Rural land market

Rural land market has assumed an important area of investigation. The general assumption is that the poor segment of society continues to sell land to the rich in the wake of financial crisis especially to meet food requirements or pay back debts. More importantly, distress sales of land are alleged to be prevailing in rural areas. In this article today, we shall try to shed some light on the issue.
The rural land market in developing countries is mainly fragmented, highly localised and thin. The poor seldom sell land unless they are driven by distress. As land is very scarce, its opportunity cost or implicit rental rate remains very high. But just the opposite holds in the case of large owners who have abundant supply of land to keep opportunity cost or implicit rental rate low. In fact, in an integrated and competitive market, it is the large landowning group who should have the incentive to sell land to smaller ones; as the latter group can obtain a relatively higher return and, hence, pay more for the same piece of land. But, apparently, the reality on the ground is quite different. Large land owners hardly sell lands, since control over land ultimately translates into a monopsonistic power over the local labour market. The land market in Bangladesh, possibly, is quite in consort with the theoretical expectations.   
It needs to be mentioned here that the present land tenure system in Bangladesh owes its origin to the operation of the State Acquisition and Tenancy Act, 1950. The Act abolished the zemindari system created by Lord Cornwallis, and vested the ownership of lands in the hands of actual cultivators. The provisions of the Act postulated that the state would acquire all intermediary rent-receiving interests and provide ownership to actual cultivators of land. To this effect, the Act also prohibited subletting of land. Thus, it created a large number of landowners with smallholdings.
Basically, the rural land market in Bangladesh is very narrow and got narrower over time. In recent years, only 1.3 per cent of land was reported to be transacted in the market as opposed to 1.7 per cent in the 1980s. This implies that, and as said before, rural households hardly part with their land parcels unless they are driven by distress. Our observations then apparently contradict the conventional wisdom that small farmers would face marginalisation by selling lands to the large groups. To explain this fully, we can draw upon some additional information.  The proportion of land accumulated through purchases and sales was (-) 5.5 per cent for the marginal land owners, zero for the small owners and 1.7 per cent for the medium and large landowners. In a survey on land market in Punjab (India), it could be observed that land prices rapidly soared during the green revolution period but annual sales of land drastically dropped later. It is not only in Bangladesh but also in India that land market is not as vibrant as it is generally presumed to be.
Possibly we can adduce two reasons to the apparent thinness of the land market. First, those who usually make distress sales overcame the periodic distress by adopting new technologies. Or else, to deal with the distress by increased income, many of them have moved to non-agricultural activities. Such a situation should shift the supply curve of land to the left and, thus, bring down the supply further. Second, since the price of the land remains relatively high, it becomes easy to confront calamities by selling smaller amount of land at the same price.
At this stage, we can invoke the insights on incidence of land transactions during distress. A research has shown that, during distress periods, the slope of the supply curve of land could be negative. However, despite the tiny transaction of land in rural Bangladesh, the higher incidence of purchase than sales reminds us that rural-urban migration plays an important part in land transactions.
Besides direct purchases and sales, land transactions or exchanges in Bangladesh also pass through two other channels - credit market and tenancy market. Transactions through credit market are in evidence mostly with credit-constrained farmers who are deprived of an access to the formal channel of credit. In this case, desperation drives them to knock at the doors of the 'lender of last resort' in the villages - mohajons (moneylenders) and large farmers. They engage in the struggle for survival by placing the meagre amount of land as collateral to get the loan at an exorbitant interest rate. It should be noted that such land mortgaging practices also prevail in the formal market, but there is a difference between the two. For example, the informal lender cultivates the land till the borrower repays the whole money.  And, in the case of a failure to repay the loan after specified years, the lender reserves the unwritten right to purchase the parcel. It is being alleged that such transactions often take place at a price below the market price. This is called dai-shudi (loan payment) system and assumes one of the main land transfer systems in Bangladesh.
By and large, the nature of rural land market in Bangladesh is close to that in neighbouring countries where the green revolution has substantially raised the value of land. This has also helped the poor in protecting land from distress sales as they now have alternative sources to finance their working capital. The alternative sources such as remittance, NGO (non-governmental organisatin) credit, income from non-agricultural labour, etc. have apparently kept land market tight.
Abdul Bayes is a Professor at Jahangirnagar University.               [email protected]