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AGRICULTURAL COM TTE POSITION PAPER
ON AGRICULTURAL SECTOR LOAN
September 28, 1967
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The purpose of this paper is to provide Mission mnagement with a rough frame
of reference against which the Government of Colombia's plans and programs for
the agricultural sector can be evaluated in order to determine i) whether such
plans and/or programs merit AID support through a sector loan, it) areas of
endeavour where AID inputs could make a significant difference in either the
scale or the rate of progress and iii) to highlight areas on which AID should
place special emphasis in its dialogue with the Ministry of Agriculture and Pla.
neacl no To this end, the attached paper contains a brief compilation of the
best data available on Colombian agricultural production over the past ten years
and attempts some rough statistical comparisons of agricultural production trends
to factors which might have influenced these trends with a view to establishing
probable causal relationships. Further, the paper provides some statistical
analysis of Colombian programs already presented to AID and attempts to define a
general approach to Colombian agricultural problems which in the light of existing
knowledge appears to have the greatest chance of success*
This paper is not intended to be a complete analysis of the Colombian agricul-
tural sector by any means, but rather a rough set of guidelines which it is
hoped will substantially influence the position of this Mission vie a via the
Colombian Government on the question of agriculture during the next few months.
The paper focuses primarily on commacal agricultural production per se
with comparatively little attention given to either the agricultural
marketing systems in Colombia or the "traditional" segment of the agricul-
With regard to marketing systems for Colombian agricultural products,
there is little dependable information on the cost of transportation,
spoilage between farm and the final consumer and/or markups taken by inter-
mediaries between the farm and the final consumer. In so far as storage
facilities that affect the marketing system, we believe that the sunmary
here of the numerous studies on this situation in Colombia would be
The "traditional" or "'Capesino" segment of the agricultural sector in
Colombia has been touched on very lightly indeed in this paper as it is the
view of the working group that this segment of the economy has little
relevance to Colombian agricultural development in any modern sense. The
"traditional" segamnt of the agricultural sector does constitute one of
the most serious (if not the most serious) social problems faced by Colombia
at the present time and it is our opinion that it therefore merits separate
exhaustive treatment. The "campesino" problem is particularly important
when viewed as the principle causative factor in many of Colombia's current
urban problems, but it is apparent that the Government of Colombia has
already faced up to the necessity of alleviating the situation to the
extent possible as evidenced by the fact that over 50X of the total agricul-
tural budget of the Colombian government has been directed toward land re-
form in every yeos since 1961, sept in 1962 and 1963. Since 1965, I=CORA's
budget has comprised 80.9X, 68.71 and 51.6X respectively of the total agricul-
AGRICULTURAL CSlMITTME POSITION PAPIR
FOR .ISCUSSION. ONLY
kmf .^y_ .AoAaaQinsank_..ArfiGM.tural 8tantij
Total value of agricultural crop production in constant (1958) prices
has een increasing rather steadily since 194" (excluding a sharp decline
in 1-55 and 1956). The increase has been about 115 million pesos annually
over the entire period. But associated with a constant anrnul increase is
a st sadily declining annual rate of growth. Early in the peiiod of analysis,
the !alue of agricultural production was growing at the rate of about 4
pere nt per year. The rate has declined to less than 2.5 percent annually
at tze present time, and has averaged about 3 percent annually over the
In comparing total crop area and yield p.r hectare, it is obvious that
al3no 3t all the increase in production has been the result of an increase in
area cropped and not from an improvement in yieldds Per hectare yields (of
all ::rops in constant 1958 prices) were essentially stagnant from 1948- to
1954 and again from 1959 to 1966. During the r ~cent period there r;ay even
have been a slight decline in yields. These data also indicate a declining
per -apits production of the basic food crops (excluding mil': and meet which
were not analyzed) included -in the Four Year Plan for the Eight Basic Foods.
Individually, most crops show a significant increase in per hectare
yiell between 1948 and 1966 /. The exceptions are saugaroane, corn and
V Statistitical significance is taken at the 90 percent probability level.
plantains, for which no trend is demonstrable However, performance of
many crops is clearly inferior during the period 1958 1966 when compared
with the entire period of analysis. Many orops actually show a declining
trend in yield during the 1958 1966 period (rice, bananas, corn, potatoes,
tobacco and wheat), although only. the trend for potatoes is significant.
Only three crops (beans, sugarcane and plantains), show yield improvement in
the recent period compared to the full period of analysis.
Analysis of the price-yield relationship of crops in an attempt to
substantiate the hypothesis that a strong demand leads to improved yields,
failed to provide any information beyond the indication of a weak price
response to annual yield changes. There is some indication that the farmers
respond to price changes by shifting area in crops. This shift is parts cu-
larly noticeable in potatoes where there is a distinct one year lag.
There is also a noticeable shift in relative importance of various
groups of crops over time Measuring in terms of total value of production
of all major crops at constant 1958 prices, coffee has declined from over
40 percent of the total in 1941 to 33 percent in 1966, or nearly over hlf
of one percent per year. The basic food crops (excluding rice, meat and
milk) have declined in relative importance by about one-fourth of one
percent per year, Sesame, cotton, soybeans and rice, as a group, have
increased rather steadily at the rate of three fourths of one percent per
year Sugar and panels together have been steady, but sugar has overtaken
panels in importance.
A few tentative conclusions can be drawn from these initial analyses.
The agricultural eoonomty is not stagnant, but it is progressing very slowly.
As would be expected in a developing ecoonmy, food crops are declining in
relative importance while oil crops, cotton and rice are increasing. It
is also significant that coffee is declining in relative importance even
when considering only crops (and not livestock).
But the most significant conclusion is that the increase in total
production can be attributed largely to an increase in crop area. Only
about 20 percent of the total increase in production has been due to im-
provement in yield while 80 percent has resulted from the development of
new lands.. Because the majority of land development has resulted from com-
mercial operations rather than from INORA or traditional agriculture,, most
of the increase in production can be attributed to commercial operations.
The lack of adequate data on inputs into crop production makes it difficult
to determine the reasons that yield increases have played such a small role
in agricultural development. But the fact that Colombia still has large
reserves of relatively good land should receive strong consideration when
placing priorities on methods of agricultural development.
grItMaue: Eight Basic Food Preducts (Ministr of .A
Present AID policy, is that we can support this project (one of several
possibilities) either by expanding its scope to include more products or
be accelerating the program, thereby allowing it to reach its goals more
rapidly. Furthermore it has been argued that this program is an indication
that the Ministry of Agriculture is well on the way to meeting its planning
It is our opinion that this program was published strictly because of
AID s insistence that the GOG show some physical evidence of progress. The
report obviously suffers from inadequate supervision and coordination and
haste in preparation. This is not a criticism of the planning department of
the Ministry, but rather of the pressures placed on the Ministry into such
actions It would be very surprising if the Ministry were really proud of
their publication, If, as might be suspected, they are aware of its short-
con.ngs, our ingenuous acceptance of it must either have amazed or dis-
appcinted them. Certainly, ie have not enhanced our image by our reaction
to it. In analyzing our actions from the point of view of the Ministry of
Agriculture, it would not be difficult to question the competence of AID
to Ect as advisors in planning the agricultural development of t., country.
As a basis of an analytical criticism of the program, only the six
cropl wheat9 corn, plantain, yuca, rice and potatoes) will be considered.
Sufficient background data are not immediately available to include meat
The program has as its goal, the production of over 7.4 million tons of
thef.e six crops by 1970. Their estimate of base production in 1963 1965 is
about 5.6 million tons. If it is assumed that this is a correct figure for
' 196,., then the average annual rate of growth envisioned between 1964 and
1970 is nearly 5 percent, or double the historic rate of growth from 1948
to -966. Furthermore, the production series developed by Dr. Atkinson (USDA)
indicates that only about 4,7 million tons of these crops are presently
being produced. If Dr. Atkinson is correct, the rate of growth would have
to be nearly 8 percent annually in order to achieve the goal.
Combined yield per hectare of these crops has been increasing at about
one percent per year since 1948. Without considering differences in base,
the program projects on annual rate of increase of 8-1/2 percent from 1967
to 1970. This extremely high rate is associated with a dea.ingin a
devoted to these crops. In 1967, the anticipated area is 1,88s,000 hectares
and in 1970 it is 1,698,000o Atkinsongs figures indicate that in 1966 there
were 1,760,000 hectares devoted to these six crops. The increase from 1966
to :967 of 127,000 hectares in just these six crops, is twice the average
annual increase in area for all crops from 1948 onward.
Some rather spectacular goals are set for individual crop. yields as
sho'.i in the following table:
Wheat 690 1,085
Corn 1,040 1,130
Pla:stain 7,450 7,050
Zuc;. 5,200 6,050
Ric. 1,740 2,030
Potato 9,900 11,500
B.S., Trend not significant
NA., Information not available
Rate of _Proijeted Yild-_
kilos ner .hetare .
2-1/2 1,560 2,000
H.S. 1,310 1,790
N.S. 8,250 9,550
1 6,550 10,200
1 1,860 2,120
1 N.A.o NA.
The methods of achieving the goels are stated only vaguely. Five phases
or courses of action are listed. These are: (1) enhancing credit avail-
abi:.ity; (2) technical assistance; (3) storage and price support programs;
(4) tax incentives and greater control of the use of private credit going to
the agricultural sector; and, (5) a program for mechanizing agriculture.
Without stating the specific uses of credit, the 1967 requirement is
est: mated at 1,293 million pesos of which 683 million are for the six crops
anal.yaed. The technical assistance program for 1967 includes 60 vetenarians,
81 a.gronomists, 4 agricultural experts and 41 agricultural technicians, but
cost is not specified.
In order to purchase 10 percent of the national production of rice,
bears, corn and soybeans; 20 percent of the wheat; smaller proportions of
other crops such as sesame, sorghum, potato, tobacco and peas; and, 60
percent of the anis, the estimated cost of additional storage for 1967 is
28fo million pesos. Cost of purchasing the crops is estimated at 330
The program of tax incentives and control of private investment is the
mos. vague of allow The publication states that one of the apparent causes
of aw production is the lack of economic incentives and the lack of response
to ,iese incentives where they do exist. The report continues that the in-
cen lives that increase farmers incomes and about which the government can do
some thing areas (1) an increase in the price of products; (2) a reduction
in c 3sts; (3) an increase in tho farmerOs share of the marketing margins;
and, (4) tax incentives. As prize supports are counter to the goal of re-
due ag prices to consumers and hamper competition in international trade,
the Primary means to be used by the government are the last three above,
and, apparently, emphasis is to be put on an expansion of cidit.
The mechanization program will involve the purchase of 2,430 tractors,
200 acobineo, other equipment, and spare parts at a cost of over 46 million
dol1 ars~ With this equipment it is hoped to increase the s'ea in mechanized
croIr 3 to 245,653 hectares, principally in what, rice, corn and cotton
La Esumary, it can be said that the program for eight basic foods is an
ext:< mely optimistic program with vaguely defined measures and little or no
sept ration of costs into those currently budgeted and additional resources
requiredo Even when the cost and magnitude of this program are considered
in isolation from the other programs of the Ministry (import substitution,
expc-? promotion, eto.) it is difficult to see how it can be accomplished.
When the other programs, Ahich are to be pursued simultaneously with this
one, are considered, success appears even mory impossible. lence, to base
our agriculturall sector loan on these programs is tantamount to basing it
on a fantasy
9.dI~tIisust.J ated...gurn ..*.-lea Jan
This plan is concerned with enhancing tho do;mnestic production of wheat,
edib 1e fats and oils, wool, cocoa, and barleyo These items together account
for 50 percent of the value of agricultural imports the balance being pri-
mari `y agricultural inputs. The goals for 1970 are to reduc. imports to the
follw iing percentages of total domestic oonwaription: wheat, 50%; edible
oil- 35%; wool, 92%; cocoa, 60%; and complete self sufficiency in barley.
The auomrary of anticipated progri rea~vit actually :Ahou le. dependenccs on
impo'-ts then the stated :;c .. e, DThe progr"i "'ho's a total rd'-uction of imports
over the base period (1964 1966) for only tr o commoditis barley and
edit Le fats anr oils. The figure indica-te a 3 :'..'.-. j:I M. at. in wheat
impt: t;, a 6-1/2 percent Sggg4Et, in wool, anJ. a 13-1/2 peroint iSef in
cocc~ i sports in 1970 compared Vwith the 1964 1966 base.
CGuitrary to 'the Eight Basic Foods study, the prodCuction targPt saot for
th.e :port ,abstitution products are generally r:eaonable, in fact., for the
tmos part, the projections follow past trends -- which is to *ay chat no
spec .al programs to achieve the goals appear .ecessaryo A niar doubling of
the aiea in soybeans is quite optimistic, but the general projection of total
oile (froz crops) appears reasonable.
The wheat projection is very interesting, particularly phen compared
with wheat in the Eight Basic Foods study
- r-,r, *.- i "1
Proleeted Annual Rate of Growth for What (neroent)
1967 to t192
Import substitution 4-1/2 7-1/2 12
Basic Food 8-1/2 91/2 18
Projected production of wheat for 1970 is 182.5 thousand tons in the
importation report and 300 thousand tons in the basic food report. Again,
this discrepancy indicates haste in preparation along with lack of adequate
supervision and coordination.
The overall credit cost of the program through 1970 is 2.6 billion pesos
excluding the coat of 1,022 man years of technical assistance. Over three
fourths of the cost and two thirds of the technical assistance involves the
production of fats and oils, largely owing to the costs of the processing
plants. For 1967, the credit requirements are 450 million pesos and 185
technical assistance (of all types).
The 1967 budget for credit for the basic food and import substitution
programs taken together is nearly 1.7 billion pesos and involves a total of
345 technical assistants (after deducting for the double counting of wheat)..
Also, the increase in crop acreage for the crops involved is 164,000 hectares
between 1966 and 3967,
Without.going into greater detail on the exact nature of the two programs
published by the Ministry, it can be seen that they either individually or
jointly do not comprise a program of agricultural development. The approach
to lcieevcd production is to. determine areas uhich are best adopted to the
production of each crop and then throw in credit and technical assistance.
Except for an attempt to estiaete th ua*, af -~-e ceed X required
for the Uhport Substitutioa ;.o;r *' (without specifying where or how. they
would be grows) and the number of tractors and comiines to be brought in
under the mechanization program, little real effort is made to indicate how
credit might be used. Credit, alone, produces nothing. And the need for
technical assistance does not ;podoce trained personnel overnight. The n.-
ticipat d rate of growth specified in these programs (particularly the E .ght
Basic Foods) si.-,ly cannot be achieved.
Critique: Coffe, D iversificaSa.on Pagga
Another program which h;3t received much attention from the Missioa .s the
Caldas Pilot Diversification Study. We have indicated an interest in an
expansion of this program if the Colombians profess an interest. Certa.i' y,
there is no disagreement tha-t Colomrbia mtist reduce her dependence on coffee
and diversify into other export products. Aad it is also clear that the-:e
must be a reduction n a coffee production in the country. But, as has bee n
stated many ties, by any e:-perts, diversification of coffee lands into otherr
crops is an extremely difficult undertaksig. There is an extremely arrt w
range of crops which can substitute profitably on i;he steep coffee lands of
Colombia, and mo.6t of these require a high degree of technology and expel.tise
as well as intricate processing and/or distribution and marketing facilities.
This is to say that a long period ,of research and development must
precede any active program of tree eradication. A hastily designed eradication
program could be a political and economic disaster if the substitute crops were
not successful replacemaents for the coffee. Furthermore, simple tree eredi-
cation does not necessarily have any significant affect on reduction in
production. The Caldas Program is aamed at eradication of the marginal
producing areas leaving the highest producing areas in production. Regard-
less of the price of coffee (within wide limits) most producers, at least,
can benefit from practices such as fertili-ation which improve yield. Alid,
as has been amply demonstrated in the United States, yields do increase 'n
acreage remaining in production when crop area restrictions are put in
Conceptually, the Caldas Pilot Diversification Project is a good program.
The work must be undertaken. But the results, either in terms of trees zradi-
cated or coffee production eliminated, are, by all probability, very optimistif.o
If the program is considered as a research project which it is and
encouraged on this basis, it is being viewed in its proper perspective. -nd,
in this perspective it should be welcomed. But the funds already allocated
to the program are probably more than adequate for this type of program.
Diversification can also be viewed from another standpoint. This is the
expansion of other exportable crops in areas outside the coffee producing
areas. This type of activity can, and should be actively supported. Coffee
eradication cannot occur unless and until other exports are available as
substitutes (unless the coffee reserves are to be drawn down in the interte).
And the opening of new lands and increase in the production of other crcps can
also help to solve the population pressures in the minifundias and coffee
producing zones a major policy of.. the present administration.
Recommendation for a Sector Loan
At this juncture, several conclusions can be drawn.
1. The Ministry of Agriculture (with the help of Planeacion) needs more
time and more hesl in their attempt r o kake a development plan for
2. It is not yet clear just what are the primary problems which prevent
agriculture in Colombia from achieving its potential i.e., whether the
problem is supply or demand oriented. For example, it is quite obvious that
there is a shortage of processing facilities for most agricultural products,
but the reasons for this shortage are obscure.
3. eost of the recent increase which has occurred in agricultural pro-
duction has resulted from an increase in area planted rather than from an
increase in productivity or yields.
4. Agriculture has been responsive to certain economic incentives as
is evidenced by price area relationships in some crops and by a steady
shift toward industrial crops and away from basic food crops.
5o Felstehausea argues that there is a general and widespread difficulty
in obtaining modern factors of production such as fertilizers, pesticides,
equipment and spare parts.
6. Using the sector loan to support the Ministry's Four-Year programs
makes sense only if the goal is to make the sector loan at all cost.
But there are many more productive ways to use the sector loan ways
which may be more difficult to justify specifically but certainly are more
beneficial in the long run.
The basic fact which must be accepted is that private capital and
management have the key role in the agricultural development of the country.
Combine this fact with the premise that the slow growth of agriculture stems
basically from a lack of adequate private investment and management in the
,UNGCLASS.FB, D -12P
sector. Raise the question as to why there has been inadequate private
capital investment in agriculture when return on commercial operations is
rumored to be very high. The conclusion is that there has not been a proper
environment for pulling private capital and management into agriculture. The
1. Investment in the production and use of fertilizers and pesticides
is retarded because of .variable policies, restrictions on imports, and/or lack
of domestic production not to mention the problems associated with distri-
bution to points of potential use.
2. Investment in machinery is very high risk because of the near certainty
of not heing able to obtain needed spare parts when a breakdown occurs. Trans-
portaticn, of course, is a problem here also, but more important is the simple
non-availability of the parts when transportation is available.
3. Changeable government policies with respect to price support programs
adds to the farmers' uncertainty, Also, the nature of government policies
leads to the problems of obtaining spare parts for equipment once it is
4. Private investment in land improvement or development is retarded
owiag to the threat of Incorization. Granted that on some farms, land im-
provement has worked to hold off ncora, and that locora has requested a law
to allow them to protect a man making improvements, "until they are amortized".
But how many really forward-looking, high potential entrepreneurs are going
to invest under these conditions?
5. Laws affecting foreign capital work to retard foreign trade invest-
ment and the accompanying managerial talent in all phases of agriculture -
I/ See Exhibit A
from fertilizer factories to farms and ranches to transportation, processing,
distribution and exporting. Even under these restrictions, a high proportion
of the agricultural industry facilities involve foreign capital and management.
6. Lack of public facilities such as schools, health services and public
safety compell many prospective rural managers to remain in the more highly
developed urban areas.
Hence, the most important aspect of the sector loan should be to provide
the proper investment environment for pulling private capital and management
into all phases of agriculture. This involves at least four important phases:
1. Stabilize policies affecting agriculture and free any restrictions
which exist on the importation of agricultural inputs.
2. Provide time and assistance, but also Insistence, that a sound, long
range agricultural plan be developed. We should allow a full year after
supplying a full, competent PASA team before requiring even tentative
3. Insist on an even stronger guarantee that Incora will not take over
sound commercial operations. Possibly if a 20 or 40 year guarantee is made,
this will be adequate as by that time, the need for Incoranization may be
4. Encourage the -adoption of measures to allow foreign capital and
management to participate and contribute more fully in Colombian development.
This type of policy should clear the way for rapid private capital in-
vestment in all those agricultural enterprises in which private capital can
and will invest. Public capital then, can and should be used in those areas
where private capital will not be invested. Areas for public capital investment
1. Construction of roads and provision of public transportation systems.
2. Provision of schools and public services.
3. Investment in large scale, multi-purpose construction such as
reclamation works and dames
4. Provision of credit to those unable to obtain credit from private
In restricting public funds to such uses as those above, they adequately
serve two purposes social relief and agricultural development. For example,
the construction of access roads can open up new areas for colonization to
help relieve the population pressures existing both in rural andurban areas.
At the saan time, many of these roads will provide access to commercial
operations. The same schools which would attract competent managers into
rural areas will provide facilities to the poorer compesinoc and workers in
the area. Multi-purpose projects can provide benefits to large and small
alike, but in the majority, it is the poorer who are benefitted the most.
The dollar portion of the sector loan should be used for an anticipated
increase in the importation of agricultural inputs, including such items as
general truck transportation. The counterpart funds would go toward road
construction, schools and credit. Both the Banco Ganadero and the Incora
loan programs could be strengthened. It is quite likely that road construction
would be retarded owing to a shortage of local contractors. In this event,
dollars from the sector loan, or from project loans, should be made available
for foreign contractors, Even though the present road construction program
is design I to be labor intensive to reduce unemployment, it is probable
that the use of heavy equipment by foreign contractors would be more appropriate.
Completion of the roads would open more lands to colonization more rapidly
and thea maintenance could be turned over to local workers to provide employment.
If a serious effort is to be made in Colombia to develop large scale
reclamation and multi-purpose river projects, foreign consulting ,firms will
be required. Before too amch investment in planning and feasibility is
emitted, it would be well to have the advise and counsel of the Ministry of
Agriculture and PASA planning group. But probably, these projects will have
to be financed largely as project loans end need not enter directly in sector
A fines de septismbre de 1965 los cultivadores do algod6n senfla-
S ron a1 gobierno que habia escases de insecticides y que se especulaba
con allos y solicitaron autorisacidn para importsarlos Coma consecuen-
cia do allow, en octubre del mismo ano soe declare libre la importaci6n
de peaticidas liatos para su usoe pero el gra-wemen areancelario, que
antes era salo de 2 per cienrto ae elev6 a 30 par ciento, al mismao tie-
po qua el tipo de ceabio para los d6lares doe ilportacidn subid de 9 a
13o50 pesos colombianjos De este modo, el precto colofo an aoneda na-.
cional se elev6 en 91 par cientoo Estas msdidas on lugar de facilitar
las compras externas prictleaente eliminaora la competeneas de los
insecticidas inportados y contribuyeron a m anteer altos
los precious de los sustitutos de formnalaclon national. En febrero de
1966, ia Federacin Nacional de Algodoneros comanic6 al gobieno la
perdids de 44o000 toneladas do algoddn n ramn a Csdtdoba, Bolivar,
Hagdalena y la Guazjras por falta de insecticidas para repeler las pla-
gas, lo que representaba una amesm en las exportaciones de 150000 tone-
ladss y una pdrdida en divisas estimada en 7,.5 millones de d61ares,
Ante las reiteradas quejae de los cultivadoes, el gobierno ratific6
en marao la libre importecidn da insecticidas, rebaj6 el gravaman a 15
per ciento y subid de 9 9 13450 el tipo de cambio para lae materias pri-
Ma~o Fronte a esta nueva situaci6n, los forwaladores calificaron estas
medides coma un fuerte golpe a la industrial naciotal de pesticides y
taibibn de las colaterales de solvents, agents emulsivos y envases"
y anunciaron qua cerrarian sus fAbrticas en el caso de que el gobterno
hiciara efectiva tal dstarminaci6n, como li hiso posteriormenteo
Source: Asistencia TVcnica y Regulaci6n de Xncumos, Noo 8, Serie e.
Planeamiento, Julio de 1967, lMnisterio de Agriculturas
Bogota, Colombia Page No. 28.
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