THE RURAL POOR

Despite rapid "urbanization of poverty" in Latin America and the Caribean (LAC), large numbers of poor people continue to be found in rural areas. Agriculture remains their principal source of income. A pragmatic approach to rural poverty--including "market-assisted" land reform, provision of rural infrastructure, targeted education and health programs, and greater community involvement in decision making--may avoid the ill-effects of rapid liberalization on the one hand and land expropriations on the other.

RURAL POVERTY: STILL SUBSTANTIAL

Poverty in LAC is often perceived as an urban phenomenon because more than 70 percent of LAC's population lives in cities and urban slums are so extensive. Yet in six countries more than half the population still lives in rural areas; in another twelve countries the majority of the poor are rural; and in most of the region the very poorest 10-20 percent of the population live mainly in rural areas..

Some 80 percent of the indigenous population in LAC--generally concentrated in rural areas--are poor (glossary: income under US$2 per capita per day), and over half are among the extreme poor (glossary: income under US$1 per capita per day). Indigenous or not, the rural poor are typically either landless farm laborers in commercial farming areas, or smallholders in areas of marginal productivity and a low degree of commercialization. In several countries, cultivation of raw materials for the drug trade is the most attractive source of cash income for the rural poor. Because so many of the poor earn their livelihoods in environmentally fragile areas or on the frontiers between agriculture and the remaining forest, rural poverty is also closely connected with "green" natural resource management issues. Finally, though public infrastructure and quality education are general deficiencies in LAC, rural areas suffer from the most extreme deprivation.

NEGLECT OF RURAL AREAS

Despite the continued high incidence of rural poverty and its links with other key issues, rural areas have been generally neglected by governments in the region. One reason has been their apparently minor role in the economies of LAC. In many countries, the share of agriculture in GDP has declined since the latter half of the 1980s. Agriculture now accounts for less than 10 percent of GDP for the region as a whole.

Another reason for the relative inattention to rural areas is political in nature. The growing urban populations in LAC have contributed to a political transformation in which urban-based political parties and interest groups have gained ascendancy over rural interests at the national level (although the traditional agricultural oligarchy often continues to dominate the rural areas).

Nevertheless, the decline of rural economic strength and political forces should not be exaggerated. Agriculture still accounts for 20 percent or more of GDP in five countries (Bolivia, Haiti, Honduras, Nicaragua, and Paraguay). Agriculture, forestry, and fisheries collectively remain major sources of exports and means of livelihood for a sizable part of Latin American society. For the region as a whole, agriculture's share in employment (48 percent in 1960) stood at around 32 percent two decades later. Even in Brazil, the sector still contributes 40 percent of export receipts and 25 percent of employment.

On the political front, the protest and violence in Chiapas (Mexico) and Santiago del Estero (Argentina) can be seen as "wake-up calls" reminding governments of still-explosive rural areas throughout the continent. The rural poor remain a potentially mobilizable force capable, for example, of providing an important social base for future "populisms" in the region.

THE IMPORTANCE OF AGRICULTURE

Agriculture is not the only focus of antipoverty efforts in rural areas: off-farm or nonfarm employment is an increasingly important part of rural labor markets and represents one possible "way out" for the rural poor. (The reduction of rural poverty in Asia was closely associated with a burgeoning of rural industry, services, and marketing activities.) However, agriculture still has a key role to play in rural poverty reduction. Rural development has not occurred anywhere in the absence of simultaneous agricultural productivity increase. What, then, is to be done?
What is the agenda for rural, especially agricultural, reform in LAC?

Over time, positive contributions may be expected from macroeconomic adjustment and trade liberalization, which have been dismantling structures (for example, agricultural marketing boards paying farmers at official prices) that have long discriminated against the rural areas. The transitional costs can be severe, however. Appreciated exchange rates, combined with adverse trends in international real prices of agricultural products, have threatened farmers recently exposed to trade liberalization. In some countries (for example, Colombia), the adjustment process in the short term has coincided with a significant loss of income to the rural poor (whereas the urban poor have gained). More recently, with international agricultural prices on the rise and the direction of pressures on exchange rates reversed, the rural areas in LAC should indeed become prime beneficiaries of an open trading regime.

Failure of the agricultural sector to respond to liberalization is partly due to reluctance to deepen the reform process. Land and labor laws, tax structures, credit subsidies, and many other regulations have had a negative impact on agricultural employment and productivity in many LAC countries. Heavily centralized and top-heavy bureaucratic arrangements, along with weak public agencies, have also burdened resource transfers to rural areas with heavy overheads and reduced local ownership of rural development programs. There remain many opportunities to improve both the intensity and efficiency of resource use in the sector through programs of deregulation, decentralization, privatization, "marketization", and institutional restructuring.

The continuing dilemma, however, is that even such strategies to promote agricultural development are easier to identify and apply in areas where the natural environment, state of infrastructure, and viability of farm enterprises are already favorable. But these tend not to be the areas where the rural poor are most heavily concentrated.

Improving the conditions of the poor in these latter areas will require a greater focus on improving the access of the poor to land, water, and capital in order to overcome the many biases which now work against them. Many have argued that tiny farms on unirrigated, often infertile land--which coexist throughout much of the region with large and often unproductive estates--can never be commercially viable, especially in competition with international agriculture. If so, land reform remains part of the long-term agenda for eliminating rural poverty. The options are either for the traditional form, with expropriation and redistribution of large private landholdings by the state, with (or without) compensation to landowners, or the less divisive "market-assisted" form, where the state "facilitates" voluntary market transactions between landed and landless.

Opportunities for "market-assisted" land reform will be brightest whenever the future looks bleakest for latifundia, for example, due to effective bankruptcy in the face of international competition. If land is offered for sale at bargain prices, then it is only necessary for government to facilitate the purchase by the needy--though there should be no illusion that subsidy is not required. Social costs are not limited to land transfer: the success of land reform in Asia has demonstrated that a well-developed rural infrastructure (notably irrigation) and a functioning system of rural finance must be added to relative equality of farm sizes in order for viable smallholders to emerge. Both are now absent in LAC, and the pace of land reform should be pegged to the ability to meet the financing requirements of a balanced program.

A STRATEGY FOR RURAL POVERTY REDUCTION

Given these considerations, the Bank and its client governments would do well to focus on a pragmatic approach to rural poverty, concentrated on a few key interventions. What might some of these be? One is "market-based" land reform, which is applicable where severely unequal land distribution is the major constraint to a viable smallholder farming sector. A number of countries in the region, notably Colombia, are moving in this direction. Other than land redistribution, reform of the public institutions responsible for cadastre, land titling and registration (as underway in Peru and Nicaragua); and dismembering of the legal and institutional barriers to use of movable property as collatoral (recently detailed by Bank studies in Bolivia and Argentina) could facilitate development of a fully market-based rural credit system, by leading to greater competition, lower interest rates, more viable financial intermediaries, and improved access to credit for investment by asset-poor farmers.

Much can be done to improve the productivity in situ of poor farmers in marginal areas. With application of known soil nutrient and moisture conservation technologies, doubled productivity is quite possible. The challenge is to get this technology to the poor farmer, who is often ignored by the official agricultural extension network. An appropriate strategy is to restructure agricultural services, relying mainly on the for-profit private sector to deliver technology to commercial farmers, while subsidizing efforts (often by NGOs) to reach the poor smallholder in remote areas.

Much can be done to improve the productivity in situ of poor farmers in marginal areas. With application of known soil nutrient and moisture conservation technologies, doubled productivity is quite possible. The challenge is to get this technology to the poor farmer, who is often ignored by the official agricultural extension network. An appropriate strategy is to restructure agricultural services, relying mainly on the for-profit private sector to deliver technology to commercial farmers, while subsidizing efforts (often by NGOs) to reach the poor smallholder in remote areas.

Many opportunities remain to make improvements in rural infrastructure, especially in agricultural areas that have been ignored as a result of being deemed "marginal." Some "marginal" areas would have economic potential if minimum transport, irrigation, electrification, and communication investments were made. However, some scale of investments may also be justified as matters of social equity, to promote social stability and to control the costs of excessive rates of urban migration. If indeed an area has little promise for agriculture, then more effective rural education (and other social programs), targeted toward the rural poor, can make life more tolerable and better equip the residents for out-migration.

Finally, greater efforts are required to reach the grassroots with effective programs and projects, truly "owned" by their beneficiaries. One way of doing so is to increase the participation of the local population in the design and implementation of poverty-reduction projects. In all of LAC, urban and rural, the Bank has begun to emphasize projects which decentralize decisionmaking to the local community and respond to local needs with participatory microprojects. That decentralization and participatory approaches seem to work better in tackling the real problems of the rural poor undeniably creates a dilemma for international institutions like the Bank, whose past capacity was best applied at the "wholesale level." Our challenge now lies in identifying, linking with, and strengthening rural organizations with comparative advantage at the "retail" level in LAC.

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