GLOBAL CASSAVA RESEARCH AND CE.NT RJ DE COC:'.J ~.l~NTAC!ON DEVELOPMENT The Cassava Economy of Latin America: A Food Staple in Transition Researchers: Project head: Dr. John Lynam Brazil: Dr. Carlos Ibañez-Meier Dr. Ander Gontijo Dr. Willem Janssen Andean Region: Dr. Luis Sanint Central America and the Caribbean: Dr. Roberto Saez May 1987 CIAT Centro Internacional de Agricultura Tropical C O N T E N T S PREFACE ECONOMIC STUDIES: PROPOSED OUTLINE CASSAVA CONSUMPTION IN EVOLUTION: STAPLE OR VEGETABLE THE MEAT OF THE MATTER: CASSAVA'S POTENTIAL AS A FEED SOURCE IN TROPICAL LATIN AMERICA COUNTRY STUDIES Contents Brazil: Economic Study of Cassava Colombia: Potential Demand for Cassava Paraguay: Potential Demand for Cassava Peru: Potential Demand for Cassava Venezuela: Potential Demand for Cassava PREFACE The accompanying manuscript on the "Cassava Economy of Latin America: A Food Staple in Transition" is a work still in the process of being written. The work is not complete but is distributed at this early stage for comment and to share preliminary findings with those monitoring the evolving role of cassava in Latin America. The research (data collection and analysis) underlying the study of cassava in the region is essentially complete; however, the write-up has been constrained by other commitments of the lead author. The projected study will be divided into two, interrelated parts, analogous to a two-dimensional matrix. The first part develops various themes on the status of cassava within the Latin American agricultura! economy, taking a cross-country comparative approach to each issue. This section has principally a market focus and sets cassava within the grain-livestock sector of tropical Latin America. The second part is a country-by-country analysis of the current status and future potential of cassava in the various producing countries . These chapters have a defined focus on locating cassava within the policy framework of the particular country and on detailed analyses of current and potential markets within the country. The first section is still largely incomplete and contains the outline and two of the projected eleven chapters. These are two of the most important chapters and give an overview of cassava food markets and the potential of cassava as an animal-feed source in Latin America. This first section is being prepared by John Lynam, an economist in the . CIAT Cassava Program. The country studies in the second part were contributed by a variety of authors. Dr. Carlos Ibañez- Meier of CIAT led the Brazilian study and was assisted in this effort by Dr . Vander Gontijo of EMBRAPA and Dr. Willem Janssen of CIAT. Dr. Luis Sanint of CIAT authored the chapters on Colomhia, Venezuela, Peru, and Paraguay. He also was responsible for the research on Ecuador, which is not included here. Finally, Dr. Roberto Saez of CIAT was responsible for the research on Mexico, Panama, the Dominican Republic, and Jamaica. Unfortunately, there was no time to translate these chapters from Spanish to English and they could not be included. The current volume thus gives a rather skeletal view of the economic study of cassava in Latin America. However, sufficient information is included to make judgements on the present and future potential of cassava in the region. Moreover, the studies have already played a functional role in guiding research planning by both CIAT and national cassava programs and in the development of integrated cassava projects in many of the countries. The studies have already proved their worth, and they provide the first step at compiling a consistent picture of cassava in the region and the data base on which to build future field-level studies of cassava production, marketing, and demand. ECONOMIC STUDIES : PROPOSED OUTL INE ECONOMIC STUDIES: PROPOSED OUTLINE CASSAVA IN A CHANGING ECONOMIC ENVIRONMENT Introduction: The Information Gap and the Price of Negligence History of the Crop The Changing Nature of the Agricultural Sector in Latin America Government Interventions and Patterns of Growth in Food Production and Consumption Cassava Trends: Maintenance of a Traditional Role Cassava in a Development Context: A Commodity as a Policy Instrument CASSAVA IN A DEVELOPMENT POLICY CONTEXT Structural Change: Planning Under Stress Agricultural Dualism: Growth and Resource Use Within a Skewed Land Distribution Poverty, Urban Food Consumption, and Policy Response The Debt Crisis: The Loss of Degrees of Freedom Socioeconomic Policy Objectives and the Role of Cassava CASSAVA CONSUMPTION IN EVOLUTION: STAPLE OR VEGETABLE Highly Protean Cassava: The Diversity of Consumption Forros Current Patterns of Cassava Consumption The Ravages of Time: Trends in Cassava Consumption The Inferior Good Debate: In Search of an Elasticity The Urbanization of Cassava Consumption: The Price Paid to Marketing Cassava and the Political Economy of the Urban Staple CASSAVA PRODUCTION: THE COMPLEXITY OF A SIMPLE SYSTEM Plant Characteristics: The Foundations of a Cropping System Agroclimatic Distribution in Latin America: Cassava is not Grown Where it Grows Best The Key to Diversity: The Varietal Component Management of the Cassava-Cropping System: How Important is Yield? The Determinants of Yield: In Search of Improved Technologies The Economics of Cassava Production Labor and input use Competition with other crops The economics of the scale of production The bottom line: the costs of production The Responsiveness of Traditional Systems Intensification New Production Technologies 2 MARKETING: THE VITAL LINK The Structure of Traditional Cassava Markets The fresh root market: the price of pershability The farinha market Price Formation in Cassava Markets: The Changing Nature of Wholesale Markets Market Integration Marketing and Management of Demand Market Risk and Farmer Response Price Illusion: The Failure of the Hidden Hand The Engine of Transition: The Development of Alternative Markets CARBOHYDRATE DIVERSITY IN THE URBAN DIET: STORAGE AND THE TROPICAL POTATO Fresh Cassava and Potato Consumption in Urban Latin America Consumer Characterization of Fresh Cassava Creating the Tropical Potato: A Fresh Cassava Storage Technology Consumer Evaluations of Stored Cassava The Potential Impact of Cassava Storage Technology Prospects in Key Countries for Urban Consumption of Fresh Cassava CASSAVA AND THE POLITICAL ECONOMY OF WHEAT Trends in Wheat Consumption and Imports in Latin America Food Price Subsidies for the Urban Poor: Why Wheat? The Impact of Wheat Subsidies on Cassava Consumption: the Brazilian case The Evolution of Wheat Consumption: Bread Versus Pasta Composite Flour: How to Turn a Good Idea into Costly Follies Appropriate design of a Composite Flour System Composite Flour and the Shadow Price of Foreign Exchange THE MEAT OF TRE MATTER: CASSAVA'S POTENTIAL AS A FEED SOURCE IN TROPICAL LATIN AMERICA Meat as a Wage Good? The Legacy of a Land Surplus Economy A Chicken in Every Pot: The Poultry Revolution in Latin America The Intensive Versus the Extensive Frontier The Grain Divide: The Choice of Carbohydrate Source in Feed demand The Cassava Option in Meeting Feed Demand The Development Potential of Cassava in Latin America Conclusions STARCH: CASSAVA VERSUS THE CORN PRODUCTS CORPORATION The Nature of Starch Demand: One Market or a Thousand Markets Cassava Versus Maize Starch: The Role of Speciality Markets The Diversity in the Scale of Cassava Starch Production: An Issue? The Location of Cassava Starch Production: The Importance of Water A Difficult Prognosis in a Difficult Market 3 CASSAVA PUTTY: TAILORING A CASSAVA STRATEGY TO DIFFERENT NEEDS Haiti Mexico Paraguay Brazil Colombia The Malleability of Cassava in a Changing Economic Environment CASSAVA AND THE LAZY-FAIRE PARADIGM: THE PRICE IS RIGHT OR THE CREATION OF A VESTED INTEREST Linking Policy Objectives to Cassava Development Can Cassava Compete? The Implementation Hurdle: The Role of Integrated Cassava Projects The Income Potential of Cassava in the Development of the Small Farm Sector The Colombian Case: Turning Hypothesis into Reality Defining the Economic Niche for Cassava Making the Transition: The Price of Negligence and the Promise of Vested Interests in Cassava J3b~1 C -2 CASSAVA CONSUMPT ION IN EVOLUTION : STAPLE OR VEGETABLE CASSAVA CONSUMPTION IN EVOLUTION: STAPLE OR VEGETABLE Highly Protean Cassava: The Diversity of Consump~ion Forms Current Patterns of Cassava Consumption The Ravages of Time: Trends in Cassava Consumption The Inferior Good Debate: In Search of an Elasticity The Urbanization of Cassava Consumption: The Price Paid to Marketing Cassava and the Political Economy of the Urban Staple References 1 3 S 8 16 22 27 CASSAVA CONSUMPTION IN EVOLUTION: STAPLE OR VEGETABLE Unlike other parts of the developing world, Latin America does not depend on a single carbohydrate staple as the backbone of its diet. Thus, while rice is the basic staple in tropical Asia, wheat in temperate Asia and the Near East, maize in East Africa, and cassava in Central Africa, all these starchy staples including potato are important in Latin America, yet none domínate over the whole region. The reasons for this are many but two stand out. First, a staple achieves a dominant role in the diet because of its low relative cost, especially as an energy source. In rural areas cost advantage is usually determined principally by yield advantage, and thus agroclimatic conditions tend to be a principal determinant of food subsistence patterns. Because agroclimatic conditions are quite variable in Latin America and because at least three major starchy staples (cassava, maize, and potato) were domesticated in the region, each starchy staple achieved its own niche in the diet and cuisine of rural societies in Latin America. The other distinguishing characteristic of Latin America, when compared to Africa or Asia, is that the population of the former is predominately urban. The urbanization process has a distinct impact on food consumption patterns. First, relative prices of food staples change between rural and urban areas. Second, convenience in food purchase and preparation becomes a principal concern in urban-family time allocation. Third, income growth in an urban setting, while leading to sorne increase in quantity consumed, principally is reflected in an augmented diversity in the diet. Finally, urban areas, at least in South American countries, draw migrants from rural areas where different staples domínate. Although buffered by the other influences, food habits are transferred to an urban setting. The result is significant diversity in consumption patterns both within and across major urban areas. Staples exist but are not defined at the continent level and only rarely at the country level. Thus, only in Mexico, Honduras, Guatemala, and El Salvador does a single commodity, maize, make up more than 35% of average national calorie consumption. Rather, the food staple in a Latín America context is defined at the regional level, rural residence, and income strata. It is at this leve! that the current role of cassava as a food staple will be discussed. Moreover, this analysis will provide the setting for a discussion in future chapters of the role cassava can play in the agricultura! economy in the context of diversification of the diet and the declining role of the staple in Latin American, food consumption patterns. Highly Protean Cassava: The Diversity of Consumption Forms Cassava is consumed in Latin America in three principal forms: as the fresh root which is either boiled or fried: as a roasted flour, "farinha de mandioca"; and as a type of unleavened bread, casabe. Consumption of the processed forms is culturally defined. Casabe is only consumed in the Caribbean Basin, particularly the island countries of Haiti, the Dominican Republic, and Jamaica (where it is known as bammies), and on the continent from eastern Venezuela through Guyana and Suriname. Consumption of farinha de mandioca is almost soley confined to Brazil, although it is also found 2 to a limited extent on the border areas in Paraguay and northern Argentina and among the indigenous Indian population in the Amazon basin areas of Venezuela, Colombia, Ecuador, and Peru. Although all are identified as cassava, their consumption form makes them distinctly different foods. Analogues for other starchy staples are bread and pasta in the case of wheat, and choclo and tortillas in the case of maize. Consumption form is a dominant factor in the role cassava currently plays in the diet and its future prospects, especially in urban food consumption. Form influences preferences, marketing costs, consumer convenience, and utilization within the meal. The functional role of form in production, marketing, and consumption of cassava is best analyzed if the fresh root is distinguished from the processed products. Fresh cassava has all the salient characteristics of the root and tuber crops. The cassava root is about two-thirds water, although this still results in a starch content significantly higher than all the other major root and tuber crops. In its cooked form cassava has as high or higher an energy density as polished rice. The disadvantage of high water content comes in the higher marketing and storage costs for this bulky, low value product. These costs are exacerbated by the very short shelf-life for cassava roots. When exposed to oxygen, usually as a result of wounding during harvest, the roots develop a blue-black pigmentation in the vascular tissue accompanied by the dessication of the starch containing cells (Janssen and Wheatley, 1985). From 24 to 72 hours after harvest, this process makes the fresh root unacceptable for human consumption. Costs thus increase dramatically the further the consumption point is f rom the production point. Although consumption of fresh roots is found throughout tropical Latin America, consumption is high only in rural areas where cassava production is widely diffused. Processing eliminates the water, stabilizes the product, and vastly improves its marketing characteristics. Consumption of processed products is thus more diffused through the food economy although still limited by its cultural boundaries. Processing also reduces the cyanide (HCN) content of the roots, a necessity where varieties are "bit ter," i. e., have cyanide levels in the parenchyma exceeding 100 mg/kg (on a dry weight basis). The production of casabe and farinha de mandioca are, to a very large extent, based on "bitter" varieties. Both casabe and farinha de mandioca are of ancient origin; archaecological finds in Venezuela of clay griddles for making casabe have been dated to between 3000 and 7000 B.C. (Renvoize, 1972). A reasonable hypothesis would be that processing to eliminate the HCN was necessary for the domestication of the crop. However, Lathrap (1973) and Spath (1973) both argue that the genesis of cassava processing was not to remove the HCN per ~ but rather to support trade networks in the Amazon and Orinoco basis. From the earliest times the raison d'etre for processing has principally been to improve cassava's marketing characteristics and not necessarily to improve its consumption characteristics. A reverse pattern is found in grains. Processing of grains takes place nearer to the consumption point than the production point and the reason is principally to transform the grain to a form that is usable by the consumer. Rice milling, the production of wheat flour, or the grinding of maize meal or 3 dough (Nixtamal in Mexico) are prime examples of forward linkages between grain staple production and industrial development. In cassava those linkages are forged at the production point. Unlike the grains , production and processing of cassava has developed as an integrated system. The marketing system that results is thus specific to the cassava product that is produced. Form is essential to understanding the role of cassava in the agricultura! economy. It is also essential to understanding cassava consumption. Although fresh roots, farinha de mandioca, and casabe are the principal forms in which cassava is marketed and consumed, a large number of other forms also exist. Tapioca pearl is produced in Brazil and is used to make a large wafer called "beiju." In Para state in Brazil "farinha de tapioca, is produced. This is a puffed tapioca pearl and is eaten in the larger cities of the Amazon Basin. Artisanal production of starch also occurs in many areas of Latin America. In Colombia the starch is fermented and together with cheese used to make a bread ~alled "pandebono." In Paraguay the unfermented cassava starch forms the basis of a bread form called "chipa." As reviews by Schwerin (1971) and Lancaster et al. (1982) will attest, the forms in which cassava is consumed are multifarious and all follow from variations in the form of processing. The antiquity and multiplicity of consumption forms and the relatively well-defined boundaries on the consumption of each raise the issue of what has constrained their diffusion throughout the whole of Latin America and conversely whether there is potential for the consumption of these products in areas where they are not currently eaten. There are no definite answers to these questions and only hypotheses will provide clues. Since cassava is grown throughout tropical Latin America, there is no lack of knowledge concerning production of the crop. The processing technology is simple and easily transferable, and certainly a sufficient amount of intercourse between regions to facilitate the transfer of knowledge would be a reasonable supposition. The answer seems to derive most logically from a certain rigidity in preferences for the basic carbohydrate staple. Indigenous cuisine evolved in the rural areas and was developed around the caloric staple. Differences in food preparation methods, complementary foods, and the structure of the meal reflect in large part the particular characteristics of the staple. The differen~e between Mexican cuisine based on the tortilla and the food habits of the Brazilian northeast, where the base is farinha de mandioca, are illustrative of first the central role of the staple and second the difficulty in substituting another staple. How rice and wheat have come to play a larger role in urban diets is discussed later but the conclusion here is that traditional cassava products, that is casabe and farinha de mandioca, will not be consumed outside their current areas of influence. Current Patterns of Cassava Consumption Identifying where cassava is consumed will define both its current role in the diet and present constraints on increased consumption . By 1980 (Table 1) cassava was a dominant caloric staple on a national basis in only one country, Paraguay. In that country it was second only to maize as a calorie source and contributed 13% of total food energy supplies. In Brazil and Colombia cassava is an important but not dominant carboydrate 4 Table l. Daily calorie consumption (in calories) derived from principal starchy staples, in Latin America, 1979-81. Country Total Cereals Roots and Tubers calories Wheat Rice Maize Cassava Potato Mexico 2890 323 56 1061 22 2 Costa Rica 2653 303 371 208 3 20 Honduras 2135 130 75 878 5 5 Guatemala 2138 205 36 977 2 9 Panama 2338 201 480 207 36 lO Cuba 2796 565 481 56 42 Dominican Rep. 2130 194 442 47 37 3 Haiti 1905 218 145 258 66 3 Jamaica 2544 556 204 101 23 7 Brazil 2578 350 418 207 183 24 Colombia 2494 140 387 289 118 108 Ecuador 2114 199 255 176 41 60 Peru 2195 386 297 219 42 140 Bolivia 2082 463 108 277 69 159 Venezuela 2646 351 251 339 28 24 Paraguay 2839 277 128 445 372 5 SOURCE: FAO. 1984. S source in the national diet, contributing over 5% of national calorie requirements. Cassava is of minor importance in the maize-based diets of Mexico and Central America. In all the rest cassava adds a significant component to the diversity of the national diet but does not reach the importance of the three principal grains--maize, rice, and wheat. Disaggregating consumption gives a clearer picture of cassava consumption distribution. The pattern that emerges in Table 2 is of very distinct differences in consumption levels depending on agroclimatic conditions and on rural-urban residence. For fresh cassava the highest consumption levels are consistently found in the rural areas. High rates of consumption are found in the jungle areas of Ecuador and Peru, extending into the Santa Cruz area of Bolivia. The highly populated eastern part of Paraguay has possibly the highest per capita consumption of fresh cassava in Latin America and this belt of fresh cassava consumption extends across northern Argentina and also into southern Brazil and Mata Grosso do Sul, although consumption levels are less than those that exist in Paraguay. The third belt of fresh root consumption extends across the Atlantic coast of Colombia into the western part of Venezuela and in Colombia extends from the coastal region up the Magdalena river valley into the Santanderes. In all these areas fresh root consumption declines dramatically moving from rural areas to towns and finally to large metropolitan areas. An in depth study on the Atlantic coast of Colombia (Janssen, 1986) found that this relationship characterized root crops in general (Table 3), but was especially marked in cassava. The cost of moving a bulky, perishable product significantly increases retail prices, causing consumption levels to be lower. Consumption patterns of farinha de mandioca are more influenced by regional preferences in Brazil than by rural-urban residence. Thus, farinha consumption declines dramatically moving from north to south and rather more moderately moving from rural to urban areas. Farinha is the major calorie source in the north and northeast of Brazil and makes up about a quarter of the average daily calorie intake . Even in urban areas in the north and northeast, farinha is a major calorie source, contributing 25% of average daily calorie intake in Belem, Para and 16% in Salvador, Bahia. Thus, in the poorer regions of Brazil cassava has become a dominant staple, essentially by linking cassava's high productivity under marginal conditions with processing at production points. The Ravages of Time: Trends in Cassava Consumption Per capita consumption of cassava as a direct food source has declined in Latín America over the past two and a half decades. Cassava is not alone in this regard. Consumption of beans and maize for direct human consumption has also declined. Historical analyses of consumption trends of caloric staples in countries such as the United States and Japan suggest that this is a natural tendency in the process of development. Rising incomes and the urbanization process lead naturally to a greater demand for diversity in the diet. Almost by definition, the food that declines as a percentage in the diet is the principal carbohydrate source. 6 Table 2. Annual per capita consumption (kg) of cassava by region and rural-urban status in Latin America. Country and Urban region Rural Town City Average (kg) (kg) (kg) (kg) Colombia (1981) Atlantic Coast 72 .7 42.3 54 Eastern region 39.0 23.5 31 Bogota 7.2 7 Central region 35.4 12.5 20 Pacific 17.3 8.3 12 Peru (1971-72) North coast 11.0 10.6 9.7 11 North Sierra 18.0 7.5 17 Central coast n.a. n.a. n.a. 4 Central Sierra n.a. n.a. n.a. 2 South coast n.a. n.a. n.a. S South Sierra n.a. n.a. n.a. 1 High jungle 82.2 14.2 71 Low jungle 101.8 78 . 6 15.5 65 Metro Lima 4 4 Brazil (1975) Fresh Cassava North n.a. 1.8 0.4 2 Northeast 5.2 3.4 1.9 4 Southeast 4.7 2. 8 1.7 3 South 23.2 7.0 5.7 16 Center-west n.a. 8 .2 2.6 16 Farinha North n.a. 49.0 45.5 54 Northeast 55.0 31.9 21.4 44 Southeast 10.5 3.3 2.2 S South 4.4 3.2 0.5 4 Center-west n.a. 3.7 2. 2 4 SOURCE: Sanint, et al. 1985; Casas Moya. 1977; IBGE. 1977. 7 Table 3. Annual per capita consumption (kg) of root crops by residence on the Atlantic Coast of Colombia, 1983. Consumption Cassava Residence Yam Cassava price (kg) (kg) (US$/kg) Cassava producer 85 .7 170.4 0. 10 Rural village 41.9 82 .9 0.21 Intermedia te town 30.8 53.5 0.27 Metropolitan are a 30.5 30.5 0.44 SOURCE: Janssen. 1986. 8 Charting the size of the changes in cassava consumption is difficult, given the unreliability and scarcity of data on cassava. The weakest data source is food balance sheets, essentially because they depend on accurate production estimates as a starting point and for cassava these are known to be highly unreliable. However, these estimates probably do represent basic trends and by comparing 1960 to 1980 figures (Table 4), the tendency over the period was a consistent decline in cassava consumption. These rather crude approximations, nevertheless, are supported by those few cases where food budget surveys can be compared over time (Table 5). In Peru per capita consumption between 1965 and 1972 declined moderately in every sector except the urban areas of the eastern rainforest. There as road infrastructure improved, cassava was obviously developing as a major food source suppling the expanding cities in the region. In Colombia on the other hand, cassava consumption in all the principal metropolitan areas declined between the late 1960s and early 1980s. Finally, in Brazil between the early 1960s and 1975, except for fresh cassava in urban areas in the south, consumption of both farinha and fresh cassava have declined, especially farinha in the south and southeast of the country. At issue then is not the fact that cassava consumption has been declining in Latin America but rather the reasons behind these trends . From an understanding of causes, a prognosis can be made about the future of cassava as a food source in the Latin American diet. Cassava has long been painted as an inferior food and a food of the poor but there has been little rigorous analysis to test this hypothesis. Moreover, income effects on consumption in many cases may be dominated by other factors, especially substitution due to changes in relative prices and the effects of urbanization. The discussion, thus, turns to an analysis of these issues. The Inferior Good Debate: In Search of an Elasticity The most direct means of estimating price and income elasticities is through the use of time-series data. In cassava this is restricted by the quality of the national supply and utilization estimates. Nevertheless, though absolute values may be unreliable, relative change from year to year is probably more accurately captured within the series. Estimates of demand fun~tions (Table 6) for cassava using national, time-series data were attempted for a number of countries (Sanint, 1986). Besides income, own price and the price of substitutes, an urbanization variable was also included. Urbanization~ in those countries where cassava is consumed in the fresh form, is expected to have a particularly strong impact on national demand for cassava, essentially because of the difference in relative price of cassava and caloric substitutes in rural versus urban settings. The results of these estimates are remarkably good, since all the elasticities are of a theoretically correct sign and the majority are statistically significant. Not too much stock should be put in the absolute value of these estimates but the overall picture that arises is correct (to be supported later by additional analysis). The first conclusion that can be drawn is that cassava in these countries is not in general an inferior good. Only in Paraguay, where consumption levels virtually approach a biological limit, is the income elasticity negative. In Ecuador and Colombia the data would suggest that cassava is even income 9 Table 4. Trends in the per capita consumption (kg) of cassava derived from food balance sheet estimates in Latin America. Country 1964-66 1979-81 (kg) (kg) Costa Rica 6.2 1.3 Cuba 21.8 19.0 Dominican Republic 27.4 13.5 Brazil 107.4 79.9 Colombia 25.8 49.4 Peru 29 .6 17. o Bolivia 24.7 27.8 Venezuela 25 .1 11.5 Paraguay 180.8 156.6 SOURCE: FAO. 1969; FAO. 1984. 10 Table S. Changes in consumption of cassava as portrayed in food budget surveys in Latin America. Country and region Colombia (1968 and 1981) Bogota Medellin Cali Barranquilla Peru (1964 and 1971) Coast Rural Urban Sierra Rural Urban Selva Rural Urban Brazil (1960 and 1975) Fresh Cassava North Cities Northeast Rural Towns Cities Southeast Rural Towns Cities South Rural Towns Cities Farinha North Cities Northeast Rural Towns Cities Southeast Rural Towns Cities South Rural Town Cities SOURCE: National food budget surveys. Annual per capita consumption 1960s (kg) 10.4 13.4 18.2 29 .4 11.5 7. 3 n.a. 2. 8 111.6 10.9 0.04 10.3 n.a. 1.1 15.8 3.6 3.7 68 . 7 4.1 1.6 58.9 69.6 n.a. 26 . 2 19.1 4.9 4.3 16.2 5.6 3.0 1970s (kg) 7.2 9.8 7.3 27.2 8.4 5.5 6.2 1.5 89.2 20.4 0.4 5.2 3.4 1.9 4.7 2.8 1.7 23.2 7.0 5.7 45.5 ss.o 31.9 21.4 10.5 3.3 2.2 4.4 3.2 0.5 11 Table 6. Time-series estimates of demand elasticities for fresh cassava in Latin America in the period 1965-84. Colombia Ecuador Paraguay Peru Own price - 0.30 - 2.08 - 0.10 - 0.20 In come l. 60 l. 38 - 0.13 0.03 Urbanization - 0.16 - 0.99 - 0.13 - 1.03 Wheat price a 0.45 0.07 0.11 n.s. Rice price n. s. 2.42 0.64 a. n.s. = not significant. SOURCE: CIAT estimates. 12 elastic. This result follows essentially because demand has been corrected for the effects of urbanization, which are all negative and, except in Colombia, highly significant. Unlike grains, urbanization completely changes the structural nature of the cassava market. Most of these elasticities are high. In Paraguay urban consumption levels are high because of a well-developed marketing system for cassava and here the effects of urbanization are not as pronounced. The own price elasticity for cassava is generally low but highly significant. However, even more than the own-price response, cassava demand responds significantly to changes in the price of other caloric substitutes. Any decline in the price of grain substitutes, for example due to technical change or to policy intervention, as well has a significant impact on consumption of cassava. In summary , then, the declining consumption of cassava is not due to the fact that the commodity is an inferior good, but rather to more fundamental changes in the overall economy and the structure of food demand, which in turn has influenced the pricing of competing grain staples. A more reliable data base on which to base elasticity estimates is consumer budget surveys. Unfortunately, those with national coverage t hat include both expenditure and quantity or price data are rare. Colombia has most recently carried out such a survey. Elasticity estimates for cassava based on this survey (Sanint, et al., 1985) support the cross-section estimates (Table 7), that is, cassava is notan inferior good and in general demand is relatively price responsive. The income elasticity (also corrected with dummy variables for rural-urban residence) is somewhat lower and the price elasticity significantly higher in absolute value, when compared to the time series estimates for Colombia. Though these estimates give a truer picture of the value of the elasticities, they nevertheless support the conclusions drawn from the time series estimates. Moreover, the cross-sectional data allow estimates by income strata; as expected, the income elasticity varies significantly between income strata. Cassava is v ery income elastic in the two lowest income quint i les and only in the highest income stratum does the income elasticity become slightly negative (although this coefficient is not signif icantly different from zero). Thus, all but the most wealthy will increase cassava consumption with rises in income. The poor, who still have calorie consumption levels below minimum standards (Sanint, et al.), are especially responsive to changes in income and will increase their consumption of cassava at a greater rate than the rate of increase in income. The responsiveness of cassava consumption of the poor to changes in price and income is supported by results from the Dominican Republic (Musgrove, 1985). Per capita cassava consumption on average is higher in this country than in Colombia, and here the poor are much more responsive to cassava price changes than income changes, though the response to income is still significantly positive. The Colombian and Dominican Republic results are suggestive of a general tendency f or cassava consumption to be more responsive to income rather than price changes, the lower the existing level of per capita consumption. Also, although the data are limited, at higher general levels of consumption consumers are more responsive to price, suggesting a marked tendency to substitute for other caloric 13 Table 7. Cross-section estimates of demand elasticities for fresh cassava by income strata in Colombia, 1981. Fresh cassava In come quintile Price Income 1 2 3 4 5 - 0.84 - 0.92 - 0.93 - o. 92 - 0.83 SOURCE: Sanint, et al. 1985. 1.47 l. 23 0.27 0.64 - 0.04 14 staples. This result is particularly characteristic of the greater diversity in the Latin American diet, since, for example, in Asia this degree of substitution does not occur in rice, the dominant staple, even at high consumption levels. Purchase and consumption of different foods is contingent on those commodities meeting more basic consumer needs, such as taste, nutrient needs, minimal preparation time, or diversity in the diet. This fact gives rise both to differences in preferences between commodities and to perceived differences in quality for most food commodities, for which there are in turn price differentials. Thus the consumers' perception of cassava in many countries is not in terms of a single, generalized commodity with quality gradations as is the case for rice. Rather, farinha or casabe are distinctly different food commodities from the fresh root. In any analysis of demand for cassava where different products are consumed it is critica! that the different products be analyzed independently, before making an assessment of future demand for cassava as a whole. The need to discriminate between cassav~ products is particularly important in Brazil, where both the fresh root and the processed product, farinha de mandioca, are major items in the diet. In Brazil the distinction between products is maintained from production to consumption. Farmers distinguish between the low-cyanide or sweet varieties, called "aipim", and the high-cyanide or bitter varieties, called "mandioca." They are kept separate, virtually as distinct crops, from production through marketing and consumption. Farinha is the major consumption itero, essentially because of its storability and lower marketing margins, and is the principal source of calories in the northeast. Farinha behaves as the classic staple. Because it is significantly cheaper than any other carbohydrate source, consumption levels are high among the peor. However, as incomes increase, consumers diversify their source of calories. Farinha in Brazil does have a negative income elasticity (Table 8) . Yet, in the lower income strata consumers will still eat more farinha with increases in income. In Brazil, particularly in the northeast, incomes levels among the peor are not sufficient to maintain adequate levels of calorie consumption. Thus, with increasing income the peor will still consume higher levels of farinha. However, these same consumers are very responsive to changes in farinha prices, again indicating a desire to diversify when the opportunity arises. The substitution process is further supported by the significant cross-price elasticity between farinha and wheat flour. A particular issue in the Brazilian case in evaluating commodity substitution is to separate substitution due to short-term swings in relative prices of caloric staples from the impact of a long-term change. The introduction of the subsidy on wheat in the early 1970s resulted in a long-term shift in the relative price of calories between farinha and wheat products. The impact has been to speed up the substitution process and through more basic structural changes in tastes and the diet, to limit potentially the degree of reverse substitution should the subsidy be lifted. Demand parameters for fresh cassava in Brazil, however, follow a similar pattern to those presented for other countries. That is, fresh root consumption responds positively to increasing income, with the lower a Table 8 . Income and price elasticities for farinha by income s t rata in Brazil . South Southeast Northeast North Elasticity b Urban Rural Urban Rural Urban Rural Urban I n come Lowest income gr oup -0 . 2703 0.3236 -0.8612 0.3236 0.0026 -0 . 0254 0.3670 Second income group -0.3441 0.0037 - 0.711 1 0 . 0037 - 0.1813 -0.1893 0.09 76 Third income group - 0.4180 - 0.3163 - 0 . 5610 - 0 . 3163 -0 . 3651 -0 . 3532 - 0 . 1719 Fourth income group -0.5156 -0 . 7393 -0 . 3627 -0.7393 -0.6081 -0 . 5699 - 0.5280 Highest income group - 0 . 5656 -0 . 9562 -0 . 2609 -0.9562 -0. 7327 -0. 6811 -0 . 7107 OWn price Lowest i ncome gr oup -l. 3984 - 2 . 1398 -0 . 3085 -2.1398 -0.6734 -0 .5306 - 0 . 0037 Second income group -1.1371 -1.1451 -0 . 2480 - 1.1451 -0 . 6451 - 0.4897 -0 . 1679 Third income gr oup -0.8758 -0 . 1503 -0.1875 - 0.1503 - 0 . 6169 - 0.4488 - 0 . 3321 Fourt h income group - 0 . 5304 0 . 0000 -0.1075 0.0000 - 0 . 5796 -0. 3947 - 0 . 5492 Highest income gr oup -0.3533 0.0000 - 0 . 0664 0 . 0000 -0 . 5604 - 0.3670 -0.6606 1--' Vl Pri ce of rice Lowest income group 1.1079 0.8977 2.5697 0 . 8977 0.6524 0.3622 l. 3133 Second income group 0 . 9213 -0.3869 2 . 2233 -0.3869 o. 1959 0.2762 1.0589 Third i ncome group 0.7347 -1.6715 1.8770 -1.6715 - 0.2606 0 . 1901 0.8045 Fourt h income group 0 . 4881 -3 . 3696 1.4191 - 3.3696 -0.8641 0.0764 0 . 4683 Highest income group 0 . 3616 -4.2407 1.1842 -4.2407 -1.1736 0 . 0181 0.2958 Price of wheat Lowest i ncome group 1.5431 2 . 0210 l. 5332 2.02 10 .0000 -0 . 5599 0.7813 Second income group 0 . 9480 1.3265 1.1311 1.3265 0.0550 - 0.1411 0.1220 Third income group 0 . 3530 0.6321 o. 7291 0 . 6321 0.5006 0.2777 - 0 . 5373 Fourth income gr oup -0.4336 -0.2860 0.1976 -0.2860 1.0896 0.8313 - 1.4089 Highest income group -0.8371 - 0.7569 -0.0750 -0.7569 l. 3917 1.1153 -1.8560 a . Elas t i cities were estimated us ing cross- sectional da ta and empl oyed a t ransl og func t i onal form. b . Elasticities were evaluated a t the following income levels: Lowest = ~ minimum salary; second = 1 minimum salary; third = 2 minimum salaries; fourth = S minimum salaries; and highest = 8 minimum salaries. 16 income strata being particularly responsive. Moreover, consumers are very responsive to price changes in fresh cassava, as exhibited in the estimated price elasticity of -1.9. Thus, in Brazil a duality of sorts exists in the demand for cassava; farinha exhibiting the characteristics of an inferior good and fresh cassava the characteristics of a normal good. Since farinha makes up about 90% of human consumption of cassava, farinha dominates in the overall food demand for cassava in Brazil. Is cassava then an inferior good in Latín America? In a very narrow sense the answer is yes. Farinha de mandioca in Brazil does have a negative income elasticity, and since farinha makes up 90% of cassava consumption as a food source in Brazil and Brazil in turn makes up about 75% of food consumption of cassava in Latín America, then a weighted income elasticity for cassava as a food source in Latín America would likely be slightly negative. This conclusion, however, extends a result based essentially on the extreme importance of farinha in the north and northeast of Brazil (these two areas account for 86% of Brazilian consumption of farinha) to cassava in Latín America as a whole. Outside this limited area the. conclusion does not hold that cassava is an inferior good because cassava is consumed principally in a fresh form. The available evidence suggests that there is significant elasticity in the demand for fresh cassava. Thus, to explain the ·decline in the consumption of fresh cassava requires a more in depth analysis of the effects of urbanization and of changes in relative prices. The Urbanization of Cassava Consumption: The Price Paid to Marketing The most striking feature about consumption patterns of fresh cassava is the very large differences in consumption levels between rural and urban areas. Not only is the pattern universally consistent but the differences in per capita consumption levels are indeed large (Table 9). The pattern is most clear at the level of a particular region, especially where cassava can be compared with other starchy staples. Such data exist for the Atlantic Coast of Colombia (Table 3). In this region cassava consumption declines precipitously from the point of production, so that consumption in the large cities is less than 20% of that of cassava producers. Neither plantain nor rice show such differences, and patato, an imported commodity in the region, exhibits the opposite pattern. These differences in cassava consumption based on residence are not due to any significant difference in the manner of utilization in the home (Table 10). Cassava is eaten virtually in the same meals and prepared in the same manner. The differences arise from the number of meals per week at which cassava is served and the size of the portion per serving. The primary factor resulting in these differences in consumption of cassava are price and convenience. Cassava is more than five times more expensive in metropolitan areas than the opportunity cost to cassava producers. Moreover, implicit costs in buying cassava daily in urban areas make cassava a far less convenient food than say rice. The price difference between cassava producer and metropolitan consumer reflects the very significant marketing margin for the crop. These margins derive from a marketing structure which must move a bulky and perishable crop from many small-scale producers to consumers who buy their cassava in small lots at convenient locations. A comparison of implicit 17 Table 9. Estimates of average per capita, rural and urban consumption (kg) of fresh cassava in Latin Ame rica. Country Brazil (1975) Colombia (1981) Peru (1972) Paraguay (1986) Venezuela (1975) Dominican Republic (1975) SOURCE: Lynam and Pachico. 1982. Rural (kg) 10.6 41.1 18.3 340.0 27.4 42.3 Consumption Urban (kg) 3.1 17 . 2 5.6 120.0 5.0 20 .0 18 Table 10. Distribution of cassava consumption in different meals, by rural-urban residence on the Atlantic Coast of Colombia, 1983 . Metropolitan Intermedia te Rural Variable urban areas urban areas areas Producers Percentage of cassava consumed at breakfast 30.0 53.5 50.2 42 . 3 Most important form of preparation boiled boiled boiled boiled Percentage of cassava consumed at lunch 69.0 43.6 39 . 7 49 .1 Mos t important form of preparation in soup in soup in soup in soup Percentage of cassava consumed at dinner 1.0 3.0 10.0 8 . 6 Most important form of boiled/ boiled/ boiled/ boiled/ preparation fried fried fried f ried Number of meals per week with cassava 4.9 6.3 8 . 3 11. o Average portian of cassava served per person (grams) 118 158 191 313 Price (US$/kg) 0 .45 0 . 27 0 . 26 0 . 08 Number of observations 80 80 160 160 SOURCE: Janssen. 1986. 19 marketing margins for cassava versus rice in major Latín America cities (Table 11) shows that the price that cassava consumers must pay for marketing services are in general higher than that for rice on an absolute basis. Considering that the marketing margin for rice also includes a milling component, the costs of cassava marketing are high indeed. On a relative basis (i.e . , as a percent of the retail price) the cost of marketing services is significantly higher for cassava. From 50% to 90% of the eventual consumer price for fresh cassava is allocated to marketing services . These margins essentially reverse the relative price of cassava and competing starchy staples between rural and urban markets. In rural production zones cassava is normally the most inexpensive source of calories, especially compared to grain crops. In urban areas, on the other hand, fresh cassava is significantly more expensive on a per calorie basis than competing grains. Clearly, consumption levels adjust to this market change in relative prices. The implication of the high price for urban cassava on trends in aggregate consumption have been markedly negative in the rapidly changing economic environment that has existed in Latin America throughout the post-war period. During that time Latin America shifted from being principally a rural-based economy to being an urban-based economy. Very high rates of rural-urban migration have shifted the population distribution in Latin America from almost 60% in the rural sector in 1950 to 30% rural in 1985. The urbanization process has completely changed the structure of starchy staple consumption in Latín America, with consumption patterns shifting from staples such as cassava, maize, plantains, and potatoes to distinctly urban staples such as rice and wheat. With rural population barely growing in most countries and urban population growth at very high rates, aggregate per capita consumption of cassava has declined over time. The negative effect of the urbanization variable in the time-series, demand estimates i s thus clearly supported by a fuller understanding of cassava in rural versus urban environments. Nevertheless, total demand for cassava should continue to increase, although at a rate lower than that sugges ted solely by growth in population and income. Disaggregating the growth components in total demand, as is done for Colombia in Table 12, clearly shows the importance of the consumption weights on growth in total demand. More importantly, however, though total demand may be growing at a modest rate, the data would suggest that demand for marketable surpluses is growing at a very rapid rate indeed. As cassava consumption shifts from principally a subsistence orientation to one based on purchased roots, the implication is that market demand is growing very rapidly indeed. Thus, aggregate trends in cassava consumption can significantly mask the dynamics of actual cassava markets. However, because of the nature of the crop~ there is little available data on marketed surpluses, and therefore little scope for rigorous price analysis in fresh-cassava markets. The consumption of fresh cassava in Latin America is in transition. Because of rapid urbanization, the locus of consumption is shifting from rural areas where per capita consumption levels are high to urban areas where per capita consumption is relatively low. Cassava in most Latín American countries is thus shifting from being a starchy staple to being more of a vegetable crop, that is with significant elasticity in demand. Table 11. Marketing margins for fresh cassava and rice in principal countries of Latin America. Fresh cassava Rice Country Retail Marketing Margin as % Retail Marketing Margin as % and region price a retail price price a retail price margin margin (currency/kg)(currency/kg) ( %) (currency/kg)(currency/kg) ( %) Brazil (1983) Pernambuco 125.2 110.9 89 326.5 146.5 45 Rio de Janeiro 163.2 143.4 88 353.7 176.7 50 Sao Paulo 175.0 161.3 92 319.5 131.5 41 Rio Grande do Sul 112.7 89.1 79 320.2 167.2 52 Paraguay (1983) Country average 28.0 18.0 64 143.0 60.0 42 N o Venezuela (1983) Caracas 3 .6 2 . 1 59 5.0 2 . 6 51 Panama (1983) Country average 0.31 0.23 75 o. 71 0.35 50 Dominican Republic (1984) Country average 0.50 0.30 61 0 . 91 0.24 27 Jamaica (1986) 2 .84b Country average 1.89 0.93 49 0.88 31 Colombia (1981) Bogota 24.9 19. 2 77 40.2 18 . 8 47 a. Marketing margin is the difference between the farm-level and retail price . b. Maize instead of rice. SOURCE: CIAT data files. 21 Table 12. Disaggregation of demand parameters for fresh cassava in rural and urban areas of Colombia, 1981. Parameter Rural Urban Population growth - 0.1 3.7 I ncome elasticity 0.28 0.38 Per capita income growth 2.5 1.4 Demand growth 0.6 4. 2 Weighted average a 0. 51 (O. 6) + .49 ( 4. 2) = a. Distribution of total consumption between rural and urban areas in 1981. 2. 4 22 Thus, while aggregate trends are downward, markets for fresh cassava tend to be quite dynamic. However, this conclusion is seemingly contradicted by the decline in urban, per capita consumption levels that have apparently occurred in Colombia, in southeastern Brazil and in coastal Peru. To evaluate this the discussion turns to the last factor influencing cassava demand, the price of substitutes. Cassava and the Political Economy of the Urban Staple Urban food prices entered the Latin American political arena during the rapid urbanization and industrialization process of the post-war period. Urban poverty and malnutrition, the felt need to control upward pressure on urban wages, and the politics of managing inflation, all induced most Latin American governments to implement controls on prices of major urban staples. These controls focused on grains, especially those where imports could be used as a means of either controlling prices or reducing subsidy costs, that is where domestic production was also supported. Maize in Mexico and wheat and rice in other Latin American countries were the principal markets in which governments intervened. In general, mechanisms were developed to support domestic producers of these grains. Policies, however, were not implemented for domestic producers of carbohydrate substitutes, especially cassava. Because of the significant cross-price elasticities between cassava and prices of major grains, the interventions in grain markets can have a significant impact on cassava consumption. Retail price trends in Latin American countries bare out this scenario. In virtually all Latin American countries over the past decade and a half, the real price of fresh cassava at the retail level has been rising (Table 13). This rising trend at least partially supports the relatively dynamic nature of cassava markets, resulting in some upward pressure on cassava prices. On the other hand, prices of competing grains have been falling. In some cases for rice, such as in Colombia, this has been due to the introduction of new technology. However, in the majority of cases the principal cause has been price policy, aided in the case of wheat by a falling international price and a tendency to overvalue exchange rates. However, because governments intervene in wheat markets and because subsidies are utilized in wheat in a large number of countries, declining international prices aided governments in effecting policies but were not the principal cause of declining domestic prices Prices of both cassava and substitutes have played a dominant role in cassava consumption trends. This is clearly shown in both the time-series and cross-sectional demand estimates. Moreover, the effect of prices is clearly portrayed when consumption estimates over time are matched with changes in relative prices. In the case of Cali, Colombia (Table 14) per capita consumption has declined as a result of changing relative prices of cassava and rice. The most dramatic case, however, is that of farinha in Brazil (Table 15). Not surprisingly, farinha consumption has declined as relative prices with wheat flour went from 0.6 to 3.0. While farinha consumption halved, wheat consumption doubled; principally motivated by a massive subsidy on wheat consumption. 23 Table 13. Annual percentage change in retail prices (in constant prices) of fresh cassava, wheat flour, and rice in Latin America. Fresh Wheat Country cassava flour Rice (%) (%) (%) Colombia (1960-84) 1.7 - 3.0 - 3.4 Venezuela (1965-84) 3.8 3.0 - 0.5 Peru (1966-83) 0.2 - 0.8 - 1.5 Paraguay (1968-83) 1.4 - 2.1 - 1.2 Ecuador (1970-84) 2.5 - 0.4 - 0. 2 Brazil (1969-85) - 0.2 - 1.6 - 0.1 SOURCE: CIAT data files. 24 Table 14. Changes in real retail price and average per capita consumption in Cali, Colombia, 1970-1982. Commodity Change in price Change in consumption 1970-82 1970-82 (%) (%) Chicken - 12 267 Wheat - 10 109 Patato 3 104 Beans 25 16 Rice 36 13 Beef 54 o Por k 93 - 51 Maize 162 - 61 Cassava 191 - 53 SOURCE: Pachico, et al. 1983 25 Table 15. Relationship between farinha de mandioca and wheat f lour prices and consumption in Brazil, 1960-80. Variable 1960 1970 1980 Farinha consumption 26.3 23.5 12.0 (kg/capita) Wheat consumption 26.2 25.2 45.5 (kg/capita) Farinha/wheat consumption 1.00 0.93 0.26 Farinha/wheat prices 0.61 0.64 2.95 26 Cassava is virtually invisible to policy-makers; little data or market analyses exist for the crop. Cassava is outside the control of government marketing agencies and cassava producers can muster no political voice to defend their interests. If no one yells, nothing must be wrong. Either cassava must be brought into the political arena or the crop will slowly disappear from the food basket in tropical Latin America. This conclusion, however, is not a plea for subsidies or an admission that cassava cannot compete in rapidly expanding markets for carbohydrates. The irony is that the decline in cassava is being attributed to a lack of effective demand, when that lack is due to discriminatory policies rather than consumer choice. There is rather a need for consistency in the setting of price policies, which implies that cassava should be brought into the agricultural political economy of Latin America. 27 References Casas Moya, P. Lizardo de las. 1977. A theorectical and applied approach towards the formulation of alternative agricultura! policies in support of the Peruvian agricultura! planning process. Ph.D. dissertation, Iowa State University. (unpublished). FAO (Food and Agriculture Organization). 1984. Food balance sheets, 1979-81 Average, FAO, Rome. Fundacao Instituto Brasilero de Geographia e Estadistica. 1978. Estudo nacional da despesa familiar. IBGE, Rio de Janeiro. Janssen, Willem. 1986. Market impact on cassava's development potential in the Atlantic Coast region of Colombia. Ph.D. diss. Agricultura! University of Wageningen. (unpublished). Janssen, Willem and Wheatley, Christopher. 1985. Urban cassava: the impact of fresh root storage. Food Policy. 10:265-277. Lancaster, P. A.; Ingram, J. S.; Lim, M. Y.; and Coursey, D.G. 1982. Traditional cassava-based foods: survey of processing techniques, Econ. Bot. 36:12-45. • Lathrap, D. w. 1973. The antiquity and importance of long distance trade relationships in the moist tropics of Pre-Colombian South America. World Archaeology 5:170-86. Lynam, John and Pachico, Douglas. 1982. Cassava in Latin America: current status and future prospects. CIAT, Cali, Colombia. (mimeograph). Musgrove, Philip. 1985. Household food consumption in the Dominican Republic. Econ. Devel. Cult. Change 34. Pachico, D.; de Londoño, N.; and Duque, M. 1983. Economic factors, food consumption patterns, and nutrition in Cali, 1982. CIAT, Cali, Colombia. (mimeograph). Renvoize, B.S. 1972. The area of origin of Manihot esculenta as a crop Plant -- a review of the evidence. Econ. Bot. 26:352-360. Sanint, Luis. 1986. Colombia: potential demand for cassava. CIAT, Cali, Colombia. (mimeograph). Sanint, L. R.; Rivas, L.; Seré, C.; and Duque, M. 1985. Análisis de los patrones de consumo de alimentos en Colombia a partir de la encuesta de hogares DANE/DRI de 1981. Revista Planeacion y Desarrollo 17:39-68. 28 Schwerin, K. H. 1971. The bitter and the sweet: sorne implications of techniques for preparing manioc. Annual meeting of the American anthropological association, New York, NY. Spath, Carl. 1973. Plant domestication: the case of Manihot esculenta. Journal of the Steward Anthropological Society 5:45-67. THE MEAT OF THE MATTER : CASSAVA POTENTIAL AS A FEED SOURCE IN TROP ICAL LATI N AME RICA THE MEAT OF THE ~~TTER: CASSAVA'S POTENTIAL AS A FEED SOURCE IN TROPICAL LATIN AMERICA Meat as a Wage Good? The Legacy of a Land Surplus Economy 1 A Chicken in Every Pot: The Poultry Revolution in Latín America 7 The Intensive Versus the Extensive Frontier 20 The Grain Divide: The Choice of Carbohydrate Source in Feed Demand The Cassava Option in Meeting Feed Demand The Development Potential of Cassava in Latin America Conclusions References 28 36 so 53 56 THE MEAT OF THE 1-':ATTER: CASSAVA' S POTENTIAL AS A FEED SOURCE IN TROPICAL T ... ATIN AMERICA Latin American economies have gone through a period of profound structural change in the postwar period, accompanied by a number of adjustment problems, as reflected in strains on urban services, high inflation rates, ~alnutrition among a significant portian of the urban population, a rising external debt, and high rates of unemployment. Virtually all of these adjustment problems have antecedents in, or implications for, the agricultural sector--a fact which has motivated heavy policy intervention in this s ector. The focus of these interventions was the grain and livestock sector, as governments strived to balance policies focused on low urban food prices with the maintenance of incentives to domestic farmers. The following discussion will review the interaction between changing demand conditions, policy interventions, and production response for meat and grains. This will then provide the context for an evaluation of the opportunities for cassava to play a more fundamental role in this sector. The arguments cover a wide terrain and are schematically presented in Figure l. Meat as a Wage Good? The Legacy of a Land Surplus Economy The structure of agricultura! output in T,atin America is heavily weighted towards livestock products, especially if compared with either Africa or Asia (Table 1). T ... ivestock production is larger in value terms than the combined production of cereals and other starchy staples. In the livestock sector beef cattle form the largest component and in turn command significant land resources. In particular, permanent pastures in T ... atin America cover three times more area than the land devoted to annual and permanent crops (FAO, 1985). There are historical, structural, and economic reasons for the preeminent role that cattle play in the Latin American agricultural economy. Moreover, this importance in the agricultural sector is translated into a dominant role for beef in food consumption patterns. Cattle were one of the more important plant or animal introductions into Latin America by the early Spanish, and it was Christopher Columbus who made the first introduction into the continent by landing cattle on both Cuba and Hispaniola (Rouse, 1973). In the development of the "encomienda" system in 16th century Spanish America, Keith (1980) points out that "stock raising was generally the first economic activity ••• which was taken up by the encomenderos. [However,], stock raising remained the primary sector of the colonial economy only where geography or the absence of nearby markets left no alterna ti ve. Elsewhere it was usually one element in a mixed agrarian system, an element which was valued less for the size of the profits derived from it than from their security." Stock raising in this period was in many ways a subsistence enterpris~ adapted to a land surplus agricultura! economy. Markets, however, were needed for cattle to achieve economic significance, and in many areas cattle were valued only for the hides. Nevertheless, the 16th and 17th centuries did provide the structural features on which the future development of the livestock industry would be Meat sector Demand \ r - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -~ : Equilibrium price : 1 /f\ 1 1 1 1 1 1 Extensive Intensive 1 1 pasture- .., Feed grain- : 1 based ..., Supply ' based 1 1 supply sapply 1 1 1 1 1 1 --~ 1 L-------------------~------------~-------~ / ¡------- - .L- - - - - - - - - - - - - - - - - - -1 1 ¡¿ 1 Cassava as a policy option 1 1 1 1 1 Feed grain Jiubstitut-ion_...., Food grain 1 1 demand f" "' demand 1 1 1 1 1 1 Equilibrium price 1 ~----------------------------- Cereal production Cereal imports Grain sector Figure l. Schematic of the analysis of cassava within the Latin American grain- livestock sector. ~-----'\ . ' ; : Policy area ·-. - • -- J Table l. Structure of agricultural output by region, 1976-80 . Other Other Region Cereals staples TJivestock foods Nonfoods (%) (%) (%) (% ) (% ) tatin Ame rica 17 9 33 31 11 South Asia 45 9 13 27 7 Southeast Asia 44 10 12 26 8 Africa 17 27 18 25 14 SOURCE: World Bank . 1982. based, that is, the hacienda which developed as a response to limited markets. As Grindle (1986) summarizes the point, the "hacendados" "often acquired land in order to limit production of commodities where pricP.s might decline as a result of increased output, and to limit competition from other haciendas or from the Indian cotmnunities. Most centrally , monopoly over land made available a surplus labor force that served to subsidize low levels of production in a contex t of generally low prices for agricultura! commodities." The resultant, skewed farrn size distribution would be the key to the future expansion of the livestock industry, when rnarkets became established. The market stimulus for livestock production carne in the 18th century r . dth the rise of the sugar plantation. Cattle were needed not only for draft power in field transport and to run the sugar mills but also as a food source. In many of the large sugarcane-growing areas such as northeast Brazil, Cuba, and the Colombian coast, the development of the sugar plantation coincided with the rise of large stock raising en terprises. The greater requirements for draft power in turn led to the importation into Cuba in the 19th century of zebu cattle from India, which in turn provided the basis for shipments to Colombia and Brazil. The zebu stock would eventually supplant the original "criollo" cattle in much of lowland, tropical Latin Ame rica, and be come the future basis for mea t production. Low-cost beef production required extensive amounts of land with a low opportunity cost. In Latin America this was provided by the abundant land available, which was in turn accentuated by the farro size distribution. Profitable beef production, however, required markets and these would have to wait, except for the export industry in the Southern Cone, for the rise of towns and majar urban areas. Beef was not a majar consumption item in rural areas. Most of the rural population lived on small-scale farms and depended on starchy staples. Because of the lack of storage or refrigeration, apart from the dried beef of northeast Brazil, swine and poultry were a more appropriate meat source for farm families. A minimal population density was necessary to make possible beef consumption on a regular basis. This feature of beef consumption is reflected in current expenditure and consumption patterns for meats (Tables 2 and 3). Expenditure on, and consumption cf, beef is almost universally lower in rural areas than in urban areas. In the coastal areas of Ecuador and Colombia where the rural settlement pattern is based on villages, per capita consumption of beef is higher than in other parts of Latín America. In countries such as Brazil, consumption of pork is much higher in rural areas than in urban areas. Overall meat consumption is significantly higher in urban compared to rural areas in Latín America. This is possibly due to the generally higher income levels in urban areas but just as probable are the differences in refrip,eration and meat retailing. In villages of Colombia consumers must wait for the red flag raised in the morning signifying that an animal has been slaughtered. The importance of beef in tropical Latin American economies can thus be seen as a 20th century phenomenon, whose genesis la y in the economic history of the continent. Urbanization of Latin American economies Table 2 . Shares of t he total food budget spent on the principal caloric staple (hi ghest expendit ure) and the major meats, La t in Americn . Caloric staple Country Commodity Share Bee f Por k Chicken (%) (%) (%) (%) Per u (1971 - 72) North coast Cities Wheat 8 . 3 11.2 9 . 1 5 . 1 Towns Wbeat 7 . 8 13.6 9 . 1 3 . 3 Rural Wheat 8.6 7.3 9 . 2 2.2 Central Sierra Cities Wbeat 12.5 12.8 10 . 8 n . a . Towns Wbea t 11.4 3 . 0 9 . 8 n . a . Rural Po tato 20 . 6 3 . 2 7 . 2 n . a. Low Selva Cities Wbeat 10 . 0 9.6 12 . 4 10 . 0 Towns Wbea t 8 . 6 8 . 6 9.0 7.5 Rural Cassava 9.7 1. 4 5.8 6 . 2 Brazil (1975) South Cit ies Wbea t 8.2 17.6 1.2 4 . 8 Towns Wbea t 9 . 7 14.0 2.3 5.3 Rural Rice 9.7 6 . 6 4 . 7 4.8 Sao Paulo Cities Wbeat 7.6 13 . 0 2.1 5 . 1 Towns Rice 9.4 12 . 4 3 . 2 4 . 8 Rural Rice 16 . 7 7 . 2 3 . 8 4.7 Northeast Cities \o.'heat 12 . 7 18 . 8 1.5 6 . 3 Towns \o.'heat 11. 3 19 .1 4 . 0 3 . 8 Rur al Cassava 9.1 17 . 8 7.2 0 . 8 Colombia (1981) Urban Wbeat 5 . 9 17 . 7 1.1 1.6 Rural Rice 7 . 2 14 . 3 0 . 5 0 . 8 Pannma (1980) Urban Rice 9 . 6 21. 0 1.8 11.7a Rural Rice 20 . 0 10 . 6 2 . 2 9.0a a . Includes eggs . SOURCES: Lizardo de las Casas Moya, 1977; Insti t u t o Br asileiro de Geografía e Estatísticas (IBGE), 1977; Sanint et al ., 1985; Franklin et al . , 1984 . Table 3. Per capita consumption of meats disaggregated by region and rural-urban residence, Latin America. Country Peru (1971- 72) North coast Cities Towns Rural Central sierra Cities Towns Rural Low Selva Cities Towns Rural Brazil (1975) South Cities Towns Rural Sao Paulo Cities Towns Rural Northeast Cities Towns Rural 1 Colombia (1981) Atlantic coast Urban Rural Central region Urban Rural Eastern region Urban Rural Beef (kg) 12.8 15.7 6.7 15.7 4.7 2.7 11.0 8.4 0.6 31.1 21.0 7.8 19.0 15.9 8.2 17.9 15 . 4 6.7 46.0 30.0 31.9 30.6 34.9 23.0 Por k (kg) 20.2 20.3 17.3 19.1 18.3 10.4 20.3 11.8 4.8 1.8 3.8 7 . 1 2.9 4.2 4.2 1.6 4 . 5 5.3 1.7 1.5 2.6 1.2 0 . 4 0.2 Chicken (kg) 6.4 3.7 1.9 n.a. n.a. n.a. 6 . 7 3.9 2 . 3 10.8 9.8 10.9 11.0 8.9 7.1 10.5 4.7 3.1 3.0 1.4 2.2 1.1 1.4 1.0 SOURCES: Lizardo de las Casas Moya, 1977; Instituto Brasileiro de Geografía e Estatísticas (IBGE), 1977; Sanint et al., 1985. provided the markets, and the skewed land distribution and historical accumulation of cattle stocks provided, in a sense, a latent capacity for livestock production that awaited only market development. Cheap beef found ready markets in urban Latín America and because of its relative price, it became a major item in the food budget. It is tempting to call it an urban staple, a wage good. Beef is a staple with a significant difference from what that term normally implies. In general, it is the major component in the food budget of urban consumers in Latin America. This gives it an important weight in consumer price indexes and therefore makes it of political interest to governments trying to hold back inflation. The difficulty with beef as a staple, and therefore in a policy context, is that demand for beef is not highly inelastic with respect to either price or income. The point is made in Table 4, which shows beef consumption by in come s trata. Beef is important in the food budget of the poor, but, and the but should be emphasized, caloric staples such as rice in Brazil, Colombia, and the Dominican Republic, wheat in Brazil and Peru, and maize in Mexico are usually as important or more important. On the other hand, beef is far more important in the food budget of the rich. Beef is thus not a classic wage good; any benefits from interventions to control beef prices are directed principally at the higher income strata and moreover, because of the relatively higher price and income elasticity (Rivas, et al., 1986) attempts at controlling prices will either be marginal or extraordinarily expensive. For short-term policy interventions focused on maintaining cheap urban staples, caloric sources have been and will continue to be the appropriate wage goods in a Latin American context. On the other hand, the magnitude of consumer expenditure for beef and consequently the magnitude of the welfar.e gains for the whole society to be accrued through increased beef supplies explains the high priority assigned by governments to policies related to this commodity. Additionally the magnitude of the beef expenditure share of the low income groups implies that the absolute welfare gains of price reductions in this commodity will ceteris paribus be above the ones achievable with alroost any other commodity. Given the difficulties of administering market interventions, policies have increasingly been targeted at influencing the supply side. Here research policies to induce technical change in beef production play a major role. Supply side interventions in beef, especially where the focus is on research, entail significant lags befare there is a production response. The rapid growth in incomes in the 1970's resulted in a major increase in the demand for beef and entailed the search for more short-term solutions to the breech between demand and supply for beef. Rising real prices for beef, however, provided a market stimulus to a search for substitutes. If beef could be substituted for, then there was potential for controlling meat prices. A Chicken in Every Pot: The Poultry Revolution in Latin America The last quarter of a century has witnessed roajor divergences in the demand for and actual consumption of beef (Table 5). Between 1960 and 1985 growth in beef production has slowed down and per capita consumption levels have Table 4. Shares of the food budget spent on the principal caloric staple and beef by income strata, ~atin America . Caloric staple Country Commodity S ha re Beef (%) (%) Peru (1971-72) Lima l .owest decile Wheat 11.2 5.1 Second decile \o.l"heat 10.0 5.3 Third decile Wheat 9 . 6 7.8 Highest dEocile Wheat 10 . 3 15 . 7 Brazil (l975)a Porto Alegre Tjowest strata Wheat 10 .6 14.0 Second strata Wheat 11. 2 13 . 2 Third strata Wheat 1 o. 1 14.5 Highest strata Wheat 4 . 3 16.2 Sao Paulo Tjowest strata Rice 13. 9 8 . 4 Second strata Rice 12 . 6 11.6 Third strata Rice 10 . 7 12.6 Highest strata Wheat 4 . 5 13 . 5 Recife Lowest strata Wheat 15 . 2 13 . 2 Second strata Wheat 14 . 7 14 . 8 Third strata Wheat 15 . 5 15.4 Highest strata Wheat 9 . 3 19.6 Colombia (1981) Urban Lowest quintile Sugar 12 . 0 14.2 Highest quintile Rice 4.2 16.6 Mexico (1977) National Leve! Lowest decile Naize 30.6 4.4 Second decile Maize 24.3 5 . 6 Third decile Maize 19.6 7 . 2 a . Nine s trata are defined. SOURCES: ~izardo de las Casas Moya, 1977; Instituto Brasileiro de Geogr afía e Estatísticas (IBGE), 1977; Sanint, et al. , 1985; Lustig, 19890 . Table 5. Beef and veal: annual gr owth rates of potentia l domestic demand and production by country (average 1970-81), Latín America. Region and country Tropical Latin America Brazil Mexico Bolivia Colombia Ecuador Paraguay Peru Venezuela Cuba Dominican Republic Central America and Panama Costa Rica El Salvador Guatemala Honduras Nicaragua Panama Caribbean Guyana Haiti Jamaica Trinidad and Tobago Annual Demand (% ) 5 . 3 6.1 4.4 4.9 4.9 8.9 4.4 3.0 4.2 4.5 6.0 4.0 4.8 3.9 5.2 3.6 1.6 3.5 3 . 2 1.5 4.5 -0.6 5.1 growth rate Production (%) 2 . 2 1.5 3 .3 4.9 3.5 5.3 -1.1 -1.3 5.4 -2.6 3.4 3.3 6 . 3 3.4 3 . 9 5. 2 -1.1 1.3 2 . 0 -1.1 2 . 7 2 . 0 2.3 SOURCE : Centro Internacional de Agricultura Tropical (CIAT), 1985 . declined in tropical Latin America. Given the respectable growth in per capita income levels, declining per capita availabilities has resulted in a widening divergence between growth in consumption and growth in demand , a situation that puts upward pressure on prices . Beef prices have in general increased, but not enough to explain the dif f erence in demand gr owth (Table 6) • Price increases have occurred in a period when many governments have had a clear policy objective of controlling inflation. In most countries real beef prices have increased but at a lower rate than suggested by demand growth . In sorne cases governments have intervened in the beef market in arder to control variability and increases in beef prices. This intervention is clearest in Brazil, where until 1982 the government bought and stored refrigerated beef . On average, 10% of annual beef production went into government controlled freezer s torage (Rivas et al., 1986), a program which was very costly to operate and which i n the end was counterproductive within the context of beef cycles (Jarvis, 1986). However, a far more dominant influence on beef prices over the past 25 years was the rapid rise in poultry production. Production of chicken mea t has grown at a sustained annual rate of about 9% in tr0pical tatin America over the 1968-84 period. In Brazil, poultry production--or at least, its commercial production- -grew at an annual rate of 26% from 1960 through to 1983. Such growth, even from a relatively small initial level, is rare and reflects the dynamism that can arise when technological change is linked t o an expansive market. As a result, per capita consumption of chicken meat in tropical Latin America increased from 4.8 kg in the 1969- 76 period to 8.2 kg in the 1978-85 period, a level that is now well over half the per capita consumption level of beef (14.0 kg). Chicken meat thus allowed an expansion in total meat consumption, that is, beef, pork, and chicken, increasing its relative share from 18% to 29%. Increasing consumption at such rates was motivated by the declining real price of poultry meat, which in turn was possible because of declining costs due to technical change. Moreover, the price of chicken declined even more rela tive to the reference meat, beef (Table 7). In countries such as Brazil, Colombia, and Peru chicken was more expensiv e than beef in the 1960s and in the early 1970s chicken became cheaper, with the price difference widening through the 1970s and 1980s . In other countries, such as Mexico, Venezuela, Jamaica, and the Dominican Republic beef and chicken were similarly priced in the early 1960s. However, again the tendency was for chicken to become increasingly less expensive relative to beef . Declining prices and increased incomes certainly induced increased consumption levels of chicken. The question, however, is whether changing relative prices caused a substitution of beef by increased chicken consumption. Income growth was not the dominant force influencing consumption trends in meats; rather, prices played a much more significant role. Based on the study by Rivas et al. (1986) the o~vn-price elasticity for beef varies between .05 and .78, with four of the seven countries having a price elasticity below .25 (Table 8). Beef consumption is moderately inelastic with respect to price, a finding that reflects the relatively high consumption levels for the meat. For chicken, on the other hand, the Table 6. Comparison between growth in excess demand and real pricea increases for beef, 1970-81, Latin Arnerica . Production Demand Growth in Growth in Country growth growth excess demand real pr ices (%) (%) U~ ) (%) Brazil 1.5 6 .1 4.6 3.0 Colombia 3.5 4.9 1. 4 - 0.7 Ecuador 5.3 8 . 9 3.6 3 . 0 Paraguay -1.1 4.4 5.5 -0. 4 Peru -1.3 3 . 0 4.3 3.1 Venezuela 5.4 4.2 -1. 2 6.7b Dominican Republic 3.4 6.0 2 . 6 -1.1 Pan ama 1.3 3.5 2.2 2 . 7 a . Retail prices. b. 1974-84. SOURCES: Centro ·Internacional de Agricultura Tropical (CIAT) , 1985; national statistical (price) sources. Table 7. Growth rates of retail prices for meats , 1965-84 , Latín Anlerica . Country Beef Chicken (%) (%) Colombia (1960-84) -0. 4 - 3 . 6 Brazil (1960- 82) 2 . 4 - 2 . 7 Ecuador (1970-84) 2 . 7 - 0 . 1 Peru (1966- 83) 2 . 3 - 4 .1 Venezuela (1965-84) 2.2 - 2.4 Panama (1960-84) 1. 7 - 2.1 Dominican Republic ( 1974-84) -1.1 - 2 . 9 SOURCE: Centro Internacional de Agricultura Tropical (CIAT) data files derived f r om national statistical sources. Table 8. Estima tes of demand elasticities for beef and chicken meat, Tjatin Amerlca. Beef Chicken Country Income Own price Cross price In come Own price Cross price Colombia 0.72 - 0.69 0.42 0.88 - 0.46 0 . 61 Peru 0.85 - 0.42 0.40 0.75 - 1.19 0 . 66 Venezuela 0.37 - o.osa - 0.33 1.09 - o. 92 0.44 Brazil 0.32 - 0.23 0.50 1.69 - 1.26 0 . 038 Mexico 0.37 - 0.78 0.74 0.74 - 0.62 0.22 Dominican Rep. o. 77 - O .14 a - 1.12 o.ooa -0.12 0.198 Jamaica 0.67 - 0.12a -0.20a 0.80 -l. 72 l. 27 a. The estimate i s not significant at the 10% probability level. SOURCES: Rivas et al., 1986. own-price elasticity varíes from .12 to 1.72 but with the elasticity being greater then .90 in four of the countries. Consumption of chicken rneat is thus very responsive to price changes, a fact reflected in the declining price trends and the high growth rates in per capita consumption . Fowever, what is particularly salient is that the cross-price elasticity, measuring the substitution of beef by chicken, is either similar to or in the crse of Brazil, significantly larger than the own-price elélsticity for beef • In general, a change in the chicken price will have as much influence on beef consumption as an equivalent change in the beef price itself. These cross-price elasticities vary between • 4 and • 7 4. Then considering the very significant rates of decline in chicken prices, the substitution effect played a significant role in holding down beef prices--this is clearest in Brazil (Table 9). During the seventies the major effect on demand carne from price changes (both own-price and substitution effects). Given the fact that relative prices have tended to stabilize in . the 1980's, the importance of incomes as determinants of the demand for individual meats will increase in the coming years. Consumer budget surveys from Peru and, especially, Erazil give a more detailed look at changes in meat consumption. What is apparent in majar metropolitan areas of Brazil between 1960 and 1975 is the declining consumption of beef and the rising consumption of poultry. Conscmption of chicken meat increased across all income strata, while that of beef tended to d~cline across all income strata (Figures 2 and 3). These trends again support the dominance of the price effect over the significant growth in income during the period. The most significant substitution of chicken for beef was among the lower income strata. Chicken was rarely ea ten by the urban poor in the 1960s . By 1975 chicken was virtually on a par with beef, as the principal meat eaten by the lower income strata. As significant, however, was the decline of the total consumption of meat by the poor over the same period in northeast Brazil . Vergolino (1980) presents data for Recife to show the consistency of this trend (Table 10). Rising beef prices were squeezing the meat consumption of the poor, even though there was a significant switch to chicken. Finally, the data for Peru (Table 11), suggest how rapidly substitucion can take place when the change in relative prices is so marked. The rapid increase in the proportion of chicken in total meat consumption in tropical Latin America waR due to both a majar restructuring l. In Jamaica, Venezuela, and the Dominican Republic the cross- price elasticity was either not significant from zero or negative, the latter indicating complementarity, which is nevertheless doubtful. The cross-price elasticity of chicken consumption with respect to beef prices was in all cases positive. Such nonsymmetry in sign is not possible. In all, these countries the own-price elasticity for beef is not significant from zero and moreover, chicken is a large consumption item, with per capita consumption levels being higher than beef in Jamaica and the Dominican Republic. Under such circumstances the structural model was not able to distinguish between the effect of the two prices on meat consumption. Table 9. Disaggregation of factors influencing the growth in beef demand , 1960-82, Brazil. Demand cornponent 1960-67 1968-75 1976-82 Average (%) (%) (i.) (%) Actual per capita consumption -1.2 1. 3 - 2 . 8 0 . 3 lncome effect (= .32) 0.8 2 . 7 0.8 2 . 0 Growth in excess demand 2.0 1.4 3.6 1. 7 lmplied price change (= -. 23) 8.7 6.1 15.7 7.4 Actual change in beef price 2 .9 8 . 2 3.3 2.4 Actual change in poultry price - 2.3 - 0 .6 -6.3 - 2.7 88~----------------------------- 78 68 rumptian 58 p.:r C-'P·) 48 a2ti ... .: pric.:: !lliD 1.51 !115 0.58 38 28 18 8 IIBeef 111 Chicken liD 15 liD 15 liD 15 liD 15 liD 15 6D 15 &O 15 liD 15 liD 15 liD 15 1 11 111 IV V VI VIl VIII IX AVG gure 2. Coinparison o-F consui'Qption o-f bee-f and chicken by incoPle stra ta .. 1960 and 197S .. Reci-fe .. Brazil. 1•18 ,.------------------, •188 98 88 78 [anrumptian 68 ( k!J p~:r r:.:~p.) 58 48 38 28 18 R~:laJti•JI: pric1:: 191iD 1.31i 1915 D.liB 8 IIJ [hick.:n ID B~:~:f liD 15 liD 15 liD 15 &O 15 &O 15 50 15 &D 15 liD 15 &O 15 liD 15 1 11 111 IV V VI VIl VIII IX A VG g:ure 3. CoPlparison o-f consulllption o-f bee-f and chicken by incollle stra ta .. 1960 and 1975 .. Sao Paulo .. Bra;zil. Table 10 . Trends in annual per capita consumption of beef and poultry in Recife, Brazil . Year of Average consumEtion T..ow in come strata a consumer Beef Poultry Beef Poultry survey (kg) (kg) (kg) (kg) 1961-62 31. 6 1. 3 n.a . n . a . 1967- 69 28 . 4 5.2 14 . 5 0 .5 1973 23 . 0 13.0 8 . 9 3.7 1975 17 . 9 10.5 4 . 4 2.5 a . Families with income less than one minimum salary SOURCE : Vergolino , 1980 . Table 11. Consumption changes for beef and poultry by income strata in Lima, 1972-1979, Peru. Consumption per family Real prices Low income strata Medium income strata (1973 = 100) Year Beef Poultry Beef Poultry Beef Poultry (g/day) (g/day) (g/day) (g/day) (Sols/kg) (Sols/kg) 1972 136 126 241 177 44.9 75.7 1976 56 318 75 425 65.3 45.9 1979 29 210 90 290 50.5 47.6 SOURCE: Ministerio de Agricultura. 1985. of poul try production and marketing systems and to insufficient supply response by beef producers during a period of rapidly rising demand for meat . Since reuch of the productivity gains in chicken meat production per se (a discussion of feedgrain productivity is left to the next section) have been achieved, an issue is at which level the weight of chicken in total meat consumption will eventually stabilize . This depends critically on what will happen on the supply side, which turns the analysis to a discussion of production. The Intensive Versus the Extensive Frontier Comparatively little meat moves in international trace. Transport costs are such that domes tic production usually has an advantage over imports, even in the case of east Asja where the bulk of the feed ingredients must be imported . If the major portien of increasing demand for meat in Latin America is to be met by domestic production and if the different meats are substitutable to a relevant degree, then the policy question revolves around the production options that can meet the increasing demand for meet . This leads naturally to a consideration of the potential for expanding and/or intensifying beef production systems versus the potential for expanding and/or intensifying swine or poultry production systems . The central question for Latin America is whether these two options are complementary to a relevant degree or whether at sorne point they become competitive. Beef production systems in Latin America are land extensive. Sorne countries, such as those in the Caribbean which do not have the land resources or such as Peru which lacks extensive grasslands, have met rising meat demand by dependence on pork and poultry production. All the other countries of tropical Latin America have extensive grasslands. Growth in beef production in tropical Latin America to date has depended principally on increasing pasture area (Table 12), that is, growth through expanding extensive production systems. Only Brazil and Venezuela have managed e consistent increase in the carrying capacity of its pastures. In these two cases there was a reliance (more so in the case of Venezuela) on natural savanna with a low carrying capacity . Only recently have both countries reached levels similar to other Latin American countries. The potential for meeting the increasing demand for beef purely by horizontal expansion in most countries is limited. During the 1970s and 1980s countries such as the Caribbean countries, Mexico, Ecuador, El Salvador, Guatemala, and Peru reached a situation where any expansion in pasture had to compete with cropland . These countries depended on quite significant rates of growth in poultry production to meet rising meat demand. There is sorne potential to bring additional land under grazing in the rest of Latin America but only in Brazil, Venezuela, and Colombia does the potential exist to meet rising beef demand purely by horizontal expansion . In these countries the issue is more what factors will be responsible for inducing growth, especially when there is continued growth in poultry consumption and when, to a more limited extent, pork i s also an option. Table 12. Changes in cattle stocks, pasture area, and stocking rate in selected producing countries, 1950-1980, tatin America. Pasture area as % of Country and Ce.ttle stock Pasture area Pasture Stocking total farm year cultivated rate are a (thousands of head) (ha in thousands) (%) (head/ha ) Brazil 1950 47,089 107,633 13.9 .44 46 . 4 1960 57,102 122,335 16.4 .47 49.0 1970 78,562 154,139 19.3 . 51 52.4 1975 101,674 165,652 24 . 0 .61 51.1 1980 118 J 086 174,500 34 .7 . 68 47.8 Venezuela 1950 5 ,769 13,501 12.1 .43 61.0 1961 6,519 16,608 16.6 . 39 63 . 9 1971 8,678 16,080 31.8 . 52 60.7 1980 10,791 17,471 32.4 .62 n .a. Panama 1950 570 552 77 . 4 1.03 47 . 6 1961 763 818 83 . 5 . 93 45 . 3 1971 1,260 1. 141 84 .6 1.10 46 .0 1980 1,345 1 , 296 78.4 1.04 57.4 Costa Rica 1950 608 617 40 . 0 .98 34 . 5 1963 1,051 937 42 . 7 1.12 35 . 1 1974 1,694 1,558 47 . 0 1.09 49 . 9 Colombia 1960 14,781 14,606 n . a . .66 53.6 1971 19,808 17,930 n.a . .70 57 .1 SOURCES: Agricultura! censuses for the various countries; data for Colombia is from Hertford and Nores (1982) . Technical change in beef production systems is critica! to determining the future share that beef will have in overall meat consumption in tropical Latín Ame rica. This is a particularly complex issue on which volumes have been written, but what is relevant in the current context is sorne speculation about the overall determinants that will induce increased productivity in beef production systems and a delineation of the policy choices. Two principal points dominate in such an analysis . First, technological change within beef production systems usually requires an interacting complex of changes within the overall production system. Technical change in tropical beef systems must also anticípate both an adoption sequence within an overall technological package and significant interactions between management and the return on the invest~ent required in applying the technology. Second, tropical beef systems, while implying a significant capital investment, are nevertheless low-input, low-productivity systems. Capital is the constraining factor in the system. Investment in new technology will usually be recouped by a future stream of benefits 2nd therefore will, in general, depend on an improved, initial cash flow . Incorporation of a cropping component or milking can be a critica! element in developing the cash flow that will sustain the investment program . However, again this implies a significant increase in management resources devoted to the overall enterprise. Empirica.l evidence from the Colombian llanos shows that even without crops or milk production, pasture technology can be profitably adopted. While return to management is low in traditional livestock systems based on extensive pastures, these returns increase with the incorporation of new technology, in many cases inducing the hiring of more management resources. These issues can be e;~tended to a rnacro-scale by analyzing the case of Brazil. What is found in Brazil is a significant structural change in the location of beef production. There has been a basic shift in beef production out of the south and southeast and into the central west and, to a lesser extent, the north (Table 13). Cattle herds in the northeast increased at about the same rate as the overall rate in Brazil as a whole. There are two elements to this process. First, in the period there was a dynamic increase in crop area in the south and southeast, especially soybeans and wheat in the south and sugarcane, citrus, and soybeans in the southeast. This put a brake on the expansion in pasture area in the two regions . NP.ither increasing productivity nor rising beef prices were sufficient to motivate a significant production response in that region. This, in turn, opened a window for the expansion of beef systems into the cerrados of the central west. This expansion, however, depended on the sowing of pasture, given the low carrying capacity (0.2 animal units per hectare) of the natural savannas . The whole expansion in pastures in the central west depended on increases in the area in planted pastures -- the area in natural savanna utilized for pasture actually declined slightly in the 1970-80 period. The area planted to pastures in the central west increased from 9.1 million hectares in 1970 to 24.6 million hectares in 1980; at the same time the area planted to crops increased from 2 .3 to 6.1 million hectares. The ratio between crop area and planted pasture in the two periods remained absolutely constant at 25h . This expansion in crop area was supported by the very significant credit and transport subsidies given to first rice and then maize production in this region. Crop Table 13. Changes in the dis tribution of cattle and pas ture s by major regions , 1970-80 , Brazil. Cattle Pasture area Year and Dual region Beef Mil k purpose Total Total Cultivated (thousands ( thousands ( t housands ( thousands (thousands of head) of head) of head) of head) of ha) (%) North 1970 1, 346 131 206 1, 706 4,428 14.4 1975 1, 684 142 299 2 ,130 5,281 29 .8 1980 3,555 307 123 3,989 7 , 722 48 . 8 Northeast 1970 7,328 3 , 701 2 , 466 13,806 27,875 20 . 6 1975 11,307 3 ,507 3 ,01 2 18 , 04 1 30,624 22 . 3 1980 15,572 4,283 1, 502 21 ,506 34 , 159 30 . 3 Southeast 1970 10,431 13, 148 2 , 995 26,845 44,739 23 .8 1975 17,803 11, 749 5 , 540 35,237 4 7 , 277 24.4 1980 20 , 199 11,633 2 , 949 34,835 43,639 37 .1 South 1970 11,694 5,506 1,545 18,953 21,613 16 .8 1975 14,499 3 , 935 2,483 21 , 516 21,160 21.0 1980 18,721 4,710 909 24 , 495 21,313 26 . 4 Central west 1970 12,699 2, 726 1, 774 17,252 55,483 16.4 1975 20,446 1,622 2,669 24 , 750 61,310 24 . 9 1980 29 , 258 2, 82 1 1,178 33 , 261 67,666 36 .5 Total 1970 43 , 498 25,213 8 , 986 78,562 154,139 19. 3 1975 65,739 20,956 14, 003 101 , 674 165 , 652 24.0 1980 87,306 23 , 754 6,661 118,086 174 , 500 34 . 7 Stocking rate (head/ha) . 39 . 40 .52 . 50 . 59 .63 . 60 .75 .80 . 88 1.02 1.15 . 31 . 37 . 49 .51 . 61 . 68 SOURCES: Ins t ituto Brasileiro de Geografía e Estatísticas (IBGE) , 1974, 1979, and 1984 . production during the period was a component of beef systems in the cerrados (Vera and Sere, 1985) and supported the sowing of pastures . Thus, a dynamic crop sector in traditional production zones and policy support (through crop subsidies) to pasture establishment in the cerrados, resulted in an overall shift in the locus of beef production to the central west . The other factor influencing the rate of growth in beef production in the "frontier" is the structure of the expansion process itself. This growth process is portrayed in Table 14 and supports the dominance of capital rather than labor inflows as the engine of growth in the central west region. In the 1970-80 period the number of cattle farms of less t han 100 ha . barely increased (7.3% increase for the whole period) while cattle farms larger then 100 ha. increased from 70.4 thousand farms to 91 . 4 thousand farms 1974 and (IBGE, 1984). While proportionately this represented a 30% increase, an annual net increase of 2 thousand farms in this region is miniscule in relation to overall migration rates in Brazil, emphasizing the role of capital as the key to the rate of expansion in pasture and beef production in the frontier. That is, to make the move to the central west profitable, average farm- size has to be large and since the profitability of the enterprise depends on planted pastures, tractors must be added to the investment in stock. Maintaining an adequate rate of growth in planted pasture is key t o basing future beef supply in Brazil on the cerrados . In having to base this expansion on larger farms, the structure of the process has sacrificed sorne efficiency gains in the utilization of those pastures, as seen in the declining stocking rate in the range of farms from 100 to 5000 hectares, even though the percentage of planted pasture remains constant . In summary, the key to understanding the future rate of pasture establishment (and thus future growth in beef production) is the effects of changes in crop policy in Brazil on these systems and the availability of more productive pasture s pecies leading to enhanced profitahility . The case of Brazil brings into sharper focus the determinants of growth in beef production in the other two countries with major areas in underexploited, natural savanna, that is Colombia and Venezuela. Much like Brazil both Venezuela and Colombia have as well reached the demographic transition point, where the rural population starts to decline absolutely. The rate of expansion in beef production in the llanos areas of these two countries will as well depend on intensification of beef production sys tems through policies affecting capital investment rather than labor migration into the region. As in Brazil, intensification of the " frontier " of Colombia and Venezuela will depend in part on the crop-livestock competition in the longer-settled agricultural regions and in part on crop, input and transport pricing policies. In Venezuela in the 1980's significant subsidies on fertilizer and transport and relatively high support prices for grains have provided the potential for introducing a crop component into livestock sys tems in the llanos, where f ew existed before (Vera and Sere, 1985). However, data do not yet exist to evaluate the effect of these policies on pasture establishment i n the llanos . In Colombia the expansion of rice into the better soils of the Piedmont area has led to a major increase in planted pastures. However, little crop technology yet exis t s for the llanos proper and there has been no major Table 14. Brazil: Distribution of pasture area and cattle stock1by farm sizP. and selected productivity measures in the Center-West , 1980. Farro Size Pasture % Pasture i. Increase Cattle Stocking S trata Are a Cultivated Pas ture Area Stock Rate 1970-1 980 (ha) (1000 ha) ( i. ) (%) (1000 head) (head / ha) Less than 50 924 48 . 9 4.3 1,128 . 1. 22 50-100 1,479 44.5 10.3 1,349 .91 100-200 2,990 41.3 19.6 2,140 .72 200-500 7,182 41.5 17.8 4,785 .67 500-1000 7 , 342 42.8 25 . 0 4,324 . 59 1000-2000 8,697 43.5 33.7 4,755 . SS 2000-5000 12,363 41.5 29.5 5,827 .47 5000-10,000 8,131 34.6 19.4 3,190 . 39 10,000-100,000 15,055 25 . 9 5 . 9 5,028 .33 More than 100,000 3,373 15.0 123 . 0 542 .16 Total 67,537 36 .4 22 . 0 33,195 .49 1 Includes Goias, Mato Grosso and Mato Grosso do Sul. SOURCE: IBGE(1984). growth in crop production in the traditional beef production area of the Atlantic Coast. The rate of expansion in beef production in the Colombian llanos will depend on establishing new pastures without a crop component and on the relative profitability of beef production between the Atlantic Coast and the llanos proper . Outside these three countries crops and/or milking are becoming a more integrated feature of beef production systems as market pressures, a more manageable farm size, and the complementarities be t ween crop production and pasture establishment contribute to increased productivity. However, this expansion in feed grain and, to a certain extent, oilseed production is a response to the even faster development of the "intensive frontier" in the tropical Latin American meat sector. Expansion of the intensive frontier is well represented by the evolution of the poultry industry in tropical Latín Ame rica and the swine sector in southern Brazil, Venezuela, and parts of Mexico and Paraguay. In fact, the poultry revol ution in Latin America, as in Asia, represents not so much an intensification of current production systems as a complete restructuring of the sector. The ímpetus was the rising demand for meat, aided by rising beef prices and urbanization. Whereas traditional production was oriented to rural consumption, the rise of large-scale broiler operations, often vertically linked to feed concentrate manufacturers, was oriented to the development of urban markets. Marketing of chicken followed the development of supermarkets as a major form of food retailing and the rise of "fast food" chicken restaurants . The whole poultry sector was transformed fro~ retailing, through production and provision of feed sources . This restructuring allowed for significant gains through economies of scale at all levels . Economies of scale were probably even more important in the decline of poultry prices than was technical change, which is not to diminish the role played by new technology . Balanced feed technology together with new breeds, often introduced from the United States, resulted in a significant decline in the amount of feed needed to produce a kilogram of meat. Mortality measures were reduced by antibiotics, the time-to-slaughter weight declined, and slaughtering technolop,y allowed factory-scale operations. The impact was a significant reduction in per unit costs and just as importantly an ability to adjust production levels very quickly to changes in profitability, whether due to output or feed price changes. For those governments concerned about the inflationary impact of meat prices, the poultry industry allowed much more control over market prices . As the weight of chicken meat increased in the consumers' budget, in some cases to a parity with beef, the supply responsiveness and weight in the consumer budget drew meat sector policies toward the poultry industry . Feed is the cominate cost in the production of poultry meat, making up to 80% of the total (Table 15) . It is this switch from land devoted to pasture to land planted to feed crops that forms the basis of the development of the intensive frontier . The feed concentrate industry has in most instances been the lead sector in the development of the poultry industry . It is the growth node, with forward linkages to poultry producers and backward linkages to feed grain producers . The dynamism of the balanced feed industry establishes the limits on poultry expans ion and establishes the market growth for feed ingredients. This industry has been Table 15. Cost distribution (as a percent of total production costs) in the production of broilers, Peru and Brazil.a Cost component Feed Day-old chicks Vaccine Lit ter Disinfectant Water Labor Other Total (%) (Cost/kg) Minas Gerais , Brazil May 1978 (%) 65.6 19.5 0.5 0.2 0.8 0.9 3.8 8.7 100.0 Cr$12.07 Lima, Peru May 1986 (~;) 77.6 15.6 1.5 0.7 0.4 2.2 0.9 1.1 100 .0 Intis 12.94 a. Costs for Brazil are based on a lot size of 5000 birds; that for Peru is based on a lot size of 100,000 birds. SOURCES : Informe Agropecuario, 1978; Malarin, 1986 . dynamic indeed, with annual growth rates in almost all countries of well over 10% (Table 16). The majar portian of feeds are directed to poultry but swine feeds forro a significant compónent in countries such as Mexico and Venezuela. There has been little difficulty in drawing investment resources into the industry at rates sufficient to maintain growth rates. To date only government interventions have limited growth in the concentrate industry. Examples are the price controls on eggs and poultry meat in Mexico and Peru, often creating a cost-price squeeze, and the controls on imports of feed ingredients in Colombia and to a certe.in extent, Ecuador. On the other hand, feedgrain pricing policy has in sorne cases favored the poultry industry. TJow feedgrain prices have been a consistent policy in Mexico and Venezuela, a tapie taken up in the next section . The expanding concentrate industry precipitated a rapid rise in the demand for feed cornponents, especially carbohydrate sources . This resulted in significant demand-led growth in the feed grain sector . In sorne countries, feed grain demand was met by the expansion of an already existing maize production base; in other countries sorghum e xpanded rapidly as a new crop. In no tropical Latin American country, except for Paraguay, was the expansion in production always able to meet the increases in demand . All these countries turned to imports of feed grains, with import volumes growing rapidly in all but a few cases. At this point the analysis turns to a closer evaluation of the determinants of the supply of carbohydrate components for animal feeds. The Grain Divide : The Choice of Carbohydrate Source in Feed Demand A rapidly expanding feed concentrate industry, led by the increasing demand for animal products, can create either a very dynamic domestic grain s ector, ris ing real prices of grains or increasing grain imrorts. A dynamic grain sector creates obvious positive benefits but rising gr a in prices or imports can raise significant policy problems. Increasing demand for maize as a feed source, particularly, has significant implications for countries i n Latín America where maize is a primary food source and which often intervene in maize markets to keep coT'!"t;l¡ter pJ.·i :es low to poorer segments of the population. Yotopopoulos (1983) argues that the rising income of the middle income classes leads to rising demand for incmr.e elastic foods, particularly meat, which in turn can bid grain prices up; the latter obviously can have a negative effect on the nutrition of the poor, who depend on such gra ins as a primary calorie s ource in their diet. However, in Latin America governments have t aken steps t o minimize th i s competition, enhancing natural segmentation in grain markets bas ed on price and quality factors. Grains are substituta ble, one f or each other, i n balanced feed r a t i ons --factors such a s carotene, t annins , and amino acid content do result in price differentials but do not hinder substitution--but not in the human diet . Suhstitution between rice, wheat, and maize does occur but to a more limited degree . Sorghum is not seen as a food except in very small, rural areas of Centra l America and Haiti. What is also clear i n Latin America is that food u s es will alway s draw grai ns away from feed uses, not vice versa. Rice is rarely u sed in animal feeds and wheat only slightly less often in Latín Ame r i ca, principally because the nutrient content i s too expensive Table 16. Characterization of the mixed feed industry, Latín America. 1984 1970-84 Country production Poultry growth rate (t in thousands) (%) (%) Brazil 10,824 67 11. 0 Colombia 1,536 76 18.6 Peru 595 73 4 .6 Venezuela 2,244 66 9.9 Mexico 8,500 53 5.8 227 62 8 n.a. Jamaica a. n.a. = not available . SOURCE: Associations of feed manufacturers in the individu~l countries. relative to alternatives. Moreover, in countries where hard (dent or flint) maize is a major food source, sorghum is normally the principal graiD used in feed rations. Thls is certainly the case in Mexico , Nicaragua, Venezuela, and Colombia-- i n the latter country maize i s on l y of regional i mportance in human diets. There is a natural evolution to t ha t grain which does not compete in the food economy , essentially b e cause too often the f ood grain becomes too expensive or too scarce t o sustain the animal feed industry. In countries such as Brazil, Dominican Republic, Jamaica , Ecuador, Peru, and Panama maize is the principal grain in feed rations. In all these countrie s rice and/or wheat is the majar f ood grain . In most of these countries root crops and plantains are also importan t calorie sources. In Ecuador and Peru sof t o r fl our y maize is a regionally important food source but this is a distinct commodity from the hard maize . In all these latter countries hard maize is a minor food ítem when there are readily available supplies of more preferred grains . I n such a food economy, changes in overall food demand for maize will have little impact on its price. Competition between the food and feed markets in these countries are thus minimized by the structure of grain preferences and relative prices . Minimizing competition on the demand side does not necessarily translate to a mínimum of compe t i tion for resources on the supply s ide. For relatively homogenous production inputs like fertilizer a nd credit there will be natural competition. determined by relative profitability . Competition for land is probably the more relevant f a c t or and h ere differential adaptation to agro-climatic conditions provides a significant degree of segmentation in the competition for land. Certainly wheat in tropical TJatin America does not compete with feedgrains, except possibly for "'heat and maize in Paraguay . Irrigated rice and feedgrains a lso do not compete for land. Upland rice and maize do compete for l and in the Center-We s t of Brazil, but land i s really not the relevan t constraint in thes e a reas . Sorghum and maize for human consumption is the only real area where there is s i gnificant competition for land but this occurs really on l y in the irrigated areas of Mexico . Competition in Mexico, however, is a relatively moot point because of CONASUPO 's control over both consumer and producer prices and the heavy reliance on imports of both c ommodities. The above would appea r a workable solution to food-feed competition were it not that many governments heavily s ubsidize the consumption of key gra ins , for example, maize in Mex ico o r whea t in Brazil, Peru, and Ecuador. In such c ases , food grains become price competitive in feed rations, and governments try to mainta in the independence of the two markets through elaborate administrative rules on imports, domes tic sales, and s ubsidy payment s . In all cases a national grain marketing agency administers much of the domestic marketing of the subsidized grain. Nevertheless , in all these c ountries there is ev iden ce of sorne leakage of t h e subsidized food grain into use by feed compounde r s . The clearest case i s wheat flour in Brazil (Table 17) , where flour price s t o the consumer were kep t exceptionally low . I n tervention in f ood grain markets in many cases precipitated later interventions in feed grain and poultry markets . The policy obj ectives Table 17. Difference between wheat flours sold by flour mills and actual human consumption, August 1974-July 1975, Brazil . Sales by Region mills Rio de Janeiro Sao Pauloa South Minas Gerais and Espirito Santo Nor theast Federal District North Total (t) 447,244 1,005,645 721,556 310,646 676,660 23,297 168,924 3,353,972 a. The major portion of the mixed feed Paulo. The consumption estimate is budget survey. Flour consumption (t) 292,113 584,951 769,365 279,665 511 ,943 18,970 145,645 2,552 ,652 industry is located in Sao based on the national food SOURCE : Companhia de Financiamento da Producao (CFP), 1981. Absolute difference (t) 155,131 470,694 - 47,809 30,981 164, 717 4,327 23,279 801,320 varied somewhat but all major feed grain producing countries, apart from Carribean countries, intervened to support farmer incomes and to provide sufficient incentive to increase production. How this was done varied depending on whether food grain consumption was subsidized. In countries such as 1-iexico, Venezuela, Peru, and Brazil, where food grains were subsidized, governments normally intervened with input subsidies, particularly fertilizer and credit, and attempted to keep output prices at around import prices (in many cases this failed due to a progressive overvaluation of the exchange rate and producer prices moved above import prices). On the other hand, countries such as Colombia and Panama did not subsidize food grain consumption and in turn maintained support prices for feed grains well above import prices, through a government marketing agency and import controls. Through the 1970s most countries intervened to sorne degree in feed grain markets, almost always to the advantage of feed grain producers and only rarely neglecting the interest of the feed concentrate industry. Striking a balance between the interests of feed grain producers and feed concentrate manufacturers often reouired either subsidies or the strategic use of imports which often entered on the basis of overvalued exchange rates. Each country managed incentives to the two groups through a state marketing agency. This agency maintained the producer support price by buying in the domes tic market when necessary, controlling the price and supplies to the feed compounding factories, and managing imports. In sorne cases, for example, Peru and Venezuela, the marketing agency would sell to the factories at a lower price than the domestic price, in effect balancing the loss by imports that were even cheaper. Peru and Venezuela also eventually moved to a system of allocating import quotas at import prices to factories on the basis of purchases of domestic production at the higher support prices. Rowever, by far the more usual subsidy was for transport costs. In this case hoth support prices and sales prices to the factory were fixed at a single price for the whole country. This was little problem for a country such as the Dominican Republic or Panama but had profound implications for large countries such as Mexico, Peru, and Brazil. In Brazil the Companhia de Financiamento tia Producao (CFP) would sell at market prices in the region but often with a transport subsidy. In all these countries surplus feed grain producti.on areas were often far r emoved from deficit demand areas. In Brazil and Peru this was a direct subsidy to fos ter feed grain production in frontier areas which, in Peru, were in the Selva and in Brazil, in the central west, cerrado areas. Tr ansport s ubsidies in these cases were large and shifted comparative advantage to those areas where transport costs would be prohibitive . Brazil is a case where transport subsidies absorbed bv CFP can shift compar ative advant age away from local production. Table 18, showing the regional structure of maize production and demand, clearly highlights that maize must move from the south and central west to the deficit areas of the northeast and southeast. The comparison of relative costs (Table 19) clearly shows the importance of transport costs in the supply of feed grain markets in Brazil. Subsidies are often necessary to keep the central ,.;es t areas competitive in maize production, often at the expense of the Table 18. Regional surpluses (+) or deficits (-) in the production of maize and animal feed, 1983, Brazil. Region t1aize Animal fe ed (t in thousands) ( t in thousands ) North 19.3 -28.7 Northeast 708.0 -199.3 Southeast 1212.1 -139.9 South 600.1 346.6 Central west 1559.1 30.8 As a percent of total consumption North 7.4 -39.1 Northeast 44.0 -22.1 Southeast 16.6 -3.0 South 6.2 6.7 Central wes t 186.5 9.5 SOURCES: Conpanhia de Financiamento da Producao (CFP) ; Sindicato da Industria de Racoes Balanceadas . Table 19. Prívate and social costs of supplying maize and dried cassava in the northeast, 1986 , Braz il. Item Prívate costs Social costs Absolute Cassava/maize Absolute Cassava/maize (Cr$/t) (%) (Cr $/t) (%) Locally produced rnaize 1517 86 1405 88 Haize from south 1616 81 1468 84 ~.aize from central west 2494 52 2130 58 Imported maize 1705 77 1675 73 Locally produced cassava 1306 1231 Maize price 1690 77 1690 73 SOURCES: Conpanhia de Fianciamento da Producao (CFP) , Centro Internacional de A~ricultura Tropical/Empresa Br asileira de Asistencia Técnica e Extensao Rural (CIAT/EMBRATER) survey . development of production in the northeast--a point to which the discussion will return when considering the potential for cassava in feed rations. Feed grain production has responded to the expanding markets and policy interventions, except in Panama and Peru (Table 20). In Peru maize supply has depended on the relative support price of maize to rice, with rice having a clear advantage until 1985. Basic differences in technology between maize and sorghum bring into sharp focus how these production increases were achieved. In the case of sorghum, production increases were achieved by expanding the area planted with the use of an imported technology based on hybrid seed and mechanized production in all stages from planting to harvesting. This technology was appropriate for expansion only on large farms. In the case of maize, however, the production structure in most tropical Latin American countries has been skewed towerd the small-scale producer. Moreover, the increase in production, especially in the last decade, has been due more to increasing yields , except in Paraguay, than increasing area. The implication, however, that small farmers were able to capture the major portion of the benefits of this expanding market are not supported by the limited data on the subject. In Ecuador the small-scale producer of floury maize in the Sierra remained isolated from the change in the market fo r ye llow, dent maize. This ;.ras cap tu red by large-scale, mechanized producers on the Pacific coast. In Brazil (Table 21), both area and yields e xpanded in farms of over 50 hectares, as both mechanical and yield-increasing technologies were adopted by large-scale farmers. Those farmers with farms from 5 to 50 ha in size, increased yields but with declining area planted to maize. Farms of 5 ha or less were effectively marginalized as yields remained sta tic and area declined markedly. Large farmers have a clear advantage in being able to take advantage of both labor-saving and yield-increasing technologies, drawing on the technology developed in U.S . agriculture over thP. last two to three decades. In general, the small farmer has lost the comparative advantage he had in management--normally reflected in higher yields--together with the fact that he often does not have the same access to the subsidized inputs and credit that have fueled this expansion in feed grains. Nevertheless, even rapid rates of growth in feed grain production were not sufficient to meet expanding domestic demand. Imports (Table 20) were necessary both to meet deficits and in many cases to support price policies for grain supplies to feed manufacturers. The rising trend in feed grain imports in many countries, however, was affected in the 1980s by the externa! debt crisis in Latin Ame rica. The ratio of debt-servicing to exports rose significantly (Figure 4) , precipitating major devaluations, fiscal stringency, and declines in domestic demand. Agricultura! imports are a significant component of the import bill and were increasing as a percentage of total imports (Table 22). The devaluations and the need to cut back government spending, especially on subsidies, forced many countries to expand efforts to increase self-sufficiency in basic commodities. With recent changes in domestic price policies and (because of devaluations) the domestic price of feed grain imports, there is opportunity to develop a more diversified strategy in meeting carbohydrate demand in the feed sector. In particular, there is an incentive for governments to evaluate the potential of cassava to meet the expanding demand for feed sources. Table 20. Characterization of the feed grain sector, 1966-85, T..atin Ame rica. Production Net imports Country Volume Growth Grm-1th Volume Volume Volume 1983- 85 1966-75 1975-85 1966- 68 1976-78 1983-85 (t in thousands) (%) (~~) (t in thousands) Sorghum Mexico 5,557 10 . 0 4.0 -177 517 2,766 Colombia 574 19.8 4 . 6 1 60 127 Venezuela 475 10 . 7 15.3 1 513 546 Haize Brazil 20,638 3.6 3.0 - 760 - 529 - 72 Dominican Republic 97 2.2 - 0.3 o 93 185 Ecuador 257 4.3 1.3 -1 20 10 Paraguay 473 5.8 4.3 -4 - 8 -1 2 Peru 689 1.2 0.2 22 212 255 Panama 72 - 5 . 7 0.3 1 4 29 Jamaica 4 9 . 6 -1 2 .5 47 166 177 SOURCE: Food and Agricultura! Organization of the United Nations (FAO), 1986. Table 21. Change in area planted and yield of maize by farm size during the period 1970-1980, Brazil. Farm size 1980 Increase strata Are a Yield Arf!a (ha) (ha in thousands) (t/ha) (%) Less than S 979.6 0.93 -23.9 5-10 972.4 1.45 -18.9 10-20 1,638.8 1.63 -12.9 20-50 2,353.0 1;61 -9.5 50-100 1,275.6 1.52 5.9 100-200 1,026.0 l. 54 19. 3 200-500 1,005.1 1.62 19.4 500-1000 504.9 1.67 31.6 ~lore than 1000 583.2 1.64 41.5 Total 10,338.6 1.52 -3.1 SOURCE: Instituto Brasileiro de Geograf ia e Estatísticas (IBGE), 1984. 1970-1980 Yield (%) 8 . 1 21.8 28 . 3 27.8 27 . 7 28 .3 29.6 21.9 15.5 26.7 1974 and _a.._ 68 - 50 - 40-r~ 38 - i 1~/ 28 1 1 1 1 1 1 1975 1978 1979 1988 1981 1982 1983 1984 Figure LJ. Deb1: service 1:o e:.:por1: ratio ., L. a tin America. Table 22. Agricultural imports as e percent of total imports, Latin America. Country 1980 1981 1982 1983 Brazil 9.9 9.1 8.5 8 . 7 Mexico 16.1 13.5 12.8 26.3 Colombia 11.5 9.5 10.3 10 . 9 Ecuador 8.1 7. 8 9.1 14.9 Peru 20.4 20 . 4 18.0 17 . 5 Venezuela 16.2 17 .o 15.2 11.6 1984 11 . 0 20 . 8 8.3 12.1 15.7 20.7 SOURCES: Inter-American Development Bank (IDB), 1986; Food and Agricultural Organization of the United Nations (FAO), 1986 . The Cassava Option in Heeting Feed Demand The rapid expansion in the demand for feed components changes the whole dynamic of demand for certain starchy staples as an economy urbanizes and incomes increase. In general, direct food demand for grains, and starchy staples in general, increases until an income level of about US$ 1000 (1978 prices) and then declines somewhat afterward (Monke, 1983). However, at about that point derived demand for carbohydrate sources for animal feeds begins to grow. For commodities such as maize, sorghum, and cassava, e.nd occasionally soft wheats, this market transition provides an opportunity to maintain a significant elasticity in total demand for the commodity . Few agricultural commodities face such continual increases in demand throughout the growth process, and onl y flexibility in end uses and relatively cheap production costs allow a commodity such as cassava to move from being primarily a food staple to becoming a commercial crop supplying a growing industrial demand. Adapting to shifting end markets and changing market structure is the key to a modernizing agriculture, where expanding marketable surpluses lead to increasing farmer incomes and thereby helping to modera te rural-urban migration. · Cassava is basically a starch source and, since carbohydrate or energy sources are the principal component in balanced feeds, dried cassava has the potential for forming a significant percentage of the complete ration. Mixed feed technology allows the incorporation of high protein sources t o compensa te for cassava' s lack of protein. teast- cost feed formulation models allow factories to produce a balanced ration with the lowest cost mix of ingredients. Experience with using cassava in Europe, especially in the Netherlands, has shown cassava to have few negative nutritional characteristics. Aflatoxin is usually nonexistent because of caRsava's low protein content. If properly dried, HCN toxicity is not a factor in animal nutrition. For poultry there is sorne concern with the enerp,y density of the diet if cassava assumes a high percentage, but this can be overcome by pelleting and the addition of a small percentage of animal tallm.¡ or vegetable oil. In general cassava can fully replace grains in swine and dairy rations and can take up 20% to 30% of poultry rations. The movement to use balanced feeds in animal nutrition is also associated with structural changes in animal production, with the locus of production shifting from integrated crop-livestock systems on individual farms to large- scale, specialized production units, normally close to major urban markets. This structural transformation is clearest in the case of broiler and egg production. In swine, on the other hand , farm production is often able to resist the movement to large integrated units, due essentially to lower cost feed sources and the diminished scale economies in swine production. For the farm operation, however, the difficulty is t o maintain balanced nutrition from onfarm sources, especially adequate protein levels . Technical change in swine production in T,atin America, first phase, has taken the form of a shift of breeds to a leaner carcass and the purchase of protein concentrates to mix with energy sources produced on the f arm. In the second phase, in a fe,., countries, particularly Mexico and Venezuela, large-scale specialized swine production systems have also developed . Cassava as an animal feed in Latin America develops first as an onfa~ feed source. Throughout tropical Latin America cassava is fed t o animals raised on the farm. Normally this is not s ys tematic. The cassava is often noncol!li!lercia l, for example, the roots are small or left in the ground beyond the period of satisfactory quality, or is the surplus after a periodic harvest. Moreover, the swine, and even poultry, tend to scavenge for a large component of their feed needs. Animal productivity in t hese systems is low but costs are also low. Generally in such systems only a minar percentage of the total cassava crop i s fed to the animal stock. The opportunity cost of the cassava is too high compared t o the low weight gains by the animal--lack of protein tends to limit the effectiveness of the energy source. Such sys tems are quickly disappearing , being overtaken by more efficient production sys tems. The key to more productive onfarm swine production systems has been the availability of protein concentrates. In ar eas such as southern Brazil, p&rticularly F.io Grande do Sul and Santa Catarina, and parts of eas tern Paraguay cassava has developed as a majar onfarm feed source in intensive swine production systems. In Rio Grande do Sul, it contributes to dairying systems. Particularly i n Brazil, the development has been dramatic over the past couple of decades. A coincidence of fact ors geve rise to this dominant role oÍ cassava in onfarm feeding systems. Predominant among these was the demise of the farinha market in southern Brazil a s a result of the wheat subsidy. Shrinking demand made cassava relatively cheap at a time when swine production sy8tems were changing with the introduction of breeds with less fat ( the market for lard declined with the rise of the soybean oil industry) and the improved availability of protein concentrates. However, the key was the low production costs for cassava compared to the principal c ompeti n g energy source, mai ze (Table 23) . At the f arro level cassava is very competitive wi th grain sources as an energy source in the feeding of animals . The one restriction is that the varieties must be rela tively low in HCN content, a factor tha t limits onfarm feeding t o swine in the northeast . Developing a cassava production system that can supply a continuous supply of roots during the whole year and ye t releases l and at critica! planting periods requires either an extensive l and area or a storage system . In southern Mexico , \o7ith the rise of large-sca le swine production systems in the ejidos, large silos have been developed for ensiling cassava roots. The ensiled roots can be kept fo r an indefinite period of time and the roots can be assembled near the swine product ion uni t s . The cos t s of s uch systems have been very price competi tive with sorghum (Table 24) , which must be imported into the r egion . The ensiled cassava is mixed with a protein concentrate and minera l s and provides a balanced feed source . Ensiled cassava s ys tems can be adapted to mos t any size of production sys t em but investment in a permanent silo and a chipper requi r es a certain mini mal size of swine operation. Availability of pro t e in concentra tes, intensification and technical change i n swine production sys t ems , and organization of t he cassava production sys tem to provide continuity of supply are all necessary for the development of such integrated systems. They a lso require an obvi ous coincidence between cassava production areas and swine produc t ion , the latter \-7hich requires adequa t e access to urban marke t s . Besides southern Table 23 . Product ion cos ts for maize and cassava (dri~d) in the south, 1986, Brazil . Cost ítem Variable costs Factor costs Labor Capital Input cost Fixed costs Factor cos ts Land Labor Capital Input cos t Total costs Cassava (Cr$/t) 172 . 5 131.2 17.6 23 . 7 139.3 58.3 27 . 9 13.3 39.8 311.8 Maize (Cr$/t) 555.4 330.0 32.2 193.2 331.6 220 . 0 27.5 27.5 56.6 888 . 7 SOURCE: Centro Internacional de Agricultura Tropical (CIAT) field data. Table 24. Comparison of costs of production of ensiled cassava roots with sorghum price in tabasco, 1986, Mexico. Cost component Variable costs Root price Loading and unloading Transport Chipping and tamping Plastic cap Working capital Sub total Fixed costs Silo depreciation Capital costs Sub total Weight loss and deterioration Total costs Cassava cost dry weight basis Sorghum cost dry weight basis Cost (Mex$/kg) 17.00 .80 4.00 . 85 .20 2.29 25.14 . 96 1.60 2.56 4.92 32.62 77.67 93.49 SOURCE: Centro Internacional de Agricultura Tropical (CIAT) field data. Mexico, southern Brazil, and Paraguay, there is also potential to develop such systems in the Dominican Republic and possibly in the Selva of Peru and the Santa Cruz area of Bolivia. However, to broaden the market for cassava as an animal feed source, especially for the poultry sector, requires the mbdng of dried cassava in balanced f eeds. Cassava is just starting to participate in the market for feed components going into the rations industry. Spontaneous development of a feed market for dried cassava has developed in Asían countries, particularly Thailand and Malaysia, but in Latin America cassava has not easily made the transition away from onfarm uses and food markets. There are two questions to be asked in regard to cassava's emerging role in the feed market. First, can cassava compete price-wise with the principal feed grains and potentially carve out a significant share of this expanding market? Second, if cassava is already profitable, why have dried cassava markets tha t have not spontaneously developed in Latín America? If cassava can compete, then an understanding of constraints on developt!lent of a cassava feed market will hopefully pinpoint mechanisms by which market linkages can be formed. To generalize about the ability of cassava to compete with grains in animal feed rations is fraught with the problem of policy interventions in the marketing and pricing of feed grains. A starting point is a comparison of costs of production and prices at the farrn and factory level for dried cassava and the principal competing grain. As can be seen in Table 25 cassava competes favorably with feed grains in terms of farm-level profitability. In all countries co~sidered, dried cassava either now provides or could provide a reasonable return on farmer-owned resources. Moreover, these farm-level prices are translated into prices at the rations factory that enter the least-cost feed formulation for swine and, in most cases, for poultry. At issue then, is why these obvious profit incentives have not been translated into a rising production of dried cassava. To understand this requires an evaluation of grain pricing policy, on the one hand, and an understanding of pricing of alterna ti ve cassava products, especially in food markets, on the other hand. Governments have intervened heavily in feed grain markets in Latín America over the past two decades although there has been no direct intervention in cassava markets. Obviously, this policy support for grains has directly affected the prívate profitability of cassava. Policy intervention has taken many forros. In Mexico there were direct subsidies provided by the state trading company, CONASUPO, in which the sales price to factories were usually less than either the farmer purchase price or the import price (Table 26). Also, the sales price was fixed for any location in the country so that transport subsidies were also significant. In 1985 with the pressure to reduce the fiscal deficit, purchase and sales prices were brought into line and in 1986 sales prices started to reflect transport costs as different prices were now set for six different regions. Cassava produced in the south in 1986 could begin to compete ~vith sorghum in regional markets. In Peru and Venezuela cassava could compete with nationally produced grains on the basis of costs of production but it could not compete under existing policy arrangements. In Peru the state marketing agency buys and Table 25 . Comparison of production costs for dried cassava and pr i ces fo r cassava and the principal feed gr ain , 1986 , Latin America. Country Sorghum: Colombia Mexico Venezue la Maize: Peru Panarna Paraguay Brazil Production ces ta Cassava 17,044 50,429 1,279 994b 170 32 , 406 1,306 Cassava 25 ,600 64,000 1,870 2 ,475 180 56 ,000 1,330 a . Prices and costs in local currency per t on . P . a r1ce Grain 32,000 78,000 2 , 200 3,300 230 70 ,000 1, 705c Cassava/ grain 80 82 85 75 78 75 78 b. Assumes cassava comes under ENCI purchasin g system, in which case transpor t costs are not included. c . Haize import price . Table 26 . Sor ghum prices managed by CONASUPO , 197 1-85 , Mexico . Year Purchase pr ice Import pri ce Sales price (MexS/ t ) (Mex$/ t ) (Mex$/t) 1971 600 870 817 1972 729 760 810 1973 776 873 1974 11 13 1849 1225 1975 1600 1457 1595 1976 1638 1739 1977 2016 2293 2011 1978 2030 2473 2127 1979 2033 2704 2231 1980 2891 3352 2672 1981 3927 4072 3439 1982 5093 8264 4746 1983 12388 16239 9150 1984 20478 22631 18861 1985 28705 26598 33720 SOUFCE: CONASUPO. sells maize at one single price in the whole country. The whole marketing margin is absorbed by ENCI, the effect of which has been to shift comparative advantage from the high cost production on irrigated areas of the coast to the Selva (jungle areas) in eastern Peru. As can be seen in Table 27, maize production in the Selva is much more profitable than on the coast under such a subsidy system. However, cassava cannot compete in coastal markets with subsidized ~aize if it must pay the trar.sport costs. In 1986 dried cassava was brough under ENCI price support and purchasing operations. In Venezuela the policy has been to foster cheap feed but not at the expense of domes tic grain producers. Domes tic sorghum producers receive significant input subsidies, especially fertilizer and credit, and price supports ensure significant profit margins. Cassava is put under some disadvantage with the fertilizer subsidies but can still compete at sorghum support prices. The policy constraint, however, is that most sorghum is imported and it comes in under a preferential exchange rate (Table 28). In order to get the license to import, the feed manufacturer must purchase a certain amount of nationally produced sorghum at the ruling support price. There is no requirement that cassava be purchased in order to get an import license, meaning cassava must compete with this mix of domestic sorghum and imported sorghum at the preferential exchange rate. Under this policy cassava is made uncompetitive by an administrative rule which excludes cassava. However, apart from Venezuela, the 1982 debt crisis has forced a rationalization of both exchange rates and domestic pricing policies in tropical Latín America. This has created a price environment in which cassava now can begin to compete on a basis which more accurately reflects real production and marketing costs. In this environment cassava is in general cost competitive with domestic grains. Nevertheless, for countries such as Panama and Colombia, there have never been grain policies that have adversely affected the ability of cassava to compete in the mixed feed market. In these countries the second constraint on the development of the dried cassava market becomes apparent, that is, the nature of price forma tion in existing cassava markets and the effect this has on incentives to invest in processing capacity for cassava chips. In Panama and Colombia, and in the rest of Latín America except for Brazil, price formation in cassava markets is based on the human food market, which in turn is based on the marketing of fresh roots. The perishability and bulkiness of fresh roots creates several constraints on the development of a uni f ied price structure for cassava. First, markets fo-r fresh cassava .are spatíally fragmented. The perishabílíty and high transport costs limit arbitrage between markets at any significant dístance. Prices depend instead on local supply and demand conditions, resulting in significant differer.ces in cassava prices in different markets. Second, farm-level prices for cassava entering the fresh market are normally well above the costs of production of that cassava which would be processed. Prices set in the fresh market, therefore, give the illusion of higher costs of production than really predominate. The reasons for this divergence between prices and costs are due to risk and quality factors. A Table 27. Cost and price comparison for maize and dried cassava, 1986, Peru. Cost /price Production costs Transport costs Total costs a Price a. ENCI purchase price. Coast (Intis/t) 2377 300 2677 3300 Maize Cassava Selva Selva (Intis/t) (Intis/t) 1810 994 1500 1500 3310 2494 3300 2475 SOURCES : Malarin, 1986; Centro Internacional de Agricultura Tropical (CIAT) field data. Table 28. Comparison of prices for sorghum and dried cassava, 1985, Venezuela. Item Price (Bs /t) Dried cassava Production costs Price Domestic sorghum Imported sorghum Free exchange r ate Preferential exchange rate SOURCE : Centro Internacional de Agricultura Tropica l (CIAT) field date . 1279 1870 2200 2640 990 certain percentage of roots is discarded due t o insufficient size . Normally, a relatively bigb star ch content is required and factors such as insect attack or a rainfall after an extended dry period will reduce starch levels below commercial acceptance . Another risk is the rationing of market access that is found in fresh cassava markets. Farmers cannot normally sell when they want to but rather when they can. They will often sell early, sacrificing yield, in order to gain access to markets. Janssen (1986) es t imated for the Atlantic Coast of Colombia that farm prices for the fresh market could be discounted by 25% to reach a price at which selling t o a processing market would be equally profitable . Finally, spatially fragoented markets where volumes entering the market are small compared to the production capacity introduce significant year-to- year price variability (significant seasonal price variability is limited because of the seasonal storage possible by leaving cassava in the ground). This interplay of supply and demand results in prices in years of relative scarcity being far above what is needed for cassava to enter the animal feed market . A unified price structure is needed for development of multiple markets . However, a shift in either supply or demand conditions in the fresh market makes returns on capital invested in processing capacity very risky, due to the inability to opera te in years of high prices. This riskiness of capital returns on processing investment also affects Brazil, where farinha domina tes in price formation in cassa.va markets. In this case an inelastic price elasticity, declining demand induced by the wheat subsidy, and variability in production due to the marginal climatic conditions of the northeast, create a situation of significant price variability (Figure 5). This creates an uncertain environment for both farmers and prospective investors in cassava chipping and drying . For farmers any expansion in planted area, especially in a year of above average rainfall, risks driving prices down to variable costs of production. On the other hand, investment in chipping and drying capacity runs the risk of coinciding with a year of poor rainfall, high prices and inability to compete with maize in the animal feed market . Incentives on the side of the farmer and the processor run counter to each other, even though costs of production suggest acceptable profit levels for both farmers and processors. In the case of both the fresh urban market and the f arinha market, price formation has inhibited the development of alternative markets for cassava . By comparison, grains are tradeable internationally , year to year price variability is dampened by storage, and markets are spatially integrated by relatively low transport costs. Grain prices a re more stable and market integration ensures a more effective transmission of incentives. However, the fact that cassava could compete in the feed rations market suggests a market failure where intervention would lead to increased production and economic efficiency. The basis for correcting that market failure is suggested in Figure 6 . Development of an alternative market such as the animal feed market provides both growth prospects and a price floor for the food market. Reduced market risk provides the incentive for farmers to expand production. Janssen (1986) gives an estímate of the response of farmers to 51 388~------------------------------~ 288 26(1 24(1 Price ~~8 r-$./50 kg) l::I.:Jtl •188 168 148 ·128 188 88 68~~~~~~~~~~.-~~~~ 6978 7172 73 74 75 76 77 78 7•3813 8182 83 8485 Year igure S. Uaria tion in the wholesa l e price o -f farinha se rvations 280 111 792 127 362 151 11 -sqr 0.3805 0.3147 0.5355 0.3974 o. 3211 0.3301 -value 10.81 2.91 59.64 4 . 88 10.91 4 . 43 rerage pr ices: tic e 1.83 1. 80 2.10 1.90 1.96 1.95 2.14 Jheat 2.06 1.67 2.82 2. 36 2 . 50 2.58 2. 07 ;assava flour 0.80 0 . 82 0.96 0.81 0.76 o. 71 1.64 Bo l. 7738 -4.0124 - 4. 1560 -27 . 3292 - 4 . 4727 - 11.8834 ;td error) (3 . 1736) (7 . 3930) (l. 7573) (8.9034) (4.6664) (11. 9005) Bn 0.8903 0 . 6227 0 . 9546 0.6698 0.6007 0.5606 ;t d err or) (0.0830) (0. 1825) (0 . 036 1) (0.1763) (0.0998) (O . 2110) Bd 1. 1797 2. 8619 l. 9532 7.1052 1.0910 2.6845 ;t d error) (0 . 5859) (1.3659 ) (0.3564) (l. 7538) (0.8378) (2 . 2182) Br -3.0619 - 6.4680 - 2. 6288 - 9.4034 - 0 . 2631 7.0696 ;td error) (2.2674) (4.9827) (1.2766) (4.7290) (2.5078) (6 . 0501) Bw - 0.8006 - 4.9790 2.3551 4 .1205 7. 2546 3 . 7806 ;td e rror) (1.2147) (2.9968) (O . 84 72) (3 . 1101) (3. 0071) (6 . 8428) Bf 6.6094 15 . 7217 1.1342 -2.7340 - 0 . 7340 2.0432 ;td error) (2 . 9129) (9.9990) (1. 1331) (5 . 7819) (2.1104) (4 . 2967) Bdd - 0. 1529 - 0.3652 - 0.1832 - 0.7217 - 0.0488 -0 . 2256 ;td error) (0 .0586) (0. 1351) (0.0394) (0. 1837) (0 . 0870) (0.2341) Brr - 1.0701 - 0 . 4189 -0.4108 l. 7206 -1.0586 - 3.4917 ;t d e rror ) (0.9923) (1.5447) (0.397 5) (2 . 7248) (0 . 3970) (2 . 2939) Bww -0.2024 - 0 . 6997 0.3385 0 . 7529 - 0.6831 -0.9695 ;td e r ror) (0.45 10) (1.0584) (0.3459) (0.9217) (1.0139) (1.4 145) Bff -0.8308 2. 1133 - 0.1340 -2.7850 o . 1887 0 . 8726 ;t d e r ror) (0.9106) (2 .1884) (0.3734) (1.6690) (0 .5179) (1 . 1451) Bdr 0.4515 1.0705 0.4382 1.3009 0.2390 - 1 .06 13 ;t d err or ) (0.423 1) (0.9721) (0.2462) ( 1. 0109) (0.4531) (1 . 2498) Bdw 0.3116 1. 1802 -0.583 1 - 1. 1055 -0.8997 - 0 . 0656 ~td error ) (0.2400) (0.5791) (0.1835) (0.6294) (0 .5569) (1.4680) Bdf -1 .1271) - 2. 8852) -0.5493 0.0901 0 .0554 - 0.4969 ~td error) (0.5408) (2.0053) 0.2263 (1.2638) (0 . 3752) (0 . 8576) Brf -7.0974 - 4. 7346 1. 3179 -0 .8023 -1.6480 - 0.2134 ;td error) (4 . 1771) (13.9998) (1. 1597) (3.9505) (1.1972) (2.7059) Br w - 0.0328 1.2686 1.0558 3 . 4542 -4 . 6509 -4.9947 ~t d error) (0.9703) (1.6747) (0 . 8171) (2.2254) (1.8799) (3.1242) Bwf 3.4228 2.8383 0.0273 6.0404 2.6816 l. 4046 std error) (1.3899) (4 .544 7) (0 . 8171) (4 . 2238) (1.6245) (2 . 8267) 13 Table 4. Price and income elasticities for fresh cassavaa. Fresh cassava Northeast South and southeast Urban Rural Urban Rural Income elasticit ies (by salary cl ass) SC= 1/2 minimum salary 2. 7109 2 . 6529 2.6824 1/2 #f!.. SC=~1 minimum salary 2.5939 2.5297 2. 5654 1,.:: SC=~ 2 minimum salary 2.4769 2. 4056 2.4484 2 4 SC=~S mini muro salary 2.3222 2.2421 2.2937 Price elasticities Own price -1 . 8776 -1.8776 - 1. 8776 Price of rice - l. 8968 -1.8968 1.8968 Price of wheat 1.4937 l. 4937 1.4937 Price of pota toes 0 . 2442 0 . 2442 0 . 2442 a. Model: Log Q = Bo+Log Inc+Log Sqr-Inc(1+dummy rural) +sum (log prices) R-sqr = .6077 and No.OBS=153 Where parameters estimated were: Intercept Cassava Rice Wheat Pota toes Estimate -18.8697 -1.8776 - l. 8968 1.4937 0.2442 Std error 14.0865 0.3857 0.4117 o. 2871 0 . 2594 Income Incom-sqr Rural (INC- sqr) Estima te 3.7308 -0 . 0844 -0.0048 Std error 1.4465 0.0376 0.0005 Characteristics : a. Mean cells (for consumption and expenditure) as observations b. Dummy variables wer e used for rural/urban areas c. Double- Log function 2. 6228 2. 4991 2. 3755 2.2120 -1.8776 1.8968 l. 4937 0.2442 14 tbl e 5 . I ncome and pr i ce elas t icities fo r rice . Sout h Sout heas t Nor theast North Urban Rur a l Ur ban Rur a l Urban Rural Urban LCOme: '2 min salar y 0.213 0 . 562 0.225 0 . 763 0.335 0. 460 0 . 335 1 min salary 0 . 107 0 . 309 0.099 0 . 263 0 . 302 0.304 0 . 302 2 min salary 0 . 00 1 0 . 056 -0.028 - 0 . 238 0.268 0.148 0.268 5 min sal ary - 0.139 - 0 . 278 - 0 .196 - 0 . 899 0 . 223 -0 . 059 0. 223 8 min sal ar y - 0. 210 - 0 . 450 - 0 . 282 -1. 238 0.200 - 0.165 0.200 rn price: '2 min salar y - 0 . 949 -l. 225 - 0 . 508 -l. 075 - 1 . 861 -2 . 117 - l. 861 1 min sal ary - 0. 792 - 0 . 854 - 0.356 - 0.624 -l. 778 - 2 . 485 - 1.778 2 min salary - 0.636 - 0.483 - 0 . 204 - 0 .1 74 -1.695 - 2.853 -1. 695 5 min salar y -0. 429 - 0.008 - 0.003 0 . 000 -1.586 - 3 . 339 -1.586 8 min salary - 0.323 o.ooo 0.000 0 . 000 - 1.530 - 3 . 589 - l. 530 ~ice of wheat: '2 min salary 0 . 028 -0.07 1 0.562 0 . 433 0 . 860 0 . 674 0 . 860 1 min salary 0 .136 0.338 0 . 360 0 . 094 0 . 548 0. 651 0 . 548 2 min salary 0. 244 o. 74 7 0 . 158 - 0 . 334 0 . 236 0 . 628 0.236 5 m in salary 0 . 386 1. 288 - 0 . 109 - 0 . 840 - 0.176 0 . 598 - 0.1 76 8 min salar y 0 . 460 1. 565 - 0. 246 - 1. 100 -0 . 387 0 . 583 - 0 . 387 ~ice of farinha: '2 min salary 0 . 554 0 . 986 0.472 0. 456 0 . 144 0 . 048 o. 144 1 min salary 0 .163 - 0.0 13 0 . 386 0 . 487 0 . 163 - 0.124 o . 163 2 min sal a r y 0.163 - 0.0 13 0. 386 0.487 0.163 -0.124 0. 163 5 min sal ar y - 0 . 353 -l. 335 0 . 272 0 . 529 0 . 188 - 0 . 352 o . 188 8 min sal ary - 0.6 18 - 2.013 0.213 0. 550 0. 201 - 0.469 0. 201 15 1ble 6. Income and price elas t icit ies f or wheat. Sout h Southeas t Urban Rural Urban Rura l 1Come: '2 min salary 0 . 486 0.419 0 . 745 0.631 1 min salar y 0 . 351 0.3 18 0.574 0.526 2 min salary 0 . 215 0. 217 0.402 0. 420 5 m in salary 0 . 036 0 . 083 0 . 175 0 . 281 8 m i n salary -0 . 056 0.014 0.059 0.210 rn price: '2 min salary -1. 104 - l. 305 - 0.239 - 0.096 1 min sal ary -0 . 989 - 1.206 - 0 . 314 -0 . 059 2 min salary - 0 . 873 -1.106 - 0 . 389 -0.022 S min salary - 0 . 721 - 0 .975 - 0.489 . 000 8 min salary -0 . 643 -0.907 - 0.540 .000 ·ice of r i ce: 2 min salary - 0 . 67 1 -0.041 0.235 0. 157 1 min salary -0.480 -0 . 139 0.177 0.528 2 min salary - 0.289 - 0.236 0.120 0 . 898 S min salary -0 . 037 - 0.366 0.044 1.389 8 min salary 0.093 - 0.432 0.005 1. 640 ·ice of farinha: '2 min salary 0 , 751 -0.116 0 . 282 - l. 388 1 min salary 0.535 0.7 17 0 . 223 -0.820 2 min salary 0 . 318 1.551 0.164 -0.251 5 min salary 0 . 03 2 2.653 0.085 0 .501 8 min salary - 0.115 3.219 0. 045 0.886 Northeas t Urban Rural 0.818 0.579 o. 778 0 . 530 0.738 0.481 0 . 685 0 . 415 0.658 0 . 382 - 0 . 785 -0.705 -0.935 - 0.866 -l. 087 - 1.027 -l. 287 - 1.240 - 1.389 - l. 349 -0 . 194 -0.171 -0. 147 - 0.599 -0 . 099 -l. 028 - 0 . 036 - 1.595 -0 . 004 - l. 886 0.732 0. 523 -0.533 0 . 581 0.334 0. 639 0 . 071 0 . 715 -0 . 064 0 . 755 North Urban 0.283 0. 354 0. 424 0. 517 0 . 565 -0 . 949 - 0.972 - 0.995 -1.024 -l. 040 2.789 2.016 1.243 0.221 -0.303 0 . 400 0. 318 0. 236 0.128 0.073 16 tble 7. Income and price elasticities for cassava flour. South Southeast Urban Rural Urban Rural tcome: '2 min salary - 0 . 2703 0 . 3236 - 0.8612 0. 3236 1 min salary - 0.3441 0.0037 -0.7111 0. 0037 2 min salary - 0.4180 -0.3163 - 0.5610 -0.3163 S min salary -0.5156 -0.7393 -0 . 3627 -0.7393 8 min salary - 0 . 5656 -0.9562 -0.2609 -0 . 9562 m price: '2 min salary - 1.3984 -2 . 1398 - 0.3085 -2.1398 1 min salary -1.1371 - 1.1451 -0.2480 - 1. 1451 2 min salary - 0 . 8758 - 0.1503 -0.1875 - 0.1503 5 min salary - 0.5304 0.0000 -0.1075 0.0000 8 min salary -0.3533 0 . 0000 -0.0664 0.0000 ~ice of rice : '2 min salary 1.1079 o. 8977 2 . 5697 o. 8977 1 min salary 0.9213 - 0.3869 2.2233 -0.3869 2 min salary 0.7347 -1.6715 1.8770 - 1.6715 5 min salary 0.4881 - 3.3696 1.4191 - 3 .3696 8 min salary 0.3616 -4.2407 1.17 42 -4 . 2407 ~ice of wheat : '2 min salary l. 5431 2.0210 1.5332 2. 0210 1 min salary 0 . 9480 1.3215 1. 1311 1.3265 2 roin salary 0.3530 0 . 6321 0.7291 0 . 6321 5 min salary -0.4336 -0 . 2860 0.1976 - 0 . 2860 8 roin salary -0.8371 - 0 . 7569 - 0.0750 -0 . 7569 Northeast Urban Rural 0.0026 - 0.0254 -0.1813 -0.1893 -0.3651 -0.3532 -0.6081 -0 . 5699 - 0.7327 - 0.6811 -0.6734 - 0.5306 -0.6451 - 0 . 4897 -0 . 6169 -0.4488 - 0.5796 - 0 . 3947 - 0.5604 - 0 . 3670 0 . 6524 0. 3622 0 . 1959 0.2762 -0.2606 0 . 1901 - 0 . 8641 0 . 0764 -1.1736 0.0181 . 0000 -0.5599 0 . 0550 -0 . 1411 0.5006 0 . 2777 1.0896 0.8313 l. 3917 1.1153 North Urban 0.3670 0 . 0976 -0.1719 - 0.5280 - 0. 7107 -0 . 0037 -0 . 1679 -0.3321 - 0.5492 -0.6606 l. 3133 1.0589 0. 8045 0.4683 0.2958 0. 7813 0 . 1220 -0.5373 -l. 4089 -1.8560 17 inefficient in the sense that it will require huge ammounts of money transfers in order to make sorne impact on calorie intakes among these groups. Furthermore, the difficulties to clearly distinguish the target income groups when applying this type of policy, makes the problem even more difficult because as income increases, the elasticities estimated for these three foods were found to decrease and even became negative for the higher income brackets which may offset the original goal o f raising the average calorie consumption of the whole population. Second, own-price elasticities ~ere found to be around 1 or higher than 1, for the lower income brackets in all regions, except for cassava flour in the northeast, where the product is traditionally consumed in high levels and hence a smaller reaction to changes in cassava prices is expected. This means that, apparently, there is a better chance to influence consumers' behavior through price subsidy policies than income transfers for increasing the consumption of these food staples particularly in the case of wheat, where the demand response was found to be very elastic to changes in its own price. Finally , despite the small changes in relative prices that are often found in cross-sectional data, we were able to measure sorne degree of substitution among these three products. Particularly in the case of rice and cassava flour, we found that the demand cross-price elasticities for these products, with respect to changes in wheat prices are positive and close to 1, within the lower income groups in various regions of the country. This means that any price-subsidy policy directed to any of these products, should be analyzed not only with regard to its direct own-price effect, but also to its consequences over the demand for its close substitutes since there is clearly a risk, of affecting the overall level of calories consumed by the population via effects on their relative-price competitiveness. The parameters estimated here will be used in the nex t sections to examine in greater detail these issues. Particularly in the case of our central concern, they are going to be useful for explaining sorne recent changes in the demand for cassava, which has been occurring over the last decade in Brazil. Cassava for human consumption A series of studies on nutrition in Brazil indicate that a large proportion of the population suffers frorn rnalnutrition. The World Bank (1979) study indicated that 58% of the population less than 17 years old suffers from malnutrition. In terms of people this translates into 19 million young people with first grade malnutrition; 10.5 million with second grade; and 0.5 million with third grade (Table 8). This malnutrition affecting a large part of the population, results in physical defects and mental retardation, and in severe cases in high levels of infant mortality . Malnutrition is related to poor hygiene in the poorer areas, and a series of health-related problems. The major cause however, is simply the lack of sufficient calories in the diet of large sectors of the population. The IFPRI (1 982) study indicated that the caloric intake 18 Table 8 . Number (in thousands) and percentage of children under 17 years of age with first, second, and third degree of malnutrition by region, 1975. Degree of malnutrition First Second Third Region (No .) (%) (No .) ( %) (No.) North 2234 39.0 1131 23 . 3 42 Northeast 6332 38 . 2 4630 28 . 0 361 Sout heas t 10783 36 . 2 458 1 15.4 44 Brazil 19349 37 . 2 10543 20.2 447 (%) 0 . 7 2. 2 0.2 0 . 9 SOURCE: Gray, C. W. Food Consumption parameters for Brazil and their application to food policy . International Food Policy Research Institute , Research Report No . 32 . September 1982. 19 was below mínimum requirements in almost all regions of the country, with the greatest deficit in the north and northeast (Table 9). Furthermore, the situation is worse in the urban areas. Cassava is a majar calorie source in Brazil. The data of the IBGE survey (ENDEF) shows that rice and sugar were the t wo most important calorie sources in 1975, followed by cassava , beans, and wheat which a re all about equally important. There are, however, regional differences. In the north cassava at 27 % of the total calorie intake and in the northeast at 23% is the most important calorie source. The consumption is highest in the rural areas but still reaches l evels of 290 calories per capita per day in the urban centers of the northeast and 465 calories per day in the north (Table 10) . The tendency for higher consumption in the rural areas is found throughout Brazil. Cassava is consumed in two principal forms in Brazil. First as farinha (a toasted flour) and second as aipim or fresh cassava. Per capita farinha consumption at 17.6 kg /year, as the national average, is much more important than aipim at 6.1 kg/year. The importance of farinha is also greater in the north and northeast regions at about 45 kg/year than in the south and southeast at 3 . 5-6 kg/year . Consumption trends The per capita consumption of cassava flour declined in the period 1960 to 19 75 from 93 kg/year to 59 kg /year (Table 11). The decline was most pronounced in the south where the urbanization process has been most rapid in the last 20 years. The decrease in per capita consumption is related to two fundamental causes : t he massive rural to urban shift resulting in altered consumption patterns, and the wheat subsidy reduced the price advantage of farinha over wheat flour. The wheat subsidy. The production of wheat in the southern states is an attractive option for farmers who grow soy in the summer and wheat in the winter months. Both crops use similar machinery and do not compete for land or labor as they are planted in different seasons. Perhaps the factor that makes wheat so attractive is the high price. The government, concerned with the balance of payments, and wishing to reduce inflation and mantain low-cost food in the urban centers adopted the measure of subsidizing local wheat production. Wheat production i s not easy in southern Brazil; yields are low and fluctuate widely from year to year. This results in enormous sums of money being required to sustain the policy goal of low consumer prices whilst at the same time inducing farmers to produce the crop. The World Bank estimates that the wheat subs idy is greater than US$1 billion in 1986 (recently "The Economist" quoted US$1.5 billion as the estímate for 1986). The forro of the subsidy is such that the World Bank estimated that the consumers did not receive any effective subsidy in 1970 , but b y 1981 they recieved 90% of the subsidy (Table 12) . The role of the wheat s ubsidy was to break the link between producer and consumer prices, so as to maintain price incentives for domestic production and at the same time support lower prices to 20 Table 9. Average per capita daily calorie deficits by region and urban/rural location, (1975). Region Average Estimated Calorie a consumption requirements deficit (calorie) (calorie) (calorie) Northeast Urban 1814 2150 336 Rural 2016 2145 129 North Urban 1750 2232 482 Rural a 1926 2226 300 South/ Southeast Urban 2127 2299 172 Rural 2445 2273 a. Taken from Cheryl Williamson Gray, "Food Consumption Parameters For Brazil and Their Application to Food Policy". International Food Policy Research Institute. Research Report No. 32. September 1982. Table 10. Average per capita daily calorie consumption f or each food by region and urban or rural location, 1975. Central Foood Type South and southeast Northeast North West Brazil Urban Rural Total Urban Rural Total Urban Urban Urban Rural Total Cereals 814 .82 991.42 878 . 98 574 . 33 476.14 518.82 479.82 852.63 659.83 753 . 91 698 . 55 Rice 465.32 525.22 487.08 217.67 258 . 79 240 . 92 178.75 609 .88 355.51 402.41 374.82 Maize 36.47 181.90 89.31 51.24 149.95 107 . 05 5.96 25 . 76 34.03 167.17 88 . 83 Wheat bread 195.53 50.31 142.77 252.03 54.36 140.27 249 . 31 150.96 185.13 52.18 130 . 41 Macarroni 68 . 12 56 . 42 63 . 87 36.37 7 . 45 20 . 02 33 . 52 40.87 50.91 33 . 85 43.89 Wheat flour 31.26 166.96 80 . 56 5.20 1.61 3.17 4.90 12.98 20.22 90.75 49 . 24 Roots and tubers 66.90 160.85 101.04 332.95 616.17 493.07 478.73 84 . 31 131.81 370 . 72 230 . 13 Pota toes 27.00 26.45 26.80 4.63 0.43 2.26 5.06 12.05 17.57 14.46 16 . 29 Fresh cassava 7. 40 38.49 18.69 8.91 15.85 12 . 83 3. 73 20.51 7.40 28.06 15.90 Cassava flour 25.24 77.98 44.40 293.45 572.16 451.02 465.93 40.90 96. 23 305 . 76 182.46 Sugar 306.18 349.98 322.09 229 . 64 196 . 7 211.02 168.77 238 . 72 246.62 279 . 33 260.08 Lefiumes 178.74 281.90 216.22 214.29 404.9 322. 05 101. 11 181.17 163.70 338.59 235 . 68 eans 171. 27 266.89 206.01 190.78 346 . 2 278.65 94 . 49 175.04 153.66 303.45 215.30 Vegetables 27.52 21.89 25.47 12.55 8 . 48 10. 25 8.69 20.75 20.15 15.71 18.32 Fruits 47.17 28.1 2 40.25 46.83 26 . 4 35.28 41.00 45 . 33 41.41 27 . 32 35 . 61 N 1-' Meat and fish 193.87 159.89 181.52 200.30 162.69 179.04 262.30 173.18 174.30 161.18 168 . 90 Beef 87.44 36.17 68.81 103.68 52 . 8 74.91 129.75 101.03 83.03 43.84 66.90 Por k 33.94 61. 24 43.86 34 . 16 53.8 45.26 17.10 31.87 29 . 46 57.81 41.13 Poultry 27.11 23 . 97 25.97 17.85 9 . 32 13 . 03 14 . 73 16.64 21 . 06 17 . 22 19.48 Dairy products 145 . 31 132.21 140.55 82 . 94 72 . 18 76 .86 68 . 70 110.67 110.83 104 . 54 108.24 Oil and fats 322.84 302.42 315.42 105.72 45.9 71.90 121.44 328 .14 232.00 184.18 212.32 Beverages 24.59 17 .12 21 .88 14.44 7. 27 10.39 19.90 14 . 96 18.93 12 . 58 16.32 TOTAL 2127 . 93 2445.79 2243.42 1814.01 2016 . 83 1928.68 1750.46 2049.86 1799 . 58 2248 . 07 1984.15 SOURCE: ENDEF 1975, IBGE. 22 Table ll. Per capita cassava consumption (kg) in 1960 and 1975, Brazil. 1960 1975 Region Fresh Flour Total Fresh Flour Total Northeast 7.1 55.2 172.6 4.3 43.7 135.4 Urban .9 26.8 81.3 3.2 20.4 64.4 Rural 10.3 69.7 219.4 5.2 55.0 170.2 Southeast 11.8 17 .o 62.8 4.5 5.9 22.2 Urban 4.4 6.4 23.6 2.0 2.7 10.1 Rural 20.2 29.0 107.2 5.0 14. 1 47.3 South 44.6 12.1 86.9 15.8 3.5 26.3 Urban 3.7 5.2 19.3 7.6 2.5 15.1 Rural 68.7 16.2 117.3 23.2 4.4 36.4 Brazil 14.9 26.3 93.5 6.1 17.6 58.9 Urban 3.0 11.4 37.8 2.7 9.7 31.8 Rural 24.7 38.3 139.5 11.2 29 .4 99.4 SOURCES: Fundasao Getulio Vargas, 1979; Instituto Brasileiro de Geografía e Estatísticas (IBGE), 1978. 23 Table 12. Wheat subsidies (US$ millions) received by producers and consumers. Total Consumer Producer subsidy subsidy B/A subsidy C/A (A) (B) (%) (C) (%) 1968 36 . 6 16.43 44.9 20 . 12 55 .1 1969 60.1 28 . 87 48.1 31.30 51.9 1970 33 .3 -30.74a 0.0 64.05 100.0 1971 32.1 - 60.11 0.0 92 . 23 100.0 1972 113.0 108.42 95 . 9 4.49b 4. 1 1973 222.8 248.71 100.0 -25.93 o.o 1974 299.2 391.19 100.0 -92 .05 0.0 1975 517.3 495.74 95.8 21.49 4.2 1976 424 .6 3 77.20 88 . 8 47 . 36 11.2 1977 292.9 158.85 54.2 134.04 45 . 8 1978 707.1 705.53 99 . 7 1.56 .3 1979 828 . 4 760.52 91.8 67 . 74 8 . 2 a. Both government and consumers subsidized producers. b. Both government and producers subsidized consumers . SOURCE: World Bank, "A Review of Agricultural Policies in Brazil." September 1981. 24 consumers. Besides the great budgetary burden that this policy caused the government, there are also serious concerns with regard to wheat's nutritional effects, and for what location and to whom this policy helped. Because the wheat subsidy clearly affected the consumption levels of its close substitutes, such as rice and cassava, the balance of the combined calories consumed of these products have also been affected. The demand parameters discussed in this report, together with the average per capita daily calorie intake data obtained from the ENDEF survey, can be useful in analyzing the nutritional effects of this policy. Based on the data collected by EMBRAPA on production costs and processing for wheat grains, wheat flour, bread, and macarroni the corresponding subsidy was obtained for these products. As reported in Table 13, the wheat subsidy reduced the price of bread (50 grams) to 27.48% and the price of macarroni to 29.6-32%. These figures, were weighed by the average expenditure shares on each wheat product by income groups and regions (Table 14), so asto calculate the wheat subsidy recieved by different income groups in different regions (Table 15). The effect of this subsidy in the per capita consumption for a given food commodity is given by: DC. = Co. * tEi *· (wheat subsidy)], ~: (i = r, w, f) ~ ~ w where, DCi change in calories consumed in food i-th due to the wheat subsidy, Coi the amount of calories consumed of food i-th befare the subsidy, Eiw = the cross-price elasticity as defined befare, Hence the combined effect of the subsidy over the total calorie consumption of these three products, is given by: i DC., ~ \1 : (i = r, w, f) The calculation results are reported in Table 16. It can be observed that the apparent effects of wheat subsidy over calorie intake widely differs and sometimes in a negative way for different sections of the population within and among regions. First, per capita consumption of rice and farinha decreased in all regions because of the wheat subsidy. Particularly, this substitution was strongly affected farinha 25 Table 13. Price subsidy (Cr$) for wheat bread and macaron!, Brazil. Production costs Commodity Subsidy Flour Other Price (%) Wheat bread (SO g) with subsidy 0.074 0.306 0.38 27.48 without subsidy 0.218 0.306 0.52 Macaron! (1 kg-comun) with subsidy l. 39 4. 41 5.80 32.00 without subsidy 4.12 4.41 8.53 Macaron! (1 kg-semola) with subsidy l. 78 6.52 8.30 29.66 without subsidy 5.28 6.52 11.80 26 Table 14. Expenditures shares (%) on wheat bread and macaroni by regions and income group, Brazil. Income group South Southeast Northeast North Wheat bread Up to 2 min salaries 4.8 5.5 7.1 6.6 Between 2 and 5 min salaries 5 .6 6.4 10.2 7.8 More than 5 min salaries 5.7 5.9 9.8 7.4 Macaroni Up to 2 min salaries 3.1 3.3 0.7 4.2 Between 2 and 5 min salaries 2.5 2.3 1.3 1.5 More than 5 min salaries 2.2 1.7 1.4 1.6 SOURCE: ENDEF, IBGE 1978. 27 Table 15. Wheat subsidy (%) received by region and income group, Brazil. Income group Up to 2 min sal aries Between 2 and 5 min salaries More than 5 min salaries South 29.3 28.9 28 . 1 SOURCE: Taken from Tables 13 and 14. Southeast 29.2 28.7 28.0 Northeast 27.9 28 . 0 27.8 North 29.2 28.2 27.9 28 Table 16. Effects of wheat subsidy on daily calories consumed. South Southeast Northeast Urban Rural Urban Rural Urban Rural Rice 1 m in salary -18 -5 2 -49 - 8 -33 -47 2 m in salary - 33 -115 - 21 51 - 14 - 45 5 m in salary - 52 -195 15 127 11 -43 8 m in salary - 60 -231 32 162 23 - 42 Wheat 1 m in salary 85 97 27 5 77 15 2 min salary 75 89 34 2 89 18 5 m in salary 61 77 41 o 106 22 8 min salary 53 70 45 o 113 24 Cassava flour 1 m in salary -7 - 30 - 8 -30 - 5 23 2 min salary -3 -1 4 - 5 -1 4 - 41 -44 5 m in salary 3 6 -1 6 - 90 - 133 8 min salary 6 17 1 17 - 113 - 177 Total 1 min salary 60 14 -30 -33 39 -9 2 min salary 40 -41 7 39 34 -71 5 m in salary 13 -112 55 133 27 -154 8 min salary -1 -145 77 178 23 -195 29 in the northeast and rice in the south where these products are traditionaly consumed. Second, the direct effects of the subsidy over wheat consumption, apparently was favored more by rich people than the poor in the urban centers of the southeast and northeast. And third, the overall calorie intake increased in the south which has a relatively minar nutritional problem, while the subsidy effect was negative within the malnourished groups of the southeast, and a relatively small increase in the northeast. In other words, because the own-price elasticity for wheat is apparently very elastic (greater or clase to -1) in most regions, any subsidy in its price will likely cause a large substitution of traditonal calorie products, like rice, cassava, bread, and macarroni, so that the overall calorie intake by the malnourished may actually decrease. For nutritional purposes, the wheat subsidy policy certainly was not the most appropiate taken. Past studies, like the IFPRI 1982, show that a price subsidy on rice could be a more effective mechanism to raise the level of calories consumed by the poorest in the calorie-deficit areas of Brazil. The wheat subsidy has obviously distorted the price s tructure for starchy staples and has affected the competitive ability of cassava. The demand cross-price elasticities for cassava with respect to the price of wheat were found to be positive, in particular for the lower income groups which indicates that wheat substitutes for cassava. In the period 1972 to 1980 the relative price of cassava flour to wheat flour increased (Table 17). As a result there has been substitution and the consumption of cassava flour (farinha) has declined. In the case of aipim (fresh cassava) the high-yield levels in the south have enabled fresh cassava to mantain its price relative to wheat even when this was falling due to subsidies. As a result, consumption of aipim has increased in the south. In the north and northeast, however, the relative price of both aipim and farinha has increased and this has obviously led to substitution of wheat for cassava. In 1980 the government, concerned with the high cost of the wheat subsidy, begán to slowly reduce the level. As a result there has been a slight tendency for the price of cassava relative to wheat to decrease (Table 17). At present, the government is in the position of being committed to reducing the wheat subsidy, however, at the same time it wishes to reduce inflation. Wheat plays an important part in the determination of the consumer price index and although reducing the subsidy is an economic necessity, it may well be politically difficult . The rural-urban migration . Urbanization has been extremely rapid in Brazil. The population census of 1960 and 1984 show the urban population rising from 48.6% to 72.4%. Consequently, there has been a shift to the consumption of more convenient food sources . At the same time new marketing channels have been developed and a more varied diet is available. The consumption of f arinha on a per capita basis has declined over the last 15 years. This is partially due to urbanization, since urban consumption per capita is three times as low as rural consumption. 30 Table 17. Relative price (5-year moving average) of cassava. Period Porto Alegre Sao Paulo Río Salvador Fortaleza Flour Root Flour Root Flour Root Flour Root Flour Root (5- year moving average) 69/73 0.56 0.68 0.57 0.44 0.86 0.58 0 .52 0.31 70/74 0.61 o. 72 0.61 0.44 0.86 0.58 0.58 0 . 31 71/75 0 .74 0.88 1.14 0.69 0.47 1.04 0.55 0.61 0 .32 72/76 1.04 0.96 l. 24 1.42 0.99 0.64 1. 36 0.55 o. 72 0.34 73/77 1. 22 0.85 1. 44 1.37 l. 25 o. 77 1.49 0 . 68 0 . 87 0 .39 74/78 l. 38 0.86 1.60 l. 36 1.17 0.75 l. 62 0.79 0.97 0 . 44 75/79 1.60 0.97 l. 78 1.43 1.12 0.80 l. 95 1.11 1.15 0.64 76/80 2.10 1.12 2.09 l. 64 1.03 0.65 2.25 1.42 l. 54 0.93 77/81 2.02 1.10 l. 93 1.58 0 .66 0.44 1.80 1. 37 1.68 1.04 78/82 l. 86 1. 07 l. 78 1.50 0 .45 0.24 l. 70 1.15 l. 64 1.03 79/83 l. 76 1.05 1.66 1.46 0 .57 0 . 34 1.53 1.07 l. 61 1.00 80/84 1.72 0.91 l. 61 l. 29 0 .82 0.35 l. 39 0.85 l. 61 0.92 SOURCE: Anuario Estadístico, IBGE. 31 Nevertheless, analysis of urban farinha demand shows sorne interesting features. The demand for farinha calculated at constant prices has apparently increased in the urban areas. This is of great importance as the urban centers are those that face the greatest nutritional problems. How has this increase in demand occurred? In the lower income groups the demand for cassava increases as incomes rise (i.e., it is a normal good). This is very plausible as the lower income groups do not have sufficient resources to meet their basic nutritional requirements . As their income increases they will purchase basic food such as farinha. The overall income elasticity is indeed negative; richer people want a more varied diet. The natural tendency is to interpret this fact as indicating that there will be a decrease in demand as income rise. This neither takes into account the differences in income elasticity in different income groups nor the overall increase in the population and the segments of the population in which this occurs. In the last 1S years in Brazil the lowest income groups are those that are increasing most rapidly. The percentage of the population with income less than the minimum salary increased from 17% to 33% (Table 18). At the same time the urban population increased dramatically (Table 19) . The average · income levels also tended to increase (Table 20) . The population increase, the income increase and distribution, and the farinha demand parameters estimated were combined in a model to predict the demand for farinha at constant prices. In Table 21 it can be seen that there was a substantial overall increase in the demand for farinha in the urban centers. The increase in demand takes place in the poorest segments of the urban population with the greatest nutritional problems. This increase in demand more than compensated fo r the decrease in demand in the richer segment of the population. Thus in the urban centers of the northeast demand increased from 139 thousand tons for the population with less than one minimum salary income leve!, in 19 7S , to 344 thousand tons in 198S. Similarly , in the lowest income groups of the urban centers of the south, demand increased from 13 .4 thousand tons to 31 .1 thousand tons. This indicates that if farinha prices can be maintained or reduced a substantial increase in total urban demand can be expected in the coming years. With respect to fresh cassava, the low levels of consumption in the urban areas are apparently related to the inconvenient nature of this highly perishable product. This problem is illustrated by the fac t that whereas over 90% of the farinha consumed in the urban areas enters through commercial markets only SS% of f resh cassava for human consumption follows this path (Table 22) . Furthermore the marketing margins account for 80% to 90% of the final consumer price in the t wo major urban centers of Brazil (Table 23 ) due to the high risks involved in marketing f resh cassava . The price elasticity and the income elasticity for f resh cassava were found to be high. All the above s tated facts indicate a buoyant demand for f resh cassava if the problem of perishability could be obviated. New fresh cassava conservation technology developed by CIAT has the potential to greatly reduce the perishability of cassava and also lower the price to the urban consumer thereby opening up the market for f resh cassava . 32 Table 18. Distribution (%) of people by salary class (SC) in 1976, 1981 , and 1985. Year 1976 1981 1985 Salary Class (mínimum monthly salar y=1) SC=Ü 1tal ~ixed cost s 210 . 5 200.6 205 . 5 293 . 0 909.5 Tar iable cos t s 298 . 3 40 . 2 1245 . 9 1584 . 3 ~otal costs 508 . 8 200 .6 245 . 7 1538 . 8 2493 . 9 Cr $14.20 ~ US$1 . 00 . . n.a. ~ no t avail able • 83 lble 55. a Northeast maize supply costs per ton, shadow prices, 1986, Goias, Brazil. >sts lrm level Factor costs Labor Land Capital 37.0 200.6 150.2 187.3 200.6 38.9 35.2 74.0 :ixed costs lariable costs Cotal costs 'rice Cr$6.25/ha Cr$800/ha n.a. ransportation ~ixed costs Tariable costs l'otal costs )tal ~ixed costs lariable costs rotal costs . Cr$14.20 = US$1.00 . . n.a. = not available. 173.5 148.0 321.5 210.5 298.3 508.8 200.6 200.6 130.3 130.3 169.2 35.2 204.4 Input costs Tradeables Nontradeables Total 80.1 564.1 644.2 154.2 417.0 572.2 234.4 982.0 1216.4 356.6 749 .5 1106.1 458 .0 566.0 1024.0 814.6 1315.5 2130.1 84 Table 56. a Northeast dried cassava production, processing and marketing costs, per ton, nominal prices, 1986, Brazil. Factor costs Input costs Total Labor Land Capital Tradeables Nontradeables Farm level Fixed costs 86.4 189.6 26.5 79.6 382.2 Variable costs 538.3 63 .1 7.0 76 . 2 684.5 Total costs 624.6 189.6 89 .6 86 . 6 76 . 2 1066.7 Price Cr$3 .25 /ha Cr$1000/ha 6% Processing Fixed costs 35.3 0.9 11.4 48.8 96.4 Variable costs 70 . 3 6.2 15.5 92 .0 Total costs 105.6 17.6 64.3 188.4 Transportation Fixed costs 44.0 26 .0 34 . 0 104 . 0 Variable costs 12.0 84 . 0 96.0 Total costs 56.0 26.0 118.0 200.0 Total Fixed costs 165.6 190.5 63.9 162.5 582.6 Variable costs 620 . 6 69.3 106.5 76.2 872.5 Total costs 786 . 2 190.5 133 . 2 269 .0 76.2 1455.1 a. Cr$14 . 20= US$1 .00 . 85 Table 57 . a Northeast dried cassava production, processing and marketing costs, per ton, shadow prices, 1986, Brazil. Factor costs Input costs Total Labor Land Capital Tradeables Nontradeables Farm level Fixed costs 86 .4 189.6 21.2 59.7 357 .0 Variable costs 538.3 63.1 5.6 72.4 679.3 Total costs 624.6 189.6 83.0 65.3 72.4 1036.3 Price Cr$3.25/ha Cr$1000/ha 6% Processing Fixed costs 35.3 0.9 10.7 46.2 93.0 Variable costs 70.3 6.2 10.9 87.4 Total costs 105.6 16.9 57.0 180.3 Transportation Fixed costs 44.0 20 . 8 27 . 2 92 .0 Variable costs 12.0 58.8 70.8 Total costs 56.0 20 .8 86 .0 162.8 Total Fixed costs 165.6 190.5 52 .7 133.1 542.0 Variable costs 620.6 69 . 3 75.2 72 . 4 837 . 5 Total costs 786 . 2 190.5 122.0 208 . 3 72 .4 1379.4 a. Cr$14.20 = US$1.00 . 86 lble 58 . Northeast dried cassava production, processing and marketing costsa, per ton, nominal prices, opportunity costs for labor and land, 1986 , Brazil. Factor costs InEut costs Labor Land Capital Tradeables Nontradeables Total trm level ~ixed costs 95.5 26.5 79 . 6 201.7 7ariable costs 595.2 63.1 7.0 76 . 2 741. S ~otal costs 690.7 0.0 89.6 89 .6 76 . 2 943 . 1 >rice Cr $3.60/ha Cr$0.0 / ha 6% ~ocessing ~ixed costs 26 .9 0.9 11.4 48 .8 88 . 0 Tariable costs 53.6 6.2 15.5 75.3 ~otal costs 80.5 17.6 64 .3 163 . 2 :ansportation <' ixed costs 44 .0 26 . 0 34.0 104.0 Tariable costs 12 .0 84 .0 96 . 0 rotal costs 56.0 26.0 118.0 200 .0 )tal <'ixed costs 166.4 0.9 63.9 162.5 393.7 Tariable costs 660.8 69.3 106.5 76 . 2 912 . 7 i'otal costs 827.1 0.9 133.2 269 .0 76.2 1306 . 4 . Cr$14. 20 US$ 1.00. 87 ble 59. Northeast dried cassava production, processing and marketing costs, per ton, shadow prices, opportunity costs for labor and land, 1986, Brazil. Factor costs Labor Land Capital rm level 'ixed costs 95 .5 21.2 ·ariable costs 595.2 63.1 o tal costs 690.7 0 . 0 89.0 rice Cr$3 .60/ ha Cr$0.0/ha 6% ocessing 'ixed costs 26.9 0.9 10.7 ·ariable costs 53 . 6 6 . 2 otal costs 80.5 16 . 9 ansportation ixed costs 44 . 0 20.8 ariable costs 12 .o ·otal costs 56.0 20 . 8 ·tal "ixed costs 166.4 0 . 9 52 . 7 ·ariable costs 660.8 69.3 otal costs 827.1 0 . 9 122.0 Cr$14 . 20 US$1. 00. Input costs Tradeables Nontradeables Total 59 . 7 5 . 6 65.3 46 . 2 10.9 57.0 27.2 58.8 86 . 0 133 .1 75 . 2 208.3 72 . 4 72.4 72 . 4 72 . 4 176.5 736 . 3 912.7 84.6 70 . 6 155.2 92.0 70 . 8 162.8 353 . 1 877 . 7 1230 . 7 88 Although maize production is not subsidized in a similar way to wheat, the prívate costs of supplying maize do not forro a true reflection of the social costs, because a number of taxes on inputs increase maize production and marketing costs. For example, although Brazil produces most of its tractors itself, this production takes place behind a tariff wall of 30% on the CIF-value of every imported tractor. Similarly, there is a duty of 50% added value on most agrochemicals. Internal taxes on nontradeable inputs could have disrupted further the picture of social versus prívate costs, but happened to be zero for all inputs considered. This means that costs have to be corrected mainly for the import duties on tradeable cost items in order to obtain an unbiased judgment on the social costs of maize production. Correcting these costs is complicated in the case of Brazil for a number of reasons. Brazil maintains sorne 28 different import regimes and it is difficult to discover which import regime has been effective for a certain product. In the case of production behind a tariff wall, as in the case of tractors, the nominal duty might be higher than the real duty needed to protect the industry. Additionally, although it may appear that the internal production of a certain commodity is inefficient in comparison with external production, the abolition of internal production may raise the request for foreign exchange to so high a level that internal production would appear efficient (a paradox similar to the one that can be found in defining a Pareto-optimum). Given these complications, the probable social costs of supplying maize to the northeast are outlined in Table 49. ~1aize can be supplied to the northeast at a social cost of Cr$1405 when coming from the region, at a cost of Cr$1467 when coming from the south, at a cost of Cr$2130 when coming from Goias, or at a cost of Cr$1675 when imported (Table 49). Within the social costs of maize supply, inputs play a less dominating role, but can still absorb more than 50% of total costs. Dried cassava can be supplied to the northeast at an approximate prívate cost of Cr$1455 per ton (Table 49). Comparable shares of sorne 14% are needed to process fresh into dried cassava and to transport dried cassava to the consumer. The rest, over 70%, are production costs (Tables 56 to 59). The cost structure of cassava supply demonstrates that more than 50% of the total costs are labor costs, while only 20% are input cos ts. Cassava is basically supplied by production factors and needs at considerably lower input levels t han maize. After correcting the prívate costs for subsidies and taxes a social cost of cassava supply of Cr$1379 per ton results (Table 49). The costs of supplying dried cassava in that case vary between 98% of the cost of local maize to 65% of the cost of maize from Goias. Since Brazil might well be importing maize in the coming years, the cost of supplying dried cassava versus the cost o f supplying imported maize is especially relevant. This value is around 83% . It should be taken into account that, at the moment , the f armer in the northeast does not receive complete remuneration for his production factors. In the most profitable system the net income per hectare still 89 stays at Cr$666 negative. At the same time, processing labor receives only 76% of the market wage. If cassava supply costs are calculated, not on the basis of market prices, but on the basis of the present remuneration of production factors, the supply costs as presented in the bottom of Table 49 result. In this case, dried cassava could be supplied at Cr$1306 per ton, if calculating at prívate costs, or at Cr$1231 per ton, if calculating at social costs. At prívate costs the cost of supplying dried cassava vary between 86% and 52% of the cost of supplying maize, at social costs they vary between 88% and 58%. The competitiveness of dried cassava versus maize as a balanced animal feed raw material is summarized in Table 60. Linear programming models have already shown that dried cassava would be an efficient substitute for maize in layer hen rations at 74% of the maize price. That would make dried cassava competitive in comparison with maize from Goias or with imported maize, but in the last case only if calculated with shadow prices and opportunity costs of labor and land. Although dried cassava forros an attractive option from the national point of view, sorne government support (for example, credit subsidies on processing equipment or transport cost reduction) would be necessary to make it a viable option for the prívate enterprise. Dried cassava enters as a maize substitute in pig rations at 86% of the maize price. It would therefore be competitive with imported maize or brought in from Goias and, if calculated with opportunity costs for land and labor, with maize supplied from the south. Regarding the competitiveness of dried cassava ver sus i mported maize , it is important to consider the effect of the exchange rate. For every lO% that the exchange rate goes down, the price ratio of dried cassava versus imported maize would decrease with sorne 6%. The exchange rate of Cr$14.2 to the U.S. dollar, used in this study, was the official exchange rate in October 1986. However in the black market, the exchange was almost double. therefore, it is not unrealistic to state that Brazil's exchange rate at the moment of analysis, was overvalued by at least 20%. In that case, dried cassava would be fully competitive with imported maize as an energy source for layer-hen rations, or any other balanced animal feed, especially if production factors are paid at full ma r ket rate instead of their presently low opportunity costs. It should be noted that cassava already plays an important role as fresh animal feed in southern Brazil. I t has potential to play an important role in the dried form in northeast Brazil. There is also obvious potential for cassava to form part of swine rat ions , and there also appears to be potential to fo rm part of layer-hen rations. Improved production t echnology that would decrease the cost of dried cassava would enhance this potential. Additionally, increased feed availability can be expected to stimulate further growth of the animal feed and animal production sector, partly creating its own demand. In fo rmer days , when Br azi l was a residua l exporter of maize, dried cassava production in the northeas t replaced maize from Goias, which was exported at a considerable loss . Production of dricd cassava in t he northeast therefore invoked a regional development conflict bet,veen the northeas t and the central west. At the moment, Brazil is not 90 Table 60. a Costs of supplying dried cassava as a percentage of the cost of supplying maize, northeast region of Brazil, 1986 . Maize supply region Local South Central west Imported Remuneration of factors in cassava production At market wage At opportunity costs Costs Costs Priva te Social Priva te Social 96 98 86 88 90 94 81 84 58 65 52 58 85 83 77 73 a . Maximum price ratios at which dried cassava forros part of balance feed: Laying hens: 0.737 (7% participation); Pigs: 0 . 865 (16% participation). 91 self-sufficient in maize production, and any increase in local production of ~aize or its substitutes would be welcome. Dried cassava would not only contribute to the rural development of the northeast, but would also allow Brazil to divert its scarce foreign exchange from maize to other products. Conclusions: The Need for Cassava Development in Brazil Cassava is an important crop in Brazil. It holds eighth place as regards to area planted, and seventh place regarding monetary value. After rice and sugar, it shares third place with wheat, beans, oils, and fats in providing calories for the Brazilian diet. Cassava is an especially important crop in Brazil because it is grown mostly by small farmers and consumed mostly by poor urban or rural consumers. Therefore the crop can play a dominating role in equity oriented programs that aim to mitigate the effects of the skewed income distribution of the country. The importance of cassava stems not only from its monetary value, but also, possibly to an even larger extent, from the specific functions it has performed and will perform within the Brazilian economy. One of these functions is the provision of a gradual, well-spread cash flow to severely financially constrained farmers. This steady cash flow allows these farmers to purchase daily life essentials through most of the year without having to borrow at often excessive rates. Another function of cassava has been its availability in times of drought and famine. During the drought period from 1978 to 1983 in the northeast of the country, cassava was, for many people, the first and often only relief from starvation. For the government it was one of the buffers against social unrest. A third important function stems from its ability to grow in marginal agroecological conditions. In many parts of the northeast it forros the only viable crop for the peasant population, and in northern Brazil it allows the colonizers a readily accessible calorie source to survive the first tough years of opening up the land. Finally, because of its high-yield potential per hectare, it forros an extremely cheap calorie source for onfarm animal feeding, particularly in southern Brazil. Here the availability of high-yielding cassava has allowed small and intermediate farmers to intensify their agricultura! operations, venturing into export crops such as soybean, and· pig production. Brazil is the most important cassava producer of the world, but this position is apparently at risk because of the reduction in production that has taken place in the last 15 years. Between 1970 and 1985 production went down from 29 to 23 million tons, which means that per capita production was almost halved. The urbanization process, which always tends to negatively affect rurally produced traditional staples, has been a first cause for the decreasing importance of cassava. In the rural areas of Brazil consumption levels of fresh cassava as well as farinha are about three times as high as in the urban areas. 92 Another reason for the decreasing importance of cassava can be found in the agricultura! policies of Brazil. Most agricultura! policies of Brazil have been directed toward export promotion (soybean, cotton) and, in a later phase, import substitution (sugarcane and, to a certain extent, wheat). The most important policy instruments have been the provision of subsidized credit as well as the development of a mínimum price support program. The direct budgetary costs of these programs have not been excessive, certainly not compared to spending in USA or EEC agriculture, except for the case of wheat, where a price subsidy of over a billion U.S. dollars takes place. However, the emphasis on export crops carne at the expense of domestic food crops. As a result, growth in food supply in Brazil has been inadequate and the nutritional condition of the Brazilian population is poor. Low-input crops such as cassava are naturally disadvantaged by credit subsidies, but additionally the amounts of credit available for cassava were very much smaller than those for example, soybean, cotton, or maize . On top of that, most cassava farmers have problems fulfilling the official requests for credit. At the same time, it appears that the mínimum price programs for cassava (flour) have not been functioning well . These factors have led to large-scale substitution of cassava by soybean, especially on the fertile land of the south. Moreover, the regional development policies pursued by the Brazilian government did not favor cassava . Since the sixties and the foundation of Brasilia most efforts have been directed towards opening up the agricultura! frontier in central west Brazil. The south and southeast, which had relatively high development levels anyway, could autonomously finance infrastructure expansion. They also benefited from the spinoff from the development of the central west and by the export-oriented agricultura! policy, directed to crops grown in the south. The northeast, where cassava production was concentrated, not only was neglected but was adversely affected by regional policies in the rest of Brazil. The knockout blow for cassava in Brazil has been the wheat subsidy. Between 1970 and 1980 wheat prices decreased from about equal to only one-third of the farinha prices. Consequently~ wheat consumption doubled, at a high cost to farinha consumption . Just as the present status of cassava has been defined by agricultura! policy , its future role will also be determined by policies. The question, therefore, is to what extent the existing policies can be expected to stay the same or to change in favor of or against cassava production and utilization. In 1985 Brazil returned to a democratic government, after two decades of military rule. The new democratic government is more inclined to direct policies to those f ields where the benefits for the electorate are largest. Among other objectives, adequate nutrition of the population and control of the previously galloping inflation will be stressed. For both reasons it is not expected that the wheat subsidy will be eliminated, but it may well be that other food products will receive more attention. 93 At the same time the democratic government is looking for development opportunities in the northeast where more than 35 million people are living . In collaboration with the World Bank, a special program for the northeast (SUDENE) has been established. Within this program cassava development could help to improve income prospects of the rural poor. A third consideration for the Brazilian government is the continued scarcity of foreign exchange, mainly due to the large interest and debt service payments . Consequently, the government is interested in autonomous development of its industrial sector and in maximum levels of agricultura! self-sufficiency. The growth of the Brazilian animal-feed industry up to the present has been mainly supported by domestic maize production, incidentally supplemented with imported maize. In this respect, it has responded satisfactorily to the government desire to save foreign exchange . However, it appears infeasible that maize supply will grow quickly enough to maintain the historie growth rate of the animal feed industry . Instead of importing maize, the government could decide to promote the use of dried cassava in animal feed rations. Apart from the positive effect on foreign exchange availability, this could shift the regional balance of animal feed production (and probably swine and poultry production and consumption) towards the northeast . The recent changes in the Brazilian political environment will have lasting effects on the government's policies . Issues that were neglected until recently will receive more attention. The government will emphasize the development of the northeast, will try to control inflation, will try to improve the nutritional status of the poor urban dweller, and will attempt to redress its balance of payment . It can be concluded that the future for cassava in such an environment is more promising than in the past. In the same way, it can also be concluded that cassava's potential to contribute to government policies is larger than in the past. However, to realize cassava's contribution towards development it is necessary to focus on the most appropriate ways of utilization. At present, cassava is mainly utilized in four different forms in Brazil. The most important form is farinha . Farinha consumption has been declining over the last 15 years, basically because its relative price has become less competitive . It remains and will remain, however, a very important product for the Brazilian consumer, especially for the very poor . Given the increasing numbers of poor people in the Brazilian cities (the urban income distribution has become notably worse) it can even be shown that farinha demand at constant prices has increased over the last ten years. To improve the role of farinha as a staple food an integrated strategy is necessary . Increased per capita consumption will basically depend on better availability, better quality, and lower prices . Therefore, efforts should be undertaken to decrease the costs of cassava production and to streamline farinha processing and distribution . The distributive impact of cheaper farinha is considerable. Pachico (1981) calculated that 46% of potential benefits would accrue to the poorest 25% of the population . \villiamson-Gray (1982) calculated that of each 94 dollar of subsidy spent on farinha 60 cents would be transferred to the poorest 30% of the population. For bread and rice those figures would only be 18 and 23 cents. Nutritional policies aimed at adequate dietary intake could be conveniently focused around farinha. Such a policy would have a relatively small leakage to more wealthy consumers and would be both cheap and effective. The second traditional utilization is "aipim" (fresh cassava). "Aipim" consumption levels are under extreme pressure because of the exorbitant marketing margins that are charged (over 80%). For fresh cassava to play a larger role as a secondary staple or vegetable, it is necessary to diminish these marketing margins. The introduction of storage techniques, which might have an additional effect on "aipim" quality, will be critica! for increased fresh consumption. The third utilization of cassava in Brazil is as starch. Cassava starch is easily interchangeable with maize or sorghum starch and its competitiveness depends mainly on the price/quality relation at which it can be supplied to the market. Since 65% of starch production costs are for raw material, the reduction of production costs becomes the critica! factor. At the same time, ways in which costs of processing can be diminished or ways in which quality of the final product can be improved should be evaluated. The fourth utilization is for onfarm animal feeding. It can be safely stated that the utilization potential for onfarm cattle and swine feeding in Brazil is immense. Realization of this potential is dependent on further reduction of costs of production, together with improved storage and feeding systems. Silage systems, such as at present developed in Mexico, might have special value for this purpose. Apart from the existing end uses, the development of dried cassava production for animal feed purposes has great potential. Present production costs already allow the introduction of dried cassava in animal feed rations, but with improved production technology the benefits of dried cassava to both producers and consumers are going to be enormous. A dried cassava industry would diminish the need to import maize, would stabilize cassava onfarm prices and would greatly extend the market size for the ~rop. A rough estímate suggests that in the northeast alone around 3.5 million tons of cassava per year could be used in animal feed. The variety of end uses and the strong differences between the regions of the country allow and necessitate the development of specific regional cassava programs. As far as the north is concerned, it is expected that cassava will maintain its role as a settler's crop. Appropriate development of cassava hinges on striking the right balance between ecological considerations such as yield sustainment and minimal erosion, and the colonist's anxiety for land. In the north settlers occupy large areas of land, often more than 100 hectares per farm. The intensive cultivation of cassava could decrease mínimum farm sizes and reduce the rate of frontier movement. 95 In the northeast, cassava development should be directed towards the creation of a dual market system. For the coming decade, farinha will stay the most important utilization of the crop and a strong effort should be made to maintain its critica! role in the northeast diet. Nevertheless, in an environment of continuing urbanization and wheat subsidies, its market prospects are not expansive. Since the small farmer in this region is dependent on cassava, the opening up of the animal feed market will be highly beneficia! for his earning capacity. Apart from the development and extension of cassava drying and industrial marketing systems, the success of this alternative market outlet will be greatly determined by the degree to which production costs are decreased. Since reduced production costs are also essential for the maintenance of farinha consumption, this implies that there is a basis for developing a strategy for both farinha and animal feed production development, The southeast of Brazil has the most complicated utilization pattern, with farinha, starch, fresh cassava, and onfarm feeding existing simultaneously. The starch market appears to have good prospectives for income, market development, and competitiveness reasons. Further development of it will depend on reducing production costs, basically by increasing the relatively low-yield levels of the region. In southern Brazil, the domínate cassava market is for cassava as an onfarm animal feed. Enhancing cassava's role in this burgeoning market segment depends on a further decrease in production costs. These are already low, but might be reduced by the introduction of improved genetic material. Increasing cassava's importance for onfarm feeding would be an indirect means of increasing protein availability in urban and rural diets as well as farmers' incomes. In the south fresh cassava consumption is higher than in any other region. The introduction of storage methods would allow fresh cassava consumption to stabilize itself or increase above present levels. This, in turn, will improve its role as an income source for urban-oriented fresh vegetable producers. It is clear from the analysis described previously that cassava will have a prominent role in the agricultural sector of Brazil. The ability of cassava to substitute for feed grain imports, to supply calories to the poorest strata of society, to provide incomes and steady cash flows to small farmers with marginal land resources, and to provide semi-industrial employment in processing activities will convert the crop into an efficient agricultura! policy instrument. The present política! situation, in which a newly established democratic government tries to direct its policies more to the welfare of the overall electorate, provides the best opportunity of the last thirty years for cassava to contribute to balanced economic development of this South American giant. Appropriate inclusion of cassava in its development plans will surely guarantee the consolidation of Brazil's first place in the world's cassava league. 96 References Pachico, D. 1981. Technical change in agriculture and poor consumers: the distributional impact of improved cassava production technology in Brazil. Centro Internacional de Agricultura Tropical (CIAT), Cali, Colombia. (Mimeographed.) Williamson-Gray . 1982. Food consumption parameters for Brazil and their application to food policy. Research Report No . 32. International Food Policy Research Institute (IFPRI), Washington, DC, USA . World Bank. 1979. A review of agricultura! policies in Brazil. Report No. 3305-BR. Washington, DC, USA . COLOMB IA: POTEN TI AL DEMAND FOR CASSAVA COLOMBIA: POTENTIAL DEMAND FOR CASSAVA Macroeconomic Policy and Agriculture 1 Economic policy contex t 1 The policy environment 1 Agricultura! Policies 6 Specific agricultura! policies 9 Price and commercialization policies 13 Credit policies 13 Research and extension policies 15 Concluding comments 19 Status Quo of Cassava in Colombia: Supply and Distribution 19 Present status 19 Fresh cassava consumption 21 Econometric analysis of demand 27 Cross sectional data 27 Time series data 29 Other uses 29 Potential demand for cassava 32 Carbohydrate foods 32 Meat consumption 34 Projec~ed demand for cassava 36 Basic assumptions 36 Fresh cassava 36 Dry cassava 38 Concluding Comments 42 References 49 COLOMBIA: POTENTIAL DEMAND FOR CASSAVA Macroeconomic Policy and Agriculture This section focuses on the various economic aspects that have influenced resource allocation in Colombia, particularly between the agricultural sector and the rest of the economy (in a macro context) and within the agricultural sector during the past two decades. The analysis of the set of policies applied should contribute t o the understanding of the role that the food and fiber sector have played in the development of the country, how that role has evolved, and more importantly how it is likely to evolve in a near future. Once we reach an understanding of this participation, we will focus on the role of cassava and its products and their potential demand in the near future . Potential demand will be determined by focusing on the consumption of carbohydrates by humans, for which cassava plays a basic role, and on the market for meats where cassava can be incorporated as a source of energy in feed rations. Economic policy context The Colombian economy has experienced stable and r apid growth since the mid-1950s. This growth has had as its platform, the performance of the agricultural sector which contributes nearly a quarter of the gross domestic product (GDP) (Table 1), clase to two-thirds of export earnings (mainly from coffee) and one-third of total employment in the economy. Agriculture's share in GDP is twice as high in Colombia as it is for Latin America and the Caribbean (LAC) region. Overall, Colombia's per capita GDP for 1985 was US$1,243 (15 among 25 LAC countries, Table 2) . Real GDP grew atan annual rate of 4.2% from 1964 to 1967, 6 . 4% from 1967 to 1974, and at 5 . 3% from 1975 to 1980, only to slow down in to 1. 9% from 1981 to 1985. This growth was accompanied by rates of growth of 2.8% , 4.7%, 4.1% and 1.4% for the agricultural sector, respectively. Population growth was around 2.1% per year in the period 1965-85, and has since decreased to about 1.5% per year . Urban population accounts for 70% of the total. International reserves were US$3 billion at the end of 1986. For this same year, exports are calculated to reach US$4.5 billion and imports around US$4 billion. The policy environment In broad terms, Colombia has striven for food self-sufficiency. Out of 12 items that supply about two-thirds of the protein and calorie requirements of the population, almost all were produced internally (Garcia, 1983). The country went from an import substituting policy to an export promotion policy in 1967 (Decreto 444) . A continuous devaluation policy (crawling peg) was adopted, improving the terms of trade by reducing the overvaluation of the Colombian peso . Total exports grew at an annual rate of 4 . 6% in the period 1970-75, 12 . 0% in 1976-80, and decreased by -5.4% in 1981-83 while agricultural exports grew at 2.0%, 13.8% and 2 . 8% in those years . 2 Table l. Gross domestic product (GDP) of Colomb i a and contribution of Year 1960 1965 1970 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Period 1960-67 1967- 78 1978-85 1981- 85 a agriculture to t he GDP • Total Contribution GDP agriculture to (millions Col $) (millions Col 71 ' 902 24 ,305 90,351 27,834 119 , 797 34 , 245 163,399 44 ,066 170,227 44 ,905 178,326 46,097 194,818 50,575 203,664 52,6 18 211 , 930 53,954 217,228 55 ,580 219.183 54 ,62 2 221 , 375 55,606 228 ,459 56,940 234,956 58,591 Average annual growth of GDP (%) 4 . 6 6 .0 2. 4 2 . 0 a . Figures given in constant 1970 prices . SOURCE: I DB. 1986 . of Contribution of GDP agriculture to GDP $) (%) 33 . 8 30 . 8 28 . 6 27 .o 26 . 4 25 . 8 26.0 25 .8 25 .5 25 . 6 24.9 25 .1 24 .9 24 . 9 Average annual growt h of agr i culture (%) 2.9 4. 5 1.8 1. 5 Table 2. Total and per capita gross dorrestic product (mP) by country (1960, 1970, 1980, 1983-85). Total illP (M:iJ.l:1oos 1984 dollars) Per capita illP (1984 dollars) Country 1960 1970 1980 1983 1984 1985a 1960 1970 1980 1985b Argentina 35,236. \ 52,874.0 67,144.3 61,543.9 63,023.8 60,250.8 1, 710 2,227 2,387 1,971 Bahamas n.a. n.a. 1,667.5 1, 726.3 1,778.3 1,840.5 n.a. n.a. 7,444 7,275 Barbados 379.5 692.9 816. 1 758.4 775.0 793.7 1,650 2,911 3,1.03 2,865 Bolivia 2,611.9 4,245.9 6,594.9 5,692.0 5,518.2 5,402.6 793 989 1,178 840 Brazil 59 ,345.8 100,712.5 228,798.6 220,137 .4 230,043.5 249,137.2 821 1,086 1,923 1,852 Qú.le 11,572.9 17 ,510.7 22,480.6 20,237.4 21,520.6 21 ,947.3 1,524 1,870 2,025 1,817 Colarbia 10,466.2 17,431.9 29,805.6 31,069.2 32,063.5 32,961.3 673 834 1.195 1,243 Costa Rica 1,373.3 2,445.6 4,233.3 3,946.0 4,240.8 4,309.5 1,040 1,417 1,910 1,708 Darrinican Republic 2,213.6 3,631.9 7,099.7 7,808.0 7,837.1 7,665.0 643 847 1,280 1,225 Ecuador 2,774.0 4,461.8 10,469.5 10,675.7 11,108.4 12,462.1 626 749 1,300 1,222 El Salvador 1,750.2 3,029.9 4,163.7 3,633.4 3,687. 2 3,746.2 658 856 923 771 QJatenala 3,474.2 5,936. 1 10,287.4 9,733.8 9,795.3 9,685. 7 886 1,140 1,488 1,216 Guyana 416.5 583.1 689.3 566.7 588.0 593.9 690 814 876 720 U.> Haiti 1,047.5 1,134.9 1,801.6 1,697.8 1,727.8 1,757.5 293 268 359 320 Honduras 1,158.4 1,885.2 3,001.4 2,968.0 3,050.9 3,142.4 583 696 810 719 Janaica 2,506.7 4,222 .6 3,868.9 4,097.8 4,081.4 3,918.1 1,490 2,259 1,81/1 1,701 ~co 44,116.4 86,895.0 164,658.3 167,459. 1 173,614.9 178,288.9 1,190 1,698 2,402 2,248 Nicaragua 1,307.0 2,548.3 2,638.7 2,880. 1 2,839.4 2,764.2 870 1,294 954 845 Panarra 1,162.8 2,496.7 4,268.3 4, 708.1 4,687.6 4,841.4 953 1,617 2,183 2,218 Paraguay n.a. 2,528.2 5,861.6 6,120.5 6,308.7 6,559. 1 n.a. 1,104 1,850 1,777 Peru 9,117.3 15,203.6 21,351.1 19,540.5 20,465.4 20,772.4 878 1,134 1,232 1,055 Surinan:e n.a. n.a. 1,125.3 1,104.2 1,102.7 1,046.2 n.a. n.a. 2,900 2,642 Trinidad and Tobago 1,436.3 2,165.9 3,462.1 3,578.5 3,342.4 3,359.1 1,706 2,268 3, 165 2,837 Uruguay 4,827.6 5,629. 1 7,577.7 6,649.4 6,429.1 6,472.7 1,902 2,080 2,651 2,208 Venezuela 16,936.2 30,492.8 45,682.6 43,279.7 42,693.8 42,527.6 2,127 2,735 3,041 2,451 Uit:In Arrerica 215,230.8 368,758.6 659,548.1 641,611 .9 662,323.8 685,245.4 1,040 1,380 1,933 1,782 a. Preliminary estúmte. b. n.a. = Not available. OOURCE: IDB. 1986. Table 3. Stat istical profile of Coloobia. Population: Total. 1984 (69.9 % urban) Amual growth rate 1970-85 Birth r ate (1981) }brtality pe:r 100 inhabitant s (1982) Infant !IDrtality per 100 live births (1981) Life expectancy at birth (1981) Percentage of literacy (1981) Labor force by sect or (1980) Agriculrure Nanufacturing CamErce an:i finance Servi.ces Others Real Prcxiuction Total CDP (ma.rket prices) Agriculrural sect or Hin:ing sector M!mufactur:ing sector Calstruction sector Public Sect or Current revemJeS unt % 1\nnunt % 1950 620 - 1,155 - 1,775 - - - - - - 1,775 1955 1,230 14.7 2,640 18.0 3,870 16.9 - - - - - 3,870 1960 3,230 21.3 2,415 -1.8 4,735 4.1 - - - - - 4,735 1965 4,030 4.5 2,706 2.3 6,736 7.3 - - - - - 6,736 1970 7,193 12.3 1,540 -10. 7 8,733 5.3 nd.a - - - - - 8,733 1971 7,554 5.0 1,513 -1.7 9,067 3.8 ro. - nd. - nd. - 9,067 3.8 1972 8,221 8.8 1,608 6.2 9,829 8.4 15 - nd. - 15 - 9,844 8.5 1973 8,489 3. 2 1,473 -8.3 9,962 1.3 20 33.3 nd. - 20 33.3 9,982 1.4 1974 9,240 8.8 1,265 -14. 1 10,505 5.4 60 200.0 nd. - 60 200.0 10,565 5.8 1975 9,369 1.3 1,102 - 12.8 10,471 -ü.3 60 o nd. - 60 o 10,531 -ü.3 1976 8,911 -4.8 905 -17.8 9,816 -6.2 50 -16.6 nd. - 50 -16.6 9,866 -6.3 1977 7,890 -11.4 722 -20.2 8,612 -12.2 32 -36.0 559 - 591 1,022.0 9,173 -7 .o ...... ...... 1978 6,728 -14.7 455 -36.9 7,183 -16.5 21 -34.3 529 -5.3 550 -1.9 7,733 -15.6 1979 6,235 -7.3 378 -16.9 6,613 -7.9 38 80.9 354 -33.0 392 -28.7 7,005 -9.4 1980 8,506 36.4 516 36.5 9,022 36.4 41 7.8 1981 10.033 18.0 843 63.4 10,876 20.5 64 56.1 1982 8,794 -12.3 1,010 19.8 9,808 -9.8 89 39.1 1983 - - 960 -4.3 - - 59 -33.7 a . nd. = ro data available. 9XJRCE: Peru: El Agro en Cifras. Table 5. Agricultura! credit share in total credit (%) granted by the different sectors of the national financing systcm, 1950-1980 , Peru . Bankins Sl_Stem Banking Cornmercial Nonbanking Year improvement banking Total system 1950 28.3 12 . 3 15.3 - 1955 23.5 16 . 3 18 . 0 - 1960 48 . 9 14.4 25.0 - 1965 42 . 4 11.0 19 . 6 - 1970 49.0 6.6 22 . 6 nd . a 1971 45.7 5.5 20.2 nd. 1972 41.1 5 . 1 19.0 o. 1 1973 37.7 4.4 17 . 6 o. 1 1974 38 .6 4 . 1 18 . 8 0 . 3 1975 36.3 3.3 17.3 0.3 1976 35.5 3.0 18.1 0.3 1977 33 . 5 2 . 8 17 . 4 3.6 1978 33.4 2 . 2 16 . 7 4 . 0 1979 36.1 1.7 16.9 4.3 1980 42 .0 1.9 17.0 nd. a . nd . = no data available . SOURCE: 1950-1960 Superintendencia de Banca y Seguros . 1965- 1979 Cuentas Financieras del Perú BCR , cited by Salaverry Llosa, op.cit . 1979-1980 Cuentas Financieras del Perú BCR . Financing system 15.3 18 . 0 25.0 17.1 17 . 9 15 . 8 14.8 13.9 14.5 13 . 4 13.5 14 . 0 13 . 7 14.5 nd . ...... !'..: Table 6. Loans (mi.llioo.s of Sols) granted by Banco Agrario by type of crop, 196(}-1983, Peru. Cottcn Rice Coffee Sugarcane Fruit Maize Po tato Wheat Other Total Year Anount % Annunt % hrolmt % Annlmt % Annmt % Arrount % Atrount % /llrount % Arrount % Alrount ~ 1960 441 59.2 128 17. 2 35 4.7 4 - 26 3.4 22 2.9 411 5.9 9 1.2 35 4.7 744 100.0 1965 846 55.5 203 13.3 95 6.2 34 2. 2 50 3.2 121 7.9 82 5.3 S 0. 3 88 5.7 1,524 100.0 1970 855 27.9 1,037 33.9 250 8.1 100 3.2 117 3.8 223 7.2 224 7.6 4 0.1 239 7.8 3,058 100.0 1971 1,235 31 .0 1,246 31.3 245 6.1 324 8. 1 124 3.1 333 8.3 165 4.1 14 0.3 272 6.9 3,976 100.0 1972 1,244 31.9 1,120 29.1 212 5.5 268 6.9 132 3.4 360 9.3 205 5.3 13 0.3 310 8.0 3,84!. 100.0 1973 1,778 34.3 1,568 30. 2 168 3.2 364 7.0 169 3. 2 412 7.9 291 5.6 13 0.2 406 7.9 5,178 100.0 1974 2,414 33.1 2,130 29.3 244 3.3 640 8.7 247 3.4 566 7. 7 514 7 .o 62 0.8 463 6.4 7,283 100.0 1975 2,552 22.6 3,956 35.0 351 3.1 561 4.9 475 4. 2 1,388 12.3 1,056 9.3 85 0.7 857 7.6 11,282 100.0 1976 3,827 24.1 5,599 35. 3 422 2.6 421 2.6 614 3.8 2,042 12.9 1,414 8.9 85 0.5 1,439 9.0 15,865 100.0 1977 4,964 23.5 7,197 34.1 726 3.4 713 3.3 847 4.0 2,416 11.4 2,315 10.9 101 0.3 1,820 8.6 21,099 100.0 1978 10,133 32.1 8,884 28. 2 1,639 5.2 726 2.3 1,644 5.2 3,112 9.8 3,552 11.2 144 0.4 1,654 5.2 31,488 100.0 1979 22,031 32.9 18,733 28.0 3,028 4.5 2,687 4.0 2,584 3.8 5,253 7.8 5,160 7.7 270 0.4 7,053 10.5 66,804 100.0 1980 40,222 21.3 34,252 18.2 5,910 3.1 8,415 1.3 (1) (1) 7,201 3.8 13,571 7. 2 394 0.3 84 ,681 44 .9 188,646 100.0 ~ 1981 50,806 23.8 76,734 35.9 4,654 2.1 12,660 5.8 (1) (1) 14,217 6.7 29,985 14.0 432 2.0 23,942 11 .2 213,430 100.0 w 1982 62,658 22.2 111,641 39.5 6,528 2.3 12,772 4.5 (1) (1) 21,188 7.5 28,144 9.9 282 0.09 39,254 13.9 282,467 100.0 1983 96,265 18.1 244 ,583 45.9 16,131 3.0 20,467 3.8 (1) (1) 33,137 6.2 64, 188 12.1 302 0.05 57,178 10.7 532,251 100.0 SOORCE: El Agro en Cifras. Table 7. Area (ha) rcceiv-lng credit f rc.m the Banco Agrario according to type of crop, 1970-1983, Peru. Sugar Year Cotton Rice ~hlze Coffee Po tato Sorghun Bean Wheat cane Jute Other Total 1970 77 ,926 86,604 32,500 34,950 15,075 2,750 6,908 1,057 4,588 4,368 30,412 297 ,138 1971 100,899 90,929 46,731 36,321 11,111 5,700 9,036 2,900 14,222 5,439 26,998 350,286 1972 91 ,712 71 ,628 47 ,504 27 ,743 13,033 9,359 9,969 2,555 15,066 3,505 26,781 318,595 1973 111,542 87,159 49 ,325 21,426 15,351 7,170 10,742 2,165 11,405 2,455 31,749 350,489 1974 116,508 83,317 49,698 25 ,030 21,732 5,095 11,206 7,950 11,733 1,188 36,190 369,647 1975 101,862 120,173 82,378 26,320 28,383 12,869 13,466 7, 783 16,246 1,899 54,422 465,301 1976 106 ,418 125 ,187 103,612 28,329 29,664 21,370 14,035 5,936 9,109 3,115 58,730 505,505 1977 97,896 122,338 94,879 30,573 31,079 23,624 12,347 5,476 9,044 4,461 55,215 486,932 1978 106,718 105,039 78,633 43,729 31,482 18,017 13, 713 4,811 7,994 4 ' 7(JJ 48,200 463,190 1979 126,363 120,690 76,244 45,292 29,505 21,034 15,243 4,579 6,335 4,891 49,590 499,946 1-' 1980 139 ,524 130,156 68,591 49,939 38,776 21,267 13,549 4,300 8,183 2,912 51,509 528,706 .p.. 1981 119, 133 162,598 84,889 35 ,577 50,053 15,219 18,375 3,364 11 ,484 2,837 61,987 565,516 1982 105,138 159 ,291 79,303 36 ,883 38,889 15,687 13,569 1,787 35,002 3,505 59,273 548,337 1983 71 ,790 161 ,306 101,712 36,391 L,6 ,008 13 ,263 4,919 805 5,104 1,936 11,080 454 ,314 SOURCE: El Agro en Cifras. 15 Tabl¿ 8 . Public banking nominal and r eal interest r a tes (%) for agriculture , 1960-1 980, Peru . Year 1960 196 1 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 197 3 1974 1975 1976 1977 1978 1979 I nterest rates on loans for food crops 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 + 4)b 10 (10 10 (10 + 4)b 24 (24 + 2)b 27 (27 + 2) b Changes in Lima ' s Consumer Price Indexa (2) 7.9 5.9 6 . 6 6 .0 9 . 8 16.4 8 . 9 9 . 8 19 .1 6 . 2 5.0 6 .8 7 . 2 9 .5 16 . 9 23.6 33 .5 38 . 1 57.9 67.7 App r ox . of the real rate of interest (1)-(2) - 0 . 9 1.1 0 . 4 1.0 - 2.8 - 9 . 4 -1. 9 - 2 . 8 -1 2. 1 0 . 8 2 . 0 0 . 2 - 0 . 2 - 2 . 5 - 9 . 9 -16 . 6 - 23 . 5 - 28 . 1 - 33 . 9 - 40.7 a . Conceptually , Lima 's CPI is notan adequate index by which t o deflate t he r eal interest rate on farm credi t. However, no other price index was available . b . The figures in parentheses show t he nominal rate of interest . For ins tance, 14% in 1976 : the producer was charged 10% and the Treasury paid the difference (4%) . SOURCE : Valdes and Alvarez. 16 Concluding comments on agricultura! policies Valdes and Alvarez analyzed the growth of agriculture among different commodity groups over the past three decades. They show how production of food for urban consumption, that is, rice, beef, pork, poultry, and mil, had a fairly dynamic growth rate of 3.5% or more over the period. Production of export crops, that is, cotton, sugar, and coffee, grew very fast in the fifties, stagnated in the sixties, and had a slow growth in the seventies. Aggregate production of Sierra items such as wheat, barley, potatoes, and maize virtually had no growth at all during these 3 decades. In response to protectionism, the food industry grew fast but with a high degree of concentration in terms of market power as well as regionally. Important oligopolies, receiving significant levels of foreign capital, emerged in wheat milling, animal feeds and poultry raising activities, oilseeds and fat, and dairy products. The major processing plants were located in and around Lima (Lajo). These industries found it easier to lobby for imported foodstuÍfs which conveniently arrived at the port, were of homogeneous quality, and were accompanied by credit packages and other attractive concessions, than to purchase those inputs produced by their own country. As a result, the emergence of important food and animal-feed processing industries in the country was not accompanied by a significant response in the production of local raw materials. The general policy scheme leaves perishables (and therefore not tradeable at a market disadvantage within the system. Tradeables are protected by exchange rate distortions linked to protectionism and by the implicit and explicit set of consumer and producer subsidies directed to these crops. Nontradeables such as potatoes and cassava are therefore produced and marketed within a high cost structure. Status Quo of Cassava in Peru: Supply and Distribution Fresh cassava is an important staple in the rural sector of Peru, where it contributes about 3% of the caloric intake of the population. It is also important in the Selva where per capita annual consumption is over 150 kilos and in sorne areas represents 3% of food expenditures. According to the ENCA survey of 1972, Lima accounts for 8% of the total national consumption, while the rural areas account for 72% of that total. The survey established that about 65% of root and tubers, especially cassava, are consumed in the Selva where 75% of cassava in Peru is produced on family farms (Table 9). Total cassava production declined atan annual rate of 7.5% over the 1966-83 period (Table 10). Most of the production corees from the Selva (75%). Cajamarca is the major producer with 25% of the total, most of which comes from Jaen in the northern Selva. Then comes Loreto with 15% (in the Selva) and Cuzco (1 2%) in the Sierra (Table 11). Clearly, the rapid process of urbanizat ion which occurred in Peru during the past three decades has been detrimental to the consumption of Table 9 . Annual consumption of cassava and telative i mpor tance in the food budget , 1972 , Peru . North Upper Lower North Metropolitan coas t Selva Selva Si erra Lima Urban Rural Urban Rural Urban Rural Urban Rural % Exp . food 0.91% 1. 20% 1. 30% 1.70% 2 . 90% 0 . 80% 1 . 40% Lower Kg/family 10.1 76 . 5 99 . 9 196 . 0 na na na income level Centxal South South Centxal Medium coast coas t Sierra Sierra income level Urban Rural Urban Rural Urban Rura l Urban Rural % Exp. food 0 . 4% 0 . 4% 0. 5% 0 . 4% 0 . 1% o . 1% 0.20% 0.3% Uppex Kg/family 22 . 6 16.0 28 . 0 15.0 l. O 0 . 5 9 . 6 5 . 4 income level SOURCE: ENCA . Na tional Survey on Food Consumption. 0 . 4 1% 24 . 0 0 . 4% 21. 0 0 . 2% 12 . 9 1-' -.....! Table 10 . Produc tion and trade of major carbohydrates (in thousands of tons), Peru. Production Imports Populat. (in mil- \ 26 The results confirm the hypotheses that government policies which protect and subsidize wheat and rice are partly responsible for the lower consumption of this local staple, and that urbanization is also responsible for t he reduction in demand . Potential demand for cassava Cassava has the potential to become a basic carbohydrate source in Peru in the near future . It can contribute directly to improve the calorie intake of t he population and, very important ly, it can also contribute to the production of animal meats by entering in feed formulations, complementing other energy sources that are currently de ficit in their local production (mostly sorghum and maize). Carbohydrate foods . Carbohydrate consumption has experienced important changes in composition toward grains and away from roots and tubers during the past two decades, as a result of government policies directed to favor cereals and exclude roots and tubers from its plans. While per capita consumption of cassava and potatoes dropped from 4.9% in 1966 to 3.5% in 1983 , that of rice and soft maize increased at 1 . 1% and 1.4%, respect ively, and wheat showed no significant change at 0 . 1% per year. Furthermore, t he relative prices of cassava and potatoes increased with respect to those of rice and wheat . Soft maize exhibits higher per capita consumption and higher real retail prices. This points at a difficult data problem rather than consumer behavior; it is difficult to separate data on soft maize from that on yellow maize for direct human consumption , onfarm feeding, and industrial use, even when accounting for changes in onfarm consumption and commercialization of the two kinds of maize . For that reason, data for soft maize exhibits atypical behavior (Table 12 and 13). Annual per capita consumption of wheat oscillated around 55 kilos over the 1966-83 period. Local production increased from 150 , 000 t ons in the early sixties to just over 80,000 t ons in the eighties, while imports increased from about 400,000 tons to almost 1 million tons during the same period . The price of both domestically produced and imported wheat was controlled until 1984 at below world levels on entering flour mills . Domestic wheat (mostly soft whole grain) for uses other than f lour milling did not have a controlled price. In 1981, nearly 120,000 tons were produced locally and yet only 67 tons, that is, almost nil, went to milling (Orden et al . ): it is mostly consumed directly, cspecially in the Sierra . The milling industry is therefore totally dependent on imports . Imports are based on a quota syst em for millers administered by ENCI. Starting in 1984 , millers (who now absorb 90% of local production) must buy a share of local wheat at free and higher-than-import prices. A consumer wheat-flour price subsidy exists so that mills have paid much less for flour going to bread and noodles, which are basic items in the diets of poor Peruvians (Asagro). In 1985 , the new APRA Government again reinforced this position of making wheat one of the basic foodstuffs by formulating a strategy of the 27 popular bread based on a l ess restrictive milling rate of 87% (in contr ast to the usual 75%) and providing a higher subsidy fo r the resulting bread. For a country with serious fo reign exchange restrictions, this strategy , based on imported food , may be difficult to maintain . Rice is the other staple cereal in Peru . ECASA has had monopoly rights t o mar ke t both domestic and imported rice. Mill ing of rice is perfo rmed by prívate firms under contrac t to ECASA. The price of unpolished rice is fixed by t he gover nment. To sell rice t o a local mill, the producer needs an income arder f rom the r egional ECASA office . In Lima ECASA sells the rice directly t o retailers and charges sorne transport costs. In other parts of the country , retaile rs mus t pick up the rice f rom ECASA or the designated rice mill . Producer prices have maintained around a 15% margin in favor of Selva producers over coas t al producers. Consumer prices f or ordinary rice (up to 35% of broken grains) are fixed , while s uperior (up t o 2%) and extra (up to 5% broken grains) qualities are uncontrolled . The price structure that appears in Table 17 still prevails but due t o rampant inflation, producer prices of polished rice equi valent were S/3500 in ea rly 1985 while the consumer price of ordina r y rice wen t up to S/2910 (Programa de Abastecimiento, Arroz, 1985) . In 1986 , paddy rice hada suppor t price of US$230, or about US$350 for whit e rice equivalent a t 14% humidity, a price well above the import cif (Callao) pri ce of US$2 15 . Per cap ita consumption of white rice is clase t o 30 kilos per year (45 kilos of paddy rice) . About three quarters of production comes from the northern part of t he country with the Sel va (San Martin, Loreto , Ucayali) showing a s i gnificant growth . However , commercialization of surpluses from the Selva constitutes a maja r bottleneck due t o inadequa t e roads to Lima (Programa de Abas t ecimiento, Arroz 1985) . In the early eighties , rice was the s ubject of massive s t a te support and promotion . While in 1980 , t he per cent ages of food subsidies destined for imported whea t and r ice were 28% and 17% , in 1983 these per centages were up t o 32% and 53 %, respectively. I n the same per iod, the rice production a rea financed by BAP increased by 25% and t ot al production a lmos t doubled f r om 420,000 to 791,000 t ons . Ri ce production peaked in 1984 with over 1 million t ons being produced . By 1985 , product ion was around 950 ,000 tons and for 1986 it was much lower and about 350 , 000 tons of rice had to be imported (Noticias Fedearr oz , Marzo , 1987) . The decrease in production is the r esul t of both drought in t he nor t h and a new support progr am for maize which s tarted in December 1985 that gave maize a higher s upport price (I3. 30/kg ve r s us 13 . 20/kg fo r rice), as well as amp l e credit facili ties . I n Lambayeque , t he most important rice-producing department , rice production a r ea dropped from 52 , 000 ha in 1984- 85 t o 4 , 400 ha in 1985- 86 , while maize i ncr eased from 7 , 000 hato 15 , 000 ha and cassava decreased f rom 488 ha t o 45 1 ha (CIPA II , Ing. J . Celis, unpublished) . Dr ought and the new price-and- credit policies have had a negative impact on r ice , a positive i mpact on maize and no effec t on cassava . 28 Table 17. Dis tribution of costs in the production, processing and marketing of rice, and official prices, September, 1982 , Peru. Distribution of costs (%) Farm price (polished rice equivalent) Processing Hulling National weighted transportation Spoilage Other Wholesale profit Retail distribution Local transportation Spoilage Other Retailer profit 7 . 4 9 . 3 0 . 6 2 . 8 0 . 0 1.8 0 . 0 l. O 2 . 9 Official prices Farm price Coas t al Selva Processed prices Gr ade of rice Ordinary (corriente) Superior Extra Imported Unpolished rice 200 220 Wholesale 252 436 591 350 Percent of final value 74 . 2 20 . 1 5.7 100 .0 Polished rice equivalent 300 330 Retail 270 480 650 385 SOURCE: Ministry of Agriculture (DGAIC). Pr ogramas de abastecimiento 1981: arroz. Lima, Peru . 29 Per capita consumption of potatoes has been decreasing rapidly , at 3 . 5% per year in 1966-83, while its real retail price increased at an annual 1.8% during the same period. Most of this decrease carne as a reduction in production in central Sierra because of a rapid growth in production costs, a deterioration in the terms of trade for potatoes, and the deficient and decreasing government support activities for the crop in the area in terms of research, extension, and credit (Scott). Again, government action appears as the majar influence encouraging dietary patterns away from locally produced roots and tubers to local and imported cereals . Meat consumption. Total per capita consumption of meats has grown relatively fast in Peru in the 1966-83 period due to a rapid expansion in production of poultry neat. The three meats added up to about 18 kilos per capita each year by the mid- eighties with half of those coming from poultry (Table 18). Fish consumption is relatively high atan annual 12 kilos per capita, but has been decreasing (Tagle). In the mid- sixties, the relation of beef to poultry consumption was around 2 . 0 while in the mid-eighties it reversed to 0.55 (from half to almost twice as much poultry). The relation of prices of poultry to beef went from 1.4 to 0.7 . Clearly, consumption of poultry responded significantly to relative price variations. While per capita poultry consumption increased at an annual 7% in 1966-83 , that of beef decreased at an annual 2.6%, and per capita pork consumption decreased at an annual 0.9%. Consequently, animal feed demand grew at 4.6% per year . Since interna! production of maize and sorghum was stagnant, feed grain imports increased atan annual 3.7%. A demand equation for per capita poultry consumption was estimated, showing significant elasticities for its own price, for the cross price elasticities, indicating substitution effects caused by the higher beef and pork prices, and for the income elasticity (Table 19). Metropolitan Lima absorbs 47.5% of the national production of poultry meat and eggs. According to the Consumer Price Index Weights, these two products account for 6.3% of the total household expenditures (Peru: El Agro en Cifr as; Malarin). An important se&ment of the market constitutes sales of live animals (over 75% according to APA) and this helps to explain the rapid growth of this t ype of meat among all segments of the population, especially in those which do not have access to refrigerators . The rapid growth of the poultry and feed industry has not been accompanied by a more competitive structure. In 1979, Bunge, Nicolini, and Purina had 80% of the feed producing market (Laja). On top of this oligopolistic structure, grain imports account for over a third of grain requirements for feed, and mai ze imports are controlled by quotas assigned to prívate animal-feed mixing mills. ENCI is in charge of both domestic and foreign maize purchases. For stimulating production, maize has an attractive support price: by 1986 it was 13.30/kg (or US$240/ton), higher than that of rice at 13 . 20/kg . Tabl e 18 . Pr oduct ion , trade , retail pr ices , a nd per capi t a consumption of Mea t s , Peru . Proauct:ron Pe r caE1f a consumE t: Ior Year Beef Por k Poul t ry Beef Popul . Nomina l re t a i l Eri ces in Li ma CPI Beef Por k Poult1 (t in t housands) impor ts (mi l lions) Beef Por k Poultr y gene r al (kg/person/year) 1962 66 . 7 40 . 5 22 . 3 3 . 7 10 . 73 16 . 2 17 . 3 37 . 4 5 . 3 6 . 6 3 . 8 2 . 1 1963 69 . 5 44 . 2 23 . 6 4 . 4 11. 04 19 . 0 20.0 37 . 4 5.6 6 . 7 4 . 0 2 . 1 1964 81. 2 46 . 9 25 . 5 4 . 9 11. 36 20 . 6 21. 8 38 . 5 6 . 1 7 . 6 4.1 2 . 2 1965 74 . 0 43 .1 37 . 0 6 . 4 11 . 69 25 . 8 23 . 0 40 . 5 7 . 1 6 . 9 3 . 7 3 . 2 1966 75 . 1 41. 7 39 . 4 6 . 9 12 . 03 27 . 62 26 . 0 41. 3 7 . 8 6 . 8 3 . 5 3 . 3 1967 75 . 7 42.9 44 .1 18 . 3 12 . 37 34 . 93 38 . 0 42 . 9 8 . 5 7 . 6 3 . 5 3 . 6 1968 77 . S 42 . 8 46 . 5 21.3 12 . 72 35 . 5 41. 7 43 . 4 10 . 1 7 . 8 3 . 4 3 . 7 1969 82 . 6 46 . 7 51. 3 37 . 9 13. 09 36 . 3 52 . 4 48 . 5 10 . 8 9 . 2 3 . 6 3. 9 1970 84 . 9 46 . 5 57 . 7 38 . 3 13 . 46 38 . 8 61. 9 54 . 5 11. 3 9 . 2 3 . 5 4 . 3 1971 89 . 5 53 . 6 63 . 6 22 . 9 13 . 83 47 . 7 66 . 7 63 . 6 12 . 1 8 . 1 3 . 9 4 . 6 1972 85 . 3 53 . 6 92 . 6 18 14 . 20 40 . 8 68 . 8 68 . 7 13 .o 7 . 3 3 . 8 6 . 5 1973 84 . 5 53 . 2 102 . 5 12 . 1 14 . 59 63 . 2 70 . 4 52 . 5 14 . 2 6 . 6 3 . 6 7 . 0 1974 85 . 3 54 . 6 127.6 8 . 4 14 . 98 87 . 4 76 . 5 60 . 7 16 . 6 6 . 3 3 . 6 8 . 5 1975 86 . 1 54 . 6 129 . 9 5 . 1 15 . 40 102 . 0 91.5 78 . 3 20 . 5 5 . 9 3 . 5 8 . 4 1976 86 . 7 54 . 9 140 . 0 8 15 . 82 136 . 1 129 . 0 95 . 6 27 . 4 6 . 0 3.5 8 . 9 1977 87 . 0 54 . 0 143 . 0 7 . 4 16 . 25 172 . 6 153 . 4 132 . 4 37.8 5 . 8 3 . 3 8 . 8 1978 89 . 0 53 . 0 118 . 6 1. 2 16 . 69 257 . 4 248 . 9 223 . 8 59 . 6 5 . 4 3 . 2 7 . 1 1979 86 . 6 52 . 5 11 8 , ll. - 0 . 5 17 . 15 410 . 4 491 . 1 386 . 7 100 . 0 5 . 0 3 .1 6 . 9 1980 83 . 8 55 . 0 143 . 5 3 . 6 17 . 63 838 . 0 732 . 8 536 . 4 159 . 2 5 . 0 3 . 1 8 . 1 1981 90 . 1 59 . 2 182 . 6 11.5 18 . 12 1, 516 . 0 1, 014 . 9 78 1. 8 279 . 2 5 . 6 3 . 3 10 . 1 1982 91. 0 58 . 7 2Ql¡. 8 21.8 18 . 63 2 , 335 . 0 1, 743 . 1 1 ,176.0 459 . 2 6 . 1 3 . 2 11 . 0 1983 110 . 7 57 . 6 206 . 3 10 . 5 19 . 16 4 , 272 . 0 3 , 240 . 0 2 , 282 . 0 969 . 5 6 . 3 3 . 0 10 . 8 1984 103 . 1 54 . 5 181. 6 9 .1 19 . 70 9 , 076 . 0 8 , 494 . 5 5 , 360 . 8 2 , 038 .1 5 . 7 2 . 8 9.2 SOURCE : Minist eri o de Agricul t u ra ; ! NIPA. 31 Table 19. Projected demand for cassava, 1985-2000, Peru . Dried cassava chips Multiple regression for poultry meat de~and, Cobb-Douglas Functional Form. Constant -1.03 -- real retail price of -- per capita Beef X Coefficient 0.6605 X Value '83 6.0935048 Beta X83 4.0587589 X Value 2000 6.0935048 Beta X2000 4.0585789 Per capita poultry consumption Observed 1984 9.2 Estimated 2000 12.6 Yellow maize needs from projections: Assumptions Rates of growth Human population Per capita real income Real retail price poultry Production of yellow maize Conversion poultry/feed Ratio of meat/total poultry Percent poultry feed in total Maize in feed formulas Variable levels Human population (millions) 1984 19.6 2000 29 . 2 Total production poultry meat 1984 181.1 2000 368 . 4 Implied total feed needs 1984 633 . 7 2000 1,289.6 Projections: Maize production (tons) Demand nonfeed uses of maize (annual growth of 2.5%) Implicit maize needs for feed Deficit (imports) of maize CIF price maize Cost of annual importations Percent dried cassava in feed Total dried cassava needs(tons) Fresh to dried cassava conversion rate Fresh cassava implicit needs (includes reductions in waste of 10% or 41,829 tons) Average national cassava yields Required hectares Fresh cassava, labor/ha Dried ~assava, labor/ton New jobs generated per year Por k 0.523234 5.9221385 3.0986642 5. 9221385 3 .0986642 2.5% 0.0% -1.5% 2 . 0% 2.8 1. 5 80.0% 60 . 0% 1,000 686 . 4 315.3 773 . 7 402.6 Poultry -1. 1942 5.5167243 - 6.588072 5 .2749061 -6.299292 115 (in US$) 46,303 (in US$) 10 . 0% 129.0 2.5 280,559 tons 10.5 t/ha 26,720 60 6, 929 1 In come 0.53756 5.0387561 2.7086337 5 . 0387561 2.7086337 (continued) 32 Table 19. (Continued . ) Projections for fresh cassava Multiple Regression for Demand for Fresh Cassava, Cobb-Douglas Functional Form. Constant 5.7873906 Cassava Potato White rice Bread X Coef. elasticity X Value ' 83 Beta X83 X Value 2000 Beta X2000 -0 . 22069 -0 . 727142 0 . 1604730 -0 . 887947 0 . 1959612 Per capita cassava consumption Observed 1984 Estimated 2000 0 . 04924 -0. 648509 -0.031932 -0.648509 -0 . 031932 Assumptions Rates of growth Rea l retail price, cassava Rea l retail price, white rice and bread Per capita real income Human population Urban population 0.313505 0.131571 -0 . 613942 -0 . 503851 - 0 .1 92474 - 0 . 066292 -0 . 774748 -0 . 664657 -0 . 242887 -0 . 087449 18.2 14.3 -l. O% -l. O% 0.0% 2 . 5% 3.0% Urbanization effect reduced by 1/3 Reduction in waste with plastic bags 10.0% Fresh cassava production (1000 tons) 1984 356.8 2000 376.5 Additional fresh cassava required (1000 tons) Additional hectares New jobs generated 19 . 7 1,872 449 Summary of joint projections for fresh and dried cassava needs Current cassava production, 1984 356,800 tons Rectares 1984 33,981 ha Total production projected for year 2000 657,020 tons Additional hectares 28 , 592 ha New permanent jobs generated annually 7 ,378 jobs Total reduction in waste (20% of f resh) 75 , 292 tons at 12 . 75/kg farm level 207.05 millions of Annual savings to the country 14 . 90 millions of SOURCE: Co~piled by author . Income Urbanization 0 . 09462 1.617159 0 . 153015 1.617159 0.153015 Intis US$ -1 . 1294 2 . 577144 -2 . 91062 2 . 754229 -3.11062 33 Maize is purchased throughout Peru by ENCI at the support price of I3.30/kg and is sold at that same price everywhere in the country, regardless of whether it is imported or domestically produced in coastal areas or in the Selva . This implies a subsidy for Selva maize of about 11.50/kg, which is the 1986 estimated transport cost from the Selva and for coastal maize of about I0.50/kg, which is the transport cost to Lima, the majar user of hard yellow maize. On imported grain, the government makes about I1. 20/kg (exchange rate is I13.90 to the U.S. dallar) . Maize import quotas are highly valued because the homogeneity in the quality of imported grain surpasses that of national maize. Therefore, commercial millers continually press for increased quotas (Orden et al.). The coast produces 60% of the yellow maize in the country under 40% of the area while the Selva produces 40% under 60% of the area. Current yields are 2 . 8 tons/ha at the national level. In coastal areas, where technology is modern, yields are clase to 4 tons /ha, while in the Selva, with a more labor-intensive technology, y ields are around 2 tons/ha (Table 20). Although the trend in production during the 1966-85 period shows stagnation with no increases in yield nor in area, output grew at an accelerated pace between 1966 and 1976, decreased rather sharply between 1977 and 1980 (by 40.2%) due to a marked crisis in the poultry sector, to rebound in 1980-85 with a total increase in production of 64 .7% (Malarin). These changes were associated with the corresponding variations in area harvested. The rapid modernization of the poultry industry, which started in the sixties, brought about a marked reduction in costs of production, a phenomenon that was accompanied by increased demand for poultry meat and eggs due to the lower relative and real prices of chicken and due to the lack of response in production of other sources of protein. Government support became stronger after 1970 (Malarin). However, with the deep recession of the late seventies the industry faced a crisis that resulted in a 17.2% reduction in output between 1977 and 1979. But the industry recovered to grow atan annual 9.7% in 1980-85. I n terms of value of production, poultry mea t represented in 1970 only 11.3% of the livestock subsector and 2.6% of the agricultural sector, while by 1984 those percentages were 26 . 6% for the livestock component and 7.4% for agriculture (Malarin) . The geographic pattern of consumption of poul t ry meat is uneven. ~1etropolitan Lima, with 25% of the population, absorbs 47 . 5% of total poultry meat. In the rural areas , consumption is 62% below the national average . After the recession, the industry carne out with a more competitive framework since many small industries were forced to merge if they were to survive (82% of existing farms stayed in the market). The economies of scale allowed them to produce their own feed . The market shares of Nicolini and Purina Peru dropped from 30 . 8% and 22.3%, respectively, in 1976 to 13 . 7% and 7 . 2% in 1984. Table 20 . Production of hard yellow maize, Peru . Year Area (ha) Production (t) Yield (t/ha) Coast Selva Total Coas t Selva Total Coast Selva Total 1970 104150 49550 153700 309805 78252 388057 2 . 975 1.579 2 . 525 1971 109665 46765 156430 340698 73124 413822 3 .107 1.564 2 . 645 1972 107340 46230 153570 338897 75378 414275 3 .157 1.630 2 . 698 1973 91580 46510 138090 307351 73098 380449 3 . 356 1. 572 2 . 755 1974 87840 47020 134860 306116 76204 382320 3 . 485 l. 621 2 . 835 1975 103725 40060 143785 352759 67954 420713 3 . 401 1.696 2 . 926 1976 116960 46910 163870 405444 83300 488744 3 . 467 l. 776 2 . 983 1977 113789 52852 166641 406640 96654 503294 3 . 574 1.829 3 . 020 1978 74474 61896 136370 268568 110575 379143 3 . 606 l. 786 2 . 780 1979 78075 79191 157266 269538 138801 408339 3 .45 2 1.753 2 . 596 1980 49709 71785 121494 17 3843 127013 300856 3 . 497 l. 769 2 . 476 w 1981 61470 8 1364 142834 228011 161809 389820 3 . 709 1 . 989 2 . 729 .p. 1982 57559 97095 144654 227035 171940 398975 3 . 944 l. 974 2.758 1983 60504 105128 165632 210769 200766 411535 3 .484 l. 910 2 . 485 1984 88902 109592 198494 349824 220730 570554 3 . 935 2 . 014 2 . 874 1985 69891 105183 175074 287571 207976 495547 4 .11 5 1. 977 2 . 831 SOURCE: Ministerio de Agricultura, Oficina Sec torial de Estadistica . 35 The animal-feed industry, by 1970, represented, in terms of total value of production, 65% of the agricultura! processing industries and 1.2% of the manufacturing sector, while by 1981 those values were 12.4% and 2.45% (Malarin). By the mid-eighties, poultry feed represented 73% of the total, while it was 92% in 1977 (Table 21). Cattle and "others" have taken up the slack. Economic feasibility of expanding cassava use. The use of dry cassava in animal-feed rations is common practice in Europe, where current use reaches 4.5 million tons per year, and Asia. It is starting to take place in Latín America, where dry cassava is still an infant industry. Colombia now produces about 5000 tons per year of cassava chips and since 1986 there have been commercial drying floors in Ecuador , P'nama, and Mexico . Economic analysis reveals that, in most Latín American countries, cassava is economically attractive, when compared with local grains, in terms of the various links in the chain of activities: the producer, the drier, and the animal-feed manufacturer. The procedure of conserving fresh cassava in plastic bags treated with thiabendazole-based fungicide (mertect or tecto) has less commercial empirical evidence although, conceptually, it is obvious that a reduction in marketing costs will take place and that the market will become more competitive. A semicommercial project has been conducted in Bucaramanga, Colombia, with highly successful results, showing that it is possible to reduce marketing margins and offer a higher quality product to consumers at lower prices. Consumers have responded immediately to these changes. Field and transportation trials from Satipo into Lima have shown that the procedure is successful in reducing marketing losses and consequently costs. The cost structure of fresh cassava in Peru (Table 15) shows a high marketing margin that could be reduced with this treatment. The assumption that fresh cassava consumption will respond to a change in its own price was tested in the demand equation calculated and was accepted (Own-price elasticity of -0. 22) (Table 19) . \Ull supply respond to a higher farro price? In a competitive framework, supply for agricultura! products responds to changes in price both in the short and in the long term, with long-term changes being more marked. However, in a controlled pricing environment, like the one faced by Peruvian agriculture for the past two decades, the short-term response depends rather heavily on the prices, marketing environment , and stimulus not only for cassava but also for its close substitutes in supply and demand. Given the current level of technology used in cassava production, it is expected that improvements in its commercialization will stimulate use of better management practices , making cassava a more highly competitive alternative. 36 Table 21. Industrial pr oduction of feed by destination (in t ons), Peru. Year Poult ry Beef Por k Other 1973 576453 29840 37978 33409 1974 635800 32912 41888 37400 1975 652823 33793 43010 38401 1976 69743 1 36102 45949 41025 1977 681371 1979 1 26714 8792 1978 468044 12089 22823 13623 1979 363354 19325 40496 30581 1980 544 727 49023 43992 49712 198 1 591597 39792 34446 50625 1982 670308 50306 44454 49436 1983 570366 43654 58780 53538 1984 435104 32030 73211 54447 SOURCE : Ninis terio de Agricultura . Programa de Abastecimiento de Alimentos Balanceados , 1985. DGAC. To tal 678180 748000 768027 820507 736668 516579 453756 687454 716460 814504 726338 594792 37 The potential of cassava resides in the Selva where conditions are more appropriate to its socioagronomic characteristics: an ability to adapt to marginal soils with low use of inputs, making it a useful low-cost alternative. In coastal areas, where agriculture is highly mechanized and intensive in the use of inputs (for example, irrigation, fertilizer, and herbicides), cassava plays a minor role as a diversification crop against the risk of water shortages. Costs of production are much higher than in the Selva (Tables 22 and 23). Given the high local demand for fresh cassava, few surpluses are generated . Lambayeque, the most important cassava-producing department in coastal areas, is an importer of the root. It comes in undetermined but important quantities from Machala (Ecuador) whose cassava is preferred to local varieties and therefore carries a higher price. In 1986, cassava from Machala had a retail price of around I3 . 20 per kilo while the local varieties could be purchased at around 12.50 per kilo. Another curiosity is that prices of fresh cassava in Chiclayo, (the largest city in Lambayeque with 500,000 people) were similar to those in Lima despite the fact that transport costs are much lower than those for Lima. While a farmer near Chiclayo gets about I2.00/kilo, one clase to Satipo (central Selva near Lima) gets 11.20/kilo, in 1986. Transport costs are twice as much from Satipo at I1.00/kilo compared with I0.50/kilo from Chiclayo. Still, cassava from the Selva would be cheaper than that from the north coast when taken into Lima because of the lower costs of production. Besides, the north coast does not have the capacity to respond with important additional quantities of cassava (outcompeting crops such as rice, cotton, maize in the limited areas of the coast). In the Selva, it is feasible to expect important increases in supply, given t he wide availability of land and the low costs of production per unit faced by cassava growers, even under present crop management conditions, which are far from optimal. The potential of the dried cassava industry in Peru has been analyzed by Malarin, who concludes that dried cassava is profitable to farmers, processors, and feed manufacturers and that it could compete with maize if it were granted the same transport subsidy. Currently, dried cassava chips have a support price of I2 . 00 per kilo with ENCI buying them at its warehouses in Pucalpa, Satipo, and La }1erced (Selva). The decree was approved in March, 1986 . At the time maize from the Selva had a support price of I2.6 per kilo. Therefore, cassava chips were priced at 80% of the price of maize. By mid-1986 the price of maize went up to I3.30 per kilo but that of dried cassava chips was not changed. As a result, maize became a much more attractive alternative to the farmer . The proposal being presented to the government by the prívate sector consists in pegging the support price of dried cassava chips to the price of maize at a fixed percentage, namely 75%. An adjustment in the price of maize would imply an automatic adjustment to cassava chips and would protect its profitability for farmers, driers, and feed manufacturers. 38 1ble 22 . Pr oduction cost of a hectare of cassava in the Selva , Peru. Measure Unit :eros unit Quantity pr ice Sub total Total Lrect expenses 4,635 . 69 Soil preparat ion 396 . 00 Rozo , tumba , picacheo, quema , shunteo man- da y 22 18 . 00 396 . 00 Seedi ng 372 . 92 Furadan 5% G kg 2 51.46 102 .92 Seed (7000 sticks) s t ick 7 . 000 0 . 01 70 . 00 Seed transport bag 10 2 . 00 20 . 00 Seed and seeding disinfecting man- day 10 18.00 180 . 00 \.Jeed control 540 . 00 First man- day 07 18 . 00 126 . 00 Second man-day 07 18.00 126 . 00 Third man- day 07 18. 00 126.00 Fourth man-day 09 18.00 162. 00 Manuring 776 . 50 Fer t ilizer s (for mula 46- 30- 60) Ur ea kg 100 3 . 72 272 . 00 Superphosphate Ca simple kg 150 l. 71 256 . 50 KCl kg 100 l. 98 198 . 00 Fertilizers ' t r anspor t kg 350 0 . 04 14 . 00 Fertilizers mixing and application man-day 02 18.00 36 . 00 Phytosanitary control 423.56 Aldrin 2 . 5% kg 22 15 . 98 351.56 Aldrin application ( 2) man-day 4 18 . 00 72 . 00 Harvest 940 . 00 Container bag 200 4 . 00 400 .00 Harves t and transpor t man-day 30 18 . 00 540 . 00 ther expenses · ,1 86 . 71 Social laws 50 . 76% I 965 . 97 Unforeseen 5% 220 . 74 1direct expenses 1,334 . 61 Adminis t rative expenses 8% of direct expenses 370 . 85 Financial expenses 963 . 76 ) tal cost of production/ha 5,970.30 ield (kg /ha) 15 , 000 lit price 0 . 40 rofit 30% 0 . 12 um price 0 . 52 )URCE: Malarin , H. 1986. Thesis. Univ . Paci fico . 39 'Table 23. Cassuva production costs, Peru . Teo:!onical level Hediur.: Sccdf:¡g time Decct:ber E~rvcs t t ir-.Q Au~ust ;.gr icul tural campaign 19 5- 1986 Cv:;t date Hay Labor Units Unit Total Month Unit (no . ) price cost Soil preparation Han-day 4 25 lOO t;ov. !'ov. Han-da y 3 25 75 llov. }1an-day 2 25 50 1\ov. Han-day 2 25 50 Seedir.;l 1 25 25 Sclcction Dec. Man-da y (lndirect) seeding Dec . Man- day 9 25 225 C:..:l tural labors Irrlgation Jan. - July Man-day 5 25 125 \Jeed control Jan. -July l1an-day 7 25 175 Manurir.g Jan . -Mar. Man- da y 3 25 75 f,Rorqu" Februarl Man-day 3 25 75 P.ytosar.itary control Jan .-Ju y Man-day 5 25 125 Earvest :·lanua1 harves t Au~ust Man-day 15 25 375 Carr,r.dores Au¡;.-.ept. Man-da y 4 25 lOO Se1cc~!.on and cleaning Aug.-Scpt. Han-da y 2 25 50 Gu:ndiania Aug.-Sept. ~lan-day 2 25 50 Sub t otal o( labor !675 Social laws (46 . 2%) 773 . 85 Total labor work 2!:.8 . 85 Ha~hir.cry and equiprnent TvRe of Hrs/dar Unit Total operation ::0nth maC inerv (no . 2rice cost Aradura Nov . Trac.Rue 2 150 300 Cruzadura Nov. Trac . Rue l 150 !50 Surcadura De c . Yunta l 70 70 Mochila Jan.-July Bomba 3 10 30 Total ;r.achincry anc! equipment 550 Inputs Units Unit Total Month Unit (no . ) price cost Seed (sticks) Fertilizers : Dec . kg 760 o .15 114 Urca (467. Pesticides: '.! .N. ) Jan . -March kg 90 5.02 451 .8 Aldrin Jan. kg 22 9 .9 217 .8 S"vin 80~~ P. H. Jan. -Harch k E l 211.41 211.41 ,\;:odrin 400 Jan .-Harch 1 193 .75 193.75 hTater mil m3 6 5.6 33 . 6 Total b¡outs 1222.36 í'rans;>or tation Seec!s Dec . kg 760 0 .05 38 Fertilizers Jan . -~:arch ks~E 196 o. 1 19.6 Pesticides Jan.-H:trch 24 0.1 2.4 Protal dried cassava 0.84 43 . 34 24 . 01 10 . 79 78 . 98 143 . 88 64 . 90 a t 75% price of maize 178 . 06 99 .07 ~tail of cos t s tructure for dried cassava chips in the Peruvian Selva (H . Halarin , 1986) Farmer, 1 chipper 9 months :oductive un i t >nths of operation 1w material 345.6 tons of fresh cassava )St of r aw material nount cassava chips for ~onversion from f resL to dried 0.52 Intis/kg, 25% above production cost 138 . 24 tons a t 15% humidity 1erall costs (in Intis) ·lanufacturing cos t s Raw material (fresh cassava) Labor (2 wor kers for 216 days at 135.3 per day Depreciation ( 10% of 5000) iminis trative and f inancia l cos t s Transport t o feed plant (10 .1 50/ t on) 1nterest and principal on equipment :>tal cost Uni t cost per t on of chips Unit price with 25% overhead margin Current support price 1/ton (June 1986) :>URCE: Halarin , H. 1986 . Thesis . 179 , 712 15,240 500 20 , 736 3 , 718 219 , 906 1,591 1, 988 2 , 000 42 Table 25. Least cost formulations (percent of ingredient in total rations) , including use of dried cassava chips , Peru . Price of maize (Intis/ton) 3300 3300 3300 Price of cassava chips (Intis/t on) 2600 3000 3200 Naize 6.82% 17.89% 45 . 82% Cassava chips 45 . 92% 32 . 18% o Cotton cake 10 . 00% 10.00% 10 . 00% Fish meal 15 .00% 15 . OOí~ 12 . 78% Calcium carbonate 0 . 65% 0 . 69% l. 01% Vege t ab le oils 1.50% 1 . 50% 1. 50% Feather me al 19 .65% 22 . 34% 28 . 49% Lysine 0 .05% Me t hionine 0 . 02% SOURCE: Compiled by author from prices lis ted by H. Malarin, and physical requirements listed by NRC , Feedstuffs Ingr edient Analysis Table : 1981 edition . (Prepared by Richard D. Allen) . 43 the early seventies to near 70 kilos in the mid-eighties. \fheat, another staple in the diets of urban consumers is mostly imported, with domestic production representing less than 10% of total use and declining in absolute numbers. Should current policies and marketing and production practices continue, these trends will prevail. But we can be optimistic about the adoption of the new cassava storage technology, based on survey data collected in Lima, and in Colombia and also in the pilot projects conducted in those two countries. The immediate future for adoption of the new technologies lies in the Selva , where cassava is already an important staple. The new technology of storing cassava in plastic bags and treating it with mertect can be implemented in this area where 75% of the cassava is produced. The target population initially will be the 3.5 million people living in Loreto, Ucayali, San Martín, Cajamarca, Amazonas, Huanuco, Paseo, Junin, Cuzco, and Madre de Dios. A second stage of adoption could take place in the north coast for local consumption. The final stage would be the extension, from the coast, of adopting the method for coastal cities such as Lima. The effects of adopting the new technology would be to increase market competítion by reducing natural and artificial barriers of entry already present in the current market structure. The barriers result from the high perishability of cassava. Their removal would reduce marketing margins because of important reductions in waste (from about 35% to 15%), and therefore would carry the consequent savings to consumers (who would pay a lower price) and to farmers (who would receive a higher price), and to increase volumes being traded (Janssen and Wheatley). The above-mentioned assumptions about prices, income, and population lead to an estimated per capita consumption of cassava of 14.3 kilos by the year 2000 (compared with 18.2 kilos in 1984). This is dueto the substitution effect caused by wheat and rice but mainly due to the negative effect of urbanization on consumption--an effect that should lessen but not disappear with the implementation of the new storage technology. This is so because of the difficulty in reaching coastal populations (the majority of Peruvians live in the coast) from the Selva with a bulky commodity. Even so, there will be a need to expand production by 19,700 tons in that year to meet demand due to population growth. This figure would be larger if we do not incorporate a reduction in waste of 10% as being additional supply. Savings associated with this level of waste reduction amount to about US$15 million annually by the year 2000 . Although this increase is not impressive one has to bear in mind that it represents a reversal of the strong trend in reduction of cassava production over the past two decades. Dried Cassava. The current interest of the government in providing a viable alternative to yellow maize in the manufacture of feed formulas is notorious. A decree in mid-1986, providing a support price for dried 44 cassava chips and dictating the norms fo r quality, is certainly an encouraging sign . We have shown that dried cassava in Peru is: Profitable at farro level under the present price and cost structure of the country for fresh cassava as well as for yellow maize. To compete with maize, the support price for cassava chips has to be pegged to t hat fo r maize (plans are to set it at 75% of the price of maize). Profit able at the feed plant level. Dried cassava enters in the least-cos t formulations a t around 95% of the price of yellow maize (it s main substitute). Attractive to the end user , since quality remains virtually unchanged. The farro price of fresh cassava , currently well above the support price of chips , fluctuates widely, depending on availability and transportation. In periods of high rainfall, in certain areas of the Selva when roads cannot be used, the producer price of f resh cassava drops substantially while at the other end of the chain consumers must pay high prices. Production of cassava chips will create a floor price fo r the fresh root, stabilizing quantities produced as well as prices. Identification of s uitable areas for drying compat ible with precipitation regime and land-use priorities remains to be done . However , semicommercial t rials have been successful and no problems are expected in this respect (Halarin) . To estímate feed needs, por k and poultry mea t production a re projected to the year 2000 , using time series data . Per capita pork consumption remains unchanged while for poultry the assumptions imply an increase in per capita consumption from 9 . 2 kilos in 1984 t o 12 . 6 kilos in the. year 2000 . In terms of feed requirements , total needs will go from 633,700 tons in 1984 to 1,289 , 600 tons in 2000, mostly due to poultry feed increases . With 10% of dried cassava in feed formulations, 128 , 960 tons of it are needed. The establishment of the industry allows a further dec r ease in waste of cassava for the fresh market of 10%. By the year 2000, fresh cassava for the feed industry will amount to 280,559 tons per year which implies 26 , 720 ha of new plantings, keeping yields at t he present level of 10.5 tons/ha . Crop losses will be reduced by 41,829 tons annual l y by that year. In summary, if both markets (fresh and dried), are added up, annual requirements of cassava by the year 2000 will be 657 , 020 tons, which implies an additional production of about 301,020 tons per year in 28 , 592 ha and 7 , 378 new jobs will be generated . 45 Conclus i ons Peru was radically trans f or med during the seventies from a social sys tem characterized by liberal principles and policies t o one wi t h a very t ightly controlled and distorted economy . Agriculture was hard- hit in the process. The once high-yielding crops by Latin American standar ds are now mere average performers (sugar, cotton, rice). The sector r educed its contribution to GDP by half in the past two decades and now represent s 12% of the product . Policy-induced distortions and state interventions elimina t ed not only foreign competition but domestic competitive forces as well . While the world economy was booming in the sixties and seventies , Per u lost a clear opportunity to continue t he growth impetus of the fifties . Valdes and Alvarez conclude tha t ''the prevalence of implicit and explicit food subsidies on importables , particularly during t he period 1970-75, could have induced a change in cons umption patterns away from traditional foods produced in Peru, such as pota t oes , and tm.;rards heavier dependence on i mported foodstuffs, such as macar oni and bread . Policies aimed a t protecting t he urban consumer but ignoring t he consequences of an increased fiscal burden would have resulted in t he i mplicit taxation of s evera! agricultura! products" (p . 49). Cassava is a majar s t a ple in the Selva , where it competes favor ably with other crops, even under the present policy environment. For dry cassava chips, its potential demand will be materialized into effective use if t he support price a lready established by the gover nment is se t as a fixed proportion of the price of yellow ma i ze and i f ENCI buys t he chips , following the same guidelines app lied to t he commercialization of local yellow mai ze. In such a case, it has a bright future as an animal feed i nput in Peru. The case of f r esh cassava r equires the implementation of the new conservation technology developed at the Centro Internacional de Agricultura Tropical (CIAT) , Colombia. The me thod is being tested now in Satipo- La Mer ced . The method shoul d be i ntroduced first in the Selva, where a s trong na tural marke t already exists. Once the markets have assimilated the new t echnology and producers have responded by becoming more efficient in t hei r production and mar keting t echniques , fresh cassava stored i n plastic bags and trea ted with mertect will be ready to reach coastal consumers . Under the existing set of policies t ha t block the r egulatory effect s resulting from the pr esence of competitive forces , it i s unlikely t hat an improvement in resource allocation and adoption of new technologies in neglected crops wi l l t ake place , unless the crop is s ubject to similar trea t ment as the one presently received by grains and cereals. In addition to t hat , developments in i nfrastruc ture , for example, in r oads such as the Carretera Marginal de l a Selva and the road linking the northern Sel va with t he northern coast , are urgently needed i f t here is t o be a more balanced regional and sector al gr owth in the near fu ture . 46 References Aguilar, M. 1985 . El mercado de la carne bovina en el Perú y su potencial para Chile. Serie de tesis No . 39. Pontificia Universidad Católica de Chile, Santiago, Chile . Alarco, G. (comp.) . 1986. Desafíos para la economía Peruana 1985-1990. 2nd ed . Universidad del Pacífico, Lima, Perú. Alvarez, A. 1985 . La ac t ividad empresarial del estado en el Perú . Revista Apuntes (16):3-30. Asagro. 1986. Producción de trigo y sucedaneos de panificación en el Perú, 2 vols. Lima, Perú. Elias , V. 1985. Government expenditures on agriculture and agricultura! growth in Latin America . IFPRI Research Report 50. International Food Policy Research Institute (IFPRI), Washington, DC, USA . Fano, H. 1986. Los cultivos transitorios en el Perú: análisis de su estructura y tendencias de 1964 a 1979. Centro Internacional de la Papa (CIP), Lima, Perú . Fedearroz. 1987. Noticiero No. 12. Franklin , D. L.; Leonard, J . B.; and Valdes, A. 1985. Consumption effects of agricultura! policies: Peru. In: Trade policy, agricultura! prices and food consumption: an economy-wide perspective . Sigma One Corporation, Raleigh, NC, USA. Lajo, M. 1984. Food supply in Peru : dependence and transnational monopolies. Food Policy. (February):68-82 Lowenthal, A. F. 1980. Dateline Peru: a sagging revolution. Foreign Policy no . 38 . Malarin, H. R. 1986. Sustitución de maíz amarillo duro importado por harina de yuca en el sistema de producción y consumo avícola: análisis y evaluación. B. Econ. thesis. Universidad del Pacífico, Lima, Perú. Maletta, H.; Eresue, M.; Gómez, V. ; Gómez de Zea, R. 1984 . Perú: el agro en cifras. Universidad del Perú and Banco Agrario, Lima, Perú. Martínez, D. 1985 . Política agraria del nuevo gobierno. Revista Socialismo y Participación 32:29-40. Ministerio de Agricultura, Dirección General de Agroindustria y Comercialización, Programa de Abastecimiento . 1985. Productos: maíz y sorgo, trigo, arroz, alimentos balanceados. Lima, Perú. Ministerio de Agricultura, GAPA-PADI . 1986. Estimaciones de funciones de demanda para los principales alimentos. Lima, Perú. 47 __________ , OSE. 1985. Boletín estadístico del sector agrario, 1968-85 . Lima, Perú • • 1984 . Información básica de la actividad pecuaria , --~~~~ 1960-1984. Lima, Perú. Nogues, J . 1986. Trade liberalization: sorne lessons from Peru's experience. Paper presented at the Trade Liberalization Workshop . Lisbon, Portugal . Parillon, C.; Karp- Toledo , E.; Leonard, J . B. ; Arango, F.; Harrell, M.; and Franklin, D. L. 1983 . Un análisis de la situación alimentaria nutricional en el Perú. Sigma One Corporation, Raleigh , NC , USA. Paz , L. J . 1986. Peru and the CGIAR Centers: a study of their collaboration in agricultural research. World Bank, Washington, DC, USA. Scott , G. J. 1985. Mercados, mitos e intermediarios: la comercialización de la papa en la Zona Central del Peru. Centro Internacional de la Papa (CIP), Lima , Peru . Shapiro, L. J. 1982 . Peru's current food situation and 1983 food aid needs. IED Staff Report. United States Department of Agriculture (USDA), Washington, DC, USA. Tagle , M. A. 1983. Consumo de pescado en cinco paises de América Latina: Brasil, Chile, México, Panamá y Perú . Santiago, Chile . Tealdo, A. 1985. El algodón , el maíz: comercio internacional y política gubernamental . Revista Socialismo y Participación 32 : 41-60 . USDA (United States Department of Agriculture) . Peru: agricultural situation: several years . Agricultural Attache Report . U. S. Embassy, Lima, Peru . VENEZUELA : POTENTIAL DEMAND FOR CASSAVA VENEZUELA: POTENTIAL DEMAND FOR CASSAVA }~croeconomic Policy and Agriculture Economic policy context The policy environment Agriculture in Venezuela Specific agricultural policies Price controls Credit policies Government expenditures Concluding comments Status Quo of Cassava in Venezuela Present status Econometric analysis of the demand for fresh cassava Potential demand for cassava Carbohydrate foods Meats Basic assumptions Fresh cassava Dried cassava Concluding Comments References 1 1 1 4 7 7 12 16 16 17 17 24 26 27 29 30 31 31 35 37 VENEZUELA: POTENTIAL DEMAND FOR CASSAVA Macroeconomic Policy and Agriculture To better understand t he agricultural development of Venezuela , we will briefly review how the country's economy has evolved and the set of global policies that have shaped it, so that later we can concentra te on the set of specific policies that affect the agricultural sector. Economic policy context By 1985 Venezuela hada population of 17.4 million people, (81.3% urban) a per capita GDP of US$2,451 (in 1984 dollars), international reserves of US$12.5 billion, a total disbursed external debt of US$30 billion, exports of goods and services of US$14.3 billion, and imports for US$6 . 7 billion for a positive balance of US$7 . 6 billion in current accounts (Table 1). Greatly increased oil revenues in the 1970s catapulted the country from the status of a developing country into the ranks of a middle-income nation. Oil constitutes the basis of the economy accounting for about 75% of government revenues and over 90% of export earnings. Recent growth of the Venezuelan economy can be divided in three periods: 1958 to 1973, 1973 to 1978, and 1978 to present. The first period started with the installation of the democratic regime of Romulo Betancourt. The new policy of import substitution was formulated, following Prebish's theories on the subject. Real GDP grew annually at 5 . 5% during the 1958-73 period while agriculture had a similarly strong growth of 4.3% . The livestock sector was especially dynamic growing at 6.6% per year while crops grew 2.7% annually (Table 2). In 1973 , oil prices boomed and the economy's pace was accelerated with real GDP growing at 6.3% per year from 1973 to 1978. The livestock sector continued its remarkable expansion at 7.3% while crops grew at 5 . 0% (Table 2). After 1978 the country entered a recession that was characterized by a sharp fall in oil export income, combined with an inability to continue borrowing abroad , an expanded foreign debt burden, an overvalued currency, and massive capital flight. A financial and foreign exchange crisis occurred in early 1983. Foreign r eserves went from US$19 billion in 1981 to less than US$7 billion in 1983. Exchange controls, devaluation, and austerity measures brought the country 's external accounts into balance . In 1978-85 , real GDP decreased atan annual rate of -1. 5% while agriculture as a whole grew annually at 1. 7%. The crop value of production had no significant trend (0 . 3% annually) while livestock continued to outpace most of the activities at 3 .1% per year (Table 2) . The policy environment Agriculture in Venezuela has been affected by wha t is known as the "Dutch Disease." The large influx of foreign exchange r esulting from a Table l. Statistical profile of Venezuela 2 Area (km ) Population: total 1985 (81.3% urban) Annual growth rate 1970- 85 Birth rate (1984) Mortality per 1000 inhabitants (1984) 2 lnfant mortality per 1000 live births (1984) Life expec t ancy at birth (1984) Percentage of literacy (1984) Labor force by sector (1985) Agriculture Mining Manufacturing Construc tion Others Beef production Total GDP (marke t prices) Agricultural sector Mining sector Manufacturing sector Construction sector Central government Current revenues Current expenditures Current savings b Capital expenditur es Capital or surplus Domestic financing Money, prices and salaries Domestic credi t Public sec tor Private sector Money s upply (MI) Consurner prices (annual average) Real wages Exchange rate Official rate (nat ional currency units per dollar ) Real effective exhange r ate (inc~x 1980•100) Terms of trade (Index 1980•100) Balance of payments Current account balance Merchandise balance Merchandise exports (FOB) Merchandise imports (FOB) Net services Transfers Capital account (net) Change in net reserves (- .. increase) External public debt Disbursed debt Debt service actually paid Interest payments/export of goods and NFS a. Preliminary estimate 1981 -03 - 1.9 - 2.5 -2.5 - 2.1 32.5 19.9 12.6 14.6 -2.0 2.4 10.5 36.7 9 . 1 9.5 16.0 -5. 4 4.30 91.2 99 . 0 3.9999 . 7 7.840.2 19 . 963.2 - 12 .1 22 . 9 -3.431 . 4 -409 . 2 -1.881.9 20 . 0 11.382.0 2.588.3 5.9 1982 0.7 3.6 -1 0.2 4. 1 -8.4 26.9 18.7 8.1 13.0 -4.9 2.2 22.4 86.9 12.7 5.6 9.7 -0.1 4.30 85.7 98.3 898.805 17,335 ,000 2.9 29.9 4 .6 27 . 3 58.6 85 . 95 {Percentages) 14.5 1.3 15 . 7 8.6 59 . 9 1983 (Growth rates ) - 5 . 6 1984 - 1.4 0.8 1.9 4 . 6 0 .4 - 6.3 - 1.7 -13 . 3 (Per centages of 24 .7 18.6 8 . 1 8.4 -2.3 2 . 8 -34.4 GDP) 28 . 5 19.8 8 . 7 6.0 2.7 -1. 4 (Growth rates) 6 .2 13.3 76.1 n.a . 5.5 16.7 20 . 7 23.8 6 .3 12 . 2 -7.2 -5.2 (Annual average) 4.30 7 . 02 90.7 115.4 95 . 2 101 . 5 (Millions of - 3.999.2 4.426.7 dollars) 4,970 . 3 7.973.6 15.850 . 8 - 7 . 877 . 2 2.588.9 8.161.8 15.386 . 2 14.570 . 5 -1 2.797.4 - 6 . 408 . 7 - 5.985.8 -3.524 . 5 -2.824 . 9 -602.2 -210 . 6 -1 78.4 -1. 656 . 9 -4.098.5 -3.506 . 6 7.692.6 - 336 .7 - 1.567 . 2 (Millions of dollars) 12.122.5 12.9 11. 4 17.248.6 3.220.8 2.655.8 2.536.4 11.1 10.9 8 . 6 b. Capital revenue is taken into account in calculating the deficit. - 0.4 7. 0 -4.8 3.3 -17.4 28.6 19.5 9 . 1 6.9 2.3 - 2 . 3 - 7 .8 n.a. 8 . 1 5.8 12 . 0 n.a. 7 . 50 112.6 99 .0 3,927 .0 7 . 604 . 0 14 . 197.0 - 6.593.0 -3 .535 . 0 -1 42 . 0 -2 . 577.0 -1. 350 .0 n.a. n.a . n.a. 3 Table 2 . Annual growth rates (%) of real gross domestic product in agriculture and its subsect ors . Period Total Agriculture Crops Livestock 1958- 73 5.5 4.3 2 . 7 6 . 6 1973-78 6.3 4 . 7 5 . 1 7 . 3 1978-85 - 1.5 1.9 0 . 3 3. 1 4 spectacular rise in oil prices (from around US$5.00 per barrel in 1972 to near US$40 in 1979) brought about a spending effect which raised the demand for both tradeables and nontradeables and increased the prices of the latter with a consequent appreciat ion in the exchange rate (Valdes, p. 170) . In addition, resources have been sucked into the booming sector, moving labor from agriculture to t he services and government sectors. Urbanization has occur red a t an accelerated pace since the 1930s (Table 3). At the same time a rising demand for food products emerged . Under those circumstances , government actions to redirect resource allocation become crucial to stimulate growth in the non- oil sectors of the economy and particularly in agriculture, which is directly affected by the rural- urban migration . The major policy tools devised by the government have to do with the administrat ion of oil-related activities. Extractive industries have been nationalized. A special fund (Venezuelan Investment Fund) was created primarily for investment abroad in order to avoid internal fluctuations related with changing conditions i n the oil market, and as a regulatory fund. To compensate for the disequilibriums brought about by the oil sector, the government has operated a vast set of complementary tools ranging from exchange ra t e policy, t o price controls, fiscal incentives, credit research and extension, and commercialization, all designed to stimulate industry and agriculture . Exchange rate policy has been characterized by fixed rates with the U.S . dollar throughout most of the past three decades . Two exceptional cases occurred . In 1960, shortly after the democratic regime of Betancourt carne to power, exchange rate controls were necessary to avoid capital outflows. By 1964 the controls were eliminated and the Bolívar had been devaluated from Bs3.35/US$1.00 to Bs4.50/US$1.00. In 1983 the financial and economic crisis that followed the sharp reductions in oil incomes and the rise in international interes t rates made government intervention in the exchange market imperative . A progressive devaluation of the bolívar (within a multiple-rate system) and sharp restrictions of imports through import and foreign exchange control were established . Agriculture in Venezue l a The agricultural sector in Venezuela contributes 7 .4% to the GDP , and occupies 18% of t he labor force. By subsectors, livestock contributes 3.4%, crops 3 . 3%, fisheries 0.2% and the rest of the agricultural sect or has a 0.3% share of GDP. In addition, 45% of the manufacturing sector is composed of the food indus try ; this implies a n additional 9 . 4% contribution to the GDP by the food and fiber sector of the country. Urbanization took place at a rapid pace going from 26% of the total population in 1920 to 81.3% in 1985 . Traditionally, the country has been a food importer. In 1950 nearly 30% of the agricultural supply was imported while in 1985 this increased to SO%. Table 3. 5 Evolution of exports and population composition in Venezuela, 1920-1980. Percent of exports Percent of population Year Coffee-Cocoa Oil Rural Urban 1920 92.0 2. 0 74 . 0 26.0 1930 15.0 83 . 0 65.3 34 . 7 1940 4.0 94.0 60 . 6 39.4 1950 3.0 96 . 0 46.6 53.4 1960 2.0 90 . 0 32 . 6 67 . 4 1970 0.8 90 . 2 24 . 3 75 . 7 1978 82 . 5 24 . 3 75 . 7 1980 0.2 92.0 23.9 76 . 1 SOURCE: Dirección General de Estadísticas . 6 In the 1920s, Venezuela was heavily dependent upon agriculture (36% of GDP) and 95% of exports and 75% of the population lived in the rural sector . In the 1930s, the country's economy shifted to the mining sector, with special emphasis given to oil- and steel-based activities (Table 3). In the 1950s, the country saw an important influx of immigrants . The military regime resettled about 400,000 Europeans and 40,000 Colombians in 1950-58 through IAN (Wright, 1982). These immigrants were respons ible for a dynamic real growth of the sector during the period (annual rate of 6.0%) while total GDP grew at an annual rate of 8.4% also in real terms. One-half of the growth in agriculture was made up by the livestock sector (dairy, cattle, and poultry) (World Bank, 1961). By 1944, Protinal, the largest animal-feed firm had been founded. In a welcome environment, multinational firms established and expanded subsidiaries which had formerly had a market for their products as imports in Venezuela: milk, milling, feed, and processed food firms (Wright, 1982). In 1958, under the democratic rule of Betancourt, the new policy of import substitution, Prebish- style, was formulated. The basic idea was that the new, reliable processing sector could enlarge the market for agricultura! raw materials that could be produced internally . In turn, the agricultura! sector provided food for a rapidly growing urban population, making income available for the agricultura! sector to purchase the products of new industries and allowing savings to be transferred to the industrial sector. Cordiplan, (an agency at the level of presidential secretary), was created to implement planning on a national basis. The Agrarian Reform Law of 1960 was implemented. About 74% of all land redistributed was publicly owned (5.6 million hectares) as compared with 1.9 million ha of private-property redistribution between 1960 and 1970. Therefore there was no change in the land tenancy structure. Policies benefited mostly farmers with holdings of 500 to 2,499 ha (Wright, 1982), through directed subsidized credit, extension, and insurance programs. The land title situation was unclear in about one-third of the cases, disallowing those farmers to obtain access to main policies of credit and extension. The process of food industry integration and diversification was also accompanied by an increased market-power concentration in that sector. Throughout the past two decades, three firms have controlled 80% to 95% of the market for feed and another three firms 85% of the market for wheat flour . Inputs for these industries were based on crops grown in temperate climates. Little research was done concerning the substitution of other crops suitable for local conditions previous to 1968, and little use of available evidence has been made to incorporate cassava or rice into their technology (Wright, 1982). Agricultura! production responded well to the incentives. Its value grew in an accelerated fashion and was followed by a reduction in agricultura! imports. The percentage of agricultura! imports in total consumption in 1958 was 45%, in 1960 this decreased to 32.7%, and again in 1970 to 25.2%. 7 Tremendous growth took place in products used as inputs to the food processing industry (rice, sesame, cotton, sugar cane and tobacco) also , in those destined to urban consumption (livestock products and vegetobles) . The seventies witnessed a reversal in food import trends. Real crop production declined in 1970- 73 by 1.1% per year but the decline was partially compensated for by a 4.2% growth in the livestock subsector. Although food production was reactivated after 1974 in response to the extraordinary increases in investments coming from t he booming oil prices , demand outpaced production and agricultural imports increased dramatically (Table 4). This process was curtailed by the sharp reduction in oil prices and rapid growth in the cost of funds in international money markets initiated in 1979 . The economic and financial crisis that followed led to a control on foreign exchange and the establishment of a multiple-exchange rate system. The multiple rate system enforced had a free market rate for dollar transactions with the Banco Central de Venezuela and two preferential rates. The preferential rate for agricultural imports (both products and inputs) and debt payments was at Bs4.30 per U.S. dollar. For other imports, which were severely regulated by prohibitions, prior licensing, and quotas, a preferential rate of Bs6 . 00 per U.S. dollar was set. To avoid inflation, and given the large import component in the diets, particularly by the least-favored sectors of the economy, a system of administered prices was imposed. Finally, external debt payments were restructured. Signs of improvement have already been recorded. Imports, that reached US$13 . 6 million by 1982 were US$6.6 million in 1985. Agricultural production grew fast spurred by area that increased from 1.5 million ha in 1983 to 1.8 million ha in 1985. Inflation has remained low (6% for 1985), but unemployment is high at around 13% (up from 9.5% in 1982). Specific agricultural policies The main goals of agricultural policy still are to substitute imports and foster domestic food production, to expand the agricultural frontier, and improve productivit y and profitability in the sector . Specific instruments used, along with the exchange rate system described, are price controls and commercialization, credit policies, and research and extension . Price controls. Given the importance that imported foods have on the diets of the Venezuelans and the high concentration they have in the processing industry, the government has felt the need to implement controlled consumer prices for several food items over the past three decades. Dairy, wheat, maize, rice, and livestock meats and their processed products have been the target items. 8 Table 4. Agricultural imports and production in Venezuela, 1970-78. Year 1970 1971 1972 1973 1974 1975 1976 1977 1978 Value of agricultural production (Millions of 1960 Bs) 4' 137 4,197 4' 141 4,355 4,663 5,005 4,922 5,306 5,634 SOURCE: BID, FCA Project . 1984. Imports of processed and nonprocessed agricultural goods (Millions of 1960 Bs) 1,471 1, 248 1 '393 2,021 2,912 3,981 3,650 6' 141 6,450 9 Recent price controls have not s timula t ed consumption of locally produced foods (rice, beef, roots and t ubers, etc.) in favor of t he imported ones (mainly wheat and coarse grains) by shif ting consumpt i on to the latter group and contracting t he demand for those produced locally (Tables S and 6). A look a t price evolution shows an increase fo r agricultura! commodities wi th respect to other items in the r es t of the economy . This shows the great effort given t o promete food production by creating a profitable env ironment. In the 1968- 83 period the wholesale price index showed: Genera l index Agriculture Manufac t uring Machinery and equipment Chemical products 258 . 8% 376.3% 232.8% 207 . 3% 144 . 0% This list shows t hat agricultura ! inputs have lagged in price increases making agriculture more profitable. Also, given tha t 45% of the manufactured output comes f rom food process ing, the subsidy s tructure seems to have neutralized the higher input costs t o this industry, in favor of consumers . Two cases are quite relevant. Whit e rice (S% broken grains) had a consumer price increase of 55% in 1980- 84 to reach Bs8 . 50/kg while whea t flour had a 20% increased to reach Bs3 . 50/kg, and pasta had no increase to remain at Bs7 .00/kg. White maize f lour, with over 70% of local corn content increased by 85% in t hose four ye?rs to r each Bs6 . SO/kg while yellow corn flour, with 95% imported corn cont ent increased by 27% t o close a t Bs3.50/kg. Let us t ake a look a t price discrepancies as of 1984 and 1985 for sorne imported items . 1984 (Feb) 1985 (Dec) Mínimum farro Import price Ninimum farro Import price price at Bs4 . 30/US$1. 00 price at Bs7 .50/US$1. 00 White corn 1,800 Bs697 3 ,000 Bs1 , 125 US$162.00 US$ 150 .00 Yellow corn 1,600 Bs654 2 , 800 Bs1,058 US$ 152,00 US$141 . 00 \o.'hea t Bs702 Bs1,268 US$ 163 . 25 US$169.00 Sorghum 1, 400 Bs606 2 , 200 Bs 1, 013 US$ 141 . 00 US$135.00 10 Table 5. Food itemsa that increase in consumption at lower income strata in Venezuela. Re ion Carabobo Zulia Yaracuy Portuguesa Products Pasta (1) Pasta (1) Pasta (1) Pulses (1) Pulses (l) Pulses (1) Pulses (1) Sugar (1) Haize (1) Maize (1) Maize (1) Soft drinks (1) Sugar (1) Eggs (1) Soft drinks Poultry (1) Vegetable oil (1) Powdered milk (1) Fish (3) Eggs (1) Fish (3) Embutidos (2) Powdered Milk (1) Embutidos (2) a. 1 = high-import component; 2 .component. medium-import component; 3 SOURCE: FUNDACREDESA. Eggs (1) low-import (1) 11 Table 6 . Percent distribution of calorie and protein contribution for the diet according to the mos t important products in Venezuela, 1982. Calorie distribution (%) Pro te in distribution (%) Product To tal Local Impor t s Total Local Imports Rice 7 . 74 7 . 74 5.69 5 . 69 Maize 14.64 2. 77 11. 87 10.77 2 . 04 8.73 Wheat 15.88 o. 12 15.76 21.22 o. 17 21.05 Caraota l. 61 0.47 1.14 4 . 28 l. 24 3.04 Beans o .19 o .19 0.62 0.62 Vegetable oil 10.95 3 . 07 7 . 88 Ocumo 0.20 0 . 20 0.12 0 . 12 Po tato 0 . 87 0.78 0.09 0.80 0.7 2 0.08 Cassava 1.35 l. 35 0.37 0.37 Avocado 0 . 23 0.23 0.07 0.07 Cambur 2.78 2 . 78 1.64 l. 64 Oranges 0.46 0 . 46 0.31 0.31 Pineapple 0.07 0 . 07 0 . 02 0 .02 Plantain 1.93 l. 93 0.69 0 . 69 Onion o . 15 o. 15 o .18 o. 18 Tomato o .10 o .1 o 0.29 0 . 29 Sugar 15.91 4.79 11.1 2 Cacao 0 . 20 0 . 20 0 . 22 0 . 22 Coffee 0.06 0 . 06 0 . 28 0.28 Total percent 75 .32 27.46 47 . 86 47 . 57 14 . 67 32.90 Vegetable sector percent 100 36 . 46 63 . 54 100 30 . 84 69.16 SOURCE : INN . CORDIPLAN . 12 A contradictory situation emerges when the government intends to stimulate local production through high prices and also wants to keep the price of food low to the urban consumer. The higher the national component in the processed foods, the higher the cost to the manufacturer. As a result, there will be inflationary pressures or direct subsidies will have to increase (Table 7) . In 1984, the preferential exchange rate system cost the government Bs3,000 million (US$230 million) (Hernandez). Commercialization policies also changed drastically with the elimination in 1985 of the Corporación de Mercadeo Agrícola (CMA) which had been created in 1971 to ensure adequate supplies of food to consumers at affordable prices by importing food to cover domestic shortages; buy local production at mínimum set prices and provide cleaning, drying, and storage . Three products were most-favored by this institution: maize, sorghum, and rice. In the seventies, CMA increased its market participation by buying up to 75% of rice, 70% of sorghum, and 65% of maize production. From its creation CMA absorbed nearly US$8,500 million, which could be accounted for by direct subsidy transfers, red tape costs, and plain inefficiency . The elimination of CMA implies that ~~C handles import licenses and grains are imported directly by users. The Corporation directly handled imports until 1979 at which time the prívate sector took over, previous license approval from CMA. A concerted price policy, to reduce the inflationary impact on the consumer while local production reacts favorably to the stimulus created, is in effect . A mixed body, including the ministers of agriculture, finance, and the treasury, along with processors and producers, tackle prices and problems making "changes without decrees" (Latín America Weekly Report, Sept. 1985). Starting in 1983, the government decided to completely eliminate the direct price subsidies even for basic food items. The last one to go was the dairy subsidy, in mid-1984. Other subsidies eliminated were those protecting rice, maize flour, vegetable oils, and feed grains. To compensa te for this direct subsidy elimination, important reductions in input costs were established . Therefore, interest rates, the rediscount rate for agricultura! loans, were reduced and a 50% subsidy on fertilizers was approved. Fertilizer subsidy had been eliminated in 1981 but after a tripling of its price, the subsidy was reinstated. A package of special credit, extension, and crop insurance policies have been designed to cover priority items in an effort to reactivate their local production in the mid-term. The most relevant are cereals (rice, maize, sorghum), oilseeds , pulses, livestock products, and the traditional export crops (coffee, cocoa, and sugar cane). Credit policies. Traditionally, this t ool has concentrated its efforts in supplying cheap, abundant credit to large producers and food Table 7. Internal to international price ratios in Venezuela , 1972-82. Item 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 Maíz e - 1.00 l. 22 l. 22 1.65 1.56 l. 56 1.85 2 . 46 2.64 3.21 Sorghum 1. 00 0.79 0.71 0.97 1.22 1.54 1.41 1.15 1.16 1.47 l. 93 Sugarcane - 1.00 0.55 4. 19 1.18 1.48 1.64 2.34 0.95 1.53 2 . 95 Beef - 1.00 0 . 91 1.04 1.08 0.87 - - - 0.99 1.01 ...... (.¡.) Dairy - - - 1.00 1.37 1.45 1.36 l. 28 1.80 l. 41 1.41 Por k - - - - 1.00 1.16 o. 72 1.08 0.85 0.99 1.01 SOURCES: 1982 Statistical Yearbook, IMF MAC , Anuario Estadístico 14 processors, neglecting the small farmer (Wright, 1982) . In 1975, Banco Agrícola y Pecuario (BAP) was redesigned in an effort to give better coverage to small and larger farmers. Two ins titutions took over its functions: ICP~ , basically oriented to small and medium farmers and BANDAGRO, created in 1969, dedicat ed to larger producers and food processors. In 1974, FCA (Fondo de Credito Agropecuario) was created to s upply infrastructure and farro machinery credit f or the agricultura! s ector under MAC. I t does not grant direct credits; rather, they are channeled through other institutions . Presently, commercial banks are obliged t o place 22 .5% of their portfolios in farro loans, 17% t o growers, and 5.5% t o the agroindustry. In 1984 , the government reformed t he banking laws, lifting the repaymen t limit from 5 to 10 years, with 3 years grace. Interest ra t es for farmers were reduced from 11.7% to 8.5% at Bandagro. They have been a t 3% for I CAP loans. Credit recovery has a lways been a problem. With the new measures taken, repayment has improved substant i ally to about 90% for commercial growers and 75% for campes inos. Regiona l managers of ICAP offices are now evaluated, among other criteria, on the basis of credit recovery . This brought as a consequence a reduction of l oans granted to risky crops (such as cassava) and in favor of secure ones (grains). For grai~s, loans can be recovered at sales time, given the nature of the commercialization process . For cassava, marketing i s not central i zed a t storage points and there is no defined harvesting time . So, the practice of discounting the value of the loan is not viable . Therefore, lenders have absolute ly no control over cassava sales. Even the system to provide credit to small farmers cons titutes a too l to divert Venezuelan agriculture away from its traditiona l crops and into the new (ecologically ma l adap ted) f ood and feedstuffs. The t otal amount of cr edit directed t o agriculture reached it s peak in 197 7 t o drop by almost Bs2,000 million per year therea f ter (Table 8) . At the same time , fiscal outlays fo r agriculture went f r om 8.7% of the total in 1974- 78 to 6 . 0% in 1979- 83 , reflecting changes in priorities tha t coincided with austerity policies and monetary r es tra int. In 1984, major revita lization actions for agriculture inc luded : payment of government agricultura! deb t to producers; expanding the availability of preferential prívate a nd public bank credit; 50% subsidy on fe rtilizer prices ; increased output prices for a selected set of agricultura! items (cereals, pulses, lives t ock products); andan import-quota sys t em t o ensure purchases of domestic production by the food-and feed-processing industry . Crop ins urance i s an added pol icy element designed to attract inves tment into agriculture. In 1980 , Congress creat ed AGROSEGURO with the shareho lders being FCA and I AN. The insurance covers total or partial losses in r ice , maize , sorghum, co t ton , and peanut s , when they are due to 15 Table 8 . Financing of publ ic and private ent i ties in t he agricul t ural sect or (mi l l ions of bol ivars) in Venezuel a , 1975- 1982 . Commerci al Public ent ities Year bank BANDAGRO ICAP FCA To tal To t al financing (Bank + total) 1975 672 917 917 1, 204 2, 890 3 , 562 1976 3 , 242 69 1 951 329 1, 971 5 , 213 1977 3 , 725 1 , 11 2 1, 130 227 2, 469 6 , 194 1978 1, 425 1, 305 1, 319 295 2, 919 4,344 1979 398 1, 690 1, 097 483 3 , 270 3 , 668 1980 1 , 41 1 1, 895 1, 322 264 3 , 481 4, 892 1981 1 ' 777 1, 493 1, 629 201 3 , 323 5' 100 1982 1, 280 1, 389 1,188 272 2,849 4,129 SOURCE: Banco Central de Venezuel a , I n fo rme Económico de 1979 , 1981 , y 1982 . Fondo de Cr édit o Agr opecuario , Of i cina de Planificaci ón . 16 uncontrollable natural causes . Lives tock deaths of the same nature are also covered. Also, FCA covers losses of financial intermediaries when ~~C declares preved disasters to qualify under the program. Maximum coverage limits have been defined for livestock, fisheries, coffee, c ocoa , oilseeds, cereals, sugar cane , and frui t s. Roots and tubers are not incl~ded in thc list. Government expenditures. government expenditures in agriculture per hectare by 1980 were the highest among 10 countries In North and South America surveyed by Elias, and government expenditures on agriculture per person employed in agricul t ure were second only after t he US . Expenditures in research and extension increased rapidly in the fifties to stab i.lize thereaf ter until 1977, the last datum available, at about US$50 million (1960 dollars) per year . Irrigation expenditures also grew tremendously in the period of analysis presented by Elias (1950-80). The research institution FONAIAP has 5 regional cent ers and is based in Maracay. In 1980, MAC established the Integrated Program for Agricultural Development (PRIDA) which gives t echnical assistance to campesino organizations . Concluding comments The political and economic forces behind the present import substitution strategy are quite complex. Food processors, which are, for the most, direct i mporters of their own raw material, exhibit a good deal of market power concentration. They exert effecti ve pressures on policy makers to protect their own interests. This has probably been the reason behind an increasing specialization, both in terms of production and consumption, of a few imported items tha t are used as inputs for the local processing firms. Jaffe and Rothman (1977) concluded the fo llowing : "In general, the terms of interchange are heavily biased in favour of industry, creating a distorted economic s tructure with an increasing economic and technological dependence upon indus trialized countries . The changes in food consumption pattern are clearly part of this complex and , therefore, part of the distorted economic structure, which in the final analysis is the basis of underdevelopment. Sorne of the elements defining this implicit food policy, which emerge froro our analysis, are: The change towards high-import content and ecologically maladap t ed foods. The tendency towards manufactured foods incorporating a high degree of industrial processing, e.g., the change from husked maize to pre-cooked maize flour. The trend t owards high-cost nutrients, as shown by the increase in meat consumption and the growth of the animal feeds industry, amongst others" (Jaffe, Rothman) . 17 Status Quo of Cassava in Venezuela Cassava production has stagnated in t he country a t about 330 , 000 t ons per yea r since 1960 and with yields of 8 t /ha in 40 , 000 hectares (Table 9) . Present s tatus Production is highest in the eastern part of the country (Table 10) , and its sha re has grown within the 1960-85 period due to gains in production in the state of Bolí var and s t able product ion in the other s tates (BCV, 1974), Consumption of " casabe" (a kind of bread made f r om cassava flour) i s quite i mpor t ant in this regi on . Our survey of 50 producers conducted in Monagas in May 1986 r evealed t ha t about one- hal f of the farmer s surveyed did not use machinery , one- half of them used intercropping with maize , and fe rtilizer use was mos tly associated with t he presence of maize as well as use of o t her chemicals (Table 11). Among the 50 farmers surveyed , the average farm was 23 . 5 hec t a r es and 2.2 hec t a res were under cassava . Yields fluctua t e widely from a round 5 t / ha t o over 20 t /ha depending on t echnology and crop management . Analysis of the survey is under way now. Except fo r t he highly mechanized farners , use of purchased inputs in cassava is qui te limited . Most farmers plant bit t e r varieties fo r sale to "casaberas" or t o process their own casabe , and they also plant a par cel (up t o one-ha l f a hec t are) of sweet varieties for home consump tion and occasional sales. The s t a t e that produces the most cassava is Zulia, in t he west , with 15% of t ot al production . This area , as well as the rest of the c ountry , produces sweet varieties as opposed to the eastern section of the country \.;he re bit ter varie ties are predominant. The Andean states a re also ímportant producer s of the r oo t accounting for 31% of the t otal . However , per capita production here is lower due t o l a r ger population concentra tion . With r espect to consumption, there a r e no recent estimat es of cassava use in the country. A 1974 study condu c ted by BCV revealed that about 38% of all cassava i s de s tined t o animal feed , 40% is consumed in fresh forro by humans, 12% i s consumed in the fo rro of casabe , and the rest, 9% , goes to starch production (Table 12). In the 1965- 84 peri od analyzed , per capi t a consumption of cassava decreased at an annua l rate of 3 . 1%--the shar pest fall among carbohydrate foo ds . This reduction was accompanied by a 3 . 8% annual increase in its real r etail price--the highest price increase among carbohydrates (Tables 13 and 14) . For Caracas , the INN 198 1 nutrition survey , revealed that cassava is mostly consumed by lower income groups (IV and V) , with an annual per capita consumption of 8 . 1 kg fo r the lowest income group (V) , 6 . 2 kg for t he middle- l ow (IV) group and only 3 . 6 kg for the upper-income groups . 18 Table 9. Production (metric tons) of major carbohydrates in Venezuela, 1960-85. Year Cassava Po tato Rice Maize Wheat 1960 340 134 72 439 1 1961 300 74 81 420 1 1962 323 121 103 540 1 1963 342 111 131 430 1 1964 312 124 165 475 1 1965 301 136 199 521 1 1966 320 126 194 557 1 1967 316 133 223 633 2 1968 341 143 244 661 1 1969 310 124 244 670 1 1970 317 125 226 710 1 1971 323 115 153 713 1 1972 318 109 164 506 1 1973 272 124 302 454 1 1974 293 152 297 554 1 1975 317 152 363 653 1 1976 295 132 206 417 1 1977 304 179 496 774 1 1978 304 171 502 591 1 1979 315 191 614 612 o 1980 312 199 619 575 o 1981 327 171 681 452 o 1982 301 217 609 501 o 1983 325 225 449 488 o 1984 331 226 409 609 1 1985 310 191 472 900 1 Plantain 296 301 275 276 287 283 279 259 293 342 370 377 372 369 382 370 363 406 445 437 418 426 413 420 438 445 19 Table 10. Cassava production by state in Venezuela, 1983. Per capita Region and state Rectares Production production Eastern Bolívar 5,482 52,740 72 . 4 Sucre 2,016 21,402 34.5 Mona gas 3,987 42,313 99.3 Anzoategui 4,270 30,960 41.1 Central and central west Carabobo 2,409 1 o. 104 9. 1 Cojedes 2,801 21 , 317 143.9 Gua rico 853 7,536 18.6 Falcon 144 546 1.0 Lar a 278 2, 100 1.8 Portuguesa 566 2, 611 5.5 Apure 1,148 7,475 34.8 Miranda 2,012 24 , 408 16. 2 Andes and west Barinas 1,600 12,800 36.8 Merida 1, 976 14,812 29.2 Trujillo 917 4,680 8 . 5 Tachira 2' 128 14,943 20.1 Zulia 7,825 52,977 28 .8 Total of regions 40,412 323,724 26 .8 Totals for the country 40,526 324,733 20.4 Summary of production Eastern 147, 415 45 .5% Central and central \vest 76,097 23 . 5% Andes and west 100,212 31.0% 20 Table 11. Characterization of the sample of cassava producers in Monagas , Venezuela , 1986 Number interviewe so Average cassava lot Average farm lot 3 .5 ha 14.8 ha Fertilized / 8 Mechanized""' 1 10 Not fertilized 2 Cassava alone 25 Cassava 25 Fertilized Nonmechanized 1 2 15 \ Not fertilized 13 Fertilized Mechanized / 8 9 ~Not fertilized 1 Fertilized Nonmechanized ( 8 16 --""' Not fertilized 8 21 Table 12. Cassava , supp ly and demand (tons) i n Venezuela, 1960-7 2. Local Demand production I nte rmedi a t e Animal Casabe Dir ect To t a l Year supply (starch) f ood production consurnption demand 1960 340 , 248 6 , 450 131 , 988 40,5 18 161, 292 340 , 248 1961 339,223 14 , 310 131, 855 40, 131 152 , 927 339 , 223 1962 322 , 805 22 '434 123 , 92 1 39 , 741 136 , 709 322 , 805 1963 342,388 21, 558 134,237 39,354 147 , 239 342 , 388 1964 311,697 16 , 439 11 9 , 066 38 , 964 137 , 228 31 1, 697 1965 301 , 423 29,040 11 4 , 244 38 , 557 119 , 582 301, 423 1966 320 , 000 24 , 912 124,053 38 ' 187 132,848 320 , 000 1967 31 5 , 563 23 , 070 122, 190 37 ,800 132 , 503 315,563 1968 340 , 882 40,818 132 , 027 40 , 800 127,237 340 , 882 1969 309,84 7 41 , 550 11 9 , 892 37 ,200 111, 205 309 , 847 1970 317 , 197 39 , 558 122 , 719 38 ' 100 11 6 , 820 317 , 197 1971 322,724 46 ,1 58 124,62 1 39,000 11 2 , 945 322,7 24 1972 318 ,170 46 ' 11 o 122 , 468 38 ' 100 111 ,492 318 , 170 Ave rage 323 , 244 28 , 647 124 , 868 38 , 959 130,771 324 , 013 SOURCE: Taken from Table 14. 22 Table 13 . Summary of annual growth rates (%) in agricultural parameters in Venezuel a, 1965-84. Per capita consumption Beef Por k Poultry Poultry total production Real retail prices Beef Por k Poultry 1.3% 2 . 3% 5. 9/~ 8 . 9% 2.2% 0 . 7% - 2.4% Relative price beef/poultry 4.6% Animal Maize/sorghum Urban population Total population a. For period 1965-1980 . 10.4% 23.3% 4 . 2% 3.3% Per ca pita consumption Cassava -3. 1% Patato - 0.0% Rice 2. 2% 3. 1 %a Wheat o. 7% Maize - 0 . 6% Plantain -0.8% Total production of cassava 0 . 0% Real retail prices Cassava 3.8% Po tato 2.6% Rice - 0.5% - 2.9%a Wheat 3 . 0% Maíz e 3 . 3% Plantain 1.6% Relative price cassava/wheat 0 . 8% Real income PC 1.8% Sorghum production 5.1% 23 Table 14. Real retail prices (in 1968 bolivars) of carbohydrates, and per capita real income in Venezuela, 1965-85 . Per Capita Year Cassava Po tato Rice Maize lf.Theat Plantain in come 1965 $0 . 71 $0 . 87 $1.21 $0 . 73 $0 .64 $0 . 59 $3 . 38 1966 $0 . 59 $1.10 $1.63 $0 . 69 $0 .63 $0 . 58 $3 . 34 1967 $0 . 61 $0 . 97 $1.62 $0 . 71 $0.63 $0 . 58 $3.37 1968 $0.70 $0 . 90 $1.61 $0 . 70 $0 . 62 $0.60 $3.30 1969 $0 . 63 $1.01 $1. 54 $0 . 66 $0 . 61 $0 . 59 $3.42 1970 $0 . 60 $0.90 $1 . 44 $0 . 66 $0.67 $0.49 $3.62 1971 $0,64 $0 . 84 $1 . 42 $0.63 $0.65 $0.50 $3.58 1972 $0.65 $0 . 95 $1.36 $0 . 63 $0 . 63 $0 . 54 $3 . 59 1973 $0.63 $1 . 04 $1. 34 $0 . 76 $0 .61 $0 . 54 $3 . 69 1974 $0 . 58 $0 . 93 $1 . 30 $0 . 79 $0.56 $0.52 $3.61 1975 $0 . 73 $0.89 $1. 32 $0.80 $0.51 $0 . 60 $4.03 1976 $0.79 $0 . 87 $1.17 $0 .89 $0 . 63 $0 . 65 $4 . 55 1977 $0 . 89 $0.79 $1. 06 $0.79 $0.82 $0 . 62 $4.68 1978 $0 . 85 $0 .78 $1.03 $0 . 78 $1.16 $0.62 $4.65 1979 $0.94 $0.89 $1 . 02 $0 . 90 $1. 29 $0 . 61 $4 . 97 1980 $1 . 00 $1 . 36 $1. os $1 . 01 $1. 15 $0.60 $4 . 80 1981 $0.98 $1.55 $1.80 $1.13 $1.09 $0 . 65 $4.78 1982 $0.91 $1.12 $1 . 50 $1.02 $0 . 91 $0 . 64 $4.65 1983 $1.11 $1 .46 $1 . 43 $1 . 03 $0 . 86 $0 . 64 $4 . 36 1984 $1 . 27 $1 .46 $1.54 $1.22 $0.90 $0 . 77 $4 . 11 1985 $1.44 $1.67 $1. 45 $1 . 45 $0.85 $0 . 85 $3 . 97 24 A miscalculated effort was made in the late seventies t o incorporate cassava into the main stream of agroindustry in Venezuela. The amount of research done with the crop is quite impressive, both at the agronomic level (FONAIAP, UEV, UDO, LUZ, UNELLEZ FUNDATEC, etc.), and at the utilization end (UEV, UDO, Protinal, etc.). In the late seventies cassava was seen as an important alternative in the government import substitution policies. Eleven drying plants were created throughout the country in 1975-80 at a cost of about US$25 million. They were closed as of 1986. Most of them never got off the ground. Careful analysis revealed that soft credit lines were formula ted by the same institutions that sold the machinery, without considering the economic feasibility of success of those plants in terms of location, market expansion, social impact, labor needs, etc. Total installed capacity for these cassava plants was 250,000 tons or 75% of actual production. Econometric analysis of the demand for fresh cassava. Data from the INN only refers to quantities of products consumed. There is no expenditure information. Therefore, only time-series data were used to calculate the effects of changes in incomes, prices, and urbanization trends on per capita consumption of cassava. The period of analysis chosen covers the years 1965-84. Urban population grew faster than total population at 4.2% per year. Urbanization has a negative implication on cassava demand that goes beyond the effect of causing higher consumer prices due to the obvious increase in marketing costs. Because the root is highly perishable, urbanization presents special difficulties in market access. Effective barriers of entry emerge with the subsequent reduction in competitiveness in the market place. The lower degree of competition converge lower volumes of trade than would have taken place under a more competitive environment. The model proposed to estímate per capita demand for cassava includes its own real retail price, real retail prices of other carbohydrates, per capita real incomes and total urban population as independent variables. Parameter estimates show that urbanization has had a marked negative impact on consumption of fresh cassava in the country. Income did not have a significant effect on its consumption at the aggregate leve! most likely because it is a significant variable at lower income levels (as is the case in Colombia, Indonesia and Brazil, for example) and not significant or even negative at high income levels. So, in the aggregate the income elasticíty is very low, 0.08 (and not signifícantly different from zero, Tables 15 and 16). Per capita consumption of cassava is also quite responsive to prices. The marked growth in íts own príce (at 3.8% per year) had a contractionary effect on íts demand of 0.38% per year (own príce elastícity of 0.10). Substitutíon away from cassava consumption was also caused by wheat and rice prices (cross príce elastícitíes of 0.13 and 0.18). These result s confirm that cassava has been discrímina ted against not only at the supply level, where policies encourage production of ímported food items, but also at the demand leve l wíth díscríminatory consumer price 25 Table 15. Elasticities of time seri es for several countries and per capita consumption of f resh cassava in Venezuela, 1965- 84 . Colombia Ecuador Paraguay Peru Venezuela Own price - 0.43 - 2 .08 -0.10 - 0.21 - 0 .1 0 (3.09)a (3 .59 ) (4.62) (3 . 08) (3 .53) In come 2 . 51 1.38 - 0 .1 3 0.03 0.08 (1.73) (1.89) (7 .03) (0.13) (0 . 44) Urbani zation -1.55 -0.99 - 0.13 - 1 . 03 -0 .77 (3 .14) (2.85) (5.52) (9 . 17) (6 . 90) Wheat rice NO 0.45 0.07 o. 11 o .1 3 (3.01) (5.38) (l. 84) (2.60) Rice price 0 . 09 2 . 42 NO 0 . 64 o . 18 (2.16) (2.78) (12. 24) (2.00) a. Figures in parentheses are t-s t a tis tics. Table 16. Elasticities of time series for several countries and per capita consumption of poultry meat. Colombia Ecuador Paraguay Peru Venezuela Own price -0.46 - 0.19 - 0.33 -1. 19 - 0 . 92 (10.45)a (1.73) (6 . 39) (6 . 26) (10.39) In come 0 . 88 0 .57 0 . 59 0.54 1. 09 (10.86) (8.14) (10. 73) (1 • 54) (14.03) Beef price 0 . 61 0 . 80 - 0 .15 0 . 66 0.44 -2 . 54 (8.88) (3 .10) (3 . 75) ( 1. 76) Por k price -1.1 4 0.39 0 .53 0.52 - 0 . 70 (5 . 60) (l. 86) (6 .49) (2.36) (2 .1 2) a . Figures in parentheses are t-statistics. 26 policies that have affected consumption of this root in favor of an imported cereal such as wheat . Potential demand for cassava As we have seen, cassava has been left out of t he main stream of import substitution and agroindustria l policies that have characterized the past three decades of Venezuelan agricultura! development . But cassava 's excellent agroecological adaptation to the different environments of the country make the root an obvious candidat e in the l ong t erm to substitute for i mported, fo od energy sources in both the food- and t he feed- processing indus tries. The obvious impediment at pr esent i s the complex set of polit ical economic forces t hat propitiated and maintain the actual state of things . The oligopolies exis ting in wheat milling and feed manufacturing are a l so heavily involved in the gr a in import business. These interes t groups play a vital r ole in the price and produc tion policy decision-making pr ocess . There are encouraging signs in bot h industries with respect t o utilization of local food items in their processing technologies. The wheat millers have experimented with cassava and rice f lour. They will have to use, by l aw , 15% to 20% of rice flour in production of pasta. With respect to feed, Protinal, the largest feed and poultry producer in the country (with 30% of the feed market) has been actively involved in dried cassava r esearch for an ima l feed. For the last four years, they have been operating a 100 ha plantation in Monagas (eastern part o f the c ountry) where exper iments with mzchanized planting and harvesting are progressing satisfactorily . A 250- m drying floor and a Thailand-type chipper , fo llowing CIAT's s pecifications , were built t o keep abreast of t he possibilíties in this a rea. The same firm has conduct ed experiment s in a "Central Yuquero11 in the eastern part of the country, where artificial drying experiments are being conducted. Protinal thinks that the drying floors have a bright future in t hat regí an of Venezuela where abundant margina l but mechanizable land exists, drying conditions a re excellent (four months of dry season), and there is a cassava tradit ion tha t goes back several decades. Casabe prices have increased relative to wheat products; it is now more expensive than pasta and bread at around BslO/kg and its consumption has declined . Dry ing cassava offers an al ternative mar ket for fa rmers in t ha t region . Purina , the second l arges t feed manufacturer has also shown i nterest in dried cassava, following the e xample of its sist e r company in Colombia which has been a major user of dr ied cassava chips produced on the Atlant ic Coas t of that neighbor country . Fresh cassava offers also new possibilities to reduce the nega tive i mpact associated wit h t he h igh perishability of the roo t in a rapidly urbanizi ng soci ety . The new technology t o s t ore fresh cassava in pl astic bags and treat it wi th thiabendazol could have a tremendous impact on r educ ing r e t ail prices and expanding volumes sent into major urban zones . 27 By 1986, farmers' prices of fresh cassava were around Bs0.75 / kg to Bsl.10/kg while its retail price in Caracas was Bs5.95/kg. The marketing margin seems excessive in a city with excellent roads and with an appropriate wholesale market (Los Coches). Reducing perishability will enable farmers from more distant places to enter the market. Retailers will see their losses cut and they will also be able to négotiate larger volumes at wholesale outlets. Increased market access and lower commercialization losses due to use of the plastic-bag technology should result in sharp reductions in retail prices and markedly higher volumes of cassava being traded in the cities. In a country of high incomes, where food marketing usually conveys a high value-added to the final product, this type of technological innovation has a high chance for success. We turn now to analyze the prospects for cassava demand both as a food itero that competes with other carbohydrates and as a feed source. Carbohydrate foods. Venezuela continues to be dependent on imports for over 50% of basic agricultura! commodities (and perhaps 30% of total food consumption). Food imports (mostly cereals, oilseeds, dairy and their products) boomed after 1973, following the rapid oil price increase (Table 4). In the 1965-84 period of analysis, the highest gains in per capita consumption went to rice at 2.2% per year. Actually, per capita consumption of rice in the 1965-80 period grew atan annual 3.1% accompanied by an equally impressive retail price reduction (in real terms) of 2.1% per year. In the eighties, white rice prices increased rapidly in real terms from Bs1.05/kg to Bs1.45/kg in 1985 (5% broken grains). Accordingly, per capita consumption of rice (paddy equivalent) ~1ent from 40.0 kg in 1980 to 25.7 kg in 1985. Per capita consumption of all major carbohydrates decreased during the period of recession, 1978-85, except that of wheat, for which a favor able price policy for bread and pasta meant a rapid real retail-price reduction . (Tables 14 and 17). Reductions in the price of rice during the 1965-84 period are the result of the rapid adoption of improved, high-yielding varieties, (HYRV), a process that started in 1959. By 1982 it was estimated that out of 227,000 hectares cultivated with rice, about 200,000 used HYRV (mainly Araure 1) of which 30% was irrigated (M.J. Rosero in Dalrymple). By 1985 area harvested was 148,000 hectares of which 40,000 were irrigated. government credit for nonirrigated rice has been declining. Yields have been increasing in the eighties due to a higher proportion of irrigated rice. They were of 3.2 t/ha in 1985 (USDA Grain and Feed Annual Report). Venezuela has been self-sufficient in rice since the early sixties and sorne exports have been registered of small amounts. Mechanized upland and a more intensive irrigated system are the predoroinant methods of cultivation. Industrialization is predoroinant for roilling. Of the 35% resultin g froro roilling, 23% goes to nonfeeding uses at poultry farms, and 12% goes 28 Table 17 . Per capita consumption for majar car bohydrates in Venezuela, 1960-85. Rice Year Cassava Patato paddy Maíz e Whea t Plantain 1960 42.3 16. 7 7. 5 32.3 36 . 9 36 . 8 196 1 35 . 9 8 . 9 9 . 0 33 . 5 37 . 2 36 . 0 1962 37 . 2 13.9 11. 4 39 . 9 30 . 5 31.7 1963 37.9 12. 3 14.5 31.6 34.0 30 . 6 1964 33 . 3 13 . 2 17. 6 48 .3 45 . 4 30 . 6 1965 30.9 13. 9 22.5 39 . 9 43 . 2 29.0 1966 31. 6 12.5 24 . 1 38 .4 42 . 2 27 . 6 1967 30.1 12.7 27.2 41.8 52.6 24 .7 1968 31.3 13.1 25. 4 57 .6 54 . 8 26 . 9 1969 27 . 5 11.0 22.4 45 .0 50 . 7 30 . 3 1970 27 . 2 10. 7 24 . 4 48 . 5 48 . 9 31.7 1971 26 . 8 9.5 12. 7 51.6 46 . 2 31. 3 1972 25 . 6 8 . 8 13 . 2 45 . 5 48 . 3 29 . 9 1973 21. 2 9.7 23 .7 51.4 42 . 6 28 .8 1974 22 . 2 11. 5 27.5 53.3 40 . 9 28 . 9 1975 23 . 3 11. 2 29 .1 51.5 46 . 4 27 . 1 1976 21.0 9.4 14 . 7 37 . 0 50 . 8 25 . 8 1977 21.0 12. 3 34 . 2 53.4 48 . 7 28 . 0 1978 20 . 3 11. 4 33 . 6 45 . 3 54 . 0 29 . 8 1979 20 . 4 12. 4 40 . 4 42.2 45 . 9 28.3 1980 19. 6 12 . 5 40 . 0 50 . 5 48 . 7 26 . 3 1981 19.9 10 . 4 41.5 56 . 2 53 . 9 25 . 9 1982 18 . 0 13.0 36 . 5 50 . 6 46 . 3 24 . 7 1983 18 . 8 13.0 26 . 0 41.0 48 . 3 24 . 3 1984 18 . 6 12.7 22 . 9 35 . 9 60 . 9 24 . 6 1985 16. 9 10. 4 25 . 7 29 . 4 56.8 24 . 2 29 into animal feed. Between 2% and 4% of white rice goes into brewi ng and more elabor a te f oods . Per capita c onsumption of white rice was a t 17 kg by 1985 with t otal consumption increasing with income level. Corn consumption is per capita terms showed no s igni f icant trend over the 1965-84 period, while the real retail price of maize flour increased at 3.3% per year. About 75% of domestic availability goes to the flour-processing industry . The rest goes into feed manufacturing. Apparent per capita disappearance in 1985 was about 30 kg. Corn consumption increases as income level decreases (Hernandez, lESA) . It is a basic staple at low income levels. The maize-processing industry has a high degree of mar ket -power concentration. Wheat is almost exclusively imported and cons titutes a basic dietary source wi th 21% of the total protein need and 40% of vegetable needs being supplied by it (Hernandez Doc . #1.). Venezuela i mports much , high-priced wheat mostly f r om the United States (UCV Economía). About 90% of the wheat rea ches a second milling phase. Of t his , 59% goes into bread and pastry , 25% into pasta , 5.5% into cookies, and 10% into domestic use of wheat flour . Milling i s highly concentrated while pasta and bread processing have lower degrees of market-power concentration. Per capita availability of wheat was around 56 kg in 1985 . Bread consumption increases with income level while pasta shows the oppos ite trend (Rernandez , lESA). Per capita consumption of fresh carbohydrates shows no significant trend fo r potatoes and plantains and shows a decrease fo r cassava. Prices of these three items increased in rea l terms . Should present trends continue, the die ts of the Venezuelans will contain even more imported wheat, wi th rice and maize having a chance to maintain their sha res, given the strong government suppor t to producers. Potatoes, cassava, a nd planta i ns will continue t o be replaced due to the consumer pricing policies favoring wheat. Mea t s. The lives t ock sector has been ver y dynamic over the past two decades. Its contribution t o GDP has increased , spurred by a fast-growing poultry indus try al though pork, beef , and dairy have made i mport an t gains . Per capita consumption of poultry grew in 1965-84 a t an annua l 5.9%, pork a t 23%, and beef a t 1. 3% . The faster gr owth for poultry was accompanied by a continued reduction i n its real reta il price a t 2.4% per year, the result of the rapid adoption of modern technol ogies (Table 13) . In per capita t e rms, beef has been surpassed by poultry (16.7 kg ver sus 19.6 kg) and pork i s a distant t hird wi th 6.2 kg. 31 A rather conservative scenario has been assumed. Per capita real incomes in 1985-2000 will increase at an annual 1. 0%, population will grow at 2.8% per year, and the real retail price of cassava will decrease at an annual 1. 0% while other real prices remain constant. The price fall is based upon the assumption that plastic bags will be gradually adopted. With this t echnology, consumers will pay less, farmers will receive more (Janssen and Wheatley) because of a significant reduction in waste and marketing costs, and by the formation of stronger markets. Therefore the assumption of a reduction in the cassava retail price rests initially on the implementation of the new storage technology . In such a case the rate of reduction in price could be much higher than the one proposed for this exercise. An additional assumption for projections is that with this technology, commercialization losses of cassava will be reduced from an estimated present level of 25% to 15% in the fresh market. If there is a parallel development in the drying industry , losses will be reduced to 5% since the additional 10% of cassava that is not suitable f or the fresh market dueto quality problems (small size or broken), and that is currently left on the field, could be utilized by this industry. Therefore, the final effect on additional production requirement s will be 20% less due to better crop use . Fresh cassava . The 1984 per capita consumption level of 18.6 kg will increase to 19.1 kg by the year 2000 . The increase in per capita consumption is the result of the own-price decrease (Table 18). Under those circumstances, i mplied cassava production will reach 541,000 tons (over the 331,000 tons produced in 1984). Again , a 10% waste-reduction equivalent (around US$4 million) is assumed to be associated with the new storage technology. Therefore increments in production for the year 2000 will amount to 156,800 tons, or 15, 680 additional hectares of production assuming a yield of 10 t/ha (Table 18). Dried cassava. Our estimates indicate t he following : Dry cassava competes with locally produced sorghum, but not with i mported sorghum at t he preferentia l exchange rate (Tables 19 and 20) . Against local sorghum, cassava drying is a profitable alternative for feed manufacturers, entering in the optimal least-cost solutions at 80% of the price of sorghum. Sorghum has a higher protein content and, f or tha t reas on, cas sava must cost less . Therefore, the viability of its production remains subject to policy decisions . Whether cassava is incorporated into the main s tream of import sub stitution and feed proces sing will be a political decision depending upon both industry and government willingness to stimulate this promising root. 32 Table 18. Projec tions for time-series model for the year 2000 in Venezuela. Dried cassava Annual rates of growth Per capita r eal income Population Real retail price poultry Sorghum production Variables levels Population (millions) Per capita consump tion (kg) of: Beef Por k Poultry Pork meat produc tion Poultry mea t production Total feed production Pork feed production Poultry feed production Haiz:e/sorghum Implicit use Imports Dried cassava Percent in fe ed Required produc tion Maiz:e/sorghum i mpo rts Foreign exchange ea r nings (mill ions of US$) Fresh/dried cassava conver sion Cassava yield/ha Fresh cassava labor/ha Dri ed cassava labor/t Fresh cassava required (000 t) Required hectares New jobs generated Fresh cassava Annual r at es of growt h Per capita rea l inc ome Population Real retail price fre sh cassava Variable levels Population (millions) Per capita consumption of fresh cassava (kg) Fresh cassava production Production inc rease (0 00 t ) Addi t ional hectares for cassava New jobs gene r ated Final balance f or fresh and dried cassava Additional produc t ion for fre s h cassava (000) Required hec tares New jobs generated l. O 2 . 8% -l. o:: 1984 17 . 8 19. 1 6.4 16.9 114 .5 290 .2 2 ,955.5 956.1 1,744.4 1, 92 1. 4 1, 300.0 10. 0% 1.0% 2.8% -1. 07. 1984 17. 8 18.6 331 . 0 2000 28 . 3 7.9 25 . 2 223.0 784 . 9 5 ,7 36.6 1, 783 . 7 3 , 204 . 6 3 , 728.8 2 , 012.6 573.7 1 , 438.9 $57.4 2 . 5 10 . 0 45 . 0 3.0 1, 380 . 0 137,996.0 34,545 . 6 2000 28.3 19. 1 541 . 8 156.8 15,680 . 0 3,763.0 1, 536.8 153,676 . 0 34,545.0 33 Table 19. Profitability of a cassava drying floor, Monagas, Venezuela, 1986. 2 Drying floor (m ) Months of operation (months~year) Drying load operation (kg/m ) Dried cassava sales Bs/t Labor cost (wage) Conversion of fresh to dried cassava Fresh cassava yields/ha (kg) Dried cassava, transport costs (Bs/t) Sorgbum price at farro gate Internal rate of return Net present value (10%) Annual capacity, fresh cassava Annual capacity, ha 1,000 4 12 $2,010 $50 2.5 12,500 $100 $2,513 15.0% $93,391 576,000 46.1 Investments Unit cost ($) Units Cement floor Chipping area Warehouse S creen Equipment Chipper Motor S cale Tools Wheelbarrows Shovels Rakes Collectors Sacks Plastic sheet Sub total Unforeseen, 5% Working capital Total 60 100 160 15 10,000 15,000 1, 500 350 28 15 so 3.5 3 30 1000 32 336 240 1 1 1 6 12 4 4 200 500 1400 1985 Bs 60,000 3,200 260,000 45,000 368 , 200 10,000 15,000 1,500 26 ,500 12,000 3,000 4,000 4 ,000 20,000 40,000 83,000 477 '700 23,885 42,000 543,585 Table 20 . Distribution of direct costs for cassava (fresh and dried) and for sorghum, Monagas , Venezuela, 1986. Total Cos t Variable (Bs/ha) (Bs/t) Land . $8 . 33 $0 . 04 Labor $47 , 466 . 67 $206.02 Capital $59 , 371.12 $257 . 69 Total 106 ,846.12 $463 . 74 Fresh cassava yielding Farm ga t e price , 85% sorghum Cross margin Sorghum production costs, Monagas - 1986 Yielding: 2 . 5 tons/ha l-1echaniza t ion Inputs Labor Land Labor Capital Total Farm gate price Gross margin Total + 20% 1,228 . 464 1,058 . 28 288 Total $20 . 83 $288.00 $2 , 286.74 $2,595 . 58 $2 ~ 200 $1 • 162 $12,500 $1,870 $515 Cost (Bs/t) $8 . 33 $115 . 20 $914 . 70 $1,038 . 23 Free exchange rate Cost (Bs20=US$1 . 00) Official (Bs/ t) (US$/t) (Bs7.5=US$1 . 00) $2 . 54 $592 . 27 $760 . 69 $1,355.49 Free exchange rate $0.42 $5.76 $45.73 $5 1.91 $110 . 00 $58 . 09 $0 . 13 $0.34 $29 . 61 $78 . 97 $38 . 03 $101.42 $6 7. 77 $180.73 Official exchange rate (Bs7 . 5=US$1 . 00) $1.11 $15.36 $121.96 $138 . 43 $293 . 33 $154 . 90 w ~ 35 From our time-series demand estimation of pork and poultry in Venezuela (Sanint et al.) we translated those elasticities for projected consumption of those two types of meat for the year 2000 (Table 16). It was assumed that the present ratio of feed going into broilers and layers remains constant (i.e., there will be an equally dynamic demand for eggs, which appears quite reasonable) and that pork and poultry feed will continue to represent 85% of that market (dairy and other uses will also show important growth; again, a proposition likely occur). For the year 2000 , the model predicted per capita consumption of poultry at 25.2 kg (up from 16.9 kg in 1984), that of pork at 7.9 kg (up from 6.4 kg in 1984) and feed use at 5.7 million tons (from 3 million in 1984) (Table 18). Substituting only 10% of dry-cassava chips into feed formulas for the year 2000, 575,700 tons of dried cassava will be required (that will substitute about US$57 million of coarse grain imports). Ata 2.5 conversion rate of dry to fresh cassava, 1.4 million tons of fresh cassava will be required to meet this requirement and 137,996 addi tional hectares will have to be cultivated (assuming yields of 10 t/ha, which is rather conservative). The exercise also assumes that 10% of what is produced for fresh cassava consumption can be incorporated into dried cassava, since that proportion is usually left in the ground at harvest time because it will not meet market standards. But those remainings ("colas") are perfectly acceptable for drying. Total needs for additional cassava (in both the fresh and feed markets) by the year 2000 will reach 1.5 million tons, using 153,676 additional hectares, and with 34,546 new jobs generated in the process. Concluding Comments Venezuela has made considerable efforts to substitute food imports and reduce its level of dependence on foreign suppliers. The food-processing ability of the country has expanded very rapidly but the raw materials demanded contain a high proportion of imports. Wheat is almost one hundred percent imported, whil e 60% of coarse grains used in feed production are imported. This is in spite of the massive subsidies and price incentives given to farmers of those crops, and the rapid growth in corn and sorghum production. In terms of potential, cassava has much to offer. It is the cheapes t source of energy in the tropics. That undeniable evidence should be put to work. The crop ' s ability to grow under a very wide range of ecosystems and the present low yields, indicate that Venezuela could use many of its unproductive lands to cultivate cassava and achieve substantial productivity gains. The present dilemma of substituting expensive local grains for cheap imported ones and at the same time provide cheap, abundant food to the urban consumer mus t be broken by means of productivity, rather than area expansion, in arder to keep prices of local products low and competitive. 36 Increasing sorghum and maize yields far beyond their present levels (which are based on heavy use of subsidized fertilizers) is unlikely, but with cassava, it is a different story . Present average country yields of 8 . 0 t /ha are very low . Protinal, under field conditions, obtains 15-20 t/ha. At those levels, cassava becomes a much better alternative than coarse grains in Venezuela. The case of f resh cassava also merits attention. With the introduction of cassava- bagging techniques impressive results can be achieved , as the Colombian experience (Bucaramanga pilot-project) demonstrates. The political and economic forces behind the present import substitution stragety are qui te complex. Food processors, which are, for the most, direct importers of their own raw material, exhibit a good deal of market-power concentrtion. They exert effective pressures on policy makers to protect their own interests . This has probably been the reason behind an increasing specialization, both in terms of production and consumption, on a few imported items that are used as inputs for the local processing firms. As sorne of these firms (Protinal , Purina) turn their attention to cassava, the future of this root may be bright in Venezuela . 37 References Banco Central de Venezuela. 1974. Estudio integral de la Agricultura en Venezuela : raíces y tub érculos . Caracas, Venezuela. Hernández , J . L. 1985. Evaluación de los efectos de la política oficial sobre la agricultura: Conclusiones de las mesas de trabajo . Caracas , Venezuela. Hernández, J. L. 1986. El sistema agroalimentario en el contexto económico: los determinantes del mercado fu turo de cereales en Venezuela . 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Caracas , Venezuela . USDA (United States Department of Agriculture). Grain and feed annual report; agricultural attache. World Bank . 1961~ The economic development of Venezuela. Baltimore, MD . Wright, E. W. 1982 . The political economy of Venezuelan food policy 1958-1978, Ph . D. diss. University of Mar yland , MD.