Why do Developing Countries need Agrarian Reforms, not Land Reforms? Part 1

Abstract

Developing countries have gone past the stage when redistributive land reforms were needed for equity and efficiency purposes; now they need full spectrum agrarian reforms to reap economies of scale by using modern agricultural machinery and thus increase total factor productivity. These agrarian reforms include formulating appropriate land use policy, improving agricultural terms of trade, rural governance, gender balance etc., to name a few.

Introduction

Despite its gradually declining contribution to global Gross Domestic Product in relative terms, importance of agriculture for any country, whether developed or developing, cannot be overemphasized. No country in the world has made significant and sustained industrial progress without first bringing agricultural revolution and not vice versa. After all it was the agricultural revolution which released the resources, human and financial, and put Europe on the trajectory of accelerated growth , ensuring food security , improving the balance of payments position besides providing a base upon which the whole edifice of their economies stood during the Industrial Revolution.

Keeping in view the crucial role agriculture plays for improving all the socioeconomic indicators in a developing country , need to transform it from an underdeveloped sector to a dynamic one becomes all the more important. This calls for   the implementation of comprehensive agrarian reforms which could bring fundamental structural and institutional changes in the political economy of a county’s agriculture sector. Unfortunately, some heads of advocacy groups confuse these reforms with a related but distinct issue of land reforms in general and of Redistributive Land Reforms in particular.

Redistributive Land Reforms are essentially carried out to distribute lands, state as well as those confiscated from large estate holders, to the landless farmers along with some changes in the tenurial relations to achieve social welfare objectives of reducing the gross inequality in land holdings. There are still many countries where there is a need for such redistributive land reforms i.e. South Africa, where the average size of a ‘White Farm’ is more than 1000 hectares as compared to an average size of one hectare of a ‘Black Farm’. Similarly privatization of state-owned farms in some ex-centrally command economies for improving the efficiency and competitiveness of agricultural activities cannot be overruled.

In fact such redistribution not only meets the equity objectives but may also result in efficiency gains if it is accompanied by proper governmental support in the form of better extension services and availability of credit to newly created land owners. However there is a limit to which land can be redistributed. These are in contrast with the Consolidative Land Reforms where small land holdings are consolidated to enable the owners to reap the efficiency gains through application of agricultural machinery.

Agrarian reforms, on the other hand, are a different ball game. These are meant to transform entire socio-economic landscape of the rural areas of a country by introducing fundamental changes in all aspects of rural landscape with the objective of increasing the productivity of farm and nonfarm operations in the rural areas, reducing their poverty levels and thus improving the quality of life of people living in the villages. However by equating the broader canvas of agrarian reforms with a narrower concept of land reforms, even some eminent scholars create confusion at the conceptual and practical levels.

Why not Land Reforms?

While the agrarian reforms are the need of the day to make agriculture a dynamic sector of the economy, redistributive land reforms is an idea whose time has gone forever in the face of several socio-economic realities and sheer technological imperatives. Historically redistributive land reforms have been carried out at the initial stages of the development process when agriculture is contributing more than half of the GDP of a country, warranting redistribution of land for social welfare objectives as well as to obtain efficiency and equity gains. Now it contributes between 20 to 30 percent of the GDPs of the developing countries with few exceptions here and there. Notwithstanding its overall economic importance for a typical developing country, it is not a dominant source of wealth which should be redistributed for the purpose of equity.

On the other hand these countries need to push their technological frontiers in the agriculture sector for enhancing its productivity to improve the quality of life of their citizens. Both need an efficient, productive and profitable agriculture sector whose growth is sustainable and outputs are competitive. This is possible only and only if we increase the pace of farm mechanisation and technological innovation in all the agricultural operations. In order to introduce technology at commercial scale the size of the farms is the basic condition. If we redistribute lands and each farmer gets a parcel of land on which a tractor is not even economical, how we can increase our productivity?

Land reforms for the sake of land reforms or social justice are not a practical public policy option. Granted we can distribute state lands free of costs to the landless tenants if we have enough land at the disposal of state, we cannot redistribute private lands, confiscated or purchased, to landless farmers on moral grounds or as a sound economic policy. State cannot confiscate the personal property of someone on any moral or legal grounds. If accepted on the grounds of social justice, then it would also apply to all sectors of the society without discrimination-the property tycoons, the industrial magnates, the commercial traders. Purchasing land from the big landlords as suggested by some learned authors at market price and then redistributing it to the landless farmers is a non-starter, not possible to carry out by a developing country which is by definition short of resources.

Components of Agrarian Reforms

As stated above, agrarian reforms are meant to transform entire socio-economic landscape of the rural areas of a country by introducing fundamental structural and institutional changes in the political economy of a county’s agriculture sector. The World Bank evaluates agrarian reform using five dimensions: (1) price and market liberalization, (2) land reform (including the development of land markets), (3) agro-processing and input supply channels, (4) rural finance, (5) market institutions. However to me these reforms are much more than the above. Some of the areas which need proper policy formulation, creation of institutions and allocation of resources are as follows:

  1. Formulation of comprehensive Land Use Policy
  2. Improving Agricultural Terms of Trade
  3. Developing Rural Infrastructure
  4. Improving Rural Governance
  5. Ensuring Environmental Sustainability
  6. Creating Linkages and promoting Investment
  7. Gender Main-streaming
  8. Changing Production Relations
  9. Strengthening Rural Non-farm Sector

Let me explain them in detail

 

  1. Formulation of Land Use Policy

Thanks to rapid population growth, economic development and urbanization, valuable arable land is being converted at alarming rates for commercial non-farm uses. Infrastructural development, though necessary is also rendering fertile lands to brick and mortar. According to FAO, ‘every year 19.5 million hectares of agricultural land is converted to spreading urban centers and industrial developments, often forcing farmers onto shrinking and more marginal lands.’ It has achieved an added urgency in the face of looming threat of climate change. While extremely fertile land is being lost to urban sprawls and infrastructural developments, climate change is threatening the arable cropping in dry lands, reducing productivity of range-lands and increasing sea levels, creating problems in coastal areas.

All these developments necessitate the formulation of a national land use policy by every country for rational use of its respective land resources. That is why in 1992, Agenda 21 stressed the need for integrated planning and management of land resources that “facilitates the allocation of land to the uses that provide the greatest sustainable benefits” (Agenda 21, paragraph 10.5).There is thus an urgent need by all the governments, particularly in the developing countries to formulate  long term comprehensive land use policies which should cover all uses of land relating to the security and distribution of land rights, land use and land management, and access to land, including the forms of tenure under which it is held. It should have a production and a conservation component whereby state should restrict the use of arable land for property development by imposing heavy duties and if need be, outright ban on such use.

  1. Improving Agricultural Terms of Trade

Agricultural transformation demands restructuring, not merely fine tuning, the political economy of the rural areas which are an integral subset of the overall economic structure of any country. One of the ways to do so is to improve the Agricultural Terms of Trade, the ratio of agricultural prices to industrial prices, both measured as price indices. With few exceptions, these terms of trade are always against the agriculture sector, more by design and less by default, as a deliberate policy of government to transfer resources to the industrial sector for its rapid growth at the cost of farmers.

One of the arguments advanced for this unequal sectoral treatment is that investments in industry provide higher growth rates than investments in agriculture. It is based on the fallacious notion that agriculture does not provide the backward and forward production linkages necessary for setting up new activities. Hirschman in fact wrote in 1958. “Agriculture certainly stands convicted on the count of its lack of direct stimulus to the setting up of new activities through linkage effects – the superiority of manufacturing in this respect is crushing”

Agriculture has been used as a contributor to economic development in terms of surplus food, surplus labour, surplus savings, surplus foreign exchange, and surplus expenditure to buy the products of industry. All these surpluses would be forthcoming from an uncomplaining peasantry with the development of the cities and the sharing of the nationalistic pride in the growing power of the state. Agricultural growth was not regarded as an essential part of the development process. Accordingly, it was considered fair to squeeze the peasants by taxing agriculture via lower terms of trade was for the following reasons (Newbery, 1987):

  • Aggregate agricultural supply is fairly price inelastic, and hence agricultural output will not be greatly diminished by heavy taxation.
  • Investment in industry provides higher rate of growth than investment in agriculture.
  • If chief beneficiaries of higher agricultural prices are wealthy landowners, then agricultural taxation can be justified on equity grounds.
  • Low food prices will benefit low-income urban and rural consumers.

They cannot afford to have an agricultural sector which is better off in terms of its purchasing power of industrial goods. Only during the food crises, the governments raise the procurement prices of agricultural commodities and but forcibly purchase the surplus from the farmers, depriving them the opportunity to receive the true market prices for their produce.

They are under the impression that any increase in the prices of agricultural commodities in general and of food crops in particular, would directly and proportionately increase the general price level in the country, creating labour unrest.  The proponents of this point of view always come up with lot of statistical evidence to prove their hypothesis, relying on neo classical theories with full battery of jargons. Unfortunately the poor farmers do not have this much of sophisticated skills to reply and their case for fair returns goes by default. Is it really so? Evidence and logic do not corroborate this hypothesis.

Every student of economics knows how complex are these issues having multiple sources of origin and affected by myriad of economic and non economic factors. No doubt, when a country is facing inflationary pressures, prices of food items increase along with the prices of other non-food items. That is expected because inflation by definition means increase in the general price level over a period of time but in no way you can blame the farmers for causing this escalation in inflation. It is extremely difficult to pinpoint a single causative factor to blame for a complex and constantly evolving situation; you have to treat it with judicious use of a broad spectrum remedy, not a single shot dose.

Secondly, , it is the duty of the state to formulate a comprehensive social safety networks to help those affected by the inflationary trends .You cannot put entire responsibility of saving the poor on the shoulders of one stake holder in the economy; let other sectors also play a role in this noble cause by paying proper taxes. Thirdly, if we do not incentivize the farmers to produce food commodities by paying them fair returns it will result in reduced production of the very food crops which are supposed to keep the general price level stable either due to loss in productivity of their crops or diversion of land use to more lucrative cash crops.

John F. Kennedy said about the plight of American farmers 50 years ago that “The American farmer is the only man in our economy who buys everything he buys at retail, sells everything he sells at wholesale, and pays the freight both ways.” It is as true a statement about any farmer today as it was true for the American farmers 50 years ago. Only during the food crises, the governments raise the procurement prices of agricultural commodities but forcibly purchase the surplus from the farmers, depriving them the opportunity to receive the true market prices for their produce.

In order to stop this squeezing of the peasants,

  • rationalize the prices of the inputs farmers use and provide subsidy on them
  • ensure that the farmers get fair returns for their efforts through selective procurement when the prices of agricultural commodities crash
  • improve the marketing infrastructure
  • introduce crop insurance scheme
  1. Improving Rural Infrastructure

Urban areas do need good public goods and services but so do the rural areas where the conditions of roads, schools, hospitals are deplorable. Not only there is an acute shortage of these facilities in the villages, there are complaints of shortage of staff to man these health and educational schools where they exist. Complaints of substandard workmanship and their fast wear and tear due to paucity of maintenance funds are also common. We should remember that agriculture has been squeezed too much in the past in the name of development; now it is its turn to reap the gains of development

Of course no government can afford to allocate huge funds required for the above in the short term but there must be a master plan for construction of rural infrastructure in medium to long period. Besides improving the quality of life of the people living in the rural areas, these improved rural infrastructure can strengthen linkages between the two essential components of rural areas namely farm sector and Rural Non Farm (RNF ) which in turn will act as income and employment multipliers for each other. At the same time improved infrastructure will not only reduce the costs of doing business but will also help in  slowing down the trend of migration from villages to the cities, facilitating their smooth integration with the urban areas.

Realizing the gravity of the situation, the government should

  • improve both hard infrastructure (e.g. roads, electrification) and soft infrastructure (e.g. banking systems, market information systems)
  • Starting with farm to market roads for safe and speedy transportation of agricultural inputs and commodities as well as facilitation of rural commuters.
  • After roads it is the uninterrupted supply of electricity for domestic consumption and tube well operation which should be the biggest priority.
  • Provision of modern health facilities as a right, not favour should be the next priority of the government
  • Importance of enhanced rural education for development of both-farm and nonfarm sectors is incontrovertible as it is a strong determinant of the level of farm income and wages earned in RNF activities.
  • Along with education, more specific skills and training are necessary to transform agriculture from a subsistence economy to a modern developed one.

(To be continued) 

From the e-book “Agricultural Sector of Pakistan: Challenges & Response” by Shahid Hussain Raja, published by Amazon https://www.amazon.com/dp/B010TMK28S

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