ABSTRACT HINTZE, LUIS HERNANDO. Characteristics, transaction costs, and adoption of modern varieties in Honduras (Under the direction of Dr. Mitch Renkow and Dr. Gerald Carlson). This dissertation researches the factors contributing to the low levels of adoption of improved maize varieties and the choice of maize varieties among small farmers in Honduras. An agricultural household model is developed. It explicitly incorporates two explanations from the adoption literature that have not yet been tested simultaneously: (i) consumption and production characteristics of different varieties as perceived by farmers, and (ii) transaction costs and access to markets. The empirical analysis also considered additional variables that have been used by previous adoption studies related to household characteristics, human and financial capital, and environmental characteristics. To test the model, information was collected in a survey of 167 farmers located across 34 villages in two distinctly different agro-ecological zones in Honduras. From non-parametric analysis of the information regarding farmers’ perception of maize characteristics, four conclusions were drawn: (i) Farmers perceive differences among varieties for some of the characteristics they consider to be important; (ii) varieties that are widely used tend to be regarded as having good performance with respect to the most important characteristics; (iii) sometimes, varieties that are widely used are outperformed by other varieties for some of the characteristics evaluated. In those cases, however, the ratings obtained by the more popular varieties indicate that they have an acceptable performance; (iv) there are important differences in how farmers in the two regions studied perceive the different varieties available to them. The empirical analyses of the determinants of household variety choice and adoption used qualitative choice models and tested the degree to which varietal characteristics contributed to adoption decisions, controlling for an array of household socioeconomic characteristics and proxy measures of village-specific marketing costs and household-specific transaction costs. Results indicate that in both regions yield was the only characteristic that consistently had a significant impact on varietal choice. On the other hand, consumption characteristics appear to play little if any role in varietal choice in either area. Transaction costs variables, particularly the quality of roads connecting villages to markets are also significant in explaining variety choice. CHARACTERISTICS, TRANSACTION COSTS, AND ADOPTION OF MODERN VARIETIES IN HONDURAS by LUIS HERNANDO HINTZE A dissertation submitted to the Graduate Faculty of North Carolina State University in partial fulfillment of the requirements for the Degree of Doctor of Philosophy AGRICULTURAL AND RESOURCE ECONOMICS Raleigh 2002 APPROVED BY: _______________________ ______________________ Dr. Daniel Hallstrom Dr. Daniel Phaneuf _______________________ ______________________ Dr. Gerald Carlson Dr. Mitch Renkow Co-chair of Advisory Committee Co-chair of Advisory Committee BIOGRAPHY Luis Hernando Hintze was born in Lima, Peru in 1967. He received his undergraduate degree in Economics from the Social Sciences Department at the Pontificia Universidad Católica del Perú, from which he graduated in 1991. While still enrolled in college, he worked as a teaching assistant at the school he attended, and as a research assistant in two research organizations in Lima. After graduation he worked at the Apoyo Group as an economic and public policy analyst until 1995. In the following years, he worked as a consultant for the Apoyo Group in several occasions. In the fall of 1995 he started graduate studies at NCSU. He received a Master in Economics in 2000. In 2001 he returned to Peru to work in the advisory cabinet of the Ministry of Economy and Finance. In 2002 he accepted a position as a consultant at the Inter-American Development Bank, in Washington, DC. ii ACKNOWLEDGEMENTS This work would have been impossible without the cooperation, suggestions, comments, generosity, and good humor of many, many people to whom I will always be grateful. First of all, I have to thank the constant support of my family and the way they have spoiled me every time I went back home during my graduate school years. Finishing this dissertation has been, essentially, an act of persistence that, at least in my case, could not have been accomplished without the moral and emotional reserve of having my family always at hand despite the distance. Especially, I am grateful to my mother, who taught me how wonderful it is to be curious about the world, its people, and its ideas. Thanks also to my father, who stimulated that curiosity by taking me along on so many trips around Peru. Thanks to NC State for supporting most of my studies. During this whole process, Mitch Renkow was always encouraging and in good spirit. His knowledge of Economic Development and Microeconomic Modeling made my work much easier and his optimism defeated my occasional disbelief. Thanks also to Dr. Carlson, Dr. Hallstrom, Dr. Phaneuf, and Dr. Goodwin, for being always available and for helping every time I desperately needed it. I have to thank the International Maize and Wheat Improvement Center (CIMMYT) for funding the field research. I also have to thank the CIMMYT people in Mexico, particularly Mauricio Bellon. Gustavo Sain, in CIMMYT-Costa Rica, helped in preparing and designing the fieldwork, but more importantly, gave me many ideas and suggestions to continue my research. Thanks also to Monika Zurek, Erika Meng and Dagoberto Flores for their comments. Thanks to the people who helped me in Honduras, the Inter-American Institute for Cooperation on Agriculture (IICA) and the International Center for Tropical Agriculture (CIAT) offices in Tegucigalpa, the Olancho office of the Ministry of Agriculture, the Escuela Nacional de Agricultura in Catacamas. Leopoldo Alvarado from the Ministry of Agriculture, Hector Barreto, and Luis Brizuela. In Olancho, Carlos Humberto Mejia was really helpful. Thanks to the fieldwork team: Andres Jauregui (CIMMYT), Eva Mendoza, Carlos Cardona, Josue Marcia, Jose Trinidad Pagoada, Jose Luis Espinal, Hugo Sanchez, Rony Bustillo, Jhalmar Maradiaga, Sofonias Quiroz, and Mauro Sierra. Their company and work made the fieldwork a great experience and this study possible. I am particularly thankful to those farmers who generously accepted to open their doors and to share with me and the rest of the fieldwork team their experiences, hardships, and opinions. iii Thanks to all my great friends at NC State for those years that I will definitely miss. Finally, thanks to Aruna, who among other things, gave me the last push to finish this. iv TABLE OF CONTENTS Page LIST OF TABLES…………………………………………………………………………… viii LIST OF FIGURES……………………………………………………………………………x Chapter 1. THE RESEARCH PROBLEM 1.1. Introduction…………………………………………………………………………. 1 1.2. Maize in Central America………………………………………………………........ 2 1.2.1 Seed use and seed industry in Honduras…………………………………… 4 1.3. Farmers’ decision process and variety selection…………………………………..... 6 1.3.1 Characteristics and variety choice………………………………………..... 8 1.3.2 Transaction costs and variety choice………………………………………. 10 1.4. Adoption of modern varieties……………………………………………………….. 11 1.4.1 Adoption and variety characteristics………………………………………. 14 1.4.2 Adoption of MV and transaction cost……………………………………… 15 1.5. Research objective…………………………………………………………………... 16 1.6. Plan of dissertation………………………………………………………………….. 16 Chapter 2. A CHARACTERISTICS MODEL WITH PRICE BANDS AND NON-TRADED GOODS……………………………………………………………… 21 2.1. The Model…………………………………………………………………………… 21 2.2. Empirical implementation…………………………………………………………… 27 Chapter 3. SURVEY ON THE USE OF MAIZE VARIETIES IN HONDURAS…………. 30 3.1. Agriculture in the study area………………………………………………………… 30 3.2. Use of hybrids, traditional varieties and open pollinated varieties………………….. 33 3.3. Maize production and yields by variety…………………..…………………………. 36 3.3.1 Olancho……………………………………………………………………. 36 3.3.2 Choluteca………………………………………………………………….. 37 3.4. Sales and consumption of maize…………………………………………………….. 38 3.5. Farming systems and intercropping…………………………………………………. 38 v 3.6. Seed use and management…………………………………………………………... 39 3.7. Other inputs use……………………………………………………………………... 41 3.7.1 Fertilizer…………………………………………………………………… 41 3.7.2 Herbicides and insecticides………………………………………………... 42 3.7.3 Farm tractor use…………………………………………………………… 43 3.8. Extension services and information……………………………………………… 43 3.9. Silo ownership and grain storage…………………………………………………. 44 3.10. Livestock………………………………………………………………….………. 45 3.11. Income sources and off-farm employment……………………………………….. 45 3.12. Access to credit…………………………………………………………………… 46 3.13. Maize characteristics……………………………………………………………… 47 3.13.1 Olancho………………………………………………………………….… 48 3.13.2 Choluteca………………………………………………………………….. 51 3.14. Transaction costs…………………………………………………………………. 52 3.14.1 Organization and marketing options………………………………………. 53 3.14.2 Transportation……………………………………………………………. 54 Chapter 4. EMPIRICAL STRATEGY AND RESULTS………………………………….… 88 4.1. Empirical Issues and Strategy………………………………………………………. 88 4.1.1. Qualitative choice models for binary choice……………………………….. 89 4.1.2. Probabilities approach……………………………………………………... 90 4.1.3. Random utility approach…………………………………………………... 90 4.1.4. The Multinomial Logit (MNL) model…………………………………….. 92 4.1.5. The discrete choice model (conditional