• TABLE OF CONTENTS
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 Front Cover
 Title Page
 Introduction
 Acknowledgement
 Table of Contents
 List of Tables
 List of Illustrations
 Conversion table
 Part I: Background and setting...
 Part II: The contribution of vegetable...
 Appendix
 Bibliography






Title: Economic development potentials in the production of vegetables in Guatemala
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Title: Economic development potentials in the production of vegetables in Guatemala
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Creator: Gonzalez, Leonel Guillermo.
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Table of Contents
    Front Cover
        Front Cover
    Title Page
        Page i
    Introduction
        Page ii
        Page iii
        Page iv
        Page v
    Acknowledgement
        Page vi
        Page vii
        Page viii
    Table of Contents
        Page ix
        Page x
        Page xi
    List of Tables
        Page xii
        Page xiii
        Page xiv
        Page xv
        Page xvi
        Page xvii
    List of Illustrations
        Page xviii
    Conversion table
        Page xix
    Part I: Background and setting of the problem
        Page 1
        Chapter I: Introduction
            Page 2
            A. Purpose and scope of the dissertation
                Page 2
                Page 3
                Page 4
            B. Hypothesis
                Page 5
                Page 6
                Page 7
            C. Significance of the study
                Page 8
                Page 9
            D. Review of the literature on agricultural development
                Page 10
                Page 11
                Page 12
                Page 13
                Page 14
                Page 15
                Page 16
                Page 17
                Page 18
                Page 19
                Page 20
                Page 21
                Page 22
                Page 23
                Page 24
                Page 25
                Page 26
            E. Research procedures
                Page 27
                Page 28
                Page 29
                Page 30
                Page 31
                Page 32
                Page 33
                Page 34
                Page 35
                Page 36
        Chapter II: Agriculture in Guatemala
            Page 37
            A. The relative economic contribution of agriculture
                Page 37
                Page 38
                Page 39
                Page 40
            B. Structure of the agricultural sector
                Page 41
                Page 42
                Page 43
                Page 44
                Page 45
                Page 46
                Page 47
                Page 48
                Page 49
                Page 50
                Page 51
                Page 52
                Page 53
                Page 54
                Page 55
                Page 56
                Page 57
                Page 58
            C. Agricultural diversification programs and policies
                Page 59
                Page 60
                Page 61
                Page 62
        Chapter III: Unbalanced growth and long run constraints on the development of the Guatemalan agricultural sector
            Page 63
            Page 64
            A. Socio-economic dualism
                Page 65
                Page 66
                Page 67
            B. The orientation and structural organization of agricultural production
                Page 68
                Page 69
                Page 70
                Page 71
                Page 72
                Page 73
                Page 74
            C. Capital-intensive production techniques and unemployment in agriculture
                Page 75
                Page 76
                Page 77
                Page 78
                Page 79
                Page 80
                Page 81
            D. Employment and income conditions in agriculture
                Page 82
                Page 83
                Page 84
                Page 85
                Page 86
                Page 87
                Page 88
                Page 89
            E. Experience in new agricultural commodity promotion: Cotton
                Page 90
                Page 91
                Page 92
                Page 93
                Page 94
                Page 95
                Page 96
                Page 97
    Part II: The contribution of vegetable production to the economic development of Guatemalan agriculture
        Page 98
        Chapter IV: The vegetable commodity system in Guatemala
            Page 99
            A: Trend in consumption and demand
                Page 100
                1. Internal demand
                    Page 100
                    Page 101
                2. External demand
                    Page 102
                    Page 103
                    Page 104
                    Page 105
                    Page 106
                    Page 107
                    Page 108
                    Page 109
                    Page 110
                    Page 111
                    Page 112
                3. Factors affecting internal consumption in Guatemala
                    Page 113
                    Page 114
                4. Processing of vegetables
                    Page 115
                    Page 116
                    Page 117
                    Page 118
                    Page 119
            B. Trends in production and supply
                Page 120
                1. Domestic production and imports
                    Page 120
                    Page 121
                2. Location and production patterns of vegetables in Guatemala
                    Page 122
                    Page 123
                3. Future outlook
                    Page 124
                    Page 125
            C. Marketing and vegetables
                Page 126
                1. Sale preparation procedures
                    Page 126
                    Page 127
                    Page 128
                    Page 129
                2. Distribution
                    Page 130
                    Page 131
                    Page 132
                    Page 133
                    Page 134
                    Page 135
                3. Prices of vegetables
                    Page 136
                    Page 137
                    Page 138
                    Page 139
                    Page 140
        Chapter V: Case studies of selected vegetable crops
            Page 141
            Page 142
            A. Production and marketing sequence
                Page 143
            B. Supply and demand, input requirements, costs and returns
                Page 144
                1. Onions
                    Page 144
                    Page 145
                    Page 146
                    Page 147
                    Page 148
                    Page 149
                    Page 150
                    Page 151
                    Page 152
                    Page 153
                    Page 154
                2. Tomatoes
                    Page 155
                    Page 156
                    Page 157
                    Page 158
                    Page 159
                    Page 160
                    Page 161
                    Page 162
                    Page 163
                    Page 164
                    Page 165
                    Page 166
                3. Cabbage
                    Page 167
                    Page 168
                    Page 169
                    Page 170
                    Page 171
                    Page 172
                    Page 173
                    Page 174
                4. Garlic
                    Page 175
                    Page 176
                    Page 177
                    Page 178
                    Page 179
                    Page 180
                    Page 181
                    Page 182
                    Page 183
                5. Peppers
                    Page 184
                    Page 185
                    Page 186
                    Page 187
                    Page 188
                    Page 189
                    Page 190
                    Page 191
                    Page 192
            C. Summary and conclusions
                Page 193
                Page 194
                Page 195
                Page 196
        Chapter VI: Some of the factors that effect employment and income generation in vegetable production in Guatemala
            Page 197
            A. Employment creation and vegetable production
                Page 198
                Page 199
                Page 200
                Page 201
                Page 202
                Page 203
                Page 204
                Page 205
                Page 206
                Page 207
                Page 208
                Page 209
                Page 210
            B. Income generation and vegetable production
                Page 211
                Page 212
                Page 213
                Page 214
                Page 215
                Page 216
                Page 217
                Page 218
                Page 219
                Page 220
                Page 221
                Page 222
                Page 223
                Page 224
                Page 225
                Page 226
                Page 227
                Page 228
                Page 229
                Page 230
                Page 231
                Page 232
        Chapter VII: Summary, conclusions and recommendations
            Page 233
            A. Summary and conclusions
                Page 233
                Page 234
                Page 235
                Page 236
                Page 237
                Page 238
                Page 239
                Page 240
                Page 241
                Page 242
                Page 243
                Page 244
                Page 245
                Page 246
                Page 247
                Page 248
            B. Recommendations
                Page 249
                Page 250
                Page 251
                Page 252
                Page 253
                Page 254
                Page 255
                Page 256
                Page 257
                Page 258
                Page 259
                Page 260
                Page 261
                Page 262
    Appendix
        Page 263
        Page 264
        Page 265
        Page 266
        Page 267
        Page 268
        Page 269
        Page 270
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        Page 272
        Page 273
        Page 274
        Page 275
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        Page 277
        Page 278
        Page 279
        Page 280
        Page 281
        Page 282
        Page 283
        Page 284
    Bibliography
        Page 285
        Page 286
        Page 287
        Page 288
        Page 289
        Page 290
Full Text
c42 ~O~


ECONOMIC DEVELOPMENT POTENTIALS IN THE

PRODUCTION OP VEGETABLES IN GUATEMALA


BY

LEONEL GUILLERMO GONZALEZ


A thesis submitted in partial fulfillment of the
requirements for the degree of


DOCTOR OF PHILOSOPHY

(Agricultural Economics-Business)


at the
University of Wisconsin


1975




.< *


ECONOMIC DEVELOPMENT POTENTIALS IN THE

PRODUCTION OF VEGETABLES IN GUATEMALA



BY

LEONEL GUILLERMO GONZALEZ


A thesis submitted in partial fulfillment of the

requirements for the degree of



DOCTOR OF PHILOSOPHY

(Agricultural Economics-Business)


at the

University of Wisconsin


1975









ECONOMIC DEVELOPMENT POTENTIALS IN THE

PRODUCTION OF VEGETABLES IN GUATEMALA.
BY

Leonel Guillermo Gonzalez

Under the supervision of Professor Peter P. Dorner


Much of Guatemala's economic growth has been a direct

consequence of the expansion in traditional export crops.
This expansion, however, has not been accompanied by an

equivalent economic development in Guatemalan agriculture.

Employment opportunities and income distribution continue

to be particularly unsatisfactory.
The main purpose of this thesis is to explore the

possibilities of agricultural development through increased

production of vegetable crops. The specific objectives

are to evaluate vegetable production in terms of employ-
ment potentials, income generation and market possibili-

ties. The general hypothesis of this thesis is that ex-

pansion of vegetable production would contribute to the

economic development of agriculture, and that such expan-

sion will be most beneficial if it is concentrated on

small and medium sized farms and thus avoids the dominance

of large farmers, a familiar phenomenon with most of the

traditional export crops. This contribution would be
achieved by increasing employment and income levels, im-

proving income distribution in rural areas, increasing and







iii

diversifying output and exports, -*and expanding the domestic

market through new sources of income for rural people.
To provide the necessary context and background in-

formation for understanding Guatemala's vegetable poten-

tials, the vegetable industry as a whole and the specific

crops of onions, tomatoes, cabbage, garlic, and peppers

are analyzed. Multiple regression analysis was used on
sample data to examine how some production factors affect

employment and income generation in vegetable production.

Comparisons were made with cotton, sugar cane, -and grain
crops, and with certain commercial products, to determine
relative employment and income generation potentials.

Primary data were obtained from questionnaires adminis-

tered on Guatemalan farms producing the most important

and representative vegetables in the major vegetable pro-

duction areas. Secondary data from published.and unpub-

lished sources were also used extensively,

Analysis indicates that excellent domestic and ex-

ternal market potentials exist for fresh vegetables. Pro-
cessed vegetables also have good market possibilities, es-

pecially in the domestic and Central American outlets.

Although lacking adequate transportation and production

and marketing infrastructure, the country has the re-

sources necessary to increase vegetable output.
Although most vegetables are now produced on small

plots, they can be grown on any size farm in many areas









practically throughout the year. Farmers can use tradi-

tional or intermediate levels of technology since the

crops do not require sophisticated production practices

or much machinery. Furthermore, most vegetables have a

short production cycle and allow for multiple cropping and

intercropping. Compared with cotton, a major traditional

export crop, vegetables demand a smaller proportion of

physical inputs and machinery. On the other hand, the

labor requirements to cultivate one hectare of vegetables

are considerably higher than those of cotton. Although

returns vary considerably, it is possible for vegetable

growers to make satisfactory returns in their investment

of land, labor and capital.
Linear regression models investigating the functional

relationship between the dependent variables of labor re-

quirements and of gross income per hectare of vegetables

harvested and the independent variables of farm size and

investments in production inputs and machinery are esti-

mated. Labor is included as an independent variable in

the gross income models. The employment model results

for the mechanized farms indicate that increased invest-

ments in inputs for vegetable production would increase
labor demands, but that increases in farm size and mechan-

ization would result in decreased labor demands. Gross

income models indicate that increases in production in-

puts, farm size, and machinery would increase gross income









per hectare of vegetables harvested.

On the basis of these analyses, it is concluded that

the expansion of vegetable production in Guatemala would

increase and diversify agricultural output and exports,

expand employment and income opportunities, and contribute

to an enlarged market in rural areas. Moreover, given the

existing tradition in the production of these crops by

Guatemalan farmers, a higher degree of efficiency and

specialization can be achieved with adequate government

support.

This study recommends that the government commit

itself to the promotion and development of the vegetable

industry in Guatemala by establishing a program and an

office for vegetable promotion.









ACKNOWLEDGMENTS

This thesis represents both the final requirement

for my graduate program and a set of learning experiences

which may be useful to others in the future. My education

has not ended; on the contrary, working on this thesis has

increased my desire and, hopefully, my capacity to learn.

Completing it has been a cooperative endeavor, Many per-

sons and institutions assisted me during my graduate pro-

gram and during the process of collecting the data and

writing the final manuscript. Although they are too numer-

ous to mention all by name, I would especially like to

acknowledge the invaluable assistance of the following:

USAID, which provided financial assistance during

the first part of my graduate studies.

The Department of Agricultural Economics of the

University of Wisconsin for partial support during part of

my program.
The Ford Foundation for financing the completion of

my program.
The Principal Secretariat of the Economic Integra-

tion for Central America, which provided me with the op-

portunity of coordinating the Central American Agricultural

Diversification Project from May 1973 to January 1975. A

large amount of data used in this thesis comes from that

project.







vii

Dr. Emrich Fischmann for his encouragement and co-

operation during the initial stages of my program.

Dr. Rodolfo Quiroz for his cooperation and advice in

the initial stages of my research.

Dr. Phillip Church for his advice and comments during

part of my research.

Lic. Maria T. Arevalo for her cooperation during the

final stages of the field research.

Dr. Carol Kowle for her assistance in the writing of

the thesis.

Ms. Laura Brewer and Ms. Jane Dennis for their accur-

ate and diligent typing.

Mrs. Betina Kanel for advice and stimulus when they

were most needed.

Dr. Stephen Smith for cooperation, suggestions, and

help during the elaboration of the thesis.

Professors William Thiesenhusen, Warren Bilkey and

Robert Aubey, members of my Graduate Committee, and espec-

ially Dr. Peter Dorner, who was Chairman of my Committee,

and the major professor who guided my graduate work and

my thesis from the proposal stage to its final completion,

Dr. Don Kanel, who offered me his moral support and

advice, and from whom I learned more than economics.

My family for its cooperation, encouragement, and

moral support, with special appreciation to my parents; to

my wife, Mercedes Fuster, for her contribution, patience







viii

and moral support; to my children, who bore the strain of

graduate training with me and who have been a permanent

source of inspiration, encouragement and faith.

Without the continuing support of all these people,

I would not have had the motivation to finish this thesis.










TABLE OF CONTENTS


PART I

BACKGROUND AND SETTING OF THE PROBLEM
Page

CHAPTER I: INTRODUCTION . . 2

A. Purpose and Scope of the Dissertation . 2

B. Hypothesis . . . 5

C. Significance of the Study . . 8

D. Review of the Literature
on Agricultural Development . . .10

E. Research Procedures . . . .27


CHAPTER II: AGRICULTURE IN GUATEMALA . .37

A. The Relative Economic
Contribution of Agriculture . . 37

B. Structure of the Agricultural Sector *41

C. Agricultural Diversification
Programs and Policies . . .59


CHAPTER III: UNBALANCED GROWTH AND LONG RUN
CONSTRAINTS ON THE DEVELOPMENT
OF THE GUATEMALAN AGRICULTURAL SECTOR

A. Socio-economic Dualism . . .

B. The Orientation and Structural
Organization of Agricultural Production .

C. Capital-Intensive Production Techniques
and Unemployment in Agriculture .

D. Employment and Income Conditions
in Agriculture . . ...

E. Experience in New Agricultural
Commodity Promotion: Cotton . .


. .63

. .65


. .68


. .75


. .82


. .90











PART II

THE CONTRIBUTION OF VEGETABLE PRODUCTION TO THE

ECONOMIC DEVELOPMENT OF GUATEMALAN AGRICULTURE


IV: THE VEGETABLE COMMODITY
SYSTEM IN GUATEMALA . .


. . .99


A. Trends in Consumption and Demard a 100

1, Internal Demand . . o a 100
2. External Demand a a. 102
3. Factors Affecting Internal
Consumption in Guatemala., . 113
4, Processing of Vegetables 115

B. Trends in Production and Supply. . o 120

1. Domestic Production and Imports a a 120
2. Location and Production Patterns
of Vegetables in Guatemala . . 122
3. Future Outlook ... 125

C. Marketing of Vegetables a a . 127


Sale Preparation Procedures .
Distribution . . .
Prices of Vegetables . *


a a
a a
a a


127
131
137


CHAPTER V: CASE STUDIES OF SELECTED VEGETABLE CROPS 141

A. Production and Marketing Sequence a Q a 143


B. Supply and Demand, Input
Requirements, Costs and Returns . .


Onions oa . .
Tomatoes . . .
Cabbage . . .
Garlic . . .
Peppers . . .


* a a
a a a
. a a
a a a
a a a


144

144
155
167
175
184


C. Summary and Conclusions . 193


CHAPTER


Page










Page

CHAPTER VI: SOME OF THE FACTORS THAT AFFECT
EMPLOYMENT AND INCOME GENERATION IN
VEGETABLE PRODUCTION IN GUATEMALA. ..., .197


A. Employment Creation
and Vegetable Production .

B. Income Generation
and Vegetable Production


* 0 198


. 0 o o .8 .211


CHAPTER VII:


SUMMARY, CONCLUSIONS
AND RECOMMENDATIONS


.* o. . 233


A. Summary and Conclusions. . . .233

B, Recommendations * .. .250


APPENDIX a. 0 o 0 263


BIBLIOGRAPHY . . . . .285







xii


LIST OF TABLES


Table Nop


I.1 Vegetable Farms Sampled . .


1.2


1.3






11.2



II 3
II.3


Location by Area and Commodity
of Vegetable Farms Studied *

Farm Size, Gross Income, Man-Day
Requirements and Investments in
Production Inputs and Machinery per
Hectare of Okra Harvested for the Two
Untypical Farms Excluded from the Sample .

Gross Domestic Product at Market Prices
(Thousands of 1950 Quetzales) . .

Economically Active Population by Sector,
in Thousands and Percentages . o .

Extraregional Exports by Product for
Selected Years (FOB) (Thousands of Quetzales)


Pace


. 29


. 31




. 33


. 38


. 40


. 42


11.4 Land Tenure by Size of Holding, 1950 . 44

11.5 Land Tenure by Size of Holding, 1964 44

11.6 Land Tenure by Size of Holding, 1970 . 45

11.7 Estimated Agricultural Income
Distribution by Type of Farm, 1970 ,. . 47

II.8 Allocation of Agricultural Credit
1965/1967 (Percentages) ..**... 51

11.9 Number of People and Total Expenditures
in Education, Research and Extension
by Specialized Public Agencies, 1968/69
(Per Thousand of Economically Active
Persons in the Agricultural Sector) . .. 51

II.10 Exports and Percentages Consumed of
Selected Agricultural Products in the
Domestic.Market, 1968 . 54

II.11 Compound Annual Growth Rates in
Agricultural Production, Population,
and Per Capita Agricultural
Production, 1965-1970 . 56








xiii


Table No. PagL_

11.12 Agricultural Sector: Gross Agricultural
Product and Value Added (Millions of
Quetzales, 1950 Prices) . . 57

11.13 Demand and Supply Projections for Major
Domestic Agricultural Commodities for
1975 (Kilograms) 60

III.1 Distribution of Land Use for Selected
Commodity Production by Size of Farm
Category in Guatemala in 1970 (Percentages) 72

II1.2 Production of Export Crops and Some
Selected Domestic Products by Type
of Holding, 1970 (Percentages) . 73


111.3 Area, Rural Population and Land-Man
Ratios According to Farm Size (1970)
(Hectares per Agricultural Man). .

111.4 Estimated Supply of and Demand for
Labor in Agriculture by Farm Size
Category (1970) (Thousands of People)

111.5 Estimated Area Harvested, Yields and
Volume of Production of Selected Crops
under 3 Levels of Technology in 1970
(Percentages) . . *

111.6 Employment Growth Rates Under Two
Alternatives of Expansion of Agri-
cultural Output (Percents), 1965-1980

III.7 Estimated Income Distribution for 1970
and Projection for 1980 and 1990 .

111.8 Central America; Coefficients of Land
and Income Concentration, 1970 .


. 75



. 77




S* 80


, 82


. 86


a .


. 88


III.9 Estimated Agricultural Income Distribution .

III.10 Seed Cotton: Area Harvested,
Production and Yields. . .. .

IV.1 Vegetables: Domestic Purchases for
Selected Vegetables (Metric Tons) . .


92


101










Table No.


IV.2


Vegetables: Domestic Purchases Per
Capita by Population Strata and Income
Brackets for 1970 and Projections for
1980 (Kilograms per Year) . .


IV.3 Guatemala: Exports of Fresh and
Canned Vegetables (Metric Tons) .

IV.4 Guatemala: Exports of Certain
Fresh Vegetables, 1969 (Metric Tons)

IV.5 Central America; Vegetable Production
and Consumption in 1970 and Projections
for 1990 (Thousands of Metric Tons) .

IV.6 United States: Trends in Per Capita
and Total Vegetable Consumption per
Year (Based on Fresh Product Weight
and Millions of Metric Tons) .

IV.7 United States: Imports of Certain Fresh
Vegetables, 1974 (Millions of Quetzales)

IV.8 Transportation Costs of Fruits and
Vegetables from Certain Producing
Areas to Some United States Market
Points (1973) . . .

IV.9 Estimated Income Elasticities of Demand
for Major Agricultural Products
in Guatemala .

IV,10 Composition of Agroindustrial
Production (Millions of Quetzales
and Percentages), 1971 .

IV.11 Principal Firms Processing
Agricultural Products, 1970 .

IV.12 Guatemala: Vegetables Processed
in 1970 (Metric Tons) .. .

IV.13 Area Harvested and Production of
Horticultural Crops (Hundreds
of Hectares and Metric Tons) *

IV.14 Vegetable Grading for Selected Products,
1974 (Percentages of Producers) .


*


xiv


Page


. .102


. .103


. ..105



, .106




o. .109


. .110




* .112



. .114



. .116


S. 117


. .118



. .121


. .128










Table No. Page

IV.15 Types of Containers Used by
Vegetable Producers. Selected
Products, 1974 (Percentages
of Producers) .. 1 . .129

IV.16 Storing Practices for Some Selected
Vegetables, 1974 (Percentage of Products) .130

V.1 Onionst Area Harvested, Production
and Yields . . .146

V.2 Onions: Area Harvested, Production and
Yields Under Different Types of
Technologies, 1969 . .146

V.3 Onions: Production, Domestic Consumption,
Imports and Exports (Metric Tons) . .148

V.4 Onions: Regional Potential
Consumption (Metric Tons) . . 149

V.5 Onion Imports by Selected
Countries (Metric Tons) . . .150

V.6 United States: Onion Imports . .. .151

V.7 Onions:' Estimated Average Input Requirements,
Costs and Returns per Hectare for Onion
Production in Zunil and La Cienaga,
Quezaltenango, 1974 . . .153

V.8 Tomatoes: Area Harvested, Fresh and
Canned Production and Yields 156

V.9 Domestic Production and Consumption of
Fresh and Processed Tomatoes (Metric Tons). ..158

V.10 Total Exports and Imports of
Tomatoes (Metric Tons) . . 159

V.11 Fresh Tomatoes; Central American
Potential Purchases . . .161

V.12 Fresh Tomatoes: Estimated Average Input
Requirements, Costs, and Returns per Hectare
Harvested in Colorado, Zacapa, 1974 . .166

V.13 Cabbage: Area Harvested, Production
and Yields . . a . 168







xvi


Table No. Page

V.14 Cabbage: Area Harvested, Production
and Yields Under Different Types
of Technologies, 1969 . . 168

V.15 Cabbage: Production, Domestic Consumption,
Imports and Exports (Metric Tons) . .. ,169

V.16 Cabbage: Domestic and Regional Potential
Purchases for Selected Years (Metric Tons). .170

V.17 Guatemala: Cabbage Exports, by Buyer
Country (Current Quetzales) . o .171

V.18 Cabbage: Estimated Average Input Require-
ments, Costs and Returns per Hectare in
Villa Alicia and La Cienaga, Quezaltenango,
1974 . 174

V.19 Garlic: Estimated Production and Domestic
Consumption (Thousands of Metric Tons) .176

V.20 Guatemalan Garlic Exports (Metric Tons) .177

V.21 Guatemalan Garlic Exports by
Purchaser Country o * .178

V.22 United States: Garlic Imports . .179

V.23 Garlic: Estimated Average Input Require-
ments, Costs and Returns per Hectare for
Garlic Production in Aguacatan,
Huehuetenango, 1974 . . .182

V.24 Sweet Peppers: Estimated Production,
Consumption, Exports and Imports by Weight
for Certain Years (Metric Tons), . 186

V.25 United States: Fresh Pepper Imports . .188

V.26 Peppers: Estimated Average Input Require-
ments, Costs and Returns per Hectare
for Pepper Production in
Estanzuela, Zacapa in 1974 . . .192

V.27 Estimated Labor Requirements per Hectare
for Certain Crops in Guatemala
(Man-Days per Hectare) . . .194







xvii


Table No. Page

V.28 Estimated Costs and Incomes Per Hectare
of Certain Crops Harvested in
Guatemala (Current Quetzales) . 196

VI.1 Averages of Farm Size, Gross Income,
Man-Day Requirements and Investment in
Production Inputs and Machinery per Hectare
of Vegetables Harvested for the Vegetable
Farms Sampled, Guatemala, 1974 . .203

VI.2 Estimated Coefficients from Regression
Equations for (Xo) Man-Days per Hectare
Cultivated with Vegetables (Farms that
invested in Machinery), Guatemala 1974 .206

VI.3 Estimated Coefficients from Regression
Equations for (Xo) Changes in Man-Days per
Hectare Cultivated with Vegetables (Farms
which did not use Mechanization),
Guatemala, 1974 . . . .209

VI.4 Estimated Coefficients from Regression
Equations for (Xo) Gross Income per Hectare
Cultivated with Vegetables (Farms that
Invested in Machinery) . . .216

VI.5 Estimated Coefficients from Regression
Equation for (Xo) Gross Income per Hectare
Cultivated with Vegetables (Farms with
Machinery) . .. . 220

VI.6 Estimated Coefficient from Regression
Equations for (Xo) Gro." Income per Hectare
(Farms with Machinery) . . 222

VI.7 Estimated Coefficient from Regression
Equations for (Xo) Gross Income per
Hectare (Farms with No Machinery) . .224








xviii

LIST OF ILLUSTRATIONS

No. Page


IV.1 Channels of Distribution
for Vegetables .. ... 137

VII.1 The Vegetable Promotion
Office Organization s 9 262








xix


CONVERSION TABLE


1 Quetzal (Q)

1 Hectare

1 Kilogram

1 Metric Ton

1 Quintal


= 1 U.S. dollar

= 10,000 m2 = 2.471 acres

= 1,000 grams = 2.204 pounds

= 1,000 Kg.

= 100 pounds































PART I



BACKGROUND AND SETTING CF THE PROBLEM










CHAPTER I

INTRODUCTION



A. Purpose and Scope of the Dissertation

A great deal has been written about development in

general. It is generally recognized that economic devel-

opment can be stimulated and sustained by deliberate ac-
tion.1 However, economists continue to question many of

the relationships among the factors which determine devel-

opment. Of particular concern is the influence of tech-

nology on the level of agricultural output, employment,

and income distribution.

The general purpose of this study is to explore the

possibilities of agricultural development in Guatemala

through production of non-traditional agricultural crops.2
Thus, it will first be necessary to analyze Guatemalan

agriculture and its economic problems in order to provide


1Economic development is considered to encompass
economic growth along with "expanded opportunities and the
human capacities needed to exploit them, a general reduc-
tion of mass poverty, unemployment and inequality." See
Peter Dorner, "Needed Redirections in Economic Analysis
for Agricultural Development Policy," American Journal of
Agricultural Economics (February 1971), pp. 8-16.
2Non-traditional agricultural crops: other than
traditional export crops that include cotton, coffee,
sugar cane and bananas. They include pastures, forages,
perennial crops, grains, oil seeds, roots and tubercules,
flowers, tobacco, honey bees, fruits and vegetables.


-2-










CHAPTER I

INTRODUCTION



A. Purpose and Scope of the Dissertation

A great deal has been written about development in

general. It is generally recognized that economic devel-

opment can be stimulated and sustained by deliberate ac-
tion.1 However, economists continue to question many of

the relationships among the factors which determine devel-

opment. Of particular concern is the influence of tech-

nology on the level of agricultural output, employment,

and income distribution.

The general purpose of this study is to explore the

possibilities of agricultural development in Guatemala

through production of non-traditional agricultural crops.2
Thus, it will first be necessary to analyze Guatemalan

agriculture and its economic problems in order to provide


1Economic development is considered to encompass
economic growth along with "expanded opportunities and the
human capacities needed to exploit them, a general reduc-
tion of mass poverty, unemployment and inequality." See
Peter Dorner, "Needed Redirections in Economic Analysis
for Agricultural Development Policy," American Journal of
Agricultural Economics (February 1971), pp. 8-16.
2Non-traditional agricultural crops: other than
traditional export crops that include cotton, coffee,
sugar cane and bananas. They include pastures, forages,
perennial crops, grains, oil seeds, roots and tubercules,
flowers, tobacco, honey bees, fruits and vegetables.


-2-









a clear picture of the potentials and limitations of the

sector. In addition, the analysis seeks to answer some

of the fundamental questions relating to development

raised by the agricultural sector. This sector has been

most widely recognized as having the potential for achiev-

ing the country's goals.of economic development. Litera-

ture on agricultural development is;reviewed in order to

establish and justify the criteria used to select and

evaluate the crops with the greatest impact on agricul-

tural development. These criteria can be used to deter-

mine priorities among agricultural commodities based on

employment and income creation, improvement of income

distribution and export potentials.

The study has been limited to the analysis of the

process of producing vegetables in Guatemala; however, the

marketing mechanism is also considered. To conduct the

research, the vegetable commodity system is analyzed as a

whole. Also, case studies were made of the production

and marketing of cabbage, tomatoes, garlic, onions and

,peppers. These crops were selected because of their pres-
ent and potential importance in the non-traditional agri-

cultural production of Guatemala as well as because they

are representative of most others. Finally, a selected

sample of vegetable farms is analyzed by statistical tech-

niques to determine the effects of some of the factors that

influence employment and income generation in vegetable









production

The primary objective of this thesis is to evaluate

the above non-traditional agricultural commodities to de-

termine their potential for increasing agricultural out-

put, rural employment, and income. Promotion of vegetables

could improve income distribution in the rural sector, ex-

pand the size of the domestic market, and eventually in-

crease the inflow of foreign exchange. The study will

also suggest the forms of production most suited to Guate-

malan economic conditions, and the appropriate mechanisms

to ensure efficient production and marketing of non-

traditional agricultural crops.
In particular, this study will focus on the follow-

ing objectives. The rationale for the objectives will be

made clear in the following chapters.

Optimisation objectives s To suggest economically

feasible production possibilities for non-traditional agri-

cultural commodities and to develop guidelines for produc-

tion patterns and choices of technologies. It will con-

sider the following:
1. Increases in non-traditional agricultural output.

'2. Employment and income creation in the rural

sector.

3. Improvement of income distribution in agri-

culture.

4. Contribution to the diversification of Guatemalan









exports in order to reduce dependency on tradi-

tional export crops.

Performance of market system objective: To provide

guidelines in order to improve the marketing of vege-

tables. Any program devised to promote the production of

non-traditional agricultural commodities must also be in-

timately connected with the establishment of an efficient

marketing system to achieve the desired developmental ef-

fects. This implies that the marketing requirements of

non-traditional agricultural commodities must be met.
Institutional development objectives: To determine

what mechanism can be adopted and/or implemented to rein-

force the promotion of the production and marketing of

non-traditional agricultural crops.


B, Hypothesis

The overall hypothesis of this study is that the

production of non-traditional agricultural commodities,

specifically vegetables, contributes to development when

complemented by certain policies, adequate planning and

organization. To achieve satisfactory results,, the pro-

duction and marketing of these crops requires adequate or-

ganization and the use of specific technology and agricul-

tural practices. It is hypothesized that with appropriate

encouragement, planning and direction, increased production

of non-traditional agricultural crops will create added








6

employment and improve income :distribution. To obtain op-

timum results in terms of growth and economic development

in the agricultural sector, it is necessary to establish a

year-round production process.

The development of adequate production and marketing

organizations is not always spontaneous, and must some-

times be induced by governmental actions. This implies

institutional change on the part of the integrated agen-

cies and programs to make them more efficient in the ach-

ievement of growth and development goals.

Given the existing resources, competition, and the

institutional interrelationships between the agricultural

export and domestic sectors, governmental support to small

producers is essential, Without support, the production

of non-traditional crops will eventually be absorbed by

large producers, leaving small farmers as marginal parti-

cipants. This could result in transference of modern in-

puts and practices fitted to the resource endowment of de-

veloped countries rather than that of less developed coun-

tries where some of these inputs often have undesirable

effects on employment and income distribution. While use

of these production methods has increased total agricul-

tural output, it has frequently had negative effects on

rural employment and income distribution. They may also

lead to some undesirable effects on the country's economy.

These include: increased imports causing an unnecessary










outflow of foreign exchange; limitation of the growth and

development of the small farm sub-sector by constraining

the production of food and industrial crops; and limita-

tion of raw material production and inhibition of.new agri-

cultural processing industries;.

The major benefits from the production of these non-

traditional crops will be measured in terms of employment

(jobs) and income per hectare, as well as. of export sales.

The general hypothesis .can be broken into the fol-

lowing propositions:

1. Vegetable production is basically labor use in-

tensive in nature. It has the potential of more labor per

hectare than some of the traditional export crops. But

labor intensity is often closely related to the size of

the production units involved and the level of technology

used. It is often assumed that cotton and some of.the

other traditional export crops need to be produced on

large scale farms or plantations and use capital intensive

methods of production in order to achieve rapid expansion.

This is a dubious assumption, but the present study does

not attempt to test it. What this study assumes, and hopes

to test, is that vegetables do not need to be produced in

large farming units or plantations and can use traditional

or intermediate levels of technology.

2. Vegetable production will increase income levels

of small and medium size farms. This would increase










purchasing power in the rural sector (and might improve

income distribution), which in turn would expand the rural

market for both manufactured and agricultural commodities.

3. Agricultural investment by small and medium size

farms will increase by producing vegetables. When small

and medium scale farmers invest in agriculture, it is more

likely to have a favorable impact than investment by large

farm producers.

4. The impact on local subsistence agriculture and

on small farmers will be highly favorable because vegetable

production practices are compatible with the factor avail-

ability of that sector.


C. Significance of the Study

It is hoped that this study will.contribute to the

ongoing analysis of the agricultural sector and to overall

development policies and planning. The findings of this

research will have practical va.-ue for the following

groups:

1. Planning Agencies and Public Administration:

Given the present conditions in Guatemala (and the uncer-

tain long-run prospects for traditional agricultural pro-

ducts in the world market), it is of crucial importance to

explore the prospects for profitable production of non-

traditional agricultural commodities. The distribution of

income and the state of employment in Guatemala affect the







9

economic, social and political structure of the whole coun-

try. Public policy should be geared to stimulating the

production of the agricultural products which will make

the highest contribution to national economic development.

Government has a very important role in development, even

if economic activity is largely in the private sector.

Not only must it provide services, but it must also create

a physical and social infrastructure while stimulating the

production of strategic commodities in order to achieve

the goals of agricultural development.

2. Private Sector: The findings of this study can

also serve to motivate and assist private investors to

improve allocation of resources and obtain better returns

on their investments. Improvements in productivity, qual-

ity, and variety'of agricultural commodities might expand

the domestic market for bothr manufactured and agricultural

goods, since they will create employment and raise the

level of income. Improving the income distribution in the

country is a necessary condition for industrial expansion.

3. Finally, the results of this thesis will be use-

ful for both academic theorists and field practitioners

and will contribute to the designing of agricultural de-

velopment policies.









D. Review of the Literature on Aricultural Development

Agqricultua.l Development Literat re .

Economic development can be defined in many ways.

Most definitions are similar in the sense that they imply

economic growth with better living conditions. Peter

Dorner3 sees economic development in the broad sense of

expanding opportunities and the human capacities needed to

exploit them, along with a general reduction of mass pov-

erty, unemployment and inequality. Meier defines econo-

mic development as the process whereby the real per capital

income of a country increases over a long period of time.

Many economists have interpreted economic develop-
ment in terms of a number of goals (Mellor,; pp. 5-16;
Meier, pp. 5-9). Some of these goals are: 1) rising per

capital real income over time; 2) achievement of more

equal distribution of income; 3) employment creation;

4) diversification of the economy; 5) minimum levels of

consumption; and 6) avoidance of market disparities.

Agricultural development can be interpreted in

terms of goals which would stimulate overall economic

3Peter Dorner, "Needed Redirections in Economic An-
alysis for Agricultural Development Policy," American Jour-
nal of Aaricultural Econom.ics (February 1971), pp. 8-16.
4
Gerald Meier, "Leading Issues in Economic Develop-
ment" (Oxford: University Press), 1970.
John W. Mellor, The Economics of Agricultural Devel-
opnt (New York: Cornell University Press), 1969.







11

development (Eicher and Witt,6 pp. 102-119; Mellor, pp. 3-

16; Barriga, pp. 11-17), These include increasing agri-

cultural output, expanding employment opportunities in the

rural areas, improving income distribution patterns, and

expanding the domestic market. Given the circumstances in

Guatemala, the above goals must be reached in order to de-

velop the agricultural sector and fulfill the optimization
objective discussed in Chapter I. Increasing agricultural

output in Guatemala would mean larger amounts of commodi-

ties in order to satisfy domestic consumption (human, ani-

mal, and industrial), as well as to meet the needs of ex-

panded exports.

Furthermore, increasing and diversifying agricul-

tural production would create better employment opportuni-

ties in agriculture, diet improvements and possibilities

of reducing and substituting national production for at

least some agricultural imports. An increased number of

jobs in agriculture would mean income creation and might

make the sector's income distribution less inequitable.

Expansion of employment possibilities in the rural sector

would make life there more attractive and hold people in

agriculture, diminishing the rural to urban migration.

Carl Eicher and Lawrence Witt, Agriculture iin Eco-
nomic Development (New York: McGraw Hill), 1964.
Claudio Barriga, Management in Cooperative Farming,
Ph.D. Dissertation. University of Wisconsin, Madison,
1972.







12

A more equal distribution of income in the rural sector of

Guatemala would also be reflected in higher purchasing

power, larger markets, and better living conditions. It

would reduce mass poverty and inequality. In other words,

higher levels and a more uniform distribution of income

would mean more and better opportunities for the popula-

tion. Finally, expansion of the domestic market would in-

volve greater possibilities for selling agricultural.and

industrial goods. This would stimulate production of more

and better commodities and would have favorable spillover

effects in the economy.

Economists have stressed the importance of agricul-

ture as a basis for economic development. They have paid

particular attention to the conditions under which an agri-

cultural surplus can occur, be sustained and distributed.

However, the role of agriculture depends upon a nation's

stage of economic development and upon the ratio of agri-

cultural land to population, "he emphasis which public

policy gives to agriculture ain the particular forms which

agricultural policies take must therefore vary accordingly

(Carl Eicher and Lawrence Witt, pp. 11-16)8

Many of Guatemala's economic and social problems can

be overcome by developing agriculture. As Bruce F. John-

.ston and John Wo Mellor have stressed, increased

Eicher and Witt, o. cit.







13

agricultural output and productivity foster economic growth

in the following ways:

1. Increasing food productions This, is necessary

in order to satisfy the growing demand for food character-

istic of Guatemala. According oto SIECA, food has been ap-

proximately 10 percent of Guatemala's total imports during

the last ten years. It is estimated that the domestic de-

mand for food will increase from Q248.9 million in 1970 to

Q545.6 million in 1990.10 To satisfy this demand and de-
crease food'imports, agricultural production must be ex-
panded. Failure to do so would create severe social and

economic problems, including rising food prices, inade-

quate diet, negative balance of payments effects, low

labor absorption, reduced capacity for income generation,

and market shrinkage,

2. Expanding exports of agricultural,goods: This is

a powerful stimulus to production as well as a means of
increasing foreign exchange earnings. Higher levels of

agricultural production mean not only export possibilities
but good opportunities for reducing agricultural imports.

This in turn would increase the inflow of foreign currency

required for other needs, Guatemala has been quite

Bruce F. Johnston and John W. Mellor, The Role of
Agriculture in Economic Development, in Readings in the
Economics of Agriculture, Karl L, Fox and Gale Johnson,
eds. (Homewood, Illinois: Richard D. Irwin, Inc.), 1969.

10SIECA-FAO PACA Vol. II, Table E-4. Guatemala, 1974.










successful in obtaining the necessary amount of foreign

exchange through agricultural exports.

However, the gains from agricultural export expan-

sion have not been well distributed because of the type of

products grown. These products have tended in recent years

to use capital intensive production practices, limiting

employment creation in the rural sectors. This has had

two effects: a higher level of unemployment in agricul-

ture and low levels of agricultural production for domes-

tic consumption and industrial use. Agricultural exports

must be diversified in order to obtain major economic bene-

fits and less economic dependency on a few staple agricul-

tural commodities such as cotton, coffee, sugar cane and

cattle.

.3. Agricultural production influences employment in

the rural sectors -Depending on the nature of the crop, and

choice of technologies, intensification of agricultural

production may create substantial employment opportunities.

Conditions in Guatemala, however, are such that agricul-

ture will for many years have to absorb large amounts of

open and disguised11 unemployment existing in the rural

areas and hold workers in the sector in order to avoid

country to city migration.

11Disguised unemployment is defined as the existence
of a portion of the labor force which can be removed with-
out reducing output.







15

4. Agriculture's contribution to capital formation:

A developed and growing agriculture could and should make

a net contribution to the capital required for overhead

investment and expansion of secondary industry. This is

particularly difficult in countries like Guatemala where

subsistence agriculture predominates and savings formation

is not possible because of low incomes.. High productivity

levels must be achieved to overcome this situation. Alter-

native agricultural production practices, modern inputs,

better varieties of crops and adequate institutional sup-

port should be implemented in order to increase income,

savings, and investment in agriculture.

5. Expanding the market size: Rising net cash in-

come of the farm population would enlarge the domestic mar-

ket for both agricultural and industrial goods and promote

industrial expansion. The agricultural sector could sup-

ply the industrial sector with the required raw materials.

In Guatemala, an important sector of industry depends on

agriculture for its operation. In addition to the food

processing industry, textiles, rubber, leather products,

paper, tobacco and beverage industries are heavily depen-

dent on agricultural supplies.

Hayami and Ruttan have pointed out that:

there has been a sharp transition in economic
doctrine with respect to the relative contribu-
tion of agricultural and industrial development
to national economic growth during recent de-
cades. There has been a shift away from the










earlier 'industrial fundamentalism' to an em-
phasis on the significance of growth in agri-
cultural production and productivity for the
total development process,12

Two theoretical formulations have been put forth to ex-

plain the role of agriculture in the economic development

process: the growth stage model, and the dual economy

model. Guatemala's. economy exhibits a dual structure, but

the most significant characteristic is not the industrial-

agricultural duality but rather that which exists within

the agricultural sector itself. The sector can be classi-

fied into two subsectors: the export sector, and the

traditional sector. These two sectors are interdependent

in the labor, product and financial markets, but the ex-

port sector has frequently expanded by depriving the tra-

ditional sector of resources

The situation in Guatemala can be related to the en-

clave or technological type of dualism. As an alternative

to Boecke's14 sociological dualism, this model presents a

high productivity sector producing for export coexisting

12Yujiro Hayami and Vernon W. Ruttan, Agricultural
Development: An International Perspective (The Johns Hop-
kins Press), 1971.
13Rodolfo Quiros, Agricultural Development in Cen-
tral America: Its Origins and Nature. Land Tenure Center
Research Paper No. 49, University of Wisconsin, Madison,
1973, pp. 24-78.
14J.H. Boecke, "Dualistic Economics," Leading Issues
in Economic Development Studies in International Poverty.
Gerald Meier (Oxford University Press), 1970, pp. 126-8.







17

with a low productivity sector producing for the domestic

market. In Higgins' view, the modern sector is composed

of plantations, mines, oil fields or industry and concen-

trates on the production of primary commodities. It im-

ports its technology from abroad. This imported technology

is basically labor saving, with relatively high and fixed

capital coefficients of production. This is in contrast

to the technology employed in the traditional sector,

which is characterized by wide substitution possibilities

between capital and labor and the use of labor-intensive

production methods. Expansion of the modern sector is

primarily in response to demand in foreign markets and

its growth may have relatively little impact on the local

economy. Expansion of the traditional sector is limited

by a shortage of savings and investments.
-.15
For Higgins,1 the origin of dualism rests on differ-

ences between the modern and subsistence technologies. He

associates dualism with "structural unemployment" or

"technological unemployment," a situation in which produc-

tive employment opportunities are limited because of re-

source and technological restraints in the two subsectors.

H. Myintl6 stresses the importance of the capital market

15Benjamin Higgins, "The Dualistic Theory of Under-
developed Areas," Economic Development and Cultural Change
(January 1955), pp. 99-108.

16HO Myint, The Economics of the Developing Countries
(London: Hutchinson University Library), 1964, pp. 69-84.







18

as a basis for enclave dualism. This market is responsible

for stimulating the adoption of more capital-intensive
technology and higher levels of labor productivity in the
modern subsector.
The previous discussion shows that agricultural

growth is a necessary condition for economic development.

Therefore, attention must be focused on the process of

agricultural growth in order to determine the elements

that are involved and the most efficient way to combine

them. The problem of agricultural development is that of
accelerating output and productivity growth rates of the
entire agricultural sector and not only a part of it, con-

sistent with the growth rate of the other sectors of the
17
economy. Hayami and Ruttan have summarized four general

models found in the literature on agricultural development.

These include the conservation model, the urban industrial

impact model, the diffusion model, and the high pay-off

input model. The last one will be briefly discussed since

it is relevant to Guatemala's agriculture. This model is
also called the green revolution model and emphasizes the

acceleration of the process of development through the

propagation of new inputs through public investment in
research and education.
Agricultural technology is often highly "location

17Hayami and Ruttan, o.o, cit., Chapter I, pp. 26-43.








19

specific." Techniques developed in advanced countries are

not in most cases directly transferable to less developed

countries with different climates, resource endowments

and institutional structures.

Theorore W. Schultz 8 claims that peasants in tradi-

tional agriculture are rational and efficient resource al-

locators and that they remain poor because in most poor

countries there are limited technical and economic oppor-

tunities to which they can respond. He also asserts that

the marginal rate of return to investment in agricultural

factors used by farmers is so low that there is little

incentive to save and invest. In his opinion, the key to

transforming a traditional agricultural sector into a pro-

ductive source of economic growth is investment to make

high pay-off inputs available to farmers in poor countries.

According to Schultzs
Economic growth from the agricultural sector
of a poor country depends predominantly upon
the availability and price of modern agricul-
tural factors .. The principal source of
high productivity in modern agriculture are
reproducible sources. '!L.y consist of partic-
ular material inputs and of skills and other
capabilities required to use such inputs suc-
cessfully ... But thee modern material in-
puts are seldom ready-made. They can rarely
be taken over and introduced into farming in
a typically poor community in their present
form ... There are very few reproducible
agricultural factors in technically advanced
countries that are ready-made for most poor


18Theodore Schultz, Transforming Traditional Acricul-
tue (New Haven: Yale University Press), 1964.









communities. In general what is available is
a body of useful knowledge which has made it
possible for the advanced countries to pro-
duce for their own use factors that are tech-
nically superior to those employed elsewhere.
This body of knowledge can be used to develop
similar, and as a rule superior, factors ap-
propriate to the biological and other condi-
tions that are specific to the agriculture
of poor communities.19

This implies three types of relatively high produc-

tivity investments for agricultural development. These

include investments in: 1) the capacity of agricultural

experiment stations to produce new technical knowledge;

2) the capacity of the industrial sector to develop, pro-

duce, and market new technical inputs; and 3) the capacity

of farmers to use modern agricultural factors effectively.

The significance of the high-pay-off input model is that

policies based on the model appear capable of generating

a sufficiently high rate.of agricultural growth to provide

a basis for over-all economic development.

In addition, Schultz claims that attention must be

given to. the fact that where product prices are suppressed,

no program can succeed. Underpricing of farm products and

overpricing of agricultural inputs must be detected and

corrected. Bruce Fo Johnston and John W. Mellor add four

categories of complementary inputs or developmental ser-

vices: 1) research to develop improved production

191
rbidr., pp. 145-147.







21

possibilities; 2) extension education programs; 3) facili-

ties for supplying inputs of new and improved forms, par-

ticularly improved seed and fertilizers; and 4) institu-

tional facilities for servicing agricultural production,

such as credit and marketing agencies,, and rural govern-

mental bodies for fostering collective action.

If an agricultural development model is set up in

which technological change is considered as an endogenous

element, it is necessary to start with the recognition that

there are multiple paths of technological development.

Two among other types of technology in agriculture are

mechanical technology to save labor, and biological and

chemical technology to save land.
20
According to Arthur T. Mosher,20 advances in bio-

logical and chemical technology and processes are more

fundamental than mechanization, and the need for increas-

ing crop output per unit of land area has already induced

such advances. In crop production these innovations have

involved one or more of the following three elements:

1) land and water resource development; 2) organic and in-

organic sources of plant nutrients to stimulate growth

and the use of biological and chemical means to protect

crops from pests and disease; and 3) new biologically

20
20rthur T. Mosher, Getting Agriculture Moving:
Essentials for Development and Modernization (New York:
Praeger), 1966.









efficient crop varieties specifically adapted to respond

to those elements in the environment that are subject to

man's control.


Some Considerations about Agricultural Production

Possibilities

One of the microeconomic institutions is the firm,

which is defined as any producing unit using economic in-

puts, such as land, labor and capital, to produce any kind

of goods and services for households or other firms.

In agriculture, the economic problems which the firm

faces are similar to those of any other production acti-

vity: to decide what to produce, how much to produce, and

what and how much of the disposable inputs to use, given

the technological relation between inputs and output and

prices of inputs and output. The economizing process de-

fines the firm's profit function as dependent on output

and factor inputs. Guatemala, like most developing coun-

tries, has an abundance of unskilled labor and scarcity of

capital. However, too many of the production techniques

in agriculture tend to be similar to those used in ad-

vanced and industrialized countries. Scarcity of capital

implies high prices for capital tools, and excess of labor

implies low prices for this input, particularly unskilled

labor. And it is the resource prices which guide pro-

ducers in their choice of techniques.







23

Agricultural production practices in:Guatemala tend

to converge toward the use of capital intensive techniques,

especially in large production units. As resultl, un-

employment and underemployment in the rural area have not

been decreased and still are one of the major problems the

country faces. Moreover, the demand for capital has in-

creased in recent years because of subsidies for capital

equipment through several mechanisms such as artificially

low interest rates for traditional export agricultural

production, and external influences upon capital-intensity

in production, such as the ongoing inflation. At the same
time, inflation has lowered the real rate of interest be-

low the nominal, thereby subsidizing the cost of capital,

especially capital equipment for agricultural production.

It has also shifted agricultural investment from domestic

to export crop production. Another important factor is

multiple or preferential exchange rates. These stimulate

importation of certain types of foreign capital equip-
21
ment.21

Duty free and preferential tariff treatment on im-

ports of capital equipment have been used to stimulate

economic growth. In addition, Central American countries

have competed among themselves for foreign investment,

21BID/INTAL "Politica Social" tomo 7. El Desarrollo
Inteqrado de Centro America en la Presente Decada, SIECA.
Buenos Aires, 1973. Parte III ahd IV. ..







24

each of them trying to offer a more attractive set of in-

centives. As Rosner22 pointed out, in order to rational-

ize the system of competitive incentives the Central Amer-

ican countries adopted the Central American Agreement on

Fiscal Incentives for Industrial Development. This meas-

ure stimulated the use of capital intensive techniques

and produced unjustifiable losses in government revenue.

Finally, tax laws have been another factor for subsidizing

capital equipment by allowing accelerated depreciation

and investment allowances.

External influences upon capital have also played

an important role in determining the present high levels

of capital intensity which characterize Guatemalan growth.

The factors that influenced this capital intensity bias

include supplier credits which are given by equipment and

machinery exporters in advanced nations. This type of

credit facilitates purchases of foreign capital equipment,

thus inducing the use of modern practices in agricultural

production. Direct private foreign investment has induced

indirectly the use of capital intensive techniques. For-

eign aid has also had some effects on the use of capital

intensive production methods, especially when it is "tied

aid." This type of aid has two effects:. it increases the

22Monroe Rosner, "The Problem of Employment Creation
and Role of the Agricultural Sector in Latin America,"
Ph.D. thesis, Department of Agricultural Economics, Univer-
sity of Wisconsin, p. 111-9,









use of capital~'intensive techniques .as a consequence of

its concessionary terms. and it reduces the efficiency of

capital as a consequence of its high real cost.
Labor cost has also been affected..by:wage policies,

which makes labor relatively more expensive. These poli-

cies include: minimum wage rates, imposition of social

charges and taxes proportional to the wage bill, and parti-

cipation on the part of foreign employers who tend to in-

crease the wage rates above the national level.
Guatemala must search for alternative agricultural

commodities and ways to produce them. that require more

labor and less capital in their production process. An

evaluation of the Guatemalan agricultural production mix

is necessary in order to determine a .set of commodities

that can provide employment opportunities, income, and

higher levels of output through their production. In ad-

dition, a specific set of technological practices--that

is, a technology of production that fits the resource en-

dowment of the country-should be developed. _This tech-

nology should be heavily oriented toward the use of labor,

which is the abundant resource in the country. This tech-

nology can be a composition of different agricultural

practices requiring each of these different proportions of

land and labor. Agricultural practices include not only

the product produced but also the technology used in its

production, For instance, the first crop of corn produced







26

with a certain technology represents one specific agricul-

tural practice, while indigenous corn planted simultane-

ously with another crop will be another agricultural prac-

tice. To suggest a more adequate technology for agricul-

ture, it is necessary to know systematically the agricul-

tural practices which are actually being used in agricul-

ture, To identify these practices, each should be analyzed

in stages as well as in the relation between land and men.

The traditional way of doing this is to take the number of

men per area of land as a measure of demographic density.

When the abundant resource is taken as a basis (labor, in

the case of Guatemala), agricultural practices can be con-

sidered in terms of the amount of land needed toprovide

adequate levels of income and employment. The basic ana-

lytical unit then is a unit of land to a unit of labor or

man-year of lahor. In other words, it is necessary to de-

termine the mix of practices that minimizes the necessary

area of land in order to use tC-.. disposable labor force.

Some products can be planted two, three, and even four

times a year. Thus, 1;heir capacity to save land and to

employ one man-year of labor is large. With the introduc-

tion of new production techniques, more than one crop can

be planted per year, increasing considerably the labor ab-

sorption in their production. Agricultural research should

attempt to find ways to achieve a year-round production

process, through multiple cropping or other methods of










production.


E. Research Procedures


Analytical Framework

The criteria selected for the evaluation constitute

a major element in considering the potential contribution

of alternative commodity options to the economic develop-

ment of agriculture in Guatemala. In order to establish

crop evaluation criteria that would lead to the achievement

of the economic development goals of agriculture, it was

necessary to consider several factors. These factors in-

clude the most important socio-economic characteristics,

problems, limitations and needs, as well as the existing

potentials and possibilities within the agricultural sector.

Also, literature on agricultural development was reviewed

in order to provide the theoretical foundation underlying

the criteria and to justify and support the standards by

which judgments will be made The criteria used to evalu-

ate the non-traditional agricultural commodities chosen in

this study include employment and income creation in agri-

culture, rural income distribution, and improvement, and

production and market potentials.

Survey Procedres

The study was undertaken in some of the most repre-

sentative zones within the three major vegetable production









23
areas23 of Guatemala in 1974. Table I.1 lists the vege-

table crops considered in the sample along with their main

characteristics. Table 1.2 and Figure A-I.l show the lo-

cation of the production units surveyed.

Certain vegetables--onions, tomatoes, cabbage, pep-

per, garlic, cauliflower, broccoli, melons, okra, and cu-

cumber--were selected for sampling because of their im-

portance in Guatemalan vegetable production. They repre-

sented almost 60 percent of the vegetable production in

1967 and more than 53 percent of total vegetable exports

in 1969.24 Five of the crops sampled--onions, tomatoes,

garlic, peppersand cabbage--represented more than 63 per-

cent of the domestic demand for fresh vegetables in Guate-

mala in 1970.25 The commodities included in the sample not

only have present and potential importance but are repre-

sentative of most other vegetable crops produced in the

country in terms of production and marketing patterns and

resource requirements.

These ten vegetables sampled also represent the range

of perishability of Guatemalan vegetables. About 86.1 per-

cent of vegetables grown in 1967 were highly perishable,

23
2They include the tropical area or lowland, the sub-
tropical or temperate zone and the high land or cool zone,
Table A-IV.5 presents their departments and main character-
istics.
24
Calculation based .on Tables V.3 and V.16.
25
Calculations based on Table IV.1.









TABLE I.1


VEGETABLE FARMS SAMPLED

% of Aver-
Degree of 1967 Number age
Perishability Average Planting pro- of farms Farm
(High, medium, Production System duc- sam- Size % of
:Crops and low) (1) Cycle (2) Most Used tion (3) pled (Has,) Farms

1.Onions High (green 3-5 months transplant 13.00 5 2.94 13.9
onions, low
dry onions)
S2.Tomatoes High 2-5 months transplant 62.00 5 20.01 13.9
3.Cabbage High 2-4 months transplant 13,55 4 .13 11.1
4.Pepper Medium 3-4. months transplant 3.00 4 2.93 11.1
5,Garlic Low 4-7 months direct 3.00 4 2.77 11.1
seeding
6.Cauliflower High 2-4 months transplant 4.00 4 .31 11.1
7.Broccoli (1) High 5-6 months transplant 0.03 2 5.25 5.6
direct
8.Melons Medium 3-4 months direct 0.40 4 16.96 11.1
seeding
9.0kra Medium 4-5 months direct 0.02 1 6.50 2.8
10.Cucumbers Medium- 2-3 months direct 1.00 3 34.5 8.3
TOTAL seeding
TOTAL-_____100.00 36_ 9.10 100.0


Source: /


(1) Merrill Williams, C. Fletcher Lehman B, and Hanrahan Michael. Produc-
cion y Mercadeo de Hortalizas en Guatemala. Guatemala 1971, pp. 3.3, 3.4
(2) Survey and Ministerio de Agriculture. Provecto. para el Fomento de
Hortalizas. Guatemala 1967, capitulo 5.
(3) Table A-V.3








30
4.4 percent medium perishable, and 9.5 percent low perish-

able. Although the crops included in the sample repre-

sented a somewhat different distribution pattern (53 per-

cent of them were highly perishable, 10 percent medium per-

ishable and 37 percent low perishable), the distribution

does include crops representative of different degrees of

perishability.

Because no records of vegetable farms and no plat

maps exist in Guatemala, a non-probability sampling design

or quota sample approach was applied26 A sample of 36

vegetable farms was chosen. In order to achieve a reason-

able degree of representativeness, vegetable farms were

selected so that the proportion of the sample farms posses-

sing certain characteristics (vegetables grown showing dif-

ferent degrees of perishability, production levels, and

area planted) was approximately the same as the proportion

of the elements with those characteristics in the popula-

tion (see Tables IJl and ,I2).

Initially, the three main segments of the total vege-

table production area of the country were considered. the

tropical area or low land, the sub-tropical to temperate

zone, and the high land or cool zone. Secondly, groups of

vegetable farms were selected from each segment or main

B. Benkatesh and Gilbert Churchill. Marketing
Research, School of Business, University of Wisconsin, Mad-
ison 1973, Chapter 7 (mimeo).










TABLE .I.2.

LOCATION BY AREA AND COMMODITY OF VEGETABLE FARMS STUDIED


Farms
Survey ed
No-. Z,


Estimated Area
in the country
planted with
vegetables
in 1967


Low Land


l.Tropical Area or


1.1 Zacapa
Colorado
Teculutan
'I

Uzumatla n
Estamzuela

La Fragua


2. SubtroDical to T emperate
2.1 Baja Verapaz


Salama
Sn. Jeronimo
2.2 Huehuetenango
Aguacatan


4612


15 (42)


Tomatoes
Tomatoes
Okra
Cucumbers
Tomatoes
Peppers
Melon
Me ion


E (16)


1607


Cu'ccumbe,:-.-


Garlic


3.HiQh Land or Cool Zcre
3.1 Quezaltenango


2097
15 (35)


La Cienaga
$I
Zunil
La Esperanza
Checan
Villa Alicia
Almolonga
Olimtepeque


Onion 2
Cabbage 1
Onion 3
C-abbag: 1
2
Caulif lower 2
'" 2
Broccoli 2


36 (100)


8315 (100.0)


Source: Survey; (1) Table A-IV.5.


Product


(55)


(19)


(26)


TOTAL


Are- -- q .. ----.-q-v -- -


----- ---- ----I


Low Land-=


Area








32

area as shown in Table 1.2. Interviews were conducted on

fifteen farms from the tropical area, six from the sub-

tropical-to-temperate area, and fifteen from the high

land or cool area. The selection of these farms was done

judgmentally. The cooperation and advice of the team of
27
agricultural extensionists from DIGESA2 were obtained in

order to choose the typical vegetable producing farms in

each region and to administer the questionnaire.

A questionnaire was administered to each farm to ob-

tain the required information about the production process

of vegetables, including location, farm size, yields, input

and labor requirements, costs and returns. The protesting

of the interview schedules was conducted in July and Aug-

ust, 1974, in Zacapa, Alta Verapaz, and Quezaltenango,

three of the major vegetable producing areas. The inter-

viewer training occurred during the first two weeks of

September 1974 and the survey was conducted in October,

1974.

Even though the problems of access to information

proved to be difficult and some questionnaires had to be

discarded because of lack of accurate responses, a suffi-

cient amount of information was obtained. Among the dis-

carded questionnaires, there were two farms which were not

included because they were untypical of vegetable

27Direccion General de Servicios Agricolas (General
Direction of Agricultural Services).







33

production.in Guatemala. As shown in Table 1.3, they were

highly mechanized farms specializing in okra production for

export, larger than the average vegetable units with higher

investments in production inputs.


TABLE 1.3

FARM SIZE, GROSS INCOME, MAN-DAY REQUIREMENTS AND
INVESTMENTS IN PRODUCTION INPUTS AND MACHINERY PER
HECTARE OF OKRA HARVESTED FOR THE TWO NON-TYPICAL
FARMS EXCLUDED FROM THE SAMPLE
Invest-
Invest- ments
Man-Days ments* in
Farm Gross Required in Mach-
Size Income per Inputs inery Loca-
No. (Has.) _). Hectare (0) (0) tion

1 37.26 5,800.00 390' 669.00 682.00 Teculutan,
SZacapa
2 13.80 5.075_1 00 410 10.00 593.00 "

*Excludes machinery.


The survey information wa& checked against and com-

plemented with secondary data from the National Institute

of Agricultural Marketing (iNLSZA), the Institute of

Science and Agricultural Technology (ICTA), the General

Direction of Agricultural Services (DIGESA), and with

published and unpublished studies and reports. In addi-

tion to the farm survey, an aggregative analysis of the

vegetable crops produced in Guatemala was performed.










Secondary Information

A considerable amount of secondary information was

used in-this study to present the characteristics of the

agricultural sector, the existing economic problems in the

rural area, the characteristics of the vegetable industry

in Guatemala, and the individual case studies on peppers,

tomatoes, cabbage, garlic and onions.

Several sources of secondary information were util-

ized. They were: 1) national organizations (Central Bank,

The Ministry of Agriculture and its agencies, and the

Ministry of Economy and its agencies; 2) regional organi-

zations (Principal Secretariat of the General Treaty of the

Economic Integration of Central America (SIECA), Instituto

de Nutricion para Centro America y Panama (INCAP), Insti-

tuto Centro Americano de Investigacion y Tecnologia Indus-

trial (ICAITI), the Regional Office for Central America

and Programs (ROCAP), and Instituto Centro Americano de

Ciencias Agricolas de la OEA (.xC'A); 3) international or-

ganizations (Organizacion de las Naciones Unidas para la

Agriculture y la Alimentacion and La Comision Economica

para la America Latina), and others (University of Wiscon-

sin-Madison and the U.S. Department of Agriculture).

Analysis

This study focuses on the production of vegetables

and attempts to evaluate the potential contribution of










these crops to the economic development of Guatemalan

agriculture. The vegetable marketing process will be also

evaluated to determine its major constraints and limita-

tions. The analysis will be divided into three parts, con-

stituting Chapters IV, V and VI. Chapter IV presents the

most important characteristics of the.vegetable industry

in Guatemala. It is concerned with .the market potentials,

location and trends of production and.marketing of these

crops. Chapter V presents case studies of the production

and marketing of cabbages, tomatoes, garlic, onions, and

peppers. The reason for selecting these commodities are

presented in Chapter I. The main objective of this chap-

ter is to show the most important features of producing

and marketing these crops. It gives special emphasis to

input and labor requirement costs and.returns per-hectare

of crop produced and pays particular attention to the mar-

ket potential of each vegetable.

Each case was composed fro, information collected

from the survey, published and unpublished reports on the

production and marketing of these crops and direct informa-

tion from knowledgable persons in these vegetables.
Chapter VI is concerned with the statistical analysis

of the sample data. This chapter has two major sections

and goals. It seeks to: 1) examine the functional rela-

tionship between man-days required per hectare of










vegetables harvested and farm size, input use, and machin-

ery; 2) explore the functional relationship between gross

income generated per hectare of vegetables harvested and

farm size, labor, input use, and machinery. Least squares

multiple regression analysis28 will be utilized.























28The Least Square Multiple Regression analysis is a
mathematical technique used to describe how a dependent
variable is related to two or more independent variables,
Least squares estimates are derived by selecting the esti-
mates of Bi that minimize the sum of the squared deviations
between the observed Y's and the fitted Y's. This analysis
gives measures of the degree to which variables vary to-
gether, the intensity of association and comes close to im-
plying cause and effect relations. For a complete treat-
ment of this technique, see Thomas H. Vonnacott and Ron-
ald J. Wonnacott, Econometrics (New York: John Wiley and
Sons, Inc.), 1970, and Jan Kmenta, Elements of Economet-
rics (New York, The McMillan Co0), 1971. For an explana-
tion of the program used in this study, see Regan 2: Mul-
tiple Linear Regression Analysis Statjob series, Academic
Computing Center, The University of Wisconsin, Madison,
1971.










CHAPTER II

AGRICULTURE IN GUATEMALA



A. The Relative Economic Contribution of Agriculture


Agriculture has been the basic sector of the Guate-

malan economy since colonial times. As recently as 1972

it still employed about two-thirds of the economically ac-

tive population and earned about 90 percent of the nation's

foreign exchange. Table 11.1 shows the shares of the

major economic sectors in Guatemala's gross domestic pro-

duct for the period 1968-1972. In those years, the agri-

cultural sector accounted for the second highest share in

the gross domestic product, representing 27.4 percent in

1968 and 28.0 percent in 1972. The sector which had the

highest share in GDP for thoks years was the commercial

sector, which accounted for 28.5 percent in 1968 and 28.2

percent in 1972.

Of the other sectors, manufacturing was by far the

largest, representing 15.8 percent of Guatemala's GDP in

both 1968 and in 1972. Manufacturing showed an absolute

net increase during those years of 28.0 percent. The gen-

eral trend of the other sectors also showed positive abso-

lute changes during 1968-72o Electricity, gas and water


SIECAi Unpublished statistics and Banco de Guate-
mala, Memoria de Labores, 1972.


-37-










CHAPTER II

AGRICULTURE IN GUATEMALA



A. The Relative Economic Contribution of Agriculture


Agriculture has been the basic sector of the Guate-

malan economy since colonial times. As recently as 1972

it still employed about two-thirds of the economically ac-

tive population and earned about 90 percent of the nation's

foreign exchange. Table 11.1 shows the shares of the

major economic sectors in Guatemala's gross domestic pro-

duct for the period 1968-1972. In those years, the agri-

cultural sector accounted for the second highest share in

the gross domestic product, representing 27.4 percent in

1968 and 28.0 percent in 1972. The sector which had the

highest share in GDP for thoks years was the commercial

sector, which accounted for 28.5 percent in 1968 and 28.2

percent in 1972.

Of the other sectors, manufacturing was by far the

largest, representing 15.8 percent of Guatemala's GDP in

both 1968 and in 1972. Manufacturing showed an absolute

net increase during those years of 28.0 percent. The gen-

eral trend of the other sectors also showed positive abso-

lute changes during 1968-72o Electricity, gas and water


SIECAi Unpublished statistics and Banco de Guate-
mala, Memoria de Labores, 1972.


-37-









TABLE II.1

GROSS DOMESTIC PRODUCT AT MARKET PRICES
S(Thousands of 1958 Quetzales)
Variation
1968 1970 1972a (1968-72)
Value Value Value Value
Sectors Q % Q 0 0 % Q %
1.Agriculturee 431,239.9 (27.4) 489,677,1 (273) 563,247.6 (28.0) 132,007.7 (30.6)
2.Mining 1,347.7 ( 0.1) 1,676.4 ( 0,1) 1,515.0 ( 0.1) -167.3(-12.4)
3.Manufacturing 249,207.3 (15,8) 282,948.8 (15.8) 319,001.3 (15.8) 69,794.0 (28.0)
4.Construction 27,628.2 ( 1.8) 28,370.6 ( 1.2) 34,010.9 ( 1.7) 6,382.7 ( 2.3)
5.Electricity,
Gas and Water 18,319.8 (1.2) 21,543.7 ( 1.2) 27,004.6 ( 1.3) 8,684.8 (47.4)
6.Transportation &
Communication 79,665.4 ( 5.1) 98,181.8 ( 5.5) 119,859.7 ( 5.9) 39,994.3 (50.1)
7.Commerce 448,437.1 (28.5) 518,004.2 (28.9) 567,463.5 (28.2) 119,026.4 (26.5)
8.Banking &
Insurance 36,215.0 ( 2.3) 42,294.5 ( 2.4) 46,644.4 ( 2.3) 10,429.4 (28.8)
9.House
Ownership 118,253.5 ( 7.5) 124,801.9 (-7.0) 129,934.3 ( 6.5) 11,680.8 ( 9.9)
10.Public Admin.
and Defense 73,324.6 ( 4.6) 86,930.0 ( 4.8) 92,594.0 ( 4.6) 19,269.4 (263)
11.Other private
Services 90,269.0 ( 5.7) 98,324.7 ( 5.5) 113,789.2 ( 5.6) 23,520.2 (26.1)
Total GDP 1,574,107.5 1,792.753.7 2,015,064.5 440,957.0
iIncludes forestry, hunting and fishing.
preliminary figures.
Source: Banco de Guatemala. Estudios economics y memories de labores anos 1968-72.









increased by 47,4 percent; construction by 2.3 percent;

public administration and defense by 26.3 percent; and

transportation, storage and communication by 50.1 percent.

Agriculture. showed an absolute net increase between 1968-

72 of 30.6 percent. ,

Table IIo2 shows the absolute and the relative mag-

nitude of the economically active population by sector for

1950, 1964 and 1970, The sector which shows the largest
proportion of the economically active population is agri-

culture, which employed 68.15 percent of the total in 1950

and 65.50 percent in 1964. The proportion for 1970 was

64.03 percent. Even though a slight relative decrease can

be observed during the period under study, the agricultural

sector remains the largest source of employment in Guate-

mala. The absolute number of people in this sector grew

by 46 percent, or 304,500 people, from 1950 to 1970.
The manufacturing sector is the second sector in

importance with respect to absorption of labor. It em-
ployed 11.53 percent of the economically active population

in 1950, 11.37 in 1964 and 11.24 percent in 1970. The

capacity of this sector to offer employment opportunities

has remained practically constant during the period under

consideration. However, the proportion of the economical-

ly active population that the manufacturing sector has

been employing is very low and insufficient given the

demographic explosion and the large migration from the









TABLE 11.2

ECONOMICALLY ACTIVE POPULATION BY SECTOR, IN THOUSANDS AND PERCENTAGES

1950 1964 1970
Percen- Percen- Percen-
SEAP tages EAP tages EAP taqes

Agriculture, forestry,
hunting and fishing 659.6 68.15 861.1 65.50 964.1 64.03

Mining 1.4 0.15 1.7 0.13 1.9 0.12

Manufacturing 111.5 11.53 149.5 11.37 169.3 11.24

Construction 26.4 2.73 34.2 2.60 38.1 2.53

Electricity,
gas and water 1.2 0.13 1.7 0.13 1.9 0.13

Transportation, stor-
age and communication 15.4 1.59 28.2 2.14 37.3 2.48

Commerce 52.6 5.33 82.3 6.26 99.4 6.60

Others 99.7 10.30 158.5 12.06 193.7 12.86

All sectors 967.8 100.00 1,314.1 100.00 505.6 100.00


Source: Direccion General de Estadistica
Ministerio de Economia, Guatemala


de Guatemala, Unpublished statistics,










rural to the urban areas which exist in Guatemala.

Other sectors of.the economy which account for the

remaining percentages of the economically active popula-

tion are: construction, commerce, and others, including

state employees.

Table 11.3 shows the structure of Guatemalan extra-

regional exports by product, for selected years. Agricul-

tural products composed most of the total extraregional

exports during the period 1968-1972. Four crops-;coffee,

cotton, bananas, and sugar--accounted for about 80 percent

of the products exported. Other agricultural products in-

cluding gum, wood, honey, cardamon, beef and fish.repre-

sented around 9 percent. Processed coffee, essential oils

and others represented about 10 percent.


B. Structure of the Aqricultural Sector

The agricultural export sector of Guatemala has been

successful in increasing exports and in inducing economic

growth. However, it has not performed as well in creating

employment opportunities, in increasing incomes for the

agricultural population, or in reducing the productivity

gap between agriculture and the other sectors of the

economy.

The explanation for this situation lies in the ex-

isting dualism in the agricultural sector. The most impor-

tant factor in determining agricultural productivity,









TABLE 11.3

EXTRAREGIONAL* EXPORTS BY PRODUCT FOR SELECTED YEARS (FOB)
(Thousands of Quetzales)

Item 1968 % 1970 % 1972 %


TOTAL

Coffee

Coffee (processed)

Cotton

Bananas

Beef

Sugar

Essential Oils
Fish

Gum
Wood
Honey
Cardamon


161,560.3

73,419.3

1,164.4

40,035.0

14,094,3

8,645.8

8,028,7

1,657.2
931.0

1,709.2
651.3
535.2
1,879.7


S8anoQ


(100.0)

(45.4)

(6,7)

(24.7)

(8.7)

(5.4)

(5.0)

(1.0)
(0.6)

(1.1)
(0.4)
(0.3)
(1.2)
(5-5)


194,792.6

100,577,2

2,033.9

27,168,4

20,516.6

12,654.4

9,152.9

2,293.4
2,787.2

1,557.6
1,806,9
527.2
3,972.3
9.750.5


*The Central American countries are excluded.


(100.0)

(51.6)

(1,1)

(13.9)

(10.5)

(6.5)

(4.7)

(1.2)
(1.4)

(0.8)
(0.9)
(0.3)
(2.1)
(5.0)


239,500,0

107,230,9

1,286.5

41,828.1

23,159.9

19,750.9

14,131.0

2,100.9
1,965.0

1,676.3
1,745.2
1,108.0
2,503.5
21,013.8


(100.0)

(44.8)

(0.5)

(17.5)

(9.7)

(8.2)

(5.9)

(0.9)
(0.8)

(0.7)
(0.7)

(0,5)
(1.0)
(8.8)


1Includes seed cotton, cotton lint and cotton seed.
Source: Banco de Guatemala, Estudios economicosy memories de labores, anos 1968-72.


,(5.5-)


uL~" ~ L~ U VI~.


O >t






43

employment opportunities, and the pattern of income dis-

tribution in Guatemala is the existing land tenure struc-

ture. In a country where the largest percentage of people

is employed in agriculture, the tenure system is a major

determinant of the extent and composition of the domestic

market.

Guatemala is a country with an unequal distribution

of land. Table 11.4 shows the land tenure structure by

size of holding in 1950, before the 1952 land reform, when

the distribution of farms by size was very skewed, As

shown, 88.4 percent of the farms were under 17*2 acres

(7 hectares--micro-farms and sub-family farms). The re-

maining 11.6 percent were divided as follows: 9.5 percent

were family farms and 2.1 percent were multi-family farms.

Multi-family farms represented 72.2 percent of the total

farm land while sub-family and micro-farms accounted for

only 14.3 percent of the total.

Table 11.5 shows the land tenure by size of holding

in 1964. Little difference can be seen in land distribu-

tion between 1964 and 1950.

The concentration of land ownership in the country

is revealed by the different farm size groupings., As can

be seen, the distribution of farms by size was almost un-

affected by the 1952 land reform,

Table 11.6 shows the land tenure by size of holding

in 1970. The land distribution pattern has remained










TABLE 11.4

LAND TENURE BY SIZE OF HOLDING, 1950
Area Percent
Farm Size No. of Percent Covered of Total
(acres) Farms of Farms (acres) Farm Land

Under 3.4 165,850 47.6 298,198 3.3

3.5 to 17.2 142,223 40.8 993,994 11.0

17.3 to 111.4 33,041 9.5 1,219,902 13.5

111.5 to 1,115 6,488 1.8 1,978,951 21.9

Larger than 1,115 1,085 03" 4,545,262 50.3

Total 348,687 100.0 9,036,307 100.0
J ... ...

Sources computed from 1950 Agricultural Census Data.
Direccion General de Estadistica, Guatemala.



TABLE 1.5

LAND TENURE BY SIZE OF HOLDING, 1964
Area
Farm Size No. of Covered
(Acres) Farms Percent (acres) Percent

Less than 1.72 85,083 20.0 80,569' 0.9

1.72 to 17.2 279,797 67.0 1,501,403 17.7

17.3 to 111.5 43,656 10.0 1,602,783 18.8

111.51 to 2229.2 8,420 2.0 3,108,607 36.6

Above 2229.2 388 0.9 2,209,664 26.0

Total 417,344 100.0 8,503,026 100.0

Source: Agricultural Census, 1964. Direccion General de
Estadistica,, Guatemala.









TABLE 11.6

LAND TENURE BY SIZE OF HOLDING, 1970

No. of Farms
or Families Area_
Thou-
sands Thousands of
of
Farm Size Units % Has. Acres %

Micro farms (under
0.7 Has., less than
1.72 acres) 98.2 20.4 36 88.96 1.0

Small subfamily farms
(0.7-4.0 Has)
(1.72-9.8 acres) 277.9 57,7 427 1055.12 11.3

Medium subfamily farms
(4.0-7o0 Has.).
(9.9-17.2 acres) 45,0 .9.3 235 580.69 6.3

Family farms
(7-35 Has.)
(17.3-86.4 acres) 48.5 10.0 568 2214.02 23.9

Large Multifamily
farms (over 350 bHaso)
(over 865 acres) 2.5 0.6 1590 3928.89 42.4

Total 481.6 100.0 3752 9271.20 100,0

Source: SIECA-FAO Perspectivas para el Desarrollo y la
Integracion de la Agricultura en Centro America:
Vol. II, Table G-2, Guatemala C.A., 1974.



practically unchanged, as 87.4 percent were under 7 hec-

tares, 10.0 percent were family farms (7-35 Has.), and 2.6

percent were multi-family farms (over 35 Has.), .Multi-

family farms.. represented 66.3 percent of the total area,

while small sub-family and micro farms accounted for only









12.3 percent.
Land tenure institutions have influenced the income

distribution pattern in Guatemala's farm sector. Table

11.7 shows the estimated agricultural income distribution

by type of farm. Great inequalities can be observed, as
the 83.3 percent of the farm population which is composed

of landless workers and owners of micro and small sub-

family farms receives only 34.8 percent of the rural in-

come. Furthermore, 1.8 percent of the farmers belonging

to multi-family farm groups obtain 40.7 percent of the in-

come. The family farm group, which comprises 14.1 percent

of the agricultural population, receives 21.8 percent of

the sector's income.
Land concentration in the hands of a small segment

of the population has resulted not only in a very skewed

income distribution, but in a concentration of economic

and political power. This would not be unfavorable for

agriculture if high income earnc;rs invested their savings

in productive and labor creating activities. But the cri-

tical point is that high income earners usually invest in

high profitable enterprises that are generally associated

with capital intensive technology such as export crop or
industrial production and commerce.

The two segments of Guatemalan agriculture--the sub-

sistence and the commercial export sectors--are internally

interdependent despite dual tenure structures and market








TABLE 11.7


ESTIMATED AGRICULTURAL INCOME DISTRIBUTION BY TYPE OF FARM, 1970

No. of Rural Income Income Distribution
Area Farms & Popu-
(thou- Families lation Per
sands (thou- (thou- Total 2 Capita Popula- Income
Farms & Families hectares) sands), sands) (mill. Q) (Q) tion % %

a
Landless workers -- 174.9 976 64.3

Microfarms
(under 0.7) 36 98.2 540 3.4 35b 83.3 34.8

Small Subfamily
Farms (0.7-4.0) 427 277.9 1528 39.6

Medium Subfamily
Farms (4.0-7.0 235 45.0 248 31.1 125 6.8 10.1

Family Farms (7-35) 568 48.5 267 36.2 136 7.3 11.7
(7
Multifamily Farms
(35-350) 896 9.5 52 72.3 1390 1.4 23.5

Large Multifamily
Farms (over 350) 1590. 2.5 14 53.1 3793 0.4 17.2

Administrators --- 5.4 30 8.2 273 0.8 2.7

Total 3752 ' 3655 308.2 100.0 100.0
1Average family size: 5.5 persons, aIncludes all type of income earnings.
2Corresponds to the domestic product bForestry and fishing salaries excluded.
of crops and livestock.
Source: SIECA-FAO Perspec ivas parcel_ Dsarrollo v la integracion de la Agricultura
Centre Am '-ica Vo TT -4. Gna a. 1974







48

orientations. This interdependency has been observed in

the product, financial and labor markets. According to
2
SIECA, a percentage of small farmers grow export crops

within the traditional sector generally as cash crops to

supplement income. Almost 7 percent of all coffee grown

was produced in farms below 4 hectares in 1970. Small

farmers usually cannot produce. large amounts of product

and build or have their own processing facilities; there-

fore, they depend on large producers. Generally, small

producers do not have access to the institutional credit

system because they do not have adequate collateral.

Thus, they are forced to take credit loans payable in

kind from large producers and processors. As a result,

large farmers become financial intermediaries between

small producers and the banking system.

The subsistence sector also depends on large farms

for temporary employment to supplement annual family in-

comes. In the highlands, sub-family farmers utilize 66

percent of their available labor time, and derive 57 per-

cent of their total annual income from temporary employ-

ment on plantations of coffee, cotton and sugar.3

SIECA-FAO Perspectivas para el desarrollo y la inte-
gracion de la Agricultura en Centro America: Vol. II
(Guatemala), 1974, p. 158.

Lester Schmid, "The Role of Migratory Labor in the
Economic Development of Guatemala." Ph.D Thesis, Uni-
versity of Wisconsin, Madison, 1967.







49

Seasonal laborers on coffee farms averaged 136 days

of work per year, those on cotton plantations averaged 74

days, and those on sugar plantations averaged 99 days.

This labor relationship between the two sides of the dual

agricultural sector has its basis in the structure of the

sector itself and the technological conditions of produc-

tion. Small farmers see seasonal employment as an oppor-

tunity to supplement annual income. According to Lester J.

Schmid, seasonal laborers in Guatemala receive an average

of 52 percent of their income from seasonal employment.

Large farmers see seasonal employment as an opportunity

to lower labor costs while meeting labor needs at peak

points, especially during the harvest season. According

to estimations based on data collected by Banco Nacional

Agrario, coffee farms need 36 percent of the total annual

labor requirements between October and December; cotton

plantations require 44 percent from December to February;

and sugar cane units use 21 percent from February to

April.4 These peak points do not always coincide with

the agricultural cycle of most domestic market crops.

The production of agricultural goods for export mar-

kets has been stimulated and supported by public policy

while domestic agricultural production has not enjoyed the

same treatment. Indeed, it has been neglected and curbed

Gilberto Rios S., Banco Nacional.Agrario, Costos
de Production de Productos Agricolas. Guatemala, 1968.








50

by the attempts of the government to stimulate the export

sector. One of the reasons for this policy is the depen-

dence on coffee, cotton, sugar and cattle for foreign

exchange.

An example of this policy is the allocation of agri-

cultural credit shown in Table 11.8. It can be seen that

more than 91.7 percent of the total credit allocated dur-

ing the period 1965-67 was given to major export crops and

livestock, while other commodities had only the remaining

8.3 percent.

With respect to agricultural research, education and

extension, public policy has followed the same line.

Table 11.9 shows the number of people and total expendi-

tures in education, research and extension by specialized

public agencies in- 1968-69. The categories are divided

according to the number of economically active persons per

thousand in the agricultural sector. Agricultural re-

search, education and extension received the lowest amount

of resources allocated by the government. Since its ori-

gins, the economic infrastructure of Guatemala has been

oriented toward the satisfaction of the agricultural ex-

port sector's needs. This fact has constrained even more

the expansion of the agricultural domestic sector and the

general development of the country.

On the basis of the foregoing analysis, it can be

concluded that due to the resource competition between









TABLE 11.8

ALLOCATION OF AGRICULTURAL CREDIT 1965/1967
(Percentages)

Major Export
Export Crops and Other
Total Crops1 Livestock Livestock Commodities

100.0 73.4 18.3 91.7 8.3

Source: Banco de Guatemala

Cotton,. bananas, coffee.


TABLE 11.9

NUMBER OF PEOPLE AND TOTAL EXPENDITURE IN EDUCATION,

RESEARCH AND EXTENSION BY SPECIALIZED

PUBLIC AGENCIES 1968/69

(Per Thousand of Economically Active.Persons
in the Agricultural Sectora)

Education Research Extension Total

Item No.b Q* No. Q* No. Q* No. Q*

.81 .51 0,06 .43 .05 .45 .92 1.39

*Expenditure per active person in agriculture.
aEconomically active persons in agriculture, 1965,
bIncludes University, middle, and vocational edu-
cation.

Source: Based on data from Banco de Guatemala and Direc-
cion General de Estadistica.







52

the modern agricultural sector and the subsistence agri-

cultural sector, adverse governmental policies, and the

economic importance of the external market, Guatemala has

developed a one-sided pattern of agricultural growth. This

growth has been based on the promotion of export crops.

This phenomenon has inhibited the expansion not only of

the total agricultural sector, but of the other sectors in

the economy, especially the industrial sector. It has con-

strained the growth of the domestic market and hindered

the process of economic development, limiting the number of

opportunities, aggravating the distribution of income and

raising the general level of unemployment.

No one can argue against the statement that "what is

required for development is an agricultural sector organ-

ized in such a way as to (a) provide incentives for pro-

ductive work and investment, and (b) use a combination of

production factors consistent with the cost and availabil-

ity of these factors at a given time."5 Basic reorganiza-

tion and profound changes are required in order to allow

the agricultural sector to increase production. This is

particularly true for the food production necessary to

satisfy the increasing demand basically caused by popula-

tion growth and income elasticity of demand for food.


Peter Dorner and Don Kanel, "The Economic Case for
Land Reform: Employment, Income Distribution and Produc-
tivity." Land Tenure Center Reprint No. 74, University of
Wisconsin, Madison, 1971.







53

Profound change is also necessary to increase the employ-

ment opportunities in the agricultural sector,.to contri-

bute more to capital formation in both the agricultural

and the' industrial sectors, and to improve the existing

income distribution. This in turn would increase rural net

cash income necessary for expanding-the domestic market for

locally manufactured goods and agricultural products.

From the above discussion of the structure and fea-

tures of the agricultural sector in Guatemala, it was also

concluded that a dualism exists which constrains the devel-

opment of the subsistence sector, limits the growth.and

size of the domestic market, and creates obstacles.to the

achievement of overall economic development.

Nevertheless, the potentials of the-small farm agri-

cultural subsector seem. to be great. The prospects of

this subsector in increasing productivity and the level

and variety of agricultural production are encouraging.

Table 1I.10 shows the percentage of the most impor-

tant products exported and consumed on the domestic market.

As expected, the largest percentage of some traditional

products, such as cotton, bananas, coffee, and some minor

exports such as cardamon, chicle, shrimps and essential

oils, is exported, and only a small percentage is con-

sumed internally. However, for a wide range of agricul-

tural products, such as rubber, timber, fruits, vegetables

and cottonseed, the largest proportion is consumed









TABLE II.10

EXPORTS AND PERCENTAGES CONSUMED OF SELECTED

AGRICULTURAL PRODUCTS IN THE DOMESTIC MARKET, 1968

Percentage of Product
Percentage of Consumed on
Product Exported Domestic Market

Major Exports

Cotton 94 6

Bananas 90 10

Coffee 78 22

Minor Exports

Cardamon 100

Chicle 100 --

Shrimps 95 5

Essential Oilsa 90 10

Other Products

Flowers and Plants 50 50

Beef 45 55

Sugarb 36 64

Cottonseed 19 81

Vegetables 19 81

Fruits 14 86

Rubber 2 98

Timber 2 98
alncludes citronella, lemon grass and resinoids.

bIncludes centrifugal and non-centrifugal sugar and
syrup.
Source: Banco de Guatemala (unpublished statistics),









internally.

The remaining products, such as flowers and plants,

beef and sugar, are utilized both domestically as well as

in the external market. These goods are produced under

different circumstances, and different types and levels

of technology. The modern agricultural sector produces

mainly for export and uses capital-intensive techniques,

as will be shown in Chapter III. It absorbs labor, land

and other resources that could be used to develop the sub-

sistence sector and achieve the goal of increasing total

agricultural production. This increase is necessary to

obtain the required foreign exchange and to satisfy the

increasing demand for food.

The relatively low growth rate ofoutput per person

in agriculture (Table II.11) indicates that growth in

agricultural productivity has not been sufficient to im-

prove per capital income significantly. It also means that

agriculture could not supply much capital for non-

agricultural sectors without depressing per capital incomes

of farm people.

Table II.12 shows the gross agricultural product and

value added for 1969, 1970, 1971, and projections for 1975.

On the basis of these figures, the total agricultural pro-

duct is expected to grow at 4.9 percent per annum during

that period. The agricultural export crops show an annual

average growth rate of 4.6 for the period. The same









TABLE II.11

COMPOUND ANNUAL GROWTH RATES IN AGRICULTURAL PRODUCTION,

POPULATION AND PER CAPITAL AGRICULTURAL PRODUCTION,
1965-1970
Per Capita
Agricultural Agricultural
Period Production Population Production

1965-70 4.0 2.5 1.4

Source: BID-INTAL. El Desarrollo Ittegrado de Centro
America en la Presente Decada (SIECA), Tomo 5,
Desarrollo Agricola Tables 1 and 2.



figure is cited for the production of crops for industrial

consumption, while the agricultural production for domestic

food consumption showed an annual average growth rate of

4.0 for the period. This latter growth rate is insuffi-

cient to satisfy the domestic demand due to the high rate

of population growth in Guatemala and the existing income

elasticity of demand for food.

To show the above conclusions, the following formu-

lation can be used:
D P + ng

where:

D = Annual rate of growth of demand for food;

P = Annual rate of growth of population;


6Bruce F. Johnston and John W. Mellor, "The Role of
Agriculture in Economic Development," American Economic
Review (September 1961), pp. 571-81.










TABLE 11.12

AGRICULTURAL SECTOR: GROSS AGRICULTURAL PRODUCT AND

VALUE-ADDED (MILLIONS OF QUETZALES, 1958 PRICES)
Annual
Average
Growth
Rate
-. 1969 1970 1971 1975* 1971-75
Gross Agricu- .....


Gross Agricul-
tural Product

Crops

Export

Domestic
Consumption

Industrial
Consumption

Livestock and
Poultry

Forestry

Fishing and
Hunting ,

Commercial
Inputs

Value Added in
Agriculture


502.4

310.5

160.0


116o9


33.5






1467



46.2


522.5

_316.8

160.5


120.3


36.0


15943

41.0


5,4


48.0


456.2 474.5


544.7

335.2

172.3


671.12

397,6

206.1


124.5 145.5


38.4 46.0


171.9
171,9

42.1


51.5

51..8


220.7

46.6


6.3


64.8


502.9 606.4


*Projections.


Source: Banco de Guatemala and
published statistics).


CIAP staff estimates (un-


4.9



4.6


4.0


4.6


6.4

2.6





5.8


4.8










n = Income elasticity of demand for food!

g = Annual rate of growth of per capital income.

For Guatemala, the following figures were used:

p = 3.3 (1960-72)7

n = 0.6 (1965)8

g = 1.7 (1960-65)9

Substituting into the formula,

3.3 + (0.6) (1.7) = 4.32 (annual rate of growth of
demand for food).

This calculation can only give an idea of the total

requirements for food because of the lack of exact figures

for the variables involved. In addition, the full impact

of the income elasticity of demand for food would not be

realized due to the fact that income increases are highly

skewed in their distribution. Another consideration is

that while the rate of population growth is high, the

annual rate of growth of per capital income in Guatemala

is rather low and has remained almost static during the

last ten years. Coefficients of income elasticity of de-

mand for agricultural products are assumed to vary with

per capital income per year as follows: less than Q200,

7World Bank, World Bank Atlas, Population, Per Capita
Product and Growth Rates, 1974.
SIECA-FAO, Perspectivas para el desarrollo y la
integracion de la agriculture en Centro America, Vol. 2,
Part E. Guatemala, 1974.

Banco de Guatemala (unpublished statistics).









0.7; from 0200 to Q400, 0.5; from 0400 to Q600, 0.4;

Q600 and over, 0.3.

Table 11.13 shows the internal demand and supply

projection for certain domestic agricultural commodities

for 1975. Some products such as corn, rice, wheat and

fruits exhibit substantial deficits. Other products such

as beans, potatoes and vegetables, products which can be

sold in external markets, exhibit large surpluses. These

calculations do not present complete evidence of the real

prospects of the agricultural domestic sector, but they

can be used as general guidelines to supplement public

policy decisions.

C. Agricultural Diversification, Programs and Policies

The agricultural diversification problem has command-

ed the interest of most of the country's sectors, especi-

ally since 1956-57 when the coffee market decreased dras-

tically. This showed the vulnerability of: the economy to

changes in the situation of the few products making up the

external sector. Agricultural diversification was again

reconsidered some years later when external market condi-

tions for cotton deteriorated because of the fall of world

cotton prices.

Diversification came into a positive stage in 1964

when the National Coffee Association (ANACAFE), with the

support of the United Nations, started a series of studies









TABLE 11.13

DEMAND AND SUPPLY PROJECTIONS FOR MAJOR DOMESTIC

AGRICULTURAL COMMODITIES FOR 1975 (KILOGRAMS)
SDifference
Prouuct Supply Demand Surplus Deficit

Corn 883,614 902,704 19,090

Beans 155,112 92,506 62,606

Rice 26,717 30,912 4,135

Wheat 63,296 128,800 65,504

Potatoes 16,790 13,018 3,772

Vegetables 186,162 116,840 69,322

Fruits 146,280 155,112 8,832

Source: Consejo Nacional de Planificacion Economica.
Unpublished statistics.



in'order to diversify the marginal coffee areas in Guate-

mala. From the point of view of strengthening the external

sector and varying exports, agricultural diversification

has been based on the expectations of traditional export

products. However, development planners have related

agricultural diversification to more than this. It is ex-

pected that diversification will create development in the

rural sector by increasing output levels, employment and

income, export diversification,:diet improvement, and im-

port substitution--in general, better living conditions


in the rural areas.







61

In short, agricultural diversification is not viewed

as a specific problem of the marginal coffee areas, as it

used to be in the past, or a means for diversifying agri-

cultural exports only. It is seen as an excellent oppor-

tunity to contribute to economic development through the

expansion of production of non-traditional agricultural

commodities.

There exist two main agencies to promote agricul-

tural diversification in Guatemala: the Ministry of Agri-

culture through its agencies, and the National Coffee As-

sociation. The Ministry of Agriculture is presently work-

ing on the agricultural diversification program included

in the rural development plan for 1970-75.

The principal objectives of the program are to:

1. Increase agricultural exports;

2. ImprOve the low income consumer diet; and

3. Increase small producer income levels.

This program has emphasized the promotion of several

important agricultural commodities that include citrus

(oranges and tangerines), cool weather fruits (plums),

flowers gladiolass, carnations and chrysanthemums), vege-

tables (onions, garlic, tomatoes, peppers, cabbage, car-

rots, lettuce, cauliflower, cucumbers, melons, celery,

eggplant, beets and potatoes), plantain, sesame, and









avocados.10

It is estimated that the implementation and develop-

ment of this program will increase the output of crops by

more than 433,000 metric tons at the end of 1975. Fifteen

thousand farmers were expected to participate during the

development of the program.

The National.Coffee Association (ANACAFE), in con-

junction with FAO in a special United Nations program, is

promoting African palm, tea, citrus, tropical fruits,

cacao, spices, and dairying.1























10Programa NaCional de Diversificacion Agricola
(mimeographed), Secretaria General de Planificacion Eco-
nomica. Guatemala, 1970.

1Ibid.










CHAPTER III

UNBALANCED GROWTH AND LONG RUN CONSTRAINTS ON THE

DEVELOPMENT OF THE GUATEMALAN AGRICULTURAL SECTOR


The structure of agriculture and the interdependency

between the agricultural export and domestic subsectors1

have caused unbalanced growth. Governmental policies

have focused mainly on promoting traditional export crops

to the neglect of domestic commodities in order to main-

tain the inflow of foreign exchange needed to import re-

quired capital equipment. Commitment to this strategy has

limited exploration and evaluation of different production

alternatives that would have broader effects on develop-

ment.

Guatemala has only a limited number of alternatives

to develop. These are in the mining and manufacturing

sectors. But while mining has potential, not much can be

expected in this field at least in the short run, given

the existing technical and financial investment resource

constraints.

The manufacturing sector has performed well, but its


1The agricultural export subsector is commercially
organized on large farm plantations and produces mainly
coffee, cotton, sugar and bananas for external markets.
The domestic agricultural subsector is not commercially or-
ganized, is composed of a few large and many small farms,
and produces mainly food for the domestic market.


-63-







64

contribution is still not sufficient to solve the Guate-

malan balance of payments problem, as well as those of in-

come distribution and unemployment.

Thus it is felt that alternative agricultural pro-

duction should be analyzed in order to detect crops offer-

ing export potential while satisfying the internal re-

quirements for food and employment. The production choice,

then, must consider the existing opportunities in the ex-

ternal as well as the domestic market and should be based

on a wide variety of agricultural commodities,

Another crucial consideration is the way in which

the production of those non-traditional crops is accom-

plished. Evaluation of actual production and distribution

mechanisms, planning and adjustment must be made to ob-

tain optimum results in production, employment, income

creation and distribution, and spillover effects on the

country's economy.

This chapter focuses on the main socio-economic

problems and limitations existing in Guatemalan agricul-

ture that have constrained its economic development. The

origins and magnitude of these difficulties will be dis-

cussed in order to present a clear picture of them.* Four

economic problems will be outlined in this exposition,

including: 1) the socio-economic dualism existing in

agriculture; 2) the orientation and structural organiza-

tion of production* 3) the high and growing use of capital









intensive technologies and unemployment; and 4) the un-

'satisfactory employment conditions and the unequal income

distribution. These problems are not presented in order

of priority or importance, since they are closely related

among themselves usually acting both as causes and conse-

quences, reinforcing each other.

Finally, the most relevant characteristics of pro-

ducing and marketing cotton are presented. .This will allow

a basis for comparing the relative contribution of tradi-

tional agricultural export crops versus vegetables to the

economic development of Guatemalan agriculture. The cot-

ton case was selected because of its present importance

in the- traditional agricultural export production as well

as because of some similarities with other export crops

cultivated in the country.

A. Socio-Economic Dualism

The first problem that should be emphasized because

of its social, economic and political effects is the socio-

economic dualism that exists in the country as a whole,

and in particular within the agricultural sector. Agri-

culture has been the basis of the country's economy since

the last part of the eighteenth century. Production was

composed of certain commodities including grains, vege-

tables, fruits, tobacco, potatoes,, cacao, indigo and

cochineal, and commodities introduced by the Spaniards,









such as sugar cane, citrus, coffee, cotton, cattle,.

horses, swine, and chickens. The production of grains,

tubers, vegetables, fruits, tobacco, sugar cane and cot-

ton was almost exclusively confined to the domestic mar-

ket. Tobacco production was an important source of fiscal

revenue and was regulated by the government. Sugar cane

was commercially grown for the production of brown sugar

and was regulated by the state. Cotton was consumed inter-
2
nally by textile producers.
Cacao, indigo, cochineal and hides were the main

agricultural export products in Guatemala until 1850.

Levying of export taxes seemed to be the main factor that

contributed to the decline of cacao in Guatemala. Export

taxes and strong competition by Dutch, French and English

colonies were the most important causes of the deteriora-

tion of indigo exports. High costs of production and

competition from French and English chemical dyes deter-

mined the decline of cochineal 3 A shift to coffee and

bananas began in 1850. Fostered by favorable external de-

mand conditions and complete governmental support, these

crops became the chief Guatemalan export products.

2Valentin Solorzano, Evolucion Economica de Guate-
mala, Guatemala, 1963, pp. 94-110.

3Manuel Gollas, History and Economic Theory in the
Analysis of the Development of Guatemalan Indian Agricul-
ture, Ph.D. thesis, Department of Agricultural Economics,
University of Wisconsin, Madison, 1969, p, 28.







67

Depression and war were the main causes of the decline of

these crops during the period 1930-50. Cotton was added

to the Guatemalan export mix after 1950, becoming one of
4
the most important export products.4

The agricultural sector as a whole expanded after

the second half of the 18th century because of the growth

in external demand. The expansion of this sector was

stimulated by the small size of the domestic market that

forced commercial agricultural producers to look for op-

portunities in external markets and was reinforced by

governmental policies designed to support the production

of export'crops. Resources were allocated to the produc-

tion of these commodities in order to seize the existing

export opportunities at that time. This stimulated the

expansion of the agricultural export sector at the ex-

pense of the agricultural domestic sector. The Guate-

malan agricultural sector today remains divided into two

subsectors: an advanced dominant agricultural sector

specializing in the production of export agricultural com-

modities, and a marginal backward, large and almost ne-

glected domestic agricultural sector which produces

mainly for domestic markets.






Quiros, op. cit., pp. 97-101.









B. The orientation and Structural Orqanization of

Agr cultural Production

Despite the occurrence of some historical events re-

lated to agricultural production, the organization of

Guatemalan agriculture that characterized the colonial and

post-colonial periods has remained basically the same.

Commercial agriculture was based on the hacienda system

and kept the largest proportion of productive land. Its

production was commercially organized on large farm plan-

tations and was external market oriented. At the same

time the domestic agricultural sector was self-sufficient,

organized without any external linkages, and remained

marginal to the overall economy, mainly producing food to

satisfy the internal demand. It was not commercially or-

ganized, used most of the marginal land, and was composed

of small self-sufficient farms.

Guatemalan agriculture experimented with some di-

versification during the second part of the 19th century

when under favorable external demand conditions and gov-

ernmental support, coffee and banana production increased.

Coffee and banana industries expanded in 1850 and 1880 re-

spectively. Even though these crops exhibited different

characteristics with respect to ownership structure, mar-

kets and spillover effects, they reinforced the existing

dualism. They became the major crops by the beginning of










the 20th century and diversified agricultural exports.

The banana industry was an historical byproduct :-of rail-

road construction intended for shipping of coffee to ex-

ternal markets through Atlantic ports. In order to.fi-

nance the completion of railways, especially to the Atlan-

tic Ocean, land concessions and special soft term con-

tracts were granted by the government to railroad build-

ing companies,,as partial payments for the proposed in-

vestments. These firms in turn used their granted con-

cessions.to invest in banana plantations which supplied

the necessary capital to continue railroad construction.

At the same time banana production was also stimulated by

the government through special privileges and land con-

cessions under ad hoc contracts, independently from the

negotiations with railroad companies.

These crops were successful in increasing the

country's g'rss domestic product and total exports, but

they provided more obstacles to internal integration and

to the expansion and development of the domestic agricul-

tural sector which was neglected in order to strengthen

the external sector.5

An even higher degree of diversification was


For a complete explanation of the effects on coffee
and banana production in Central America, see Rodolfo
Quiros, Agricultural Development and Economic Integration
in Central America, Ph.D. Thesis, Department of Agricul-
tural Economics, University of Wisconsin, Madison, 1971,
pp. 59-95.









obtained with the addition of cotton in the 1950s. The

addition of this commodity noticeably increased the coun-

try's gross domestic production and total exports, but did

not introduce any change in the orientation nor in the

structural organization of agricultural production.

In Guatemala as in most less developed countries, the

land tenure structure is closely related to the production

pattern of agricultural commodities.6 Guatemala has a

very skewed distribution of land (see Tables III.4, III.5

6To distinguish the different types of land holding
and tenure systems, a classification similar to that of the
Comite Interamericano de Desarrollo Agricola was used.
The family unit of production was taken as the basic para-
meter, defined as an "extension of land that provides
enough income to satisfy family needs, and gives employ-
ment to the family labor force and does not require more
than 25 percent of exogenous stational labor (7-35 hec-
tares)." On the basis of the previous criteria, the units
of production were classified as follows:
Microfarms: Up to 0.7 hectares of land. It does
not provide enough land to give employment and income to
satisfy the basic needs of one family.
Sub-family farms:(small): 0.7-4.0Has. It does not
provide the necessary employment and income to satisfy
basic family needs. Its owners have to perform other ac-
tivities outside the farm in order to survives
Sub-family farms (big): 4-7 Has. It does not pro-
vide family requirements of employment and income under
actual conditions of production. However, it might satis-
fy the basic family requirements with small investments
and better services.
Family farms: Defined above.
Multi-family farms (medium): 35-350 Has. Its ex-
ploitation requires additional permanent laborers. It
does not require a complex administration and generates
enough income to satisfy more than one family's needs.
Multi-family farms (big): More than 350 Has. It
requires permanent workers and a complex and specialized
administration. See SIECA-FAO Perspectivas para. el Desa-
rrollo v la Intecrracion de la Acrricultura en Centro Ame-
rica, Guatemala 1974, Vol. 2, pp. XXXII, XXXIII.










and 111,6) that is reflected in a negative relationship

between farm size and the volume of non-traditional agri-

cultural output for domestic consumption. At the same

time, a positive relationship can be observed between
farm size and the amount of agricultural output for ex-

port. Table III.1 shows the distribution of land use for

some selected domestic and export agricultural products

by size of farm category in Guatemala in 1970.

Multifamily farms predominate in the export sector.

About 91 percent of cotton, 100 percent of bananas, 63

percent of coffee and 63 percent of sugar cane were. pro-

duced in multifamily farms. Micro, sub-family and family

farms predominate in the domestic market production.

Almost 76 percent of vegetables and more than 76

percent of grains, including rice, beans, corn, sorghum

and wheat, were produced in micro, sub, and family farms.

At the same time, Table III.2 shows.that 66.3 percent of

the area is held by multifamily farms and produced more

than 82 percent of the total output of export crops in

1970; family and sub-family farms hold 33.7 percent of

the area and produced only 17.5 percent of the exports.
In the case of vegetables and grains produced mainly

7
For a complete discussion of the land tenure struc-
ture effects on economic variables, see Peter Dorner, The
Influence of Land Tenure Institutions on the Development of
Agriculture in Less Developed Countries. Land Tenure Cen-
ter, Paper No. 55 (University of Wisconsin, Madison), 1968.









TABLE III.1

DISTRIBUTION OF LAND USE FOR SELECTED COMMODITY

PRODUCTION BY SIZE OF FARM CATEGORY IN

GUATEMALA IN 1970 (PERCENTAGES)

Micro and Multi-
Sub-family Family family
Product farms Farms FarmsD Total

Cotton -- 90 91.0 100.0

Bananas -- -- 100,0 100o0

Coffee 8.0 29.0 63o0 100.0

Sugar cane --- 24.0 76.0 100.0

Rice 11.0 34.0 55.0 100.0

Beans 24.0 54.0 22.0 100.0

Corn 26,0 53.0 21.0 100.0

Sorghum 30.0 53.0 17.0 100.0

heat 35.0 62.0 3.0 100.0

Onions 16 .0 69,0 15.0 100.0

Tomatoes 6,0 29.0 65.0 100.0

Cabbage 19.0 81.0 -- 100.0

Other vegetables 24.0 59.0 17.0 100.0

alncludes small and large subfamily farms.
bIncludes medium and large multifamily farms.

Source: SIECA, El Desarrollo Integrado de Centro America
en la Presente Decada, Desarrollo Agricola Tomo
5, BID/IN TAL 1973, Table 31, and SIECA-FAO
Persectivas para el Desarrollo v la Intecracion
de la Acricultura en Centro America. Vol. 2,
Guatemala 1974, pp. 140-3.









TABLE III.2

PRODUCTION CK EXPORT CROPS AND SOME SELECTED DOMESTIC

PRODUCTS BY TYPE OF HOLDING, 1970 (PERCENTAGES)

Type of Holding and Domest c Export
Percentage of Land Crops- Crops2

Micro and sub family farms 18.6% 21,2 2.0

Family farms 15.1% 54.9 15.5

Multifamily farms 66.3% 23.9 82.5

Total 100.0 100.0

Includes grains and vegetables.
Includes cotton, bananas, coffee and sugar cane.

Source: SIECA, El Desarrollo integrado de Centro America
en la Presente Decada. Desarrollo Aqricola Tomo
5 BID/INTAL 1973, Table 31 and SIECA-FAO PersDec-
tivaspara elB;~ Desa o y la Integracion de la
Agricultua en Cnjxa"o America, Vol. 2, Guatemala
1974, pp. .109, 140.



for the domestic market, the situation is different.

More than 76 percent of the volume of these crops was

produced by micro, sub and family farms that hold 33.7

percent of the land. The remaining 23.9 percent of vol-

ume of these commodities was produced by multifamily

farms.

The foregoing discussion shows that the agricul-

tural commercial sector is export oriented, owns most of

the land and is organized in large plantations. The 33.7

percent of the land composed of micro, subfamily and










family farms that comprise about 97 percent of total

farms in agriculture represents the so-called traditional

domestic sector. This sector had an agricultural output

per capital of $41.00 in 1970,9 Its low output per capital

results from having more than 95 percent of the active

labor force on 33.7 percent of the land.0 Table III.3

shows the area, rural population and land-man ratio ac-

cording to farm size in Guatemala in 1970. Land concen-

tration is reflected in the existing differences among

the different land-man ratios by farm size groups. Land

per worker in multifamily farms (landless workers exclu-

ded) is more than seventeen times that of the family sec-

tor, and more than one hundred times that of the micro

and subfamily farm group. This tremendous concentration

of the rural population, particularly in the micro and

subfamily farm sectors, helps to explain the low labor

productivity in the domestic agricultural sector of

Guatemala,..








Table 11.6.

SIECA-FAO Perspectivas para el Desarrollo y la
Inteqracion de la Aqricultura en Centro America, Vol. 2,
Guatemala 1974. Tables C-4a and B-10.

10bid., Table C-4a, p. 35.









TABLE III.3

AREA, RURAL POPULATION AND LAND-MAN RATIOS ACCORDING
TO FARM SIZE, 1970 (HECTARES PER AGRICULTURAL MAN)

Sub- Multifamily Fagms
Sub-tr _...(35 and over)
Micro Family Family5 and over)
Farms Farmsa Farms Excluding Including
(0*-0,7 (0.7- (0-35 Landless Landless
Has.) 7 Ha) as) Has) Workers Workers

Total Area
(000 Has.) 36 662 568 2486 2486

Total Rural
Population
(000) 540 1776 : 267 66 1042

Land-man ratio 0,07 0.37' :2.13 37.67 2.39

aIncludes large and medium sub-family farms.

Includes medium and large multifamily farms.

Source: Based on information in SIECA-FAO Perspectivas
paral DearrolloY.v la Inteqracion de la Acri-
cultu&la_ n Centro America, Vol, 2. Guatemala
1974, Table C-4a.


C. Capital-Intensive Production Techniques and
Unemployment in Aqriculture

Employment conditions in Guatemala have not been

satisfactory and are not promising in the long run. High

rates of population growth, the rapid urbanization pro-

cess and slow expansion of job opportunities are charac-

teristics of the country's economy. This problem is par-

ticularly evident in agriculture. The rural population









increased from 2,234,000 people in 1950 to 3,655,000 in

1970, and is expected to be 4,549,000 in 1980. An increase

of about 1,421,000 people occurred between 1960 and 1970,

and one of 894,000 is expected to occur between 1970 and

1980.11 Table III.4 shows the, estimated supply and demand

for labor in agriculture by farm size category in 1970.

Although some economically active people work' in agricul-

ture, a large percent of the economically active popula-

tion (about 54 per-ent) was considered under- and/or un-

employed in 1970. In other words, 622,200 people were not

fully utilized because of open or disguised unemployment

in this sector.

The production factor situation in Guatemala is

characterized by abundant unskilled labor and scarcity of

capital. This implies a high price for capital and low

prices for labor. In view of the scarcity and high price

of capital, the government, through the elaboration of

specific policies, granted fiscal credit and foreign ex-

change advantages to industrial and agricultural produ-

cers. As a consequence of this biased policy, the price

of capital was lowered. This stimulated industrial and

export crop production expansion, inducing purchases of

capital equipment. Such policies have contributed to the

acceleration of the country's growth, but they have not


11BID/INTAL El Desarrollo integrado de Centro Ame-
rica en la Presente Decada, Tomo 7, Politica Social. Ar-
gentina 1973, Table 10.










TABLE III.4

ESTIMATED SUPPLY OF AND DEMAND FOR LABOR IN
AGRICULTURE BY FARM SIZE CATEGORY, 1970
(THOUSANDS OF PEOPLE)
Estimated
Estimated Estimated Agricultural
Farm Size Supply of Demand for Unemployment
Category Labor (1) Labor (2) (1-2)

Landless Workersa 310.4 +310.4

Microfarms 171.8 7.0 +164.8

Subfamily farms 564.9 140.2 +424.7

Family farms 84,8 126.0 41.2

Multifamily farms 12.0' 248.5 -236.5

Administrators 5.4 5.4 -

Total .:1149.3 527.1 +622.2

aPeople who do not own or rent land.

One man-year 28 work-days per year.

Source: SIECA-FAO Perspectivas para el Desarrollo y la
Integracion de la Agricultura en Centro America,
Guatemala 1974, Vol. 2, Table C-4a.



stimulated employment expansion in the same proportion in

either the rural or the urban sector.

Capital intensive production practices that charac-

terize industrialized countries reflect another type of

factor combination. Developed nations are generally dis-

tinguished by having a sufficient amount of capital and a

relatively smaller proportion of labor. This combination








78

of factors results in a relatively low price for capital

or low interest rates, and a high price for labor expressed

in high real wages. For an economy with these character-

istics capital-intensive production techniques are called

for since they will tend to be more economical and cheaper

and would increase labor productivity. But in Guatemala,

where the factor relations are different, the use of these

technologies has not had a stimulating effect on employ-

ment creation in agriculture On the contrary, the adop-

tion of capital intensive technologies designed to fit the

resource endowment of advanced countries has slowed down

the rate of employment in agriculture, and has made the

employment problem even worse. Foreign advanced technol-

ogy is not adapted to Guatemalan agricultural resource en-

dowments but simply transferred, and is poorly suited to
12
the needs of the country. In this respect, Rosner2 has

pointed out that:

1. The factor proportions which call for incor-
porate relations which characterize the econo-
mies of the developed nations--abundant capital
and scarce labor--but are inappropriate for
nations where unemployment is a major problem.

2. The capital needs, and many of the material
inputs, must be imported, placing a heavy burden
upon scarce foreign exchange resources.

3. Consequent low levels of employment genera-
tion deny to the local consumer-goods industries

12
1Monroe Rosner, "The Problem of Employment Creation
and the Role of the Agricultural Sector in Latin America."
Ph.D. Thesis, Department of Agricultural Economics, Uni-
versity of Wisconsin, Madison, 1972, p. 1.12.




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