Land Reform in Latin America

1. Land Reform in Latin America Andrew Petcoff Colton J.R. Noll

2. Outline • Quick History • What is Land Reform? • Inequality • Benefits • Costs • Examples • Conclusion

3. 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

4. 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

5. 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.

6. 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.

7. Edgeworth Box

8. 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

9. 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.

10. 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.

11. 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.

12. 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.

13. 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

14. 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

15. 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)

16. 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.

17. 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

18. 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

19. 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

20. 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.