Assessing the impact of rural land titling in Peru: The case of the PETT program

Ricardo Fort

World Bank Conference on New Challenges for Land Policy and Administration, 14-15 February, 2008 Washington D.C.

1. Outline

Land Policy in Peru and the PETT program Data collection Research questions Analytical framework Empirical results Lessons learned and policy implications

2. Land policy in Peru and the PETT program

Peruvian agrarian sector: 9% of GDP, employs 1/3 of country’s working population, 76% are poor.

Beginning 90’s: Market liberalization reforms. Only 10% of parcels were officially registered.

PETT program in 1992: free titles and registration for farmers with/without informal land documents.

2. Land policy in Peru and the PETT program

PETT titling process is of “universal coverage” type, and free of charge.

Decentralize offices working at the same time.

The program “recognize” different types of informal documents during the process, but delivers titles indistinguishable of them.

1

AERO-PHOTOGRAPHY

Bordering and Census

Cadastre Certificate

Proof of Ownership or Possession of Parcel

Registration of Ownership in

SUNARP

Certificate of Possession

Registration of Possession in

SUNARP

DELIVERY OF TITLE

Registration of Ownership in

SUNARP

3. Data collection

In 2,004 more than 2,000 household surveys collected

70 districts in 5 regional domains in Coast and Andean regions

Sample frame: National Cadastre database (2 million parcels)

Treatment: already titled by PETT

Controls: not titled yet, but near future

3. Data collection

Limitations of the Cadastre database• Omits individual plots in communal domains

• Some variables were out of date

• Lack of information on Non-T&R parcels

• Difficult to group all parcels of same owner

Definition of treatment and control groups• Program timing-bias

• Delay in T&R of parcels because of conflicts

• Different T&R time depending on previous land documents

4. Research questions

1. How do legal documents before titling affect farmer’s tenure security and land-related investments? Is T&R required to enhance this effect?

2. What are the principal determinants and constraints that farmers face for accessing to formal sources of credit? Can land titling lift up some of these impediments and improve credit access for its beneficiaries?

3. Can land titling programs generate an externality effect on investments and land values by increasing the regional coverage of land rights formalization?

5. Analytical framework

T&R

Increased supply of

credit

More Investments

Increased demand for Investments

Greater security to

farmers

Greater security to

lenders

Higher land

values

Higher Income

Previous land

documents

Titling Density

6. Empirical results: Question 1

T&R has a differentiated effect on investments, depending on the type of land document that farmers hold before the policy initiates.

Stronger impact on parcels with previously weaker levels of tenure security (weaker documents).

Access to land documents is mostly limited to farmers that were already better-off. At best an imperfect substitution to PETT titles.

A public intervention like this one to lift-up the limitations for certain farmers to acquire tenure security by informal means.

6. Empirical results: Question 2

02

46

8

0 .2 .4 .6Titling Density

Hours to closest Credit Office Fitted values

Time to Credit Office and Titling Density

02

46

8

0 .2 .4 .6Titling Density

# Formal Credit Offices Fitted values

Formal Credit Offer and Titling Density

6. Empirical results: Question 2

More than 50% is non-price rationed in the credit market, with the highest percentage reporting a lack of sufficient amounts of land and collateral value as main reason for being rejected or self-excluded (quantity rationed).

Having a PETT title does increase the probability of getting access to credit, nor reduces the probability of being quantity rationed.

Access to formal loans almost exclusive for wealthier farmers, with large amounts of land, and high educational levels.

6. Empirical results: Question 3

Individual T&R increases the level of farmer’s tenure security and enhance investments.

The strength of this relationship is related to the density of land rights formalization.

0.0

5.1

.15

Pro

babi

lity

of In

vest

ing

in In

fras

truc

ture

0 .2 .4 .6Titling Density

Not T&R T&R

6. Empirical results: Question 3

T&R and the level of titling density have a positive impact on land values:• Having T&R increases value by 34%

• 1% increase in Titling Density increases average land values in that district by a similar percentage

On the one hand, for individual titling policies to become effective, other conditions to reduce transaction costs in rural areas and to improve the dynamics of land markets need to be fulfilled.

On the other hand, these conditions can at least be partially improved when the level of titling density start to increase.

7. Lessons and policy recommendations

T&R provides conditions to enhance investments:

• When recognize informal land rights and community networks

• Because reduces transaction costs at regional level, improves land markets dynamics, facilitates credit supply

Concentrate work on farmers without documents

Targeting at the regional level

7. Lessons and policy recommendations

However, T&R not sufficient to improve the livelihood of poorer farmers

Lack of long-term credit in spite of T&R could affect competitiveness

Complementary policies needed: opportunities for increasing land-holdings and acquiring insurance against negative shocks.

7. Lessons and policy recommendations

Improvements for monitoring and evaluation:

• Baselines and long run panel-dataset

• Updated records of advances and reasons for delays

Sustainability of the T&R program

• Need to reduce costs and procedures for registering new land transactions

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