In most agricultural regions of the world tenancy is a common way of combining varying inputs to the agricultural production function. In the majority of the European countries and in North America tenants operate over 50% of farms. Latin American countries stand out for their limited use of tenancy, e.g., in Brazil tenants operate 10% of the farms. Historically this was not the case. Less than fifty years ago tenants operated a majority of the farms in some regions. The decline of tenancy has increased the pool of landless peasants, many of whom became squatters on public and private land. Squatting seems puzzling given the presence of considerable hectares of unused agricultural land. The puzzle is: why don't the landowners of the unused land rent to the landless. The project addresses this question and more broadly contributes to the understanding of the factors responsible for the decline in tenancy in Brazil. The research will also shed considerable light on contracting in other areas of Latin America. This project is being supported by the Office of International Science and Engineering and the Economics Program.
The literature on tenancy is vast but the majority of explanations rest on transaction costs, e.g. asymmetric information and moral hazard, and risk. The investigators believe that these factors played a role in the fall in tenancy in Brazil but alone they are insufficient. They will contribute to the literature by testing for the importance of land conflict and land differentiation, including the marginalization of some land, in understanding the decline of agricultural tenancy in Brazil. Landlessness and land reform projects may reduce the desirability to land owners of renting land because they may fear that it will be too difficult to evict tenants if they are deficient in paying rent, given existing legislation ostensibly favoring tenants. Landowners may also be wary of renting for fear that it may target them for expropriation. By land differentiation we mean the rapid specialization that occurred in many agricultural regions partially as a result of the decline in transportation costs and the decline in trade barriers. Specialization marginalizes some land in the sense that some land may not be worth the opportunity cost of capital and the return to applying labor via a rental contract may be only subsistence and as such a potential landlord would opt to leave the land vacant or switch to pasture. Specialization for Brazil in some regions has led to a switch from labor intensive coffee to capital intensive soybeans. As a result, there was a rise in owner operated units and fall in tenant farming. In other areas of Brazil the decline in cotton and sugar and the switch to fruits and vegetables lead to a similar decline in tenancy.
Prior to testing econometrically the factors responsible for the decline in rentals, the investigators will produce analytical narratives of the economic history of agricultural contracting in 5 states in Brazil from 1950 to the present. The states represent different agricultural regions in Brazil and as such will have implications for the decline in rentals in other similar agricultural regions in Latin America. After understanding the agricultural conditions across states and over time the investigators will test for the importance of land differentiation and land conflict with county level data from agricultural censuses from 1950 to 1996. The Brazilian censuses are ideal for testing because they classify farms as being operated by owners, tenants, sharecroppers or squatters. They also collect data on "unused but usable" land which will allow us to further test for the impact of marginalization. The results of the research will have implications for land reform policies in Latin America and even more broadly worldwide. There are millions of rural landless in Latin America whose livelihood would be improved by producing for local markets and their own consumption. Depending on this project's results it may make policy sense for governments to target the marginalized lands either for purchase and redistribution, or for the government to guarantee renting without expropriation.
