LBRARIES Beyond Market Failures: Irrigation, the State, and Non-Traditional Agriculture in Northeast Brazil

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LBRARIES Beyond Market Failures: Irrigation, the State, and Non-Traditional Agriculture in Northeast Brazil Beyond Market Failures: Irrigation, the State, and Non-traditional Agriculture in Northeast Brazil by Octavio Damiani MCP Massachusetts Institute of Technology Ingeniero Agr6nomo, Universidad de la Repdblica, Uruguay Submitted to the Department of Urban Studies and Planning in partial Fulfillment of the Requirements for the Degree of DOCTOR OF PHILOSOPHY IN ECONOMIC DEVELOPMENT at the Massachusetts Institute of Technology February 1999 © 1999 Octavio Damiani. All rights reserved. The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part. Signature of Author: Department of Urban Studies and Planning I .January 20, 1999 Certified by: Judith Tendler Professor of Political Economy Thesis Supervisor Accepted by: Frank Levy Daniel Rose Professor of Urban Economics c; fgITT Chair, Ph.D Committee LBRARIES Beyond Market Failures: Irrigation, The State, and Non-traditional Agriculture in Northeast Brazil by Octavio Damiani Submitted to the Department of Urban Studies and Planning on January 20, 1999 in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in Economic Development ABSTRACT This dissertation analyzes the role of the state in the economic transformation of three regions of irrigated agriculture in the S5o Francisco River Basin in Northeast Brazil. It focuses on understanding the reasons why only one of these three regions (Petrolina-Juazeiro) successfully turned into a modern agricultural economy based on high quality, non-traditional export crops, at the same time that wages and labor standards among rural wage workers increased without compromising the access of producers to export markets, and in spite of all three regions having received similar heavy government investments in large-scale irrigation infrastructure. Findings show that the economic transformation of Petrolina-Juazeiro does not relate to market- friendly policies, nor can it be fully explained by government investments in public goods (irrigation infrastructure) or the influence of "good leadership" at the local level. The key role of the state consisted of federal government agencies applying innovative practices in three major areas: 1) the management of large-scale irrigation investments, including the type of beneficiaries selected, the management of subsidies to irrigation, and the pressures on growers who received subsidies to perform well; 2) the relationship with growers' associations to solve collective action problems associated with exporting; 3) the introduction of high-value crops and new technologies among small tenants in government-sponsored irrigation schemes; and 4) wage negotiations between growers and rural wage workers. In addition, research results show that the globalization of food markets and the growth of non- traditional export crops can be accompanied by positive effects on rural employment, wages, and labor standards. These positive outcomes relate to: 1) the type of crops involved and their demand for skilled workers to meet high quality demands from consumers; 2) the supply of skilled workers in the region involved; 3) the presence and previous experience of rural unions; 4) the consumer concerns for the labor conditions of production; and 5) how rural unions and consumer concerns affect the balance of power between growers and rural wage workers and their respective organizations. Thesis Supervisor: Judith Tendler Title: Professor of Political Economy ACKNOWLEDGEMENTS It would be impossible to mention every person who contributed to my work through the years that I spent at MIT. However, I would like to make the following thankful acknowledgements. I owe a great deal of what I have achieved in this dissertation to Judith Tendler, my advisor during both the Master's and Doctoral programs. Not only she dedicated extraordinary amounts of time and energy to give me great feedback, but also she was always supportive and positive during the normal ups and downs of such a long process. Exchanging ideas and receiving feedback from her was always a source of intellectual inspiration and excitement. Working with her in the field taught me how to do field work and to find excitement in empirically grounded research. Peter Timmer greatly influenced my thinking during all these years and was a supportive reader even after he left Harvard University and moved to the University of California at Davis. Richard Locke contributed to my thinking on the findings from the field material both in Brazil and back in Cambridge, and he pushed me to go beyond the specific features of my main case and make comparisons with other similar cases. Paul Smoke also made an important contribution during the final phase of my dissertation, giving a lot of time and critical feedback that helped me better organize the ideas during my writing. Bish Sanyal always gave me great advice through the years at MIT and provided me the enjoyable opportunity of being his teaching assistant in his planning and institutions course. Mick Moore read several pieces of my work in different stages and helped me a lot in figuring out research questions and findings. My appreciation to several colleagues and friends in the MIT-Bank of Northeast Brazil project- which my dissertation was part of-who participated in discussions in meetings held during 1997 and 1998: M6nica Amorim, Mansueto F. Almeida Jr, Tito Bianchi, Silvia Dohnert, Raquel Gomes, Marcela Natalicchio, M6nica Pinhanez, and Rodrigo Serrano. Several organizations made possible this dissertation by supporting me in different stages of the PhD program: the Bank of Northeast Brazil, the World Bank, the Inter-American Foundation, the Ford Foundation, and the MacArthur Foundation. In particular, I very much appreciate the crucial financial and logistical support of the Bank of Northeast Brazil during the field work period in Brazil. I am especially thankful to Byron Costa de Queiroz, Osmundo Rebougas, and Adriano Sarquis. Several current and former Bank technicians-many of whom became truly friends during my stay in Brazil-also provided me with both academic and emotional support: Adriano Sarquis, Francisco Raimundo Evangelista, Everton Chaves Correia, Jos6 Maria Marques de Carvalho, Jos6 Ailton Nogueira dos Santos, Myrtis Arrais de Sousa, and Maurfcio Teixeira Rodrigues at ETENE, and Jos6 Gomes da Cunha, Pedro AntOnio da Rocha, and Walfran Leal da Silva Jnnior at the Petrolina branch of the Bank. Mavigner Cavalcanti Franga and Jos6 Nilo Meira also provided me with relevant information and feedback. Other persons and institutions provided crucial information and opened me the doors of very relevant government agencies and private firms in Brazil. I appreciate very much my long conversations with Hermino Ramos de Souza and Yony Sampaio at PIMES-Federal University of Pernambuco. I am also thankful to Antonio Sim6es, Paulo Natal e Silva, and Osvaldo Galdino da Silva (all from CODEVASF), Fernando B. de Almeida, Jos6 Batista, and Geraldo Olinda (all from Valexport), Everaldo Rocha Porto (EMBRAPA-CPATSA), Maria Aparecida Pedrosa Bezerra, Manoel dos Santos (FETAPE), and Sen. Waldeck Orndlas. Many friends accompanied me through the process. Although it is impossible to mention all of them, I would like to single out some who offered emotional support, professional advice, and most often both: Ian MacArthur, Francisco de Oliveira, Osvaldo Feinstein, Carlos Rama, Linda Biez, Raimundo N. Leite Caminha, Bill Nilson, Rodolfo Lauritto, Jorge Figueroa, Rodrigo Serrano, Marcela Natalicchio, Sylvia Donhert, Lourdes Pagaran, and Alejandro Walters. Finally, I dedicate this dissertation to my parents and my brothers, who always supported me unconditionally. Beyond Market Failures: Irrigation, The State, and Non-traditional Agriculture in Northeast Brazil Table of contents Paae CHAPTER ONE. INTRODUCCION ...................................................................... 8 The management of large-scale irrigation investments .................................... 21 New marketing connections and the relationship with growers' associations ............. 24 The incorporation of high-value crops and new technologies among colonos in irrigation projects...........................................................25 Mediation in wage negotiations................................................................26 M ethodology ........................................................................................ 27 T he cases............................................................................... .. 27 Field research.......................................................................... 36 Organization of the dissertation ............................................................... 38 CHAPTER TWO. AN OVERVIEW OF EARLY GOVERNMENT INTERVENTIONS ........ 40 The early period: emphasis on electric power, basic infrastructure, and agricultural research ........................................................................ 42 The creation of SUDENE and the shifting to investing in large-scale irrigation projects................................................................................. 46 The emergence of irrigation policies......................................................... 56 The concentration of irrigation projects in Petrolina-Juazeiro and the role of local elites..................................................................... 60 CHAPTER THREE. THE MANAGEMENT OF GOVERNMENT-SPONSORED IRRIGATION IN
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