Land Institutions and Structural Transformation

in Paraguay

Rajack R., Galeano F. and Fragano F.2014 Annual World Bank Conference on

Land and Poverty

March 2014Washington D.C.

Structural Transformation in Paraguay

High agricultural commodity prices and the rapidly growing international demand for soya beans and beef are creating strong incentives for expanding agricultural land use in the Eastern Region and cattle ranching in the Chaco.

The changes in land use and land tenure patterns are also changing the structure of the workforce….greater mechanization in agriculture and other urbanization forces may be bolstering demand for urban serviced plots.

The forest cover of the Eastern Region has been reduced from 55 per cent of the surface area in the 1940s to 24 per cent in the 2000s.

General Objective

The broad objective of this study is to assess the alignment of land sector institutions in Paraguay with the country’s pursuit of sustainable development and shared prosperity.

What are the factors associated with rural land inequality?

What are the characteristics of rural land market dynamics for individual farmers and how do sale and rental markets differ?

What have been the main phases of deforestation and what are the land governance gaps and opportunities related to conservation and biodiversity preservation?

What has been the extent and nature of urban spatial expansion in the last decade and how effectively has urban land supply kept pace with growing housing demand especially for those with low incomes?

Principal Questions of the Assessment 

Area I: Agrarian Structure and Rural Land Markets

Land and Agrarian Reform ◦ From the decade of the 1960 Paraguay has implemented a program of

land reform that has distributed more than 12 million hectares

◦ However inequality in land access remains as one of the principal characteristics of the rural economy

◦ Extreme poverty is concentrated in rural zones and is strongly associated with limited access to land

Expansion of the Agricultural Frontier◦ Between 2001 and 2008 Paraguay’s agricultural frontier grew in area

by 30%

◦ The impact of the agricultural reform in terms of land access has been eclipsed by the growth in firm agriculture

Context

Principal Results

• Multiple Regression Analysis Land Inequality at the District Level (224 districts) using 2008 Agricultural Census… R-squared of 0.65

• Small increase in the quantity of pasture land, forests or barbecho within a cultivated parcel reduces the land gini

• More lucrative agricultural products and foreign land ownership are positively correlated with land inequality

• Credit and formal titles are statistically significantly negatively associated with land inequality

• Human capital as estimated by the number of years of education is negatively correlated with land inequality

Question2: Are Rural Land Markets transferring land to more productive operators?

• A household (2010 survey) decides to buy or rent a parcel if the benefits (B) are greater than the costs(C).

Vender Ninguna Transacción

Comprar

Dar en Alquiler Ninguna Transacción Alquilar

B > C B < C B > CHowever transaction costs raise the total costs and increase the range in which the houshold decides not to do anything

B > C B > CB < C

Venta Ninguna Transacción CompraSin costos de transacción:

B > C B > CB < C

Venta Ninguna Transacción CompraCon costos de transacción:

Costos de Transacción

Results

• From an economic perspective the sale and rental markets seem to be transferring land to households with greater productive capacity

• Rental markets favor households with good productive potential but little quantity of land

• Increasing the security of tenure has the potential to

augment both sale and rental markets.

• Better access to information also has the potential to augment rental of land

Area II:Environmental Services(Forests and Watersheds)

◦ Deforestation in the Chaco has advanced at an alrming rate of more than 200,000 hectares per year.

◦ In the Eastern Region deforestation has diminished considerably following a moratorium that expired in 2013

◦ Change in land use associated with agricultural expansion is the greatest contributor to climate change in Latin America

Context

 

Principal Results: Regional Comparison

  Annual deforestation rate as a % of land area

Paraguay 0.9%Regional Average (1990-2007) 0.5%Average for low and mid-income countries 0.5%

Country Percentage of remaining forests 2010 (FAO)

Brazil 61Argentina 11Paraguay 44Regional Average 47

  Protected Areas (% of national land area)Paraguay 5Region 20Average for low and mid-income countries 9

Principal Results: Participation of the Forest Sector as a % of GDP

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

3.5

4

Series1

Area III: Land and Urbanization

Urban Land Access

• During the last three decades, Paraguay has been urbanizing faster than practically all its South American neighbors

• In 2002, Paraguay had a new urban housing deficit of more than 70.000 units

• Paraguay has made little use of urban property tax

• Historically Paraguay’s more urbanized neighbors have not adequately anticipated affordable serviced land needs

Urban Expansion in Gran Asunción y Ciudad del Este 1999-2010

Ciudad Área (ha) 1999

Área (ha) 2010

Change (ha)

% change

Asunción 28202 30834 2632 9.

Ciudad del Este 12416 14944 2528 20

Pedro Juan Caballero 2113 2721 608 29

Encarnacion* 1599 2687 1088 68

Caaguazú 1719 2192 474 28

Santa Rita 489 1139 650 133

Summary of Urban Expansion1999-2010

* 2000-2011

Urban Expansion1999-2010 by Type of Ecosystems

Except in Asunción and Santa Rita, the majority of the expansion (1990-2000) occurred in ecosystems that were not classified as suitable for built development

Case of Ciudad del Este:

  Distrito Capital

Ciudad del Este

Typical size of a small plot 360m2 360m2

Typical combined cost of a typical small plot and an economical house

Gs 212,100,700 Gs126, 393,000

Annual income level for which such a shelter product is affordable

Gs 53,025,200 Gs 31,598,300

Proportion of the population in the corresponding department for which such a minimal shelter product is affordable .

65% 64%

Affordability in 2010 in el the Capital District and Ciudad del Este

Most lucrative agricultural products are positively correlated with land inequality.

From an economic perspective, land markets appear to be transferring the domain and rental operators more productive capacity.

Disconnection between different views of land use, the uncertainty of land tenure and lack of incentives are hurting ecosystem results.

The rate of urban expansion in areas outside of Asunción is much higher and often occurs without a regulatory plan and proper coordination.

In all sectors, the unreliability and incompleteness of land cadstre is a major constraint.

Overall Summary of Areas in need of greater Policy Attention

Reduce the Institutional Constraints that adversely affect smallholder participation in the rural economy.

Enhance the sustainability of agricultural expansion practice by expanding the coverage of broad rural cadastral information and linking it to incentives.

Improve the reliability, coverage and authority of rural land information for policy making and implementation.

  Promote core areas and ecological corridors for maintaining

environmental services and increasing market incentives for sustainable production through such initiatives as Certification/Traceability.

  Promote more efficient urban expansion with greater

affordability of land and better regulatory planning.

POLICY OPTIONS