The Cost of Land

Can land funds work for the poor?

A Learning Experience from Fondo Ecuatoriano Populorum Progressio - FEPP, Ecuador

A presentation to the Land Thematic Group session on improved access to land through re-distributive land reform

World Bank, Washington , 1 April 2005
Bruce Moore, Director
International Land Coalition

Improving the secure access to land and related factor markets by poor rural men and women is the raison détre of the International Land Coalition. As an alliance of civil-society, intergovernmental and governmental organisations, our primary objectives are to empower the institutions of the poor and to expand the capacity of all of our members, while widening and deepening the space for participation, dialogue and negotiation on land policy, land administration and land management.

Sharing lessons learned is central to this process as it exposes instruments that may be replicated or scaled up, expands the repertoire of knowledge of our partners when considering and negotiating ways and means to expand the range of land access mechanisms - re-distribution often being among the requirements.

The Fondo Ecuatoriano Populorum Progressio, more commonly referred to as FEPP, is an Ecuador civil society partner of the Land Coalition and has been so with many others including IFAD and the World Bank.

FEPP's work in land redistribution provides important lessons, among them, is their experience in managing a land purchase fund. This experience has been analyzed and documented, and published in March 2005 for the International Land Coalition and IFAD by the team of Manuel Chiriboga and Carlos Jara. Unfortunately Manuel Chiriboga could not be here to summarise the lessons for this meeting.

In presenting this study, neither FEPP, the Land Coalition nor IFAD are advocating that Land Funds should be given preferred attention when countries are seeking ways to finance land redistribution. Furthermore, FEPP also wishes it be understood that while their experience contributed to solving the question of land access and legalization, it is not a substitute for the wider requirements of agrarian reform programmes.

While land funds are not new, there is renewed interest in land funds. Past results were often disappointing. It is for this reason that the Land Coalition undertook this case study, hoping that it will not only bring forward lessons that can inform the design of land funds, but also stimulate further inquiries into other land funds so that a wider base of past experience can assist countries considering land funds as ways to finance land redistribution.

In its 30 years of experience FEPP has worked with more than 5,000 campesino organisations in 21 of the country's 22 provinces, involving the delivery of more than US$ 50 million in credit. This study, on FEPP's experience with land funds, is based on the success of 12,000 families, involving 350 campesino organisations that obtained access to 59,000 hectares of land through land purchase funds designed, capitalised, and facilitated by FEPP.

The context was the modernizing ideology in Ecuador in the 1990's involving, the aim of both transforming agriculture and market deregulation. However, the government failed to consider that the nature of the financial markets would make it virtually impossible for campesinos to obtain capital - credit rates in the formal and informal markets were generally higher than could be satisfied by the productivity of their units.

Work in the early 90's provided experience in mediating land disputes between campesinos and landowners and in the logistics for establishing a civil system of land transfer through credit.

Among the key lessons learned we find that:

1. A trusted intermediary organisations is needed to strengthen the skills, knowledge and power of the poor to negotiate fair prices.

2. Titles are a pre-condition to accessing land funds. Titling processes are often beyond the capacity of the rural poor alone, thereby requiring that the intermediary organisation has this capacity.

3. Land Funds are a necessary but not sufficient condition for poor households to become profitable farmers. While this is well known, it is important that complementary resources for accessing related factor markets is available from the beginning, as otherwise productivity levels are unlikely to rise in a timely manner to service the land fund costs and improve incomes.

4. Past experience shows that powerful interests have often re-acquired redistributed lands. Social mobilisation and strengthening the institutions of the poor to defend their rights through collective action and by opening space for their participation in decision making is essential.

5. Repayment problems are not uncommon. The system is therefore based on group lending and sharing of risk and mutual arrangements to assist in repayment.

6. Land owners whose land is mortgaged by banks can often be persuaded to recover their liquidity to invest in more profitable economic sectors.

7. Credit is only provided to an organised entity with legal status (or being obtained with help from FEPP) who also provide a Guarantee Fund (10 to 20% of the loan) from their own resources.

8. Credit is based on a business plan that considers all factors of productivity, as are the same factors in price negotiations such as existing infrastructure, soil quality, et cetera

Among some of the outcomes the study found that:

1. Trust in an intermediary organisaton is essential, takes time and can not be established solely at the time of developing a land fund. Land funds must rely on the intermediary institutions of civil society that have established this trust through their long-standing support to the campesino struggle.

2. The history of campesino relations with the wider society, in particular government is generally one of "felt-exploitation". Negotiation processes brought about a reduction in up to 28% from the original prices.

3. Social mobilisation by campesinos created pressure for land negotiations.

4. Campesinos could pay for the technical services and transaction costs once the initial system of purchase and production services were operational, thereby making the ongoing services of FEPP sustainable.

In closing, FEPP's experience affirms that land funds need to be developed in the wider context of agriculture sector reform wherein commitments must be made to a wider focus on territorial development, empowering the poor and a partnership that will be sustained over time.