Land Formalization: Key to agricultural productivity in Colombia
This article was written by Carolina Camacho and Manuel Toledo.
Agriculture has always been a strategic sector for economic and social development in Colombia. During the twentieth century the sector was a major generator of employment and source of foreign currency. The coffee boom of the late seventies and mid-eighties coincided with significant GDP expansions. However, the country has not made significant progress in agricultural productivity. In the last 20 years, agricultural labor productivity in Colombia was 18.4% lower than in Latin America overall. The sector also has the lowest productivity compared to the rest of the country’s industries.
The output per worker in agriculture was less than half (42%) of the national output per worker in 2019, and is ranked third in largest employment (16.6%).
Land formalization as an essential part of agricultural productivity
At this juncture, the need to promote Colombian agricultural productivity has been highlighted, particularly after the failures in global supply chains caused by the pandemic, most notably for food. To this end, it is essential to reduce the very high levels of informality in land tenure. In 2019, 52% of rural properties in Colombia were informal. This is related to the precariousness of the institutional services supply associated with land registry, as well as a low demand for titles by land holders. According to the empirical analysis presented in the VPC-DEM Productivity Note on Production Challenges in the Colombian Agricultural Sector, increased formalization of land tenure would lead to significant productivity gains in the agricultural sector. Empirical exercises show that a reduction in the share of informal land by 1 percentage point would result in an increase of 4.4% in value added per worker. To put this result in perspective, if informality in land tenure were reduced to 25%—a little more than half of the 52% reported in 2019—agricultural labor productivity could more than triple.
Effect of land tenure informality on productivity
Land formalization benefits investment and productivity through various channels. The absence of land titles hinders the proper functioning of the land market, which is crucial in the agricultural sector to ensure an adequate allocation of productive factors. One of the channels through which this occurs is informality in land tenure, which increases uncertainty about the appropriation of long-term investment returns, discouraging investment and reducing productivity growth. The second channel is related to the difficulties of selling or leasing part of the land, an issue with agricultural holdings of suboptimal size.
In the case of small producers with limited access to land, this results in the intensive use of their land, which degrades the soil, and in the dividing of the land on account of succession processes. A third channel has to do with credit market operations that are restricted by land informality. First, the lack of formal titles prevents access to bank credit for those producers who do not have collateral admissible by the banks. Second, the failure in the functioning of the land market makes it difficult for banks to effectively use collateral in cases of default. What is more, not all landowners have the necessary skills to be productive agricultural producers, or are interested in being one. The inability to lease or sell the land prevents the landowners from migrating to the city or engaging in non-agricultural employment.
Why is there such high informality in land tenure?
In Colombia, the formalization of land titles has historically been constrained by institutional weaknesses. Local authorities’ limited financial capacity and lack of autonomy with regard to particular interests have prevented the adequate provision of land registry services, essential for formal property titling. Only 5.7% of the national territory has up-to-date land registry information; 28.3% of the properties in the territory are not registered, and 66% are outdated by an average of 16.4 years. To this have been added the phenomena of internal conflict, violence, drug trafficking and a significant part of the rural population having a lack of knowledge and management ability with regard to their rights and provision of titling services.
How can multilateral banking promote land formalization?
In order to promote land ownership formalization, multipurpose land registry financing is proposed, promoting collaborative mechanisms to facilitate implementation, as well as digital transformation for the proper functioning of the land market.
The provision of land formalization services is based on the proper functioning of the land registry. The Multipurpose Land Registry Policy responds to this need with very ambitious objectives that seek to turn land registry into a tool for strengthening the territorial tax system, property formalization and productive and social regulation of land. One of the main challenges in the implementation of this land registry policy is its financing. Multilateral banks can support municipalities with credit and technical assistance in structuring land registry updates as investment projects to facilitate their access to tax resources.
The second challenge in which multilateral banks can play a fundamental role is to promote the participation of citizens in the land registry survey process. The advances made so far, in addition to international practices, show the enormous importance of collaborative property surveying mechanisms to advance the formation and future maintenance of the land registry.
The third challenge is to underpin the digital transformation required for the safe and complete operation of a multipurpose land registry. This implies the capture and proper registration of each of the property’s identifiable elements, as well as verifying and cross-checking against notarial and territorial tax records for any transactions that have modified the ownership of such properties. Once the datasets have been verified, integrity in land formalization processes must be ensured. This can be done by implementing innovations such as Blockchain, which allows for the encrypted storage of land award process documentation, mitigating risks of manipulation, non-consensual adjustments or omission of resolutions and other administrative acts, for example, those related to land restitution processes.
Colombian agriculture has much to offer thanks to its soil and climate conditions, as well as its geographical location. To harness this potential, it is essential to promote the sector’s productivity through policies that support land tenure formalization. The security of property rights and the proper functioning of the land market would allow, for example, greater investment in areas such as slow-maturing crops, which are more profitable than those that are temporary. It would favor access to credit and investment in mechanization and irrigation and would even create the conditions for producers with the right skills who are not necessarily owners to have easier access to land. In this regard, CAF is an ally of the country in supporting initiatives that seek to strengthen those institutions responsible for ensuring land property rights with concrete strategies such as digital transformation.
