Trade implications of biotechnology in developing countries: A quantitative assessment

Technology In Society, Vol. 18, No. 1, pp. 1740, 1996 Copyright 0 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0160-791X/96 $15.OOtO.00

Pergamon

Trade Implications of Biotechnology in Developing Countries: A Quantitative Assessment Regina M.A.A. Galhardi

ABSTRACT. The effects of biotechnological advances on the employment and income of the rural labour force in developing countries may be analysed by means of estimates and scenarios. Improved varieties of crop could help increuse physical output and therefore the income and employment opportunities for rural workers/producers. The results, however, are not obvious, especially for the small, poorer farmers and wage workers restricted to marginal areas in developing countries. Biotechnology developments could lead to changes in the international trade pattern by enhancing the possibilities for crop substitution, by the introduction of new plant characteristics, by changes in food processing such as improvements in the fermentation and enzymatic processes or by the industrial production of synthetic substitutes of plants or their components. Il’he development of tropical plants tailored to meet the spec@c neea3 of processing countries’ industry and consumers is likely to lead to overproduction, declining prices and economic and social instability in Third World exporting countries. The employment and income implications of such substitution depend on the quantitative significance of these displacements. A decrease in the labour force requirements may accrue even if the internal consumption and production increase at the expected rates. The replacement of export crops by a more labourintensive production of selected basic grains may generate a net gain in employment. The net employment effects of biotechnology-induced substitution for tropical crops will depend on the alternative production activities adopted by the affected producers and workers to overcome the adverse impact and on the relative labour coefJicients of the crops involved in the substitution and divers@cation. Copyright 0 1996 Elsevier Science Ltd

Dr Regina M.A.A. Galbardi is Research Of$cer of the Employment Strategies and Policies Branch of the International Labour Office (ILO), Geneva, Switzerland. She completed her doctoral studies at the Science Policy Research Unit (SPRU) of the University of Sussex, UK., in 1991. She is a member of the Board of Editors of the Science, Technology and Development Journal. She is author of Small High Technology Firms in Developing Countries {Aldershot, Avebury, 1994).

17

18

R.M.A.A.

Galbardi

1. Introduction Very little attention has been given to the assessment of the socioeconomic implications of the substitution (mainly potential) of Third World exports by others produced by new biotechnology applications in advanced industrialized countries. A first and rather optimistic contribution to the international division of labour states that biotechnologies should be able to make a significant contribution not only to the growth of national wealth but also to that of individual incomes and employment, especially in Third World countries.’ The increased self-sufficiency of developing countries’ agricultural production would affect negatively the industrialized countries’ exporters of food. A somewhat more pessimistic evaluation says that biotechnologies “will make many importing countries more self-sufficient and increase trade conflicts among overproducing countries”.* According to this analysis, biotechnologies will help to substitute products from industrialized countries for commodities from developing countries with uneven effects on the trading position of different exporting countries. However, very few studies have been published up to now on the trade implications of biotechnological advances in developing countries, particularly for employment generation or labour displacement. Therefore, this paper attempts to fill this gap by assessing the employment and income consequences of biotechnology developments on the small-scale agricultural production of export crops in Latin America. It is based on the assumption that employment reduction or labour displacement may occur as a result of declining demand from industrialized countries for Third World food pro ducts. This may lead, by implication, to income losses for the small farm population. However, employment growth or additional demand may occur as a result of increasing output generation achieved by using improved food crop varieties or means of production and may partially compensate for the negative effects due to a decline in exports. These two possibilities were analysed for some export crop production that are relevant for the incomes and livelihood of small-scale producers and wage workers in Latin America. In Section 2, the importance of agriculture as a source of livelihood for the bulk of the rural population is stressed. Section 3 deals with the possible direct employment effects resulting from the declining demand from developed countries for Third World export crops. In this section an attempt is made to quantify these possible effects by studying the production of coffee and cocoa in Costa Rica. The analysis was based on assumptions made in relation to the variables of production, consumption and export for the next 10 years. This country case study was chosen due to availability of data and labour coefficients for the production of these two export crops. In Section 4, an alternative way for the agricultural producer/worker to minimize the adverse effects of the substitution for their export crops is suggested. The employment and income implications of

Trade Implications

of Biotechnology

in Developing

Countries

19

such shifts in the production structure are analysed and quantified whenever possible. The last section summarizes the main findings. 2. Agriculture

and Small Producers

in Latin America: State-of-the-art

At the beginning of the 1980s the Latin American small holder (O-20 hectares) accounted for an estimated 40% of the gross value of crops and livestock production, reaching 55% in Peru and 80% in Bolivia (Table 1). These small farmers are involved in the production of important subsistence crops. They share 61% of the total Latin American production of potatoes, 77% of beans and 51% of maize. They also account for higher proportion of export crops production. In the 1980s 41% of the total coffee production and 33% of cocoa was due to small farmers’ cultivation. It is estimated that 41% of the total production for domestic consumption and 32% of the pro duction for export originates from small holdings.3 In the case of coffee, small farmers generate around 40 and 30% of total production in the main exporters - Brazil and Colombia - respectively. In some other countries, their share in the export crop production is even TABLEl.

Shareofsmallfarms'cropandlivestockproductionfor selectedLatinAmericancountries(around 1780)

Country (year of

Export

Subsistence

data collection)

Bolivia (1977) Brazil (1980) Chile (1980) Colombia (1976) Mexico ( 1970) Peru (1972) Venezuela (1971) Ecuador ( 1974) Salvador“ ( 197 1) Nicaragua’ ( 197 1) Costa Rica (1973) Hondura+ (1952) Panama (1984) L. America

Coffee

Cocoa

Maize

Beans

75.0 40.3

32.8

70.0” 52.0

63.0

44.0 68.0 69.6

77.0 89.0 66.7

73.0 46.0 57.5

44.0 45.0 77.9 61.8 60.0 75.0 80.0 51.0

15.0 61.0 78.3 58.2 54.0 75.0

6.0 48.0

42.0 34.0

55.0

77.0

61.0

10.0 74.0 37.0 32.0

29.5b 53.8 54.8 63.2’ 70.0 17.4 23.0 49.0f 57.0 41.0

45.9 67.5 69.1’ 65.0

29.0f

33.0

Potatoes

Rice

100.0

85.0” 23.0 55.0 13.0

Crop and livestock 80.0

39.6 37.8 44.1 46.9 54.9 42.0

40.0

a Production of agricultural units of approx. 2.2 hectares on average, data from 1980 in FAO (1987). ‘Data from 1970 in CEPAIJFAO (1986).’ Data from 1976, CEPAIJFAO (1986). dProduction of agricultural units with an area of less than 10 hectares, data based on the Anuario Estadistico 1978 (San Salvador, 1978) in C. Deere and M. Diskin (1984). ‘Production of agricultural units with less than tural units with an area of less than of agricultural units with an area Ortega (1982); CEPAL/FAO (1986),

50 “manzanas”, in P. Peek (1982). fProduction of agricul20 hectares, in P. Peek and C. Raabe (1984). DProduction of less than 20 hectares, in S. Stonich (1989). Sources: others indicated in the notes.

20

R.M.A.A. Galbardi

higher than in Brazil and Colombia, e.g. 53.8% in Mexico, 63.2% in Venezuela and 75% in Bolivia. Cocoa export production presents a similar pattern of production structure. In Brazil, the principal producer and exporter, small farms contributed 32.8% of total production to export. In Ecuador, the second most important Latin American exporter, the participation of small farms in the total production is 65% and in Venezuela and Peru, the share accounts for a little under 70% in both countries. The importance of the agricultural exports for the Latin American small producer is significant when the volume of export production is compared among developing countries. It accounted for more than 50% of the total exports for Honduras, Guatemala, El Salvador and Costa Rica, achieving a little over 90% in the case of Nicaragua in 1988. The production of agricultural export crops such as coffee, bananas, sugar and cotton is the dominant economic activity of the Central American countries. In Costa Rica: 29.7% of production for export comes from small farms and in Honduras the share is estimated at 25.5%. In general, small farmers account for almost one-third of agricultural exports. The growth rate for Latin American export crops was twice that for subsistence crops for the period 1964- 1984.4 These small producers and rural workers depend on agricultural pro duction for at least 50% of their income. The other half is, in general, pro vided by off-farm activities, many of which are related to agriculture through forward, backward, and final-consumption linkages. In Guatemala, 24% of the family income is derived from their own farm activities in smallholdings of less than 1.4 hectares and 47% in the case of properties between 1.4 and 3.5 hectares. In Honduras, 73% of small farmers (less than 7 hectares) depend on their own farm activities for their income and 95% in the case of holdings between 7 and 35 hectares. The largest percentage of the female labour force is concentrated in small farms. In Brazil, it is estimated that 67.2% of women workers are engaged on the family farm. In Peru, on farms of less than 10 hectares, they represent 94% of the labour force and in Colombia 63% of the female economically active population worked in small farms in 1980. They are also responsible for more than 20% of the family income. The relative importance of the small farm activity for domestic and export crops production is, therefore, very significant indeed for Latin America. The agricultural production is responsible for generating income and employment for the bulk of the population. The improvement of the livelihood of small farmers and wage workers in agriculture depends, at least in part, on the possibility of raising yields and reducing costs of production for this stratum of the population. Biotechnology advances can be used for these achievements. However, the employment and income of the small-scale producers and workers depend also on the demand for their products which may be threatened by biotechnology substitutions in the North for Third World agricultural commodities as estimated in the next section.

Trade Implications

3. Employment

of Biotechnology

in Developing

Effects of Bio-substitution:

Countries

Quantitative

21

Estimates

Some important Third World export raw materials have been threatened by bio-substitution, e.g. sugar, cocoa and oilseeds. The most outstanding example of trade impact that biotechnology has had is that of the increasing competition between sugar-cane producers in the South and maize producers in the North. The development of an enzymatic process to transform cereal starch into high fructose corn syrups (HFCS) resulted in the decline of sugar imports by the United States. The effects of this trade shift on the employment and income of the South producers of such commodity have been pervasive. Unemployment and poverty were some of the adverse results. In Latin America, the substitution of sugar cane for HFCS implied a decline of 343,000 tonnes in sugar production and a reduction in foreign exchange generation of US$ 130 million between 1983 and 1984.5 Employment and income instability for around 2.5 million persons directly involved in sugar production in the continent was one of the adverse results.’ In particular, the Dominican Republic has faced a reduction of about 50% in its sugar quota for the United States market since the late 1970s. El Salvador has suffered a reduction in exports of 72%, Nicaragua 46%. In South America, a reduction in exports of 35 and 34% has been observed in Brazil and Argentina respectively.’ In Argentina, a recent study indicates that around 16,000 to 18,000 workers involved with the production and processing of sugar cane may be displaced by the end of 1990 as a result of sugar substitution by HFCS in the domestic market and exports reduction.’ The enzymatic process is only part of the problem. Advanced plant biotechnologies are likely to lead to trade shifts as a result of specific alterations at the genetic composition of the plant, thus allowing for directed improvements of commercial varieties. Some of these may help developing countries to improve the quality of their products and, therefore, remain competitive in the market. Others are not so “pro-poor” in character and, even if available, will hardly be adopted by small farmers in Third World countries as discussed below. The implications of these developments on developing countries’ agricultural exports may be anticipated by analysing the possible changes in the international trade of agricultural commodities’ pattern according to a Schumpeterian approach. In this model of economic development emphasis was given to the role played by innovation as “the main engine of capitalist growth and the source of entrepreneurial profits.“” The introduction of innovation by the initiative of entrepreneurs seems to be followed by others attracted by the exceptionally high profits achieved by the first adopters. This “swarming” of imitators sets up a competitive process which reduces profits from supernormal levels to new normal rates. Before the system can reach a stable equilibrium, a new wave of innovations starts the whole process again, giving rise to the cyclical phenomenon of economic growth. Considering that an importing developed country adopts a new biotechnology process and produces a substitute for a developing country export

22

R.M.A.A. Galbardi

crop with superior yield or quality characteristics, an increase in supply will be generated by the swarming process described above. Consequently, the international price of the traded commodity will be depressed. Farmers in the developing country would lose since they would produce a smaller volume and reduced prices. Significant loss of employment in the commodity production/processing sectors as well as loss of income could be additional implications. There can be lower export earnings, a decrease in earnings of foreign exchange and possibly a depreciation of the currency. These effects would lead to worsening terms of trade and may reduce the developing country’s ability to import goods, causing widespread poverty and malnutrition. As an implication of this model, only those farmers who realize the future potential of innovation and grasp the risk of developing them will remain competitive. Small farmers unable to adopt the innovation will be forced to exit from the market or find new/alternative crop production for their affected commodities. Developing countries’ producers of export crops or wage workers dependent on the export crop production for their livelihood may see their source of income affected by declining demand for their products from the North. The substitution of developing countries’ traditional export crops may have negative impacts on the employment situation and income generation of more than 50% of the rural population. This can directly affect the producer of export crops and, indirectly, the small-scale producer of foodstuffs for subsistence tc the extent that they constitute a “reserve pool” of labour for the large export farms during the peak labour demand, e.g. at harvest time. This section intends to provide some information on the magnitude of the possible direct employment effects resulting from the declining demand from developed countries for some Third World export crops. An attempt to quantify such potential threat is desirable to warn policy-makers, trade unions, farmers and workers in developing countries and, possibly, mitigate any plausibly negative results. This quantification is, however, a speculative exercise that can be based on the availability of labour coefficients for some Latin American crop production. This is especially important because no previous effort of this type has been made. This ex-ante analysis is beset with difficulties and shortcomings. First, data on employment by crops for these countries are not systematically collected. Second, when they are available, they differ according to the source consulted. Third, the labour intensity by crop varies according to the size of the plot, the cultivation techniques and regions within the country. Fourth, a crosscountry comparison is a very difficult task due to the scattered information available on variables such as production, export, consumption and employment by crop for the Latin American countries. Country case studies are required for a more realistic examination of the direct employment effects induced by changes in the international trade pattern of selected Third World exports. Nevertheless, with the purpose of providing an idea of the order of magnitude of such effects, this section will

Trade Implications

of Biotechnology

in Developing

Countries

23

try to estimate the employment losses that may occur in the production of cocoa and coffee in Costa Rica. This case study was chosen because of the availability of information on the variables of production, consumption and export for the last two decades, and on technical and labour coefficients that permitted the calculation of the labour force involved. The estimation procedure will be centred on some assumptions concerning the expansion of the world agriculture towards 2000.10 The underlying facts that will guide this analysis are: 1. the slowdown of developed markets’ demand/imports; 2. Latin America’s agricultural production growth rate for the period 19852000 is expected to be lower than in the past 15 years. It is also assumed that coffee will not be imported in significant quantities by the developing countries and, therefore, nearly all coffee demand translates into import requirements from developed countries. Another general assumption that underlies this estimation procedure is related to the availability of biotechnology as applied for coffee and cocoa. It is assumed that the biotechnological advances that may contribute to reducing the demand for cocoa and coffee beans from importing countries are already available and affecting the trade pattern. This is a simplifying assumption since advanced biotechnological developments for improving cocoa and coffee production are far from being commercialized during the period covered here. According to some experts, routine application of advanced biotechnology for cocoa and coffee improvement may be more than 10 years away. Although progress has been achieved in plant transformation methods and expression systems, the identification and isolation of genes of agronomic importance have lagged behind. However, the anticipation of the possible biotechnological achievements for both crops is a necessary condition embodied in this analysis.

3. I. Coffee Employment

Estimates

3. I. 1. Methodology. Apart from data provided by (different) official institutions on production, area harvested and export of coffee, the employment data were estimated from the figures provided by PREAIC/Panama for the years 1985 and 1989. These were calculated from the existing technical coefficients for coffee production and the variation of area harvested for these years and extrapolated for the others. Data on consumption of coffee were provided by official sources for the period 1977- 1985. The estimated values for the years 1987- 1990 were based on the assumption of an annual growth of 3.0% for the domestic demand for coffee in Latin America for the period 1985-2000 as stated by FAO.” From these data, two different scenarios were built according to different assumptions on the decline of coffee demand from importing developed

24

R.M.A.A. Galhardt

countries for assessing the direct employment in Table 2.

effects. These are summarized

3.1.2. Scenario a. The variables of consumption, production, employment and export were calculated according to the following assumptions. 3.1.2.1. Production. It is considered that developing countries’ agricultural production rate for 1985-2000 will be lower than in the past 15 years when it was 3.2% a year. The Latin American production is expected to be 2.7% per annum from 1985-2000. ‘* The slowdown in population growth expected for this period as well as the continued slow growth of the region’s agricultural exports, will restrain the growth of total demand and, hence, production. In terms of non-food crops, it is estimated that the Latin American output would rise by 1.6% per am-mm from 1985 to 2000 mainly reflecting the unfavourable export prospects for coffee, which account for about 45% of all crop exports from Central America. It is expected that production will increase but at very low rates. In the case of coffee production in Costa Rica, it is assumed that the production will grow 1.5% during the period 1990-1995, 1.0% during 19952000 and 0.5% in the next 5 years. This will be the result of the declining demand from developed countries for coffee due to changes in the consumer requirements, flavour and other substitutes, i.e. those induced directly or indirectly by the biotechnological advances discussed in the previous section.

3.1.2.2. Export. The net export of the developing countries is projected to be 0.6% per annum from 1985 to 2000.13 It is assumed that the slowdown of consumption and imports of the developed market economies will intensify in the next decade due to the availability of biotechnological advances that will allow temperate countries to produce coffee or some substitute. This will contribute to a reduced demand from developed countries for imports of coffee from tropical countries and, in particular, from Costa Rica. It is assumed, for illustrative purpose, that a reduction of 20% in the demand of importing countries for the period 1990-1995; 25% for 1995-2000 and 40% 2000-2005 would result from the gradual replacement of coffee grains by other substitutes. 3.1.2.3. Consumption. The internal demand for coffee is assumed to increase at the rate of about 3.0% per annum as estimated by the agriculture towards 2000 scenario.‘* In the estimate, an increase of 15% each quinquennia from 1990 to 2000 was considered. 3.1.2.4. EmpZoyment. The estimated employment figures were based on the assumption that the coefficient man-year/tonne will decrease by 4% each quinquennia in relation to the average ratio for the period 1985- 1990, i.e. 0.41 man-year/tonne. According to this scenario (Table 3) a decrease

.M P

E

0.41

156,583 113.5

140,323 113.3

0.45

138,000 138,647 17,936 57,660

123,905 123,416 16,907 55,800

1987

0.40

138,065 95.2

145,000 119,591 18,474 57,660

1988

0.39

149,498 101.7

147,000 130,470 19,028 57,660

1990

0.39

159,485 105.6

150,000 139,886 19,599 58,900

G: coffee

1989

3. Scenario

0.39

134,447 88.3

152,250 111,909 22,538 59,378

1995

0.38

109,850 71.4

153,773 83,932 25,918 58,434

2000

0.36

80,165 51.9

154,542 50,359 29,806 55,635

2005

agropecuaria: 1977-1986, San Jose, 1988: production, export and consumption for 1980-1985; statistical abstract of Latin America: production and area harvested; Consejo Monetario Centroamericano, Boletin Estadistico 1991, San Jose, Costa Rica: exports 1987-1990. My own calculations: employment, consumption and data for 1990- 1905 (see Methodology).

a Calculated by PREALCPanamaSources: Banco Central do Costa Rica, Cifras sobre production

Man-year/tonnes

Prod

Production (tonnes) Export (tonnes) Consumption (tonnes) Employment (man-year) Cons.+Fkp. (tonnes) Cons.+Exp. (%)

1985

TABLE

Trade Implications

of Biotechnology

in Developing

Countries

27

in employment will result even if production and internal consumption increases at rates expected for the period considered. About 6% of manyear jobs will be lost from 1990 to 2005. 3.1.3. Scenario b. In this scenario (Table 4) production is assumed to depend on exports. It is considered that the relationship between consumption plus exports/total production will be held at 95%. Apart from the production and related employment figures, the other variables vary as in the previous scenario. Based on the above considerations, 28,522 workers may lose their position, i.e. a decrease of 48% in employment could be perceived at the end of the period 1990-2005 if we consider that the export of coffee is reduced as estimated before. Even if we consider that the demand for labour is not supposed to diminish, i.e. the ratio man-year/tonne is maintained at 0.39 up to the end of the simulation period, a reduction of 45% in the labour requirements will be perceived (Scenario C). Due to the lack and unreliability of the existing data, it was only possible to analyse the case of Costa Rica. In spite of the limited evidence, it is possible to see that displacements and redundancies may occur as a result of biotechnology advances. If these results have a significant effect on the employment level of Costa Rica, the most productive Latin American coffee producer, it may be worse for other countries where the productivity is lower and the production is more labour intensive, as in the case of Honduras and Guatemala. Coffee is the most important commercial crop in terms of foreign exchange and employment generation for both of them. In 1988, around 273,503 employees were reported as being involved in the production of coffee in Guatemala. In 1987, 62,720 rural workers were involved in the production of coffee in Honduras, i.e. 8.5% of the rural labour force. 3.2. Cocoa Employment Estimates 3.2. I. Methodology. The same facts that underlined the estimation procedure of coffee employment changes as resulting from a decreasing export tendency are considered here. The methodology is similar to that used in the previous case studied. The employment figures were, however, calculated in a different way. Employment coefficients per unit of production and hectare harvested were defined from data provided by PREALC/Panama for the year 1989. The employment figures for the other years of the period 1980- 1990 were, therefore, estimated according to data provided by official local institutions and international or regional organizations and the employment coefficients calculated. Data on the consumption of cocoa were provided by the Central Bank of Costa Rica for the period 1977-1986. The figures for 19871990 were calculated from the information provided by FAO that an annual growth of 3.1% for the domestic demand of cocoa in the Latin American countries is expected from 1985 to 2000.15 In order to illustrate the magnitude of possible employment changes due

0.40

138,065 95.2

145,000 119,591 18,424 57,660

1988

0.39

149,498 101.7

147,000 130,470 19,028 57,660

1990

0.39

159,485 105.5

150,000 139,886 19,599 58,900

B: Coffee

1989

4. Scenario

0.39

134,447 95.0

141,523 111,909 22,538 55,194

1995

0.38

109,850 95.0

115,632 83,932 25,918 43,940

2000

0.36

80,165 95.0

84,384 50,359 29,806 30,378

2005

Banco Central do Costa Rica, C&as sobre producci6n agropecuaria: 1977-1986, San JosC, 1988: production, export and consumption for 1980-1985; Statistical Abstract of Latin America: production and area harvested; Consejo Monetirio Centroarnericano, Boletin Estadistico 1991, San Jo&, Costa Rica: exports 1987-1990. My own calculations: employment, consumption and data for 1990- 1995 (see Methodology).

0.41

156,583 113.5

140,323 113.3

0.45

138,000 138,647 17,936 57,660

1987

123,905 123,416 16,907 55,800

a Calculated by PRFL~LC PanamaSources:

Man-year/tonnes

Prod

Production (tonnes) Export (tonnes) Consumption (tonnes) Employment (man-year) Cons.+Exp. (tonnes) Cons.+Exp. (%)

1985

TABLE

Trade Implications

of Biotechnology

in Developing

Countries

29

to the slowdown of export and production of cocoa beans in Costa Rica, some assumptions about production, export and consumption were made. These are discussed below according to the scenarios proposed and summarized in Table 5. 3.Z.2. Scenario a. In this alternative scenario, the employment consequences of a reduced demand of cocoa from importing developed countries is based on estimated shifts of production volume throughout the period 1990-2005. .?A?. 1. Production. According to the prospects for the world agriculture development towards 2000, the Latin American production of crops would increase about 2.7% a year from 1985 to 2000, i.e. below 2.9% from 1969 to 1984.This lower growth is attributed in large part to the prospect of slower growth of output in Brazil, Argentina, Costa Rica and Paraguay. Moreover, gross exports of crops from Central America would expand by only 0.5 per annum. The slow growth in the demand of importing developed countries for major export commodities of the developing countries is really a key constraint for the growth of their production. In view of this panorama of depressed demand for crops in general and for export crops in particular, it is assumed that the production of cocoa will expand but at very low rates. An average growth of 2.0, 1.5 and 1 .O% is, therefore, attributed to each quinquennium from 1990 to 2005 respectively. These estimates are based on the accentuated export oriented character of cocoa production and also supported by the long-term effect of the possible biotechnological breakthroughs for this crop improvement. Any potential substitution for cocoa will be accomplished more slowly than in the case of coffee considering that “traditional breeding in cocoa has not TABLE 5. Assumptions

Variables Scenario

and scenarios 2005

for cocoa production

towards

1990-1995

1995-2000

2000-2005

increase 2.0% reduction 20% increase 3.1% p.a.

increase 1.5% reduction 25% increase 3.1% p.a.

increase 1 .O% reduction 30% increase 3.1% p.a.

0.19

0.18

0.17

A

Production Export Consumption Man-year/tonne Scenario B Production Export Consumption Man-year/tonne

tdepends on exporta depends on export” depends on export”

reduction 20% increase 3.1% p.a. 0.19

“[(consumption+export)/production]=lOO%. quinquennium. p.a.=per annum.

reduction 25% cteh

reduction 30% cteh

0.18

0.17

‘cte=constant,

i.e. the same as in the previous

30

R.M.A.A. Galbardi

been as extensive as in coffee” and “tissue culture techniques so advanced in cocoa.“16

have not been

3.2.2.2. Export. With respect to exports, a decrease in imports of the developed market economies is expected to dominate the growth prospects of exports. This is, therefore, supposed to shrink by 20% during the period 1990-1995,25% during 1995-2000 and 30% to 2000. Saturation of consumption level in the importing countries associated with the biotechnological prospects of displacing tropical beverages raw materials will influence the reduction in the export demand of cocoa. However, this reduction is estimated to occur at a less sharp rate than in the case of coffee, for the reasons related to the “availability of the technology” commented on before. The internal demand for cocoa in Latin America is supposed to continue to grow at 3.1% per annum up to 2005 based on the estimate provided by FAO for the period 1985-2000.” In the analysis, an increase of 10% for each quinquennium from 1990-2005 is considered.

3.2.2.3. Consumption.

3.2.2.4. Employment. The employment figures for the period 1990-2003 were calculated considering that the coefficient man-year/tonne will decrease by 5.0% in each quinquennium. This assumption is based on the mid-1980s tendency and on the possible technological advances and improvements that may be available to more cocoa producers during the next years and alter, therefore, the demand for labour. shows the employment variation accruing from these assumptions. A reduction in the labour requirements of 15% may result if similar situations are faced by cocoa producers in Costa Rica. 3.2.3. Scenario 6. In this scenario, the production

of cocoa is subordinated to the export tendency. This possible situation is based on the assumption that the internal consumption of cocoa will not increase as expected in the previou scenario. It is assumed now that it will continue to grow as in the previous decades up to 1995 and, after that, it will stagnate due to a possible slowdown in population growth and unfavourable economic condition constraining growth of demand. The other coefficients and variables remain constant, i.e. they were calculated as already described. The production will be addressed to face the external and internal declining demand for cocoa. The ratio between consumption plus export production and total production is fixed at 100% as in the previous scenario. A substantial reduction in employment of about 27% may be the result of such a situation. shows the figures based on these assumptions. This scenario took into consideration the fact that more than 50% of the cocoa production in Costa Rica is directed to the internal market and only about 30% to the external market. More dramatic employment displacements will be felt by a country where cocoa production is an important export oriented crop.

0.16

‘Accounting

method:

0.23

4240 109

3900 1100 3140 882

1987

(man - year/tonne

0.21

4471 100

4563 100

by- PRWLC/Panama.

-

4471 1425 3046 938

4563 1379 3184 736

1986

0.20

4367 102

4270 1030 3337 850

1989

1L

x ha)

0.20

4670 98

4750 1230 3440 996

1990

1977-1986, San Jo&, (see Methodology).

x tonne) + (man - year/ha

0.22

4137 103

4000 900 3237 892

1988

Sources: Banco Central de Costa Rica, Cifras sobre producci6n agropecuaria Estadistico, San JosC; FAO. Production Yearbooks; and my own calculations

“Data provided

Man-year/tonnes

Prod

Production (tonnes) Export (tonnes) Consumption (tonnes) Employment (man-year) Cons.+Exp. Cons.+Exp. (%)

1985

TABLE 6. Scenario A: Cocoa

1988; Banco

National

0.19

4768 98

4845 984 3784 920

1995

de Costa

0.18

4900 99.6

4918 738 4562 885

2000

Rica, Boletin

0.17

5095 102

4967 517 4578 844

2005

0.21

4471 100

4563 100

0.16

4471 1425 3046 938

4563 1379 3184 736

1986

0.23

4240 109

3900 1100 3140 882

1987

7.

0.20

4367 102

4270 1030 3337 850

1989

B: Cocoa

0.20

4670 98

4750 1230 3440 996

1990

2

x tonne) + (man - year/ha x ha)

0.22

4137 103

4000 900 3237 892

1988

Scenario

0.19

4768 100

4768 984 3786 906

1995

0.18

4522 100

4522 738 3784 813

2000

0.17

4301 100

4301 517 3786 731

2005

Sources: Banco Central de Costa Rica, Cifras sobre producci6n agropecuaria 1977-1986, San Jose, 1988; Banco National de Costa Rica, Boletin Estadistico, San Jod; FAO. Production Yearbooks; and my own calculations (see Methodology).

(man - year/tonne

“Data provided by PREALC/Panama. ‘Accounting method:

Man-year/tonnes

Prod

Production (tonnes) Export (tonnes) Consumption (tonnes) Employment (man-year) Cons.+Exp. Cons.+Exp. (%>

1985

TABLE

Trade Implications

of Biotechnology

in Developing

Countries

33

Although several other situations could be discussed here with more or less probability of being faced in the future, the simulations discussed seem to be enough to illustrate the possible results of declining demand from industrialized countries for Third World food products. Employment loss will occur anyway if the importing developed countries’ demand for their export commodities slows down, even if the internal consumption of the product increases. The net employment effect of such substitutions, however, may be positive. It will depend on the alternative production activities adopted by the affected producers to overcome the negative effects. These alternatives are the subject of analysis in the next section. The estimations and scenarios analysed here are only for illustrative purposes. They are not predictions but rather reasoned evaluations of possible situations. They were based on a series of simplifying assumptions. A more concrete estimation procedure should include the analysis of the country’s possibility to increase production; an assessment of the importing demand from developed and developing countries which are deficit in that commodity; and, an assessment of the country’s share in total world import demand resulting from an analysis of trends and other relevant factors that are beyond the scope of this paper. The results achieved from this simulation procedure on the employment shifts in the production of coffee and cocoa in Costa Rica should be looked upon as a first attempt to quantify a complex problem which requires major efforts to generate much stronger empirical information/data before definitive conclusions can be obtained. At the same time, the results point to hypotheses which should be further explored if more light is to be shed on the problems of employment displacement or redundancy in developing countries due to biotechnological advances performed and available to importing developed countries of tropical crops. 4. Shift

in the Production

Structure

In this section, it is expected that the potential beneficial biotechnology impacts on agricultural production may help to mitigate the negative socioeconomic effects of the possible substitution for the small-scale producer. As commented on before, changes in the international pattern of traditional tropical crop trade caused by the development of bio-substitutes or other biotechnological advances may occur. The likely reduced demand and/or overproduction and, hence, falling prices may force thousands of farmers to drive their production to other cash crops or search for new uses for their threatened crop production. As a result of these shifts in the production structure of exporting developing countries, thousands of wage workers may be obliged to look for other employment and income-generating activities. This could be critical for countries extremely dependent upon renewable natural resources to generate income in the predominant economic sector, i.e. agriculture. Despite increased industrialization and a shift towards manufactured

34

R.M.A.A. Galbardi

exports, developing countries still derive 60% of total export earnings from primary commodities. l8 Moreover, many individual countries remain highly dependent on a single commodity. By the early 1980s more than 50% of total export revenues for Cuba, Colombia and El Salvador relied on a single commodity (sugar for Cuba, coffee for the others). 30-38% of exports of Paraguay (cotton), Guatemala and Guyana (coffee), Dominican Republic (sugar) and Honduras (bananas) were concentrated on one commodity. Half of total exports of Paraguay, Honduras, Costa Rica and Nicaragua were concentrated in only two commodities and the share for Dominican Republic was 40% with only sugar and coffee. l9 Such high concentrations of agricultural export trade render the region vulnerable to changes in international agricultural markets. One production alternative for the threatened producer of traditional export crops is crop improvement through the application of advanced biotechnological techniques and/or improved seeds. However, access to biotechnologies for crop improvement and the related inputs was pointed out as a major obstacle to the small-scale producer. The availability of improved, disease-free seeds can significantly reduce the total cost of production. Their production in sufficient quantity and distribution to the smallscale producer could have positive impacts on the level and structure of employment. In this section, we will try to quantify the changes in the level of employment that may result from applications of biotechnology to the production of basic food. It is expected that employment requirements will grow and absorb the work force displaced by the reduced demand for its production from importing countries. In order to do this, two (optimistic) hypotheses were set up: 1. improved varieties of seeds will be supplied in sufficient quantity and accessible to small and large farms equally; 2. improved seeds will be adopted by all producers, including the small farmers. As a consequence of these hypotheses, an increase in production will result in view of: (i) an increased yield; and (ii) an expansion of the cultivated area. What may be the employment effects of such shifts in the agricultural production of Latin America? In view of the availability of data, these effects will be analysed in the case of Central America food production. They will be illustrated through the application of the above hypotheses to the production of basic grains in Guatemala due to the availability of disaggregated data on the production of these grains. Data on production, yield and area harvested were obtained from FAO Production Yearbook for the year 1988. The employment figures were obtained from the Instituto National de Estadistica, Encuesta Agricola de Granos Basicos y Empleo, Junio de 1988 as published by PREALC/Panama. These are summarized in Table 8. Table 9 summarizes the employment shifts resulting from the application

Trade Implications TABLE

Harvested area

(1000 ha) Yield (kg/ha) Production (1000 tonnes) Employment (No. of workers)

8. Production

of Biotechnology

in Developing

Countries

of basic grains in Guatemala

35

(1988)

Maize

Beans

Rice

Sorghum

644

140

27

53

2.019 1301

0.652 92

2.582 69

2.566 136

578,122

32,691

3,853

10,131

Sources: FAO Production Yearbook, 1988 and IrmPo, 1992.

of improved seeds. The estimations were based on information available on production, yield, harvested area and employment for 1988 (scenario 0). Three different situations were envisaged. (i) A conservative yield increase of 20% in the production of basic grains. It is assumed the area harvested remains unchangeable (scenario I). (ii) An expansion of 30% in the harvested area. The productivity is assumed to remain as it was in 1987 (scenario II). (iii) Both productivity and harvested area will vary as in the previous situations, i.e. 20 and 30% respectively (scenario III). Employment requirements were expected to respond directly to the improved output achieved according to the coefficient (number of workers/tonne) for 1988. According to the above possibilities, an increase of about 50% in the employment requirements may result from the combined effect of: (i) an increase in yields; and (ii) an expansion of the cultivated area as assumed before. These results should be considered with caution because they were based on generalizations that may not correspond to a real situation. Although desirable, we cannot suppose that all small farmers will adopt the seed. It is likely that some of them will be unable to adopt the seed even if it is supplied in sufficient quantity. Therefore, the assumption that 100% of the farmers will be adopting the improved seed, including the small ones, seems to be an overestimation of the precarious situation of the small-scale production of food crops in Central America. The small size of plots and their orientation to on-farm subsistence may not stimulate the adoption of improved seeds. The embodied requirements for fertilizers and pest control may be another inhibiting factor. Therefore, an adequate supply of improved varieties of basic grains must be followed by complementary measures such as credit to the small farmers, subsidized seeds, etc. Altogether they may positively influence the adoption of new varieties and, therefore, generate the desirable employment and income level increase. The expected

R.M.A.A. Galhardi

36

TABLE 9. Basic grains production

in Guatemah

some estimates

scenarios Variables

0

I

II

III

644

644

837

837

2.019 1301

2.423 1546

2.019 1690

2.423 2028

578,122

686,992

750,981

901,178

140

140

182

182

0.652 92

0.782 110

0.652 119

0.782 142

32,691

39,087

42,285

50,458

27

27

35

35

2.582 69

3.098 84

2.582 90

3.098 108

3,853

4,691

5,026

6,031

53

53

69

69

2.566 212

3.079 177

2.566 163

3.079 136

10,131

12,142

13,185

15,792

a. Maize Harvested area (1000 ha) Yield (kg/ha) Production (1000 tonnes) Employment (No. of workers) b. Beans

Harvested area (1000 ha) Yield (kg/ha) Production (1000 tonnes) Employment (No. of workers) c. Rice Harvested area (1000 ha) Yield (kg/ha) Production (1000 tonnes> Employment (No. of workers) d. Sorghum

Harvested area (1000 ha) Yield (kg/ha) Production (1000 tonnes) Employment (No. of workers)

Sources: See Table 8 (scenario 0) and my own assumptions (scenarios I, II, III).

Trade Implications

of Biotechnology

in Developing

Countries

37

increased production has the primary objective of generating job opportunities for those displaced from export crop production. Therefore, an integrated set of policy and measures will be required to guarantee: (i) the technological development and the production of improved seeds for food crops (in general, less targeted by the national programmes of scientific and technological developments); (ii) small farmers’ access to the inputs required for the use of the seed; (iii) a credit scheme for the small farmer in order to stimulate the use of the seed and spread its adoption; and, finally, (iv) to stimulate the production of basic grains by giving incentives for their import substitution. The net employment effects of crop improvements in the production of basic grains due to their substitution for export crops may be positive or negative. It will depend on the relative labour coefficients of the crops involved in the substitution. According to the labour coefficients available for some crop production in Honduras (Table lo), the production of some basic grains is more labour-intensive than the production of export crops such as coffee and sugar cane.20 The replacement of export crops by basic grains may generate a net gain in employment as is estimated below. If we assume that a reduction of 30% in the cultivated area may occur as a consequence of a decrease in the coffee export/production and that this land could be used for growing basic grains, what will be the net employment effects of such substitution? On the basis of the labour coefficients for basic grains and export crops in Honduras (Table 1 l), we can estimate that the substitution of coffee by maize, sorghum and beans may absorb the displaced labour force and, in addition, generate many more man-days jobs. The net employment gain corresponds to more than half of the labour made redundant by the coffee depressed export market in the case of maize and sorghum and almost a half in the case of beans and soybeans.

TABLEIO.

Labourintensityby~~Hondur;ls(1988) Cultivated area (manzanas)”

Man-days

Man-days/manzanas

Maize and

457,766

61,070,93 1

133.4

Beans and soybeans Rice Coffee Sugar-cane

65,611

8,017,980

122.2

22,145 209,613 74,543

1,159,392 17,550,168 1,941,324

83.7 26.0

Variables

sorghum

“1 manzana=0.7

hectare. Source: Fdnez and IrmSo (1992)

52.4

38 TABLE

R.M.A.A. Galhardi

11. Employment

Employment by crops

Maize and sorghum Beans and soybeans Rice Coffee

effect of the replacement grains in Honduras

of coffee by basic

Mandays/manzana

Employment gains (man-days)

Employment losses” (man-days)

Net employment (man-days)

133.4

8,388,712

5,263,382

3,125,330

122.2

7,684,413

5263,382

2,421,031

52.4 83.7

3,295,116 17,550,168

5263,382 5263,382

- 1,968,266 12,286,786

“Employment losses due to a reduction of 30% of the total coffee cultivated area. Sources: Table 10 and my own calculations.

5. Conclusions Employment and income of the rural labour force in developing countries may be affected by biotechnological advances. It is expected that improved new varieties of crop could help increase physical output and, by impliincome and cation, the employment opportunities for rural workers/producers. The results, however, seem not to be so obvious, specially for the small, poorer farmers and wage workers restricted to marginal areas in developing countries. Biotechnology developments can lead to changes in the international trade pattern by enhancing the possibilities for crop substitution. This can be achieved by the introduction of new plant characteristics, by changes in food processing such as improvements in the fermentation and enzymatic processes or by the industrial production of synthetic substitutes of plants or their components. The development of tropical plants tailored to meet the specific needs of processing countries’ industry and consumers is likely to lead to overproduction, declining prices and economic and social instability in Third World exporting countries. The employment and income implications of such substitution depend on the quantitative significance of these displacements. The level of demand for major trade partners seems to have a strong influence on the domestic supply and, therefore, the livelihood of domestic rural workers/producers. The relative heterogeneity of the labour intensity of the crops affected across countries implies that Latin American countries will have their rural labour force affected by such substitutions in different degrees. But, in general, it seems that small farm producers will lose more in the sense that they cannot always take advantage of improved varieties or other agricultural inputs to increase yields and quality of their production. The small farm workers will be directly affected by the declining demand for tropical products due to the slowdown in production and prices, indirectly, if large farmers’ production

Trade Implications of Biotechnology in Developing Countries

39

diminishes in a significant way and, also therefore, the labour requirements for seasonal and wage services. The magnitude of the possible direct employment effects resulting from the declining demand from developed countries for Third World export crops is a speculative exercise beset with difficulties and shortcomings. Besides the long generation term of the biotechnological advances that may contribute to reducing the demand of tropical exports there is a lack of reliable data. Even considering these constraints, the employment losses resulting from shrinkage of exports were estimated in Section 4. The results point to a very significant employment reduction indeed for exporting countries. A decrease in the labour force requirements may accrue even if the internal consumption and production increase at the expected rates. It is possible to hypothesize that detrimental displacements and redundancies will occur. Considering, however, the current stage of biotechnological developments, the possible trade shifts may not occur in the short-run and developing countries with a minimum level of technological capability in this area may have time to take advantage of some biotechnological developments to improve production and provide income gains to the small farmers and rural workers. As the Schumpeterian approach poses, if they have no access to the new developments they will not be able to remain competitive. They will be forced to leave the production of export crops and may have to try some alternative or new crop production to compensate for the losses of market, employment and income. Crop diversification from export crops to food crops may benefit the poor rural worker/producer made redundant by biotechnology-induced changes in the international trade pattern of tropical products. The replacement of export crops by a more labour-intensive production of selected basic grains may generate a net gain in employment as was estimated in Section 3. The net employment effects of biotechnology-induced substitution for tropical crops may however be positive or negative. It will depend on the alternative production activities adopted by the affected producers and workers to overcome the adverse impact and on the relative labour coefficients of the crops involved in the substitution and diversification. The problems of employment displacement or redundancy in developing countries due to biotechnological advances performed and available in importing developed countries of tropical crops is a complex problem that should be further explored in order to generate more empirical information before definitive conclusions can be drawn. Notes 1. S. Watanabe, national

“Employment and income implications of the “bio-revolution”: a speculative note,” IntwReview (Geneva: ILO), Vol. 124, No. 3 (May-June 1985). “The impact of biotechnology on international trade,” in Albert Sasson and V. Costarini

Labour

2. G. Junne, (eds), Biotecbnologies LJNESCO. 1991).

in Perspective: Socioeconomic

Implications

for

Developing

Countries (Paris:

40

R.M.A.A. Galbardi

3. L. L. Cordovez, “Trends and recent changes in the Latin American food and agriculture

situation,” CEPAL Review (April 1982). 4. FAO: The State of Food and Agriculture, World and Regional Reviews, Structural Adjustment and Agriculture (Rome: FAO, 1990). 5. G. Arroyo, “El Desarrollo da la biotecnologia: Desahos para la agricuhura y la agroindusttia,” in Secretarfa de1 Trabajo y Prevision Social, Bfogen&ica y Agrlcultura (Mexico, 1986). 6. Y. Castaneda, “Opciones biotecnologicas para la crisis de la agroindustria azucarera: melazas y pro&a unicelular,” Socfol6gfca, MO 6, Numero 16 (Mexico: Universidad Autonoma Metropolitana, Division de Ciencias Sociales y Humanidades, Departamento de Sociologia, Azcapotzalco, Mayo-Agosto 1991). 7. P. Bifani, “New biotechnologies for rural development,” in 1. Ahmed (ed.), Bfotechnology: A Hope or a Tbreat? (London: Macmillan, 1992). 8. C. M. Correa and G. Neiman, Biotechnology Development (HFCS) and the Sugar Industty: Socfoeconomic and Employment Consequences in Argentina. World Employment Programme working paper draft (mimeo) (Geneva: ILO, 1994). 9. C. Freeman et al., Unemployment and Technfcal Innovation: A Study of Long Waves and Economic Development (London: Pinter, 1982). 10. N. Alexandratos (ed.), World Agriculture: Toward 2000, An FAO Study (London: Belhaven Press, a division of Pinter Publishers, 1988). 11. FAO, Potential for Agricultural and Rural Development in Latin America and the Caribbean. Annex V (Crops, Livestock, Fisheries and Forestry) (Rome: FAO, 1988). 12. Alexandratos, N. (ed.), op. cit. 13. FAO, Potential for Agricultural and Rural Development in Latin America and the Caribbean. Annex V (Crops, Livestock, Fisheries and Forestry) (Rome: FAO, 1988). 14. Ibid. 15. FAO, Potential for Agricultural and Rural Development in Latin America and the Caribbean. Annex I (Economic and Social Development), II (Rural Poverty) and V (Crops, Livestock, Fisheries and Forestry) (Rome: FAO, 1988). 16. P. J. Sondahl, “Coffee and cocoa,” in Gabrielle J. Persley (ed.), Agricultural Biotecbnologies: Opportunftfes For International Development (Wallingford, Oxon: CAB International, 1991). 17. FAO, op. cit. 18. World Bank, Commodity Trade and Price Trends (1987-1988). 19. FAO, Potential for Agricultural and Rural Development in Latin America and the Caribbean. Annex I (Economic and Social Development) (Rome: FAO, 1988). 20. C. Funez and J. F. IrnZIo, “La medicion, estructura y estacionalidad de1 empleo rural in Honduras Segundo la encuesta de hogares de 1987,” in J.F. Itmao (ed.), Probreza Rural y Empleo (Geneva: PREALC, 1992).