Report No. 1 3437-CO
Colombia
Review of Agricultural and
Rural Development Strategy
November 22, 1995
Country Department III
Natural Resources Management anci Rural Poverty
Latin Amierica and the Caribhean Regional Office
DOcument O(te Wo6rid &ank'



CURRENCY EQUIVALENTS
Currency Unit - Colombian Peso ($)
EXCHANGE RATE
US$1.00 = $ 1,018
Col $ 1.00 = US$0.10
FISCAL YEAR
January 1 - December 31
WEIGHTS AND MEASURES
The metric system has been used throughout this report.
GLOSSARY OF ABBREVIATIONS AND ACRONYMS
CASEN               Household Survey
CEGA                Corporaci6n de Estudios Ganaderos y Agricolas
DANE                Departamento Administrativo Nacional de
Estadistica
DNP                 Departamento Nacional de Planeaci6n
DRI                 Desarrollo Rural Integrado
FEDESARROLLO   Fundaci6n para la Educaci6n Superior y el
Desarrollo
FIS                 Fondo de Cofinanciaci6n para la Inversi6n
Social
FNCV                Fondo Nacional de Caminos Vecinales
GATT                General Agreement on Tariffs and Trade
HIMAT               Instituto de Hidrologia, Meteorologia y
Adecuaci6n de Tierras, now INAT
ICA                 Instituto Colombiano Agropecuario
IDEMA               Instituto de Mercadeo Agropecuario
IICA                Instituto Interamericano de Cooperaci6n para la
Agricultura
INAT                Instituto Nacional de Adecuaci6n de Tierras
INCORA              Instituto Colombiano para la Reforma Agraria
PNR                Plan Nacional de Rehabilitaci6n



COLOMBIA
REVIEW OF AGRICULTURAL
AND RURAL DEVELOPMENT STRATEGY
TABLE OF CONTENTS'
Page No.
Preface
Executive Summary  .i.                                                              i
Review of Agricultural and Rural Development Strategy  ...              ........   I
ANNEXES
A.      Making Land and Labor Markets more Effective ...                ........ 29
B.      Reappraising Priorities for Economic Infrastructure in Rural Areas  49
C.      Strengthening the Trade and Price Regime ............... 69
STATISTICAL APPENDIX   ...........                 ..        ............... 87
MAPS
IBRD 26156
IBRD 26158
IBRD 26153
1.     This agricultural strategy review is the result of a collaborative effort between the
government of Colombia and the World Bank and is principally based on a series of
background studies that were jointly commissioned. These studies are listed in the
Preface. The following Bank staff participated in sector strategy missions to
Colombia in 1993-94 and provided written inputs: Hans Binswanger (AGRDR);
Ariel Dinar (AGRAP); John Heath (LA3NR); Nicholas Krafft (LA3NR); Patrick
Low (IECIT); Enesto May (LA3C1); and Alberto Valdes (LATAD). Support was
also received from FAO/CP missions, led by Mr. Simon Hocombe. Mr. Felipe
Jaramillo (Consultant) acted as local coordinator. John Heath was responsible for
overall coordination of the review and fbr writing the report. Report processing was
handled by Ms. Alma Domenech.






PREFACE
Background Studies
Eduardo Lora & Ana Marfa Herrera, Los ingresos rurales en el mediano
plazo. *
Alvaro Reyes Posada & Carmen Cecilia Ramfrez, Funcionamiento de las
franjas de precios para productos basicos en Colombia. *
Carlos F. Espinal G., Comercio agropeciiario bilateral y con el pacto
Andino. *
Claudia Uribe & Florencia Leal del Castillo, Antidumping, salvaguardia,
derechos compensatorios y reforma aduanera.*
Alvaro Silva-Carrenio, Desarrollo de los mercados agricolas en Colombia.*
Larry Shonkwiler, Desarrollo de mercados agricolas.*
Raquel Bustamante de Henao, Insumos y maquinaria Agricola.*
Guillermo Hurtado, Temas sobre el mercado de tierras en Colombia.
Alvaro Reyes Posada & Jaime Martinez, Funcionamiento de los mercados de
trabajo rurales en Colombia.*
FAO/CP & Alvaro Ramirez, Estudio sobre adecuaci6n de tierras.*
Ariel Dinar & Andrew Keck, Detenninants of Private Irrigation Investment
in Colombia.**
Ariel Dinar, Water Resources Legislation, Institutions and Administration:
Lessons for Colombia from Other Countries.
Alfonso Corredor Rios, Movilizaci6n de los productos agrfcolas: Costos y
gesti6n estatal.*
Alan Harding, Puertos, aeropuertos y carreteras.*
Rafael Posada, Factores determinantes de competitividad a nivel de finca.*
*     Published in Departamento Nacional de Planeacidn
(Coordinadores: Clara Gonzalez & Carlos Felipe Jaramillo),
Competitividad sin pobreza: Estudios para el desarrollo del campo
en Colombia, Bogota: Tercer Mundo, 1994.
**    To be published (in Spanish) in Planeacidn y Desarrollo (DNP,
Bogota).






EXECUTIVE SUMMARY
1.    In 1993-94, the government of Colombia and the World Bank
collaborated on a review of medium term strategy for agricultural and rural
development. The primary purpose of this exercise was to identify the most
effective way of linking measures to boost the competitiveness of the
agricultural sector with measures to reduce rural poverty.
2.    Colombian agriculture has an impressive long run growth record, with
an average annual rate of three percent over the past forty years or so.
However, agricultural growth has entailed more intensive use of land and
capital than it has of labor: Colombia has shed labor from agriculture much
faster than other countries in the same per capita income range. This is the
result of a series of policy biases that have constrained job creation in the
farm sector--biases implicit to the pattern of public investment in agriculture,
the orientation of the trade regime and the allocation of subsidies.
3.    In the immediate post-war period, the expulsion of labor from
agriculture led to high rates of outmigration which--coupled with rural
fertility decline--led to some tightening of the rural labor market, helping to
push up wage rates. But this proved to be a very limited strategy for
eliminating rural poverty. Between 1978 and 1992, the proportion of the
rural population in extreme poverty declined fairly slowly (from 38 percent
to 31 percent). The incidence of rural poverty exceeds the incidence of
urban poverty by a factor of 3.6, much higher than for most other countries
in the region.
4.    The challenge therefore is to tackle rural poverty through a growth
strategy based on substantial job creation in the rural sector. This will entail
measures to make land and labor markets operate more effectively; and a
reappraisal of public investment priorities. It will also require fine-tuning of
the trade regime to reinforce the apertura: a more liberal trade regime will
help to ensure that the pattern of agricultural growth is consistent with the
most efficient use of resources. The impending oil bonanza makes adoption
of this strategy all the more imperative: however well it is managed, the
surge in oil revenues will lead to some real exchange rate appreciation and
expenditure switching, making it harder for agriculture to compete. The
overall aim should be to facilitate an orderly and efficient adjustment to this
harsher environment, based on removal of policy biases that artificially
induce labor shedding, and development of a range of policy instruments
appropriate for managing crises in the subsectors and regions worst hit by
declining profitability and job losses.
5.    Three primary recommendations are made. First, impediments to the
effective operation of labor and land markets must be removed. To help
smooth farm incomes during periods of agricultural crisis when the demand



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for labor slackens, the government needs to devise and implement temporary
public works programs more expeditiously than it has in the past. Also,
there may be some scope for improving the financial environment in which
rural microenterprise operates, particularly with a view to easing female
unemployment. But the biggest challenge is to ensure that the new market-
based land reform initiative achieves as much as it can it terms of greater
efficiency and equity. The recent initiative is a highly-positive step,
correctly identifying the need to provide the rural poor with grants toward
the purchase of land; but it needs to pay greater attention to those supply-side
factors which reduce the propensity for large landowners to sell or lease to
the poor.
6.    Second, public investment priorities for rural economic infrastructure
need to be overhauled, placing greater emphasis on economic rate of return
and poverty alleviation criteria. With respect to transport infrastructure, the
priority is to improve installations and procedures for container handling; and
to strengthen the capacity of departmental and municipal governments to plan
for road maintenance. In the case of irrigation and drainage, public
investments should be kept tightly in line with the incremental benefits that
these projects may be expected to generate, with greater emphasis paid to
cost recovery and the transfer of works to users.
7.    Third, trade liberalization must be consolidated in order to increase
the efficiency of the agricultural sector and contribute to growth. In general,
trade interventions are not effective policy instruments for dealing with short
run farm crises; mainly because they are hard to target at the poor. The
current system of price bands and procurement agreements entails efficiency
losses and should be replaced; alternatives are considered. For example,
safeguards are an effective instrument for coping with temporary import
surges. Removal of legal and institutional impediments to the efficient
operation of domestic markets in grains and oilseeds will also help.
8.    A number of supporting measures are required. Steps to strengthen
research, extension and input provision, and to improve the quality of rural
health and education services, are essential for raising agricultural
productivity. More efficient rural financial markets will help to create an
enabling environment for rural enterprise, farm and non-farm. Institutional
reforms--including measures to strengthen the Ministry of Agriculture--are
needed to increase the government's capacity for managing crises; and to
allow for better articulation of the needs of the rural poor. Finally, ways of
strengthening the coffee sector are explored, examining how to make the
most of the opportunity posed by the growing market for specialty coffees.



COLOMBIA
Review of Agricultural and Rural Development Strategy
Purpose
1.     This report is the result of a collaborative effort between the
government of Colombia and the World Bank.2 Its purpose is to make
recommendations to the new administration concerning the ingredients of a
medium term strategy consistent with the dual objective of increasing the
competitiveness of the agricultural sector and combating rural poverty. The
report seeks to lay the foundations for a close and sustained dialogue out of
which may flow more specific proposals for policy reform and for investment
projects.
T7he Challenge
2.     The time has come for a major course correction in Colombian
agricultural strategy. In the past, government spending strategies and the
design of the trade regime have tended to benefit industry rather than
agriculture, and to protect producers of Livestock, grains and crops serving
as industrial inputs. This has led to significant efficiency losses. Also, the
agricultural development model (which has favored high rates of rural
outmigration) has failed to remove the problem of rural poverty. The
challenge is to design a strategy that makes more allowance for the needs of
small farmers and links agricultural growth to rural poverty alleviation.
3.     Efficient growth presupposes a firm commitment to trade
liberalization. Although important steps have been taken since 1990 to
liberalize the trade regime, agricultural policy making is still characterized by
substantial equivocation on the trade and pricing issue: trade interventions
continue to retard the competitive realignment of Colombian agriculture, fail
to target the rural poor and result in losses to consumers.
4.     This challenge calls for a strategy with the following components,
each of which is examined at length in this report:
removal of obstacles impeding the effective
operation of land and labor markets, in order
to raise productivity and combat rural poverty;
2.     The govemment sponsored a number of background studies by Colombian consultants. These were
published as a book in July 1994: Clara Gonzalez & Carlos Felipe Jaramillo (coordinators),
Compennvidad sin pobreza: Esiudios para el desarrollo del campo en Colombia, Bogota: Departamento
Nacional de Planeaci6nlTercer Mundo Editores, 1994. A list of the background studies is given in the
Preface to this report.



- 2 -
reappraisal of infrastructure investment
priorities in the rural sector, based on selection
of projects with the highest economic rates of
return and genuine "ownership" of projects by
beneficiaries; and
*     the combination of further steps to liberalize the
agricultural trade regime with the development
of other (non-trade) policy instruments that
tackle rural poverty directly, and provide timely
relief to farmers in subsectors hit by short run
downturns.
5.    There are a number of complementary measures of equal importance
that are not examined in depth in this report: measures to improve
agricultural research and extension, to upgrade rural education and health
facilities, to strengthen rural financial markets, to promote institutional
reform and to develop an effective strategy for coffee, which is likely to
remain the principal export crop. Also, there is an urgent need for a
comprehensive review of public spending on agriculture: this was beyond
the scope of the present report.
Rationale for the Proposed Strategy
6.    Agriculture continues to play a vital role in the economy, generating
21 percent of national income, 20 percent of employment and no less than
36 percent of merchandise export revenues. Although there has been some
diversification over the past thirty years or so, the fortunes of coffee and
livestock continue to determine the overall growth performance of the sector.
The largest subsectors are beef (23 percent of 1993 farm output value),
coffee (12 percent), poultry (12 percent), sugarcane (8 percent) and flowers
(5 percent).
7.    Colombian agriculture has a solid growth record, averaging
3.5 percent per year between 1950 and 1987, and 2.9 percent between 1988
and 1993.3 Excluding 1992 (when the sector contracted by 1.9 percent), the
average for the second period is 3.9 percent. Thus, contrary to some of the
reports generated in the heat of the 1992 "crisis", there is no evidence of a
departure from the long run growth trend.
8.    The problem lies not with a lack of agricultural growth but rather the
overall pattern of Colombia's economic growth: over the long run there has
arguably been less employment creation in agriculture than there might have
been, resulting in substantial efficiency and equity losses. Agriculture's
share of GDP has fallen at a faster rate than was the case for other countries
3.     'Agricultuml" growth refers almost exclusively to crops and livestock: forestry, fishing and
hunting accounted for only four percent of sectoral GDP in 1993.



- 3 -
in the same per capita income range. Also, the agricultural growth path has
been extremely capital and land intensive: between 1950 and 1987, capital
grew by 2.8 percent, land area by 1.4 percent and employment by only
0.6 percent.
9.     The bias against farm employment creation is the result of several
factors. Past attempts at agrarian reform have failed to redistribute land to
smaller farmers. Public investment patterns and the orientation of the trade
regime have combined to favor livestock and grain crops, neither of which
are intensive in the use of labor.4 Between 1980 and 1992, beef and milk
absorbed 82 percent of the price plus non-price support that the government
conferred on a group of nine leading farm commodities. The absence of
rigorous cost recovery in public irrigation schemes helps explain why most of
the land is under low-margin grain crops and pasture. Deficiencies in
transport infrastructure have further reduced the scope for job creation by
elevating costs, thus making exports less competitive and implicitly protecting
import substitutes; importable grains and oilseeds tend to be less labor
intensive than exportables such as fruits, vegetables and flowers. Finally,
rural violence skews the pattern of agricultural investment toward activities
that are relatively nonintensive in the use of labor: the supervision costs and
incentive losses that are typically associated with hired labor are even greater
in an environment where hired workers may initiate, or collude in, violent
reprisals against employers.
10.   This long run propensity for low employment creation in agriculture
has been aggravated by job losses resulting from the profit squeeze that hit
certain subsectors in the early 1990s. The squeeze was primarily attributable
to a temporary downturn in world commodity prices, aggravated by the
severe drought of 1991-92; the post-1990 shift to a more open trade regime
was not the main source of the problem.
11.   Between 1992 and 1993, the contraction of the coffee subsector
increased dramatically, growth dropping from -0.4 to -15.3 percent.
Producers of barley, sesame, cotton, rice, soybeans, cocoa, tobacco, oil palm
and cafia pane/era were also badly hit: in 1992-93, the index of farm profits
for these crops was well below where it stood in 1985-90.
12.   The recent increase in world commodity prices will alleviate some of
the pressure on these subsectors. Coffee's fortunes are now reviving, the
world price having more than doubled in the first six months of 1994. Also,
the growth rates for the non-coffee crop sector stood at a healthy 3.6 percent
in 1993, compared to -3.2 percent in 1992. In the same period, livestock
growth rose sharply from 0.3 percent to 8.0 percent. Therefore, short term
growth prospects seem good.
4.     However, the low propensity to generate employment is not necessarily a function of enterprise sizc.
Certain crops where large-scale producers predominate--sugarcane, oil palm, flowers, bananas-are
characterized by intensive use of labor, permancnt employment and sa]aries that are high in relation to the
average for the farm sector.



13.   However, in aggregate, the growth of farm exports has been less
dynamic than the growth of the farm sector as a whole: this suggests that
particular attention must be given to removing elements of anti-export bias in
the policy framework.
14.   Whatever the short term prospects, the farm sector's share of the
economy will likely continue to decline--true of almost all economies as per
capita income rises. The objective should not be to reserve a predetermined
share of the economy for farming. The aim should be, first, to remove
policies that artificially induce labor shedding--eradicating the various
subsidies and shelters that privilege larger farmers and induce a bias toward
non-labor intensive activities--and, second, to facilitate an orderly adjustment
to the inevitable decline in farming's relative importance--managing the
transition in a way that reduces hardship to the rural population without
compromising efficiency.
15.   Shrinkage of the sector could accelerate unduly over the next five
years or so if the impending oil bonanza is not carefully managed. To the
extent that oil revenues are absorbed in the domestic economy the real
exchange rate will appreciate and relative prices will tend to move in favor of
non-tradables. Most of the income gains from the boom--projected as
equivalent to an annual GDP increment of 0.9 percent--will be captured by
the urban sector. This is partly because the price of farm tradables will fall
relative to urban goods and services; and partly because (oil-based) funding
of the new social security reform will benefit urban rather than rural areas.
16.   Sound macroeconomic management, including an oil stabilization
fund, will limit the extent of real exchange rate appreciation. However, by
themselves these measures will not be sufficient to significantly enhance
agricultural competitiveness or reduce rural poverty. Additional steps must
be taken to make land and labor markets more efficient and equitable, to
raise farm productivity and to lower transport costs. To ensure neutrality
between sectors, public investment in agriculture should involve selecting
projects that offer returns competitive with those obtainable elsewhere in the
economy.
17.   Measures are also needed to forestall the fall in rural incomes and
employment that may potentially result from the oil bonanza. The best
approach is to combine measures to boost productivity with safety nets in the
form of public employment programs. It has been estimated that a one
percent increase in the productivity of traded agricultural goods will lead to
an incremental increase in rural incomes of 0.2 percent per year. Owing to
differences in demand elasticity, a comparable productivity increase in
primary food production (mainly non-traded) will lead to an income gain of
only 0.06 percent annually. A rural employment program may potentially
have an even bigger income effect: if resources equivalent to 0.15 percent of
GDP were transferred to such a program, the incremental increase in rural
incomes would be 0.5 percent per year.



18.   These findings provide a rationale for increasing trade liberalization--
consolidating the achievements made since 1990. A more liberal trade
regime will encourage the switch from non-tradables to tradables, with the
attendant gains in rural income and employment. But liberalization is not
enough: other policy instruments are also needed to help farmers smooth
incomes during crises. Employment programs and temporary import
surcharges (safeguards) are arguably the best bet, since they target the poor
more effectively and occasion fewer efficiency losses than would result from
quantitative restrictions, procurement agreements and other trade
interventions.
19.   A key objective is to forge new links between agricultural growth and
rural poverty reduction. The tightening of the rural labor market that has
resulted from the combined impact of demographic transition and
outmigration has not been sufficient to eliminate rural poverty. There is
more poverty in rural areas than would be expected in a country of
Colombia's level of economic development. The incidence of rural poverty
exceeds the incidence of urban poverty by a factor of 3.6, much higher than
for most other countries in Latin America and the Caribbean. In 1992,
31 percent of the rural population were found to be "extremely poor"
(compared to 38 percent in 1978); and 70 percent of the extremely poor were
located in rural areas.
Making Land and Labor Mark2ts More Effective
20.   Making these factor markets more "effective" entails removal of the
policy biases which artificially reduce the scope for job creation in the rural
sector and constrain the capacity for handling shocks that result in the loss of
farm income and employment (Annex A).
21.   Labor markets appear to be relatively efficient; but there are pockets
of rural unemployment that could be eradicated. On the one hand,
intertemporal and interregional wage differentials are not pronounced; and
the urban-rural wage differential is low--wages in construction are only about
10 percent higher than those in agriculture. However, although outmigration
will provide part of the answer to rural unemployment, it is not a sufficient
response and is probably not the best way of accommodating temporary
downturns in agriculture. Also, female unemployment is unacceptably high:
12 percent of economically active women in rural areas are unable to find
work, compared to only two percent of men. This is partly because women
with dependent children are less mobile and therefore less able to participate
in the seasonal interregional migrations that are an important feature of
Colombian agriculture.
22.   This has two implications for policy. First, attention must be given to
devising efficient ways of responding to the sharp downturns in agricultural
labor demand arising from import surges and price slumps. One way of



- 6 -
dealing with this is to fund public works programs. Second, attempts can be
made to enhance the environment for rural non-farm enterprise; particularly
with a view to easing female unemployment.
Box 1. Where are the rural poor?
There are two sources fbr estimating the extent and distribution of rural poverty. In
1992, DANE conducted a sample survey of household expenditures. These data are
statistically representative at the regional level. In three of the four regions the
proportion of the rural population in extreme poverty is higher than the national
incidence rate for rural areas: Rural Oriental (36 percent); Rural Pacific (36
percent); and Rural Atlantic (33 percent). The incidence of extreme poverty is
substantially lower in the fourth region, Rural Central (23 percent), an area that
produces the bulk of Colombia's coffee and sugarcane and contains several other
key cash crops.
The only nationwide data disaggregable at the departmental level derive from the
1985 Population Census and refer to basic needs, not household expenditures. In
terms of a composite index--based on housing quality, access to public utilities,
occupants per room, school attendance and dependency ratios--Atlantic is the region
whose rural population has the highest incidence of unsatisfied basic needs. In six
of Colombia's thirty-one departments, 85 percent or more of the rural population
are poor. These departments are: in the Atlantic Region, C6rdoba (90 percent),
Bolivar (91 percent) and Sucre (92 percent); in the Pacific region, Choc6 (86
percent); and in the eastern lowlands, Casanare (85 percent) and Guaviare (86
percent). However, this basic needs index is less discriminating than the household
expenditure measure, probably failing to target the poorest: nationvide, it suggests
that 44 percent of the rural population were poor in 1985, compared to the 31
percent estimated from the 1992 expenditure data.
Source: Colombia. Poverty Assessment Report (No. 12673-CO), The World
Bank, %shington, D.C., August 1994.
23.    Emergency rural works programs should be an essential part of the
government's repertoire for crisis management. They need to disburse at a
faster rate, and in a more targeted manner, than the programs launched in
response to the 1992 crisis. Wages should be set at less than the official
minimum, thus ensuring that only the poor are recruited; and providing an
incentive for participants to leave the program as soon as possible. Typical
projects will involve road maintenance and building of water, sanitation and
communal facilities. Projects need to be labor intensive, confined to the
hardest hit areas and provide opportunities for women. They should be
implemented by community groups with funding provided by municipal
government and cofinancing agencies.
24.    Within the rural sector there appears to be significant mobility
between farm and non-farm enterprise. Between 1990 and 1993, the number
employed in agriculture fell by 54,000; but this was more than offset by the
creation of 163,000 rural non-farm jobs. This seems to be because over the
last twenty years or so rural settlement patterns have become less dispersed,



more nucleated: there has been a striking growth of smaller towns--between
1985 and 1993, towns other than departmental capitals grew at the staggering
rate of 5.4 percent annually. The nucleation of the rural population is
particularly marked in Atlantic, which is the poorest region in terms of
unsatisfied basic needs, and has high rates of rural violence. Nucleation is a
logical response to rural people's demand for utilities, health and education
services and greater security.
25.   Given that investment and transaction costs are lower in areas where
the population is less dispersed, this trend has important implications for the
feasibility of providing better services and financial intermediation. Although
a significant proportion of the small town labor force will continue to depend
on earnings as casual wage laborers in agriculture, nucleation is also
conducive to the growth of microenterprise and raises particularly interesting
possibilities for alleviating female unemployment. In Colombia, the
dynamics of non-farm rural enterprise are poorly understood and warrant
closer investigation. Rather than selecting particular types of enterprise for
promotion, policy interventions should aim to create an enabling environment
for small businesses by seeking ways to make rural financial markets operate
more efficiently and equitably.
26.   Land markets are highly segmented: there is a very high frequency
of transactions within small and large farmer groups, but little transfer of
land from large farmers to small farmers. This results in efficiency losses
because small farmers--with the possible exception of microfundistas--
achieve higher total factor productivity than large farmers; and economies of
scale are less evident in farming than in other sectors. The evidence for
small farmer yield response is compelling. Following adoption of scale-
neutral inputs such as agrochemicals, small farm yields increased by
82 percent in 1976-88, compared to an increase of only two percent for
farmers with holdings above thirty hectares.
27.   Segmentation also exacerbates rural poverty and causes environmental
damage by forcing the poor onto steep hillsides where annual cropping
contributes to erosion and is not sustainable. Contrary to the expectations of
some policymakers, outmigration has only partially alleviated these problems.
There is therefore an urgent need to improve the poor's access to land.
Improved access will help to remove one of the sources of rural violence,
creating an environment more conducive to agricultural investment--
particularly in more labor-intensive activities.
28.   Law 160 (1994) is a sound attempt to introduce market-based land
reform. Administrative redistribution of land has a sixty-year record of
failure in Colombia. The challenge is to find effective ways of removing
both demand and supply-side constraints to the transfer of land from large to
small farmers.



- 8 -
29.   On the demand side, the new law is substantially on track: providing
a grant to poor persons equal to 70 percent of the cost of purchasing a
family-size farm. This substantial grant element is needed to compensates
for the factors tending to drive the market price of land above the capitalized
value of farm profits--making it impossible to amortize loans for land
purchase solely from returns to farming.
30.   However, it is important to apply the 70 percent subsidy to the cost of
the "farm project" rather than simply to the purchase of a particular tract of
land: this would give the beneficiary the option of buying (cheap) land that is
less well served by infrastructure--secure in the knowledge that part of the
subsidy could be applied to financing subsequent on-farm works. In
principle, Law 160 allows for this eventuality; but it needs to be more clearly
spelled out in the regulations derived from the law. Failure to make this
clarification would run counter to the principle of using land reform as a
means of bringing undeveloped land of arable potential into production.
31.   Also, although the law is built around the concept of the "family
farm"--defined as an area of land large enough to generate income equivalent
to three minimum salaries--there is no reason why the poor should be denied
the option of buying a "sub-family farm" and supplementing farm revenue
with income from off-farm sources. No attempt should be made to
predetermine what constitutes an efficient or equitable farm size. The
important thing is that the market be allowed to operate in a non-segmented
fashion: allowing less efficient holdings--whether large or small--to be
transferred to more efficient operators. Over time this should lead both to
the consolidation of microproperties and the subdivision of large properties.
32.   Demand side measures are not enough; the new initiative needs to pay
more attention to easing supply-side constraints. This boils down to reducing
the wedge between the market price of land and the capitalized value of farm
profits. A large wedge means that there are substantial inducements to hold
large areas of land and to refrain from selling or leasing to smaller operators.
The size of the wedge may be reduced in four ways. First, macroeconomic
stabilization measures will reduce the incentive to hold land as a hedge
against inflation. Second, better collection of agricultural income taxes and
capital gains taxes on farm land will reduce the attractiveness of land as a tax
shelter. Third, elimination of price supports and input and credit subsidies
will help to lower the price of farm land; these trade and market
interventions benefit larger rather than smaller farmers. Finally, because
land purchase may be used as a means of laundering illicit funds, it may be
advisable to place the onus on would-be buyers of large tracts to demonstrate
that their cash was obtained by licit means.
33.   How these four factors apply in the Colombian case, and their relative
weight, is an issue that merits systematic investigation. Particular attention
needs to be given to the impact of investment subsidies: the extent to which
subsidies for irrigation (Law 41) and subsidies for machinery and on-farm
investment (Law 101) may be biased in favor of large farmers. The tax code



-9-
needs to be carefully reviewed to see if there are ways in which land serves
as a shelter. The extent to which land purchase by drug traffickers pushes up
land prices in certain areas should be carefully evaluated. Account should be
taken of the negative impact of schemes that provide for blanket rescheduling
of unrecovered farm loans: in the past these schemes have primarily helped
to resuscitate inefficient large farms--when, instead, "exit incentives" could
have been provided to accelerate their liquidation. Finally, there may be a
case for obliging the users of untitled frontier land to purchase their farms:
these are often very substantial tracts and their survival is a further source of
large farmer bias.
34.   The state's position in the new land reform process needs to be
carefully considered. Clearly, the state land reform agency, INCORA, has a
role to play in establishing eligibility criteria for the grants; and in screening
applicants. It should also retain its powers of compulsory purchase in order
to dissuade powerful farmers from banding together to block the supply of
land to the market. However, the compulsory purchase option should be
treated strictly as a last resort: only to be used when there are no alternative
tracts of land available in a given locality. It is less clear that INCORA has
a role to play in organizing would-be buyers into cooperatives: at most, it
should probably restrict itself to drawing up indicative guidelines for buyers
to organize themselves, along lines successfully used in other countries.
Reappraising Priorities for Economic Infrastructure
35.   Public investment in transport infrastructure and irrigation and
drainage is critical for lowering costs, increasing agricultural competitiveness
and easing rural poverty (Annex B). This report makes no attempt to assess
the size of the "investment gap": this cannot be known until the public
investment portfolio has been systematically reviewed. This should be an
economy-wide review in which the government would rank all prospective
projects by economic rate of return, irrespective of the sector in which they
are located. Public investment should be limited strictly to areas where
private investment is deterred by the existence of significant externalities.
A key government role is to reform those parts of the legal and regulatory
framework which discourage private investment. Steps to promote ownership
of infrastructure by local users need to be backed up with measures to
reinforce the capacity of municipal and departmental governments to carry
out infrastructure planning and to use cofinancing mechanisms to reward
communities whose projects are most in line with the key criteria of
efficiency, equity and sustainability.
36.   There is considerable scope for improving transport infrastructure.
Transport and handling costs incurred between Colombian ports and overseas
countries have fallen significantly in recent years and are generally
competitive (owing largely to a successful program of port privatization).
However, inland transport costs are a much greater cause for concern: road
costs are much higher in Colombia than in Peru and Chile--even when



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differences in the difficulty of the terrain are controlled for. Also, by
comparison with these countries, Colombia is handicapped by the much
larger distance separating ports from agricultural production zones and major
retail markets.
37.   One option is to induce the shift of production to sites closer to ports
by providing infrastructure--providing of course that such a shift may be seen
to generate net benefits and is environmentally sustainable. The region
closest to the Caribbean ports ("Atlantic") appears to have good arable
potential but is poorly served by feeder roads. Better road access may
encourage more intensive use of this land--with appropriate irrigation and
drainage some of the lands may be used for export crops; feasibility studies
are needed to assess the extent of this potential.
38.   Transport costs will remain high as long as producers are poorly
organized: lack of cooperation on marketing leads to limited opportunities
for "bulking up", explaining why such a large proportion of internal freight
traffic is not containerized. If producers were better informed and organized
they would be better placed to exploit spare capacity in the system of freight
transport: currently there is a very high propensity for vehicles and
containers to be empty on the return journey--a particular problem on the
Bogota-Caribbean route. Other savings can be made by standardizing vehicle
and container dimensions between Andean Pact countries; and modifying
mandatory freight insurance obligations. This will require quantification of
the extent of current losses from higher transport costs, followed by an
education campaign centered on producer associations. The potential for
expanding overland trade to serve a more integrated Andean market should
provide producers with more incentive to look carefully at ways of lowering
transport costs.
39.   A major weakness in Colombia is the absence of specific provision
for containers: this refers to the lack of physical installations at ports and
inland distribution centers, and the absence of an appropriate regulatory
framework for intermodal and multimodal operations.5 Owing to these
constraints, container movements are very slow by comparison with other
countries--a particular problem in the case of perishables. Significant cost
reductions would accrue to the establishment of inland container ports
(facilitating bulking up of shipments) and a regulatory and enforcement
regime allowing containers to travel back and forth between ports and
distribution centers under customs seal, reducing the loading and unloading
costs associated with multiple inspections. This challenge should be treated
as an integral part of the broader initiative to reform Customs. Some
element of infant industry grant funding may be an appropriate way of
encouraging investors to build container handling facilities. Also, the
Ministries of Agriculture, Transport and Foreign Trade could jointly sponsor
5.    'Intermnodal operations' refer to container mavements involving more than one medium of
transport (sea, road, rail, river). 'Multimodal operations' are those where all stages of
container mrvement are covered by a single, uniform document (bill of lading, insurance
contract, etc).



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a study designed to examine to what extent infrastructural and organizational
deficiencies in the transport sector reduce the competitiveness of farm
exports, with particular reference to how to make better use of containers.
40.   A number of specific recommendations may be made concerning ports
and feeder roads. Port efficiency has increased significantly since 1990 but
remains constrained by problems of physical access. Better arrangements are
needed to ensure regular dredging of sea channels and harbors, and to reduce
the congestion of land access routes. This will entail a clearer division of
responsibilities between state and private sector, and between central and
local government. Given that ports generate a number of positive
externalities that are not fully captured by the local community, it is
legitimate that central government contribute to the cost of improving access
routes. Government also has a role to play in providing better physical
planning for port expansion. Finally, careful consideration must be given to
the likely impact of transshipment developments centering on the expansion
of the deep-draft port at Col6n (Panama): to an increasing extent, larger
vessels will dock at Col6n, requiring that they be fed by smaller ships from
Col6n. This is both a potential constraint (possibly implying longer shipping
times) and an opportunity (offering access to markets served by ships that
would not otherwise handle Colombian cargo).
41.   Construction and maintenance of feeder roads has a vital role to play
in increasing agricultural competitiveness and improving access of the rural
population to services. A major challenge is to ensure that the decentralized
institutional framework is conducive to regular maintenance of the existing
network. Responsibility for the 7,000 km of feeder roads that were built and
maintained by the federal agency, FNCV, is now being transferred to
departmental governments. The rest of the feeder road network
(30,000 kms) will remain in the hands of municipal governments. The logic
of this separation is not entirely clear. The funding and management
capacity of the departments is already overstretched; asking them to manage
feeder roads--as well as taking on secondary roads--is to impose a burden
that seems hard to justify. Municipal governments should be responsible for
all feeder roads; and they should also bear part of the cost of maintaining
secondary (i.e. intermunicipal roads) from which they derive significant
positive externalities. Although municipal governments already receive
significant revenue from central government transfers, an adequate feeder
road program will require additional funds, with some of these specifically
earmarked for maintenance. Cofinancing arrangements should be used to
favor local government in poorer areas; particularly those with a good record
of road maintenance.
42.   New priorities for public investment in irrigation and drainage are
implicit in Law 41 of 1993; it now remains to ensure that the spirit of the
law--involving closer adherence to efficiency and equity criteria--is reflected
in the project portfolio. Public irrigation projects have a history of low rates
of economic return and limited success in targeting smaller farmers. A
fundamental problem is that, in most districts, rainfall is high enough to



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permit significant output without irrigation. Incremental benefits from
irrigation are therefore small. But public works have been very expensive--
roughly twice as expensive as private schemes--limiting the scope for cost
recovery.
43.    Returns to public irrigation have also been low because users were not
consulted on design (which tended to be technically rigid) and the choice of
project sites was not guided sufficiently by the scope for agricultural
intensification. Dissatisfaction with the performance of existing systems
deters users from shouldering the full burden of operations and maintenance
costs, helping to explain delays in transferring public districts to water user
associations (only 7 of the 22 districts have so far been transferred). Because
cost recovery is so low works have been inadequately maintained. Also, the
subsidy to users reduces the incentive to plant higher-margin crops--helping
to explain why most of the 287,000 hectares in the districts is devoted to
grains and pasture. Returns to this pattern of land use are insufficient to
amortize the US$3,000-US$4,000 per hectare that is the typical cost of a
public irrigation project.
44.    Law 41 aims to make public investments in irrigation more demand
driven. Allocation of investments will be contingent upon a careful
assessment of the beneficiaries willingness to pay for 100 percent of
operations and maintenance, plus some proportion of initial capital costs.
Recovery of capital costs is intended to be progressive, with a larger element
of subsidy for small farmers. Project beneficiaries will be required to form a
user association to take over public schemes once they are completed.
45.    Although Law 41 provides an excellent framework for a new
approach to public investment, there are some questions about the details of
its implementation. The cost recovery schedule that is now proposed seems
significantly less equitable than what was provided for by the law. Also, the
equity impact may be further undermined by Law 101 of 1993 which
provides credit and investment subsidies of 30 percent to all private
investments in irrigation and drainage, whether by fully private irrigators or
by beneficiaries committing their own resources on public schemes. Because
only those eligible for investment credit--mostly large farmers--would be able
to capture these benefits, Law 101 would seem to discriminate against small
farmers.6
46.    A number of recommendations suggest themselves. First, it is
important to accelerate transfer of districts to user groups. Transfer has been
held up partly because funding agencies have insisted that works must be
fully rehabilitated before they can be handed over to users; at which point
100 percent recovery of operations and maintenance is mandatory. It may be
6.    In response to this point, the govemment argues that mechanisms have been created to improve small
farmers' access to investment loans, thus enablirig them to benefit from the capital investment subsidy
provided by Law 101. The government notes that, between 1994 and 1995, FINAGRO investment loans
to small producers rose by 63 percent, compared to an increase of 56 percent for medium and large
producers.



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better to adopt a more incremental approach: transferring imperfect systems
and then progressively upgrading them subject to a process of negotiation
between users and the public irrigation authority, designed to reach mutual
agreement about the level of rehabilitation and the corresponding increase in
users' contribution to cost recovery. Second, the focus on irrigation needs to
be broadened to include greater attention to drainage--which typically costs
only about US$500 per hectare. Third, the scope for using better techniques
of moisture retention, and introducing integrated watershed management
would repay closer study. Fourth, government should do more to create an
enabling environment for private investment in irrigation: by providing
complementary infrastructure (roads, electrification etc).
Consolidating Trade Liberalization
47.   Further liberalization of the agricultural trade regime is essential if the
competitiveness of the sector is to be increased (Annex C). Since 1990 there
has been a significant, economy-wide opening of the trade regime, entailing
removal of quantitative restrictions and a reduction in the range of tariffs
from 0-50 percent to 0-20 percent. The state monopoly over grain imports
has been eliminated and domestic procurement by the government agency,
IDEMA, has been scaled back and is now limited to poor, isolated areas.
Between 1991 and 1992, the average tariff for farm goods fell from 31
percent to 15 percent; and the tariffs applied to agricultural inputs fell from
15 percent to two percent. The various income transfers to producers of
importables (price plus non-price interventions) have declined substantially
since the 1980s. But transfers in favor of beef, coffee and rice--which
between them account for 40 percent of farm output--are still substantial.
In short, there is still much scope for increasing the neutrality of the trade
regime.
48.   The main argument for liberalization is that the more transparent and
neutral the process of resource allocation, the greater the scope for realizing
efficiency gains: over the long run, this will significantly enhance growth.
There is now a substantial body of evidence demonstrating that open trade
regimes lead to higher growth rates. The impact of trade regimes on poverty
is less clear cut. In the short term, liberalization may result in lower
incomes for producers of importables; but the impact on poor rural producers
is generally small (because they market small volumes and therefore reap few
of the benefits from protection) and will be offset by the positive impact on
consumer real incomes (including those of the rural poor--who tend to be net
buyers of food commodities). In the long term, the incremental growth
attributable to liberalization will help to create employment which in turn will
contribute to poverty reduction.
49.   In general, however, trade policy is not an effective instrument for
alleviating poverty. Casual empiricism suggests that if the nominal rate of
protection of foodstuffs is reduced to zero, the increase in the real incomes of
poor urban consumers will not exceed five percent: this estimate (for the
bottom three expenditure categories in Bogota) approximates findings for



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cities in other countries. The real income gains for better off urban
consumers--who represent a majority in the BogotA case--will be lower still.
Findings of this nature help to explain why it is easier to mobilize producers
against liberalization than it is to rally consumers to support it: revenues
from protected farm products represent a much larger share of farmer
incomes than the share that expenditures on the same products represent of
total consumer spending.
50.   In Colombia, the better organized farmers--those enrolled in gremios--
have successfully campaigned against liberalization; and there has been no
countervailing lobby of equivalent strength to present opposing arguments.
The gremios assert that the opening was the prime cause of the collapse of
incomes faced by certain farm subsectors in 1992. A careful review of the
evidence demonstrates that the root of the problem was not liberalization in
itself but the decline in world prices (aggravated by a severe drought in
1991-92). To the extent that the fall in world prices is a short run
phenomenon, some income smoothing measures are called for. However, if
the downturn is of an enduring nature, measures to insulate farmers from this
environment will result in significant efficiency losses as resource allocation
is pushed out of line with the country's evolving pattern of comparative
advantage.
51.   A key consideration is that, over the longer-term, there is no reason
to expect world prices for farm commodities to increase substantially over
their present level. This suggests that increasing the protection of
importables will merely postpone the inevitable adjustment, leading to
unjustified efficiency losses and having no significant positive impact on the
incomes of the rural poor. The best approach therefore is to combine an
open trade regime with a full battery of policy instruments for combating
temporary income and employment losses.
52.   Thusfar, there has been a tendency to rely heavily on trade
interventions as a means of responding to short term crises in the farm
sector. Two such interventions are price bands and procurement agreements.
This report argues that these are extremely blunt instruments--ineffective
because poorly targeted--and should therefore be removed. An alternative
strategy would combine use of temporary import surcharges (safeguards) with
measures to improve the efficiency of domestic commodity markets.
In addition, emergency public employment programs could be more
expeditiously implemented in rural areas worst hit by income shocks.
53.   The price bands system is intended to stabilize producer incomes; but
implicitly it serves as a protective device. The bands were only introduced
in 1991. But their impact was simulated, assuming that they had operated
continuously from 1976 to 1993. Overall, the world price of the products
covered declined over this period. Therefore, given the system's long
memory (five years), at any one time, the spot price tended to be lower than
the floor price--and almost never above the ceiling price. Thus, the net
effect of the bands was to protect (rather than stabilize the price of) the



- 15 -
products covered--arguably, merely serving to postpone the adjustment that
sector must eventually make to the world price environment. Also, the price
bands are difficult to administer because they cover 112 products (eight base
products plus their substitutes and derivatives); and are not neutral, offering
less effective protection to processed than to primary products.
54.   The base products in the system may each be assessed in relation to
the logical criteria that might be used to justify their inclusion: chronic
import dependence; world price volatility; existence of a central world
market referent; limited number of substitutes and derivatives; and a
preponderant small farmer share of output. None of the eight satisfy all
these criteria. A number of alternatives suggest themselves. Sugar
producers could set up a private stabilization scheme. In the case of wheat--
very much a small farmer product, but one whose world price is relatively
stable--flat-rate direct income transfers (not proportional to the past level of
production) might be appropriate. Minimum import prices could be used for
rice and milk. In short, strategies need to be tailored to reflect the specific
characteristics of each product.
55.   In their present shape, procurement agreements are less distortionary
than price bands because they cover a smaller spectrum. The agreements
apply to wheat, barley, sorghum and oil palm, products which between them
account for nine percent of crop output value. These convenios de absorci6n
require that farmers, agroindustries and government jointly agree on the
volume of domestic output that will be absorbed by agroindustry, and the
price to be paid to the farmer. Even if the efficiency losses resulting from
this arrangement are likely to be small (given their small share of available
supply), most of the total income transfer to producers will be garnered by
larger farmers: because the benefit received is proportional to the volume of
output marketed; and because larger farmers will tend to have more leverage
than small farmers in negotiating the procurement price to be paid by
agroindustry. The agreements are very unevenly targeted: although small
farmers produce the bulk of wheat and barley output (71 percent and
53 percent respectively), they produce only five percent of sorghum output
and three percent of oil output. Since neither sorghum nor oil palm are
particularly labor intensive crops rural wage workers are likely to derive
relatively little benefit from protective measures.
56.   To smooth farm incomes during crises, rather than relying on price
bands and procurement agreements, it would make more sense to fully
exploit the potential of safeguards and "market development" measures.
A safeguard is a temporary import surcharge applied to an existing tariff; and
it is fully consistent with GATT rules. Decree 809 of 1994 enables
producers to request special, temporary protection against imports on the
grounds that an import surge is causing, or threatening to cause, injury to the
domestic industry; or because the border price of an importable has sharply
declined. There are several reasons why safeguard measures are generally
preferable to antidumping actions or countervailing duties. First, a
government does not have to wait several months while the case for



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intervening is investigated; having decided that a particular subsector should
be awarded import relief, the government can respond rapidly. Second,
safeguard actions are explicitly temporary: therefore they will not hinder
competitive adjustment of the farm sector over the longer term. Third, they
are transparent, and nakedly political devices: they do not have to be
justified in terms of the "national interest" or the existence of "foreign
predators"--expedients that usually involve some degree of obfuscation.
57.   There is some scope for market development. The efficiency of spot
and forward markets for grains and oilseeds could be enhanced.
Development of private markets for these products is consistent with the
overall thrust of eliminating state-mediated procurement arrangements.
A first requirement is that there be no backtracking on the earlier decision to
limit IDEMA procurement to small farmers in the poorest regions; otherwise,
the incentive for private intermediation will be undermined. To avoid
undercutting private traders, the prices paid by IDEMA should not be fixed
panterritorially. Outside these target regions, IDEMA's storage facilities
should be sold off.
58.   The government also has an important role to play in setting grades
and standards, disseminating information about the (new, improved)
procedures for resolving contract disputes, setting up a more effective system
for collecting market and production data. An issue worthy of closer
examination is the limited nature of private warehouse space: there may be
legal and regulatory barriers to entry, and restrictions on the use of grain as
collateral, that reduce the supply of, and demand for, storage.
59.   However, it is important not to exaggerate the efficiency gains from
private market development. Intertemporal and interregional price variations
are already fairly small in Colombia: this is not so much because regions are
well served by transport links, rather that agricultural potential is fairly
evenly spread in Colombia, while the significant level of diversification of
the rural economy permits intertemporal smoothing of farmer incomes.
These factors reduce the demand by farmers to initiate marketing
cooperatives, to organize bulk delivery of commodities or to invest in storage
facilities. Also, owing to the major economies of scale in food and feed
manufacture, it may not be economically feasible to break up end user
concentration, meaning that agroindustry will continue to exercise
disproportionate market power in relation to producers.
60.   Finally, to help consolidate trade liberalization, steps should be taken
to further regional trade integration and to complete the reform of customs.
Regional integration holds out the prospect of considerable gains for
Colombia, because it probably enjoys greater comparative advantage in
agriculture than any other country in the Andean Pact. Colombia accounts
for 60 percent of the farm output produced by Pact member countries.
Exports of sugar and potatoes have grown particularly strongly.



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61.   Except for the bilateral agreement with Venezuela, progress with
regional trade agreements has been relatively slow. The government would
do well to ensure that involvement in regional integration initiatives does not
unduly compromise the speed and consistency of its own reform efforts. It
may make sense to focus integration efforts on a subset of countries within
the Andean Pact. To the extent that further integration is feasible, the
following matters merit special attention. First, further work might be
undertaken on the common external tariff, with a view to full harmonization
on the basis of the lowest tariff rates prevailing within the region. Second,
the common agricultural policy needs to be reviewed, in order to determine
where exactly policy coordination should focus. The temptation to be
overambitious should be avoided, with discussions limited to a small number
of policy areas (for example, elimination of export-related subsidies). Third,
steps could be taken to reach closer agreement on rules of origin. Fourth, it
would be useful if partners could coordinate their position during negotiations
with third partners, particularly those bearing on GATT. Fifth, better rules
for antidumping, countervailing duties and safeguards could be drawn up.
Finally, steps should be taken to strengthen the mechanisms for resolving
disputes between Andean Pact partners.
62.   The customs reform that has been underway since 1990 is an
essential component of increased competitiveness. The aim is to simplify the
regulatory fiamework and bring it line with international standards. Progress
has been made but a number of problems remain. Fraudulent invoicing is
fairly common, and the system of import and export monitoring is still weak.
Colombian producers continue to complain about the difficulty of competing
with goods that are smuggled, under-invoiced or simply assigned to the
wrong tariff category. The effect of all this is to reduce support for trade
liberalization, strengthening lobbies in favor of import restrictions.
A sustained and vigorous commitment to customs reform is therefore
required. Particular emphasis must be given to improving information
systems, computerization, staff training and equipment upgrading. Progress
needs to be measured against clearly-defined benchmarks. If targets are not
met within a reasonable period, the government may have to consider using
private preshipment inspection services.
Supporting Measures
63.   The remainder of this report provides an overview of the other areas
where action is needed. Steps to strengthen research, extension and input
provision, and to improve the quality of human capital formation in rural
areas, are essential for raising agricultural productivity: in these areas,
measures to decentralize the provision of public services may be expected to
have a positive impact--although it is still too early to evaluate. More
efficient rural financial markets will help to create an enabling environment
for rural enterprise, farm and non-farm. Institutional reforms--including
measures to strengthen the Ministry of Agriculture--are needed to increase
the government's capacity for managing crises; and to allow for better
articulation of the needs of the rural poor. Finally, because cultivation of



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coffee is regionally diffuse and small farmer centered, and because it
generates no less than one fifth of crop output value, any strategy must
necessarily include steps to strengthen this subsector.
(a) Research And Extension
64.   Agricultural research and extension has long been divided between
public entities (headed by ICA), which are geared mainly to staples, and a
series of private sector initiatives, centered mainly on twelve producer
associations (gremios), each of which focuses on a particular commercial
crop and finances itself from a levy on members' revenues.
65.   ICA's share of total public spending on agriculture increased from
around 15 percent in the early 1980s to 20 percent in 1990. During this
decade, about 60 percent of the funding for research came from ICA and the
remaining 40 percent was generated by private and semipublic entities.
Public sector funding for research was equal to about 0.3 percent agricultural
sector GDP, somewhat less than the average for countries of Colombia's size
and income. Public spending on research fell by 51 percent in real terms
between 1988 and 1994.
66.   Since 1992, there has been a major restructuring of public sector
research and extension. ICA was split into two bodies--ICA and
CORPOICA. ICA's staff has been cut from 6,700 to 1,600 and is now
responsible for coordinating and cofinancing--but not undertaking--basic and
applied agricultural research, and for administering special programs. ICA is
funded from the central budget. CORPOICA is a joint public-private sector
corporation with a staff of about 3,500. Its mandate is to carry out
agricultural research under contract from public and private sources.
Although it is expected to be financially selfsufficient over the long term,
during the transition period it will be funded from the national budget.
67.   Responsibility for public agricultural extension has been taken from
ICA and decentralized, each of the municipal governments being expected to
develop its own extension unit, financed partly out of the revenues from
value-added tax that the central government transfers to the municipalities;
and partly out of matching grant funds from the integrated rural development
program (DRI). So far, 550 of these municipal extension units have been
established.
68.   It is too early to evaluate the impact of this restructuring. Early
evidence suggests that the frequency of contacts with farmers has increased
since extension was decentralized. However, the key issue is whether
farmers are helping to shape the research and extension agenda; and whether
the specific needs of the poorest farmers are being addressed. Another vital
issue is the quality of coordination between the research and extension
services. Negotiations were recently completed on a World Bank-financed
Technology Development project which will seek to improve the quality and
the relevance of the research on which extension messages are based,



- 19 -
increasing the responsiveness to small farmer requirements. Building on the
sound results of an earlier research and extension project (1984-90), the new
project will support a demand driven, competitive selection process for
research projects, with cofinancing for universities and public and private
sector research entities.
69.   In the past, the research and extension system has promoted inefficient
and expensive input packages (heavily geared to chemical inputs), which have
made commercial agriculture less competitive, have polluted groundwater and
have not addressed the key issue of increasing the sustainability of small farm
agriculture located on the Andean slopes. Irrigation technology has
contributed to major inefficiencies in water use, leading to inadequate crop
combinations and helping to perpetuate planting of low-value crops.
70.   Although the new emphasis on increasing mobilization of private
funds for research is a welcome development, financing from this source will
not be adequate to address small farmer needs; the recent fall in public
spending on research is not justified and needs to be reversed. It is to be
hoped that the new system will make research and extension much more
flexible than it has traditionally been: better adapted to regional variations in
the natural resource base and to relative factor endowments. Increasing the
menu of low-cost technologies will be an important objective. At this stage,
priority areas would seem to be:
*     zero tillage
*     moisture conservation
*     drainage
*     integrated watershed management
*     integrated pest management
*     post-harvest technology
*     farming systems research
(b) Farm Inputs
71.   Solid foundations have been laid for a transparent and competitive
input market. Under the auspices of apertura, import licenses, surcharges,
and price controls on tradable inputs (fertilizer, agrochemicals, machinery,
implements, seeds) were all removed. A patent law was enacted for seeds.
The state bank, Caja Agraria, has withdrawn from input distribution--a step
to which farmers have not objected. Each of these measures is likely to
increase the competitiveness of Colombian agriculture. In terms of the
impact on farm incomes, the 1992 crisis was less severe than that in 1982,
precisely because input costs were falling not rising.
72.   Three main challenges lie ahead. First, the legal and administrative
regime for agrochemical imports needs to be modernized. Agrochemical
imports need careful surveillance, on health and safety grounds. This
requires good coordination between public research and extension (ICA) and
the Ministries of Health and Agriculture. Some progress has been made in



- 20 -
this respect but the administrative regime for agrochemical imports is still too
complex and burdensome. Import procedures and the legal framework--as
they bear on quality control and trade registration--would benefit from
simplification.
73.   Second, there is a good case to be made for strengthening the system
for producing and distributing certified seed--particularly for small farmer
crops. There has been a fall in the output of certified seed for the crops
grown mainly by small farmers (wheat, barley, beans and sesame). Private
suppliers potentially have a bigger role to play; but the small volumes
involved and the high distribution costs are a disincentive to fuller
participation. Given the social justification for supplying small farmers' seed
requirements, a case could be made for providing temporary subsidies to
private suppliers operating in this field.
(c) Education and Health
74.   The Escuela Nueva principle of primary rural education has a track
record extending back to 1961 and has brought about significant
improvements in rural educational standards. The flexible scheduling of
teaching and advancement through the grades is well adapted to rural
requirements, allowing pupils to drop out and re-enter without undue
disruption. More pupils are staying the course: over the past three years,
primary school retention rates in rural areas have increased from 25 percent
to 35 percent of pupils. Spending on public education is relatively
progressive but higher and better targeted expenditures are needed. The goal
must be to increase coverage in poorly-served areas (particularly in the
Caribbean region) and to improve the quality of education. At present, rural
teachers are poorly prepared--38 percent have no training whatsoever--and
promotion policies rarely reward performance. Also, there is insufficient
scope for community involvement in schools and school management.
75.   Decentralization will reduce inequities in spending levels between
rural and urban areas. This process is beginning to give departments more
control over teachers and financial resources, which will affect the pattern of
intermunicipal allocation. Most municipalities will receive a net increase in
resources for primary--and secondary--education. Response is likely to be
uneven and should be carefully monitored: some measure of central
coordination will be required to ensure that the most disadvantaged
municipalities do not continue to be marginalized. The national government
can provide incentives through technical assistance and cofinancing to assist
those departments and municipalities having difficulty extending and
upgrading educational coverage in rural areas. Most of the cost burden will
have to be met from the increased resources local governments will receive
through transfers; cofinancing from FIS constitutes only 7 percent of
intergovernmental transfers and should be limited to projects strictly designed
to reduce poverty.



- 21 -
76.   Compared to education, the progress to be made in upgrading rural
health services is much more substantial. Colombia is a long way from
providing universal care to its rural population; the challenge is particularly
great in tropical lowland areas where infant mortality rates and deaths from
intestinal infection are well above the national average. As with education,
the spending powers of the municipalities are being enhanced by central
government transfers. These should be used to provide a basic package of
preventive, clinical and emergency services.
77.   The central government has a key role to play in setting quality and
efficiency standards, and monitoring progress toward them. So far, no
system of sustained monitoring and evaluation has been introduced--
anywhere. Clearly, the regular updating of the relevant databases will pose a
particular challenge in the countryside. In addition, much of the
responsibility for planning and implementing campaigns of expanded
immunization, health education and control of endemic diseases must
necessarily remain with the Ministry of Health.
78.   The clinic-based care system is poorly suited to the rural population.
A model involving outreach services should be considered. Also, an
attractive career package needs to be developed for personnel offering public
health services in rural areas.
(d) Rural Financial Systems
79.   Between 1990 and 1994, the government implemented a number of
measures aimed at making credit more available to agriculture and
encouraging private financial institutions to lend to the sector. Interest rates
to farmers were increased in real terms and the yield was augmented on the
bonds that banks are obliged to subscribe to in order that farm credit may be
financed. Private banks were also given the option of waiving purchase of
these bonds if they agreed to lend directly to agriculture. The
recapitalization and restructuring of the government bank, Caja Agraria,
helped to reestablish the flow of public sector credit to the sector.
80.   Despite the advances made, political pressures stemming from the
agricultural crisis led the government to adopt measures with negative
distributive consequences, measures that further dissuaded private banks from
lending to agriculture. Further, little progress was made in making formal
agricultural credit more available to low income farmers.
81.   The agricultural crisis of 1992 created political pressure in favor of a
major refinancing. Law 34 of 1993 extended refinancing facilities to all
farmers affected by the crisis. However, in practice, these measures were
loosely applied, mainly benefiting farmers owing money to formal credit
institutions. Refinancing was undoubtedly appropriate in certain cases,
particularly for farmers affected by the drought of 1992, or those cultivating
crops for which prices were expected to recover. However, in other



- 22 -
respects, refinancing was poorly targeted and may have helped to postpone
adjustment in the sector, setting a precedent which might discourage farmers
from repaying loans, and perhaps deterring private banks from entering the
sector.
82.   Law 101 of 1993 (Ley Agraria)--also a reflection of political pressures
generated by the crisis--brought in interest rate restrictions. Provisions in the
law extended interest rate caps for two years longer than originally agreed.
The law also offers a mandate for indefinite continuation of credit subsidies
to small farmers, and lower interest rates for agriculture. Apart from
warding off private banks, these measures make it more likely that those
already enjoying access to official credit--principally, large farmers--will
continue to reap most of the benefit from government lending initiatives.
These measures fail to address the needs of the large numbers of small
farmers who do not qualify for credit. Law 101 also created a system of
capital subsidies to cover up to 40 percent of the total cost of investments in
agriculture. This is a regressive measure because these subsidies will be tied
to long term loans from official credit sources, which are mainly captured by
large farmers.
83.   Most small farmers are still left out of the formal credit system: only
about one third have access. The majority of these are served by Caja
Agraria, which has frequently been forced to shut down because of
insolvency, leading to some disruption of farm production. Private banks are
rarely interested in lending to small farmers (who often do not hold land
titles or other acceptable collateral), and because, in general, farming is
perceived as too risky to be a bankable proposition.
84.   The government must lend more to agriculture, but its loans need to
be targeted at small farmers. Sector-wide interest rate and capital subsidies
should be eliminated. Capping of interest rates needs to be stopped. The
capital subsidies program could fruitfully be refocused, favoring poor farmers
wanting to buy land, or being used to finance small scale infrastructure, on
and off-farm. The removal of interest rate and other distortions will create a
better climate for private sector lending; but lending from these sources will
never be sufficient to remove the need for substantial government spending.
85.   Rather than subsidizing interest rates it makes more sense to subsidize
the transaction costs that financial institutions must incur when they lend to
small farmers. To attract new intermediaries into the rural financial system,
it will be important to make transaction cost subsidies available to a broad
range of lenders.
86.   General schemes of refinancing are wasteful and regressive. It makes
better sense to limit refinancing to poor farmers; and to larger farmers who
show good prospects of being able to compete under liberalized market
conditions, providing they restructure. There are no grounds for continuing
to use credit policy as a palliative, intended to soften the blow of reduced
protection: such an approach would not be sustainable.



- 23 -
87.   Finally, the government could usefully study new ways of lending to
farmers who are presently outside the formal credit system. One possibility
is to encourage banks to accept a broader definition of collateral--including
mobile assets (cattle, tractors) and negotiable warehouse receipts. It also
makes sense to consider how best to involve NGOs and small scale financial
intermediaries in lending targeted at the rural poor.
(e) Institutional Reform
88.   The Gaviria administration sought to redefine the role of the Ministry
of Agriculture and the other central agencies dealing with the sector. Reform
of the Ministry itself has not yet been attempted; but the issue will probably
be taken up shortly. All other agencies underwent some degree of
restructuring, based on a series of 1992 decrees that were mandated by the
1991 Constitution. Much more remains to be done.
89.   The sectoral agencies face two big challenges. First, public
institutions will have to adapt their functions and operations to the increasing
decentralization of government responsibilities. The institutional reform
program that was launched in 1992 must be consolidated. Many of the
functions remaining in the hands of central government now need to be
transferred to local governments. The overriding objective should be to
increase the participation of communities in the selection and execution of
projects. There will be a transition phase during which central government
will provide technical assistance to local governments. But, to ensure that
equity and environmental considerations are not neglected, central
government must retain some leverage at the local level: this may be
achieved by designing appropriate cofinancing mechanisms--matching grants
that reward good performance by local government. DRI stands as an
excellent model, demonstrating the key elements of a sound strategy of
cofinancing and decentralized project selection.
90.   Second, to be consistent with the shift toward a market-oriented
development strategy, public agencies will need to develop a new relationship
with the private sector: rather than intervening directly in markets,
government must focus on those services which will enhance the
competitiveness of private firms, increasing their capacity to operate
effectively in liberalized markets. Producer associations must rely less on
lobbying government for special favors, and should be prepared to move into
areas previously occupied by the state. Private firms can play a bigger role
in trade and storage of primary commodities, working together with farmer
associations. There is also much scope for greater private sector investment
in irrigation, drainage, applied research and extension, and transport
infrastructures. Government's role will be to ensure that an appropriate legal
and policy framework is set in place, to provide cofinancing and to offer
technical assistance where it is called for. It should also work to improve the
flow of information between private agencies and government.



- 24 -
91.   The Ministry of Agriculture needs to participate more actively in
those broader policy fora where decisions impinging on agriculture are taken:
this refers to discussions on macroeconomic, trade, fiscal, environmental and
rural development policy. The Ministry has had little input into the broader
decision-making process, partly owing to its lack of technical capacity. It is
not the case that the Ministry has been deliberately marginalized; rather, it
has not made the most of opportunities for dialogue. The Ministry
participates in almost all the high-level cabinet councils, including specific
councils for economic, social, fiscal, trade and environmental matters. It
will also chair the Rural Development and Agrarian Reform Council that is
envisaged by the recently-passed land reform bill: a council that will
coordinate rural development initiatives with initiatives taken by the
ministries responsible for health, education and infrastructure. This
particular council would be an ideal vehicle for handling short run crisis
management. Also, particular importance should be attached to involving the
Ministry in the design of transport policy, ensuring that public spending on
roads and ports maximizes the opportunity for realizing agriculture's potential
and stimulating farm trade.
92.   The analytical capabilities of the Ministry of Agriculture are in urgent
need of strengthening. Once the present deficiencies have been rectified, the
Ministry will be better placed to monitor and evaluate the performance of the
sector, and to design appropriate strategies, whether for short or long term.
This goal could be accomplished by setting up an economic think-tank,
funded by the Ministry, but run as an autonomous entity with powers to hire
and fire staff and to manage its own budget. An institution of this nature
would be staffed by a group of well-paid, high-level professionals on
relatively long term contracts. It would be relatively immune from the
considerable lobby pressure to which the Ministry itself is exposed.
93.   The Ministry should give high priority to developing a better system
for collecting and disseminating sectoral data. The Ministry's current system
is highly flawed and is frequently criticized for delays and biases in the
information it generates. The new system should be designed to produce
reliable and timely sectoral statistics, which would allow for monitoring the
living standards of farmers and the rural population at large. The Ministry's
role would be limited to coordination, design and implementation being left
to the government statistical agency (DANE) and specialized private firms.
94.   Finally, the Ministry needs to conduct a full review of the procedures
it uses to allocate and evaluate public spending on the sector: this with a
view to determining the efficiency of expenditures, paying particular attention
to the impact of these expenditures on the livelihoods of small farmers and
the rural poor.



- 25 -
(f) Coffee Strategy
95.   Coffee remains by far Colombia's most important crop. Although
coffee's mean contribution to merchandise export earnings fell from
47 percent in 1980-85 to 17 percent in 1990-93, coffee still plays a key role
in the Colombian economy. Nearly 500,000 farm families depend for their
livelihood on activities directly and indirectly related to coffee production,
processing and trade. Coffee still accounts for nearly one third of
agricultural GDP and a similar proportion of the rural labor force is
employed in its production. The regional economies of the coffee growing
provinces are still highly dependent on the demand generated by coffee
incomes. Although there has been some diversification, for most farmers in
the coffee zones, this crop continues to be the primary source of income.
96.   Since 1989, the coffee sector has been hard hit by the price decline
associated with the break up of the International Coffee Agreement's export
quota system. Despite significant support from the National Coffee Fund
(a stabilization scheme), the incomes of Colombian producers have dipped
sharply. Between 1989 and 1993, world and producer prices were at their
lowest level in decades, leading to reduced investment in maintenance and
replanting. In response to the (delayed) supply adjustment and the retention
scheme put in practice by a group of exporting countries, prices eventually
began to recover in late 1993; they more than doubled in the first half of
1994.
97.   The collapse of the International Coffee Agreement had a major
impact on the world coffee market. But, in Colombia, internal and external
coffee trading arrangements have remained relatively unchanged: they
continue to be heavily regulated. Coffee policy was for long tailored to the
Agreement's regulations--particularly the export quota. Now that the world
coffee market has been freed, Colombia needs to adjust the policy and
regulatory framework, allowing for a more flexible response to changing
market conditions.
98.   Although world demand for coffee is expected to grow slowly for the
rest of this decade, some segments of the market are more dynamic.
Colombia would be well advised to focus on exploiting the rapidly growing
demand for "specialty" coffees. Colombian coffee has most of the qualities
needed to capture a growing share of this market, including high quality,
washed arabicas with diverse regional origins and a sophisticated distribution
network. Exports to this specialty market amounted to 200,000-300,000 bags
in the early 1990s and could potentially grow to around 1.5 million bags by
the end of the decade, accounting for more than 10 percent of the average
export volume.
99.   Colombia will need to become far less reliant on exporting through
the National Coffee Fund, allowing private firms to take a bigger share of
the trade. Private firms are more able to respond quickly to changes in the
market, and will be well placed to penetrate highly dispersed specialty



- 26 -
markets. The private sector is capable of assuming most of the stockholding
functions now carried out by the Fund, whose finances are weak.
Government intervention in domestic coffee markets should be limited to
guaranteeing a minimum support price to low income farmers in marginal
areas, and ensuring that exports meet quality standards. The Fund should
relinquish its role as an export agency, allowing private firms and producer
cooperatives to assume a larger share of coffee marketing.
100.  The Fund would be advised to concentrate on stabilization, an area
where it has a sound track record. Seeking to stabilize producers' coffee
revenues is a legitimate objective, given the volatility of the market. It
therefore makes sense for the Fund to accumulate savings when the world
price is high, providing it with the means to support producer prices during
the down phase of the world price cycle. Arguably, management off the
fund would benefit from increasing delegation to private producer
associations; government intervention in decision making (already low by
developing world standards) could be gradually eliminated, in line with the
progressive decline in coffee's contribution to national income.
101.  A number of recommendations suggest themselves. First, procedures
for shipping coffee from mill to port need to be streamlined. Second,
calculation of the export tax (contribuci6n cafetera) could be greatly
simplified: one possibility is to introduce a progressive ad valorem levy.
Third, it would make sense to introduce a voluntary system for certifying
specialty coffees, making it easier for producers to penetrate these markets.
Fourth, import agents--who receive a commission for each bag exported to
the big markets--should be eliminated. Fifth, advertizing would do best to
focus on specialty coffees and areas of the world where demand is growing
fastest (Japan, South Korea and China). Sixth, there is a case to be made for
easing restrictions on futures trading, in order to expand the range of
marketing strategies available to export firms, increase stockholding
opportunities and provide for better management of risk.
102.  In the near term, coffee output will likely remain in the range of
12-15 million bags. Rather than trying to achieve ever greater production
levels, Colombia would be advised to concentrate on increasing the
producer's capacity to respond to market signals and to manage risk. Now
that the world price is recovering, the industry may become less committed
to diversification of coffee producers' incomes. This would be a serious
mistake. The excellent progress made so far is grounds for consolidating
rather than abandoning attempts to diversify on-farm and off-farm income
sources.
103.  The Colombian coffee industry faces three major challenges in coming
years. First, if coffee is to remain competitive, an extra effort must be made
to reduce costs and to adapt technologies to producer needs. Second, both
government and producers need to take greater steps to contain the rapid



- 27 -
spread of the coffee borer (broca), in order to prevent a further decline in
production levels. Third, a major research initiative is needed to identify
environmentally sound ways of disposing of the residues from washing and
milling coffee beans.






ANNEX A
MAKING LAND AND LABOR MARKETS MORE EFFECTIVE
1.    Colombian land and labor markets have operated in ways that have
tended to limit the scope for absorbing labor in agriculture, aggravating rural
poverty and obliging small farmers to adopt non-sustainable farming
strategies on marginal land. The distortions in the land market appear to be
more severe than those in the labor market, suggesting that there is a strong
case for renewed agrarian reform. The present move to implement a
market-based land reform is to be encouraged; but more attention needs to be
paid to ways of increasing the incentive for large landowners to sell land. In
addition, the loss of employment occasioned by temporary downturns in
agriculture draws attention to the need for strengthening the capacity to
implement emergency public works programs. Given that rural women
experience relatively high levels of unemployment, interventions should take
particular account of the needs of female-headed households.
Background
2.    Labor. There are roughly three million farmworkers: equal to about
20 percent of the total labor force (Table A. 1). Depending on the definition
of "rural", the share of the workforce employed in the countryside is in the
range of 30 to 40 percent: the difference between these two figures is
probably made up of persons working mainly in small town service and
commercial activities--but it also includes persons working occasionally as
agricultural day laborers (who in many cases will not have been included
under the "agricultural" workforce proper). There is some regional
variation: farm workers are most preponderant on the Eastern cordillera,
where they account for about one third of the workforce in that region; in
other regions they account for about one quarter of the labor force. The
Caribbean ("Atlantic") region (dominated by ranching and large estates)
stands out for the large share of the farm workforce living in small towns:
16 percent, compared to only 8 percent in the Eastern cordillera (where
peasant farms predominate).' Much of this Caribbean population is a rural
proletariat: 50 percent of rural household income in the Caribbean region
derives from wage earnings, compared to 44-46 percent in other regions.2
3.    Land. In certain areas the pattern of land ownership is highly
concentrated. The departments with the highest proportions of large farms
are located in the Caribbean coastal lowlands and in the Orinoco savanna
region east of the Andes: between them these areas account for almost one
1.    Data on regional variations from CASEN 1993 Household Survey, cited in background paper by Reyes
and Marinez ("Funcionanienro de los ozercados de irabajo rurales en Colomnbia", June 1994).
2.    CASEN, 1993, op.cit.



- 30-                               ANNEX A
half of all holdings over 100 hectares.3 In the Caribbean region, with the
exception of Atlantico, all departments have 65 percent or more of the land
in holdings devoted to farms of over 50 hectares in area; this proportion rises
to over 85 percent in Cesar, La Guajira and Magdalena. East of the Andes,
large estates are particularly preponderant in Meta, Casanare, Guaviare and
Vichada. The size of the large estates is not necessarily "justified" by poor
land quality. The Caribbean has the most concentrated pattern of landholding
but also has the largest proportion of land of high crop potential: it contains
46 percent of all land in Colombia defined as "prime arable" but only
19 percent of the national crop area (Statistical Appendix, Table 4)--much of
this land of arable potential is used for extensive cattle grazing.
Table A.1 - Colombia: Structure of Labor Force in 1993 (Thousands of Workers)
Total              Rural         Farm
CASEN               13,387              3,997            3,128
DANE                13,161              5,364            NA
CEGA                NA                 NA                2,232
Note:    According to DANE, 'niral' comprises that proportion of the population living outside
municipal capitals (cabeceras); CASEN defines 'rural' as persons living outside the cabeceras
plus the population of 850 municipal capitals which either have fewer than 10,000 inhabitants
or contain less than 50 percent of the population of the municipio. CEGA limits 'agricultural"
workers to those engaged in crop farming; CASEN also includes workers involved in
livestock rearing.
The Low Propensity of Colombian Agriculture to Absorb ILbor
4.      Agricultural development in Colombia has involved substantial
misallocation of resources: land has been very unevenly exploited; and,
since the mid-1950s at least, farm output growth has absorbed less labor than
might have been expected. The agricultural development strategy now calls
for a major course correction. This will entail adopting policies to make land
and labor markets operate more efficiently and equitably.
5.      Compared to other countries in the same per capita income range, the
growth of farm employment has been exceptionally low in Colombia.4 In
the early 1950s, agriculture's share in GDP (34 percent) was in line with the
average for other countries in the same per capita income range. After
c. 1953, this share declined more sharply than the international mean
3.      Misi6n de Estudios del Sector Agropecuario, El desarrollo agropecuario en Colombia, (three
volumes), Bogota: Ministry of Agriculture/DNP, 1990 (Study directed by Albert Berry and
Jesua Antonio Bejarano), p. 110.
4.      Misi6n, 1990 op. cit., Vol. 1, pp. 4-14. These findings are an extension of earlier work by M. Syrquin
and H. Chenery (Patterns of Development, 1950-83, World Bank/Harnrd International Institute for
Development, 1989).



- 31-                       ANNEX A
(Figure A.1), reaching 18 percent by 1990. The annual growth rate was
impressive, averaging 3.5 percent between 1950 and 1987. A detailed
analysis has been made of the sources of agricultural growth. A little more
than half of that growth was caused by improved productivity: total factor
productivity grew at 1.9 percent. The growth path was extremely capital and
land intensive. Capital grew by 2.8 percent, land area devoted to agriculture
and livestock by 1.4 percent and employment by only 0.6 percent
(Table A.2).
Figure A.1
SHARE OF PRIMARY SECTOR IN TOTAL EMPLOYMENT
0.8 -
0.77
0.6 T
I                                      EX~~~~~~~~~~~~~~~o?ECWZD 
D.5 - 
0.4 1                                           -     OBSERVED
0.3 -
0.2
0.1-
0                                       :
L^  0   L7  0   La   0    L^.  0   LO   0   Li   0   LO  CD
CN    C) to       It C            C D CADCD  r-  r-C   Co  Co
C. C ,a  C)  C)  C)   C:  C   C          C)    C)  C)  C)
Source:  Syrquin & Cheaery, 1989 co.ciz.
6.    The sector's relatively low propensity to absorb labor is reflected in
the land use pattern. Crop farming has captured a relatively small proportion
of the natural resource base. Sixteen percent of Colombia's land area is
suitable for crops but less than four percent is actually cultivated. Livestock
rearing is overextended: 13 percent of the territory is deemed appropriate
for pasture but 35 percent of the land is put to this use. Small farmers with
limited access to good quality flat land may end up deforesting marginal land
on the Andean slopes. Only about one-half of Colombia is still forested,
whereas it is estimated that two-thirds would be best left under tree cover.5
7.    By subsidizing capital inputs and the livestock sector the Colombian
government has sponsored a strategy of agricultural development that
discriminates against small farmers. Tractor subsidies have encouraged
5.    Data on land use and land powntial from IGAC, Sue/os y bosques de Colombia, Bogota, 1988.



Table A.2 - COLOMBIA: SOURCES OF FARM SECTOR GROWTH, 1950-1987
GROWTH RATES                                       CONTRIBUTIONS TO GROWTH
PERIOD   FARM  |APITAL                                                                        |   ALL
GDP     AREA    CAPITAL    EMPLOYMIENT   AREA |CAPITAL  |EMPLOYMENT |FACrORS     PRODUCTIVITY
1950-1955   3.03     1.15     -0.37           2.09        0.22      -0.13          0.96            1.05            1.98
1955-1960   4.08     0.68      1.26          0.21         0.13       0.44          0.10            0.67            3.41
1960-1965   2.77     1.31      2.44          0.67         0.22       0.81           0.34           1.36            1.41
1965-1970   4.94     2.17      4.68           1.29         0.41      1.87           0.53           2.81            2.13
1970-1975   4.33     2.03      6.51          -3.91         0.38      2.60          -1.60           1.39            2.94
1975-1980   4.58     1.67      4.96           2.75         0.28      2.18           1.05           3.51            1.07
1980-1984   0.89     1.80      0.93           0.66         0.27      0.45           0.24           0.96           -0.07
1984-1987   3.53     0.48      1.97           0.76        0.07       0.95           0.28           1.30            2.23
1950-1987   3.52     1.41      2.80           0.57         0.25      1.15           0.24           1.63            1.89
Source: Misi6n, 1990, op. cit.



- 33 -                      ANNEX A
shedding of labor: already, by the early 1970s, one quarter of the cultivated
area was mechanized. Public irrigation schemes have tended to favor larger
rather than small producers; and, because much of the land in the irrigation
districts is devoted to pasture and grain crops--which use less labor than
higher-margin crops--employment generation has been much less significant
than it might have been.
8.    Cattle rearing spread rapidly in the immediate postwar period. The
area under pasture grew from 12.1 million hectares in 1950 to 26.7 million
hectares in 1986. (In the same period the area under crops increased from
2.6 to 4.3 million hectares). The Caribbean region accounted for 38 percent
of the growth in pastures while the Andean valley bottoms accounted for a
further 30 percent. There was also rapid growth of the pastoral area in the
eastern savanna (centered on Meta): by the mid 1980s, no less than one half
of all cattle pasture was located in the sparsely populated area east of the
Andean ranges.6
9.    The livestock sector has been more protected than the crop sector,
helping to account for its rapid expansion. According to the World Bank's
Trade Surveillance study, between 1980 and 1992, beef and milk absorbed
82 percent of the total support (price plus non-price interventions) that the
government conferred on a group of nine farm commodities. Expansion of
cattle rearing has been land extensive, favoring the creation of large estates:
the rate of growth of the herd has only slightly exceeded the rate of growth
of the area in pasture. The off-take rate remains very low--equal to 50 or
60 percent of that achieved in Argentina and the United States.
10.   A separate factor that has tended to reduce labor absorption is the
major reduction in tenancy. Between Law 200 of 1936 and Law la of 1968,
a series of legal measures had the effect--intentional or otherwise--of
reducing the incentive for large landowners to lease out land to tenants. The
right of landowners to employ sharecroppers, other tenants and colonos was
formally outlawed by Law la of 1968.
11.   Between 1960 and 1988. there was a massive reduction in the land
area occupied by tenants (Table A.3). Also, between 1950 and 1988, the
steepest fall in rural employment--by 3.9 percent per year--occurred between
1970 and 1975. This suggests that the 1968 initiative outlawing
sharecropping had a major impact; even though the ban was formally
revoked by the Ley de Aparcerfa of 1975. Much of the decline of
sharecropping centered on the coffee-growing region (associated with an
increase in the importance of small owner-operated farms) and on areas of
the Caribbean lowlands, following clearance of the land for cattle rearing.
12.   The negative employment impact resulting from the decline of tenancy
could potentially have been offset by redistribution of land toward smaller
farmers. But colonization and redistribution by the land reform agency,
6.    Misi6n, 1990, op. cu., Vol. 1, p. 83



- 34 -                        ANNEX A
INCORA (established in 1961) has done little to change the overall shape of
the agrarian structure. Between 1960 and 1988, the area occupied by
holdings under five hectares declined from six to five percent; the area in
medium-sized farms (5-50 hectares) rose from 24 to 26 percent; and the area
in larger farms (over 50 hectares) fell from 70 to 69 percent.
13.    One effect of the lack of tenancy and land reform options was to
encourage land invasion. During the 1970s, there was a wave of illegal farm
occupations, affecting 1,500-2000 farms and roughly two thirds of
departments. From this point on, INCORA's work tended to center on
regularizing the claims of illegal invaders. But even this avenue for land
acquisition was closed: Law 30 of 1988 banned INCORA from acquiring
illegally occupied land.
14.   This closing off of access to land has serious efficiency, equity and
environmental implications. The rural poor are forced to occupy. All that is
left for the poor is to occupy marginal--and often ecologically unstable--land.
In many areas, the Andean slopes are being denuded of vegetative and soil
cover, the resultant loss of moisture retention having an adverse effect on
stream flow--reducing the availability of water for agriculture, both for poor
farmers on the slopes and richer farmers located in the valley bottoms. In
the scattered indigenous reserves (what remains from the colonial
resguardos), there is an acute problem of holding fragmentation: deprived of
access to land elsewhere, Indian farmers are carving up their resource into
microfundia. In the Amazon and Orinoco basins, and on the Pacific coast,
pressure is rising to put unstable lands of intrinsically limited fertility under
annual crops. In short, over large areas, the poor's restricted access to land
is undermining the sustainability of farming.
Table A.3 - Colombia: Changes in Land Tenure, 1960-88
l   1960       |       1988        |Growth
('000 Hectares)    ('000 Hectares)       %
Owners                     18,995             29,117          53.3
Sharecroppers               1,100                273         -75.2
Other Tenants               1,231                829         -32.7
Colornos/l                  2,889                554         -80.8
Other/2                       526               1,123        113.5
Total                     24,741             31,896         28,9
1/ Occupants of untitled land (internal' and "extemaal frontier)
2/ Includes Squatters
Source: Misi6n, 1990, op. cit. (Tables 2.26 and 2.27).



- 35 -                        ANNEX A
15.   While rural violence in Colombia is by no means exclusively caused
by the poors' limited access to land and farm employment, the narrowing of
access undoubtedly aggravates the level of conflict. Compared to the
national average, departtments with the highest incidence of violence had a
higher rate of decline in the land area operated by tenants and colonos
between 1960 and 1988.7 The lack of alternatives for those evicted appears
to have provoked a violent backlash, typically entailing land invasion. The
incidence of violence is also high in zones of recent colonization (particularly
in the Ilanos) and around indigenous communities, areas where land rights
tend to be poorly defined.
16.   There is probably a vicious circle in operation. Narrowed access to
land and employment raises the propensity for violence; and violence has a
negative feedback on investment and employment. Rural insecurity probably
reduces the incentive to invest in agriculture and, more importantly, causes a
skew in the pattern of investment toward activities that are relatively
nonintensive in the use of labor (because the supervision costs and incentive
losses that are typically associated with hired labor are even greater in an
environment where hired workers may initiate, or collude in, violent reprisals
against employers). This disincentive may encourage landowners in areas of
arable potential to invest in livestock rather than crops; and it may reinforce
the tendency for larger irrigated holdings to be placed under pasture or grain
crops, rather than high-margin crops which require careful supervision and
are intensive in the use of hired labor.
17.   Nevertheless, the impact of violence on output and employment is
hard to quantify. Of Colombia's 31 departments, the following ten are the
most affected by violence: Santander, Arauca, Casanare, Meta, Huila,
Antioqufa, Caqueta, Cauca, Cesar and C6rdoba. In these departments, the
index of crop output value rose by 33 percent between 1983 and 1988--
slightly more than the nationwide increase (32 percent). But this does not
mean that the hypothesis that violence has a negative impact on agricultural
growth can be rejected. The incidence of violence may vary sharply between
localities of the same department so that data that is aggregated at the
department level does not furnish an appropriate means to examine the issue;
the necessary micro-level data is usually not available.8
Labor Market Issues
18.   Labor markets may be said to be efficient when there are signs of
integration between urban and rural sectors, and between different rural
localities. Integration suggests a trend toward lowering of wage differentials
between localities and sectors for workers with comparable skills. The
7.     Misi6n, op.cit., 1990, 99. 145-155 and Table 2.41.
8.    J.A. Bejerano, 'Efectos de la violencia en la producci6n agropecuaria', Coyunntra
Econ6mica, Vol. 18, No. 3, September 1988. This study estimates that, in the late 1980s, 8
percent of the total population and 24 percent of Lhe rural population was in some way the
victim of violence.



- 36 -                      ANNEX A
urban-rural wage differential in Colombia is low: wages in construction are
only about 10 percent higher than those in agriculture. The recent social
security reform will probably tend to push up the cost of hiring workers in
the urban formal sector; this will reduce the take up from the informal
sector, a trend which may induce a greater slackness in the urban labor
market, tending to keep wages for unskilled work close to those prevailing in
the rural sector.
19.   The rural labor market appears to function relatively efficiently.
Intertemporal and regional wage differentials are not pronounced. First,
agroclimates in Colombia allow most regions to produce a variety of crops,
and the harvesting of these crops is often staggered, reducing the peaks and
troughs in labor demand. In addition, there is a fair measure of
diversification into commerce and service activities, particularly in areas,
such as the Caribbean region, where the rural population is nucleated rather
than dispersed. This diversification reduces intertemporal wage differentials.
20.   Second, there is a substantial amount of temporary interregional
migration, associated with contracting of casual labor for harvesting sugar
cane, coffee, cotton and other crops; but this involves men much more than
women. There is a long tradition of women working as day laborers (e.g. in
the coffee harvest). Between 1973 and 1985, the share of women in the
economically active population of rural areas rose from 14 percent to
32 percent.9 However, females are less able to respond with alacrity to
demand for short term workers, because they often have young children to
care for, which tends to reduce their mobility. Although women have less
propensity than men to remain in rural areas, among those that do remain the
rate of unemployment is much higher than it is for men. In the countryside
in 1993, the number of women looking for work and unable to find it is
12 percent compared to only 2 percent in the case of men. (In towns, the
gender disparity was much narrower--6 percent of men and 9 percent of
women were unemployed). Unemployment was found to be particularly
acute among young women: 25 percent of under-25s were unable to find
work. Partly for this reason income transfers (including remittances) were of
greater significance for female-headed households than they were for male
households, accounting respectively for 11 percent and four percent of
household income.
21.   This brief overview suggests labor market rigidities are not a major
problem in Colombia. But there is an urgent need to find adequate ways of
responding to sharp downturns in rural labor demand occasioned by the
periodic agricultural crises associated with import surges and price slumps;
crises that are not caused by trade liberalization but may nevertheless be
aggravated by it. The second issue is how to ease female unemployment.
9.    R.A. Berry, "Agriculture during the eighties' recession in Colombia', in A. Cohen & FR.
Gunter (eds), The Colombian Economy: Issues of Trade and Development, Boulder:
Westview, 1992, p. 188.



- 37 -                         ANNEX A
22.    What impact did the "agricultural crisis" of 1992-93 have upon
agricultural labor demand? The impact was probably greater than it would
have been if the rural demographic transition had already been fully
negotiated. Although the rural population has declined in absolute as well as
relative terms since 1985, the population of working age increased at an
annual average of 2.9 percent between 1985 and 1990, much higher than in
previous periods. This reflects the relatively high rural birthrates of the late
1960s. Now that the demographic transition has largely worked itself
through, the growth of the working age population will be much smaller
(projected at 0.5-0.7 percent for the period, 1995-2005).
23.    Between 1990 and 1993, the number employed in agriculture fell from
2.3 million to 2.2 million. However, this loss (-54,000 jobs) was more than
offset by the growth of employment in the 'rural non-fannr sector (+163,000
jobs).'0 Within the farm sector, employment trends varied significantly by
type of crop. Between 1990 and 1993 the non-perennials witnessed a
contraction of 19 percent, most of this related to the declining profitability of
cotton, rice and vegetables (and, to a lesser extent, maize, sorghum,
soybeans and wheat). Coffee contracted by 2.4 percent. Other perennials
grew by 9 percent: falls in the employment generated by cassava, panela
and cocoa were more than offset by increases in bananas, plantains, oil palm
and sugarcane.'I
24.    The impact of contraction would have been felt most strongly by those
households which depend significantly on rural wage incomes. In 1993,
57 percent of rural household heads had worked for a wage, and wage
earnings made up 46 percent of rural household income. A larger proportion
of the rural labor force was self-employed (58 percent); but incomes from
these activities accounted for only 37 percent of rural household income.
Wage employment was a much more significant source of income in the
Caribbean region than in other rural areas.'2
25.    These data suggest that policy interventions could usefully stress
(i) the creation of an enabling environment for rural non-farm enterprise and
(ii) promotion of public works programs to alleviate "crisis"-related
downturns in the agricultural demand for labor.
10.    In this calculation, nrural non-farm' is the DANE figure for rura] population less the CEGA figure for
the number of persons engaged in crop farming (see footnote to Table I for coverage of these data
sources).
II.    Refers to changes in the number of mandays (jornales) worked in each crop per year. Total employment
in crop farming fell from 402 millionjornales in 1990 to 393 millionjornales in 1993. Source: CEGA,
Coyunrura Agropecuara, No. 4, December 1993.
12.    Background paper by A. Reyes & J. Martinez, June 1994 (Tables 6.1 and 6.2).



- 38 -                      ANNEX A
(a) Rural Non-Farm Enterprise
26.   The rate of growth of the rural non-farm sector is striking. Much
hinges on the definition of "rural". The census probably overstates the
importance of non-farm work in rural areas by limiting the definition of the
rural population to persons living outside municipal townships. Therefore,
the finding that the "rural" population declined from 10.3 million in 1985 to
9.5 million in 1993 should be interpreted carefully--some of the outmigrants
contributing to this decline may have continued to wvrk in agriculture (this
would be the case for itinerant day laborers, many of whom live in slums on
the urban periphery).
27.   Even with this caveat, the growth of small towns recorded by the
census is so rapid that it would seem to corroborate the findings of the
household survey concerning the dynamism of the rural non-farm sector.
Between 1985 and 1993, towns other than departmental capitals grew at the
staggering rate of 5.4 percent per year (compared to six percent growth for
Bogota and under three percent for the departmental capitals). Since 1973,
the proportion of rural-urban migration that is targeted at small towns seems
to have grown significantly (Thble 5 in Statistical Appendix).
28.   That there has been significant growth of the rural non-farm sector is
further corroborated by the 1993 CASEN household survey. This defines
"rural" as persons living outside the municipal township plus the population
of 850 municipal townships which either have fewer than 10,000 inhabitants
or contain less than 50 percent of the population of the municipality.
Therefore, by not excluding urban dwellers who engage in farm work from
the rural labor force, the survey does not give an artificially high impression
of the importance of rural non-farm employment. This means that commerce
and services in small towns do indeed appear to be important sources of job
creation.
29.   Rural industry, commerce and services is known to be a dynamic
growth pole in the more densely settled parts of Asia. The importance of
this phenomenom is often underestimated in Latin America. Taking Latin
America as a whole it has been calculated that 28 percent of the labor force
in rural settlements (not exceeding 2,000-2,500 inhabitants) are employed
primarily in non-farm activities; for rural towns (not exceeding 250,000
inhabitants) the proportion rises to 85 percent. (The corresponding figures
for Asia are 26 percent and 81 percent). In Latin America, 79 percent of
rural women in employment are engaged in non-farm activities, compared to
only 36 percent of men: the preponderance of women in these activities is
much more marked than in the case of Asia (where 34 percent of employed
rural women engage in non-farm work).'3
13.   P. Hazell & S. Haggblade, 'Fanm-nonarm growth linkages and the welfare of the poor", in
M. Lipton & J. Van der Gaag (eds), Including the Poor, Washington, DC: The World Bank,
1993.



- 39 -                        ANNEX A
30.   The prima facie evidence for Colombia is compelling enough to
suggest that closer investigation of the dynamics of rural non-farm enterprise
is warranted. This investigation should be linked to two policy issues of
great importance. First, it should consider to what extent microenterprise
development might be an appropriate means of combating the unemployment
of rural females. Because they typically require less travel away from the
home, small businesses potentially offer more practical employment
opportunities to women with dependents than itinerant farm work. However,
if there were already multiple opportunities in this field, presumably the level
of female unemployment would be lower than it currently is.
31.   This points to a second area where more work is needed: it is
important to look at the financial constraints faced by rural non-farm
enterprise. Agricultural credit schemes have failed to address these needs.
One of the reasons why intermediaries are reluctant to lend to agriculture is
the high transaction cost associated with servicing a large number of small
farmers scattered thinly over the countryside. Another reason concerns the
climate and price risk typically associated with farming. In principle,
transaction costs and risks would be less for non-farm businesses operating in
small towns. The proposed research should consider prospects for lending to
such businesses, with particular reference to the needs of females, and the
prospects for non-collateralized group lending. Policy interventions should
not entail selecting particular types of enterprise for promotion--the use to
which funds are put would not be targeted--but would focus on creating an
enabling environment for small businesses by seeking ways to make rural
financial markets operate more efficiently and equitably.
(b) Rural Employment Programs
32.   In addition to measures to strengthen rural financial services, steps
could usefully be taken to enhance government's capacity to respond to
temporary employment crises in the agricultural sector through short term
public works programs.
33.   Public works programs can be a very effective means of generating
employment for target groups and providing infrastructure to rural
communities. They can also be highly ineffective if they are not well
designed. So far, there are few success stories; but the number of positive
experiences is beginning to grow now that the lessons of past failures have
been assimilated.'4 Before implementing its own program Colombia would
be well advised to review the experience of other countries.
14     Examples include the Social Fund in Honduras, the Social Investment Fund in Bolivia, the AGETIP in
Senegal and possibly the Social Fund in Egypt which seems to be working well now after several years of
slow progress.



- 40 -                      ANNEX A
34.   Based on the record in Latin America and Africa, the following are
some of the prerequisites for success:
*     the implementing agency should be autonomous and its
operating procedures should be perfectly transparent;
*     the implementing agency should be staffed with well-paid,
competent staff, preferably with experience of work in the
private sector;
implementation should be decentralized and demand-driven,
enabling communities, NGOs and local governments to submit
proposals for funding;
*     there should be clear-cut criteria for project selection, focusing
on labor intensive strategies, and clearly identifying the target
groups and regions to be served;
*     the government should provide strong support, without
political interference; and
*     rural works schemes should complement and not substitute the
main government programs.
35.   The Emergency Rural Employment Program. The 1991-92 crisis in
the farm sector led to a significant reduction in the area cultivated and a
corresponding increase in rural unemployment. Estimates of the number of
job losses vary from 40,000 to 100,000. The departments most affected
were CUsar, Meta, Risaralda, Huila, Tolima, Magdalena, Sucre, C6rdoba
and Atlantico; specifically, the areas producing cotton, rice, coffee, tobacco
and sorghum. Seventy municipalities were targeted by a rural employment
program that was to be coordinated by the Ministry of Agriculture, managed
by DRI and implemented under the auspices of projects run by various
sectoral agencies."5 The program was initially designed as a pilot, which
would be expanded if it bore fruit. The total cost was estimated at
12,000 million pesos, with this money being used to pay salaries and provide
complementary inputs in labor-intensive projects, such as roads or irrigation
works. It was estimated the program would generate employment for about
15 thousand people, for an average period of five to six months per job. The
overall time frame for the pilot program was one year (1994). Although the
program was designed in the heat of the crisis, the funds were disbursed
extremely slowly: the response was too tardy to be effective.
36.   The program could usefully be modified in a number of ways. At
present, it only targets the population geographically. By paying wages at
less than the official minimum, it will be possible to achieve selftargeting and
15    HIMAT, IDEMA, INDERENA, DRI, and PNR.



- 41-                       ANNEX A
cyclical withdrawal from the program. Although there should a standing
capacity to implement employment programs of this nature, their use should
be limited to periods of acute rural unemployment and income loss. Given
the high levels of female unemployment in rural areas it will be essential to
address women's specific needs, by seeking to identify service sector job
openings.
37.   The employment program is most likely to be effective if projects are
implemented by community groups (Juntas de Acci6n Communal, Empresas
Solidarias, women's groups), with funding provided by municipal
government and cofinancing agencies (DRI, PNR, or FOSES). Projects
identified by the program should be labor intensive, confined to the hardest
hit areas and provide opportunities for women. Typical projects would
include feeder roads (new construction and maintenance), secondary roads
(operations and maintenance), electrification, water and sanitation,
community housing, and cleaning and refurbishment of public buildings.
Land Market Issues
38.   The measures outlined in the previous section are necessary palliatives
but they will not be sufficient in themselves to redress the longstanding
tendency for Colombian agriculture to absorb relatively less labor than it
could do. This problem can only be tackled by removing distortions in the
land market. On the one hand, measures to increase the rural poors'
effective demand for land are called for: this must include grants for land
purchase. On the other hand, it will be necessary to tackle the problems
which create a bias in favor of property concentration, tending to reduce the
supply of large estates available for subdivision and sale (or lease) to smaller
farmers.
39.   The rationale for land reform is as follows. First, outmigration from
the countryside has not--contrary to the initial expectations of Colombian
policymakers--served to eliminate rural poverty. Second, it is reasonable to
suppose that putting land into the hands of the rural poor will help to defuse
one of the causes of rural violence, and may thereby help to promote
investment in agriculture. Third, the evidence suggests that small farmers in
Colombia are capable of significant productivity gains. In other words,
putting more land in the hands of small farmers is likely to generate
efficiency as well as equity gains, helping to raise the competitiveness of
Colombian agriculture.
40.   The literature on farm size and productivity has established that factor
productivity on farms operated primarily with family labor is typically larger
than that of larger farms operated primarily with hired labor or tenants.
Around 1970, the situation in Colombia was consistent with this
generalization.'6 Moreover, for any given level of resource use and output,
16    See the data on Colombia in A. Berry & W. Cline, Agrarian Structure and Producuivity in Developing
Counuries, Baltimore: Johns Hopkins University Press, 1979.



- 42 -                         ANNEX A
the small family-based sector generates much more employment than the
large scale sector. When there is technical change, the optimal size of
family-based operations tends to increase. But once farm sizes have adjusted
to the new technologies, the typical negative relationship reappears."7
41.   Between 1976 and 1988, small farmer yields increased on average by
82 percent, compared to an increase of only two percent for medium and
larger farmers. Much of this small farmer yield response is based on
adoption of scale-neutral input packages (primarily involving agrochemicals),
successfully promoted by the extension component of the integrated rural
development program that was launched in 1976. The yield response is
striking given that the volume of public resources channeled to the small
farm sector was small in relation to the volume garnered by larger farms.
The level and speed of the response by small farmers suggests that the farm
size-productivity relationship observed for the 1960s and early 1970s
continues to hold.
42.   This raises an important question. If small family farms are more
efficient than large farms relying on hired labor, why do large farmers not
find it more profitable to subdivide their properties, and rent or sell these
parcels to smaller farmers? The restriction on leasing has already been
examined. Large farms in Colombia are not generally parceled out and sold
to small farmers because the market price of agricultural land typically
exceeds the capitalized value of farm profits. This occurs because the value
of farm land is only partly based on its agricultural potential: in all areas,
land serves as a hedge against inflation; its immobility makes land a
preferred from of collateral in credit markets, conferring additional utility,
particularly where production risk cannot be insured; in periurban areas, land
holds out the prospect of higher returns from real estate development than
from farming; finally, credit subsidies and tax writeoffs may be capitalized
into land values.'8
43.   If the market price of land exceeds the capitalized value of farm
profits, a poor smallholder or landless worker would not be able to finance
the purchase of land out of farm profits; even if the owner, or a mortgage
bank, were willing to advance him or her a loan covering the full purchase
price of the land. This means that purchase would only be feasible if the
productivity differential between small and large farms were huge; or if
recourse were made to non-farm income; or if the purchaser were willing to
exploit unpaid family labor, devoting the imputed labor earnings to the land
purchase.
17     Recent studies confirm the earlier findirgs and pmvide a theoretical rationale for the observed
relationship based on incentives issues and missing markets. This literature is summarized by Hans P.
Binswanger, Klaus Deininger & Gershon Feder in 'Pawer, Distortions, Revolt and Reform in
Agricultural Land Relations' (Policy Research brking Papers No. 1164., World Bank, July 1993; also
published in 1. Behrnan & T.N.