Jorge A. Muñoz, Sophie Theis & Paul Gardner de Beville The World Bank’s Experience with Redistributive Land Reform Projects: The Nuts & Bolts Jorge A. Muñoz, Sophie Theis & Paul Gardner de Beville (The World Bank) March 24th, 2015

The World Bank’s Support to “Land Reform” 1) Land Administration projects Objective: To reform legal, institutional, technical framework of land rights, tenure and their administration How: Through legal recognition, surveying, cadastre, conflict resolution, titling, registration, technical assistance 2) Land Redistribution projects Objective: To transfer land from large to small farmers How: By putting beneficiaries in the driver’s seat and decentralizing the decision-making processes (land acquisition, investments and technical assistance)

The Case for Redistributive Land Reform Efficiency: Inverse farm size-productivity relationship Equity: More equitable land distribution associated with higher economic growth and reduced poverty Social stability: Land property relations are inherently political

Traditional or Classical Land Reform Farm size limits by law, inefficiency penalized Centralized government agency: Designates and expropriates large farms Selects beneficiaries Plans settlements and farm activities Finances infrastructure, services, assistance Usually only user rights issued Landlords contest process, price leading to a lengthy and costly process

Beneficiary-Driven Land Reform Beneficiaries self-select themselves Beneficiaries select farm, negotiate acquisition Local council verifies eligibility of beneficiaries, of farm (including its price), and investments Government provides subsidized loan for land Government provides matching grant to beneficiaries for investments and tech. assistance Beneficiaries manage funds Land is titled in name of beneficiary association

Intentions of the selection process What mix of beneficiary group, land, and investments will have the best chance of enabling successful farmers and productive farms? Beneficiaries should be: Eligible (income and land caps) Amongst the eligible landless population, the most committed and capable Part of a group with strong social capital Land should be: High quality, fairly priced land with clear and legal tenure status, meeting beneficiaries’ preferences Investments should be: Feasible and viable, given land, skills, and market considerations

Community Associations Selection and verification process in Brazil Identify, Prepare, Contract, Manage, Maintain, Co-finance investment subproject Community Associations Manages $ Present project proposal Project Account Analyze Verify eligibility Approve Supervise Municipal Councils Operating Agreement Project Implementation Agreement Authorizes release of $ Supervises MC Evaluates Project Monitoring & Evaluation State Technical Units

Variations in the selection process Projects used different institutions to review beneficiary eligibility, choice of land, and productive investment proposals. Some important variations: Local-level councils (Brazil) vs. centralized institutions (Guatemala, Mexico) to verify beneficiaries’ eligibility and land price Mobilization of applicants (Honduras), sometimes at the expense of self-selection (Guatemala) Flexible/stringent beneficiary group requirements Guidance/influence on investment proposals (India vs. Mexico) Review of investment proposals by private financial institutions (Honduras) vs. public institutions with budget incentives

The package of benefits shapes beneficiaries’ behavior Challenge: How to give beneficiaries autonomy to choose land, but make sure they negotiate a fair price and do not get excessively into debt? Two part solution: Give beneficiaries the means to become sufficiently profitable to repay the loan Provide incentives for beneficiaries to only take out the amount of credit that they can repay, and repay it! Key variation across projects: Financial package, specifically: how the loan and grant components were linked Credit provision for land only worked if the projects effectively did two things: 1) gave beneficiaries the means to become sufficiently profitable to repay the loan used to purchase the land and 2) ensured beneficiaries had incentives to repay the loan. Beneficiaries do not have access to credit from traditional lenders, so projects assume this risk and provide concessional loans

Financial Package in Brazil: Loan-Grant Link Loan is only used for land purchase Total Financial Package Grant is used for investments and technical assistance Double-incentive: the more you bargain down the price, the less in debt you are and the more grant you have for other uses. In contrast to Guatemala Any part of the financial package not used for the land purchase loan can be used, instead, as a grant.

Project Outcomes   Projects Number of families settled Total number of farms Total area distributed (ha) Average land size per family (ha) Family Income Increase Brazil 55,369 2,723 1,230,334 20.7 From RS$ 1,656 to RS$ 4,064 Guatemala 15,487 186 71,361 4.6 No data Honduras 991 181 2,400 2.4 From $630/yr to $1,430/yr India 5,303 1,840 0.3 From $488/yr to $1,132/yr Malawi 15,142 666 33,400 2.2 From MKw 4,530/mth to MKw 30,500/mth Mexico 10,740 trained 4,526 acquired land Very different scales (Significant scale in Brazil Very significant increase in beneficiary income Reminders: Exchange rates (ICR): US$1= Mkw 163 India: 124% from 2004 (baseline) to 2009

Projects Costs and Debt to Asset Ratios Average Cost of Land per Hectare Average Cost of Land per Beneficiary Financial Package per Beneficiary Cost of Land (% of the Financial Package) Debt to Asset ratio Brazil $195 $4,058 $8,047 50.4% 1:2.0 Guatemala $1,017 $4,686 $7,522 62.3% 1:1.6 Honduras $1,150 $2,780 $7,480  37.1% 1:2.7 India $3,479 $1,194 $7,457 16.0% 1:6.2 Malawi $143 $315 $1,050 (grant)  30.0% n/a Mexico $1,272 $9,361 $18,000 to $33,000 52.0% -28.4% 1:1.9 1:3.5 Costs of land reform takes $7,000-8,000 per family. Variation as to how much was given to land vs. on-farm investments (difference in debt to asset ratios)

Credit Conditions & Repayment rates Projects Loan Amount Interest Rate Maturity Period Repayment Rate Brazil $4,058 6% 20 years 97.6% Guatemala $4,686 5%, after 4 year grace period unknown < 35% Honduras $2,780 Market 6 to 10 years 97.3% India $1,194 ≤ 15 years 88.27% Malawi n/a Mexico $9,361 Under FIFONAFE (2004-2006), 5% (a third of market rates) 5 years average (Financiera Rural) < 50% Bolivia Concessional loans (i.e. long grace period) w/ varying terms and fairly long repayment periods Highest repayment rates in Brazil and Honduras

The devil is in the details What have we learned? The devil is in the details Incentives really, really matter 3 dimensions: Beneficiary self-selection Access to land Productive Subproject investments All three dimensions are individually important to achieve successful outcomes in land redistribution projects. But more important even is their relation to each other. It is FUNDAMENTALLY different to set the requirements for project entry and have someone select beneficiaries VS. setting the requirements, divulgating them across communities, and letting people who meet those requirements come forward. The fact that these people “jump the hoops” means that not only are they eligible (they meet the requirements), but more importantly they are willing to participate and take on the challenge of acquiring land and making productive use of it. This is what is known to work, and it’s what will MAKE or BREAK a project.

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