Land Acquisition for Business and Compensation of Displaced Farmers

Over the last few years, large-scale land acquisitions of farmland for business in Africa, Latin America, and Asia have often made headlines because of controversies concerning compensation paid to displaced farmers. This has led to political strife, often leading to the abandonment of profitable projects, thereby dealing a blow to the development process. The issue of transfer of land from agriculture to industry has not received much attention in development economics. The focus has been on capital and labour, and the movement of “surplus” labour from agriculture to industry as the key to growth. As industry or commerce offers much higher expected returns than traditional agriculture, the transfer of land to the former from the latter is expected to be smooth and one would expect that it should have been easy to compensate those who had to part with their land. This does not appear to be the case, and yet our understanding of this issue is largely based on journalistic accounts. Underlying these controversies are concerns for equitable distribution of the gains from industrialisation or commercialization, and the violation of property rights of owners of agricultural land. There is an implicit premise that paying adequate compensation to owners, tenants and workers will impair efficiency and investment incentives. Is this necessarily so? Can compensation policies be designed to ensure appropriate growth incentives and equitable distribution of gains from growth? This topic is closely related to the issue of how to balance growth in agriculture with growth in other sectors. The existing focus, as pointed out above, has been on labour migration and possible congestion effects in urban areas. But for land-scarce economies there is a new margin of resource allocation which has been ignored by economists and policymakers until real world events have forced them to think about it. The unrest over land acquisition has led to formulation of a new land policy in China recently, and is a live issue in many IGC focus areas in India and Africa. This project addresses the question of compensation policies for rural communities that lose their traditional lands and livelihoods to make way for business (e.g., industry, commercial agriculture, urban development). It consists of two components. The first is a normative theoretical analysis of land property rights that can be used to frame this question suitably and obtain some policy recommendations. The second component will involve an empirical study of a recent context involving such a displacement in the state of West Bengal, India. The empirical study will survey households in affected areas as well as neighbouring non-affected areas in order to estimate the income losses for the former, and assess the suitability of compensations offered by the government in relation to these losses. Combined with the theoretical approach in the first part of the project, we will attempt to provide guidelines for the design of compensation policies that could be used in the future, which we hope will have an impact on the policy debates on this issue.