Unintended consequences of the comprehensive agrarian reform program in the Philippines

Abstract

The Comprehensive Agrarian Reform Program (CARP) in the Philippines involves compulsory acquisition of private farmland at below market price, to be subsequently sold to landless farmers. The intention of the program was to assist the low-income farmers to improve their living conditions. However, the effectiveness of the program has always been in question. In addition, the progress of CARP has been slow and caused several conflicts and deaths. One widely believed reason for the ineffectiveness of CARP is that many landowners applied for converting their farmland to non-agricultural land use in order to preempt expropriation. Even though this could be illegal, and in fact, many landowners still use the land for agricultural purposes thereafter, regulation loopholes and loose enforcement have made this possible in practice. This has led the Department of Agrarian Reform (DAR) to propose banning all land use conversions (LUCs). However, apart from anecdotes, there has been no statistically-tested empirical evidence to support the claim that LUC is a measure adopted by landowners to protect their private property rights. This study investigates whether and to what extent CARP has led to LUC and other unintended consequences that may have contributed to the protracted implementation of CARP.

The theoretical analysis suggests that CARP could lead to LUC based on Cheung’s (1974) theory of price control. The empirical analysis is based on provincial panel data. The results show that LUC is partly induced by the risk of compulsory land redistribution, which does support the claim that LUC is an unintended consequence of CARP. However, other economic forces that affect LUC were more significant drivers compared to CARP.

Another means to evade expropriation is to alter the contractual arrangements between landowners and farmers under the guise of voluntary land transfer (VLT). Under such arrangements, landowners ostensibly give up ownership rights, while retaining use rights through some formal or informal agreement with the farmers. The government considers this as a redistribution accomplishment. Although this phenomenon makes intuitive sense and is supported by the transaction cost economics pioneered by Coase (1937, 1960), no attempt has been made to statistically test it. Since individual VLT agreements are not available, this study uses aggregate data to provide indirect evidence. Similar to LUC, the tests reveal that indeed VLT was also induced by the risk of compulsory land redistribution. Moreover, the volume of VLT was affected by transaction costs, which would hardly have been the case had it been a purely altruistic act. Furthermore, it was found that, ceteris paribus, landowners preferred VLT to LUC as a means of securing their property, which this thesis posits as a reason why expropriation-induced LUC was not as high as critics claim.

The thesis adds to the understanding of how unintended consequences occur. It also contributes to the ongoing work of exploring landowner response to compulsory purchase, and agricultural land conversion. May this aid in the present efforts to move beyond the stalemate situation in what was the hoped-for panacea for Philippine rural poverty.