmallestfarm size group (10 to 50 hectares)than for the secondlargest
and the largestfarm size groups (200 to 500 hectares)in four of six non-sugargrowingzones. For
the two zones where the relationshipdoes not hold as clearly (Bahlaand Sertao),the weaknessof the
results appearsto be due to paucityof obsvations (Kutcherand Scandizzo1981).The negative
' Only a few studiesexplicitlytest for the sepambility of fimily and hired labor. Pitt and Rosenzweig(1986)
showfora sampleof Indonesian fannmes thatprofitsare independent of the short-tm healthstatusof the
householdhead,but sinceshort-temillne doesnotinterferewithsupervision the resultsayslittleabout
whetherwagelaborcancomplement familylaboron a pmnet bi Deolaliar andVijverberg(1987)reject
thehypothesisof perfectsubstitutabiltybetween familyandhiredlaborbasedon samplesfrom ndiaand
Maaysia,but beas they estime a pduction functionusingcoss-ction data, atistical problemsvitate
their findings.Benjamin(1992)estimatesa demandfimctionfor aegate laborservices.He rejectsthe
hypothei of nonseparabilityfor Indneian rice fam aonthe basisof thejoint lack of significaneof
demogaphicvariables.Sincehis modelincludesar havesteda a dependetvariable,it doesnotallowfor
adjustmensof area operated(via rt) in responseto familysiz. In effect,then, the modelmeures only the
conditionalimpactof demographicvariables,givenopeatod ea, on the demad for hired labor. The fact that
ea opeated(which,has sigificantinfluence onlabordemand)s correlatedwithfamilycomposition
suggests
a strong supervsionconstraintmightbe foundif the unconditionaleffectwere considered.
that
46
productivityrelationshipstill holds in the technologicallyadvancedAgrt .. region, where
mechanizationwas most pronouncedif socialprofitsare considered.
47
Figure
3.
029 - *_
0-24 _ -_-_
19- .'*
0I09 1
9-6 11-6 13-6 156 17-6 19-6 21-6 23 6
Monsoon onset standard deviation(weeks)
3. Profit-wealth ratios and weather variability, by wealth class. Pcrcentiles: , 20
-- , 40th; -- , 6oth;---, 8oth.
Condusion
49
and can be ignored,the distributionof ownershipholdingswouldbe Independentof the distributionof
operationholdings,since large landholderswouldsimplyrent out their land with no loss in efficiency.
'he collateralvalue of land and the high positivecorrelationof incomesin a given area
imply that there would be few land sales in periodsof normalweather."' Landownerswouldbe
made better off by sellingland only if they could ear a higherreturn from the sales proceedsthan
from cultivatingor rentingout the land. So, wherenon-agriculturalinvestmentopportunitesfor ru
residentsare limitedand nationalcredit marketsare underdevelopedlittle land will be suppliedfor
sale in normalyears. Tbe numberof biddersfor land is constrainedby the level of householdsavings
since mortgagingthe land wouldbe unprofitable.Becauseland has collateralvalue, its equilibrium
price at given credit costs will alwaysexceedthe present discountedvalue of the incomestream
producedfrom the land. Mortgagedland, however,cannotbe used as collateralfor workingcapital,
so the owner does not reap the productioncredit advantageand thus will be unableto repay the loan
out of increasedincomefrom the land. Withimperfectinsurancemarkets,only unmortgagedland
50
yieldsa flowof incomeor utility,the present valueof whichequalsthe land price. As discussed,if
land ownershipprovidesaccessto credit and helps in risk diffusion,the buyer has to compensatethe
seller for the utilityderivedfrom these servicesof land (Federand associates1988). Sinceonly
unmortgagedland providestheseservices,a buyer relyingon credit cannotpay for the land out of
agriculturalprofitsalone. Thus land sales are likelyto be fianced out of householdsavings, so that
the purchasedland can be used as collateralfor workingcapital.This need to purchaseland out of
savingstendsto make the distributionof landholdingsmore unequal,despitethe greater utilityvalue
of land to smallerownersarisingfrom its insurancevalue and their lower labor costs.
Sl
suggestingthat even large farmershad insufficientpossibilitiesto diffuserisks. 60 percent of the
currentlylandlesshad lost their land since 1960and the Gini coefficientof landownershipdistribution
increasedfrom 0.6 to almost0.7. This contrastssharplywith the Indianvillageswhereland sales for
consumptionpurposesaccountedonly for 14 percentand were incurredmainlyby the rich to meet
social obligations.64 percentof land sales were undertakenin order to generatecapitalfor productive
investment(diggingof wells,purchaseof pumpsets,children'seducationand marriages),leadingto
an equalizationof the land-ownershipdistributionin India, and suggestingthat the poor were not only
able to avoiddistresssales, but actuallycouldacquiresome la,' as rich householdsliquidated
agriculturalassets to be ableto pursuenon-agriculturalinvestment.
Historically,distresssales have playeda major role in the accumulationof land for large
manorialestatesin China (Shih 1992)and in early Japan (Takekoshi1967)and for large landlord
estatesin Punjab (Hamid1983).The abolitionof communaltenure and the associatedloss of
mechanismsfor diversifyingrisk are amongthe factorsunderlyingthe emergenceof large estatesIn
Central America(Brockett1984).
52
exampleassumesideal conditions,with the poor payingthe same interestrate as most creditworthy
borrowers.
53
estimationfor Brazil (1966-89)Brandaoand Rezende(1992)find that six percentof the
IncreaseIn land is attributableto credit subsidies,28 percentto macroeconomicinstability
(inflation).
Whereany of these factorspush the price of land abovethe price justifiedby the
fundamentalsof expectedagriculturalprofitsin the absenceof distortionsassociatedwith farm size,
the poor have difficultybuyingland. Even If they are providedwith credit on marketterms that
difficultypersistsunless their productivityadvantagefrom lower supervisioncost is very large. Of
these factors,nonagriculturl demand,inflation,credit constraints,and credit subsidieshave been
investigatedempirically;incometax preferencesfor agriculturehave noL Mostof the empirical
studies concentrateon the United Statessincethe paucityof land transactionsin developingcountries
21 Whiloetis dem ate the sgnificaneof thepolcy andinstitutional enirment in aggregae models,
icroconomicevidenceon theimpostnce of credit ratining on landpricesis limited. Carter (1989),Carter
and Kalfaya (1989), and Cart and WVibe(1990)use a roughlycalibrad modelto determinethe reservation
priceof lnd as a functionof frm-sz and obtaina U-shapedcumre.Becase of the roughnessof their dat,
theresuts indicateordersof magnituderather thanexact figpues,but theyare certainlyin theapproprate
dirton.
54
makesresearchdifficult(Melichar;four other studies;Hallanet al; Barhema).More work needsto be
done.
55
paymentandthe output-shareparametersubjectto the constraintthat tenantsachievetheir
(exogenouslygiven)reservationutility.The tenantdeterminesthe level of effortthat will maximize
utility,yieldingan effort-reactionfunction.
56
Recastingthe problemin a multiperiodcontextand allowingfor reputationeffects,
however,providesoptionsfor bringingthis second-bestopdmumcloserto the firstbest outcome.
Otsuka,Chuma,and Hayami(1992)discussthe conditionsunder which, In a multiperiodcontext, the
threat of loss of reputationwill preventthe landlordfrom cheating,and so the fixed-rentcontractwill
tend to dominatethe fixed-wagecontractas it does in the certaintycasejust described.They argue
that in relativelyclosedvillages,such Implicitenforcementby the communitymay be strong enough
to bring the inefficientoutcomeunder the unenforceablecontractcloserto the first-bestoutcomeeven
if risk is present.This conclusionis consistentwiththe empiricalobservationthat fixed-wage
contractsare found only wherethe institutionalenvironmentdiscriminatesagainsttenancycontracts
(see section3 and below)but is inconsistentwith the overwhelmingprevalenceof share-cropping
relativeto fixed-renttenancies.
57
for the coexistenceof a varietyof contractsin the sameenvironmentamongparties with roughly
similar risk aversionbut differentendowmentsof workingcapital.
58
marketImperfectionswouldbe greaterthan the loss resultingfrom the Marshallianinefficiency
(Shaban1991).
59
and draft animalswere significantlylower on sharecroppedplots than on ownedparcels. No
statisticallysignificantdifferencesin efficiencywere found betweenownedplots and plots rented on a
fixed-rentbasis, supportingthe hypothesisof the productiveefficiencyof fixed-rentcontracts.Other
resultspoint in the same direction(Sen 1981),and Otsukaand Hayaml's (1988)reviewof the
literaturefinds, at most, small efficiencylossesassociatedwithtenancy.
Tenancyhas often been describedas a rung on the 'agriculturalladder' that rises from
workerto share tenant, to fixedrate tenant, to ownerand permitsfarmersto acquirecapitaland
griculturalknowledge.In a static firamework
this has been modeledby makingproductiona fimction
of tenats' effortand the landlord'sprovisionof managementskills (Eswaranand Kotwal1985).
Aldtoughquantitativeevidenceis limited,Reid (1973)arguesthat this functionof tenancyplayedan
importantrole in the U.S. South afterthe abolitionof slavery.Lehman(1986)notedthe importance
of tency in facilitatingcapitalaccumulationin the intergenerationaltransfer of farm holdingsin
61
Ecuador.Tenancywouldbe expectedto facilitatecapitalaccumulationwhere land is abundantrelative
to labor and where rents or owners' shares are low. Longitudinalstudiesof changesin tenancy
pans and capitalaccumulationover the life cycle of tenantswouldhelp shed morelight on the
relativeimportanceof this phenomenonin differentenvironments.
Condusion
PARTm: LANDPOUCY
62
for achievingthe more encompassingobjectiveof minimizingsocialtensions.The two objectivesare
not alwayscompatible;in some situationsinterventionsthat facilitategreater equitywould reduce
efficiency,and vice versa. But not always.
The issues
63
rights enjoyedby a renter or a seller, and aboutrights to specifictracts of land. With more advanced
agricultureand increasedmobility,communalconstraintson sales to outsidersare abandonedand
transactionsare increasinglywith individualswho are not membersof the samecommunity.The
scope for asymmetricinformationincreases,generatinginefficienciesin the land market since the
price of land may no longer reflectits true social valueand the extentof land transactionsbecomes
less than optimal.To reducethese informationalinefficienciesand the associatedwelfarelosses,
societiesdevelopinstitutionalarrangementsto reducerisk, such as the requirementin the Arthsastra
(4th CenturyB.C. in India)that land transactionsbe conductedin public with witnessesor the
establishmentof a centralizedpublic registerthat tracks land plots and those who have rightsover
these plots. As early as 600 B.C., the Bibledescribesa land transactionbetweenthe prophet
Jeremiahand a relative in whicha writtenrecord of the transactionwas kept in two copies with a
certainpriest in Jerusalem.
64
Institutionsfor recordingpropertyare not well developed,land claimsbased on forest clearingcan
leadto excessivedeforestation(Southgate,Sierraand Brown 1991).
65
holdingsand geting a singletitle providesincentivesfor w'althy individualsto buy out smalholders
and to concentratetheir own holdings. Titled land also providesadvantagesin the credit market
(Feder, Onchanand Raparla 1988)that are likelyto increaseincomedisparity.
04.!
associatedwith tiding whilereapingmanyrelated benefitssuch as insurance,flexibilityof land
allocation,and the utilizationof genuinescaleeconomiesin subsidiaryactivities.Experiencewith
group ranchesin Kenyasuggeststhat imposinggroup titles from aboveis unlikelyto be successful
while issuingindividualtides doesnot preventfarmersfrom taking advantageof scale wherethey
exist (Grandin1989).
67
asactions and credit marketsare weak. In Latin Americawhere credit marketsare more devdoped,
recentland dding programsappeargenerallyto have led to increasesin the value of land, without
encouragingincreasedconcentration- at least in the short term - (Stanfield1990).
68
8. LandTax
The issues
69
Progressiveland taxes are oftenadvocatedas a meansof makingland speculationless
attractiveand inducinglarge landownersto sell out or use their land more intensively(see Hayami,
Quisumbing,and Adriano 1991on the Philippines).Landownersoften findwaysaround such taxes,
however,from establishingdummydivisionsof their holdingsto lobbyingfor exemptionsfrom
progressiverates associatedwith effectiveuse of the land (as in Brazil), whichsharplydiminishthe
effectivenessof progressiveland taxes in breakingup large commercialfarms. Suchan approachwas
appliedand failed in Argentina,Bangladesh,Brazil,Colombia,and Jamaica(Strasma,Aism, and
Woldstein1987;Bird 1974);Carter (1992)in a simulationmodel calibratedto Nicaraguafindsthat a
progressiveland tax is unlikelyto significantlyalter the distributionof land. And even if such taxes
did work, it is not obviouswhy suchan indirectapproachwouldbe politicallymore acceptablethan
direct redistributionof land. Progressiveland taxesare also likelyto be associatedwith higher
administrativecostsand protractedlitigation.
Plicy implications
9. Regulations dmiting
land sales
70
or managers,there is likelyto be some efficiencyloss. Such restrictionsare frequentlyevaded,
however,throughdisguisedsales and rentls, whichare likelyto involvetransactioncosts that
constitutea loss to society.
In the early years after a redistributiveland reform in areas whereland marketsare thin
and accurateinformationmay not be availableon the expectedstreamof incomesfrom the land, it
may be reasonableto imposea temporaryrestrictionon sales of say, three to four years.That would
allowsufficienttime to acquirelnowledgeabouta farm's potentialand to avoidsales at prices below
the real value of the land, whichwouldrun counterto efficiencyand equityobjectves. Such
restrictionswouldnot be needed,however,in areaswhere formertenantsreceive land they have been
tilling sincethey can be assumedto have adequateknowledgeof the land. In the case of partial
restrictionsunder communalsystems,the ban on sales to outsidersmay serve a protectiverole in
environmentswhereoutsiderswith strong politicalconnectionsmay attemptto take over land in the
community.Whereappropriateinstitons for inragroup decNsion-making
are available(Libecap
1986), permittingthe communityto limit sales and givingit the right to decidewhetherto eventually
allowsales tD outsidersmay be an acceptablecompromisebetweenequityand efficiencyconcerns(see
Barrowsand Roth 1990).As traditionalsocialties loosenor the efficiencyloss from the sales
restrictionbecomestoo high, groups are likelyto allowsales to outsiders.The recentconstitutional
reform of the land rightssystemIn Mexicoallowsfor free sales and rental withinall efidos and for
decision-makingby majorityvote on whetherto eliminatethe restrictionon sales to outsiders.
71
The most commonmeansof restrictingland sales are upper and lower bound size
restrictionsand zoningregulations.Land ownershipceilingshave often been imposedin an attemptto
break up large estatesor to preventtheir reconcentration.Amongcountriesthat have imposedceiling
are Bangladesh(Abdullah1974), India(King 1977),Indonesia,Japan, Korea, Pakistan,South
Vietnam,Taiwan,Egypt, Ethiopia,Iran, Iraq, Zimbabwe,Bolivia,Cuba, El Salvador,Guatemala,
Mexico,and Peru. Whilesuch ceilingscan theoreticallyincreaseefficiencywherea negative
relationshipexistsbetweensize an,. vroductivity,in practicethe ceilingshave been evadedthrough
fictitioussubdivisionsor have becomesuperfluousover time through inheritance.Ceilingswere often
commodityspecificprovidingmuchlarger limitsfor sugarcane,bananasor livestockranching.
Therefore, they encouragedinefficientconversionto productswith the highestceilings.Rarelydid
ceilingsalone enablethe poor landlessor extremelysmallfarmersto vurchaseland; rather, they
enabledfarmerswith medium-sizedholdings,who had alreadyacquiredsome equity,to enlargetheir
holdings(Chile).
72
Governmentsoften adoptzoningregulations,.e. assignspecificuses to certain lands to
overcomeenvironmentalexternalitiesrather than allowingmarketforcesto determineland usage.In
urban areas, the objectiveof zoning is to preventcommerciaor industrialactivitiesfrom locatingin
residentialareas and creatingnoise andpollution.In rural areas zoningof land for agriculturaluse
providesbenefitssuch as tax credits, exemptionfrom assessmentsfor urban type services, eligibility
for soil conservationprograms,and proteceionfrom nuisancesuits, but foreclosesthe optionof selling
the land as a residentialproperty.? In general, zoningisjustifiedif negativeexternalitiesneed to be
reducedby more than the cost of zoningenforcement.
73
10. Fragmentation and consolidatlon
The Issues
Policy impllcatIons
74
under goveramentprograms,whichare normallycoerciveand includea range of other development
initiatives,and returnscan be high - Simons(1987)findsreturns of 40 percent for France. However,
if the forcesthat led to fragmentationremainunchanged,land consolidationprogramsare unlikelyto
have any long-termeffect (Simons1987;Elder 1962).
The !ssues
75
unless landownersfind waysto circumventthe restrictionon rents, such policiesare likelyto reduce
incendvesfor rentingout land, resultingin efficiencylossesfrom constraintson adjustmentsin
operationalfarm sizes. Investmentis also likelyto fall on farms on whichtenantshave a protected
statussince landlordsare unlikelyto investheavilyin land from whichthey are preventedfrom
evictingtenantswhile tenants' incentivesto investare weakenedby uncertaintyaboutthe inheritability
of the protectedstatus.
76
12. Redlstributive land reform
The Issues
78
1989).Land reformsof Junkerestatesand large mechanizedfarms involvemajor changesin the
organizationof production.The residentlaborforce and externalworkershave little or no
independentfarmingexperience,and in manycases, neitherthe infrastructurenor the investmentsin
physicalcapitalprovidean appropriatebasis for smallholdercultivation.
79
sugar prices - provokedincreasedgovernmentinterventionand the effectivetransformationof the
collectivesinto state farms (Kay 1952).In Malaysia rubberplantationswhichhad been establishedon
a collectivebasis were split up and allocatedto individualfarmersat maturityto ensureproper
tapping(Pickett 1988).
13. Decollectlvization
The poor performanceof collectivesand state farms the world over is so obviousthat
the questionfacing the liberalizingeconomiesof EasternEurope and the Commonwealthof
IndependentStatesis not whetherto privatizebut rather how quicldyand in what form - as large
commercialfarms or familyfarms.
Policy implications
* The small farm option is viableonly if there are competitiveinputand output markets.
Otherwisethe land rent ai4 the entrepreneurialrents from agriculturewouldbe capturedby the
monopolisticoutputmarketersand inputsuppliersrather than by the new farm owners. Risk
diffusionmechanismsalso need to be functioningadequatly else covariateweatheror price
shockscan force distrescsales by newlandowners,who do not have other assets or income
streams. Work on creatingcompetitiveinputand output marketingsystemsand a viable
financialsystemthereforehas to start beforelarge farms are split up ino individual
landhchlings.
80
size by adoptinga differenceandgenerallymoreefficientpattern of mechanization(Ling
1991).TIhssuggeststhat tne excessivelumpinessof the existingmachinestock is not a serious
constraintto smallerscale farming.
EPILOGUE ON METHODOLOGY
81
observedvariationsin land relationsdiscussedin this paperto the minimumset of assumptionsneeded
to derive the results or explainthe variations. We distinguishseverallevels of assumptions.
82
LevelD addsseveralmaterialconditionsrelatingspecificallyto agriculturalproduction,
generatingthe analyticalapparatusused by Meillassoux(1981)or Binswanger,Rosenzweig,and
McIntire(1986, 1987).The materialconditionsmost frequentlyused in this paper are covarianceof
risk and returns amongfarmersand workersin a givenagriculturalregion, the immobilityof land,
which- when it is scarce - makesit Into a preferredstore of wealth(relativeto stocksand livestock,
for example)and of collateral,and exogenouslygivenpopulationdensityand processing
characteristicsof specificagriculturalcommodities.
83
allocationsof preferentialland rights and enforcementpowers to ruling groups, distortionsin
commodityand fctor markets, and distortionsIn public expendituresspecificallyintendedto extract
rent and make large ownershipor operationalholdingscompetitivewith independentfamilyfarms
(section2 and 3). The historicalliteraturehas sharplydifferentiatedbetweencoerciveand noncoercive
methodsof rent extractionand has often equatedthe eliminationof coercivemeans with the leveling
of the playingfield. Whilethere are certainlyimportantqualitativedifferencesbetweencoerciveand
noncoercivemeans, the differentiationseemsto have obscuredthe continuityof rent seekingor
surplus extractionalong alternativepaths such as taxationof the free peasantsector, land allocation,
monopolymarketing,and the allocationof public spending.
85
Appendix 1
Asia
India (North)
China (South)
86
estatesof their own thanksto their abilityto providecredit. Increasinglyheavytax demands(to
financewars)left manytax captainsin a desperatesituation.
The newgentry class that began to emergein the fourteenthcenturywas exemptfrom both
taxesand labor services. Sincegentry landlordsdid not pay taxes, they were ableto reap higher
returs from land and accumulatewealth. They were able to further increasetheir holdingsafter
periodsof disasterby foreclosingon lands they had acceptedas collateralfor credit (Shih 1992).
These advantagesmade it easy for membersof the gentry to accumulateland, decreasethe tax
captains'revenuebase, and finallybuy out bankrupttax captains,who by the end of the centuryhad
lost most of their land to gentry landlords.As gentry landlordsincreasedtheir moneylending
activities,small owners in financialdifficultieshad to resort to sellingtheir land or sellingthemselves
to gentrylandlordsas serfs or bondservants,therebyobtainingpartial exemptionsfrom their tax
obligations.Gentryestatesgrew to severalthousandsof hectares in size, with a labor force of over
10,000.The estateswere often split up into smaller farms of about500 hectares,managedby
speciallyeducatedbondservants(Shih 1992).
Japan
DWrerentaltaxes and labor levies. In return for such land allotments,farmershad to pay
tribute in kind as well as speciallabor servicesof up to 140 days a year (Takekoshi1967). Cleared
and temple lands, as well as land belongingto the nobility,were exemptfrota all tribute
requirements.In order to obtain immunityfrom tributes, manylandownerstransferredtheir landsto
templesor membersof the nobility.Whilethey had to give up the heritableright to the land, original
landholdersdid in most cases continueto managethe land and homefarm cultivationremained
minimal.Higher officialscould accumulatemanorsof enormoussize, but in turn had to commend
their propertiesto higher-rankingindividualsto protectthe immunityof their manor from tribute
requirements,leadingto a complextenure-hierarchyin whichshares of manorsand associatedrights
to incomewere traded (Sato 1977).Aroundthe end of the fourteenthcenturyincreasingland scarcity,
as evidencedby physicalfragmentationof fieldsdue to intergenerationaltransfers,led to a gradual
conversionto landlord estates(Keirstead1985), whichremainedin place until the nineteenthand
twentiethcenturies.
87
Land marketintervendons.The AgrarianLandLaw of 1870declaredall uncultivatedland
inalienablestateproperty and leasedit to Europeancompanieswhichestablishedlarge scale
plantations.
PhiHlppines
Sri Lanka
D&Terentlal taxationand iabor levies. Corveelabor was abolishedon public lands in 1818and
replacedby a grain tax amountingto 10 percentof gross produce.Export agriculture-all land under
coffee,cotton, sugar, indigo, opiumpoppies,and silk- was exemptedfrom the tribute (Bandarage
1983).
Whilelandedinterestshad successfullyopposedthe impositionof a generalland tax, the
opportuniy to arn incomefrom coffeecultivation,togetherwith the absenceof a totally landless
labor caste, severelylimitedthe willingnessof local peopleto supplylaborto estates.Thus almostthe
entire agriculturalwork force on coffeeestateshad to be imported:Censusfiguresindicatethat in
1871and 1881, 97 percentof some 200,000plantationworkerswere indenturedTamils, mainlyfrom
India. The 3 percent of Singhaleseplantationworkerswere mostlylow-countryartisanswho were
88
paid competitivewagesand used their positionto accumulatecapitalfor own land purchases
(Bandarage1983).
Europe
Prussia
89
However,the fact that they were willingto cedea gooddeal of their trade-relatedprivilegesto
entrepreneurswho engagedin land-clearingand attractingsettlersfrom the west illustratesjust how
pressingthe labor scarcitywas.
Russia
90
In 1580, landlords'home farms (demesnes)were exemptedfrom taxaticn. With revenue
requirementsalso rising, the tax burden on peasantsincreasedsubstantially,significantlyloweringthe
potentialreturn from cultivation(Blum1961).Peasantsrespondedby runningoff to the frontiers
wherelandlordswere keen to attract labor and, becauseof temporaryexemptionsfrom taxes, were
ableto offer better conditions.
Latin America
Chile
Dfferentlal taxationand labor levies. Ihe main meansto providelabor to the mines was the
mta whichrequired all Indian settlementsto supplya certain proportionof their labor force for
agricultureor public works, but in most cases the mines. Haciendaworkerswere exemptfrom the
mfta and manyIndianssoughtrefuge from the cruel forcedlabor requirementsby joining the ranks of
the yanaconas,a group whichhad givenup all ties, includingland rights, to their original
communitiesand, living in total dependenceon individualSpaniards,formed the nuclearlabor force
of the Spanishestates.
91
lobbiedsuccessfullyfor the impositionof importtaxeson beef at the end of the 19thcentury.Such
taxes were maintaineddespiteconsumerriots causedby high foodprices in 1905(Kay 1992).
In this century,large landownersreceivedspecialtreatmentto reducethe cost of mechanization.They
receivedexemptionsfrom importtariffsand low interestrate loans; real interestrates on
mechanizationloans in most of Latin Americaduringthe 1950sand early 1960swere actually
negative.Farmers in Chile, Argentina,Brazil,and Venezuelapaid back only 50 to 80 percentof their
equipmentloans (Abercombie1972).
El Salvador
Land market Intervendons. Publicland was grantedto anybodywho was plantingit at least two
third with coffeefrom 1857(Lindo-Fuentes1990).A large land titlingprogram, initiatedin 1882,
which was intendedto speed up the growthof coffeeproduction,is thoughtto have directlyaffected
up to 40% of the territory of the country(Lindo-Fuentes1990)and led to extraordinaryconcentration
of land ownership.The 1882law requiredall occupantsof ejido landsto registertheir claiLs (i.e.
prove that they were cultivatingthe land and pay the titlingfee) withina period of six month. All
lands not claimedin this way was to be sold at public auctions.IlliterateIndians,were oftennot
awareof theserequirementsand well-connectedindividualscouldtake considerableadvantageof the
legislation.The goal of establishinga successfulexport agriculturecouldhave been achievedby
modernizingthe credit systemand providingeducationto Indiansas well, in particularas Indianshad
proven to be responsiveto marketincentivesbefore. Choiceof the land marketas the instrumentto
achievethe trnsformation illustratesthe administrativedifficultiesas well as the power of the elites
who wouldbenefitfrom such legislation(Lindo-Fuentes1990).
Guatemala
92
Employmentof Indiansin indigofactorieswas widespread,despiteits legal prohibitionto prevent
futher decline of the decimatedIndian population(Lindo-Fuentesi090). The mandamiento system
survivedwell into the 1880s,when it was used to providecheaplabor for Europeancoffeeplantations
(Cambranes1985).
Debt peonagewas legalizedin 1877, and by forcingdebtors to workoff their debts, provided
landownerswith officialmeansof enforcingthe continuationof a flowof cheaplabor. Followingthe'
abolitionof debt peonage,vagrancylaws were adoptedin 1933in responseto the severe labor
shortage.All Indians who could not prove owner-operatorship of a minimumof 1.1 to 2.8 hectaresof
land were forced to work-mainly on plantations-for 100to 150 daysa year to dischargetheir "debt
to society."The requirementto carry work cards facilitatedenforcement(Pearse 1975).
Mexdco
In 1542, the originalencomlendas were restrictedto the right to collecttribute and the system
of repartinento was used to distributeIndianlabor, supposedlyin a more equitableway.While this
restrictedthe power of the originalbeneficiariesof the encomlenda,it worsenedthe lot of Indians
who still had to pay tribute to encomenderosand to render labor servicesunder repartimientio.
Debt peonagewas not significantin the early period of colonization,but it later acquired
importanceas a meansof tyinglaborersto the haciendaand loweringtheir wages.In 1790, 80
percent of peons in one area had a wtaldebt higher than the legal limit; their averagedebt was
equivalentto eleven months'wages (Taylor1972).As landlordslet debt accumulateup to the point of
the expectedfuturevalue of work performed,the systemcame very closeto slavery (debt peons were
93
even beingtraded by redeemingthe debt to their currentemployer).A law enactedin 1843secured
not only state enfocementto Ocollect*debts incurfedto haciendasbut also made it illegalto hire
laborerswho had left their haciendawithoutpayingtheir debts and requiredthat they be returned
(Katz 1974).Vagrancylaws passedin 1877and strictlyenforcedled to a considerableincreasein the
employmentof deporteesand 'criminals" (Katz 1974).
94
1985). Oth&rcrops, predominantlycottonwere, howeverproducedunder tenancycontracts(Gonzales
1991)after slaverywas no longeravailble, suggestingthat this form of labor was more profitable
thar. farmnngthe area under large farms.
Africa
Algeria
Angola
Dfferentla taxationand labor leves. After the abolitionof domesticslavery in 1875, slavery
continuedin a varietyof forms but due to tremendousdemandfor labor from the cocoaplantationsof
Sao Tome, prices for slavesincreasedsteadily,makingit more profitableto export worker: than to
use them on inefficien'settler farms (Clarence-Smith1979).Vagrancylawspassed in 1875subjected
all "nonproductive"Africansto nonrmuneratedlabor contracts(Bender1978).The laws were
replaced in 1926by nativelaws, whichprovidedfor paymentsof wagesbut retainedthe provision
95
that all Africansbh-' to workfor Europeanlandlordsor couldbe contractedoy the state (Henderson
1980).
Egypt
Land marketinterventons. Land grantsof the 1840sgave some 40 percentof the land to
Turko-Egyptianlandlordsand facilitatedthe formationof large estates(Richards1982).Expropriation
of communallands whichtook place in 1850-70,exacerbatedthis trend. Land taxes in 1856 (per
acre) were four to six times higherfor smallholdersthan for the large land holdings(Richards1982)
and in manycases large landownersdid not pay taxesat all (Owen1986).
Kenya
The squatterlaw from 1918requiredtenantsto provideat least 180 days a year in labor
servicesto their landlordat a wagenot to exceedtwo-thirdsof the wage for unskilledlabor. This
ordinancewas amendedtwice (in 1926and 1939), both times increasingthe minimumamountof
Input and Qowput marketlrervendons. A dual price systemfor maize, adoptedin the 1930s,
reducedthe returns Africanfarmerscouldobtainfor the sameproduceas suppliedby their European
counterpartsand, in addition,unloadedmost of the price risk on Africans(Mosley1983).
Land marketImeventons. After 1804, land was grantedto settlersby tile caliphate
governmentin the areas arounddefensivecenters, the amountof land dependingon the numberof
slavesowned.Thus "anyonewith slavescouldobtain enoughland to start a plantation' (Lovejoy
1980).ITere were about 100-200slavesper plantation,althoughthere are reports of officialswho
managedto obtainholdingsof morr than 1,000 slaves(Lovejoy1978).
Dterenti taxaton and labor leves. The patternof 'slavery' in the area, whichwas
populatedby Hausa and Fulani, was characteristicof manyparts of Africa in the nineteenthcentury
(Lovejoy1980).21 Slaveswhichmade up some50 to 75 percentof the local populationwere
acquiredby warfare,direct seizure,or as tributefrom subjectedtrtbes. Limitedexport marketsand
the relativelylow price of slavesOandownerscouldreplenishtheir bondedworkforce through
independentraids; Lovejoy1980)allowedrelativelylenienttreatmentof slaveswho enjoyedmore
rights e.g. the possessionof heritablehouse-plots(Hogendorn1977)and the right to self-redemption
oftenusing fimdsacquiredby cultivatingsurplusland (Hill 1978)than the slaves acquiredfor cash by
market-orientedplantationsin the Americas. Land and the absenceof economiesof scale meant,
however,that slave ownershad to take measuresto preventslavesfrom escapingand establishing
their own operations(Hogendorn1977). Eventually,these factorsled to the demiseof the large
holdings(Hopkins1973).
Malawi
97
Dferenial taxadonand laborlevies.Attemptsto introducelabor tenancyon European-owned
cottonlands were unsuccessfulas farmersabandonedthe land and fled to uncultivatedcrownland.
The situationimprovedonly as a law was introducedin 1908whichallowedAfricansto gain a
significantreductionin the head tax they had to pay by workingfor Europeancottongrowersfor at
least one montha year. Africans'possibilityto gain a similarreductionof the head tax by producing
cottonon tenantedland, was, due to landowners'pressure, eliminated(Mandala1990).
Mozambique
DigerentIa taxationand labor levies. HIuttaxes were establishedin 1854. After 1880,at least
ha!f of die tax hid to be paid to the localprazo-holderin the form of labor services(Vailand White
1980).
Under the vagrancylaw of 1899,all male Africansbetweenfourteenand sixty years old were
legallyobligedto work. The area of cropsto be grownor the wage-employment requiredto satisfy
this obligationcouldbe varied by localprazo-holders,providingthem with ampleinstrumentsto
increasethe supplyof labor. Contingentsof migratorylabor were often 'sold" to other areas (suchas
SouthAfrica) wherelabor was relativelyscarce (Vailand White 1980).Vagrancylaws were repealed
in 1926- at aboutthe time manyprazos were expiring- and the use of forced labor for 'private
purposes"(i.e. non-quotaproduction) was banned.The labor code of 1942institutedan obligatory
labor requirementof six monthsfor all Africanmen.
South Africa
98
The Glen Grey Act (1894)restrictedAfricanland ownershipin the reservesto a parcel of no more
than about3 hectaresand instituteda pervertedform of "communaltenure' whichbanned the sale,
rental, and subdivisionof land in order to preventthe emergenceof a class of independentAfrican
smallholders(Hendricks1990).The inabilityto sell land in the reserves,whichpersistsup to this
day, is recognizedto be major reason for the low productivityof agriculturein the homelands(Lyno
and Nieuwodt1991).
D,ferentda taxes and labor levies.Prior to state interventionon their behalf, very limited
marketproduc.aonby Europeanfarmerswas based on slavesor, after the prohibitionof slaveryin
1834, indenturedlabor.
Input and output market nterventions. European farmers were assisted by a large array of
monopolisticcommoditymarketingboardsand direct credit subsidies.In 1967,the amountspent on
subsidizingabout 100,000whitefarms was almostdoublethe amountspent on educationfor more
than 10 million Africans(Wilson1971).
Land market Inervendons. From the late 1890suntil 1904it was commonpractice to allocate
severalvillages apieceto incomingGermansettlers.
Dfferendal taaton and labor levies. A hut tax, to be paid in cashor labor services, was
imposedin 1896 'not so muchfor the revenuewhichresultedbut as a meansof propellingthem into
the labor market" (Rodney1979, 131)althoughhalf of the hut-taxincomewent direcdy to settlers'
DistrictCouncils.Vi'llageheadmenwere requiredto providea fixednumberof workerseach day to
providelabor for the settlersto cultivatetheir rubber and sisal plantations.Every Africanwas issued
a work card that obligatedhim to render servicesto an employerfor 120 days a year at a fixedwage
or else to work on publicprojects (Illife 1979).In 1902, the Germansintroducedcompulsorycotton
productionin certain coastalareas; it is widelyacceptedthat this schemewas one of the main causes
leadingto the outbreakof the Maji Maji revolt in 1905(Coulson1982).
99
Africanswere excludedfrtm credit by the Credit to NativesOrdinanceof 1931whichrequired
that an Afican have specificgovernmentpermissionbeforehe couldeven request a bank to lend him
money(Coulson1982).Attemptsby Africansto set up a marketingcooperativefor coffeeled to the
attempt to outlawtraditionalpracticesof coffeegrowingin 1937, whichled to riots. Settler-dominated
marketng monopoliesfor African-growncrops were set up in the 1940sand creamedoff most of the
profitsfrom those crops (Coulson1982).
Zimbabwe
100
Appendix2
Q=Q(L,A). (3)
101
whereq-Q/A andq'>0, q' <0.
S mS(VeS'Jr.
(5)
With$* wagerate denotedby w, Intermediate
inputcostsper acreby c, and cash
consumption expenditures
per familymemberduringthe seasonby 0, the cashrequirements
of a
familywih an opwational holdingof sizeA are w.N.A+c -A+R.(A- V)+ U*F,andthe working
capitalconstaintfced by the farmIs:
w.N.A+c.A+R (A - v)+eOF-sF
v). (6)
ad
102
A!q-w(.+ks.(82)
A cIN -W li )O
a8N
N N4 (8b)
(9a)
"1-S(v)-w*AJf-c'A -Rv-P)-B& (9a)
kA-0,
1 (9b)
AkO,>N20,120, (10)
Westai with Ihoco in whichthe credit coaint is not binding(X-0); solving st-order
conditon (7a) ad (8.) for th optmal value of A and iFand diffe tating yie:
_ A
dF F
ad4
(11)
-m0.
dF
(12)
Equat (11)impliestot in to absc of biwng redit constraints,te elucity of fth
opta opeaonal uizewith repect to houhold size s unity,i.e., thr is a fixet tiop
nl holdingto
householdsizertio. Mmamountof owd landdos not affectthe optimalratio. This outocomis intuitively
expectedin a situationof constt rturn to scalewith prfect ntal d capitalmarts.
103
t
The analysisand thepresentationin the casewhere the credit constraintis bindingQ\>0) are
greatlysimplifiedby assumingthat the finctions q(*) and e(*) are of lxedelasticitywith respectto their
arguments,that is, that (q'he,)*(LIA) * il, the elasticityof outut with rspect to effectivelabor,and (e'/e)
(FIA) * i, the elasicity of effortwith respectto upesion, and where
dA WR <-
dV [ w e
aand V are parmet withinthe intew'l (0,1). Th&stadard treatmentof laborin the literaure - the
assuption that hired laboris not affectedby familysupervision- is then the specialcasen0 in the presnt
model.
(13)
_
d4
-(1 -1 -11 wF.
w
dV Ils u (c +R) Is -( ZcF
w eA
104
(IJA)*-v f[c+R) ./waJIaJS F/AJ(1(I-"1 * .). (14)
d(14A) ;* e di
dV eA w At(1I1iL)
(1S)
Clarlny,if the labormart is pedfect(a.0), laborper hectao of landdos not vay with
fam style. Ibspectionof equaton 13 verifiesthat a and the sig of equaton 1S thus dependsan th term in
.squr brwket.
In the cas where 17-7i* I 0, the relafionbetweenthe offecive laboriput per hecta and
ownedholdingsize can be negativeor positive.Consider,for instance,tho cas wher the output Iasticitvi
equals'. Firt-orde conditionsimply[(1- * (Ig)**A)-[( I <1Jc0, hec, in t ca where i-'A, it
followstdatd(/)Idi/<O, i.e., tho effectivelaborinput(andyieds) declin with ownedholdingsize. Mhm
ame resultcan be obtaned for aiwll<. By an avWmentof coStinuitysincein thecuo (l-1p-0 it holds
thatdl&4/)I_>0(in thatca the is a finalc.mional fam sa of weth), ther mustexis
some low (but positive)valuesof the tem (1-""- it) for whichd(ld)l/d_>0 holds.The conclusionis,
therefore,that one mayobservea posiiiveor a negativereaton betwee opetional holdingsiz and per-
hect yields,dep&udigon the relafivemagnitudes of ti and p. In thocase (1-t *p)-0 ther wiUlbe no
oetion betw operationalholdingsize and per-hwetacyields.
105
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