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Can the market alone ensure an optimal reallocation of land?
Written by: Michel Merlet, (English version: Mary Rodeghier)
Organizations: Association pour contribuer à l’Amélioration de la Gouvernance de la Terre, de l’Eau et des Ressources naturelles (AGTER), Institut de Recherche et d’Applications des Méthodes de Développement (IRAM), Réseau Agriculture Paysanne et Modernisation (APM), Fondation Charles Léopold Mayer pour le Progrès de l’Homme (FPH)
Type of document: Research Paper
Merlet, Michel. Proposal Paper. Land Policies and Agrarian Reforms. AGTER. November 2007. (English version: Rodeghier, Mary). 120 p.
2. Can the market alone ensure an optimal reallocation of land?
Reading the agrarian history of most of the world’s regions reveals that market growth very often leads to the concentration of land in fewer hands. When high, this concentration becomes a serious barrier to economic development, due to the low productivity of large farms and because it drastically reduces the purchasing power of most of the population.
K. Deininger in Land Policies for Growth and Poverty Reduction (World Bank, 2003) shows that the initial distribution of land affects the nature and rate of long-term economic growth and that land concentration reduces the efficiency of resource use.
Figure 1. Initial land distribution and economic growth, selected countries.
From K. Deininger, Land Policies for Growth and Poverty Reduction (World Bank, 2003)
« If the efficiency of the large commercial farm is a myth, why do markets for the rental and sale of agricultural land rarely reallocate land to the most efficient uses and users (family farmers)? » This is the question asked by Binswanger, Deininger and Feder in their report65. They answer it by affirming that not only are land markets imperfect, so are the other markets for capital and machinery. They analyse the different actions taken by governments that, in one way or another, have promoted large farms.
We saw in the introduction that the imperfect functioning of land markets is in some way inherent to the nature of land, i.e. it is not an ordinary good. Improving market functioning under these conditions may be useful, but in no way would it be enough. Other types of measure are required. We will examine successively policies for pushing back the agricultural frontier, agrarian reforms and land market interventions.
For several years, the dynamics of land markets have taken on new dimensions: there is now competition between farming systems with increasingly different levels of competitiveness as well as the liberalisation of world markets. Very large farms have been developed in Eastern Europe, benefiting from the privatisation of former State farms, very low labour costs and the biotechnologies promoted by several multinationals (see record # 11 on Poland in part two of this paper). Similar phenomena can be found in certain countries in the Southern hemisphere, such as Argentina (see box # 14).
These new latifundia have nothing in common with the large, extensive farms of times gone by. They appear to have very high productivity levels, though in truth production costs are lowered due to extremely low labour costs and very low land prices. They undercut prices, leading to the ruin of most of the farmers in developing countries and, to a great extent, those in developed regions, too. This apparent productivity is also achieved by techniques that endanger ecological balances.
Today, it is not possible to analyse agricultural production without referring to the effects of globalisation on word prices66. Neither is it possible to continue using agrarian reforms as correction mechanisms in the same way as before.
65 See also on this subject the introduction of the paper written by Michael Carter and Dina Mesbah, “State-Mandated and Market-Mediated Land Reform in Latin America”, published by the World Bank in Including the Poor, Washington, 1993, (pp. 278-305).
66 See Marcel Mazoyer and Laurence Roudart, ibid. and Mazoyer, Marcel, Protecting small farmers and the rural poor in the context of globalization, FAO, 2001.
67 Jorge Eduardo Rulli, Rel-Uita, La biotecnología y el modelo rural en los orígenes de la catástrofe argentina Uruguay, April 2002. (www.rel-uita.org/)