LDC AGRICULTURE: THE ROLE OF INCENTIVES IN INCREASING PRODUCTION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90R00038R000500600001-4
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 23
• Document Creation Date: December 27, 2016
• Document Release Date: July 6, 2011
• Sequence Number: 1
• Publication Date: June 1, 1986
• Content Type: REPORT

Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Director of
Central
Intelligence
LDC Agriculture:
The Role of Incentives
in Increasing Production
A Special Assessment
N1 86-10002
June 1986
558
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
IAL
N 186-10002
LDC AGRICULTURE:
THE ROLE OF INCENTIVES
IN INCREASING PRODUCTION
Information available as of 13 May 1986 was
used in the preparation of this Assessment.
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
CONTENTS
Page
KEY JUDGMENTS .............................................................................. 1
DISCUSSION ........................................................................................ 3
Shifting Policies ..................................................................................... 3
The Role of the Government ............................................................... 4
The Government-Technology Connection ................................... 10
The Government-Land Tenure Connection ................................ 10
Other Government Influences ......................................................... 12
Favorable Political Consequences ....................................................... 12
Outlook for Output Through 1996 ...................................................... 14
Outlook for Trade ................................................................................. 16
Implications for the United States ....................................................... 16
iii
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
KEY JUDGMENTS
Despite the impression created by the recent famines in Africa,
overall LDC agricultural output has been rising rapidly over the past
decade. Many countries-including most of those with large populations
like India, China, Indonesia, and Brazil-have increased their ability to
feed themselves and even to export foodstuffs. This trend is likely to
continue over the next decade, because it has established a momentum
of its own based on improved incentives for the farm sector that, in
turn, promote overall growth.
The experience of the last several decades shows that LDCs made
little or no progress in raising agricultural production unless they
satisfied two criteria:
- Allowed for adequate incentives, or at least no disincentives, for
their farmers.
- Provided adequate physical and political security for their farm
sectors
The role of incentives is the most important. The bulk of the
countries in Asia and Latin America that have shown an ability to
sustain increases in agricultural output are those that allow the greatest
incentives for production. Chinese farmers responded with sharply
increased output when the government increased the guaranteed price,
relaxed production controls, and allowed farmers to cultivate private
plots and market their produce. Perhaps the single worst policy
disincentive to agricultural production is an overvalued exchange rate
because it limits export markets and induces cheap food imports that
can ruin local producers.
Physical security is also a prerequisite. In countries such as
Ethiopia and Chad, where prolonged fighting has prevailed, farmers
have little or no incentives to plant more than enough to feed their own
families. Even at that, they face the dangers of looting or the
requisitioning of their harvests. They also see little hope of getting any
surplus to market or finding anything to buy with the proceeds if they
did manage to sell extra produce.
The outlook for continued improvement in agricultural output is
good. Incentives are now well established in a number of countries and
are demonstrably effective. This probably will lead to eventual policy
changes that favor the farmers in most of those countries that so far
have fared poorly
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
The implications for the United States of these trends are, on
balance, favorable to US interests:
- As the agricultural sector develops in many LDCs, farmers gain
more political influence, which reinforces their ability to get
and keep positive incentives to production. This pattern has
been clearest in Asia, particularly in India, South Korea, and
Taiwan.
- The growing wealth of the farm sector also reduces the political
tensions inherent in modernization, slows the movement of
people into overcrowded cities, and tends to accelerate the
expansion of the service industries that support or depend on
agriculture. India and, more recently, China are good examples.
- New markets will be opened to US exporters of agricultural
support products, such as tractors and chemicals.
- On the downside, rising LDC output will probably result in an
international products market more likely to be affected by
surpluses than by shortages over the next decade
LDC trade in agricultural products probably will grow slowly over
the next decade. The need to import will lessen as more countries move
toward or attain self-sufficiency, and exports will be hampered by near
stagnant developed country demand. US interests will be particularly
affected in the grain trade, where much or most of any LDC export
gains probably will be at the expense of United States and other
developed country sellers.
2
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
DISCUSSION
Shifting Policies
1. In the late 1960s and early 1970s, LDC govern-
ments became concerned about their agricultural per-
formances, which reflected years of faltering produc-
tion and sizable jumps in food imports. This trend was
the result of policies aimed at maintaining low food
prices in urban areas and of bloated bureaucracies that
siphoned off farm income through inefficiency and
corruption. Those problems were compounded by a
runup in world oil prices and an increasing LDC debt
burden, which hiked fears of being unable to afford
food imports. These concerns were especially strong in
1973 when a number of crop failures, combined with
low global stocks, dramatically pushed up global farm
prices. The resulting anxieties manifested themselves
publicly in the World Food Conference held in Rome
in 1974, but, more important, many LDC govern-
ments shifted their policies in favor of the farmer.
2. The LDC agricultural picture began to turn
around in the mid-1970s with noticeable increases in
agricultural output per capita (see table 1). The Asian
countries did especially well; even Bangladesh joined
India, Indonesia, and China in significantly increasing
farm output and are now approaching basic self-
sufficiency. Latin America made considerable pro-
gress, with the exception of some Central American
and Caribbean countries hurt by domestic political
strife and a depressed world sugar market. Only Africa
and the Middle East, which together account for less
than 20 percent of the population of the Third World,
performed poorly. Many of these nations were ad-
versely affected by political upheavals and war, such
as the ex-Portuguese territories of southern Africa, the
Horn of Africa, Lebanon, Iraq, Iran, and Afghanistan.
3. The overall improvement in LDC agricultural
performance in the 1970s reflected a confluence of
two key factors: (1) availability of high yielding variet-
ies (HYVs) of wheat and rice seed adapted to Asian
and Latin American conditions and (2) government
Table 1
LDCs: Trends in Per Capita
Agricultural Production
China
10
3
30
Other Far East
5
12
21
0
-10
reactions to growing domestic concerns about their
ability to feed their populations. Following the intro-
duction of HYVs in the mid-1960s, more than 40
percent of the rice and wheat areas in developing
countries have been sown with HYVs, making HYVs
the most widely and rapidly adopted technology in
agricultural history. Although large-scale farmers
adopted this new technology first, it soon spread to
smaller scale farmers. India, for example, increased its
grain production by nearly 40 percent in the early
1980s.
in agricultural performance
among countries have become increasingly sharper
over time, mainly because of differences in LDC
government policies and in adoption of new technol-
ogies. An examination of 90 countries ' indicates the
following trends (see table 2):
- The bulk of the countries in Asia and Latin
America have shown a clear ability to sustain, for
' Some 45 LDCs are excluded from this assessment. They have
populations of less than a half million and/or territories of less than
10,000 square km (that is, leaving out the numerous island nations).
Agricultural production data came from the US Department of
Agriculture and the Food and Agriculture Organization]
3
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Table 2
LDCs: Agricultural Performance
Since early
Since early
Since early
1960s
1970s
1960s
Algeria
Angola
Ivory Coast
Benin
Botswana
Rwanda
Burkina
Egypt
Libya
Ethiopia
Gambia
Swaziland
Ghana
Guinea-Bissau
Tunisia
Guinea
Liberia
Lesotho
Morocco
Ecuador
Madagascar
Sierra Leone
Brazil
Mali
Somalia
Panama
Mauritania
Sudan
Indonesia
Mozambique
Tanzania
South Korea
Nigeria
Zambia
Malaysia
Senegal
Zimbabwe
Philippines
Togo
Taiwan
Zaire
Dominican
Republic
Guyana
South Yemen
Haiti
Jamaica
Peru
Afghanistan
Iraq
Jordan
Nepal
North Yemen
Fairly Good
No Longer Clearly
Holding Theil ()\\ 11
Since early
(Since early
Improved or Fairly Good
1970s
1960s)
Since
Since
mid-1970s
late 1970s
Argentina
Gabon
Bolivia
El Salvador
Burundi
Chile
Kenya
Mexico
Cameroon
Colombia
Malawi
Lebanon
Nicaragua
Central African Republic
Uruguay
Venezuela
Chad
Iran
Congo
Bangladesh
Niger
Burma
Paraguay
Rwanda
China
Pakistan
Uganda
India
Sandia Arabia
Costa Rica
Sri Lanka
Honduras
Bhutan
Fiji
Papua-New Guinea
Syria
a decade or more, increases in per capita agricul-
tural output.
- The six most populous countries-China, India,
Indonesia, Brazil, Bangladesh, and Pakistan,
which account for some two-thirds of LDC
population-each have increased per capita food
production as well as overall agricultural output.
For example, China used to import some 4
million bales of cotton annually; it now exports
about 1 million bales.
- The countries with the poorest agricultural per-
formance are concentrated in Africa. Of the 44
countries examined on that continent, 28 have
been doing poorly, while only eight have im-
proved consistently.
- The seven most populous African countries-
Nigeria, Egypt, Ethiopia, Zaire, Morocco, Alge-
ria, and Sudan-were on the clearly worsening
list. Together they account for more than half of
the African population (excluding South Africa).
The Role of the Government
5. Our analysis indicates that LDC governments
made little or no progress in boosting production
unless they satisfied two criteria:
- Security. Prolonged strife and civil war have
been the most common unsettling events on
agriculture; for example, Afghanistan, Lebanon,
Ethiopia, Angola, and countries in Central Amer-
ica all performed poorly. Working under such
conditions, farmers were unable or unwilling to
produce much more than they needed to meet
their immediate family needs. Besides disrupting
the agricultural production cycle from planting
to harvesting, the disturbances interrupt normal
4
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Figure 1
Selected LDCs: Net Trade of Grains (SITC 04)
75
80
80 -80 1971 75
5
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Trends in LDC Agricultural Trade
LDCs as a group generally have run surpluses in their
foreign agricultural trade, even though both exports and
imports have risen sharply. These surpluses showed an
upward trend from the mid-1960s until 1979, but a
sharp deterioration occurred between 1980 and 1982,
which created the first deficit in LDC agricultural trade
in many decades. Imports jumped about 30 percent in
1980, largely because of poor weather throughout the
Third World and a sizable rise in the purchases of oil-
rich states. Imports began to fall by 1982, as improved
weather enhanced growing conditions, and debt prob-
lems forced restrictions in foreign purchases. Since
1982, however, the LDCs have returned to agricultural
trade surpluses. Imports have been held down by
growing self-sufficiency and ongoing debt problems,
while exports have been boosted by the industrial
world's economic recovery (see table 3).
Much of the rapidly rising LDC imports of agricul-
tural goods since the early 1970s reflects purchases by
the oil-producing countries of the Persian Gulf region,
Africa, and Latin America, which increased 50 percent
faster than the LDC average. Saudi Arabia moved from
eighth to second place in the listing of LDC importers
of agricultural products. Even many of the oil-produc-
ing countries with reasonably fertile land moved well
up the list. Because they could afford agricultural
imports, they followed policies that promoted consump-
tion while depressing domestic output of farm goods.
Real farm prices in Mexico in the late 1970s, for
example, were 25 percent below those in the 1950s. As a
result, Mexico jumped from 10th to fifth place among
LDC importers. Nigeria and Egypt also improved their
standing, while India dropped from being the second-
largest LDC agricultural importer in the early 1970s to
13th place in the early 1980s (see table 4).
The largest absolute increases in wheat consumption
in the past 20 years have occurred in the traditional
wheat belt of the Middle East and North Africa. The
gap between production and consumption has widened
throughout the region, especially in North Africa,
where per capita wheat production has fallen. North
Africa now imports about two-thirds of its wheat
consumption. The demand for wheat has been spurred
in the region by the most widespread and largest
subsidies on bread among LDCs. Although Sub-Saharan
Africa had the worst production record, its food imports
from the developed world account for only about 10 to
15 percent of the LDC total, and Nigeria bought nearly
half of the Sub-Saharan purchases.F___1
marketing channels for farm goods. Often, farm-
ers also face life threatening situations and the
seizure of their crops.
Incentives, or at least, lack of disincentives.
Farmers have not really expanded output where
government policies undercut the ability to
achieve a reasonable return, and they have re-
sponded favorably and quickly to incentives such
as high market prices. For example, Chinese
farmers responded dramatically when the gov-
ernment increased the guaranteed price it paid
them by more than 20 percent, relaxed its rigid
production controls, and allowed farmers to cul-
tivate private plots and sell their products in the
market. In all Communist countries, the amount
produced per acre on "private plots" is much
greater than the output per acre of state run
farms where workers receive few incentives.
6. The need for security in LDCs is obvious, and
the importance of incentives can be seen from the
following examples:
- World Bank assessments have shown that their
programs fail when governments do not provide
adequate incentives for the farmer, and that they
work when governments pursue policies favor-
able to the farmer.
- South Korea has a relatively poor natural envi-
ronment for expanding agricultural production
but has done well through an effective incentive
system.
- Zaire has excellent natural resources, and prior to
1960 it did extremely well in raising production
under the stability and incentives of the colonial
system. That regime sponsored a highly success-
ful cooperative agricultural system in the eastern
part of the country, which involved several
- Kenya and Tanzania have similar climates, but
Tanzania is favored by a lower population densi-
ty. Kenya provided reasonably good incentives
for the farmer, but Tanzania's policies resulted in
disincentives. The result was fairly good agricul-
tural performance in Kenya, nearly a 40-percent
increase between 1971 and 1982, and a dismal
outcome in Tanzania, nearly a 50 percent drop
in crop production. The cities became dependent
on foreign food aid.
-Ivory Coast raised the price it paid for rice to
well above the world price and moved from
being a net importer to a net exporter within a
few years.
6
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Table 3
LDCs: Agricultural Exports, 1980-82
Countries Exporting More Than $1 Billion a Year Countries Exporting $500 Million Countries Whose Exports Countries Whose Exports Countries Whose Exports
Average, 1980-82 to $1 Billion a Year Average, 1980-82 Exports Declined, Rose Less Than 7 Percent Rose More Than 15 Percent
Value Average Annual Average Annual 1970-72 to 1980-82 a Year, 1970-72 to 1980-82 a Year, 1970-72 to 1980-82
(billion) Increase, 1970-72 Increase, 1970-72
to 1980-82 to 1980-82
Senegal United Arab Emirates
Siera Leone
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Table 4
LDCs: Food Imports From the Developed World
Average Average
1970-72 1980-82
LDCs 5,481 34,148
Sub-Saharan Africa 661
Middle East/North Africa 1,150 12,133
Other Persion Gulf OPEC 227 3,067
Other 396
Latin America 1,404 8,205
Mexico 180
Far East 1,740 7,881
Hong Kong 178
Average Annual 1970-72 1980-82
Change
27 21.0 35.5
26
23.1
- Ghana's cocoa and coffee production plummeted
for lack of price incentives in the 1970s. It
accounted for 50 percent of global cocoa produc-
tion in 1964 and only 20 percent in 1982.
- Argentina's wheat crops have fluctuated with
changes in the real prices paid the farmer and
the level of export taxes.
7. Most observers, including the World Bank, con-
clude that overvalued exchange rates have been the
single most important policy constraint on Third
World agriculture in the past two decades. For exam-
pie, the Philippines' exchange rate was overvalued by
25 to 30 percent through most of the 1970s and
Jamaica's by 35 percent in the early 1980s. Developing
country governments maintained their overvalued ex-
change rates to help their emerging industrial and
business sectors and to prop up urban consumer
purchasing po er and government revenues (see
inset)
8. LDC farmers are penalized twice by overvalued
exchange rates: their profits on exports are eliminated
or reduced drastically, and their domestic markets are
swamped by artificially cheap imports of food. Be-
cause most LDC agricultural sectors are still heavily
9
CONFIDENTIAL
25X1 1
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Nigeria: The Impact of an Overvalued Exchange Rate
In 1976 Nigeria sought to improve urban diets by
promoting the production of poultry. The International
Institute of Tropical Agriculture began an innovative
program to develop a new variety of high-yielding
yellow corn to be used as poultry feed. The program got
off to an excellent start and was accepted by many
farmers. In April 1977, in an effort to lower urban food
prices by cutting the production costs of poultry, Lagos
removed all barriers to the importation of yellow corn.
With the protection removed, the overvaluation of
Nigeria's currency meant that US corn could be import-
ed at nearly half the cost of locally grown varieties. As a
result, the corn-growing effort was devastated.
oriented to subsistence-with few farm-to-market
roads, little storage, and few processing facilities-it
has been all too easy to beat local farmers out of their
own urban markets, even in a period of sharply rising
demand.
The Government-Technology Connection
9. Technological advances have been among the
most important elements in the expansion of agricul-
tural production. Substantial gains have been made in
all aspects of agronomy, but for the most part agricul-
tural research has not been a major constraint. Most
LDCs lag far behind in adopting new technologies and
can make substantial advances by more effectively
applying traditional agricultural methods. Experts esti-
mate that LDC crop yields can be easily doubled on
the best cropland, thus reducing the pressure on the
most ecologically fragile lands. Few African crops
have ever had any chemical fertilizer, and most
African farmers are still planting the equivalent of
precolonial US Indian corn.
10. Essentially by using available technologies, Tai-
wan, since the 1960s, and China, in more recent years,
have increased agricultural output. Significantly, the
common ingredient has been a favorable incentive
system. Cases indicating how important incentives
have been in adopting new technology include:
- Dwarf high-yielding varieties of wheat were
developed in Mexico but did not have much
effect on production because of disincentives.
India, however, adopted this strain and, with
relatively high wheat prices, production soared.
- Research in Nigeria produced a new and highly
productive variety of oil palm trees. But, because
the price paid the farmers was much lower than
the world price, they could not afford to plant
and tend the new varieties. Planters in Malaysia,
however, utilized the Nigerian research and sig-
nificantly increased output. The Malaysian Gov-
ernment did not control prices, and farmers were
paid near the world price.
- Improved seed capable of doubling yields on
Ethiopia's small farms were developed 10 years
ago, but low farm prices, government misman-
agement, and internal strife re vented their
broad adoption by farmers.
The Government-Land Tenure Connection
11. Land tenure policies pursued by LDC govern-
ments also have played a major role in raising agricul-
tural output when used in conjunction with incentives
for production. Individual land ownership has pre-
vailed in most LDCs for decades, but such farmers
have failed to expand production much beyond their
immediate needs unless they received sufficient in-
come for their effort. Egypt, for example, carried out
a substantial land reform program in the 1960s, but
production was little affected because prices paid to
the farmer often were half of international prices,
even after considering input subsidies.
12. Land tenure is, nevertheless, a major element
that makes up the incentive package for farmers.
Peasants are most productive when they have a sense
of permanency about the land they are working and
have been much more inclined to make improve-
ments. China, for example, offered farm families land
leases of three years or less through its new "responsi-
bility system." Even this short period was so attractive
in comparison with the communal farms that the
reform was a resounding success. Chinese leases now
are being lengthened, many to 15 years.
13. In contrast, socialized state-run and coopera-
tive-style farming systems in which land is not held by
individuals have proved to be a production disincen-
tive. Such a result occurred in a wide variety of
settings, including Colombia's mixed economy in the
1950s and 1960s, Algerian socialism in the 1960s and
1970s, and Mozambique's centralization in the 1970s
and 1980s. Most of Mexico's "ejido" cooperatives still
are sunk in low-technology subsistence farming, five
decades after "land reform" began. Tanzania tried to
modernize its traditional agriculture by collecting its
10
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Table 5
LDC Agricultural Trends
Algeria
Angola
Benin
Central African Republic
Chad
Congo
Egypt
Ethiopia
Gabon
Guinea
Guinea-Bissau
Ivory Coast
Kenya
Lesotho
Liberia
Libya
Madagascar
Malawi
Mali
Niger
Nigeria
Rwanda
Senegal
Sudan
Swaziland
Tanzania
Togo
Tunisia
Uganda
1951-55
to
1961-65
1961-65
to
1971-75
1971-74
to
1981-84
-2
-2
-2
+2
0
-2
-1
-1
-1
+1
-2
0
- 1
-2
0
0
+1
0
-1
+ 1
-1
- 1
+1
0
0
1
- 1
-1
+2
+1
+ 1
+2
0
0
+2
+2
0
-1
-1
-1
+1
-2
0
0
-2
-1
-2
+2
0
+2
-2
-1
+1
0
-2
+2
+2
+ 1
0
- 1
0
-1
- 1
0
+2
+2
0
0
0
11
CONFIDENTIAL
1970-72
1980-82
Change
21
25
+4
11
40
200
+ 160
26
27
+ I
42
f7
-25
28
7
-21
34
98
+64
12
23
+ 11
8
5
-3
18
333
133
-200
19
18
-1
19
13
-6
21
13
-8
54
42
-12
24
21
-3
10
12
+2
18
34
+16
50
52
+2
14
29
+15
27
43
+ 16
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Table 5 (continued)
LDC Agricultural Trends
1951-55 1961-65
to to
1961-65 1971-75
1971-74
to
1981-84
Zambia +2 + 1
Scale for change in output per capita.
2 = more than 15-percent decline.
-I = 6- to 15-percent decline.
0 = 5-percent decline to 5-percent increase.
+ I = 6- to 15-percent increase.
+2 = more than 15-percent increase,
e Estimate.
72 113 +41
10 20 + 10
7 8 +1
3 3 0
small family farmers in "ujamaa" villages. Production
fell because farmers preferred to work their garden
plots instead of communal fields.
Other Government Influences
14. Governments also have provided their farmers
with many types of inputs-fertilizer, pesticides, seed,
and credits-at less than market value. Although in
theory these subsidies may seem to be an effective
incentive, in practice they have not worked well. The
main problem has been that governments usually
acquire the inputs and decide who gets them. With
the amount of subsidized products or credit limited,
their distribution often becomes based on politics and
graft. Because they are distributed by cumbersome
bureaucracies, products such as seed often reach the
farmer after the planting season, a common occur-
rence in Sudan, for example. Government buying
agencies also have bought the wrong products. Guinea,
for example, offered a subsidy for buying tractors
during the 1970s, but the 4,000 tractors imported were
too big for efficient use on Guinean farms.
15. The effect of foreign food aid to LDC govern-
ments also has depended on price and other incentives.
Food aid to LDCs has grown consistently in the past
30 years, reaching about $3 billion in 1984. This form
of aid has been highly controversial, in part because
there have been many examples in which the aid has
hurt domestic agricultural output. The record, howev-
er, has been mixed. In countries such as India in the
1970s and South Korea and Brazil earlier, food aid had
a beneficial impact on the local farming sector.
Through farm price supports, the government protect-
ed the farmer from the cheap foreign food aid being
distributed to the poorer, usually urban, segments of
the population. Meanwhile, the aid was increasing
food markets. Although initially this new demand was
met through aid, it could be tapped by the farmers
once the aid was reduced. In contrast, especially in
Africa, the food aid depressed local prices, and farm-
ers remained unprotected from this cheap source of
foodl
Favorable Political Consequences
16. In those LDCs where governments were able
and willing to provide security and incentives to the
farming community, the political-economic benefits
have been substantial and widespread. Because a high
proportion of LDC populations is rural, the linkage
between agricultural progress and overall economic
growth is strong. Indeed, for the many LDCs lacking
the relatively sophisticated labor force to foster a
sizable export-oriented industrial base, the only effec-
tive development alternative has been to rely heavily
on agriculture and domestic markets. Kenya, Malawi,
China, and India are amon the countries essentially
following that path.
17. Peasants achieving higher yields on small plots
have provided the bulk of the increased output. In
land-scarce Asia, nearly all the increase in production
12
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Table 6
LDC Agricultural Trends
Brazil
Chile-
1951-55 1961-65 1971-74
to to to
1961-65 1971-75 1981-84
Dominican Republic -1 0
Ecuador +2 +1
+1
+2
0
-1
+2
Guyana +1 -1 1
Haiti -1 -2
Honduras 0 0 0
Jamaica +1 -1 -2
Mexico +2 0 0
Nicaragua +2 + 1 -2 _
Panama 0 +1 +1
Paraguay 0 -1 +2
Peru
Uruguay -2 -2 +2 -
Venezuela +2 +1 -1
Scale for change in output per capita.
-2 = more than 15-percent decline.
- 1 = 6- to 15-percent decline.
0 = 5-percent decline to 5-percent increase.
+ I = 6- to 15-percent increase.
+2 = more than 15-percent increase.
6
-'2
10
1
21
17
-4
12
16
+4
16
13
-3
16
22
+6
11
7
-4
15
16
+l
34
66
+32
11
15
+4
28
27
15
15
0
11
27
+16
31
37
+6
35
41
+6
15
+1
17
13
-4
7
10
+3
has been from tiny plots, often less than an acre. In
African countries that were able to increase agricultur-
al output significantly during the postcolonial years-
including the Ivory Coast, Kenya, Malawi, and Zimba-
bwe-small-scale farmers have provided much of the
increased output of crops, which had been previously
grown mainly on plantations. Given their limited
acreage and relatively low labor costs, small-scale
farmers naturally are pushed toward achieving higher
yields per acre than large-scale farmers. As such,
peasant farmers are inclined to use high-yield systems
such as intercropping, multiple cropping, and other
techniques that require attention to individual plants.
In northeast Brazil, for example, farms of less than 25
acres produced three times more output per acre than
farms of more than 1,250 acres.
18. In addition, LDC agricultural expansion has
benefited the entire economy:
- As farmers become richer, they spend more on
locally produced goods such as bicycles, textiles,
and cooking utensils. A World Bank study exam-
ining Malaysian irrigation schemes, for example,
showed that each dollar of increased production
13
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
generated 75 cents of additional income else-
where in the economy.
- In the successful agricultural countries, the
movement to the cities also has slowed. India's
rural-urban population distribution, for example,
has changed little in the past 10 years. Studies
there indicate that each farmer depends on four
workers in transportation, marketing, and other
support activities, thus generating substantial ru-
ral, nonfarm employment. A similar pattern
appears to be developing in China.
Consequently, the widely accepted belief of the 1960s
that poor LDCs can make significant economic head-
way only through large-scale and state-directed indus-
trialization has proved wrong. In many cases, success-
ful small-scale farmers hav en the main spur to
economic development.
19. As LDC farming communities became more
prosperous, they have attempted to enlarge their
political influence in order to maintain and expand
their improved conditions. A global pattern seems to
exist in which farmers gain more political potency as
their economy develops. In the poorest and least
politically developed countries, rulers have tended to
rely heavily on support from the cities and have paid
little attention to the needs of the politically inactive
rural areas, even though they may account for as
much as 90 percent of the population. By comparison,
farmers in the most sophisticated developed countries
have a far greater political influence than their limited
number would indicate.
20. The pattern of increasing political power of the
farmer can be most clearly seen in Asia. In India, the
growing number of families that own economically
valuable farms largely vote for those candidates for
office that seem to provide the best agricultural
incentives. These voters were instrumental in defeat-
ing the Congress party in 1977 by supporting the
Janata party candidates. A defeated Congress party
won back farm votes by also promising a continuation
of price incentives.
21. Even authoritarian LDC governments must
deal with the political power of the farmer. Rulers in
South Korea and Taiwan have found that they have a
substantial ally in the rural community and have tried
to maintain that allegiance through greater farm
incentives. When farmers in these two countries be-
lieved that they were not enjoying a fair share of the
benefits from rapid economic growth, they argued
successfully for assistance via price supports and pro-
tection from import competition. Rice prices paid by
the government, for exam le, have been two to three
times world prices.
22. Although relations between the farming com-
munity and the power elite develop in many different
ways in various LDCs, successful rural sectors general-
ly have resulted in:
- A more stable political milieu, because a large
number of persons have a stake in the stability of
the system.
- A tendency to overproduce agricultural products,
because price and other incentives remain rela-
tively high. Farm exports increase and imports
are held down.
Outlook for Output Through 1996
23. Overall, LDCs probably will continue to make
significant progress in expanding agricultural produc-
tion during the next five to 10 years, largely because
incentives for the farmer will be maintained through-
out much of Asia and Latin America. The poor
showing in Africa eventually will pressure govern-
ments there to adopt similar policies, although such
changes will be difficult and politically risky. Al-
though normally erratic weather patterns will mean
that gains in output will not be smooth, increased
irrigation systems and improved agricultural practices,
especially in Asia, seem to have lessened the impact of
severe weather on output. Thus, the amplitude of the
cyclical production pattern probably will be less than
in previous decades.
24. In the most populous LDCs that already are
doing well, the momentum toward expanded output is
likely to remain strong, barring major political up-
heaval or war. The level of agricultural sophistication
is building in these countries, and the enhanced stake
farmers have in the continuation of present incentives
will maintain pressure on governments to keep or
improve those policies. The major counterpressure will
come from the need to keep subsidies at a reasonable
25. Additional countries, especially those in Africa,
will most likely tilt slowly toward more favorable
agricultural policies. Continuing outside pressure and
the internal recognition that past policies have failed,
will be the most important influences in helping to
move governments toward more pragmatic policies.
Many LDC leaders seem to be realizing they cannot
afford the burden of inefficient government bureau-
cracies and ponderous state enterprises. They have also
seen how government price incentives in China and
elsewhere have boosted agricultural production and
14
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
general economic growth. For instance, Algeria, Mo-
zambique, Nigeria, and Mexico are now exploring
ways of correcting past problems
26. By and large, however, policy changes are likely
to be adopted slowly because many Third World
regimes feel threatened by a loss of political control
caused by a diffusion of economic power. In addition,
governments are having a difficult time in effectively
shedding long-established policies. Algeria, for exam-
ple, began to alter its stifling agricultural policies in
1980, but, in practice, the old system has remained
difficult to change. Deeply rooted bureaucracies will
remain a major factor in slowing the effective imple-
mentation of new policies. An abrupt policy shift
would be needed to lead to a substantial and rather
quick improvement in agricultural conditions. In most
cases, such a dramatic shift would entail a peaceful
political revolution, as in China.
27. Population pressures probably will not be a
major constraint on progress in agriculture in most
countries. Indeed, most of the gains have come in
Asian countries, which have been forced to adopt
intensive-style farming because of high man-to-land
ratios. In contrast, although much of the increased
African output has been a result of additional acreage,
that continent has had the worst production record.
With many African countries now reaching the point
at which the land worked under traditional agriculture
practices can no longer feed the population, they are
beginning to be forced to alter their techniques.
Although this process will be painful, it probably is the
only means to significant increases in output.
28. In some countries, land resources may be too
meager for the bulk of the present population to rely
on agricultural pursuits. For example, in countries of
the Sahel, production costs are too high to sustain
many commodities. These relatively few countries will
either remain on the dole, strike it rich-a la Saudi
Arabia-and thus be able to afford agricultural im-
ports, or will see a migration of their population to
nearby countries with richer natural resources.
29. Technology will continue to help boost LDC
agricultural output. New tillage methods, more pro-
ductive and drought-resistant seed, and improved
pesticides and animal feeds are coming into use.
Besides the constant flow of new technologies emanat-
ing from developed country laboratories, research
performed by LDC institutions has climbed sharply.
LDC expenditures on agricultural research have tri-
pled during the 1970s-in part paid for by much
higher international aid-and have reached a level
exceeding the combined similar spending of the Gov-
ernments of the United States and Canada. These
LDC outlays are now producing a steady stream of
technologies tailored to that part of the world (see
inset).
LDCs: Improved Agricultural Technologies
- New sorghum varieties have been developed that
may well double grain yields in the Sahel and
triple yields in large parts of East Africa.
- New Nigerian white corn varieties have yielded 9
tons per hectare, against a national average of less
than 1 ton.
- New high-yielding peanut varieties are highly
promising for both Africa and South Asia.
- New cold-tolerant chickpeas can double yields in
Syria.
- Much of West Africa could become self-sufficient
in rice by shifting from upland to swamp produc-
tion; it will require different varieties, fertilizer
and pesticides, and effectively organizing to drain
the swamps.
- Soil scientists have discovered that trace minerals
are a key to permanent cropping in the Amazon
Basin; due to the high rainfall and acid soils, the
trace minerals rapidly leach out and literally
starve the crops after a few seasons. The research-
ers are now in their 13th year of growing crops on
the same fields in the Peruvian Amazon, with
yields averaging more than 10 tons per hectare per
year from triple-cropping grains and oilseed. Lo-
cal farmers have duplicated their success.
- Thousands of hectares of useless sawgrass have
been reclaimed in the Pacific Basin with the
leucaena leucocaphala, a leguminous fast-growing
tree from Central America. The same tree fixes
nitrogen in the soil and is being more widely used
to fertilize food crops in African alley cropping
systems. India is using the tree's leaves as a dry-
season feed source for new dairy industries in arid
areas.
- In Latin America, scientists have created a new
high-yielding forage crop for the region's huge
acid-soil savannahs out of a native weed that
thrives in the severe dry seasons.
- A new electrostatic backpack sprayer has drasti-
cally cut the volume of pesticide that LDC farm-
ers have to carry to their fields to protect them
from insects and diseases-thus reducing costs
while helping to improve yields.
15
CONFIDENTIAL
25X1
25X1
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Farm-Related Possibilities of Genetic Engineering
- Soil bacteria that will produce extra nitrogen to
nourish plants, which would sharply reduce the
need for chemical fertilizers.
unless developed countries reduce or eliminate their
domestic subsidies. At best, exports of major commod-
ities, including coffee, tea, cocoa, cotton, rubber, and
vegetable oils, will rise 1 to 2 percent a year. Much of
the increased LDC grain exports will result from
taking markets away from the United States and other
- The power to tailor plants for greater utility-
perhaps salt-tolerant rice for coastal marshes,
drought-resistant cereals, and the first crop plants
to offer complete protein.
- Faster growing trees could allow farmers to tap
biomass energy value from trees and shrubs on
marginal land.
- Higher milk output, a lower ratio of fat to lean
meat, and animals resistant to a wide variety of
diseases.
Major victories against diseases such as malaria
and river blindness, which sap the energies of
farm labor forces in Third World countries, and
East Coast fever, which limits cattle production in
East Africa.
30. The productivity potential of these new farm
technologies, great as it is, may eventually be dwarfed
by the possibilities of genetic engineering. Aided by
techniques such as cloning, embryo transfer, tissue
culture, protoplast fusion, and recombinant gene trans-
fer, scientists are making progress in altering nature's
hereditary blueprints to produce organisms vastly
more useful to humans. Genetic engineering already
has produced the world's first fully safe vaccine
against foot-and-mouth disease, one of the most perva-
sive and costly livestock diseases in the world (see
inset)
Outlook for Trade
31. LDC trade in agricultural products probably
will grow slowly in the next 10 years. Overall, imports
will likely increase much more slowly than in the
1970s, mainly as a result of improved self-sufficiency
in food crops. In addition, the oil-producing states will
not continue to boost their imports. The most expan-
sionary LDC markets will be those Far Eastern coun-
tries whose economies are growing rapidly but that
have severe natural resource limitations
32. Export growth also will be stifled, as much of
the expected increase in LDC demand will be met
domestically. The near stagnant developed country
demand for grains and tropical products, however,
will likely persist. LDC sugar exports could fall further
major developed country exporters.
33. A few LDCs will continue to dominate the
export markets. For many tropical products, the small
number of efficient producers-such . as Malaysia,
Thailand, and the Ivory Coast-probably will expand
their share of the market (see inset). Some countries
will do well in small niche markets like bananas and
pineapples. The many LDCs that lack the capacity to
export manufactured goods will have to depend main-
ly on domestic market development if they are to
expand economic activity.
34. In general, global agricultural markets are much
more likely to be affected by surpluses than shortages.
Although occasional tight markets are inevitable, the
tendency toward greater domestic incentives for the
farmer will mean that many countries will be produc-
ing more than they need in some product lines and
trying to dispose of the excess on international mar-
kets. This tendency will hold down global agricultural
prices. The LDCs that suffer the most are those that
rely heavily on agricultural sales for foreign exchange
and are unable to compete effectively for global
markets.
Implications for the United States
35. On balance, the continuing agricultural progress
in LDCs will be mutually beneficial for the United
States and the Third World. It will surely enhance the
group's political stability. Although many overriding
factors could upset the political balance in LDCs, the
growing prosperity of the farming community will
play an important fundamental role in containing the
political tensions that normally accompany modern-
ization. Agricultural gains would slow the movement
to the cities, provide an alternate political base outside
the cities, and develop a fairly large group with an
increased stake in a stable political-economic system.
These benefits will mainly flow to the populous
countries of Asia and Latin America that have already
achieved forward momentum in the agricultural
sector.
36. In some countries, however, governments will
be facing a period of significant change in agricultural
techniques, which could have a destabilizing effect
analogous to the "enclosure movement" in England.
16
CONFIDENTIAL
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
West African countries, such as Ghana, Togo, Benin,
and Cameroon, depend on cocoa for 10 to 45 percent of
earnings but probably will continue to lose market
shares to Brazil and the wealthier Asian producers.
Since 1980, production has fallen 16 percent in West
Africa, but it has risen 79 percent in Asia-largely
because of a tripling of output by Malaysia.F_~
Sugar
Because of high production in Brazil, Asia, and the
European Community, sugar prices have been pushed
to their lowest level in real terms since the 1930s. This
has severely hurt exports and earnings in scores of
sugar-exporting countries, particularly smaller ones
such as Belize, Fiji, and the Dominican Republic, where
sugar accounts for 35 to 90 percent of earnings. Mean-
while, the sugar-producing giants-Brazil, India, and
China-have boosted production 35 to 65 percent since
1980.
In the past four years, Chinese cotton production has
almost doubled to 21.3 million bales-nearly a third of
global output. During crop year 1979-80, China import-
ed 20 percent of the cotton traded on the world market,
but this year it is expected to account for 5 percent of
world exports-a trend the Chinese Government in-
tends to encourage. In addition to taking traditional US
markets, these exports will hurt Pakistan, Egypt, Nica-
ragua, Paraguay, Mali, and Sudan, where cotton exports
accounted for 10 to 50 percent of earnings in 1983.
Rubber
Major expansion plans by the three largest produc-
ers-Malaysia, Indonesia, and Thailand-will keep sup-
plies plentiful. Smaller producers, such as Sri Lanka and
Liberia that respectively depend on rubber for 11 and
17 percent of export earnings, will be less able to boost
volume to compensate for low prices.F_~
physical security and incentives to farmers. Many
countries providing both have easily made the change
to intensive land techniques. India is the prime exam-
ple, especially because it had to make the shift at the
same time there were fears that the "green revolution"
would result in many landless peasants wandering the
countryside. The key issue is how to encourage the
LDC tilt toward pragmatic agricultural policies while
helping to lessen the fears as to political instability.
38. Expansion of LDC agriculture will have a
mixed impact on US international trade interests.
LDCs almost certainly will become increasingly com-
petitive in export markets in which the United States is
the principal world supplier-including wheat, corn,
soybeans, and rice. India, China, Thailand, and Brazil
have already taken sales away from the United States.
Although these and other LDCs probably will not
match the United States in export volumes, they will
take away markets from the US farmer and put
downward pressure on agricultural prices. In addition,
the United States will be pushed further into being a
swing supplier in global grain markets, the same role
the Saudis have played in rude oil markets. During
the years when there are market stringencies, US farm
sales soar, and, when surpluses occur, US exports
plummet. LDC suppliers of farm products will be
selling whatever they have on hand beyond domestic
needs at prices probably below those of the United
States. The resulting sizable swings in demand and
prices caused by the new LDC producers will further
complicate the planning problems of those US farmers,
the bulk of whose output is sold abroad.
39. Trade tensions are likely to rise between the
United States and those LDCs competing with US
farmers. Agriculture everywhere is a highly political
issue as farm lobbies are very powerful. As the United
States becomes more of a swing producer, the trade
issues are likely to be especially acute. When markets
are in surplus, the subsidies LDCs pay their farmers
for higher output will become a clear trade irritant,
especially because the LDC governments probably
will be selling their commodities at relatively cheap
Most of these countries will be in Africa, but they also
could include Nepal and the Philippines. The major
problem will be the need to replace traditional agricul-
tural techniques with more sophisticated means so that
agricultural production can keep up with population.
In some of these cases, the shift to more intensive
production will cause wrenching societal changes as
nomads are forced to settle and as shifting agriculture
evolves into fixed fields.
37. The most serious distribution problems will
occur in those countries unable or unwilling to provide
prices in order to secure foreign exchange.
40. At the same time, US manufactirers will bene-
fit from increased sales to the more prosperous LDCs.
They will be selling more agriculture-related prod-
ucts-such as tractors, chemicals, and pumps-as well
as general goods and services to meet the needs of an
expanding economy. On balance, overall US exports
should benefit from the increased LDC agricultural
output, but they will shift from farm commodities to
manufactures and services
17
CONFIDENTIAL
9-x1
25X1
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
 Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4
Sanitized Copy Approved for Release 2011/07/06: CIA-RDP90R00038R000500600001-4