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 email@example.com"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
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
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,
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
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 ,
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
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
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.
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
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).
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.
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.'.!:'
- 11 -
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:;, -.-.
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
- 12 -
for investment in land development for holdings up to 1,000 hectares in
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