01, 7a03

trxf:v Sub act to Appromal
''vetber 29;, 1967


AN ANALYSIS OF IECORA AMD TE LAW OF AGRAREAna AND SOCIAL REFORM
WMTH EFERECRW TO T IER _MACT ON NVgSij M PRIVE UAMD


There is a grecgt deal of coatraTersy as to wh tbi-r the tS'CIR1O program

of land acquisition i& an incentive or a disincentive to productive iw est;-

mst an cominrcial i i.ed agricultural holdings. The feet that the thr eat

of "BIcorizatioBn ete'iis into i estrewa t decisions is clear. But it i's vot

clear whether the liwe defining the aJCORA program and IUCORA's implementation

of these laws provide an ticentive or a dlsiacnc@as.l"e to itwestment in land

fprovement and development.

One argument is that because IENORA can expropriate private lands,

titles to private hte.ldiuag are not secure and owaers are not going to rixA

making loag term iua tewnets for development purposes The counter arsu~ena

is that the threat of expropriation by INCORA forces landowners to improve

their leads as a method of preventing the Incor-t.'.oamB of their lands

The purpose of Li.s paper is to sumamsrie the laws;, decr us and

regulatio s directly related to the security of pr; tpri.orr'L to commOercial

sised agricultural I oldiE3s and to assess their i :l on the incentive to

make productive tavestment in land on holdings of this sise. The paper is

based primarily on t v laws and one proposed law as well as various deerees

and resolutions. Tle basis of the law of social and agrarian reform is

in Law 200 of 1936. This law was extensively wrodiiied and iNCORA was

established to eaforcethe program by Law 135 of 19610 Modifications of

both previous laws are now before Congress in "Proyeaio de ley No, 100 de 1%966,,

PRIVATE AND PUBLIC LAMDS DEF E(

Law 200 specifies that in order for land to be classified as .rf....--:.y

oaned, sam











not recognize unused or non-exploited lands as private property, except

that unexploited areas adjacent to exploited lands but not exceeding

them in size, can be considered as part of the exploited unit (Article 1).1/

Hence,, the primary requisite for land ownership is that the lands be

economically exploited The state was authorized to declare extinction

of dominium (Buineut Domain) on lands which did not meet the requirements

of Article 1 (Article Ar6).


EBXT~CTION OF DOMHII4M

Article 22 of Law 135 specifies that owners of all units exceeding

2,000 hectares sha.l furnish to INCORA a copy of the title to the land

(if applicable) a detailed description of the land, and ail data required

to show the manner in which the land is exploited. These requirements

were to have been fulfilled within 6 months after INCORA initiated its

activities. INCO I was to study the information obtained from the land

owners but the burden of proof that lands were economically exploited

rested with the pr rietors (Article 24). Methods of proof are given

in this same artic.es The state was then to declare extinction of

dominium on all non-exploited lands on these large units. INCORA could

extend this obligation to owners of units smaller than 2,000 hectares

if they found they were able to undertake appropriate study of the areas

iwrolved.





YReferences in parentheses are to articles of the specified laws.











For legal purposes, properties that were economically exp lited

on the date of the resolution are considered not covered by the

regulations on extinction of dominuii (Article 27),

Extinction of dcminiuim is a continuing process. As of June 30, -967

a total of 1,885,6W5 hectares in 14. units had been affected. These

lands were in 14 departmsnts scattered throughout the wesTern part of the

country but excludi:an the Departments of Atlantico, Guaji ra aad Valle,


,'Cg ISW O'F PRIVATELY OWBJTD LAIDS

By Article 54 oif Law 135,5 1101.. is authoriZzed to acquire privately'

owaed lands in order to accomplish the objectives of Article I of LafY 15,

as well as to combiit soil erosion, to carry out reforestation, and to

facilitate irrigate .on and drainage works, transit and transportation in

the rural areas. If the owners of the lands which INCORA desires to

acquire will not se.ll or exchange them voluntarily, the Institute is

authorized to exprp.Tiate them. Article 58 restricts the erpzopriation

of adequately used lands to certain uses, although the usae are quite

broad and the uses for which land cannot be expropriated are not speecifi.ed.

In acquiring latads for grants, INCORA will first try to uLili-se ,. ; ..

lands that are easily/ accessible to the rural population of the respective

region if such lanis offer the necessary conditions .::,;: colsnatioen

(Article 55). If NCOBA finds it necessary to acquire privately owned

lands, it must follow the following rules (Article 57):

1. Priority shall be given to those zones where land congestion iF

notable or where total or partial unemployment exists among a large part

of the'farm population, and to those other areas where active erosion exists,







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where work relations are unjust, or visibly low at-La.. of living of the

rural population occur in xLation to other parts of the country

2o It shall only acquire lands that are adequate for cropping or live-

stock production or a small scale Those lands are considered as such t.:;-

are irrigable or if unirrigable, where the rainfall is ordinarily sufficient

to produce crops ani grass which provide a basis for sustaining the econ o.e

use of "family farm units" with regularity.

Within potent~ l irrigation districts, it is understood that priority

shall be given to acquisition of lands in thep project area that are subject

to extinction of do iinium (Article 68)o

If it appears :ieessary to acquire privately owned lands, the prc-ej. ar

used will be according to the following order of priority (Article 55)

1. Un ltivat id lands which do not fall under the rules for extinction

of private dominium.,

2, Lands inadequately used

3. Adequately used properties which are exploited in total or in large

part by renters or :hareoroppers but on which the owner exercises no manage-

ment nor abares in cost of operation, or land, even though it i.g :-'1 o'. .

that belongs to a foreign corporation (Article 66)0

4, Adequately used lands not falling under 3, above, the proprietors of

which are disposed to sell them voluntarily.

Presumably their although it is not specified, the lowest priority would

be adequately used private lands which the owner does not want to sell

A summary of ti.e above articles provides an indication of a lend owner s"

protection under present lawo As INORA will acquire only lands suited to

crop or livestock enterprises on "family farm units, and a s their first








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priorities are unused or under-used lands, or adequately used lends in which

the owner has no act '.v- interest, the owner of adequately used lands in 'which

he provides management and/or a share of the expenses, has reasonable

assurance that INCOR will. not expr poriate said pertyo This, of course,

excludes uses for which lands can normally be condemned such as for canal ,

roads, etc.

An important omission from the legislation above is protection for an

owner who 1) is just beginning to develop his holdings, or 2) has just

pux~chased unutilized or under-utilized areas with the intention of develop-

ing ito In either c sa, there is noaasurance that IN3OOA 4ill not expropriate

some or all of the land after initial investments have been made but before

the owner has the protection aibrded to owners of adequately exploited linds..

In this regard, with respect to obtaining grants of public lands,

individuals or associations can make a contract with the Institute (Artioles

32 and 33) which offers protection during the period of development providing

that certain develop ent objectives, as set forth in the contract, are meto.




The proposed modifications to the present Agrarian Reform laws introduce

a new article (Article 30 of Law 100) which would permit the Institute to write

contracts with ownei s of private lands to protect them during the pei..: c.f

development.J1 Althcug-h 1) the terms of the contract are quite strict, 2) the

scope is somewhat limited with respect to kinds of enterprises that qualify, end

I/ Article 30: Intrdtuces the following new article:
Article 110 Biso W:ith the approval of the national government in each ease,
INOORA can contract with owners and managers of crops and livestock operations
for the purpose of dancing prorm of id' i increasing the production of thoae









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3) the operational problems could well prove to be completely unmanageable,

this article would Ir rcvid protection to land owners that under present law

do not have ito


(Footnote continued from previous page)

agricultural commod&.ties which the government indicates are necessities of
domestic consumption; or exportation, considering such factors as climate,
'opography, soils, At.to, for the time necessary for the dovelcpment of the
programs according ;o the nature of the exploitation, and the amortization
of the investments So long as the contract is executed as agreed at the
time of its approval the lands that are involved oaniot be appropriated
by the institute '..h( control of the contracts is in the hands of l~:J_..-
If the terms of the contract are not met, then the contract is nullified, the
established guaranty ,ea will be paid, and the land will be included in those
agrarian reform projects which are taking place in the respective areas.
The same sanctions rpply when the competent authorities have proved that
the owner has failed .1o comply with the labor regulations concerning his
rural workers

The Institute will preferably use the system of contracts, as prescribed
in this article, for: increasing investments in the livestock inditr;y,
in those sones where the climate, the nature of the soils, and the low
density of population are especially favorable for this type of development










;i appears that present and propc.:ed legislation p.ovdLe- reasonable

.,...:.5.lvy: .-:-cur-ity te owners of lands which are either (1) in productive

uses or (2) in the process of development' Persons or associations

.'.m.cr o;-- ,ar.hi., over unused, under-utilized or non-developing lands

have little or no s ecu it of title. This dichotomy appears not only to

be the .." _'... <; the l.q! but also the spirit and intent of the law. In

*- ~to -. t..:* i eiC -di.epe lands as priva prate roi:::.y, hence .-Aub~j.

to -i .. :; of dmisna m and in providing ownership protection to

*.: .. r-~- or L' .i"rEl pJ lands, there seems to be adequate inc-":':~i.n, .:o

Invest at and to contiiua the process of land development.




v!. v-..'-.. of uncultivated lands is paid in total by class B Agra:..:;:

' fi; -. ." .a maturity of 25 years ad beast a ring an annual interest rate

of 2 r.

r~.- C ...- 1.t c..ti .- ieQ 'ds are paid in cash over an 8 .,'.r p..':.o.: 1

;i. .: ..:. o the p ice (but not less than 75,000 pesos nor mre than

.0';, peeso) is paid it the time of purchase. The remainder is paid in

". .* .: . : aal, annual insta a with 4 pe ccai- annually iltl

on t he -.'.- ., .-. Also included ian hi category of '.~. are

*: ;..:- Ploited leads which fall Ini. priority category 3 of

Art:'c.:- 55 Law 135 i tluig 11 oed by 2c.rT-i.r corporations.

S for a-disa 9quatelF .--loted are r9 id in cash over a five

;".e. o.:, .. with the uAraid balance -'r 6 7-- f ar;- ?.g. ?:...ci- :3

percent. the Lpe:. at t e time of .u-: but the minimum and

:. '3 a amountss are 15C,000 and .5'5, i pe. .sos z-..r. .i .


h .'.. a .".'..Des Aq he as the 9 sc iOrn. .."
.:' ..: : :; t ; .:- i: f
ho"...' ar ". a..d in i he ;:... -ir- section.









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The former owier of lands which are cultivated, but not of

uncultivated lands, can request INCORA to pay either the outstanding

balance at any time or the full amount of the purchase price at the

time of sale in cla.3s A Agrarian bonds computed at their nominal value,

Class A bonds mature in 15 years and carry an interest rate of 7 percent

annually.


USTECTaIONS ON SIZE OF HOLDING

Basic restrictions on size of land area are written with regard to

adjudication of public lands. Article 29 of Law 135 specifies that from

the date of effectiveness of the law, grants of public land may be made

only to individuals and in an extent not to exceed 450 hectares (but noting

that the law will specify certain exceptions). Areas in excess of this

amount which were exploited prior to the law can be adjudicated up to the

limits established by Article 2 of Law 34 of 1936 and shown below:


Maximum adjudicable area (Hectares)

For Crops For Livestock

In general 600 800

More than 50 kms. from
Municiplo headquarters 800 1,500

Isolated N/A 2 500


Except for savannah of natural grasses (such as the Llanos) the right

to adjudication for livestock will be granted only when the area is sown

with artificial grasses (Article 29).








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In areas far -'rom centers of economic activity and of difficult

access while the litter circumstances exist, grants may be made up to

1,000 hectares but the applicant must have at least two-thirds of the

area in cultivation (Article 30). This area is defined in Resolution NHo 42

of 1962 (September 10) roughly as the western half of the Llanoso The

eastern or remote half of the Llanos is considered as natural grass

savannah and qualif.e.s for grants up to 3,000 hectares.

The Institute can make contracts in special cases for areas up to

2,500 hectares (Article 33) in general, and in remote areas they can eake

contracts without lmEitation on size. These contracts shall determine the

areas to be put under exploitation each year and the total area cannot

exceed the quantity exploited within five years plus one-third of that a:eao

The institute can also make rental contracts for areas of the same

size for periods up to 50 years when it appears in the national interest

that the lands do n t leave the dominium of the state (Article 33).

Except for ad indication, or grants, there appears to be no restriction

to size of private io'ldings. Hence, private holdings with ol4 titles can

exceed the size res .r:Lctions specified for adjudication.

Article 10 of Decree No. 1489 of 1962 (June 11) is contradictory to

the regulations cited above. This decree specifies that private lands

exceeding 1,000 hec :a:es can be expropriated even if he I are adequately

exploited. The ownmr would be left with the 1,000 hectare limit but

nothing is said coacerning the owner's choice of land to keep, Further-

more, no mention is made of geographical restrictions to the decree

Hence, by this arti-:lo, legal owners of areas exceeding 1,000 hectares







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lose the security oT ownership provided by development on that portion 2

their property exceeding 1,000 hectares.

Summary

It is clear t.at the intention of the law with respect to size of

holding is to prevent any additional concentration of land into large

tracts. The laws regarding adjudication of public lands restrict holdings

to certain sizes specified by location and type of exploitation. The

maximum size allowed is 3,000 hectares in remote areas. Private lands

with older titles not involved in adjudication procedures are not restricted

in size by present law. Of course, according to Law 200 of 1936, these

lands must also be economically exploited to be considered private.

Decree 1,489 of 1962, however, is contradictory to other laws

concerning size of private land holdings. By this decree, private

holdings are effectively limited to 1,000 hectares. This decree is

definitely a disincentive to investment on holdings exceeding 1,000 hectares

in size even if these holdings are within the size limits specified by law.

It is certain that an owner would be hesitant to develop more than 1,000

hectares, and, as the law as stated does not provide the owner with a

choice as to what land he can keep, he faces possible loss even by investing

up to the 1,000 hectare limit.

Security of ownership, therefore, and incentive for investment, are

provided only for owners of no more than 1,000 hectares of land.


DISCRIMINATION AGAINST FOREIGN INVESTORS

Generally, little is said regarding the distinction between foreign

and domestic investors in enterprises involving rural properties. Noe .s,

the last paragraph of Article 66 of Law 135 does imply a cLF.:.rial.'.!:'







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again;. -. oreigs owed properties. This tre:\li 't.:v e cifi hat all

rral :-li..:-ties: iwned by forig .. cj.t:tia '- .'. be considered to

have *c'.'ty 3 of Article 55 for purposes of expropr ;.;.. BThis

.:- that even Ih iu.gh the land is adequately exp'. it can >

.:a. :;* .-Ld if no inadequately used lands are av.aii.r ..c. eci fr.

so-pe' :'.. .:;-.* do tot have the security of ownership in :-~,r6:;, -.-.



GENERAL SUMIARY

The .-atain of: the law of Agrarian Reform is to .-o:e.~ the develot...:t'h

of a productive ags I-lcuture (both crops and livesto.-'. and to :. "-i:, t:h

.:;ir.:;.':'..e n of lind into holdings of excessive size. The law --i.:...::

that .C must be economically exploited to be re'. '..A : as a ,*-. i;

ij- j..4, and restricts size of grans of public lands c;- to i': -".'..

locaeia: and type cf enterprise. gold..cgs of up to 3- hectares in

reote areas are allowed under present laws c:7 ad.-'..--- .'..'...

of latd not exceeding 1,000 hectares ..-: -. ly secure

in ... .. if the land is being ..:-iL. ,- Ar ix .K. exp :- .. . ..

S. -vtr, does not protect an owner who is lad:. ;'..,:.:,.-. ::.-. land, or pason

tep:.. i.Lg, the purchase of unused or under--.:1 landi with 'th :

of --' it. Article 30 of :;*a.. : . : .-

of 'S' .,a- offer security to owners of lands under 1>.;i..-;. by

id for INCOtlA to write a contract c~i';Q.i this i; ..:. thi

[s''- 1-'-epfosod lazislation. j inly, do Z *. ; ..mue .-.'incentive




T. law does Y, ot app ly to ;c3-.n l:-i ..l;. ':.. .:' to a







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for investment in land development for holdings up to 1,000 hectares in

size.

But holdings exceeding 1,000 hectares do not have the same protection,

as INCORA can expropriate the excess over 1,000 hectares even if it is

adequately exploited at the time. And the legislation does not even

give the owner the choice of land he can keep. This provides a definite

disincentive to investment on holdings exceeding 1,000 hectares even if

they are within the size limits provided by law.

Foreign corporations (but not individuals) are discriminated against

as land holders to the extent that they are not provided the same protection

on adequately exploited lands as are domestic corporations or any individual.

Their lands can be expropriated even if other, developed land is available

and the owner wishes to sell it. Land owned by a domestic corporation or

by an individual could not be expropriated under similar circumstances.


PHildebrand/ CON:b as