INTELLIGENCE MEMORANDUM ASSESSMENT OF CHILE'S AGRARIAN REFORM PROGRAM

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600030069-3
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• Original Classification: C
• Document Page Count: 29
• Document Creation Date: December 22, 2016
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• Sequence Number: 69
• Publication Date: June 1, 1970
• Content Type: IM

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DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Assessment Of Chile's Agrarian Reform Program
Genf ?d/er? w0
ER Ir 70-69
June 1970
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
1GROUP I
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CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
June 1970
INTELLIGENCE MEMORANDUM
Assessment of Chile's
Agrarian Reform Program
Introduction
The agrarian reform program launched by the out-
going Christian Democratic administration of Presi-
dent Eduardo Frei has caused revolutionary changes
in Chile's rural society, as intended. It has fallen
far short of its goals, however, and is under attack
from both the left and the right. It has stimulated
sporadic rural violence that may increase in this
election year. Nevertheless, agrarian reform has
already proceeded too far to be turned back by
whatever administration succeeds Frei. This memo-
randum reviews the economic, political, and social
conditions in which Frei launched the program and
assesses its progress and effects.
Bases for Radical Democratic Change
The Political. Setting
1. Conditions leading to radical agrarian re-
form through legislation began to develop in Chile
long before the 1961 Declaration of Punta del Este
legitimatized land redistribution as a national
goal.. The rural oligarchy had been gradually losing
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current In-
teZZigence and the Office of National Estimates.
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 MEMEEM
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political influence since the 1920s, and a mild land
reform bill was passed as early as 1928. Although
the next three decades brought little change in land
tenure,, the balance of political power shifted to
the rapidly growing middle-class urban groups. By
lending legislative support to industrial and urban
programs, the rura] oligarchy temporarily preserved
the traditional pattern of land ownership? Its
bargaining power was not sufficient, however,, to
overcome urban opposition to credit, price, and
investment policies favoring agricultural producers.
In effect, the status quo in the countryside was ,1
maintained only through farmers` support of policies
that strengthe...ad urban groups, many of them avowedly
opposed to the rural oligarchy.
2. Within the two rightist parties -- the Con-
servatives and the Liberals -- the rural elite lost
influence to the growing industrial and commercial
upper classes. Moreover, the rightist parties'
desire to broaden their appeal induced amore flex-
.:e.ible and moderate stance on several issues, including
agrarian reform. The parties' voting strength never-
theless continued to deteriorate, and by the mid
1950s their hold on the countryside had loosened.
considerably. In the 1958 presidential election,
many peasants voted for the Popular Action Front
(FRAP), a leftist coalition dominated by the Commu-
nists and Socialists, and almost brought victory for
its candidate, Salvador Allende. Although the inde-
pendent conservative, Jorge Alessandri, gained the
presidency by Congressional support. for his narrow
plurality, the 1961 election in which the conserva-
tive coalition lost its crucial one-third control in
the legislature* probably portrayed political moods
more accurately.
3. Us pressures and offers of aid for accel-
erated agrarian reform under the newly established
Alliance for Progress thus brought a stronger re-
sponse in Chile' than elsewhere in Latin America.
Political pressures on the rural oligarchy were.in-
tensifying further as the centrist parties (the
Under the Chilean bicameral system, amendments
to a bill can be blocked in many instances,by one
third of .the. vote; also, the President's . addit-Zone
to a bill through h;s so-called veto power will
carry if-they receive one-third support-in both
houses.
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Christian Democratic Party (PDC) and the Radicals)
joined the FRAP in calling for agrarian reform.
Forced into a mood of compromise, agricultural
interests supported both the Agrarian Reform Law
passed in 1962 and the 1963 constitutional amend-
ment required to enforce it.
4. Although attacked by the left and by for-
eign observers as too mild, this reform legislation
marked a radical departure from once-sacrosanct
property rights. The "inviolability" of property
ownership was altered by taking "social 4-unction"
into account. As a result, abandoned or poorly
exploited land became subject to expropriation and
redistribution. The constitutional amendment also
authorized deferred payments for expropriated prop-
erty -- a change that landowners earlier had opposed
as bitterly as the state's right to expropriate.
5. Implementing the Alessandri reform laws was
slowed by financial and legal constraints as well as
by landowners' continued influence in the adminis-
tration. Much time was lost while the.newly organ-
ized Agrarian Reform Corporation (CORA) completed
legally required investigations and coordinated
plans with various government agencies. Because
compensation for most expropriated properties was
based on commercial value and had to be completed
in ten years (with a 20% downpayment, 4% interest
on the balan;.e, and annual payments adjusted for
inflation), land acquisition was costly. Finally,
the landowners' right to contest CORA's expropria-
tion decisions in the courts resulted in prolonged
delays. By September 1964, only some 1,200 fam-
ilies had been settled, mainly on property previ-
ously owned by the government or voluntarily sold
by private owners.
6. Agrarian reform was a contentious issue in.
the 1964 presidential campaign waged by the PDC
candidate Eduardo Frei and FRAP's candidate Salvador
Allende. Although Julio Duran of the Radical Party
also was on the ballot, there was no center-right
candidate for all practical purposes because Duran's
coalition folded long before the election. Promises
of radical reform escalated as the two major candi-
dates attempted to take advantage of the apparent
leftist swing in Chilean politics. Aided by right-
ists who had no real alternative. and leftists who
feared Communism, Frei won amandate for his "Revolu-
tion in Liberty", capturing 56% of the vote. This
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mandate was strengthened when his PDC swept the
1965 congressional election, gaining an absolute
majority in the lower house and a strong plurality
in the Senate. The Marxist parties also picked up
strength, running second to the PDC. The Radicals,
on the other hand, lost half their lower house
strength and all but ten Senate seats, while the
traditional rightist parties suffered an electoral
collapse -- retaining only nine out of the 147
lower house seats and the seven Senate seats not,
up for election.
Rural Conditions Before Frei
7. Before 1965, Chile's agriculture was under-
going moderate evolutionary change. The concentra-
tion of land ownership was gradually breaking down,
but a rapidly increasing number of families *ere
struggling to exist on very small holdings. These
small landowners, or minifundistas, plus share-
croppers, landless workers, and resident workers
comprised about 65% of the rural population of some
three million in 1965. A long period of low agri-
cultural prices and meager public investment in
rural improvements had held down agricultural growth.
Between 1940 and 1965, agricultural income per
capita increased only about 30% -- approximately
one-half the national rate. Rural poverty was re-
flected in an infant mortality rate about twice the
national average and a literacy rate of 65%-70%
compared with 90% nationally. Because of illiteracy,
isolation, and transportation difficulties, only an
estimated,40% of the adult rural population voted
in 1964 compared with 70% nationally.
8. Between 1955 and 1965, the agricultural area
increased only about 0.4% annually, compared with a
2.7% average for Latin America. Chile's land use
pattern, however, changed appreciably,, While about
70% of the regional increase in agricultural produc-
tion resulted from expanded farm area, about 80% of
Chile's. agricultural growth came from more intensive
land use. The land in orchards and vineyards in-
creased by 12%, cropland by 20%, and land in im-
proved pasture (mainly on large. farms) by more than
100% (see-Table 1). In only ten years, division of
holdings through sale and. inheritance raised the,
number of properties smaller than 25 acres from
76,000 to 157,000 and the farm total from 151,000
to 253,000 (see Table 2).
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9. Because of substantial migration to urban
areas -- an estimated 30,000-35,000 parsons an-
ually -- Chile's agricultural population fell from
about 30% of the national, total in 1955 to 25% in
1965. The agricultural labor force grew only about
1% annually, or two-fifths of the national rate,
and in 1965 totaled about 740,000. Worker produc-
tivity increased an average of 1% annually, but most
of this rise occurred on large farms economizing on
labor because of gradually increasing wages and un-
favorable prices. Output per man on extremely small
farms stagnated or declined, further widening the
income gap between minifundistas and full-time
workers on large farms. Most small farmers appar-
ently stayed on the land despite their worsening
lot, while the workers discharged by the larger
farms migrated to the cities. As a result, small
farmers numbered 240,000 or one-third of the rural
labor force in 1965, compared with only one-fourth
in 1955, and the proportion of landless and resident
farm workers declined to a similar extent (see.
Table 3).
10. During 1955-64, agricultural output in-
creased by an average of 2.2% annually. Although
output kept up with population growth, it lagged
considerably behind demand. Net agricultural im-
ports thus swelled from a,$60 million average during
1952-54 to a $115 million average during 1962-64.
Frei's Agrarian Reform Program
Goals and First Steps
11. The PDC's agrarian reform has been gradual
but far from conservative in its basic premises and
ultimate goals. With the avowed aim of creating a
"revolution in the countryside," Frei attempted to
(a) improve the rural poor's lot, (b) fully inte-
grate the campesinos (peasants) into national life,
and (c) increase agricultural output. The program's
keystone is a massive redistribution of agricultural
land and income and a corresponding transformation
of the agrarian power structure. Unlike the Mex-
ican and Bolivian experiences, Chile's "revolution"
thus far has been nearly bloodless. In its objec-
tives, the Chilean experiment nevertheless is one
of the most radical yet attempted by peaceful means
in a non-Communist society.
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12. In his election-campaign, President Frei
called for. 100,000 new, viable, family-sized farms
by the end of his term in 1970 -- an ambitious goal
involving about 750,000 people, or one-fourth'of
the rural population. He also advocated raising
wages of rural workers by unionizing them and
raising. small farmers' incomes by promoting coop-
eratives and improving credit and n}arketing facil-
ities,., In addition', he pledged to narrow the gap
between rural and urban poor by sharply expanding
social services in the countryside.
13. Realizing that a frontal attack on land-
owners' rights could adversely affect agricultural
output,, Frei promised immunity from expropriation
for efficient producers and higher prices and other
incentives for agriculture as a whole. Although
large landowners contended that low farm output
resulted mainly from years of discriminatory gov-
ernment.policies, they generally approved redistrib-
uting poorly used land. They emphasized, however,
that safeguards were needed for efficient producers.
Although Frei and his spokesmen repeatedly reassured
them on this point, it was apparent that views dif-
fered widely within the PDC and Congress.
14, The government initiated portions of the
reform program soon after assuming power in November
1964. Because Chile has had a price control system
for decades, the government was able to improve
agricultural terms of trade, at least temporarily,
by raising price ceilings on agricultural products
more than those on non-agricultural items and by
limiting competition from under-priced imports.
Similarly, increases in minimum agricultural wages
and family allowances and in social security, health,
education, and other public services involved little
or no controversial legislation. The administration
also got an early start in organizing the rural poor
into labor unions, cooperatives,. and community asso-
ciations.
15. The Frei government had to wait until. July
1967, however, for legislative approval of its land
expropriation and redistribution program. The bill
was not submitted to the Congress until late 1965.
Attacked by both the right and the left and re-
quiring another constitutional amendment, it was
delayed for another 20 months. The agrarian re-
form law that finally emerged differed little in
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its basic-clauses from the original draft. Rightist
forces won only minor victories; leftist forces,
while continuing to demand an even more radical bill,
privately expressed considerable satisfaction.
Land Expropriation
16. During 1965?-69 the Frei government expropri-
ated 1,120 farms embracing more than one-fifth of
Chile's irrigated land and almost 10% of the total
land in farms. Land reform activity has been partic-
ularly intensive in the rich agricultural provinces
surrounding Santiago (see the map). Before mid-1967
the government acquired considerable land under the
1962 law,.primarily because some landowners were
willing to sell rather than take their chances under
the new law. During this early period, CORA also
assumed control over large state-owned tracts.
During the first 12 months under the new law, CORA's
expropriation activities were hampered by organiza-
tional and financial difficulties. Since niid-1968,
however, the pace of expropriation has speeded up
considerably, as shown in the. following tabulation:
Number of Farms
Expropriated
Total, 1959-64 N.A.
1965 a/ 85
1966 262
1967 221
1968 220
1969 332
Tota4, 1965-69 1,120
Amount of
Total Amount
Irrigated Land
of Farm Land
45
2,064
93
1,105
141
1,263
128
592
110
1,608
141
2,524
613
7,092
a. Including several large holdings taken over from state
entities:
17. Greatly expanded since 1964 and directed.by
Rafael Moreno -- a young, left-wing Christian Dem-
ocrat -- CORD is by far the most powerful operational
agency involved in land reform. It has authority to
decide which properties are to be expropriated, the
basis for expropriation, the properties' value, the
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Chile: Proportion of Irrigated Land
and Total Land in Farms Expropriated
by Zone, 1965-69
Irrigated
Land
78288 6.70. CIA
40% to 50%
Over 50%
Less than 3%
0 5% to 10%
10% to 20%
20% to 30%
30% to 40%
Agrarian Reform Zones
Provinces
Zone 1. Tarapac6 and Antofagasta
2. Atacama and Coquimbo
3. Aconcagua and Valparaiso
4. Santiago
5. Colchagua and O'Higgins
6. Curicb, Talca, Maule, and Linares
7. Nuble, Bio-Bio, and Malleco
8. Concepclon and Arauco
9. Cautln, Valdivia, Osorno, and Llanquihue
10. Chilo6 and Aisdn
11. Magallanes
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Total Land
In Farms
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cash payment, and who can retain part of his prop-
erty. A landowner can contest some of CORA's deci-
sions in the Agrarian Reform Courts but cannot con-
test the decision to expropriate or hold up CORA's
acquisition of the property. Under the 1967 law,
CORA can take property immediately upon making the
required cash payment, even if the owner contests
its judgments. An amendment approved late in 1969
by the Congress further speeds up the "quick-take"
process. .
18. The agrarian reform law authorizes expro-
priating farms that are excessively large, poorly
exploited, or abandoned. All holdings exceeding
198 "basic" acres (defined as 198 irrigated acres
in the Maipo Valley, near Santiago, or an equally
productive area elsewhere) are subject to expro-
priation even if efficiently exploited. A property
is judged poorly exploited if it fails to meet cer-
tain requirements concerning land use, capital im-
provements, and other standards or if economic bene-
fits to its workers are deemed inadequate. An aban-
doned property is defined as one that, while it may
be occupied, is not worked. A hotly contested ret-
roactive clause authorizes expropriation as one unit
of any estate subdivided after November 1964. Farms
owned by corporations; farms rented, leased, or
otherwise non-owner operated; and land needed for
irrigation projects are also subject to expropriation.
Finally, the law permits expropriating minifundia
and communes judged too small to support their
occupants, but CORA thus far has made no attempt
to implement this provision.
19. Compensation for expropriated land is based
on its tax-assessed value -- generally about one-
half the market price. The cash payment, made
immediately, varies according to the grounds for
expropriation: 1% of the assessed value for aban-
doned property, 5% for poorly exploited property,
and 10% for efficiently exploited holdings of ex-
cessive size. The value of improvements made since
November 1964 also is paid in cash. The remaining
compensation consists of 25- or 30-year, nontrans-
ferable bonds that pay 3% interest and are to be
adjusted in value to reflect about 70% of inflation.
Economists employed by a landowners' association
have estimated that compensation may be as little
as 20%-30% of a property's market value. Represent-
atives of the radical left, on the other hand, ques-
tion the justification for any compensation.
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20. A landowner suffering expropriation osten-
sibly is allowed to retain 198 "basic" acres unless
the property has been abandoned, totally leased, or
poorly exploited in CORA's judgment. Before exer-
cis,ing this."right of reserve," the landowner must
receive CORA's approval or, on appeal, a favorable
judgment from an Agrarian Reform Court. Modifica-
tions in the agrarian reform law in late 1969 have
deepened landowners' doubts that the full "right of
reserve" will be recognized.
21. Expropriation of abandoned farms or those
that clearly are poorly exploited has not generated
much controversy. But Frei's continued assurances
that efficient producers are not threatened, even
if the holdings are large, have been undermined by
CORA's actions. Moreover, CORA's willingness to
appraise large farms' efficiency objectively has
been seriously questioned, in part because it is
less costly to expropriate on the basis of poor
exploitation than of excessive size. After losing
a court decision involving the expropriation of a
particular farm on the ground of poor exploitation,
CORA announced in February 1968 that excessive size
would be the legal basis for all future expropria-
tions. Although excessive size has been the formal
ground for most subsequent takeovers, CORA has taken
the position -- when paying for many holdings -- that
they were poorly exploited as well as excessively
large. This tactic has allowed CORA to limit both
its cash outlays and landowners' rights of reserve.
Land Redistribution
22. In an effort to avoid the experience of
Mexico, Cuba, and Bolivia -- where agrarian reform
initially reduced farm production and, even more,
market deliveries -- Chile's law provided for a
transitional period of cooperative organization on
redistributed land, under.CORA's tutelage. The
government hoped that the newly settled campesinos
could learn to farm efficiently during this period.
The asentamientos (communal settlements) are
scheduled to last up to three years but can be
extended to five years by presidential decree.
During this time, the land is farmed as a unit,
and each member is paid wages according to the
number of days worked. Net profits, if any, are
divided among the members. CORA chooses the
campesinos for these settlements, giving preference
to -landless workers previously living on the holding,
and provides both credit and technical assistance.
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23. At the end of the cooperative period, land
titles are to be issued to individuals, to the co-
operative, or a combination of the two. According
to the agrarian reform law, most aoentamientoo were
to be divided into privately owned, family-sized
farms, cooperative titles being issued only if indi-
vidual plots were technologically infeasible or if
requested by the members. In practice, CORA has
shown a strong predisposition toward communal owner-
ship. It has stated that it will give priority in
issuing titles to aaentamientoo opting for communal
ownership and, in fact, has delayed giving titles to
three- to four-year-old aoentarnientoo requesting in-
dividual titles. As the end of the government's term
approaches, the pressure to accept communal owner-
ship rather than no ownership at all has intensified.
24. During 1965-69, CORA settled about 19,500
families on 821 aoentamientoo, as shown in the tabu-
lation below. By the end of Frei's term in Novem-
ber 1970, this figure probably will rise to 25,000
to 28,000 families -- a substantial number, but only
about one-fourth of the original goal. Most of the
people settled were landless workers and sharecroppers
resident on the land when expropriated, and the re-
mainder were largely landless workers from the sur-
rounding area or Indian families from reservations.
Thus far, few if any minifundiotas have received land.
Number of
Communal
Settlements Number of Number of
(Asentamientoo) Families Land Titles
Established Settled Issued
Total, 1959-64 0 1,169
1965 33 2,061
1966 62 2,109
1967 151 4,218
1968 200 5,500
1969 375 5,612 a/
Total, 1965.69 821 19, 500 a/ 1,700 b/
a. Provisional figure.
b. Permanent communal rights only.
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25. About 1,700 families received land titles
of asort during,1969, all of them on a. communal
basis. ,The,, titles do not transfer ownershi p of a
particular piece of land (aside from a small housing
site) but merely evidence part ownership of the com-
munal farm. Moreover, the family may stay on the-
land only so long as it remains in good standing
with the commune and with CORA, and it cannot inde-
pendently sell, lease, or bequeath its communal
rights. CORA's refusal to issue individual titles
has been a major cause of dissension on many aoenta-
mientoo and has become an important political issue
in some areas. Although this decision can be con-
tested in the Agrarian Reform Courts, CORA's power-
ful position in the land reform discourages litiga-
tion by settlers. Large landowners and others
opposed to the reform, however, have capitalized
on the titles issued by asserting that CORA is
nothing but a new patron, and one with loss com-
passion than the old one. in support of its
policy, CORA has pointed to what it claims to be the
potentially greater efficiency of communal farms
compared with individual plots.
26. Financial and administrative problems are
largely responsible for holding down the pace of
land reform. Costs have been rising rapidly and
have far exceeded original estimates. By 1968,
direct expenditures on land reform equaled an esti-
mated 6% of the central government's expenditures
and about one-fifth of the investment outlays (in-
cluding loans and advances, some of which will be
repaid). CORA's spending alone has averaged, more
than $10,000 per family settled. Administrrttivo and
technical costs have been high: CORA has between
2,100 and 2,400 employees, or about three for every
five families settled per year. Technical assistance
costs and credit extensions to the aoentamientoo con-
siderably exceed construction expenditures and cash
outlays for land acquisition, as shown in the tabu-
lation below. On many of the aoentamientoo, wage
advances and crop loans alone have greatly exceeded
output value, and large financial losses have occurred.
27. The government also supports the aoentamientoo
in other, less direct ways. The Agricultural Market-
ing Agency (ECA) gives the aoentamientoo disguised
subsidies by purchasing a large part of their output
at prices considerably higher than those paid other
farmers. Mainly because of these subsidies, ECA
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Million 1968 US $
1969
1970
1965
1966
1967
1968
Plan
Plan
Technical assistance
and credit
5
12
21
41
N.A.
N.A.
Construction
2
4
6
7
N.A.
N.A.
Land acquisition (down-
payments only)
1
2
4
7
N.A.
N. A.
Other
4
5
7
7
N.A.
N.A.
Total
12
23
38
62
72
109
Less: Repaid credits
1
3
6
11
22 a/
24 a/
Net expenditures
11
20
32
51
50
85
registered annual losses of about $8 million in
1968-69 compared with surpluses of $12-$15 million
in 1964-65. The National Agriculture and Livestock
Service (Chile's extension service) was ordered in
early 1969 to work largely on the acentamientos to
help counteract their rising financial difficulties.
The National Housing Corporation has shared in the
cost of housing provided by CORA on the acentarnientos.
Also, the State Bank has given the asentamientoo
additional credit, and other government agencies
have provided technical and financial assistance.
Inclusion of all these expenditures would consider-
ably raise land redistribution costs per family,
perhaps to as much as $20,000 -- twice the figure
for CORA spending alone.
Rural Organisation
28. In addition to land redistribution, the
PDC's agrarian reform program has concentrated on
organizing the rural lower classes for social, eco-
nomic, and political purposes. The Agricultural
Livestock Development Institute (INDAP) has been
charged with establishing rural labor unions, co-
operatives of small farmers, and community asso-
ciations. Jacques Chonchol, an agricultural spe-
cialist and onetime UN employee detailed to Castro's
agrarian reform agency, headed INDAP until he left
the PDC in 1969 to form a rival party now in coali-
tion with the Communists, Socialists, and leftist
Radicals. Under Chonchol, INDAP expanded to more
than 3,100 employees, many of whom were involved
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exclusively in political activities. Whereas
Chonchol aggressively promoted peasant organization
as a revolutionary force, his successor Roberto
Infante -has'stressed productive efficiency. During
this pre-election period, however, INDAP probably,
will not materially alter its image as a dispenser
of "more ideology than technology."
29. One of INDAP's more successful programs has
been unionization of farm workers. Although rural
labor federations were illegal until 1967, the PDC
and rural parties began promoting them as early as
1960. Of the 150,000-175,000 workers employed on
private estates in 1969, almost 100,000 were union
members. About half the workers belong to labor
federations sponsored by INDAP, and most others
belong ti federations formed by other Christian
Democratic groups and by the Socialist and Commu-
nist parties. Collective bargaining, together with
landowners' fears of expropriation for failure to
provide adequate workers' benefits, has played an
important role in increasing real rural wages since
1964. Although accelerated inflation during 1968-69
reduced gains in minimum wage scales, the real wages
of most rural workers clearly have risen under Frei..
30. INDAP also has been organizing and aiding
Chile's numerous small farmers. By the end of
1969, it had helped to establish some 230 coopera-
tives with 36,000 members and to organize 130,000
small farmers into associations. These organiza-
tions already are benefiting their members somewhat
and should be able to improve their living standards
further through joint marketing, production, and
investment projects. Some farmers, however, are
dissatisfied with INDAP's technical assistance.
Presidents of small farmer committees in Linares,
Curico, and Nuble Provinces have complained, for
example, that their members often know more about
farming than the young INDAP specialists.* INDAP's
financial assistance to Chile's 240,000 small
farmers contrasts sharply with CORA's large outlays
One leader of a small farmer federation bitterly
complained that the INDAP staff in Linares consisted
of "80 promotores (aociaZ promoters), two veteri-
narians, and one agronomist." ?armors in couth-
central Chile tall a joke about a lion that thrived
all winter by eating an INDAP official each morn-
ing -- none of whom were ever missed.
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on the asentamientoe. During 1965-69, INDAP's
lending amounted to only $6-$9 million annually.
Except for a few showcase projects such as the
Marchique Poultry Cooperative in Colchagua, individ-
aa~ loans have been very small. Crop loans to 45,000
farmers in 1968 were made mostly in kind and averaged
only $100 each. Moreover, some small farmers complai-A!
that these loans of fertilizer, seed, and other inputs
often were delivered too late to be utilized effec-
tively.
Some Effects of the Pro rams
Production Impact
31. Agrarian reform appears to have hampered
agricultural growth, as was to be expected despite
Frei's hopes, but it has not brought a sharp decline
in output. Its impact cannot be accurately measured
because other factors, such as weather, also play an
important role. Agricultural output rose by only 7%
from 1964 to 1968, an average of 1;% annually com-
pared with a 23-,% average during the preceding four
years (see Figure 1). In 1969, total agricultural
output dropped by 8% and crop production by 16% --
largely because of a severe drought, although
agrarian reform disruptions probably had some
effect. The gap between output and demand has
widened considerably under Frei. Not agricultural
imports increased from $125 million in 1964 to about
$180 million in 1968 and may have approached $250
million in 1969.
32. All of the increased output in 1965-68 de-
rived from the livestock sector; crop output dipped
in 1965-66 and merely returned to its 196.1 level in
1967-68. The major cattle-raising areas are in
southern Chile and have been little affected by land
redistribution until the last year or so. Moreover,
livestock producers have benefited from sharply im-
proved terms of trade (see Figure 2). In recent
years, livestock prices have been at their highest
level since the early 1950s, when they had been freed
from controls for a brief time. Relative livestock
prices jumped 15% in 1965 and subsequently have
declined only slightly. The Frei government only
temporarily improved crop prices, however, mainly
because it felt compelled to tighten food price.
controls as the pace of inflation quickened. Rel-
ative crop prices were raised by 21% in 1965-66 but
by 1968 had fallen back to their low 1964 level.
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CONFI1)EN'.i'IAL,
Chile: Agricultural Production Indexes*
1950-69
ILLEGIB
Chile: Trends in Agricultural Terms of Trade*
1951-69
hi ' ]"*.a
1O4f.AU Aver#UD-U?(
ILLEGIB
- 1G
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(,'JUN1'.I i>EN.11 AI,
Crop prices probably accounted for little if any of
the minor improvement in agriculture' u Lermu of
trade last year.
33. Despite the Frei adminintrati.on'u oft-avowed
aim to incroane agricultural efficiency, the PDC
program in primarily a social reform with a high
ideological content. Had economic conuicIcrationu
been paramount, the Frei government clearly would
have adopted loon coetly and more expeditious ways
of strengthening production and inveotment incon-
tiveu, utilizing land more effectively, and im-
proving farm technology. A relatively umai l share
of the govcrmmnent'n large exponditureri on agrarian
reform has gone into irrigation and other long-term
physical improvementu. Moreover, because of the,
failure to provide oafeguardu for efficient pro-
ducers and to maintain favorable crop prices, the
impact on private agricultural investment tan
been greater than it needed to be. 'T'hus the full
economic coctn of agrarian reform will be felt in
the yearn ahead. It remains to be Veen if the
administration's inveuttr.ent in human renource ue-
velopment will pay off sufficiently to offset there
contu and if the communal form of land ownerr:hip it
has fostered thus far is even workable within the
Chilean context.
y liu la I, I-' na i*VTi :ii ' lh i- l~r;.4n t. ;'-fs: r1c
34. The Chrir;tian t rloeratic !~C) ern i(-ii~'ri (iota`
ecanful. drive to oreani s e and poll `ici E? the rural
poor han stir ulatf_>ctoo while they have
received little financial aid. The PDC's political
strength among these groups will turn largely on
whether they compare their present lot with what
it was before 1965 or with that of peasants who
have gained far more.
421. The r.ti n i f undia tatr may represent a special
''_ se of b cklash . L-'conomically, they are possibly
worse off now than they were in 1964; their pc~ition
rel,itive to almost all other rur"-l groups assuredly
hats eroded. Their chance.: to expand their property
holdings to a viable family size have not improved.
In fact, COtti has used the law against parcels ation
to block their attempts to purchase land from pri-
vate owners. Althoucrh many of these people supple-
ment their income ttiroucih outside employment, their
wacge incrca.=e.a probably have not equaled those
received by full-time unionized workers.
A(7rarian P?c?form an .an t;1t'ction I3 ,u(.
4 3. igrarian reform will. be an important issue
in this year's Presidential election at l+ ant among
rural residents, who ;rake up about one-fourth of
the electorate. To one degree or another, the PDC's
p).ot;ram has affected nearly everyone in the country-
1F'or th" heavy lcsers and wir.ners, the choice
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CJONIUI_)EN'].'I AT,
among the candidates probably is a fairly simple one
and already has boon made. Others may be swayed by
the candidates' positions and personalities and per-
haps by campaign promises yet to coma.
44. Already assured of the landowner vote, Jorge
Alessandri -- the 73-year-old ex-President who is
running as an independent -- is trying to attract
the poorer rural classes by promising "reform with
tranquility." He probably will say little about the
pace of land redistribution, but his support for
private ownership of holdings will be well received
by many voters. Alessandri is expected to advocate
programs of general rural appeal, including increased
public investment in infrastructure, higher agricul-
tural prices, and improved credit and marketing fa-
cilities. Ile may also propose reclamation of largo
tracts for distribution to the rural poor. Never-
theless, in the countryside as in the cities,
Alessandri's broadest appeal rests not on his spe-
cific positions but on the popular conviction that
he -- as an apolitical and stern father figure --
can bring progress without turmoil.
45. Radomiro 'c'omic, having failed repeatedly to
form a grand alliance of leftist forces, is running
undor the PDC banner. Left of Frei in political
orientation, Tomic advocates a "communitarian" sys-
tem -- a concept perhaps vague even to him but
clearly stressing a non-capitalist road to develop-
mtnt. On agrarian matters, Tomic probably will
campaign on the PDC's record and a promise to speed
up the "revolution in the countryside." Although
his personal preference is for some form of social-
ized agriculture, he and the PDC will appeal to
many voters as an alternative to the conservatives
and the Marxists.
4G. The Marxist coalition (formerly FW1P) has
been expanded to include the Communists, Socialists,
leftist itadicals, Social Democrats, and Chonchol'a
........ ,.c ...._vnr~ .tt.._t.. .ti.. ?...~tc .t....
1~VVai V4 V/-t v1r 1. t.V I.V4. .11V t/Vn VU AO A. *Of.: I. 1. UI 1t
Popular Unity Movement (MUI') . This coalition,
which is again supporting Salvador Allende, will
try to improve upon his 40% share of the 1964 vote
by capitalizing on the disappointment of those who
gained lest; than expected from the PDC'r more grad-
ual approach to agrarian reform. The Marxistn have
been well established in the countryside far longer
than the IPDC and, for many peasants, do not present
CON 1 II)I N'I'IAL
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CONfIDFN':I:'IA.L
a fearful image. In 1970, however, Allende will be
trying to strengthen his credentials as true leader
of the "revolution in the countryside" without in-
creasing the defection to Alessandri of those
who find turmoil too high a price to pay for change.
Conclusions
47. The Frei administration's agrarian reform
has affected revolutionary changes, although it has
fallen far short of its goals. During its first
five years, the government succeeded in settling
almost 20,000 landless rural families, mainly on
property o propriatod from private landowners, and
by the and of its term in late 1970, it will have
accomplished somewhat better than one-fourth of
its original goal of settling 100,000 families.
It also has awakened the rural masses to their
political-economic potential. The economic lot
of many rural poor has improved and the campovino
has become a participant in national life, but the
gap between expectations and gains during six years
of Christian Democratic rule is very wide.
48. The thrust of Frei's agrarian reform has
been social revolution, for which the government
has been willing to absorb an economic cost. This
cost probably is exceeding what Frei and his eco-
nomic team originally had in mind, however. Frei
had intended to preserve private producer and in-
vestor incentives by clearly establishing expro-
priation guidelines and by adopting more favorable
agricultural policies. Landowners feel, however,
that the two main agrarian reform agencies, CORA
and INDAP, have carried out the program as much in
a spirit of vengeance as reform. Despite presi-
dential reassurances that efficient producers have
nothing to fear from reform, CORA in the last two
years increasingly has, been expropriating well-
managed farms -- partly to offset its own mounting
financial problems. It almost certainly will con-
tinue to do so in the months ahead, and landowners
can be expected to adopt increasingly forceful
methods to block takeovers.
49. The Fr?-Ni administration's policies appear
to have slowed an already unsatlsfaetory rate of
agricultural growth but have not brought a sharp
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11 CONFIDENTIAL
decline in output. The deep-seated problems affect-
ing Chilean agriculture during the past three dec-
ades probably have been at least temporarily exac-
erbated rather than eased, as had been hoped. At
least, in the last year or two, political uncertainty
has further strengthened existing disincentives to
agricultural investment. Thus the full economic
effects of agrarian reform will not be felt for some
years.
50. The financial costs of the program have been
much higher than anticipated and are the major cause
of the relatively slow resettlement pace. CORA's
expenditures alone (including loans) have averaged
more than $10,000 per family settled, largely be-
cause of the large credits and technical assistance
provided, and total resettlement costs may be as much
as twice this amount. Land acquisition costs amount
to only about 10% of COR.A's total expenditures be-
cause property valuations are low and compensation
is effected mainly through 25- to 30-year bonds.
Although it has not been able to settle all the
land taken, CORA probably will further speed up
expropriation in 1970 for political reasons.
51. No peasant families have actually become
independent landowners under the program. The 1967
agrarian reform law provided for a trar:sitional
training period of about three years during which
the beneficiaries would farm the land as a coopera-
tive under CORA's tutelage. Although it originally
was thought that most land titles issued at the end
of this period would be on an individual basis,
thus far the government has refused to issue any
but communal titles.
52. Those selected for land "ownership" --
mainly persons living on the land before expropria-
tion -- clearly have gained the most under the pro-
gram. A much larger group has benefited from in-
creased real wages under Frei, mainly because of
government-fostered unionization. Small farmers,
who constitute about one-third of the rural popu-
lation, have gained little, however -- many are
relatively worse off now than in 1964.
53. Rural voters in the September 19?0 election
will make their choice largely on the basis of how
they have fared under the agrarian reform, which
has affected nearly everyone in the countryside.
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Unlike the 1964 election, the losers,,in ,the struggle
for change will have a conservative alternative tha.s
time in ex-President Alessandri. The winners: will
not necessarily back the Christian Democratic Party.
Some will opt for the more radical change offered
by the Marxist coalition; others will 'prefer Ales-
sandri's "reform with tranquility" to the social
turmoil of the last six years. Agrarian reform will
not be a major issue in the cities, but the urban
vote will be strongly affected by the Christian
Democrats' failure to control inflation -- partly a
product of inadequate agricultural output -- and by
rural violence that may grow during the campaign
period.
54. Regardless of whc wins in September, agrar-
ian reform will continue, although its style. and
pace will be affected by the new administration's
political complexion. The "revolution in the coun-
tryside" has gone too far to be turned bac;,c even in
the unlikely event that new government leaders
wanted to.
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Chile:
Table 1
Use of Arable Land
1955
1965
Annual crops
23.5
28.6
Improved pasture and
forage crops
8.8 '
19.1
Orchards and vineyards
3.2
3.6
Fallow and unimproved
pasture
64.5
48.7
100.0
100.0'
Chile: Land Distribution,: by Farm Size
Percent of Total
Arable Land
Number of Farms
Farm Size
(Acres)'
1955
1965
1955
(Estimated)
Less than 25
75,627
156,708
2.8
6.0
25-124
41,420
59;336.
10.3
13.0
125-494
20,820
23,959
18.4
16.9
495-2,470
9,842
10,158
31.3
29.2
2,471-12,355
2,554
2,601
24.9
23.2.
More than 12,356
696
730
12.3
11.7
Total
150,959
253,492
100.0
100.0
25
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Tablo. 3
Chile., Rural Labor. x'orco
by Social Class and Occupation
Parcent:
1955
1965
Upper class
10.3
9.9
Landowners and families on large
and medium-size holdings
6.9
0.3
Administrators and technicians
1.4
1.6
Middle.class
27.1.
25.1
Family farm owners and families
21.1
10.6
Skilled workmen, foremen, and guards
6.0
6.5
'Lower class
62.6
64.9
Small landowners and sharecroppers
23.2
32.6
Resident workers
12.4
10.0
Landless farm laborers
27.0
22.3
Total
100.0
100.0
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