Ecuador - Agricultural review (Vol. 2 of 2) : Annexes

RESTRICTED Report No. PA-92a This report is for official use only by the Bank Group and specificaly authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group docs not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT LNTERNATIONAL DEVELOPMENT ASSOCIATION AGRICULTURAL REVIEW ECUADOR (in two volumes) VOLUME 11 ANNEXES July 22, 1972 Agriculture Projects Department  BACKGROUND DATA us$ 1.00 . . . . . . . . . . . . . . . . . . . . . . . 25 sucres One sucre (s/) . . . . . . . . . . . . . . . . . US$ 0.04 Population (1969) . . . . . . . . . . . . . . . . . . 6 million Labor Force (1969) . . . . . . . . . . 2.9 million Agricultural Labor Force a., Percent of Total Labor Force (1969).*. 61% Growth Rates (annual compound, 1960-69)': Population (Total). . . . . . . . . . . . . . . . . 3.4% Population (Rural). . . . . . . . . . . . . . . . . 2.7% Agricultural Labor Force . . . . . . . . . . . . . 2.5% GDP at Factor Cost (1969)... . . . . . . . . 27,425 million sucres Per Capita GDP at Factor Cost (1969) . . . . . . . . . 4,570 sucres Contribution of Agriculture, Forestry and Fisheries to GDP (1969) . . . . . . . . . . . . . 31% Growth Rates (annual compound, 1960-69): GDP. . . . . . . . . . . . . . . 4.6% Contribution of Agriculture, Forestry and Fisheries to GDP . . . . . . . a . . . . . . . . 2.7% Balance of Payments (on current; account, 1969) . . . . US$ -87 million Index of Wholesale Prices (1954 = 100): All Products (1968) . . . . . . . . . . . . . . . . 120 Food Products (1968). . . . . . . . . . . . . . . . 115 Main Agricultural Exports . . . . . . . . Bananas, coffee, cacao, sugar Main Agricultural Imports . . . . . . . . Wheat, cotton, tallow, vegetable oil and oilseeds, tobacco Agricultural Exports (1969). . . . . . . . US$ 175 million Agricultural Exports as % of Total Merchandise Exports (1969) . . . . . . . . . . . . 93% Agricultural Imports (1968) . . . . . . . . . . . . . US$ 50 million Agricultural Imports as % of Tcotal Merchandise Imports (1968). . . . . . . . . . . . . 24% Number of Farms (1968) . . . . . . . . . . . . . . . 633,000 Area in Farms (1.968) . . . . . . . . . . . . . . . . . 6.9 million ha Size of Farm (Arithmetic Average, 1968). . . . . . . . 11 ha Size of Farm (Modal Average, 1968) . . . . . . . . . . 1.9 ha Area in Crops (1968): Annual Crops . . . . . . . . . . . . . . . . . . . 1.22 million ha Semi-permanent Crops . . . . . . . . . . . . . . . 0.40 million ha Permanent Crops . . . . . . . . . . . . . . . . . . 0.58 million ha F.allow . . . . . . . . . . . . . . . . . . . . . 0.44 million ha Total Crop Land . . . . . . . . . .......... 2.64 million ha Area in Pasture (1968): Natural . . . . . . . . . . . . . . . . . . . . . 0.86 million ha Cultivated .................. 1.18 million ha Total . . . . . . . . . . . . . . . . . . . . . 2.04 million ha 1 kilogram (kg) 2.20 pounds meter - m 1 hectare (ha) 2.47 acres ton = metric ton 1 quintal (q) 100 pournds $ - US dollar mm - millimeter  TABLE OF CONTENTS Page No. VOLUME I (MAIN REPORT) SUMMARY AND GENERAL RECOMMENDATIONS .... ............... i-v I. RECENT TRENDS IN AGRICULTURE ........................... 1 Output ........................................... 1 Foreign Trade .................................... 1 The Supply of Labor and Land ..................... 2 Technical Change and Modern Inputs .... ........... 3 Other Key Developments ........................... 5 Conclusions ...................................... 6 II. TRE ECONOMIC ENVIRONMENT OF FARMERS ................. .. 6 The Supply of Credit ............................. 6 The Supply of Information ................9 Product Prices and Marketing Costs ............. .. 11 Taxation .......................................... 13 Conclusions ...................................... 16 III. THE GOVERNMENT AND RESOURCE DEVELOPMENT ....... ........ 17 Land and Water ................................... 17 Rural Roads and Electrification ........ .......... 22 Forests and Fisheries ........... .. ............... 23 Conclusion ....................................... 27 (IV. THE LOW INCOME PROBLEM IN AGRICULTURE ........ ......... 28 Agricultural Cooperatives ............... ........ 28 Rural Health and Family Planning ........ ......... 30 Land Redistribution and Settlement ....... ........ 32 V. IMPROVING DEVELOPMENT STRATEGY ...... ................... 34 The Demand for Farm Products .......... ........... 34 Production Capacity .............. ................ 35 The Changing Economy . . 36 Population Growth and the Rural Poor . . 38 Needed Changes in Strategy ...... ................. 40 VI. MOBILIZING FOREIGN SUPPORT ............. ............... 42 Foreign Aid -- A Resume .......... ....... I ......... 42 Making Foreign Aid More Effective ....... ......... 44 The World Bank Group and Project Possibilities ... 47  -2- MAPS 1. Natural Regions and Rainfall Distribution 2. Irrigation Projects and Proposals 3. Location and Study Zones, Guayas Basin VOLUME II (ANNEXES) 1. Recent Economic Trends 2. The Natural Resource Base for Agriculture 3. Problems of the Seventies 4. Commodity Notes Cereals Tuber Crops Pulses and Oil Crops Fiber Crops Cacao and Coffee Tea and Sugar Fruits Miscellaneous Crops Livestock and Poultry 5. Land and Water Development 6. The Loan Recovery Rate of the National Development Bank 7. The Supply of Technical Staff 8. The Cooperative Bank 9. Agricultural Processing Industries 10. The Water Laws 11. Agricultural Statistics and Planning 12. Foreign Loans in Agriculture Statistical Annex (with list of tables)  ANNEX 1 Page 1 RECENT ECONOMIC TRENDS AND PROSPECTS I/ 1. Helped by favorable weather, rising exports (particularly bananas), and expenditures for petroleum development, Ecuador's GDP in real terms increased by about 8.8 percent in 1970. The rate of growth averaged about 6 percent annually over the past five years. This is some- what higher than during the early 1960's. This improvement is because of an acceleration in industrial growth which followed a revision of industrial legislation and the establishment of a national financial institution. Investments by foreign oil companies in exploration, drilling and pipeline construction also generated income and employment. Increased governmental activity also had an expansionary impact on the economy. On the other hand, the slow growth of agriculture, which employs more than half of the econo- mically active population, has been a powerful drag on overall economic growth. 2. Ranking high on the list of economic problems is the low level of public investment (4.1 percent of GDP in 1968-70). This is becoming a key obstacle to the growth of both the agricultural and industrial sectors. The public sector is structured so that saving generated in one part (largely the social security system) is not available for investment by the Central Government and autonomous entities. So the Central Government is in a chronic state of fiscal crisis, even though overall public sector finances are in reasonable balance and the country is not lightly taxed (public sector revenues accounted for 22.7 percent of GDP in 1970). While the Central Government borrows heavily from the banking system to finance its deficit (and indirectly that of some autonomous entities), the social security system is channeling most of its surplus back to the private sector through direct loans and equity investments. 3. The Central Government experienced a protracted fiscal crisis during 1968-70. This was because of a rapid expansion of its current expenditures. Successive large deficits were financed largely by borrowing from thie Central Bank. The expansionary monetary impact and the effect on imports and short-term capital movements kept the international reserve position precarious, despite continual tightening of credit to the private sector. In mid-1970, the Government devalued the sucre and enacted a comprehensive monetary and fiscal program which was supported by an IMF S!-and-b- agreement. The program involved unification of the dual exchange rate structure, the elimination of certain import surcharges, and the 5ntroduction of ad valorem export taxes. The program was generally successful. The deficit of the Central Government was reduced, monetary expansion was limited, and the reserves increased to US$6 million at the end of 1970 (double the mid-year level). 1/ An economic mission headed by David Greene visited Ecuador in early 1971. This annex is based on material made available by that mission.  ANNEX 1 Page 2 4. This relatively favorable balance of payments performance in 1970 should not be allowed to obscure the record of the last half of the 1960's. Rapidly increasing imports coupled with uneven export performances resulted in ever-higher current account deficits - from $2 million in 1965 to a higih of $104 million in 1969. The traditional exports -- bananas, coffee and cacao -- faced difficulties. Bananas had to compete with the resurgent Central American output. Coffee and cacao exports were affected by wide swings in world prices and in domestic production. Net official capital flows averaged only $30 million per year. Official agency disbursements reflected shortcomings in project preparation, delays in making loans effective and difficulties in obtaining counterpart contributions. There was an increasing use of suppliers' or creditors' financing as a way to bridge the gap between future petroleum revenues and present budgetary difficulties. 5. Revenue from petroleum development is already coming in, and Ecuador can look forward to substantial and increasing exchange earnings from petroleum during 1971-76 as a result of both exports and developmental expenditures. Net exchange earnings are estimated at $43 million in 1971 and projected at between $108 and $156 million in 1976. Although several important issues which will affect government revenues from petroleum exports are as yet unresolved, they could reach $104 million by 1976 (23.4 percent of present total public sector revenues). 6. Petroleum revenues will make the developmental job easier, and firm provisions should be made at the outset to ensure that they are care- fully husbanded and productively used. In the last analysis, however, growth will depend on the performance of sgriculture and industry. The limited prospects for the export agriculture point up the need for import substitution and for increasing production for the domestic market. All indications are that agricultural production for the domestic market is increasing less rapidly than demand and that, unless production can be increased, Ecuador will become increasingly dependent on food imports. Positive action must be taken to relieve constraints on agricultural pro- duction. 7. The industrial sector is also in need of help. It is still in a very early stage of development. However, output of factory industry increased 10 percent per year during the last half of the 1960's. To the extent that Andean integration (discussed in the main report) breaks down trade barriers, Ecuador's industry will have access to a market with a domestic product twelve times that of its own. There is always the pos- sibility that industry may suffer from the competition of its neighbors, but Central American experience indicates that integration can accelerate industrial growth for all members rather than promoting some at the expense of others. Further industrialization will undoubtedly be concentrated in agro-industry based on crops, livestock, forestry and fisheries and in processes with high labor components. (By far the most urgent infrastruc- ture need of the industrial sector is electric power.)  ANNEX 1 Page 3 8. Analysis of the development prospects of the Ecuadorian economy for the period 1971-76 indicates that an 8 percent growth rate for GDP (excluding the petroleum sector) can be achieved if the downward trend of domestic saving is reversed and a public investment program which supports private sector development is carried out. Reversing the down- ward trend in saving depends on limiting the growth of public sector current expenditures and assuring conditions conducive to private saving. As to public investment, no program now exists for the years just ahead. There is need for a large program, but it is doubtful that an expansion greater than, say, 15 percent a year can be efficiently achieved over the next several years. Preparatory work should be stepped up now on projects to be carried out in 1973-76, including those to be externally financed. 9. Population growth (now at about 3.4 percent per year), will continue to make it difficult to improve average living levels at a satis- factory rate. The population of Ecuador was about 6 million in 1970. It will be about 8.5 million in 1980 if the present rate of growth continues.  ANNEX 2 Page 1 THE NATURAL RESOURCE BASE FOR AGRICULTURE 1. The Andean mountains divide Ecuador into five natural reeinns (nee map). These are: (1) the coastal or western plain (Costa) which extends from the sea to an elevation of about 1,000 m at2the base of the Andes. The area covers about 70,000 km and has about 45 percent of the total population. It produces the main export crops; (2) the western slope of the Andes. This is a narrow, steep band unsuitable for agriculture. It is mainly in forests; (3) the highlands (Sierra). Covering about 50,000 km , this area is made up of valleys, high plateaus, and steppes (paramos) at altitudes from 2,000 to 4,000 m. Its population is about 50 percent of the national total. It produces much of the food for the nation; (4) the eastern slope of the Andes. This piedmont is 20 to 50 km wide and ranges in altitude from 800 to 2,000 m. Coloni- zation of this area is just getting underway and the population is small; (5j the adjoining lowlands (Oriente) to the east. This area is a part of the Amazonian rain forest. It is virtually uninhabited. Petroleum has recently been discovered in this area. imate 2. Partly because of the range in altitude (from sea level to about 6,000 meters), the climate is highly variable. This makes it possible to grow almost all kinds of crops. 8. The coast has a tropical climate. It is influenced by dry cold wintds from the south, and hot humid currents from the north. The northern part has a hot humid climate, with rainfall ranging from 1,000 to 5,000 mm (see Map) 1/ 2/. The localities with rainfall ranging from 1,500 to 3,000 mm Annuai rainfall data and the seasonal distribution at major recording s::ations are presented in the Statistical Annex. 2! 7k- rainfall distribution shown on the map is based on data for 1968. ThIis was a relatively dry year and the isohyetal lines might shift slightly if based on data for a longer period.  ANNEX 2 Page 2 are well suited for perennial tropical crops. In the south the inland areas get 500 to 1,000 mm of rainfall. This is concentrated in a continuous period of five to seven months. The starting dates for the rains are erratic, often causing crop failures. Most of the coastal belt in the south has rainfall of less than 500 mm and cannot be farmed without irrigation. 4. The highlands have many micro-climates. Rainfall tends to decrease from north to south. Most of the high plateaus and paramos have adequate rainfall for annual crops during the rain;y season of five to seven months. Many kinds of temperate-climate crops are grown in this area. Most of the valleys at altitudes of from 2,000 to 2,500 meters are dry. 5. The eastern slope of the Andes gets- from 2,500 to 4,000 mm of rainfall per year. It has no dry season. Precipitation is so abundant that it limits the agricultural possibilities. 6. The eastern lowlands have a very hot and humid climate. Rainfall is around 3,000 to 4,000 mm. There is no dry season. This area is not being farmed now. Soils 7. The northern part of the western lowlands has deep lateritic soils. Most drain well. The drier parts of the plain to the south have brown latosols in the main. The exception is the Guayas basin and the southern coastal area where humid alluvial soils are predominant; although these soils are heavy, this need not limit their use for agriculture i- they are properly farmed. 8. In the highlands, the black Andean soils predominate in the lower regions, and mountain latosols at higher elevations. Each is rich with a high humus content and good physical characteristics, but susceptible to erosion. 9. On the eastern Andean slope, the main soils are latosols of volcanic origin and high humus content. These are heavy soils which require artificial drainage. 10. The eastern lowlands have red latosols. Because of the forest cover, they have humus content in the upper layer. If farmed, it is likely that the humus would disappear rapidly, leaving a very poor soil. Add to this the heavy rainfall noted above, and it is clear why many doubt that this region can be exploited successfully through agriculture. Land Use and Potential 11. Available data are crude and incomplete. The present situation and apparent potential have been summarized as follows:  ANNEX 2 Page 3 Crop Cultivated Natural Region Land Pasture Pasture Total