RESTRICTED Report No PA- 52a This report was prepared for use within the Bank and its affiliated organizations They do not accept responsibility for its accuracy or completeness The report may not be published nor may it be quoted as representing their views INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION AGRICULTURAL SECTOR SURVEY BRAZIL (in four volumes) VOLUME I THE MAIN REPORT August 19, 1970 Agriculture Projects Department Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
RESTRICTED
Report No PA- 52a
This report was prepared for use within the Bank and its affiliated organizationsThey do not accept responsibility for its accuracy or completeness The report maynot be published nor may it be quoted as representing their views
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
INTERNATIONAL DEVELOPMENT ASSOCIATION
AGRICULTURAL SECTOR SURVEY
BRAZIL
(in four volumes)
VOLUME I
THE MAIN REPORT
August 19, 1970
Agriculture Projects Department
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TABLE OF CONTENTS
Page No.
VOLUME I (MAIN REPORT)
PREFACE . ....
SU1H'ARY ................................................ iv
I. THE RECENT PERFORMANCE AND OUTLOOK .... ........... I
The Resource Base ...... ....................... 7Forestry and Fisheries .... ................... 9The Northeast ... ............... ................. . 10
II. PRICE AND COST FACTORS ........................... 12
Land ....................................... 12The Price of Farm Finance ................... 14Taxes ............................................. 15Product Pricing and Marketing ................... 17Input Prices and Distribution ................... . 19
III. PUBLIC EXPENDITURES ...... ....................... 21
Grain Storage ....... ............................. 21Land and Water Development .................. ..... 21Research .............. ........................... 23
Extension ......... 0.............. .... * .................... 25Seed Production and Multiplication ....... ........ 27Transportation ............. ,, 28
IV. CRISIS IN COFFEE? .................................. 30
The Outlook for Supply ........................... 30
V. THE RURAL UNDERPRIVILEGED ....................... 33
The Demand for Labor ................ ............. 33Land Tenure and Tenancy ............ ...... ........ 35
VI. GOVERNMENT ORGANIZATION AND DEVELOPMENT PLANNING . 38
The Public Services to Agriculture .. ............. 38Planning ......................................... 39Preinvestment Studies ................. ............ 40
Table of Contents (Cont'd)
Page No.
VII. RECOMMENDATIONS .................................. 41
Development Strategy ............................. 41Regional Policy and Programs ..... ................ 43Production Programs ............................... 44Functional Support ............................... 49Investment Outlets ............................... 51
VOLUME II (ANNEXES 1 through 10)
ANNEX 1 - Recent Economic DevelopmentsANNEX 2 - FisheriesANNEX 3 - Forest ProductsANNEX 4 - Taxation of AgricultureANNEX 5 - IrrigationANNEX 6 - Agricultural CreditANNEX 7 - Organization and Administration of the Government
VOLUME III (ANNEXES 11 through 18, and STATISTICAL ANNEX)
ANNEX 11 - Crops Other Than CoffeeANNEX 12 - Agricultural PlanningANNEX 13 - Rural Roads and ElectrificationANNEX 14 - A Survey of Preinvestment Activity in AgricultureANNEX 15 - Fertilizer and Farm MachineryANNEX 16 - The Outlook for Agricultural ExportsANNEX 17 - LivestockANNEX 18 - Pricing and Marketing Farm Products
STATISTICAL ANNEX
VOLUME IV (THE NORTHEAST - a study prepared by Robert R. NathanAssociates, Inc.)
Chapter I - Strategies and Program RecommendationsChapter II - A Brief Overview of the NortheastChapter III - The Environment for ProductionChapter IV - Productivity and Organization of Northeast AgricultureChapter V - Crop Production PotentialsChapter VI - Livestock Production PotentialsChapter VII - Irrigation and Colonization
Cable of Contents (Cont'd)
LAPS (in Main Report)
1. Geographic Regions, Main Roads, and Airports2. Railroads3. Ecological Zones, Topography and Rainfall4. Population5. Cattle and Hogs - Distribution6. Coffee, Cocoa and Sugarcane - Distribution7. Corn, Rice and Wheat - Distribution8. Irrigation Projects and Proposals
* * * *
The mission consisted of 20 specialists in various fields of agri-culture, forestry and fisheries, as follows:
Study Director S. TakahashiChief Economist and FieldMission Leader L.T. Sonley
General Economist M. BallesterosStatistics G. Ablasser**Livestock P. Brumby (FAO)Dairy Products Marketing H. Cook (Consultant)Statistics* A. Egbert**Commodity Economist* D. ElzFisheries D. Finn (FAO)Agricultural Economist D. Forbes-Watt (FAO)Forestry Specialist* T. Gregersen (FAO)Agricultural Marketing Economist* L. Herrmann (Consultant)Rubber and Oil Palm Specialist* G. LossonPublic Administration Specialist P. Malone (Consultant)Agriculturist* D. Pickering (Consultant)
f * R. Rossi
Commodity Economist* S. SinghIrrigation Specialist K. Snelson (FAO)Agricultural Credit Specialist* A. StonehamCommodity Economist* B. VaronSecretary V.E. Talevi
In addition, a team provided by Robert R. Nathan Associates studied thespecial problems of the Northeast and prepared Volume IV of the report.Finally, several specialists were called upon for judgments in the report-writing stage; these are identified in the annexes to which they contributed.
* Part-time.
** Primarily engaged in collecting data for a model of theagricultural sector of Brazil.
r.abor Force: 1968 EstimatesPersons: 14 years of Age and Over . . . . . . . 48,442,o00Economically Active Population, All Sectors . . . . 33,221,000Economically Active Population, Agriculture . . . . 17,285,000Agricultural Labor Force as Percent of Total Labor Force:
1950 64.4%1960 58.5%1968 52.0%
Annual Compound Growth Rates: 1950-1960 1960-1968
Population 2.98% 3.15%Economically Active Population
Total 2.68% 3.00%In Agriculture 1.70% 1.50%
Number of Agricultural Establishments and Tenure Structure:
Exchange Rate January 1, 1969: US$1.00 = NCr 3.83t It" December 31, 1969: US$1.00 = NCr 4.35
_ .hts and Measures:
1 kilogram (kg) ,= 2.2 pounds1 metric ton (t)2/ 0.98 long tons1 kilometer (kma) 0.62 miles1 hectare (ha) = 2.47 acres1 square kilometer (k2) = 0.39 square miles
1/ Unless othenrise specified, the term "ton" is used in this reportto mean "metric ton".
PREFACE
This is the report of an agricultural sector survey missionwhich visited Brazil from mid-October to mid-December 1969 to update andstrengthen the Bank's understanding of Brazilian agricultural problems,to suggest a strategy for rural development and to explore the rolewhich the Bank could best play in helping implement this strategy. Thereport is not intended to discuss or propose solutions to all the pro-blems of Brazilian agriculture. It is intended to highlight the princi-pal issues as the mission saw them at the end of 1969 and to provide abasis for further discussions between the Brazilian authorities and theBank which should lead to more effective Bank support for Brazilian agri-culture.
The report is in four volumes, as follows:
Volume I: The Main Reportto II: Annexes 1-10" III: Annexes 11-18 and Statistical Annex" IV: The Northeast
The main report presents the major findings of the mission and suggestsspecific ways to accelerate growth in agriculture and make the sector am^re dynamic force in Brazilian economic development.
The mission was fortunate in having at its disposal a substan-tial amount of data gathered by previous Bank missions. Also helpfulwere preliminary drafts of two recent studies: one, "Agricultural Deve-lopment in Brazil" by Professors Edward Schuh and Eliseu Roberto Alves;and two, "Changes in Agricultural Production in Brazil" by Louis Herrmann.A recent report on "Production and Export of Corn and Rice in Brazil" byRichard Wheeler provided useful insights. Studies by the Getulio VargasFoundation and the FAO Indicative World Plan for Agriculture providedmaterials useful in projecting demand and supply of agricultural commodi-ties.
The Ministers of Planning and General Coordination, Finance,Agriculture, Interior, and Commerce and Industry gave the mission theirfull cooperation and organized a working group of senior personnel fromtheir Ministries to support the mission. Considerable help was alsogiven by the various State governments and autonomous institutes, aswell as individuals from the private sector. Representatives of theUNDP and other multilateral and bilateral agencies also gave the missionconsiderable assistance.
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Since the mission left Brazil in December of 1969, there havebeen several developments of importance to agriculture. Although thesedevelopments do not alter the basic conclusions of this report, theyshould be mentioned here because they will affect Government policy andstrategy for the immediate future.
The seventh major drought of this century hit Northeast Brazilthis year (other droughts were in 1900, 1915, 1920, 1932, 1952 and 1958).The Government has underway a relief program aimed at providing temporaryemployment and a modest credit program for rehabilitation of the area.So far Government has not embarked on large-scale public investments indam construction such as characterized much of the drought relief activi-ties of the past.
The current drought reinforces the basic conclusions of thereport regarding the Northeast, particularly about the need to developsystems of dry land farming. As pointed out in Volume IV, irrigationprojects currently under study are generally high cost and would reachonly a limited number of people. Substantial areas in the Northeast havesufficient rainfall to support a productive agriculture; yet sufficientknowledge is not available on the types of crops and the systems of farm-ing which are needed to effectively utilize the available moisture even in
the more humid parts of the region. Possibilities for developing cropswith relatively low water requirements such as sorghums and millets andponsibilities for more timely preparation and planting of crops throughselective mechanization have received very little attention. Similarly,possibilities of overcoming soil fertility problems through liming andfertilizers have been hampered by the high costs of these inputs. Possi-bilities for incTeasing livestock production will require development of
rational systems of integrating available pasture resources with improvedforage production through more effective use of crop lands. Some develop-
ments along these lines are already apparent, mainly arising from theinitiative of individual private farmers rather than as part of a systematicpublic program for livestock improvement. However, even if Government should
initiate a major program aimed at raising the productivity of rainfed agri-culture in the Northeast, there would still be continuing need for movingpeople out of Northeast agriculture into other activities and into more
productive regions.
The recently announced National Plan for Integration appears to beconsistent with the approach suggested in the report for linking up the
Northeast with the frontier as well as the central markets in the rest ofBrazil. While the details of this Plan are not yet available, the possibi-lities of opening up the Amazon have been pointed out particularly in con-
nection with the development of the Amazon forest resources and the possibi-lities of rice and livestock production in the Amazon region. A number ofbasic and preinvestment studies will be required as part of any substantialinvestment program for the Amazon region (Annex 14).
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The coffee supply situation has been made more uncertain by theappearance of the coffee "rust" (Hemileia vastatrix). The disease hasoccurred in an area of 500,000 square kilometers which produces 10 percentof the nation's coffee output. The disease is most intense in the north ofEspirito Santo but it also affects parts of Bahia and Minas Gerais. Thefungus attacks the lower part of the leaf, making it more difficult and costlyto apply fungicides. At the beginning it was thought that it could be eradi-cated, but the area affected appears to be too large to enable eradication.Steps are being taken to isolate the affected area by establishing a 200-mle long 30-mile wide quarantine belt but possibilities of spreading intothe major producing areas of Sao Paulo and Parana must not be underestimated.
The Ministry of Finance is now estimating 1970 production of 10major crops to be 18.5 percent above production for 1969. Coffee productionis still expected to be down about 50 percent from 1969. Thus, when coffee isadded to the other 10 crops, the increase for all 11 crops is now estimatedat about 7 percent above 1969. Cotton production went down around 10 percent,but there have been large increases in the corn, wheat, rice, soybean andpeanut crops. Livestock prices, production and exports have increased. Theport of Santos exported meat and meat products valued at US$28 million inthe first half of this year as compared with US$15 million for the sameperiod of 1969.
Taxation reform is now under consideration by the Government.Measures for coordinating policies on the ICM tax among the Center-Southstates have been initiated with a view toward making exemptions more uni-form. The Government also hopes to reduce the ICM tax from its presentaverage effective rate of 12 percent and to offset the revenue loss byincreasing the return from the land tax, now negligible. Problems ofimproving enforcement of land taxes and adjustment of assessments andrates are under study. An experimental trial of proposed solutions isunder consideration in the state of Parana.
Input pricing is another area where the Government has takenpositive actions which should encourage modernization of Brazilian agri-culture. The elimination of the ICM for fertilizers and farm machineryhas already stimulated demand and use. For example, fertilizer sales arerising sharply, and farm machinery sales increased by 100 percent duringthe first quarter of 1970 as compared to the same period in 1969. Tariffprotection for the fertilizer industry is likely to be reduced to around8 to 10 percent, much lower than the figure contemplated a year ago. Possi-bilities for reducing costs of domestically produced tractors by permittinga higher foreign component are also under study.
August 19,1970
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SUMMARY
The purpose of this report is to offer judgments on the best waysto improve the performance of agriculture in Brazil. The report is selec-tive and judgmental in nature, and not encyclopedic.
Brazilian farmers appear to be increasing output at a slower ratenow than in earlier years and agricultural exports are likely to grow lessrapidly in the years just ahead than during the 1960's. The Governmentshould review its agricultural policy in the light of these two emergingdevelopments to assure that the production and export capacity of agricul-ture continues to grow at the satisfactory rate shown in the 1947-62 period.In particular, a more efficient use of resources in agriculture should besought. This will require changes in the economic environment of agricul-ture and in public investment policy.
The outlook merits concern, but not alarm. Indeed the historicrate of agricultural growth can be restored and exceeded rather quickly ifappropriate steps are taken. Although not entirely accessible, the naturalresource endowment is generous in relation to the current population of92.3 million, and new land for crops and pasture will continue to be openedup on a grand scale. In large areas of Brazil the use of modern agriculturaltechnology has scarcely begun, but the groundwork enabling a rapid take-offhas been laid. Although there are exceptions, the agricultural economy inger.eral has not been over-priced, as it is in many countries; this will faci-litate export expansion. The agricultural labor force will continue to beample to expand output from farms while simultaneously easing its earningpower upwards (particularly if the rate of increase in the agricultural laborforce slows down, as it now appears to be doing). And management in agricul-ture has proven itself generally able, price sensitive, and alert.
The strategy proposed will aim at maintaining a high rate ofgrowth in agriculture to assure increases in export earnings as well asmeeting rising domestic needs for food and fiber and provide a base forraising rural incomes. Higher labor productivity in agriculture is anessential element in the strategy to attract the labor needed to sustainand accelerate the growth in cropped acreage and yields. Continuedmassive investments in transportation will be required to break the physi-cal isolation of the Northeast and other undeveloped regions, to reduceproduction costs and provide cheaper access to markets. Research, parti-cularly research on farmers' fields to adapt specific technologies to localfarming conditions, is needed to develop profitable ways to increase output.
Public irrigation is likely to play only a limited role in thestrategy. Even in the Northeast, the irrigable area and the people it wouldreach are quite small in relation to the total region. The unfavorable expe-rience of the past and the high costs of projects currently under investigationindicate that many of these projects could be justified only on the basis
of high value crops for which markets must be found. Construction costscan be reduced as transportation is improved and economic benefits increasedas export markets are developed. However, in the next five to ten yearsonly a small but meaningful effort in public irrigation can be justifiedto provide demonstration and training in rehabilitation, development andeffective use of various kinds of land in selected projects.
Private irrigation may be a way to profitably increase output,particularly by intensifying production in the more developed areas of theCenter South, for the improvement of inefficient private schemes in theo~'der ricelands of Rio Grande do Sul, for rice growing on the flood plainsof Pantanal in Mato Grosso, and for the production of high-value crops inthe Northeast during the Center South off-season, especially along the banksof perennial rivers. If coffee yields are to be increased in the short-runthere is scope for sprinkler irrigation in selected areas.
To improve the performance of Brazilian farmers major policychanges are not required. Indeed, many of the suggestions call for astrengthening of policies which are already underway but some reorienta-tion will be required.
Intensification of agriculture in existing areas has been hamperedby the high costs of farm inputs relative to product prices. The reasonsfor this are several - the policy of protecting Brazilian industrial produ-cers of equipment and inputs from international competition, the inequitableincidence of the ICM tax as between farm inputs and farm products, the hightransport costs due to great distances and poor facilities, the inadequatelyresearched question of the real economic response to fertilizers and otherinputs under Brazilian conditions, and the low volume of demand whichinflates costs of production and distribution. On the other hand, agricul-tural product prices are already linked to external markets for most crops.Policies should continue to be directed toward gradual equivalence withworld market prices, particularly for farm inputs. On the product sideGovernment should provide farmers with minimum price alternatives whichwill ease the transition until market and transport facilities can beimproved and agricultural input prices can be reduced. Coffee price policyshould, however, continue to be to set producer prices at levels requiredto maintain a balance between supply and demand.
Persistent inflation has restricted the supply of long-termcredit to agriculture. Most long-term investments in agriculture havedepended on self-generated savings and on rolling over short-term credit.Government has injected substantial short- and medium-term resources foragriculture at subsidized interest rates (i.e., charged negative realrates). However, only a small proportion of the more well-to-do farmershave been able to take advantage of these administratively rationed funds,and for those the negative interest rates have tended to encourage over-borrowing for relatively low-yielding purposes. The practice of subsidizinginterest rates has distorted resource mobilization and use, it has been
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regressive in impact, and has eroded the capital of agricultural creditinstitutions making them dependent on a continuing injection of increasingamounts of public funds. The agricultural credit system should be strength-ened and expanded, and a major element in this would be to move toward realis-tic interest rates by reform of the present system of negative interest onofficial credit. In the meantime, long-term credit should be made availableat realistic interest rates.
The heavy reliance placed on a state and local government valueadded tax (ICM) and a rural provident fund tax (TPSR) has increased theeffective rate of tax on agricultural products, but has done so at thecost of imposing a disproportionately heavy burden on agricultural producersrelative to other sectors of the economy. Moreover, because the ICM is astate tax and varies among the different states, there has been a differen-tial tax treatment of agricultural products as among states. This can over-shadow inter-state comparative advantage considerations, with serious impli-cations for farm export prospects. Taxation should be shifted to moreequitable forms, toward tax norms which encourage efficient production anddiscourage wasteful use of agricultural resources. This will involve anincreasing emphasis on the land tax and income taxes and eventually areduction of the value added tax (ICM).
The great distances which separate the different regions ofBrazil could pose serious transport difficulties under the best of situa-tions, but this inherent problem is compounded by a lack of local roadsgiving access to markets, generally insufficient transport facilities, andmajor needs to improve port installations and coastal shipping capabilities.Storage of agricultural commodities, besides being insufficient in termsof capacity, faces problems of handling and inadequate supporting servicessuch as drying, cleaning, fumigating and grading. Not only does thereappear scope for increasing storage facilities but also for greatly im-proving the quality of the storage they provide.
While the ownership of land in Brazil overall presents a patternof high concentration in the hands of relatively few owners, most of thelarge farm units are located in sparsely populated areas. Major problemsof land tenure, i.e., "land hunger," appear to exist only in areas such asthe Northeast and parts of Rio Grande do Sul. Efforts to deal with thisproblem through colonization schemes have thus far been costly and of limi-ted impact. Measures under consideration for financing purchase of existingfarms and developing new land may have a substantial impact. Continuingefforts will be necessary to provide low cost means of establishing newfarmers on viable farm units. Simplified ways of establishing title toland will be needed.
Compared to most developing countries, the employment problemin Brazil is not serious in a national sense. With labor force expandingat a rate of about one million workers per year, agriculture could readilyabsorb 250,000 to 400,000 workers annually. There is a sufficient supply
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of productive land to continue this process for the next several decades.However, the Northeast has special problems with its poor resource base andits surplus of unskilled workers. Vol. IV discusses this problem andconcludes that the answer lies in a continued heavy outmigration combinedwith a program for increasing productivity in rainfed agriculture and muchgreater investment in the human factor to equip Northeasterners to competemore effectively in the national labor market.
As a result of severe frost in 1969, Brazilian coffee stocksmay be considerably below normal requirements by 1973/74, and in the morepessimistic view stocks may be fully used up by 1974/75. Coffee beingphanted now will not come into production until the 1974/75 crop year,which means that unless methods can be adopted quickly to raise theproductivity of existing coffee trees, Brazil may be unable to meetquota obligations under the Coffee Agreement if another frost or droughtshould occur. In the short-term, every effort should be made to expandoutput from existing trees. Future plans for expanding output should beworked out within the framework of the Coffee Agreement. If capacity isto be expanded, emphasis should be placed on increasing and stabilizingyields rather than acreage.
Although Brazil should continue to produce mainly for domesticdemands for agricultural commodities, the agricultural sector should makea major contribution toward increased foreign exchange earnings. Thisappears possible for a wide range of non-traditional products which are.omparatively new export products for Brazil and where she can produceand export at competitive prices. particularly where Brazil's share inworld trade is rather small. It also implies, however, emphasis oninvestments in transport and port facilities to promote export capability,along with productivity increases which will make competition in foreignmarkets feasible.
The role of public investment in past agricultural growth hasbeen relatively limited, and much of that has been ineffective. Hugeinvestments in irrigation facilities in the Northeast have resulted inonly small amounts of irrigated crops; public storage facilities areunder-utilized despite a general shortage of storage; investments inagricultural research and education facilities are under-utilized becausefunds are not available for staff and operating expenses.
Public funds should continue to be channeled to the private sectorthrough credit programs. However, more realistic interest rates on suchcredit will encourage greater participation of private banks and helpmobilize private resources. In the public sector the investment needsare relatively modest but can play an important supporting role. Theorganization and planning of public investments and related preinvestment
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work needs further strengthening and coordination to assure more effectiveuse of public funds. Specific fields of public investment deservingpriority include transportation infrastructure; storage, handling, proces-sing and marketing facilities; research; land settlement; development ofdry land agriculture; forestry research and infrastructure; and fisheryports.
The need for investment in education cannot be overemphasized.One of the main conclusions of Volume IV (Agricultural Development inNortheast Brazil) is that a heavy investment in improving the human factoris required so that Northeasterners can undertake modernized agriculturemore effectively and compete on equal terms in the national labor market.(An in-depth study of rural and agricultural education was not undertakenby the mission.)
I. THE RECENT PERFORMANCE AND OUTLOOK
Agriculture operated in a dynamic setting in the past 20 years.Real gross domestic product grew at about 7 percent annually between 1947and 1962, and at about 3 percent in per capita terms. A sharp setbackoccurred in 1962-65 because of a general economic slowdown associated witha change in government and a strenuous effort to brake a runaway inflation.Thereafter growth resumed, and in 1967-69 gross domestic product probablyrecorded a growth rate equal to, or higher than in the 1947-62 period. Boththe industry sector (manufacturing and construction) and services grewrapidly during the 22 years from 1947 to 1969, although industry underwenta severe setback during the 1962-65 interlude. 1/
Output and Exports
Agriculture grew at about 4.7 percent annually over the 1947-62period, but became erratic in the 1960's and tended to weaken. Frosts anddrought struck hard in the important area centering on Sao Paulo and NorthernParana in 1963-64 and again in 1969. Preliminary estimates for 1962-69 sug-gest a rapidly growing economy in which agriculture is increasing net outputat around 3.6 percent. This is below the rate of 4-5 percent attained in thedecade and a half ending in 1962, and too low to assure internal and exterraleconomic stability (a primary policy goal since 1964). In fact, the historicrate of growth in agricultural exports appears likely to slow down sharply inthe near future since rising domestic demand is likely to absorb the bulk ofthe increases in agricultural output. The mission's estimates of percentageannual growth rates in agricultural exports are:
Excluding IncludingPeriod Coffee Coffee
1960-62: to 1966-68 8.2% 4.6%1966-68: to 1975 4.0% 3.5%1975 to 1980 3.8% 1.8%
These estimates suggest that agriculture cannot be relied upon to providea developmental thrust to the economy by expanding exports in the yearsjust ahead unless steps are taken to improve its capacity to produce andexport.
1/ Annex 1 reviews recent developments in the economy and provides a morecomplete economic background against which to view agricultural deve-lopment policy for the future. The Background Data which appear insidethe front cover are also useful for this purpose.
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Admittedly, these estimates are highly speculative but the appa-rent tendency for output growth to slow down deserves investigation. Agri-cultural output has been below the projected 1947-62 trend in 5 of the past6 years (Fig.l). Output in 1968 was 4 percent below the projected trend, thelargest downward deviation in the entire 21-year series. Output in 1969recovered to a level 3 percent below the trend. 1/ Similarly, for the past3 years total area harvested of 24 major crops has fallen progressivelybelow the projection of the 1947 to 1962 trend (Fig.2). 2/ The deviationfrom trend never exceeded 0.7 million ha before 1966. In 1966-68, the last3 years for which data are available, the deviations from trend were 1.3,1.9 and 2.3 million ha, respectively.
1/ Preliminary indications suggest that output in 1970 will be up ascompared to 1969 for most crops other than coffee, in part as a resultof higher acreages planted in frost affected coffee areas but mainlybecause of weather.
2/ As discussed below, increasing crop area has been a basic factor inthe growth of agricultural output.
AGRICULTURAL OUTPUT IN BRAZIL, 1947 TO 1969250 I E 1 1 1 1 1 1 1 I 1 1 1 I I I 250
SOURCE OF DATA :FUNDACAO GETULIO VARGAS. IBRD - 4937(R) -
AREA UNDER CROPS IN BRAZIL, 1947 TO 1969(MILLION HECTARES)
40 I4 I 0 I I I I 1
30 30
ACTUAL
20 2 0
10 10
0 I I I I I I I 0'47 '48 '49 '50 '51 '5 '53 '54 '55 '56 '57 '58 '59 '60 '61 '62 '63 '64 '65 '66 '67 '68 '69
*Log e Area =16.517 + 0.039t t 0 = 1946)
SOURCE OF DATA: IBGE, ANUARIO ESTATISTICO. IBRD - 4938
An erratic but persistent decline in coffee production since1962 accounted for about half of the amount by which total output of 24major crops fell below the projected 1947-62 trend. Thus, actual productionof coffee was slightly more than half of the projected values. Outputof the remaining 23 crops was about 10 percent below the projected values.Among the major livestock products, milk and eggs slackened slightly in 1966-69, but remained in line with trends extending from 1955 through 1969. Cattleand hog slaughter have continued to increase in line with past trends --at the low rate of 2 percent for cattle, and the relatively high rate of4 percent for hogs.
The falling off in the rate of increase of crop area coincideswith evidence which suggests that the farm labor supply may have becomea key factor limiting agricultural output growth in some areas. The nation-al sample household survey of the labor force indicates that agriculturalemployment grew more slowly during 1960-68 than it had in 1950-60. 1/ Thelabor-land interplay is suggested by the fact that in the State of Sao Paulowhere agricultural employment has been declining, crop area reached a peakof 5.5 million ha in 1965 then fell steadily to 4.9 million ha in 1968, thelowest level since 1959.
Of course, Brazil has available abundant land on which to continueexpanding agricultural output at high rates for many years to come, usingmainly traditional techniques. However, traditional techniques do not pro-vide sufficient incomes to hold people in agriculture. The indications ofa possible stringency in the labor supply suggest that to exploit the landpotential, it may soon be necessary to increase the productivity of labor.It will also be necessary to make greater use of techniques which raise outputper unit of land and per head of livestock in order to keep total agriculturaloutput increasing at a satisfactory rate.
Sources of Growth
In exploring these theses and in searching for clues on how tore-design policy to increase the contribution of agriculture to progress,it is well to understand what has been going on in the sector in recentyears. This can help avoid prescription of a sort which history suggeststo be counter-productive.
Farm output grew mainly by expansion of cropland and pastureland during the 1950's and 1960's. For the 24 principal crops, harvestedarea increased at the compound annual rate of 4.0 percent over the period1947-65. Among states, cropland increased at widely differing rates,depending on the extent of occupation at the beginning of the period, andon the accessibility to consuming centers and export markets. The statesof Sao Paulo, Minas Gerais, Rio Grande do Sul and the six older states of
1/ Instituto Brasileiro de Geografia e Estatistica,Anuario Estatistico, 1969.
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the Northeast expanded their crop area quite slowly, in the range of 1 to5 percent a year. Frontier states of Parana, Mato Grosso, Goias andMaranhao increased their cropland at rates in the range of 9 to 12 percenta year. The total increase of cropland in the former group of states was6.4 million ha between 1947-49 and 1963-65, while the four frontier statesadded 5.5 million ha in the same period. Altogether, Brazil's total har-vested area of the 24 crops increased by 14.2 million ha from 1947-49 to1963-65.
Cropland increased mainly at the expense of forest land in moststates. However, in Rio Grande do Sul, most of the increase in croplandcame from pasture land. Both crop and pasture land increased in Sao Paulo,the increase coming from land classed as "idle and unused."
The agricultural labor force increased somewhat more slowly thanthe area of land in crops, but agriculture employed nearly 3 million moreworkers in 1960 than in 1950. By 1968, indications were that another 1.2million persons had found employment in agriculture. Employment on farmsrepresented a complex residual of trends in natural population growth,internal migration, and urban employment opportunities. The major agricul-tural states of Sao Paulo and Minas Gerais had almost negligible changes innumbers of farm workers between 1950 and 1960, and farm employment in thesestates appears to have declined since 1960 (very significantly in the lastfew years in Sao Paulo). The cities of Sao Paulo, Belo Horizonte and Riode Janeiro have absorbed large numbers of workers from the surrounding ruralareas, and some rural workers left for frontier farms in Parana, Mato Grossoand Goias as well. Also, surplus labor from the Northeast migrated both tourban areas, and to rural areas of the frontier states.
Labor productivity, (regarded as the average annual output perunit of labor) has increased appreciably of late, largely because of ageneral tightening of labor use on farms. Available evidence on use ofmechanical power indicates little change from 1950 to 1960. The propor-tion of area planted to the less labor-intensive crops seems to haveincreased, and there may have been significant increases in succession(double) cropping -- wheat and soybeans -- for instance. The frontierareas, where land scarcity is less of a constraint than in some of theolder areas, have been absorbing an increasing proportion of the farmlabor force; this has probably contributed to the increase in productivityof farm labor mentioned above.
Technicai change has had little to do with the increase in farmoutput of the past two decades. The rate of adoption of modern techniquesstepped up in the latter part of the 1960's, but use of tractors, farmmachinery, fertilizers and other inputs of advanced agricultures are stillat low levels. For instance, fertilizer consumption in 1968 was a recordbut still negligible in relation to cropped acreage. Massive gains remainto be picked up by the Brazilian economy through modernizing its agricul-ture. Most areas of the Center South are technologically advanced inrelation to the rest of the country; but even in these relatively advancedareas, there is room for modernization.
Direct public investment in agriculture has played a minimalrole in the growth of the sector. Public investment contributing toagricultural growth has been largely in other sectors, principallytransport. Even in this area, however, the pace of investment has laggedbehind requirements, and the growth of frontier areas has been severelyhandicapped by the costs of getting to and from these zones. As notedbelow, more rapid progress is now being made in providing accessibilityand reducing transport costs. But a great deal remains to be done.
The Resource Base
There is also a great potential at the extensive margin. Brazilcovers about 8.5 million sq. km (850 million ha); only four countries arelarger. One half is largely unpopulated and flat, and includes most ofthe Amazon Basin with the world's largest rain-forest. The other half hasabout 92 million people and is dominated by the great escarpment of theBrazilian highlands, one of the world's oldest geological formations. Therelief ranges from hilly to flat, and elevation averages 1,500 m with amaximum of 3,000 m. The highlands encompass a large part of two majorriver watersheds, the Sao Francisco and Parana-Paraguay-La Plata as well asthe famous Iguassu waterfall. Topography is not rough enough to limit agri-culture, livestock or forestry.
Most of Brazil has a moderate temperature and rainfall. Averageannual temperatures in the Amazon basin vary between 320C and 230C. Tempera-tures up to 400C occur during the dry season in the drought-prone "Sertao"(dry polygon) of the dry tropics of the Northeast (see Vol. IV, the reporton the Northeast). Frosts occur in the highlands south of Sao Paulo toRio Grande do Sul. Rainfall averages between 1,000 and 1,500 mm per yearwith a concentration in summer (December to April). This provides a goodbasis for rainfed agriculture, livestock and forestry. Heavy rains up tothe order of 5,000 mm per year occur in the upper Amazon Valley and in the"Mata" sub-region of the Northeast littoral.
It is useful to distinguish five major regions of substantialecological homogeneity, ranging from the humid tropics of the Amazon Basinto the temperature grasslands of the south (Map 3). These regions are:(1) wet tropics; (2) dry tropics; (3) woodland savanna - "cerrado";(4) humid-warm temperate; and (5) grasslands.
The wet tropics covers about 250 million ha, and includes thetropical rain-forest of the Amazon Basin and the narrow strip of the litto-ral known as "Mata." The latter was the first settled area in Brazil andis the most heavily populated. Its dominant soils are deeply leachedlaterite and the alluvials of the flood plains. The Amazon Basin was theworld's only source of natural rubber in the early 1900's. Next to Ghanaand Nigeria, the "Mata" area is the world's largest producer of cacao.The region also produces rice, sugarcane, tobacco, jute, black pepper andbeef cattle.
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The dry tropics covers about 150 million ha and includes most ofthe Northeast. The vegetation is dominated by a thorny deciduous shrub anddrought resistant grasses and trees, among which "alfalfa do nordeste"(Stylosanthes) and "caju" (cashew nuts -- Anacardium) are the most important.The region embraces the "Sertao" or drought polygon, and "Agreste." Pre-dominant soils are latosols, lithosols, alluvial and grumosols. The regionhas some 1,000 man-made reservoirs storing about 13,000 million m3 of waterbut with only 10,000 ha irrigated from these reservoirs. The main cropsin the hinterland are perennial cotton, extending over ten years, maniocand a one-year association of maize and beans. The region is in greatneed of measures to lower the cost of moving goods to and from the moredeveloped parts of Brazil.
The woodland savannah includes about 200 million ha and is knownas the "campo cerrado" region. It includes the Central Plateau (Planalto)whose average elevation is about 1,000 m, and part of the Brazilian es-carpment as well as the headwaters of two of the three major river systems.This region has acidic lateritic soils with free aluminum and a natural vege-tation of sparse grass and scrub forest, much of which turns brown duringthe dry season. However, improved production techniques are transformingparts of the "cerrado" into prosperous areas of rainfed. crops and improvedpastures for beef cattle. After clearing, the land is put under rainfedgrain (upland rice or maize) for one or two years, an improved permanentpasture is sown with the last crop of grain, and beef cattle are grazed onthe improved pastures. Crops other than rice require lime to neutralizethe aluminum. The new capital, Brazilia, is located in this region andtoday the axes Brazilia-Belo Horizonte and Belem-Brazilia are in rapiddevelopment.
The humid-warm temperate region covers about 200 million ha ofthe central highlands and the southeastern escarpment. It includes a largebut heavily depleted area of tropical hardwood forest on the eastern coastand the temperate rainforest in the south. The region embraces the so-called semi-deciduous forest lands and one of the world's largest lavaplateaus, the Parana. The major part of this region is covered by clayeylatosol, the "Terra Roxa" soils which are the product of weathered diabase.The region has an adequate infrastructure and the largest Brazilian markets(Rio de Janeiro, Sao Paulo and Porto Alegre). Its agriculture is the mostmodern in Brazil and growing rapidly.
The grasslands region includes about 50 million ha in the southwhich are similar to the Argentinean and Uruguayan "Pampas," as well asthe tropical, natural tall grass prairies known as the "Pantanal" of MatoGrosso. The "Pantanal" is the Brazilian equivalent of the "Gran Chaco"(in Bolivia and Paraguay), of the "Gran Pajonal" in Peru, and of the"Llanos" in Colombia and Venezuela. Predominant soils in the temperategrasslands are prairie or brunizen, grumosols and humic gleys in theCentral depression of Rio Grande do Sul; regosols predominate along thecoast and lithosols in the highlands. They respond well to fertilizers.
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In the tropical prairies the soils are alluvial near the rivers (whichare subject to periodic flows and silt accumulation), and elsewheregrumosols and hydromorphic.
The human resource in Brazilian agriculture is no less impressivethan the natural resource endowment just outlined. Performing both aslaborer and manager, the pioneer farmer has proven adept at bringing virginresources into production and in re-directing their use as prices and costschange. For example, a number of crops - sugar, cocoa, rubber, coffee,cotton and soybeans -- have succeeded one another as spearheads of thesector's growth through the decades. Similarly, the livestock enterprisein the older, settled areas is now tending to shift from beef to milk.Poultry and hogs are increasing more rapidly than cattle. These shiftsreflect the fact that it is becoming more profitable to use land andlabor more intensively. It is clear that farmers have demonstrated acapacity to adjust to forces of change, and that the policymaker neednot fear that he is dealing with an inflexible, unresponsive sector.
Forestry and Fisheries
Brazil has immense forest resources. There are some 3.5 millionsquare kilometers of natural forest land - and about 750,000 ha (7,500square kilometers) of man-made forests containing eucalyptus, pine, andsome native species such as Araucaria. The total value of forest industryoutput in 1968 was over US$700'million. Exports of primary forest productsamounted to $97 million in 1968, and imports were $48 million; the latterwas nearly all in the newsprint and paper products category.
Domestic requirements for forest products are bound to continuegrowing rapidly. This will stimulate output expansion. Brazil can alsoincrease its exports of tropical hardwood products and short fibre pulp.Two forest regions are of major interest for the next decade or so. Oneis the large tropical rainforest (250 million ha) in the Amazon Basin.The other is the temperate rainforest in southern Brazil. The intensityof use of these forests is highly variable, but in general the forestindustries in the south face a potential wood supply shortage, while theAmazonian forests rpmAin nearly untouched. This is because the consumingpopulation and forest industries are concentrated in the south, while eco-nomic opportunities for large scale exports of Amazonian forest productshave not yet been developed. As noted below, the Government is encourag-ing planting in the south. The forest resources of Amazonia can be muchmore fully exploited if the proper conditions for investment and tradeare introduced (Annex 3).
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The fisheries catch in 1968 was about one-half million tonsvalued at NCr 303 million (about US$76 million). Of this total, about57 percent by value came from states south of Rio de Janeiro; the stateof Sao Paulo alone accounted for over 20 percent. Except in the north,fish consumption is low. Effective demand would probably grow rapidlyif product quality were improved. The growth in fisheries production inthe last ten years has overloaded the port and distribution infrastructureand this, together with careless handling practices, has sharply loweredthe quality of much of the fish on the market. This problem of qualitywill become exceedingly grave in the years just ahead unless the Govern-ment gives a very high priority to ports and processing facilities forthe fisheries industry (Annex 2).
The Northeast
The mission was not able to investigate trends in rural livinglevels in detail, or to compare regional performances in improving ruralwelfare. There is no doubt, however, that in general rural people arebetter off now than ever before. It is also clear that the rural North-east is a problem region. Growth of farm output in the region has seldomfallen below the national average. But poverty has nonetheless embeddeditself firmly in much of the region, and agriculture will continue to becalled upon to help raise rural living levels.
The task will not be easy. The special study done for the missionby Robert Nathan Associates (Volume IV) noted that:
- "The physical endowments of the Northeast, particu-larly the soils, are mediocre.
- "A substantial investment has not been made in themost abundant and the potentially richest resourcethe people of the Region.
- "The population growth of the Region is still inordinatelyhigh compared to the rate at which job opportunities appear.
- "A relatively large share of the population is economicallyinactive - unemployed or underemployed. Job opportuni-ties are lacking, and an unusually large part of thepopulation is in the lowest age groups. Low literacylevels and health problems also limit economic activity.
- "The isolation of the Region and its low investment ininfrastructure has placed it at a special disadvantagecompared to the rest of the country.
- "The Northeast has historically specialized in agri-culture - a relatively low-income activity, parti-cularly when subsistence activities are stronglyrepresented.
- "Productivity is low in the Northeast due to a seriouslack of investment in research and adoption of technolo-gical innovations.
- "The activities of the public institutions, particularlythose related to the agricultural sector, are not wellorganized for development." 1/
In attacking this problem, it needs to be kept in mind that ruralpoverty is not limited to the Northeast.
1/ See Vol. IV of this report.
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II. PRICE AND COST FACTORS
The opportunities to expand agricultural output through animproved technology are almost unlimited. Similarly, vast frontier areasawait exploration and development. Many new areas will probably turn outto have an impressive potential if modern technology is mobilized to governpenetration and exploitation. In addition, the labor supply is growingrapidly. Taken all together, these factors make a growth rate in agricul-ture of several percent a year almost automatic unless weather is bad.Under these circumstances, it is understandable that public policy doesnot stress improvement in the efficiency of resource use. This helpsexplain why through the years an economic environment has evolved whichdoes not fully penalize farmers for inefficiency or reward them forusing resources well. This accumulation of laxities in public policyshould be studied in terms of its total impact on agriculture and thereal cost to the nation of agricultural output. Although the missiondid not find it possible to study these policy deficiencies empiricallyin depth, several of the more important cases are discussed in the follow-ing pages.
Land
One important way in which costs are raised is by failing toenable a settler to get title to land. This is because long-livedinvestment is unlikely to occur without title, and the resulting factormix is inefficient. The point is important, because new land in agricul-ture has been running around one million hectares per year during the1960's.
Provision needs to be made for three types of frontiersmen. Oneis the large landowner who comes from the older, settled areas. He is notnumerous, but his income, savings and investments are large. Some largelandholders invest only in non-agricultural enterprises. But some have beenactive in agricultural investments on the frontier, either in establishinglarge holdings, or in land development schemes looking to profit from sellingoff small parcels of the family farm, as is characteristic of much of north-ern Parana. Some of these also have been important sources of capitalfor agribusiness investments needed in frontier development.
A second type of frontiersman comes from the smaller family farmsmost prevalent in the colonial areas of Rio Grande do Sul and Santa Catarina.As these areas have become crowded, some of the farmers, with householdfurnishings and simple farm equipment acquired out of their own or theirfather's savings, moved first to Parana, and now on to Mato Grosso andGoias in search of new land.
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A third type of frontier developer is the landless, or near land-less, laborer, less well-equipped than farmers of the second type; ready,perhaps in desperation, to escape from a precarious existence in crowded olderrural areas; preferring familiar farm life to unfamiliar urban pursuits; andwilling to take a chance on farming as a squatter if he cannot get access toland on a more formal basis. The third type is common among migrants fromthe Northeast.
Naturally, with such a diversity of origins among agriculturistsof the frontier, forms of development also vary widely. Capital formation,by most large holders, and some smaller ones, occasionally is based ontransfers of their own investment funds, sometimes supplemented by borrow-ings, to pay for hired labor and the purchase of construction materials,modern machinery and equipment, and breeding stock, and thus to movequickly into full production. Farming techniques in this instance maybe relatively advanced, starting with mechanized land clearing operationsand on through the gamut of modern methods.
Smaller farmers, in varying degree, bring the minimum of resourcesto the development task, other than a pair of hands. Capital formationequals subsistence at this end of the scale - crops of corn, beans andmanioc to sustain life until some marketable surpluses of these crops canbe produced, until production of "commercial" crops begins and livestocknumbers increase to yield marketable supplies. Sometimes, the initialeffort by a small farmer is to develop land owned by others for the privi-lege of harvesting subsistence crops for a limited period of years. Manycoffee fazendas (farms) were brought into cultivation this way. Small far-mers' techniques tend generally to continue to be traditional.
By a variety of means, land has been shifted from idleness to aproductive status rapidly enough to raise the land-man ratio appreciably.There is little to suggest that farm land cannot continue to increase forsome years - possibly several decades - to come. However, as a paramountfactor in the growth of Brazilian agriculture, the conditions under whichfarmers acquire, hold and work the land are highly important. These condi-tions have been less than ideal and improvements would be both possible andbeneficial.
Removal of the deficiencies in the system of subdividing, titlingand transferring ownership of land would enhance the contribution which landcan make to the growth of the agricultural sector. For example, landrecords are poorly kept. There is no adequate survey to provide the basisfor accurate property descriptions. Disputes over boundaries are common.Squatters are a hazard to land titles, since Brazilian courts have tradition-ally given heavy weight to the use criterion as a basis for title claims.Tenure systems, being responsibilities of the states rather than the FederalGovernment, show a lack of uniformity. And the low land tax rates probablyencourage holding land in under-use.
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Much land suitable for farming is in private hands, but undevelopedas yet. Much of the development which occurred during the past two decadeswas on properties of this sort, and there is opportunity for considerablymore growth from this source. 1/
The Price of Farm Finance
Credit is the main instrument being used by the Government toimplement its agricultural policy. It is earmarking an increasing pro-portion of official bank resources for agricultural purposes. It requiresprivate banks to use at least 10 percent of their deposits for agriculturalcredit (Annex 6); and most important, it makes funds available to farmersat less than cost.
Interest rates on officially sponsored farm credit do not coverthe loss of value resulting from inflation. In other words, loans aremade at negative interest rates in real terms. Although the mission did notassemble empirical evidence, it is to be expected that this policy is produc-ing a chain of events which are likely to be strongly counter-productivein the long run. At negative interest rates, demand for credit exceedsthe supply and administrative rationing must be used to bring the two intobalance. A negative rate encourages farmers to overborrow, i.e., to seekloans for low-yielding purposes or non-farm use. A negative rate encouragesbanks to lend to preferred customers who offer ample security, and todiscriminate against farmers (often the smaller ones) able to offer lesssecurity but who may have quite profitable outlets for funds nonetheless.Thus, the use of a negative interest rate is likely to promote resource mis-use. It is also likely to be regressive, as only about 15 percent of allfarmers get official credit. (In contrast, farmers without access to officialcredit are borrowing on commercial terms and paying interest rates amountingto as much as 25 percent in real terms.) Another effect is that the publictreasury must meet the losses incurred by the Banco do Brazil, the main sourceof farm credit. This fiscal implication is important. Moreover, for whateverreasons, the term distribution of credit has become unsatisfactory. The bulkof agricultural credit is on short-term, with loans for more than a five-yearperiod being negligible in amount. The lack of long-term financing has beena major constraint on investments for many purposes, such as development ofland, water, livestock and tree crops.
1/ Land that is not privately owned belongs mostly to the states. Additionsto land in farms between 1950 and 1960 probably came largely from thissource, although some may represent a reclassification of privately-ownedland. Under Brazilian census definitions, properties on which no farmingwas being done were not enumerated as farms. The IBRA (Instituto Brasi-liero de Reforma Agraria) cadastre of 1966 listed all privately-ownedland, regardless of the activity. This difference in definition wasone factor explaining the difference between the 250 million ha offarmland in 1960 and the 307 million ha of rural properties in 1966.
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During the past six years, interest rates have been hardeninggenerally as a result of the declining rate of inflation and the increasinguse of monetary correction. The Government expects to reduce the annual rateof inflation to about 15 percent in 1970. The Banco do Brazil's agriculturallending rate to commercial farmers - 18 percent without monetary correction-- would then be a positive rate of about 3 percent. 1/ In view of this nar-rowing margin, the time is ripe to move to a structurerof more realisticinterest rates. This can be done by introducing an option of ex-post index-ing for all loans. 2/ Initially, the rates for short- and medium-term loansmight provide for a real rate of interest of no less than 3 percent. Thiswould be roughly comparable to the existing rate of 18 percent, given pre-sent expectations regarding inflation. Loans for longer-term investmentpurposes such as livestock and tree crops might be provided at a real in-terest rate of about 6 percent. As inflation rates decline further, andas existing price distortions are further eliminated, additional adjustmentsshould be made to bring these rates into line with the opportunity cost ofcapital. Admittedly, this cost is "high," and should be. But the returnsare also high, or should be.
Taxes
Taxes on agriculture are almost entirely on gross output value.There are now two such taxes: the state and local governments' value addedtax (ICM) and the rural provident fund tax (TPSR). Together they accountfor over 96 percent of total tax collections from agriculture (excludingcoffee), 3/ equivalent to approximately 8 percent of total gross value ofagricultural output.
The ICM and the TPSR were introduced in their present form in1967. The ICM is levied at a rate of 17 percent to 18 percent (accordingto the state) on the value of sales at each stage in the production and dis-tribution process, with credit for taxes paid in prior stages. In practice,credit for taxes paid on farm inputs is rarely granted and the ICM at thefirst stage actually becomes a tax on gross value of output. The TPSR islevied at a rate of 1 percent on gross sale value at the wholesale level.In spite of their obvious similarities, the TPSR and the ICM are administeredindependently (Annex 4).
1/ For official sponsored non-agricultural loans, the rate comparable tothe 18 percent in February 1970 was 22 percent. The rate for agricul-ture loans was subsequently reduced to 17 percent.
2/ As distinct from prefixed nominal rates, which introduce too muchuncertainty into transactions to be recommendable.
3/ The coffee "contribution quota" or tax amounted to about 2/3 as much asthe revenue from the ICM and TPSR in 1968.
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These two taxes increased the effective rate of tax on agriculturalproducts significantly. This increase resulted not only from higher statu-tory rates and stricter enforcement under the new system, but also becausein most states the seller has to pay the tax before the produce could bephysically moved from the premises. Since payment for the commodities bythe purchaser usually takes place some time after delivery, the seller hasto find means of making payment of the tax. This is a considerable financialburden, particularly in the face of the prevailing tight credit market. (Atpresent the states of Sao Paulo and Rio Grande do Sul do not require pre-payment.)
During 1967 and 1968, the added burden of production taxation appearsto have been largely borne by producers because of favorable weather con-ditions and good crops, and official attempts to limit increases in foodprices and in the cost of living index. Export markets were seriouslydisrupted in 1967, however, and producers began to withhold several crops(such as cotton and rice) which were non-perishable, and for which theminimum support prices set by the Government were higher. This had the effectof shifting tax incidence. In 1968, ICM rates for exports of selected farmproducts were lowered in several states, in keeping with the Federal Govern-ment's efforts to expand exports. Further reductions were made in 1969, andin one state (Sao Paulo) farm exports were totally exempted from ICM.
Exports of agricultural products increased considerably in 1968and 1969. Production for domestic consumption lagged considerably andunfavorable weather in 1969 resulted in generally poor crops. Demandpressures in the face of reduced production appear to have broken throughattempts to limit food price increases, and the food component of the costof living rose sharply during 1969. Farm product prices led the increasein the wholesale price index, after having lagged behind in 1967 and 1968.The sharp increases in prices of agricultural commodities in 1969 in partreflect the shifting to consumers of a significant part of the ICM burdenpreviously borne by producers.
In December 1969 farm inputs were partially exempted from the ICM.Consequently, the adverse impact of the tax on farm output may be considerab-ly diminished in the years ahead. Serious problems still remain, however,and concerted action by the Federal and State governments will be required tofind workable solutions.
One problem affects the productive efficiency of agriculture.Differential taxation, be it in the form of specific taxes, or of aprotective tariff barrier, clearly discriminates against the use of improvedinputs and better farming techniques. A strong case exists for reducingthe cost of these inputs to farmers to ensure that Brazilian agriculturedeals at world market prices not only for the sale of its output, as isincreasingly the case, but also for the acquisition of the necessary inputs.An equally strong and closely related case exists for the adoption of atax on land. The rural land tax in its present form is unduly complicatedand can contribute little toward either increased productive efficiency ormore equal interpersonal distribution of wealth and income.
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Another problem concerns interregional allocation of resourcesin agriculture. States can now, independently or in groups, vary ratesof tax and exemptions applicable to commodities produced in their territory.This results in differential treatment of products among states. Firstsale by producers may be exempted or deferred to a later stage in onestate but not in others; differential tax burdens result. The sale offeedgrains may be exempted in one state when sold to local livestockfatteners but not when sold to fatteners in another state. And exportsof locally grown farm products from one state may be totally ICM-exempt;but exports from the same state of the same product grown in a differentstate is not exempt, since tax has been levied by the state of origin priorto shipment across the state lines. This problem arises because theICM is a state rather than federal tax; it can distort inter-statecomparative advantage, and hold back further expansion of farm exports.These effects can be neutralized by measures to equalize tax treatmentamong states. However, since across-the-board exemptions cannot be decreedwithout imposing more financial hardship on some states than on others,an acceptable compromise in the case of exports might be for the Governmentto pay from its general fund for refunds of ICM. The financial burdenwould be substantial, however, possibly as high as NCr 800 million(approximately the amount collected from import taxes in 1968).
At the most rapid practicable rate, Brazil should shift to a ruraltax system which is more equitable and which encourages increased productivi-ty in farming. The taxation of farm income is now being improved. The nextstep is to improve the land tax. Increasing revenues from income and landtaxes should permit substantial reductions in ICM rates on agriculturalproducts, thus lessening the regressivity and counter-productivity of thepresent tax system.
Product Pricing and Marketing
Until recently and for many years Brazil had a complex systemof price and distribution controls. The Government has now eliminatedor reduced the impact of most of these controls. Although some remnantsof the system remain, most agricultural product prices are now free fromGovernment intervention. The exceptions are coffee, sugar, and wheat(Annex 18).
Until quite recently a major objective of government policy wasto hold down food prices. In this context SUNAB (the Government price controland supply agency) exercised strong and arbitrary powers to fix prices,confiscate stocks and to intervene in both the domestic and export markets.With the slowdown in Inflation and more abundant supplies of food, SUNABis now onlv concerned with farm prices for wheat and milk and with retailprices of some 32 food items.
Efforts to control prices have either had little result, or havetended to disrupt trade. They might have been more successful if more time-ly and complete information about supplies had been available, and if thebasic supply and marketing processes were better understood and weighed moreheavily in public price policy. For example, the program to check risingbeef prices in 1969 made available substantial qtuantities at subsidizedfixed prices, but effects on prices at which beef was sold through otherchannels were negligible. Normal trade channels were severely disrupted.
The coffee and sugar programs have been effective in stabilizingdomestic prices. This is because the Brazilian Coffee Institute managedlarge stocks and the Institute for Sugar and Alcohol administered productionquotas and pooled revenues.
Control over distribution of wheat under SUNAB has been partiallysuccessful. Wheat consumption has been kept below the level that wouldhave prevailed with unrestricted importation and sale at prices equivalent tothe world market. The program has conserved foreign exchange and financedsubsidies for domestic wheat growers. Millers have been in a scramble forquotas, indicating an overall deficiency of supply.
Chronic inflation has tended to aggravate the natural feeling ofalarm over any unusual rises in staple food prices, regardless of how neces-sary the rise might have been for redressing supply imbalances. Also, priceindexes have been geared into both the public debt and the mechanism forestablishing minimum wages; each linkage tends to accentuate official con-cern over short-run price rises. This price problem calls for increasinglyeffective general measures for controlling inflation, and better informationabout, and better understanding of, supply, demand and price behavior forparticular commodities, rather than largely punitive efforts to enforcearbitrary ceilings.
The minimum farm product price program was strengthened in1965. But government has seldom acquired sufficient supplies to affectprices appreciably. In part this has been due to a budget constraint, butit also reflects inadequate storage, handling and transportation capacity.The minimum price program could be more effective than it has been forstabilizing output. This would require that minimum prices be fixed closerto an equilibrium level than in the past. A secondary benefit wo-uld be thatthe price stabilization agency would acquire sufficient supplies to be fullyeffective in checking occasional exaggerated seasonal price increases.Continued improvement in procedures for lending to or purchasing from farmers,and in acquiring, storing and distributing the stocks acquired under theprogram would also strengthen the program.
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In Brazil the need for minimum price programs for the majorcrops is modified by the fact that world market prices are generallyaccepted as the major price determining factor. However, until infrastruc-tural developments have provided a better integration of production areaswith domestic markets and ports, price programs will be needed to reduceextreme fluctuations of price resulting from sharp fluctuations in yield.Minimum price programs are also useful in stimulating changes in technology,such as for wheat. In such cases, however, once the technology has beenestablished and farmers have adopted it on a sufficient scale, minimum pricesshould be lowered until they are in line with world prices. Analysis of thecosts and returns possible with the wheat-soybean rotation increasingly usedin Rio Grande do Sul indicates that a considerably lower price for wheatwould be possible than currently being paid. As input costs are broughtcloser to c.i.f. levels and additional technical improvement occurs, wheatprices could eventually be brought into line with world prices.
In the case of export crops, Brazilian farmers have demonstratedtheir capacity to produce competitively despite the high cost of bringingproduce to the ports, high port handling charges, and high ocean freightrates occasioned by the grossly inadequate transport and marketing facilities.
Input Prices and Distribution
Farmers pay relatively high prices for fertilizers and farm machi-nery. Brazil's industrial development has been fostered by policies whichtend to maintain high costs and prices for manufactured products. Where suchproducts are basic to improved agricultural techniques, the policy discouragesfarmers from adopting new techniques. This is widely recognized in Brazil,and steps have been taken recently to reduce the cost of purchased non-farminputs. Late in 1969, the ICM tax was removed from several categories offarm production requisites, as noted above. The mandatory content ofdomestically-produced components of tractors was reduced. Special creditterms (e.g., sharply negative interest rates in real terms) were madeavailable for tractors and fertilizers purchased by those qualified to borrowfrom official sources (Annex 15).
Another reason for the high prices that farmers must pay for pur-chased inputs is the generally high cost of distribution brought about by theshortcomings already mentioned in transportation, handling, communications,and commercial facilities and practices. Prices tend to be high also becauselow sales volumes beget high marketing costs per unit sold. This is less sig-nificant in the four southern states (where use of fertilizers, pesticidesand farm machinery and equipment has been growing over the past decade),than in the Northeast and frontier areas.
Although still low, fertilizer consumption in 1968 in Brazil wasmore than double the amount used in 1966, when a program for increasedimports and interest free loans was introduced. Reportedly this trend con-tinued in 1969, despite a reduction in funds for subsidizing interest.
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Consumption varies sharply by region and crop. Most of the fertilizerused in the Northeast is applied to sugarcane. In Rio Grande do Sul,the bulk of the consumption is shared by rice and wheat. Sao Paulohas several crops on which substantial quantities of fertilizer are used --coffee, sugarcane, cotton and vegetables.
Prices of fertilizers are higher than in many countries. Thisis notably true for phosphates. This means that the crop response ratiosrequired to cover fertilizer costs are relatively high. The bulk import-ing facilities and the fertilizer plants now under construction shouldpermit some reduction in costs. However, a considerable expansion in demandwill be necessary before sufficient low-cost fertilizer production capacitycan be justified. In the meantime, some subsidization or a more liberaLimport policy may be-required. Phosphates need particular attention.
The use of power on farms is amazingly low for a country at Brazil'sstage of development. Tractorization is largely confined to the four southernstates, although there seems to be some increase in use in the frontier zone.Animal traction centers in the south, on sugar estates in the Northeast,and in the Minas Gerais triangle. Three out of four farms in Brazil reportedusing human power only in 1960, approximately the same ratio as ten years'earlier. Reliance on human power alone in 1960 declined slightly with in-crease in size of farm, but even among the 415 farms reporting 1,000 ha ormore of cropland, one quarter used no animal or mechanical power. The numberof farms using some mechanical power increased from about 6,000 in 1950 to46,000 in 1960. Even today, the number using power is probably too small tofigure importantly in the total of more than three million farms of thecountry.
About 14,000 tractors were purchased by farmers in 1960,; all wereimported. Domestic production of tractors began in 1960, but demand hasbeen weak, and factories have been producing at conslderably less than capa-city. If one assumes a ten-year life for a tractor, imports plus indigenousproduction between 1960 and 1969 were little more than enough to maintain thenumber of tractors-on farms at the level reached in 1960 (about 63,000). Asshown in Annex 15, agricultural tractor prices in Brazil in late 1969 wereroughly double the prices in the U.K. Elimination of the value added tax(ICM) is expected to bring prices down by about 10 percent. Reduction inthe percentage of locally manufactured components can also be expected toreduce prices. However, there are real limits to price adjustment. TheBrazilian tractor industry is operating much below capacity. Moreover, exist-ing capacity is still much too small to benefit substantially from economiesof scale.
Public policy should aim at an acceleration in the rate of mechani-zation. More power will permit more timely and-effective land preparationas well as better control of weeds and more intensive land use, and atforeseeable rates of injection it is unlikely to react unfavorably on labor.
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III. PUBLIC EXPENDITURES
Direct public expenditures in agriculture have not been an impor-tant source of growth in agriculture, least of all on the investment side.The largest outlay to date has been for reservoirs and irrigation in theNortheast; unfortunately, this has not had a significant effect on produc-tion. However, productive outlets for public expenditures in support ofagriculture do exist, and merit attention.
Grain Storage
Storage facilities for cereals and pulses are grossly inadequate.Non-farm capacity for intermediate storage in producing zones was estimatedto be about 4.3 million tons in 1970, compared with a calculated need of7.5 million tons. The deficit could be partly overcome by holding grainon the farm or in consuming centers or ports. Storing more grain on farmswould lengthen the marketing season, lessen the burden on transport faci-lities, and strengthen farmers' bargaining power. Research is underway todetermine methods, costs, and the optimal national storage system. Aboutone-third of the storage capacity in 1965 was publicly-owned warehousesand elevators (Annex 18).
The storage problem, besides the matter of having sufficientcapacity properly located, includes issues of efficient handling (moregrain should be handled in bulk) and the provision of adequate supportingservices: drying, cleaning, fumigating and grading. Existing laws regulat-ing public warehouses are obsolete. They need to be updated to permitutilizing fully the potential benefits of bulk handling, and to facilitatethe financing of stored products. Steps should be taken to make the serv-ices offered by publicly-owned enterprises as acceptable to users as arethe services of privately-owned warehouses; comparative occupancy ratesindicate that the margin of preference is now very wide.
Private sector storage has increased rapidly since 1960 but hasnot kept pace with rapidly increasing requirements. Provision of creditfacilities on sufficiently long term at realistic interest rates canaccelerate investmencs in this field. However, a revision of current lawsto permit companies offering storage services to the public to buy andsell commodities in the market for their own account is necessary toattract more investment.
Land and Water Development
Irrigation does not play a key role in Brazilian agriculture.Of some 160 million hectares in crops and pastures in 1967, probably about600,000 hectares were irrigated in some degree. Because of an increasingagricultural labor supply and vast acreages of virgin territory still tobe opened up, an expanding agricultural output at low cost is virtually
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assured. Therefore, injections of capital for irrigation must be care-fully considered before being undertaken, even if the amounts are small.
An inter-ministerial body, the Grupo Executivo de Irrigacao parao Desenvolvimento Agricola (GEIDA) is now preparing a National IrrigationPlan. It has engaged foreign consultants to help do this job. The Planis expected to be ready in 1971 and should provide a thorough review ofexisting and potential irrigation development. It will also compareirrigation possibilities with the alternative of developing the rainfedagriculture. The consultants' tentative conclusions as of late 1969 were:
(a) While Brazil could achieve substantial agricultural develop-ment by relying primarily on rainfed farming techniques,irrigation could also make a significant contribution toraising output values in the agricultural sector.
(b) Further irrigation investment is justified only if itgenerates output values considerably larger than the costof that investment. Preliminary evidence indicates thatthere are crop rotations applicable in most areas ofBrazil for which the value of added output from irrigationmight considerably exceed added costs involved in supplyingirrigation water. Thus, some investments in irrigationfarming seem to be justified, and irrigation may be ableto compete for funds with non-irrigated lands, even if thelatter are well farmed by modern methods. This generaliza-tion must yield to the findings specific to each projectproposal, of course.
(c) The provision of water is only one of the problems inexpanding irrigated agriculture. Others include the highprices of machinery and fertilizers.
(d) There will be a need for expanded and improved extensionservices, also for improved institutions to deal specificallywith irrigated agriculture. There is also a need to revisethe laws governing uses of water.
(e) The Government should not wait for the National IrrigationPlan to be finished before implementing some of the projectswhose feasibility reports indicate that they are economicallyviable. Immediate action is justified, not only becauseof the direct benefits involved, but also to help accumulateexperience in irrigation useful for the future.
These conclusions are perhaps tenable taking a long view. However,experience to date with public irrigation indicates that problems of modern-izing and intensifying agriculture cannot be quickly solved. Resources goinginto irrigation must be geared to the capabilities of the farmers involved.
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For this reason, the emphasis in irrigation should center on private sup-plemental irrigation in areas where intensive agriculture has alreadydeveloped - and proposals for public investments in irrigation shouldbe approached cautiously, with decisions being made only after thoroughanalyses of project feasibility.
It is particularly important to thoroughly analyze irrigationproposals for the Northeast, as expectations as to their economic returnappear to be inflated. To install irrigation in the Drought Polygon ofthe Northeast has been a major objective of Government over the pastseveral decades. Hundreds of millions of dollars have been invested.The Departmento Nacional de Obras Contra as Secas (DNOCS) has itself builtno fewer than 246 public reservoirs with a total capacity of 11.3 billioncubic meters, and, in cooperation with municipios and individuals, 594reservoirs with a capacity of 1.3 billion cubic meters. Despite theseheavy outlays, only about 12,000 ha are being farmed under irrigation,and even this with disappointing results. A key problem has been soiland water management.
This record is revealing. As noted in Volume IV, there aremany reasons why the near-term scope for irrigation in the Northeast ishighly limited. 1/ A major reason, of course, is the considerable potentialthat exists for the development of rainfed agriculture. A few small-scalepublic investments in Northeast irrigation can perhaps be defended iftraining is given heavy weight. These must be analyzed in the context ofalternative possibilities for remunerative public outlays in irrigation,of course, such as in Rio Grande do Sul to improve the existing privatesystems and enable a more intensive agriculture (Annex 5).
Research
In contrast, there can be little doubt that technical researchin agriculture merits a priority claim on public funds. Farmers cannotthemselves develop and test new varieties, breeds, and methods, and out-lays for extension cannot yield well unless backed up by a flow of researchfindings.
The supply of useful research findings in agriculture and live-stock is uneven, both geographically and as among commodities. For example,research on coffee in Sao Paulo and on cacao in southern Bahia has producedworkable answers to many technical problems. But little has been done tosolve Dothidella leaf disease, the major barrier to natural rubber produc-tion on a commercial scale. Regionally, farmers in the center south stateshave far more research information available than do farmers in other areas.
1/ This general judgment in no sense rules out investment in irrigationwhere the specifics of the situation, professionally interpreted,suggest that the economic yield is likely to be high.
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Although federal, regional and state research organizations are trying toget a commodity and regional balance into the research work (in line withanticipated needs for technical information), much more needs to be done.
A second necessary step is to develop an economic dimension tothe technical findings. Attention must continue to be given investigationsof breed and varietal adaptability, fertilizer responses, plant and animalpest and disease control, times of planting, spacing, establishment ofcropping sequences and pasture management under rainfed and irrigatedsystems in both old and frontier areas. But this type of technologicalresearch should be accompanied by farm management studies on the financialimplications of the agronomic practices which are recommended. The lackof this type of management information (as related to past research) con-stitutes an important constraint on increased agricultural production.The problem is now recognized, but remains to be solved.
Research at the federal level is managed by the Ministry ofAgriculture's Escritorio de Pesquisas e Experimentacao (EPE). It worksthrough regional institutes, which together have some 50 experimentalstations. This federal network, the State research activities, andother research largely independent of federal or state research organi-zations are discussed in Annex 9.
It is clear that programming research is complicated by the factthat so many organizations are involved. Consultative groups within EPEmight be worth creating as one way of getting better research coordination.These groups could formulate research policies and programs. Being withinEPE, they would consist mainly of federal researchers so arrangements wouldhave to be made to enlist state participation, and draw on appropriatestate and private opinion as well.
More funds for research are also necessary. The Ministry ofAgriculture receives about 2% of the total federal budget and devotesless than 5% of this allocation to agricultural research. The budgetsfor 1970 propose a total outlay of US$7.4 million for research (US$1.4million by EPE; US$2.5 million by or through state directorates of theMinistry of Agriculture; and US$3.4 million by other organizations notcontrolled by the Ministry of Agriculture). Total expenditure on agri-cultural research may thus approximate 1/5 of 1% of agriculture's shareof GDP in 1970. This is well below what many students of economic develop-ment propose, i.e., between 1 and 2% of a sector's contribution to GDP.
Funds for research have been mobilized by export cesses and im-port duties in some cases. CEPLAC (cacao) and its sister organization,the Rubber Superintendency, are financed by the duties levied on cocoaexports and rubber imports. These funds could be assigned automaticallyto the Ministry of Agriculture, and spent on research for the two cropsas designed by the consultative groups referred to above.
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Another factor limiting the impact of research on agriculturalproduction is too few trained personnel, and the fact that those availableare poorly used. Conditions of service in the Federal Government do notpermit the Ministry of Agriculture to transfer research personnel tolocations, or into fields, where more concentrated attention is needed.Moreover, the Ministry cannot recruit staff to fill positions made vacantby voluntary transfers of personnel into new research areas. A secondaspect of the personnel problem is the absolute shortage of trained man-power. For example, the federal agency EPE has about 700 technicians ofwhom about 70% have had some university training. Regional, state andautonomous research organizations probably have no more than this, andthe proportion of their staff which is university-trained is probablybelow 70%. Most technicians are agronomists or veterinarians with general-ized training, and few are equipped for specialized work.
The Government is trying to increase the output of professionalpersonnel by such means as contracting with U.S. universities throughUSAID. As a conservative target, at least 2,500 professionally qualifiedpersonnel are needed in technical research on crops and livestock by 1975.Education and training programs should be reviewed in the light of thisminimum target. Present plans are very inadequate.
It will be useful to continue to draw upon foreign agencies suchas FAO/UNDP and USAID to provide personnel with specialized research skills.The consultative groups proposed above should prepare research projectssuitable for bilateral and international agencies which can provide per-sonnel and on-the-job training.
Extension
Farmers must use research findings before the investment inresearch can pay off. It is the job of the extension service to get thefindings to farmers. A complex system for doing this job has been developed.Organized extension was started in Minas Gerais in 1948 by the StateAssociacao de Credito e Assistencia Rural (ACAR). The movement thenexpanded to other states. In 1956, the Associacao Brasileira de CreditoRural (ABCAR) was organized to coordinate the various regional extensionservices. The federal agency (ABCAR) and the state services operate ona cooperative basis; they are financed by both the private and publicsectors. State associations cover the country except for the territoriesof Amapa, Rondonia and Roraima and the states of Sao Paulo and Guanabara(the states of Sao Paulo and Guanabara independently operate their ownservices) (Annex 7).
Extension is organized on the basis of municipalities, withthese being grouped into regions. At the end of 1968, there were 148regional and 1,005 municipal offices. The manpower complement of theseoffices (excluding Sao Paulo) was:
There was little change in 1969. There are about 1,730 field extensionagents covering 1,005 municipalities - about 1.7 technicians per municipa-lity, or one extension agent for every 1,800 farms. The distribution is notuniform, however, and there are many heavily farmed areas, particularly 4inthe Northeast, without extension workers. Sao Pauro, with the largest ex-tension organization in Brazil, has a ratio of one extension worker per1,000 farms but has areas, such as the Riberira Valiey, where extensionstaffing is well below the state average.
Although the extension system is well orgaiiized, it is sparselystaffed in terms of both quaiity and quantity and, as noted above, the,research information available for dissemination to farmers leaves muchto be desired. This is particularly true in areas 'other than the centersouth. The latter has comparatively competent public bodies as well asthe benefit of technical assistance services from fertilizer distributorssuch as Ultrafertil, farm machinery suppliers such as Massey Ferguson,and well organized cooperative groups such as the C6tia AgriculturalCooperative, and Fecotrigo (in wheat).
The effectiveness of extension workers needs to be increased.Training programs for this purpose should recognize that extension menworking with small farmers require different tralniing from those workingwith knowledgeable commercial growers. Far closer ciordination is neededbetween the Ministry of Agriculture, ABCAR and the Ministry of Educationconcerning the selection of staff for training and the design of courses. 1/Personnel selection and training courses should take" explicit account ofspecific regional needs.
Field extension workers should be backed Uji 6by a cadre of com-petent subject matter specialists in close contact with field problemsand research findings. The present system of liais6n officers at theresearch institutes does not go far enough, particuiarly in such fieldsas soil conservation, farm management and irrigation agronomy. Theseresearch liaison officers and subject specialists shouild be used by ABCAR
1/ The Ministry of Education is responsible for agricultural educatioinin Brazil. (Ir view of the emphasis on policy' for the short and inter-mediate run, the mission did not study agricultu'ral education needs\ indepth.)
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to improve in-service training of extension staff. More ABCAR trainingcenters are needed. These facilities and personnel should be used tooffer suitably oriented short courses to continuously upgrade field exten-sion workers.
Credit insitutions can also help get technical assistance tofarmers. Appraisal of the loan applications of farmers, along withsubsequent supervision of loans by agriculturists of the Bank of Brazil(and other farm credit agencies) can foster adoption of recommended farm-ing practices.
Credit management also needs revision to allow variations inthe amount of funds which can be loaned per ha of crop. This should varyin accord with the amount judged to be required to maximize the economicreturn to the activity. Of course, this relaxation would require closersupervision of the loans and hence more technical people on the Bank'sstaff, so that each technician can devote substantially more time thanthe present average of one day per loan per year. It would also requirefarm management studies, and continuous training to improve staff capacityto process and supervise loans. The technical staff of credit institutionsshould be increased as rapidly as possible.
Seed Production and Multiplication
Farmer willingness to improve production methods can have littleeffect on output unless the required inputs are available. Improved plant-ing material is the main farm input for which the Government has assumeddirect responsibility in Brazil. The systematic production of selectedseeds of improved varieties was initiated at the Agronomic Instituteat Campinas in Sao Paulo many years ago and today 80 percent of all im-proved seeds in Brazil come from Sao Paulo. In 1957, a pilot seed centerwas set up in IPEAS at Pelotas in Rio Grande do Sul to produce basicgenetic stock, along with the infrastructure needed to-handle, process,test, certify, pack and store seeds. Seed centers have since been createdat another six of the nine EPE research institutes (IPEAOC, serving Amazonas,and IPEAO, serving Mato Grosso and Rondonia still lack these seed facili-ties). The University of Mississippi, through a USAID contract, is pro-vlding technical assistance to help enlarge the seed program, to installadditional facilities, and to train staff for seed improvement work.
Some of the seed centers produce and multiply certified seed,but most multiplication is done by selected farmers or cooperatives undercontract to the research institutes. In the center south, certain cropshave been declared "completely developed" and their multiplication fromparent stock provided by the research institutes is in the hands ofprivate seed merchants. The institutes regulate trade and production.So far no arrangements of this sort have been made for pasture and foragecrops; requirements for these seeds are met by imports and by privatedomestic production. Seed from the latter source is unregulated, andprices are about triple the prevailing world levels.
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The amount of improved seed distributed in 1968 is as follows:
Cotton 7,971 tonsGroundnuts 182Rice 627 "
Potatoes 1,382Beans 20Maize 3,044 "
Soybean 6,744Wheat 6,968 "
The Ministry of Agriculture assisted by the IDB recently preparedrecommendations for a national seed program covering cotton, groundnuts,rice, potatoes, beans, maize, soybeans and wheat in Espirito Santo, Rio deJaneiro, Minas Gerais, Sao Paulo, Parana, Santa Catarina and Rio Grande doSul. A five-year program costing about US$62 million is envisaged, with50% financing by IDB.
In connection with this proposal, it is imperative that theGovernment strengthen its plant breeding staff and that it emphasizeits role as genetic improver. The private sector must also have sufficientfreedom of action and financial incentives to become the prime multiplierand distributor of the improved varieties developed or imported by theGovernment. The effort should concentrate in the center south duringthe years just ahead. As soon as varieties have been proven, they shouldbe made readily available in all parts of the country in urgent need ofimproved planting material.
Transportation
Agriculture is in dire need of improved transportation services.Many farms lack access to all-weather local roads, and local communitieslack good highway and/or rail connections with large consuming centersand ocean ports. Agriculture shares with other sectors the need forimproved coastal shipping services. In 1965 Brazil began a general trans-port survey. 1/ This lays the groundwork for improvements in the transportsystem. The survey covered highways, railroads, coastal shipping and portsof Rio de Janeiro, Santos and Recife. The Government is currently engagedin a massive road-building program and will shortly undertake to developthe ports of Rio de Janeiro, Santos and Recife. The railroad system isbeing reviewed to determine possible gains from improved integration andmanagement. The results will determine in large part the outcome ofefforts to expand exports of bulk commodities such as maize, rice andsoybeans.
1/ The survey along with current transport policy and its background isdiscussed in IBRD, Appraisal of a Second Highway Project (Brazil),-January 14, 1970. Report No. PTR-36.
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There is need for more attention to local transport problems:roads connecting farms with primary assembly points and markets, and roadsconnecting small country markets with main trunk roads. A start has beenmade on programs for community roads (Programa Nacional de EstradasVicinais) as noted in Annex 13. Expanded effort at this level has toovercome numerous difficulties. Municipios lack resources and technicalcompetence for planning and supervising road projects. Methodology forstudying and selecting rural road projects is not well developed. Allega-tions that funds transferred from the National Road Fund have been usedat times for purposes unrelated to transportation are unlikely to leadto generosity in such transfers (Annex 13).
Apart from improving transport services to areas already developedagriculturally, Brazil needs roads for the new areas being brought intocultivation in the frontier states. Some settlement is taking placealong the network of main highways that is being extended across the interiorof Brazil, but the more concentrated areas of new settlement in Mato Grosso,Goias and Maranhao will require road building programs similar to theone in Parana of the past several decades. Increased investment in ruralroads is essential if the interior of Brazil is to be occupied in aneconomically meaningful way, and not merely traversed by the new trunkroads. The mission believes that improving the national transportationsystem is a priority claimant of the first order on funds available forsupport of the agricultural sector.
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IV. CRISIS IN COFFEE?
Coffee has played an extremely important role in the develop-ment of the Brazilian economy (Annex 10). It is important that it continueto be exploited as a major source of foreign exchange and public savings.To assure this will require careful handling of available supplies.,for the.years just ahead; these have been sharply reduced as a result of the severefrosts In 1969. The outlook has been made even more uncertain as a result ofthe appearance of the coffee rust (Hemileia vastatrix). A related and vital,decision is the level of production capacity to be installed for the longerrun.
The Outlook for Supply
With the exception of the 1965/66 crop year; when an estimated37 million bags of coffee were produced, Brazilian coffee output has notexceeded 23 million bags since 1963/64. In fact, the average.annual out-put of coffee over the past eight years has been 23.8:million bags. If1965/66 is left out, the average production in seven out of eight yearshas been 21 million bags. These years may have been.unduly affected .bypoor weather, but precise information on Brazilian coffee "productioncapacity" is not available. The current annual demandsfor domesticconsumption and exports is about 28 million bags. This level of demand,along with the available data on the existing stock position and the pro-bable reductions in future yields because of frost damage suggestsBrazilian coffee stocks may fall below normal requirements by 1973/74,even on optimistic assumptions as to output. in the interim. It is con-c'eivable.that Brazil might even exhaust its stocks of.coffee by 1974/75. Ifanother severe frost or other catastrophe should occur before then, Brazilianstocks could be exhausted still sooner.
Prima facie, there is evidence that Brazilian output supplementedby existing stocks may be just about sufficient to.mee.tt export quotas inthe short run and some. expansion in capacity.may be needed to meet thequtota obligati'ons under the Agreement and to replenishOstocks. The Braziliancoffee plan is presently under consideration by the ICO., along with theplans of other major producing countries. Any decision,,on expansio,n orreduction of capacity in any of the member countries should be made withinthe framework of the ICO. If it is decided that Brazll should expand outputto meet quota obligations, consideration should be given to the economicsof raising yields per hectare as compared to expanding;.,acreage.
The possibilities of increasing yields in the sho,rt run (throughprograms of pruning, fertilization and mulching) are generally known tothe better Brazilian coffee farmers and should be given special encourage-ment. However, the possibilities of obtaining yield increases throughsupplemental irrigation using portable sprinkler systems have receivedlittle attention in recent years.
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Irrigation
During the coffee boom of the 50's considerable work was donein Brazil, as well as in a number of other coffee-producing areas, onthe possibilities of irrigating coffee. Experimental results showed clearlythat yields could be increased by 33% to 175%, and that irrigation dampensthe pattern of biennial declines in coffee yields. Results on a commercialscale indicated that in no case were yield increases less than 33%. By1958 there were about 30,000 ha of coffee under sprinkler irrigation inBrazil. However, interest in coffee irrigation has since lessened withthe decline in coffee prices received by producers in Brazil. In someother parts of the world, particularly where farmers received a largershare of the consumer price, coffee irrigation has become more popular.
Sprinkler systems can increase yields immediately by preventingthe destruction of flowers during periods of water stress. The fullbenefit, however, is in the second and later years because irrigationresults in a doubling of shoot growth and a 20% increase of node development.Moreover, irrigation stimulates leaf growth, which leads to a fullerdevelopment of root systems and permits an increased absorption of nutrientsfrom the soil.
0 0 Sprinkler irrigation can also prevent frost damage at temperaturesof 4 -5 below zero centigrade. However, for complete frost protection theinstallation must provide continuous sprinkler application to all parts ofthe field. Of course, a system designed for irrigation could give frostprotection to part of the field by concentrating the equipment in the mostfrost-prone area.
The total area currently covered by sprinkler irrigation in thecoffee-growing parts of Brazil is not known. However, the area irrigatedin 1960 is estimated to be on the order of 80,000 ha in the State of SaoPaulo, and sprinkler irrigation probably accounted for about half of this.Since that year, the area under sprinklers has probably increased substan-tially. At present, the manufacturers are selling sufficient sprinklerequipment to irrigate about 10,000 additional ha per year.
The Government should encourage farmers who own portable sprinklersystems to use them for coffee irrigation as well as for frost protection.In addition, a special program should be instituted to encourage installa-tion of new sprinkler systems in selected areas, especially in farms wherewater is readily accessible and other crops are also grown. The sprinklersystems can then be used both for coffee and for the other crops. Consider-ation might be given to providing a special subsidy for coffee irrigationand permitting duty-free import of sprinkler equipment during a one or twoyear period if local manufacturing capacity proves to be a bottleneck. TheIBC (Brazilian Coffee Institute) should stop using funds to promote coffeeconsumption in Brazil and use the funds so freed (and more) to finance acampaign aimed at getting all possible techniques for increasing coffeeyields into widespread use.
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A program of this type would raise coffee output by severalmillion bags over the next few years and thus provide some insurance againstanother severe drought or frost.; It would also help assure Brazil of thecapacity to meet its coffee quota obligations. The cost of such a programwould be in the order of $250 to $400 per ha - somewhat less than the costof planting new trees, and the production impact would come much sooner.In addition, such, a program would help to reduce the sharp fluctuationsin yields which make it necessary to hold large stocks of coffee.
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V. THE RURAL UNDERPRIVILEGED
There are significant pockets of rural poverty in Brazil, notablyin much of the Northeast but by no means limited to this region. This isa problem which cannot be solved by agricultural policy alone. Nonetheless,policy for agriculture must be designed to fully reflect the role of thesector in improving the lot of the rural underprivileged. The task isfundamentally one of increasing the productivity and earning power of labor.In essence, this means that poor families must be enabled to combine theirlabor power with greater relative quantities of land and capital. The im-portant ways in which this improved earning power can come about for import-ant numbers of the underprivileged is through changes in the wage level, andtenancy adjustment. Land tenure is also relevant.
The Demand for Labor
From the demand side, the outlook for employment and the wage rateis likely to be fundamentally strong in the years ahead, although variableby region. For example, farm employment nationally increased more slowlyfrom 1960 to 1968 than in the previous decade, and there is evidence ofsubstantial decline in Sao Paulo. This may continue. The Northeast, stillpredominantly rural and with a high ratio of farm workers to land, will con-tinue to experience low labor productivity in agriculture, along with sub-stantial migration to urban areas, or to rural areas of frontier States in thedecade ahead. The Southeast will undergo declines in farm employment, andfarm operators of that region will be under pressure to mechanize and toemphasize those crop and livestock enterprises which offer the greatestpotential for raising labor productivity.
Farm employment is likely to stabilize in the South. Land thereis now fully occupied. Migration within the region will be tapering offwhile migration to the Central West may rise. Urban labor markets do notseem likely to draw heavily enough from rural areas of this region to havemuch effect in reducing total farm employment. However, a trend toward in-creased mechanization could lead to a reduction in farm employment. TheCentral West will probably show greatly increased farm employment, as land-owners begin to exploit production possibilities opened up by improved trans-portation. The limits of agricultural growth in this region may be deter-mined largely by the flow of migrants from other regions.
On the supply side, the overall certainty is that agriculture mustbe relied upon to employ increasing numbers of workers, possibly 15 to 16million in total in 1980 as compared with 12.6 in 1968. But regionalshortages can nonetheless arise, and significant increases in the earningpower of labor will result until offset by migration. The Government willwant to help laborers migrate.
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From a national point of view, the current numbers on unemploy-ment and labor force are not alarming. The Brazilian labor force iscurrently estimated at about 31 million workers, increasing at a rate ofabout 1 million per year. On the basis of past trends in crop acreage andagricultural labor force, it takes about 2 ha of crop land per personemployed in agriculture. Allowing for some increase in productivity andincome per worker, the future expansion of crop land will probably requireabout one worker per 2 1/2 ha. On this basis, if the past trend in cropland expansion of 1 million ha per year continues, an estimated 400,000workers could be absorbed annually in agriculture. However, results ofsample studies carried out since the 1960 census indicate that the currentabsorption of labor in agriculture is probably of the order of 250,000workers annually. This seems to be the result of a complex of trends in-volving a continuing surplus of labor in the Northeast, a growing shortageof agricultural labor in the more developed regions and on the frontierand a substantial migration into urban areas.
Thus, it would seem reasonable to expect that something of theorder of 250,000 to 400,000 new workers could be absorbed annually inagriculture over the next 5 to 10 years. Recent household sample surveysseem to indicate that although population has been increasing more rapidlythan urban employment, the urban areas absorbed most of the population in-crease in older rural areas between 1950 and 1960. Industrial employmentopportunities grew less rapidly than industrial output because of higherproductivity per worker but the service sectors seem to have been able toabsorb an increasing percentage of the new workers although generally at alow level of productivity. In agriculture productivity per worker hasrisen to a lesser extent but some increase is reflected in the increase inthe amount of crop land per worker. Actual wages paid to farm workers alsoseem to bear out this thesis since minimum salary regulations which werelargely ignored five years ago are now being more effectively enforced.
Over the next several decades there will still be sufficient landto absorb expected increases in labor supply. However in the absence ofimprovements in labor productivity and incomes in agriculture, it will bedifficult to hold new workers in rural areas, particularly in the Northeastwhere only about one-third of the annual increment to the labor force nowremains in agriculture.
The problems of rural poverty in the Northeast are described indetail in Volume IV. The picture over the past two decades indicates thatagricultural output in the Northeast has increased almost entirely from theexpansion of crop area and a more or less parallel increase in agriculturalemployment. For the most part productivity and income in agriculture havenot improved significantly and per capita income in the rural Northeastremains at less than $50 per year. As a consequence the region has witnesseda heavy outmigration and also a large internal movement from rural to urbanareas, but many migrants are ill-equipped to compete in the labor market.
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Only part of the answer to the unemployment problem in theNortheast lies in Northeast agriculture; indeed, a large part of the answerlies outside the Northeast. Migration to other areas should continue to beencouraged and every effort made to provide additional employment in othersectors. Investments in the Northeast under the 34/18 tax incentiveprogram have generated some employment, but investments have generallybeen of a capital intensive type. 1/ The continued emphasis on large-scaleinvestments in transportation infrastructure should continue to provide asubstantial outlet for additional labor supply. In addition, however, thereis need for new efforts to make the Northeast agriculture more productivein order to make it more attractive for workers to remain in agriculture.Specific measures for intensification of Northeast agriculture are discussedin Volume IV. In addition, improved techniques for establishing land titlesand financing low-cost settlement should be developed to accelerate theexpansion of crop acreage. In the crowded sugarcane zones the objectivesof GERAN should be redirected and broadened to provide not only for therationalization of sugar production but to assist displaced workers to findmore productive employment through outmigration and by developing intensiveproduction on the slopelands which will be released from sugar. Improvedsocial conditions for farm workers should be provided to assist theirchildren to compete more effectively for jobs outside of agriculture. Inthe longer run as productivity and incomes are raised to acceptable stand-ards, fewer people will be needed to produce the food and fiber which canbe marketed. This is already beginning to happen in the South. Withinanother generation it will start to happen in the Northeast.
Land Tenure and Tenancy
The problem of farm tenure is also cited by many people as a majorconstraint to agricultural development and a root cause of rural poverty. 2/
1/ 34/18 allows 50% of the value of approved investments in the North-east to be credited against income tax liabilities. Similar incentivesare also available for investments in the Amazon, in forestry andfisheries. Analysis of the effects of these tax incentive programs wasbeyond the scope of this study. However, some of the effects on fisheriesand forestry are discussed in Annexes 2 and 3 of Volume II.
2/ According to the 1960 census, an important part of Brazil's agriculturalproduction effort was owner-operated -- two-thirds of all farms andabout 64% of the land can be placed in this category. However, 45% ofthe farms were less than 10 ha in size and occupied only about 2% ofthe land area. An additional 11% of all farms, making up about 4% ofthe land, were occupied without payment of rent. At the other end ofthe scale, large farms of 1,000 ha or more constituted only 1% of allfarms, and occupied over 47% of the land. Moreover, many of the farmunits are run by hired managers -- 5% of all farms, comprising 25% ofthe land. (In interpreting these data, allowance should be made forthe fact that most of the large farms are in the very sparsely settledregions of the north and center west.)
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As with the employment problem, the severity and form of this constraintvaries among regions. A major part of the problem relates to clarificationof land ownership titles, particularly in areas of new settlement. Even inthe older areas the lack of clear titles has been a constraint on farm credit.Simplified procedures for establishing title to land are urgently neededparticularly for small scale settlers. The need for high priority incompletion of accurate cadastral records has already been cited above andis basic to improvements in land tenure.
Farm tenancy takes many forms. In the frontier areas a class oftenants, some with substantial resources, has developed. They are special-ized in opening up new land on a share basis, clearing land, harvestingseveral crops, planting pastures and then moving on. The cycle is frequentlyrepeated at eight or ten year intervals. Such tenants are essentially entre-preneurs who are not part of the poverty problem.
In Rio Grande do Sul in the rice/livestock regions, most of thetenants are engaged in rice production. The land is held in large blockswith the owners concerned primarily with extensive livestock production.However, the need for periodic renovation of pastures has led to thepractice of rotating pasture use with rice production. A large part of thearea is provided with irrigation developed by the land owners on a ratherextensive basis. Under this current system of share cropping rice as partof a system of livestock production, there has been little incentive tomake the necessary sorts of capital improvements to existing irrigationfacilities or to undertake investments in land levelling. Such investmentscould provide the basis for intensifying rice production in the area, butthe existing system of share cropping will have to be changed.
A more serious land tenure problem exists in the Northeast. Onthe basis of 1960 census data out of 1.4 million census units enumeratedrented units totaled 273,000 and 175,000 individuals occupied land withouttitle or payment of rent. Farm units included in the 1960 census accountedfor only 40% of the total land area in the Northeast. The subsequent IBRAregistration of rural properties showed a slightly larger proportion of thearea in farm units. It is estimated that a third or more of the Northeastremains outside of registered farm properties.
Thus, the land tenure problem even in the Northeast rests onlypartly in the considerable control over the country's total land resourcesby large land owners. The first priority would seem to be to provideaccess to public and private lands which could be more fully exploited bypresently under-privileged families, and to provide the infrastructureneeded to assist their migration.
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In the densely populated zones, adjustments in the rights to useof land may indeed stimulate cultivators to invest in the land they workand to adopt improved production practices. The potential effects on theproductivity of Northeastern agriculture remain to be demonstrated. Atleast such land reform programs may buy time for other structural changesin the economy, leading to better solutions for the employment and growthproblems. But it is difficult to see how land reform -- which in mostcases amounts only to land splitting -- can solve the fundamental problemof too many people in agriculture.
In 1964, in order to promote the ownership of small farms, theGovernment of Brazil established a National Institute for the Developmentof Agriculture (INDA) and the Brazilian Institute for Agrarian Reform(IBRA). These agencies have carried out basic studies to determine howbest to develop colonization projects on public lands in previously un-settled areas, as well as on land acquired by purchase or the expropria-tion of large estates in areas already developed. To date, however, IBRAis estimated to have resettled only 5,000 families on about 200,000 ha.
The IBRA program should be reoriented to reach more people atlower unit costs. Studies currently underway in Maranhao are designed todevelop ways of providing titles to land, installing minimum infrastructure,and offering guidance and credit to help accelerate spontaneous colonizationon an orderly basis. Priority should be given to completion of the resourceand cadastral studies needed for selection of land and to provide ownershiptitles to settlers in areas accessible to planned roads or inland water ways.High priority should also be given measures for providing long-term financ-ing on reasonable terms for the purchase and development of farms of viablesize and for opening up new areas. In addition, the measures proposed forreducing the ICM tax and increasing the land tax should also serve to reduceincentives to hold land for speculative purposes, thus increasing the supplyof land available for purchase.
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VI. GOVERNMENT ORGANIZATION AND DEVELOPMENT PLANNING
The Government has taken important steps in the last few yearsto improve its capacity to design and administer the national economicdevelopment effort-. Additional steps merit investigation and promptinstallation.
The Public Servi-ces to Agriculture
Brazil is sa federal republic and responsibilities for the publicservices are shared-between the central government and the states. Thenational policy is to entrust to each state major agricultural functions,provided that the state is able to carry them out. But the capabilitiesof the states vary so widely that all cannot carry equal responsibility.
The federal Ministry of Agriculture includes a number of autono-mous agencies with primary responsibility for such major activities asagrarian reform (IBRA), the cooperative movement (INDA and BNCC), forestry(IBDF), fisheries (SUDEPE), and food supply and price stabilization(SUNAB, CIBRAZEi, COBAZX and CFP). 1/ The Ministry of Agriculture has onlya minor role in the planning of irrigation programs and none at all intheir execution; this function is performed by the Ministry of the Interior,through three indirectly administered agencies - DNOCS, DNOS, and SUVALE.The regional development programs, with all their important implicationsfor agriculture, are also subordinate to the Ministry of the Interior. Theagencies concerned with such important crops as coffee, sugar, cacao, andrubber do not form part of either of these two ministries, but rather areloosely attached to two other ministries.
Most of the state governments also have a confused organizationalpattern for their services to agriculture. Some states duplicate manyof the federal government's programs within their borders, while othersprovide only supplementary services, leaving the bulk of the work to thenational ministries. An exception to this is the state of Sao Paulo,which itself conducts a broad program for agriculture.
One unusual feature should be noted. The principal agriculturalextension agencies (the ABCAR system) are legally constituted as privatenon-governmental organizations. However, they receive nearly all theirfinancing from governmental sources (about 60X federal, 20 to 40X from thestates). Some extension work is also done by autonomous federal agenciesand by a few of the states.
l/ These autonomous agencies, and the Minister's relation with them aredescribed in Annex 7.
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Brazil has tried to coordinate its agricultural services,usually by means of special committees, councils, or other entities. Mostof these efforts have relied too heavily on the voluntary cooperation ofthe participating agencies and have confined themselves largely to an ex-change of information (which, in fact, is desultory). Coordination hasbeen more effective in the few cases when there has been a clear andauthoritative definition of the tasks to be performed by each agency.
The agricultural agencies also suffer from administrative weak-nesses common to all the public services. For example, budgeting ishandicapped by inaccurate revenue forecasting and scheduling and by alack of liaison between planning, budgeting, and financial executionagencies. Financial administration is often slow and cumbersome. Amajor weakness is personnel management: employee recruitment and selectionare not well conducted, pay rates are generally low and often have littlecorrelation with the duties assigned, and public employees enjoy suchgenerous rights and privileges that the whole public service has becomeundesirably inflexible. Autonomous agencies can be exempted from someof these regulations, and this fact partly explains the widespread useof such agencies by federal and state governments for agricultural andother activities.
Planning
A guiding principle of Brazilian public administration at presentis that of centralization of planning and evaluation, with decentralizationof program execution. In keeping with this doctrine, development planningis assigned to the Ministry of Planning and General Coordination, and with-in that Ministry to the partly autonomous Institute of Economic and SocialResearch (IPEA). (Another division in the Planning Ministry prepares thenational budget.)
The most recent planning document is the three-year (1968-70)Strategic Development Program. It is divided into "strategic areas", ofwhich the first and second are agriculture and food supply. In this program,goals are expressed as quantities to be produced or growth rates to beattained by 1970 for about 70 items. The program calls for expanding theagricultural area and increasing agricultural productivity. It includesa minimum price and buffer stock policy, and modernization of the foodmarketing system. Agricultural credit is stressed.
Some of the goals of the Program are unrealistic. This ispartly because the Program relies upon many of the same means which havebeen tried before and found wanting. A more serious defect is that theProgram does not assign clear priorities to its various projects; thesepriorities, in fact, seem to be changing constantly as changes occur
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among the high officials who had particularly supported one or another ofthem. Flexibility in the execution of plans is in principle desirable,but in Brazil this has been carried to such an extent that the executionof the Strategic Program is impaired by too frequent changes in prioritiesto say nothing of the interjection of completely new projects.
A central planning agency, like IPEA, must depend upon theoperating agencies for much of the raw material needed in planning. Themachinery for coordinating these various contributions to planning, eitherwithin IPEA itself or before the material reaches that level, is not welldeveloped. The loss is important, as planning is being done in most ofthe Federal agricultural agencies mentioned above, and also in many of thestates, notably Sao Paulo and Minas Gerais. The regional developmentagencies, particularly SUDENE and to some extent SUDAM, are increasinglyactive in planning (Annex 12).
Pre-investment Studies
As noted above, there was little direct public investment inBrazilian agriculture over the past several decades, aside from the ill-fated reservoir ventures in the Northeast. Some funds have gone intostorage silos and warehouses, research and educational facilities, andmunicipal marketing and processing installations. A substantial part ofthe public storage investments has been for coffee and has served auseful purpose. On the other hand, the non-coffee public storage facili-ties have been under-utilized, despite a general shortage of storage space.Investments in agricultural research have been too small; even so, many ofthe existing facilities are still under-utilized (mainly because of lowappropriations for staffing and operation). These cases suggest that muchof the public investment of the past lacked adequate pre-investmentstudies. Under these circumstances, non-economic criteria are likely tohave a prominent place in investment decision-making.
The Government has recently established a number of organizationsfor planning public investment. This task leads quickly into pre-invest-ment work, of course, but much of this is still being done on an ad hocbasis by individual agencies with limited objectives. It is unfortunatethat the Strategic Program fails to systematize agricultural pre-invest-ment planning. Many pre-investment studies are underway, but there isno inventory and no firm pattern of priorities has been designed oradopted. It is doubtful whether any agency, even the Ministry of Planning,has enough information to prepare an inventory, to rationalize the Govern-ment consensus on investment priorities, and to design an inclusive pro-gram of pre-investment studies. There is a need to coordinate pre-invest-ment activities so that they can reflect the investment priorities ofthe agricultural planning agencies (Annex 14).
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VII. RECOMMENDATIONS
Development Strategy
This section outlines main findings and recommendations, alongwith a proposed strategy for accelerating agricultural development. Inmany important respects the proposed strategy is in accord with theGovernment's Strategic Program. However, there are some crucial differen-ces in the priorities and emphases for specific investments and programs,and acceptance of the mission's views would call for some re-orientationof public policy for agriculture in the years just ahead.
The objectives of the Strategic Program in the agriculturalsector are to increase production and productivity by changing methods ofproduction and using more modern inputs, and to reduce barriers in market-ing through structural and operational changes. The goals are expressedin terts of quantities produced or growth rates to be achieved by 1970 forapproximately 70 farm products. Not all of the targets in the StrategicProgram are likely to be attained this year. However, the trend performanceof Brazilian agriculture has been impressive, although the level of outputin recent years has dropped below the trend over the preceding two decades.Brazilian farmers are highly responsive to market forces and have thepotential to accelerate the rate of growth of output substantially.
The Strategic Program cited as a major constraint the inabilityof the economy to pay farmers a product price truly reflecting real worth.For this reason, the Program placed great stress on the need for steppingup investments in transportation and storage facilities, thereby providingthe physical capacity for handling larger volumes of produce with greaterefficiency and reduced marketing costs. This emphasis appears warranted.
Recent evidence indicates that the supply of labor may be inthe process of becoming a significant constraint on output, at least incertain areas. This is reason for placing more emphasis on farm machineryand equipment, and for encouraging migration of surplus workers fromregions of low labor productivity, such as the Northeast, to regions ofhigher labor productivity.
Maintaining a high rate of growth in agriculture will assureincreases in export earnings and provide the indispenaable basis forraising rural incomes. A developmental strategy to achieve these goalsmust provide stable remunerative prices, increase output wherever it canbe done profitably, and increase output per worker.
The Government's price policies during the past six years havebeen dominated by the fight against inflation. One of the major objectiveshas been to hold down food prices, particularly those items which figure
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prominently in the cost of living index. At the same time, the Governmentoperated minimum price programs to give farmers more incentive to produce.The principal rationale for this approach was that middlemen's marginswere high, thus squeezing both the consumer and the producer (Annex 18).
Greater recognition should be accorded to the basic character-istics of Brazilian agriculture which give rise to year to year fluctua-tions in output and prices and, similarly, to substantial price variationswithin the year. Government intervention in the product market can bemade more efficient if greater discrimination is accorded the varioussources generating excessive price movements: inflation, year to yearfluctuations in supply, seasonal variations and the willingness of middle-men to take excessive margins when circumstances permit.
It is appropriate for Government to intervene in the productmarket to dampen the peaks and troughs of agricultural prices. This canbe done largely with indirect measures such as general control of infla-tion and timed releases of such stocks as are acquired under minimum priceprograms or imported by the price stabilization agency. Such a policy shouldassure consumers of reasonable prices. Direct intervention to fix pricesand margins and confiscate stocks, such as carried out by SUNAB in the past,disrupt distribution, impose added marketing costs, and introduce disin-centives for producers.
The range of prices within which the price agency operates shouldbe linked to world market quotations. Increased resources should be appliedto price and marketing research to identify deficiencies in the competitivebehavior of marketing firms and to guide policymakers in establishing (andmonitoring compliance with) the rules of the game.
More output in total and more output of exportable productsshould be sought both in the expanding frontier and in existing farmingareas. The country cannot afford to turn its back on output increasesfrom any source, especially those generated by the spontaneous and volun-tary efforts of producers to make the best of whatever alternatives areat their command. Such alternatives are waiting to be exploited on thefrontier, as well as through more intensive exploitation of resources inexisting areas.
Labor productivity warrants special attention in Brazil's agri-cultural development strategy. It is desirable that development on thefrontier exploits the potential for introducing labor extensive productionpatterns. In the settled areas, the opportunities for introducing laborextensive patterns are less. But increases in crop yields and livestockproductivity, and more emphasis on high-valued crops will promote higherlabor productivity. In whatever way it is achieved, increased laborproductivity is essential for increased income and for the maximum outputfrom a given supply of labor. Both are desirable goals for developmentstrategy.
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Regional Policy and Programs
The route to increased output and productivity will differ amongthree broad geographic areas of Brazil: the frontier, the Northeast, andthe remaining settled areas.
To get the required response from the frontier will-require acontinued high priority on the national road program, along with newefforts to develop coastal and inland water transport and a sharp acceler-ation in the rate of construction of rural roads. Also necessary is amore effective effort by IBRA to develop and widely apply new techniquesfor low cost settlement, particularly to reach more of the rural under-privileged. In addition, the Government should make effective at once itslong-discussed intention to provide credit for purchase of existing farms,and for investments in new land. This will accelerate the spontaneousfrontier development which has accounted for such a large part of thenation's agricultural growth during the past several decades, an accelerationrequired by the proposed development strategy. Completion of land cadastersand establishment of simplified procedures for establishing title to landwill be a key factor.
In the Northeast, a low income problem area, rainfed agricultureshould be emphasized rather than large-scale investment in irrigation. Thereis limited scope now for public irrigation, and it cannot reach a large num-ber of people. The Northeast study (Vol. IV) also finds that: (a) theproblems of Northeast agriculture -- low incomes and excess manpower --cannot be-solved wholly within the Northeast since high population growthrates generate labor force increases which outstrip the region's absorptivecapacity. Continued heavy outmigration will be necessary and can be facili-tated by investments in the human resource to enable Northeasterners tocompete more effectively in the national labor market; (b) trade channelswithin the region and with other regions are in urgent need of development.The physical isolation of the Northeast has meant higher costs and lowerreturns than available elsewhere for many kinds of investment; and(c) a substantial increase in resources together with improvement inpolicies toward Northeast agriculture will be needed -- not new reservoirswhich cannot be used effectively, but rather a program emphasizing thehuman factor -- education, research, extension -- bolstered by credit andtechnical assistance in order to demonstrate on farmers' fields the possi-bilities for production and profit through use of lime and fertilizer,private irrigation schemes, improved seeds and better management. Withal,the income problem cannot be solved by agriculture alone.
To get the desired response in the settled areas other than theNortheast requires wider application of known profitable production tech-niques, and research on problems for which presently-known solutions areinadequate.
Other recommendations, more or less specific for one or more ofthe foregoing areas, appear in the following section on production programs.
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Production Programs
The world outlook for coffee, subsequent to the 1969 frost inParana, is in a very unsettled state. In the short-term, until frost dam-aged trees fully recover, Brazil should try to increase coffee yields fromexisting trees by all economic means, including pruning, fertilization,and mulching as well as a crash program to expand sprinkler irrigation.This will be needed to enable Brazil to meet quota obligations under theCoffee Agreement even if another drought or frost were not to occur in thenext several years. A program of new plantings may be needed, subject i:the probable yield increases and policcy towari stockpiling. Thece wouldhave to be worked out within the Lramework of the Coffee Agreement. If itshould be necessary to expand capacity, new plantings could still beminimized by emphasizing yield increRsing and stabilizing measures ratherthan expanding acreage. Immediate actlon should be to initiate a thorough-going study of alternatlves under various policy assumptions (Annex 10).
A program for increasing maize and rice production on a eu'tan-tial scale is recommended. This is intended to result in substantiallyhigher exports. In this connection, the improvement of transport ardstorage facilities, an integral part of the recommended strategy, laexpected to pi.ay a kerr ;-ole over the intermediate term in giving farmershigher prices for grains in general. More research of a pertinent typeis a priority need. In addition, credit will be needed to finance intcn-sification of production methods, ard adjustments in the high cost ofagricultural inputs will be necessary. The development of rice in the Pan-tanal area of Mato Grosso is approaching a stage where significant increasesare feasible. Expanded concentrate feed plant capacity will be needed tostimulate the use of maize for feeding pigs and poultry. The aim here ismainly to increase supplies of pork and poultry for domestic consumption,thereby making (through substitution) more of the national output of beefavailable for sale in the export market (the latter is expected to be strong).Of course there is no obvious reason why the pork and poultry industriesshould not also aim at developing export markets (Annex 17).
Soybean production increased from about 107,000 tons in 1955 toa record of 920,000 tons in 1969. The 1969 crop was harvested from 750,000ha, mainly in Sao Paulo, Parana, Santa Catarina and Rio Grande do Sul. Theexisting development programs of private and public organizations shouldbe coordinated, particularly in Sao Paulo and Minas Gerais. Producer pricesshould remain at least at their present level relative to alternative cropsand improvements in marketing should be made, with the savings going mainlyto producers.
In 1969 the states of Rio Grande do Sul, Parana and Santa Catarinaproduced 83 percent, 13 percent and 4 percent of the national wheat crop.Production in 1968 topped one million tons, but the gap between domesticproduction and consumption was around two million tons per annum. This ismet by imports, principally from the USA and Argentina. In 1968 wheatimports cost US$182 million c.i.f., the most costly single item on theimport list. Wheat and soybeans can be grown in rotation as winter crop
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and summer crop respectively, this practice being advantageous both froman economic and agronomic point of view. Storage and handling of wheat isa major problem, as wheat competes with carryovers of other crops such asrice, maize and soybeans.
There is scope for some import substitution with more productionof temperate fruits and vegetables in the south. Imports of these itemscurrently amount to over $50 million per year. Exports of fresh fruitsand juice particularly citrus could be substantially increased through in-creased plantings and expansion of sprinkler irrigation (Annexes 11 and 16).
Although Brazil has excellent conditions for cocoa, the industryhas been stagnating. However, CEPLAC, the cocoa promotion agency, is inthe process of preparing a program to reactivate the industry, and the timeis ripe to push ahead with a detailed 10-year development plan. Invest-ment priority should be given to existing areas in Southern Bahia. Marketprospects are sufficiently attractive to justify investments of the orderof $120 million by the mid-1970's, although current price expectations maybe unduly optimistic (Annexes 11 and 16).
There is also scope for developing oil palm in parts of Bahia andin the Amazon. Although market prospects for edible oils ars always hardto forecast, Brazil could be a strong competitor in world markets. The mostsuitable areas for oil palm should be selected now, and a search forexternal financing begun (Annexes 11 and 16).
Public irrigation development should be a low priority claimant onpublic funds. The low cost and relatively high yield opportunities to expandand intensify rainfed agriculture limit the scope for public investments inirrigation. Proposals currently being considered for the Northeast appearto be high-cost, probably justifiable only if exploited through high-valuecrops. This type of defense may be valid for a few small projects, ifsome of the cost can be written off to training, giving the engineers andother specialists experience in constructing and operating irrigationsystems and teaching farmers how to use irrigation water efficiently andhow to manage irrigated farms. If, in the more distant future, transporta-tion will have been provided to link the Northeast more closely with sourcesof supplies and central markets, this may possibly make some large-scaleirrigation economic, as it will relieve the physical isolation of many ofthe areas proposed for irrigation today -- isolation which makes costshigher and product prices lower than in the more accessible parts ofBrazil. Considerations of this type will underlie the national irrigationplan now being designed by GEIDA, an inter-Ministerial executive group(Annex 5).
In Rio Grande do Sul, consultants are now studying ways to improveexisting private irrigation systems and useful evidence may be availablesoon on the economics of intensifying resource use. Land tenure might needadjustments to assure that it is not a disincentive to on-farm investment.Suitable ways of combining rice production with high yielding pasture wouldalso be necessary.
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Farming in Sao Paulo and parts of Parana has reached an intensityjustifying supplemental irrigation in some cases, particularly for highvalue crops susceptible to water stress. Sprinkler irrigation for fruits,vegetables and potatoes should be expanded and, where water sources areavailable, to increase and stabilize coffee yields and protect againstfrost at low cost. Supplemental irrigation for other crops such as cottonand sugarcane should be explored.
Another possible outlet for irrigation is in the Pantanal of MatoGrosso, where there may conceivably be scope for developing about 1.5million ha of low-cost irrigated rice. Large farmers in the area areinvesting substantial amounts in the development of irrigation based onsimple river diversion, embankments and low-lift pumping. Yields of 4 to6 tons per ha of rough rice have been reported. Hydrological studies nowbeing done by UNDP should be consulted to ensure that these private devel-opments in the Pantanal are fully consistent and coordinated with a long-range plan for the area. Long-term credits should be provided to hastenPantanal development. -
Brazil currently consumes very little milk and dairy Productsfor a country at its stage of development. The mission's investigationsuggested that producers in the milksheds of Rio and Sao Paulo areprepared to supply sufficient milk to meet the present demand, even atthe price paid for milk.for industrial use (this is lower than for fluiduse). However, the narrow margins permitted to the processors and distri-butors of fluid milk have resulted in a lack of incentives for the invest-ment needed to produce milk of high quality. They have also resulted ina lack of promotion to expand milk consumption. In short, public policyfor the dairy industry is in need of review and improvement, includingthe provision of finance for modernizing processing plants, for a campaignto promote consumption, and for development of cooperatives along modernlines (Annex 8).
In the Northeast, where pasteurizing plants and a specializeddairy industry are getting underway, the production and storage of foragefor dry season cattle feeding needs primary attention. Farmers should beencouraged to feed protein supplements during the dry season. The poten-tial for artificial insemination as part of a breed improvement programdeserves study.
In parts of Rio Grande do Sul, which are probably most suitablefor dairy production from the ecological view, competition from crops forland has been a factor in the failure of dairy output to go up very muchof late. Intensive systems of dairy production are probably tending tobecome more feasible. In Rio Grande do Sul, as in other major milksheds,excessive seasonal fluctuations in milk output need attention, as dopricing, processing, and distribution of milk and milk products to upgradequality and increase demand.
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The vast areas of existing and potential pasture, along with acattle population of roughly 90 million head and the present low productivityper animal, suggest that beef offtake can be increased enough both to satis-fy the growing domestic market and raise beef exports. To accomplish thiswill require that cattle policy be tailored to each of the basic ecologicalzones, taking into account the supply and cost of reliable transport (Annex17).
To help assure a growing supply of beef for export it would bedesirable to expand output of substitutes for beef for the domestic market,including pork and poultry based on potentially ample domestic supplies ofmaize and protein meals at world market prices. There exists now an effi-cient modern poultry industry, and modern feed plants mixing local maize,oilcake, bran and other industrial by-products. On the other hand, thepig industry, although supplying a quarter of the national meat supply,is inefficient and in great need of modernization and expansion. Nomajor difficulty in accomplishing this is foreseen, once it is decided todo so. Sorghum, which can be grown among other places in the agreste maybe a significant feed grain if the pig industry is to be expanded. Moreresearch needs to be done with this crop and a vigorous program of varietaltesting and selection should be undertaken by the Government. The importanceof planting bird resistant varieties should be emphasized. Both fisheriesand the sheep industry are underdeveloped, the former partly because ofinadequate marketing facilities, and the latter partly because of lowstandards of pasture management in Rio Grande do Sul, the main producingarea.
The beef cattle industry has just gone through a period of weakprices brought on in part by SUNAB (the price control agency). The live-stock programs being financed by the World Bank and the Inter-AmericanDevelopment Bank have been hampered by the depressed prices. The recentupward trend in cattle prices, the end of SUNAB intervention, and pendingmeasures to make the loan programs more appealing to farmers will probablyincrease investment in beef cattle production both in new frontier areasand through intensification in existing areas. More long-term creditwill be needed for on-farm investment. The critical problem is to provideadequate forage in the dry period, and in general to improve nutrition.Improvements in transportation are creating opportunities to transformtraditional breeding areas into zones in which both breeding and fatten-ing operations are carried on. This enables more economic responses tomarket forecasts, as well as shortening the time needed to produce fatsteers. The mixed grass and legume pastures now coming in, combined withheavy phosphate fertilization, can increase the carrying capacity ofexisting pastures and simultaneously help alleviate phosphorus deficiency(which may explain part of the low reproduction rate of much of the cattlepopulation). The cost of phosphate fertilizers to farmers should bereduced. As management improves, there will be increased possibilities forbetter calf care, for controlled mating and more use of pedigree stock.Brazil has a large number of pedigreed breeding herds which can supplythe improved genetic material.
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The meat processing industry is probably able to handle a largerthroughput, but many facilities need modernization. The need is made moreacute because retail supermarkets are growing fast and, in the process,changing the urban preference for meat and creating new outlets for meatprocessors. Also, the possibilities for export of processed meats arechanging rapidly. For example, increased demand for frozen precookeddinners could make it possible for Brazil to enter markets now closed toits unprocessed meat. There are also growing outlets for low grade cutsand meat byproducts in pet foods and sausage. To exploit these emergingmarkets will require a technically modern and business-oriented processingindustry; if needed, officially sponsored credit should be made availableto the industry, and it should also be supported by an official set ofproduct grades and sanitary standards fully enforced.
Many of these suggestions break sharply with Brazilian traditionin livestock. Some, such as improvement of pastures and development ofdry season feed supplies, have already been tested in Brazil and can beapplied on a large scale in the immediate future. Others, such as newlegumes and new types of feeds, will have to be field tested and screened.Whatever the proportion found acceptable, continuous applied research anddemonstration are essential to sustain technological improvement. Morefunds and skills should go into research and demonstration (Annex 17).As in the case of crops, this ranks as a priority claimant for funds.
Fisheries offer considerable scope for development. Despitehaving a considerable marine and fresh water resource, and imports of theorder of $25 million per year, national consumption of fish products isvery low. Fisheries output has increased over the past decade, but portfacilities and the system for processing and marketing the catch have notkept pace. Antiquated methods of fish handling account for the poor qualityof much of the fish sold in the domestic market; poor shore facilities areone of the weaker links (Annex 2).
Interest in fisheries investment has been stimulated by the fiscalincentive system (under which companies are exempted in some measure undersome circumstances. from taxes) and the activation of SUDEPE (the Superintend-ency of Fisheries Development). However, most of the projects proposedto date are in shrimp fishing, and processing industries for the exportmarket. To promote balance and to stimulate private investment in thehandling and marketing facilities urgently needed in the domestic market,ports for fisheries must be developed with public funds. Priority shouldbe given to completing studies and plans for the ports of Niteroi, Santosand Rio Grande, the best bets to expand fish landings. Quality standardsfor fish products should be established nationally, and a code of ethicalpractices should be adopted. The fisheries service should be expanded toenforce compliance and to advise the industry. An expanded research planshould be developed to follow up the work started under the UNDP/FAO pro-Ject (this work centers on resource appraisal and marketing).
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Brazil's forestry resources are massive. They are made up princi-pally of the largest tropical rainforest in the world (250 million ha) inthe Amazon basin, 6 million ha of temperate rainfore8t in the south, nearly200 million ha of scrub forest with relatively low potential for forestry,and a large but heavily depleted area of tropical hardwood along the east-ern coast. The intensity of exploitation of this resource is highly varia-ble. While the industry in the south faces wood scarcity, the huge Amazonforests remain almost untouched due to economic isolation.
The major issues are brought out in Annex 3 on forestry: (i) thewood supply in the south and (ii) the increased use of the Amazonian forest.In the south, certain species and sizes of wood may be in short supplywithin the next decade. Nonetheless, the south still provides nearlyfour-fifths of the national output of sawn wood, and most of the exportsas well as the lumber requirements of the Northeast.
Under these circumstances it seems wise to push ahead with plansfor developing large multi-purpose Amazon forest industries as rapidly aspracticable to supply the needs of the Northeast, and to export pulp, veneerwoods and sawn wood. This would provide alternative sources of sawn logsand veneer for the Northeast and ease the pressure on the diminishingsouthern forest resource. Changes are alao needed to relate incentives moreclosely to needs of the Amazon. (This is partly because world demand fortropical hardwoods is growing rapidly. As noted in Annex 3, Amazonia canand should profit from this expanding market to a much greater extent thanit now does.) The newer forests in the south will be used primarily forpulp (taking advantage of the short cycle, as compared to that for sawnwood). More forests for sawn wood use will have to be developed.
Functional Support
Programs which affect production broadly, touching to some extentall geographic areas and commodities, include research and extension, credit,marketing and taxation.
To improve the technology of farming, to increase the output fromexisting land and to provide the basis for new frontier development, supportfor technical and economic agricultural research should be greatly increased.Some of the key areas for more intensive research have to do with: (1) waysof managing the cerrado soils, the soils of the Northeast and of the tropicalareas of the Amazon; (2) developing high-yielding varieties, particularly forthe major crops, adapted to particular regions and with more emphasis on theproblems of major economic importance such as wheat varieties tolerant toaluminum and soil acidity; (3) establishing mixed grass and legume pastures aswell as the economics of supplementary feeding systems; (4) designing suitablecrop-livestock systems for the Northeast with further rationalization of thesugarcane industry; (6) investigating the techniques and the economics ofsupplemental irrigation in areas where intensive farming systems havealready been developed; (7) increasing the productivity of the cattle-riceareas in Rio Grande do Sul; (8) developing further knowledge of tree cropssuch as rubber, cashew, oil palms and cacao, and (9) the assignment of
- 50 -
responsibility for developing a long-term, broadly based program to controlsoil erosion throughout the country (Annex 9).
The agricultural credit system should be strengthened and expandedto facilitate the financing of new land development and the intensificationof use of existing agricultural lands. A major and urgent task is to movetoward more positive interest rates, thereby helping mobilize investmentresources and assuring use of credit funds for high-yielding productiveinvestments (Annex 6).
Such a step could open the way to obtaining substantial amounts ofexternal resources for medium-and long-term agricultural lending. An expan-sion of long-term loan resources is needed for long gestation investmentssuch as livestock development, land development and land purchase. Moreinformation is needed on seasonal credit needs, as well as use of credit bythe cooperatives. The lending policies of the Banco do Brazil should be moredevelopment oriented. To a lesser extent, the same applies to the regionaland state banks.
For farmers to receive the full benefit of increased output --especially from more exploitation of non-traditional exports 1/ -- steppedup investments in transportation and storage facilities are needed, aspreviously mentioned; and the need for improving transport facilities linkingup the highly productive areas of Parana and western Sao Paulo with exportmarkets abroad merits particular emphasis. Domestic markets, also, requiremodernization, and new capacity to keep pace with the rapid growth of urbancenters (Annex 16).
Among recommended measures to improve the economic environmentof farmers, particular emphasis is placed on shifting from the presentsystem of agricultural,taxation, which relies almost exclusively on taxeson gross value of output, to one that is equitable and supplies incentivesfor increasing productivity. Heavier taxation of land and farm income anda corresponding reduction in sales (ICM and TPSR) taxes,would be appropriatepolicy measures to achieve this. However, given the importance of the ICMtax as the major source of revenues for state governments and the stillurgent requirements for containing inflation, steps to redesign taxationcan only be taken gradually. Government policy for the time being shouldaim at (1) harmonizing the ICM tax among states, (2) where necessaryprovide a uniform tax rebate on exports, and (3) strengthen the cadasterand the enforcement of land taxes and income taxes. As the alternativeand superior sources of tax revenue are developed government should considerfurther rate reductions and/or further exemptions from the ICM tax (Annex 4).
1/ Non-traditional exports include maize, soybeans and other oilseeds,forest products, meat and meat products, orange juice, cashew nutsand textiles.
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Investment Outlets
Private investment should continue to be relied upon for the bulkof direct investment in agriculture, but with expanded help from loansthrough banks. Credit should help finance:
(a) a lime and fertilization program;
(b) supplemental irrigation, including portable sprinklersystems for coffee and other high-value crops;
(c) a sharp increase in the use of farm machinery;
(d) the expansion of private storage and processingfacilities (including meat and dairy processingand feed mills);
(e) development of livestock production along the linesof the existing IBRD and IDB loans;
(f) development of a modern pig industry;
(g) opening up new agricultural lands;
(h) forestry development ranging from afforestationto Integrated forest industries;
(i) in the fisheries field - marketing facilities,particularly to improve product quality;
(j) rehabilitation and expansion of the cacao industry;
(k) expansion of corn and rice production by developmentof new low-cost areas and improving the efficiencyof existing areas;
(1) continued emphasis on increasing productivity incombined wheat-soybean enterprises with a view to loweringcosts and enabling significant price reductions for wheat;and
(m) development of fruit production to reduce imports and toexpand exports of fruits and fruit products such as citrus.
Areas where direct public investment in agriculture for the yearsjust ahead will be especially important are:
(a) research programs aimed at development of thecerrado soils, the Northeast and the Amazon,as outlined in Annex 9;
- 52 -
(b) land settlement and development of dryland agri-culture;
(c) central markets;
(d) rural roads;
(e) storage and handling facilities; and
(f) selective irrigation developments in the Northeastand in Rio Grande do Sul, keeping in mind thecaveats stressed in this report.
However, in terms of total incremental outlay-, probably none ofthese outlets for public funds merits major emphasis -relative to that forimprovements in the national transportation system. 'The need for improve-ments in transport is urgent and overwhelming, as repeatedly stressed inthis report. Taken together with a better farm credit 'program (which isanother key indirect public investment in support of agriculture), thesetransportation improvements will provide a major stimu-lus to expandedagricultural output and higher rural incomes.
The present organization of Government servIces to agricultureleads to a number of inefficiencies because of the wide-dispersion of,responsibilities and activities which characterize it. There is a need,coverall, to decide on clearcut lines of responsibilityiand to make coordi-nation effective. Considerable progress is being made in the public plan-i4ng of agriculture, but the present pattern needs improvement particularlywith regard to the coordination of pre-investment work Zin the agricultural,sector.
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