STRUCTURAL IMPLICATIONS OF ECONOMIC LIBERALIZATION ON AGRICULTURE AND RURAL DEVELOPMENT IN NICARAGUA

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STRUCTURAL IMPLICATIONS OF ECONOMIC
LIBERALIZATION ON AGRICULTURE AND RURAL
DEVELOPMENT IN NICARAGUA

• Arthur H. Grigsby V.
• Francisco J. Perez

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Post Colonial Agriculture

• 1821-1880 Subsistence agriculture combined with
  live cattle exports to Central American market.
  Indigo as the main export to Europe
• 1880 Introduction of Coffee plantations. A second
  wave of segmentation large foreign and national
  coffee growers, peasants and indigenous rural
  workers.
• 1910 Establishment of large Banana plantations
  owned by foreign investors for USA market (United
  Fruit Co.) in the Caribbean Cost. Permanent rural
  workers as social sector.
• Coffee and Banana plantations were expanded at
  expenses of the expropriation of indigenous
  community's land

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Agriculture Modernization area

• 1950-1978 Export Boom, Capitalist Agriculture
  development era export expansion and
  diversification coffee, cotton, beef, banana and
  sugar cane.
• Third wave of segmentation
• Large cattle states, large banana, coffee, sugar
  and cotton plantations.
• Rural workers and landless families
• Farmers at the central region with cattle and
  coffee
• Settlers that populated the agricultural frontier
• 1960s-1970s Agrarian Reform at the agricultural
  frontier, high levels of land concentration at
  the Pacific areas.
• 1978-1979 Civil war, sharp reduction of
  agriculture exports

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Sandinista Revolution 1980s

• Agrarian reform with a redistribution of 2.05
  million hectares which represented 37 of total
  agricultural land.
• Expropriation of foreign companies in mining and
  forestry
• Nationalization of foreign and domestic trade.
• Creation of a large state farms sector and
  organization of agrarian cooperatives
• Subsidized credit, inputs, agricultural machinery
  and Technical assistance for rural families.
• 1983-1989 Civil war, international blockade (US
  embargo), hyperinflation process. Large
  proportions of rural men engage on conflicts.
• Emergency of black markets, and expansion of
  informal sector.
• 1987 Collapse of agricultural exports
• 1988 First Stabilization policies in order to
  reduce hyperinflation.

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The Neoliberal Model (1990s-2000s)

• Structural Adjustment Plan Shock therapy
  approach that combined sharp devaluation of the
  national currency with controlled prices for
  foodstuffs
• 1990 Dismantling of State intervention of the
  economy, including
• Privatization and liberalization of foreign and
  domestic trade.
• Devolution of agrarian and urban properties.
• Public enterprises privatization program.
• Reduction of the state size and rural programs
  (credit, technical assistance, subsides).

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The Neoliberal Model (1990s-2000s)

• Early 1990s there is a stagnation of the economy
  with high rates of unemployment. Private
  investment had a slow and weak recovery because
  of property rights conflicts and social
  instability and there was a sharp reduction of
  public employment due to military demobilization
  and public expending cuts.
• Domestic and international migration increased
  substantially. International migration flows to
  USA and Costa Rica quadrupled respect to 1980s.
• There is a second wave of colonization of
  Agricultural Frontier. Domestic migration to both
  the cities and to the relatively sparsely
  populated Caribbean region.
• Economic recovery led by a substantial increase
  in public investment in infrastructure, export
  growth and remittances. Private investment,
  however, is mainly oriented to non-agricultural
  sectors such as construction, commerce and
  banking services.
• Reduction of the agriculture's share of GDP

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Rural population declining in relative terms but
growing in absolute terms
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The Demographic Transition has just started
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Trade Liberalization

• Dismantling of tariff protection for domestic
  agriculture.
• Trade policy based on the integration to the
  Central American Common Market (regional economic
  integration) and Free Trade Agreements with USA,
  Canada, Mexico, and Chile. Currently negotiating
  with EU and Taiwan.
• Policies for employment based on the promotion of
  Exporting Production Zones, mainly textiles
  factories (maquilas)
• Foreign investment in key agribusinesses sectors
  dairy products, poultry and pork, and fruits
  and vegetables. Main supermarket chains have been
  acquired by WalMart.

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Agriculture Trade Balance

• Nicaragua has a positive trade balance on food
  and agricultural products. However, food imports
  represent more than double of inputs imports.

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Capital goods are tiny fractions of total imports
because of low level of investment on technology
and the extensive path of Nicaraguan agriculture.
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Market Integration

• Nicaraguan is attracting foreign investment from
  different sources. Central American investors
  have mainly invested in commerce and banking
  services.
• South Koreans, Taiwanese and US companies have
  invested in textiles. US firms have also
  invested in supermarket chains as well as in some
  agroindustrial sectors such as dairy, coffee,
  peanut (Starbucks, WalMart, Cargill).
• Through free trade agreement Nicaragua is trying
  to ensure access to the US market for its
  products. Although Nicaragua has increased its
  quotas for meat, sugar, peanut and textiles, it
  is not clear whether rural production will be
  competitive by 2021 when average tariff will be
  1.6 .

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Chains and segmentation

• Agricultural products chains are highly
  segmented. Products such as cheese, poultry, pork
  that have low quality standards are sold in
  domestic low income markets, while relatively
  high standard products for supermarkets and
  export markets.
• Due to quality requirements, peasant agriculture
  tend to be excluded from high value and high
  prices commercial circuits same situation can be
  observed on vegetables and fruits chains.
• Agro industrial products tend to have oligopoly
  phases of processing and exports. Coffee, sesame,
  banana, peanut and seafood are clear examples of
  this situation.

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Blockades

• Poverty and extreme poverty in Nicaragua have a
  rural face 68 of rural families live under the
  US 2 a day poverty line and 27.4 live with less
  than US 1 a day.
• Urban poverty is relatively low with 30 of
  urban families under poverty line and 6.2 under
  extreme poverty.
• Poverty and agricultural crisis in tropical dry
  areas tend to be the push factor for migration,
  and high rural salaries in Costa Rica and El
  Salvador tend to be the pull factor.
• The extensive path of agricultural production is
  reaching its limits. Land is no longer an
  available resource any more thus, internal
  migrations tend to be restricted and there are
  strong conflicts between settlers and indigenous
  communities.

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Exit options

• Some initiatives such as rural tourism and
  environmental services are starting to be
  explored. Peasants and Farmers organized on
  cooperatives tend to have more option for exits,
  since international cooperation and NGOs are
  supporting their integration to alternatives
  markets such as organic and free trade.
• NGos are facilitating contracts between
  cooperatives and supermarket chains and
  international enterprises such as Wal-Mart and
  Starbucks.
• There are non agricultural options for rural
  workers such as textile maquilas. However, this
  sector is generating neither enough jobs for
  urban not for rural families.

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Exit options

• Nicaragua is increasing its migrant population,
  up to 20 of total population.
• Remittances are key factor for economic and
  social stability, representing around 71 of
  total exports and 65 of total commercial
  deficit.
• Temporal migration to Costa Rica and El Salvador
  is a key livelihood strategy for rural families.
  This will represent a demographic problem in the
  long term since active working population is
  moving out productive areas.

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Rural Development Policies

• Nicaragua Rural Development policies are based on
  agro-industrial product exports and trickle down
  effects of agrarian capitalist development. This
  model tends to enhance the dualist development
  model and inequities between social sectors.
• The implementation phase is done by several
  institutions generating a fractionated
  intervention with limited impacts
• By November, 2006 Sandinistas won general
  elections. The new government has stated that
  rural areas will be a priority in the next five
  years with a Development Institute (Credits and
  technical assistance)