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 Front Cover
 Title Page
 Acknowledgement
 Introduction
 World beef trade
 Technological strategies
 Bibliography














Title: Growth potential of the beef sector in Latin America
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Title: Growth potential of the beef sector in Latin America
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Table of Contents
    Front Cover
        Page 1
        Front Cover 2
    Title Page
        Page 2
    Acknowledgement
        Page 3
    Introduction
        Page 4
    World beef trade
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
        Page 19
    Technological strategies
        Page 20
        Page 21
        Page 22
        Page 23
        Page 24
        Page 25
        Page 26
    Bibliography
        Page 27
        Page 28
Full Text










Growth Potential
of the Beef Sector in
Latin America-Survey of
Issues and Policies


Alberto Vald6s
Gustavo Nores


Paper presented at the IV World
Conference on Animal Production
Buenos Aires, August 1978



1INTENT:.IONL
F OODI
i~ ~ ~~ 17 Masahset Avenue,, NkMGLi VV.] .[II~
IIshinqton, IC 2003































































Alberto Valdes is the Director of the Trade Program at the International Food Policy Research Institute
and Gustavo Nores is an Economist with the Centro Internacional de Agricultura Tropical, Cali, Colombia.
The interpretations and views expressed in this publication are those of the authors and are not necessarily
endorsed by the Institute or by the organizations which support it.
The International Food Policy Research Institute is an independent nonprofit organization which con-
ducts research on policy problems related to the food needs of the developing world. IFPRI's research is
directed toward policy makers at the national and international level and is distributed to those concerned
with food policy issues.
















GROWTH POTENTIAL OF THE BEEF SECTOR IN LATIN AMERICA-
SURVEY OF ISSUES AND POLICIES



by
Alberto Valdes and Gustavo Nores





























ACKNOWLEDGMENTS
We owe a special debt to Lovell Jarvis for his thoughtful comments on an
earlier draft and to Jonathan Hayssen for his valuable comments and assistance
in the empirical analysis. We are grateful to Luis Crouch, Lowell Hardin, John
Lynam, Yair Mundlak, Ned Raun, Theodore W. Schultz and Juan Zapata for
many helpful comments and suggestions.














INTRODUCTION


This paper focuses on the economic
forces in beef production and domestic and
export beef markets in Latin America and
relates them to the need for technological
change. It has two parts. Part I discusses the
structure of international beef trade and the
leading role exports have played historically
in this sector in South and Central America.
It examines Latin American beef production
and consumption trends between 1961-76
and projects the demand for beef relative to
production projections in 1990. It also dis-
cusses some government policy constraints
relevant to the future technological strategy
for beef production.


Part II discusses new prospects for pro-
duction growth to meet increased domestic
and export demand, with emphasis on tech-
nological strategy for tropical Latin
America. The topics discussed include re-
productive performance as a constraint,
improved pasture technology, how marginal
lands expansion and increasing carrying
capacity relate to the opportunity cost of
land, and how the production structure re-
lates to farm size. Finally, it analyzes some
implications for future technology develop-
ment.














PART I: WORLD BEEF TRADE


The most significant characteristics of the
world beef market are:
1. Total world trade in beef and veal was
virtually stagnant from 1973-76 (Table 1),
yet most recent projections predict that con-
sumption will increase in rich and less devel-
oped countries (LDCs), and that interna-
tional trade will expand rapidly. In addition,
compared to trade in other primary com-
modities (such as wheat), world beef trade
represents a small proportion (about 5.5 per-
cent) of world beef consumption.
2. Imports and exports are highly concen-
trated. Before 1973, four markets, the
United States, Canada, the European Eco-
nomic Community (EEC), and Japan pur-
chased more than 80 percent of all beef and
veal imports. Similarly, Oceania and South
America accounted for the bulk of world
exports. Since 1973, the EEC has reduced
its imports and, in fact, has become a net
exporter of beef and veal. In the same
period, USSR imports have increased, and
Near East imports have grown dramatically.
3. Although developing countries have a
minimal share of the trade, beef and veal
exports are important sources of foreign
exchange earnings for many of these coun-
tries.
4. The beef market is segregated because
of health and sanitary restrictions imposed
by North America and Japan on most im-
ports from South America, where hoof-and-


mouth disease exists. Since there is no con-
clusive evidence that hoof-and-mouth disease
is transferred through carcass beef, it is diffi-
cult to determine whether these restrictions
represent a legitimate health measure or are
merely a form of economic protection for
domestic production.
5. Although it would be incorrect to
represent the beef market solely as a series
of independent bilateral trade flows, the dif-
ferences countries have in their demand for
imported manufacturing beef, of frozen and
chilled beef, and of various processed beef
products indicate that the beef market is
heterogenous. The absence of an integrated
and homogeneous international market in-
hibits classical commodity agreements (such
as those for wheat, rubber, tea, and sugar).
6. The export price of beef is lower than
it would be if trade were freer. Yet con-
sumer prices of beef in importing countries
are as much as 2.5 times c.i.f. import prices
which severely restricts consumption in
those countries.
7. World markets for beef are subject to
large and erratic price changes caused
primarily by cyclical changes in production
in the developed nations. This often leads
importing nations to impose crisis measures,
which in turn exacerbate the price fluctua-
tions. It is the system, rather than the level
of protection now prevailing in developed
countries, that increases world prices insta-









Table 1-Trade in beef and veal, 1973-76


Net Trade

1973 1974 1975 1976


(thousand metric tons)


World production


Total world trade


40,293


2,584


Major net importers

United States
Canada
EEC
Japan
USSR
Near East


Major net exporters

Developed countries
Australia
New Zealand
Other developed
exporters aJ
Subtotal

Centrally planned economies
Hungary, Poland,
and Rumania
Yugoslavia
Subtotal


583
203

852
1,638


42,235


2,293


493
183

1,007
1,683


44,121


45,715


2,639


2,421


1,221
1,830


1,158
1,937


Developing countries
Argentina
Uruguay
Brazil
Nicaragua
Other LDC exporters
Subtotal








Table 1-Continued


Net Trade

1973 1974 1975 1976



(1975 constant $ US per kilogram)

World prices

USA imports 2.78 1.79 1.22 1.56
Argentina exports 2.17 2.09 .86 .90




Source: Food and Agriculture Organization of the United Nations, Trade Yearbook (SITC 011.1, 1978);
International Monetary Fund, International Financial Statistics, (Washington, D.C.: IMF, January
1978).
Note: The volume of beef exports does not equal the volume of exports because intra-EEC exports have
been included, and only major importers and exporters are reported.

aj Includes trade within the nine nations of the EEC.

bJ Imported, frozen, boneless, 90 percent visible F.O.B. port of entry.

c/ F.O.B. frozen beef exports.








ability 1 Paradoxically, major importing na-
tions claim to be willing to support high-cost
domestic production if they cannot be as-
sured of "reasonable" stability in the price
of imports.2
Unstable prices, uncertain market access,
severe import restrictions in industrialized
countries, and the resulting depression of
international prices represent part of what
Johnson termed the "disarray in world agri-
culture."3 These disruptive tendencies in-
hibit long-term investments that would
expand the supply of beef for export by low
cost producers. Price instability has caused
severe dislocations throughout the econo-
mies of the major exporting nations (e.g.,
New Zealand, Argentina, and Uruguay) in-
cluding shifts in relative prices and income
distribution, and, particularly, inflation.
Moreover, import restrictions impose a large
cost on consumers in industrial countries.
Much of this disarray is man-made, and
this paper argues that government policies in
the beef and dairy sector, particularly in im-
porting countries, have an overriding influ-
ence on world price movements. The con-
centration of imports in a few industrial
markets where small changes in production
can cause relatively large shifts in imports4
and the concentration of exports in coun-
tries where exports represent a major share
of production and therefore short-run


supply is relatively inelastic, create the
necessary conditions for market instability.
Moreover, major importing countries pre-
vent trade from acting to stabilize prices by
applying variable import quotas, levies, and
duties (and less often variable export taxes
and quotas).
Freer beef and dairy product trade would
induce an expansion in world trade, primar-
ily because it would cause domestic prices
in industrial countries to fall closer to world
prices. This would induce a rise in consump-
tion resulting in an increase of their imports.
If, simultaneously, feedgrain trade were
liberalized, production of beef and veal in
industrial countries would not contract
significantly. On the other hand, in Europe,
where dairy herds are the only source of
veal, the major impetus to the uneconomic
production of beef is the high subsidies to
dairy products. Thus, if consumer price
considerations override domestic farm policy
objectives to make simultaneous reductions
of the high rates of protection of beef and
dairy products possible in the long run,
trade liberalization could significantly re-
duce domestic beef production in industrial
countries.
An estimate of the potential impact of a
50 percent reduction in trade barriers (in-
cluding nontariff barriers) in the countries of
the Organization for Economic Cooperation


1 In an attempt to defend themselves against severe economic dislocations brought on by world price
fluctuations (inflation and shifts in relative prices and income distribution), major exporters such as New
Zealand have imposed measures, including export taxes and quotas, that have also contributed, at least
marginally, to world price instability.

2For a useful discussion of the world beef market, see G.W. Reeves and A.H. Hayman, "Demand and
Supply Forces in the World Beef Market," Quarterly Review of Agricultural Economics 28 (July 1975):
121-151; United Nations, Council for Trade and Development, Secretariat, "Elements of an International
Arrangement on Beef and Veal" (TD/B/IPC/MEAT/2), January 19, 1978; and D.G. Johnson, World Agri-
culture in Disarray (London: Macmillan Press for the Trade Policy Research Centre, 1973).

Johnson, World Agriculture.
4Beef and dairy imports make up only a small fraction of consumption in those countries.
Beef and dairy imports make up only a small fraction of consumption in those countries.







and Development (OECD) on a sample of
Latin American, Asian, and African coun-
tries is presented in Tables 2 and 3.5 Table 2
shows the long-run effects of the estimated
5 percent rise in international beef prices re-
sulting from trade liberalization.6 Total ex-
port volume revenues would increase by
US$ 360.5 million. This figure is substantial,
representing an increase in the net annual
flow of export earnings to LDCs over and
above the "natural" growth in exports likely
to occur even if trade is not liberalized. Also,
the figures apply only to unprocessed beef
production (Standard International Trade
Classification 011.1) and thus, significantly
underestimate the total gains from trade
liberalization occurring through the entire
beef market, including the gains for canned
and processed beef exports from Argentina,
Uruguay, and Paraguay. The last column in
Table 2 shows the additional resources
available to the LDCs after trade is liberal-
ized, or what is called the transfer, is
measured by the increase in export earnings
induced by trade liberalization less the cost
of producing the increased exports.7 Beef
importing LDCs, as observed in Table 3, cut


their imports by approximately 31 percent
in response to higher prices. This causes a
welfare loss to consumers (measured by the
decline in consumer surplus), and a foreign
exchange "savings" of $48.3 million.8
Finally, a note of optimism for exporters.
In addition to the dramatic increase in Near
East imports noted previously, there is a
growing market in LDCs for beef imports.
The developing countries' share of total beef
imports rose from 5 percent in 1970 to 9
percent in 1976.9 As incomes grow in LDCs,
the probability that markets in these coun-
tries will rapidly expand should be given
more attention by Latin American ex-
porters. Furthermore, a significant change is
taking place in the composition of beef
being traded, as the proportion of lower
grade cuts and pre-cooked beef is increasing.
Part of the change is due to an increase in
demand for pre-cooked food in the United
States, another to the importation by
African and Middle Eastern nations of lower
grades of beef than those traditionally im-
ported by Europe. South American ex-
porters are gaining access to the U.S. market
because pre-cooked beef is not subject to


These results were obtained from a current research project at IFPRI described in A. Valdes, Trade
Liberalization in Agricultural Commodities and the Potential Benefits to Developing Countries (Washing-
ton, D.C.: International Food Policy Research Institute, February 1979). This project analyzes trade
liberalization affecting several agricultural commodities.

This 5 percent rise in world price is a result of increased demand by the trade-liberalizing developed
countries.

In LDCs, prevailing distortions in factor markets and in the exchange rate are likely to overstate the
cost of additional production and hence to underestimate the gains in welfare.

These figures are rough estimates. As in any analysis of this type, the authors had to make a number of
simplifying assumptions. However, the given results are "typical" of the results obtained using various es-
timates of world and domestic elasticity parameters. Applying a reduction of trade barriers of only 25
percent, the net foreign exchange gain to LDCs is reduced by approximately 50 percent.

9Food and Agriculture Organization of the United Nations and the World Bank, The Outlook for Meat
Production and Trade In the Near East and East Africa, 2 vols. (Washington, D.C.: FAO/IBRD, December
1977).








Table 2-Potential gains to beef exporting developing countries of trade liberal-
ization in the OECD a


Actual After Trade Liberalization

1972-74 Absolute Increase Net Welfare
Average Net Change in Export Gain or
Exporter Exports in Exports Revenues Transfer


(thousand metric tons)


273 84


21 11


30 1


15 2


31 16


9 4


107 10


2 1


30 1


3 2


1 1


5 3


(US $ million)


220.5


26.2


6.5


6.5


38.6


9.0


33.3


2.5


6.3


3.7


1.2


6.2



360.5


(US $ million)


34.2


2.9


3.3


1.7


4.2


1.2


12.2


0.3


3.3


0.4


0.1


0.7


a/ The percentage change in LDC exports equals the percentage change in world price (5 percent) times
the individual country's export supply elasticity, es.


Argentina


Colombia


Costa Rica


Guatemala


Mexico


Paraguay


Uruguay


Cameroon


Chad


Ethiopia


Mali


Sudan








Table 3-Potential losses to beef importing developing countries of trade liberal-
ization in the OECD A


Actual After Trade Liberalization

1972-74 Absolute Change in
Average Net Change Value of Net Welfare
Importer Imports in Imports Imports Loss


(thousand metric tons) (US $ million) (US $ million)


Brazil 10 -5 -10.3 0.82


Chile 26 -6 -11.4 2.50


Venezuela 15 -8 -15.5 1.22


Algeria 2 -1 2.1 0.16


Egypt 4 -2 4.1 0.33



Libya 7 0 + 0.2 0.75



Zaire 10 -1 1.0 1.04



Zambia 8 -1 2.1 0.80



Iraq 1 -1 1.0 0.08


Philippines 1 -1 1.0 0.08


-48.3


aj The percentage change in imports equals the world
port demand elasticity, 71m.
b/ 1974-77 average.


price change (5 percent)


times the calculated im-







hoof-and-mouth restrictions. Tropical ex-
porters should be able to compete with tem-
perate nations for lower grade imports.



HISTORICAL AND PROJECTED
CONSUMPTION AND
PRODUCTION OF BEEF
IN LATIN AMERICA
This section summarizes production and
consumption trends from 1961 to 1976. It
also projects domestic demand growth for
1990 (at constant prices and based on
1972-74 average consumption), and the
production increases required to meet this
demand.
Four countries-Brazil, Argentina, Mexico,
and Colombia-have 77 percent of the total
cattle stock of Latin America (Table 4). This
stock is 2.7 times larger in tropical Latin
America than in the temperate region. The
difference in production between the
tropical and temperate regions is narrower
(61 and 39 percent, respectively) because
average cattle productivity is higher in the
temperate region by a ratio of 1.6 to 1
(Table 4). Cattle productivity varies accord-
ing to country from 51 to 11 kilograms per
year, which illustrates the heterogeneity of
production conditions within Latin America
and illuminates the risk of trying to general-
ize about a technological strategy for all
Latin America.
In analyzing production trends, long-term
growth rates (1961-76) have been empha-


sized in order to adjust for beef production
cycles. Table 4 shows that countries in
tropical Latin America, particularly in
Central America, have consistently high rates
of growth over4 percent).10 In contrast,
growth rates in the temperate region are low
(1 percent or less). However, the more rapid
production of the tropical region is largely
offset by its higher rate of population
growth. The temperate region produces an
average of 76 kilograms per capital; the
tropical region produces only 18 kilograms.
For Latin America as a whole, production
per capital for 1960-64 and 1970-74 re-
mained constant at about 26 kilograms per
capital.
It is the hypothesis of this paper that to a
large extent, production performance differ-
ences between tropical and temperate Latin
America are the result of differences in in-
ternal economic policies and access to ex-
port markets rather than of fundamental
differences in resource endowment.11
Consumption
Per capital consumption of beef in Latin
America is close to that of Western Europe
and the USSR and considerably higher than
that of Africa, the Middle East, and Asia
(see the Appendix, Table 6). However, there
are significant differences in consumption
within Latin America. Between the periods
1960-64 and 1970-74, annual per capital
consumption in the temperate region aver-
aged 55.5 kilograms; compared to 13.5
kilograms in the tropical region.


11 However, this statement should not preclude the possibility that the temperate climate production
continuum found in the southern zone and in Mexico would generally support higher production levels
than found in many tropical areas of Latin America. (We are grateful to Ned S. Raun for this clarification.)

1Central America, which is free from hoof-and-mouth disease, has the least restricted access to the U.S.
markets. Therefore, exports have spurred production.








Table 4-Beef production in Latin America

Distribution of Cattle Productivity Growth Rate
Stock and Production Per Head in Production
1970-74 in Stock 1961-76 Per Capita Production
1970-74
Country and Region Stock Production Compound Rate 1960-64 1970-74


(percent of total)


(kg/year)


(percent)


(kg/year)


Tropical Latin America

Brazil
Mexico
Colombia
Venezuela
Cuba
Paraguay
Peru
Ecuador
Bolivia


Central America

Nicargua
Guatemala
Costa Rica
Honduras
Panama
El Salvador







Table 4-Continued


Distribution of Cattle Productivity Growth Rate
Stock and Production Per Head in Production
1970-74 in Stock 1961-76 Per Capita Production
1970-74
Country and Region Stock Production Compound Rate 1960-64 1970-74


(percent of total) (kg/year) (percent) (kg/year)

Caribbean 1.2 1.0 28 5 6

Dominican Rep. 0.6 0.7 38 3.9 8 12
Guyana 0.1 0.0 15 1.8 5 5
Other Caribbean a 0.5 0.3 18 4 3


Temperate Latin America 27.1 38.8 44 0.6 83 76

Argentina 22.0 32.2 47 0.4 102 100
Uruguay 3.9 4.6 37 1.0 133 117
Chile 1.2 1.9 51 1.2 19 15


Latin America 100.0 100.0 32 2.0 27 26





Sources: The production growth rates are from International Food Policy Research Institute, "Projections on Beef and Milk for Latin America," May 1978.
(Mimeographed.) Other figures are from L. Rivas and G. Nores, "Evolucion de la Ganaderia Bovina en America Latina, 1960-74," Centro Internacional
de Agriculture Tropical, Cali, Colombia, February 1978. (Mimeographed.)








Between the periods 1960-64 and
1970-74, consumption per capital declined
in the temperate region, but on the average
remained constant in tropical America
(see the Appendix, Table 7).12 This decline
was induced in part by rising prices. Several
countries imposed direct measures, such as
meatless days, to restrict consumption in an
effort to increase exports (or reduce im-
ports).13 Guatemala and Honduras cut con-
sumption by raising domestic prices, which
enabled them to take advantage of high ex-
port prices during 1970-74. As a result,
they were able to expand their beef exports
at the impressively high annual rates of 17
and 14 percent per year, respectively, while
raising the share of these exports in total
production.14
With lower export prices since 1973-74
(particularly for South America, which has
lost much of its European market), the in-
centive to substitute exports for domestic
consumption has been weakened, so per
capital consumption may be rising now.


Demand Projections

Beef consumption in tropical Latin
America has increased significantly since
1973 and should continue to do so. Al-
though population growth accounts for most
of this increase so far, an increase in per
capital consumption reflects the high income
elasticity of demand. If incomes do not
grow, however, the continent as a whole will


remain a large net exporter in 1990, as the
last column in Table 5 indicates.
Table 5 shows projections to 1990 of
the deficit or surplus of beef for each coun-
try, calculated by subtracting its projected
consumption from its projected production
(both at constant prices). The results show
that Central America and the temperate
regions will continue to be net exporters,
while Mexico and tropical South America
will become net importers by 1990. Tropical
South America must increase beef produc-
tion by 5 percent annually if it wants to
meet projected consumption. Historically
from 1961 to 1976, production measured by
slaughter increased at an annual rate of
approximately 3 percent.
Figure 1 relates the historical rate of pro-
duction growth of each country to the rate
of production growth necessary to satisfy
the increase in its domestic consumption by
1990 at constant prices. Potential exporters,
which fall below the 45-degree self-suffi-
ciency line on the graph, are those countries
whose production will exceed projected
consumption in 1990 if their production
continues to grow at its 1961-76 rate. For
example, Argentina and Uruguay could meet
the growth in domestic demand even if pro-
duction fell.15 Countries which are above
the self-sufficiency line may be importers
by 1990.16 Tropical South America, in con-
trast to Argentina and Uruguay, will re-
quire an extraordinary increase in produc-
tion to meet domestic consumption in 1990.


12 Venezuela and Ecuador are the only countries where per capital consumption has increased.

1Argentina, Chile, Colombia, Peru, and Uruguay.

14 Beef exports expanded from 10 to 17 percent in 1960-64, and from 37 to 50 percent in 1970-74.

15 However, in Argentina and Uruguay the rest of the economy would expect positive growth since beef
is an important sector of the economy and a major source of foreign exchange revenues.
1It should be noted that there is nothing inherently good about being a net exporter or bad about be-
ing a net importer.









Table 5-Net deficit or surplus beef production in Latin America, 1973 and
1990


1990

High Income Low Income No Income
Country Group/Country 1973 Growth Growth Growth


(thousand metric tons)


Mexico


Central America and Caribbean

Costa Rica
Cuba
Dominican Republic
El Salvador
Guatemala
Guyana
Haiti
Honduras
Jamaica
Nicaragua
Panama
Trinidad and Tobago


Tropical South America

Bolivia
Brazil
Colombia
Ecuador
Paraguay
Peru
Surinam
Venezuela


Temperate South America

Argentina
Chile
Uruguay


83

19
1
8
3
10
0
2
20
- 4
26
0
- 2


220

14
165
47
0
9
- 7
0
- 8


304

269
- 53
88


Total Latin America


-395


62

59
30
13
12
20
2
0
36
19
42
10
9


-1,286

31
-911
-110
82
62
83
2
67


214

108
50
156


-1,405


-310


149

64
- 2
- 5
- 9
32
- 1
5
39
- 16
49
0
- 7


-683

43
-462
- 56
- 56
- 60
- 66
- 1
- 25


256

136
- 40
160


- 83


297

77
11
14
- 1
63
0
7
45
- 8
66
27
- 4


850

75
661
102
2
- 52
- 21
0
83


1,435


Source: International Food Policy Research Institute, "Projections on Beef and Milk for Latin America,"
Washington, D.C., May 1978. (Mimeographed.)

al Domestic slaughter and net exports of live animals are covered. Negative numbers indicate deficits.










Figure 1-Projected potential direction of trade in beef of Latin American

countries by 1990 a



(percent)


Trinidad/Tobago


Importers


Self-Sufficiency Line


Surinam

Ecuador
*


Jamaica


Peru Brazil
Peru
Mexico V
El Salvador *

Colombia ** Guyana


Haiti


Panama '
0*
enezuela
Dominican Republic Exporters
olivia
Guatemala




Nicaragua

Honduras
Costa Rica




(percent)




(percent)


a/ At constant prices.
b/ Median income variant.


Paraguay
*


-3.0 2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.C 9.0

Historical production growth rate, 1961-76








This is unlikely to occur without rapid
technological change.
It is important to emphasize that Figure 1
is based on projections of production and
consumption which assume constant prices.
However, if trade liberalization occurs as
discussed earlier, world prices would rise,
stimulating production and reducing con-
sumption in all countries where domestic
prices reflect world prices. Therefore, trade
liberalization could increase the surpluses
and reduce the deficits projected in Table 5,
and may cause many of the potential im-
porters in Figure 1 to become exporters.

SOME DOMESTIC POLICY
CONSIDERATIONS

Direct government intervention measures
have profoundly influenced the domestic
markets for beef and milk in Latin America.
In the future, they will continue to signifi-
cantly influence the socioeconomic environ-
ment surrounding the livestock sector, and
affect the role technology can play in its
development.
Most countries, particularly in South
America, have held domestic prices of beef
and milk below world prices with export
taxes and quotas, direct price controls, and
overvalued exchange rates. In effect, this
amounts to negative protection of domestic
beef production.17 Governments are under
strong pressure to follow such "cheap food"


policies. Since beef makes up the largest
single share of family food expenditures,
policy makers tend to treat beef as a "wage
good" like rice, beans, and maize. In most of
Latin America, even low income families
spend no less than 10 percent of their total
income on beef. Therefore, beef should be
analyzed as a staple food. The high nutri-
tional value of beef and the high income
elasticities of demand of low income groups
imply that high beef prices adversely affect
the cost of living and could worsen income
distribution and nutrition.18
Policy makers must choose between a
freer trade policy that puts pressure on the
cost of living and domestic consumption,
but increases production and foreign ex-
change earnings, and a "cheap food" policy
that benefits consumers of all incomes, but
reduces private investment and export sur-
pluses. In the past, particularly in temperate
South America and in Brazil, rather than
export production increases they were used
domestically, which caused a transfer of
welfare from producers to domestic con-
sumers.19
As discussed earlier, export capacity is
likely to be severely limited by significant
annual increases in the domestic demand for
beef. To reduce this growing demand,
domestic price policies may try to encourage
the substitution of chicken, fish, and pork
for beef, although this has been tried with-
out much success.20


For example, L. Reca, "Rasgos Caracteristicos de la Ganaderia Vacuna en Argentina," draft, 1978.
18
1P. Pinstrup-Andersen, N.R. de Londono, and E. Hoover, "The Impact of Increasing Food Supply on
Human Nutrition: Implications for Commodity Priorities in Agricultural Research and Policy," American
Journal of Agricultural Economics 58 (May 1976): 131-142.
19
R. Lattimore and G.E. Schuh, "Un Modelo de Politica para la Industria Brasilena de Came Vacuno,"
Cuadernos de Economia 39 (August 1976): 51-75.
20
L. jarvis believes that a major reason for this is that the cyclical behavior of cattle prices increases
cycles in the demand for these other commodities, driving many operators out of business whenever beef
prices are low and beef abundant (personal correspondence).








There is ample empirical evidence to
show that investment decisions of South
American ranchers are very sensitive to
prices. Because of the inherently cyclical
nature of beef production, in the short-run
(two to three years) decreases in supply
resulting from increases in beef prices remain
consistent with relatively high long-run in-
creases in supply.21However, supply adjust-
ment is delayed by low productivity, par-
ticularly in tropical America. It may take
five years or longer for supply to complete
its response to an increase in prices.22 In try-
ing to reduce the effects of world price fluc-
tuations on domestic prices, food price
stabilization policies have often inadver-
tently prevented long-run supply expansion
from taking place.
Finally, no economic policy for the beef


sector can be designed without explicitly
recognizing that on most beef cattle farms in
tropical American regions (and certainly in
Chile in the temperate region) a high per-
centage of breeding cows are milked.23 To a
large extent then, beef and milk are joint
products and the profitability of one affects
the production of the other.
Whether or not Latin America will accel-
erate production will depend on the avail-
ability of profitable new technology capable
of inducing significant supply shifts and on
how each country chooses to resolve the
economic policy dilemma of "cheap food"
policy versus expanding exports. The impor-
tance of the price structure to technological
development is often underestimated. This
issue of technological change is examined in
the second part of this paper.


2A. Valdes, "Algunos Aspectos Economicos de la Industria Ganadera en America Latina," in El Poten-
cial para la Produccion de Ganado de Came en America Tropical (Cali, Colombia: Centro Internacional de
Agriculture Tropical [CIAT], November 1975).
2See, for Brazil, Lattimore and Schuh, "Un Modelo de Politica"; and for Argentina, Yver, "El Com-
portamiento de la Inversion y la Oferta de la Industria Ganadera en Argentina," Cuadernos de Economia 28
(March 1972): 5-63.

23 In Nicaragua, 70 to 80 percent of lactating cows are milked. [Latino Consult S.A., "Mercado de
Ganado y Carne Bovina en Nicaragua," report for the Banco Central de Nicaragua, Managua, 1975. (Mimeo-
graphed.)]. In Colombia, more than 50 percent of the milk consumed is obtained from beef cattle herds
[L. Rivas, "Aspectos de la Ganaderia Vacuna en las Llanuras del Caribe en Colombia," Centro Internacional
de Agriculture Tropical, Cali, Colombia, February 1978. (Mimeographed.)]. The ratio in Brazil is about 35
percent [R. Lattimore, "An Econometric Study of the Brazilian Beef Sector." (Ph.D. dissertation, Purdue
University, 1974)].














PART II: TECHNOLOGICAL STRATEGIES


The following discussion of technological
strategies analyzes only those factors that
merit particular consideration in the case of
tropical Latin America. The temperate re-
gion is excluded because the great hetero-
geneity of production conditions as noted
previously precludes generalizing for Latin
America as a whole and because 70 percent
of the total cattle stock is contained in the
tropical region of Latin America, which is
widely assumed to have a greater potential
for growth than the temperate regions.

THE NEED FOR
TECHNOLOGICAL CHANGE
Productivity in the livestock sector of
tropical Latin America increased between
1960-64 and 1970-74. Estimates for that
period indicate that the region's extraction
rate increased at an average rate of 1.5 per-
cent per year. There are also indications that
a similar increase occurred in reproductive
efficiency, defined as births minus deaths
over total stock.24 In spite of this increase in
productivity, the rate of growth of produc-
tion (3 percent per year) has not matched
the rate of growth of domestic demand (5.6
percent per year). As a result, the real price
of beef has increased in most tropical coun-


tries.25 If this gap between the growth rates
of production and demand persists in the
future, prices will rise. However, as in the
past, policy constraints such as those dis-
cussed in Part I may prevent prices from ris-
ing enough to cause production to increase
enough to meet domestic demand. Supply
shifts induced by technological change are
the only means of accomplishing this task.

EMPHASIS ON REPRODUCTION
If production is to increase at higher
rates, research must focus on improving
reproductive performance. Average weaning
rates in tropical Latin America are currently
so low that little animal selection based on
reproductive performance can be practiced.
Calving rates must increase and calf mortal-
ity must fall if higher growth rates are to be
achieved and progressive animal selection
allowed for. How this can be done depends
on the principal constraints in each region.

HORIZONTAL EXPANSION
VERSUS FACTOR DEEPENING
In those South American countries with
large land endowments, there is question
about whether beef production will increase
by expanding livestock production into


24 Gustavo Nores, "Observed Versus Required Rate of Growth of Production in Tropical Latin America,"
Centro Internacional de Agricultura Tropical, Cali Colombia, 1978. (Mimeographed.)
25 Changes in world prices have also affected domestic prices, with variations from country to country
(L. Rivas and G. Nores, "Evolucion de la Ganaderia Bovina en America Latina, 1960-74," Centro Inter-
nacional de Agricultura Tropical, Cali, Colombia, February 1978). (Mimeographed.)







marginal lands or by increasing the carry-
ing capacity in present livestock areas. This
will depend on the interaction between the
economic policies of each country, particu-
larly those regarding livestock vis-a-vis crops,
and regional incentives through credit and
tax policies and investment in infrastruc-
ture; the technological alternatives available
to producers; and the actual farm structure,
in terms of factor endowment and factor
access by farm size.
One important point to be considered is
the opportunity cost of land (i.e., its alterna-
tive uses) in each region. According to FAO,
during the period 1961-65 to 1974, culti-
vated land expanded at an average rate of
1.54 percent per year.26 Such area expansion
most likely came about at the expense of
pasture area, which, in turn, shifted over to
marginal or unsettled land. One may expect
the expansion of cultivated land into pas-
ture areas to continue, if not to increase,
particularly in the more fertile areas.
While it is probably easier to increase beef
production in fertile areas, net gains to
society will be higher if it is achieved by
using resources of low opportunity cost. In
other words, from the social point of view it
does not make sense to increase beef produc-
tion by competing with crops for land.
However, it does make sense in marginal
lands, or if it complements crop production
in rotational systems or by using crop
residues or by-products which have low
opportunity costs.
Past research efforts have done little to
increase beef production in fertile areas.
We need to learn from these examples how
to choose the appropriate areas in which to
work.


PRODUCTION STRUCTURE
AND FARM SIZE
Although the relationship between pro-
duction structures and farm size varies con-
siderably between and within countries, it
can be summarized as follows:
1. Small Farms-Approximately one-third
of the total cattle stock in tropical Latin
America is on small farms (less than 50
head) ranging from subsistence to commer-
cially oriented small farms for which crops
are also important. Owning livestock is one
of the few ways the rural poor, who do not
have easy access to the banking system, can
save and invest. Beef and milk production
complement crop production, since they use
resources with low opportunity costs such as
family labor, crop residues, and the forage
available on public roadsides.27 Although an-
imal productivity is in general quite low,
overall socioeconomic efficiency is probably
high. Since production constraints, resource
endowment, and access to production fac-
tors are different in each region,productivity
on this type of farm would be increased
more easily by regionally oriented whole-
farm systems research than by straightfor-
ward livestock research.
2. Medium-size Farms-Another third of
the total stock of tropical Latin America is
believed to be on commercial medium-size
ranches (50 to 300 head) in which beef and
milk production are major activities. In
general, animal productivity, although still
low, is higher in this category than in the
others because of economies of scale and
easier management of medium-size herds. In
many of these farms, beef cows are also used
for milk production. Therefore, research
should explicitly consider dairy ranching


Rivas and Nores, "Evolucion de la Ganaderia."
27
2G.E. Schuh, "Government Policy and the Perspective of Animal Protein: An International Perspec-
tive," in New Protein Foods, eds. A.M. Altschul and H.L. Wilcke (New York: Academic Press, forth-
coming).







systems and the biological and economic
trade-offs between beef and milk produc-
tion. To continue not to pay more attention
to dairy ranching is to ignore reality and to
seriously jeopardize the possibility of long-
run growth in many areas.
3. Large Farms-Finally, the last third of
the total stock of tropical Latin America is
believed to be on large ranches (more than
300 head), which usually specialize in beef
production.
If beef production in tropical Latin
America is to grow at the same pace as de-
mand, technology developed should not ig-
nore any one of these three production
structures. Thus, technology should either
be scale neutral or develop economically
viable technologies for each of these differ-
ent farm sizes and production systems.
Otherwise, besides valid equity considera-
tions, production growth could be seriously
jeopardized.


OPPORTUNITY COST
OF RESOURCES
As Schuh notes: "The economic rationale
for producing beef and milk is not that bo-
vines are efficient converters of concentrate
feeds (since they are not), but that they are
efficient users of low cost feeds which
normally have little or no opportunity costs
elsewhere in the economy.28 Except for
some Caribbean countries and El Salvador,
the most abundant resource in tropical Latin
America is land, including grassland. At the
same time, capital has a high opportunity
cost. The question is how to use these re-
sources most efficiently. The case of im-
proved pastures may serve to illustrate this
point.


Both native and improved pastures have
strong seasonal patterns for the volume and
quality of dry matter production (i.e., its
digestibility, protein content, etc.). There-
fore, it is not a matter of substituting one
for the other, but rather of supplementing
native pastures with improved ones. Im-
proved pastures, whose digestibility is low
during the slack season, may be attractive
for fattening purposes in areas where the
opportunity cost of land is high. Substitut-
ing capital for land may be possible where
land values are high. Also, the possibility of
obtaining high compensatory gains may
allow for a rapid turnover of the capital in-
vested in the animals.
However, in areas where land has a low
opportunity cost, there is little advantage in
replacing native pastures with improved
pastures that are also poor in quality during
the slack season. In cow-calf operations,
there are no compensatory gains in repro-
duction. Lack of conceptions, as well as
abortions and higher mortality during the
slack season of the pasture cannot be com-
pensated for during its productive season.
Hence, in those areas where the quality and
availability of forage during the slack season
are major restraints on calving rates, pasture
research should emphasize ways to supple-
ment native pastures with improved ones
during that season.
In his analysis of the diffusion of im-
proved pastures in Uruguay, Jarvis com-
ments:
Although it has been hoped that the
new technology would be applied to
substantially all of Uruguayan pas-
ture area, I find that the final ceiling
will be about 12 percent and that the
diffusion process is now rapidly end-
ing.29


28 Ibid.
29 L. Jarvis, "Predicting the Ultimate Diffusion of New Technologies Under Varying Profitability: Arti-
ficial Pastures in the Uruguayan Livestock Sector," University of California, Berkeley, 1977, (abstract).







He concludes that:


diffusion is sensitive to the profit-
ability of new pastures, as influenced
by the variation in the price of beef
and fertilizer, but this sensitivity is
not as large as previously thought.
Other factors affecting the profitabil-
ity of the use of artificial pastures are
considered to explain why diffusion
is reaching a ceiling so much below
what was originally expected.

Among those factors, one

which most severely constrains de-
velopment. . is the technological-
managerial problem of dealing with
the improved pastures on a large
proportion of a ranch. . Most pro-
ducers find the artificial pastures to
be highly profitable when planted on
a small proportion of their ranches,
this small proportion providing an
improved nutrient base during the
crucial winter months. . (improved
pastures) have been used to supple-
ment the traditional pastures, how-
ever, not to replace them. . (they)
have not been profitable for most
ranches when planted to a large pro-
portion.30

Since improved pastures are a sizeable
and risky investment, it is reasonable for
producers to use them seasonally to supple-
ment forage from native pastures, during
certain physiological states of the animal
(i.e., grazing by lactating cows, flushing be-
fore mating, etc.), or to recover sick or weak
animals in order to avoid capital losses. Im-
proved pastures are thus best used only
when there is a high capacity for response.
Further increases in the proportion of area
planted with improved pastures would mean
grazing them with animals that respond less


easily and thus, may be unprofitable. More-
over, unless forage conservation is economi-
cally feasible, forage from the improved
pasture will probably be wasted during the
productive season. While burning native
pastures is a very common practice in trop-
ical Latin America, it is risky to use it in
improved pastures to control their growth.
Undergrazing, like overgrazing, is also
risky in terms of pasture persistence, particu-
larly if it is composed of a mixture of
legumes and grass. As Jarvis notes: "con-
siderable learning-by-doing is required before
improved pastures can be well managed....
And the greater the proportion of improved
pastures on a ranch, the greater is the
management sophistication and dedication
required." 31


SOME IMPLICATIONS FOR
TECHNOLOGY DEVELOPMENT

If production in tropical Latin America
is to increase faster than it has historically,
the production structure should be explicitly
considered, and more fruitful interaction be-
tween economic and technological policies
should be sought. To the extent that eco-
nomic policies, particularly price policies,
are constrained by "cheap food" policies,
balance of payments situations, international
prices, and access to market, additional bur-
dens are placed on the development of new
technology. In South America, the price
structure has been a major factor impeding
the introduction of intensive technologies
in the beef sector. If it is to be adopted,
technology must not only be profitable and


30 Ibid., pp. 44-46. Many new technologies though apparently simple, require much attention and rela-
tively sophisticated judgments on the part of the rancher. In regions where many ranches have absent
owners, it is difficult for the new technologies to be profitable. In part, however, the price structure
plays a role because the prevailing price ratios imply that the absolute profitability of new technologies is
relatively low and provides little incentive for skilled management to make the social and economic sacri-
fices required to live on the ranch.
31 Ibid.






of low risk, but must also be feasible within
the limits set by the producers' factor en-
dowment and access. The more a Iechnolog-
ical package increases output and the less it
is capital intensive, the more likely it is to
be adopted by producers.
It is usually claimed that it is not possible
to increase output with little additional
capital. Yet to bypass this conflict is pre-
cisely the technological challenge faced by
the livestock industry. It can be done, as in
the past, by supplementing low-opportunity
cost native pastures with improved ones and
by selecting the plant species which are most
productive and resilient during the slack
season. It can also be done by screening
different species for pasture adaptation with
minimum soil-fertility corrections, by bio-
logical nitrogen fixation through legume-
grass mixtures, and by reducing establish-
ment costs through minimum tillage systems
and lower seed costs.
In conclusion, to summarize other im-
portant factors already mentioned:


1. Emphasis must be placed on improving
the reproductive performance of herds in
order to increase production growth rates
and allow for progressive animal selection.
2. New technologies must explicitly
recognize the role of milk production in beef
cattle production if they are to be adopted,
particularly on small and medium-size farms.
3. Technological strategies for small farms
should be approached through regionally
oriented whole-farm-systems research rather
than through isolated livestock research.
4. Net gains to society will be higher if
increased production is achieved by using re-
sources with low opportunity cost such as
marginal land or land with little competition
from crops, and by properly complementing
native pastures with improved pastures dur-
ing slack seasons. In areas where the oppor-
tunity cost of land is high, research efforts
on grazing beef production systems will have
a lower social pay-off unless crop residues
are abundant.








APPENDIX: SUPPLEMENTARY TABLES



Table 6-Per capital beef consumption by region, 1970 and 1975


1970 1975


(kg/year)


World


Developed countries


North America
Western Europe
Oceania
Others a


Centrally planned economies

USSR
Asian centrally planned


Developing countries

Asia
South
East and Southeast

Africa
Northwest, Central, and West
East

Latin America

Near East
in Africa
in Asia


Source: FAO, Agricultural Commodity Projections, 1970-80 (Rome: FAO, 1971).

a/ Israel, Japan, and South Africa.








Table 7-Per capital beef consumption in Latin Americaa/


Country and Region 1960-64 1970-74


(kg/year)

Tropical Latin America 14 13


Brazil
Mexico
Colombia
Venezuela
Paraguay
Peru
Ecuador
Bolivia


Central America

Nicaragua
Guatemala
Costa Rica
Honduras
El Salvador



Caribbean

Dominican Republic
Guyana
Other Caribbean



Temperate Latin America

Argentina
Uruguay
Chile



Latin America


Sources and definitions in L. Rivas and G. Nores, "Evolucion de la Ganaderia Bovina en America Latina,
1960-74, Centre Internacional de Agricultura Tropical, Cali, Colombia, February 1978. (Mimeographed.)

a/ Apparent consumption = Output + (Imports-Exports). Trade includes beef and veal and canned meat in
equivalent carcass weight.














BIBLIOGRAPHY


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Food and Agriculture Organization of the United Nations. Trade Yearbook (SITC. 011.1).
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Food and Agriculture Organization of the United Nations and the World Bank. The Outlook
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International Food Policy Research Institute. "Projections on Beef and Milk for Latin
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27







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