Pablo Gutierrez

Ejido Lands and the Rule of Law. 

La revista Mexico Business News publicó el siguiente artículo de Pablo Gutiérrez, socio Administrativo de O’Gorman & Hagerman, que se puede consultar en:

More than half of Mexico’s territory is social property, primarily land owned by ejido and agrarian communities. Sadly, due to circumstances well beyond their control, including the lack of resources and the harsh nature of the markets, the vast majority are unable to make a living off their land. Many are open to negotiate in relation to their land. That accounts for the supply side.

Many projects, from small hotels and ecotourism services, to large mines and industrial facilities, need land in rural areas. Increasingly, investors are willing to develop projects involving social property for its privileged location, natural resources or new infrastructure that dramatically reduces distances: paradise beaches in Oaxaca, cenotes in Yucatan, mines in Sonora and Zacatecas, and industrial parks near cities, just to name a few. That accounts for the demand side.

With supply and demand in place, for the market to properly work, the only missing piece is trust.

On the demand side, investors are wary because they lack understanding, have certain misconceptions or have heard about some really bad experiences. Many believe there is no law governing ejido lands, and that agreements will be breached so it makes no sense to follow the rules and regulations. Some believe that ejido members are stubborn, deceitful and not to be taken at their word. That many will ultimately try to take advantage of them.

On the supply side, ejido members are wary of their counterparts for very similar reasons. Many are in helpless situations and are easy prey to abusive and opportunistic negotiators. Others are unaware of the real value of their land. Some give it away for free and others try to speculate with the land as if it were bitcoin. Land belongs to those who work it, and its value depends on what is or can be done with it.

What Is Social or Agrarian Property?

Social property is land, mostly located in rural areas, that is owned by ejidos or communities, by endowment or recognition of the Mexican government. An ejido is a legal entity formed as a type of partnership among at least 20 Mexican individuals, originally farmers and natives, whose land is specially protected by the Agrarian Law.

Each ejido acts through its bodies: Assembly, Ejido Council and Supervisory Board. The Assembly is composed of the ejido members — from 20 to hundreds — all with equal rights in the Assembly, but diverse rights over its land. The Ejido Council is formed by three members, elected democratically for three-year periods.

No two ejidos or agrarian communities are the same. Within the same framework, each has its unique characteristics: large and small, organized and fragmented, open to new ventures and very zealous of their traditions, peaceful and conflictive. Its members are a fairly representative sample of Mexican society: rich and poor, formally educated and simple farmers, hard workers and lazy. Most love parties and a good laugh. Many are controlled by men, but quite a few have very active women. They all form ever-evolving communities.

Investing in ejido land without knowing its legal and social characteristics is as reckless as doing so in a partnership without knowing its people  — shareholders, board, employees and customers — rules, bylaws, financial statements and agreements, culture and processes. It is always important to know the history, needs and interests of each ejido and its members. The legal structure of its land, past and current conflicts, and the type of ownership in place, and whether titles match reality. Acquiring rights over ejido land always implies becoming part of its community, with its troubles and expectations.

As any business needs a product-market fit to really thrive, in this arena there must be a land-investment fit for things to work out as expected. Internal disputes, historical conflicts, obscure interests, negative experiences and many other factors can make the barriers to entry too high to be worth the effort. Merely traveling to some locations can prove cumbersome; acquiring universally enforceable property rights is all the more difficult.

Can This Type of Land Be Trusted?

I firmly believe so. In many cases, even more than private properties in rural areas.

Contrary to what many think, as in many other Mexican realities, there are, of course, rules and laws, some written and many fixed in traditions. It’s always a challenge to know how they work. They are rarely the same, sometimes very complex and almost never applied uniformly. Some adjust to suit the realities and magnitude of each project. Some deals are only available to ordinary people, while others only to very large companies. Securing the land to build cottages requires a whole different set of abilities than doing so for a mine or a large industrial complex.

In my experience, projects that fail rarely have land rights properly secured and in place. Many legal and social conflicts could be avoided if all parties negotiated based on a deep understanding of each other, treated each other with respect and complied with all applicable rules and regulations. It is not only about purchasing land, setting boundaries and taking isolated actions pertaining to social responsibility. It is, rather, about building strong long-term trusting relationships and developing projects with social impact. Ultimately, it is about generating shared value and seeking to reduce, with every project and at every level, the enormous inequality gap that causes so many problems in Mexico and elsewhere.