Analysis and Recsmmendations for a Project Identification Document for Agricultural Marketing and Productivity in Bolivia La Paz, Bolivia September 1988 Sigma One Corporation Research Triangle Office: Sigma One Corporation P.O. Box 12836 Research Triangle Park, North Carolina 27709 Phone: 919-361-9800 Telefax:: 919-361-5858 Telex: 490-000-8487 CGI UI ANALYSIS AND RECOMMENDATIONS FOR A PROJECT IDENTIFICATION DOCUMENT FOR AGRICULTURAL MARKETING AND PRODUCTIVITY IN BOLIVIA Prepared by: David L. Franklin Howard Harper Kelly M. Harrison Donald Larson Hans J. Mittendorf M.E. Sarhan Donald Swanson Prepared for: United States Agency for International Development Mission to Bolivia Contract No. PDC-1406-I-04-7028-00 La Paz, Bolivia September 1988 Sigma One Corporation TABLE OF CONTENTS Summary Report Analysis and Recommendation for a Project Identifcation Document for Agricultural Marketing and Productivity in Bolivia 1 Background Papers Marketing Infrastructure 47 Rural Finance 69 Agricultural Information 83 Development of Grades and Standards 105 Agricultural Market Organization 113 Agribusiness Development 121 Project-Related Training aid Agricultural Education 131 Institutional Analysis 149 Agricultural Production and Natural Resources Management 1R3 Appendices I Partial List of Institutions and Persons Contacted 201 II Inemational Economic Assistance to Bolivia 213 III List of References 225 SUMMARY REPORT ANALYSIS AND RECOMMENDATIONS FOR A PROJECT IDENTIFICATION DOCUMENT FOR AGRICULTURAL MARKETING AND PRODUCTIVITY IN BOLIVIA Prepared by: David L. Franklin Howard Harper Kelly Harrison Donald Larson Hans J.Mittendorf M. E. Sarhan Donald W. Swanson TABLE OF CONTENTS Introduction 3 Background and Problem Statement 4 Project Rationale and Strategy 9 Project Description .. .. 12 Relationship of Project to Goals of the Government of Bolivia and USAID/Bolivia . • 12 Goal and Purpose ... 13 Project Outputs 14 Project Inputs . 14 Project Components 15 Marketing Strategies 16 Policy Monitoring and Economic Analysis . 19 Agricultural Marketing News and Price Information System. 21 Technical Assistance for Development of Rural Financial Markets . 25 Training 30 Project Benefits 31 Project Implementation . 33 Possible Arrangements with Participating Institutions . 33 Implementation Strategy • 38 Design Strategy • 40 Core Team. 41 Issues 43 2 INTRODUCTION This report presents findings and recommendations from analyses undertaken to assist the United States Agency for International Development Mission to Bolivia (USAID/Bolivia) in preparing a Project Identification Document for an Agricultural Marketing and Productivity Project (AM/P). Several background papers were prepared by a team of experts in agricultural policy, marketing information, market organization2 , marketing infrastructure, agricultural production, natural resources, agribusiness, institutional development, and agricultural education. The summary report is a synthesis of those background papers, but does not coincide with all of the recooimendations of the experts' papers, particularly regarding institutionalization issues. During the course of the field work by the analysis team, issues regarding rural financial markets were identified as critical. Discussions with USAID/Bolivia staff also revealed their concern for rural credit issues. Since these issues are so vital to agricultural marketing and productivity, one of the team members was asked to undertake a rapjid assessment of rural financial markets. The principal recommendations of that assessment have been incorporated into dhis report. The summary report consists of several sections: a statement of the background and the problem, the rationale and strategy for the project, a description of the project, institutionalization issues, and some suggestions of issues and personnel requirements for project design. This report is intended to be used by USAID/Bolivia personnel in preparing a project identification document; it is not intended to be the project identification document itself. The analysis team has worked within the mandate of USAID/Bolivia's agricultural development strategy as being "marketing-led" rather than "productivity­ led". The te'm concurs with USAID/Bolivia's assessment that improvements in efficiency in the maiketing system will have a greater beneficial impact on rural incomes and food costs than would increases in production alone. An efficient marketing system will transmit incentives for adoption of technological improvements, and an improved marketing system will cause the necessary inputs to become available at the farm gate. An improved marketing system should 3 synchronize in a coordinated and intergrated manner three fundamental flows-­ information, finance, and commodities. To this end this report has been prepared. BACKGROUND AND PROBLEM STATEMENT Bolivia is one of the poorest countries in the western hemisphere and in the world, as evidenced by low per capita incomes and substandard caloric availability. With a skewed distribution of income, all this implies that many people live under extreme povet-ty conditions. Many of the very poor are dependent on the performance of the agricultural sector for their survival because they earn their living from the production of agricultural commodities or are engaged as petty entrepreneurs in the agricultural marketing system. Recently, Bolivia has become increasingly dependent on its agricultural sector for its overall economic well-being. The collapse of its mineral sector, the consequences of its courageous New Economic Policy (NEP), and the persistent international debt burden have forced more people to depend directly on the agricultural production and marketing systems for their livelihood. The country as a whole has increased its dependence on these systems for export earnings, raw materials for its manufacturing sector, for sources of income, and, of course for food. Currently agriculture produces one fifth of the nation's value added and one sixth of its exports; it directly employs half of the labor force. An additional five percent of Gross Domestic Product (GDP) is produced by the agro-industrial sector. A large part of the services and informal sectors are engaged in marketing food and fiber products. However, the performance of the sector has been stagnant. Its basic productivity is low relative to its natural potential. The present system is vulnerabie to climatic distress and to inefficiencies in the marketing system which were partially induced by the erratic economic policies of the past. Facilitative services for marketing, if they exist, are grossly uncoordinated. At present, Bolivia's agricultural production and marketing systems lack the institutional and entrepreneurial skills, knowledge, and organization to respond to the challenge of their new role in transforming the agricultural sector into an engine of growth for 4 the economy and a principal source of well-being for its poorest people in rural and urban settings. The New Economic Policy has improved the structure of incentives faced by agricultural and agribusiness activities. There is further scope ior improving these incentives through even better economy-wide and sectoral policies. This situation creates an excellent and unique opportunity to stimulate economic growth, with equity, through the development of the agricultural sector. However, given the long history of official intervention in agriculture, many of the economic agents in the agricultural production and marketing system, particularly the poorest, have failed to perceive or benefit from the improved structure of economic incentives that they face. Undoubtedly many private agents don't trust that the improved incentives will be permanent. The evidence from highly aggregated data suggests that the purchasing power of agricultural output has fallen since 1985, in spite of the NEP. Possible explanations are that the marketing system is poor at transmitting information about prices or that there are other technical and economic inefficiencies that prevent the farmer from receiving the benefits of a market oriented pricing regime. Even if tie improving incentives are being perceived by some, most persons in the sector lack the knowledge, skills, and resources to respond effectively to the evolving opportunities for increased incomes. Differential perception of opportunities and differential access to information and resources will aggravate the income distribution problems of the country and will prevent the society from receiving the full benefit from its human and natural resources. The lag in the response to improving incentives represents income sources that are forever forgone, because the present system "mines" the human and natural resource base. The inefficient and ineffective marketing system has been identified by many as one of the principal impediments to the economic incorporation of small scale farming households from the Altiplano and the Valleys. The present marketing system exacerbates household food insecurity for these families and is a disincentive ,4 production for the market and to commodity specialization. As a result, these household enterprises produce a variety of products for home consumption at high real costs; thus, they are forced to forego the higher real incomes that specialization 5 and trade could bring. Such gains cannot be realized without reliable markets for their products, and reliable and low cost markets for their purchases of food and other good; these markets for commodities,