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ROA PROJECT ROLES OF AGRICULTURE IN THE DOMINICAN REPUBLIC

ROA PROJECT ROLES OF AGRICULTURE IN THE DOMINICAN REPUBLIC. NATIONAL SYNTHESIS Oct 2003, Rome. DR ROA TEAM. Team Leader Magdalena Lizardo Policy Module Magdalena Lizardo Jesús de los Santos Poverty Reduction Jacqueline Mora Báez

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ROA PROJECT ROLES OF AGRICULTURE IN THE DOMINICAN REPUBLIC

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  1. ROA PROJECTROLES OF AGRICULTURE IN THE DOMINICAN REPUBLIC NATIONAL SYNTHESIS Oct 2003, Rome

  2. DR ROA TEAM • Team LeaderMagdalena Lizardo • Policy Module Magdalena Lizardo Jesús de los Santos • Poverty Reduction Jacqueline Mora Báez • Social Viability Edgar Victoria • Food Security Magdalena Lizardo • Environmental Externalities Abel Hernández Alejandro Herrera Magdalena Lizardo • Culture and Perception Analysis Carlos Segura Karin Weyland • Research Assistant Carmen Alvarez

  3. Transformation of Economic and Social Structure • Reduction of agricultural sector contribution to employment, value added and foreign exchange generation % Farming in GDP 1950-60: 28 % 1990-2001: 12.5% % Farming in employment 1970: 54.7% 2000: 16.3% % Traditional Crops/Non EPZ Exports 1970: 84% 2002: 18% • Rapid urbanization process % urban population 1960: 36% 2000: 65.5%

  4. Transformation of Economic and Social Structure... • Economic reform in the 90s • Commercial, fiscal, labor market and investment regime reforms • Macroeconomic stability after a severe crisis in 1990 • High economic growth rate during the 90s. 1992-2000: 6.5% • Dynamic sectors: Tourism, EPZ, telecommunication and construction • Important migration process during the 90s • More than 1 million Dominicans living abroad • High presence of Haitians

  5. Agriculture Incentive Framework and Sector Performance • Changes in agriculture incentive regime • Till mid 80s: Negative protection due to price control and network of consumer subsidies • Mid 80s-Mid 90s: Increasing positive protection, peak in 1995 • After mid 90s: Moderate positive protection • Continuation of penalization of exportables, although at lower level • Increasing relative importance of non-market assistance • Agricultural growth in the 90s after stagnation in the 80s, • Expansion of non traditional agricultural exports • Expansion of crops demanded by tourist industry (fruits and vegetables) • Increase in productivity, but not too much in importables

  6. Food Security Role of Agriculture • Per capita daily food supply increased in last forty years, but fragile situation • Per capita daily calories and protein recommendations first time reached in 1980 • Improvement on country capacity to import food during the 90s • High level of variability of apparent consumption of nutrients • Average annual growth rate of daily per capita supply 1980-2001: • Calories: 0.02% Proteins: -0.17 % Fat: 1.70% • Food security role of agriculture has been conditioned by government policies: • Self sufficiency in rice production • Greater import dependency on basic inputs for production of fat and protein providers • Rupture of the linkages between agriculture and agro-processing industries that provides the basic industrialized components of the Dominican diet.

  7. Food Security Role of Agriculture.... • Nutritional household food security status • Basically related to permanent income and not to transitory income generated in agriculture. • Household permanent income depends on household human capital, asset endowment and community infrastructure. • Any food security strategy must take into account restriction imposed by the country high level of exposure to climatic shocks and external economic shocks. • Macroeconomic instability and devaluation can deteriorate food security status

  8. Contribution of Agricultural Growth to Poverty Reduction • Poverty is higher and deeper in rural areas and among people in farming activity • National poverty rate (1998): 25.8% population • Rural poverty rate: 38.2% • Poverty rate of workers in farming sector: 34.6% • 90s economic expansion reduced poverty, mainly due to an increase in mean income and to lesser extent an improvement in income distribution • Poverty reduction was larger in rural area and among households with head working in agricultural sector. • Rural- urban migration and labor migration from farm to non-farm activities in the rural area were important factor in explaining reduction in rural poverty.

  9. Contribution of Agricultural Growth to Poverty Reduction…. • In the 90s farm real wages did not increase despite the increase in farm labor productivity and increase in non farm real wages • Existence of a high elastic labor supply from Haitian immigrants • Farm wage as reference salary? • For non-farm workers living in rural area, • Not for urban workers due to insufficient public services in rural area. • Very limited growth capacity among small farmers • Predominance of very small land plot (28% of farmers in less than 1 ht plot) • Low level of human capital • Lack of land title limits credit options.

  10. Contribution of Agricultural Growth to Poverty Reduction…. • Agricultural growth created a demand for rural non-farm employment (RNFE) • Share of RNFE in rural employment: 1996: 52% 2002: 55% • 55.5% of rural expenditure in non-food goods and services. • RNFE provided basically by small and micro-enterprises • Need of further research on net impact of reduction of food relative prices on low productivity small farmers. • As net food demander, food relative price reduction benefits small farmers • Lower food relative prices may reduce real income of small farmers

  11. Social Viability Role of Agriculture • Public policies accelerated the urbanization process in the DR • Transfers from agriculture to urban non-agriculture activities reduced the long term investment capacity of the agricultural sector and its ability to create job opportunities - Food price control - Taxation of agricultural exports • An urban bias in the development of social service infrastructure • Who migrates in the DR? • Migration is more frequently among women • Recent permanent migrants younger than non-migrants at their destination place • Years of schooling for recent permanent migrants are higher than for permanent migrants and lower than non-migrant • Why people migrate in the DR? • Lack of job or bad economic situation • Lack of access to education facilities and other social services • Family reasons

  12. Social Viability Role of Agriculture… • Social Viability role of agriculture has been limited. Rural-urban migration has had positive and negative effects: • Contribution to poverty reduction in rural area • Provision of employment to rural labor surplus • A way of diversifying sources of household income - Internal remittances as % GDP: 1992: 1.3% 1998: 7% - Internal remittances represent 17.3% of total household income for the lowest decile, compare to 3.8% for the richest decile. - Rural households headed by women are more likely to receive inter-household transfers, in particular those elderly poor. • Contribution to reduction of population pressure on natural resources in rural area • Contribution to poverty increasing in urban area via the worsening of the urban income distribution • Contribution to urban congestion, marginality and criminality • Strengthening community social capital in rural areas can help in the mitigation of environmental risks, management of natural resources and finding solutions to the lack of basic services.

  13. Buffer Role of Agriculture in Time of Economic Crisis • Major economic crisis ( 1979, 1981-82, 1985-86 and 1990-91) • Agricultural sector was one of the most affected • Exception during 1981-1982 debt crisis: - Performance of agricultural sector was better than the average. • Special sector policy of subsidized credit protected the sector from the impact of higher interest rate and credit scarcity. • Economic slowdown and contraction in 2001-mid 2003

  14. Buffer Role of Agriculture in Time of Economic Crisis... • General equilibrium analysis of the impact of some economic shocks suggests that agriculture acts as buffer in time of crisis but impact on labor demand varies according the type of shock. • Effects of 10% devaluation of Dominican pesos • Decrease internal demand of domestic and import goods • Increase in the production of exportable products, including agricultural ones. • Decrease production of rice, sugar and agro-industrial food • Contraction of education and health services, which traduces in a longer impact of devaluation over time • Effects of term of trade shock (10% increase in import price) • Reduction of absorption and private consumption • Reduction of competitiveness in export processing zone • Reduction of demand for unskilled workers in all sectors, but lower reduction in agricultural production. • Expansion of production of export crops • Reduction of agricultural real wages • Increase in agriculture demand of skilled labor.

  15. Buffer Role of Agriculture in Time of Economic Crisis… Household perspective of buffer role of agriculture • Economic slowdown in 2001-2002 - Loss from adverse external shocks: 5.6 % of GDP (September 11th, USA recession and oil price increase). - GDP average growth rate 1991-2000: 6.8% 2001-2002: 3.2% • Some signals that farm activity plays a buffer role • First phase of the slow-down: - Job migration to tourism, public sector and wholesale and retail sector - Reduction of participation rate in rural area - Reduction of share of agriculture in total employment • Second phase of the slow-down: recognition of national crisis - Increase in rural labor force participation rate - Slightly reduction of unemployment in traditional agriculture - Positive contribution of farm employment to employment creation in 2000-2002 - 85% of employment creation in 2000-2002 was in low-return jobs. • Apparent buffer role of low-productivity sector and farm activities increases job opportunities but under poor working conditions.

  16. Environmental Externalities of Agriculture • Negative externalities • Migratory agricultur, slash and burn practices and hillside agriculture deteriorate habitats of endemic species. DR has a high level of endemic species. • Soil erosion due to planting in soil no suitable for agriculture. - 55% of land used in agriculture - 12.6 % of land suitable for agriculture • Inappropriate water management at farm level has caused soil salinity • Water contamination with agro-chemical: • 46% of commercialized pesticides are considered as highly dangerous

  17. Environmental Externalities of Agriculture... • Positive externalities of agriculture (or reduction of negative externalities) • Increase in land use in agro forestry system of coffee and cocoa • Protect watershed and increase soil capacity of water retention • Increase carbon sequestration • Prevent soil erosion • Increase in adoption of soil conservation practices in hillside agriculture, in part due to the expansion of intensive agriculture in irrigated areas. • Expansion of organic agriculture and adoption of integrated pest management practices have reduced the magnitude of agro-chemical contamination • Organic agriculture is associated to adoption of conservation practices

  18. Environmental Externalities of Agriculture…. • Non- agricultural activities have affected natural resources conditions in DR • Negative impacts • Hurricanes and natural phenomena • Lack of environmental protection regulatory capacity. Environment and Natural Resources Law passed in 2000. • Lack of incentive policy to promote reforestation and private investment in forest sector • Positive impacts • Adoption of watershed management and reforestation projects in order to protect public investment in dams. • Rural- urban migration reduced population pressure on rural natural resources • Potential benefits of development of agro-tourism in the DR • A way of internalizing positive environmental externalities of agriculture using market mechanisms • A way of offer new tourist attraction that complements sand and beach tourism. • Under a conservative scenario potential income generation of agro-tourism is equivalent to 10% of farming GDP and 8% of tourism income.

  19. Perception Analysis and Cultural Role of Agriculture • Recognition of the contribution of agriculture and rural sector to the conformation and evolution of the economic and social structure of the DR in presidential discourses, text books, intellectuals and contemporaneous urban and rural social actors. • The transformation process of the Dominican society in last 40 years brought the emergence of new social and economic actors that creates tensions and new forms of interactions among members of the Dominican society. • Class conflict among small, medium and large scale farmers • Political tensions between the State and farmers demanding larger public support in order to face the opening of the economy • Ethnic tensions between Dominicans and migrant Haitians • Generational tensions between older population that own land and does not want to leave the country-side and younger population that does not find a way of leaving in rural area.

  20. Policy Implications • The roles actually played by the agricultural sector in the DR has been conditioned by public policies at macro and sectorial levels. • The retention of younger generation of Dominican in the country side requires: • Reorientation of public investment towards the improvement of social services in rural areas • Migration policy oriented to reduced the adverse impact of unskilled migrant Haitian on unskilled Dominicans • Distribution of productive assets on rural area not only in quantity (increasing small holders’ land plot) but in quality ( provision of land title, development of technical and entrepreneurial capabilities, access to information technologies) • Insurance mechanism to protect farmers from natural disasters and new initiatives to provide small land holders access to financial market. • Development of new non-farm employment opportunities in rural areas. Agro-tourism and eco-tourism have a high potential of income generation, conditioned on the development of basic infrastructure and logistic arrangements in rural communities. • Strengthening of community social capital in rural areas.

  21. Policy Implications... • For food security reasons, the DR can not rely solely on internal production or on high import dependency as source of food supply, given the high probability of being exposed to frequent climatic shocks and external economic shock. • A food security strategy requires: • Policies oriented to increase food production productivity • Sound macroeconomic environment that allows the country to count with a buffer of international reserves that could be used when it has to face the consequences of adverse climatic and external economic shocks. • Sustainable agricultural development in the DR requires: • Redefinition of the prevailing pricing and subsidies schemes in order to producers and consumers internalize the positive and negative environmental externalities generated by different farming systems. • The new schemes must be carefully designed at the micro level in order to avoid over use or under use of natural resources.

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