Impact of Agrarian Reform on Poverty Reduction

25 1977 2002

PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

Policy Notes January 2002

No. 2002-01

poverty incidence among ARBs as compared with that among non-ARBs. Table 1 shows that in 1998, 44.1 percent of the ARBs had incomes below the poverty threshold, lower than the 45.3 percent poverty incidence among non-ARBs. In 1999, 42.1 percent of the ARBs were listed as poor, again lower than the 45.7 percent poverty incidence registered among non-ARBs. Moreover, the poverty incidence among ARBs even declined in 1999 (al-

Impact of Agrarian Reform on Poverty Reduction Celia M. Reyes

*

O

ne of the government's major components in its poverty alleviation strategy is agrarian reform.

Through the years, a number of reports have been published on the extent of increase of the agrarian reform beneficiaries (ARBs). Very little study, however, had been made on the impact of the agrarian reform program in reducing poverty among the beneficiaries. This Policy Notes attempts to provide such assessment using the results of an econometric model.

Poverty incidence among ARBs and non-ARBs Based on the Annual Poverty Indicators Survey of 1998 and 1999, one notes that agrarian reform seems to have had a positive impact as evidenced by the lower __________ The author is Senior Research Fellow at the Philippine Institute for Development Studies (PIDS). *

Table 1. Poverty incidence among ARBs and non-ARBs, 1998 and 1999 Year

ARBs

Non-ARBs

1998

44.1

45.3

1999

42.1

45.7

Source of basic data: 1998 and 1999 Annual Poverty Indicators Survey

beit the fact that it is seen to be still high per se) whereas the incidence rose among non-ARBs. Using a different set of data, meanwhile—this time from a panel of about 1500 farm households—Reyes (2001) also finds that the trend of poverty incidence

PIDS Policy Notes are observations/analyses written by PIDS researchers on certain policy issues. The treatise is holistic in approach and aims to provide useful inputs for decisionmaking.

This Notes is based on PIDS Discussion Paper Series No. 200201 entitled "Impact of agrarian reform on poverty" by the same author.

The views expressed are those of the author and do not necessarily reflect those of PIDS or any of the study's sponsors.

2

Table 2. Poverty incidence in 1990 and 2000 Year

ARBs

Non-ARBs

1990

47.6

55.1

2000

45.2

56.4

To determine the factors that significantly affect the poverty status of households in the year 2000, an econometric model was used where some of the variables include: (a) length in years that households have benefited from the agrarian reform program, (b) whether households have received government assistance or not, (c) household size, (d) per capita land size within their ownership, (e) educational attainment of the household head, (f) poverty status in 1990, (g) whether the community where households belong to is an agrarian reform community or not, and (h) whether the land being tilled is irrigated or not.

Key findings: factors affecting poverty status Length of time being ARBs. The length of years that ARB households have benefited from the agrarian reform program of the government increases their chances of being nonpoor by as much as 0.11 points, i.e., the likelihood of a household being nonpoor increases by that much units when the household has been an ARB for a longer period of time. Furthermore, each 5-

Policy Notes

Figure 1. Length of time being ARBs 0.8 Probability of Being Nonpoor

among ARBs vis-Ă -vis non-ARBs is the same as the results of the 1998 and 1999 Surveys. For instance, Table 2 shows that in 2000, the poverty incidence among ARBs was lower than among non-ARBs (45 percent among ARBs and 56 percent among non-ARBs). Likewise, poverty incidence on the whole remained high. This could partly be due to an underestimation of income. Some income in kind may not have been reported accurately, thereby providing a downward bias on income estimates. Nevertheless, what is important to note is that ARBs tend to fare better than non-ARBs, implying that the agrarian reform program has had a positive impact on reducing poverty.

January 2002

0.7 0.6 0.5 0.4 0

1

2

3

4

5

6

7

Years Being ARB Years of Being ARB

year increase in the length of time that ARB households have benefited from the Comprehensive Agrarian Reform Program (CARP) renders an increase in probability of being nonpoor at an exponential but almost linear trend (Figure 1).

In short, a household’s chances of being nonpoor increases the longer the household has been an ARB. This could be because being an ARB allows the household to accumulate savings and physical capital as manifested by higher incomes (relative to non-ARBs) and ownership of consumer durables and other assets. ARB households also tend to invest more on human capital as shown by the higher educational attainment of their members compared to non-ARB household members. These could have positive effects on the earning capacity of the household and consequently on household income.

Household size. Poor households are characterized by a large family size. As the number of a household's family members increases, said household tends to be poorer. The likelihood that a household with a large family size becomes nonpoor is lower than a household with a smaller family size.

Educational attainment of the household head. A head of the family who has attained a high level of education is likely to belong to a nonpoor household. The likelihood of a household, whose head has a high level of educational attainment, of being nonpoor is higher than

3

that of households with heads having a low level of educational attainment.

Agrarian reform community. A household living in a community that has benefited from agrarian reform is more likely to be nonpoor, with an odds ratio of 1.25.

The probability that a household is nonpoor increases by 0.22 points when said household lives in an agrarian reform community.

No. 2002-01

ability of being nonpoor of an ARB, with or without these inputs, is computed using a probability equation. Figure 3 shows the probability of being nonpoor for households who are ARBs with particular inputs. The probability of being nonpoor for an ARB who has no credit, no irrigation and is not in an ARC is the lowest. When he is provided irrigation, the probability of his being nonpoor increases by 24 percent on the average. Furthermore, when he is given credit, his probability of being nonpoor increases by 15 percent. Finally, when his community becomes an agrarian reform community, his probability of being nonpoor increases further by 5 percent.

To compare the probability of ARBs and non-ARBs being nonpoor, the probability is computed using an estimated equation for a family of six and with the household head not having any schooling. Then, given the same inputs such as irrigation, credit and being in an agrarian reform community, ARBs are shown to consistently have higher chances of being nonpoor than non-ARBs (Figure 2).

0.6 0.4 0.2 0 no irrigation, no credit and not in ARC

w/ irrigated land & access to credit

w/ irrigated land, access to credit & in ARC

among Non-ARBs

Figure 3. ARB households provided with inputs

0.7

0.5

0.3

0.1 1-5

To show the effects of credit, irrigation and being in an agrarian reform community on ARBs, the prob-

w/ irrigated land

among ARBs

Probability of being nonpoor

Access to credit. Households who have access to credit are more likely to be nonpoor. The odds of a household being nonpoor is .72 points higher when it has access to credit. A household is said to have access to credit if (a) it is able to avail of credit or (b) it did not avail of credit (even if it could) because it had no need to.

Probability of being nonpoor Probability (Nonpoor)

Irrigated land. The type of land that farmers till helps determine the poverty status of the households. The probability of being nonpoor for farmers (households) increases by 1.08 points when they till irrigated land. Farmers who till irrigated lands are thrice (2.96 times) more likely to be nonpoor Figure 2. Comparison between ARBs and non-ARBs with a family size of 6 than those who till nonirrigated lands.

6-10

11-15

16-20

21-25

26-30

31-35

36-60

Years of being ARB inputs: irrigated land, access to c redit, A R C

inputs: irrigated land & access to credit

input: irrigated land

no input

Policy Notes

4

The results indicate that being an ARB tends to increase one’s chances of being nonpoor. Moreover, one notes that providing the necessary inputs like credit, irrigation and being in an agrarian reform community tends to further increase one’s chances of being nonpoor.

Conclusion The results of the model used show that agrarian reform has had a positive impact on farmer-beneficiaries. It has led to higher real per capita incomes and reduced poverty incidence among ARBs between 1990 and 2000. And although the incidence of poverty still remains high and much work remains to be done to help reduce it, the findings in this study indicate that compared to non-ARBs, ARBs are better off because of agrarian reform.

January 2002

Given the results of this modelling exercise, it is important that the agrarian reform program be completed as soon as possible. Moreover, agrarian reform communities should be expanded to benefit not just ARBs but non-ARBs as well. Infrastructure support should also be extended to farming communities while credit and extension services by government agencies should be made accessible to farmers. 4

Complementary inputs, however, are found to be necessary to maximize the benefits from agrarian reform.

Irrigation, credit and government services, for example, tend to promote higher incomes. Moreover, agrarian reform communities tend to increase the chances of a farmer-beneficiary to be nonpoor.

For further information, please contact The Research Information Staff Philippine Institute for Development Studies NEDA sa Makati Building, 106 Amorsolo Street Legaspi Village, Makati City Telephone Nos: 8924059 and 8935705; Fax Nos: 8939589 and 8161091 E-mail: creyes@pidsnet.pids.gov.ph jliguton@pidsnet.pids.gov.ph The Policy Notes series is available online at http://www.pids.gov.ph

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