Potential economic impact from the adoption of Brachiaria hybrids resistant to spittlebugs in livestock systems of Colombia, Mexico and Central America

Libardo Rivas and Federico Holmann*

Centro Internacional de Agricultura Tropical (CIAT). Cali, Colombia
L.Rivas@cgiar.org
* CIAT and International Livestock Research Institute (ILRI). Cali, Colombia
F.Holmann@cgiar.org

Abstract

Pasture research led by the International Center for Tropical Agriculture (CIAT) and national institutions during the 80's and 90's, contributed with new Brachiaria species with various characteristics and uses that were incorporated with success in livestock production systems in the lowlands of Latin America. Brachiaria brizantha, Brachiaria dictyoneura, Brachiaria humidicola and Brachiaria ruziziensis are some of the forage materials released by research institutions in the region. Despite its indisputable advantages, the Brachiaria genus presents limitations because of its low tolerance to prolonged droughts and its high susceptibility to spittlebug, a pest that causes considerable economic losses to the livestock industry. Thus, most recent research in CIAT's Brachiaria breeding program has focused on the development of a second generation of Brachiaria grasses: outstanding agronomic characteristics, establishment vigor, good sprout capacity, high biomass production and nutritional quality, good seed production, resistant to Rhizotocnia and to multiple spittlebug species. The results of this effort have conveyed to the recent release of Mulato grass, the first hybrid of the Brachiaria genus obtained by CIAT's genetic improvement program. In the waiting list of the second generation of Brachiaria grasses is hybrid #4624 (CIAT 36087), to be released in 2005, having a similar forage quality as Mulato and with all the attributes defined for the second generation of Brachiaria grasses. Moreover, several other hybrids are in advanced stages of evaluation and close to being released as commercial cultivars.

The potential economic impact of the adoption of new Brachiaria hybrids on livestock production systems was evaluated using the Economic Model MODEXC. Two regions were considered in Colombia: the Northern Coast and the Eastern Plains. In Mexico, the tropical region; and in Central America, its six constituent countries. The model estimates the economic benefits attributable to the utilization of the new materials, disaggregating per country, region, ecosystem, production system and large social groups (consumers and producers). It works with two types of parameters: the technical ones that characterize the new technology and its process of dissemination, and the economic ones representing the conditions of market supply and demand of both beef and milk affected by the technical change. The benefits of the new technology (from the year 2007) were calculated for a period of 20 years and the results were expressed in terms of the net present value (NPV) and annuities. The estimates were made using alternatively an economic framework of open and closed economy.

In a closed economy, without international trade, the NPV of the technological benefits was estimated at US$4,166 million, of which 54% would be generated by the marketing of beef and the rest by milk. Most of the benefits were concentrated in Mexico, US$2,831 (68%); followed by Colombia, US$960 million (23%), and Central America, US$363 million (9%). In order to have criteria on the extent of the estimated technological benefits, the value of beef and milk yield during 2003 was calculated in the reference countries. The NPV is equivalent to 44% of the value of that year, ranging between 16% in Honduras and 78% in Nicaragua. The results show the importance of the dual purpose livestock production system. In most countries, more than half of the technological benefits was generated in this system: Colombia 70%, Central America 62%, and Mexico 50%.

When a country is self-sufficient and the surplus resulting from the technical improvements is marketed domestically, the benefits are transferred to consumers who are favored with the reduction in prices, making possible for them to increase consumption. In the case of a closed economy, consumers would capture 83% of total benefits. Trade liberalization implies a re-distributive process favoring producers. Export purchases increase total demand and restrain the fall of domestic prices. In an open-market economy, the share of benefits to producers would rise to 46%.

Research investment is conceived as a primary mechanism to achieve two of the most basic social goals: 1) poverty reduction and improvement in equity, and 2) the promotion of economic growth. Having this premise, in order to establish to what extent this technical change contributes to the fulfillment of these goals, the acquired benefits were estimated for the most vulnerable population groups: a) The two quintiles of poor consumers, representing 40% of total population, and b) the small producers. In both schemes, open or closed economy, both groups receive more than one-fourth of the benefits from technical change, 27% and 31%, respectively. This is equivalent to a NPV ranging between US$1,137 to 1,303 millions.

Because the hybrids require better soils or fertilizer inputs to maintain forage biomass productivity and quality, the study was made with conservative hypotheses about changes in productivity and the size of the area to be planted. Despite the definition of the levels of critical variables, especially those associated with the productivity and the adoption of the new Brachiaria hybrids, conservative criteria were considered in order to avoid overestimating the benefits; it is important to evaluate the sensitivity of these, against undesirable changes of those variables. For this purpose, three alternative scenarios were established: 1) The reduction of 50% of the area cultivated with new Brachiaria hybrids, 2) the reduction of 10% in the yields of the new materials, and 3) the increase of 50% in the total time of adoption. The most critical variable in the determination of the amount of benefits is yield (productivity) of the new technology, in terms of beef and milk per hectare. The elasticity of the benefits regarding the yields was estimated at 2.2 for Colombia and 1.8 for Central America and Mexico. This suggests that if the yield declines by 1%, the reduction of the social benefits is more than proportional. The social benefits are less elastic with regard to the area planted with new Brachiaria hybrids or the time of adoption. For example, in Colombia, if the area with improved materials declines by one percentage point, the benefits will diminish at approximately six tenths of one point. In all the proposed alternative scenarios, the investment in the development of these new pastures are economically attractive, despite the adverse circumstances proposed in these scenarios. The technological benefits expressed as an annuity (a fixed annual payment received for a specific number of years) shows that the investment for the development of new forage options is very low, less than US$ 20 million, compared with the annual benefits resulting from the use of these new materials.

Key words: adoption, Brachiaria, economic benefit, hybrids, spittlebug

Introduction

Livestock production in Colombia, Mexico and Central America is an important economic activity, because (a) it involves a significant quantity of available land resources for productive uses; (b) of the value and volume of its production; (c) the contribution to the food supply; and (d) the generation of rural employment.

In Colombia, 91% of the total area available for agriculture is allocated to pasturelands. In Central America, that proportion is about 73%, ranging between 46% in El Salvador to 82% in Costa Rica. In Mexico, pastures represent nearly three fourths, 74.6%, of the total land use to agriculture (Table 1).

Colombia has areas proclaimed free of foot-and-mouth disease (Urabá), but most of its territory (Atlantic Coast and the Eastern Plains) is still exposed to this disease. In contrast, Central America and Mexico are disease-free and have direct access to the privileged market of the United States, the prominent leader of the non-foot-and-mouth disease market.

Colombia still has not been consolidated as a net exporter of beef, importing or exporting marginal quantities of this product. Central America traditionally has been a net exporter of beef to the United States, and for some time enjoyed preferential programs such as exports quotas. However, overtime, it has experienced a progressive decline in its share in foreign markets. During the period between 1992-1996, on average, about 16% of its production was exported annually. However, in recent years, its exporting capacity has decreased noticeably, consuming now what is produced (FAO 2004). Mexico is facing a chronic and growing deficit in the production of beef (Table 2).

In general, Tropical Latin America historically has been deficient in milk production, depending from increasingly larger imports in order to supply its domestic consumption. Despite the progress in recent years in milk productivity, Central America and Mexico purchase a significant proportion of its domestic consumption abroad: 15% and 14% respectively. Colombia is a marginal importer, only 1% of its annual consumption of milk (Table 2).

Livestock production in Tropical Latin America is distributed widely through a variety of ecosystems, geographical regions, and production systems, and production is in the hands of a heterogeneous group of producers ranging from small and medium livestock owners, located mainly in hillside areas, to those who control large extensions of land, usually located in savannas and forest margins.

One of the constraints to the expansion of the livestock sector which depends on grazing is its deficient forage base both in quantity and quality, a problem that increases during the dry season of the year. The most widespread improved grass in the Latin American tropics is Brachiaria decumbens; it is estimated that it is planted in approximately 40 million hectares. Among its more prominent attributes are the excellent adaptation to acid and arid soils, aggressiveness, and high yield of beef and milk, because of its outstanding forage quality. However, a disease known commonly as "mión" (spittlebug) frequently attacks this grass, thus reducing productivity. In a severe attack, all the aerial part of the plant seems to be dry and dead, reducing the production of dry matter significantly, as well as its digestibility, thereby reducing its carrying capacity and the reduction of milk and beef (Holmann and Peck 2002).

The estimates of the economic losses of this pest in the humid and dry tropics of Colombia show that the production cost per liter of milk can be increased between 19% and 29% in cases of severe infestation. The economic loss that the spittlebug can cause in both ecosystems, according to the level of infestation, ranges between US$ 161 -211 million dollars per year, depending on the percentage of the area of the region under permanent infestation during the rainy season (Holmann and Peck 2002).

From the perspective of a previously unrecognized commercial possibility in the regional area, and the pending entry into free trade agreements (NAFTA) by several countries of the area, it is imperative to improve the competitiveness of the current livestock production systems, since it is an activity that employs much of the domestic productive resources, which grants an indisputable economic importance and makes it a strategic sector in the Latin American economy.

The 27th FAO Regional Conference for Latin America and the Caribbean (FAO 2002) pointed out several strengths of the Central American and Mexican livestock systems, some of which also apply to Colombia: (a) there is a big group of small producers with possibilities of improving their economic and social status, based on livestock development and modernization; (b) this activity is more tolerant to disasters in comparison with agriculture; (c) there is a significant demand for red beef and milk products, which would make possible to substantially increase the consumption of these foods; (d) these countries are free from most of the diseases on the list A of the IOE and have achieved significant progress in the control of endemic diseases; (e) appropriate technology to intensify production without negative environmental impact; (f) the region has enough skilled human resources, in order to facilitate livestock development; and (g) there exists the appropriate infrastructure for certified slaughtering for export.

Several years of collaborative work in CIAT with national and international institutions has made it possible to take advantage of the conditions found in the regional livestock sector. Part of this effort has focused on the acquisition of improved materials of Brachiaria, offering higher productivity, a broad range of adaptation, and multiple resistance to spittlebug.

Objectives

The objective of this study was to estimate the potential economic impact of the new hybrids of the Brachiaria genus in different production systems and ecoregioins of Colombia, Mexico, and Central America. The economic benefits from adoption are disaggregated by country, production system, region, and social groups (both consumers and producers). The estimate is calculated in two alternative scenarios: with and without international trade (ie., open or closed economy).

Characteristics of the new Brachiaria hybrids

A constraint in tropical livestock production is the poor quality of forages which does not allow the existing potential of production of beef and milk to be expressed. Grasses from the Brachiaria genus has shown new prospects because of its broad range of adaptation, greater quantity of forage and superior nutritional quality. This allows farmers to select the grass best adapted to particular conditions, helping to achieve greater efficiency and profitability.

Brachiaria decumbens and Brachiaria brizantha have been widely disseminated because of their good agronomic adaptation to the diverse tropical Latin American ecosystems. These grasses coming from the African continent began to be used at a significant scale in the region in the 70's because of its great adaptation and productivity. Thus, they progressively replaced the natural and introduced pastures such as Guinea (Panicum maximum), Puntero (Hyparrhenia rufa), and Imperial (Axonopus scoparius), among others (Ramírez and Seré 1990).

In Colombia, the massive utilization of Brachiaria decumbens goes back to 1970 and it constituted a technological milestone in the domestic livestock industry, since its adoption made possible to intensify systems, such as the case of the dairy basin in the piedmont of Caquetá (Ramírez and Seré 1990; Michelsen 1990).

Further research on pastures in the region contributed new Brachiaria materials with different attributes. Thus, during the 80's and 90's, materials such as Brachiaria dictyoneura, Brachiaria Brizantha, Brachiaria humidicola, Brachiaria ruziziensis were released in several countries. These new grasses were incorporated in the production systems with diverse degrees of success in different countries. One of its principal shortcomings is its low tolerance to drought, hence the need to obtain forage species with better adaptation to drought and better forage quality (Guiot and Meléndez 2003).

The high susceptibility to the spittlebug of the available Brachiaria materials has been an important constraint to the expansion of livestock production. Research objectives of the Bracharia breeding program have been to obtain new grasses with multiple resistant to spittlebug and in addition, outstanding agronomic characteristics, vigor at establishment, good sprouting capacity, high yield, high nutritional quality, and good seed production. It is considered that the materials with the former attributes represent the second generation of the Brachiaria genus. Recently, the Mulato pasture was released; the first Brachiaria hybrid obtained through CIAT's forage breeding program.

The Mulato grass is a hybrid of Brachiaria from the crossbreeding # 625 (Brachiaria ruziziensis clone 44-6 X Brachiaria brizantha CIAT 6297) carried out in 1988 by CIAT. >From 1994, it was included in a series of regional agronomic tests in Colombia, Mexico and the countries of Central America, where the clone CIAT 36061 proved to be a pasture with high vigor and good potential for forage production (Miles 1999). Since the year 2000 Mulato seed is produced and marketed in Mexico through a strategic alliance with a private seed industry.

Mulato grows in humid and subhumid environments, its growth is decumbent, stoloniferous and cespitose. It is adapted to well-drained soils of medium fertility with pH >4.5, rainfall higher than 1,000 mm/year, up to 1,800 m.a.s.l. and flat to undulating topography. It is resistant to prolonged droughts. Its nourishing quality is very high, with a raw protein value fluctuating between 12 and 15% and a digestibility from 55 to 62%. It produces 25% more dry matter than other commercial Brachiaria grassess such as Brachiaria decumbens and Brachiaria brizantha, increasing animal productivity from 1 to 2 kg milk/cow/day additional to Brachiaria brizantha cv. Marandú or cv. Toledo (Peters et al 2003).

Among the second generation of Brachiaria grasses waiting to be released in 2005 is the hybrid #4624 (CIAT 36087), having (a) the same forage quality characteristics of Mulato, (b) resistant to multiple species of spittlebug; (c) better adaptation to ecosystems with prevalence of prolonged droughts; and (d) higher seed production, thus allowing seed to be marketed at lower prices than traditional options.

In addition, there are several new hybrids under final evaluation, close to being released to producers which present the following present attributes: (a) resistant to Rhizotocnia; (b) superior adaptation to acid and flooded soils (i.e., greater range of adaptation); (c) better seed production potential, (d) higher forage quality, and (e) multiple resistance to various species of spittlebug.

The Brachiaria hybrids demand similar management than some of the Brachiaria grasses of the first generation such as B. brizantha. However, they require better soils or fertilizer inputs to maintain the increased forage biomass and quality obtained.

Materials and Methods

The estimation of the economic impact of the new hybrids is based on the classical theory of economic surplus (Marshall 1963) which formulates that, when the supply function is shifted in a market in equilibrium (in this case, the adoption of improved pastures increase the supply of beef and milk), a surplus is generated (economic benefits) which is captured by consumers and/or producers participating in such market. Consumers capture economic benefits due to the increase in supply which reduces real prices and increases the availability of products in the market.

In Figure 1A, the new technology applied at the farm level increases the productivity and shifts the production function upwards, generating greater production (q₁) with the same volume of resources (x_i). The lower cost per unit of product becomes the source of economic revenues to producers adopting the new technology.

Figure 1.  Impact of the technical change in micro and macro scales

When the technology is adopted, the supply function of the market shifts from (Figure 1B) originating a new equilibrium resulting in a greater quantity of product marketed (goes up from at a lower price (goes down from ). In Figure 1B, the consumer benefits is the area and the producer benefits is the difference between mse (productivity revenues) and (income loss by price reduction). The total social benefits, formed by the revenues of both consumers and producers, correspond to the triangle mde.

These economic benefits constitute the compensation that society receives by allocating monetary resources to research and development of new technological alternatives. Once the annual flow of benefits from the new technology and the investment to develop it are known, the economic efficiency and social profitability indicators are estimated. The indicators usually used are the net present value (NPV), the internal rate of return (IRR) and the cost/benefit (B/C) ratio (Gittinger 1972 ).

The Evaluation Model

The benefit estimates caused by technical change were made through the application of the MODEXC simulation model (Model of Economic Surplus), developed by CIAT (Rivas et al 1999), which calculates the annual flow of benefits due to technological change, simulating the market changes as the process of dissemination and adoption of technology advances.

MODEXC works with a simultaneous system of supply and demand functions from the Cobb-Douglas type of constant elasticity. To simulate the adoption process, it incorporates a logistic or sigmoid function that regulates the annual shift of the supply curve as the new technology is being adopted. In addition to the technical change, MODEXC can include and evaluate autonomous supply and demand changes, independent of the new technologies under analysis. Such changes correspond to shifts in demand facilitated by population increases, income variations and relative prices. On the supply side, it considers variations caused by the adoption of other technologies and also those related to the expansion of the productive capacity due to market trends.

The model works with two types of parameters: technical and economic. The technical ones characterize the technology and its dissemination and they are related to: (a) changes at the productivity level, (b) the amount of area to be planted with the new technology; and (c) the speed and intensity of the adoption process. The economic parameters define the markets under analyses in terms of: (a) quantities and initial prices at equilibrium; (b) the supply and demand price elasticity; (c) the supply and demand autonomous growth rates; (d) international market prices; and (e) the minimum supply price.

Technical and economic parameters

Table 3 shows the reference frame of the evaluation procedure, in terms of geographical areas (countries and regions), production systems (beef fattening or dual purpose), ecosystems (savannas or hillsides), and milk and beef markets affected by technical change.

The technical parameters regarding productivity levels (Table 4) were set based on research results from previous projects in the region executed by CIAT and ILRI and the collaborating national institutions in the considered countries in a process where expert opinion was considered. Because the hybrids require better soils or fertilizer inputs to maintain forage biomass productivity and quality, the study was made with conservative hypotheses about changes in productivity and the size of the area to be planted with the new technology, to avoid overestimation of the technological benefits.

The areas to be adopted with the new hybrids were estimated according to the total area with permanent pastures in each country (FAO 2004). It was assumed that 5% of the current pasture areas in Colombia, during the next 20 years, would be planted with the new forage options in the Eastern Plains and the Northern Coast, the main livestock watersheds of the country with high adoption potential. For Mexico, only the tropical region was considered, assuming that 2.5% of the current area under pastures would adopt these technologies. In Central America, with predominance of small and medium livestock farms located in hillside areas with emphasis on dual-purpose production systems, it was assumed that 2.5% of total grasslands would be planted with the second generation of Brachiaria grasses.

Since the dual purpose production (beef and milk) has the attribute to provide a permanent cash flow due to daily milk sales, which is critical for producers with limited resources, the adoption should be more dynamic in this system than in the beef fattening activity. Accordingly, the length of time for the adoption of this technology in the dual purpose system was set at 15 years, and 20 years for beef fattening.

The data set about current and potential yield, and areas to be adopted with the Brachiaria hybrids is sinthetized in the shift factor of the supply function (K) found in Table 4, which express in the market the effect of the adoption process and it is estimated with the following formula (1):

The values of the parameter K were calculated for each country and production system and theyr are found in Table 5.

The economic parameters that characterize the beef and milk markets in Colombia, Central America and Mexico are found in Table 6.

The total period of evaluation is 23 years; starting the adoption process in 2007 with a duration of 15 years in the dual-purpose production system and 20 years in beef fattening. The base year for the evaluation is 2004.

Results

The social benefits from the adoption of Brachiaria hybrids in Colombia, Central America and Mexico were estimated with two alternative scenarios. The first is a closed economy where all the increases in supply resulting from the utilization of the new technologies are consumed domestically. The second scenario is in an open-market economy where the supply level can be affected by imports or exports, depending on the price relationship between domestic and international prices.

In a closed-economy scenario, the NPV of the annual flow of economic benefits was estimated in US$4,166 millions in 2004. Of this total, 54% correspond to benefits generated from the beef market, and the remaining 46% from milk (Table 7).

In order to have a reference point regarding the extent of the benefits from this technology, the value of the beef and milk produced in these countries in 2003 was US$9,487 millions, which is 44% of the NPV of the estimated revenues from this technology (Table 7). This proportion changes by country: Central America 29% (ranging between 78% in Nicaragua and 15% in El Salvador), Colombia 43% and Mexico 47%.

The results obtained show the importance of the dual purpose systems in tropical Latin America. A large part of the total benefits were generated in the dual-purpose systems in which small and medium producers prevail (Figure 2).

Figure 2. Participation of the dual purpose system on the total technological benefits

In a theoretical scheme of a closed economy, the benefits from technical change concentrate mainly on the consumer side, favored by the additional production resulting from the adoption of the new technologies because the excess supply is consumed internally, inducing a strong price reduction. From the total benefits obtained (US$4,155 million), 83% is captured by consumers from increased consumption at lower prices. The remaining 17% is captured by producers that adopted this technology and as a result, reduced production costs due to increased productivity. Figure 3 shows the evolution of beef prices and Figure 4 of milk prices with and without the adoption of the improved forage material.

Mexico	Colombia
Central America
PCCT:    Real price of beef with technological change. PSCT:     Real price of beef without technological change. PIR:        International reference price. Defined in this context as the starting price from which the country would begin to export.
Figure 3.  Evolution of beef prices in Mexico, Colombia and Central America with and without the adoption of Brachiaria hybrids

If the possibility of exporting is considered, it is observed that, with the increase in demand as a result of reduced prices, a re-distribution of benefits in favor of producers takes place. The growth in demand restrains the fall of domestic prices, favoring livestock producers adopting the new materials.

If trade liberalization occurs, such as the case of open economies, the benefits captured by consumers are reduced by more than one third (34), while the benefits obtained by producers increased more than double (Table 8). This issue of equity in the distribution of benefits from technological innovation is of particular importance in order to maintain a modern productive sector, which favors technical change and with high standards of competitiveness in an increasingly globalized world.

Table 9 illustrates the changes in the participation of technological benefits of different social sectors, according to the type of economy. In Central America, going from a closed to an open economy means that producers would increase their share of benefits from 16% to 33%, in Colombia from 18% to 44%, and in Mexico from 16% to 48%.

Table 9.  Impact of trade liberalization in the distribution of the technological benefits in Colombia, Central America and Mexico.

Country

Participation of producers (%) according to type of economy

Closed

Open

Closed

Open

Central America

84.5

67.2

15.5

32.8

Colombia

82.4

55.5

17.6

44.5

Mexico

83.6

51.8

16.4

48.2

Total

83.4

54.0

16.6

46.0

According to figures in Table 8, the impact of foreign trade on the NPV of total benefits received by the society is of little magnitude, representing an increase of 1% (US$ 43 million). Thus, its most important effect is in the equity issue, as discussed previously.

Sensitivity of economic benefits to changes in critical variables

The magnitude of the estimated benefits is a function of the values allocated to variables such as: (a) total area adopted with the new technology after concluding the process of adoption, (b) productivity levels of the new forage materials, and (c) adoption time. Although a conservative criteria was used to avoid overestimation of the economic results, it is important to evaluate the magnitude of the change in benefits due to adverse circumstances. Therefore, three alternative scenarios were analyzed: (1) a 50% reduction in the total area adopted with the new Brachiaria hybrids, (2) a 10% reduction of the potential yields of the improved forage materials, and (3) 50% longer period of adoption time.

If the total area adopted with the Brachiaria hybrids were reduced by half, total economic benefits would fall between 47% and 48% (Table 10). In the event that the adoption rate was slower, taking 50% longer, the benefits would be reduced between 29% and 30%. However, a 10% reduction in the productivity of milk and beef would reduce total benefits by 18% to 22%. Thus, of the three scenarios analyzed, the productivity yields of the new materials were the most important variable in the determination of the level of social benefits.

Scenarios

Colombia

Central America

Mexico

Amount 
of Benefits

Percentage 
Reduction1/

Amount 
of Benefits

Percentage 
Reduction1/

Amount 
of Benefits

Percentage 
Reduction 1/

Base scenario 

960.2

363.3

2831.2

10% yield reduction in milk and beef productivity

750.1

21.9

297.0

18.2

2314.8

18.2

50% reduction in area adopted with Brachiaria hybrids 

505.0

47.4

187.5

48.4

1502.0

46.9

50% increase in  adoption time of improved technology 

680.3

29.1

255.1

29.8

1977.7

30.1

1/Reduction regarding the base scenario

Based on these results, the conclusion is that social benefits are very elastic to changes in the productivity yields of the new forage materials.

***********************

***********************

. In this case, given a reduction of 1% in productivity, the benefits would decline more than proportionately, between 1.8 and 2.2% (Table 11).

The elasticity of social benefits to changes in adopted area or in the length of the adoption process is smaller, being lower that proportional. Thus, it can be inferred that the economic benefits of the new technology are moderately inelastic when changes are presented in this two variables.

Physical yields of the new forage materials depends on internal and external factors. The internal factors are related to the adaptation of the new Brachiaria hybrids to specific conditions at the farm and its management during the establishment and grazing phases. The external factors are associated with the quality of the seed purchased by producers, the presence of pests and diseases, and the prevalence of extreme climatic conditions.

In order to ensure an optimal yield of the new materials, it is necessary an adequate seed supply of guaranteed quality at affordable prices that allows producers to utilize the recommended seeding densities. In many countries of the region, one of the difficulties for the expansion of areas planted with new forage materials is the inadequate seed supply regarding quantity, quality, and price. The private forage seed sector is often little or underdeveloped and this factor does not allow the advantages of economies of scale to reduce unitary costs of seed production and thus, the probabilities for adotion of new and improved forages are reduced. In addition, adequate planting and establishment of new forage materials require the provision of technical information to producers regarding sowing methods, seeding densities, input application and grazing management.

Impact of technical change on the economy of the more vulnerable social groups

Technical change in agriculture fulfills a key role in two of the main social goals: 1) the reduction of poverty and the improvement of social equity, and 2) the increase of the rate of economic growth in order to raise living conditions.

When equity is improved, technical change is conceived as a primary mechanism which allows the increase of income of the social groups with the lowest resources, hoping to reduce poverty and elevate the nutritional levels of the target population. Food, such as beef and milk, fulfills this dual role, because when conditions for the production of these activities are improved, their availability increases, generating income that can be captured by the most vulnerable groups, thus increasing the nutritional status. Additionally, through linking with other sectors, general economic growth is promoted. This last topic exceeds the scope of this work, which is only to estimate the direct impact of technical change in the livestock sector. However, it is necessary to point out that the process induces indirect effects on other economic sectors, increasing employment, production, and trade (Janssen et al 1990).

This study analyzes the impact of the adoption of new forage technologies on the more vulnerable groups, estimating the benefits that these groups would receive from technical change. In this context, two groups were considered, defined in a previous work for Latin America by Janssen et al (1990): (a) the poor consumers, representing the first two quintiles in the income distribution, which includes 40% of the population having incomes lower than US$600 per capita/year; and (b) the small producers, who are also with the same income distribution as the poorest consumers.

The estimates show that, as a consequence of technical change in the production of beef and milk in the selected countries, and assuming a closed economy, both poor consumers and small producers would receive together a flow of benefits equivalent to US$1,137 million in 2004. This figure represents nearly one-fourth (27%) of the total social benefits. In an open-market economy, the proportion is increased slightly, 31% (Table 12).

Country/Region

Closed

Open

Net Present Value (US$ million)
of  benefits captured by: 

Total more vulnerable 
groups

Net Present Value (US$ million)
of  benefits captured by: 

Total more vulnerable 
groups

Poor consumers

Small producers

US$ million

% of total

Poor consumers

Small producers

US$ million

% of total

Central America

78.1

20.1

98.2

27.0

62.5

39.3

101.8

27.9

Colombia

201.9

64.0

265.9

27.7

136.7

182.8

319.6

33.0

Mexico

602.4

170.6

773.0

27.3

377.8

503.4

881.2

30.8

Total

882.4

254.7

1137.1

27.4

577.0

725.5

1302.5

31.0

Participation in %1/:

Consumption

25.5

 -

 -

 -

25.5

 -

 -

-

  - Yield 

-

41.0

-

-

-

41.0

-

-

Technological benefits and research investment

The social benefits derived from the adoption of new technologies constitute the economic retribution to the investment allocated to the development of new production alternatives. The flow of benefits of technical change can be expressed in terms of annuities, that is, a constant sum of revenues received annually during a period of 23 years, the time elapsed between the base year (2004) and the year when the adoption process ends (2027).

The technical change based on the use of improved Brachiaria hybrids in the selected countries would generate a flow of revenues for a NPV of US$4,155 million in 2004. If that flow could be distributed as an annuity, the group of countries would receive a fixed sum of $468 million annually during 23 years. Colombia would receive $108 million/yr, Central America $41/yr and Mexico $319/yr (Table 13).

Country

Net Present Value 1/

Annuity 1/

Central America

363.3

40.9

Nicaragua

113.4

12.7

Costa Rica

78.9

8.9

Honduras

37.4

4.2

El Salvador

26.8

3.1

Panama

50.2

5.6

Guatemala

56.6

6.4

Colombia

960.2

108.1

Mexico

2831.2

318.7

Total

4154.7

467.7

1/ Discount rate: 10% annual

Seré and Jarvis (1989), in an evaluation exercise on research investment in pastures in Tropical Latin America, estimated that such investment did not exceed $20 million/year in the region. With this reference point, we can conclude that the potential benefit of research in the development of improved forages largely exceeds the investments made and thus, they are economically efficient and socially profitable.

Conclusions

• Brachiaria grasses are the most used improved forages in tropical livestock areas of Latin America and its appearance in the region goes back to the 70's. The regional pasture evaluation network (RIEPT) released, during the 80's and early 90's, new Brachiaria materials with outstanding agronomic and productive attributes that were introduced in the livestock systems, fulfilling various roles with diverse success, depending on the country (Holmann et al 2004).

• Despite its indisputable advantages regarding the traditional forage materials, these grasses present constraints due to their poor productive performance in environments of prolonged drought and its susceptibility to the attacks of spittlebugs, a pest that generates immense economic losses to the livestock sector. In response to this situation, CIAT and collaborators were faced with the challenge of producing a second generation of Brachiaria grasses with outstanding performance and significant attributes such as: greater range of adaptation, high establishment vigor, good sprout capacity, high yield and nutritional quality, good seed production and resistant to Rhizotocnia and multiple species of spittlebug.

• These materials are in the final phase of evaluation and close to being released. This study assesses the potential economic impact of using these new materials in the Colombian, Central American and Mexican livestock sector. In the case of Colombia, two productive regions are included, the Northern Coast and the Eastern Plains. Central America is disaggregated into its six countries, and in Mexico the tropical region is considered.

• The evaluation included savannas (Colombia and Mexico) and hillsides (Central America) ecosystems, as well as beef fattening and dual purpose livestock systems, and the markets of beef and milk. The NPV, during 2004, of the technological benefits in the countries examined was estimated at US$4,155 million, equivalent to 44% of the beef and milk yield of these countries during 2003. These figures represent the direct impact on the livestock sector, but exclude the indirect effects in other economic sectors that constitute the multiplier mechanisms that allows, through the technological change in a given sector of economic activity, the promotion of general economic growth.

• Open-market economies imply redistributing the technological benefits between producers and consumers. In this scenario, it allows producers to increase their participation in the total benefits from 17% to 46%. This redistributive aspect is of crucial importance in order to keep a productive modern sector, inclined to the technical and highly competitive change needed in a globalized world.

• The results obtained showed the importance of the dual purpose production system in the livestock sector of the region as more than 50% of the technological benefits comes from this system. Since beef and milk constitute important food staples for most of the Latin American population, and being the dual purpose production system that predominates among small and medium producers, an exercise was conducted in order to determine to what extent a technical change (such as the one analyzed in this study) helps achieve social goals, such as the reduction of poverty and the improvement of social equity. Results show that the more vulnerable population groups (ie., poor consumers and small producers), would receive a share representing more than one fourth of the total benefits.

• Maintaining the level of productivity of the new materials over time is important in order to guarantee social benefits, and to ensure the competitiveness of domestic production in open markets. The sensitivity analysis made indicates that the impact of a percentage reduction in productivity on the benefits is proportionately greater than a reduction of the same magnitude, in the adopted area or in the duration of the adoption process.

• An important subject related to the productivity of the new forage alternatives is the issue of seed supply to producers. The production, quality and price of seed from new forages have represented traditionally a bottleneck for the adoption of new materials. The private forage seed sector is small and non-specialized in many countries of the region. As a result, it is suggested that the public and private sectors implement innovative schemes of seed production and marketing, thus reaching farmers with an adequate seed supply at a fair price with good quality, making the adoption of the new materials a viable and profitable option.

• The adoption of improved pastures not only has economic and social effects, but an environmental impact. In the Latin American tropics, there are enormous portions of degraded pastures with very low productivity; the new Brachiaria hybrids represent a viable alternative to recover degraded pasturelands and to restrain the horizontal expansion of livestock systems in forest margin ecosystems.

• The technological benefits, expressed as annuities, exceeds by far the annual investment of the region in improved pasture research. This shows its rationality, in terms of economic efficiency and high social return.

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