AN EVALUATION OF MARKET COORDINATiON IN THE BOUVlAN RICE iNDUST RY Thesis for the Degree of M. S. MiGHiGAN STATE UNIVERSITY MICHAEL J. MORAN 1968 ABSTRACT AN EVALUATION OF MARKET COORDINATION IN THE BOLIVIAN RICE INDUSTRY by Michael J. Moran The general purpose of this study is to evaluate market coordination in the Bolivian rice industry. The specific objectives were: (l) to describe the rice industry and rice marketing policies from the early l950's to I967; (2) to des- cribe and analyze the urban marketing system for rice in La Paz and the rural production-marketing system in the Santa Cruz area; (3) to describe some of the demographic and atti- tudinal characteristics of the market participants and (A) to analyze this information and make recommendations for improve- ment of the Bolivian rice production and marketing system. Some of the major findings of the research were: l. Rice production trended sharply upward, with out- put increasing more than three-fold in the lO-year period, l958-67. This enabled Bolivia to shift from a major importer to self-sufficiency, even though domestic consumption increased. 2. Bolivian per capita rice consumption has increased from 8.3 kilos to 9.5 during the period of l960-67. Income elasticities of demand for rice were estimated to be l.l Michael J. Moran between medium and high income groups and 0.57 between low and medium income groups. Thus, with increased urbanization and urban dwellers possessing higher incomes, demand for rice should continue to increase in the future. 3. The tienda retailers seemed to be doing a reason— ably adequate job of providing the necessary services required by La Paz consumers. The tienda Operations are small in size and generally quite traditional in their Operations. Their gross margin on Over-all tienda Operations was lh percent; 17 percent on rice alone. Larger retail units with direct buying arrangements or group purchasing by retailers could possibly improve the retail rice marketing system. A. The rice marketing activities of the Calle-Murillo wholesalers in La Paz are structured to serve a large number of small retailers. Their activities were characterized by broken-lot selling Operations to small retailers and consumers. The gross margins for the Calle Murillo wholesaler-retailer Operations was 8 percent overall and 8.6 percent for rice. It appears that improvements in the "wholesaling” Operations will depend, in part, upon the establishment of larger-scale retailing firms. Michael J. Moran 5. Rice producers in Santa Cruz are fairly well edu- cated and have shown more innovative capacity than farmers in the other production areas, such as potato farmers. The market structure is highly competitive and no collusive activities were apparent among the farmers or buyers included in the survey. 6. Conditions which reduce effectiveness of coordin- ation in the production-marketing system were the following: a. Seasonal price fluctuations between harvest seasons are associated with an inadequate credit system serving producers and assemblers. b. The lack of market information suggested by the varia- bility in price knowledge among rice farmers. 7. The system of transporting rice from Santa Cruz to La Paz is hampered by poor road conditions, the lack Of road maintenance, lack Of Spare parts and truck maintenance, and the disorganization of backhauls from La Paz to the Santa Cruz area. Recommendations were made for specific improvements in the coordination of the market system. These include: a. Foster the develOpment Of larger-scale retail and whole- sale firms in the urban area with more direct procurement arrangements to the major rice producing areas. Michael J. Moran b. DeveIOp a market news reporting system to meet the local needs for information linkages with the major consumption centers. c. Encourage the organization of a freight forwarding pro- gram among truckers hauling between La Paz and Santa Cruz. d. Provide credit at reasonable interest rates to farmers, assemblers and other private firms using rice in approved storage as collateral. AN EVALUATION OF MARKET COORDINATION IN THE BOLIVIAN RICE INDUSTRY By I Michael Jf Moran A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF SCIENCE Department of Agricultural Economics I968 ACKNOWLEDGMENTS The research for this thesis was done while the author was employed as a research assistant with the Latin American Market Planning Center under contract between Michigan State University and the U.S. Agency for International DeveIOpment. Throughout the development of this thesis the author was privileged to have the constant interest, encouragement and assistance of the members of his thesis committee. To the Chairman of that committee, Dr. Harold M. Riley, the author expresses his deepest appreciation. His probing criticisms and pertinent comments were apprOpriately blended with remarks of encouragement and Optimism. The other members of the thesis committee, Drs. Charles C. Slater and Robert S. Stevens, provided valuable suggestions during the development and in the final analysis. Their comments and criticism helped to improve the analysis and clarify the presentation of this thesis. The author also wishes to acknowledge the assistance provided by Dr. Donald Hendley of the Department of Marketing. He provided special help in the initial planning and presentation of the analysis. To Mr. Thomas Webb for his assistance in some specific analysis presentation, the author expresses his appreciation. Finally, I express my appreciation to all the staff members of the Latin American Market Planning Center. Their assistance and suggestions with respect to specific questions of analysis and presentation were greatly appreciated. TABLE OF CONTENTS ACKNOWLEDGMENTS LIST OF TABLES. LIST OF ILLUSTRATIONS Chapter I. INTRODUCTION . The Problem Area . . The MSU/USAID Study of Comparative Systems of Food Marketing in Latin America The Bolivian Study . ,Purposes and Objectives of the Thesis. Plan of the Study. THE RICE PRODUCTION SYSTEM AND MARKETING POLICY . . . . . . . . . . . . . . . . Introduction Importance Of Rice in the BOlivian Economy : Trends in Production, Consumption, and Trade. Government Policies and Programs Future Demand for Rice . . . . . . . Demand Projection for Rice . Economic Organization of the Rice Industry : THE URBAN MARKETING SYSTEM FOR RICE IN LA PAZ. Introduction Consumers. . . The Retailing System . Summary. . . . . Wholesaling. . Calle Murillo Wholesalers. Summary Page vi Chapter IV. VI. LIST OF RURAL MARKETING SYSTEM FOR RICE IN SANTA CRUZ . . . . . . . . . Introduction . . . . . . . . . . Rice Production in Santa Cruz Area . Sample Survey. Characteristics of Farm Operators. The Rural Rice Marketing System. Summary. . . . . . . . . . . . . . TRANSPORTATION OF RICE FROM SANTA CRUZ TO LA PAZ . . . . . . . . . . . . . . . . Introduction . Sample Survey .. . Characteristics of the Santa Cruz to La Paz Route . . Trucker Operations and Activities. Summary. . . . . . . . . . . . . . . SUMMARY AND RECOMMENDATIONS. Summary. Introduction . . Brief Review of Rice PrOductiOn. and Marketing Policy . . The Urban Marketing System for Rice. The Rural Market System . . Transport. . . . Margin Comparisons Recommendations. The Urban Rice Marketing System in La Paz. The Rural Marketing System . . . . . . Transportation . . . . . Technical Assistance . External Marketing of Rice Exports Concluding Statements. . . . . . REFERENCES . . . . . . . . . Page I06 I06 I06 lO7 Ill IZO l22 I22 l22 I23 IZA l27 I30 I3I l33 l33 I37 I39 lhl IAZ lhh Ih6 Table 2.l 2.2 2.3 2.h 2.5 2.6 2.7 3.] 3.2 3.3 3.4 3.5 3.6 LIST OF TABLES Rice Production, Consumption, Imports and Exports, Bolivia, I958- I967. Urban and Rural Population of Bolivia I950, I958, l960-l966. Distribution of Income in La Paz by Population Groups. . . . . . . . . . . Percent of Families Spending Different Amounts for Rice by Income Groupings, La Paz . . . Average Family Income and Annual Purchases of Rice by Group and Estimated Arc Elasticities . . . . . . . . Projections of Demand for Rice, Bolivia I975 . Rice Production by Department, I964- I965. Bolivia Distribution of Consumer Expenditures in La Paz, Bolivia, I967. . . . . . . Distribution of Food Expenditures by Food Categories. . . .. . . . . . Gross Sales, Gross Margins and Operating Costs, La Paz, Food Retailers, La Paz, l966-67. . . . . . . . . . . . . . . . Percent of Retail Firms Extending Credit by Type of Establishment . . . . . . . Reported Monthly Sales of Calle Murillo Wholesalers, La Paz. . . . . . . . . . Percentage of Sales by Lot Size Among Calle Murillo Wholesalers, La Paz. 27 3I 32 37 38 48 A9 55 57 63 6A Table 3.7 3.8 3.9 3.ll 3.l2 4.I 4.2 4.3 4.4 4.5 4.6 4.7 h.8 Credit Activities of Calle Murillo Wholesalers, La Paz. . . . . . . Size of Transaction and Selling Price, Rice Wholesalers, La Paz . . . . . . Percent of Calle Murillo Wholesalers Specifying Particular Months as Periods of Seasonality Highest or Lowest Prices. Percent of Rice Purchases by Calle Murillo Wholesalers from Different Types of Supplies, La Paz . . . . . . . . . . Gross Sales, Gross Margins and Operating Cost, Calle Murillo Wholesalers, La Paz. Communication Media Usage and Degree of Exposure by Calle Murillo Wholesalers. Level of Literacy for Rice and Potato Farmers, Bolivia Years of Schooling for Potato and Rice Farmers, Bolivia . . . . . . . . Measures of Mobility for Rice and Potato Farmers, Bolivia Communication Media Usage by Rice and Potato Farmers, Bolivia. . . . . Percent of Rice Producers Selling Through Different Market Outlets, Santa Cruz . Percent of Rice Sold at Farm Purchased by Different Types of Buyers, Santa Cruz . Percent of Rice Sold at Mills Purchased by Different Types of Buyers, Santa Cruz . Source of Business Information used by Rice Farmers, Santa Cruz . vii 70 7I 73 75 8A 85 86 87 '90 9] 92 93 Table h.9 5. .IO .Il .l2 .l3 .IA .15 .I6 I 5.2 5.3 5.4 Indication of Best Source of Information by Rice Farmers with Different Levels of Literacy, Santa Cruz . Farmer's Knowledge of Rice Prices in Cities Outside Santa Cruz. Price Received by Farmers for Rice by Place of Sale. . . . . . . . . . . . . Comparison of Production Volume of Sales and Number of Months They Sold Rice Between Farmers who Sell at the Farm and Those Who Sell in the Mill Number of Units Sold by Percentage of Sales on The Farm and at the Mill by Farmers, Santa Cruz. . . . . . . Number of Days Stored Related to Prices Received by Farmers, Santa Cruz. . . Estimates of Percent of Rice Lost in Various Stages of Harvesting and Marketing, Santa Cruz . . . . . . . . Farmers Estimated Cost of Marketing Rice, Santa Cruz . Estimate of the Number of Vehicles Leaving Santa Cruz with Rice Cargo for Specific Destinations, December l96l to September I962 Percent of Truckers Specifying Particular Months as Periods of Most or Least Volume of Rice from Santa Cruz to La Paz. . . Percent of Truck Ownership by Number of Trucks Per Firm. . . . . . . . . . . Percent of Truckers Buying and Selling Selected Commodities . . . . . . . viii 94 95 96 98 99 IOO l02 I03 llO ll2 ll3 ll7 Table 5.5 Variable Cost of Transportation from Santa Cruz to La Paz for a 9-l0 Ton Truck. Margin Comparisons at Each Stage of Rice Marketing Channels. I20 l32 Figure LIST OF ILLUSTRATIONS Organization for the National Rice Marketing Committee. Arc Elasticity Estimates for Rice by Family Income Groups, La Paz, Bolivia. Major Rice Producing Areas in Bolivia. Channel Flow Map for Rice - Bolivia, I967. 33 39 hO-a CHAPTER I INTRODUCTION The Problem Area In many develOping nations, a wide disparity exists be- tween rural and urban rates of development. Moreover, during recent years, there has been a growing concern over the inabil- ity of develOping nations to expand agricultural production sufficiently to meet the needs of the rapidly expanding urban populations. During this period several development strategies have been advanced, some advocating the industrialization approach, others emphasizing agricultural develOpment, and more recently, comprehensive approaches recognizing the interrelations of the agricultural and industrial sectors.1 It is within the latter context that the market system, which links and coordinates rural and urban areas, takes an enhanced importance in economic develOpment planning. The concept ”national market integration” is closely related to Rostow's views of the development problem in most Latin American nations.2 He suggests that the operational IH. M. Southworth and B. F. Johnson, Agricultural Develop- flfiant and Economic Growth, Cornell University Press, I967, p. 4. 2Walt W. Rostow, View From the Seventh Floor, Harper-Row, New York, I963, p. I36: task of develOping national markets are: (l) a build up in agricultural productivity; (2) a revolution in the marketing of agricultural products; (3) a shift in industrial output towards agricultural inputs and cheap consumer goods for the mass market in both rural and urban areas; and (4) a revolu- tion in the marketing of these manufactured goods, especially in the rural areas. In defining the problem for the present research, Rostow's statement is a useful frame of reference. In order for this effective linkage to occur between the rural and urban areas, the marketing system must provide ade- quately for the smooth flow of products and profit incentives, for both agricultural and industrial producers. The structure and performance of market channels, therefore, becomes impor- tant to developing nations as a means of achieving satisfactory growth rates. The MSU/USAID Comparative Study of Food Marketigg Systems In_Latin America Michigan State University has undertaken two closely related projects of research and planning activities for the United States Agency for International Development. The first project has been conducted for the Technical COOperation and Research Division of USAID/Washington and concerns the role of food marketing in economic develOpment.3 The second 3CCSD/786 Contract between Michigan State University and the U.S. Agency for International DeveIOpment, Washington, D-C., June, I965. contract was for the establishment of the Latin American Market Planning Center at Michigan State University. The first of these projects dealt with the general purpose of providing developing Latin American nations with information. It's purpose was also to provide analyses and assistance on the design of an improved marketing system to reduce costs, and to provide greater incentives to producers and market handlers to expand output and adopt improved technologies. The first phase, conducted in Puerto Rico,in l96S-66 was designed to gain insights into the nature of changes in food marketing that occurred in that rapidly developing economy. This phase was a testing ground for the develOpment of research methodologies to be utilized in the second phase effort in Recife, Brazil. The second phase of this first study has been carried out in Northeast Brazil during l966-67. Research work for the second phase of the comparative food marketing study was in- corporated into a broader research design which included some of the activities of the Latin‘American Market Planning Center (LAMP). LAMP has as its purpose to create a center for research and advisory activities about the market processes of developing communities, and to extend understanding and appreciation of the role of marketing in economic develOpment. LAMP also has conducted studies in Recife, Brazil and in La Paz, Bolivia during I966-67. These projects were accomplished by bringing together an interdisciplinary team of researchers at Michigan State University to study the national market process. This group consisted of marketing, agricultural economics, communication, and systems engineering Specialists. The principal task of this research project was not only to identify the barriers within marketing systems, but also to Specify what changes should be made and how they could be accomplished. The Bolivian Study The LAMP program of research in Bolivia was designed to describe, analyze, and make recommendations to improve the internal market process of the La Paz food market and the rural consumer markets in the food shed serving La Paz. The preparatory investigations by the LAMP staff were carried out by interviews with various types of market par- ticipants in the La Paz area. In addition, extensive discus- 5 ions of the marketing situation were held with the AID staff In Bolivia. Staff members of the Bolivian Ministries of Agri- <fl1lture and Economy were also involved in the study. There aPFMeared to be a considerable lack of research-based diagnosis of the food marketing system of La Paz, particularly of the kind required for major changes in price regulations, market information systems, and market reform. The sc0pe of work included not only food marketing but also the urban-rural flow of both agricultural inputs and consumer goods to two selected communities. The geographic focus was narrowed to the city of La Paz and its foodshed which, for some products such as rice, extended out for 900 kilometers or more. Five commodities were agreed upon for detailed rural surveys. These were rice, beef, bananas, potatoes, and selected green vegetables. The Objective of the program was to assist in developing effective and efficient rural and urban marketing structures by conducting a diagnostic study of the existing marketing system for food and selected agricultural products, and by formulating recommendations for improvement in the marketing system based upon diagnostic studies. The survey research program was influenced by the belief that a successful marketing reform program requires harmon- ious coordination of all stages of the production-marketing process. This line of reasoning suggests that efforts to diagnose and correctly perceive difficulties at one stage of the system may fail if inadequate attention is given to inter- relationships with other stages in the market process. The research in Bolivia included studies of: (l) Con- sumers living in the city of La Paz; (2) food retailing and wholesaling institutions at La Paz; (3) transport system ser- ving La Paz; (4) assembly and distributive characteristics of selected food commodities; and (5) study of the counter flow of consumption goods and farm inputs from La Paz to the Altiplano. A field report was written describing some of the early findings of the study."I This early draft served as a base to develOp through further analysis. It was also written so that interested peOple would have an Opportunity to evaluate and comment upon the study prior to the publication of a final report. In addition, seminars have been conducted by LAMP staff members to discuss and develOp further analysis and implications of the data for the final report. Purposes and Objectives of the Thesis This thesis is an evaluation of market coordination in the Bolivian rice industry and is an outgrowth of one of the commodity studies mentioned above. This study is to be analyzed and integrated into the national market integration system in Bolivia. “MSU/LAMP, The Market PrOceSSes of La Paz, Bolivia, La Paz, Bolivia, September, I967.. The objectives of this thesis were: (I) to describe the rice industry and marketing policies; (2) to describe and analyze the urban marketing system for rice in La Paz and the rural marketing systems in Santa Cruz; (3) to identify market conditions which act as barriers to increased producti- vity and reduced costs of marketing; (4) to describe some of the demographic characteristics and attitudes of market participants; and (S) to make recommendations for the improve- ment of the Bolivia rice production and marketing system. Although not directly involved in the field research operations of this project, the author's prior experience in Santa Cruz, Bolivia, as an agricultural technical advisor for the Association for International DeveIOpment for the period l963-66 was of great value to him in organizing and evaluating survey data from this study. This thesis was prepared while the author was working with the Latin American Market Planning Center on the Bolivian project, specifically on the rural marketing system serving La Paz. Plan of the Study Chapter I has briefly described the LAMP project which provided the data for this study and has stated the objectives Of the thesis. Chapter II is a description of the importance of rice to the consumers, producers, the Bolivian economy, and the factors affecting future demand. Also, it describes government marketing policies since I952. Chapter III and IV are a description and analysis of the urban and rural market system for rice. Market conditions, cost and price relationships, and demographic characteristics of market participants are described and analyzed using primary data. Chapter V describes the truck movement of rice from Santa Cruz to La Paz. Chapter VI is a disgnostic summary of the Bolivian rice marketing systems followed by recommendations for improvement. CHAPTER II THE RICE PRODUCTION SYSTEM AND MARKETING POLICY Introduction This chapter describes the rice production and marketing developments in the Bolivian economy for the period between the early l950's and I967. The chapter is divided into five parts. First, the relative importance of rice in the Bolivian economy is indicated. Second, a description of the major trends in production, apparent domestic disappearance, and trade over the past decade is given. Past and present government policies and programs affecting rice industry market coordination are described. Third, a description of the major factors influencing future demand for rice is presented. Finally, major areas of production and consumption are described in relation to the rice marketing system serving La Paz. Importance of Rice in the Bolivian Economy Rice is currently an important item in the diet, and indications are that consumption will increase as incomes rise and urbanization continues. It is a highly desired and l0 a reasonably low cost staple food that can contribute to improvement in the diets which are now deficient in calories. Bolivian rice consumption has increased from an estimated 26 thousand metric tons in I960 to 36 thousand in I967.I Per capita consumption for the country has increased from 8.3 kilos to 9.5 during the same period, I960-67.2 The current consumption of foods in Bolivia does not represent an adequate intake of calories for the population. A nutritional study was made in Bolivia in I962. The results were that caloric intake for Bolivians was 83.7 percent of the recommended amount suggested by The National Research Council, which was 2,232 calories.3 Rapid increases in rice production over the past decade has eliminated rice imports and has contributed to an easing of the balance Of payments problem. Bolivia was a major im- porter of rice in I958, importing I.4 million dollars worth of this cOmmodity. In I967, Bolivia produced a surpluse of 6.6 L, thousand metric tons of rice. If production continues to lBolivia, Ministerio de Economia National, Informe de Labores, 6 de agosto de I966, 30 de mayo de I967, La Paz, I967. p- 8. 2|bid., p. 27. 3MSU/LAMP Research Project, Bolivian Draft Report, La Paz, Bolivia, I967. (Chapter 2), p. 6 hMinisterio de Economia National, Informe de Labores, I966, p. 6. ll increase faster than domestic demand, Bolivia could possibly expect to export rice in the future. Finally, rice is an important commercial crop for an estimated l0,000 farmers in Santa Cruz who produce approximately 90 percent of Bolivia's rice.5 The rice crOp also provides an immediate source of income and employment for new settlers in the production areas. For the government's program of coloni- zation of the eastern lowlands of Santa Cruz, the rice crOp can be readily coverted into cash at harvest time. This can be achieved one year after the colonist arrives in the region. Thus, rice production can serve as a stabilizing factor for the colonist as well as provide an important item in his diet. Trends in Production, Consumption, and Trade The available rice production estimates for Bolivia indi- cate the growing importance of rice in the Bolivian economy. Table I shows trends in production, apparent domestic dis- appearance, imports and exports for rice from I958 and I967. Rice production rapidly increase upward with output increasing more than three-fold in the l0-year period, I958-67. This enabled Bolivia to shift from a major importer to self- sufficiency, even though domestic consumption increased. 5Donald G. Tailby, Bolivian Rice Marketing, La Paz, Bolivia, I966, p. 40. I2 Table 2.l. Rice Production, Consumption, Imports and Exports, Bolivia, I958-67 (thousands of tons) - Apparenta Year Production Domestic Disapparance Imports Exports I958 l2.5 23.7 Il.2 -- I959 I9.5 28.] 8.2 -- I960 23.3 25.6 2.3 -- I96l 24.0 28.2 4.2 -- I962 24.0 32.2 8.2 -- I963 34.0 34.2 .2 -- I964 27.I 28.2 .I -- I965 22.6 22.9 .3 -- I966 37.7 39.9 2.2 -- I967 42.7 36.l 0.0 6.6 aApparent domestic disappearance was determined by adding domestic production plus imports minus exports with no adjustment for changes in inventories. Source: Ministerio de Economia, Informe de Labores, May, I967, pp. 6 and 8. l3 Bolivia was able to achieve this position through the Operation of various programs and facilitating services. Among the most important was the government policy of economic diversification and self-sufficiency in food stuffs, new land Openings, and colonization in the Santa Cruz region. The United States supported many of the programs through financing and technical assistance. The principal programs and policies affecting rice production and marketing are discussed in the following section. Also, the sharp decrease in rice production occurring in I964-65 is noted. This situation was precipitated by the collapse of one of the government programs, the National Rice Marketing Committee (CONCA). Government Policies and Programs Beginning with the I953 plan of the government for econ- omic diversification, Bolivia sought to stimulate domestic production of foodstuffs and to curtail the need for imports. Since that date there has been several important factors stim- ulating rice production. The completion of the road from Cochabamba to Santa Cruz in I954 brought about significant commercial linkages between the lowlands of Santa Cruz and the Altiplano. Also colonization was used as part of the Bolivian government program to stimulate agricultural develOpment I4 of Santa Cruz. Both national and foreign colonies have been settled in the area. Rice producing co-Ops were formed over the years to facilitate the production and marketing Of rice. In I956, the Bolivian Agricultural Bank extended credit to rice growers, permitting them to improve their Operations. Approximately the same year, the Servicio Agricola Interameri- cano (SAI) started a program of assistance to rice and other crops in the Santa Cruz area. SAI offered supervised credit, land clearing and road construction, research and agricultural extension services. In I959, the first of several rice programs was insti- tuted. At this time the major goal was to achieve self- sufficiency. Consequently, this early rice program, financed by United States Overseas Mission (USOM) and Servicio Agricola Interamericano (SAI) funds, was designed to stimulate in- creased rice production by assuring the producers a favorable return on investment. Table I shows the production of rice for Bolivia since the initiation of these early programs. The Agricultural Bank Of Bolivia was authorized to purchase rice at $b.66 pesos per quintal (I00 pounds), and turn this over to the Ministry of Economy for distribution. A floor price of $b.66 pesos per quintal was, thereby, provided to the growers. With this high price, the government could reasonably expect increased production in succeeding years. I5 One effect of the announced floor price in I959 was to stimulate increased planting of rice for I960. To COpe with the problem of marketing and crOp, the Bolivian government decided to assist this activity by using their credit program and United States Overseas Mission (USOM) funds. A floor price of $b.60 pesos per quintal was placed on the rice by the Bolivian government to prevent the prices from falling below production costs during the peak marketing season. With USOM funds, loans were made to Grace and Co., and Hansa Ltd., two private rice wholesaling firms, by Banco Agricola equal to about 70 percent of the purchases of rice which they were to make under the program. After purchasing the rice, the loans were repaid as the rice was sold. As Bolivia attempted to achieve self-sufficiency in rice,‘ one of the major issues facing the industry was that of the rice marketing system. One of the major problems was that the rice growers were mortgaging their crops to a middleman or trader in advance of harvest and then to sell at a very low price in order to repay his debt. It was hoped that a more adequate marketing and credit system coupled with storage facilities would permit the grower to avoid disadvantages in negotiations with traders and thus hold his crOp off the market until he, himself, could benefit with a better price. l6 In this way, gains which previously went to the trader would now go to the grower. Late in I960, a national rice marketing committee was formed. This organization was to greatly assist in rational- izing the rice marketing procedures. The national rice program was to focus on the following points: I. Technical assistance in land use and use of fertilizers and insecticides and in harvesting and product handling techniques. 2. Administrative guidance to rice COOperatives. 3. A standard grading system for rice. 4. Minimum prices to producers for each grade of rice. 5. Assistance to processing plants and provision for more adequate equipment to them. 6. Provision for rice storage facilities for rough rice and processed rice. 7. Creation of a marketing system with equitable prices to the consumer.6 The national Rice Marketing Committee (CONCA) was created on December 23, I960, in the hOpe that it would achieve these objectives. Figure l is a diagram of the organization for this institution. It consisted of representatives from the Minis- tries of Economy and Agriculture, the Bolivian DeveIOpment 6Ibid., pp. 26 and 27. I7 .J: .Q .Nmm m4 .co_m_>_o O>_umcoaoou ocm mc_uoxcmz .mmm_ ucommm .m:cc< .0cmo_cOEmLOuc_ m_oo_cm< O_o_>com .m_>__om mLOEJmcou mc0u3m_cum_o __mppm mhz_umcoaooo "OOL30m _Immhh_zzoo uz_Hu¥m__om .Noo mo .oooaotd totmomom dzn oo>_oooL oo_ca __muOL mo “COOLOQ ~_sc om mo bk mm oo. .- oo_to __moot mo m_ OO_LQ mc___om m_ommum sumo zo_;3 “COOLOQ -- A_ac m_ o_ o.m A. Aoo_to me___on maoooon zoom :0 oommmv .occmgo c_ mmmum zomo um c_mLmEMmmoLm acoucom Ni &1 N & & ifimu_:moL AmumE_umo% mu_:moL Amp—smut >o>czmv LOmmOOoLa Ammume_umuv >O>L3mv >O>L3mv - mtoecmu iLo—__zi ucoamcmLF o-mmo_o;31 _wmuom m_occm;u mc_uoxgmz oo_m mo ommum comm um chm_LmOEOQ c_mcmz ._ O_nmh 133 ”The World Food Problem”2 and those presented by Max Millikan and David Hapgood3 in their publication "No Easy Harvest", and others advocating a comprehensive approach to development. RECOMMENDATIONS ,— i The Urban Rice Marketing System in La Paz * Encourage the development 9f larger retail food Stores -- E The retailers themselves did not appear to be motivated or E financially able to initiate changes in the urban marketing as system. Due to the atomistic retail structure and the attitudes held, it does not appear that tienda operators will be aggressive in expanding their Operations beyond their present level. One possible program to improve this situation would be the following: Encourage two or three large SUpermarkets that would Operate on a low margin, high volume principle. These supermarkets would probably be new entrants into the retailing system, since competitive pressure for change is unlikely to come from the present retailers. These new entrants would be 20.3., The White House, The World Food Problem, Vol. 11, May, 1967, p. 573. 3MaxMillikan and David Hapgood, No Easy Harvest, Boston, Little,Brown and Co., 1967. ' 134 trained to develOp new retailing skills and provide credit from existing project funds of the government. These supermarkets could buy directly from the mills and in large volume, thus obtaining a lower cost of rice than the present tienda Operators. When their newly-lowered margins are applied to this lower cost of goods, the result could mean lower prices for consumers. Presently tienda retailers have a gross margin for rice of 17% as a percentage of their selling price. Calle-Murillo wholesalers margin for rice is 8.6%. Through a vertically integrated supermarket operation, the Calle Murillo wholesaler would be bypassed and the large retailers would buy directly from the mill. The market margin gain by the Calle-Murillo wholesalers would be partially eliminated (assume that the trucker has'a 10% gross margin which seems fairly reasonable). There would be a reduction of at least 5% in the consumers' price. The other 3.6% of the wholesale margin would be absorbed by the supermarkets' functions that were previously carried out by the wholesales; i.e., arranging transactions, storage, risk of ownership over a longer time span, and others. So it is not likely that the Supermarkets would realize full savings of existing wholesaling margin in reduced handling changes. 135 On the other hand, Calle Murillo wholesalers sell approx- imately 25% of their rice in units less than 12 l/2 pounds, at .97 pesos a pound, indicating that the rice is sold to consumers directly or to very small retailers. Presently, the tienda operators sell rice at 1.14 pesos per pound. Assuming the supermarkets reduce handling charges by bypassing the wholesaler and at the same time take over some wholesaling functions, such as those mentioned above, it would appear that they could offer a price equal to or Slightly more than the present price Offered by the Calle-Murillo wholesaler- retailers. ‘ The average annual eXpenditure on rice is $33.00 for the La Paz consumer. Given at least five percent reduction in the consumer's price for rice, (assuming other retailers will' meet the lower price of the larger supermarket) this would result in a consumer savings of $1.65 per family per year on rice alone. Similar reductions in prices of other products might also be realized. The effects of this innovation could have a Significant impact through the urban market system. The margins of some tienda Operators would be eventually forced lower in order to be competitive. Some of the Calle Murillo wholesaler-retailers perhaps would be forced into strictly retailing activities. 136 The supermarkets would probably cater to the upper and middle income groups initially, but the lower classes should receive an indirect benefit through the lower margins of tienda Operators as a result of the supermarket pressure. Thus, the program could start the beginning of change, the move from a traditional distribution system to one which brings food to consumers at lower prices. This benefit could increase the real income of consumers and have implications for increases in rice consumption which may foster increased production through the increase in effective demand. The resulting effect of this program should force the traditional retailing units to a pOint of accepting change which would have been hard to perceive as coming from them- selves. However, development planners should recognize that such a market reform can have major changes on potential employment and cause political Opposition to government support of large retail outlets. The introduction and penetration of such a market reform should not be too fast so as to cause hostile reaction by the 10,000 retailers in the city of La Paz. One possible guide to the speed of market penetration could be the rate of market expansion. The market expansion in La Paz is probably 5 to 8% per year (5-5.5% annual pOpuIation increase 137 and about 2-2.5% annual income increase). A faster rate of penetration might cause displacement and reaction unless other employment Opportunities are made available. The Rural Marketing System ”1 1. Provide credit e£_reasonable interest rate £2 farmers, assemblers and other private firms using priceng approved storage eg collateral -- The Agricultural Bank or a private bank would loan funds to millers and/or private firms and farmers who store rice in approved storage, either private or government. This way, farmers would have funds to pay the production and harvesting debts and still have control of their rice in storage. A policy involving release dates (e.g., due dates on loans) for stored rice would tend to prevent abuse of the warrant or'program, and building up of excessive carry-over stocks. This type of supervised credit program would require the private firms seeking loans, such as farmers, millers, large wholesalers and COOperative agencies, to meet certain building specifications and approved storage practices. Utilization of existing facilities and institutions are recommended, such as rice mills, and approved storage facilities of farmers. 138 The gradual expansion of good storage facilities and practices should make a commodity loan program more practical. At the present time, farmers are hindered by the Shortage of working capital during the harvest season. Bank loans using rice as collateral could be especially effective as a stimu- gm“ lant to farmers and assembly firms who wish to expand their volume at lower margins but are limited by insufficient r working capital. 2. Organize e_statistical reporting eystemlpp provide forecasts of crop pipe, estimates pi volume harvested, egg inventories pf pipe during 3p; storage period -- The bases for a rice program should be a crop forecasting and estimation service that can make reasonably accurate reports of expected and actual harvested production. Critical data should include estimated size of crop, size of storage, stock, and prices. Adequate functioning of a crop estimating service will require technical assistance for training and organization. This program should include the participation of the existing Rice Committee in Santa Cruz. This Rice Study Committee was established pursuant to section 301 (e) of the USAID Bolivian Rice loan convention of April, 1967. The committee, composed of growers, millers, merchants and 139 government officials, could provide an essential communication linkage with the rural production and marketing participants and the urban marketing system for rice. 3. DeveIOp e market news reporting system £9 meet the local needs for information linkages with the major consumption centers -- This program could be combined with the crOp fore- ...n: "4?; ~ mu. _ . 4.. uni-I1 casting and estimating service. The program should include current market information on wholesale prices, prices at the -mills and supply conditions for rice. This information should a be diffused by neWSpaper and radio to local buyers and to farm- ers. Agricultural extension services in COOperation with the Agricultural Bank of Bolivia could assist both in the dissem- ination of central market information and in the collection of local market information. The Rice Committee Should assist and advise in the implementation of the program at the local level in Santa Cruz. This program should improve the price knowledge and market information of all rice growers. Transportation 1. Encourage the organization pf_e_freight forwardigg pggggem.emppg long-hauling truckers iflflkfl Paz -- One of the most important factors in determining transport costs for 140 rice and other commodities is whether or not the trucker is able to obtain freight for his back-haul. The lack of cargo exists for the truckers traveling the La Paz- Cochabamba-Santa Cruz route. A freight forwarding agency could be organized in La Paz to guarantee truckers a full load to the eastern lowlands. These freight forwarders could act as representatives of truckers in arranging and consoli- dating Shipments into full loads. Thus, this activity could help spread the cost of the round trip by limiting the risk of less than full loads. Possible reduction in transport cost of a quintal of rice as well as other agricultural pro- ducts could be one result of such a program. Such a savings would most probably be passed on to the ultimate consumer. 2. Improve repair facilities for trucks and parts availability -- This recommendation could be implemented through a trucker organization such as a trucker's union, which would receive loans to buy parts in volume and by direct imports. Loans to unions or private repair shops should also be~made to improve repair facilities and encourage training courses for mechanics. The technical assistance to encourage unions to buy parts direct could be handled by the Ministry of Economy. Training 141 and maintenance loans to truckers and garages, perhaps, will require changes in banking policies. 3. Improve road conditions through better maintenance egg better peep; -- Bolivia has recognized the need of better roads. External financing has been received for the resur- facing of the.Cochbamba to Santa Cruz highway which was badly in need of repairs. Several farm to market roads have been built in the Santa Cruz area over the past few years. Road and equipment maintenance seem to be the most crucial problem. Technical assistance would be helpful, eSpecially in training personnel and offering organizational Structure for obtaining supplies for improving equipment and road conditions. Technical Assistance Encourage educational pyograms oriented £9 marketigg activities for farmers, traders and othermarket perticipants. The effectiveness of the rice program will depend upon the willingness of the farmers and traders, millers, as well as others, to cooperate and utilize the new services such as market news, crOp forecasting and estimating information for improvement of the rural as well as the urban marketing system. 142 This recommendation could be implemented through the office of Agricultural Extension. Initial training of agricultural extension agents in marketing practices should be the first step toward implementing this program. External Marketing of Rice Bolivian rice exports will probably come about as rice output continues to increase. In past years, rice exports have been limited to small quantities of unregistered exports to border areas. The Bolivian Ministry of Economy has taken a position on delaying rice export until it is certain that domestic needs have been met. They have authorized imports over the past few years when production has been in excess of demand and in 1967 refused to authorize exports when market surpluses depressed grower prices and dampened expec- tations for the next year's seeding.h Bolivia, should aim at a rice export position which could be to the countrys' advantage, in order to Obtain foreign exchange or barter and enhance production possibilities for the colonization zones such as Santa Cruz, Chapare and Los 4Fifth Draft Rice Marketing, Howard Osborn, USDA/Bolivia, January, 1968, La Paz, Bolivia, p. 42 (Mimeographed). 143 Yungas. This, however, requires a coordinated rice policy that can weigh the various factors affecting producers, consumers, and market Operations. Government decisions regarding price, export regulations, and production incentives would be made sufficiently in advance to permit the rice trade, including growers, to make rational economic decisions. This should be determined on the basis of all available data from the crop estimating service, the Rice Committee, and other sources. Preliminary investigations have been made~with respect to rice export to Peru. The average price in the Sierra of Peru5 in 1967 was $b.l39.50 per 100 pounds. The average cost of Bolivian rice FOB Puno, Peru was $b.86.90. The difference in favor of Bolivia was $b.52.60. Investigations should be continued in order to obtain further information on export possibilities with Peru and other border countries. The export market could provide an important outlet for Bolivian rice if production continues to increase and present price levels remain the same. The present milling capacity appears more than adequate to handle substantial increases in production. 5The Sierra of Peru is a region similar to the high plains of Bolivia; and because of its location, Bolivia has a com- parative advantage in shipping rice to this particular region in Peru. 144 Concluding,Statements An additional comment is necessary concerning the rice growers in Santa Cruz. If domestic rice market outlets do not provide the necessary stimulus for increasing rice production and an export policy is not adOpted, then new economic alter- natives should be promoted for the Santa Cruz area. As mentioned earlier in this study, these farmers should be considered as a scarce resource in Bolivia. If their potential is deterred in the rice industry, other forms of diversifica- tion should be sought to more fully utilize their land and their production skills. Presently, a lack of alternative employment may partially explain the surplus production of rice eStimated at about 6,000 tons in 1967, in face of weak harvest prices. One possible alternative in recent years has been the livestock industry, eSpecially swine. The Todo Santos government slaughter house has develOped a great deal of interest and definitely promoted hog raising in Santa Cruz. This is not to say there is a need for similar projects, but it does provide an example of an alternative for diversifi- cation. Finally, the above recommendations for a rice program, although not the only possible solutions for improving the rice industry, could have positive effects in achieving higher farm output, higher farm income, and lower consumer prices. 145 Market development, as suggested in this study, should be viewed as one important means for improving food production and distribution systems. Regional and national market reforms require basic structural transformations in Oder to achieve a vertically and horizontally coordinated food pro- duction and distribution system. These reforms should contri- bute to a more harmonious coordination of all stages in the agricultural production-distribution system of rice and thereby enhance improvement of the rice industry. In implementing such reforms, existing institutions should be used whenever possible to assure the success of the program. LIST OF REFERENCES Books,gMonoqraphs, and Government Reports Alianza para el Progreso. .Economic and Program Statistics. USAID-Bolivia, No. 8 (December, 1966). Belshaw, Cyril S. Traditionalgxchange and Modern Magkets. Englewood Cliffs, N. J.: Prentice Hall, Inc,, 1965. Bolivia. Ministerio de Agricultura, Ganaderia y Colonizacion. Investigacion Eppecial Sobre superficies Cultivadas_y Produccion de Arroz,‘Cana,Algoaon,y Azucar en el Area NOrte—ael Departamento de Santa Cruz (January, 1965). . Costo de Produccion de Arroz, PapeyMaiz, Trigo, Mani, y Aji. [a Paz, 1966. 7 . Estacion Experimental Agricola de Loa Llanos, #lgunos Resultados y Recommendaciones para Los Zonas rOpicaTes y SubtrOpicaTes de Bolivia. Boletin InformatTVO'No. 2 (March: 1963). Bolivia. Ministerio de Economia Nacional. Informe de Labores. La Paz (6 de agosto de 1966 - 30 de mayo dewT967). Bolivia. Secretaria Nacional de Planificacion y Ministerio de Agricultura. Qgentos Nacionales de Bolivia. La Paz, I965. Bolivia. Servico Agricola Interamericano, Marketing and COOp- eratives Division. Annual Repert, 1962. La Paz, 1962. Bolivia. Universidad Major de San Andres, V. Lyisk and Navajas. Costo del TranSporte Caminero en Bolivia. La Paz, 1963. Bonnen, James and Eicher, Carl. ”Marketing in Economic DeveIOp- ment," Agricultural Market Analysis. Ed. A. Vernon L. Sorenson. EastLansing,Michigan: Michigan State University Business Studies, 1964. 146 147 Chile. Economic Commission for Latin America. Synopsis of Data, Estimations and Demogrephic Projections. Santiago: Center of American Studies. Statistical Abstract of Latin America. University of CaleornT , T963. Farris, Paul. Market Structure Research. Ames, Iowa: Iowa State UniversityTPress, 1964. Galbraith, John, and Holton, Richard. Marketing Efficiency in Puerto Rico. Cambridge, Mass.: THarvard UniversTfy Press, 1954. Millikan, Max, and Hapgood, David. No Easy Harvest. Boston: Little, Brown and Co., 1967. Moyer, Reed. Marketing in Economic Development. Inter- national Business Occasional Paper No. 1, Graduate School of Business Administration. East Lansing: Michigan State University Press, 1965. Myint, Hla. The Economics of the Developing Countries. New York: Praeger, 1965. Riley, Harold. ”Evaluation of Marketing Systems in Latin America.” A Paper Presented to the Markets and Trade and Economic DeveIOpment Workshops. North Carolina State University (February 20, 1968). Italy. United Nations, Food and Agricultural Organization. The World Rice Economy, Rome, 1963. Rostow, Walter. View from the Seventh Floor. New York: Harper-Row, 1964. Southworth, Herman, and Johnson, Bruce, eds. Agricultural DeveIOpment and Economic Growth. New York: Cornell University Press, 1967. Spurr, William; Kellogg, Lester; and Smith, John. Business and Economic Statistics. Illinois: Richard D. Trwen, Inc., 1961. Stevens, Robert. Elasticity of Food Consumption Associated with Changes in Income in DeveTOping Countries. ForeTgn Agriculture EEOnomic Report #23, U. S. Department of Agriculture. Washington: Government Printing Office, 1965. 148 Tailby, Donald. Bolivian Rice Marketing: Steps to Improve- ment. USAID advisory group to the Banco Agricola de Bolivia. La Paz, Bolivia (July, 1966). The World Food Problem. A Report of the President's Science Advisory Committee, Vol. 11 (Report of the Panel on the Wogld Food Supply): The White House, Washington, D. C. 19 7. Wessel, Kelso,. L. Social-Economic Comparison of Eight Agri- cultural Communities in the Oriente and the Altiplano. A paper prepared fOr the Andéan lndTan Community Research and Development Program, Department of Anthropology, Cornell University, under contract AID/la-206 with the Agency for International Development, June, 1966. Wilson, George; Bergmann, Barbara; Hirsh, Leon; and Klein, Martin. The Impact of Highway Investment on DeveIOp- ment. The Brookings Institution,Transport Research Program. Washington, D. C. : 1966. Witt, Lawrence, and Eicher, Carl, eds. Agriculture in Egon- omic DeveIOpment. New York: McGraw-Hill, 1964. Zonday, Cornelius. Problems in the EconomiejDevelopment of Bolivia. La Paz, Bolivia (November,T956). Unpublished Works Eklund, John. ”Report and Recommendations on Agricultural and COOperative Development in Bolivia.” Unpublished consultant's report, Farmers Union International Assis- tant Cor oration for USAID/BOlivia (April 9, 1967 to April 22 . La Paz, Bolivia: 1967. Harrison, Kelly. ”Agricultural Marketing Coordination and Its Role in Agricultural DeveIOpment in Puerto Rico.“ Unpublished Ph.D. dissertation, Michigan State Univer- sity, 1967. Osborn, Howard. ”Fifth Draft Rice Marketing--IRR.” USAID/ Bolivia, La Paz, January, 1968. 149 Welsch, Delane. ”The Rice Industry in the Abakaliki area of Western Nigeria.” Unpublished Ph.D. thesis, Michigan State University, 196 . Wish, John. “Food Retailing in Economic DeveIOpment: Puerto Rico, 1950-1965.” Unpublished Ph.D. thesis, Michigan State University, 1967. HICHIGQN STQTE UNIV. LIBRRRIE 111311IIIIIIIIIIllIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII 293100001324