LAND REFORM IN LATIN AMERICA

Andrew PetcoffColton J.R. Noll

Outline

Quick History What is Land Reform? Inequality Benefits Costs Examples Conclusion

Quick History – The Colonial Years

The Americas were discovered in 1492 Discovery of valuable minerals lead to

encomiendas -Ecomienda is when large tracts of land where granted to Conquistadors for exchange of a portion of the output

Few people hold the majority of land

What is Land Reform?

Also known as Agrarian Reform is a process which the government takes land and then distributes the land to the land workers

Goals of Land Reform

Provide small landowners access to land, agricultural credit, housing, education, warehouses, and technical assistance.

Three letter word affects the economy as a whole…TAX.

Economic Theory: Welfare Economics

Def: The branch of economic theory concerned with the social desirability of alternate economic states.

Pareto Efficient: An allocation at which the only way to make one person better off is to make another person worse off.

Edgeworth Box

Edgeworth Box(ctd.)

All the points on the contact curve are Pareto efficient (A,B).

C is not efficient. With A or B it is not possible to move the

point along the contact curve without making either the small or large farmer worse off.

With C it is possible to increase the resources to make one farmer better off without

Welfare Theorem

Welfare Theorem 1: A competitive economy automatically allocates resources efficiently without the need of help from the government.

Welfare Theorem 2: If society determines that current distribution of resources is unfair, it only needs to transfer resources in a way to be deemed fair. Then let the market work and it will be efficient.

Pareto efficient is not the same as socially acceptable.

Benefits

Redistributes land from wealthy to poor Leads to “political” stabilization

Breaks political power of wealthy Ex. Less than 10% of agricultural holds

contain 77% of the Brazil’s farmland Ex. 1% of landholdings encompass 80% of

agricultural land in Paraguay• Threat of land reform makes inefficient

farming by latifundistas become more efficient.

Benefits (continued)

Farmers have stronger incentive to work harder.

-Can employ family members and avoid having to hire seasonal labor at a low wage rate with low human capital. Chance to own their own plot of land. Give illusion of equality.

Costs

Higher tax rates. Lives. Redistribution of land costs. (i.e.

Economies of Scale.) Does not help the poorest of the poor. Does not work in democratic systems. Cash cropping to subsistence farming. Environmental costs.

Examples of Land Reform: Mexico (1917)

Land Reform was included in the 1917 Constitution

Nothing really happened until the 1930s during the Cardenas administration

At this time almost half the farm land was affected

Slowed down until the mid 70s

Mexico (continued)

Land was divided into what were called “ejidos.” Communal property rights on land from large

estates Land could be farmed collectively or by

individuals of the community Access passed through families but remained

in the community Each Ejidos was between 1 – 10 hectares of

land Made investments ineffective

Mexico (continued)

85% of the land given to peasant farmers from 1962-1982 was not suitable for crop producing.

The government pushed irrigation reforms (1946) but only to large scale farmers because the economies of scale farming.

Large Farms still produce 70% of Mexico’s marketable foods

The small farmers depend on what they produce for food. Some are able to sell crops for cash.

Land Reform policy considered a success (did not hurt agriculture growth)

Another example: Peru (1969)

Established by a militant government under the leadership of Juan Alvarado.

Reform motivated by desire to: 1) calm rioters and 2) break political power of latifundistas.

Government broke-up successful plantations in coastal regions. CAPs., sharecropping & renting were forbidden.

Peru (continued)

ISI controls: discriminate against the agricultural sector through exchange rate policy, imposing price controls, subsidizing food importers, all which reduced the profitability of farmers.

Land Reform policy was a failure

Conclusions

Land Reform is a Political tool It needs more than land redistribution to

be successful Amount of underused land is in short

supply Poorest of the poor are not better off

http://www.youtube.com/watch?v=saEUl9F8VjY&feature=PlayList&p=B38919C698989D9E&playnext_from=PL&playnext=1&index=2

Sources

Latin America’s Economy: Diversity, Trends, and Conflicts. Eliana Cardoso and Ann Helwege (1992).

http://en.wikipedia.org/wiki/Land_reform#Latin_America

http://www.peru-explorer.com/land_reform.htm

http://www.cato.org/pub_display.php?pub_id=1016

Sources (ctd.)

http://internationalbusiness.wikia.com/wiki/Agrarian_Reform_In_Peru

http://en.wikipedia.org/wiki/Agrarian_land_reform_in_Mexico

http://www.landreform.org/wp3.htm Rosen, Harvey S., and Ted Gayer. Public

Finance. New York: McGraw-Hall/Irwin, 2008.