Impact of changing profile of rural land market in Pakistan on resource allocation and equity

Abstract

The study was intended to provide a description and analysis of different facets of land market and identify the major constraints in the proper functioning of this market. The study was based mainly on the previous studies. The data from different Agricultural Censuses were used to profile the pattern of land distribution and land use. The major findings of the study are briefly summarised. First, the relationship between farm size and productivity measured through the profit frontier approach or through simple regression equation between farm size and production per acre is found to vary between different studies. The inverse relationship between farm size and output per acre is a recurrent feature found in data. This is apparently due to land-labour interactions. Small farmers have a lower opportunity cost of labour, can exploit more marginal land, cultivate a larger proportion of their land and as a result achieve higher output and yields. On the other hand, small farmers are more credit-constrained and large farmers less so. A low effective price of capital for large farmers leads to substitution of machines for labour. The large farmers use capital intensive inputs. Depending on which effect is dominant, one can get inverse relationship, positive relationship or a U-shaped curve. The review of studies provides examples of each relationship. One needs to be cautious in drawing public policy implications for land reforms of the redistributive type. The impact of land distribution on production and equity would depend on the complementary policies for the supply of modern inputs and their interface with the land distribution. Second, the importance of secure titles to land as well as protection of the tenants for their prescribed share in inputs and outputs is obvious. However, we did not find much empirical work on these aspects in Pakistan. The importance of share-cropping as the most preferred farm of tenancy emerges clearly from the data. The literature on factors responsible for this result is patchy, however. Third, the participation in land market is by and large excluded for tenants, landless and small farmers. These groups are excluded from the land market due to severe credit constraints they face to buy land. They do not have enough savings of their own and do not have suitable collateral to pledge for getting access to credit. Insecurity of land tenure arrangements and almost zero probability of buying land has reduced this segment of rural population to be condemned to the lower strata in rural areas. The only course left for them is to turn to the labour market - with or without skill development or to engage in activities like animal raising which are not land-based but are labour-intensive for the landless households. Fourth, the concentration of land was high at the time of creation of Pakistan. Despite few attempts at land distribution, the Gini coefficient for ownership holdings has gone up from 0.66 in 1972 to 00.75 in 2000. It has increased for the provinces of Punjab and NWFP considerably but has shown a modest decline in Sindh and Balochistan. This outcome is due to the unequalising nature of land distribution through private land market. Fifth, misguided land reforms which had fixed a ceiling on land holdings and the lowering of this ceiling over time in three land reforms of 1959, 1972 and 1977 had made tenancy unattractive to land owners. Land was split between members of the family to avoid giving land to government and land previously sharecropped was resumed by landlords for self-cultivation. This was accompanied by capital-intensive farming resulting in lesser employment opportunities for landless labour. Last but not the least, the study spells out the key aspects of the nature of land market in Pakistan's context. In view of the fact that the ongoing interest rate is generally higher than the rate of return on land investment as long as the land is used for farming, it is not possible for the prospective farmers, without initial capital at hand, to participate in the land market. In other words, land markets are open only for those who are enjoying excess liquidity in the form of rental income. The higher growth rate of land value than productivity growth implies that the land value is no longer the discounted value of rent as postulated in the conventional theory. This land-rent relationship has assured the continuous flow of capital gains for rent receivers and continuously squeezed the rent payers out of the land market.