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Backgrounder Part II-The World Bank and Land Reform in Brazil
November 06, 2003
The second of a three part report on the history and status of land reform in Brazil. In this section of the report Sérgio Sauer focuses on the role of the World Bank in shaping land reform policy at the national level and its emphasis on the establishment of land markets.
PART TWO: The World Bank’s market-based land reform in Brazil
Brazilian rural and people's movements (members of the National Forum on Agrarian Reform and Rural Justice) have raised serious criticisms of the World Bank's proposed "market-oriented land reform" ever since the loan was first announced. The criticisms range from questions about the market's ability to de-concentrate land to doubts about the real objectives of this kind of financial mechanism (political interests and real beneficiaries) in countries like Brazil, South Africa and the Philippines.
Five years after the creation of the Cédula da Terra (literally, "Land Bill", as in a dollar bill) project through the first pilot project of the three successive versions of market-oriented land reform in Brazil, these organizations began research to appraise the situation of families participating in the project. The data from that study corroborate many of the criticisms regarding the objectives and the effectiveness of the World Bank's "market land reform" program.
Brazilian agriculture and the present government's land-tenure policies
Brazil's 8,547 km2 of land, including its 415,5 hectares of tillable farmland, make it nearly a continent in itself. It reaps 90 million tons of grain per year. The IBGE's 1996 Agriculture Census revealed that there are 25 million hectares of "fallow" land (up to four years unplanted), accounting for nearly 60% of all land planted with annual or perennial crops.
The country has one of the world's most perverse and highly concentrated landholding structures, with a Gini index near 0.9 – nearly total concentration – as a result of its segregationist agriculture and land-tenure system, exacerbated since the 1960s and 70s by the introduction of the Green Revolution.
According to the 1996 Census data, there are a total of 4.8 million farms in the country, covering 353.6 hectares. Of the total number of farms, 89.1% are minifundia (smaller than one "fiscal module") and farms less than 100 hectares, yet these account for only 20% of the land area. At the other extreme of the landholding structure, large holdings (over 1,000 hectares) account for 1% of the total number, and 45% of the farmland area. This is the segment that includes over 35,000 farms classified as unproductive latifundia, covering a total land area of 166 million hectares.
Other land-tenure figures reveal that, in 1970, farms smaller than 100 hectares accounted for 90.8% of total farms, covering 23.5% of the area. In the 1996 Census, the share of the number of small farms had dropped to 89.3%, and their area to 20% of the total. On the other hand, only 0.7% of landholdings in 1970 were over 1,000 hectares in size, covering 39.5% of the total area. By 1996, these latter figures had evolved to 1% of total farms, and 45% of the area.
On the other hand, an estimate produced by the federal government's own Applied Economics Research Institute (IPEA) places the number of potential beneficiaries of a land reform program in Brazil (land owners, renters, sharecroppers, squatters and wage earners) at approximately 4.5 million families.
Under Brazil's Constitution, land reform must take place through the expropriation of large landholdings (areas over 15 fiscal modules) that do not fulfill a social function or are considered unproductive. "Unproductive" farms are those classified as not achieving 80% of the use of tillable land or whose yields are below 100% of the average per-hectare productivity rates. The expropriation process includes long-term payment of compensation (through 20-year bonds) for the value of the land, and cash payments for improvements. This process and the settlement of landless farmers (execution of the land-reform policy) are the responsibility of the National Settlement and Agrarian Reform Institute (INCRA), currently a branch of the Ministry of Agrarian Development.
Early in its second term, in 1998, the government of Fernando Henrique Cardoso launched a "new agrarian policy," branded as the “New Rural World.” It focuses on three key issues that embody a break with the discourse and practice of the FHC government during its first term.
The first thrust was to reduce agrarian policy to simply a compensatory policy. In the thinking of international agencies, particularly the IBRD, land reform has become a tool to alleviate or fight rural poverty. Democratization of access to land is nothing more than a means to ease social pressures in rural areas, especially through poverty alleviation. Democratization of landholding is not seen as a way to distribute assets or to allow for any innovation in the development model (even though extreme poverty is in fact considered an obstacle to current concepts of development).
The second novel aspect in Brazil's present agrarian policies is the decentralization of all landholding actions. This is a strategic issue for the implementation of agrarian policies, as a process of "de-federalization" that delegates responsibilities heretofore reserved to the federal government. All programs, projects and policy proposals for agrarian policy- making are referenced to the drive to decentralize actions, interlinking decentralization, democratization and efficiency.
Yet decentralization does not in fact mean democratization or greater participation by the most directly affected people and families. It is a delegation of power to state and municipal authorities, which is more intimately related with and susceptible to the political influence of the oligarchy (which still carries political weight in broad sectors of the state). Rather than a solution (through greater efficiency and agility), therefore, decentralization can actually make land reform actions unfeasible.
Programs and projects like the Cédula, the Land Bank (Banco da Terra) and Land Credit (Crédito Fundiário) are mechanisms that help consolidate this "de-federalization" or decentralization by depleting and then destroying land reform. These programs "push the buck" not to states or municipalities, but to the market, and more specifically into the hands of landowners. The INCRA's loss of power then justifies budget cutbacks and cost containment, as part of the movement to downsize the state and privatize its responsibilities.
The third part of this "New Rural World" policy is the commodification of landless farmworkers' historic demands. Commodification takes on several guises, but the launching of the so-called "market-oriented land reform" is the most explicit of them.
These features of present-day agrarian policies in Brazil are aligned with guidelines and policies set out by the World Bank for poverty-alleviation programs. The government's agrarian policy follows the IBRD recipe book, which goes beyond market-oriented land reform to "propose" a number of changes (including decentralization) as a "recipe" for a country's economic development.
The Cédula da Terra project
On November 30, 2000, the board of the World Bank approved the request for a second loan of approximately US$200 million to expand Brazil's "market-oriented land reform." IBRD documents show that these funds would assure continuity of the Cédula da Terra pilot project, expanding the land-purchase mechanism from five to fifteen Brazilian states.
The initial proposal was to earmark the funds for the creation of the Land Bank (JUNGMANN, 1999: 4). In response to outright opposition from all organizations and movements in the National Agrarian Reform and Rural Justice Forum, the World Bank decided to redirect this loan to finance the establishment of the Land Credit Program for Fighting Rural Poverty (also included in the law that created the Land Bank), as a continuation of the Cédula da Terra "experience."
The Cédula da Terra program (whose official name is the Land Reform and Poverty Alleviation Pilot Project) arose from a partnership between the Federal Government and the World Bank written into Loan Agreement 4147-BR. Originally conceived as a pilot project, the Cédula was officially announced in 1996 and implemented beginning in 1997 in five states (Ceará, Maranhão, Pernambuco, Bahia and northern Minas Gerais). The selection of those states was justified by the tremendous concentration of poverty in Brazil's Northeast.
The Cédula da Terra project basically involved creating a credit line for landless farmworkers and minifundistas to buy land. Beneficiaries would organize in legally constituted associations responsible for directly bargaining the purchase of land from owners. Associations would then choose the farms to be purchased with bank funds, which – once the state technical unit approved the project – would go directly to the owner.
Although it began as a pilot project, by 1999 (before any kind of evaluation) the Brazilian government had created the Land Bank (Banco da Terra), modeled on the Cédula. Despite promises to support this new project, the IBRD ended up funding the creation of the Land Credit project (Crédito Fundiário, created in 2001), due to pressures and questions raised by Brazilian and international people's movements and NGOs. The Land Credit project, however, has the same features and objectives as the Cédula and the Land Bank, amounting to a mere change of names to maintain the World Bank's money and purposes in Brazil.
The Cédula's target audience was made up of landless wage-earners, renters and sharecroppers, as well as poor farmers without enough land for subsistence (minifundistas). The goal was to settle 15,000 families in three years (later extended to four years). The total cost was estimated at US$150 million, with US$45 million coming from the Federal government to purchase land. The World Bank's US$90 million loan was to be used to fund complementary community investments. The remaining amount was committed by state governments (US$6 million) and a community counterpart (US$9 million), mainly in the form of labor.
Both the purchase of land and the loans (grants) for community investments were done through the beneficiaries' associations. Initially, the project was to make loans for the purchase of land to be paid back in ten years, including a three-year grace period. The families' debts would be indexed to the Long-Range Interest Rate (TJLP, in Portuguese), somewhere around 15% per year in 1997, well above the annual inflation rate. In response to criticism from social movements, the federal government changed the conditions (when it created the Land Bank, in 1999) to extend the payment term to 20 years, still maintaining the three-year grace period. Servicing and interest on the loans would cost 4% per year, well below the TJLP and closer to inflation rates.
At first, there were no restrictions on the land to be purchased with the loans, even for areas that could be expropriated under the Constitution. This allowed the Cédula to be used to pay for unproductive latifundia, paying in cash for areas that could be expropriated by issuing bonds. Questioning and pressure from rural social movements forced changes to these loan conditions, forbidding the purchase of areas larger than 15 fiscal modules, which could be expropriated for agrarian reform purposes.
According to the Preliminary Evaluation report contracted by the IBRD, the general objective of the Cédula da Terra was to reduce poverty in the northeast by increasing the income of approximately 15,000 poor rural families who would gain access to land and also participate in complementary subprojects to respond to the communities' own demands. Another major objective was to test this pilot land reform project in which beneficiaries are funded to buy land through direct negotiations between rural communities and landowners (BUAINAIN, 1999).
One specific objective of the Cédula was to monitor the project's efficiency so as to build the government's capacity to accelerate its own land reform program by lowering the cost of land. The project was also justified by the creation of more agile and effective mechanisms than "burdensome" expropriations for agrarian reform, using the World Bank's own language.
The Ministry of Agrarian Development has justified the creation of the Cédula project, based on three objectives: a) cheaper and faster market-facilitated settlements, b) pacification of the countryside as the landless negotiate land acquisitions themselves and c) the Ministry's contribution to fiscal adjustment through cost reductions as part of IMF-mandated structural adjustments.
A peaceful, de-bureaucratized land reform, more coherent with new times of economic stabilization, is the language officials use to justify their adherence to the IBRD's market-based land reform policy. The common thread in such justifications (explicit in the official discourse) is the idea that market mechanisms will provide access to land without confrontations or disputes, reducing social problems and federal expenses at the same time.
For critical organizations and people's social movements, however, the Cédula had other objectives and principles in mind. First of all, it hoped to take "ideology and politics" out of land reform in Brazil. Buying and selling would remove confrontation from the struggle for land and isolate rural movements and organizations with decades of struggle for a broad-based agrarian reform.
This project would thus bring peace to the countryside (in the official discourse). Instead of confrontation (land takeovers and demands for agrarian reform), families would peacefully and directly negotiate the purchase of land from latifundia owners. The interest of the latter would be assured because they would be paid in cash (rather than 20-year bonds) for their unproductive land.
What is more, these projects (Cédula, Land Bank and Land Credit) contribute to the decentralization process. As mentioned above, there is a move to shift financial and political burdens to states and municipalities. Thus, state governments introduced the Cédula (decentralizing its execution), and the costs passed on to the landless families it was to benefit. This is one of the Ministry's contributions to fiscal belt-tightening. Lower costs have also helped dismantle the INCRA, which has nothing to do with the land market.
Whether or not these objectives and principles ever materialize, Cédula money has been a very effective tool in undermining grass-roots support for rural organizations and people's movements fighting for land. The availability of money to buy land – coupled with talk of peaceful land reform, no more takeovers, etc. – helps demobilize anyone wanting a piece of land to work. This breakdown has continued with the creation of the Land Bank and Land Credit project, also funded by the World Bank money.
The reality of the Cédula project: research results
The basic objective of the study sponsored by several Brazilian land reform organizations was to evaluate whether this kind of program achieves its minimal objectives of providing better living conditions for Cédula beneficiaries. There is wide agreement that it is incapable of democratizing Brazil's concentrated landholding structure or of promoting any kind of agrarian reform. Even so, the study sought to assess whether there had been improvements such as political emancipation, access to land at lower prices, access to infrastructure (water, power, basic sanitation, etc.) for families buying land with the Cédula.
The information used came from interviews with families living in 16 different Cédula areas, interviews with technical officials responsible for the project and analysis of official documents in the five states. Despite difficulties in accessing official data (the general orientation is that agencies should not provide documents or data on the project), the study corroborates many of the criticisms and questions from people's movements and NGOs.
3.1. Living conditions of beneficiary families
The overriding goal of the World Bank's "market-oriented land reform" (and others aimed at rural development) is to alleviate poverty. Since the phrase shows up in every single IBRD document, the study set out to discover whether there has actually been any improvement in living conditions for families on land bought by the Cédula.
Overall, the beneficiaries' own answers converged towards a positive evaluation of their living conditions as a result of using the Cédula da Terra to fulfill their desire to own land. People report that the most significant change was that they are now "owners" of land and are thus planting and administering their own labor (the "peasant project" of free labor). They also state that now they have a place to live, although they are aware that they have to pay for it and can be expelled if they do not pay the loan they signed.
In accordance with the project's general rules – aimed as it is at poor people – interviewees were in a precarious situation and extreme poverty before buying land. The overwhelming majority had temporary jobs and was underemployed, with low income and wages and very bad living conditions. This previous situation of precariousness and extreme poverty led to an evaluation that living conditions had improved with land ownership.
This kind of situation makes the Cédula a lifesaver, especially since in addition to the land beneficiaries receive a "salary" during the first months. The "selection" of very poor beneficiaries (some of urban origin) is possible due to the widespread absence of any options for employment in the region. Beyond their dream of owning a piece of land, these people's perception makes the Cédula the "only way out," thus skewing assessments of possible improvements in living conditions.
Even seeing the Cédula is the "only option," many voiced quite negative opinions regarding their situation on the new land in several areas. Many even stated that they now face greater hardships than they had in the past. Unkept promises, particularly when funds are not released for production or for infrastructure, were among the most common reasons for this generalized discontent.
Dissatisfaction is recurrent in the various areas surveyed, for a variety of reasons and motives, but the holding back of funds for infrastructure (World Bank funds) and for production (public funds) tops the list of complaints. The shortage of funds – along with the lack of technical assistance – create many problems that mean precarious living conditions in the areas, since they cannot afford to deal with the drought (a serious problem in the entire region where the Cédula has been implemented). There are several areas that have no supply of drinking water because the funds were not released.
To varying degrees, all 16 projects visited reported problems with access to water (lack of water, no water pipes and – above all – the delay in funding for irrigation projects), as well as difficulties with transportation, schools, basic sanitation and health. Electric power is also a public service not available to most projects (and for others not affordable).
Even when "having a place to live" is seen in a positive light, there are cases where three to four years after a project has been launched not all the houses have been built because funds did not arrive or were insufficient. Many schools were not built and children have no transportation to go to schools in the closest towns.
Lest we forget, funds for building and installing infrastructure come from the World Bank and must be available from the outset of each project. In contrast to these problems and delays in getting enough funds released, interviewees did not report major difficulties in the release of money once their loans were approved, to pay for the land, a payment made directly by the bank to the landowner.
One important indicator of the hardships and precarious living conditions faced is the high rate of families who abandon the land. It was hard to obtain such general data on the Cédula, but in the areas visited there were high "drop-out" rates, up to 60% of the families having given up in some cases. Reasons for this are directly related to the difficulty of surviving off the land due to lack of production, income, etc.
3.2. Negotiation process and knowledge of project rules
The Cédula da Terra was conceived and is executed following market-based rules, especially in the purchase of land. This means in the first place that a project can only buy farms that are for sale. Land markets are still incipient in Brazil, and the lack of funds obliges people to buy cheaper, low-quality land. It is not the market- price for land that falls in the negotiating process (considering the buyers' bargaining power), but the short supply and lack of funds that makes them buy cheaper farms, far from markets and with poor soil.
The limit on funds to buy land (US$11,000 per family, including the price of land and the cost of infrastructure) is a problem in the purchase process. The limit pushes projects into less dynamic regions on less valuable land with poorer soil and severe limitations on production. These limitations have a direct impact on farmers' ability to produce or to meet obligations such as paying for the land.
Second, the survey confirmed that families have little or no influence over decisions (choice of farms) or in the negotiating process (setting the price of land). Most of the negotiating is done by the government officials in charge (a clear challenge to any market-based logic), who ultimately set the course of any deal, based on their knowledge of the funding limits (and at times their personal relations with the seller).
There are reports of cases where bargaining did actually lower the final price, but in no case was the negotiating done by the directly interested families themselves. The survey revealed that all the individuals interviewed – including association presidents – in all five states stated that they had not participated directly either in the choice or in the purchase of the farm and that these decisions were made by the local agency responsible for the Cédula.
The association plays second fiddle when, if the project expectations were respected, it and the workers should be protagonists in the use of market mechanisms. Official agencies that should play supporting roles end up taking the lead. The power to choose is wielded by government officials, blocking any participatory or educational process.
Obstacles to participation are aggravated by the families' own situation and their lack of information. Their hardships and this chance to move up in life make families anxious to purchase their land. They are often predisposed to "pay any price," since the affordability problem is something to be "handled" later (their immediate demand is to get the land). This short-sightedness is heightened by the competition for funds, as families know that there is little money in the program for the many who want to participate, and a delay in the negotiation process may mean exclusion from the project.
Meanwhile, another real obstacle to participation is that people do not know "the rules of the game." Interviewees revealed they have no information on the project's basic elements. This is very clear when they are asked about loan payment conditions. Except for the grace period and final payment term (although some still think it is ten years), no one knew what the interest rate would be or even the amount to be paid in the first installment (which was about to come due at the time), much less the alternatives available if they were unable to pay.
This situation implies a tremendous imbalance between the two negotiating parties and explains the dominant presence of public officials in the land-buying process. The same imbalance was also identified in the Preliminary Evaluation, which said that "in all the situations listed, negotiations are on an unequal basis. The parties meet divided by unequal rights vis-à-vis the land market, and what is supposed to be full information is a fiction" (p. 121).
Interviewees also stated that landowners only sit down to negotiate with the government (the responsible public official), making any participatory process impossible. Their willingness to sell depends on the guarantee provided by an official presence (the program is the State's responsibility, which should be assurance enough of a good price for the land). While this situation explains the major role and intervention of the state, at the same time it denies any chance for a "market logic" to work, thus revealing this kind of program's underlying faults.
3.3. Associations, participation and building citizenship
One of the World Bank's basic guidelines for funding "social" programs is to foster the participation of the people and social groups directly involved in the projects. At the same time, to gain access to Cédula da Terra funds, landless families must be organized in a legally registered community association. Interested families must organize an association (which a priori is a space for participation and decision-making) through which they can then apply for funding.
The Preliminary Evaluation had already observed a number of problems related to the formation of and decisions made by these associations, including the influence and participation of local politicians and landowners in their organization and creation. Such problems are recurrent in the interviews. While confirming the importance of their associations, the majority said they had little participation and reported frequent cases of deviation of funds, imposition of leaders (even by local authorities), decisions taken from the outside (kinds of investments, forms of organization, etc.) and imposed on the group through the association, etc.
In addition to these problems with associations, there are reports of impositions in decisions on collective investments. Public agencies responsible for organizing the Cédula da Terra in the states decided that each area should create collective plantations (under the association's responsibility). The basic objective of the collective areas is to produce cash crops to assure payment for the purchase of the land.
Besides the imposition of collective investments (or perhaps as a result), community or collective plantations operate by paying day wages. Funds from the infrastructure subproject (SIC) are earmarked for this kind of payments, making community or collective labor a way to pay for the funds allocated to the families' initial maintenance in the areas. Each project organizes the work as it sees fit, but generally every person works two or three days per week in the community investment. This labor is paid on a daily basis (interviewees said it ranges between R$5 to R$7 per day), thus reproducing the logic of exploitation of rural wage laborers.
The practice of paying those who work in collective initiatives through daily wages turns people into "wage-earners" or "employees" of their own association or community. These people, in the first place, do not control or appropriate the process because they are being paid to provide a service, just as in any wage-earning situation. Second, they do not appropriate their own investment because it is not theirs, seen rather as belonging to "the association" or to "the responsible agency."
The entire process is authoritarian because it imposes certain practices and values. The people should not be forced to carry out activities (collective initiatives) or adopt life styles to which they are not accustomed (agglomerates em agrovilas) just because they participate in a loan program.
This kind of imposition is diametrically opposed to "free-market philosophy" and to social organization based on competitively and efficiency, as espoused by the Cédula da Terra. It also runs contrary to the logic of community empowerment touted by the World Bank, because it blocks social processes capable of fostering free and autonomous citizens.
The survey also revealed that most of these attempts to organize production have been failures. They do not pay enough for people to cover their installments, and the imposition of "collective labor" discourages community help and cooperation initiatives, thus causing both social and economic losses for families included in the Cédula program.
3.4. Farm production and ability to repay loans
Situations differ in the various areas surveyed, particularly in terms of soil quality (fertility, depth, relief, etc.) and availability of other natural resources such as water. Despite the diversity, the data reveals similarities in many interviews regarding problems and precarious situations in the areas, including a clearly generalized hardship to keep up with installments on the loan to purchase the land.
There is a diversity of perceptions on soil quality, ranging from "the land is good" to evaluations like "part is good and other parts are weak" and even statements that the "land is not good at all." Most people reported difficulties in farming in all the projects visited, especially on their individual lots (lack of technical assistance or funds for investment were the most frequent complaints).
Drought is a constant problem in the Northeast, but there are serious problems related to the quality of the land purchases (fertility, depth of soil, rocky soil, land unsuitable for many crops, areas located in forests protected by environmental laws, etc.). As a result, farm production on the projects surveyed is basically for subsistence, where families even try to use the land's potential (crops are generally small and poor in quality).
Most families also experience financial difficulties and produce relatively small amounts for local markets, with most of the harvest for self-consumption. Interviewees stated that production on individual lots does not generate enough income even for survival, much less for capitalization or new investments in production.
Families interviewed use a variety of survival strategies such as working as day laborers or taking jobs off the farm as domestic workers, in stores, etc. The most common strategy is to take an occasional day-labor job doing chores on other farms in the region.
Farm output is not allowing families to achieve the ambition of "competitive insertion" into markets. The Cédula da Terra project is not getting people into the market by allowing for production and income generation in the countryside. Instead it reproduces precarious situations that drive family members into outside jobs to survive.
The same problem appears in collective investments, which take a larger share of funds to build infrastructure (as in irrigation projects), purchase farm inputs and pay for technical assistance. These investments are supposed to produce monoculture cash crops and generate income to pay back the loans, but this is not happening for a variety of obstacles to collective production.
The local agencies put most infrastructure funds into making collective production viable, leaving individual lots to a second priority. Collective lots come first and receive the greatest investments in technology (mainly for irrigation) and technical assistance. Such investments, however, mean even greater losses for families who for many reasons (including poor technical advice) cannot harvest enou###
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