LDC AGRICULTURE: THE ROLE OF INCENTIVES IN INCREASING PRODUCTION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90R00038R000500600003-2
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 44
• Document Creation Date: December 22, 2016
• Document Release Date: July 7, 2011
• Sequence Number: 3
• Publication Date: May 14, 1986
• Content Type: MEMO

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ROUTING AND, RECORD SHEET
"LDC Agriculture: The Role of Incentives in Increasing
Production"
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14 May 1986
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CONFNTIAL
The D' ector of Central Intelligence
Washington, D.C. 20505
National Intelligence Council
NIC 01978-86
14 May 1986
MEMORANDUM FOR: DDirector of eputy Director of Central Intelligence
VIA:
FROM:
SUBJECT:
Harold P. Ford
Acting Chairman, National Intelligence Council
Acting National intelligence Officer for Economics
"LDC Agriculture: The Role of Incentives in Increasing
Production"
Tne attached paper was drafted by
NIC/AG, at my request.
2. I suggest you consider it as a sequel to the white paper:
"Economics Forces for Change in the Third World."
Attachment:
As Stated
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#8939A
LDC Agriculture: The Role of Incentives in Increasing Production
13 May 1986
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TABLE OF CONTENTS
Key Judgments ...................................... 3
Shifting Policies .......................................................6
The Role of Government .................................................10
The Government - Technology Connection ............................. 18
The Government - Land Tenure Connection ............................21
Other Government Influences ........................................25
Favorable Political Consequences .......................................26
Outlook for output Through 1996 ........................................29
Outlook for Trade ......................................................32
Implications for the United States .....................................37
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KEY JUDGMENTS
Despite the impression created by the recent famines in Africa,
overall LDC agricultural output has been rising rapidly over the past
decade. Many countries--including most of those with large populations
like India, China, Indonesia, and Brazil--have increased their ability to
feed themselves and even to export foodstuffs. This trend is likely to
continue over the next decade because it has established a momentum of
its own based on improved incentives for the farm sector which, in turn,
promote overall growth.
The experience of the last several decades shows that LDCs made
little or no progress in raising agricultural production unless they
satisfied two criteria:
-- Allowed for adequate incentives, or at least no disincentives,
for their farmers; and
-- Provided adequate physical and political security for their farm
sectors.
The role of incentives is the most important. The bulk of the
countries in Asia and Latin America which have shown an ability to
sustain increases in agricultural output are those which allow the
greatest incentives for production. Chinese farmers responded with
sharply increased output when the government increased the guaranteed
price, relaxed production controls, allowed farmers to cultivate private
plots, and market their produce. Perhaps the single worst policy
disincentive to agricultural production is an overvalued exchange rate
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because it limits export markets and induces cheap food imports that can
ruin local producers.
Physical security is also a prerequisite. In countries such as
Ethiopia and Chad, where prolonged fighting has prevailed, farmers have
little to no incentives to plant more than enough to feed their own
families. Even at that, they face the dangers of looting or
requisitioning of their harvests. They also see little hope of getting
any surplus to market or finding anything to buy with the proceeds if
they did manage to sell extra produce.
The outlook for continued improvement in agricultural output is
good. Incentives are now well established in a number of countries and
are demonstrably effective. This likely will lead to eventual policy
changes that favor the farmers in most of those countries that so far
have fared poorly.
The implications for the United States of these trends are, on
balance, favorable to US interests.
-- As the agricultural sector develops in many LDCs, farmers gain
more political clout, which reinforces their ability to get and
keep positive incentives to production. This pattern has been
clearest in Asia, particularly in India, South Korea, and Taiwan.
-- The growing wealth of the farm sector also reduces the political
tensions inherent in modernization, slows the movement of people
into overcrowded cities, and tends to accelerate the expansion
of the service industries that support or depend on
agriculture. India and, more recently, China are good examples.
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-- New markets will be opened to US exporters of agricultural
support products such as tractors and chemicals.
-- On the downside, rising LDC output will probably result in an
international products market more likely to be affected by
surpluses than by shortages over the next decade.
LDC trade in agricultural products probably will grow only slowly
over the next decade, however, because imports will be less necessary as
self sufficiency increases and exports are hampered by near stagnant
developed country demand. US interests will be particularly affected in
the grain trade, where much or most of any LDC export gains probably will
be at the expense of US and other developed country sellers.
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DISCUSSION
Shifting Policies
1. In the late 1960s and early 1970s, LDC governments became
concerned about their agricultural performances, which reflected years of
faltering production and sizable jumps in food imports. This trend was
the result of policies aimed at maintaining low food prices in urban
areas and of bloated bureaucracies that siphoned off farm income through
inefficiency and corruption. Those problems were compounded by a runup
in world oil prices and an increasing LUC debt burden, which hiked fears
of being unable to afford food imports. These concerns were especially
strong in 1973 when a number of crop failures combined with low global
stocks to dramatically push up global farm prices. The resulting
anxieties manifested themselves publicly in the World Food Conference
held in Rome in 1974, but, more importantly, many LDC governments shifted
their policies in favor of the farmer.
2. The LDC agricultural picture began to turn around in the mid-
1970s with noticeable increases in agricultural output per capita (see
Table 1). The Asian countries did especially well as even Bangladesh
joined India, Indonesia, and China in significantly increasing farm
output and are now approaching basic self-sufficiency. Latin America
made considerable progress, with the exception of some Central American
and Caribbean countries hurt by domestic political strife and a depressed
world sugar market. Only Africa and the Middle East, which combined
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TABLE 1
LDCs: TRENDS IN PER CAPITA AGRICULTURAL PRODUCTION
(percent increase)
1950s 1960s
1970s
China
10
3
30
Other Far East
5
12
21
South Asia
6
0
6
Latin America
7
2
7
Sub Saharan Africa
3
-6
-6
North Africa
5
0
-10
Middle East
7
2
-2
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account for less than 20 percent of the population of the Third World,
performed poorly. Many of these nations were adversely affected by
political upheavals and war, such as the ex-Portuguese territories of
Southern Africa, the Horn of Africa, Lebanon, Iraq, Iran, and Afghanistan.
3. The overall improvement in LDC agricultural performance in the
1970s reflected a confluence of two key factors: (a) availability of
high yielding varieties (HYVs) of wheat and rice seeds adapted to Asian
and Latin American conditions, and (b) government reactions to growing
domestic concerns about their ability to feed their populations.
Following the introduction of HYVs in the mid-1960s, more than 40 percent
of the rice and wheat area in developing countries has been sown with
HYVs, making HYVs the most widely and rapidly adopted technology in
agricultural history. Although large-scale farmers adopted this new
technology first, it soon spread to smaller-scale farmers. India, for
example, increased its grain production by nearly 40 percent in the early
1980s.
4. The disparities in agricultural performance among countries have
become increasingly sharper over time, mainly because of differences in
LDC government policies and in adoption of new technologies. An
examination of 90 countries* indicates the following trends (see Table 2):
* Some 45 LDCs are excluded from this assessment. They have populations
of less than a half million and/or territories of less than 10,000 square
km (i.e., leaving out the numerous island nations). Agricultural
production data came from the US Department of Agriculture and the FAO.
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Since early
1960s
Clearly
LDC AGRICULTURAL PERFORMANCE
Algeria
Benin
Burkina
Ethiopia
Ghana
Guinea
Lesotho
Madagascar
Mali
Mauritania
Mozambique
Nigeria
Senegal
Togo
Zaire
Guyana
Haiti
Jamaica
Peru
Afghanistan
Iraq
Jordan
Nepal
Yemen, N. (YAR)
Worse
Since ear y
1970s
Angola
Botswana
Egypt
Gambia
Guinea-Bissau
Liberia
Morocco
Sierra Leone
Somalia
Sudan
Tanzania
Zambi a
Zimbabwe
Dominican Rep.
Yemen, S. (PDRY)
No Longer Clearly Improved or Fairly
Good (since the mid or late 1970s)
Bolivia (M) Iran (L)
El Salvador (L) Lebanon (M)
Mexico (L)
Nicaragua (L)
Venezuela (L)
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Clearly
Since early
1960s
Ivory Coast
Rwanda
Libya
Swaziland
Tunisia
Ecuador
Brazil
Panama
Indonesia
S. Korea
Malaysia
Philippines
Taiwan
Fairly Good
Gabon
Kenya
Malawi
Paraguay
Pakistan
Improved
ear y
Since
1970s
Argentina
Chile
Colombia
Uruguay
Bangladesh
Burma
China
India
Saudia Arabia
Sri Lanka
Holdin Their Own
Burma
Cameroon
Central African
Chad
Congo
Niger
Rwanda
Unganda
Costa Rica
Honduras
Rep.
Bhutan
Fiji
Papua-
New Guinea
Syria
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-- The bulk of the countries in Asia and Latin America have shown a
clear ability to sustain, for a decade or more, increases in
agricultural output per capita.
-- The six most populous countries--China, India, Indonesia,
Brazil, Bangladesh, and Pakistan, which account for some two-
thirds of LDC population--each have increased per capita food
production as well as overall agricultural output. For example,
China used to import some 4 million bales of cotton annually; it
now exports about one million bales.
-- The countries with the poorest agricultural performance are
concentrated in Africa. Of the 44 countries examined on that
continent, 28 have been doing poorly while only eight have
improved consistently.
-- The seven most populous African countries--Nigeria, Egypt,
Ethiopia, Zaire, Morocco, Algeria, and Sudan--were on the
clearly worsening list. Together they account for more than
half of the African population (excluding South Africa).
The Role of Government
5. Our analysis indicates that LDC governments made little or no
progress in boosting production unless they satisfied two criteria:
-- Security. Prolonged strife and civil war have been the most
common unsettling events on agriculture; for example,
Afghanistan, Lebanon, Ethiopia, Angola, and countries in Central
America all performed poorly. Working under such conditions,
farmers were unable or unwilling to produce much more than they
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TEXT BOX 1
TRENDS IN LDC AGRICULTURAL TRADE
LDCs as a group generally have run surpluses in their foreign
agricultural trade even though both exports and imports have risen
sharply. These surpluses showed an upward trend from the mid-1960s until
1979, but a sharp deterioration occurred between 1980 and 1982, which
created the first deficit in LDC agricultural trade in many decades.
Imports jumped about 30 percent in 1980, largely because of poor weather
throughout the Third World and a sizable rise in the purchases of oil
rich states. Imports began to fall by 1982, as improved weather enhanced
growing conditions and debt problems forced restrictions in foreign
purchases. Since 1982, however, the LDCs have returned to agricultural
trade surpluses. Imports have been held down by growing self-sufficiency
and ongoing debt problems, while exports have been boosted by the
industrial world's economic recovery. (See Table 3)
Much of the rapidly rising LDC imports of agricultural goods since
the early 1970s reflects purchases by the oil-producing countries of the
Persian Gulf region, Africa, and Latin America, which increased 50
percent faster than the LDC average. Saudi Arabia moved from eighth to
second place in the listing of LDC importers of agricultural products.
Even many of the oil-producing countries with reasonably fertile land
moved well up the list. Because they could afford agricultural imports,
they followed policies that promoted consumption while depressing domestic
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output of farm goods. Real farm prices in Mexico in the late 1970s, for
example, were 25 percent below those in the 1950s. As a result, Mexico
jumped from tenth to fifth place among LDC importers. Nigeria and Egypt
also improved their standing, while India dropped from being the second
largest LDC agricultural importer in the early 1970s to thirteenth place
in the early 1980s. (See Table 4)
The largest absolute increases in wheat consumption in the past 20
years have occurred in the traditional wheat belt of the Middle East and
North Africa. The gap between production and consumption has widened
throughout the region, especially in North Africa, where per capita wheat
production has fallen. North Africa now imports about two thirds of its
wheat consumption. The demand for wheat has been spurred in the region
by the most widespread and largest subsidies on bread among LDCs.
Although Sub-Saharan Africa had the worst production record, its food
imports from the developed world account for only about 10-15 percent of
the LDC total, and Nigeria bought nearly half the Sub-Saharan purchases.
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TABLE 3
LDCS: AGRICULTURAL EXPORTS
Countries exporting more than Count
ries export
ing $500 million
$1 billion a year average t
o $1 billio
n a year average
1980-82
1980-82
Avg. Annual Increase
1970-72
Avg. Annual Increase
1970-72
Value
Billion
To
1980-82
To
1980-82
Brazil
9.1
15 G
uatemala
14
Argentina
5.7
14 E
gypt
3
China
4.6
16 K
enya
13
Thailand
3.8
21 U
ruguay
14
Malaysia
3.5
17 C
osta Rica
13
India
2.5
13 E
l Salvador
14
Colombia
2.4
16 S
ri Lanka
7
Indonesia
2.0
16 D
om. Republic
Philippines
1.8
13 S
. Korea
19
Taiwan
1.7
17 H
onduras
16
Ivory Coast
1.7
18 E
cuador
11
Mexico
1.5
7 G
hana
7
Pakistan
1.0
15 Z
imbabwe
12
Other
26.4
C
ameroon
13
TOTAL
67.7
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TABLE 3 (continued)
Countries whose
exports declined
1970-72 To 1980-82
Algeria
Angola
Iran
Libya
Mozambique
Nepal
Nigeria
Yemen, S. (PDRY)
Countries whose exports
rose less than 7% a year
1970-72 To 1980-82
Bahrain
Bangladesh
Benin
Bhutan
Congo
Eq. Guinea
Gambia
Guinea
Iraq
Jamaica
Lesotho
Morocco
Niger
Peru
Senegal
Siera Leone
Sudan
Syria
Tanzania
Togo
Tunisia
Uganda
Venezuela
Yemen, N. (YAR)
Zaire
Zambia
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Countries whose exports rose
more than 15% a year
1970-72 To 1980-82
Afghanistan
Belize
Chile
Fiji
Gabon
Jordan
Kuwait
Malawi
Mali
Papua New Guinea
Rwanda
Saudi Arabia
Somalia
Suriname
Swaziland
UAE
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LDC FOOD IMPORTS FROM DEVELOPED WORLD
Million $ Share
Average Average Avg. Annual
LDC 1970-72 1980-82 Change 1970-72 1980-82
LDCs 5,481 34,148 20
AFRICA-SUB-SAHARAN 661 4,445 21 12.1 13.0
Nigeria 94 1,861 35
Other 567 2,584 16
MIDDLE EAST/NORTH AFRICA 1,150 12,133 27 21.0 35.5
Egypt 206 2,083 26
Algeria 129 1,361 27
Libya 81 853 27
Saudi Arabia 111 2,168 35
Other Persion Gulf OPEC 227 3,067 30
Other 396 2,601 21
Mexico
Brazil
Venezuela
Other
SOUTH ASIA
1,404 8,205 19 25.6 24.1
180 2,229 29
156 1,058 21
160 1,182 22
908 3,736 15
526 1,484 11 9.6 4.3
India 245 663 11
Other 281 821 11
1,740 7,881 16 31.7 23.1
Hong Kong 178 879 17
South Korea 30 1,631 18
China 262 1,395 18
Taiwan 276 1,232 16
Singapore 108 574 18
Indonesia 149 555 14
Other 460 1,615 13
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needed to meet their immediate family needs. Besides disrupting
the agricultural production cycle from planting to harvesting,
the disturbances interrupt normal marketing channels for farm
goods. Often, farmers also face life threatening situations and
the seizure of their crops.
-- Incentives, or at least, lack of disincentives. Farmers have
not really expanded output where government policies undercut
the ability to achieve a reasonable return, and they have
responded favorably and quickly to incentives such as high
market prices. For example, Chinese farmers responded
dramatically when the government increased the guaranteed price
it paid them by more than 20 percent, relaxed its rigid
production controls, and allowed farmers to cultivate private
plots and sell their products in the market. In all Communist
countries, the amount produced per acre on "private plots" is
much greater than the output per acre of state run farms where
workers receive few incentives.
6. The need for security in LDCs is obvious, and the importance of
incentives can be seen from the following examples:
-- World Bank assessments have shown that their programs fail when
governments do not provide adequate incentives for the farmer
and that they work when governments pursue policies favorable to
the farmer.
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South Korea has a relatively poor natural environment for
expanding agricultural production but has done well through an
effective incentive system.
Zaire has excellent natural resources and prior to 1960 had done
extremely well in raising production under the stability and
incentives of the colonial system. That regime sponsored a
highly successful cooperative agricultural system in the eastern
part of the country that involved several million people.
Without security and incentives, that system and the rest of the
relatively productive aspects of agriculture collapsed.
Kenya and Tanzania have similar climates, but Tanzania is
favored by a lower population density. Kenya provided
reasonably good incentives for the farmer, but Tanzania's
policies resulted in disincentives. The result was fairly good
agricultural performance in Kenya--nearly a 40 percent increase
between 1971 and 1982--and a dismal outcome in Tanzania--export
crop production dropped by nearly 50 percent and the cities
became dependent on foreign food aid.
The Ivory Coast raised the price it paid for rice to well above
the world price and moved from being a net importer to a net
exporter within a few years.
Ghana's cocoa and coffee production plummeted for lack of price
incentives in the 1970s. It accounted for 50 percent of global
cocoa production in 1964 and only 20 percent in 1982.
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-- Argentina's wheat crops have fluctuated with changes in the real
prices paid the farmer and the level of export taxes.
7. Most observers, including the World Bank, conclude that
overvalued exchange rates have been the single most important policy
constraint on Third World agriculture in the past two decades. For
example, the Philippines' exchange rate was overvalued by 25-30 percent
through most of the 1970s and Jamaica's by 35 percent in the early
1980s. Developing country governments maintained their overvalued
exchange rates to help their emerging industrial and business sectors and
to prop up urban consumers' purchasing power and government revenues.
(See Text Box 2)
8. LDC farmers are penalized twice by overvalued exchange rates:
their profits on exports are eliminated or reduced drastically and their
domestic markets are swamped by artifically cheap imports of food. Since
most LDC agricultural sectors are still heavily oriented to subsistence--
with few farm-to-market roads, little storage, and few processing
facilities--it has been all too easy to beat local farmers out of their
own urban markets, even in a period of sharply rising demand.
The Government - Technology Connection
9. Technological advances have been among the most important
elements in the expansion of agricultural production. Substantial gains
have been made in all aspects of agronomy, but for the most part
agricultural research has not been a major constraint. Most LDCs lag far
behind in adopting new technologies and can make substantial advances by
more effectively applying traditional agricultural methods. Experts
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TEXT BOX 2
NIGERIA: THE IMPACT OF AN OVERVALUED EXCHANGE RATE
In 1976 Nigeria sought to improve urban diets by promoting the
production of poultry. The International Institute of Tropical
Agriculture began an innovative program to develop a new variety of high
yielding yellow corn to be used as poultry feed. The program got off to
an excellent start and was accepted by many farmers. In April 1977, in
an effort to lower urban food prices by cutting the production costs of
poultry, Lagos removed all barriers to the importation of yellow corn.
With the protection removed, the overvaluation of Nigeria's currency
meant tnat US corn could be imported at nearly half the cost of locally
grown varieties. As a result, the corn growing effort was devastated.
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estimate that LDC crop yields can be easily doubled on the best cropland,
thus reducing the pressure on the most ecologically-fragile lands. Few
African crops have ever had any chemical fertilizer, and most African
farmers are still planting the equivalent of pre-colonial US Indian corn.
10. Essentially by using available technologies, Taiwan since the
1960s and China in more recent years have increased agricultural output.
Significantly, the common ingredient has been a favorable incentive
system. Cases indicating how important incentives have been in adopting
new technology include:
-- Dwarf high yielding varities of wheat were developed in Mexico
but did not have much effect on production because of
disincentives. India, however, adopted this strain and, with
relatively high wheat prices, production soared.
-- Research in Nigeria produced a new and highly productive variety
of oil palm trees. But because the price paid the farmers was
much lower than the world price, they could not afford to plant
and tend the new varieties. Planters in Malaysia, however,
utilized the Nigerian research and significantly increased
output. The Malaysian government did not control prices, and
farmers were paid near the world price.
-- Improved seeds capable of doubling yields on Ethiopia's small
farms were developed ten years ago, but low farm prices,
government mismanagement, and internal strife prevented their
broad adoption by farmers.
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(Tables 5 and 6)
The Government - Land Tenure Connection
11. Land tenure policies pursued by LDC governments also have played
a major role in raising agricultural output when used in conjunction with
incentives for production. Individual land ownership has prevailed in
most LDCs for decades, but such farmers have failed to expand production
much beyond their immediate needs unless they received sufficient income
for their effort. Egypt, for example, carried out a substantial land
reform program in the 1960s, but production was little affected because
prices paid the farmer often were half of international prices, even
after considering input subsidies.
12. Land tenure is nevertheless a major element that makes up the
incentive package for farmers. Peasants have done best when they have a
sense of permanency about the land they are working and have been much
more inclined to make improvements. China, for example, offered farm
families land leases of three years or less through its new
"responsibility system." Even this short period was so attractive in
comparison with the communal farms that the reform was a resounding
success. Chinese leases now are being lengthened, many to 15 years.
13. In contrast, socialized state-run and cooperative style farming
systems in which land is not held by individuals have proven to be a
production disincentive. Such a result occurred in a wide variety of
settings, including Colombia's mixed economy in the 1950s and 1960s,
Algerian socialism in the 1960s and 1970s, and Mozambique's
centralization in the 1970s and 1980s. Most of Mexico's "ejido"
cooperatives still are sunk in low-technology subsistence farming five
21
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TABLE 5
LDC
AGRICULTURAL
TRENDS
Output Per Capita*
Trade
Agricultural imports
1951-55
1961-65
1971-74
as a share of
To
To
To
total ex orts
AFRICA
1961-65
1971-75
198
1-84
-
-
1980-82
ange
Algeria
-2
-2
-2
21
25
+4
Angola
+2
0
-2
11
---
---
Benin
-1
-1
-1
40
200
+160
Botswana
--
+1
-2
---
---
---
Burundi
-1
+1
0
22
42
+20
Cameroon
+2
+1
-1
15
11
-4
Central Af. Rep.
--
0
-1
26
27
+1
Chad
--
-2
0
42
17
-25
Congo
--
-
0
28
7
-21
Egypt
+1
0
-1
34
98
+64
Ethiopia
+1
-1
-1
12
23
+11
Gabon
+1
0
8
5
-3
Gambia
--
0
-2
31
120
+89
Ghana
+2
-2
-2
14
14
0
Guinea
0
-1
-1
18
---
---
Guinea-Bussau
--
--
-1
333
133
`-200
Ivory Coast
+2
+1
+1
19
18
-1
Kenya
+2
0
0
19
13
-6
Lesotho
--
-1
-2
---
---
Liberia
-1
+1
-1
12
19
+7
Libya
-1
+1
+1
5
8
+3
Madagascar
+2
-1
-1
18
34**
+16
Malawi
+2
+2
0
21
13
-8
Mali
-1
-1
-1
54
42
-12
Mauritania
--
-2
-1
17
43
+26
Morocco
-1
0
-2
34
43
+9
Mozambique
0
-1
-2
22
---
---
Niger
+1
-2
0
24
21
-3
Nigeria
0
-2
-1
10
12
+2
Rwanda
-2
+2
0
18
34
+16
Senegal
+2
-2
-1
50
52
+2
Sierra Leone
+1
0
-1
28
58
+30
Somalia
--
0
-2
58
107
+49
Sudan
+1
0
-2
22
65
+43
Swaziland
--
+2
+2
---
---
---
Tanzania
+1
0
-1
14
29
+15
Togo
0
-1
-1
27
43
+16
Tunisia
0
+2
+2
40
23
-17
Uganda
0
0
0
9
11
+2
Upper Volta
+2
-2
0
72
113
+41
Zaire
-2
-1
0
10
20
+10
Zambia
+2
+1
-1
7
8
+1
Zimbabwe
+2
+2
-2
3
3
0
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TABLE 5 (continued)
* Scale for change in output per capita
-2 = more than 15-percent decline
-1 = 6- to 15-percent decline
0 = 5- percent decline to 5-percent increase
+1 = 6- to 15-percent increase
+2 = more than 15-percent increase
Estimate
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LDC AGRICULTURAL TRENDS
Output Per Capita
Trade
Agricultural imports
1951-55
To
1961-65 1971-74
To To
as a share of
total ex orts
1961-65
1971-75 198
1-84 197
0-7
2 1980-82 Change
LATIN AMERICA
Argentina
0
0
+2
8
6 -2
Bolivia
+2
+2
-1
20
12 -8
Brazil
+1
0
+2
11
10 1
Chile
0
0
+1
21
17 -4
Colombia
0
9
+2
12
16 +4
Costa Rica
0
+2
0
16
13 -3
Dom. Republic
-1
0
-1
16
22 +6
Ecuador
+2
+1
+2
11
7 -4
El Salvador
+1
0
-1
12
20 +8
Guatemala
+2
+1
0
10
11 +1
Guyana
+1
-1
-1
15
16 +1
Haiti
-1
-2
-1
34
66 +32
Honduras
0
0
0
11
15 +4
Jamaica
+1
-1
-2
28
27 -1
Mexico
+2
0
0
15
15 0
Nicaragua
+2
+1
-2
11
27 +16
Panama
0
+1
+1
31
37 +6
Paraguay
0
-1
+2
35
41 +6
Peru
+1
-1
-2
14
15 +1
Uruguay
-2
-2
+2
17
13 -4
Venezuela
+2
+1
-1
7
10 +3
* Scale for change in output per capita
-2 = more than 15-percent decline
-1 = 6- to 15-percent decline
0 = 5- percent decline to 5-percent increase
+1 = 6- to 15-percent increase
+2 = more than 15-percent increase
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decades after "land reform" began. Tanzania tried to modernize its
traditional agriculture by collecting its small family farmers in
"ujamaa" villages. Production fell because farmers preferred to work
their garden plots instead of communal fields.
Other Government Influences
14. Governments also have provided their farmers with many types of
inputs--fertilizer, pesticides, seeds, and credits--at less than market
value. Although in theory these subsidies may seem to be an effective
incentive, in practice they have not worked well. The main problem has
been that governments usually acquire the inputs and decide who gets
them. With the amount of subsidized products or credit limited, their
distribution often becomes based on politics and graft. Because they are
distributed by cumbersome bureaucracies, products such as seeds often
reach the farmer after the planting season, a common occurrence in Sudan
for example. Government buying agencies also have bought the wrong
products. Guinea, for example, offered a subsidy for buying tractors
during the 1970s, but the 4,000 tractors imported were too big for
efficient use on Guinean farms.
15. The effect of foreign food aid to LDC governments also has
depended on price and other incentives. Food aid to LDCs has grown
consistently in the past 30 years, reaching about $3 billion in 1984.
This form of aid has been highly controversial, in part because there
have been many examples in which the aid has hurt domestic agricultural
output. The record, however, has been mixed. In countries such as India
in the 1970s and South Korea and Brazil earlier, food aid had a
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beneficial impact on the local farming sector. Through farm price
supports, the government protected the farmer from the cheap foreign food
aid being distributed to the poorer, usually urban, segments of the
population. Meanwhile, the aid was increasing food markets. Although
initially this new demand was met through aid, it could be tapped by the
farmers once the aid was reduced. In contrast, especially in Africa, the
food aid depressed local prices, and farmers remained unprotected from
this cheap source of food.
Favorable Political Consequences
16. In those LDCs where governments were able and willing to provide
security and incentives to the farming community, the political-economic
benefits have been substantial and widespread. Because a high proportion
of LDC populations is rural, the linkage between agricultural progress
and overall economic growth is strong. Indeed, for the many LDCs lacking
the relatively sophisticated labor force to foster a sizable
export-oriented industrial base, the only effective development
alternative has been to rely heavily on agriculture and domestic markets.
Kenya, Malawi, China, and India are among the countries essentially
following that path.
17. Peasants achieving higher yields on small plots have provided
the bulk of the increased output. In land-scarce Asia, nearly all the
increase in production has been from tiny plots, often less than an
acre. In African countries which were able to increase agricultural
output significantly during the post-colonial years--including the Ivory
Coast, Kenya, Malawi, and Zimbabwe--small-scale farmers have provided
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much of the increased output of crops which had been previously grown
mainly on plantations. Given their limited acreage and relatively low
labor costs, small-scale farmers naturally are pushed toward achieving
higher yields per acre than large-scale farms. As such, peasant farmers
are inclined to use high-yield systems such as intercropping, multiple
cropping, and other techniques that require attention to individual
plants. In northeast Brazil, for example, farms of less than 25 acres
produced three times more output per acre than farms of more than 1,250
acres.
18. In addition, LDC agricultural expansion has benefitted the
entire economy.
-- As farmers become richer, they spend more on locally-produced
goods such as bicycles, textiles, and cooking utensils. A World
Bank study examining Malaysian irrigation schemes, for example,
showed that each dollar of increased production generated $0.75
of additional income elsewhere in the economy.
-- In the successful agricultural countries, the movement to the
cities also has slowed. India's rural-urban population
distribution, for example, has changed little in the past 10
years. Studies there indicate that each farmer depends on four
workers in transportation, marketing, and other support
activities, thus generating substantial rural, nonfarm
employment. A similar pattern appears to be developing in China.
Consequently, the widely accepted belief of the 1960s that poor LDCs can
make significant economic headway only through large-scale and state
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directed industrialization has proven wrong. In many cases, successful
small-scale farmers have been the main spur to economic development.
19. As LDC farming communities became more prosperous, they have
attempted to enlarge their political influence in order to maintain and
expand their improved conditions. A global pattern seems to exist in
which farmers gain more political potency as their economy develops. In
the poorest and least politically developed countries, rulers have tended
to rely heavily on support from the cities and have paid little attention
to the needs of the politically inactive rural areas even though they may
account for as much as 90 percent of the population. By comparison,
farmers in the most sophisticated developed countries have a far greater
political clout than their limited number would indicate.
20. The pattern of increasing political power of the farmer can be
most clearly seen in Asia. In India, the growing number of families that
own economically valuable farms largely vote for those candidates for
office that seem to provide the best agricultural incentives. These
voters were instrumental in defeating the Congress party in 1977 by
supporting the Janata party candidates. A defeated Congress party won
back farm votes by also promising a continuation of price incentives.
21. Even authoritarian LDC governments must deal with the political
power of the farmer. Rulers in South Korea and Taiwan have found that
they have a substantial ally in the rural community and have tried to
maintain that allegiance through greater farm incentives. When farmers
in these two countries believed that they were not enjoying a fair share
of the benefits from rapid economic growth, they argued successfully for
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assistance via price supports and protection from import competition.
Rice prices paid by the government, for example, have been two to three
times world prices.
22. Although relations between the farming community and the power
elite develop in many different ways in various LDCs, successful rural
sectors generally have resulted in:
-- A more stable political milieu because a large number of persons
have a stake in the stability of the system.
-- A tendency to overproduce agricultural products because price
and other incentives remain relatively high. Farm exports
increase and imports are held down.
Outlook for Output Through 1996
23. Overall, LOCs probably will continue to make significant
progress in expanding agriculture production during the next 5-10 years
largely because incentives for the farmer will be maintained throughout
much of Asia and Latin America. The poor showing in Africa eventually
will pressure governments there to adopt similar policies, although such
changes will be difficult and politically risky. Although normally
erratic weather patterns will mean that gains in output will not be
smooth, increased irrigation systems and improved agricultural practices,
especially in Asia, seem to have lessened the impact of severe weather on
output. Thus, the amplitude of the cyclical production pattern probably
will be less than in previous decades.
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24. In the most populous LDCs that already are doing well, the
momentum toward expanded output is likely to remain strong, barring major
political upheaval or war. The level of agricultural sophistication is
building in these countries, and the enhanced stake farmers have in the
continuation of present incentives will maintain pressure on governments
to keep or improve those policies. The major counterpressure will come
from the need to keep subsidies at a reasonable level.
25. Additional countries, especially those in Africa, will likely
tilt slowly toward more favorable agricultural policies. Continuing
outside pressure and the internal recognition that past policies have
failed will be the most important influences in helping move governments
toward more pragmatic policies. Many LDC leaders seem to be beginning to
realize they cannot afford the burden of inefficient government
bureaucracies and ponderous state enterprises. They have also seen how
government price incentives in China and elsewhere have boosted
agricultural production.and general economic growth. For instance,
Algeria, Mozambique, Nigeria, and Mexico are now exploring ways of
correcting past problems.
26. By and large, however, policy changes are likely to be adopted
slowly because many Third World regimes feel threatened by a loss of
political control caused by a diffusion of economic power. In addition,
governments are having a difficult time in effectively shedding long-
established policies. Algeria, for example, began to alter its stifling
agricultural policies in 1980, but in practice the old system has
remained difficult to change. Deeply rooted bureaucracies will remain a
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major factor in slowing the effective implementation of new policies. An
abrupt policy shift would be needed to lead to a substantial and rather
quick improvement in agricultural conditions. In most cases, such a
dramatic shift would entail a peaceful political revolution, as in China.
27. Population pressures probably will not be a major constraint on
progress in agriculture in most countries. Indeed, most of the gains
have come in Asian countries, which have been forced to adopt intensive
style farming because of high man-to-land ratios. In contrast, although
much of the increased African output has been a result of additional
acreage, that continent has had the worst production record. With many
African countries now reaching the point at which the land worked under
traditional agriculture practices can no longer feed the population, they
are beginning to be forced to alter their techniques. Although this
process will be painful, it probably is the only means to significant
increases in output.
28. In some countries, land resources may be too meager for the bulk
of the present population to rely on agricultural pursuits. For example,
in countries of the Sahel, production costs are too high to sustain many
commodities. These relatively few countries will either remain on the
dole, strike it rich--a la Saudi Arabia--and thus be able to afford
agricultural imports, or will see a migration of their population to
nearby countries with richer natural resources.
29. Technology will continue to help boost LDC agricultural output.
New tillage methods, more productive and drought resistant seeds, and
improved pesticides and animal feeds are coming into use. Besides the
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constant flow of new technologies emanating from developed country
laboratories, research performed by LDC institutions has climbed
sharply. LDC expenditures on agricultural research have tripled during
the 1970s--in part paid for by much higher international aid--and have
reached a level exceeding the combined similar spending of the
governments of the United States and Canada. These LDC outlays are now
producing a steady stream of technologies tailored to that part of the
world. (See Text Box 3)
30. The productivity potential of these new farm technologies, great
as it is, may eventually be dwarfed by the possibilities of genetic
engineering. Aided by techniques such as cloning, embryo transfer, tissue
culture, protoplast fusion, and recombinant gene transfer, scientists are
making progress in altering nature's hereditary blueprints to produce
organisms vastly more useful to humans. Genetic engineering already has
produced the world's first fully safe vaccine against foot-and-mouth
disease, one of the most pervasive and costly livestock diseases in the
world. (See Text Box 4)
Outlook for Trade
31. LDC trade in agricultural products probably will grow slowly in
the next 10 years. Overall, imports will likely increase much more
slowly than in the 1970s, mainly as a result of improved self-sufficiency
in food crops. In addition, the oil-producing states will not continue
to boost their imports. The most expansionary LDC markets will be those
Far Eastern countries whose economies are growing rapidly but which have
severe natural resource limitations.
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LDC: IMPROVED AGRICULTURAL TECHNOLOGIES
* New sorghum varieties have been developed that may well double
grain yields in the Sahel, and triple yields in large parts of East
Africa.
* New Nigerian white corn varieties have yielded nine tons per
hectare, against a national average of less than one ton.
* New high-yielding peanut varieties are highly promising for both
Africa and South Asia.
* New cold-tolerant chickpeas can double yields in Syria.
* Much of West Africa could become self-sufficient in rice by
shifting from upland to swamp production; it will require different
varieties, fertilizer and pesticides, and effectively organizing to drain
the swamps.
* Soil scientists have discovered that trace minerals are a key to
permanent cropping in the Amazon Basin; due to the high rainfall and acid
soils, the trace minerals rapidly leach out and literally starve the
crops after a few seasons. The researchers are now in their 13th year of
growing crops on the same fields in the Peruvian Amazon, with yields
averaging more than ten tons per hectare per year from triple-cropping
grains and oilseeds. Local farmers have duplicated their success.
* Thousands of hectares of useless sawgrass have been reclaimed in
the Pacific Basin with the leucaena leucocaphala, a leguminous fast-
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CONFIDENTIALI
growing tree from Central America. The same tree fixes nitrogen in the
soil and is being more widely used to fertilize food crops in African
alley cropping systems. India is using the tree's leaves as a dry-season
feed source for new dairy industries in arid areas.
* In Latin America, scientists have created a new high-yielding
forage crop for the region's huge acid-soil savannahs out of a native
weed that thrives in the severe dry seasons.
* A new electrostatic backpack sprayer is drastically cutting the
volume of pesticide that LDC farmers have to carry to their fields to
protect them from insects and diseases--and thus reducing costs whole
helping to improve yields.
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TEXT BOX 4
FARM-RELATED POSSIBILITIES OF GENETIC ENGINEERING
Soil bacteria that will produce extra nitrogen to nourish
plants, which would sharply reduce the need for chemical
The power to tailor plants for greater utility--perhaps
salt-tolerant rice for coastal marshes, drought-resistant
cereals, and the first crop plants to offer complete protein.
Faster growing trees could allow farmers to tap biomass energy
value from trees and shrubs on marginal land.
Higher milk output, a lower ratio of fat to lean meat, and
animals resistant to a wide variety of diseases.
Major victories against such diseases as malaria and river
blindness, which sap the energies of farm labor forces in Third
World countries, and East Coast fever, which limits cattle
production in East Africa.
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32. Export growth also will be stifled, as much of the expected
increase in LDC demand will be met domestically. The near stagnant
developed country demand for grains and tropical products, however, will
likely persist. LDC sugar exports could fall further unless developed
countries reduce or eliminate their domestic subsidies. At best, exports
of major commodities, including coffee, tea, cocoa, cotton, rubber, and
vegetable oils, will rise 1-2 percent a year. Much of the increased LDC
grain exports will result from taking markets away from the United States
and other major developed country exporters.
33. A few LDCs will continue to dominate the export markets. For
many tropical products, the small number of efficient producers--such as
Malaysia, Thailand, and the Ivory Coast--probably will expand their share
of the market. (See Text Box 5) Some countries will do well in small
niche markets like bananas and pineapples. The many LDCs that lack the
capacity to export manufactured goods will have to depend mainly on
domestic market development if they are to expand economic activity.
34. In general, global agricultural markets are much more likely to
be affected by surpluses than shortages. Although occasional tight
markets are inevitable, the tendency toward greater domestic incentives
for the farmer will mean that many countries will be producing more than
they need in some product lines and trying to dispose of the excess on
international markets. This tendency will hold down global agricultural
prices. Most hurt will be LDCs that rely heavily on agricultural sales
for foreign exchange and are unable to compete effectively for global
markets.
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Implications for the United States
35. On balance, the continuing agricultural progress in LDCs will be
mutually beneficial for the United States and the Third World. It will
surely enhance the group's political stability. Although many overriding
factors could upset the political balance in LDCs, the growing prosperity
of the farming community will play an important fundamental role in
containing the political tensions that normally accompany modernization.
Agricultural gains would slow the movement to the cities, provide an
alternate political base outside the cities, and develop a fairly large
group with an increased stake in a stable political-economic system.
These benefits will mainly flow to the populous countries of Asia and
Latin America that have already achieved forward momentum in the
agricultural sector.
36. In some countries, however, governments will be facing a period
of significant change in agriculture techniques which could have a
destabilizing effect analagous to the "enclosure movement" in England.
Most of these countries will be in Africa, but they also could include
Nepal and the Philippines. The major problem will be the need to replace
traditional agricultural techniques with more sophisticated means so that
agricultural production can keep up with population. In some of these
cases, the shift to more intensive production will cause wrenching
societal changes as nomads are forced to setttle and as shifting
agriculture evolves into fixed fields.
37. The most serious distribution problems will occur in those
countries unable or unwilling to provide physical security and incentives
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LDC TRENDS IN MARKET SHARE
* Cocoa. West African countries, such as Ghana, Togo, Benin, and
Cameroon, depend on cocoa for 10-45 percent of earnings but probably will
continue to lose market shares to Brazil and the wealthier Asian
producers. Since 1980 production has fallen 16 percent in West Africa,
but it has risen 79 percent in Asia--largely because of a tripling of
output by Malaysia.
* Sugar. Because of high production in Brazil, Asia, and the EC,
sugar prices have been pushed to their lowest level in real terms since
the 1930s. This has severely hurt exports and earnings in scores of
sugar-exporting countries, particularly smaller ones such as Belize,
Fiji, and the Dominican Republic, where sugar accounts for 35-90 percent
of earnings. Meanwhile, the sugar-producing giants--Brazil, India, and
China--have boosted production 35-65 percent since 1980.
* Cotton. In the past four years, Chinese cotton production has
almost doubled to 21.3 million bales--nearly a third of global output.
During crop year 1979-80, China imported 20 percent of the cotton traded
on the world market, but this year it is expected to account for 5
percent of world exports--a trend the Chinese government intends to
encourage. In addition to taking traditional US markets, these exports
will hurt Pakistan, Egypt, Nicaragua, Paraguay, Mali, and Sudan, where
cotton exports accounted for 10-50 percent of earnings in 1983.
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* Rubber. Major expansion plans by the three largest
producers--Malaysia, Indonesia, and Thailand--will keep supplies
plentiful. Smaller producers, such as Sri Lanka and Liberia that
respectively depend on rubber for 11 and 17 percent of export earnings,
will be less able to boost volume to compensate for low prices.
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to farmers. Many countries providing both have made the change to
intensive land techniques smoothly. India is the prime example,
especially since it had to make the shift at the same time there were
fears that the "green revolution" would result in many landless peasants
wandering the countryside. The key issue then is how to encourage the
LDC tilt toward pragmatic agricultural policies while helping to lessen
the fears as to political instability.
38. Expansion of LDC agriculture will have a mixed impact on US
international trade interests. LDCs almost certainly will become
increasingly competitive in export markets in which the US is the
principal world supplier--including wheat, corn, soybeans, and rice.
India, China, Thailand, and Brazil have already taken sales away from the
United States. Although these and other LDCs probably will not match the
United States in export volumes, they will take away markets from the US
farmer and put downward pressure on agricultural prices. In addition,
the United States will be pushed further into being a swing supplier in
global grain markets, the same role the Saudis have played in crude oil
markets. During years when there are market stringencies, US farm sales
will soar and, when surpluses occur, US exports will plummet. LDC
suppliers of farm products will be selling whatever they have on hand
beyond domestic needs at prices probably below those of the United
States. The resulting sizeable swings in demand and prices caused by the
new LDC producers will further complicate the planning problems of those
US farmers the bulk of whose output is sold abroad.
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39. Trade tensions are likely to rise between the United States and
those LDCs competing with US farmers. Agriculture everywhere is a highly
political issue as farm lobbies are very powerful. As the United States
becomes more of a swing producer, the trade issues are likely to be
especially acute. When markets are in surplus, the subsidies LDCs pay
their farmers for higher output will become a clear trade irritant,
especially because the LDC governments probably will be selling their
commodities at relatively cheap prices in order to secure foreign
exchange.
40. At the same time, US manufacturers will benefit from increased
sales to the more prosperous LDCs. They will be selling more agriculture
related products--such as tractors, chemicals, and pumps--as well as
general goods and services to meet the needs of an expanding economy. On
balance, overall US exports should benefit from the increased LDC
agricultural output, but they will shift from farm commodities to
manufactures and services.
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