wages. Government policies toward Haitian labor issues will have an impact on the future of the coffee and cocoa sectors; in particular with respect to farm sizes and technologies.

# _Human Capital_

Since the Dominican Republic has tended to invest relatively little in social development, education levels and health indicators are among the lowest in the Latin America and Caribbean region (World Bank, 2001). Education levels in rural areas tend to be low, with about 25% of rural household heads having no schooling at all, and about 60% having 1-6 years of school.<sup>4</sup> The lack of education and basic reading literacy is a constraint on improving agricultural productivity, particularly in sectors where global forces are creating increased competition, such as coffee and cocoa. In recent years, the main value of schooling in rural areas has been to facilitate migration to urban areas where returns to education are higher.

# **C.2 Land Distribution and Land Titles**

The distribution of land in the Dominican Republic reflects the general dualism that characterizes the agricultural sector. Overall land distribution is highly skewed, and less than 50% of the rural population has access to formally titled land.<sup>5</sup> About 40% of households with access to land own less than 1.2 ha and about 75% own less than 3.1 ha. In contrast, the largest 700 farmers (0.3% of all farmers) control more than 15% of the agricultural land (much of these farms being extensive livestock operations). About 15-20% of total agricultural land is owned by government (SEA, Agricultural Census 1998).

As a result of historical factors, a high proportion of rural land is occupied without legal titles, and rural producers, do not possess clear rights to the land they occupy (de Ceara, 1986). In the last agricultural land registry, carried out in 1998, it is estimated that only 45% of the land is titled. An Agrarian Reform Program was launched in the 1960s, through establishment of the Instituto Agraria Dominicana (IAD), as a means to settle landless peasants on unused lands (de Ceara, 1986). The program has not had a major impact on the national land distribution situation (nor was it expected to do so), and some of these lands have not been legally titled.

The lack of legal land titles is a constraint to the expansion of commercial financial services into the agricultural sector. The inability to use land as collateral excludes those without land title from improved access to financial services, especially from commercial banks (Poyo, 2003). Lack of title leads to sub-optimal investment in the agricultural sector, lower productivity and growth, and contributes to the highly skewed income distribution in this sector (since wealthier large scale farmers often have title and access to formal and informal finance). On the other hand, as will be discussed, because they are perennial crops, some coffee and cocoa producers without formal title are able to use their plantations as a proxy for land ownership.

# **C.3 Financial Sector**<sup>**6**</sup>

Following the severe banking crisis in the late 1980s and early 1990s and the tightening of prudential regulations on the part of the Monetary and Bank Supervisory Authorities, the Dominican Republic’s banking system has become more risk adverse (World Bank, 2000; Fitch, 2002). This tightening follows years of poor supervision of banks, highly fluctuating interest rates and attempts by government to set ceilings on interest rates charged on loans, high levels of

> 4 A World Bank “Early Childhood Education Project” began in 2002 to improve education achievements. 5 About 200 families in the DR control about 600,000 ha , about 50% of the arable land (Lopez, 2001). 6 This section on the financial sector draws heavily on background papers prepared for the CRMG by Domincan consultants Dr. Jeffrey Poyo  (Poyo, 2003) and Teofilo Gomez (2002).

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