48703 Public Disclosure Authorized Mexico's "second agrarian reform": Implementation and impact Public Disclosure Authorized Klaus ~einin~er',Fabrizio ~resciani" Public Disclosure Authorized 'world Bank, Washington DC ** FAO, Rome his is paper is part of the background studies undertaken for a Study of the Agrarian Sector in Mexico jointly undertaken by the World Bank Public Disclosure Authorized and the Secretaria de Reforma Agraria. We would like to thank HCctor Robles, Felix Velez, and the staff of the Secretaria de Reforma Agraria for their support throughout and useful comments as well as Alain de Janvry and Elisabeth Sadoulet for giving us access to their data. The views and conclusions presented in this paper are our own and do not necessarily reflect those of the World Bank, its Executive Directors, or the countries they represent. Co-funding from the Bank's Research Support Budget and a Norwegian Trust Fund is gratefully acknowledged. Mexico's "second agrarian reform": Implementation and impact Abstract: We describe key characteristics and the legal and institutional changes made by the Mexican Government in 1992 to reform the ejido sector and systematic implementation of these changes in a land regularization program (PROCEDE) and use survey evidence to assess the impact of this intervention. Non-economic benefits associated with the program include a reduction in conflicts, significantly increased land access for formerly marginalized groups, and improved governance and accountability at the local level. Quantitative evidence suggests that PROCEDE, but not the legal reforms per se, improved the functioning of rental markets and access to common property resources but had no significant impact on credit access or land sales. These economic benefits were generated mainly through increased incorporation of ejidatarios into the non-farm sector and the reform had a clearly positive impact on equity. 1. Introduction From the 1917 revolution until 1992, Mexico has implemented a large-scale process of land reform, which distributed more than 100 million hectares, or 50% of the arable area, from large farms to the so- called "social sector ". This sector comprises of households mainly organized in ejidos, rural communities modeled after a mixture of soviet-style collectives and pre-colonial indigenous social structures. While the achievements in terms of physical distribution of land were impressive, the model of production adopted was widely seen as being characterized by several shortcomings which prevented the realization of the expected benefits from the reforms (Tellez 1994; deJanvry et al. 1998). First, a continuing mandate for redistribution of private land undermined the security of property rights and thus agricultural investment outside the ejido sector while centralized intervention by the state in day-to day governance of the social sector decreased local governance and responsibility. Second, property rights within the ejido were weak. Legal provisions making usufruct of ejido lands conditional on self-cultivation. At the same time, inheritance restrictions undermined the functioning of land markets and opened up the possibilities for political manipulation. This led to a situation where many old ejidatarios were unable to make efficient use of their land while young households next to the ejido suffered from land shortage or insecure tenure. It also created obstacles to the process of urban expansion that affected an increasing number of ejidos and reduced the scope for effective collective action for resource management. To overcome these limitations, the Mexican Government adopted in 1992 a comprehensive set of reforms that focused on modifications of the legal environment, institutional changes, and the implementation of a systematic program of land regularization (Prograrna Nacional de Certzficacion de Derechos Ejidales y Solares Urbanos or PROCEDE). The goal was to eliminate restrictions on the functioning of land markets, empower communities to choose the property rights regime most suitable to their needs (i.e. either communal, individual, or mixed), to increase security of tenure and investment by issuing certificates of land ownership, establish an institutional structure to reduce the cost of verifying and transferring land rights, and deal with the backlog of land conflicts that had been inherited from the past. The reforms were subject to substantial discussion and controversy; while supporters viewed them as essential to overcome what they considered a long-standing and policy-induced stagnation of the rural sector, critics argued that the reforms were, at best, unnecessary and focused on the wrong issues and, at worst, would lead to the disappearance of the ejido and irreparable damage to the social structure in rural areas (Thompson and Wilson 1994). Despite the large scale of the program, the discussion surrounding its adoption, and the potential importance of the reforms for other countries faced with the task of making a transition from customary to more individualized forms of land tenure, no systematic evaluation of the legal reforms or the implementation of PROCEDE has, as of yet, been undertaken. Evidence at the municipio level, though providing interesting hypotheses, is insufficient to make inferences on the program's impact {Johnson 2001 ) . An array range of publications by the Mexican Government (Rincon 2000, Secretaria de Reforma Agraria 1998; Procuraduria Agraria 1998 and 2000) provides detailed information on ejidos that have undergone PROCEDE but, due to the absence of a control group, is unable to draw conclusions on program impact. World Bank (1998) focuses on a describing rural poverty as well as other government programs but offers little evidence as to the impact of either the legal changes or their implementation. The essays and case studies compiled in Cornelius and Mhyre (1998) offer fascinating insights into specific issues but are neither representative of the whole sector nor comparable among each other. Based on a more representative sample, an impressive amount of descriptive evidence is, in view of the recent nature of the reforms, lack a sufficient basis for making causal inferences on the impact of the reforms {deJanvry et al. 1997). In this paper, we use a combination of data sources to describe the changes made, the implementation of PROCEDE, and to make inferences on the impact of these measures. Section two describes the background, emphasizing in particular the relevance of the ejido to deal with the inter-related issues of poverty, sustainable resource use, and productivity and the broader macro-economic and sectoral reforms undertaken in the early 1990s. Section three discusses the motivation for the legal and institutional changes adopted in the context of Mexico's ejido reform, the implementation arrangements for the land regularization program, and quantitative accomplishments as well as determinants of program implementation. Section four presents evidence concerning the impact of the program on the operation of factor markets, natural resource management, and the overall benefits. Section five discusses conclusions and policy implications concerning the completion of the program, the sustainability of the information generated, and the program's contribution to broader development in rural Mexico. 2. Macro-economic and sectoral background As a background for the subsequent analysis, this section describes salient characteristics of the ejido sector which, located at the intersection of the problems of productivity and efficient land use, poverty, and sustainable resource management, epitomizes many of the broader issues that need to be tackled for economic and social advancement in rural Mexico. A description of the macro-economic and sectoral reforms undertaken since the early 1990s as well as measures to facilitate the transition illustrates that these need to be complemented by direct attention to the endowments of the poorest and improved functioning of factor markets, something that was attempted with the ejido reforms. 2.1 The ejido sector at the core of Mexico's rural problems The social sector, comprising 29,162 communities (26,796 ejidos and 2,366 comunidadesl) with an estimated population of 3.2 million, emerged from the land reforms after the Mexican Revolution. Art. 27 of the country's 1917 Constitution endowed it with control over substantial land resources. It controls 103 million hectares or 56% of the land usable for agriculture as well as 70% of the nation's forests. Individual ejido members could acquire usufruct rights to individual parcels of land, access to communal land, and a house plot. They had to work the land directly; rental or sale, as well as hiring of labor, were prohibited and being absent from the land for more than two years led to loss of usufruct rights. This limited the ability to access credit and led to the evolution of a special system that gave credit in kind to the group, rather than individuals, conditional on cultivation of approved crops. Even though members could vote in the ejido assembly, political interference was common; the validity of assembly decisions had to be countersigned by state institutions, which were often aligned with powerful political interests. Independent mechanisms to seek redress, e.g. against appropriation of common lands by powerful and politically well-connected individuals, were unavailable. The combination of weak property rights and political interference in ejido matters