STRUCTURAL IMPLICATIONS OF ECONOMIC LIBERALIZATION ON AGRICULTURE AND RURAL DEVELOPMENT IN NICARAGUA

1. STRUCTURAL IMPLICATIONS OF ECONOMIC LIBERALIZATION ON AGRICULTURE AND RURAL DEVELOPMENT IN NICARAGUA Arthur H. Grigsby V. Francisco J. Perez

2. Post Colonial Agriculture • 1821-1880 Subsistence agriculture combined with live cattle exports to Central American market. Indigo as the main export to Europe • 1880 Introduction of Coffee plantations. A second wave of segmentation: large foreign and national coffee growers, peasants and indigenous rural workers. • 1910 Establishment of large Banana plantations owned by foreign investors for USA market (United Fruit Co.) in the Caribbean Cost. Permanent rural workers as social sector. • Coffee and Banana plantations were expanded at expenses of the expropriation of indigenous community's land

3. Agriculture Modernization area • 1950-1978 Export Boom, Capitalist Agriculture development era: export expansion and diversification: coffee, cotton, beef, banana and sugar cane. • Third wave of segmentation: • Large cattle states, large banana, coffee, sugar and cotton plantations. • Rural workers and landless families • Farmers at the central region with cattle and coffee • Settlers that populated the agricultural frontier • 1960s-1970s Agrarian Reform at the agricultural frontier, high levels of land concentration at the Pacific areas. • 1978-1979 Civil war, sharp reduction of agriculture exports

4. Sandinista Revolution 1980s • Agrarian reform with a redistribution of 2.05 million hectares which represented 37 % of total agricultural land. • Expropriation of foreign companies in mining and forestry • Nationalization of foreign and domestic trade. • Creation of a large state farms sector and organization of agrarian cooperatives • Subsidized credit, inputs, agricultural machinery and Technical assistance for rural families. • 1983-1989 Civil war, international blockade (US embargo), hyperinflation process. Large proportions of rural men engage on conflicts. • Emergency of black markets, and expansion of informal sector. • 1987 Collapse of agricultural exports • 1988 First Stabilization policies in order to reduce hyperinflation.

5. The Neoliberal Model (1990s-2000s) • Structural Adjustment Plan: “Shock therapy” approach that combined sharp devaluation of the national currency with controlled prices for foodstuffs • 1990 Dismantling of State intervention of the economy, including: • Privatization and liberalization of foreign and domestic trade. • Devolution of agrarian and urban properties. • Public enterprises privatization program. • Reduction of the state size and rural programs (credit, technical assistance, subsides).

6. The Neoliberal Model (1990s-2000s) • Early 1990s there is a stagnation of the economy with high rates of unemployment. Private investment had a slow and weak recovery because of property rights conflicts and social instability and there was a sharp reduction of public employment due to military demobilization and public expending cuts. • Domestic and international migration increased substantially. International migration flows to USA and Costa Rica quadrupled respect to 1980s. • There is a second wave of colonization of Agricultural Frontier. Domestic migration to both the cities and to the relatively sparsely populated Caribbean region. • Economic recovery led by a substantial increase in public investment in infrastructure, export growth and remittances. Private investment, however, is mainly oriented to non-agricultural sectors such as construction, commerce and banking services. • Reduction of the agriculture's share of GDP

8. Rural population declining in relative terms but growing in absolute terms

9. The Demographic Transition has just started

13. Trade Liberalization • Dismantling of tariff protection for domestic agriculture. • Trade policy based on the integration to the Central American Common Market (regional economic integration) and Free Trade Agreements with USA, Canada, Mexico, and Chile. Currently negotiating with EU and Taiwan. • Policies for employment based on the promotion of Exporting Production Zones, mainly textiles factories (maquilas) • Foreign investment in key agribusinesses sectors : dairy products, poultry and pork, and fruits and vegetables. Main supermarket chains have been acquired by WalMart.

16. Agriculture Trade Balance • Nicaragua has a positive trade balance on food and agricultural products. However, food imports represent more than double of inputs imports.

17. Capital goods are tiny fractions of total imports because of low level of investment on technology and the extensive path of Nicaraguan agriculture.

19. Market Integration • Nicaraguan is attracting foreign investment from different sources. Central American investors have mainly invested in commerce and banking services. • South Koreans, Taiwanese and US companies have invested in textiles. US firms have also invested in supermarket chains as well as in some agroindustrial sectors such as dairy, coffee, peanut (Starbucks, WalMart, Cargill). • Through free trade agreement Nicaragua is trying to ensure access to the US market for its products. Although Nicaragua has increased its quotas for meat, sugar, peanut and textiles, it is not clear whether rural production will be competitive by 2021 when average tariff will be 1.6 %.

23. Chains and segmentation • Agricultural products chains are highly segmented. Products such as cheese, poultry, pork that have low quality standards are sold in domestic low income markets, while relatively high standard products for supermarkets and export markets. • Due to quality requirements, peasant agriculture tend to be excluded from high value and high prices commercial circuits; same situation can be observed on vegetables and fruits chains. • Agro industrial products tend to have oligopoly phases of processing and exports. Coffee, sesame, banana, peanut and seafood are clear examples of this situation.

26. Blockades • Poverty and extreme poverty in Nicaragua have a rural face; 68 % of rural families live under the US$ 2 a day poverty line and 27.4 live with less than US$ 1 a day. • Urban poverty is relatively low with 30 % of urban families under poverty line and 6.2 % under extreme poverty. • Poverty and agricultural crisis in tropical dry areas tend to be the push factor for migration, and high rural salaries in Costa Rica and El Salvador tend to be the pull factor. • The extensive path of agricultural production is reaching its limits. Land is no longer an available resource any more; thus, internal migrations tend to be restricted and there are strong conflicts between settlers and indigenous communities.

30. Exit options • Some initiatives such as rural tourism and environmental services are starting to be explored. Peasants and Farmers organized on cooperatives tend to have more option for exits, since international cooperation and NGOs are supporting their integration to alternatives markets such as organic and free trade. • NGos are facilitating contracts between cooperatives and supermarket chains and international enterprises such as Wal-Mart and Starbucks. • There are non agricultural options for rural workers such as textile maquilas. However, this sector is generating neither enough jobs for urban not for rural families.

31. Exit options • Nicaragua is increasing its migrant population, up to 20 % of total population. • Remittances are key factor for economic and social stability, representing around 71 % of total exports and 65 % of total commercial deficit. • Temporal migration to Costa Rica and El Salvador is a key livelihood strategy for rural families. This will represent a demographic problem in the long term since active working population is moving out productive areas.

35. Rural Development Policies • Nicaragua Rural Development policies are based on agro-industrial product exports and trickle down effects of agrarian capitalist development. This model tends to enhance the dualist development model and inequities between social sectors. • The implementation phase is done by several institutions generating a fractionated intervention with limited impacts • By November, 2006 Sandinistas won general elections. The new government has stated that rural areas will be a priority in the next five years with a Development Institute (Credits and technical assistance)