Transcript structural implications of economic liberalization on

STRUCTURAL IMPLICATIONS
OF ECONOMIC LIBERALIZATION
ON AGRICULTURE
AND RURAL DEVELOPMENT
IN NICARAGUA
Arthur H. Grigsby V.
Francisco J. Perez
Post Colonial Agriculture
• 1821-1880 Subsistence agriculture combined with live cattle
exports to Central American market. Indigo as the main export
to Europe
• 1880 Introduction of Coffee plantations. A second wave of
segmentation: large foreign and national coffee growers,
peasants and indigenous rural workers.
• 1910 Establishment of large Banana plantations owned by
foreign investors for USA market (United Fruit Co.) in the
Caribbean Cost. Permanent rural workers as social sector.
• Coffee and Banana plantations were expanded at expenses of
the expropriation of indigenous community's land
Agriculture Modernization area
• 1950-1978 Export Boom, Capitalist Agriculture
development era: export expansion and diversification:
coffee, cotton, beef, banana and sugar cane.
• Third wave of segmentation:
– Large cattle states, large banana, coffee, sugar and cotton
plantations.
– Rural workers and landless families
– Farmers at the central region with cattle and coffee
– Settlers that populated the agricultural frontier
• 1960s-1970s Agrarian Reform at the agricultural frontier,
high levels of land concentration at the Pacific areas.
• 1978-1979 Civil war, sharp reduction of agriculture exports
Sandinista Revolution 1980s
• Agrarian reform with a redistribution of 2.05 million hectares
which represented 37 % of total agricultural land.
• Expropriation of foreign companies in mining and forestry
• Nationalization of foreign and domestic trade.
• Creation of a large state farms sector and organization of
agrarian cooperatives
• Subsidized credit, inputs, agricultural machinery and
Technical assistance for rural families.
• 1983-1989 Civil war, international blockade (US embargo),
hyperinflation process. Large proportions of rural men
engage on conflicts.
• Emergency of black markets, and expansion of informal
sector.
• 1987 Collapse of agricultural exports
• 1988 First Stabilization policies in order to reduce
hyperinflation.
The Neoliberal Model (1990s-2000s)
• Structural Adjustment Plan: “Shock therapy” approach that
combined sharp devaluation of the national currency with
controlled prices for foodstuffs
• 1990 Dismantling of State intervention of the
economy, including:
– Privatization and liberalization of foreign and domestic
trade.
– Devolution of agrarian and urban properties.
– Public enterprises privatization program.
– Reduction of the state size and rural programs (credit,
technical assistance, subsides).
The Neoliberal Model (1990s-2000s)
• Early 1990s there is a stagnation of the economy with high
rates of unemployment. Private investment had a slow and
weak recovery because of property rights conflicts and social
instability and there was a sharp reduction of public
employment due to military demobilization and public
expending cuts.
• Domestic and international migration increased substantially.
International migration flows to USA and Costa Rica
quadrupled respect to 1980s.
• There is a second wave of colonization of Agricultural
Frontier. Domestic migration to both the cities and to the
relatively sparsely populated Caribbean region.
• Economic recovery led by a substantial increase in public
investment in infrastructure, export growth and remittances.
Private investment, however, is mainly oriented to nonagricultural sectors such as construction, commerce and
banking services.
• Reduction of the agriculture's share of GDP
Nicaragua: GDP structure as percentage (based on Local Currency)
45.0
40.0
% of Total GDP
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
year
Agr GDP
Industry GDP
Basic Services
Service sector
2001
2002
2003
Rural population declining in relative terms but
growing in absolute terms
Nicaragua: Population trends by origin
6.0
5.0
3.0
2.0
1.0
years
Total Population
Rural Population
Urban Population
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
19
73
19
71
19
69
19
67
19
65
19
63
0.0
19
61
Million of persons
4.0
The Demographic Transition has just started
Nicaragua: Trends of the Population by location
70.00
50.00
40.00
30.00
20.00
10.00
0.00
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
% of total Population
60.00
years
Urban Population
Rural Population
Nicaragua: Type of Rural Families and their share as total rural population
High Income, 1.5
High Middle income, 3.6
Low Middle income, 17.5
Subsistence, 32.5
Landless, 44.9
Nicaragua: Migration flows per decade
80.0
70.0
% of total migrants
60.0
50.0
40.0
30.0
20.0
10.0
0.0
1970s
1980s
decades
1990s
Trade Liberalization
• Dismantling of tariff protection for domestic agriculture.
• Trade policy based on the integration to the Central
American Common Market (regional economic
integration) and Free Trade Agreements with USA,
Canada, Mexico, and Chile. Currently negotiating with
EU and Taiwan.
• Policies for employment based on the promotion of
Exporting Production Zones, mainly textiles factories
(maquilas)
• Foreign investment in key agribusinesses sectors : dairy
products, poultry and pork, and fruits and vegetables.
Main supermarket chains have been acquired by
WalMart.
Nicaragua: Average tariff levels in Central America
60
50
Average Tariff
40
Costa Rica
El Salvador
30
Guatemala
Honduras
Nicaragua
20
10
0
1985
1987
1990
1995
year
1997
1999
-50.0
-100.0
-150.0
-200.0
-250.0
-300.0
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
03
01
99
97
95
93
91
89
87
85
83
81
79
77
75
73
71
69
67
65
63
61
% of Export value goods traded
Nicaragua: Commercial balance on Goods traded
100.0
50.0
0.0
Agriculture Trade Balance
• Nicaragua has a positive trade balance on food and
agricultural products. However, food imports represent more
than double of inputs imports.
Nicaragua: Commercial balance of agricultural products
700.0
600.0
400.0
300.0
200.0
100.0
years
Import Value Agriculture Total
Export Value Agriculture Total
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
19
73
19
71
19
69
19
67
19
65
19
63
0.0
19
61
US$ Million
500.0
Capital goods are tiny fractions of total imports
because of low level of investment on technology
and the extensive path of Nicaraguan agriculture.
Nicaragua: Local consuption grains yields
4.5
4
3.5
2.5
2
1.5
1
0.5
year
Yield Beans, Dry
Yield Maize
Yield Rice, Paddy
Yield Sorghum
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
19
73
19
71
19
69
19
67
19
65
19
63
0
19
61
TM/ha
3
Nicaragua: Export products yields
2.5
2
TM/ha
1.5
1
0.5
year
Yield Tobacco Leaves
Yield Coffee, Green
Yield Sesame Seed
Yield Soybeans
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
19
73
19
71
19
69
19
67
19
65
19
63
19
61
0
Market Integration
• Nicaraguan is attracting foreign investment from different
sources. Central American investors have mainly invested in
commerce and banking services.
• South Koreans, Taiwanese and US companies have invested in
textiles. US firms have also invested in supermarket chains as
well as in some agroindustrial sectors such as dairy, coffee,
peanut (Starbucks, WalMart, Cargill).
• Through free trade agreement Nicaragua is trying to ensure
access to the US market for its products. Although Nicaragua
has increased its quotas for meat, sugar, peanut and textiles, it is
not clear whether rural production will be competitive by 2021
when average tariff will be 1.6 %.
Nicaragua:Trade partners as share of total export
40.0
35.0
30.0
% of total Imports
ALADI
Mercosur
25.0
Andean Group
MCCA
20.0
USA
European Union
15.0
Asia
Japan
10.0
5.0
0.0
1990
1991
1992
1993
1994
1995
1996
years
1997
1998
1999
2000
2001
2002
Nicaragua: Imports by region and/or partner
600.0
ALADI
500.0
Mercosur
Andean Group
MCCA
US$ Million
400.0
USA
European Union
Asia
300.0
Japan
200.0
100.0
0.0
1990
1991
1992
1993
1994
1995
1996
year
1997
1998
1999
2000
2001
2002
year
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
US$/Ha
Nicaragua: Land Productivity, Ag GDP/Ha Ag Land
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
Chains and segmentation
• Agricultural products chains are highly segmented.
Products such as cheese, poultry, pork that have low
quality standards are sold in domestic low income
markets, while relatively high standard products for
supermarkets and export markets.
• Due to quality requirements, peasant agriculture
tend to be excluded from high value and high prices
commercial circuits; same situation can be observed
on vegetables and fruits chains.
• Agro industrial products tend to have oligopoly
phases of processing and exports. Coffee, sesame,
banana, peanut and seafood are clear examples of
this situation.
Blockades
• Poverty and extreme poverty in Nicaragua have a
rural face; 68 % of rural families live under the US$ 2
a day poverty line and 27.4 live with less than US$ 1 a
day.
• Urban poverty is relatively low with 30 % of urban
families under poverty line and 6.2 % under extreme
poverty.
• Poverty and agricultural crisis in tropical dry areas
tend to be the push factor for migration, and high rural
salaries in Costa Rica and El Salvador tend to be the
pull factor.
• The extensive path of agricultural production is
reaching its limits. Land is no longer an available
resource any more; thus, internal migrations tend to be
restricted and there are strong conflicts between
settlers and indigenous communities.
Nicaragua: Land Lorenz Curve in 1963, 1971 and 2001
100
90
80
70
% of areas
60
1963
2001
50
1971
2001
40
1971
30
20
10
0
0
10
20
30
40
50
% of families
60
70
80
90
100
Exit options
• Some initiatives such as rural tourism and
environmental services are starting to be explored.
Peasants and Farmers organized on cooperatives
tend to have more option for exits, since
international cooperation and NGOs are supporting
their integration to alternatives markets such as
organic and free trade.
• NGos are facilitating contracts between
cooperatives and supermarket chains and
international enterprises such as Wal-Mart and
Starbucks.
• There are non agricultural options for rural
workers such as textile maquilas. However, this
sector is generating neither enough jobs for urban
not for rural families.
Exit options
• Nicaragua is increasing its migrant population, up to
20 % of total population.
• Remittances are key factor for economic and social
stability, representing around 71 % of total exports
and 65 % of total commercial deficit.
• Temporal migration to Costa Rica and El Salvador
is a key livelihood strategy for rural families. This
will represent a demographic problem in the long
term since active working population is moving out
productive areas.
Rural Salaries in Nicaragua and Costa Rica
y = 0.3071x + 6.1714
R2 = 0.8359
9.00
8.00
7.00
y = 0.3679x + 4.6571
R2 = 0.797
US$ per day
6.00
5.00
4.00
3.00
2.00
1.00
0.00
1993
1995
1998
1999
2000
2001
year
Costa Rica
Nicaragua
Difference
Lineal (Costa Rica )
Lineal (Difference )
2002
Nicaragua: Migrants to Costa Rica and USA per origin
80.0
80
70
50.7
% of migrants
60
50
35.5
40
30
11.6
20
8.4
10
13.8
0
Urbano
Rural
Origin
USA
CR
Otro
Nicaragua: Relationship bewteen remittances and commercial deficit
as percentage of Total Exports
160
148
140
114
% of total exports
120
106
100
108
96
100
117
110
104
81
80
79
82
2002
2003
64
60
42
40
18
20
11
12
14
1994
1995
1996
19
24
1997
1998
0
1989
years
Remittances
Commercial deficit
1999
2000
Rural Development Policies
• Nicaragua Rural Development policies are based
on agro-industrial product exports and trickle
down effects of agrarian capitalist development.
This model tends to enhance the dualist
development model and inequities between
social sectors.
• The implementation phase is done by several
institutions generating a fractionated
intervention with limited impacts
• By November, 2006 Sandinistas won general
elections. The new government has stated that
rural areas will be a priority in the next five
years with a Development Institute (Credits and
technical assistance)