Rural development in Peru

THE highlands of Peru have long sheltered one of South America_s larger concentrations of poor people. This persisted even after a radical agrarian reform abolished large estates in the 1970s. Explanations for this secular stagnation have ranged from the racist (the _idleness_ of the Amerindian) to the notion, prevalent among economists, that highland peasant farmers cannot compete against cheap imports. But Richard Webb, a former president of Peru_s Central Bank, argues in a new study* that one of the most important explanations for the poverty of the high Andes has been geographical isolation_and that this is diminishing fast.

Data from household surveys show a correlation between family labour productivity and the size of settlements: on average, productivity doubles between rural areas and a small town, and doubles again in Lima, the capital. Access to public services, such as schools and health clinics, also increases with the size of settlements. That explains why millions of Andean farmers have migrated to Peru_s Pacific coast over the past 80 years.

But when Mr Webb visited five of the most remote provinces in the Andes he found unexpected signs of dynamism, such as new markets, lots of traffic (motorbikes, moto-taxis and vans) and modern farming techniques, including drip irrigation and farm machinery. Many locals had more than one occupation, tending a plot of land while also working in the local town, often having houses in both places.

A survey of municipal officials in 176 rural districts in the poorest areas revealed two big changes. First, in 2001-11 the day rate for farm labourers rose by an average of 73% in real terms, the price of a hectare of agricultural land by 88% and that of a house in the local town by 166%. Second, in the same period, journey times to the nearest city dropped from almost nine hours to just under four and a half. That was thanks to a burst of roadbuilding and improvement which began in the 1990s. Much of this involved rural roads. The network of asphalted highways in Peru also expanded, by 550km (340 miles) a year between 1995 and 2011, up from just 140km a year in the previous quarter-century. Thanks to mobile technology, ownership of telephones among people in rural areas has shot up, from 2% in 2004 to 54% in 2011.

Mr Webb estimates that since 1994 rural income per person has risen at an annual average rate of 7.2% in real terms (compared with 2.8% for urban incomes). Between them, the rise in income and better connections add up to a radical transformation in rural Peru. The study suggests the two are closely related. It points to the wisdom of boosting investment in infrastructure in the poorer rural parts of Latin America: Andean roads are vulnerable to rains and mudslides and need active maintenance, and there is scope to slash journey times further. Clearly, peasant farmers respond as creatively as anyone else to the opportunities that come from being connected to the market economy.

* _Conexi__n y Despegue Rural_, Instituto del Per__, Universidad San Mart__n de Porres, Lima.

The Economist | The Americas

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