Lovell S. Jarvis "The Long Term Agricultural Effects of Economic and Land Reforms in Chile, 1965–2000" September 13, 2004

Lovell S. Jarvis, a professor in the Department of Agricultural and Resource Economics at UC Davis, speaks about the historical developments in the Chilean agricultural sector following the land reforms of the 1960s-70s and the economic reforms of the 1970s-80s.

Preliminary draft of the paper that forms the basis for the event (.pdf file)

Jarvis Links Land and Economic Reforms to Agricultural Growth in Chile
By Thad Dunning

How has Chilean agriculture, once a relatively stagnant sector in which large landowners held relatively inefficient and unproductive wheat and livestock farms, become a dynamic and technologically-sophisticated exporter of fruit and wine?

Lovell “Tu” Jarvis, Professor of Agricultural and Resource Economics at the University of California, Davis, argued that a key to answering this question lies in understanding the interactions between the land reforms that began in Chile in 1965 and the broader economic reforms undertaken after the country’s military coup in 1973. “Chile is unusual in that it carried out two major reforms, originating from very different ideological perspectives, in the last forty years,” Jarvis said. “Both reforms had positive effects on Chile’s agricultural sector.”

Land reform

The first set of initiatives to affect agriculture included the land reforms begun under Christian Democratic President Eduardo Frei in 1965 and extended under Socialist Salvador Allende, who was President from 1970 until the military coup of September 11, 1973. In 1965, 55 percent of Chile’s agricultural land, measured by productive capacity, was held by about 5,000 large farms, while the remaining 45 percent of land was held in 238,000 smaller farms. This highly skewed distribution of land was progressively reduced under the Frei and Allende administrations.

Between 1965 and 1973, around 43 percent of Chile’s land, including many of Chile’s largest farms, was expropriated. Often, there was some form of payment to the owners. This, however, frequently took the form of long-term government bonds that were not inflation-indexed and that therefore lost value over time.

Although Augusto Pinochet’s military government, which ruled from 1973 to 1990, partially reversed some of the land reforms, it also maintained an important process of land redistribution after it assumed power. After 1974, around 57 percent of previously expropriated land was distributed to approximately 50,000 land reform beneficiaries, while 28 percent of the expropriated land was returned to previous landowners and the remaining 15 percent was retained by the government or auctioned off. In total, an amount equal to about 25 percent of Chile’s land was redistributed to land reform beneficiaries. Still, Jarvis said, land reform fell far short of “creating a class of viable small-scale farmers.” In part, this was due to the military government’s failure to provide reasonable operational assistance to the land reform beneficiaries. In part, it was due to the effects of both the fruit export boom that began in Chile in 1974 and a second set of reforms, the economic reforms adopted by the Pinochet regime.

Economic reforms under Pinochet

Chile’s boom in exported fruit, which has taken advantage of Chile’s location in the Southern Hemisphere to supply Northern markets counter-seasonally, “resulted in a dramatic increase in the scale of efficient operating agricultural enterprises, which required managerial skills” as well as financial training to manage. In 1965, however, only 3 percent of permanent-resident farmers were functionally literate. “At the time expropriation took place,” Jarvis said, former resident farmers “were not prepared” for the management tasks with which they would be confronted.

Many beneficiaries of the land reform, in fact, sold the land they had received. Around 40 percent had done so by the early 1980s, and nearly 100 percent in many areas of central Chile by the 1990s. The result, Jarvis said, was a tremendous increase in the liquidity of the rural land market, which would bring marked changes to the Chilean agricultural sector. Land reform increased the number of lots available for purchase, while the dismissal under Pinochet of many adult laborers previously resident on the massive farms disrupted the traditional rural employment system and created a mass of landless wage laborers. Macroeconomic reforms, meanwhile, cheapened some agricultural inputs, and new technologies began to appear in the wine and fruit sectors.

The eventual effect, Jarvis said, was a takeoff in agricultural productivity, as new owners brought entrepreneurial attitudes and heightened profit-making incentives to bear on their agricultural activities. Rural land prices boomed. Although agricultural value-added declined during the two macroeconomic crises of 1975-76 and 1982-83, it grew at an average rate of more than 4 percent from 1974 to 1999 — much more rapidly than the long-term agricultural growth rate of 2 percent prior to 1965.

Chile’s agricultural output mix also changed markedly, away from a rural economy initially dominated by cereals, livestock, legumes and oilseeds produced for domestic consumption. Fruit production rose from five to 30 percent of agricultural value-added. Wine-making took off a few years later. While the total hectares devoted to winemaking remained relatively constant, yields and quality increased markedly as more efficient productive techniques were introduced. In 1965, the Ford Foundation financed a ten-year agreement between the University of California and the University of Chile to provide graduate training for Chileans and faculty research exchanges. Under this program, Chileans sent a large number of students to UC Davis to specialize in the agricultural sciences, particularly those related to fruit and wine production. Upon returning to Chile, these graduates established teaching and research programs that provided the scientific knowledge that allowed the fruit sector to progress technologically. Thus the “Davis Boys” (though less well-known than the “Chicago Boys,” the University of Chicago-educated economists who planned Pinochet’s macroeconomic stabilization and liberalization policies) were especially important in providing access to fruit production and post-harvest technology. This technology was essential to the ability of new entrepreneurs — whose entry into the sector had been paved in the first place by land reform — to export high quality fruit to Northern Hemisphere markets.

The broad economic stabilization and liberalization program pushed by the Pinochet government also had some important effects on boosting productivity and trade in the agricultural sector, said Jarvis, whose Chilean Agriculture under Military Rule is one of the best-known books on the subject. The government carried out economic reforms according to its design for the whole economy, which was a change from a historical pattern in which agriculture received various targeted forms of protection. With a few exceptions — for example, the Pinochet regime enacted a subsidy for the forestry sector, which played a role not only in enriching a small number of politically-connected investors but also in stimulating a sector that subsequently became an important source of export growth — the government removed price controls, liberalized the external economy and dismantled agricultural input tariffs. Despite the painful process of adjustment this prompted, Jarvis said that Chile was able over medium-term to develop new kinds of comparative advantages. The creation of a class of skilled agricultural workers, which was the result of a Pinochet-regime policy that gave landlords incentives to hire temporary rather than permanent workers and had a harsh social impact initially, ultimately also had an effect in boosting labor productivity, particularly as workers were frequently paid on a contract or piece rate instead of wage basis.

The pace and sequencing of reform

Jarvis presented his material as descriptive evidence defining a series of hypotheses that remain to be tested. Nonetheless, some intriguing causal ideas emerged from his discussion. One concerns the importance of the fortuitous sequence in which the reforms were adopted. The fact that land reform preceded the adoption of liberalizing reforms in the countryside was particularly important. Had the order been reversed, Jarvis said, traditional landowners would have been the beneficiaries of any rise in the value of land that occurred as a result of opening the economy to new technologies and cheap agricultural inputs. The traditional elite might then have used its political power to block the adoption of further procompetitive policy, and new entrepreneurs might not have been attracted to the sector.

Another idea concerns the importance of the temporally-extended nature of the reform “success,” which is only apparent in hindsight. In the aftermath of the Pinochet coup, the positive effects of the regime’s agricultural policies were not immediately obvious. Agricultural value-added only grew at the moderate annual pace of 2 percent during the first decade following the coup, and at the time Jarvis predicted that slow growth would continue. “I was wrong,” he said.

Finally, Jarvis discussed the relationship between the military regime’s tough-fisted approach to economic reforms and what might have occurred under a continued Chilean democracy. Pinochet, despite the egregious human rights abuses associated with his regime, has become something of a hero in some economic policy circles; Chile’s recent economic success, at least relative to much of Latin America, has been credited to Pinochet’s early and firm support for what later came to be known as the neoliberal model. Jarvis noted that Pinochet-era economic reforms “have been embraced, fine-tuned and extended by four subsequent democratic administrations” in Chile, with only relatively minor modifications.

This success has suggested to some that authoritarian governments might be better than democracies at pushing through difficult economic reforms, especially those that bring long-term benefits but short-term costs. Jarvis raised this possibility but disputed it. “No other military government in Latin America achieved reforms of comparable significance,” he said.

Lovell “Tu” Jarvis is Professor of Agricultural and Resource Economics and Divisional Associate Dean of Human Sciences at UC Davis. He presented his talk, “The Long Term Agricultural Effects of Economic and Land Reforms in Chile, 1965-2000,” at CLAS on September 13, 2004.

Thad Dunning is a doctoral candidate in the Department of Political Science.