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Determinants and consequences of land reform implementation in the Philippines
Journal
of Development
Economics
35
(I 99 I) 339-355.
North-Holland
Determinants and consequences of land reform implementation in the Philippines Keijiro Otsuka* Tokyo Metropolitan Unioersity, Hachiohji, Tokyo, 192-03, Japan International Received
Rice Research Institute, Laguna. Philippines
January
1989, final version
received
March
1990
Abstract: Unlike the experience of other developing countries, land reform in the Philippines has been successful in converting many of share tenants to land reform beneficiaries. This study indicates that the implementation of land reform is positively associated with yield growth made possible by the adoption of modern seed-fertilizer technology. A major reason underlying such association is considered to be an increased economic interest of tenants in land reform arising from divergence of rental value of land from leasehold rent and amortization fees prescribed by law.
1. Introduction Despite the widespread popular support for land reform as a critical policy means to promote social justice and productivity growth in agriculture throughout the developing nations, the real world experience is replete with the failure of various attempts [de Janvry (1981)]. Earlier studies of land reform attributed its failure to the strong opposition of the landed class, absence of strong interests of tenants, and the lack of political will to resolve the class conflict [Herring (1983) Ladejinsky (1977), Prosterman and Riedinger (1987), Warriner (1969)-J. The land reform programs in developing countries of Asia commonly consist of the tenancy reform and land redistribution programs. The tenancy reform rules out the practice of share tenancy, regulates the leasehold rent, and confers the protection of tenancy right, whereas the land redistribution policy sets the ceiling on the maximum landholding and transfers the ownership right of land in excess of the ceiling to the actual tiller for *I would like to thank Jere Behrman, V.G. Cordova, L. Cornista, Cristina David, Yujiro Hayami, Abe Mandac, Mahar Mangahas, Agnes Quinsumbing, and V.W. Ruttan and three anonymous referees for useful suggestions and comments on an earlier draft. And I would also like to thank D.R. Palis, M.L. Obusan, D.A. Ceballo, C. Carpio, and Y. Aranguren for their continuous and efftcient support for the data collection, computation, and editorial works. 0304-3878/91/SO3.50
0
1991-Elsevier
Science
Publishers
B.V. (North-Holland)
330
K. Orsuka. Land reform implementarion
in the Philippines
compensation payments. If rents are excessively lowered or compensation payments to landlords are much lower than the market value of land, land reform is met with strong opposition of landlords. Conversely, if rents are lowered only modestly or compensation payments by tenants are only slightly lower than the market value of land, interests of tenants will be lost. The dit?iculty of raising interests of tenants without arousing strong opposition of landlords is a basic dilemma of land reform. Unlike the experience of other developing countries, land reform programs in the Philippines, declared by Presidential Decrees No. 2 and No. 27 in 1972, have been successful in converting many of share tenants to leaseholders or amortization owners and in breaking down large rice haciendas, as reported by a number of case studies [Carroll (1983) Hayami and Kikuchi (1981), Herdt (1987), Ledesma (1982)]. Implementation was particularly effective in favorable rice growing areas where modern rice varieties (MVs) were grown under irrigated conditions [Mangahas (1985)]. The major purpose of this study is to explore the determinants of land reform implementation based on an extensive survey of fifty villages covering major rice-growing regions of the Philippines. We postulate as a major hypothesis to explain the difference in the extent of land reform implementation that the yield growth associated with the adoption of modern rice technology in favorable areas raised the incentives of share tenants to acqure leaseholder or amortization owner status. In fact, the rental value of paddy land in favorable areas progressively diverged over time from the prescribed rents or amortization fees, which were fixed based on the normal yield realized before 1972. Needless to say, the larger the economic gain to the tenants, the larger the economic loss to the landlords and, hence, the stronger would be their opposition to land reform. Whether the yield increases raised the interests of tenants in land reform more than the opposition of the landlords is an empirical question. Had there been no yield increases, however, any gain to the tenants would have been at the expense of the landlords’ existing wealth and standard of living. Our hypothesis asserts that under such a circumstance, implementation of land reform would have been much more conflictual. Beside the economic factors, we will also consider the political elements involved in land reform implementation. This study also attempts to evaluate, based on an intensive survey of five villages, the consequences of land reform in terms of the transfer of income from landlords to tenants and incidence of tenant eviction.
2. Philippine land reform law As was pointed out by Ruttan (1964), the Philippine Agricultural Land Reform Code of 1963, which laid the policy foundation for the Presidential
K. Otsuka. Land reform implemenrarion
in the Philippines
341
Decrees promulgated in 1972 [Hanisch (1977, 1978)], emphasized the dual role of land reform in raising agricultural productivity and realizing equitable distribution of income. While the land reform operations based on the 1963 Code were limited to pilot areas, the whole country was proclaimed a land reform area under Presidential Decree No. 2 in 1972. More importance was attached to the land redistribution policy by Presidential Decree No. 27, which proclaimed ‘the emancipation of the tiller from the bondage of the soil’. The Philippine land reform law applies only to tenanted areas growing rice and corn, with exclusion of owner-cultivated areas and areas growing crops other than rice and corn. Landlords are allowed to retain 7 hectares of land, to which the Operation Leasehold (LHO) program applies, and lands in excess of the retention limit are subject to the Operation Land Transfer (OLT) program. Under the LHO program, share tenancy is converted to leasehold tenancy with rent fixed at 25% of average output net of the costs of seeds, harvesting and threshing for three normal crop years preceding the Presidential Decree. Under the OLT program, excessive lands are to be sold to former tenants at a price 2.5 times the gross normal output. The Certificate of Land Transfer (CLT) was distributed to eligible tenants, identifying their cultivated area and promising them the right to purchase the land, and CLT holders are required to pay amortization fees to the Land Bank within 15 years. As Mangahas (1985) has demonstrated, the annual amortization fee, if paid equally for 15 years by installment, amounts to about 25% of gross value of normal production in the early 1970s. Thus there is not much difference between the leaseholder and CLT holder status in the Philippine land reform program. As in the land reform programs in other developing countries, there is no denying that many loopholes exist in the Philippine land reform programs. The retention limit was sometimes evaded by registering excess holding in the names of sons, daughters, and close relatives, and tenants were often evicted under the guise of voluntary surrender by landlords in order to resume own-cultivation. In reality, those landlords who retained the lands for own-cultivation entered into concealed tenancy contracts. It is also common to point out the failure in the Philippine land reform programs in terms of the slow progress of the issuance of CLT to eligible tenants [e.g., Wurfel (1983)]. As an evaluation of the land reform, however, more important issues are the extent to which share tenants have been actually converted to leaseholders and CLT holders, and also the extent to which income has been transferred from landlords to those land reform beneficiaries. Yet the extent of land reform implementation has never been investigated systematically over wide areas except by the Ministry of Agrarian Reform (1983). Such offtcial statistics, however, are unreliable precisely because landlords and tenants try to conceal illegal tenure arrangements from government
342
K. Orsuka. Land reform implementation
in rhe Philippines
personnel, where they are practiced, and bureaucrats progress in implementation [Herring (1983)].
3. Land reform implementation
are tempted to show
in sample villages
In order to obtain information on current and pre-reform tenure structure as well as technologies at the village level, we conducted an extensive village survey from April to July, 1987. Since the survey relied on the recall of farmers, the pre-reform data is inevitably subject to recall errors. We made two to three interviews with a group of knowledgeable farmers, such as village headman, in each village to check the accuracy of the collected information. Since a major focus of this study is on the impact of modern rice technology on land reform implementation and since its productivity impact is known to be constrained by rice production environments [Barker and Herdt (1985)], we have adopted a three-way classification of production environments for the purpose of stratification, i.e., irrigated, favorable rainfed, and unfavorable rainfed areas. The irrigated villages in our sample are covered by the large-scale gravity irrigation system constructed and maintained by the National Irrigation Administration. The favorable rainfed is defined as shallow rainfed, whereas the unfavorable rainfed refers to areas prone to severe flood and/or drought. We have sampled 50 rice-dependent villages, encompassing Northern, Central and Southern Luzon, and Panay Island (see fig. 1). The distribution of sample villages among three production environments was predetermined to be roughly equal (see table 1 for actual distribution). Sampling was stratified in that we have attempted to select villages with representative environmental characteristics by making prior consultation with provincial and municipal government officials in charge of technology extension. Once representative environments were identified, the villages were selected randomly. The ratio of irrigated area, adoption rate of MVs, and yield per ha in 1970 and 1986 are reported by production environment in table 1. Irrigated area accounted for 58% of total area in 1970 but almost 100% in 1986 in the irrigated villages. A small portion of total area in the rainfed villages was irrigated by irrigation pumps and natural creeks. The adoption of MVs was equally rapid in the irrigated and the favorable rainfed areas. In contrast, the adoption of MVs in the unfavorable rainfed area was slower and much less complete. In our sample villages, there was no significant difference in yield of traditional varieties (TVs) among three different production environments. The introduction of MVs, however, raised yield significantly in irrigated area as well as in the favorable rainfed area, but only marginally in the unfavorable rainfed area, reflecting the differential impacts of MV technology
K. Otsuka, Land reform implementation
in rhe Philippines
PHILIPPINES
PANAY
Fig. I. Distribution
ISLAND
of sample
villages
by environmental
conditions
in the Philippines,
1987.
As a result, a significant productivity on the intensity of cultivation. differential has emerged among different environments. As is well-known in the tenancy literature [Otsuka and Hayami (1988)], the production risk is an important determinant of the contract choice between share and leasehold tenancy. In order to measure the production
K. Orsuka. Land reform implemenration
344
Table
in the Philippines
I
Changes in ratio of irrigated area, adoption rate of modern varieties, yield per ha, and yield variation by rice production environment, 1970 and 1986.
Sample size Ratio of irrigated 1970 1986 Adoption 1970 1986 Normal 1970 1986
Irrigated
Favorable rdinfed
Unfavorable rdinfed
17
17
16
58 97
4 8
2
38 97
29 98
16 40
area (“,)
I
rate of MVs (“,)
paddy yield (t, ha)
Yield variation
3.0 4.1 (“‘,)
75
2.6 3.8 82
2.3 2.7 88
risk explicitly, we estimated the yield variation, which is defined as the ratio of the difference between the maximum and minimum yields per ha for the last ten years to the normal yield in 1980.’ According to this measure, the yield risk is smaller in more favorable areas (see table 1). It is interesting to observe from table 2 that the incidence of share tenancy drastically declined from 1970 to 1986 in irrigated and favorable rainfed areas, but significantly less so in unfavorable rainfed area. In contrast, the ratios of leasehold and CLT areas increased dramatically in the former areas.’ To our empirical knowledge, leaseholders paid the fixed-rent largely in accordance with the amount prescribed by law, which implies that not only CLT holders but also leaseholders in 1986 are legitimately considered to be land reform beneficiaries. Also note that the ratios of owner cultivated area have been unchanged in our data. This is because areas of ‘owncultivation’ by landlords under concealed tenancy contracts are identified as tenanted areas in our survey. It seems clear that the beneficiaries of land reform in favorable areas have been capturing a large economic surplus because rice yields have been increasing significantly due to adoption of MV’s, while leasehold rents and amortization fees are prescribed to be fixed based on the yield level before 1972. This, in turn, suggests a hypothesis that a key to the success of land reform in favorable areas in the Philippines lies in the coincidence of the implementation of land reform and ‘green revolution’ in those areas. It is ‘In those villages where both TVs and MVs were grown, the weighted average of two yield variations was taken using the respective adoption rates in 1980 as weights. *Our observation is broadly consistent with aggregate statistics on the implementation of land reform reported by Hayami et al. (1990).
K. Otsuka. Land reform implementarion
in the Philippines
345
Table 2 Distribution
of rice areas
by land tenure and by rice production 1970 and 1986 (“J.
Irrigated
Owner CL-r Leasehold Share tenancy Total
environment,
Favorable
rainfed
Unfavorable
rainfed
1970
1986
1970
1986
1970
1986
22 _ 10 68 100
22 34 35 9 100
19 _ 7 74 100
19 34 34 13 100
46 _ 13 41 100
46 17 12 25 100
obvious that the greater the economic surplus accrued to former share tenants due to yield growth, the greater would have been their incentives to acquire leaseholder or amortization owner status. The larger the economic gain to the tenants, however, the larger the economic loss to the landlords. In fact, income of landlords was sacrificed but, according to Harkin (1976), compensation payments to landlords were only marginally lower than the market value of land in the early 1970s. We postulate as an empirical hypothesis that the positive interests of tenants outweighed the negative interests of landlords in the politics of land reform implementation in areas where substantial yield growth was realized. In practice, the landlords threatened to evict those share tenants who attempted to acquire the status of leaseholders and amortization owners, and tried to bring over the local officials to their side through bribery and political influence. Therefore the tenants had to incur large costs to become land reform beneficiaries. Yet, we consider that the incentive of the share tenant is particularly important in the implementation of land reform, because, in principle, he can obtain a leasehold title or CLT if he reports to the District Offtce of the Ministry of Agrarian Reform and proves that he is a share tenant. It is also important to observe from table 2 that tenancy, share as well as leasehold, was more pervasive in irrigated and favorable rainfed areas in 1970. In fact, the large-scale landlordism prevailed mostly in these areas. Unfortunately, however, we were unable to collect consistent and reliable information on the ownership size of landlords prior to land reform. Though imperfect, the ratio of tenanted area in 1970 may partly reflect the extent of landlord-tenant confrontation. Since the land reform’s important political functions for the government were to suppress rural unrest and to strike a blow at those wealthy landlords [Hanisch (1977, 1978) Harkin (1975, 1976) Mitchell (1969), Wurfel (1983)], it can be argued that a relatively thorough implementation of land reform in these areas was, at least partly, a manifestation of the political will.
K. Orsuka, Land reform implemenrarion
346
in rhe Philippines
Table 3 Ratio of former hacienda, ratio of number of landowners to agrarian reform technicians, and average farm size by rice production environment, 1986.
Ratio of former hacienda (“6)’ Landowner-technician ratio” Farm size (ha) “The number of former hacienda sample villages in each environment. bData refer to landowner-technician sample villages are located.
Irrigated
Favorable rainfed
Unfavorable rainfed
47 I‘tO I .69
71 99 1.67
38 I49 1.70
villages ratios
divided
by the total
at the municipalities
number where
of our
Large landlords, who often lived in Manila, managed rice haciendas consisting of hundreds to thousands of hectares by employing a farm manager and a large number of oversees to supervise hundreds or thousands of tenants [McLennan (1969), Umehara (1974)]. The ratio of formerly hacienda villages is highest in favorable rainfed areas and lowest in unfavorable rainfed areas (table 3). Correspondingly, the ratio of the number of landlords to the number of agrarian reform technicians at the municipalities, where our sample villages are located, is by far the lowest in favorable rainfed areas.3 This finding is important in view of the fact that a number of earlier observers of land reform identified the lack of field personnel as a major bottleneck of land reform implementation [Carroll (1983), Hanisch (1977, 1978), Harkin (1975), Wurfel (1983)]. It seems obvious that the greater the political will to implement the land reform, the lower will be the landowner-technician ratio and, hence, the more effective will be the land reform implementation. We therefore hypothesize that the landownertechnician ratio negatively affected the extend of land reform implementation. Table 3 also shows farm size data in 1986, which are quite similar across production environments. 4. Determinants
of land reform implimentation
In the regression analysis we consider the rate of decline in the ratio of share tenanted areas from 1970 to 1986 as a measure of land reform implementation (LRI), i.e.,
‘The data on the landowner-technician the municipality otkes of the Ministry ratios were determined in the mid-1970s.
ratio shown in table 3 was provided by courtesy of Agrarian Reform. Note that the landlord-technician
of
K. Otsuka, Land reform implementation
in the Philippines
347
where STl9,o and ST,,,, stand for the ratio of share tenanted areas in 1970 and 1986, respectively. Now assume that aside from the introduction of land reform programs, factors affecting the choice of tenure contract did not change over time. Then LRI is zero if land reform was totally ineffectively implemented because STLQs6 should remain the same as STlgTo. If land reform was effectively implemented, LRI becomes unity because ST,,8, should be zero. In the case of imperfect implementation, LRI takes values greater than zero but less than unity. Actual values of LRI range from zero to unity, even though theoretically LRI can take negative values. Of course, we do not claim that all the changes in LRI are related with the land reform. At the same time, however, it is difficult to conceive of the drastic decline in share tenancy in many of our sample villages observed earlier without considering the major influence of land reform. Moreover, as will be shown in the next section, not only CLT holders but also leaseholders have captured substantial benefits from the land reform. The choice of tenure is unlikely to be voluntary. As a first approximation, it seems reasonable to regard LRI as a proxy for land reform implementation, even though the possibility that it also reflects the voluntary choice of tenure forms unrelated with land reform cannot be ruled out.’ As the critically important factor affecting land reform implementation, we have considered the income gain of tenants per unit area (EC), which can be defined as the difference between the rental value of land and the actual rent payment:
EGt=aty-aoYo
where Y, and Y, stand for normal yield per ha in post-reform year t and pre-reform period, respectively; d Y is the difference between x and Ye; a, is the share of rental value of land in I: in year t, which corresponds to the factor share of land under competitive equilibrium; and a,, is the share of actual rent in YO,which corresponds to 25% if the law is strictly obeyed. Since the factor share of land is estimated to be about 30 to 35% [Hayami and Kikuchi (1981), Ranade and Herdt (1978)], it is likely that xl is greater than x0. Therefore, the above relation suggests the accrual of some positive benefits to tenants, even in the place where yield has been stagnant. The yield improvement represented by AI: however, can have more profound effect on the economic gain of tenants, as its coefficient, s(~, is greater than the coefficient of Y,, (xr-x0). &In the literature there is no consistent empirical evidence as to the effect of modern rice varieties on the choice between share and fixed-rent tenancies.
J.D.E.-
E
348
K. Otsuka.
Land reform
implementation
in the Philippines
In the regression analysis we used the normal yield in 1970 for Y0 and increment in normal yield from 1970 to 1986 for AY and included both of them as independent variables. Considering the possibly endogenous nature of the yield increment for the 1970-1986 period, the two-stage regression procedure was applied; the yield increment was regressed in the first stage on the yield in 1970, changes in ratios of irrigated area and MV adoption area for the corresponding period, and two production environments and three regional dummies, whereas in the second stage the predicted value of the yield increment was used to explain the extent of decline in the share tenancy ratio. Since the tenants and landlords have opposing economic interests, the estimated impacts of the economic gain variables for the tenants on land reform implementation should reflect their net political influence. In order to represent the political factors involved in land reform implementation, the landlord-technician ratio at the municipality level and the tenancy ratio in 1970 are inserted.5 Also considered is the yield variation for the last ten years. Since the value of dependent variable is theoretically constrained from above, we have adopted the Tobit regression method. Regression results are shown in table 4. The fit of the yield increment regressions is quite high, judging from high R2 in eqs. (1) and (2). The estimated coefficients of yield in 1970 are negative and highly significant, which suggests that areas in which the yield was already high due to early introduction of MVs experienced smaller growth in yield thereafter. Indeed, according to eq. (l), dummy variables for irrigated and favorable rainfed areas, where MVs have been profitably adopted since then, and the increment in MV adoption rate for 1970-1987 (AMV) are highly significant, although the increment in irrigation ratio for the same period is not significant. Suspecting the endogeneity of MV adoption, we also estimated the yield increment function without AMV in eq. (2).6 We attempted to explain the extent of land reform implementation as measured by LRI in the second-stage Tobit regression in which the predicted values of AY based on eqs. (1) and (2) are employed in eqs. (3) and (4), respectively. It is remarkable that the estimated coefficients of yield in 1970 and the yield increment for the 1970-1986 period are significant in one-tailed t-test both in eqs. (3) and (4), rendering support for our hypothesis that economic incentives to tenants are an important determinant of land reform implementation. The estimated coefficient of the yield level is somewhat sSince the landlord-technician ratio refers to the municipality, it can thirty villages with different production environments, exogenous variable to individual village. 6According to a recent technology adoption study by David same data set, the MV adoption is essentially determined by the the availability of varieties suitable for particular environments, adoption is largely determined by the factors exogenous to farmers.
which usually be regarded
includes largely
about as an
and Otsuka (1989) using the production environments and which suggests that the MV
K. Otsuka,
Land reform impIemenrarion
in the Philippines
349
Table 4 Two-stage
Tobit
regressions
of
the
extent of 1970-1986.’
First-stage regression
(2)
1.83** (7.76) -0.75** ( - 11.66)
Y in 1970 Predicted
reform
AI (OLS)
(1) Intercent
land
2.30** (IO.L4) -0.85** (- 12.35)
dY
Irrigated
area dummy
Fav. rainfed A Irrigated
area dummy area ratio
A MV adoption
1.24’8 (5.04) 0.66. (2.98) -0.35 (- 1.08)
implementation
(LRI),
Second-stage LRI regression (Tobit) (3) (4) -0.58 (1.05) 0.26* (2.33) 0.301 (2.07)
l.57** (5.99) 1.09** (4.95) - 0.24 (-0.65)
-0.58
(- 1.03) 0.28*
(2.44) 0.32* (2.06) _
_
t.oo*
rate
(3.74) Landlord-technician Tenancy
ratio
ratio in 1970 _
Yield variation Northern
Luzon
dummy
-0.19
( - 0.70) Central Southern
Luzon
dummy
Luzon
dummy
R2 (F-value)
0.895 (43.44) _
Log-likelihood (Chi-squared) ‘Numbers level.
0.42* (2.24) -0.3i (1.60)
in parentheses
are r-values.
*Indicates
-0.31 - 1.02) 0.28 (1.32) -0.29 - 1.13)
- 0.002* (- 1.77) 0.70* (1.86) 0.00 (0.37) 0.56’
- 0.002
(- 1.62)
0.28 (1.39) - 0.06 (-0.31)
0.68f (1.85) -0.00 ( - 0.03) 0.54* (1.93) 0.29 (1.55) -0.06 ( - 0.29)
- 18.32 (47.3 I)
- 18.79 (46.77)
( 1.94)
0.857 (42.96)
significance
at 5”/, level and **at 1%
smaller than that of the yield increment, but they are not signilicantly different. This may be due to the influence of opposing behavior of landlords or due to the possibility that the yield data in 1970 captures the influence of other factors such as riskiness of production environments. The landlord-technician ratio has a negative and significant coefficient in eq. (3), whereas the tenancy ratio in 1970 has highly significant coefficients both in eqs. (3) and (4). These findings suggest that the political will played a significant role in land reform implementation. Yield variation, however, shows no significant effect. It may well be the case that yield variation for the last ten years does not well capture the riskiness of production environments.
350
K. Otsuka,
Land reform
implementation
in the Philippines
Only one of the estimated coefficients of three regional dummies is significant in one-tailed test, suggesting the absence of strong region-specitic factors in Luzon relative to Panay Island, which are conducive to the land reform implementation. On the whole, the regression results are consistent with our basic contention that the extent of land reform implementation is determined by the ‘demand’ for land reform, which is shaped by the economic interests of tenants and, perhaps to a lesser extent, landlords as well, and by the ‘supply’, which is conditioned by allocation of government personnel and resources, and other political considerations.’ 5. Consequences of land reform implementation
In this section, we will attempt to evaluate the income redistribution effects of tenure change under the land reform program in favorable and unfavorable areas based upon an intensive survey of owner cultivators and tenant farmers in five selected villages. Villages are numbered from I to V in accordance with the current relative yields. Villages I and III are located in the Central Luzon, and the other three villages are located in Panay Island (see fig. 1 for their locations). Villages I and II are irrigated, and the other villages are rainfed. Village V is located in the most unfavorable, mountainous environments, so that 40% of the area is still planted to TVs. TVs are also grown in hilly portions of village IV, which accounts for 20% of total area, but its production environment is much more favorable than that of village V. Village III, which is located in the Central Luzon plain, is partly irrigated by pumps. Fig. 2 shows the changes over time in percentage share of operational areas under share tenancy since 1960 in the five study villages * Land reform was implemented effectively in villages I and III located in Central Luzon, less so in villages II and IV, and to a negligible extent in village V. Such regional difference may reflect the tendency that land reforms was more vigorously implemented in Central Luzon because of its proximity to Manila, even though it was not statistically detected in the previous section. The case of village II is particularly noteworthy, because the production environment of this village is classified as a well-irrigated, favorable area. In order to estimate the difference in technology level across villages immediately before the declaration of Presidential Decrees No. 2 and No. 27, we collected the data on normal yield per ha around 1970 from the recall of knowledgeable farmers. The estimates of average yields are shown in table 5 ‘More broadly, our linding supports the induced institutional innovation hypothesis of Hayami and Ruttan (1985). which identities changes in the economic incentives as the major cause for institutional innovation. *See Otsuka (1987) for further detail of tenure distribution in these villages in the past.
K. Otsuka,
Land reform implementation
351
in the Philippines
Percent ‘OOfl 90
c ,,,..d
80-
,... . ..“-* ...**
Village
‘...
I
70...._.Village III ‘%. ‘..
‘x..
“.. ‘*s ; :: i ; i i
60A---
Year Fig. 2. Changes
in the percentage
share of operational
areas under
share tenancy.
1960-1985.
in comparison with the yields in 1985. The yield in village II in 1970 is found to be quite high and the increment in average yield for the fifteen-year period was relatively small. This is due to the fact that MVs were largely adopted in the village under well-irrigated conditions by 1970. The yield has been also stagnant in village V because of the adverse rice-growing environments. In contrast, the yields have increased at more rapid rates in villages I, III, and IV, mainly because the modern seed-fertilizer technology was adopted since 1970.
K. Otsuka, Land reform implementation
352
Table Changes
in the Philippines
5
in share tenancy and yield per ha for 1970-1985, and land rents in 1985 in intensively surveyed villages. _ Irrigated villages Rainfed villages
Proportion of share tenancy (“1;) 1970 1985 Yield (t/ha) 1970” 1985 Land rents (t/ha) Leasehold rent Amortization fee Share rent Implicit rent under mortgagingb
I
11
111
IV
v
79 2
51 31
54 0
35 25
60 57
2.6 4.6 0.56 0.54 1.68 1.27
3.3 4.0
2.2 3.7
0.75
0.52 0.56
1.04 -
“Normal yield. “Estimated by multiplying the mortgage interest rate of 25% per season.
0.85
2.0 3.2
1.5 1.9
0.37 -
0.41 -
0.74 0.66
fee and the prevailing
0.64 -
market
An important finding from table 5 is that the leasehold rent is highest in village II, despite the fact that the current yield per ha is much higher in village I. It is also interesting to observe that the difference in leasehold rents among villages other than village II is relatively small. According to land reform laws, the leasehold rent and amortization fees are fixed based on the normal crop yield before 1972. In fact, the ratio of leasehold rent or amortization fees to the normal yield in 1970 was very close to 2j00 in our sample villages. The economic gain captured by beneficiaries of the land reform roughly corresponds to the gap between the rental value of land and the actual payment of leasehold rent or amortization fee,’ and the rental value of land can be approximated by the share rent or the implicit rent under mortgaging. ‘O Table 5 shows estimates of average share rent and implicit rent under mortgaging. Share rent and implicit rent are twice to three times as high as the leasehold rents and amortization fees. It is clear that economic ‘%uch estimation is inaccurate to the extent that the land reform affects the behavior of farmers so as to shift the position of demand curve for land tenancy. See Rosenzweig (1978) for an analysis of land reform based on a broader supply and demand framework. “Under mortgage contract the mortgagee advances fee to the mortgagor, in order to establish a right to cultivate the land until the fee is repaid. Since no explicit interest payment is involved. the interest earnings forgone associated with the advancement of mortgaging fee represent an implicit payment to the mortgagor. Such implicit rent is estimated by multiplying the mortgage fee by the commonly prevailing market interest rate of 25% per season. Mortgaging is illegal. but widely practiced without much fear of punishment by the Agrarian Reform office, particularly in Villages I, III, and IV.
K. Orsuka, Land reform implementation in the Philippines
353
Table 6 Incidence of tenant eviction since 1972 and the number tenants reported by landless workers in intensively surveyed 1985. Irrigated
villages
I
II
No (02
No (7”)
Rainfed III No (2)
of former villages in villages
IV No (9”)
v No (“/,)
Eviction (::, Former
(Y)
cd,
(ii)
1::)
tenants (ii)
No. of landless
(:)
(1:)
workers (I::)
(I$)
(1:)
gains accrued to the land reform beneficiaries have been quite substantial in villages I, III, and IV. Such observations are consistent with the hypothesis that land reform is more effectively implemented in areas where the economic interest of the peasantry in the land reform implementation is raised. We have a supporting evidence for our hypothesis. If the rent and amortization fees were set at a level significantly lower than the rental value of the land, landlords would have been motivated to evict tenants in order to undertake ‘their own-cultivation’, which in fact was often cultivation by new tenants. This would be particularly the case in villages I, III, and IV. In our survey of landless laborers’ households, we tried to obtain data on the incidence of tenant eviction. It is, however, difftcult to obtain accurate information simply because eviction is illegal. Therefore, questions are asked not only about eviction but also about tenure status before.” According to table 6, a number of landless laborers in villages I, III, and IV are former tenants and some of them are reported to be evicted.” No single case of eviction, however, was reported in villages II and V.”
6. Concluding remarks A major finding of this study is that the success of land reform in the rice sector of the Philippines is positively associated with technical change, “As Hanisch (1977, 1978) observed and our key informants suggested, the majority of tenants who were evicted voluntarily surrendered tenancy rights in return for compensation payments. “It must be noted that some of the landless laborers interviewed are migrants from other villages, so that eviction did not necessarily occur in the village in which they resided as of 1985. Although the sample size becomes substantially smaller if we restrict to the cases of eviction in our sample villages, the observed tendency remains unchanged. lJThese findings are consistent with the observation of Ladejinsky (1973) that the green revolution generally induced tenant eviction.
354
K. Otsuka, Land reform implrmentation
in the Philippines
represented by the adoption of modern seed-fertilizer technology. We postulated that the major reason for such association is the divergence of rental value of land from regulated leasehold rents and amortization fees over time, which provided incentives to former share tenants to acquire leaseholder or amortization owner status. The rent income of landlords was sacrificed, but it would not have decreased signilicantly in absolute terms, because the leasehold rent and amortization fees actually determined were relatively close to the prevailing rents in the early 1970s. The results of our analysis suggest that the enhanced interests of tenants tended to outweigh the opposition of landlords in the actual implementation of land reform under such circumstances. As a result, the substantial amounts of income have been redistributed from landlords to tenants only in areas where yields have grown significantly since the declaration of the land reform law. If there had been no technical change, the distributional impacts of land reform would have been limited, not only because the economic gain accrued to tenants from the conversion of tenancy status would have been smaller but also because the scope of land reform implementation would have been much more limited. The lesson we may learn from the experience of the land reform program in the Philippines is the importance of incentive systems created by the land reform law and the dynamics of technical change, which critically affected the distributional consequences of the land reform program. References Barker, Randolph and R.W. Herdt, 1985, The rice economy of Asia (Resources for the Future, Washington, DC). Carroll, J.J., 1983, Agrarian reform, productivity, and equity: Two studies, in: A.J. Ledesma, P.Q. Makil and V.A. Miralao, eds., Second view from the paddy (Ateneo de Manila University, Quezon City, Philippines). David, C.C. and K. Otsuka, 1989, The modern seed-fertilizer technology and adoption of laborsaving technologies: The Philippine case, Agricultural Economics Department paper no. 8915 (International Rice Research Istitute, Los B?inos, Philippines). de Janvry, Alain, 1981, The role of land reform in economic development: Policies and politics, American Journal of Agricultural Economics 63, 384-392. Hanisch, Rolf, 1977 and 1978, Decision-making process and problems of implementation of the land reform in the Philippines, Parts I and 2, Asia Quarterly 1 and 4, 305-322 and 3-38. Harkin, D.A., 1975, Strength and weaknesses of the Philippine land reform, Mimeo. (Asia Society, New York). Harkin, D.A., 1976, Philippine agrarian reform in the perspective of three years of martial law, Mimeo. (University of Wisconsin, Madison, WI). Hayami, Yujiro and Masao Kikuchi, 1981, Asian village economy at the crossroads (Johns Hopkins University Press, Baltimore, MD). Hayami, Yujiro and V.W. Ruttan, 1985, Agricultural development: An international perspective, Revised edition (Johns Hopkins University Press, Baltimore, MD). Hayami, Yujiro, M.A. Quisumbing and L.S. Adriano, 1990, Towards an alternative land reform paradigm: A Philippine perspective (Ateneo de Manila University Press, Quezon City). Herdt, R.W., 1987, A retrospective view of technological and other changes in Philippine rice farming, 1965-1982, Economic Development and Cultural Change 35, 329-349.
K. Otsuka, Land reform implemenrarion
in the Philippines
355
Herring, R.J., 1983, Land to the tiller: The political economy of agrarian reform in South Asia (Yale University Press, New Haven, CT). Ladejinsky, Wolf, 1977, Selected papers of Wolf Ladejinsky edited by L.J. Walinsky, Agrarian reform as unfinished business (Oxford University Press, London). Ledesma, A.J., 1982, Landless workers and rice farmers: Peasant subclasses under agrarian reform in two Philippine villages (International Rice Research Institute, Los Baiios, Philippines). McLennan, M.S., 1969, Land and tenancy in the Central Luzon Plain, Philippine Studies 17, 65 l-682. Mangahas, Mahar, 1985, Rural poverty and operation land transfer in the Philippines, in: Rizwanul Islam, ed.. Strategies for alleviating poverty in rural Asia (Bangladesh Institute for Development Studies, Dhaka). Mitchell, E.J., 1969, Some econometrics of the Huk Rebellion, American Political Science Review 63. 1159-l 171. Otsuka. Keijiro, 1987, Technical change and land reform implementation: A comparative analysis of tive rice-dependent villages in the Philippines, Agricultural Economics Department paper no. 87-16 (International Rice Research Institute, Los Barios, Philippines). Otsuka, Keijiro and Yujiro Hayami, 1988, Theories of share tenancy: A critical survey, Economic Development and Cultural Change 37, 31-68. Prosterman, R.L. and J.M. Riedinger, 1987, Land reform and democratic development (Johns Hopkins University Press, Baltimore, MD). Ranade, C.G. and R.W. Herdt, 1978, Shares of farm earnings from rice production, in: Economic consequences of the new rice technolgy (International Rice Research Institute, Los Batios, Philippines). Republic of the Philippines, Ministry of Agrarian Reform, 1983, The operation land transfer programme of the Philippines: Process and impact (Ministry of Agrarian Reform, Manila). Rosenzweig, M.R.. 1978, Rural wages, labor supply, and land reform: A theoretical and empirical analysis, American Economic Review 68, 861-874. Ruttan, V.W., 1964, Equity and productivity objectives in agrarian reform legislation: Perspectives on the new Philippine land reform code, Indian Journal of Agricultural Economics 19, 114-130. Umehara, Hiromitsu, 1974. A hacienda barrio in Central Luzon: A case study of a Philippine village (Institute of Developing Economies, Tokyo). Warriner, Doreen, 1969, Land reform in principle and practice (Oxford University Press, London). Wurfel, David, 1983, The development of postwar Philippine land reform: Political and sociological explanations, in A.J. Ledesma, P.Q. Makil and V.A. Miralao, eds., Second view from the paddy (Ateneo de Manila University Press, Quezon City, Philippines).
of Development
Economics
35
(I 99 I) 339-355.
North-Holland
Determinants and consequences of land reform implementation in the Philippines Keijiro Otsuka* Tokyo Metropolitan Unioersity, Hachiohji, Tokyo, 192-03, Japan International Received
Rice Research Institute, Laguna. Philippines
January
1989, final version
received
March
1990
Abstract: Unlike the experience of other developing countries, land reform in the Philippines has been successful in converting many of share tenants to land reform beneficiaries. This study indicates that the implementation of land reform is positively associated with yield growth made possible by the adoption of modern seed-fertilizer technology. A major reason underlying such association is considered to be an increased economic interest of tenants in land reform arising from divergence of rental value of land from leasehold rent and amortization fees prescribed by law.
1. Introduction Despite the widespread popular support for land reform as a critical policy means to promote social justice and productivity growth in agriculture throughout the developing nations, the real world experience is replete with the failure of various attempts [de Janvry (1981)]. Earlier studies of land reform attributed its failure to the strong opposition of the landed class, absence of strong interests of tenants, and the lack of political will to resolve the class conflict [Herring (1983) Ladejinsky (1977), Prosterman and Riedinger (1987), Warriner (1969)-J. The land reform programs in developing countries of Asia commonly consist of the tenancy reform and land redistribution programs. The tenancy reform rules out the practice of share tenancy, regulates the leasehold rent, and confers the protection of tenancy right, whereas the land redistribution policy sets the ceiling on the maximum landholding and transfers the ownership right of land in excess of the ceiling to the actual tiller for *I would like to thank Jere Behrman, V.G. Cordova, L. Cornista, Cristina David, Yujiro Hayami, Abe Mandac, Mahar Mangahas, Agnes Quinsumbing, and V.W. Ruttan and three anonymous referees for useful suggestions and comments on an earlier draft. And I would also like to thank D.R. Palis, M.L. Obusan, D.A. Ceballo, C. Carpio, and Y. Aranguren for their continuous and efftcient support for the data collection, computation, and editorial works. 0304-3878/91/SO3.50
0
1991-Elsevier
Science
Publishers
B.V. (North-Holland)
330
K. Orsuka. Land reform implementarion
in the Philippines
compensation payments. If rents are excessively lowered or compensation payments to landlords are much lower than the market value of land, land reform is met with strong opposition of landlords. Conversely, if rents are lowered only modestly or compensation payments by tenants are only slightly lower than the market value of land, interests of tenants will be lost. The dit?iculty of raising interests of tenants without arousing strong opposition of landlords is a basic dilemma of land reform. Unlike the experience of other developing countries, land reform programs in the Philippines, declared by Presidential Decrees No. 2 and No. 27 in 1972, have been successful in converting many of share tenants to leaseholders or amortization owners and in breaking down large rice haciendas, as reported by a number of case studies [Carroll (1983) Hayami and Kikuchi (1981), Herdt (1987), Ledesma (1982)]. Implementation was particularly effective in favorable rice growing areas where modern rice varieties (MVs) were grown under irrigated conditions [Mangahas (1985)]. The major purpose of this study is to explore the determinants of land reform implementation based on an extensive survey of fifty villages covering major rice-growing regions of the Philippines. We postulate as a major hypothesis to explain the difference in the extent of land reform implementation that the yield growth associated with the adoption of modern rice technology in favorable areas raised the incentives of share tenants to acqure leaseholder or amortization owner status. In fact, the rental value of paddy land in favorable areas progressively diverged over time from the prescribed rents or amortization fees, which were fixed based on the normal yield realized before 1972. Needless to say, the larger the economic gain to the tenants, the larger the economic loss to the landlords and, hence, the stronger would be their opposition to land reform. Whether the yield increases raised the interests of tenants in land reform more than the opposition of the landlords is an empirical question. Had there been no yield increases, however, any gain to the tenants would have been at the expense of the landlords’ existing wealth and standard of living. Our hypothesis asserts that under such a circumstance, implementation of land reform would have been much more conflictual. Beside the economic factors, we will also consider the political elements involved in land reform implementation. This study also attempts to evaluate, based on an intensive survey of five villages, the consequences of land reform in terms of the transfer of income from landlords to tenants and incidence of tenant eviction.
2. Philippine land reform law As was pointed out by Ruttan (1964), the Philippine Agricultural Land Reform Code of 1963, which laid the policy foundation for the Presidential
K. Otsuka. Land reform implemenrarion
in the Philippines
341
Decrees promulgated in 1972 [Hanisch (1977, 1978)], emphasized the dual role of land reform in raising agricultural productivity and realizing equitable distribution of income. While the land reform operations based on the 1963 Code were limited to pilot areas, the whole country was proclaimed a land reform area under Presidential Decree No. 2 in 1972. More importance was attached to the land redistribution policy by Presidential Decree No. 27, which proclaimed ‘the emancipation of the tiller from the bondage of the soil’. The Philippine land reform law applies only to tenanted areas growing rice and corn, with exclusion of owner-cultivated areas and areas growing crops other than rice and corn. Landlords are allowed to retain 7 hectares of land, to which the Operation Leasehold (LHO) program applies, and lands in excess of the retention limit are subject to the Operation Land Transfer (OLT) program. Under the LHO program, share tenancy is converted to leasehold tenancy with rent fixed at 25% of average output net of the costs of seeds, harvesting and threshing for three normal crop years preceding the Presidential Decree. Under the OLT program, excessive lands are to be sold to former tenants at a price 2.5 times the gross normal output. The Certificate of Land Transfer (CLT) was distributed to eligible tenants, identifying their cultivated area and promising them the right to purchase the land, and CLT holders are required to pay amortization fees to the Land Bank within 15 years. As Mangahas (1985) has demonstrated, the annual amortization fee, if paid equally for 15 years by installment, amounts to about 25% of gross value of normal production in the early 1970s. Thus there is not much difference between the leaseholder and CLT holder status in the Philippine land reform program. As in the land reform programs in other developing countries, there is no denying that many loopholes exist in the Philippine land reform programs. The retention limit was sometimes evaded by registering excess holding in the names of sons, daughters, and close relatives, and tenants were often evicted under the guise of voluntary surrender by landlords in order to resume own-cultivation. In reality, those landlords who retained the lands for own-cultivation entered into concealed tenancy contracts. It is also common to point out the failure in the Philippine land reform programs in terms of the slow progress of the issuance of CLT to eligible tenants [e.g., Wurfel (1983)]. As an evaluation of the land reform, however, more important issues are the extent to which share tenants have been actually converted to leaseholders and CLT holders, and also the extent to which income has been transferred from landlords to those land reform beneficiaries. Yet the extent of land reform implementation has never been investigated systematically over wide areas except by the Ministry of Agrarian Reform (1983). Such offtcial statistics, however, are unreliable precisely because landlords and tenants try to conceal illegal tenure arrangements from government
342
K. Orsuka. Land reform implementation
in rhe Philippines
personnel, where they are practiced, and bureaucrats progress in implementation [Herring (1983)].
3. Land reform implementation
are tempted to show
in sample villages
In order to obtain information on current and pre-reform tenure structure as well as technologies at the village level, we conducted an extensive village survey from April to July, 1987. Since the survey relied on the recall of farmers, the pre-reform data is inevitably subject to recall errors. We made two to three interviews with a group of knowledgeable farmers, such as village headman, in each village to check the accuracy of the collected information. Since a major focus of this study is on the impact of modern rice technology on land reform implementation and since its productivity impact is known to be constrained by rice production environments [Barker and Herdt (1985)], we have adopted a three-way classification of production environments for the purpose of stratification, i.e., irrigated, favorable rainfed, and unfavorable rainfed areas. The irrigated villages in our sample are covered by the large-scale gravity irrigation system constructed and maintained by the National Irrigation Administration. The favorable rainfed is defined as shallow rainfed, whereas the unfavorable rainfed refers to areas prone to severe flood and/or drought. We have sampled 50 rice-dependent villages, encompassing Northern, Central and Southern Luzon, and Panay Island (see fig. 1). The distribution of sample villages among three production environments was predetermined to be roughly equal (see table 1 for actual distribution). Sampling was stratified in that we have attempted to select villages with representative environmental characteristics by making prior consultation with provincial and municipal government officials in charge of technology extension. Once representative environments were identified, the villages were selected randomly. The ratio of irrigated area, adoption rate of MVs, and yield per ha in 1970 and 1986 are reported by production environment in table 1. Irrigated area accounted for 58% of total area in 1970 but almost 100% in 1986 in the irrigated villages. A small portion of total area in the rainfed villages was irrigated by irrigation pumps and natural creeks. The adoption of MVs was equally rapid in the irrigated and the favorable rainfed areas. In contrast, the adoption of MVs in the unfavorable rainfed area was slower and much less complete. In our sample villages, there was no significant difference in yield of traditional varieties (TVs) among three different production environments. The introduction of MVs, however, raised yield significantly in irrigated area as well as in the favorable rainfed area, but only marginally in the unfavorable rainfed area, reflecting the differential impacts of MV technology
K. Otsuka, Land reform implementation
in rhe Philippines
PHILIPPINES
PANAY
Fig. I. Distribution
ISLAND
of sample
villages
by environmental
conditions
in the Philippines,
1987.
As a result, a significant productivity on the intensity of cultivation. differential has emerged among different environments. As is well-known in the tenancy literature [Otsuka and Hayami (1988)], the production risk is an important determinant of the contract choice between share and leasehold tenancy. In order to measure the production
K. Orsuka. Land reform implemenration
344
Table
in the Philippines
I
Changes in ratio of irrigated area, adoption rate of modern varieties, yield per ha, and yield variation by rice production environment, 1970 and 1986.
Sample size Ratio of irrigated 1970 1986 Adoption 1970 1986 Normal 1970 1986
Irrigated
Favorable rdinfed
Unfavorable rdinfed
17
17
16
58 97
4 8
2
38 97
29 98
16 40
area (“,)
I
rate of MVs (“,)
paddy yield (t, ha)
Yield variation
3.0 4.1 (“‘,)
75
2.6 3.8 82
2.3 2.7 88
risk explicitly, we estimated the yield variation, which is defined as the ratio of the difference between the maximum and minimum yields per ha for the last ten years to the normal yield in 1980.’ According to this measure, the yield risk is smaller in more favorable areas (see table 1). It is interesting to observe from table 2 that the incidence of share tenancy drastically declined from 1970 to 1986 in irrigated and favorable rainfed areas, but significantly less so in unfavorable rainfed area. In contrast, the ratios of leasehold and CLT areas increased dramatically in the former areas.’ To our empirical knowledge, leaseholders paid the fixed-rent largely in accordance with the amount prescribed by law, which implies that not only CLT holders but also leaseholders in 1986 are legitimately considered to be land reform beneficiaries. Also note that the ratios of owner cultivated area have been unchanged in our data. This is because areas of ‘owncultivation’ by landlords under concealed tenancy contracts are identified as tenanted areas in our survey. It seems clear that the beneficiaries of land reform in favorable areas have been capturing a large economic surplus because rice yields have been increasing significantly due to adoption of MV’s, while leasehold rents and amortization fees are prescribed to be fixed based on the yield level before 1972. This, in turn, suggests a hypothesis that a key to the success of land reform in favorable areas in the Philippines lies in the coincidence of the implementation of land reform and ‘green revolution’ in those areas. It is ‘In those villages where both TVs and MVs were grown, the weighted average of two yield variations was taken using the respective adoption rates in 1980 as weights. *Our observation is broadly consistent with aggregate statistics on the implementation of land reform reported by Hayami et al. (1990).
K. Otsuka. Land reform implementarion
in the Philippines
345
Table 2 Distribution
of rice areas
by land tenure and by rice production 1970 and 1986 (“J.
Irrigated
Owner CL-r Leasehold Share tenancy Total
environment,
Favorable
rainfed
Unfavorable
rainfed
1970
1986
1970
1986
1970
1986
22 _ 10 68 100
22 34 35 9 100
19 _ 7 74 100
19 34 34 13 100
46 _ 13 41 100
46 17 12 25 100
obvious that the greater the economic surplus accrued to former share tenants due to yield growth, the greater would have been their incentives to acquire leaseholder or amortization owner status. The larger the economic gain to the tenants, however, the larger the economic loss to the landlords. In fact, income of landlords was sacrificed but, according to Harkin (1976), compensation payments to landlords were only marginally lower than the market value of land in the early 1970s. We postulate as an empirical hypothesis that the positive interests of tenants outweighed the negative interests of landlords in the politics of land reform implementation in areas where substantial yield growth was realized. In practice, the landlords threatened to evict those share tenants who attempted to acquire the status of leaseholders and amortization owners, and tried to bring over the local officials to their side through bribery and political influence. Therefore the tenants had to incur large costs to become land reform beneficiaries. Yet, we consider that the incentive of the share tenant is particularly important in the implementation of land reform, because, in principle, he can obtain a leasehold title or CLT if he reports to the District Offtce of the Ministry of Agrarian Reform and proves that he is a share tenant. It is also important to observe from table 2 that tenancy, share as well as leasehold, was more pervasive in irrigated and favorable rainfed areas in 1970. In fact, the large-scale landlordism prevailed mostly in these areas. Unfortunately, however, we were unable to collect consistent and reliable information on the ownership size of landlords prior to land reform. Though imperfect, the ratio of tenanted area in 1970 may partly reflect the extent of landlord-tenant confrontation. Since the land reform’s important political functions for the government were to suppress rural unrest and to strike a blow at those wealthy landlords [Hanisch (1977, 1978) Harkin (1975, 1976) Mitchell (1969), Wurfel (1983)], it can be argued that a relatively thorough implementation of land reform in these areas was, at least partly, a manifestation of the political will.
K. Orsuka, Land reform implemenrarion
346
in rhe Philippines
Table 3 Ratio of former hacienda, ratio of number of landowners to agrarian reform technicians, and average farm size by rice production environment, 1986.
Ratio of former hacienda (“6)’ Landowner-technician ratio” Farm size (ha) “The number of former hacienda sample villages in each environment. bData refer to landowner-technician sample villages are located.
Irrigated
Favorable rainfed
Unfavorable rainfed
47 I‘tO I .69
71 99 1.67
38 I49 1.70
villages ratios
divided
by the total
at the municipalities
number where
of our
Large landlords, who often lived in Manila, managed rice haciendas consisting of hundreds to thousands of hectares by employing a farm manager and a large number of oversees to supervise hundreds or thousands of tenants [McLennan (1969), Umehara (1974)]. The ratio of formerly hacienda villages is highest in favorable rainfed areas and lowest in unfavorable rainfed areas (table 3). Correspondingly, the ratio of the number of landlords to the number of agrarian reform technicians at the municipalities, where our sample villages are located, is by far the lowest in favorable rainfed areas.3 This finding is important in view of the fact that a number of earlier observers of land reform identified the lack of field personnel as a major bottleneck of land reform implementation [Carroll (1983), Hanisch (1977, 1978), Harkin (1975), Wurfel (1983)]. It seems obvious that the greater the political will to implement the land reform, the lower will be the landowner-technician ratio and, hence, the more effective will be the land reform implementation. We therefore hypothesize that the landownertechnician ratio negatively affected the extend of land reform implementation. Table 3 also shows farm size data in 1986, which are quite similar across production environments. 4. Determinants
of land reform implimentation
In the regression analysis we consider the rate of decline in the ratio of share tenanted areas from 1970 to 1986 as a measure of land reform implementation (LRI), i.e.,
‘The data on the landowner-technician the municipality otkes of the Ministry ratios were determined in the mid-1970s.
ratio shown in table 3 was provided by courtesy of Agrarian Reform. Note that the landlord-technician
of
K. Otsuka, Land reform implementation
in the Philippines
347
where STl9,o and ST,,,, stand for the ratio of share tenanted areas in 1970 and 1986, respectively. Now assume that aside from the introduction of land reform programs, factors affecting the choice of tenure contract did not change over time. Then LRI is zero if land reform was totally ineffectively implemented because STLQs6 should remain the same as STlgTo. If land reform was effectively implemented, LRI becomes unity because ST,,8, should be zero. In the case of imperfect implementation, LRI takes values greater than zero but less than unity. Actual values of LRI range from zero to unity, even though theoretically LRI can take negative values. Of course, we do not claim that all the changes in LRI are related with the land reform. At the same time, however, it is difficult to conceive of the drastic decline in share tenancy in many of our sample villages observed earlier without considering the major influence of land reform. Moreover, as will be shown in the next section, not only CLT holders but also leaseholders have captured substantial benefits from the land reform. The choice of tenure is unlikely to be voluntary. As a first approximation, it seems reasonable to regard LRI as a proxy for land reform implementation, even though the possibility that it also reflects the voluntary choice of tenure forms unrelated with land reform cannot be ruled out.’ As the critically important factor affecting land reform implementation, we have considered the income gain of tenants per unit area (EC), which can be defined as the difference between the rental value of land and the actual rent payment:
EGt=aty-aoYo
where Y, and Y, stand for normal yield per ha in post-reform year t and pre-reform period, respectively; d Y is the difference between x and Ye; a, is the share of rental value of land in I: in year t, which corresponds to the factor share of land under competitive equilibrium; and a,, is the share of actual rent in YO,which corresponds to 25% if the law is strictly obeyed. Since the factor share of land is estimated to be about 30 to 35% [Hayami and Kikuchi (1981), Ranade and Herdt (1978)], it is likely that xl is greater than x0. Therefore, the above relation suggests the accrual of some positive benefits to tenants, even in the place where yield has been stagnant. The yield improvement represented by AI: however, can have more profound effect on the economic gain of tenants, as its coefficient, s(~, is greater than the coefficient of Y,, (xr-x0). &In the literature there is no consistent empirical evidence as to the effect of modern rice varieties on the choice between share and fixed-rent tenancies.
J.D.E.-
E
348
K. Otsuka.
Land reform
implementation
in the Philippines
In the regression analysis we used the normal yield in 1970 for Y0 and increment in normal yield from 1970 to 1986 for AY and included both of them as independent variables. Considering the possibly endogenous nature of the yield increment for the 1970-1986 period, the two-stage regression procedure was applied; the yield increment was regressed in the first stage on the yield in 1970, changes in ratios of irrigated area and MV adoption area for the corresponding period, and two production environments and three regional dummies, whereas in the second stage the predicted value of the yield increment was used to explain the extent of decline in the share tenancy ratio. Since the tenants and landlords have opposing economic interests, the estimated impacts of the economic gain variables for the tenants on land reform implementation should reflect their net political influence. In order to represent the political factors involved in land reform implementation, the landlord-technician ratio at the municipality level and the tenancy ratio in 1970 are inserted.5 Also considered is the yield variation for the last ten years. Since the value of dependent variable is theoretically constrained from above, we have adopted the Tobit regression method. Regression results are shown in table 4. The fit of the yield increment regressions is quite high, judging from high R2 in eqs. (1) and (2). The estimated coefficients of yield in 1970 are negative and highly significant, which suggests that areas in which the yield was already high due to early introduction of MVs experienced smaller growth in yield thereafter. Indeed, according to eq. (l), dummy variables for irrigated and favorable rainfed areas, where MVs have been profitably adopted since then, and the increment in MV adoption rate for 1970-1987 (AMV) are highly significant, although the increment in irrigation ratio for the same period is not significant. Suspecting the endogeneity of MV adoption, we also estimated the yield increment function without AMV in eq. (2).6 We attempted to explain the extent of land reform implementation as measured by LRI in the second-stage Tobit regression in which the predicted values of AY based on eqs. (1) and (2) are employed in eqs. (3) and (4), respectively. It is remarkable that the estimated coefficients of yield in 1970 and the yield increment for the 1970-1986 period are significant in one-tailed t-test both in eqs. (3) and (4), rendering support for our hypothesis that economic incentives to tenants are an important determinant of land reform implementation. The estimated coefficient of the yield level is somewhat sSince the landlord-technician ratio refers to the municipality, it can thirty villages with different production environments, exogenous variable to individual village. 6According to a recent technology adoption study by David same data set, the MV adoption is essentially determined by the the availability of varieties suitable for particular environments, adoption is largely determined by the factors exogenous to farmers.
which usually be regarded
includes largely
about as an
and Otsuka (1989) using the production environments and which suggests that the MV
K. Otsuka,
Land reform impIemenrarion
in the Philippines
349
Table 4 Two-stage
Tobit
regressions
of
the
extent of 1970-1986.’
First-stage regression
(2)
1.83** (7.76) -0.75** ( - 11.66)
Y in 1970 Predicted
reform
AI (OLS)
(1) Intercent
land
2.30** (IO.L4) -0.85** (- 12.35)
dY
Irrigated
area dummy
Fav. rainfed A Irrigated
area dummy area ratio
A MV adoption
1.24’8 (5.04) 0.66. (2.98) -0.35 (- 1.08)
implementation
(LRI),
Second-stage LRI regression (Tobit) (3) (4) -0.58 (1.05) 0.26* (2.33) 0.301 (2.07)
l.57** (5.99) 1.09** (4.95) - 0.24 (-0.65)
-0.58
(- 1.03) 0.28*
(2.44) 0.32* (2.06) _
_
t.oo*
rate
(3.74) Landlord-technician Tenancy
ratio
ratio in 1970 _
Yield variation Northern
Luzon
dummy
-0.19
( - 0.70) Central Southern
Luzon
dummy
Luzon
dummy
R2 (F-value)
0.895 (43.44) _
Log-likelihood (Chi-squared) ‘Numbers level.
0.42* (2.24) -0.3i (1.60)
in parentheses
are r-values.
*Indicates
-0.31 - 1.02) 0.28 (1.32) -0.29 - 1.13)
- 0.002* (- 1.77) 0.70* (1.86) 0.00 (0.37) 0.56’
- 0.002
(- 1.62)
0.28 (1.39) - 0.06 (-0.31)
0.68f (1.85) -0.00 ( - 0.03) 0.54* (1.93) 0.29 (1.55) -0.06 ( - 0.29)
- 18.32 (47.3 I)
- 18.79 (46.77)
( 1.94)
0.857 (42.96)
significance
at 5”/, level and **at 1%
smaller than that of the yield increment, but they are not signilicantly different. This may be due to the influence of opposing behavior of landlords or due to the possibility that the yield data in 1970 captures the influence of other factors such as riskiness of production environments. The landlord-technician ratio has a negative and significant coefficient in eq. (3), whereas the tenancy ratio in 1970 has highly significant coefficients both in eqs. (3) and (4). These findings suggest that the political will played a significant role in land reform implementation. Yield variation, however, shows no significant effect. It may well be the case that yield variation for the last ten years does not well capture the riskiness of production environments.
350
K. Otsuka,
Land reform
implementation
in the Philippines
Only one of the estimated coefficients of three regional dummies is significant in one-tailed test, suggesting the absence of strong region-specitic factors in Luzon relative to Panay Island, which are conducive to the land reform implementation. On the whole, the regression results are consistent with our basic contention that the extent of land reform implementation is determined by the ‘demand’ for land reform, which is shaped by the economic interests of tenants and, perhaps to a lesser extent, landlords as well, and by the ‘supply’, which is conditioned by allocation of government personnel and resources, and other political considerations.’ 5. Consequences of land reform implementation
In this section, we will attempt to evaluate the income redistribution effects of tenure change under the land reform program in favorable and unfavorable areas based upon an intensive survey of owner cultivators and tenant farmers in five selected villages. Villages are numbered from I to V in accordance with the current relative yields. Villages I and III are located in the Central Luzon, and the other three villages are located in Panay Island (see fig. 1 for their locations). Villages I and II are irrigated, and the other villages are rainfed. Village V is located in the most unfavorable, mountainous environments, so that 40% of the area is still planted to TVs. TVs are also grown in hilly portions of village IV, which accounts for 20% of total area, but its production environment is much more favorable than that of village V. Village III, which is located in the Central Luzon plain, is partly irrigated by pumps. Fig. 2 shows the changes over time in percentage share of operational areas under share tenancy since 1960 in the five study villages * Land reform was implemented effectively in villages I and III located in Central Luzon, less so in villages II and IV, and to a negligible extent in village V. Such regional difference may reflect the tendency that land reforms was more vigorously implemented in Central Luzon because of its proximity to Manila, even though it was not statistically detected in the previous section. The case of village II is particularly noteworthy, because the production environment of this village is classified as a well-irrigated, favorable area. In order to estimate the difference in technology level across villages immediately before the declaration of Presidential Decrees No. 2 and No. 27, we collected the data on normal yield per ha around 1970 from the recall of knowledgeable farmers. The estimates of average yields are shown in table 5 ‘More broadly, our linding supports the induced institutional innovation hypothesis of Hayami and Ruttan (1985). which identities changes in the economic incentives as the major cause for institutional innovation. *See Otsuka (1987) for further detail of tenure distribution in these villages in the past.
K. Otsuka,
Land reform implementation
351
in the Philippines
Percent ‘OOfl 90
c ,,,..d
80-
,... . ..“-* ...**
Village
‘...
I
70...._.Village III ‘%. ‘..
‘x..
“.. ‘*s ; :: i ; i i
60A---
Year Fig. 2. Changes
in the percentage
share of operational
areas under
share tenancy.
1960-1985.
in comparison with the yields in 1985. The yield in village II in 1970 is found to be quite high and the increment in average yield for the fifteen-year period was relatively small. This is due to the fact that MVs were largely adopted in the village under well-irrigated conditions by 1970. The yield has been also stagnant in village V because of the adverse rice-growing environments. In contrast, the yields have increased at more rapid rates in villages I, III, and IV, mainly because the modern seed-fertilizer technology was adopted since 1970.
K. Otsuka, Land reform implementation
352
Table Changes
in the Philippines
5
in share tenancy and yield per ha for 1970-1985, and land rents in 1985 in intensively surveyed villages. _ Irrigated villages Rainfed villages
Proportion of share tenancy (“1;) 1970 1985 Yield (t/ha) 1970” 1985 Land rents (t/ha) Leasehold rent Amortization fee Share rent Implicit rent under mortgagingb
I
11
111
IV
v
79 2
51 31
54 0
35 25
60 57
2.6 4.6 0.56 0.54 1.68 1.27
3.3 4.0
2.2 3.7
0.75
0.52 0.56
1.04 -
“Normal yield. “Estimated by multiplying the mortgage interest rate of 25% per season.
0.85
2.0 3.2
1.5 1.9
0.37 -
0.41 -
0.74 0.66
fee and the prevailing
0.64 -
market
An important finding from table 5 is that the leasehold rent is highest in village II, despite the fact that the current yield per ha is much higher in village I. It is also interesting to observe that the difference in leasehold rents among villages other than village II is relatively small. According to land reform laws, the leasehold rent and amortization fees are fixed based on the normal crop yield before 1972. In fact, the ratio of leasehold rent or amortization fees to the normal yield in 1970 was very close to 2j00 in our sample villages. The economic gain captured by beneficiaries of the land reform roughly corresponds to the gap between the rental value of land and the actual payment of leasehold rent or amortization fee,’ and the rental value of land can be approximated by the share rent or the implicit rent under mortgaging. ‘O Table 5 shows estimates of average share rent and implicit rent under mortgaging. Share rent and implicit rent are twice to three times as high as the leasehold rents and amortization fees. It is clear that economic ‘%uch estimation is inaccurate to the extent that the land reform affects the behavior of farmers so as to shift the position of demand curve for land tenancy. See Rosenzweig (1978) for an analysis of land reform based on a broader supply and demand framework. “Under mortgage contract the mortgagee advances fee to the mortgagor, in order to establish a right to cultivate the land until the fee is repaid. Since no explicit interest payment is involved. the interest earnings forgone associated with the advancement of mortgaging fee represent an implicit payment to the mortgagor. Such implicit rent is estimated by multiplying the mortgage fee by the commonly prevailing market interest rate of 25% per season. Mortgaging is illegal. but widely practiced without much fear of punishment by the Agrarian Reform office, particularly in Villages I, III, and IV.
K. Orsuka, Land reform implementation in the Philippines
353
Table 6 Incidence of tenant eviction since 1972 and the number tenants reported by landless workers in intensively surveyed 1985. Irrigated
villages
I
II
No (02
No (7”)
Rainfed III No (2)
of former villages in villages
IV No (9”)
v No (“/,)
Eviction (::, Former
(Y)
cd,
(ii)
1::)
tenants (ii)
No. of landless
(:)
(1:)
workers (I::)
(I$)
(1:)
gains accrued to the land reform beneficiaries have been quite substantial in villages I, III, and IV. Such observations are consistent with the hypothesis that land reform is more effectively implemented in areas where the economic interest of the peasantry in the land reform implementation is raised. We have a supporting evidence for our hypothesis. If the rent and amortization fees were set at a level significantly lower than the rental value of the land, landlords would have been motivated to evict tenants in order to undertake ‘their own-cultivation’, which in fact was often cultivation by new tenants. This would be particularly the case in villages I, III, and IV. In our survey of landless laborers’ households, we tried to obtain data on the incidence of tenant eviction. It is, however, difftcult to obtain accurate information simply because eviction is illegal. Therefore, questions are asked not only about eviction but also about tenure status before.” According to table 6, a number of landless laborers in villages I, III, and IV are former tenants and some of them are reported to be evicted.” No single case of eviction, however, was reported in villages II and V.”
6. Concluding remarks A major finding of this study is that the success of land reform in the rice sector of the Philippines is positively associated with technical change, “As Hanisch (1977, 1978) observed and our key informants suggested, the majority of tenants who were evicted voluntarily surrendered tenancy rights in return for compensation payments. “It must be noted that some of the landless laborers interviewed are migrants from other villages, so that eviction did not necessarily occur in the village in which they resided as of 1985. Although the sample size becomes substantially smaller if we restrict to the cases of eviction in our sample villages, the observed tendency remains unchanged. lJThese findings are consistent with the observation of Ladejinsky (1973) that the green revolution generally induced tenant eviction.
354
K. Otsuka, Land reform implrmentation
in the Philippines
represented by the adoption of modern seed-fertilizer technology. We postulated that the major reason for such association is the divergence of rental value of land from regulated leasehold rents and amortization fees over time, which provided incentives to former share tenants to acquire leaseholder or amortization owner status. The rent income of landlords was sacrificed, but it would not have decreased signilicantly in absolute terms, because the leasehold rent and amortization fees actually determined were relatively close to the prevailing rents in the early 1970s. The results of our analysis suggest that the enhanced interests of tenants tended to outweigh the opposition of landlords in the actual implementation of land reform under such circumstances. As a result, the substantial amounts of income have been redistributed from landlords to tenants only in areas where yields have grown significantly since the declaration of the land reform law. If there had been no technical change, the distributional impacts of land reform would have been limited, not only because the economic gain accrued to tenants from the conversion of tenancy status would have been smaller but also because the scope of land reform implementation would have been much more limited. The lesson we may learn from the experience of the land reform program in the Philippines is the importance of incentive systems created by the land reform law and the dynamics of technical change, which critically affected the distributional consequences of the land reform program. References Barker, Randolph and R.W. Herdt, 1985, The rice economy of Asia (Resources for the Future, Washington, DC). Carroll, J.J., 1983, Agrarian reform, productivity, and equity: Two studies, in: A.J. Ledesma, P.Q. Makil and V.A. Miralao, eds., Second view from the paddy (Ateneo de Manila University, Quezon City, Philippines). David, C.C. and K. Otsuka, 1989, The modern seed-fertilizer technology and adoption of laborsaving technologies: The Philippine case, Agricultural Economics Department paper no. 8915 (International Rice Research Istitute, Los B?inos, Philippines). de Janvry, Alain, 1981, The role of land reform in economic development: Policies and politics, American Journal of Agricultural Economics 63, 384-392. Hanisch, Rolf, 1977 and 1978, Decision-making process and problems of implementation of the land reform in the Philippines, Parts I and 2, Asia Quarterly 1 and 4, 305-322 and 3-38. Harkin, D.A., 1975, Strength and weaknesses of the Philippine land reform, Mimeo. (Asia Society, New York). Harkin, D.A., 1976, Philippine agrarian reform in the perspective of three years of martial law, Mimeo. (University of Wisconsin, Madison, WI). Hayami, Yujiro and Masao Kikuchi, 1981, Asian village economy at the crossroads (Johns Hopkins University Press, Baltimore, MD). Hayami, Yujiro and V.W. Ruttan, 1985, Agricultural development: An international perspective, Revised edition (Johns Hopkins University Press, Baltimore, MD). Hayami, Yujiro, M.A. Quisumbing and L.S. Adriano, 1990, Towards an alternative land reform paradigm: A Philippine perspective (Ateneo de Manila University Press, Quezon City). Herdt, R.W., 1987, A retrospective view of technological and other changes in Philippine rice farming, 1965-1982, Economic Development and Cultural Change 35, 329-349.
K. Otsuka, Land reform implemenrarion
in the Philippines
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Herring, R.J., 1983, Land to the tiller: The political economy of agrarian reform in South Asia (Yale University Press, New Haven, CT). Ladejinsky, Wolf, 1977, Selected papers of Wolf Ladejinsky edited by L.J. Walinsky, Agrarian reform as unfinished business (Oxford University Press, London). Ledesma, A.J., 1982, Landless workers and rice farmers: Peasant subclasses under agrarian reform in two Philippine villages (International Rice Research Institute, Los Baiios, Philippines). McLennan, M.S., 1969, Land and tenancy in the Central Luzon Plain, Philippine Studies 17, 65 l-682. Mangahas, Mahar, 1985, Rural poverty and operation land transfer in the Philippines, in: Rizwanul Islam, ed.. Strategies for alleviating poverty in rural Asia (Bangladesh Institute for Development Studies, Dhaka). Mitchell, E.J., 1969, Some econometrics of the Huk Rebellion, American Political Science Review 63. 1159-l 171. Otsuka. Keijiro, 1987, Technical change and land reform implementation: A comparative analysis of tive rice-dependent villages in the Philippines, Agricultural Economics Department paper no. 87-16 (International Rice Research Institute, Los Barios, Philippines). Otsuka, Keijiro and Yujiro Hayami, 1988, Theories of share tenancy: A critical survey, Economic Development and Cultural Change 37, 31-68. Prosterman, R.L. and J.M. Riedinger, 1987, Land reform and democratic development (Johns Hopkins University Press, Baltimore, MD). Ranade, C.G. and R.W. Herdt, 1978, Shares of farm earnings from rice production, in: Economic consequences of the new rice technolgy (International Rice Research Institute, Los Batios, Philippines). Republic of the Philippines, Ministry of Agrarian Reform, 1983, The operation land transfer programme of the Philippines: Process and impact (Ministry of Agrarian Reform, Manila). Rosenzweig, M.R.. 1978, Rural wages, labor supply, and land reform: A theoretical and empirical analysis, American Economic Review 68, 861-874. Ruttan, V.W., 1964, Equity and productivity objectives in agrarian reform legislation: Perspectives on the new Philippine land reform code, Indian Journal of Agricultural Economics 19, 114-130. Umehara, Hiromitsu, 1974. A hacienda barrio in Central Luzon: A case study of a Philippine village (Institute of Developing Economies, Tokyo). Warriner, Doreen, 1969, Land reform in principle and practice (Oxford University Press, London). Wurfel, David, 1983, The development of postwar Philippine land reform: Political and sociological explanations, in A.J. Ledesma, P.Q. Makil and V.A. Miralao, eds., Second view from the paddy (Ateneo de Manila University Press, Quezon City, Philippines).