Chile - economic aspects of Chile's land use

American Journal of Economics and Sociology, The, Dec, 2000 by John Strasma

JOHN STRASMA [*]

LAND TENURE IN rural Chile has gone through two major changes in thirty years, emerging as largely a modern commercial farming structure noted for an exceptional growth rate based in part on high-quality counter-seasonal fruit exports to the Northern Hemisphere. For a century, ending in the early 1960s, Chilean agriculture was characterized by a mixture of large haciendas owned and managed by traditional families, and a large number of small production units (under five ha. [1]) farmed by persons who also served as day laborers for the nearby haciendas.

In 1963, under a conservative businessman, President Alessandri, the government sold off several huge state-owned farms (such as those bequeathed a century before as patrimony for hospitals to serve the poor) to extension agents and other professionals, in parcels of 50 to 150 ha.. Previously, the state farms were leased for five years at a time to well-connected oligarchs in the capital city, who hired managers but invested little or no capital in improvements. Derided as a "land reform in a flower pot," this breakthrough showed that land tenure could be changed, with positive results. Simultaneously, a forward-looking bishop authorized young Christian Democrat technocrats to experiment with transferring church-owned farms to their workers. The results of these experiments fed into the design of a massive land reform under Christian Democrat President Eduardo Frei Montalvo (1964-1970). Basically, owners were allowed to retain up to 80 ha. (200 acres) of irrigated Maipo River Valley land or the agronomic equi valent in other lands, but holdings in excess of that could be expropriated, with compensation in the form of long-term bonds with indexing to compensate at least in part for Chile's inflation.

Frei's reform affected about half of the farms large enough to be eligible, involving perhaps 20 percent of all the agricultural land. Before and after studies, by the University of Chile and the University of Wisconsin Land Tenure Center, showed that the reformers had followed Frei's instructions to seize first the most underutilized farms but not touch the best-managed farms in each valley. A sample survey found that on average, from 1965 to 1970, output rose well over benchmark levels on both the land that was expropriated and transferred, and on the land that was not expropriated. [2] This result surprised both advocates and enemies of land reform. Actually, it merely confirmed that on average the functionaries had followed orders to seize first the land which produced the least under former management, while leaving the best farm operators alone.

In 1970, Senator Salvador Allende, backed by an uneasy coalition of five groups with a greater or lesser degree of leftist orientation, was elected president by a plurality of the voters, narrowly defeating Former President Alessandri. Allende's government attempted to expropriate most of the remaining large farms, but hard data on output effects were non-existent because his cabinet also tried to nationalize wholesale trade, freezing prices to favor consumers. Farmers and land reform beneficiaries alike sold their output in a thriving black market.

In 1973, General Augusto Pinochet led a military coup in which President Allende died. Pinochet governed as an authoritarian ruler for the next 15 years before agreeing to a plebescite. Voters chose to return to democracy, and Chile is now into its third post-Pinochet presidential term, under a center-left coalition government.

Under Pinochet, land was returned to the former owners if they had not accepted compensation. Where the legal formalities were completed and compensation paid, many land reform beneficiaries were allowed to keep the land they had received. However, most beneficiaries and traditional landowners alike were soon forced into bankruptcy by a combination of tight money, high interest rates, and low demand for farm products because of a deep recession caused by Pinochet's conservative economic policies. The buyers at foreclosure auctions were mostly urban businessmen, who eagerly embraced market incentives, and especially the potential market for counter-seasonal fruits to be sold in the US and other Northern Hemisphere markets.

The result of Chile's tumultuous land policy experiments is thus the product of a mild land reform followed by a radical land reform, followed by a market-induced shakeout, tending to produce a rural sector now dominated by modern entrepreneurs. Typical farms are now more likely to be 40 ha. (100 acres) than 400 ha. (1000 acres), and they are likely to be well-managed, but relying still on a lot of seasonal laborers who live nearby.

I

Land Taxes in Chile

THE CHILEAN REAL estate tax is conceptually defined as a tax determined by the assessed value of both land and improvements. The rate varies from 1.2 percent to 2 percent of assessed value, depending on the date of the most recent property appraisal. The real estate tax in Chile is levied by the central government, but most of the revenues go to the municipalities, urban and rural alike. A formula redistributes the revenue somewhat, favoring communities with less real estate value per person. The basic rate is two percent. A 30 percent surcharge is added to the tax on vacant lots, on commercial and industrial properties, and to residential properties assessed at US $29,200 or more. However, underassessment and exemptions greatly reduce this rate in practice.