102989 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Agriculture in Nicaragua: Performance, Challenges, and Options Public Disclosure Authorized November, 2015 INTERNATIONAL FUND FOR AGRICULTURAL DEVELOPMENT This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. 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Cover photo credit: World Bank, 2015 Concept and design: Jaime Sosa TABLE OF CONTENTS ACKNOWLEDGMENTS ........................................................................................................................................................................iv PREFACE ........................................................................................................................................................................................... v ABBREVIATIONS AND ACRONYMS .....................................................................................................................................................vi 1. INTRODUCTION ............................................................................................................................................................................... 1 2. WHAT DRIVES AGRICULTURAL GROWTH IN NICARAGUA? ........................................................................................................... 5 3. WHY INVEST IN NICARAGUAN AGRICULTURE? ............................................................................................................................ 13 Reason #1: Because Agriculture is the Main Driver of the Economy ............................................................................... 16 Reason #2: Because Agriculture is the Main Source of Income for the Rural Poor and the Key to Poverty Reduction ... 17 Reason #3: Because Agriculture, Natural Resources and Climate Change are inextricably linked .................................. 21 Reason #4: Because Nicaragua Food and Nutrition Security depends on agricultural performance .............................. 24 Summary of Reasons to Invest in Nicaraguan Agriculture ................................................................................................ 25 4. COMPETITIVENESS AND EFFICIENCY GAINS ............................................................................................................................... 27 4.1 Trade Incentives Framework ....................................................................................................................................... 30 4.1.1 Key findings of the Nominal Rates of Protection analysis ....................................................................................... 30 4.1.2 Key findings of the Effective Rates of Protection analysis ....................................................................................... 32 4.2 Constraints to Competitiveness ................................................................................................................................. 33 4.2.1 Transport and logistics costs ................................................................................................................................... 34 4.3 Agriculture Productivity in Nicaragua: Insights from Key Subsectors ......................................................................... 36 4.3.1 Productivity in coffee, dairy, and red bean production ........................................................................................... 37 4.3.2 Policy implications ................................................................................................................................................... 41 5. FAMILY FARMING IN NICARAGUA .................................................................................................................................................. 43 5.1 A Typology of Family Farming in Nicaragua .............................................................................................................. 46 5.2 Characterization of Family Farming in Nicaragua ...................................................................................................... 47 5.2.1 Type 1: Subsistence Family Farming ....................................................................................................................... 47 5.2.2 Type 2: Transitional Family Farming ........................................................................................................................ 48 5.2.3 Type 3: Commercial Family Farming ....................................................................................................................... 49 5.3 Policy Implications ...................................................................................................................................................... 52 6. WEATHER RISKS AND CLIMATE CHANGE ..................................................................................................................................... 53 6.1 Interannual Production Risks ...................................................................................................................................... 56 6.1.1 Losses in yields of basic grains in area harvested ................................................................................................... 58 6.1.2 Losses in yields of export crops in area harvested .................................................................................................. 59 6.1.3 Towards a risk management strategy ...................................................................................................................... 60 6.1.4 Suggestions for reducing production risks .............................................................................................................. 61 6.2 Adaptation to Climate Change .................................................................................................................................. 63 7. A ROAD MAP FOR POLICY MAKERS .............................................................................................................................................. 73 7.1 Development of an Incentive Framework .................................................................................................................. 76 7.2 Achievement of Greater Inclusiveness ....................................................................................................................... 78 7.3 Improving the Effectiveness of Public Spending ........................................................................................................ 79 7.4 Management of Climatic Risks ................................................................................................................................... 80 REFERENCES ....................................................................................................................................................................................... 82 i BOXES Box 2.1: Poverty in Nicaragua ............................................................................................................................................................. 18 Box 2.2 Nicaragua Agriculture Public Expenditure Review (AgPER), 2013 .......................................................................................... 20 Box 4.1: Logistic Costs in Nicaragua’s Meat Supply Chain .................................................................................................................. 35 Box 4.2: Efficiency in Resource Use in Coffee, Dairy, and Bean Production......................................................................................... 40 Box 4.3: Clusters of Low to Medium Productive Efficiency Levels ....................................................................................................... 42 Box 6.1: Considerations Regarding CSA .............................................................................................................................................. 67 Box 6.2: Dynamic Information Frameworks for Decision Support to Policy Makers Introduction .......................................................