Minimum resource requirements for specified levels of income on crop-livestock farms in the Sinu River Valley of Colombia

MINIMUM RESOURCE REQUIREMENTS FOR SPECIFIED

LEVELS OF INCOME ON CROP-LIVESTOCK FARMS IN

THE SINU RIVER VALLEY OF COLOMBIA

By
NEIL LARRY MEYER

A THESIS PRESENTED TO THE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
DEGREE OF MASTER OF SCIENCE IN AGRICULTURE

UNIVERSITY OF FLORIDA
1969

Abstract of Thesis Presented to the Graduate Council in Partial
Fulfillment of the Requirements for the Degree of
Master of Science in Agriculture

MINIMUM RESOURCE REQUIREMENTS FOR SPECIFIED LEVELS OF
INCOME ON CROP-LIVESTOCK FARMS IN THE SINU RIVER
VALLEY OF COLOMBIA

By

Neil Larry Meyer

December, 1969

Chairman: Dr. B. R. Eddleman
Major Department: Agricultural Economics

The objective of this study was to determine the enterprise

organization and the magnitude of resource levels needed under alter-

native conditions to obtain specified levels of income to crop-livestock

producers in the INCORA Cordoba II project area of Colombia. Effects

of variations in crop and livestock yields, product and factor prices,

and land quality on minimum quantities of land for obtaining specified

income levels were determined. The organization of crop and livestock

activities remained relatively stable over all ranges of yield and

land quality variables. The minimum land requirements, as well as the

requirements of operating capital and labor varied inversely with yield

levels and with the prices of rice and cotton. Operating capital and

land requirements varied inversely with land quality; labor varied

directly. Land and labor requirements increased with rising interest

rates; operating capital requirements decreased but only slightly.

Increases in hired labor wages slightly increased operating capital and

total labor requirements; the quantity of labor hired decreased and

farm size was unaffected.

This thesis is dedicated with love to my mother and father

(Helen and Orville Meyer), for their understanding, encourage-

ment and personal sacrifices in making all of my studies

possible.

ACKNOWLEDGMENTS

The author wishes to express sincere appreciation to Dr. B. R.

Eddleman, Chairman of the Supervisory Committee, for his guidance,

contributions, patience, and encouragement throughout all phases of

this research.

Thanks are also due to Dr. W. W. McPherson, Dr. Leo Polopolus,

and Dr. David Geithman for reviewing the manuscript and offering helpful

assistance.

An expression of appreciation is due to Dr. Hugh Popenoe and

the Center for Tropical Agriculture for their financial assistance.

The assistance of the University of Florida's Computing Center is

recognized and appreciated.

The author is grateful for indispensable assistance given by

the staff members of the INCORA, in particular Mr. Jorge Villamizar,

and by the staff members of other public agencies in the Department of

Cordoba.

The assistance given to the author by Dr. Peter Hildebrand is

sincerely appreciated.

Appreciation is also extended to Miss Claire Kurtgis, Mrs.

Sherri Smith, and Mrs. Robin Lowe for assistance on the preliminary

drafts, and to Mrs. Barbara Altieri for typing the final manuscript.

TABLE OF CONTENTS

Page

ACKNOWLEDGMENTS . . . .

LIST OF TABLES. . . . .

LIST OF FIGURES . . .

Chapter

T. INTRODUCTION . . .

Objective . .... .
Previous Research ...
Description of the Study Area .

TI. CONCEPTUAL MODEL. . .. .

Decision Environment. .
Technical Environment .
Economic Environment .
Alternative Conceptual Models

Basic Minimum Resource Model. . . .
Minimum Resource Model with Variable Yields or
Product Prices . . . .
Variable Land Quality Model . . .

Summary of Conceptual Models . . .

III. METHOD AND RESEARCH PROCEDURE . . .

Linear Programming Model. . . .
Operational Problems. . . . .

. 19

. 22
. 24

Resource to be Minimized. . . . .
Definition of Land Resource Base. . . .
Technology, Management and Input-Output Data .
Resource Restrictions . . . .
Production Alternatives . . .
Prices and Costs . . . .
Institutional Restraints. . . . .

Resource Requirements per 1,000 Pesos of Net Revenue.

iii

xiii

S. 15

~ I ~ I f ~ I

Page

IV. THE EFFECTS OF VARIATIONS IN YIELDS ON MINIMUM RESOURCE
REQUIREMENTS . . . . . 42

Basic Solutions . . . . .. 44

15,000 Peso Income . . . .. 45
25,000 Peso Income . . . ... .47

Summary of Variable Yield Results . . ... 49

Effects of Yields on Farm Organization . .. 49
Effects of Yields on Land Requirements . .. 50
Effects of Yields on Capital Requirements. .. 50
Effects of Yields on Labor Requirements . .. 52

Implications of Yields for Farm Size Planning
Decisions . . . . .. 53
Area Implications of Yield Variations. ... ... 56

V. THE EFFECTS OF DIFFERENCES IN LAND QUALITY ON MINIMUM
RESOURCE REQUIREMENTS. . . . . 59

Summary of Variable Land Quality-Results . 59

Effects of Land Quality on Farm Organization . 60
Effects of Land Quality on Land Requirements . 60
Effects of Land Quality on Capital Requirements. 62
Effects of Land Quality on Labor Requirements 63

Implications for Farm Management and Area Policy
Decisions. . . . . ... 64

VI. THE EFFECTS OF PRICE CHANGES ON MINIMUM RESOURCE
REQUIREMENTS . . . . .. 66

Effects of Increases in Interest Rates . .. 66
Effects of Increases in Hired Wage Rates . .. 67
Effects of Reductions in the Price of Cotton .. 71
Effects of Reductions in the Price of Rice . .. 72

VII. SUMMARY AND CONCLUSIONS. . . . ... 77

Results . . . . . .. 78

Summary of Yield Results . . . .. 82
Summary of Land Quality Results . . 83
Summary of Interest Rate Increases . .. 83
Summary of Hired Wage Rate Increases . .. 84
Summary of Decreases in Cotton Revenues. . 85
Summary of Decreases in Rice Revenues . ... 85

Implications for Farm Adjustments. . . 86
Implications for Area Adjustments. . . ... 87
Need for Further Study . . . .... .88

APPENDICES

A. General Input and Output Data for Enterprise Budegets.. 89
B. Crop and Livestock Enterprise Budgets. . ... 102
C. Farm Organizations and Resource Requirements for Three
Land Qualities and Three Yield Levels. . ... 136
D. Farm Organizations and Resource Requirements for Two
Income Levels with Varying Costs of Capital and
Labor and Varying Prices of Cotton and Rice. ... 156

BIBLIOGRAPHY . . . . . . 165

BIOGRAPHICAL SKETCH ... . . . . 167

LIST OF TABLES

Table Page

3.1 Resource requirements per 1,000 pesos of net return,
selected crop enterprises--INCORA Cordoba II Project,
Sinu River Valley, Colombia. . . . ... 38

3.2 Resource requirements per 1,000 pesos of net return,
selected livestock enterprises--INCORA Cordoba II
Project, Sinu River Valley, Colombia . ... 40

4.1 Resource requirements to obtain specified operator and
family incomes with high, average, and low yields,
average land quality--INCORA Cordoba II Project, Sinu
River Valley, Colombia . . . .... 51

4.2 Effect of high, average, and low yields on numbers of
farms and area net farm income for specified income
levels--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . ... . . . 57

5.1 Resource requirements to obtain specified operator and
family incomes with good, average, and poor land,
average yield levels--INCORA Cordoba II Project, Sinu
River Valley, Colombia . . . ... 61

6.1 Resource requirements for a 15,000 and 25,000 peso net
income, alternative levels of interest rates and average
land quality--INCORA Cordoba II Project, Sinu River
Valley, Colombia . . . .. . 68

6.2 Resource requirements for a 15,000 and 25,000 peso net
income, alternative wage rates and average land
quality--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . .... .70

6.3 Resource requirements for a 15,000 and 25,000 peso net
income, variable cotton prices and average land quality--
INCORA Cordoba II Project, Sinu River Valley, Colombia 73

6.4 Resource requirements for a 15,000 and 25,000 peso net
income, variable rice prices and average land quality--
INCORA Cordoba II Project, Sinu River Valley, Colombia 75

7.1 Summary of resource requirements to obtain various levels
of net income for alternative yield levels and land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . ... . 79

LIST OF TABLES (Continued)

Table Page

7.2 Summary of resource requirements to obtain a 15,000
and 25,000 peso net income for average land, average
yields, variable interest rates, variable wage rates,
variable cotton prices, and variable rice prices--
INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . . ... 80

A.1 Product and input prices used in preparing crop and live-
stock enterprise budgets--INCORA Cordoba II Project,
Sinu River Valley, Colombia. . . . 90

A.2 Estimated total man-days of labor available by months--
INCORA Cordoba II Project, Sinu River Valley, Colombia 96

A.3 Total investment, salvage value, expected life, and
estimated costs per hour for machinery ..... 99

A.4 Estimated total machine days and machine hours available
by months and periods--INCORA Cordoba II Project, Sinu
River Valley, Colombia . . . .. 100

A.5 Land class and valuation per hectare for good, average,
and poor quality land--INCORA Cordoba II Project, Sinu
River Valley, Colombia . . . .. 101

A.6 Estimated per hectare costs of owning good, average, and
poor quality land--INCORA Cordoba II Project, Sinu
River Valley, Colombia . . . .. 101

B.1 Cotton: estimated per hectare revenue, variable expenses,
labor requirements, machine hours, and net return--
INCORA Cordoba II Project, Sinu River Valley, Colombia 105

B.2 Corn: estimated per hectare revenue, variable expenses,
labor requirements, machine hours, and net return--
INCORA Cordoba II Project, Sinu River Valley, Colombia 107

B.3 Grain sorghum: estimated per hectare revenue, variable
expenses, labor requirements, machine hours, and net
return--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . ... . 109

B.4 Rice: estimated per hectare revenue, variable expenses,
labor requirements, machine hours, and net return--
INCORA Cordoba II Project, Sinu River Valley, Colombia 111

B.5 Sesame: estimated per hectare revenue, variable expenses,
labor requirements, machine hours, and net return--
INCORA Cordoba II Project, Sinu River Valley, Colombia 113

viii

LIST OF TABLES (Continued)

Table Page

B.6 Soybeans: estimated per hectare revenue, variable
expenses, labor requirements, machine hours, and
net return--INCORA Cordoba II, Sinu River Valley,
Colombia . . . . .. .. 115

B.7 Man-day labor requirements per hectare for crop enter-
prises by months--INCORA Cordoba II Project, Sinu River
Valley, Colombia . . . .... 117

B.8 Machine-hour requirements per hectare for crop enter-
prises by months--INCORA Cordoba II Project, Sinu River
Valley, Colombia . . . .... 118

B.9 Para pasture: estimated per hectare forage production,
variable expenses, and labor requirements--INCORA
Cordoba II Project, Sinu River Valley, Colombia. . 121

B.10 Beef cattle: estimated revenue, variable expenses, and
net return for a 100 cow herd under traditional manage-
ment--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . .. . . 128

B.11 Beef cattle: estimated revenue, variable expenses, and
net return for a 100 cow herd under improved manage-
ment--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . ... ..... .130

B.12 Beef cattle: estimated revenue, variable expenses, and
net return for a 100 cow herd under best management--
INCORA Cordoba II Project, Sinu River Valley, Colombia 132

B.13 Beef bull fattening: estimated revenue, variable
expenses, and net return per head--INCORA Cordoba II
Project, Sinu River Valley, Colombia . ... 134

B.14 Estimated man-day labor requirements for Para pasture
production, beef production (cow unit), and beef bull
fattening--INCORA Cordoba II Project, Sinu River
Valley, Colombia . . . . 135

C.I Resource requirements and enterprise organization for a
15,000 peso income, high yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . ... .. .. .137

C.2 Resource requirements and enterprise organization for a
25,000 peso income, high yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . .... .... 138

LIST OF TABLES (Continued)

Table Pae

C.3 Resource requirements and enterprise organization for a
35,000 peso income, high yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . .. . 139

C.4 Resource requirements and enterprise organization for a
45,000 peso income, high yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . ... .... 140

C.5 Resource requirements and enterprise organization for a
15,000 peso income, average yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . . .. .141

C.6 Resource requirements and enterprise organization for a
25,000 peso income, average yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . . 142

C.7 Resource requirements and enterprise organization for a
35,000 peso income, average yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . . 143

C.8 Resource requirements and enterprise organization for a
45,000 peso income, average yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . ... .. ... 144

C.9 Resource requirements and enterprise organization for a
15,000 peso income, low yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . .. . 145

C.10 Resource requirements and enterprise organization for a
25,000 peso income, low yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . . 146

C.11 Resource requirements and enterprise organization for a
35,000 peso income, low yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . .. . 147

C.12 Resource requirements and enterprise organization for a
45,000 peso income, low yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . ... 148

LIST OF TABLES (Continued)

ablee Page

C.13 Resource requirements to obtain alternative income
levels with good, average, and poor land; high,
average, and low yields--INCORA Cordoba II Project,
Sinu River Valley, Colombia . ... . .. 149

C.14 Resource requirements and enterprise organization con-
sidering all crops and only fattening beef bulls for a
15,000 peso income, average yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . . . 150

C.15 Resource requirements and enterprise organization con-
sidering all crops and only fattening beef bulls for a
25,000 peso income, average yields and specified land
qualities--INCORA Cordoba Project, Sinu River Valley,
Colombia . . . .. .. .. . 151

C.16 Resource requirements and enterprise organization con-
sidering only semi-mechanized cotton, semi-mechanized
rice, improved managed pasture, and fattening beef bulls
for a 15,000 peso income, average yields and specified
land qualities--INCORA Cordoba II Project, Sinu River
Valley, Colombia . . .. . . 152

C.17 Resource requirements and enterprise organization con-
sidering only semi-mechanized cotton, semi-mechanized
rice, improved managed pasture, and fattening beef bulls
for a 25,000 peso income, average yields and specified
land qualities--INCORA Cordoba II Project, Sinu River
Valley, Colombia . . . . 153

C.18 Resource requirements and enterprise organization con-
sidering only semi-mechanized cotton, mechanized rice,
improved managed pasture, and fattening beef bulls for
a 15,000 peso income, average yieldsand specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . . .... 154

C.19 Resource requirements and enterprise organization con-
sidering only semi-mechanized cotton, mechanized rice,
improved managed pasture, and fattening beef bulls for
a 25,000 peso income, average yields and specified land
qualities--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . .. . 155

D.1 Resource requirements and enterprise organization for a
15,000 peso income, average quality land with average
yields and variable interest rates on operating
capital--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . . 157

LIST OF TABLES (Continued)

Table

D.2 Resource requirements and enterprise organization for a
25,000 peso income, average quality land with average
yields and variable interest rates on operating
capital--INCORA Cordoba II Project, Sinu River Valley,
Colombia . . . . . .

D.3 Resource requirements
15,000 peso income,
yields and variable
Cordoba II Project,

D.4 Resource requirements
25,000 peso income,
yields and variable
Cordoba II Project,

D.5 Resource requirements
15,000 peso income,
yields and variable
Project, Sinu River

D.6 Resource requirements
25,000 peso income,
yields and variable
Project, Sinu River

D.7 Resource requirements
15,000 peso income,
yields and variable
Project, Sinu River

D.8 Resource requirements
25,000 peso income,
yields and variable
Project, Sinu River

and enterprise organization for a
average quality land with average
costs of hired labor--INCORA
Sinu River Valley, Colombia. .

and enterprise organization for a
average quality land with average
costs of hired labor--INCORA
Sinu River Valley, Colombia ....

and enterprise organization for a
average quality land with average
prices of cotton--INCORA Cordoba II
Valley, Colombia . . ..

and enterprise organization for a
average quality land with average
prices of cotton--INCORA Cordoba II
Valley, Colombia . .

and enterprise organization for a
average quality land with average
prices of rice--INCORA Cordoba II
Valley, Colombia . . .

and enterprise organization for a
average quality land with average
prices of rice--INCORA Cordoba II
Valley, Colombia . . .

xii

Page

159

160

161

162

163

164

LIST OF FIGURES

Figure Page

1.1 Colombia and the Sinu River Valley . . .. 10

1.2 Project map of Cordoba II . . . .. 11

2.1 Theoretical production function. . . ... 18

2.2 Theoretical basic minimum resource model for specified
income levels. .. . . . . 20

2.3 Theoretical minimum resource model showing effects of
variable yields or product prices on farm size .. 23

2.4 Theoretical minimum resource model showing effects of
different land qualities on farm size . . 25

4.1 Hectares of land required to obtain specified net
income levels with high, average and low yields
on avera.. quality land. . . . 55

xiii

CHAPTER I

INTRODUCTION

Colombian peasant population is applying pressure for changes on

the agrarian sector. These changes affect economic, political, social,

and equalitarian rights (18, p. 3). Historically, the traditional

agrarian sector has denied the peasant the essential opportunity for

gaining social, political, and economic rights and privileges. For the

peasant, agrarian reform affords opportunities which enhance his social

and political status as well as help him to realize his economic aspi-

rations.

Land is primarily equivalent to economic opportunity in agri-

culture. Economic opportunity with respect to land has three dimensions:

production opportunity, or the right to use land as the operator sees

fit; market opportunity, or the right to dispose of the products of the

land; and credit opportunity, or the right of access to the opportunity

to purchase adequate factors of production (15, p. 9). Therefore, land

ownership and its use is only meaningful for enhancing the economic

well-being of peasants when credit, technical assistance, transportation,

and market facilities are made available. These are some of the factors

required to break the traditional equilibrium and give peasants the

economic means to participate actively in the economy of Colombia.

Modern agrarian reform was accepted in Colombia when Congress

passed Law 135 in 1961. The objectives of the legislation are stated

in the following translation of Chapter I of the law:

(a) To reform the agrarian social structure through pro-
cedures designed to eliminate and prevent the in-
equitable concentration of property in land or its
subdivision into uneconomic units; to reconstitute
adequate units of cultivation in the zones of
minifundia (small peasant farms) and to provide lands
to those who lack them, with preference being given
to those who will utilize them directly through the
use of their own personal labor.

(b) To promote the adequate economic use of unused or
deficiently used land, by means of programs designed
to secure their well-balanced distribution and
rational utilization.

(c) To increase the total volume of agriculture and live-
stock products in harmony with the development of
other sectors of the economy; to increase the pro-
ductivity of the farms by the application of appro-
priate techniques; and to endeavor to have the lands
used in the way that is best suited to their locations
and characteristics.

(d) To create the conditions under which the small tenants
and sharecroppers shall enjoy greater guarantees, and
they, as well as the wage hands, shall have less diffi-
cult access to land ownership.

(e) To elevate the level of living of the rural population,
as a consequence of the measures already indicated and
also through the coordination and promotion of services
related to technical assistance, agricultural credit,
housing, the organization of markets, health and social
security, the storage and preservation of products,
and the promotion of cooperatives.

(f) To insure the conservation, defense, improvement, and
adequate utilization of the natural resources (19,
pp. 253-254).

The Colombian government organized the Instituto Colombiano de

la Reforma Agraria (INCORA) to carry out the objectives of its agrarian

reform law. INCORA directs agrarian reform toward the kind of agrarian

structure outlined in the law's objectives.

In accordance with the agrarian reform law, INCORA has under-

taken the Cordoba II Project in the Sinu River Valley. Cordoba II is a

land parcelization project directed to the draining of low moist pasture

land and transforming it into highly productive arable land. Future

plans include an irrigation system to permit cultivation throughout the

year. This study considered only the drainage aspects of the project

on farm resource requirements because INCORA has undertaken some re-

distribution of land before large scale irrigation work can be com-

pleted. The effects of drainage entered into the study through the

assumptions concerning yield levels, land quality, and land costs.

INCORA also provides peasant farmers with financial; marketing, and

technical assistance to aid in establishing and improving production.

The family agricultural units which are established consist of

a plot of land large enough which, when worked under conditions of

reasonable efficiency, will provide an average size family with an ade-

quate net income. An adequate net income must provide for sustenance,

payment of debts originated in the purchase and conditioning of the

land, progressive improvement of the home, acquiring and maintenance of

work implements, and general improvement of the living level, while

utilizing the labor of the owner operator and his family. If any of

these demands cannot be met out of net farm income, the farm unit will

not provide an adequate economic opportunity. The units established

should combine resources and enterprises as economically efficient as

possible.

INCORA's stock of resources to be made available in the form of

a resource bundle to the family agricultural units is fixed for any

given region. The project plan drawn up for a specified region allo-

cates these resources--land, labor, capital, etc. --in accordance with

the unit size and farming system to be adopted.

Another major feature of establishing efficient family farm

units is that Colombia's population increase, a rate in excess of 3 per-

cent annually in recent years, must be considered (7, p. 14). In 1960,

approximately 1.5 million families were directly dependent on agri-

culture for employment and livelihood. Thirty-five percent of them

were headed by farm operators while the remaining 65 percent belonged to

the farm laborer category (19, p. 110).

INCORA's resource allocation program has become one which pro-

vides the minimum resources necessary to achieve a specified level of

income for each farm unit. Consequently, the maximum number of peasants

is given an economic opportunity with the hope that a large enough part

of the peasant population is affected to insure evolutionary agrarian

reform. The problems INCORA faces include determining the most effi-

cient farm size, enterprise organization, and resource allocation for

obtaining the specified levels of income per unit and providing these

income earning opportunities to as many peasant farm families as

possible.

The administrators and policy makers of INCORA in Cordoba II

need information on resource requirements of farm units which is com-

mensurate with current and prospective economic conditions of the area.

The restriction on land availability within a given project area, and

indirectly on farm size, is a serious limitation facing peasant

operators seeking to increase farm family income. A second limitation

is a dearth of capital which is needed for improvements in facilities,

purchasing production inputs, and operating equipment. A third important

restriction is the limited entrepreneurial experience and technical

knowledge of many peasant farmers.

5

This study provides information on minimum resource requirements

and the effects of increased productivity of farm crops, forages, and

livestock on these requirements for obtaining given farm income levels

in the Cordoba II Project area. Further, it indicates the influence

of changes in farm product and factor prices, crop and livestock yields,

production technology and costs and institutional structures such as

capital borrowing limitations and land development policies. These

factors influence the size of farm unit necessary for long-run survival

and fulfillment of minimum income levels for farm operators and their

families. The study also provides a framework for the analysis of

resource adjustments and income effects of increased productivity in

other study areas throughout Colombia.

The Sinu River Valley area was selected because of INCORA's need

for information on the size of farm required to meet the specified

income goals in the project area, the availability of input-output data

from INCORA and the Turipana Agricultural Experiment Station within the

project area, and the wide applicability of results to surrounding areas.

Objective

The objective of this study was to determine the nature of

enterprise organization and the magnitude of resource levels needed to

obtain specified levels of income to crop-livestock producers in the

area under selected sets of alternative conditions. Specifically, the

objectives included the determining of the effects on enterprise com-

bination and on the minimum amounts of land required for specified

levels of income to farm operator-owned resources for conditions con-

sisting of:

(a) Differences in the managerial ability of the farm
operator as expressed by crop and livestock yield
levels or yield expectations.

(b) Differences in land quality as expressed by the pro-
portion of the productivity classes of land comprising
a representative hectare.

(c) Changes in capital structure as expressed by the
interest rate, and short, intermediate, and long-
term loan limits.

(d) Changes in farm product and resource price levels or
price expectations.

Previous Research

The concept of "minimum resources for specified income levels"

is relatively new in agricultural economic research. In his research,

published in 1958, J. Brewster instituted the basic concepts of minimum

resource research, raising the following questions which he felt could

be answered by his work:

What bundle of resources is needed to enable farmers with
average ability to obtain earnings from labor and management
similar to the median earnings of semi-skilled and skilled
workers in non-farm employment? For various regions and
types of farming systems, what bundle of resources represents
the minimum size of farms and the minimum earnings that would
offer a reasonable chance for success? What is the nature
and magnitude of the adjustments involved in raising all farms
that are now below a specified level of operator earnings up
to that level (4, p. 4)?

Brewster later discussed the methodological problems of a mini-

mum resource study from the standpoint of the attributes of income

requirements, resources to be minimized, and construction of resource

situations to be considered (3).

Several empirical studies have been made to determine minimum

resource requirements for specified income levels in various geograph-

ical areas of the United States. In 1957,Brewster determined the

minimum resources required for specified income levels in six different

areas by farm types. In 1962, H. Barnhill expanded Brewster's findings

to include 15 major types of farming areas; in further research in 1964,

he extended it to 29 types of farming areas (2).

In 1962, P. L. Strickland determined minimum resource require-

ments for an area in the low rolling plains of Southwestern Oklahoma

(20). His study was based on variable hired labor prices, land prices,

and soil types. In addition, it introduced the concept of owned

resources nonlaborr resources owned by the operator)-into minimum

resource studies.

J. S. Plaxico and J. W. Goodwin, in 1961, compared the minimum

resources needed to obtain the equivalent of an average factory wage

for three areas of the South (16). Their work was researched under

alternative assumptions with respect to product prices and institutional

restrictions.

In 1962, A. P. Varley and G. S. Tolley pointed out what the

aggregate effects on input prices might be within an area if resource

adjustments were made (21). They found that prices of factors fixed to

the area, such as land, will change as adjustments are made. The mini-

mum resource model under varying land prices approaches the profit maxi-

mization model--or economic equilibrium--under these conditions.

In 1964, L. J. Conner further developed the analytical approach

suggested by Varley and Tolley and applied this method to a minimum

resource study of the Oklahoma Panhandle (6). Connor's study extended

the owned resource concept as an adjustment criterion under different

yields, land prices, and soil resource conditions.

In 1967, W. A. Halbrook used the theoretical framework developed

by Varley and Tolley and the operational model developed by Connor to

determine minimum resource requirements and adjustment alternatives for

livestock producers on the eastern prairies of Oklahoma (12). Halbrook

considered the impact of off-farm employment, yield levels, owner

equity levels, and land quality on minimum land requirements for speci-

fied levels of income to operator-owned resources.

The theoretical framework developed by Varley and Tolley and the

operational model developed by Connor and extended by Halbrook wereused

in achieving the objectives of this study. This approach was consistent

with meeting the informational requirements of INCORA; furthermore, it

was compatible with the conditions faced by many farm producers in

Colombia.

In his study of Colombian minifundistas (small peasant farmers)

in 1969, Grunig found that peasants, when provided with access to

resources, markets, and education, will develop their entrepreneurial

abilities (11). Assuming INCORA participants have adequate land resources,

the prerequisites for improving peasant conditions are: an intensive

crop, a stable market, and relevant technical assistance. Grunig ascer-

tained that improved transportation and credit are significantly useful

to the peasants in later stages of entrepreneurial development.

Description of the Study Area

The Department of Cordoba is located in the northwestern part of

Colombia and is part of the Caribbean Coastal Plain (Fig. 1.1). The

northwestern part of the Department constitutes the lower Sinu River

Valley flood plain.

The Department is bordered on the west by the Gulf of Turbo, on

the southwest by the Abide Ridge, on the east by the Ayapel Ridge, and

on the north by the Caribbean Sea. The San Jeronimo Ridge divides the

Department with the San Jorge River Valley to the east and the Sinu

River Valley to the west.

The lower Sinu Valley, where the Cordoba II project is located,

is between the Abide and San Jeronimo Ridges. The Valley has a width of

approximately 18 kilometers and has an elevation of about 15 meters above

sea level (5, p. 3). It is a typical alluvial plain, slightly sloping

away from the Sinu River toward the east and toward the Betanci Ravine.

Before drainage work began, at least 60 percent of the area flooded at

least once a year (5, p. 1). This flooding brought accompanying sedi-

mentation which formed high fertility soils appropriate for various

tropical cultures. These lands have produced the lush green forage

which, in turn, provides a basis for the prominent livestock industry of

the area.

The valley is level but, because of sedimentation along the river

bank, there is a very gentle slope away from the river. This is the

reason a large part of the valley is flooded during the wet (winter)

season. The area has a large variety of poorly drained soils located

over fine or medium grain sand. The surface soils consist of fine silt

or clay, especially in the zones subject to flooding. The land in the

project area has less than a 3 percent slope (7, p. 3).

The total project area of 70,000 hectares is bounded on the west

by the Sinu River, on the south by Monteria, on the southeast and east

by the San Jeronimo collector canal, and on the north by the Cienaga

Grande (Fig. 1.2). This study refers to the drainage aspects of the

GULF OF MEXICO

7

/

Cartagena

PACIFIC OCEAN

Source: Adapted from (13, p. 15).

Figure 1.l.--Colombia and the Sinu River Valley.

ATLANTIC
OCEAN

Colombia

11

L. kC A

-P--
P y

'4 1"
J~17)
r era~

PROYECTO CORDOBA N2 2

PLAN GENERAL DE 06RA 7I

ADECUACION DE 70.000 Has. /

P E TAA OF. CESAROLO
Escola It 200.000

Source: INCORA (1MenO), ML~oter ia.

Figure 1.2.--Project map of Cordoba II,

7,000 hectares that comprise the first phase; it also has wider impli-

cations for the total project and other similar areas.

The soils in the project area have similar chemical and physical

characteristics. The textures vary generally from medium-light to

heavy, with medium subsoils occasionally interspersed with total horizons

of heavy soils. The permeability is moderately rapid in the light and

medium textured soils to very slow in the heavy textured soils. The

average pH is slightly above 7.0 with the exchange capacity varying

from medium to high, depending on the clay content of the soil.

;!: region alternates between two contrasting rainfall patterns.

In the dry months, December through March, rainfall ranges from 10.4 mm.

to 36.9 mm. per month, with an average of 23.0 mm. During the high

rainfall period, April through November, the monthly precipitation varies

from 91.8 mm. to 169.1 mm. per month, with an average of 124.3 mm. The

annual average rainfall is 1201.7 mm., with a range from 867.5 mm. to

1620.5 mm., based on 13 years of records from the Turipana Experiment

Station. A study of the rainfall pattern affords a clearer picture of

the water distribution problem. Because it is a tropical area, great

amounts of rainfall are not uncommon; in a single month, as much as

350 mm. has been known to fall, which is over 25 percent of the average

annual rainfall (5, p. 5).

The area has been mainly a livestock producing area because of

the low elevation, long intense wet season, and the periodic flooding of

the Valley. In the flood free and the newly drained areas, many crops

are presently grown; more significant, however, is the fact that more

crops can be grown commercially.

The annual average temperature of the lower Sinu Valley is

27.50 C., with an average maximum of 34.00 C. and an average minimum of

22.00 C. (13, p. 35). Throughout the wet (winter) season, the humidity

is in excess of 80 percent. Several months during the dry (summer)

period, winds blow from the northeast causing the temperature and humid-

ity to drop slightly. Normally in this area there is a brief secondary

dry season in July or August called the Veranillo de San Juan, permitting

harvesting and replanting when a double cropping system is employed.

Air transportation to the area is available both to passengers

and to cargo from Berastegui Airport located within the project boundary.

Flights from Berastegui connect to Medellin, Cartagena, and Barranquilla,

from which further connections can be made to all parts of the country.

Aerotaxis fly between municipalities of the Department.

River transport is possible for boats up to 200 tons throughout

the year to Lorica, but it is limited to approximately six months

(September-February) for those traveling to Monteria. Navigation from

the Sinu passes into the Gulf of Morrosquillo and follows the coast to

Cartagena, an important commercial and industrial center.

Monteria, Cerete, and the project area are connected with Carta-

gena and Medellin by all-weather roads. Trucks are presently the most

important means of product transport. Cargos of cattle, cotton fiber,

rice, and corn are shipped to Medellin. Return hauls include textiles,

machinery, and processed food products. The cargos to Cartagena and

intermediate points are oil and oil seed, as well as some grains, such

as rice and corn. Return trip cargo consists of processed foods, beer,

other finished products, and livestock to be fattened.

Buses and taxis provide communication between all the rural

villages and the municipalities of the area. In addition to all-weather

roads between the major municipalities of the lower Sinu, INCORA is

improving existing roads and constructing new farm-to-market roads with-

in the projected area.

Agricultural production is transported from the field storage

area to commercial or government storing and processing depots by hired

truck or farm tractor and wagon. In the field, transport is provided by

man, burro, horse, and tractor and wagon. Human and-animal portage are

common methods of bringing production to the home as well as transporting

workers between home and the farm plots.

The majority of the marketing and primary processing of agri-

cultural products is carried out in Monteria, the Department capitol

and its largest city, and in Cerete, the second largest city and most

important marketing center. Some elementary exchange and processing is

completed in smaller municipalities. Products not processed or consumed

locally are transported to industrial centers such as Medellin and

Cartagena.

The Cotton Growers Association, INCORA, Rice Producers Associ-

ation, and numerous private businesses provide production inputs and buy,

store, process, and distribute production locally or transfer it to

other regions and nations.

CHAPTER II

CONCEPTUAL MODEL

This chapter describes the decision environment and the economic

environment in which the study was made. It also explains the theoret-

ical concepts of the minimum resource model. Considering land as the

resource to be minimized, the effects of yields, land quality, prices,

and institutional restrictions to capital borrowing on minimum land

requirements for given farm income levels are evaluated.

Decision Environment

By specifying the decision environment, many extraneous variables

and certain levels of exogenous variables can be specified so that the

effects of the variables of interest to the study may be analyzed. The

components of the decision environment are: (a) the objectives of

decision makers, (b) the technical production relationships, and (c) the

economic relationships. Assumptions were, therefore, made about the com-

ponents in order to analyze the effects of the variables of interest.

The objective assumed for this study was that peasants and their

families are interested in at least a minimum income level from the

resources they command, and that they are motivated to change when

incomes fall below this minimum. This objective was consistent with the

goals of INCORA in the establishment of family agricultural units. Only

in the special case where the minimum income is equal to maximum profit

would this objective correspond to the traditional economic objective

CHAPTER II

CONCEPTUAL MODEL

This chapter describes the decision environment and the economic

environment in which the study was made. It also explains the theoret-

ical concepts of the minimum resource model. Considering land as the

resource to be minimized, the effects of yields, land quality, prices,

and institutional restrictions to capital borrowing on minimum land

requirements for given farm income levels are evaluated.

Decision Environment

By specifying the decision environment, many extraneous variables

and certain levels of exogenous variables can be specified so that the

effects of the variables of interest to the study may be analyzed. The

components of the decision environment are: (a) the objectives of

decision makers, (b) the technical production relationships, and (c) the

economic relationships. Assumptions were, therefore, made about the com-

ponents in order to analyze the effects of the variables of interest.

The objective assumed for this study was that peasants and their

families are interested in at least a minimum income level from the

resources they command, and that they are motivated to change when

incomes fall below this minimum. This objective was consistent with the

goals of INCORA in the establishment of family agricultural units. Only

in the special case where the minimum income is equal to maximum profit

would this objective correspond to the traditional economic objective

of profit maximization. Some economists have questioned whether farm

producers actually do maximize profits and whether profits are the rele-

vant criteria on which decisions are made. These questions are especially

relevant to agricultural decisions in Colombia since studies have found

little support for the profit maximizing motive among traditional

farmers (10). Rather, it has been hypothesized that this large group of

farmers in Colombia seeks a minimum adequate level of income with a

minimum use of capital, not considering that invested in land.

The satisfactory income level is not the same for all peasant

farmers. The needs and wants of the farmer and his family determine the

acceptable income level. The quantity and quality of resources determine

the attainable income level. In this study, four income levels were

specified: a 15,000 peso income ($900 U.S.), a 25,000 peso income

($1,500 U.S.), a 35,000 peso income ($2,100 U.S.), and a 45,000 peso

income ($2,700 U.S.). These incomes represent different levels of

operator aspirations. The higher levels represented the possible effects

of anticipated inflation of future years on resources required to main-

tain a constant purchasing power for the farm operator. The two highest

income levels also reflected the opportunity cost of farming for they

were comparable to earnings from Colombian industrial employment.

The terms income, specified income, minimum income, and income

levels are used throughout this report. Income herein is defined to

mean the total net income of the peasant and his family, derived from all

farm sources. The income may represent a return to peasant and family

labor only, or to labor plus other owned resources. The only restriction

was that the nonlabor-owned resource returns must come from the farm

business.

Technical Environment

Production theory traditionally begins with the production

function which shows the relationships between resource inputs and

product outputs. This technological information can be summarized as:

Y = f (Xl,X2,...,Xn)

where Y represents physical output, and X1...Xn represent the resource

inputs.

For a specific analysis, inputs are assumed to be either (a)

variable inputs, or (b) fixed inputs. The technical relationships can

then be written as:

Y = f (XI,X2,...,Xk:Xk+l,...,Xn)

where X1...Xk represent the variable resource inputs, and Xk+...Xn

represent given levels of specified fixed inputs.

With appropriate assumptions about divisibility and homogeneity

of inputs and outputs, and diminishing returns to the variable factor,

the production function in its simplest form can be represented as OA

in Figure 2.1. This study specifies a single production function, OA,

for the area which can be shifted to OB or OC by: (a) changing the

quality of the variable input, or (b) changing the quantity of the fixed

factor.

Economic Environment

The economic environment included the prices paid for resources

and those received for products; it also included those assets owned by

the peasants and the changes in their value over a period of time.

Since the returns to the peasants were the main concern of this study,

the prices were specified so that the effects of key variables could be

analyzed under a variety of conditions.

Technical Environment

Production theory traditionally begins with the production

function which shows the relationships between resource inputs and

product outputs. This technological information can be summarized as:

Y = f (Xl,X2,...,Xn)

where Y represents physical output, and X1...Xn represent the resource

inputs.

For a specific analysis, inputs are assumed to be either (a)

variable inputs, or (b) fixed inputs. The technical relationships can

then be written as:

Y = f (XI,X2,...,Xk:Xk+l,...,Xn)

where X1...Xk represent the variable resource inputs, and Xk+...Xn

represent given levels of specified fixed inputs.

With appropriate assumptions about divisibility and homogeneity

of inputs and outputs, and diminishing returns to the variable factor,

the production function in its simplest form can be represented as OA

in Figure 2.1. This study specifies a single production function, OA,

for the area which can be shifted to OB or OC by: (a) changing the

quality of the variable input, or (b) changing the quantity of the fixed

factor.

Economic Environment

The economic environment included the prices paid for resources

and those received for products; it also included those assets owned by

the peasants and the changes in their value over a period of time.

Since the returns to the peasants were the main concern of this study,

the prices were specified so that the effects of key variables could be

analyzed under a variety of conditions.

Output

0

Variable input X1/X2, ...,X

Figure 2.1.--Theoretical production function.

All resource and product prices were assumed to be known with

certainty and to be determined by a competitive market or specified by

a governmental agency in the cases of product price supports. Even

though this assumption may eventually be invalid in the case of land

which is physically fixed, the area is small enough in terms of the pro-

duction of agricultural commodities and the purchase of inputs that it

may be assumed that supply and demand conditions within the area will

have no effect on product and input prices. At present, however, INCORA

specifies the prices of land in their buying and parcelization (selling)

programs.

The reservation price (i.e., the minimum return for owned

resources that is acceptable) which the peasant places on his and the

family's labor and other owned resources may vary under different assumed

conditions. Depending upon the motives and objectives of the owner-

operator, these reservation prices may or may not be those indicated by

the competitive model.

Alternative Conceptual Models

In the study area, the decisions of peasant farmers to enter

into or to remain in farming are generally made within the decision

environment described above. Conceptual models are now specified to

evaluate the theoretical effects of key variables on the minimum size of

farm unit necessary to obtain a specified income level.

Basic Minimum Resource Model

In the basic conceptual model assumed (Fig. 2.2), the revenue

curve portrays the typical pattern of diminishing returns for additional

increments of land. It approximates a smooth curve by a series of

All resource and product prices were assumed to be known with

certainty and to be determined by a competitive market or specified by

a governmental agency in the cases of product price supports. Even

though this assumption may eventually be invalid in the case of land

which is physically fixed, the area is small enough in terms of the pro-

duction of agricultural commodities and the purchase of inputs that it

may be assumed that supply and demand conditions within the area will

have no effect on product and input prices. At present, however, INCORA

specifies the prices of land in their buying and parcelization (selling)

programs.

The reservation price (i.e., the minimum return for owned

resources that is acceptable) which the peasant places on his and the

family's labor and other owned resources may vary under different assumed

conditions. Depending upon the motives and objectives of the owner-

operator, these reservation prices may or may not be those indicated by

the competitive model.

Alternative Conceptual Models

In the study area, the decisions of peasant farmers to enter

into or to remain in farming are generally made within the decision

environment described above. Conceptual models are now specified to

evaluate the theoretical effects of key variables on the minimum size of

farm unit necessary to obtain a specified income level.

Basic Minimum Resource Model

In the basic conceptual model assumed (Fig. 2.2), the revenue

curve portrays the typical pattern of diminishing returns for additional

increments of land. It approximates a smooth curve by a series of

Pesos

y F-7 --- --

X

O L1 L2 L3 L5

SLand, labor, management and
unallocated fixed resources

-E Return to land, labor, management
and unallocated fixed resources

-- Labor, management and
unallocated fixed resources

-- Unallocated fixed resources

Farm size in hectares

Figure 2.2.--Theoretical basic minimum resource model for specified income levels.

linear segments with kinks toward lesser slope as different levels and

combinations of enterprises enter the solution within the resource

restrictions and with the increasing hectares of land. These relation-

ships are indicative of: (a) increases in activities that are land

intensive, (b) reduction of enterprises that are land extensive, (c)

indivisibilities of certain inputs, and (d) exhaustion of a certain

type of input and substitution of another, with different costs such as

hired labor for peasant and family labor.

The segmented revenue curve, OABCDE (Fig. 2..2), represents the

return to land, peasant and family labor and management, and unallocated

overhead costs from various farm sizes before land, peasant and family

labor, and management costs have been deducted. All costs such as feed,

seed, interest on operating capital, fertilizer and fuel have previously

been deducted from gross revenue to give OABCDE.

If OX represents fixed overhead costs, a farm size of L1 would

be required to cover fixed costs. If XY represents the specified returns

for peasant and family labor and management, then OY is a fixed cost,

and a farm size of L2 is required to cover fixed overhead costs plus a

specified return to peasant and family labor and management. Land costs,

rent or interest on investment plus taxes, are represented by the slope

of line YZ. Total costs for land, peasant and family labor and manage-

ment, and unallocated overhead costs are represented by the height of

line YZ. A minimum farm size of L3 is required to cover all imputed

costs of these factors.

Given the costs and returns of Figure 2.2, farm sizes larger

than L3 will provide profits. If profit maximizing were allowed by

INCORA and followed by operators, before any area impact of adjustments

on land prices, the profit maximizing solution would be farm size L4.

If profit maximizing motives were followed, land prices or rent in the

area would tend to increase, thereby increasing the slope of YZ to YZ'.

The minimum land required to cover all costs would then become L5, which

also represents the profit maximizing size of farm after area adjustments.

However, given INCORA's satisfactory income objective and its desire to

establish as many farm units as possible in the project area, the size

of farm may not be increased beyond size L3, at least for the duration

of the project investment.

Minimum Resource Model with Variable
Yields or Product Prices

The minimum resource model with variable yields or prices includes

a family of revenue curves. The segmented revenue curves OABCDE,

OA'B'C'D'E', and OA"B"C"D"E" in Figure 2.3, represent the returns to

land, peasant and family labor and management, and unallocated overhead

costs under different price or yield levels. To obtain the specified

income level, a farm size of L2 hectares would be required under average

yield or price conditions. With the same land quality and under con-

ditions of high yields or prices, a farm size of L1 hectares would be

required. Under conditions of low yields or prices a farm size of L3

hectares would be necessary to obtain the specified income level. If

the cost of land or the slope of YZ were greater than shown in Figure 2.3,

no farm size could provide the specified income level with low yields

or product prices. The smallest farm size which could obtain the speci-

fied income level would occur for high yield levels or product price

conditions.

Land, labor, management and
Z unallocated fixed resources
High yields or prices

E Average yields or prices

E" Low yields or prices

Labor, management and
unallocated fixed resources

Farm size in hectares

Figure 2.3.--Theoretical minimum
prices on farm size.

resource model showing effects of variable yields or product

Pesos

L1 L2

This same model can be used to designate the possible effects on

the minimum size of farm resulting from alternative levels of factor

costs, such as interest rates on capital or hiredwage rates. The only

theoretical modification necessary is that the higher segmented curve

(OA'B'C'D'E') represent lowest factor costs and the lower segmented

curve (OA"B"C"D"E") represent highest factor costs. Since restrictions

on capital borrowing by INCORA may force operators to go into the

private capital market (at substantially increased interest rates on

capital funds), this model is also relevant for considering the effects

of capital limitations.

Variable Land Quality Model

Variable land qualities can be analyzed employing the same basic

model as variable yields and prices if OE in Figure 2.4 is defined as

representing the return from average quality land, if OE' is defined as

the return from good quality, and if OE" is defined as the return from

poor quality land.

Land price is a function of productivity illustrated by lines

YZ", YZ, and YZ' in Figure 2.4. Each increase in slope indicates an

increase in the per hectare cost of land. In Figure 2.4, a farm of size

L3 would be required to provide the specified return to land, peasant

and family labor and management, and unallocated fixed costs when pro-

ducing on poor quality land. On average quality land, a farm size of

L2 is required, and on good quality land a farm size of L1 is required.

Whether more or less of the different land qualities would be required

to return a specified income than of the average quality land would

depend upon the relative prices and productivity, even though Figure 2.4

shows decreasing quantities of land with increasing quality.

Good land

Average land
C' El~ Return to land, labor, manage-
ment and unallocated fixed
resources
B' Poor land
C" Return to land, labor, manage-
D" ment and unallocated tixed
B E" resources
B,, Return to land, labor, manage-
ment and unallocated fixed
y -_ resources

A Labor, management and
r" unallocated fixed resources

0
L1 L2 L3

Farm size in hectares

Figure 2.4.--Theoretical minimum resource model showing effects of different land qualities
on farm size.

Summary of Conceptual Models

This chapter described the theoretical framework in which the

study was made. The basic conceptual model with its variations used in

the analysis was discussed. The minimum land quantities associated with

variation in prices, yields, and land quality for achieving given income

levels were theoretically specified.

The decision environment considered the goals of the peasant

and his family, the technical relationships of production, and the

economic factors affecting farm operation. Beginning with the basic

conceptual model, alterations were explained for variations in crop

prices, yields, factor prices, and land quality. Conceptually, the

smallest size of farm would occur under conditions of above average

yields or product prices, good land quality, and lowest factor costs.

The largest size offarm would occur under conditions of below average

yields or product prices, poor land quality and highest factor costs.

The actual size of farm that provides the specified income level may fall

somewhere between these two extremes.

CHAPTER III

METHOD AND RESEARCH PROCEDURE

The purpose of this chapter is to present the analytical pro-

cedure used in the study. A discussion of the linear programming model,

the problems involved in data collection, and how these problems were

handled is included.

Linear Programming Model

Linear programming was used to determine the minimum resources

required for a specified income to operator and family-owned resources.

For various price, yield, capital structure and land quality situations,

minimum land requirements were determined.

The linear programming technique can be used to minimize (or

maximize) a criterion function subject to a set of restrictions. This

technique assumes that the production process can be broken down into

elementary processes or activities combining to form a set of linear

relations. The components of a linear programming problem are: (a) a

quantifiable objective, (b) alternative methods or processes for

attaining the objectives, and (c) restrictions under which the activities

must be operated (14, p. 11). The assumptions required are: (a) addi-

tivity and linearity of activities, (b) divisibility of resources and

products, (c) a finite number of activities and restrictions, and

(d) single-valued expectations (14, pp. 17-18).

CHAPTER III

METHOD AND RESEARCH PROCEDURE

The purpose of this chapter is to present the analytical pro-

cedure used in the study. A discussion of the linear programming model,

the problems involved in data collection, and how these problems were

handled is included.

Linear Programming Model

Linear programming was used to determine the minimum resources

required for a specified income to operator and family-owned resources.

For various price, yield, capital structure and land quality situations,

minimum land requirements were determined.

The linear programming technique can be used to minimize (or

maximize) a criterion function subject to a set of restrictions. This

technique assumes that the production process can be broken down into

elementary processes or activities combining to form a set of linear

relations. The components of a linear programming problem are: (a) a

quantifiable objective, (b) alternative methods or processes for

attaining the objectives, and (c) restrictions under which the activities

must be operated (14, p. 11). The assumptions required are: (a) addi-

tivity and linearity of activities, (b) divisibility of resources and

products, (c) a finite number of activities and restrictions, and

(d) single-valued expectations (14, pp. 17-18).

Given these assumptions, the necessary conditions may be

expressed as follows:

(a) The objective function to minimize a resource, L, can be

represented as:

EajX = L, with Xj > 0, j=l,2,...,n

where aj is the quantity of resource required per unit of jth product

produced, Xj is the quantity of the jth product produced, and n is the

number of production alternatives.

(b) The minimum income requirement is given by:

ECjX. Y

where Y is the minimum specified income, and Cj is the net income from

producing one unit of the jth product.

(c) The resource restrictions are:

ZaijXj < Bi with i=1,2,...,m
J

where aij is the quantity of the ith input required to produce one unit

of the jth product, Bi is the amount of the ith restricted input for the

firm, and m is the number of restricted inputs.

Operational Problems

Within the linear programming framework, certain crucial oper-

ational and procedural decisions that are vital to the operation of the

model and to the usefulness of results must be made. The alternative

decisions which required specific answers for this study were:

(a) Determining which resource should be minimized.

(b) Definition of the land base and population to which
the results apply.

(c) Determining which level of technology, management and
input-output data to use.

(d) Specifying the resource restrictions applicable to
the area.

(e) Determining which relevant crop and livestock pro-
duction alternatives to use.

(f) Determining which prices, machinery, and overhead costs
to use.

(g) Determining the relevant institutional restraints.

These decisions point to the desired features of the operational

model and the following informational requirements.

Resource to be Minimized

To achieve the objectives of this study two criterion functions

were originally considered for the operational model specified. They

were to minimize land and to minimize capital. Labor was not considered

a resource to be minimized because previous research indicated that

labor was not a significantly restrictive resource in this farming area.

Restrictions of both capital and farm size were considered serious

handicaps to peasants in their efforts to increase farm incomes. Con-

sequently, for the following reasons, land was chosen as the resource

to be minimized: (a) Land is a major input and accounts for a large

proportion of the total capital requirements of crop and livestock

activities included in this study. Therefore, minimum land and minimum

capital solutions would be similar. (b) The quantity of land has

absolute limits within the given geographical area, while capital does

not. (c) The focal point of this study is the minimum size of farm

unit required to meet specified income levels. Within the area, the

pressure on land price will be greater than on capital price because of

the supply situation of each. (d) After area adjustments are made, the

price of land will directly affect the farm income level attainable.

Definition of Land Resource Base

In cooperation with personnel from INCORA, and based on a study

by Institute Geografico Agustin Codazzi, the geographical institute, an

inventory of the soil resource base was made (1, 5). This inventory

included the acreage of total land and soil classification according to

productivity. These land classes were related to the crop and forage

enterprises capable of being produced in the area. -

The recommendations relating to land use and management are

discussed in the following land classes.

Class I land is suitable for all shallow rooted crops. Soil

textures vary from light to heavy, with deep topsoil and drainage varying

from medium well-drained to imperfectly drained. The production on this

soil class would be limited to shallow rooted crops because of a high

water table and, in some cases, a clay hard pan.

Class II land is also suitable for all shallow rooted crops.

These soils are heavy textured, with a moderately deep level topsoil and

imperfectly drained. Because of excess moisture, yields are at a lower

level on this class than on Class I land.

Class III land is suitable only for rice and pasture. Lower

elevation, level soils of heavy texture and poorly drained with moder-

ately deep topsoil constitute this class. Often these lands are very

high in organic matter. With proper moisture control, much of the land

in this class can be transferred to one of the previously mentioned

classes.

Class IV land is suitable for pasture only. Soils in this class

are similar to those of Class III but they are very poorly drained. In

addition, there is little or no possibility for moisture control.

Technology, Management and Input-Output Data

It was difficult to separate the effects of management and tech-

nology since shifts in the production function may be caused by either.

The effects may take the form of increased yields, reduced costs, or

both. Based on the analysis of producer experiences, government exten-

sion workers' experiences and recommendations, personal field surveys,

and experimental results at the Instituto Colombiano Agropecuario (ICA),

Turipana Experiment Station, input-output coefficients for crop and live-

stock enterprises were developed. The input-output coefficients were

based on current as well as on potentially new and improved crop, forage,

and livestock management practices under conditions of dry land pro-

duction but with drainage facilities.

Under certain conditions yields were assumed to vary and shift

the production function. Different yield levels may be attributed to

management, technology, weather, or other causes. The yield levels used

were defined as follows:

(a) Average yields are those of all crops, forages or
livestock expected for the area based on improved
or current production practices under the best
weather (rainfall and drainage) conditions.

(b) High yields are those of all crops, forages or live-
stock that are 10 percent above average expected
yields for the area and are based on potentially new
and improved practices for the area.

(c) Low yields are those of all crops, forages or livestock
.that are 10 percent below average expected yields for
the area.

Although yield variation was generalized to include other technical and

economic variables, the terms were used in the programming model as

defined above.

Resource Restrictions

Area studies, surveys, interviews, and agency policies were used

to establish the land, labor, and capital restrictions.

A representative hectare of land was assumed to be a variable

resource that could be added in completely divisible and homogenous units.

The proportion of cropland, pasture, and waste land was determined from

an area study (1, p. 5). Under alternative land quality assumptions,

the representative unit was assumed to vary in percent cropland and

other components in fixed proportion. The following land qualities were

defined and used in this study (Appendix A, Table A.5):

(a) Average quality land was defined as a representative
hectare of land containing 54 percent Class I, 7 per-
cent Class II, 25 percent Class III, and 14 percent,
Class IV soil.

(b) Good quality land was defined as a representative
hectare of land containing 62 percent Class I,
8 percent Class II, 20 percent Class III, and 10
percent Class IV soil.

(c) Poor quality land was defined as a representative
hectare of land containing 46 percent Class I,
6 percent Class II, 31 percent Class III, and 17
percent Class IV soil.

Land values were assumed to vary with the percentage of each

productivity class comprising the poor land, average land, and good land

qualities as shown in Appendix A, Table A.5. The land prices included

were from INCORA files and were based on purchase price plus prorated

charges for improvements that INCORA has made in the area. Estimated

costs per hectare of owning land are shown in Appendix A, Table A.6.

A fixed amount of available operator and family labor was deter-

mined by an area survey (Appendix A, Table A.2). The available annual

labor was divided into time periods reflecting the seasonal farm labor

requirements. It was assumed that because of the high rate of unemploy-

ment (currently about 30 percent) and the underemployment in the area,

additional labor could be hired any time at the prevailing wage rate of

15 pesos ($.90 U.S.) per man-day.

Capital was a variable resource that could be borrowed in any

amounts up to the loan limits set by INCORA. These limits were 45,000

pesos for crop operating capital loans, 80,000 pesos for livestock

operating capital loans, and 80,000 pesos for total operating capital

loans. As long as returns to capital for the firm were greater than or

equal to the cost, capital could be borrowed up to the limit. The basic

capital cost was 9 percent annually for crop and livestock operating

capital, 11 percent for farm machine capital, and 4 percent for land and

housing capital (17, p. 9). None of the land and housing capital and

only one-fourth of the machine capital was included within the 80,000

pesos limitation. Additional capital could be procured in the commercial

capital market at about an 18 percent annual interest rate (8).

Operators entering INCORA programs generally are peasants and,

therefore, have no capital. They must pay full interest charges for all

operating and land capital. Therefore, in the analysis, only the full

interest charges were considered. However, as the family farm unit

develops in the future, it should acquire some capital ownership, there-

by reducing its interest cost as capital borrowings are reduced. Both

total operating capital required and semester capital required were

important. Total operating capital was the limiting factor in estimating

capital requirements, and interest on semester capital was considered

the relevant cost factor in production. A more detailed discussion of

the capital and credit resources and limitations is given in Appendix A.

Production Alternatives

Alternative crop and livestock enterprises were restricted to

those which could be produced efficiently in the area and for which there

were no major obstacles to production. Those enterprises considered to

be of minor importance to the production potential of the area because

of technical, economic, or institutional limitations were excluded.

Identification of the crop and livestock enterprises to be considered

was accomplished through consultation with professional agricultural

workers in the area, local producers, and professionals at the Turipana

Experiment Station. The crop enterprises included corn, cotton, grain

sorghum, sesame, soybeans and rice. The forage enterprises were Para

grass (Brachiaria imutica) under traditional, improved, and best manage-

ment methods. The livestock enterprises were beef bull fattening and

beef cow herds managed with traditional, improved, and best methods.

(See Appendix B.)

Prices and Costs

The prices paid for inputs and received for production were those

prevailing in the area. These prices are listed in Appendix A, Table A.I.

Input prices were obtained from local suppliers and were based on cash

sales. Prices of crops were based on actual prices received by farmers

in the area. Livestock prices were based on the fat cattle market in

Medellin and the local feeder price obtained from interviews with area

producers and livestock specialists.

capital requirements, and interest on semester capital was considered

the relevant cost factor in production. A more detailed discussion of

the capital and credit resources and limitations is given in Appendix A.

Production Alternatives

Alternative crop and livestock enterprises were restricted to

those which could be produced efficiently in the area and for which there

were no major obstacles to production. Those enterprises considered to

be of minor importance to the production potential of the area because

of technical, economic, or institutional limitations were excluded.

Identification of the crop and livestock enterprises to be considered

was accomplished through consultation with professional agricultural

workers in the area, local producers, and professionals at the Turipana

Experiment Station. The crop enterprises included corn, cotton, grain

sorghum, sesame, soybeans and rice. The forage enterprises were Para

grass (Brachiaria imutica) under traditional, improved, and best manage-

ment methods. The livestock enterprises were beef bull fattening and

beef cow herds managed with traditional, improved, and best methods.

(See Appendix B.)

Prices and Costs

The prices paid for inputs and received for production were those

prevailing in the area. These prices are listed in Appendix A, Table A.I.

Input prices were obtained from local suppliers and were based on cash

sales. Prices of crops were based on actual prices received by farmers

in the area. Livestock prices were based on the fat cattle market in

Medellin and the local feeder price obtained from interviews with area

producers and livestock specialists.

Machinery prices and costs were based on local dealers' F.O.B.

Monteria, quotations for lines sold and serviced in the area. Sizes of

machinery were based on present INCORA use specifications and on the

area to be cultivated by the machinery set. A machinery set is the

complement of equipment required to work a certain area of land under

predominant enterprise combinations and area work patterns. Machine

service life is longer than it is in the United States because of a

higher original investment cost and a lower repair labor cost, making

continued repair economical. The costs of operation, including parts,

repairs, machine operator labor, and maintenance are included in the per

hectare charge shown in Appendix A, Table A.1.

Some costs are practically independent of farm size and, there-

fore, cannot be allocated to specific enterprises, while others are

related to farm size. Such costs as fencing, pasture establishment,

building depreciation, and machinery ownership costs varied, according

to farm size and, therefore, were included in the enterprise budgets.

Expenses such as family housing and human transportation could

not be allocated to specific enterprises. The per farm unallocated

overhead costs based on information provided by INCORA were considered

to be negligible in the area. They were, therefore, assumed to be

included in the specified income level so that the farm size that covers

a specified income level would also include a small renumeration for

these factors.

Institutional Restraints

In addition to the INCORA requirement that economically viable

farm family production units be established, the relevant institutional

restraints were capital availability, land tenure, and market facil-

ities.

Semester operating capital and short term investment capital

were limited to 80,000 pesos total. Up to 45,000 pesos could be used

for crop production and the remaining sum up to 80,000 pesos was avail-

able for livestock and forage production. One-fourth of the machine

capital was borrowed from INCORA and was included in the 80,000 pesos

maximum. The remaining three-fourths was borrowed from the Caja de

Credito Agrario Industrial y Minero (Agricultural, Industrial, and

Mineral Bank) and was not included in the 80,000 pesos maximum loan

limit. Credit for land was provided by INCORA at an annual interest

rate of 4 percent. No limitation was placed on borrowing of land capital.

The analysis was made with as well as without these restrictions in order

to determine their effects on enterprise organization and resource

requirements.

Owner-operated farm units were assumed for the area. The analysis

was not concerned with alternative ways by which operators can obtain

control over resources. In this project area control is gained through

loans. The form of control assumed for the operational model was con-

sistent with INCORA's goals and policies for establishing owner-operated

family farm units in the area.

No market restraint for outputs or inputs was assumed. INCORA

provides the necessary assistance for drying, storing and marketing when

private and commercial facilities are inadequate. Commercial suppliers,

Caja Agraria, INCORA, and the producers' associations provide all the

necessary physical production inputs. Because of the extensive area

import and export trade, and the all-weather transportation system,

the area's production is integrated into national commerce. Therefore,

it is assumed that area development will have an insignificant impact on

product prices. The INCORA co-operative and the Caja Agraria supply

inputs at cost, plus a small percent markup, which is consistent with

the assumption of constant input costs.

Resource Requirements per 1,000 Pesos
of Net Revenue

Resource requirements per 1,000 pesos of net return for the crop

and livestock enterprises considered in the analysis are shown in

Tables 3.1 and 3.2, respectively. These data were developed from the

enterprise budgets given in Appendix B. The net returns of the budgets

did not include a charge for labor. The programming model included a

labor hiring activity which allowed additional labor to be hired during

any period that operator and family labor was exhausted.

A comparison of the data in the separate columns of the tables

indicates which enterprises are the most efficient users of the re-

strictive resources. Livestock activities generally required more land

to return 1,000 pesos of net income than did crop enterprises. Mech-

anized crops required less labor, but more land and operating capital,

than semi-mechanized crops. Best managed beef cow enterprises required

less labor, total operating capital, and forage per 1,000 pesos of net

return than the other beef cow enterprises. Fattening beef bulls

required less forage and land than best managed beef cows per 1,000 pesos

of net return. However, the operating capital requirements for fat-

tening beef bulls were considerably higher than for the beef cow

enterprises.

TABLE 3.1.--Resource requirements per 1,000 pesos of net return,
selected crop enterprises--INCORA Cordoba II Project,
Sinu River Valley, Colombia

Corn Cotton
Resource Unit Mech.a Semi b Mech. Semi.

Total labor Man-day 8.9 12.8 10.8 13.4

Jan.-Feb. Man-day 7.4 7.7
Mar.-June Man-day 1.0 6.1
July-Sept. Man-day 5.7 4.7 .5
Oct.-Dec. Man-day 2.2 2.0 3.4 5.2

Iandc

Class I Hectare .41 .39 .18 .16
Class II Hectare .45 .43 .19 .18
Class III Hectare
Class IV Hectare

Total operating
capital Peso 916 825 673 542

TABLE 3.1 (Extended)

Grain Sorghum Rice Sesame Soybeans

Mech. Semi. Mech. Semi. Semi. Semi.

1.4 9.8 2.3 32.6 20.3 9.3

.1 8.5 .7 3.5 9.3
1.3 1.3 1.6 .8 2.5
28.3 17.8

.45 .42 .32 .25 .51 .58
.50 .47 .36 .28 .54 .64
.32 .25

1,309 1,046 1,196 728 399 857

aMechanized or most advanced technology.

bSemi-mechanized or less advanced technology.

cThe land requirement is for a given land class only. For
example, the land requirement for mechanized corn production is .41
hectare of Class I land or .45 hectare of Class II land to provide
1,000 pesos of net income.

TABLE 3.2.--Resource requirements per 1,000 pesos of net return, selected
livestock enterprises--INCORA Cordoba II Project, Sinu River
Valley, Colombia

Beef cow on traditional Para Beef cow on improved
Resource Unit
Tradi- Improveda Besta Tradi-
tonala Improved Besta onala Improveda

Total labor Man-day 15.6 12.7 7.4 13.9 11.6

Jan.-Feb. Man-day .8 .7 .1 1.1 1.0
Mar.-June Man-day 7.1 5.7 3.6 6.1 5.0
July-Sept. Man-day 1.1 1.0 .1 5.4 4.3
Oct.-Dec. Man-day 6.6 5.3 3.6 1.3 1.3

Landc

Class I Hectare 1.67 1.26 1.05 1.07 .81
Class II Hectare 1.67 1.26 1.05 1.07 .81
Class III Hectare 1.67 1.26 1.05 1.07 .81
Class IV Hectare 1.67 1.26 1.05 1.07 .81

Forage for
grazing AUM's 40.1 30.3 25.3 40.1 30.3

Total operating
capital Peso 6,654 5,235 4,956 6,544 5,152

TABLE 3.2 (Extended)

Para Beef cow on best Para Fattening beef bulls on Para

Tradi- Tradi-
Besta tonala Improveda Besta tionalb Improvedb Bestb

6.0 15.6 12.9 7.3 6.6 5.6 6.7

.2 2.5 2.0 1.1 .2 1.0
2.9 4.1 3.5 1.8 3.3 2.7 1.6
2.7 5.4 4.3 2.7 2.5 2.5
.2 3.6 3.1 1.7 3.3 .2 1.6

.67 .77 .58 .48 .97 .62 .45
.67 .77 .58 .48 .97 .62 .45
.67 .77 .58 .48 .97 .62 .45
.67 .77 .58 .48 .97 .62 .45

25.3 40.1 30.3 25.3 23.3 23.3 23.3

4,887 6,708 5,275 4,990 7,928 7,864 7,959

aTraditional, improved, and best refer to herd management practices.

bTraditional, improved, and best refer to pasture management practices.

CThe land requirement is for a given class for land only.

CHAPTER IV

THE EFFECTS OF VARIATIONS IN YIELDS
ON MINIMUM RESOURCE REQUIREMENTS

The theoretical analysis indicated that net farm returns will

vary directly with yield levels given constant production costs, and

that minimum land requirements for specified income levels vary inversely

with yields. This chapter analyzes the effect that a 10 percent increase

or decrease from average yields of crop, pasture, and livestock enter-

prises had on land, labor, and capital requirements. These effects were

then generalized to selected physical and economic production uncer-

tainties in the area.

Operationally, the gross receipts of crops and livestock and the

physical outputs of pastures were varied. The direction of the effects

on minimum resource requirements would have been the same as: (a) varying

output prices of all crops and livestock, (b) varying physical pro-

duction, (c) varying all production costs, (d) using different soil

classes if costs were constant, and (e) any combination of these vari-

ables. The model used for the programmed results can be represented as

Y = ZPxlj XIj + ZPx2j X2j EPalj A1j ZPa2j A2j EPa3j A3j

ZPa4j A4j ZPa5j A5j EPa6j A6j F

Y = specified income level

Pxij = crop prices

Xlj = quantity of crop production

Px2j = livestock prices

X2j = quantity of livestock production

Palj = crop input costs

Alj = quantity of crop inputs

Pa2j = livestock input costs

A2j = quantity of livestock inputs

Pa3j = crop and livestock capital cost

A3j = quantity of crop and livestock capital

Pa4j = machine capital cost

A4j = quantity of machine capital

Pa5j = land capital cost

A5j = quantity of land capital

Pa6j = hired labor cost

A6j = quantity of hired labor

F = unallocated fixed costs

The solutions obtained assumed that all prices and quantities

were known with certainty. Holding Y constant and varying X1 and X2,

the minimum land requirements were determined for different yield levels.

Farm operators with different managerial abilities typically

operate in a situation where yields and prices are not known with cer-

tainty. Therefore, it is not unrealistic to interpret the results of

varying X1 and X2 as being caused by fluctuations in other variables and

coefficients in the equation. The plus and minus 10 percent variations

from average may not cover the range of managerial abilities or

uncertainty typically encountered by decision makers, but it should

provide a guide for decision making.

The establishment of average production costs, crop yields,

livestock yields, soil productivity base, and output prices represen-

tative of the area was difficult. For simplicity, perfect knowledge

and single valued coefficients were assumed. By establishing norms in

this manner, the degree of abstraction from individual farm situations

may limit the use of the results for INCORA and individual decision

making. Using a range of yields provided a means of estimating the

effects of individual managerial differences and the uncertainty within

a static framework; they made the programmed results applicable to a

larger body of individual decision makers. At the macro level, variable

yields rather than a single estimate provide a range of possible out-

comes for policy decisions. A crude estimate of the cost or value of

technology and other factors that affect yields or prices can be deter-

mined.

As defined in Chapter III, the yield levels assumed for this

study were: (a) average yields, (b) high yields which are 10 percent

above average yields, and (c) low yields which are 10 percent below

average yields.

In the following section the basic solution with average yields

is discussed. The effects of yield variations on the programmed farm

solutions are discussed in the remaining sections of this chapter.

Basic Solutions

INCORA's goals of establishing the maximum number of family farm

units to increase area production, income, and employment, while keeping

land, capital, and infrastructure requirements to a reasonable level,

can be met with a minimum size unit producing high return labor

intensive crops. Crops such as cotton, corn, and rice fall into this

category. Livestock activities utilize forage produced on lands that

are not economical for use in the production of other crops. INCORA,

other government agencies, and private organizations provide all the

credit and other services needed in the area.

The land qualities that provide the resource base are given in

Appendix A, Table A.5; the values of each productivity class are listed

in the same table. The value of good quality land was 18,000 pesos per

hectare. Average quality land was valued at 16,850 pesos per hectare

and poor quality land at 15,820 pesos per hectare. Purchase of this

land by farm operators is financed by INCORA. Details of the repayment

plan are given in Appendix A. In addition to interest cost, annual land

ownership costs included registration and municipal taxes shown in

Appendix A, Table A.6. The basic solutions requested by INCORA are for

15,000 pesos and 25,000 pesos net income to operator and family owned

resources.

15,000 Peso Income

The basic solution for a 15,000 peso income was programmed for

average quality land and average yield levels. A total land area of 3.9

hectares was required and six production activities were included. The

crop activities and their magnitudes as shown in Appendix C, Table C.5,

were 2.4 hectares of semi-mechanized cotton, .3 hectare of mechanized

rice, .7 hectare of semi-mechanized rice, and .5 hectare of best managed

pasture. The livestock activities included a .4 cow unit of best

managed beef cows and 1.9 head of fattening beef bulls. There were no

double cropping production practices entering this basic solution; thus,

the total land utilized was 3.9 hectares. A total of 291.2 man-days of

labor was required. Mainly, family labor was employed since only 8.7

man-days of hired labor was needed. Operator and family labor was fully

utilized in the January to February period; also during this period,

additional labor was hired for picking cotton.

The total operating capital required was 18,779 pesos. This

amount included all capital needed for production operations. It did

not include land capital payments which must be paid from operator and

family income.

Machine capital investment of 570 pesos was required to culti-

vate the land. The interest cost was included in operating cost, but

the payment on principal was made from the machine operating charges

listed in Table A.1 of Appendix A.

Crop and livestock semester capital included all operating capi-

tal used for that particular semester. This included all inputs required

each semester for production; a total of 5,891 pesos of crop semester

capital and 4,116 pesos of pasture and livestock semester capital was

required.

Gross receipts of 33,389 pesos were receive trom the sale of all

products. From the gross receipts were deducted: crop operating

expenses, pasture and beef operating expenses, annual interest on oper-

ating capital, cost of hired labor, and returns to land. The return to

operator and family labor, management and owned resources remained.

It is not possible to efficiently produce at the small scale of

some of the activities entering the programming solutions. Therefore,

some activities can be combined without causing major alterations in the

resource requirements as shown in Appendix C, Tables C.14, C.16, and

C.18. With fattening beef bulls as the only forage utilizing activity,

the land area increased by .1 hectare for average quality land. There

were proportional increases in all activities. Eliminating the best

managed beef cows decreased total operating capital requirements by

1,480 pesos. The total and hired labor requirements remained about the

same.

In addition to eliminating the best managed beef cows activity,

mechanized rice and best managed pasture were also eliminated (Appendix C,

Table C.16). Land requirements were increased by .2.hectare above the

base solution causing proportionate increases in all activities. The

total operating capital remained the same. However, the total labor and

hired labor increased by 49.3 and 44.8 man-days, respectively, reflecting

the labor effect of including only semi-mechanized rice production.

In a third situation best managed beef cows, best managed

pasture and semi-mechanized rice were eliminated. The results are shown

in Appendix C, Table C.18. Land requirements increased by .2 hectare

when compared with the basic solution and proportionate increases in all

activities occurred. Total operating capital increased only 254 pesos.

Introduction of mechanized rice reduced the total man-days of

labor utilized by 71.4 man-days, but it increased hired labor by six

man-days. The increase in hired labor was for the purpose of harvesting

the additional cotton produced.

25,000 Peso Income

The basic solution for a 25,000 peso income was programmed for

average quality land and average yield levels. A total of 7.1 hectares

were required and six production activities were included. The crop

activities and their magnitudes, as shown in Appendix C, Table C.6,

were 4.3 hectares of semi-mechanized cotton, 1.7 hectares of mechanized

rice, .1 hectare of semi-mechanized rice and 1.0 hectare of best managed

pasture. The livestock activities included a .7 cow unit of best

managed beef cows and 3.4 head of fattening beef bulls. No double

cropping of activities was practiced.

The 391.0 man-days of labor required included 102 man-days of

hired labor to assist in cotton harvest. Operator and family labor was

fully utilized during rice harvesting and cotton harvesting periods of

the crop year.

The operating capital requirement was 36,611 pesos. Machine

capital amounted to 1,045 pesos. The crop semester capital requirement

was 11,910 pesos and the pasture and livestock semester capital needs

were 5,097 pesos. Gross receipts were estimated to be 61,057 pesos.

Eliminating the best managed beef cow activity caused total land,

labor, and operating capital requirements to increase slightly but did

not cause any activity reorganization.

The elimination of best managed beef cows, best managed pasture,

and mechanized rice increased the land requirement by .7 hectare and

total operating capital by 1,992 pesos. Total labor requirement increased

by 265 man-days, of which 240 man-days were additional hired labor. This

reflected the increase in size of semi-mechanized rice and semi-mechanized

cotton enterprises.

The third variation of the basic programmed solution consisted of

the semi-mechanized cotton, mechanized rice, improved managed pasture,

and fattening.beef bulls activities. There was a .1 hectare increase in

land required as compared with the basic solution. The labor requirement

decreased by six man-days and operating capital decreased by 2,562

pesos.

Summary of Variable Yield Results

In this section, the programmed resource requirements for high,

average, and low yields are presented for income levels of 15,000,

25,000, 35,000 and 45,000 pesos.

The major findings and implications were:

(a) A 10 percent change in yield did not eliminate the
cotton activity from the solution; however, the size
of the enterprise changed inversely with the yield
levels. Mechanized rice replaced the semi-mechanized
rice at all yield levels as the specified income level
was increased, reflecting the higher production cost
due to hiring of additional labor. Best managed Para
replaced improved managed Para at high yield and income
levels reflecting the greater availability of labor
through crop mechanization systems and the lower land
capital requirement. Best managed beef cow and fat-
tening beef bull activities remained for all yield
levels, changing only in size with increases in income
levels.

(b) Minimum land requirements varied inversely with yields
at all income levels.

(c) Interpreting the results from the three yield levels
to include uncertainty showed that as yields decreased
and farm size increased, the income variance increased.

(d) Expanding the yield results to management and technology
implied that improved management or new technology paid
off faster on a larger farm.

(e) Increasing or decreasing the yield levels by 10 percent
directly affected area farm income by about plus or
minus 7 million pesos or 27 percent.

Effects of Yields on Farm Organization

The farm organization for three land qualities, at four income

levels with high, average, and low yields are given in Appendix C. The

farm organization was relatively stable over the entire range of all

decreased by six man-days and operating capital decreased by 2,562

pesos.

Summary of Variable Yield Results

In this section, the programmed resource requirements for high,

average, and low yields are presented for income levels of 15,000,

25,000, 35,000 and 45,000 pesos.

The major findings and implications were:

(a) A 10 percent change in yield did not eliminate the
cotton activity from the solution; however, the size
of the enterprise changed inversely with the yield
levels. Mechanized rice replaced the semi-mechanized
rice at all yield levels as the specified income level
was increased, reflecting the higher production cost
due to hiring of additional labor. Best managed Para
replaced improved managed Para at high yield and income
levels reflecting the greater availability of labor
through crop mechanization systems and the lower land
capital requirement. Best managed beef cow and fat-
tening beef bull activities remained for all yield
levels, changing only in size with increases in income
levels.

(b) Minimum land requirements varied inversely with yields
at all income levels.

(c) Interpreting the results from the three yield levels
to include uncertainty showed that as yields decreased
and farm size increased, the income variance increased.

(d) Expanding the yield results to management and technology
implied that improved management or new technology paid
off faster on a larger farm.

(e) Increasing or decreasing the yield levels by 10 percent
directly affected area farm income by about plus or
minus 7 million pesos or 27 percent.

Effects of Yields on Farm Organization

The farm organization for three land qualities, at four income

levels with high, average, and low yields are given in Appendix C. The

farm organization was relatively stable over the entire range of all

variables. Evaluation of programmed results indicated that no major

organizational changes were attributable to different yield levels. The

same cotton activity remained in the solutions; only the size of the

activity changed. Rice was included in all programmed solutions, but at

higher yield and income levels, the mechanized activity replaced semi-

mechanized rice production. At high yield levels, Para grass pasture

was more intensively managed. The organizational changes observed were

attributed to other variables in the program, such as labor and capital

costs.

Effects of Yields on Land Requirements

The minimum quantities of land required to obtain four different

income levels on three different land qualities with average yields are

given in Appendix C. The minimum land requirement for a 15,000 peso net

return to operator and family owned resources on average quality land

with average yields was 3.9 hectares. With high yields, it was 3.1

hectares, and with low yields, it was 5.3 hectares as shown in Table 4.1.

With 10 percent higher yields, the minimum land requirements were

decreased by an average of 21.5 percent over the four income levels.

The largest percentage decrease was for the two highest income levels.

The minimum land requirement was increased by an average of 38.3 percent

when yields were changed from average to 10 percent lower levels. The

three highest income levels required the greatest percentage increase in

the minimum land requirement.

Effects of Yields on Capital Requirements

Variations in yields changed the capital required to obtain a

specified income through the effect on both land capital and nonland

variables. Evaluation of programmed results indicated that no major

organizational changes were attributable to different yield levels. The

same cotton activity remained in the solutions; only the size of the

activity changed. Rice was included in all programmed solutions, but at

higher yield and income levels, the mechanized activity replaced semi-

mechanized rice production. At high yield levels, Para grass pasture

was more intensively managed. The organizational changes observed were

attributed to other variables in the program, such as labor and capital

costs.

Effects of Yields on Land Requirements

The minimum quantities of land required to obtain four different

income levels on three different land qualities with average yields are

given in Appendix C. The minimum land requirement for a 15,000 peso net

return to operator and family owned resources on average quality land

with average yields was 3.9 hectares. With high yields, it was 3.1

hectares, and with low yields, it was 5.3 hectares as shown in Table 4.1.

With 10 percent higher yields, the minimum land requirements were

decreased by an average of 21.5 percent over the four income levels.

The largest percentage decrease was for the two highest income levels.

The minimum land requirement was increased by an average of 38.3 percent

when yields were changed from average to 10 percent lower levels. The

three highest income levels required the greatest percentage increase in

the minimum land requirement.

Effects of Yields on Capital Requirements

Variations in yields changed the capital required to obtain a

specified income through the effect on both land capital and nonland

TABLE 4.1.--Resource requirements to obtain specified operator and family
incomes with high, average, and low yields, average land
quality--INCORA Cordoba II Project, Sinu River Valley,
Colombia

Income level
Yields Item Unit
15,000 25,000 35,000 45,000
pesos pesos pesos pesos

Land Hectares 3.1 5.6 8.1 10.8
Change Percent -20.5 -20.5 -22.8 -22.3
Operating
capital Pesos 14,703 28,076 42,319 57,324
High
Change Percent -21.7 -23.3 -15.0 -14.0
Labor Man-days 263.2 343.3 438.6 581.2
Change Percent -9.6 -12.2 -21.5 -21.5
----------------------------------------------------------

Land Hectares 3.9 7.1 10.5 13.9

Average Operating
capital Pesos 18,778 36,611 49,809 67,249
Labor Man-days 291.2 391.0 558.6 740.0
---------------------------------------------------------------------

Land Hectares 5.3 9.9 14.6 19.3
Change Percent 35.9 39.4 39.0 38.8
Operating
Low capital Pesos 23,537 46,495 70,730 94,965
Low
Change Percent 25.3 27.0 42.0 41.2
Labor Man-days 333.1 524.1 776.3 1,028.4
Change Percent 14.4 34.0 38.9 39.0

aChange from average yields.

capital. As yields increased, the land required to produce a specified

income decreased, thereby reducing the land capital. With land price

constant, land capital and hectares of land are perfectly correlated,

causing relative changes in land capital and hectares of land to be the

same. However, the change in nonland capital is not necessarily in pro-

52

portion to changes in land requirements, if changes occur in the kinds

of activities entering into the solution, or if a change in the size of

any activity occurs.

At a 45,000 peso income with low yields on all land qualities,

the total operating capital restrictions of 80,000 pesos imposed by

INCORA were exceeded, and the current crop operating capital limitation

of 27,000 pesos per semester was exceeded as well. Thus, under present

institutional restrictions, the 45,000 peso income level at low yields

would not be feasible. Based on the programming results, all other

income levels considered are possible.

The total operating capital required to earn 15,000 pesos varied

from 14,703 pesos for high yields to 23,537 for low yields, as shown in

Table 4.1. High yields reduced operating capital requirements 21.7 per-

cent, and low yields increased these capital requirements 25.3 percent.

For all income levels, high yields reduced the operating capital require-

ments by an average 18.5 percent, and low yields increased the capital

requirements by an average of 33.9 percent.

Effects of Yields on Labor Requirements

Labor requirements are affected directly by the crop, pasture

and livestock activities included in the farm organization and the sizes

of those activities. The variation in labor requirements due to yields

was a result of changes in farm size or a shift to less labor intensive

activities.

The labor required to obtain a 15,000 peso income with average

yields was 291 man-days, 263 man-days with high yields, and 333 man-days

with low yields. This represented a decrease in labor requirements of

9.6 percent for high yields and an increase of 14.4 percent for low

yields as compared to the average yield situation. The same general

trend was found for the 25,000, 35,000 and 45,000 peso income levels.

Implications of Yields for Farm Size
Planning Decisions

Variable yield results can provide information on environments

characterized by risk and uncertainty rather than by perfect knowledge.

The results can also provide information for groups of producers outside

the project area or for producers whose management abilities are above

or below the average assumed in this study.

It was assumed in all programmed results that the amounts and

prices of all inputs and outputs were known with certainty. Use of high,

average, and low crop yields provided a method for obtaining information

on a range of possible outcomes through programming. The effect on

operator incomes would be the same if any of the assumed constants in the

equation at the beginning of the chapter were allowed to vary.

Theoretically, uncertainty implies additional costs or lost

revenue due to improperly timed harvest, grass not grazed, inopportune

livestock sales, or reduced input levels with resulting lower outputs

than under conditions of certainty. No attempt has been made to deter-

mine the range or standard deviation of net income variability encountered

by producers. Assuming the probability is low that net income will vary

more than the variations associated with yield changes of plus and minus

10 percent, the results will be useful for evaluating management

decisions under uncertainty. If the probability is great that net income

will vary more than that associated with these yields, then these results

are of limited worth in evaluating uncertainty.

For some of the peasant farm units, uncertainty is closely asso-

ciated with survival of a family farm unit. If a normal distribution for

programmed incomes is assumed, 50 percent of the time incomes will be less

than specified. If family farm unit survival requires a minimum income

75 percent of the time, a larger size unit than indicated by average

yields is required. For example, with low yields on average land a

family farm unit required 5.3 hectares for a 15,000 peso income. However,

with average yields on average land, only 3.9 hectares wererequired. A

farmer receiving low yields on average land for a unit programmed with

average yield would have only 73.5 percent of the land necessary to

attain an income of 15,000 pesos annually.

Another aspect of interest to peasant farmers and INCORA con-

cerning uncertainty, is the variability of income about the mean or its

range. The programmed results shownin Figure 4.1 indicate a range of

farm incomes for various farm sizes with three different yield levels.

The range of incomes increases as farm size increases. For example, a

six-hectare farm has an income variance from 16,000 pesos to about

28,500 pesos or a range of 12,500 pesos. A 50 percent increase in farm

size to nine hectares causes an increased income variance from about

22,500 pesos to 38,000 pesos, or a 15,500 peso range. The expected

results of larger family farm units are: (a) increased expected mean

incomes, (b) increased range of expected incomes, and (c) increased expected

income in good weather years.

Environments above or below average are shown by the fact that

individual operators have different average returns from the same set of

production conditions. This difference is often attributed to dif-

ferences in production techniques, managerial skills, or both. Therefore,

Hectares
of I and

20 /
...... High yields /
18 Average yields /
Low yields
10 /

8-
/
14 /
/ /

10 / "

5,000 15,000 25000 35,000 45,000

Net income in pesos

Figure 4.1.--Hectares of land required to obtain specified net
income levels with high, average and low yields
on average quality land.

average for some farm operators may be represented by high yields in this

study, whereas average for others may be represented by low yields.

If the programmed results cover the practical range of vari-

ability in management skill, the information presented in Figure 4.1 may

show the probable gains or losses from different levels of management

employed on various farm family unit sizes. For the next 15 years, farm

sizes in the Cordoba II Project area will be fixed. Any increases in

farm family income will come from increased productivity or efficiency.

Results of programming high, average, and low yields indicated

that when labor was fixed to the family production unit, increases in

farm size increased utilization of family labor, increased family income,

and also provided enlarged returns to superior management skills.

Area Implications of Yield Variations

The economy of an area can be greatly affected by a 10 percent

increase or decrease in area yields. Increasing area yields by 10 per-

cent can increase area farm income by approximately 7 million pesos, as

shown in Table 4.2. Total economic activity in the area would be

increased by 7 million pesos times the multiplier effect. It is apparent

that nonfarm businesses as well as farmers can benefit from improved

agricultural technology, such as new crop varieties, water management,

chemical inputs, and improved management systems that increase yields.

The reverse is true if these improved technologies are not adopted in

the study area and if other areas of Colombia adopt output increasing

technologies which cause prices to decline because of increased supply.

Net returns are practically a linear function of the number of

hectares in the farm unit. The increase or decrease in area income

57

caused by how farms are organized is relatively small compared to the

increase or reduction in income caused by lower yields.

TABLE 4.2.--Effect of high, average, and low yields on numbers of farms
and area net farm income for specified income levels--INCORA
Cordoba II Project, Sinu River V4lley, Colombia

Income level
Yields Item Unit
15,000 25,000 35,000 45,000
pesos pesos pesos pesos

Area farms Number

Changeb

Percent

Area income Pesosd

2,258
25.9

1,250
26.9

40,572 38,063

864
29.7

648
28.8

37,197 36,147

Change Percent 20.6 20.7 23.2 22.2
------meemeemm----------------------------------------------------------

Area farms

Number 1,794

985

666

503

Average Area income Pesos 33,638 31,539 30,191 29,578
---------------------------"~----------------------------

Area farms

Number 1,320

Change

Percent

Area income Pesos
Change Percent

-26.4

26,508
-21.2

-28.2

-28.1

-28.0

24,400 23,706 23,280

-22.6

-21.5

-21.3

aThe number of farms is calculated from the estimated 7,000
hectares in the study area and the minimum land requirements given in
Table 4.1.

bThe percent change is based on the number of farms the area can
support at average yields.

cArea income used here includes only returns to operator and fam-
ily labor, a 4 percent return on land capital, a 9 percent return on crops
and livestock operating capital, 11 percent return on machinery capital,
and real estate taxes.

dThese units are in thousands.

eThe percent change is based on the area income at average

yields.

High

Low

479

Though the specific income level and activity mix selected for

each farm unit does not materially affect total farm income of the area,

it does have a direct effect on the number of farm family units the area

can support. The number of farm families and their income levels are

important for decisions concerning schools, social institutions, markets

and communications.

The number of farms and the area income for alternative levels

of farm family income are shown in Table 4.2. High yield levels increase

both area farm income and the number of farm family units that can be

established in the project area by an average of about 27 percent for

all income levels.

The number of farms and the per farm income are also important

for evaluating future levels of demand for inputs and consumer goods

within the area. If development results in larger units with a larger

per farm income, the aggregate demand schedule for products in the area

will differ from that under a situation of lower incomes per farm and

more farm units. The actual aggregate demand will depend on individual

tastes and preferences and the income elasticity of demand for a partic-

ular good.

CHAPTER V

THE EFFECTS OF DIFFERENCES IN LAND QUALITY ON
MINIMUM RESOURCE REQUIREMENTS

For this analysis, the land quality was varied by changing the

percentage of cropland and pasture land in a representative hectare.

The programmed effects of land quality were directly related to the pro-

portion of each productivity class in a representative hectare.

Summary of Variable Land Quality Results

The percentages of Classes I, II, III, and IV land in a repre-

sentative hectare of good, average, and poor quality land are given in

Chapter III and in Appendix A, Table A.5. Programmed results using good,

average, and poor land with four income levels and average yields were

evaluated. The principal findings and implications were:

(a) Land quality had no effect on the combinations of crops
and livestock produced on a particular soil productivity
class except indirectly through labor requirements.
Land quality did affect the quantity of each soil pro-
ductivity class on a given farm size and, therefore, the
size of each crop and livestock activity produced.

(b) For the land qualities and land prices programmed, as
land quality increased, the minimum land required and
the total operating capital required decreased. How-
ever, the total labor required increased.

(c) Good quality land required more labor per hectare and
poor quality land required less labor per hectare. The
reason was that good quality land had a higher proportion
of land capable of producing labor intensive crops.

CHAPTER V

THE EFFECTS OF DIFFERENCES IN LAND QUALITY ON
MINIMUM RESOURCE REQUIREMENTS

For this analysis, the land quality was varied by changing the

percentage of cropland and pasture land in a representative hectare.

The programmed effects of land quality were directly related to the pro-

portion of each productivity class in a representative hectare.

Summary of Variable Land Quality Results

The percentages of Classes I, II, III, and IV land in a repre-

sentative hectare of good, average, and poor quality land are given in

Chapter III and in Appendix A, Table A.5. Programmed results using good,

average, and poor land with four income levels and average yields were

evaluated. The principal findings and implications were:

(a) Land quality had no effect on the combinations of crops
and livestock produced on a particular soil productivity
class except indirectly through labor requirements.
Land quality did affect the quantity of each soil pro-
ductivity class on a given farm size and, therefore, the
size of each crop and livestock activity produced.

(b) For the land qualities and land prices programmed, as
land quality increased, the minimum land required and
the total operating capital required decreased. How-
ever, the total labor required increased.

(c) Good quality land required more labor per hectare and
poor quality land required less labor per hectare. The
reason was that good quality land had a higher proportion
of land capable of producing labor intensive crops.

Effects of Land Quality on Farm Organization

The crop and pasture enterprises that can be grown most profit-

ably were related to land quality. These crops and pastures in turn

affected which livestock activities could best utilize the forage

produced.

Based on programmed results, land quality had no direct effect

on land use for any given productivity class. Differences in land

quality changed the proportions of each soil productivity class com-

prising a representative hectare. The cropland-noncropland proportions

varied with land quality changes, causing proportional changes of the

crops, pastures, and livestock activities required within the farm unit

to provide various specified income levels. Indirectly, land quality

also affected farm organization through the labor requirements of various

activities. Good quality land had a higher proportion of Classes I and

II cropland which was capable of growing more labor intensive crops than

Classes III and IV; therefore, good land required more labor per hectare.

Farm organizational changes resulting from variations in hired labor

costs will be discussed in Chapter VI.

The farm organization for three land qualities at four income

levels with high, average, and low yields are given in Appendix C.

Effects of Land Quality on Land Requirements

The quantities of land required for four income levels, with av-

erage yield levels and three land qualities are given in Table 5.1.

Within any given land quality, the minimum land requirements were almost

a linear function of income levels until available operator and family

labor in a period was completely utilized.

Effects of Land Quality on Farm Organization

The crop and pasture enterprises that can be grown most profit-

ably were related to land quality. These crops and pastures in turn

affected which livestock activities could best utilize the forage

produced.

Based on programmed results, land quality had no direct effect

on land use for any given productivity class. Differences in land

quality changed the proportions of each soil productivity class com-

prising a representative hectare. The cropland-noncropland proportions

varied with land quality changes, causing proportional changes of the

crops, pastures, and livestock activities required within the farm unit

to provide various specified income levels. Indirectly, land quality

also affected farm organization through the labor requirements of various

activities. Good quality land had a higher proportion of Classes I and

II cropland which was capable of growing more labor intensive crops than

Classes III and IV; therefore, good land required more labor per hectare.

Farm organizational changes resulting from variations in hired labor

costs will be discussed in Chapter VI.

The farm organization for three land qualities at four income

levels with high, average, and low yields are given in Appendix C.

Effects of Land Quality on Land Requirements

The quantities of land required for four income levels, with av-

erage yield levels and three land qualities are given in Table 5.1.

Within any given land quality, the minimum land requirements were almost

a linear function of income levels until available operator and family

labor in a period was completely utilized.

TABLE 5.1.--Resource requirements to obtain specified operator and family
incomes with good, average, and poor land, average yield
levels--INCORA Cordoba II Project, Sinu River Valley,
Colombia

Land Income level
Quality Item Unit
15,000 25,000 35,000 45,000
pesos pesos pesos pesos

Land Hectares 3.7 6.7 9.9 13.1
Change Percent -5.1 -5.6 -5.7 -5.8

Good Operating
capital Pesos 16,141 29,079 44,934 60,789
Change Percent -14.0 -20.6 -9.8 -9.6
Labor Man-days 297.2 400.4 593.5 785.7
Change Percent 2.1 2.4 6.2 6.3
------------------------------------------------------------------

Land Hectares 3.9 7.1 10.5 13.9

Operating
Average capital Pesos 18,778 36,611 49,809 67,248

Labor Man-days 291.2 391.0 558.6 739.0

Land Hectares 4.1 7.6 11.1 14.7

Change Percent 5.1 7.0 5.7 5.8
Operating
Poor capital Pesos 21,297 41,102 54,328 73,235

Change Percent 13.4 12.3 9.1 8.9

Labor Man-days 283.9 377.3 516.7 684.0
Change Percent -2.5 -3.5 -7.5 -7.4

aChange from average quality land.

An important effect of land quality on minimum land requirements

was the relationship between land quality, capital requirements, and

labor requirements. Good quality land reduced the minimum land and the

total operating capital required to attain specified levels of income as

shown in Table 5.1. However, the total labor required to attain the

specified income levels on good land increased slightly. This was

because good land permitted cultivation of crops that were more labor

intensive such as cotton. Poor land required more hectares, therefore,

more total operating capital to attain specified income levels. Because

livestock and pasture activities required less labor per unit of pro-

duction, the labor requirement for specified income levels on poor land

decreased as compared to average quality land. A representative hectare

of good quality land had 15 percent more of Classes I and II soil than

average quality land. Poor land had 15 percent less-of Classes I and II

soil than a representative hectare of average quality land.

The amount of good quality land required to produce a 15,000

peso net income was 5.1 percent less than with average quality land,

while poor quality land required 5.1 percent additional land to attain

the same specified income level. These same trends continued through

the other income levels as shown in Table 5.1.

Effects of Land Quality on Capital Requirements

The total capital requirement was composed of both land capital

and nonland capital. Land quality affected both. Land capital was

affected through the size of farm unit required and land price. Nonland

capital was dependent on the crop and livestock activities best suited

to a particular land quality. The total operating capital requirements

for three land qualities and four income levels are shown in Table 5.1.

Operating capital requirements associated with poor quality land

were greater than those for the better land qualities for all programmed

situations. As expected from the minimum land requirements of Table 5.1,

the operating capital requirement spread between different land qualities

increased at higher income levels. With different land prices for the

three land qualities as the minimum land requirements changed, total

operating capital requirements changed in the same direction. This

change reflected the high influence of land productivity on total oper-

ating capital requirements.

Effects of Land Quality on Labor Requirements

The variability of labor as related to land qualities was due to

a greater labor requirement of cultivated crops, particularly cotton,

when the larger proportions of Classes I and II soils comprising good

land permitted increasing the area planted to these crops. Cotton

required considerably more labor than any other activity considered.

Poor quality land utilized less labor intensive activities to achieve

the specified income levels. Poor quality land had a higher proportion

of land suitable only for Para pasture. The pasture can only be uti-

lized through livestock activities which are less labor intensive than

cultivated crops.

As shown in Table 5.1, programmed results of labor requirements

varied directly with land quality. A net income of 15,000 pesos for

average quality land and average yields required 291.2 man-days of labor.

With good quality land and average yields, 297.2 man-days of labor are

required to obtain the same income level representing an increase of

2.1 percent in labor requirements. Poor quality land with average

yields required 283.9 man-days of labor or a decrease of 2.5 percent to

receive a 15,000 peso net income. In general, the same relationships

between land quality and labor requirements held true for all other

income levels.

Land quality has important implications for labor utilization in

the area. Higher quality land means more labor intensive enterprises

such as cotton, rice, or corn and less labor extensive activities such

as native pastures and extensive beef cow activities. The labor inten-

sive activities are somewhat more compatible with INCORA's goals of

increasing the general level of employment in the area.

Implications for Farm Management
and Area Policy Decisions

As land quality improved, the number of hectares required by a

farm family unit to earn various specified levels of net income decreased.

Also, as land quality is increased and farm unit size is decreased, the

total operating capital required to obtain specified incomes decreased

at every income level. The higher quality land increased the labor

required for production at every income level. For the individual

operator and his family, this means a smaller unit, smaller total oper-

ating capital requirement, and greater utilization of operator and family

labor.

Improving land quality through drainage increases area employment

as well as the number of family farm units that can be established in the

area. Because the reduction in operating capital requirements to attain

specified income levels is more in proportion to the increase in the

number of farms, the aggregate amount of agricultural production capital

required for the area is reduced as land quality is increased. This

reduction in aggregate production capital requirements amounted to 2.3

million pesos for a 15,000 peso income level per farm, 5.7 million pesos

for a 25,000 peso income, and 1.4 million pesos for both the 35,000

65

peso and the 45,000 peso income levels. Increasing the number of

family farm units in the area through improvement in land quality

increased the area's farm income by slightly over 6 percent at all

income levels. The overall effect on area economic activity would be

this 6 percent increase in farm income plus its multiplier effect.

CHAPTER VI

THE EFFECTS OF PRICE CHANGES ON MINIMUM
RESOURCE REQUIREMENTS

In this chapter, the cost of two critical inputs, labor and

capital, and the net return from the two principal enterprises, cotton

and rice, are varied to evaluate the effects on the optimum enterprise

and minimum resource solutions. Wage and interest rates were varied

upward at specified increments. In a similar manner, returns from

cotton and rice were decreased.

Effects of Increases in Interest Rates

The optimum organizations for a 15,000 and a 25,000 peso income

level and four levels of interest rates are considered in this section.

Higher interest rates increased the minimum farm size, decreased the

total operating capital used and slightly increased the total labor

required. Although the kinds of crops and livestock produced did not

change, there were shifts to more labor intensive methods of producing

these activities. Because of increased emphasis on activities which

used labor during one peak period, a near doubling of the interest rates

decreased the area's aggregate farm income by only 1.9 million pesos or

7.5 percent.

The effects of higher interest rates on farm organization are

shown in Appendix D, Tables D.1 and D.2. As interest rates increased,

there was an increase in semi-mechanized rice production. Double

CHAPTER VI

THE EFFECTS OF PRICE CHANGES ON MINIMUM
RESOURCE REQUIREMENTS

In this chapter, the cost of two critical inputs, labor and

capital, and the net return from the two principal enterprises, cotton

and rice, are varied to evaluate the effects on the optimum enterprise

and minimum resource solutions. Wage and interest rates were varied

upward at specified increments. In a similar manner, returns from

cotton and rice were decreased.

Effects of Increases in Interest Rates

The optimum organizations for a 15,000 and a 25,000 peso income

level and four levels of interest rates are considered in this section.

Higher interest rates increased the minimum farm size, decreased the

total operating capital used and slightly increased the total labor

required. Although the kinds of crops and livestock produced did not

change, there were shifts to more labor intensive methods of producing

these activities. Because of increased emphasis on activities which

used labor during one peak period, a near doubling of the interest rates

decreased the area's aggregate farm income by only 1.9 million pesos or

7.5 percent.

The effects of higher interest rates on farm organization are

shown in Appendix D, Tables D.1 and D.2. As interest rates increased,

there was an increase in semi-mechanized rice production. Double

cropping of corn entered the programming solution at the higher interest

rates for the 25,000 peso income level. There was a decrease in the pasture

management level and in the size of the livestock activities.

As the interest rate increased, the number of hectares in the

minimum size unit for specified incomes increased as shown in Table 6.1.

Each 1 percent increase in interest rate required about a .9 percent

increase in land area.

Increased interest rates had a decreasing effect on the total

operating capital requirements as shown in Table 6.1. Resources were

shifted into less capital intensive enterprises. The magnitude of the

effect of interest rates on total operating capital requirements

decreased as interest rates increased. Labor requirements increased

only slightly with higher interest rates.

Interest rates had no effect on the principal activity mix of

the area, although increasing capital costs encouraged use of more

intensive levels of management. Area farm income and the number of

farms in the area decreased as interest rates increased.

Effects of Increases in Hired Wage Rates

The optimum organization of farm family units for the 15,000 and

25,000 peso income levels and four different wage rates are considered

in this section. Increasing wage rates had negligible effects on land

requirements. A moderate increasing effect on operating capital require-

ments occurred. A shift to enterprises that more fully utilized operator

and family labor occurred as the wage rate for hired labor was increased.

Increasing the wage rate affected organization by encouraging

maximum use of farm family labor and keeping hired labor at a minimum.

TABLE 6.1.--Resource requirements for a 15,000 and 25,000 peso net
income, alternative levels of interest rates and average
land quality--INCORA Cordoba II Project, Sinu River Valley,
Colombia

Interest Income level
rate Item Unit
15,000 25,000
pesos pesos

Land Hectares 3.9 7.1
Basea Operating capital Pesos 18,778 36,611
Labor Man-days 291.2 391.0
-------------------------------------------------------------------

Land Hectares 4.0 7.3
Change Percent 2.6 2.8
+ 3% Operating capital Pesos 16,973 33,397

Change Percent -9.6 -8.8
Labor Man-days 292.5 394.0
Change Percent .4 .7
--------------------------------------------------------- m--------
Land Hectares 4.1 7.5
Change Percent 5.1 5.6
Operating capital Pesos 17,396 34,264
+ 6% Change Percent -7.4 -6.4

Labor Man-days 295.1 399.3
Change Percent 1.3 2.1
-----------------------------------------------------------

Land Hectares 4.2 7.7
Change Percent 7.7 8.5
Operating capital Pesos 17,842 35,209
+ 9% Change Percent -5.0 -3.8

Labor Man-days 297.9 405.1
Change Percent 2.2 3.6

aBase interest rates are 9 percent on crop and livestock
semester capital and 11 percent on machine capital.

bChange from base interest rates.

The quantity of total labor required increased as the hired wage rates

were increased until a rate of 19 pesos per day was reached. The

quantity of hired labor remained almost constant for wage rates of 15

and 17 pesos per man-day. At a wage rate of 19 and 20 pesos per man-

day, hired labor was eliminated from the production units for a 15,000

peso and 25,000 peso income levels, respectively. Changes in hired

wage rates had little effect on the size of the farm family units. As

wage rates rose, more efficient use of operator and family labor mini-

mized the area income loss to about 1.4 percent based on the programmed

results.

Varying the wage rates of hired labor had a very minor effect on

farm organization as shown in Appendix D, Tables D.3 and D.4. At the

highest wage rates double cropping of corn replaced some cotton and thus

used operator and family labor more fully.

The minimum quantity of land required for the specified income

level was only slightly affected in an upward direction as shown in

Table b.2. At the lower specified income level no effect of increased

wage rates on land requirements was apparent from the programmed results.

This was because of the high utilization of the operator and family labor

on the farm units. Capital requirements increased slightly in an almost

linear relation with the increased wage cost.

As wage rates increase, managers will need to reallocate present

resources to take advantage of unused family labor. An example of this

is indicated by the introduction of a double cropping system.

The change in hired wage rates had no effect on the number of

farms or area income for the 15,000 peso income level. This was because

the units relied almost entirely on operator and family labor. At the

TABLE 6.2.--Resource requirements for a 15,000 and 25,000 peso net
income, alternative wage rates and average land quality--
INCORA Cordoba II Project, Sinu River Valley, Colombia

Income level
Wagea Item Unit
15,000 25,000
pesos pesos

Land Hectares 3.9 7.1
Base of
15 pesos Operating capital Pesos 18,778 36,611
Labor Man-days 291.2 391.0

Land Hectares 3.9 7.2

Change

Percent

0.0

1.4

Operating capital Pesos 18,810 36,982
17 pesos Change Percent 1.7 1.0

Labor Man-days 291.4 393.1
Change Percent 0.0 0.5

Land Hectares 3.9 7.2
Change Percent 0.0 1.4
Operating capital Pesos 18,846 37,377

19 pesos

Change
Labor

Percent
Man-days

2.1
395.0

Change Percent 0.1 1.0

Land
Change
Operating capital
Change
Labor
Change

Hectares
Percent
Pesos
Percent
Man-days
Percent

3.9
0.0
18,846
3.6
291.5c
0.1

7.2
1.4
37,643
2.8
385.0
-1.5

aRate paid for one man-day of labor.

bChange from base hired wage rate.

cNo labor was hired with wage rate of 19 pesos per day.

20 pesos

__ ~_ ~

291.5c

25,000 peso income level area income and the number of farms in the

area decreased slightly when the wage rate on hired labor was increased

to 17 pesos per day. For further wage rate increases, no change occurred

in the number of farms or area income.

Effects of Reductions in the Price of Cotton

Cotton was included in the farm enterprise mix of all the pro-

gramming solutions. Therefore, the price of cotton was varied to deter-

mine its effects on farm size, capital requirements, labor requirement,

activity mix, area income and number of farms in the area. This analysis

was particularly relevant for future decisions concerning the price

support program for cotton in Colombia on the area.

In the programming analysis, the gross revenue from cotton was

varied downward at 500 peso increments (equivalent to $29.85 U.S. per

hectare) until cotton did not enter the optimum activity mix for the

15,000 peso and 25,000 peso income levels. The effects on farm organi-

zation of decreasing the revenue from cotton are shown in Appendix D,

TablesD.5 and D.6. As the price of cotton decreased, production was

shifted to a double crop corn rotation. A small increase in pasture

area was also noted. When cotton was dropped from the activity mix,

corn replaced all the land formerly used by cotton. A decrease in the

price of cotton increased the quantity of land required to obtain the

specified income levels. The total operating capital requirements

tended to increase as the price of cotton was reduced. Total labor

requirements increased slightly as long as cotton was still included in

the activity mix, but dropped when it was excluded. Hired labor was

eliminated after the first price drop in all solutions. A 500 peso

decrease in gross returns per hectare is equivalent to a price decrease

of 20 pesos per kilogram. Thus, with only a slight decrease in the

price of cotton, the activity mix excludes cotton production in the

area. This result points to the importance of maintaining price support

programs for cotton if its production is to be encouraged in the area.

As farm size increased, the number of farms possible in the area

decreased, and the variance of an individual farmer's possible income

range increased because of the increased size of unit required for a

specified income level.

The minimum resource requirements for the two specified income

levels are shown in Table 6.3. The minimum land required increased for

each incremental decrease in cotton price until cotton was eliminated

from the activity mix. Total operating capital requirements also

increased with each reduction in the price of cotton. Labor require-

ments increased only slightly and even dropped when cotton was with-

drawn from the activity mix for the 25,000 peso income level.

Price reductions reduced the overall area farm income and the

number of farm family units that can obtain the specified income. The

elimination of cotton also reduced the overall employment in the area.

However, the elimination of cotton permitted making greater use of

operator and family labor.

Effects of Reductions in the Price of Rice

The optimum solutions for the specified income levels all in-

cluded some level of rice production. Rice is especially well adapted

to the heavy humid soils of the area and will likely become increasingly

important in the area. Changes in price levels will affect the optimum

size unit required to utilize operator and family labor and attain the

specified income levels.

TABLE 6.3.--Resource requirements for a 15,000 and 25,000 peso net
income, variable cotton prices and average land quality--
INCORA Cordoba II Project, Sinu River Valley, Colombia

Income level
Cotton
cotton Item Unit
price 15,000 25,000
pesos pesos

Land Hectares 3.9 7.1
Base Operating capital Pesos 18,778 36,611
Labor Man-days 291.2 391.0

Land Hectares 4.3 7.6
Changea Percent 10.3 7.0

500 peso Operating capital Pesos 20,892 39,681
decrease Change Percent 11.3 8.4
Labor Man-days 302.1 395.1
Change Percent 3.7 1.0

Land Hectares 4.6b 8.0
Change Percent 17.9 12.7

1,000 peso Operating capital Pesos 24,640 42,772
decrease Change Percent 31.2 16.8
Labor Man-days 298.8 396.7
Change Percent 2.6 1.5

Land Hectares 4.6 8.0
Change Percent 17.9 12.7
No Operating capital Pesos 24,640 44,105
cotton Change Percent 31.2 20.5
Labor Man-days 298.8 372.5
Change Percent 2.6 -4.7

aChange from base price of cotton.

bNo cotton entered the solution at a gross return 1,000 pesos
($60 U.S.) below the base gross return.

The farm organization of enterprises for the 15,000 and 25,000

peso income levels at different price levels for rice and one without

rice production were programmed. The effect of decreasing the price of

rice was to increase the size of unit required to obtain the specified

income levels. The effect on operating capital requirements varied

directly with the size of the farm unit in the case of a 15,000 peso

income level. For the 25,000 peso income level, operating capital

requirements increased due to an increase in farm size and a readjust-

ment of the activity mix when rice was eliminated. The labor require-

ments generally increased as the price of rice declined except in the

case of no rice at a 15,000 peso income where shifting to livestock

enterprises reduced the total labor requirement. The optimum organi-

zations for the 15,000 and 25,000 peso income levels with a declining

price for rice are shown in Appendix D, Tables D.7 and D.8. The basic

solution and the effects of varying the price of rice and of excluding

rice are shown in Table 6.4.

The assumption of average yields implies that 50 percent of the

producers will get an income below the specified level and 50 percent

will get one above it. As the price of rice declines, farm size will

have to be increased to obtain the specified incomes; the variance of

incomes within a particular farm unit size will increase because of a

greater opportunity for differentials to develop between good and poor

managers.

Reducing the price of rice decreased the number of farms in the

area and decreased area net farm income. Elimination of rice from the

activity mix decreased area farm income by 3.5 and 4.5 million pesos for

the 15,000 peso and 25,000 peso income levels, respectively.

TABLE 6.4.--Resource requirements for a 15,000 and 25,000 peso net
income, variable rice prices and average land quality--
INCORA Cordoba II Project, Sinu River Valley, Colombia

e Income level
Price
of rice Item Unit
15,000 25,000
pesos pesos

Land Hectares 3.9 7.1
Base Operating capital Pesos 18,778 36,611
Labor Man-days 291.2 391.0

Land Hectares 4.2 7.8
Change Percent 7.7 9.9
1,000 peso Operating capital Pesos 20,665 35,752
decrease
decrease Change Percent 10.0 -2.3

Labor Man-days 301.8 412.3
Change Percent 3.5 5.4

Land Hectares 4.6 8.3b
Change Percent 17.9 16.9
2,000 peso Operating capital Pesos 29,014 51,967
decrease
Change Percent 54.5 41.9
Labor Man-days 317.1 447.8
Change Percent 8.9 14.5

Land Hectares 4.7 8.3
Change Percent 20.5 16.9
No Operating capital Pesos 35,958 51,967
rice Change Percent 91.5 41.9
Labor Man-days 262.9 447.8
Change Percent -9.7 14.5

aChange from base price of rice.

bNo rice entered the solution at a gross return 2,000 pesos
($119 U.S.) below the base gross return.

76

The large potential for expansion of rice production presents

important considerations for INCORA policy makers. Rice production could

easily be tripled with only small increases in inputs. This could have

a tremendous effect on area output and area income, and cause consider-

able reallocation of production resources.

MILLISECOND	CLASS.METHOD	MESSAGE
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0	system.web.ui.page.page_load (ufdc.page_load)
0	sobekcm_page_globals.constructor.on_page_load
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30	html_echo_mainwriter.add_text_to_page	Finished reading and writing the file