"—rd J T l.II.||ll|(. 5(1 . .. .. ABSTRACT IMPROVING PERFORMANCE OF THE PRODUCTION-DISTRIBUTION SYSTEM FOR POTATOES IN COLOMBIA BY Christopher 0. Andrew The primary objective of the research was to identify areas in which marketing processes influence present and potential productivity increases for the potato production and distribution system in Colombia. The diag- nostic analyses investigate problems related to modernizing the produc- tion process and to improving coordination in the distribution process. General performance criteria such as potential productivity increases, reducing seasonal production and price instability, and improved market coordination evidenced by functional information, grading and standardi- zation programs, were identified and performance of the potato subsector was evaluated. The research was based at the Instituto Colombiano Agropecuario (ICA) Bogota, Colombia as a portion of an interdisciplinary technical assistance program under the auspices of the University of Nebraska. The Ford Founda- tion provided funding for the research. Primary data sources were potato producers in the departments of Bo- yaca, Cundinamarca and Narifio; truckers entering and leaving Bogota and Cali; processers in Bogota and Cali; and wholesalers, retailers and con- sumers in Bogota. An analysis of the production process indicated that the limited availability of improved seed and information about its use restrict the producers ability to augment per hectare yields. Credit and purchased inputs, such as fertilizer and pesticides, do not appear to be restraining factors for per hectare yield increases. Many producers are motivated Christopher 0. Andrew toward the attainment of high yields per unit of seed planted instead of high yields per hectare,resulting in some practices contrary to recommendations of the agricultural experiment station at ICA. Price instability was the major marketing problem for nearly all potato market participants. Seasonal price instability is due to wet and dry seasons, frost, and a seed supply shortage for the small harvest. The greatest amount of storage in the potato marketing system is at the wholesale level but it is not sufficient, even when combined with the government facilities, to prevent wide seasonal price fluctua- tions. Major problems or risks inhibiting storage are potato spoilage, lack of credit and liquid capital, price instability and the anti- speculation law. Spoilage and damage to potatoes in marketing contribute to un- necessary costs and wide price spreads, particularly at the retail level. Losses due to quality reductions affect fifteen percent of total production but often spoiled and damaged potatoes are salvaged for consumption by low income families. Modernizing the potato subsector to allow attainment of economic efficiencies probably will result in some displacement of small firms. If these displaced individuals can obtain either urban or rural em- ployment accompanied by improved incomes, they will be a stimulus to the developing economy. At present, the alternative employment op- portunities for displaced farmers and food distributors are limited and should these Opportunities increase, improved work skills for this potential labor force will be needed. Recommendations to improve the complex and interdependent processes of potato production and distribution in Colombia are as follows: Christopher 0. Andrew 1) The role of small producers and distributors in either urban or rural development must be considered as Colombia pursues programs to modernize the agricultural sector. 2) Credit policy can be used to stimulate investments in both improved potato productivity and in improving human resources for future rural and urban employment. Credit subsidies for potato production with non-competitive interest rates, however, probably should be reduced. While the supply of credit for producers at commercial rates should be unrestricted, credit programs are also needed for distributors. 3) Potato production research and extension specialists along with agricultural economists must give more emphasis to farm management and economic problems of producers. 4) A program to reduce seasonality of prices must consider problems leading to production instability as well as market stabilizers such as storage. The seed supply problems for the small harvest and for improved varieties must be reduced if production instability is to be decreased. Both public and private storage alternatives must be evaluated before launching a major storage program. 5) Continued emphasis should be given to developing a market information program with a timely dissemination system that will be useful to producers and distributors in their market decision making processes. 6) Vertical coordination in the potato subsector to reduce excessive handling and losses can be improved by developing an efficient rural assembly system, encouraging forward purchase and sale agreements, and improving credit and technical assistance to potato producers and distributors for improving their marketing practices. IMPROVING PERFORMANCE OF THE PRODUCTION-DISTRIBUTION SYSTEM FOR POTATOES IN COLOMBIA BY '1 Christopher Oi Andrew A THESIS Submitted to ~Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY; Department of Agricultural Economics 1969 PREFACE A two-year assignment beginning in September 1967, with the Uni- versity of Nebraska Mission in Colombia.provided the opportunity to perform thesis research. The Nebraska Mission is funded by US/AID, Kellogg Foun- dation, and Ford Foundation, the latter supporting agricultural economics and this research endeavor. As primary contractor for the Mid-American State universities Association (MASUA), the university of Nebraska Mission in Colombia directs an interdisciplinary technical assistance team.in- eluding agricultural economists, rural sociologists, agricultural engineers, extensionists, animal scientists, crop physiologists, and veterinarians. This team assists the Instituto Colombiano Agrgpecuario (ICA) and the National University in efforts to develop a coordinated program of agri- cultural teaching, research and extension. A.postepre1im.instructor program.emphasizes the training of Co- lombian agricultural economists by research demonstration as applied to pertinent agricultural problems. This research, directed by Nebraska Mission instructors, also fulfills Ph.D. thesis requirements. Thesis supervision became possible through a joint agreement between the Michigan State University guidance committee and the Nebraska.Mission agricultural economists, with the latter providing inrcountry consultation. ICA provided physical facilities and in—country transportation as well as counsel, counterpart assistance, data processing assistance, and ii aid in selecting the commodity to be studied and in making the varied and numerous contacts necessary for successful completion of the study. Two primary benefits to ICA and Colombia evolve from.the research: 1) Specific barriers to innovation and change throughout the potato pro- duction-distribution system are identified. Recommendations, if adopted, can foment improvements in the potato production and distribution system. 2) Another benefit accrues to National University students and ICA staff counterparts associated with the research.program. An appreciation and understanding of agricultural marketing problems has been stimulated. At least 25 individuals have learned and applied agricultural economic re- search methods in a specific problem situation which has helped develop a small cadre of Colombians capable of sustained agricultural marketing research. A In addition to ICA personnel, individuals from the following Colombian Institutions were identified with the research by providing secondary data and valuable counsel: Universidad Nacional, Departamento Administrative Nacional de Estadistica, Caja Agraria, Instituto do In- vestigaciones Tecnologicas, Instituto Latinoamericano de Mercadeo Agrico- la, Instituto de Mercadeo Agrepecuario, Asociacidn Colombians de Culti- vadores de Papa, Secretaria de Agricultura de Narifio, Centre de Estudios sobre Desarrollo Econdmico, Instituto Colombiano de la Reforms Agraria, Sociedad de Aprovechamiento de los Recursos Naturales de Cundinamarca, and the Misconsin Land Tenure Center. iii ACKNWLEDGEMENTS Appreciation is due to the Instituto Colombiano Agropecuario and the University of Nebraska Mission in Colombia for contributing financial support, consultation and human resources to the research program. Sincere gratitude is also expressed to Dr. Daniel D. Badger, Dr. Peter E. Hildebrand, Dr. Lauro Lujan, Mr. Rafael Samper A., and Mr. Eduardo Ramos L. who were working with the above institutions during the research program. Special acknowledgement should be given to Dr. Harold M. Riley, thesis advisor, for his continuing interest in and devotion to the research. The location problems usually associated with thesis re- search in a foreign country were avoided by Dr. Rileys personal guidance on at least eight occasions in Colombia. For the flexi- bility in planning complete thesis program abroad, recognition is due to the liberal graduate policies and appreciation for foreign research programs displayed by the Agricultural Economics Depart- ment at Michigan State University. To Dr. Lawrence W. Witt, major professor, sincere gratitude is expressed for his consultation in Bogota on one occassion and his suggestions on early drafts of the thesis. Dr. Witt also provided valuable guidance throughout the author's masters and Ph.D. programs. The guidance of other committee members through the Ph.D. program must be recognized including Dr. James D. Shaffer, Dr. Robert D. Stevens, and Dr. Everett M. Rogers. Recognition is due to Dr. James L. Driscoll for untiring assistance with the computer work and to Maria Cristina Arciniegas iv for typing preliminary and final drafts of the thesis. Finally, loving gratitude is expressed to my family, my parents and my wife's parents for encouragement and interest. To my wife Linda, words inadequately express my appreciation. To Jeff, Shane and Kristi, with whom I shared too limited hours of relaxation and enjoyment, I remain obligated. Errors of fact or logic are the responsibility of the author. PREFACE . . TABLE OF CONTENTS Acmmmmms I I I I I I I I I I I O I I I I I I I I I LIST OF TABLES LIST OF FIGURE S I I I I I I I I I I I I I I I I I I I I I GLOSSARY OF TERMS AND INSTITUTIONS . . . . . . . . . . . . Chapter I ImonUCPION I I I I I I I I I I I I I I I . I II THE The PrOblem I I I I I I I I I I I I I I I I Geographic Barriers to Economic Integration . The Food Demand and Supply Race . . . . . . . Population Migration and Growth . . . . . Distribution of Income . . . . . . . . . Agricultural Production and Distribution Agricultural Marketing in Development . . The Potato Subsector in Colombia . . . . . . TheSis Plan I I I I I I I I I I I I I I I I I Orientation in General . . . . . . . .... ObjeCtives I I I I I I I I I I I I ' I I I A mapter Brief I I I I I I I I I I I I I RESEARCH PLAN I I I I I I I I I I C I I ' O “ C An mroacrl I I I I I I I I I I I I I I I I I To Define a Food Production-Distribution System . . . . . . . . . . . . . . . The Role of Agricultural Marketing in Development . . . . . . . . . . . . Performance Evaluation . . . . . . . . . Applying the Approach . . . . . . . . . . . Performance Goals . . . . . . . . . . . The Research Hypotheses . . . . . . . . The Research Methodology . . . . . . . . Data Analysis . . . . . . . . . . . . . vi Page ii iv" .thId womb 14 18 19 '21 24 24 24 26 31 35 35 37 38 46 Chapter III A DESCRIPTION OF THE POTATO PRODUCTION-DISTRIBUTION SYSTEM I I I I I I I I I I I I I I I I I I I I I I Production-Distribution Relationships . . . . Geography of the Potato Industry . . . . . Market Channel Flows . . . . . . . . . . . Price Movements . . . . . . . . . . . . . Fluctuation in Prices . . . . . . . . Interdepartmental Price Differentials . Consumer Demand Characteristics . . . . . . . Per Capita Consumption . . . . . . . . . . Purchase and Preparation Habits . . . . . Chip Consumption . . . . . . . . . . . . . Price Change Responses . . . . . . . . . . Organizational Structure of the Subsector . . Size of Firm . . . . . . . . . . . . . . . Number of Buyers and Sellers . . . . . . Conditions of Entry . . . . . . . . . . . Institutional Framework . . . . . . . . ... Investigation, Extension and Education . . . Agricultural Inputs and Credit . . . . . . . Price Policy and Storage . . . . . . . . . . Producer Organization . . . . . . . . . . . summary 0 e e e e 0 e e e e e e e e e e e 0 IV PROBLEMS IN MODERNIZING THE POTATO PRODUCTION PROCESS. Adoption of New Technologies and Yield Results Adoption . . . . . . . . . . . . . . . . ..- Yields and Before-Harvest Losses . . . . . The Role of Agricultural Credit . . . . . . . Farm credit Stlt18t1C8 e e e e s e 0’. e 0 Macro Credit Statistics . . . . . . . . . Potato Farm Management Practices . . . . . . Decision Making . . . . . . . . . . . . . Input Divisibi'li’ty: - The Mechanization Problem . . . . . . . . . . . . . . ... vii Page 48 48 48 52 60 60 63 65 65 67 72 76 79 79 83 85 87 88 89 9O 92 93 95 96 96 101 109 110 113 118 118 125 Chapter Summary: Potato Producers and Technical Assistance . . . . . . . . . . V 'PROBLEMS IN COORDINATING THE POTATO DISTRIBUTION anss I I I I I I I I I I I I I I I Major Indicators of Coordination .Price Instability . . . . . . . Margins and Returns . . . . . . Physical Distribution Processes . Transportation . . . . . . . . Assembly Functions . . . . . . Storage . . . . . . . . . . . Losses . . . . . . . . . . . Facilitative Exchange Processes Integration, Agreements and Cooperation . Credit Sales and Purchases . . Behavior in Pricing . . . . . Communication and Price Information . . . Grading and Standardization . . VI POLICY CONSIDERATIONS AND PERFORMANCE IN THE POTNTO PRODUCTION-DISTRIBUTION SYSTEM 7. . . The Supply and Demand Situation for Economic and Social: Considerations Vblume of Employment . . . . . Distribution of Income . . . . Credit Policy . . . . . . . . . . Price and Storage Policies . . . Potatoes 0 I I o 0 Information Responsibilities and Policies . . Research and Development . . . . . . . . . . VII SUMMARY, CONCLUSIONS AND RECOMMENDATIONS . General Summary . . . .7.‘.'. .7. e e .1 e The Potato Productionenistribution System -Problems in Modernizing.Production . . . . viii Page 127 129 129 129 134 141 141 144 146 151 153 153 158 163 165 169 174 176 178 181 182 185 189 . i91 193 197 200 200 201 204 Chapter Page Problems in Coordinating Distribution . . . . . 206 Conclusions About Performance of the Potato P-D SYStem I I I I I I I I I I I I I I I I I I I I I I 209 Recommendations . . . . . . . . . . . . . . . . . . . 211 LISTG'REFERENCES....................221 Appendices I Aggregate Farm Size Data and Potato Farms Size Data . .... 226 II Total Production, Hectares Planted and Yields Per Hectare of Potatoes in Colombia Based Upon Caja Agraria Data . ‘nd IDEM Data I I I I I I I I I I I I I I I I I I I I 229 III Potato Price Statistics in Bogota, Cali and Pasto . . . . 237 IV Methods Used to Calculate Employment in Potato Production w Distribution I I I I I I I I I I I I I I I I I I I 24 1 V Caja Agraria Loan Data . . . . . . . . . . . . . . . . . 244 ix. LIST OF TABLES Table Page Number Number 1 Per Capita Income Levels in Colombia, 1960-1967 , , 9 2 Estimated Required Rates of Increase in Food Pro- ductivity Based on varied Rates of Growth in GNP and Population and Different Income Elasticities Of Demm I I I I I I I I I I I I I I I I I I I I 0 ~ 10 3 Comparative Farm Size Data for Potato Farms and all Farms in COlon‘bia I I I I I I I I I I I I I I I I I 16 4 value of Colombian Potato Production at the Farms Compared to Rural Income .‘. .'. . . . . . . . ..... 17 5 Distribution of Potato Producer Interviews by Selected Departments and Municipios . . . . . . . . 41 6 Per Capita Potato Production, 1960-1967 . . . . . . 49 7 Distribution of Purchases and Sales by Each.Group of Market Participants . . . . . . . . . . . . .. . 56 8 Occupational Characteristics of the Bogota Consumers Included in the Sample . . . . . . . . . . . . .. .. 65 9 Income Per Capita and Purchases Per Capita in Bogota and Zones of the City . . . . . . . . . . . . . . . 66 10 Average Quantity Purchases for Household and Average Number of Potato Purchases Per Month by Zone of Bo- gota and by Type of Retail Outlets . . . . . . ..... 69 11 Consumer Attitudes Toward Conditions in Potato Markets I I I I I I I I I I I I I I I I I I I I I .‘ 72 12 Consumer Preferences for Potato Chips . . . . . . ,. 73 13 Retailer Responses About:Potato Chip Sales . . . ... 74 14 Potato’Farm.Size Statistics from Survey Data and census Data I I I I I I I I I I I I I I I I I I I I 7 9 _15 Average Structural Characteristics of Potato Mhole— salers in Bogota . . . . . . . . . . . . . . . ..... 81 16 Average Strudtural.Characteristics of Potato'Re- tailers in BOQOta I I I I I I I I I I I I I I I I . 81 17 Average Structural Characteristics of Potato Proc- essing Firms in Cali and Bogota . . . . . . . . . . 82 x Table Number 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Retailer and Wholesaler Actitudes About Changes in Number of Firms . . . . . . . . . . . . . . . . Use of Selected Practices by varied Sizes of POtatO Farms 0 a a o o a o o a a a a o o a a a O ‘0 Use of Improved Seed by Potato Producers in Cun- dinamarca, Boyaca and Narifio . . . . . . . . . .... Information Sources About Adoption of New Practices in Boyaca, Cundinamarca and Narino . . . . . . u... Availability in Municipios of Modern Inputs for .Potato Producers . . . . . . . . . . . . . . . .7. Per Hectare Potato Yields for Improved and On- improved Seed Use Based on Potato Farm Size . . . . Survey Potato Yields for Boyaca, Cundinamarca and N” iflo I I I I I I I I I I I I I I I I I I I 0 Comparative Potato Yields in the united States and Colombia and for the Three Largest Producing States in gun country a a a a o a o a a o o a o a o I o I ICA Potato Yields by varieties . . . . . . . . t... Page Number 87 97 98 99 100 103 104 104 105 Farm.Losses for Potatoes Including Land not Harvested Due to Natural Causes and Losses During Harvest . . Parm.Credit Statistics for Potato Producers in Boyaca, Cundinamarca and Narifio . . . . . . . . . . Potato Producer Attitudes About Credit . . . . . . Changes in Caja Agraria Loans from 1960 to 1966 for Eleven Crws I I I I I I I I I I I I I I I I I v I I Reasons for Adopting Improved Practices in Potato Prqutj-on I I I I I I I I I I I I I I I I I I 0 I ' I Price variation in Bogota, Cali and Pasto,.l955 - 1968 I I I I I I I I I I I I I I I I I I I I I w. II Total Product variation in Cundinamarca, Boyaca and “"150, 1955-1966 I I I I I I I I I I I I I I I I I Potato Price variability as Indicated by Potato Market Participants, for 1967 and 1968 . . . . a. . xi 107 111 112 116 118 130 131 132 Table Page Number Number 35 Major Market Problems Specified by Potato Prwucers I I I I I I I I I I I I I I I I I I I I I 134 36 Potato Prices per Carga (February 8-21, 1968) . . . 135 37 Price Spreads for Potatoes in the Bogota mket I I I I I I I I I I I I I I I I I I b I I I I 136 38 Causes of Potato Producer Income Losses from 1963 to 1968 I I I I I I I I I I I I I I I I I I 0 138 39 Income Problems of Potato Retailers and Whole- salers I I I I I I I I I I I I I I I I I I " I I I I 139 40 Liquid Capital Sources for Potato Wholesalers in Bogota . . . . . . . . . . . . . . . . . . . . . 140 41 Ownership of Potatoes in Transit to Bogota . . . . 142 42 Backhauls from.Bogota for Potato Truckers . . . . . 142 43 Potato Flows Entering and leaving Bogota as an Indication of Backhauling . . . . . . . . . . . . . 143 44 Storage of Potatoes by Potato Producers . . . . . . 146 45 Producer Reasons for not Storing Potatoes . . . . . 147 46 Frequency of Potato Purchases and Average Stocks in Bogota Retail Outlets . . . . . . . . . . . .. . 148 47 Problems Inhibiting Storage by Wholesalers . . . .. 148 48 Producer and Wholesaler Reactions to Governmental Storage Operations . . . . . . . . . . . . . . . . 150 49 vertical Integration in Potato Distribution in ago“ I I I I I I I I I I I I I I I I I I I I I I 153 50 Producer Sales Agreements . . . . . . . . . . . a. 154 51 Affirmative Responses to Reasons for Purchasing from Specified Suppliers for Wholesalers and Retailers ‘I I I I I I I I I I I I I I I I I I I o I 156 52 Potato Narket'Participant Reasons for not Partici- pating in.Forma1 Purchase and Sale Contracts . . 157 53 Affirmative Responses to Cooperation by Potato Market Participants in Production and Distribution .. . . 158 xii Table Page Number Number 54 Cash and Credit Sales by Potato Producers . . . . . 159 55 Credit Purchases and Sales of Potatoes by Retailers in Emot‘ I I I I I I I I I I I I I I I I I I I I I 161 56 Reasons Given by Potato Retailers and Wholesalers for Making Credit Sales . . . . . . . . . . . . . . 162 57 Pricing Behavior of Potato Wholesalers and Retailers I I I I I I I I I I I I I I I I I I I I I 166 58 Price Information Sources for 14 Commodities Produced by Colombian Cagpesinos . . . . . . . . . 167 59 Information Sources for Potato Market Participants. 168 60 Wholesaler and Retailer Purchase and Sale Practices Regarding Low Quality Potatoes . . . . . . . . .. . 171 61 Classification Practices of Potato Market Participants in Purchases and Sales Including the Percent Using Each Practice and the Relative Importance of Each Practice . . . . . . . . . . . . . . . . . . . n. . 172 62 Demand Projections for Potatoes in Colombia in 1970, 1975 and 1980 I I I I I I I I I I I I I I I I I I I 180 63 Employment in Potato Production and Distribution in COloubia I I I I I I I I I I I I I I I I I I I I 183 64 Changes in Caja Agraria Potato Loans to Potato Producers and Changes in Total Production for Narifio, Cundinamarca and Boyaca . . . . . . . . ... . . . . 189 65 Producer Desires to Participate in a Price Support Program I I I I I I I I I I I I I I I I I I I I I I 191 I-l Number and Percentage Distribution of Farms and Hectares by Various Farm Size Classification . . . 227 I-2 Number and Percentage Distribution of Potato Farms and Hectares in Potatoes by Various Farm Size Clas- sifications . . . . . . . . ... . . . . . . . . . . 227 I-3 Distribution of All Farms in Colombia, all Potato Farms in Colombia and Potato Farms in Cundinamarca, Boyaca and Narifio . . . . . . . . . . . . . . . . . 228 II-l Aggregate Potato Production Statistics for Colombia 231 xiii Table Number II-2 II-3 II-4 II-5 III-1 III-2 III-3 IVBI Areas Seeded to Potatoes and Production Obtained by Departments in Colombia, 1960-1966 . . . . . . Potato Yields by Colombian Departments . . . . . Potato Production by Colombian Departments . . . Potato Yields by Colombian Departments . . . . . Bogota ‘Potato Prices Deflated by the Consumer Price Index for Workers in Bogota . . . . . .... Ca1i,Potato Prices Deflated by the Consumer Price Index for Workers in Cali . . . . . . . . . . . . Pasto Potato Prices Deflated by the Consumer Price Index for Workers in Pasto . . . . . . . . . . . . Rate of Employment in Colombia by Sectors of the Econow I I I I I I I I I I I I I I I I I I I I Annual Loans by Caja de Crédito Agrario, 1960- 1968 I I I I I I I I I I I I I I I I Caja Agraria Loans to Agricultural Producers by commodities in Colombia . . . . . . . . . . . ,... xiv Page Number 232 234 235 236 238 239 240 243 245 247 LIST OF FIGURES Figure Page Number Number 1 Map of Colombia Including the Major Market Centers . . . . . . . . . . . . . . . . . . . . . 3 2 Map of Colombia Including the Potato Production Departments Studied and Their Major Markets . . . 39 3 Map of Bogota Including Major Sectors of the City Used in the Retailer and Consumer Investigations . 45 4 Map of Colombia Including Interdepartmental Potato Flows in Percentages in 1961 . . . . . . . . . . . 51 5 Distribution of Total Potato Production in the Bogota mket Area I I I I I I I I I I I I I I I I I I I 53 6 Total Potato Production Entering Commercial Channels in the Bogota Market Area . . . . . . . . . . . .. 54 7 Monthly Potato Prices Deflated by the Consumer Price Index for Workers in Bogota, Cali and Pasto . . . 61 8 Theory of the Seasonal Potato Cycle in Colombia . 62 9 Relationship Between Average Per Capita Potato Consumption and Per Capita Income Ranges . . . . 68 10 Relationship Between Per Capita Income and Percent of All Food Expenditure Allocated to Potatoes . . 68 ll Hypothetical Demand Curve for.Potatoes in Bogota . 77 12 Hectares Harvested, Total Production and Yield per Hectare for Potatoes in Colombia, 1948-1968 .. . . 102 13 Deflated Average Loan Size and Total Loans by Caja Agraria to Potato Producers in Boyaca, Cundinamarca Md Nariflo I I I I I I I I I I I I I I I I I I I I 115 14” Input Cost Differences Between ICA and Potato Pro- ducers I I I I I I I I I I I I I I I I I I I I I I 120 15‘ Hypothetical Potato Production Relationships for ICA and Potato Producers . . . . . . . . . . . . . 121 GLOSSARY OF TERMS AND INSTITUTIONS Aflo Grande 9 The largest potato harvest in Colombia representing about 60% of total annual production occurring prima- rily in June, July and August. Asociacion Colombiana de Cultivadores de Papa (ASCOLPA) - The Association of Colombian Potato Producers - Emphasizes assistance to members to increase potato production; displaying interest in processing and storage problems. Barrio - One of the districts or suburbs into which a large town or city is divided. Bodega - Store room or warehouse. Bulto — A measure of weight: 1 bulto = 62.5 kilograms = 137.5 pounds. Cagesino - A peasant. Carga — A measure of weight: 1 Carga = 2 bultos = 125 kilograms = 275 pounds. Carulla - The largest supermarket chain in Bogota consisting of eight retail stores and a central wholesaling warehouse. Caja de Crédito Agrario Industrial y Minero - Caja Agraria - A primary agency administering credit to agricultural producers including potato producers. Centavo - The hundreth part of a peso. Centro de Estudios sobre Desarrollo Economico (CEDE) - The Center for Economic Development Studies - General economic research and a brief study of potato markets in Bogota; presently‘ doing a consumer panel study of food consumption in six Colombian cities. ngpgrativas - Food retail outlets usually patronized by employees of specific public or private companies or institutions. ' Departamento - A subdivision of the country similar to states in the United States. Cundinamarca, Boyaca and Narifio are examples in Colombia. Departamento Administrative Nacional de Estadistica (DANE) - The National Department to Administer Statistics - Comiles census data and periodic data on demographic, economic and agricultural changes. xvi Fanegada - A measure of land area: 1 fanegada = 0.64 hectares - 1.58 acres. Gota - Late blight in potatoes. Gran Central - A large wholesaling warehouse in the food retailing and wholesaling center of Bogota where wholesalers rent a stall. Hectare - A measure of land area: 1 hectare = 2.47 acres = 1.56 fanegadas. Instituto Colombiano_Agropecuario (ICA) - The Colombian Agricultural Institute 4 A federal government supported institution with responsibilities including research, graduate education and extension in the field of agriculture. Instituto Colombiano de la ReformagAgnaria (INCORA) - The Colombian Agrarian Reform Institute - Programs for land settlement land redistribution and irrigation projects; a limited number of loans to potato producers. Instituto de Investigaciones Tecnoldgicas (IIT) - The Technical Institute of Investigations - Conducts food processing research. Instituto Latinoamericano de Mercadeo Agricola (ILMA) - The Latin American Marketing Institute - FAO supported international project (phased out in June 1969), which conducted marketing research and provided a two year training course in marketing for students from all Latin American countries. Instituto de Mercadeo Agropecuario (IDEMA) - The Agricultural Marketing Institute - Has responsibility for price, storage, inter- national trade and other national marketing programs for agricultural products in Colombia. Mitaca - The smallest potato harvest in Colombia representing about 30% of total annual production occurring primarily in January and February. Municipio - An administrative unit or subdividion of a department similar to a country in the United States. P—D System.- A production - distribution system. nga - Potato. Papa de afio - Common potato varieties averaging from 3 to 6 centimeters in diameter. Paps criolla - A Colombian potato with a dark yellow interior averaging from 2 to 4 centimeters in diameter. xvii Peso - The monetary unit of exchange which averaged about 16.5 pesos to one dollar for the research period, (1968). Platano - Plantain, a fruit similar to the banana. Plaza - A market square or market place where primarily food is sold. Pueblo - A town or village. Reten - A check point operated by the police for trucks hauling agricultural and industrial products within Colombia. Sociedad de Aprovechamiento de los Recursos Naturales de Cundinamarca (SARC) — The Society for Profitable Utilization of Resources in Cundinamarca - A departmental development organization that, among other activities, cooperates with IDEMA in potato storage. ' Tienda - A small retail food store usually ranging in size from 200 to 400 square feet and not allowing self service for customers. Tonelada - Is a long ton.All ton measures in this research are long tons. l tonelada = 16 bultos = 8 cargas 1,000 kilogramos 2,000 libras (500 grams/libra) 2,200 pounds (16 oz/pound) Universidad Nacional - The National University in Colombia - Campuses in Bogota, Medellin, and Palmira - Federally funded and trains students in six colleges including Sciences, Engineering, Arts, Human Sciences, Health, and Agricultural Sciences. \ Wisconsin Land Tenure Center - Phased out in June 1969, conducted a teaching and research program on socio-economic problems related to agrarian reform. Yucaa- A root-plant eaten like potatoes commonly called casava in the United States. Zorras - Manual-or animal-drawn carts used in transporting produce. xviii CHAPTER I INTRODUCTION The Problem In attempting to attain economic development, a less-developed country encounters problems unique to its own cultural, social, politi- cal and economic conditions. Colombia, along with most Latin American countries must struggle with at least three major problems which hinder economic development. These problems include a high rate of population growth competing with food production-distribution advancements, a rapid rural-to-urban migration rate causing serious sectoral distortions, and geographic barriers that inhibit improvements in the transportation and communication systems. The potato production-distribution (P-D)l system, an important subsector in the food sector of the Colombian economy, includes Specific cultural, social, political and economic problems. While most potato farms and distribution firms are small and underemployment of labor is common, neither in rural nor urban areas are alternative emplOyment opportunities capable of productively utilizing the excess supply of underemployed and unskilled urban and rural workers. Yet, as Colombia develops, the potato subsector moves to more commercialization acconpanied l A glossory, pp. xvi - xviii , includes the Spanish words and ab- breviations of names of institutions used in the thesis. A production- distribution system will be referred to as a P-D system. by larger, more efficient firms, and displacement of underemployed laborers. Commercialization, however, is hampered by uncertain and risky economic conditions while limited labor alternatives stifle economic growth. Thus, the problems are interdependent, complex and multi-faceted. Geographic Barriers to Economic Integration Colombia is the only South American nation bordering on two major bodies of water: the Caribbean Sea and the Pacific Ocean. Several navi- gable rivers also span great distances of the country. Tropical forests, barren desert lands, temperate valleys, wind—swept plateaus, steaming lowlands, and snow-capped mountains all occur within the Republic.2 Such diversity can support a variety of economic activities but geographic diversity also makes it difficult to stimulate social mobility, to iuprove communication and transportation, and to facilitate numerous other insti- tutional adjustments necessary for agricultural and economic growth. Colombia includes five major market centers, in the cities of Ba- rranquilla, Bucaramanga, Cali, Medellin and Bogota (Figure 1). These market centers service five somewhat separated and relatively well developed economic regions. Other less developed economic regions, such as the eastern planes (Llanos Orientales) and the Pacific Coast remain to be developed. The potato production and distribution system is influenced by these geographic orientations. Because of inadequate transportation and the 2 Preston E. James, Latin America, Third Edition, Odyssey Press, Inc., 1959; p. 100. Caribbean Sea —— Maj or Paved Roads ,«"*=-ranquilla /\ _ - .. - Maj or Unpaved Roads -/~cv~ Rivers //\/A\ Mountain Ranges . Major Market Centers venezuela Pacific Oce- Llanos Orientales Brazil Figure l : Map of Colombia Peru Including the Major Market Centers bulky nature of the commodity, long distance potato flows remain difficult. Potato producers must cope with frost periods and dry seasons which accentu- ate and perpetuate seasonal productivity and seasonal price fluctuations. Though potatoes are not produced in warm climates, they are consumed in these climates despite inadequate or non—existent storage facilities. Thus, income and product losses occur between the two major harvest periods, dictated by frost and dry seasons. The Food Demand and Supply Race Success of the agricultural sector in Colombia depends not only on agricultural reform and development programs, but also upon rates of population growth and migration, and upon economic growth in the urban- industrial sector. A well-coordinated food P-D system, while essential for rural and urban development in Colombia, must be accompanied by ef- fective demographic and macro economic programs. Population Migration and Growth Estimates of the current annual rate of population growth in Co- lombia range from 3.2 to 3.5%.3 At this rate Colombia will double its population in 20 to 22 years. Even if the family planning efforts, now gaining momentum, are reasonably successful, population growth rates cannot decline rapidly because 46.7% of the Colombian population 15 under 3 Robert C. Cook and Jane Lecht, People: An Introduction to the Study of Population, Population Reference Bureau, Columbia Books,Publish- ers, Washington D. C., 1968, p. 60. 15 years of age.4 These young people, many of who. owe their lives to reduced infant mortality over the past fifteen years, will soon contribute significantly to population growth even if they apply. family planning methods. Nearly one-half of Colombia's 19.8 million people are engaged in .agriculture. As in many Latin American countries, rural-to-urban migration continues at a relatively rapid pace, challenging present food P-D systems, income-earning capacities of migrants, and, in turn, the effective consumer demand for food. Bogota, the capital city with more than 2.1 million in- habitants in 1968, experienced a rapid average annual population growth 5 6 rate of 6.8% from 1951 to 1964 , and 6.1% from 1964 to 1968. From 1951 to 1964, the average rate of population increase in the 26 departmental copital cities, which accounted for about one-third of total population, was 7.9a.7 Since urban population was about half of total population, one-sixth of the urban population is not accounted for in the 7.9% rate. The one-sixth unaccounted for probably expanded at a rate similar to the rural population growth rate which would be 1.9% based upon 7.9% urban increase and a 3.54 national population rate of growth. Thus, the rate of population growth in all urban areas was about 5.8%. 4 Departamento Administrativo Nacional de Estadistica, "Colombia Boletin Mensual de Estadistica", Afio XVI, Numero 194, Bogota D.E., Mayo 20 de 1967, p. 11. S U. S. Department of Commerce, Basic Data on the Economy of Colom- bia, prepared by Herbert A. Lindow, No. OBR 6645, July 1966. 6 DANE, unpublished data, June 1968, 7 DANE, XIII Censo Nacional de Poblacion, Resumen General, Julio 15 de 1964. At least two factors contribute to the Colombian rural-to-urban migration phenomenon. Rural poverty and inadequate social services cause a “push" conplemented by the "pull" of hope for a better life in the city. Also, during the 1950's and early 1960's, rural violence created a push to urban areas.8 But, in either case, most migrants leave a sub-culture of peasantry, lacking modern attitudes and skills necessary for effective participation in a modern urban socio-economic system. A sub-culture of peasantry reflects a mutual distrust in - interpersonal relations, lack of innovativeness, fatalism, low aspi- ration levels, a limited world-view, and lack of empathy. Many individuals migrating from a sub-culture of peasantry trans— mit a low income and tradition bound socio-economic status to urban areas which contributes to the culture of poverty, a typology advanced by Oscar Lewis.10 Urban-oriented economic and social traits such as unemployment and underemployment, low wages, lack of skills, low educational levels and feelings of resignation and fatalism.here constitute the culture of 11 poverty. Urban poverty traits often involve traditional orientations 8 Mons German Fals Borda, and Eduardo Umafia Luna, La Violencia en Colombia, Ediciones Tercer Mundo, Bogota, Colombia,l962. 9 Everett M. Rogers, Peasant Modernization: The Igact of Com- munication, New York, Holt Rinehart and Winston, 1968. lO Oscar Lewis, The Children of sanohez, Vintage Books, 1961, (see the preface where Lewis describes the culture of poverty and ‘ lists over twenty traits). 11 A sub—culture of peasantry and a culture of poverty inply a homogeneity within these groups that does not exist. The terms are a theoretical approach to the problem. It is probably true, however, that many socio-economic traits are relatively common both within and between the two general distinctions. similar to traditional traits of peasants. Poverty-stricken urban dwellers either have just migrated or have not achieved socio—economic mobility from a.poverty position of migrant ancestors. Aside from individual deprivation, these peasantry and poverty traits significantly restrain the effective demand for agricultural products. Thus, while mobility alters cultural orientations, numerous tra- ditional characteristics are retained, reinforcing a culture of poverty and a lagging consumption sector. Bonilla presents this issue in the following manner: It may turn out that insofar as mobility is oriented toward occupation or social groups whose status and style are importantly rooted in traditional values... mobility far from impelling change serves to reinforce tradition... The city grows irrationally because life in the rural areas is intolerable; the faster the city grows, the less urban it becomes. Regardless of the cause of persistence of acute poverty, the low level of income and productivity of three-fourths of Colombia's population, contributes little to agricultural and general economic development because 13 of a limited effective demand. Agricultural producers, except where export potentials are high, will always be dependent upon the effective demand of domestic consumers 12 Frank Bonilla, "The Urban Worker", in Continuity and Change in Latin America, edited by John J. Johnson, Stanford University Press, Stanford, California, 1964, p. 190 a 188. 13 "If half or more of the papulation economically do not exist, or are unemployed, and if only, say, 20 percent of the remainder can exert a really effective demand for goods, the market is considerably smaller than appears at first sight” Lauchlin Currie, Accelerating Development, The Necessityyand the Means, McGraw Hill, 1966, p. 45. which will not be enhanced by driving rural peasants to urban poverty. An essential aspect of economic development is the distribution of consumer purchasing power, which is affected by rates of population growth and migration. Distribution of Income Income distribution critically affects the effective demand for food, and the levels of nutrition. All of the potential food production and distribution system improvements within the grasp of Colombian insti- tutions cannot solve consumption and nutrition inadequacies when income distribution remains highly skewed. The average per capita income in Colombia was $254 dollars in 1967. The rural income per capita was $167 dollars while urban per capita income was $352 dollars. Table 1 indicates that rural incomes, although about 50% of urban incomes, are increasing more rapidly. This phenomenon can be explained by the rural-to-urban migration of low income famdlies. Even though these low income, unskilled migrants may increase their incomes slightly above the average rural income level by moving, they usually. do not achieve incomes in excess of the urban average. Thus, urban income growth’is stifled somewhat by rural-to-urban migration. Exact data on distribution of income within the urban and rural sectors are not available. Distribution of farms and farm land, in- directly explains the income earning base for rural people (Appendix I, Table I-l). Only 4.5% of the farm.1and (less than 5 hectares per farm) is owned by 62.6% of the Colombian farmers, while 3.5% of the farmers own 66% of the land (100 hectares or more per farm). Distribution of urban incomes is closely related to the esployment-unespl'oyment Table 1 : Per Capita Income Levels in Colombia, 1960-1967 Per Capita Incomea 1960 1961 1962 1963 1964 1965 1966 1967 National 234 238 242 242 248 243 263 254 Urban 338 335 331 331 336 330 345 352 Rural 145 153 163 162 167 162 .165 167 Index og Growth National 99.1 101.2 102.9 102.9 105.5 103.4 107.6 108.0 Urban 100.4 99.5 98.3 98.3 99.8 98.0 102.5 104.6 Rural 97.3 103.3 110.0 109.4 112.9 109.4 111.4 7112.8 ‘1?— a In US dollars b An index of change (base is 1960-1961 = 100) Source: U. N. Economic Survey_of Latin America - 1965 Economic Commission for Latin America, New York,.1967, p. 201: Los Problemas del Crédito Agrgpecuario ygel Desarrollo Economico en Colombia, trabajo pre- sentado a1 Seminario Latino Americano sobre Crédito Rural en el Salvador, Octubre 1968, Cuadro No. 2; and Departamento Administrativo Nacional de Estadistica, "Boletin Mensual de Estadistica", Bogota, Colombia S.A. situation. Only 74% of the urban workers were esployed more than six months per year in 1964 and the rate of annual unemployment was about 21% (Appendix IV, Table IV-l). Agricultural Production and Distribution Population growth rates, migration trends and changes in per capita incomes place specific requirements upon the agricultural sector. Growth rates in agricultural production and in development of food 10 distribution facilities must accelerate rapidly to keep pace with demographic changes. A simple exercise gives an indication of needed productivity changes within the Colombian agricultural sector.14 The equation D= Pr + Ei (N) is applied where D= rate of increase in effective demand, Pr = the rate of annual population growth, Ei = the income elasticity and N the rate of in- crease in per capita income. This equation will yield a general guide to production requirements. Table 2 indicates a range of possibilities because (1) the figures Table 2 : Estimated Required Rates of Increase in Food Productivity Based on varied Rates of Growth in GNP and Population and Different Income Elasticities of Demand GNP Growth Rate 4.5 5.5 6.5 Population Growth Rate (Pr) 3.0 3.5 4.0 3.0 3.5 4.0 3.0 3.5 4.0 GNP/Capita Growth Rate 1.5 1.0 0.5 2.5 2.0 1.5 3.5 3.0 2.5 (N) Required Rate of Increase in Food Production 'Income .4 3.6“ 3.9 4.2 4.0 4.3 4.6 4.4 4.7 5.0 Elasticity _ of Demand .6 3.9 4.1 4.3 4.5 4.7 4.9- 5.1- 5.3 5.5 (Bi) .8 4.2 4.3 4.4 5.0 5.1 5.2 5.8 5.9 6.0 a For ease of co utations this assumes that GNP/bagita ? GNP + P°' pulation, even hough an exponential factor shoul be included for explicit accuracy. These computed rates are, however, reasonably accurate. ' 14 For a more detailed discussion of food reguirements for developing. countries, see Robert D. Stevens, "Rates of Growth in Food Requirements During Economic Development? Journal of Farm.Economics, Dec. 1965, Vbl. 47, No. 5, pp. 1208-1212. 11 for rates of growth and income elasticity are not firmly agreed upon by social scientists and growth specialists: and (2) given the ranges, we can speculate about demand requirements under varied conditions. The annual rate of growth required in agriculture production ranges from.about 4.1% to 4.7%,assuming the present population growth rate to be 3.5%,an income elasticity of demand for food at 0.6,and the GNP growth rate at 4.5% to 5.5%.15 Given the present population age distribution, a 4% population growth rate remains conceivable, and,when combined with an optimistic GNP growth rate of 6.5% and a 0.6 income elasticity, the required rate of growth in agricultural production is 5.5% per year. Some crop production specialists in Colombia feel that a 7% growth rate in food production is within the technical capacity of adapted varieties and land potentials?6 Without expanding areas planted to potatoes, the annual rate of increase in production could probably exceed 7%. Most of these increases would result from planting improved varieties and application of improved seeding practices. Food production potentials surpassing present growth rates have been possible in Colombia for several years. Why have these potentials not been accomplished? One explanation is that the food distribution system must be rationalized in order to meet both consumer and producer needs. Even if higher rates of production were attained, the impact on 15‘ The real rate of growth in 1968 was 5.5% and in 1967 it was 4.0%. See USDA-ERS, The Agricultural Situation in the Western Hemi- sphere, ERS-Foreign 261, Washington D.C., April 21, 1969, pp. 11112. 16 Comment by U.S. Grant, (Rockefeller Foundation) in a Seminar on the Colombian Agricultural Economy, Bogota, Colombia, July 23, 1968. 12 the food situation in Colombia would be slight unless the product marketing system were improved.17 Similarly, producers seeking to modernize their farm enterprises demand numerous inputs from the non-agricultural sector for which the distribution systems often are inadequate or non-existent. Distribution requirements for an expanding agricultural production sector exceed the production growth rate. Concerning product markets, for example, a Colombian camesino family (small peasant farmer) pro- ducing 40 bultos (62.5 kilograms or 137.5 pounds) of potatoes may, with his family consume 30 bultos and market 10 pglppg. Should he increase his potato production by 10 bultos (a 25% increase) and continue to consume 30 bultos, his potatoes sent to market-will increase by 100%. Augmenting production by 25% without expanding land use also requires improved practices and probably more purchased inputs which solicit significant increases in service market activities. Some, but not all, product and service market facilities overlap. Simply aug- menting potato production by 25% and marketing this produce would require increases in social overhead facilities, service market facilities and product market facilities of significantly greater magni- tude than the production increase itself. Percentage increases in potatoes marketed by individual farms cannot be translated directly to market facility growth requirements because of aggregation and adjustment problems. The problem also may be illustrated by changes in the food demand structure. If the urban 17 See Martin Kriesberg, "Marketing, Middlemen, and Mirales", International Agricultural Development Service, A paper prepared for presentation at the St. Joseph's Academy of Food Marketing, Philadelphia, May 27, 1968. 13 population growth rate is 6% and per capita income increases at 2% with the income elasticity of demand for food equal to 0.6 the increase in demand for market services would be 7.2%. So demand for market services increases more rapidly than total demand for food previously estimated at 4.7% per year in Table 2 when per capita income increases at 2% annually. It is probably fair to say that distribution of food and farm inputs presently lags behind phys1cal production potentials. Reducing this barrier to improved food production and distribution, while ex- 18 tremely important, will be a difficult task for the Colombian government. Agricultural Marketing_in Development A well coordinated P—D system for food, while not capable of solving population migration problems, unemployment and underemployment problems, and income size and distribution problems, can contribute to balanced rural and urban growth and lessen the impact of these problems. A national market strategy proposed by W.W. Rostow suggests that agri- cultural and industrial growth can be self-reinforcing. His strategy involves an interdependent set of activities to be performed simul- taneously: 1. A build-up of agricultural productivity, 2. A revolution in the marketing of agricultural products, 18 See Herman Felstehausen, Local Government and Rural Service Barriers to Economic Development in Colombia, the Land Tenure Center, 68LTC - 10, June 1968. l4 3. A shift of industry to the production of simple agricultural equipment and inexpensive consumer goods for the mass market, 4. A revolution in marketing methods for inexpensive manufactured goods, especially in rural areas. This overview of the market system as a coordination mechanism for balanced economic growth, implies a need for solving specific problems. These problems become evident by evaluating market coordination techniques and market performance criteria which are unique to each socio-economic system. To evaluate market coordination and market performance in the potato P-D system requires an understanding of attitudes, beliefs and values con- cerning expectations for the system. Evaluation and reform processes are determined in part by the system.under study. The criteria, such as efficiency, yields, losses, product quality, employment, progressiveness, product distribution and income distribution suggest how the P-D system is coordinated. Based upon this evaluation, specific problem.areas can beridentified and recommendations specified for developing a market system capable of coordinating an economic growth process in both rural and urban areas. The Potato Subsector in Colombia For several centuries the geography of potato»production and con- sumption has followed the ecological adaptations of people native to 19 Walter W. Rostow, View from the Seventh Floor, New York: Harper and Row, 1964, pp. 135 & 136. 15 South America and Colombia.20 Potatoes originated in the New WOrld, and the first recorded observation of their production occurred during the Spanish conquest of Peru in 1532. The potato was probably domesticated before the Inca empire began but the exact date is not known. Pedro de Cieza de Leon in Cronica del Peru, 1538, describes the potato and its preparation in the areas around Quito, Ecuador, and Pasto and Popaydn in Colombia. From South America, the potato was sent to Spain in 1570, to England in 1596, and later to all temperate production regions of the world to become an important food crop, as it had been for the Incas and their forefathers. As early as the sixteenth and seventeenth centuries, potatoes were frozen, dried and preserved by Indians in the Peruvian Andes. During the evenings, potatoes were placed in large, shallow earthen basins filled with water. The potatoes froze during the night and were removed from the basin and permitted to thaw the following morning. The Indians then walked on the potatoes with bare feet without breaking the potato skins, thereby forcing all of the moisture out of the soft tubers. Finally, the tubers were dried in the sun, resulting in a dehydrated potato capable of reconstitution with water. Thus, spoilage and surplus problems were reduced by preserVation and a stable food supply during off-seasons and years of inadequate harvest became a reality. 20The following brief history of potatoes is summarized from Hawkes, J.G. "Cinco Conferencias Sobre el Mejoramiento de la Papa", Boletin Técnico No. l, Ministerio de Agricultura y Cris, Direccion de Agriculture, Instituto Nacional de Agriculture, Maracay, venezuela, Junio 1951, p. 53. 16 Today more sophisticated preservation techniques are available to reduce loss problems, but these techniques remain virtually unexploited in Colombia. Seasonal production patterns continue to influence the Colombian potato subsector. ‘ Farms growing potatoes, in general, are smaller than the average farm size in Colombia (Table 3). Approximately 108,000 producers or 8.3% of all fiarms'were engaged in potato production in 1960. Appendix I contains detailed farm size classifications for all farms in Colombia and potato farms in particular. Table 3 : Comparative Farm Size Data for Potato Farms and all Farms in Colombia Less than More than 100 1 hectare hectare Potato Farms: (percent) Proportion of Farms 70.8 ' 0.01 Land Area 25.6 1.5 All Farms: Proportion of Farms 24.7 3.5 Land Area 0.5 66.0 Potato Farms as a Proportion of all Farms: Proportion of Farms 25.7 - Source: Appendix I 17 It is impossible to present the aggregate income value of Colombian potato production with precision. Table 4 presents ranges based upon the varied aggregate production estimates found in Appendix II, Table II—l. The lower estimate in terms of measured national income is probably more accurate because it represents more closely sales through commercial channels. Thus, from 1960 through 1965, the commercial value of the pota- to‘ subsector represented about 2.4% of rural income while the value of total potato production averaged about 4.2%. These estimates do not include the 1964 values because it was an abnormal year with very high prices before a very large harvest and only unweighted average prices are available to determine the value of production estimates. Tabla 4 : Value of Colombian Potato Production at the Farms Compared to Rural Income (in million of dollars) ---- -- -_ ~——------~ - Farm Value of Value of potato Potato Production Rural production as % __‘__ _ Income ‘_ ______ of rural income_ Commercial All Commercial All Sales Production Sales Production 1960 33.1 49.9 1,203.6 2.8 4.1 1961 33.5 71.7 1,3001) 2.6 5.5 1962 27.7 44.7 1,411.3 2.0 3.2 1963 41.6 76.3 1,434.0 2.9 5.3 1964 73.8 141.0 1,519.2 . .3 1965 28.2 45.5 1,532.4 1. 3. a Source: Value from Appendix II, Table II-l converted to dollars by using the exchange rate presented in Revista del Ban- co de la Republica, Bogota, Colombia, Febrero, 1968, p. 300. H.N. Economic Survey of Latin America 1965, United Nations, New York 1967, p. 201. 18 The potato subsector includes many stages of growth and develop- ment. Numerous producers grow potatoes without any source of animal or tractor power, some use animal power, and some farms are large, mechanized, modern firms. Transportation varies from mule or donkey over narrow trails to boats on the rivers and trucks on modern highways. Most markets are primitive and price bargaining is common, but a limited number of super- markets are by-passing the traditional markets by purchaseeagreements. Beth rural poverty and modern farms are evident in the potatotsubsector. Potato consunption per capita varies from near zero in the warm coastal regions to over 100 kilograms in the potato production areas located in cool mountain regions. Like many agricultural subsectors in developing countries, the potato subsector in Colombia requires careful stimulation by the govern- ment because of the number of low income and underemployed individuals involved. The time for concern now is upon the Colombian government because most of necessary tools for technical modernization of the sub- sector are rapidly becoming available. An approach to modernization must account for both economic and social problems in the potato subsector, the agricultural sector and the Colombian economy. Thesis Plan Orientation in General The lack of descriptive material about the P—D system for most products in Colombia, and particularly potatoes, requires that this research report first describe and analyze the production and distri- bution system for potatoes in an attempt to identify the primary l9 interdependent factors influencing coordination and performance. The potato P-D system influences not only the agricultural economy but also the national economy. Hence, the research analysis and recommendations consider both micro and macro economic factors that affect potato production and distribu- tion as well as how the P-D system for potatoes contributes to and/or in- hibits growth within the agricultural sector and the national economy. The research results and recommendations should be usable by both research and action agencies and should provide an understanding of the potato P-D system upon which further research can be initiated. The analysis also contributes to a small, but expanding, body of marketing research in the Colombian agricultural sector. Finally, it is hoped that the research will contribute to a better understanding of the role of agricultural marketing in both agricultural economic development and general economic and social development. Objectives Several general objectives of the research, while difficult to fulfill, provide important guidelines to useful market research programs. Of primary interest, is the role of agricultural marketing systems in economic development. One research project cannot specify this role, but a contribution can be made, by understanding how market coordination 21 influences the P-D system for potatoes in Colombia. The role varies 21 This research will complement a larger body of research on this topic. The Michigan State University, Agency for International Development- Latin America Food Marketing Study (LAFS) and the related Latin American Market Planning Center (LAMP) are extensive research and planning programs which assess the role of agricultural marketing in economic development and investigate Rostow's national market strategy. Direction for the project, with research completed in Puerto Rico, Northeast Brazil and Bolivia and research underway in the Cauca Valley of Colombia, comes from Dr. Harold M. Riley and Dr. Donald Taylor at MSU. 20 among countries and will only be specified by evaluating specific product industries. A second objective of the research is to identify general per- formance criteria or goals and then evaluate performance in the potato P-D system. Performance goals, while displaying some common character- istics, differ between and within economies, sectors and subsectors. Thus, the analysis identifies conflicting goals and the research and recommendations illustrate alternative solutions. Specific and operational objectives of the thesis are: 1. To describe the existing potato P-D system including the adoption of improved production practices, and coordination processes in distribution. 2. To conduct a diagnostic investigation of interdependent problems in modernizing the production process and im- proving coordination in the P-D system. 3. To identify alternative means of improving this P—D system while conSidering both economic and social goals for develop- ment. Two sub-objectives are implied: a) to identify those problems directly related to growth and development within firms, and b) to identify alternative macro economic and institutional policies related to growth and development in the potato subsector. 4. To recommend methods for improving the performance of the potato P-D system as a part of agricultural and economic development in Colombia. The analysis to fulfill these objectives required the use of primary data collected by field interviews and organization of secondary 21 data. The field interview process was directed to every level of product market participation from.producers to consumers. The primary market areas studied were Bogota, and Cali and producers in Boyaca, Cundinamarca and Nariflo. Secondary data collection involved a difficult task of locating relevant data and determining why major discrepancies between sources occur in order to specify the data sources for use. Depth interviews with the data collection agencies helped solve this problem and provided information necessary to describe the major institutions associated with the potato subsector. Further in-depth study involved members of the potato production program and the agricultural engineering program at the Instituto Colom- biano Agropecuario (ICA). This research helped specify the technical production problems involved in modernizing the potato production, storage, transportation and processing functions. Numerous individuals were called upon for ideas about future policies and programs to improve performance of the potato P-D system. A ghgpter Brief The first part of the thesis, including Chapters I and II, gives a brief overview of the Colombian economy, a sketch of the potato marketing situation, a general market research philosophy and the research methodology because geographic and demographic conditions significantly influence agri- cultural production and distribution in Colombia, a brief description of these factors has been included in the first chapter. General rate of growth requirements for agricultural production and distribution are also included which provide the macro economic setting within which the potato 22 P-D system operates. In Chapter II a market system is defined. The relevant performs ance goals are specified and serve to orient the analysis and presentation that follow. Finally, the presentation of the research methodology applied in the field investigations discusses how sampling and interview techniques were adapted to an area of research where secondary data and experience were either nonexistent or conflicting. The structural and functional aspects of the potato P-D system are described in Chapter III. General production and distribution relation- ships including regional production, market channel flows and price move- ments are presented. The consumer assumes an early position of iuportance because ultimate use and acceptance by consumers dictates success or failure for producers and distributors. A description of the organizational structure of the potato subsector and the institutions that influence change in the subsector complete the chapter. Chapter IV discusses adoption of improved practices, potato yield results and management decisions of potato producers as major indicators of institutional success in augmenting growth and development in the potato subsectOr. The chapter presents the role of credit institutions and technical assistance institutions in modernizing the potato production process. As a counterpart to Chapter IV, Chapter V discusses coordination of the potato distribution process. Price instability provides the central problem for potato market participants. Both physical and facilitative coordination processes are described and diagnosed to determine their ability to reduce price fluctuations. The final part of the thesis, including Chapters VI and VII, 23 presents and evaluates policy alternatives for improved performance in the potato P-D system. Discussions of the future for the potato sub- sector, and economic and social problems related to the subsector are congruent with the major performance goals presented in Chapter II. Given these goals and the macro economic considerations, discus- sions of credit policies, price and storage policies, information system.policies, and research and development alternatives illustrate possible future performance goals for potato production and distribu— tion processes. A general summary and conclusions appear in Chapter VII. Recommendations for market reform programs attempt to select specific lines of action that will fulfill competing policy and performance desires. CHAPTER II THE RESEARCH PLAN An Approach Numerous conceptualizations of agricultural market systems appear in the literature, some very SpeC1fiC and limiting, others more function- al and encompasSing. The broad approach explained below serves as a general guide to this research effort. To Define a Food Production-Distribution System A food P-D system, in its broadest sence, extends from within the farm enterprise to encompass input procurement and information seeking, and to and beyond consumer purchase including consumer satisfaction and welfare. More specifically, in discussing the Latin American Marketing Project, Riley views "the agricultural production-marketing system as a set of vertically related, interdependent activities which relate con- 22 sumers, retailers, wholesalers, processors, assemblers, and farmers. A food production-distribution system is defined to include the physical production system, the physical distribution system and the 22 Harold M. Riley, "The Changing System of Agricultural Pro- duction and Marketing", in The Role of Food Marketing in the Economic Development in Puerto Rico, Seminar Summary, Edited by Robert W. Nason, Published by the Latin American Studies Center, Michigan State Uni- versity, East Lansing, Michigan, 1966, p. 53. 24 25 23 exchange system. The physical production system includes those physical facilities, firms and institutions suCh as farms and food processors that create or physically transform a product. A physical distribution gystem includes those physical facilities, firms and institutions involved in physical movement of products through time and space. Finally, coordina- tion of the production-distribution process is acconplished by the ex- change system. The exchange system includes those market activities that unite buyers and sellers to accomplish the processes of bargaining and exchange of commodities. Market coordination includes the dynamic processes that interact within the exchange system. The set of institutions forming the ex- change system must determine who will produce, what products will be produced, what resources will be used, where products will be produced, and who will consume them.24 Market coordination then facilitates the dynamic processes by which producers, distributors and consumers interact through information exchanges, establishing conditions of exchange, and finally the legal and physical exchange of products.25 Thus, there are two important flows occurring within the food P-D system. Farace explains this issue by saying: 23 C.S. Slater and Harold M. Riley, et.al., {god Marketing in the Economic Development of Puerto RicoL Research Report No. 1, Latin American Studies Center, Michigan State University, 1969, pp. 11 & 12. 24 Ibid, 25 Kelly M. Harrison, Agricultural Market Coordination in the Economig Development of Puerto Rico, (unpublished Ph.D. dissertation,Michigan State University, 1966), p 68. 26 It appears that the major role of communication is to aid in facilitating coordination of the production and consumption sectors of the economy. Along with flows in goods and services, or labor, capital, raw materials and supplies, there exists a ,concomitant flow of communications about these things and their inter-relationships.26 Underlying these two flows are the interrelationships between prices and economic incentives. Price is not simply an information mechanism; it is also an indicator of potential profits which in turn stimulate economic activity. The Role of Agricultural Marketing in Development Only within the past decade has attention been given to the role of marketing in economic development.27 Neglect of marketing in the growth process by development economists and policy planners, according to Holton, stems from several reasons.28 First, the distribution process tends to yield intangible marketing services in contrast to production of physical goods which are more easily equated with an improved real level of living. A second reason, associated with the first, is that less developed countries have difficulty in evaluating contributions made by 26 R. Vincent Farace, "Communication Behavior and the Latin American Food Marketing’Process: Some Preliminary Findings", in The Role of Food Marketing in the Economic Development of Puerto Rico, Seminar Summary, Edited by Robert N. Nason, Published by the Latin American Studies Center, Michigan State University, East Lansing, Michigan, 1966, p. 77. 27 For a very comprehensive review of literature including theories of economic growth, the role of agricultural marketing in development, and the national market see Kelly Max Harrinson, Op.cit., pp. 14-33. 28 Richard H. Holton, "Marketing Structure and Economic Develop- ment", Ouarterly Journal of Economics, Vol. 67, August 1953, pp. 344- 361. 27 the distribution sector to employment and net income. Third, inefficient market systems in less developed countries provide employment for the otherwise unemployed participants. And finally, economists have been predisposed to ignore the dynamic role of an improved distribution system in increasing real incomes. In discussing the role of agriculture in economic development, Witt reviews the history of economic thought concerning agriculture and development. He states that after ignoring agriculture for several years a "more recent view is that agriculture is an intimately interrelated sector in the development process. It has a role to play, but so do other sectors. A balance of effort is needed, whatever that may be,"29 At least three divergent positions specify possible roles for agricultural marketing in economic growth. These positions encompass the trend in economic development thought from lease: to greater emphasis on market processes. Some believe or have assumed that an evolving agricultural market system follows or passively accoupanies production changes in the agri— cultural economy. That is, the agricultural market system.adapts itself to prevailing institutions and economic trends, but it is not a dynamic or leading force for agricultural development. As a follower, marketing provides neither necessary nor sufficient conditions for agricultural and economic development. Instead, a marketing system results from economic and institutional change within agriculture. This approach 29 Lawrence W. Witt, "Role of Agriculture in Economic Development", Journal of Parm.Economics, vol. 47, No. 1, February 1965, p. 122. 28 upholds a general lack of emphasis on market system analysis and reform as development tools. This train of thought frequently accompanies the belief that industrialization will lead the way to economic development, including agricultural development, and little emphasis, if any, is given to market mechanisms. While emphasis is given to agriculture as a source of labor, tax returns, and food, investment esphasis is placed upon the industrial sector in arguments, such as the "bigspush" or 'bootstraps".30 Food becomes a primary input for economic development but little thought is given to production and distribution of the food except that the agri- cultural sector must become commercialized. Agricultural marketing as a development-fomenting mechanism pro- vides an opposite approach to the role of the market system. As a fo- menting system, appropriately instituted market coordination techniques serve as a leading catalyst to agricultural development and ultimately urban and industrial development. Based upon a very precise interpre- tation of this thesis, if a country can develop an adequate market system. to fulfill its own needs, development would follow. Thus, the market in a fomenting role becomes both a necessary and sufficient condition for economic development. The basis for this research program is that agricultural marketing systems are both facilitating and coordinating mechanisms and are neces- sary but not sufficient for agricultural development. This is the third 30 See Gerald M. Meier, Leading Issues in Development Economics, Oxford University Press, 1964, pp. 92, 416, & 431-440 for discussions about the "big-push" argument; and Benjamin Higgins, Economic Develop- ment, W.W. Norton & Co. Inc., New York, 1959, pp. 457-463 concerning the "bootstrap" thesis. 29 view of the role of agricultural marketing; it both foments and follows change. In giving credence to this view Rostow embasises a critical position for the market system in bringing about “balanced“ growth between the rural and urban sectors in less developed countries. Without interdependent growth stimuli within the sector it may be impossible for a market system to either foment or follow agricultural development. Collins and Holton present this dilemma by stating'that, ...automatic transformation of the marketing system may be impeded if the economies of scale in distribution are much greater than in production; under these circumstances the proper kind of distributive sector may not develop until the new pattern of production has already been established, but the establishment of this new’pattern of production may in turn be dependent33n the existance of the right kind of distributive sector. Both produce markets and factor markets must be considered in this process. Factor markets including both public and private input suppliers significantly affect production and distribution of agri- cultural products. Recent work by Michigan State University, and a dissertation by Larson investigates and emphasizes the role of factor markets.33 The present research does not conprehensively analysethe 31 Walter W. Rostow, op. cit. 32 N.R. Collins and R. H. Bolton, "Programming Changes in Marketing in Planned Economic Development", in Agriculture in Economic Develgppent, Edited by Carl Eicher and Lawrence Witt, McGraw-Hill Book Comany, 1964, p. 365. 33 C.S. Slater and Harold M. Riley, et.al., Market Processes in the Recife Area of Northeast Brazil, Research Report No. 2, Latin America Studies Center, Michigan State University, 1969; and Donald Walter Larson, Diagnosis of Product and Factor Market Coordination in the Beganndusggy, (unpublished Ph.D. dissertation, Michigan State University, 1968). ‘—— 3O factor input markets that affect the potato sector because of the magnitude of the product market studies. The factor market aspect, nevertheless, should not be ignored. Often both large and small agricultural producers are reluctant to apply new innovations because of the risk of losing their limited capital where market outlets remain so tenuous. Even more threatening for the small producer is the risk of failing to produce enough for a minimum subsistence. In summary, the agricultural P-D system is an important aspect of economic development. Recently Gaitskell has emphasized agriculture‘s place with industry in economic development. He argues that, if agriculture is neglected, the chances of progress are very heavily restricted, and grave social, political and economic tensions may occur ... the optimum pattern is not haphazard investment in industry ... but rather a deliberate complementary advance of agriculture and industry, with agriculture supplying food and many raw materials for local processing industries and industry supplying the inputs for modernizing agriculture plus the consumer goods to liven up the rural areas. 5 And it can be added that this interdependent development process will only become possible as the market systems between rural and urban areas become capable of facilitating the increased economic activity. The problem of development causality can be shifted to one of development interdependence. And the interdependent growth mechanisms emcospass agriculture and industry with the market system.linking the two. Interdependence has been described by Zetterberg in a.sisple but 34CliftonR. Wharton, Jr., “The Economic Meaning of Subsistance ', Malayan Economic Review, October, 1963. 35 Arthur Gaitskell, “Ilportance of Agriculture in Economic Develop- ment“, in Economic Develgpsent of Tropical Agriculture by W.W. McPhearson, University of Florida Press, Gainesville, 1968, p. 55. 31 36 significant manner. He asserts that small increments in a single variable facilitate increments in a second variable, and the resulting increment in the second variable further creates increments in the first. This can be a multivariable system. Zetterberg continues by saying that extremely large increments in one variable probably will .not facilitate large changes in the other variables. The large change, so often sought, occurs by a series of well instituted small inter- acting changes. This is the essence of interdependence and the essence of the agricultural market system as a development mechanism. -Thus, improved and rationally coordinated market systems facilib tate economic growth by both cause and effect relationships which parallel and integrate with other growth mechanisms such as increased agricultural productivity, social change and industrial development. Performance Evaluation The research problem is to evaluate the facilitative and coordi- native capacity of the potato P-D system as a guide to market reform programs. Shaffer presents a very useful research approach in an explanation of three distinct research attitudes. For exaqale, a pure science attitude desires to learn how markets function only for the purpose of knowing how they work and for developing market theory. An engineering attitude accepts a problem as given and proceeds to a solution. A clinical attitude defines the problem before proceeding to a solution. 36 Hans L. Zetterberg, On Theory and Verification in Sociology, 3rd enlarged edition, the Bedminister Press, 1965, p. 73. 32 A major difference between the clinical attitude, as I am defining it for our special purpose, and the engineering attitude is that the clinician does not accept the client's definition of or diagnoses of the problem. He considers it part of his responsi- bility to identify symptoms and diagnose the problem. He does not assume that the client knows or can articulate his problem.and neither does he assume necessarily that the client really wants the truth and is anxious to act upon it. Rather than finding a means to achieve a clearly defined ends he perceives the identifi- cation of the problem as a major task. The clinical attitude provides an approach to market research and serves as a guide for this research project. Probably, application of the clinical approach to market research programs in less developed countries is even more important and undoubtedly more difficult than in more highly developed countries. While the present effort is not cross-cultural in orientation, one must not forget that the author is North American, but the subject matter is South America. Thus, some cross-cultural judgements and conclusions are inevitable because, even with counsel from a good staff of Colombians, one can not completely free himself from engrained attitudes of his own culture. Three cross-cultural research problems mmst be recognized: 1) Non- cogalwility of terminology. Even when words and phrases can be given a denotative translation, one is frecuently uncertain about the connotation. To phrase questions correctly or to be correctly understood is difficult in one's native language and at one's own social and educational level. But cross-cultural, educational, and social adjustments are necessary because language is culture-bound and only one of numerous communication methods. Preparation of varied interview devices for each socio-economic 37 James D. Shaffer, "Some Conceptual Problems in Research on Market Regulations", in Federal State and Local Laws and Regulations Affecting Marketing, (NCR-ZO) No. 5, Regional Res. Bul. No. 168, No. Dakota State University, September, 1965, p. 10. 33 level at various stages in a market channel requires an understanding of different culturally-oriented behavior patterns. 2) Non-cppparability in normative evaluations extends the language problem to absorb inter- pretational problems of communication which differentiate cultures. One's interpretations of normative practices again becomss'tainted by the cultural differences between the investigator and the investigated. Normative problems may or may not be emphasized and may or may not be important because of.cross-cultura1 differences. A major normative issue is not how we ask the question but whether the question should be asked or whether it is the correct question. 3) Non-comparability in _pragmatic evaluations. Pragmatic conparisons, as bases for market analysis, are even more subject to cross-cultural errors than are normative issues. This research emphasizes a pragmatic and clinical approach in evaluating market performance and the facilitative force, or the lack of it, provided by the potato market system.as a stimulus to the production-distribution process. A major pragmatic issue then is not how the question is asked or if it is "right” but once the answer is in, "so what". Use of the clinical attitude to investigate the P-D system for potatoes necessitates expression of three basic beliefs. First, the potato subsector cannot be analyzed by applyingvstatic economic as- sunptions and investigation techniques because it involves complex 7 38 problems of farm.organisation and distribution in market channels. 38 Richard G. Wheeler, ”Research Orientations in Economic Develop- ment with Special Reference to Brazil", Agricultural Econpmigs Research, Vol XIX, No. 3, July 1967, p. 82. 34 The analysis must be dynamic in order to assess these problems. Second, any complete and relevant analysis of the potato marketing system in Colombia mmst account for the interdependent nature of the system. It is a system where one function acts, not on the sole basis of its own structure, but upon structures and performance of each of the other functions and activites of the systemu By observing the interdependency of the system, one can identify specific barriers to iqaroved market system performance. Third, marketing research should be interdisciplinary in its orien- tation. Agricultural economists now recognize the importance of inter- disciplinary research activity in less developed countries. The basic dissatisfaction with existing social and economic conditions and the urge to change the institutional structures makes the need for an interdisciplinary approach to research in the social sciences more pressing for Latin America than for the United States or Europe. Anthropologists, sociologists, political scientists, agricultural economists, agricultural engineers, and potato breeding and disease specialists all can provide valuable assistance in analyzing the market system for potatoes in Colombia. In summary, this research program.incorporates two general phi- losophies: l) sustained economic growth in Colombia requires several interdependent develgpmentyprocesses including the agricultural marketing process, and 2) successful marketing reform programs entail purposeful coordination among all stages of the production-distribution process. Research efforts must also observe each interdependent stage in the marketing and development process in order to diagnose adequately marketing a» 39 ‘ - Carlos Massed, "Economic Research in Latin America", in Social Science Research in Latin America, Edited by Charles Wagley, Columbia University Press, New York and London 1964, p. 216. 35 problems. For this reason, both input markets and product markets related to>the potato subsector are analyzed at each production and distribution stage in the P-D system. Applying the Approach Performance Goals Numerous criteria have been specified for evaluating P-D systems. Some argue that numbers of buyers and sellers and comp petitive relationships should be the primary criteria. Others bee” lieve that P-D systems should be evaluated according to behavior of the participants along preconceived legal and ethical guidelines. But all markets display unique structures and means of coordination. Hence, to evaluate production-distribution characteristics in unique situations, one must observe political, social and economic goals of the society and/or commodity group involved. Four general economic development goals can be specified:40 1. Gross product growth 2. Full employment of labor 3. Rising levels of productivity 4. Less concentrated distribution of income But these goals are very general and without a series of sub-goals, detailed investigations cannot be meaningful. This specificity requires understanding of beliefs and values of economic participants concerning performance of the economic and agricultural. economic 40 C.C. Slater and Harold M. Riley, et.al., Research Report No. 2, op.cit. 36 systems.‘1 ”If the perceived goals of the political group in power are not in harmony with the values and goals of the people, pressures will be brought to bear in an attempt to effectuate a change in leadership!"2 Performance goals for the Colombian potato subsector can be defined as production goals, distribution goals, and P-D system goals. A. Specific potato production process goals include: 1. Wise resource use within the firmnin order to maximise “something” such as profits, incomes, yields, leisure or some combination of these measures. 2. Raising levels of productivity by: a. Adoption of inroved practices and varieties. b. Use of government supported credit programs. B. The potato distribution process goals are: 1. Reduction of seasonal price fluctuations by : a. Developing a storage program. b. Equalizing and reducing seasonal production. 2. Improved market coordination and consumer satisfaction by: a. Better information systems. b. Better product grading and standardization. C. Goals of the potato production-distribution system.include: 1. Wise resource use within the potato P-D system.and as it relates to the national economy. 41 James Duncan Shaffer, "A Working Paper Concerning Publicly Supported Economic Research in Agricultural marketing“, Economic Research Service,— U.S. Department of Agriculture, Washington D.C., March 1968, p.30. 42 Harrison, op.cit., p. 60. 37 2. Welfare and income considerations for the potato subsector participants including per capita income increases and equitable income distribution. These goals are not universally accepted by all potato market participants and policy makers. Some of the goals are conflicting, some are complementary, but usually policies designed to maximize the chances of attaining one goal will reduce the chances of attaining other goals. Where agreement as to goals prevails, often the means to goal attainment differ because of differing beliefs and values. A further problem occurs when means are not properly differentiated from goals which causes unwise resource use and performance results short of potentials. Finally, economic and political participants may value many of these goals but disagree about inportance of each goal. Thus, performance evaluation must consider the package of goals and means whidh best fit desires for Colombian economic development and development of the potato subsector. The Research Hypotheses Several research hypbtheses specify further the problems in modernization and coordination of the P-D system for potatoes in Coloms bin: 1. The potato P-D system is not achieving the level of oufiput and coordination of market flows that are possible. 2. Present institutional arrangements are not achieving the levels of coordination and assistance that are possible and necessary to accelerate development of the potato subsector. 3. Marketing reforms which reduce risk will stimulate the adoption of potato production and distribution innovations. 38 4. Most participants in the potato subsector are profit maxi- mizers and display economic rationality dependent upon varied degrees of firm size and development. The test of these hypotheses and related sub-hypotheses will provide a base from.which to prepare recommendations for achieving the performance goals. The Research Methodology If the methods utilized to prepare sasples and obtain interviews seem unsophisticated compared to a market research program.in the United States, it is because of the nonexistence or insufficiency of data con- cerning the populations to be sampled. Yet this problem.does not invali- date the research because the investigation describes a market system heretofore lacking information necessary for public and private decision making. Every effort was made to prepare representative, if not comlete, lists of the populations while randomly drawing the sanples from these lists. Market participants included in the analysis were producers in Narifio, Cundinamarca and Boyaca, truckers entering and leaving Bogota and Cali, wholesalers in Bogota, processors in Bogota and Cali, retailers in Bogota and consumers in Bogota. Producers.e The departments (equivalent to a state in the united States) of Narifio, Cundinamarca and Boyaca produce from 75s to ace of Colombian potatoes, .Narifio is the most- isolated- department studied in that Cali, located will outside the department, is the only major outlet for potatoes (Figure 2). Potatoes from Narino move by truck to Cali in not less than twelve hours. 39 Caribbean Sea Ill/Ill, Departments included at .... ......“ ...... {ll/1,,” // YACA ‘ m. \ V ilk/1'1!“ 1]!!! I 710/" Pacificfoc Brazil Ecuador Figure 2 : Map of Colombia Including the Potato Production Departments Studied and their Major Markets 40 The three departments represent varied production and marketing problems. Cundinamarca potato producers are favored by the large Bogota market located within the department. Boyaca producers also are rela- tively near to the Bogota market and have fewer transportation problems than Narifio producers. Probably Narino is the best area for producing potatoes with respect to supply stability because harvests can be realized nearly year around. Even so, frost is a.problem.in certain areas of Nariflo such as Tuquerres. Potato production costs in Nariho compare very favorably with other potato producing regions in Colombia. The sample of potato producers was drawn by first selecting Egg;- gipigg (similar to a county) within each department and then selecting producers from each municipio. The municipio was used as a cluster sampling unit in order to save both time and money. The municipios were selected to represent various population characteristics including size of farm, distance from markets, and physiographic variations. No complete list of potato producers was available by mmnicipio . The Caja Agraria loan agency, INCORA (the land reform agency), ASOOLPA (the potato producers association), and the departmental secretaries of agriculture assisted by providing producer lists including farm size and areas planted to potatoes from which random saaples were taken. From.these producers, a total of 125 interviews were taken. The gpgi- gipigg and the number of producers interviewed appear in Table 5. Truckers - Trucker interviews were taken at retenes (truck stops or check points) on major roads leading into Bogota and Cali. In each case, trucks hauling potatoes were stopped for about five minutes to collect flow data. The Cali study was performed during a two week interval in October 41 Table 5 : Distribution of Potato Producer Interviews by Selected Departments and Municipios _____22__CB acd Cundinam— N arifio Municipio Interviews Municipio Interviews Municipio Interviews Cacaita 2 Une lo Pasto 10 Santa Rosa 4 Subachoque lO Ipiales 16 Belén 6 Pasca lO Cumbal 6 El Cocuy 8 Carmen de Garupa 8 Others 7 ventaquemada 6 Ubaté 8 Aquitania 5 Madrid 9 Total 31 Total 55 Total‘ 39 Source : ICA Potato Marketing Survey of Producers, 1968 43 1967. Every truck hauling agricultural produce was stopped at each of the six retenes around Cali on a twenty four hour per day basis. The six retenes represent approximately 95s of the potato flows in and out of Cali during the time of the investigation. The remaining trucks did not pass through the retenes. A total of 1,094 truckers hauling potatoes were interviewed. The Bogota investigation occurred within a two week period in Jan- uary and February 1968. There are eleven retenes on roads entering Bogota but from a preliminary flow investigation of elployees at these retenes, 43 This was part of-a larger-study performed in 1967 by David Lloyd Clare, visiting professor, Faculty of Economic Sciences, university of valle, Cali. 42 44 four retenes on the major roads entering Bogota were selected. These four retenes were manned from 3:00 AM to 9:00 PM for one week at the two northern retenes and the following week at the two southern retenes. This samling represents approximately 90s of the flow from the North and the South for each respective week. The flows through other retenes were negligible as were the flows from 9:00 PM to 3:00 AM through the four major retenes. A total of 790 couplets interviews were taken and another 200 incomlete interviews were obtained from truckers who were passing through the reten for the second time or mere. Wholesalers - Wholesaler interviews were taken in February, 1968, in Bogota. No list of potato wholesalers was available so a census was taken by walking through the major food wholesaling section. This enumer- ation identified 92 private wholesalers who either rent or own a bodga (warehouse). Based on the census a 50!: random sale was taken from each city block containing potato wholesalers. A total of 44 inter- views were obtained. Another eight-wholesalers rent a stall in Feria Central and approximately 175 potato wholesalers rent stalls in Gran Central. Two interviews were taken from Paris Central and 16 from Gran Central, again by a random samle. The potato wholesalers in Gran Central display relatively homogeneous characteristics so a small eagle was drawn. A total of 62 interviews were obtained from all wholesalers. Processors - Comercial potato processing presently includes only potato chip production. A total of 13 plants were included in the interviews in Bogota and another 5 in an. Once again, it was difficult 44 From January 25 to February 1, interviews were taken in the retenes e1 Norte and Occidente, and from February 1 to February 7, 1968 in retenes Oriente and Del Sur. 43 to obtain a list of processors because numerous potato chip plants operate out of household garage type facilities. The sanple probably represents about 80% of the chipping plants in the two cities. Retailers - The retailer sample and data collection procedures for the 114 interviews collected were the most difficult to develop of any-single group of market participants. There were no.complete lists of food retailers in Bogota from.which to draw a sample and unlike the wholesaling function they are not centrally located. To cospound the problem further not all retailers sell potatoes. Retailers are classi- fied as supermarkets, cooperatives, tiendas and market plazas. The following methods were used to prepare the sample from each classib fication: 1. Sgpprmarkets: There are 20 supermarkets in Bogota and 6 appear in the sample. A supermarket was distinguished from a tienda by the existance of check out services and self service. 2. Cooperatives: Several incomplete lists of cooperative food retailers including those of the Federacidn Colomp biana de Cogperativas de_gonsumo Ltda. and the §pps£7 intendgncia dngogperativas (both are organisations of .cooperatives) were used as well as the telephone di- rectory. Not all cooperatives sell potatoes but a sanple of 13 of those selling potatoes was drawn from an estimated 75 to 100 cooperative food retailers. All of these cooperatives are affiliated with either a particular private or public institution or group of laborers. 44 Tiendas: The tienda is usually located in a residence garage or very small building and proprietors change location relatively often so even if lists of tiendas were available, which they were not, the lists could not have been current. For these reasons the sample was drawn first by selecting barrios at random from four sections of Bogota (Figure 3) and randomly selecting city blocks within each‘barrio. Interviews were instructed to prepare a census of tiendas selling potatoes in each of the selected blocks and to randomly select one to be interviewed. Blocks from.the random samle of barrios were ordered so that the interviewer encountering no tiendas in one block could proceed to another up to a total of 6 blocks. Thus, in barrios where tiendas were sparse the sample process included fewer tiendas than in other barrios. Tienda interviews are difficult to obtain because in most cases only the owner works in the store. Thus, due to frequent sales it can take up to four times as smah.time to get a tienda interview as an uninterrupted interview. A total of 69 tienda interviews were come plated. Market Plazas: Eight of the largest market plazas representing various sectors of Bogota were chosen for analysis. The interviewers were instructed to enter the plaza and select 3 or 4 potato stall oper- ators randomly. The number of interviews per plaza o~ Bogota Including Major Sectors the Retailer of the City Used in Ma f Consdfiér 3 : DANE Source : 46 dependend upon the p123! size. Only a total of 526 interviews were taken because these retailers appear to be relatively homogeneous with respect to their market practices. Consumers - Two methods were used in obtaining the consumer interviews. Similar to the tienda sample procedure, barrios were randomly selected from.the four sectors of the city from.which blocks were similarly selected and an interview was taken at the house nearest the northeast corner of the block. A total of 100 interviews were collected in this manner. Another 97 interviews were obtained from. consumers while they were purchasing potatoes in retail outlets. For these interviews stores and plazas were selected to represent various income levels within the city. Data Analysis A significant amount of the data analysis was performed on a desk calculator. Computer programs to perform socio-economic analysis were neither available at ICA nor the National University. A program from Michigan State University was adapted to the INCORA IBM 360 computer to provide frequency histograms, means and variances. Secondary data analysis required determining which set of aggre- gate statistics best describe the potato subsector. Aggregate statistics describing potato production vary significantly among sources. This variation is explained in Appendix II. Caja Agraria and IDEMA data were used to indicate total production, planted hectares and yields per hectare. Caja Agraria data include all production for urban consunption, rural con- sunption and seed, while IDEMA data include only production for commercial 47' sales. DANE data were used to express price movements, ownership of land, and urban and rural employment. CHAPTER III A DESCRIPTION OF THE POTATO PRODUCTION-DISTRIBUTION SYSTEM Production-Distribution Relationshipg Gepgrgphy_of the Potato Industry Potato production and consumption in Colombia is concentrated in the mountain regions. Inter-regional transport of potatoes occurs but potatoes must compete with several starchy substitutes that are grown in warmpclimate areas. The departments represented in this research (Boyaca, Cundinamarca and Nariflo) provided 70% to 80s ef’tOtal Colombian production from 1955 to 1967.45 About 65‘ of total production and about 50% of total consumption of potatoes occurs in Cundinamarca and Boyaca.46 Potatoes are an important staple in the diets of many Colombians along with yuca, platano, corn and rice. Per capita consumption of 47 potatoes at 89 pounds ranks behind the United States per capita 45 -Production data for the 10 largest potato preducing departments appear in Appendix II, Tables II-2 & II-4. 46 The consumption estimate is based upon an estimate of 2.3 million urban inhabitants and a urban per capita consumption in the two departments of 121 kilograms. Rural consunption is 24% of 650,000 tons. This assumes that total production in Colombia is one million tons, and 83% of all production is for consumption. The estimates are based on survey data from the ICA Potato Marketing Survey, 1968. 47 Ministerio de Agricultura, Plan Cuatrienal Agrppecuario 1967- 1970 para Ocho Productos de Bonsumolepular, Serie de Planeamiento No.1, Bogota,Colombia, Febrero de 1967, p. 9. 48 49 potato consusption of 112 pounds.48 Potato production per. capita remained“ relatively stable over the 1960-1967 period (Table. 6). . ThelDEMLestimates follow- mostclosely the commonly- stated.per capita consunption. estimates. But, based on .a description of the variance between -.data.sources in Ape- pendix II -, the estimates of total production per- capita-.by CajaAgraria. are most realistic because they include rural consusption. When the Caja Table 6 : Per Capita Potato Production, 1960-1967 (in kilograms) rear . Caja .Agraria IDEMA 1960 64. 3 42. 5 1961 74. 6 34. 7 1962 85. 6 53 . 2 1963 61. 9 33 . 8 1964 78. 7 49. 5 1965 66. 6 41.4 1966 61.4 40. 8 1967 .49. 8 4la6 Average .67 . 8 “42.3 Source : ‘Appendix II, Table II-l 48 USDA-ERS, National Food Situation, NBS-127, February 1969, p. 18. 50 Agraria average per capita production statistic is reduced by 17s for seed, the per capita potato consumption estimate is 56 kilograms or 123 pounds. Per capita consumption varies from.near zero in the coastal, warmaclimate regions to 121 kilograms (Bogota average)49 in major pro- duction and consusption regions. Even though more potatoes are consumed per capita in the high potato production departments, these departments export potatoes to warm-climate, non-potato producing departments. Aggregate interdepart- mental flow patterns,presented in percentages, from.major surplus regions to deficit regions are presented in Figure 4. The data presented total 100s and only represent interdepartmental flows. Consumption and flows within departments are not included. This information, while only based upon the 1961 crop year, is relatively representative. The flow to ve- nezuela is probably exaggerated and no information is shown for flows between Ecuador and Colombia. Since 1961, Narifio has become a more important supply source for the Cali market, exceeding the flow from Cundinamarca and Boyaca. The remaining flows, particularly to the North Coast area, have not changed, primarily because transportation barriers limit movement. Current data describing inter-country potato flows between Colour bia, venezuela and Ecuador are not available. venezuela, having a warm climate encounters problems in maintaining good seed stocks particularly due to inadequate storage for seed during the dormancy period. Seed and potatoes for consumtion from Santander and Boyaca enter Venezuela by way of Cucuta, Colombia, and San Cristobal, venezuela. Only part of this 49 ICA Potato Marketing Survey of Consumers in Bogota, 1968. OCEANO PACnt-‘Ico 51 v :9? 4» " V / e filth“. $ 0 O \“ ‘ ‘ ‘ *3"; \u . VEN£2U£LA ‘7 § .' $7 1 'c” q" \ 0 I'll. \ r’I' \ :L'R ANTlOeo [A I ' ‘\ f ’I / 0 ‘\-\\ (‘M‘DELHN I 0“», n 33" ’1’ >- r3. I ()QWem3(3?' . LD )QACLA I ’0 “\I I, 1" / "V”, c YLLANOS M E', 'O»\___,;\;v ‘IO’ORIENT'ALES \" «"GwM ETA ,’ I 1’1“:Vv :‘J‘ \-‘ [I \ ”' \\‘ \° ”1 ‘\ I, ‘I Figure 4 : Map of Colombia NARI :‘ To ;:;““ xéAQUETA // Including Inter- AQD / departmental ’E'PUTUM“\ / Potato Flows in ; A729\ / Percentages in \x/ 1961 ECUADOR / Weitz - Hettelsater Engineers, Economic and Egineering Source: ‘ Study of Marketing and Storage Facilities for Grain and Tuberous Crops in Colompig, A Division of the Weits Co. Inc. Kansas City, MlSSOlrl, August 1965, p. 149 52 flow is recorded by import-export.authorities at the frontier. The contra- band flow of potatoes from northern Ecuador through Ipiales and to the Cali market is also difficult to quantify. Those most able to explain the contraband activity are also most reluctant to expose their activity by relating their day-to-day practices. Market Channel Flows Producer data in Cundinamarca and Boyaca, and the urban data for the Bogota market were used to develop the aggregate flows presented in Figure 5. Total production data can be divided into two major categories: 1) those potatoes that do not leave the rural areas and 2) those potatoe sales for urban consumption. Of 1000 units of total production at harvest time, 121 units or 12.1t is lost during harvest due to cutting, another 17.0t is saved for seed and 208 units or 20.8‘ is consumed in rural areas.50 Part of the harvest losses are consumed by the producer’s family and laborers while livestock consume the remainder. Seed losses amount to 19.4t cf the seed supply. Of total potato production, 50.1t enters commercial channels, 40.2t is consumed in raw form, 2.0t is processed for chips, and 7.9% is attributable to losses from all levels within the market systesu Potato flows for the Bogota market are presented in Figure 6. The data shown for each flow and function are a.prqportion of 1,000 units. 50 Based upon the same survey 24‘ was previously mentioned as the amount of rural consumption because the estimate of total production used did not include losses at harvest. 53 T O T A L P O T A T‘O’ ‘P R O D U C T'I 0 N ( 1000 ) Losses at' Harvest (’121') Market System Losses ( 79 ) Rural Consumption ’(208) Urban Consumption ( 402 ) Figure 5 : Distribution of Total Potato Production in the Bogota Market Area Source : ICA Potato Marketing Survey, 1968 54 TOTAL POTATO PRODUCTION FOR COMMERCIAL SALES nooo) I I PRODUCER - Pnooucsns 920 : wHOLEsALERsao l 1135) /\HuouumfiCHEp£ Ousosounmmoa “ comma can “HMO .wpooom ca mnoxnoz now socsH oowum nossmcoo on» >n coumHmoa mooenm ououom manage: a h mucosa mousom IIIII Oumom (.-.- ammo cos n mmma once on emma sage “mmmm new» .llll muomom we no we no mm mm me am 00 mm mm x mm v 0H 5 \I s\ // ..s~.).{ 1 ON t rests/ \l\ : . o \e) I at flies.” .s 7’ \ / ~‘v— s\llfs\l|\lll . .r\. a . a . \. . . is . .J a 2 CM . . s a . . < . . . . P- a . e ..s.) (x. .) s ..L . . x a .. x ...: . a C 3 . . a ... ..5 .... .. " .... .. ... s .e /. \IC‘ .2"... \. < .2. ... .. A, m .. (.... L i. / . .. . .. .. 2. . . . , \ x« .”m umfi p. ”C e , Mk 2. . z\ x 10m 1”. .... mmv, . >y~p “ ,5 2. Tie: ... .8 . w = . . I a . . . on _ 1om HHH UOfluwm HH cofluom H pofiuom .mx mom mo>oucoo ca oownm adances mmouo>¢ 62 MHQEOHOU CH macho Occuom HMCOmmom on» no whoops " m madman scope: How meow I I I I opoouu out How comm coauom umo>uom mum soflumEomsoo How moamm I ’ ommaeome I cofihom umo>nom F n h comm mo Seasoned umo>noc MO m cm umo>noc NO «on oownm 63 also enters consumption channels because the low productivity of the M1 harvest leaves a short supply and rising prices up to the AG2 harvest. Thus, the short seed supply, low seeding and low harvest cycle of the Mitaca is perpetuated. These fluctuations continue and reinforcement prevails some years due to a dry season or a killing frost that will affect a Mitaca more often than an Aho Grande and thus aggravate the seed supply problem. Interdepartmental Price Differentials - Price differentials between the Bogota, Cali and Pesto markets from 1955 through 1968 indicate changes in pricing patterns. Figure 7 presents three different periods of relative prices for the three markets. Period 1, January 1955 to September 1958, shows Cali prices highest and Pesto prices lowest, except for two short periods totaling five months. The Bogota price was between the Cali and Pasta prices. Period II is a transition from September 1958 to January 1963, with each city displaying both higher and lower prices than the other two cities. Bogota and Cali prices were always close and usually higher than Pasto prices. Again in Period III from January 1963 to present Pesto prices are always lowest but, contrary to Period I, Bogota now exceeds Cali. These changes in interdepartmental price differentials indicate numerous changes in regional potato markets. During Period I prices in Cali were high compared to Bogota and Pesto. Cali prices are important to Nariflo because Cali is the major market for Narifio potatoes and, through the Cali market, price fluctuations from the Bogota region are felt by Nariflo producers. Bogota prices were about 20% greater than Pesto prices in Period I but, in Period III the differential increased 64 to 65%. Cali prices, however, were 50% greater than Pasto prices in Period I and for Period III are only 30% greater. Availability of transportation for potatoes has contributed to this change. During Period I transportation between Pasto and Cali was difficult and sometimes impossible. The road has been improved but not paved and now transportation is somewhat less difficult. Roads between Bogota and Cali have been improved also making the aggregate influence of transportation on price differentials among the three markets difficult to specify. The demand and supply structure changed to influence the changing price relationships among the three markets. While the population in the Bogota area expanded by 137% between 1951 and 1964, the rate of population growth in Valle (the department including Cali) for the same period was 63.9%. Information about price changes for substitute.crops and changes in income, if available, would help explain the changing demand situation, but it appears that demand for potatoes has increased more rapidly in Bogota than in Cali. Total production, however, has increased more since 1955 in Narifio than in Cundinamarca and Boyaca (Appendix II, Tables II-2 & II-4). Based on average total production figures for the 1955-1960 period compared to the 1961-1965 period, potato production increased by 10.8% in Cundinamarca and Boyaca, and by 69.7% in Nariflo. Besides reduced transportation difficulties as one explanation of increased production in Nariflo, the rapidly growing credit program of Caja Agraria for potato producers in Narifio was an important factor. 65 Consumer Demand Characteriagiga Per Capita Consumption Of the 197 consumers interviewed in Bogota, 70.6% were housewives, 21.3% were maids, and 8.1% were other members of the family. The city was divided into four zones for analysis. The distribution of occupational characteristics for each zone and for the entire sample appear in Table 8. Table 8 : Occupational Characteristics of the Bogota Consumers Included in the Sample Occupationa North North Central Southb Total (32) Central (71) (42) (197) (52) (percent) Professionals 53.1 21.2 36.7 2.3 28.9 Workers 6.2 28.9 29.6 33.4 25.4 Merchants 15.7 17.3 12.7 23.9 16.7 Small Industry - 13.5 5.6 21.4 10.2 Large Industry 15.7 11.5 5.6 7.1 9.1 Self employed 9.3 7.6 9.8 11.9 9.7 Total EEO—.0 $670) 1650 16676 16376 a Professionals includes government employees and all other white Acollar workers. Workers are day laborers, chauffers,carriers, etc. b The South was somewhat under-represented in the sample which causes a slight bias toward professionals in the total results. Source: ICA Potato Marketing Survey of Consumers, 1968 66 Potato consumption per capita in Bogota ranks above estimates for Colombia due to the production concentration in Cundinamarca and Boyaca. Per capita consumption in Bogota is 121 kilograms per year compared to about 56 kilograms for all of Colombia. Data including per capita income and per capita potato purchases by zones of Bogota are presented in Table 9. For all consumers interviewed, 5% of the total food expenditures are for potatoes while 53% of total income was spent on food, Tubers and plantains, including potatoes, represent 35% of the total calories and 53 20% of the total cost of present Colombian diets. Table 9 : Income Per Capita and Potato Purchases Per Capita in Bogota and Zones of the City Zone Per Capita a Per Capita Income (Pesos) Potato Purchases (kgs) Bogota (combined sector data) 8036 121 North 10346 119 North Central 8068 122 Central 8926 125 South 4752 112 a . About 16.5 pesos were equal to one dollar for the research period. Source: ICA Potato Marketing Survey of Consumers, 1968. 53 Cecilia A. Florencia, The Efficiengy of Food Expenditure Amoag Certain WorkingeClass families in Colombia, (Ph.D. Thesis, Michigan State University, Department of Foods and Nutrition, 1967) pp. 63 & 69. 67 The relationship between per capita income and per capita potato consumption (Figure 9) indicates that as incomes rise to about 14,000 pesos, consumption will rise and then fall as income rises beyond 14,000 pgggs. The rise in per capita purchases of potatoes as incomes rise indicates a preference for potatoes compared to lower cost close substitutes. But as income continues to rise beyond 14,000 pesos per capita,consumption declines and consumers prefer to substitute animal products, fruits and vegetables for part of the potatoes. Consumers, however, desire potatoes in their diets, even though potato expenditures as a percent of total food expenditures decline as per capita income increases (Figure 10). When annual per capita income increases by 1000 pesos, the percent of food expenditures on potatoes declines by 0.4 or nearly one half of a percentage point. At the average per capita income of 8000 pesos,based upon the consumer sample,5.l% of all food expenditures are for potatoes. Purchase and Preparation Habits Tiendas and plazas each include about 25% of potato sales to consumers, cooperatives and supermarkets - 28%, wholesalers - 21%, and producers - 1%. As could be anticipated, consumers in higher income areas of Bogota and consumers purchasing at supermarkets and cooperatives buy potatoes least frequently (Table 10). The distribu- tion of tiendas throughout the city within not more than two or three blocks from.most consumers probably accounts for the high number of purchases and the low average size of purchases. These tiendas often service the lower income relatively immobile consumers lacking personal transportation. When consumers were questioned about why they purchased Purchases (kilograms) Annual Average Per Capita Potato ‘Percent of Food Budget ' Allocated to Potatoes 68 150‘ e e O 125‘ . p e 100 $ T I I I I 0-40 40-80 80-120 120-160 160-200 Annual Per Capita Income (100's pesos) Figure 9 : Relationship Between Average Per Capita Potato Consumption and Per Capita Income Ranges Source : ICA Potato Marketing Survey of 197 Consumers, 1968 20. . 18. . b = -.04 15‘ 0 § = 5.1 14‘ ' 2: = 8000 ‘12‘ e 0 10s ee 20 40 60 80 100 120 140 160 180 200 Per Capita Income (100's pasos) Figure 10 : Relationship Between Per Capita Income and Percent of All Food Expenditures Allocated to Potatoes Source : ICA Potato Marketing Survey of 197 Consumers, 1968 69 Table 10 : Average Quantity Purchases for Household and Average Number of Potato Purchases Per Month by Zone of Bo- gota and by Type of Retail Outlets Papa Criolla Papa de Ano Average Number of Average Number of qty. in Purchases qty. in Purchases pounds per month pounds per month Zone of Bogota: North 6.1 3.5 33.8 6.1 North Central 5.1 4.0 33.3 10.3 The Center 6.0 4.0 29.8 9.6 The South 3.4 4.4 10.5 24.5 Type of Retail Outlet: Plazas 5.0 4.2 30.2 11.0 Tiendas 3.5 3.9 5.9 27.1 Cooperatives 6.4 3.5 31.0 3.8 Supermarkets 6.6 3.9 32.4 4.0 Average of all consumers: 5.3 4.0 27.0 12.4 Source : ICA Potato Marketing Survey of Consumers, 1968 7O potatoes at the retail outlet they had previously specified, 78% stated that other food purchases are made there, 14% gave lower prices as the reason, 2% stated that they were able to get better quality, and 6% gave other responses. The distribution of consumers making potato purchases was: Wife 80.7% Husband 3.0% Wife and Husband 0.5% Other family members 8.7% Maids ~ 7.1% 100.0% Fifty six percent of the consumers indicated that a maid prepared family meals, .Where maids are available to prepare potatoes, particularly chips, demand for processed potatoes will be restrained. Convenience in potato preparation is not important when low costs household labor is available.54 Presently the potato is classified by consumers as either papa de afio or papa criolla. Consumption of papa criolla represents 16% of all potato consumption. Papa de aflo includes varieties similar to those produced in other countries except that they are usually smaller, averaging from 3 to 6 centimeters in diameter. Some of the possible techniques used in preparing papa de afio are boiling with a tomato onion sauce, boiling 54 Maids employed by Colombian families currently receive 200-300 pesgs or 12-13 dollars per month. Probably the percent of the consumers employing maids is high due to a slight sample bias to professionals (Table 8). 71 in soups, french fries, sliced and fried, mashed, hash-browns, potato salads, baked, and potato chips. By far, boiled whole potatoes with salt, in soups, and with a tomato-onion sauce are most common. Baked and fried potatoes are not common. Papa criolla, however, is fried but is unique, having no equal in North America. This potato usually has a dark yellow interior, varies from 2 to 4 centimeters in diameter, has a distinctly different taste from other varieties, and is fried without removing the skin. Papa criolla is also prepared in soups and boiled. Consumers also prefer dark or red skinned potatoes to white skinned varieties. The Sabanera and Tuquerrefia varieties are exactly the same potato by all measures of breeding and quality. But the white skinned Sabanera produced in clay soils of the Sabana de Bogota is less acceptable than the dark skinned Tuquerrefia which is produced in the Paramo (dark loam soil). Soil conditions yielding different skin color have altered the value of this potato in the eyes of the consumer where no qualitative distinction can be made. A set of seven attitude statements were administered to consumers (Table 11). In general consumers desire better information and improved quality control. More than half of the consumers inter- viewed did not believe quality of potatoes in the market had improved over the past five years. They feel supermarkets sell better quality but are not in agreement about whether supermarket prices are lower than potato prices in tiendas. Carulla supermarkets sometimes do feature potatoes at a special price and use potatoes to attract more customers. 72 Table 11 : Consumer. Attitudes Toward Conditions in Potato Markets Response Statements Agree Indifference Disagree or no response (percent) Both potato quality and potato varieties are better now than 10.2 29.9 59.9 they were five years ago. The scales at retail outlets are exact and fair. 21.8 25.9 52.3 Supermarkets usually sell better quality potatoes than do tiendas. 45.2 26.4 28.4 Supermarkets .usually have lower potato prices. 38.1 20.8 41.1 Consumers need more and better information about quality and 89.3 10.7 0.0 prices of potato. Potato quality should be regulated to protect the consumer. 96.5 3.5 0.0 -Potato processing is a good idea. 58.4 36.5 5.1 Source : ICA Potato Marketing Survey of Consumers, 1968 Chip Consvugpion Consumers believe that potato processing is "a good idea" but they are not heavy users of commercial potato chips (Table 12). Seventy eight percent of the consumers who by potato chips prefer specific brands of chips and 48% specified one particular brand. 73 Table 12 : Consumer Preferences for Potato Chips Question Response Percent Responding Dp you.buy potato chips when you Frequently 6.1 go to market? Once in a while 22.8 Never 71.1 100.0 Do you fry potato chips at Frequently 11.2 home? Once in a while 64.5 Never 24.3 100.0 Why don't you buy more potato I don't like them 33.4 chips? They are of bad quality 0.6 They are difficult to obtain 4.8 Prices are too high 13.2 We frythem at home 47.4 Other 0.6 100.0 Source: ICA Potato Marketing Survey of Consumers, 1968 Potato chips are also prepared by frier-venders working on the street. The potatoes.are :fried in small pots and the chips are placed (in bags. This practice is common particularly on weekends and holidays and it competes favorably with chipping industries because of low cost labor and a very low investment in equipment. Retailer responses to questions about potato chips sppear in {Table 13. It is interesting to note that both consumers and retailers emphasize "dislike" of potato chips but place little emphasis upon the poor quality issue. In fact, most of the chips are of bad quality due 74 Table 13 : Retailer Responses about Potato Chip Sales Tiendas Plaza Supermarkets & Retailers Cooperatives (percent) Do you think potato processing is a good idea? (yes reSponses) 91.3 88.5 66.7 Do you sell potato chips? (yes responses) 68.1 3.8 61.1 What % of potato sales do chips represent? (is % of yes response 9.3 5.0 15.4 group above) Why don't you sell more chips? Consumers don't like them 7 3 -- 11.1 They are of bad quality 2.9 3.9 5.6 They are difficult to obtain 47.8 76.9 44.4 Prices are too high 17.4 -- 5.6 No response 24.6 19.2 33.3 100.0 100.0 100.0 Source : ICA Potato Marketing Survey of Retailers, 1968 55 tab inadequate machinery and technical knowledge for preparing good quality. 5Potato chip manufactures under modern conditions use a highly Scientific process to obtain uniform and good quality. For comprehensive (liscussions of all physical aspects of potato chipping including 1) the lrield of chips-which is produced from any given quantity of potatoes and tflhe factors which bring this about, 2) color of chips and factors affecting <=odor, 3) oil content of chips and the contributing factors and 4) the flavor of chips and factors affecting flavor, see William F. Talbutt and (Ira Smith, Potato Processing, the Avi Publishing Company Inc. 1967, pp. 262-339; and Reynaldo Bernal Gonzalez and Oscar Bautista Gamboa, Cualida- Sles Culinarias de 1a.Papa.: Papa Frita, Tesis de Grado Universidad Nacio- rial de Colombia, Facultad de Agronomia, 1968. 75 Colombian consumers have not experienced uniformly good quality in commercial potato chips and home frying which may produce good quality is very difficult and time consuming. Thus, probably the issue is not that Colombiansproduction (Figure 5), and 20% of the potato supply set aside for seed. Improved storage practices could reduce this loss to about 4% of seed stocks. This loss accounts for 27,600 tons of potatoes that might otherwise enter commercial channels or be available for seed. At 800 pggpg per ton this loss exceeds 22 million pesos, Thus, to store either improved or unimproved seed beyond the producers own needs includes the risk of high storage losses as well as unfavorable prices for the seed. Yields and Before-Harvest Losses I While adoption of improved practices in potato production has been relatively common, potato yields per hectare for Colombia have risen slowly (Figure 12). Improved seed, however, appears to be an important factor that might explain the higher per hectare yields (Table 23). The farms that used improved seed had yields exceeding the farms that used unimproved seed by one to two tons per hectare. Farms with twenty or more hectares had better results from improved seed than smaller farms, possibly due to mechanization and better management. The historic growth in total production of potatoes has resulted from both slight increases in yields per hectare and extending land 102 20 . .18 o 16‘ a A 140’ Caja Agraria g 0 12d» 8 1004' '8¢D d’ .I' t: H 8 o“'..o"". '1' IDEMA V 60 P ... 0‘..‘.o"‘e‘..., 0". ”.~. 0’ g 40. ' \v/ ‘V " a: 200 48 50 52 54 S6 58 60 62 64 66 68 . Year 14?. 13. 12. G A 11 . . . 0 Caja Agraria .. E u 3 10' a“ .4. . '§ 0 8.. ’ IDEMA a. .D 71- H O . 0 318 5” , 7" ' ‘v \I 7 a d s P .... “ I, 4 ‘ l (P ‘V [8 ' 50 '52 f5: 1 5'6 '58 '60 ' 62 ' 64f66 68w .. Year 13 b ‘of‘.‘. 12 ’ .' ‘ ~.---. .... IDEMA 11 * "w x f ‘ \ - o '00-“ I I o' a 10'? ,IO"" ‘. “\ I! v 1. “---“ ‘ ’ g 9 .\' . o +’ v Caja Agraria s 8 p 7" H g 6“ L#‘ M a 5.; 4. d _L J L L L L A a 4 4 a a a. a ._a a A J y g 48 50 52 54 56 58 60 62 64 66 68 Year Figure 12 : Hectares Harvested, Total Production and Yield.Per Source : Hectare For Potatoes in Colombia, 1948-1968 103 Table 23 : Per Hectare Potato Yields for Improved and Unimproved Seed Use Based on Potato Farm Size Range in Hectares Planted to Potatoes 0-2.4 2.5-9.9 10.0-19.9 20.0 or more (tons per hectare) Improved Seed: 2 ‘ Mitaca 8.8 9.7 10.9 12.6 Afio Grande 11.0 11.0 9.7 13.0 Total 10.7 10.4 10.3 12.8 Unimproved Seed: Mitaca 9.6 8.6 9.1 8.9 Afio Grande 8.4 8.2 9.4 11.6 Total 9.0 8.4 9.3 10.5 Source : ICA Potato Marketing Survey of Producers, 1968 areas planted to potatoes (Figure 12). These changes are difficult to identify because of the data variation between sources. Yields per hectare, however, have not risen significantly. Bringing new land into potato production may account for the slow rise in per hectare yields where the lands used were marginal and less productive. Per hectare yield data from the producer survey (Table 24) differ little from the aggregate data (Table 25). Producers, however, traditionally express yields in terms of amount of seed planted or a seed : yield ratio. For example, if 15 gargas are planted per hectare and 300 m are harvested, the yield is termed "20%" or 20:1. This is an incorrect interpretation of the concept of percentages but is very commonly used. The calculated per hectare yields in Table .24 did not come directly from producers; instead, 104 Table 24 : Survey Potato Yields for Boyaca, Cundinamarca and Narino Boyaca Cundinamarca Narifio Tons per hectare: Mitaca 12.6 9.0 9.5 Afio Grande 10.8 7 8 11.6 {gppggg harvested to cargas planted: Mitaca 13.3:1 9.6:1 7.9:1 .Agg_§;3pgg 12.8:1 11.6:1 9.0:1 Source: ICA Potato Marketing Survey of Producers, 1968 they result from the producers indication of total production and hectares harvested. Each producer was also asked to express the so called ”percent" yield. Colombian potato yields per hectare average at most one-half of yields in the United States and those obtained by ICA (Tables 25 and 26). Of course, production conditions for producers in Colombia Table 25: Comparative Potato Yields in the United States and Colombia and for the Three Largest Producing States in Each Country (average 1962-1966) Tons/Ha.l Tons/Ha. _—_ c a ‘5 United States: 22.7 Colombia: 7.2 10.7 Maine 29.0 Boyaca 7.7 9.9 Idaho 22.8 Cundinamarca 8.2 13.2 North Dakota 14.2 Narino 7.7 7.2 1 1 Hectare = 2.471 acres 1 Metric ton = 2,200 US lbs Source 2 ‘ Caja Agraria (1960-1966), Appendix 11, Table 11-3 b IDEMA (1955-1967), Appendix II, Table II—S USDA, SRS, "Crop Production", C.P. 2-2-(11-68) .105 Table 26 : ICA Potato Yields by varieties Variety Tons/ha Production gangs Harvested: Area in gaps; Planted Colombia ICA-Purace (Improved) 40 1,2,3,4 20.0:1 Capiro (Improved) 25 3,4 12.5:1 Monserrate (Improved) 24 1 12.0:1 Parda Pastusa (Improved) 25 1,2 12.5:1 Tuquerrena (Unimproved) 15 2 7.5:1 Tocana (Unimproved) 20 2 10.0:1 Ojona (Unimproved) 17 3 8.5:1 a l, Cundinamarca 2, Boyaca 3, Nariflo 4, Antioquia Source: Nelson Estrada, et.al., "El Cultivo de la Papa", No. 10, Marzo de 1968 differ from those both at ICA and in the U.S. There is room, however, for significant improvements in per hectare yields obtained on Colom- bian potato farms. Based on ICA experience, yields from 17 to 40 tons per hectare are possible (Table 26). Average Colombian yields for 1962-1966 represent 29% to 42% of ICA yields, not including the Purace variety. In producer terminology, as presented by a seed yield ratio, pro- ducer yields appear to be comparatively better when measured by ICA standards than yields per hectare except in Nariflo. For example, the average seed: yield ratios for Cundinamarca and Boyaca where Parda Pastusa is the most popular variety are very similar to the ICA ratio (Tables 24 a 26).' 106 Producers seed:yield ratios are nearly equal to ICA's because producers use less seed per hectare; the seeding rate averages 60-80 centimeters between hills and 1.4 - 1.5 meters between rows for pro- ducers. ICA recommends 30 centimeters between plants and one meter between rows depending upon inclination of the land in order to achieve high per hectare yields which is an ICA goal. Thus, part of the low per hectare yield problem is due to seeding rates. Producers usually place more emphasis on seed use efficiency and productivity than on land and labor efficiencies. With respect to marginal costs, seed costs must be compared to the additional costs of preparing, caring for and harvesting the additional lands used because of low seeding rates per hectare. For small producers who do not hire labor and have limited al- ternatives for their own labor, seed costs are somewhat more important. Where producers hire labor or use machinery, seed costs may be less important. Two types of on—farm potato losses occur which reduce yields per hectare and the amount of salable potatoes for con- sumption. It is generally held to be true that losses can be prevented, an idea not entirely valid in the following discussion. The first type of loss includes drought, frost, insect and disease damage between planting and harvesting, all of which keep production from attaining potentials (Table 27). Insect and disease damage may be reduced by effective use of pesticides but often due to rain, the farmer has only a very short period of time to apply the chemi- cals. The rain will prevent effective plant contact which is laecessary in application of pesticides. For some producers irrigation 107 is a possibility for reducing drought damage and to some extent, frost damage. These pre-harvest yield reductions at 11.6% understate actual losses because the estimate only includes those hectares not harvested. Yield reductions due to partial crop damage are not included. Table 27 : Farm Losses for Potatoes Including Land Not Harvested Due to Natural Causes and Losses During Harvest Losses BefOre Harvest Department (Lands not Harvested) At Harvest Mitaca Afio Grande Mitaca Aflo Grande (percent) a a Boyaca 14.6 15.0 27.2 11.2 Cundinamarca 4.6 12.2 17.3 17.1 Nariflo 7.6 6.8 5.7 12.5 All 10.3 12.2 10.1 14.1 g Average 11. 6 12 . l a Only four responses were available. Source: ICA Potato Marketing Survey of Producers, 1968 Secondly, losses occur on the farm at harvest time due mainly to cutting by hand tools and hand labor when removing the tubers from the soil. Not all producers specified losses at harvest. Those in- dicating losses averaged 12.1% which are primarily due to cutting. 108 Another source substantiates a minimum of 10%.69 Usually one man can harvest' about 'dmree to five cargas of potatoes per day. He is paid about 15 pgggg (less than one dollar) per day in Cundinamarca. Only if these losses can be prevented should they be considered as actual losses. Mechanical harvesting might prevent part of the loss. And the 12.1% loss is not completely lost to consumption. The farmer cannot sell these potatoes but the laborers may glean the field for home consumption. Some of the potatoes also are consumed by livestock. Losses also occur with mechanical harvesters due to some physical damage and to the fact that very small potatoes shake through with earth. While hand labor harvesting losses are j greatest for varieties with large tubers and least for varieties with small tubers, the opposite holds for mechanical harvesting losses. very small potatoes, contrary to the situation in the United States are a salable product in Colombia. Even so, me- chanical harvester losses probably will not exceed 7% and may be as low as 3%.70 As inproved varieties that produce large tubers are adopted, mechanical harvesting will become more profitable. If a 5% mechanical harvester loss is assumed the added cost in losses due to hand harvesting is 7.1%. At 7.1%, the losses due to hand harvesting range from 27 to 44 kilograms 69 Discussions with Lauro Lujan, ICA Potato Production Specialist, May 15, 1968. 70 Interviews:Wes Hobbs, ICA-Agricultural Engineer and Lauro Lujan ICA - Potato Production Specialist. 109 per day per man or 22 to 35 pgggg per man based upon a farm price of 80 centavos per kilogram. This does not include efficiency considerations and costs per bulto for mechanical versus hand harvesting. But this loss at normal prices (which should not be used as final because an additional 7.1% in total product would drive prices down) represented up to 57 million pesos to pro- ducers in the one million ton industry in 1968. The Role of Agricultural Credit Scarcity of credit for agricultural producers may be over emphasized while allocation and productivity of loans is under- emphasized.71 In a macro-development context, credit is usually scarce indicating that attention should be given to sectoral allocations among agriculture, industry and services. Likewise, in micro-development, credit allocations and credit productivity at the enterprise or subsector level as well as functions within the enterprise and industry levels need consideration. For example, when do loans to food processing and food distribution firms become more important to producers and consumers than direct loans to producers? And can, or should, loans for augmenting production require and stimulate adoption of improved practices? A general description of loan practices and policies may permit response to these questions. For a conprehensive discussion of various external fi- nancing problems in agricultural development see John W. Mellor, The Economics of Agricultural Development, Cornell University Press, Ithica, New York, 1966, Chapter 17, pp. 310-326. 110 Farm Credit Statistics Based upon survey results, farm loan statistics are presented in Table 28. This information describes loan activity for the year previous to the interview (June 1967 to July 1968). These results emphasize the intensive loan activity of the Caja Agraria. A slight bias may result due to the producer sampling technique which included comprehensive lists of producers prepared by the Caja Agraria. INCORA, ASCOLPA and the Departmental Secretaries of Agriculture also provided producer list but many of those producers were also Caja Agraria borrowers. Most potato producers, particularly for commercial sales, are presently receiving or have recently received subsidized credit from the Caja Agraria. The Caja Agraria interest charge is usually about 12%. Since the Caja Agraria loan program began in 1960, the inflation rate has averaged 12.1% per year.72 Thus, those producers that have qualified for a Caja Pgraria loan obtained free use of the money. In summarizing both Tables 28 and 29 it appears that short term capital may be less of a problem for Narino potato producers than for Cundinamarca and Boyaca producers. Fewer Narifio producers have loans and the loans are granted at lower interest rates. Simi- larly, more Narifio producers say that they do not need loans and fewer say that it is impossible to obtain loans. Average loan sizes from the survey results for each department are larger than 72 Revista del Banco de la Repfiblica, Octubre de 1968, Bogota Colombia, pp. 1430 & 1431. 111 Farm Credit Statistics for Potato Producers in Boyaca, Cundinamarca and Narifio Table 28 : Boyaca Cundinamarca Narifio Number of loans: (percent) One 51.6 45.4 23.2 TWO 29.0 34.6 38.4 Three 3.2 1.8 10.3 Four 3.2 1.8 - Six _ _ 2.6 Did not borrow 13.0 16.4 25.5 I00.0 100.0 I00.0 Mean number of loans per producer: For the sample 1.3 1.3 1.5 For borrows only 1.5 1.5 2.0 First Second First Second First Second Loan Loan Loan Loan Loan Loan Loan sources: (percent) Family - - 10.9 10.9 2.6 - Commercial Banks - - 1.8 1.8 2.6 2.6 Caja Agraria 87.0 29.0 69 1 21.9 69.3 48.7 INCORA - 3.2 - 1.8 - - Other - 3.2 1.8 1.8 - - Did not borrow 13.0 64.6 16.4 61.8 25.5 48.7 100.0 100.0 100.0 100.0 100.0 100.0 Mean loan value: 16.7 21.5 21.9 35.7 31.7 65.7 (1000's of pesos) Mean annual interest 10.2 13.2 11.6 15.8 10.1 10.5 rate:(percent) Lenght of loan period for cancelled loans: 10.4 18.3 8.0 7.5 11.4 8.1 (months) Source : ICA Potato Marketing Survey of Producers, 1968 Table 29 : 112 Potato Producer Attitudes About Credit Boyaca Cundinamarca Narifio (percent) Reasons for not borrowing more money: Do not need credit 48.8 36.9 58.8 Too much risk 17.1 20.0 23.9 Impossible to obtain more credit 17.1 27.7 8.7 Lack collateral 9.8 9.2 . It is not worth while 4.8 6.2 .3 Other 2.4 - - 100.0 100.0 100.0 (percent) If you did borrow more money for potato production how would you use it? To seed more land 21.2 33.6 19.6 To buy land 44.1 31.5 39.2 To employ more labor - - 3.6 To buy fertilizer - 4.8 5.4 To buy improved seed 5.8 7.2 16.1 To buy machinery 15.4 13.2 10.7 To buy a tractor 13.5 9.7 5.4 100.0 100. 0 100.0 Would you borrow money at 15%? 68 78 44 (yes responses in percent) How much? (1000's of pgggg) 59.6 66.8 78.9 would you borrow money at 25%? (yes responses in percent) 26 45 (none) How much? (1000's of pgggg) 20.6 41.4 (none) Source: ICA Potato Marketing Survey of Producers, 1968 113 the average loan size statistics presented in the aggregate Caja Agraria data in Appendix V, Table v51. This is not due to other loan sources raising the average significantly, but is due to a slightly disproportionate sample including several very large pro— ducer - borrowers in each department. Limited credit availability was not the major reason for not borrowing (Table 29). Potato producers said they did not need more credit and also perceived further borrowing to be risky primarily because of unStable prices. But some Cundinamarca and Boyaca producers reversed their position as evidenced by more producers desiring credit at an interest rate of 15% than said they needed credit. Narifio producers, however, did not follow this pattern and were not interested in loans at 25% as opposed to Cundinamarca and Boyaca producers. Macro Credit Statistics Credit data are available only from Caja Agraria for all potato producers in Colombia and by departments. Caja Agraria makes loans to about 20% of all potato producers and to about 50% of the potato producers planting two hectares or more. values of loans, average loan size and pgsgg loaned per hectare of total planted hectares are presented in both actual and real values (Appendix V, Table v51). Based on average loan size and pggg value per hectare, Cundinamarca is favored by more credit for potato producers than other departments. But more potato pro- ducers in Boyaca receive loans than in any other department. Average loan size has been growing most rapidly in Narifio, is 114 most stable in Boyaca and most sporadic but highest in Cundinamarca (Figure 13). Average loan size varies substantially among municipios both within and between departments. Of those municipios in the three departments having total loan values exceeding 200,000 pgggs, average loan size ranged from 1,320 pgggs in Sogamoso, Boyaca, to over 15,000 pgggg in several municipios in Cundinamarca. Availability of liquid capital, probably has helped to stimulate the growth rate of Narino potato production and contributed to the downward trend in prices received by producers. Average deflated loan size increased in Cundinamarca and Boyaca from 1,448 pgsgg in 1960 to 2,241 EEEEE in 1967 or 54.8%. In Narifio, for the same period, the increase was from 1,102 pgggg or 98.7%. Likewise, number of loans granted for the period 1960-1967 increased by only 64.4%, in Cundinamarca and Boyaca but by 247.5% in Nariflo. This loan analysis corresponds closely to the growth in total production since 1960. Of course, credit availability was not the only reason for rapid increases in total production in Nariflo. Use of improved seed, for example, was higher in Narifio than in Cundinamarca and Boyaca (Table 22). The costs of production estimates to specify supply conditions further will be forthcoming in another portion of this study. Allocation of credit between crop enterprises is important to Colombian potato farmers. Most of the crops receiving Caja Agraria credit assistance are either substitutes in production or substitutes in consumption for potatoes (Table 30). 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EN s ac \\ I \ s \ ooo\\ rNN a ..mN 4 a . o onfiumz I.I.I.I N .r m condemcapcsu I I I I . tam momaom sosaa ( 3,0001) ut 8213 ueoq abezanv NI> manna .> xflpcmmmm «condom .momHIoomH now mmmu¢>a was an ommHIvmmH mom ammuu>m we» mcave>ae sn umsesuoumv ma mono comm now onwm Good nonmamop ommuo>m can .ucmoH mo msHm> nonmawop Hou0u .mcmoH mo Hogans Hmuou you omcdnu 116 M o.ooa o.voH m.mnH o.~na, sauce ma ¢.H I I I I I I occuwam a m.om oa n.mm as q.om m.om mmmuoo on m.H as m.mn oa o.mm m.o~a soauum n m.m m o.moa m v.o~H o.~HH panes m m.v o n.maa a m.oqa «.mma sawmum m H.m a 5.0HH o ~.va m.HmH amouMuom o v.6 m o.moa m s.vma H.meH memo Human v ~.HH m o.mma v m.mma «.moH couuoo m o.e v «.mma m «.mma m.mma moss m m.ma m a.paa m m.mo~ o.ovH monm m o.mH H ~.vma m ~.em~ m.veH nuoo Ha m.H m o.mva a o.mv~. snmma madam Axcnuc oomHIoomH Axcmuv anew anon .xqmuc msam> Hana» Ixxemu. manna. memos saw «0 emumaumo empuammo mo nonssz mono ucoonom mmmum>¢ mwmnusv mmouu sm>on Hon mmma ou oomH scum usuofl sandman onmu cw momaanu « 0m magma 117 the very small hill farms, wheat and barley are substitutes in production for potatoes. The degree of substitution in consumption varies for each commodity but beans, corn, rice, yuca and platano compete with potatoes in consumer diets. Relative credit statistics for Caja Agraria loans to farmers pro- vide a view of possible substitution affects stimulated by credit. In Table 30, the crops are presented in order of the amount of change from the 1960-1963 period to the 1964-1966 period. Thus, number of loans, deflated total loan value and average deflated loan size changed most rapidly for beans. Beans represent, however, a small proportion (1.5%) of the loans from 1960 to 1966. Credit for all substitutes in consumption has grown more rapidly than for potatoes. A loan program began for platano producers in 1965. Producers of corn and rice both received greater proportions of Caja Agraria credit than producers of potatoes. If credit, along with other cost conditions, stimulates greater output, then substitution may occur in consumer diets between competing crops that receive different credit allocations. Contrary to the case for potato substitutes in consumption, loans for potato substitutes in production did not grow rapidly from 1960 to 1966. Wheat and barley loans represented only 7.1% of the total loan value and grew less rapidly than any other crop except coffee. Thus, even where terrain and farm size conditions permitted, potato producers desiring credit to change fromIpotato production to either wheat or barley production faced a fairly tight credit market. In summary, it appears that the potato producers have had sufficient low cost, short term credit. Due to inflation, and the low interest rates charged by the Caja Agraria, credit has provided 118 a substantial subsidy to potato producers. Both the findings from the producers survey and the aggregate loan statistics indicate growing credit supplies and producer satisfaction with credit availability. Allocation among varied sizes of potato farms, among potato producing regions and among the various substitute crops for potatoes probably needs more careful consideration. Potato Farm.Management Practices Decision Making Contrary to some beliefs, potato producers used new practices because they believed that their profits would be improved. Profit- ability; and the social interaction effect overlapped but adoption without some assurance of improved incomes was uncommon (Table 31). Table 31 : Reasons for Adopting Improved Practices in Potato Production Why have you adopted improved Boyaca Cundinamarca Narifio practices? (percent) I thought the practices were profitable 73.7 87.0 75.0 My neighbors said the practices were profitable 23.7 4.4 12.5 I adopted the practices because my neighbors did but we were uncertain about profitability 2.6 8.6 12.5 100.0 100.0 100.0 Source: ICA Potato Marketing Survey of Producers, 1968 119 In general, adaption of modern inputs was common except for improved seed. Attitudes about methods of improving production are not traditional. Over 80% of the producers agreed that fertilizer, insecticides, improved seed, and machinery would increase yields, without extending land areas planted. Seventy percent said irrigation would improve yields but only 55% agreed that increased seeding rates per hectare would improve yields. Potato yields, to producers imply yields to amount of seed planted instead of yields per hectare. These are very different measures. Closer spacing of seed would probably increase per hectare yileds but the affect would be to reduce yields to amount of seed planted. It appears that potato producers consider land and labor to be low-cost inputs. Seed however, is considered to be a high-cost input73 and many producers desire yields that nearly maximize a seed: yield ratio which requires wider spacing of plants than ICA recommends. ICA places more emphasis on potato yields per hectare which requires different input combinations and closer spacing of plants. The ICA practice implicitly assumes that land and labor are high cost inputs. Figure 14 illustrates these cost conditions. Seed, fertilizer and pesticides (Inputs B) can be combined in varied proportions with differing amounts of land and labor (Inputs 8). The iso-product curve is indicative of the same amount of product Potato seed is a cost input even when it is not purchased because the producer has the alternative of either selling the seed or consuming it. 120 Inputsli (Land & Labor) Iso-cos- line (proouIers) Iso-product curve a'll— ......... --4----- -— ' I ‘- so-cost : ' ine (ICA) b b' Inputs £3 (Seed, Fertilizer, Pesticides) Figure 14 : Input Cost Differences Between ICA and Potato Producers but produced with different combinations of Inputs A and Inputs B. The iso-cost lines represent the relative costs in using Inputs A and Inputs B to attain the production level indicated by the iso- product curve. As Inputs B become more costly relative to Inputs A, the optimal use of the two sets of inputs dictates that the iso-cost line become steeper. Thus, producers prefer to use (a) of Inputs A and (b) of Inputs B which indicates relatively low-cost for Inputs A and high cost for Inputs B compared to ICA which uses (a') (b'). Both producers and ICA would receive the same amount of product but with quite different input combinations because they consider the input cost differently. One should not ismediately conclude that the producer practice of eaphasizing the seed: yield ratio creates bad performance results. 121 If potato producers attempt to maximize net income, given various combinations of seed, land, labor and other inputs, the hypothetical production functions in Figure 15, illustrate why producers might not desire to increase their seeding rates up to those recommended by ICA. 8 __________________________ ICA Total Physical Product I I I b --------------- I T . c t_-__-_-__-_- ' I d ___________ l I I e """""" ‘I “““““ I—--' I I I I l I l I I I I . I I ' : Producers I I : l I . ' I I I F I I I , . Seed/hectare r: ' I | at.” 1 : ' «.48 I I ' u a-g . I g.2'u I ' In nInI I ' I f ..... ICA Producers g h 1 Seed/hectare Figure 15 : Hypothetical Potato Production Relationships for ICA and Potato Producers 122 At present the seed: yield ratios obtained by ICA and by potato producers are similar (Tables 24 a 26). In Figure 15 average product for ICA and producers on a seed: yield ratio basis are equal at (f) but ICA uses more seed (1) than producers (g). Producers, however, are emphasizing the seed: yield ratio while ICA desires higher yields per hectare. On a per hectare basis, production for ICA is (a) and for producers it is (d). By reducing seed density to (g) ICA would still be producing with a higher per hectare yield (b) than producers (d). Hence, ICA has higher production functions 74 If producers increase seed density from (g) to than producers. (i) as recommended, they will lower per hectare yields to (e). Thus at density (i) producers are beyond maximum total physical product indicating negative returns to increased seeding rates per hectare (or negative marginal physical product). Of course, this analysis is incomplete without considering at what seed density marginal factor cost is equal to the marginal value product but the average and total product function differences illustrate how the marginal conditions might also differ. The hypothetical production curves illustrated in Figure 15 for ICA are above those for producers to illustrate how ICA recomr mendations might exceed the production potentials for some producers. Several factors could cause the production conditions at ICA to appear superior to those producers. First, the producers must consider natural risks such as frost, drought, disease, and insect 74 Otherresearch also indicates that ICA's production functions exceed those of producers. See Jorge Lopera Palacios and Peter E. Hildebrand, The Agricultural Productivity_Gap in Colombia, Instituto Colombiano Agropecuario, Bogota,Colombia, June 3, 1969 (review COPY). 123 problems. Second, ICA can allocate more labor and equipment to ob- taining maximum yields and ICA is less concerned about costs than producers. Harvest losses at ICA probably are less than harvest losses for producers because more time and/or machinery can be allocated to loss reduction. The marginal factor cost of reducing harvest losses, however, may exceed the value of the potatoes saved or the marginal value product. Producers must consider labor costs because the supply of labor during harvest for some producers is limited even though it may be excessive at other times during the year. If producers decided to maximize either per hectare yields or the seed: yield ratio without regard to other costs such as labor, fertilizer and pesticides, the yields might rise but probably costs would rise more rapidly. It is possible that extension of lands and emphasis on returns to seed is the least costly method of increasing potato production for many producers. For those potato producers a lowblevel equi- librium.is one where the producer increases his income, yet is under- employed and has some unutilized land at ‘his disposal. Thus land and labor are low-cost inputs with limited alternatives for their employment. Unskilled labor is abundant and alternatives are few, Mountain land, where machinery power cannot be used, has limited .alternatives in production of wheat or barley and the land parcels may be too small to raise livestock. Thus, this potato producer esphasizes returns to high-cost inputs, primarily seed, and applies more land and labor creating a low-level equilibrium. This low-level equilibrium is not.a "trap” situation. The producer who rents land or must buy or rent more land to increase 124 output must place more value on the land input and desires to improve yields per hectare. This was true for producers with 20 or more hectares of potatoes. More of these producers rented land and had higher yields per hectare than producers with less than 20 hectares (Tables 19 & 23). But because seed, fertilizer, labor and pesticides are either purchased inputs or in the case of seed can be sold for consumption, producers should not maximize yields per hectare. They should desire to equalize marginal costs and returns for each of the inputs. Producer planting habits and management decisions, however, probably do not change to keep pace with the changing costs and returns to inputs due to new technologies. Similarly, it is difficult but essential that ICA recommendations? keep pace with cost and return conditions. As potato producers have adopted new varieties, fertilizer and pesticides, their production conditions and potentials have changed. Seeding practices possibly should have changed but prob- ably the changes have lagged adoption of modern inputs. This lag cannot be blamed completely upon the producer. Where a potato producer is a renter or a share crapper, his seeding practices are often dictated by the land owner. The land owner may desire wide spacing in seeding because he knows little about potato farming and the practice is commonly accepted; or he may rationally desire to maximize return to seed if he has purchased part of the seed and considers land to be a low-cost input. At present there is no good evidence to question the pro- ducers decision making ability. Yields per hectare have risen slightly over the past 20 years which indicates that extensive 125 land use is not the only production criteria for maximizing profits. Some producers can rationally justify intensive land use and these producers are probably responsible for raising the per hectare yield average. Other producers can rationally justify extensive land use which is not necessarily condusive to increasing yields per hectare. Input Divisibility: The Mechanization Problem Most modern inputs except farm equipment can be applied on varied farm; sizes and land inclines. But use of farm equipment is more limited. Even though 59% of the potato producers inter- viewed used a tractor, this is not representative of the entire potato subsector. The small mountain farms were not represented in the sample and problems in mechanizing these farms are many. The department of Agricultural Engineering at ICA is de- veloping equipment for use by medium sized and large potato farms. A two-wheel tractor with implements is nearly ready for commercial production and the sale price will be about 14,000 pggggzs This mini-tractor probably could be effective on farms of 2 to 20 . hectares or about 11.4% of the potato farms including 29.6% of land in potatoIproduction (Appendix I, Table I-2). Smaller farms might find cooperative or custom use possible. But for farms of 10 hectares and larger (1.1% of the potato farms 75 Wesley Hobbs, Jorge E. Quintero & James K. McDermott, "Plan Para el Desarrollo de los Tractores de dos Ruedas y de 'una Industria de Maquinaria en Colombia", ICA Departamento ' ‘de Ingenieria Agricola, 1969. 126 including 20.1% of the land in potato production) three-wheel tractors and equipment can be used. Hence, even with mechanization, 88% of the producers and 46% of the planted hectares, probably will not benefit from any form of tractor mechanization except on a cooperative basis. The question of allocating credit and developing other public policies to stimulate mechanization cannot be answered without further research. Which class of farms should be encouraged or should all potato farms be given an opportunity to mechanize? Will a program of mechanization including small farms bind small producers to potato production where prices relative to consumer durables decline and their costs may not decline as far or as rapidly as those of larger producers? At present most harvesting is done with hand labor by using a large and heavy hoe. Mechanical harvesting can be accomplished with three-wheel tractors and new equipment develoPed by the ICA Agri- cultural Engineers but it is not possible with the mini-tractor unless the potatoes are plowed out. Possibly an animal-drawn plow or lister might perform the same function with less damage to the potatoes and a lower labor requirement which is an important con- sideration at harvest time. The cost of animal power versus the mini—tractor is an important consideration. Many small potato pro- ducers have neither source of power. While these questions about alternatives for mechanization cannot be answered definitively because of inadequate knowledge about costs of mechanization, use of improved varieties, and use of recommended seeding practices, various alternative assumptions 127 can be made and efficiency investigations applied to determine results of alternative mechanization programs. Summary : Potato Producers and Technical Assistance ICA has been involved in potato research and limited extension of research results for 20 years. Emphasis has been upon improving varieties and developing disease and insect control methods. Credit to potato producers along with reasonably well distributed supply stores have become available within the last 10 years due to the Caja Agraria. Real potato prices, while unstable, have not declined except in Narino. Yet production has risen very little by improved per hectare yields. Improved varieties with good yield characteristics and resistance to blight, have been adopted by only a limited number of producers. Probably three reasons account for the problem, In a brief but interesting survey, Peace Corps volunteers working with potato producers related that lack of technical knowledge and lack of improved seed were major production problems.76 Thus, probably the extension function has not been fulfilled but the recently organized ICA extension program should help to solve the problem. Lack of seed, however, is not necessarily an extension problem. There may not be enough improved seed produced to meet producer 76Chris 0. Andrew, Bruce T. Heath, Stephen F. Matthews and Rafael Samper A. , Problemas de Produccion_y Mercadeo del Cagpesino Colombiano: Un Estudio Preliminag, Instituto Colombiano Agropecuario, Depto. de Economia Agricola, Septiembre de 1969. 128 demands and the market system for the seed is not well coordinated. A second problem relates to applicability and credibility of information flows to producers. In some cases the extension mechanism functions fairly well. The technical information from ICA passes to Caja Agraria and then to producers or from ICA to agressive producers who relay the information to their neighbors. But often the needs of producers are not well understood. The assumption that potato producers should achieve high yields per hectare is common and where technical advice is available it usually pursues this goal. The rational producer will be suspicious of this information if it fails to fit his particular production situation. A final less-understood and possibly even more difficult issue to resolve is that of stimulating potato production by improving product distribution systems and adequately assessing consumption desires. For example, at present consumers dislike the Purace variety of potatoes. Purace, a larger and high water content potato, is not suited to present consumer desires and preparation practices. Even the best extension program will not and should not convince producers to adopt varieties that will sell at a price discount in the market. ICA has developed improved varieties from traditional seed stock that are accepted by producers and consumers. A better seed distribution system and product distribution system for these varieties is needed. The issue of improving coordination in the potato»distribution system will be considered in the following chapter. " I ‘\ It) , I ,1, CHAPTER V PROBLEMS IN COORDINATING THE POTATO DI STRIBUTI ON PROCESS Market coordination, or the dynamic processes that interact within the exchange system, connects the physical production system to the consumer through the physical distribution system. All P-D systems are coordinated, some more efficiently and effectively than others. Efficiency and effectiveness are both pragmatic and normative considerations that can be discussed for specific countries and specific commodity markets within a country. Coordination of the exchange system for potatoes includes the interdependent flows of potatoes and flows of information about the potato market. The effectiveness of these flows depends upon the facilitative and functional capacities of the transportation, storage, pricing, communication and grading activities to coordinate the exchange system. Major Indicators of Coordination Price Instability Potato producers and distributors must deal with price insta- bility which is both an economic and an ecological problem.77 Prices fluctuate seasonally because of the wet and dry season and the fluctu- ation is emphasized by frosts and seed supply problems. Price instability 77 See Chapter II for the general discussion of price instability and the production conditions that contribute to this problem. 129 130 and the accompanying instability of income was the major potato marketing problem for nearly all of the participants interviewed. The price variations for the Bogota, Cali and Pasto markets presented in Table 32 have both cyclical and seasonal origins. In Table 32 : Price Variation in Bogota, Cali and Pesto, 1955- 1968 1955-1960 1961-1968 1955-1968 13 b _ _ _ _ x s s/x x s s/x x s s/x Bogota 41 4.9 0.12 46 10.4 0,23 44 9,0 0,20 Cali 50 9.5 0.19 40 11.5 0,29 44 _ 11,3 0,25 Pasto 35 5.3 0.15 32 9.0 0.28 33 7.8 0.23 a- x - Mean in centavos/kilogram b s — Standard diviation Source: Appendix III all three departments potato price instability increased for the 1961-1968 period compared to the 1955-1960 period as indicated by s/;. Prior to 1960, cyclical price fluctuations appear to have been nearly non-existent but since 1960 the cycle appears to be two to three years in length (Figure 7). Most of the increase in price variation since 1960 compared to before 1960 is probably due to cyclical activity. This is substantiated by the year-to-year variation in total production by departments presented in Table 33. Based on the IDEMA production 131 Table 33: Total Product Variation in Cundinamarca, Boyaca and Nariflo, 1955-1966 IDEMA Caja Agraria 1955-1960 1961-1966_1 1960-1966 Department _& b _ _ .... .... x s s/x x s s/x x s s/x Bovacé 219 34.8 0.16 235 87.1 0.37 350 53.0 0.15 Cundinamarca 243 15.6 0.06 273 62.1 0:23 355 55.9 0.16 Narifio 33 4.3 0.13 68 28.0 0.41 154 24.7 0.16 a x Mean in 1000's of tons 3 Standard deviation Source: Appendix 11, Tables II-2 & II-4 statistics, variation in total potato production has increased since 78 , 1960. Due to had years in 1961 and in 1964, the cyclical or 79 "cdbweb" price movement began. Prices were at a high in mid 1961, a low in late 1962, a high from late 1963 to mid 1964, a low in late 1964, a high in.ndd 1966, a low in late 1968 and again began to rise in 1969 (Figure 7). Although only three peaks to the cycle 78 It is better to use annual production data to study the cyclical activity in prices because annual price data are unweighted averages which are inaccurate due to variation in seasonal production. 79 See Geoffrey S. Shepherd, Agricultural Price Analysis, Fifth Edition, Iowa State University Press, Ames Iowa, 1966, pp. 35-37, for a discussion of the "cobweb theorem”. 132 are evident, it appears that the duration fromIpeak to peak in prices is from two to three years in length. The Caja Agraria data are presented in Table 33 only for comparative purposes but do not include the 1955 to 1959 period. Based on the Caja Agraria data product variation for the three depart- ments has been very similar since 1960 but IDEMA indicates similar product variation in Boyaca and Narifio and less variation in Cundi- namarca. Price variability, from.the market participants view point is presented in Table 34. Each producer was asked to give the price he Table 34 : Potato Price variability as Indicated by Potato Market Participants, for 1967 and 1968 Average Percent variation Participant group Between Years Within Years a Producers: Boyaca 39.6 40.6' Cundinamarca 42.0 44.2 Narino 46.1 51.2 b Wholesalers: - 37.5.- Retailers:b Supermarkets & Cooperatives - 29.5 Plazas — 33.7 a'Between years equals: Afio Grande price received (AG)'67 minus AG'68 all divided by AG'67: and Mitaca price receives (M)'67 minus M'68 all divided by M'67. Within year for producers equals: M'67 minus AG'68 all divided by M'67. b Within year for retailers and wholesalers equals: Highest price received (HP) minus lowest price received (LP) all divided HP plus LP. Source: ICA Potato Marketing Survey of Producers, 1968 133 received for his product in 1967 and in 1968 for both the 539 Qrande and Mitaca harvests. By using these prices, the percent price vari- ation within and between years was determined. For wholesalers and retailers, only within year price variation was determined, using highest and lowest prices received during the year. The percentages appear as averages in Table 34 for each group of potato market participants. As anticipated, producer prices varied most and retailer prices least because (1) of the price differentials causing higher base prices at each market level nearer the consumer, and (2) some storage within the distribution system also causes prices to vary less at the consumer level than at the producer level. Both within-year and between-year price variations were similar for producers in the different areas with Narifio producers indicating greater price variation for both measures. When producers were asked to Specify the most critical potato market problem, price instability was an important response (Table 35). Although price instability was not considered as important in Narino as in Boyaca and Cundinamarca, this does not necessarily imply that it is not a serious problem. Narifio potato producers are faced with two other problems. The contraband potato flow from Ecuador is unique and transportation problems are greater in Narifio. Ecuatorian potatoes enter Colombia with some seasonality and minor flows leave Colombia, both of which contribute to seasonal price instability in Colombia. Price instability is also considered a restraint on income by wholesalers and retailers. All potato market participants consider 134 Table 35 : Major Market Problems Specified by Potato Producers Prdblems Boyaca Cundinamarca Narifio (percent) Price instability 84.1 76.4 30.8 Over production 3.2 1.8 2.6 Transport & communication 9.7 9.0 25.6 Contraband potatoes from Ecuador — - 28.2 Other 3.2 12.8 12.8 16;; 100. o 100. o Source: ICA Potato Marketing Survey of Producers, 1968 price instability important and an ever present threat to income but producers usually must absorb the losses due to fluctuating prices. When producers were asked about the relationship between price conditions and planting practices the "cobweb" response pattern mentioned previously was encountered to explain the cyclical price changes. If prices were high in the present year, 53.6% said they would seed more for the coming harvest and, if prices were low in the present year, 60.8% would seed less. But when they were con- fronted with very dry conditions at planting only 20.8% would seed less, and 13.6%.said that they would seed more. Margins and Returns One of the mest difficult assessments to make in market system analysis under conditions of limited data is specification of marketing 135 margins. Two methods were used in arriving at these estimates: 1) a price survey was accomplished during a two-week period to specify price differences or spread at each level, and 2) market participants in the general survey were asked to indicate maximum and minimumIprices paid and received during the previous year as a guide to calculating the margins. Cost information to specify marketing margins was not available. Results from the price survey appear in Table 36. Based upon a Table 36 : Potato Prices per Carga (February 8-21, 1969) Variety Weight Retailer Wholesaler Producer Received Paid Received Paid Received (percent) (pesos per carga) Parda Pastusa 70 128 91 89 78 75 Tuquerrefia 15 132 127 127 105 92 Carriza S 143 117 96 85 80 Sabanera 4 196 157 149 134 110 Criolla 4 194 122 110 70 60 Tocana 2 141 105 101 90 79 Weighted Ave. 100 135 102 99 84 79 a Retailer and wholesaler prices were obtained in Bogota and the producer prices were taken from five rural markets ranging from 20 to 100 kilometers from.Bogota. Source: ICA Potato Marketing Survey of Prices, 1969 136 the weight, or general importance of each variety, price differentials were determined and appear in column one of Table 37. Results from Table 37 : Price Spreads for Potatoes in the Bogota market Price General ILMAc CEDE Surveya Survey 1964 1959 (percent) Producers share 58.6 74.0 74.0 71.4 Producer to wholesaler intermediaries 3.7 5.7 7.0 - Wholesalers 11.1 8.0 6.0 14.3 Wholesalers to retailer intermediaries 2.2 - - - Retailers 24.4 12.3 13.0 14.3 100.0 100.0 100.0 100.0 b Source: a Table 36; ICA Potato Marketing Survey, 1968, where producer to wholesale is the transport margin, the wholesaler and retailer information is an estimated margin determined by: (3) - (1)_+ <4) - <2) (3) (4) = a percent margin 2 where (l) is highest price paid, (2) is lowest price paid, (3) is highest price received and (4) is lowest price received. c Instituto Latinoamericano de Mercadeo Agricola (ILMA), Sppply Problems of Basic Agricultural Products in Colombia, Bogota, Colombia 1964, p. 185. Guillermo Franco camacho , Mercado de la Papa respecto a Bogota, D.E., Centro de Estudios sobre Desarrollo Econdmico (CEDE), Monografia # 2, Bogota, Colombia 1959, p. 26. 137 the general survey and from other research programs also appear in this table. Although the price spreads are greater from the price survey, probably they are more accurate. The spread between producers and retailers is relatively consistent at from 13% to 17%. The latter estimate, however, is probably more accurate because it includes more handling and transportation charges. The retailer spread specified in the price survey is not high when losses and sales costs are considered. Retail losses of potatoes run up to 17.8% for supermarkets but average 13.3% for all retailers. Retailers also feel that a 10.6% spread is necessary to cover general op- perating costs. Losses and desired spread total 23.9%, or nearly equal to the 24.4% spread specified in the price survey. Thus, probably the spread estimates by the general survey and by ILMA and CEDE are low primarily because they do not include losses. Distribution costs within the potato marketing system are difficult to specify because of the numerous transactions. The analysis is not sinpdy an exercise in specifying costs for whole- salers and retailer because many and varied levels of potato exchange occur within these two general distinctions. Due to low productivity and underemployment of labor in potato wholesaling and retailing, margins may be wider than necessary. Profits and individual returns are probably not excessive but the continuous backhauling of potatoes within the wholesaling area in Bogota is condusive to added cost. Few potatoes bypass this market where streets_are narrow and potatoes are continually moved back and forth among trucks, warehouses, plazas, taxis and horse or manually drawn 138 carts. Until an improved grading system.is developed and losses reduced at the retail level, the retail spread will continue to be significant. Margins and incomes for potato market participants are also influenced by risks occurring within the market system. Some factors that producers considered to be restraints on their incomes or problems for averting risk appear in Table 38. The major problems were low prices, drought, frost and diseases. Table 38 : Causes of Potato Producer Income Losses from 1963 to 1968a Causes Boyaca Cundinamarca Nariflo (percent with positive response) Drought 5.7 20.4 20.5 Excess rain 11.5 2.9 2.6 Frost 15.4 24.3 33.3 Disease 13.5 10.7 18.0 Low prices: Due to bad markets 46.2 39.8 20.5 Due to bad quality 7.7 1.9 5.1 Total 100.0 100.0 100.0 Source : ICA Potato Marketing Survey of Producers, 1968 Of the retailers, plaza stall operators felt the market problems to be most pressing (Table 39). Lack of credit or liquid capital and price instability were major problems for wholesalers and retailers but lack of liquid capital is less pressing for supermarkets and 139 Table 39 : Income Problems of Potato Retailers and Wholesalers Problems Wholesalers Retailers Supermarkets & Tiendas Plazas Cooperatives (percent with positive response) Lack of sufficient suppliers - — 8.7 11.5 Price instability 96.8 72.2 81.2 92.3 Too much competition 92.0 27.8 71.0 80.8 Lack of market in- formation 33.9 61.1 75.4 88.5 Lack of credit and liquid capital 80.7 50.0 97.2 92.4 Source: ICA Potato Marketing Survey of Wholesalers and Retailers, 1968 cooperatives. It is interesting to note that lack of market information was not so important for wholesalers probably because they are at a strategic point in the market system and are a source of information for the system. Liquid capital for expanding potato wholesaling and retailing involves less credit and more difficult terms. When wholesalers were asked which capital source was most significant for the past 10 years, internal financing by personal funds and business profits was most common (Table 40). Twenty-seven wholesalers had received loans during the year and the average loan size was 33,100122323. Five of the 27 had two loans giving a total of 32 separate loans. The mean nominal interest rate 140 Table 40 : Liquid Capital Sources for Potato Wholesalers in Bogota Source Percent Profits from.the business 47 Personal funds 39 Loans 12 Inheritances 1 Other 1 100 Loan Sources for those haVing loans: First Second Tetal loan loan (number of loans) Commercial banks 16 4 20 Personal loans 8 - 8 Government loans - l 1 Other sources 3 - 3 27 5 32 Source : ICA Potato Marketing Survey of Wholesalers, 1968 paid was 16.7% per year on the first loan and 22.0% per year on the second loan. Both of these rates exceed the mean rates paid by poe tato producers mainly because the wholesalers do not receive low interest rate government loans. Along with the price instability problem, high interest rates for potato distributor loans require wider margins in potato production and restrict new investments. 141 Physical Distribution Processes Transportation Potatoes are transported by various methods in Colombia, pro- ducers often use donkeys or horses to pack potatoes from their farms to rural markets. Horse and tractor-drawn wagons and trucks are also used for farmrto-rural market transportation. Long distance potato transportation is usually by truck but, in some areas, boats and aerial cable cars are also used. Movement of potatoes within urban centers includes trucks, taxis, buses, horse-drawn wagons and manually-drawn carts. Only 11.7% of the wholesalers say that they transport po— tatoes to buyers while retailers indicated that wholesalers transport 14.8% of retail purchases. Of the 11.7% of wholesalers indicating that they transport potatoes to purchasers, 16% use their own trucks, 65% rent trucks and 19% hire zorras (manually and donkey-drawn carts). From both purchase and sale statistics of wholesalers, it appears that less than 2% of the wholesalers use their own trucks. Retailers transport 4.8% by their own trucks, 53.0% by rented trucks 18.8% by animal-drawn zorras, 4.8% by manually drawn zorras, and 3.8% by inter- mediaries. Consumers transport all but 0.3% of the potatoes that they buy. Ownership data for potatoes in transit to Bogota appear in Table 41. Usually the owners pay transport costs for the potatoes somewhat contrary to the Bogota trucker survey, 20.5% of the Bogota wholesalers said that they absorbed transport costs which probably indicates that producers paid transport on the other 7% but which 142 Table 41 : Ownership of Potatoes in Transit to Bogota Ownership Percent Producers 62.2 Wholesalers 27.2 Retailer 6.0 Trucker-buyers 4.1 Producer Cooperative 0.5 100.0 Source : ICA Potato Marketing Survey of Truckers, 1968 could indicate a survey error. Of those wholesalers 8% used their own trucks, 73% rented trucks, and 19% hired truckers. Backhauling or reshipment of potatoes through production areas from the Bogota market was common for 9.5% of the truckers (Table 42). Table 42 : Backhauls from Bogota for Potato Truckers Type of Backhauls Percent Farm supplies 27.8 All food items 19.5 Potatoes 9.5 All classes 6.6 Leave Bogota without a load 36.6 Total 100.0 Source : ICA Potato Marketing Survey of Truckers, 1968 143 Potatoes were also included in the ”all food items" category. These are often mixed loads of fruit and vegetables that go to small rural markets in the warm climate areas. Backhauling mixed loads of fruits and vegetables including potatoes for warm climate markets, possibly is not inefficient based on transportation costs because Bogota acts as a major terminal and asseubly market. The congestion in the Bogota market, however, does make this assembly practice expensive. Backhaul estimates in Table 42 only included interview data from those truckers that were entering Bogota. Of all the truckers interviewed that were transporting potatoes, 29% were leaving Bo- gota. Table 43 indicates major backhauls of potatoes in transit through production areas to deficit warm climate areas. Of total shipments through the Bogota market 22.2% (southeast 2.4%, south- west 8.8% and north 11.0%) were backhauls that might have been avoided by an effective rural assembly system including a market information system. Table 43 : Potato Flows Entering and Leaving Bogota as an Indication of Backhauling Location Potatoes entering Disposal from Bogota Bogota (percent) Southeast 3.3 2.4 Southwest 8.8 15.6 Fontibon - Madrid 26.4 - Facatativa - Subachoque 19.9 - Zipaquira area 8.3 - North 33.3 11.0 Bogota consumption - 72.0 ”13676" W Source : ICA Potato Marketing Survey of Truckers, 1968 144 Two factors account for the backhaul problem. First, there are few interregional wholesalers or intermediaries with capacity to buy in rural areast and sell in several markets besides Bogota, Second, and possibly more inportant, producers with trucks and rural based assemblers have no dependable market information service upon which to base day-to-day decisions about relative prices in alternative markets. So Bogota acts as a terminal potato market that often contains potato surpluses for re-export through production regions to warm climate markets. Assembly Functions Rural-to-urban assembly functions for potatoes often involve numerous handlers and numerous product exchanges. Except for large producers, who transport potatoes to Bogota for direct sales to wholesalers, rural assembly markets involve several transactions. Producers owned 62.2% of the potatoes in transit to Bogota. Large producers who owned trucks sometimes acted as assemblers by purchasing from small producers. About 14% of producers sales were to larger producers who act as assemblers (Table 7). These producer-assemblers usually transport potatoes directly to Bogota. Other producers and small rural assemblers may buy and sell potatoes in several rural markets that are in close proximity such as ventaquemada (Boyaca), Villapinzdn and Choconta (Cundinamarca). When these producers and assemblers cannot receive the desired prices for their potatoes they have the alternative of moving the potatoes to one of the nearby markets. Weekly market days for these markets usually do not fall on the same day of the week. If sellers 145 are not satisfied with the prices in several of these markets and if they own or can rent trucks, they will then transport the potatoes to Bogota. This practice involves unloading and reloading the potatoes at each market. Storage facilities for these rural based assemblers are virtually nonexistent. Where the rural markets are relatively isolated and nearby market alternatives are 1imited.large producers, trucker-buyers and wholesalers act as assemblers. The potatoes then go direct to Bogota. Only a few small producers cooperate in potato transport by renting a truck. Trucker-buyers handle about 20% of the potatoes passing from producers to wholesalers and retailers. These trucker-buyers own one-fifth of the potatoes that they transport and act as purchasing representatives for wholesalers and retailers for the remaining four-fifths. Urban potato market transactions are of several types. Tienda retailers buy from several classes of suppliers but plggg wholesalers and retailers represent over one-half of their purchases. Transactions occur within the wholesaler function and within plggg retailing and wholesaling. The percent or number of these transactions was not clearly defined. In summary, potatoes destined for consumption in Bogota may have changed owners up to four times in rural areas and five or six times in the Bogota market before the final consumer purchase. If the potatoes are re-exported from Bogota to other market centers the potatoes may change owners up to twelve times between the producer and consumer. Often each exchange requires unloading the potatoes 146 from a truck, piling them in a warehouse or on the ground in a rural market and reloading them on another truck or other mode of transport. This handling causes product deterioration due to bruising and scaring the potatoes even though they are not removed from the bags. Where retailers, primarily supermarkets, buy direct from.producers the handling losses are reduced. Storage Few producers store potatoes while waiting for improved prices. Most producers do store seed potatoes but not potatoes for commercial sales. Some producers can store potatoes in the ground up to 30 days prior to harvesting and also some store potatoes in tents near the field up to 30 days. Statistics for those producers having storage facilities are found in Table 44. Probably transportation difficulties Table 44 : Storage of Potatoes by Potato Producers Boyaca Cundinamarca Narifio Number and percent storing potatoes 2 (6.4%) 8 (14.5%) 7 (17.9%) Average storage capacity 75 cargas 146 cargas 135 cargas Average amount stored last year 30 cargas 73 cargas 74 cargas Average storage time 37 days 72 days 51 days Losses in storage No response 14% 10% Source : ICA Potato Marketing Survey of Producers,l968 147 at harvest time between Narif‘io and Cali make storage more inportant. A primary reason for not storing potatoes is spoilage (Table 45). Table 45 : Producer Reasons for Not Storing Potatoes Reasons Boyaca Cundinamarca Narifio (percent) I don't know how to store potatoes 16.7 18.7 16.0 They spoil too easily 36.7 33.3 30.0 I must sell immediately to pay debts 33.3 31.3 18.0 I need the money immediately for the family - 6.3 6.0 It is not profitable 13.3 2.1 16.0 Other - 8.3 14.0 Total 100.0 100.0 100.0 Source: ICA Potato Marketing Survey of Producers, 1968 Most retailers including large supermarkets do not store potatoes for long periods of time. Indicators of time in storage or time on shelves for retail outlets are frequency of purchases from who1esalers and average size of stocks (Table 46). The greatest amount of storage within the potato marketing system occurs at the wholesale level, but even here storage is not of sufficient volume or duration to provide a semblance of price stability. To assess the average inventory of wholesalers is‘ difficult. Total storage capacity averaged 394 cargas but only 148 Table 46 : Frequency of Potato Purchases and Average Stocks in Bogota Retail Outlets Frequency of Average purchases in stocks times per month in cargas Supermarkets and cooperatives 10.5 9.4 Tiendas 6.7 3.3 Plazas 5.0 4.9 Source: ICA Potato Marketing Survey of Retailers, 1968 21 of 62 wholesalers gave storage data. Of those, average inventory was 81.6% of capacity. Eighty-nine percent of the wholesalers said they did not store potatoes from harvests to times of scarcity and only 22.6% indicated that potatoes were always in their warehouses. Of 32 responding to the question concerning average inventory du- ration, the mean was 23.2 days. Wholesalers responses to major problems inhibiting more storage are presented in Table 47. Again spoilage is a major problem. Table 47 : Problems Inhibiting Storage by Wholesalers Problems Yes responses Rank (percent) It is too risky 77.4 27.5 Potatoes spoil easily 90.4 37.5 Storage facility is too small 67.8 12.5 It is not profitable 69.4 11.2 I don't have enough money 45.2 10.0 I cannot borrow enough money 32.3 1.3 100.0 Source: ICA Potato Marketing Survey of Wholesalers, 1968 149 Risk is also very important to wholesalers and they too are concerned about price instability in the potato market. A final but very detrimental factor that discourages potato dis- tributors from storing potatoes is the adverse public attitude and law against speculation. Many individuals, both private and within the government, believe speculation raises marketing margins and is an evil method used to take advantage of producers and consumers. It is common to hear derogatory statements such as "the government should replace all intermediaries and speculators in food distribution". But insufficient storage throughout the potato distribution system fails to assist in achieving the goal of minimizing price instability which is held by producers, distributors, consumers and the government. Storage at the wholesale level is probably more common than the survey indicated. Wholesalers were reluctant to give information about their storage practices possibly because of the anti-speculation law and the adverse public attitude of the government. To pursue an anti-speculation policy that implies limited storage by the private sector may assume that the government can more effectively and efficiently store and distribute potatoes than the private sector. No data are available to prove or disprove this thesis. Further research should be applied to this problem before pursuing a policy that appears to be in direct conflict with the important price stability goal of the potato P-D system. The government (IDEMA) is involved in potato storage at Cho- conta and Tunja, North of Bogota and at Fontibén, a suburb of Bogota. These facilities have a total capacity of about 18,000 tons. The largest storage operation at Choconta consists of 127 quanset-type 150 structures, each with a capacity of 100 tons. The quansets are ventilated naturally by opening ventilators at night to allow cool air (mean temperature is ll°centigrade) to circulate and then sealing the ventilators during the day.80 This ventilation system may not prove sufficient to maintain potatoes in storage up to six months as deSired by IDEMA. The facilities are difficult to empty and fill because the quansets and bins within each quanset are small. Sorting of the potatoes is performed in a central building on a large mechanical sorter. Producers and wholesalers were asked about the governmental storage activities (Table 48). It is interesting to note that more Table 48 : Producer and Wholesaler Reactions to Governmental Storage Operations Wholesalers Producers Boyaca Cundinamarca Narifio ( percent ) Are you aware of the govern? mental storage operations?(yes) 43.6 38.7 36.4 28.2 What is your opinion of this activity? Favorable 53.2 38.7 52.7 30.8 Uncertain 24.2 32.3 21.8 46.1 Unfavorable 22.6 29.0 25.5 23.1 Total 100.0 100.0 100.0 100.0 Did you.buy from or sell to INA last year? (yes) 9.4 25.8 12.7 15.4 Source: ICA Potato Marketing Surveys of Producers and Wholesalers, 1968 80 These observations are based upon a tour of the facilities in December 1967, following completion of construction in mid 1967. .151 wholesalers were in favor of governmental storage than producers which may indicate that wholesalers presently are not profiting by storing potatoes and see the government as no threat to their present activities. Government facilities at present can store less than 2% of annual production in Colombia when they are Operating at capacity. More storage of potatoes by private and/or public means is needed to assist in; stabilizing seasonal price fluctuations. But spoilage of potatoes in storage is a major risk which inhibits expansion of storage operations. Adoption of improved practices in potato wholesaling and retailing has been slow. Some, but few, physical exanples of progress are available. While 56.5% of the wholesalers said they were aware of chemical treatment to conserve potatoes in storage, only 4.8% said they occasionally applied a sprout inhibitor. Two of the three used Cloro IPC and one used Agermin. At present one large wholesaler has 1,200 cargas in storage and treated with Cloro IPC. IDEMA has applied Cloro IPC since 1958, but .attemts by IDEMA to introduce the practice in the private sector. have been limited. Losses Two types of losses occur within the distribution system. Coqlete physical destruction, implying that consumtion is imossible, is quite low but some financial loss does occur for 15.1% of total production for conercial sales, (Figure 6 and Table 7) . Based on survey results consumers losses are 2.6% of cos-ercial sales while market system losses represent 12.5%. About three-fifths of the retailer losses or 6.0% of all commercial sales cannot be sold at any price. Thus, at least 8.6% of total potato production for 152 commercial sales are completely lost to either consumers or retailers. Wholesalers usually sell low quality potatoes at discounts. The exact monetary losses incurred by wholesalers and retailers are not known but the complete monetary loss on 8.6% of potato production for commercial sales includes about 43 thousand tons per year. For the entire one million ton potato P-D system, complete monetary losses occur on at least 131,600 tons per year (61,000 tons at harvest, 27,600 tons of seed and 43,000 tons in distribution). Partial losses occur where discounts for low quality are granted which would raise monetary losses above the value of 131,600 tons. A well organized and managed P—D system could reduce these losses. The actual consumption loss to society is smaller than 131,600 tons because many very low income families will salvage some of the non- salable potatoes both on the farm.end in the markets. This con- sunption loss is not known, and fluctuates depending upon the potato price level. When prices are high, actual consumption losses are low due to intensified salvaging by the poor. Of course, relative prices of close substitutes for potatoes will also affect use of low quality potatoes. In summary, to evaluate the effect of losses on the general price level is even more difficult than to specify the loss itself. Producers as a group prdbably would not benefit by loss reduction because of an inelastic demand for potatoes. For on farm losses, the benefits of reducing losses can be measured by comparing marginal factor costs with the marginal value product for loss reducing methods. Individual producers and individual distributors would probably benefit from loss reduction and quality improvement 153 programs where retailers and consumers are willing to pay for the improved product. Facilitative Exchange Processes Numerous factors influence exchange of potatoes. Producers, processors and distributors provide time, form and space utilities sought by other:potato market participants and ultimately the con- sumer. Behavioral characteristics in decision making relative to pricing and exchange of potatoes indicate buyer and seller reactions to the product. While this behavior is influenced by desires for product utility by consumers, the system also affects the type of product utility created. Integration, Agreements and Cooperation Formal vertical integration, while limited in the potato P-D system, centers upon the wholesaling function. The extent to which potato wholesaling is vertically integrated by percent of participants in each category is presented in Table 49. Table 49 : vertical Integration in Potato Distribution in Bogota Form of Integration .Elééé. Traditional Weighted Wholesaling Wholesaling Wholesaling (percent) Wholesalers only 44 28 34 Producer-Wholesalers - 13 8 Wholesaler-Retailers 50 39 46 Producer-Wholesaler-Retailer 6 20 12 Total 100 “100 100 Source: ICA Potato Marketing Survey of Wholesalers, 1968 154 At least one of the large wholesalers owns potato farms in several departments and is a wholesaler of potatoes in several large cities. Carulla also buys direct from.producers when possible and offers technical advice to producers about methods for obtaining best quality. When retailers were asked if direct buying by supermarkets from producers benefited consumers and the market system, 61.1% of the supermarket and cooperative, 36.2% of the tienda and 30.8% of the plaza interviewes responded affirmatively. Purchase agreements as another mechanism of vertical coordi- nation in purchasing and selling potatoes are not common. Only 1.1% of the truckers regularly hauled potatoes under forward purchase agreements, 8.6% responded with rarely and 90.3% said they never hauled contracted potatoes. Producer sales agreements for the year preceeding the interview were distributed as indicated in Table 50. Table 50 : Producer Sales Agreements Producers Boyaca Cundinamarca Nariflo With successful agreements 1 5 10 With unsuccessful agreements 1 1 7 Without agreements 29 49 22 Total number interviewed 31 55 39 Source : ICA Potato Marketing Survey of Producers, 1968 155 Four of the producers sold in advance in order to obtain a loan, two received a better price and the other cited various reasons. Ten of the agreements included a price which was deter- mined by the market price at the time of each agreement. All of the agreements were unwritten. Quality was not necessarily a condition in the agreements but the buyers indicated that they made agreements with producers that have a reputation of pro- ducing "good" quality potatoes. 0f the 62 wholesalers only 6 made potato purchase agree- ments with producers representing only 4.1% of all wholesale purchases. All of the 6 agreements were with producers, 2 of which were specified between planting and harvest and 4 during harvest. Only one agreement was written. Prices were specified at the time of the agreement based upon the current market price at that time. Six wholesalers had sales agreements with retailers which accounted for only 2.4% of wholesaler sales. Two agreements were with tiendas, 3 with plaza retailers and one with a processor. Two of the 6 agreements were written and 2 were less than one week in duration while 4 were for a period of one to two weeks. No retailers indicated having had purchase agreements with wholesalers. This inconsistency is not problematic because formality of sales agreements is difficult to differentiate. Many purchases and sales are made either because of friend and family relationships or a long term purchase and sale experience (Table 51). In many cases the reasons given for purchases 156. Table 51 : Affirmative Responses to Reasons for Purchasing from Specified Suppliers for Wholesalers and Retailers Vholesalers Retailers Reasons Supermarkets & Tiendas Plazas Cooperatives (percent with positive response) They are family or friends 53.2 - 11.7 30.8 They do favors for me 9.7 - 1.4 - I have purchased from them for a long time 82.3 77.8 84.1 92.3 I advance money to them 24.2 - 2.9 11.5 I am their only alterna- tive 4.9 - - - I pay more 6.5 5.6 4.4 - I pay in cash 45.2 11.1 50.7 69.2 Source : ICA Potato Marketing Survey of Wholesalers and Retailers, 1968 constitute long term informal, agreements as a means of reducing risk in a poorly coordinated potato market. When 4.9% of the wholesalers responded that they were the only alternative probably they were the only purchasers in a small isolated rural market. All major potato market participant groups were asked why they did not undertake formal contracts for purchase and sale of potatoes (Table 52). Two major risks influence a general desire not to enter formal purchase and sale agreements. First, there is a high proba- bility that prices will change dramatically and the market participants are sensitive to the unstable price situation. A good contract 157 Table 52 : Potato Market Participant Reasons for Not Participating in Formal Purchase and Sale Contracts Reasons Producer Wholesaler Wholesaler Retailer Sales Purchases Sales Purchases (percent with positive response) High risk of price change 48.0 67.7 69.4 53.1 Cannot trust the other party 12.0 11.3 9.7 10.5 Other party does not want 24.0 - 1.6 0.6 It is not necessary 8.0 14.5 16.1 30.3 Other 8.0 6.5 3.2 5.5 100.0 100.0 '100.0 100.0 Source : ICA Potato Marketing Survey of Producers, Wholesalers and Retailers, 1968 system throughout the P-D system, however, could reduce the price insta- bility. Second, mutual distrust between the potential parties to an agreement exists. Contracts, while cumbersome, are not "really” binding under most conditions that face market participants unless time and expense are devoted to obtaining all legal sanctions, and even then the contracts may be questioned. Thus, trust is a very important factor but it must extend beyond family and long term acquaintances. For family and long term friends, contracts are probably unnecessary. Potato producers, wholesalers and retailers were asked if they cooperated with their competitors in business activities (Table 53). Informal cooperation at the farm, supermarket-cooperative and tienda levels is not common. However, for wholesalers and plaza retailers 158 Table 53 : Affirmative Responses to Cooperation by Potato Market Participants in Production and Distribution Activities Producers WholesalerS. Retailers Supermarket & Tienda Plaza Cooperatives (percent with positive response) In planting & harvesting 12.5 — - - _ In buying inputs 12.0 - - - .. In buying potatoes - 62.9 11.1 34.6 11.6 In selling potatoes 7.2 61.3 - — - In transporting potatoes 9.6 19.4 - 15.4 16.1 SOURCE : ICA Potato Marketing Survey of Producers, Wholesalers and Retailers, 1968 some of whom are also wholesalers, cooperation in buying and selling potatoes is common. Credit Sales and Purchases To specify what constitutes credit purchases and sales is difficult. When market participants discuss credit, they refer to a physical exchange of product without a concomitant.monetary ex- change until a later date or a deferred payment. Transactions are also made.by post-dated checks that are not considered to be credit lout under most definitions constitute deferred payment. Post dated checks are a form of short term credit and tie-up short term capital for the holder of the check. This factor was not apparent until 159 after termination of interviewing so the magnitude of credit by post dated checks is not well defined. Only from about 28% to 36% of producer sales were on credit (Table 54). The distribution of credit purchasers from producers differed between departments. The greatest amount of credit purchases were by trucker-buyers in Boyaca, by wholesalers in Cun- dinamarca and by local buyers and assemblers in Narifio. A counter flow of credit passes from wholesalers to producers. Of the 62 wholesalers interviewed, 11 advanced money to producers. Table 54 : Cash and Credit Sales by Potato Producers Boyaca Cundinamarca Nariflo Percent of producers always selling for cash: 64.5 63.6 71.8 Credit or cash and credit sales to : (percent) Large producers 2.3 1.2 4.3 Local buyers & assemblers - 4.7 19.5 Trucker-buyers 28.4 3.7 2.2 Wholesalers 4.8 25.6 - Retailers - 1.2 2.2 Total 100.0 100.0 100.0 Source : ICA Potato Marketing Survey of Producers, 1968 An average of 10 producers received credit from each of the 11 wholesalers with 9% of the advances agreed upon before planting, 27% agreed upon between planting and harvest, and 64% agreed upon 160 during harvest. Four of the 11 wholesalers determined price of the potatoes at the time of the credit advance and 7 were ‘repaid with potatoes, 2 with both money and potatoes, and 2 with money only. One wholesaler charged an interest rate equivalent to 25% per year. Fifty wholesalers sold potatoes on credit and their total credit sales averaged 32.3 cargas for the year previous to the interview. The average loan was for 24 days and the average number of credit sales per wholesaler was 29. None of the wholesalers charged interest on these sales, but some retailers indicated that they paid a price defferential to wholesalers when making credit purchases. This is defacto interest chargeh Credit sales and purchases for retailers are presented in TableZZS. No retailers indicated having paid interest on credit purchases but there was a price differential, or higher price paid, per gagga for some of the retailers purchasing on credit. This price differential ranged between 7% and 11% of the retail price paid, assuming an average retail price of 100 pesos per ‘gg£g_, These rates held for a range of 10 to 18 days depending upon the class of retailers. The annual interest rate equivalent for supermarkets and cooperatives would be 167%, for tiendas - 414%, and plazas - 266%. Only 3.6% of the consumers said that they purchased potatoes and other food items on credit. Another 8.7% purchase food with ‘personal checks which are often.post dated. Reasons why retailers and wholesalers placed confidence in those to whom they grant credit are presented in Table 56. Cooper- atives and.supermarkets grant customer credit primarily for 161 Table 55 : Credit Purchases and Sales of Potatoes by Retailers in Bogota Supermarkets & Tiendas Plazas Cooperatives Credit purchases: Purchasing on credit (percent) 66.7 26.1 46.2 Average period for repayment (days) 17.4 9.7 9.6 Total purchases on credit for those using credit (percent) 92.1 73.5 78.9 Credit purchasers paying a price differential (percent) 41.7 27.8 64.3 Price differential per carga (pesos) $8.00 $11.00 $7.00 Credit Sales: Selling on credit (percent) 39.8 49.3 61.5 Average period for repayment (days) 23.1 21.0 36.4 Average total credit sales (cargas/ year/retail outlet) 206.0 41.8 42.4 Average number of credit buyers (per year) 265.0 10.9 13.9 Source : ICA Potato Marketing Survey of Retailers, 1968 convenience and to promote sales while tienda and plaza retailers grant credit because of interpersonal trust and friendship. In summary, about 30% of the producers sold on credit. Eighteen percent of the wholesalers said they advanced money to producers. 0f the wholesalers, 80% had credit sales to retailers while 26% of the 162 Table 56 : Reasons Given by Potato Retailers and Wholesalers for Making Credit Sales Wholesalers Retailers to Consumers To To Suppliers Purchasers Plazas Tiendas Cooperatives & Supermarkets (percent) They have good businesses~ 36.4 35.4 30.0 17.7 14.3 I trust them 27.2 25.5 33.4 38.8 7.1 They are long time friends 9.1 29.4“ 26.4 6.4 - They need the money 9.1 '7.8 6.7 17.7 28.6 They give collateral 18.2 1.9 - - - For sale promotion and convenience - - 3.5 19.4 50.0 Total 100. o 100. o 100. o 100. o 100. o Source : ICA Potato Marketing Surveys of Wholesalers and Retailers, 1968 tiendas, 46% of the plazas and 67% of the supermarkets and cooperatives said they purchased potatoes on credit. Again, 39% of the supermarkets and cooperatives, 49% of the tiendas and 62% of the plazas sold potatoes to consumers on credit. Interest charges were.uncommon.bum price differentials paid by a few retailers for the privilege of making credit purchases were costly. Where the practice of paying price differentials for some retailers is common, costs could be reduced by obtaining other means of financing short term potato purchases. 163 Behavior in Pricing Numerous behavioral characteristics of market participants could influence potato prices. Individuals can influence their price received as well as income by various potato holding practices but storage is sporatic throughbut the system. Prices are sometimes influenced by price discounts and price differentials for credit sales but usually potato market participants accept the market price without question. Potato prices for individual transactions in most all markets except supermarkets, cooperatives and some tiendas are bargained prices. If clients desired to bargain, 95.2% of the wholesalers, 5.6% of the supermarkets and cooperatives, 79.7% of the tiendas and 88.5% of the plazas said they were forced to lower.their asking prices. Bargained potato prices, however, do follow a general price levels with differentials for quality and transportation. Prices may fluctuate substantially from week-to-week in rural markets depending upon the number of buyers attending from.the large markets. It is not uncommon for producers with access to transpore ‘tation to move their potatoes to a second rural market before receiving an acceptable price. Potato wholesalers and retailers were given a hypothetical sales situation to determine their attitudes about profits and volume of sales. The problem and responses for retailers were: Problems What would you prefer: 1) to sell 10 cargas of potatoes at a net profit of 30 pesos per carga, or 2) to sell 20m cargas of potatoes at a net profit of 15 pgsos per carga? 164 Responses Supermarkets & Cooperatives Tiendas Plazas 1. 10 cargas - $ 30/gggga_ 16.7% 17.4% 11.5% 2. 20 cargas - $15/gggga 72.1% 71.0% 73.1% They are the same 5.6% 10.2% 15.4% No response ‘ 5.6% 1.4% - 100.0% 100.0% 100.0% In both options the total net return would be equal. If interpretations of total net returns included all costs such as direct costs, and returns to capital and labor, the retailers should have selected neither option one nor option two if net returns were their only consideration. Thus, it might be concluded that they prefer higher volume for other reasons than net profit such as sales promotion and for attracting customers. It could also be concluded that they have not considered net returns in this manner and did not recognize that both situations were equal. The problem for wholesalers was different in that the net returns from.the two options were not equal. The problem and responses follow: Problem What would you prefer: I) to sell 10 tons of potatoes at a net profit of 200 pesos per ton, or 2) to sell 20 tons at a net profit of 150 pesos per ton? Responses 1. 10 tons - $200/ton 12.9% 2. 20 tons - $150/ton 87.1% 100.0% 165 In option one total net returns are 2,000 pgggg and in option two total net returns are 3,000 pgggg. Probably wholesalers did recognize that, even though price was higher in option one, total net returns were higher in option two. However, given the interest in higher volume in the retail analysis, possibly a similar interest holds for wholesalers. Another series of questions concerning actual price setting practices were administered to retailers and wholesalers. The responses and questions appear in Table 59. The wholesalers who sell at prices lower than their competitors do so to increase profits but retailers desire to increase sales which may or may not increase profits. This substantiates the hypothesis that retailers may have prefered option two in the hypothetical problem on sales preferences because it attracted more clients. The supermarket-cooperative analysis in Table 57 indicated that possibly supermarkets and cooper- atives follow the pattern of Carulla of lowering potato prices to attract customers. Retailers did believe that lower prices will generate increased profits but wholesalers were not in agreement. Thus, pricing of potatoes by market participants deviates little from the general price situation. Some retailers can lower potato prices slightly to attract customers but loss leadering with potatoes is uncommon. Cooperation in buying and selling of potatoes is common for wholesalers, and storage is most common at the wholesale level. Communication and Price Information'v Information flows within the market system for potatoes are primarily by interpersonal communication and not by mass communication Table 57 : 166' Pricing Behavior of Potato Wholesalers and Retailers Wholesalers. Questions and response Retailers options Tiendas Flam cooperatiws & Supermarkets (percent) How do your sales prices usually compare with those of your competitors? Higher 1.6 - - - The same 83.9 73.9 53.8 22.2 Lower 14.5 21.7 38.5 72.2 No response - 4.4 7.7 5.6 Total 100.0 100.0 100.0 100.0 Why are your prices lower? (percent) (only those with lower response above) To increase profits 72.0 22.0 - - To increase sales 28.0 78.0 100.0 100.0 100.0 100.0 100.0 100.0 If you would lower your prices (percent) would you increase your profit? Yes 11.3 62.4 42.3 66.7 Don't know 20.9 22.7 23.1 22.2 No 67.8 15.9 34.6 11.1 100.0 100.0 100.0 100.0 Why don't you lower price below your competitors more often? Purchase price is too high 11.3 55.1 42.3 22.2 Other'competitors would net like it 11.3 4.4 7.7 - Costs are too high 21.0 7.2 3.8 - Prices are already too low 17.6 33.3 46.2 61.1 No response 33.8 - - 16.7 100.0 100.0 100.0 100.0 Source: ICA Potato Marketing Survey of Wholesalers and Retailers, 1968 167 methods. A recent study oriented to production and marketing problems for producers of 14 agricultural commodities including potatoes revealed that 70% of communication about market prices was interpersonal (Table 58). In none of the interviews at any level within the potato marketing system did radio, newspapers or other forms of mass communication appear as important information sources (Table 59). IDEMA, the primary Table 58 : Price Information Sources for 14 Commodities Produced‘ by Colombian Campesinos Sources Percent Interpersonal Communication: Other Producers 34.4 Truckers 19.6 Middlemen 9.6 Miscellaneous 6.3 Total 69.9 Mass Communication: Public and Private Institutions 9.4 Radio 7.3 Association Publications 7.1 Daily Newspapers 6.3 Total 30'1 Total 100.0 Source: Andrew, Heath, Mathews and Samper, Problemas de Pro- duccidn y Mercadeo del Campgsino Colombiano: Un Estudio Preliminar, ICA Departamento de Economia Agricola, Septiembre de 1969. 168 Table 59 : Information Sources for Potato Market Participants (percent for each source) Sources Boyaca Cundinamarca Narifio Producers - Price information: Personal visits 83.7 85.5 64.0 Neighbors - 9.1 5.1 Buyers «—w 3.6 10.3 Radio - s ' — Friends in the pueblo plaza - - 2.6 Truckers - - 2.6 There is not a reliable information source '322 - 2.6 No response 13.1 1.8 12.8 166.—o— m If)??? Wholesalers - Information forexpanding business: Information about prices: Consumer desires 37.9 Personal observation 76.1 Family and friends 30.3 Other wholesalers 19.5 Other wholesalers 19.6 Other '4.4 Mass media 10.6 100 0 Government agencies 1.6 ° 100.0 IRetailers - Price information sources: Wholesalers - 48.6 64.1 61.8 Personal observations 45.7 30.8 19.0 Other retailers 5.7 5.1 9.6 A price leader - - 4.8 100.0' 100.0 100.0 Truckers - Price information: Consumers - Market information: Friends in the plazas 47.6 Personal observations 98.0 Wholesalers 26.4 Other maids 1.0 Other truckers 21.8 Friends 0.5 IDEMA 0.1 Neighbors 0.5 Other 4.1 100.0 100.0 Source: ICA Potato Marketing Surveys of Producers, Wholesalers, Retailers and Consumers, 1968 169 governmental agency working with price information did not appear as a significant price information source. This is probably due to a very narrow distribution of the IDEMA price lists. Both potato truckers and retailers cited wholesalers as important sources of price information which emphasizes the key role of wholesalers in price communication. Word-of-mouth'communication is the primary means of distri- buting market information. Obtaining prices from several buyers and sellers is important in a system where no general price in— formation is available.. Most producers have more than one alter- native buyer but 4.9% of the wholesalers indicated that their suppliers sold to them because the specific wholesaler was their only buyer. Of the retailers, 75% obtain information from two or more suppliers before purchasing potatoes. But there is no substitute for a functional market infor- mation system: 34% of the wholesalers and 76% of the retailers said that the lack of price information reduced their profits: and 89% of the consumers agreed that an improved information system for consumers and other market participants is needed. Lack of market information accompanies the poor system of grades and standards. Grading and Standardization .Potato grading and specific standards are not well defined, or applied at any level in production and distribution of potatoes. However, 87% of the producers said that they field-graded potatoes before selling them. None of these producers employed mechanical 17.0 graders, instead, the workers graded the potatoes by removing damaged or spoiled tubers during harvest. Grading is not common at the wholesale level. A small number of modern wholesalers (contrary to traditional wholesalers who only buy and sell potatoes) sort, wash and bag potatoes in several sizes of small bags which represent 12.3% of the commercial flow of potatoes (Figure 6). Only 17.7% of the traditional wholesalers sorted an average of 13.2% of their sales but only 1.7% of the commercial flow. Thus, a total of only 14% of the commercial potato flow is sorted at the wholesale level. Most retailers, except the Carulla supermarket chain, do not sort potatoes. Consumers in their selection from produce.counters, from stall shelves, and from £3159 bags perform the sorting. Only 5% of the consumers indicated that they purchased potatoes that were previously washed, sorted and bagged. Both retailers and wholesalers were asked if they had refused to buy low quality potatoes and how they disposed of low quality potatoes (Table 60). Wholesalers can sell almost all of their low quality potatoes either at normal prices or at a discount. Retailers however, usually cannot sell low quality potatoes at normal prices. Of the lower quality potatoes not sold at any price, three-fifths are thrown away, some of which are taken from the garbage to be consumed by the very poor families, one-fifth are used in the retailers home at an added expense for preparation, and one-fifth are given away. Even though grading of potatoes is not a common practice within the distribution system, all potato market participants 1 171 Table 60 : Wholesaler and Retailer Purchase and Sale Practices Regarding Low Quality Potatoes Questions Responses Wholesalers Retailers (percent) Did you refuse to buy potatoes 1. YeS“ 71.0 36.4 of low quality last year? 2. Sometimes" 8.0 6.3 3. No 21.0 57.3 100.0 100.0 What part of prospective 27.9 22.1 purchases did you refuse for that reason? Do you pay less for low 1. Yes 95.2 32.6 quality potatoes? 2. Sometimes 3.2 66.5 3. No 1.6 0.9 100.0 100.0 Do you sell low quality 1. Yes 62.9 28.3 potatoes at normal prices? 2. Sometimes 4.8 - 3. No 32.3 71.7 100.0 100.0 Source : ICA Potato Marketing Survey of Wholesalers and Retailers, 1968 differentiate quality in potato purchases and sales (Table 61). Truckers and processors were asked only to indicate the most important quality considerations and those do not appear in Table 61. Processorrpurchases are based upon variety, size and cleanliness but not upon color. Five of eighteen interviewed used all three criterias six used variety and size, three used only variety, one used only 172 wood .muoasmcoo moo whoaflouom .muoaomoaoae .mmoosooum mo mo>nsm mcwpoxsoz oumuom cuH nounsom .usomwowuumm so>wm has an poms moowuommm GQEEOO umOE 039 one Scum coxms ousmam omoucoonom oocwcsoo m on mmomou oowuommm ecu mo mosmumomEa no xsmm M o.ooa o.ooa o.ooa o.ooH o.ooH sauce p.m m.o m.o~ ~.m o.me m.HH m.me m.m «.mv uoaoo m.o~ o.m~ a.~m H.o~ o.oo m.o~ a.mo v.om e.vm wusm m.o o.H a.ps ~.m ¢.m¢ m.~s ~.¢n m.o o.me mmmcocsou use Shoo 0.0 m.m n.me «.5 ~.mm m.HH m.ma s.e a.pm mmmcammum one was o.H~ H.H~ m.mm m.~m m.ss o.- onom m.o~ m.mm someuu> H.mm H.Hm m.mm a.mm «.mm o.a~ o.mn m.o~ «.mm mousse room mcwmb xcom moans xcom means mxcmm means mowvooum mowuooum comm mo mucouuomEH o>flumaom ecu ocm ensuomum comm momma ucoouom on» osmosaocH moamm coo monocosom cs mucmmfiowuumm posse: ououom mo moOfluoomm sewuooflMemmMHU " Ho manna .1373 cleanliness and two did not respond. Thusr variety was used_as a buying characteristic by fourteen processors. For truckers 86.0% indicated size, 10.8% indicated variety and 1.7% indicated age as criteria for potato purchases. Wholesalers are less interested in damaged potatoes as a purchase and sale criteria because they neither grade potatoes nor do they usually receive lower prices due to low quality (Table L60). Potatoes are usually not removed from the original bags at the wholesale level. Retailers and consumers show strong interest in damage. Of the total losses in the potato market system consumers absorb 17%, retailers 67%, and wholesalers 16%. The greatest amount of grading occurs at the time of the final exchange and the consumer is the grader. Retailers are residual bearers of damaged potatoes and where possible should be more demanding of wholesalers in regard to grading. Both retailers and wholesalers emphasized age while producers and consumers did not because the former group holds potatoes longer and can realize storage losses. Contrary to some opinions, form.and color are not important to consumers but variety does account for both form and color. variety is important to all potato market participants when buying and selling. This factor indicates strong ties to traditional potato consumption habits in Colombia. Of course variety can be an indication of quality. Producers considered size important because their field grading primarily involves sizing and removal of excessively damaged potatoes. Producers also are aware of the lower price prevailing for large potatoes. ‘Purace is large while Colombian consumers presently desire a medium sized or "f‘.’ ... 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'L jaojsoxp odT .édf aiazseaioflw bus .§§& ajgijsau adj bus eqmmui>ns iLHil adj to await x1} is slugso gait. bepbmsb 30 LEOJBLd isubtag: qih exasiwafi .13b579 of axelsasiodw io pnibnsmsW smom 9d nfaefia v.qQanq :Lfidv .pcgbszp axevuboiq aiidw spa .sniasiqua axoisasimnw has EIQLLSJO 199301 aaojsjoq abiofl guoxp anmro} 5&1 neuswwd ion bio has mloi ‘anoixlqo amoa 03 {Yfiliflfis .zveaoi 9Db;078 as 103 finuomvs ESCC yjoiusv :pd BXSMLeaoc OJ Jflnfiuoqmj :19ixsny ojsicu; 115 cu? insiérmyni 2i ‘gisixii’ um:io:: paelfie amjs;4iji moreei cedi‘ .panJU93 Eve {niyga 0;;w a~3ym, 10 .sroww ‘3 .? ch 1' ‘- -vs 1; e “ ‘, _ _ 'ru 7 " ' 'J {7‘ .‘ 7 V ' - ’ r. E if) '1': V‘" I—‘vv' tn.-. i~~ '_ L,’ '.', '~ '1' ‘ :24 c. (J )ijLQf‘i ojsjoq 201 sxzijzo bus 92 duxcq fdbuali ycqtf QE‘ '2?» 3‘39“}? vi} V:f BEQEQ'CJW 7 10 .wpumsa 1 .fTi .chmaas IO 3 BL; (”:75 :3. 1'. I. ’1‘”) {J (5 "1C: 3 - s . .. t r- , L..~.U‘.‘. 1 UK) a L. j -./'..I x- ..J ..5 17'3". iv- OJ ,1 ' f. :‘:-t.‘- Y ”315’;- 0:11; TOP 1335 2:01-01.“ ffi. '_ W .J ‘4 bus “10¢ .,oa E’IiULQiJEEq v:,;V\-« + .+ 1.7.. .. _, 174 small potato because most preparation techniques include boiling whole potatoes which is difficult with a large potato. Summary Price instability was the major marketing problem for nearly all potato market participants. Both seasonal and cyclical price . fluctuations contribute to the problem. Storage while most common at the wholesale level is not of sufficient capacity to substantially dampen seasonal price fluctuations. Major problems influencing private decisions about storage, particularly for wholesalers, include spoilage, lack of credit, price instability and the anti-speculation law. Potato distributors and processors have not had access to sufficient credit and liquid capital to improve their businesses and augment their income earning capacities. Interest rates are high, averaging between 20% and 30% on the open market, and the supply of credit is limited for distributors and processors. Credit sales and purchases of potatoes were common at all levels within the exchange system. Potato prices are sometimes influenced by price discounts and price differentials for credit sales. While interest was not charged on credit sales, the price differentials were quite costly. Coordination in the potato distribution system is not as effective as it might be. The price spread between producers and consumers is about 40% of the consumer price. This wide price spread is influenced by: high losses created throughout 175 the system.hut absorbed at the retail level; excessive handling and backhauling of potatoes; a general lack of market communication, grading systems and standards; and a lack of vertical coordination by forward purchase and sale agreements. CHAPTER VI POLICY CONSIDERATIONS AND PERFORMANCE IN THE POTATO PRODUCTION - DISTRIBUTION SYSTEM "An understanding of a public economic policy must begin with an understanding of the basic values that people hold regarding the issue . . . By comparing where we are with where people want to be, we can get some idea of the distance involved in getting there . . .“31 A discussion of Colombian agricultural policy as it affects or is affected by the potato P-D system must commence with some' basic considerations. General goals for Colombia's economic development and specific goals for the potato P-D system will be stated, per- formance will be discussed and recommendations for improved performs ance will be made. Basic to these goals, however, are desires of individuals, families, communities, interest groups and the public. To differentiate among the values and beliefs underlying goals, the goals themselves, and the means to goal attainment is difficult but critical to formulating successful agricultural programs. Most Colombians value a "better life" including more consumer durables prestige, power and numerous other somewhat intangible but iuportant “wants". The goals for economic development such as per capita income growth may imlicitly reflect these values. How well the political 81 Dale 3. Hathaway, Government and Aggiculture, Public Policy 1J1 a Democratic Society, The MacMillan Co., New York; Collier - Macnillan Ltd., London 1963, p xiii. '176 177 economy approaches goal achievement is a judgement or belief that differs as widely among individuals and groups as the specific values themselves. General economic development goals for Colombia including gross product growth, full employment of labor, rising levels of productivity and less concentration in distribution of income, must be considered in evaluating the performance of the potato P-D system and related policy considerations. More specific potato P-D system goals include: improved resource use at the firm, industry and national levels: tech- nological progress to augment potato production: equity of income distribution; reduction of price instability; and improved coordination of the P-D system to facilitate transmission of consumer demands through the distribution system to producers. The means to achieving these goals are numerous and sometimes conflicting. The following questions illustrate this issue: What improved methods of production and market coordination can better al- locate resources and reduce seasonal price fluctuations? How may vertical coordination be improved by sales agreements, improved market information systems, improved grades and standards, and storage programs? Can the economic goal for higher productivity and realization of cost efficiencies be attained along with the desire for full employment of labor and equity of income distribution? The problem at hand is to identify means or policies to achieve these goals most effectively and to contemplate the consequences of over—emphasizing some goals at the expense of others. Fletcher and Merrill illustrate this problem.by stating: 178 . . . the way in which a goal is achieved can easily affect the degree to which other goals can be achieved . . . Unfortunately, it is always difficult and sometimes impossible to choose policy instruments which contribute simultaneously to specified national objectives and to agricultural development. The following discussion attempts to explain how credit policies, price and storage policies, communication policies, and programs of research and development can best coordinate and stimulate improved performance in the potato P-D system as an important subsector of the agricultural sectOr and the national economy. The Supply and Demand Situation for Potatoes Potatoes are an important staple in the diets of many Colombians. Reluctance by many consumers to change to new potato varieties and preparation techniques is partly due to habit. But this reluctance also indicates a strong desire of many Colombians to maintain potatoes in their diets. As per capita incomes rise, consumption of potatoes will change. For those consumers with extremely low incomes who now consume substitutes of inferior quality to potatoes, consumption will rise. Later as per capita incomes rise further, this group may substitute foods that are superior to potatoes. Potatoes in Colombia must compete with several good consumer substitutes such as yuca and platano. The future demand for potatoes 82Lehman B. Fletcher and William C. Merrill, ”Prospects for Agricultural Development: Objectives, Policies and Priorities”, in Latin American Agricultural Development Policies, by Lehman B. Fletcher and William C. Merrill, International Studies in Economics, Monograph No. 8, Department of Economics, Iowa State University, Ames Iowa, September 1968, p. 87. 179 may also be affected by more competition from corn and possibly rice because these starchy substitutes may be nearing a production break- through due to increased emphasis upon use of improved and interna‘ tionally proven varieties. Potato chips also have to compete with close substitutes. Chipping of platano and yuca is comparable to potato chipping and often one firm chips all three products. Unless potato chip quality can be improved significantly and prices maintained or lowered, potato chips probably will not absorb an increased share of the "chip" market.83 Potato processing, other than chipping, has not been developed mainly due to a low demand for processed foods. Until incomes improve and food habits change, this market will not expand significantly. Preparation for a modern processed potato market how- ever, should be considered by ICA production specialists. The Monserrate variety developed by ICA is excellent for potato chipping but at present production is very limited. Projected demand requirements for potatoes presented in Table 84 62 are higher than those calculated by INCORA. The demand estimates Kellogg's is now planning to enter potato chip processing in Bogota where they plan to produce a chip with U.S. quality. They do not feel that prices can be lowered significantly but there is a market for improved quality at current prices. 4 INCORA "Informe de Actividades en 1963" Annex B, No. 8 1963. An annual 3.15% rate of population growth and an accumulated annual rates of income change at 2.75% in the 1960's and 3% in the 1970's were used. Total population would be 28 million by 1980. This study indi- cated that consumption was 653 thousand tons in 1960 (based on IDEMA data), that consumption would require 986 thousand tons in 1970 and 1.47 million tons in 1980. Based on these estimates the average annual rate of growth demanded of potato production is about 5%. This estimation technique was based upon data previously explained as the potatoes for urban consumption. The estimate may not be accurate because 1) the estimated rate of population growth may be low, and 2) the rate of growth in urban population should be used if the basis for demand estimates only includes urban consumption in 1960. 180 in Table 62 only include consumption requirements. To these, seed Table 62 : Demand Projections for Potatoes in Colombia in 1970, 1975 and 1980a Year Urban Rural Total Demand Demand Demand (thousands of tons) Base (1964-66) 796 330 1126 1967 897 - 902 345 347 1242 1249 1968 952 - 960 353 356 1305 1316 1969 1010 - 1022 361 365 1371 1387 1970 1072 - 1088 369 374 1441 1462 1971 1138 - 1150 377 384 1515 1534 1972 1208 - 1224 385 394 1593 1618 1973 12827- 1303 394 404 1676 1707 1974 1360 - 1387 403 414 1763 1801 1975 1443 - 1477 412 424 1855 1901 1976 1625 - 1674 430 446 2055 2120 1978 1725 - 1782 440 457 2165 2239 1979 1831 - 1897 450 469 2281 2366 1980 1943 - 2019 460 481 2403 2500 Source : This analysis is based on the equation discussed in Chapter I page 10 where : D = P + E, (N) is the rate of increase in demand; Population growth rate (5 ) = 5.8% (urban) and 1.9% (rural) based on the discussion of rates of population growth in Chapter I, page 4. Income elasticity of demand for potatoes (Bi) = .33 based on DANE data used in the INCORA study (This elasticity may increse slightly as incomes rise and then fall latter as discussed on page 67 so it is assumed to be constant because those changes cannot be projected with assurance): Rate of change in incomes per capita (N) - 1.0 to 2.0 because estimates vary between these ranges. The latter is optimistic while the former most closely represents the growth rate since the early 1950's. It was assumed that IDEMA data include the urban consumption estimate (Appendix II, Table II-l) and the average.for 1964, 1965 and 1966 was used as the base because the 1967 and 1968 figures were estimates. Then from Table 12 rural consumption is 41.5% of urban consumption which provided the rural consumption base. From that point urban and rural consumption estimates diverge because of the ‘population variable. 181 requirements should be added. Thus, to meet demand at the same real price for potatoes, production for rural and urban consumption in 1980 must be from 113% to 122% greater than the 1964-1966 base level. Prob duction passing through commercial channels to urban areas must be from 144% to 154% greater in 1980 than the 1964-1966 base, placing more stress on the distribution system than on production. Should these demands be met without extending land areas planted, per hectare yields must rise substantially. If 174,000 hectares are harvested in 1980, or equal to the 1964-1966 average,national yields per hectare must rise from 7.2 tons to at least 13.8 tons in order to meet the demand projections. This required change in yields per hectare is 55% of the 25 ton yields indicated as possible by the ICA experiment station for improved Parda Pastusa seed. If Purace were used, with ICA yields of 40 tons per hectare, the goal might be more easily met but this would require improved seeding practices , adoption of the variety by producers, and acceptance of the new potatoes by consumers. At present yields, hectares planted would need to more than double to meet projected demands for 1980. Reduction of losses in the production and marketing system can assist in meeting demand requirements. If production and dis- tribution losses are reduced by one half, total supply will increase by nearly 7%. .Too, irrigation and effective use of pesticides couLd reduce losses between planting and harvest. Economic and Social Considerations Augmenting gross product, food production per capita and incomes per capita, while difficult for Colombia, are an easier task than achieving full employment of labor and equity of income distribution. 182 Food P-D system efficiency goals conflict with the equity and employment goals. A relative decline in potato prices will result from improved yields, greater production efficiencies and greater distribution ef- ficiencies. These economic efficiencies lower costs and raise pro- duction per capita, resulting in lowered consumer prices. If these efficiencies cannot be accomplished by small campesino producers and small urban distributors, they will need to find a position elsewhere in the economy. This raises a very difficult problem where surplus, unskilled labor prevails. Rising unemployment probably does not help achieve the goal of equity in income distribution. Volume of Employment If displacement of the small firms who produce and distribute potatoes is forthcoming, what magnitudes of unemloyment or displace- ment to other employment opportunities are at stake? Some quick estimates of employment in potato production and distribution as only one commodity example, indicate that the problem should :not be overlooked. It is not small. It will not go away. The essence of successful economic development necessarily requires successful programs to provide opportunities for the "people left behind". Based upon the methodology presented in Appendix Iv, an estimate of employment in potato production and distribution is presented in Table 63. About 370,000 or 3.7% of the population over age 15, are involved either part-time or full-time in potato production and dis- tribution. The total farm employment statistic, while a minimum because it is based upon the 1960 census, is the most accurate of the data presented in Table 63. It however, does not represent full-time 183 Table 63 : Employment in Potato Production and Distribution in Colombia Production (part to full-time employees): Producers 108,000 Family employees 151,200 Non family employees . 101,500 Total 360,700 Wholesaling (full time employees): Wholesalers 500 Employees 715 Total 1,265 Processing (full time employees): Transfer (man years) Transportation 1,538 Carriers (urban and rural) 1,154 Plus 20% underemploymenta 536 Total 3,218 Retailing (man years) : 21255. 1, 535 Tiendas 2,404 Cooperatives and Supermarkets 148 Plus 20% underesployment"ll 817 Total 4,904 TOTAL 370,417 aSince man year estimates are used and full employment for any given worker is uncommon an average underemployment.estimate of 20s based upon Table IVAl in Appendix IV is used. Source : ICA Potato Marketing Survey, 1968 and 1969 184 employment in potato production because most of the farmers are also engaged in other farm enterprises. The emloyment estimates for potato wholesaling, plaza retailing and to some extent tienda retailing may be significantly under-estimated. Disguised unemloyment, yet financial dependence upon the food whole- saling and retailing function, is common. Usually these people are carriers or street venders but are not fully employed. The 20% under- employment figure and the man year estimate both may be low. Some possible decreases in.employment by the potato P-D system in a commercialized subsector capable of attaining the desired levels of efficiency and progress, can be estimated. Let us assume that the change is immediate: we need not assume complete commercialization. Possibly 75% of the present farms would not produce potatoes under commercial conditions.85 Also, due to commercialization family and non-family employees in potato production could decline by 75%. Based upon the present data this would leave about 27,000 farmers and 63,200 employees in potato production and about 270,500 displaced potato farmers or laborers with reduced incomes. Assume that improved coordination in the distribution system absorbs all present employees in a more efficient and expanded processing, grading and general quality and service improvement system. 85 This is an estimate based upon the number of farms with less than one hectare who will find mechanization difficult and may or may not be able to compete with the cost efficiencies of modern potato farming. About 88% of the farms probably would find tractor mechané- ization difficult (Chapter IV). Mechanization alone, however, probably does not imply significant decreases in production costsbut when mechan- ization is combined with improved seed and production practices, costs may decline. Thus displacement is assumed to be less than 88% and 75% ”is used. T185 The problem is one of employment for the unskilled, low income rural potato farmers who may seek improved incomes in urban areas because of limited alternatives to potato production. He may be a near-subsistence producer but he still depends upon the sale of a few potatoes to provide cash for purchasing some essentials from the market economy. And for potato production, he must at least purchase pesticides or his chances of complete crop failure are substantial. He is not and cannot be isolated from the market economy. Distribution of Income While the previous section was hypothetical and less than definitive,_ it presents the major macro socio-economic problem when a program of agricultural commercialization is promoted. Displacement of rural people, where urban society is neither able nor ready to absorb them and where the people are incapable of entering a skilled worker economy, suppresses economic growth. It is true that lower food prices stimulate the urban economy. But someone must have money to buy increased supplies of food or insufficient effective demand will force prices too low to sustain agricultural development. It is also true that a growing urban economy needs the potential effective demand stimulus of both the urban and rural poor. Potato farmers are not unique in their plight. The estimates of possible displacement in the previous section were very conservative. Lauchlin Currie suggested that in 1960, to produce 653,800 tons of potatoes only 242 farms with an “optimal" size of 50 hectares would 186 have been needed.86 Adjusted to total production of one million tons the number of farms required would be only 375 which is substantially less than the estimate of 27,000 in the previous section. Currie, by indicating "optimal" sized farms, suggests that the number of farms in Colombia could be reduced, from 786,000 to 105,000 without cutting total food production. The optimal unit is not well explained and is not realistic except as an extreme example of the impact of modern farming. He goes on to say that "the purpose of these calcu- lations is to call forcibly to the attention of the reader the magnitude of the shifts desirable if the benefits of modern Ltechnologyfin agri- culture are to be obtained" ... and "that any policy of restraining movement out of agriculture is self-defeating".87 A policy of restraining movement out of agriculture, however, is not self-defeating if it is properly developed. It would be self-defeating if all the displaced rural families can find comparable or better employment, incomes, housing and educational opportunities in urban centers. Just the traditional semi-unemployed, extremely low income jobs will not provide the necessary funds to educate and train children for gainful employment in a developing economy. Migrant families must attain income levels sufficiently above subsistence levels to purchase goods from the modernizing industrial and agri- cultural complex and to educate their children if the movement out of agriculture is to be beneficial to economic development. Employment 86 Op. Cit., p. 180. 87 Ibid., p. 181. 187 opportunities in Colombia's urban centers are very limited for the unskilled rural migrants. Where jobs are available, salaries are extremely low. Rural population, which is now just less than 50% of the total Colombian population, could decline to 35% by 1980. This release of population to urban centers, where unemployment rates average 2m (Table IV-l, Appendix IV), disguised unemployment is also high, and incomes are exceedingly low for at least 50% of the urban population will not be condusive to development. In 1966, Enrique Pefialosa, now Minister of Agriculture, said that one million new jobs were needed for displaced rural workers and that the figure would be two million by 1970.88 Probably his projection is not unreasonable. By 1980, the figure will possibly rise to five million and at the same ‘time more urban people will be searching for work. Thus, developments within the food P-D system that create cost efficiences and augment total production may also displace rural laborers. A result is rural-to-urban migration and job opportunities are nearly nonexistent for the unskilled and poorly educated migrant. He faces severe income problems making the goal of equity of income distribution very difficult to attain. Equity is not singly a humanitarian goal; . income distribution can either stimulate or hamper economic development. If the urban and rural poor can receive some of the income benefits of gross product growth they will buy more food, clothing, housing and consumer durables from the agricultural 88 Ibid 0 188 industrial and service sectors. When the impoverished can present an effective demand for products of the developing economy, a stimulus for further economic development can be harnassed. But when employment opportunites are lacking and skilled human resources must be trained,. the goal of increased production by means of economic efficiencies that displace labor needs careful considératidn. The goal is important but the means to achievement must also consider other goals. Credit Policy The supply of loanable funds made available to agricultural producers by the Colombian government has grown rapidly. A major problem is not in availability but in allocation of these funds to competing uses. Credit can be a stimulus to increased production and coordinated distribution systems for food. Considerations necessary for promoting wise resource use and economic growth include credit allocations among and within regions, economic sectors, subsectors (commodity classes) and firms. In Narino, the supply of Caja Agraria credit for potato pro- ducers has risen rapidly along with total potato production (Table 64). The rapid increase in output cannot be attributed to credit alone but without credit it would have been considerably retarded. It laypears that credit policy has helped achieve the goal of increased total potato production by extending land areas planted and by use of purchased inputs. Until recently, little thought had been given to providing credit for far-(supply industry development and for improved food I189 Table 64 3 Changes in Caja Agraria Potato Loans to Potato Producers and Changes in Total Production for Narifio, Cundinamarca and Boyaca Boyaca & Nariflo Cundinamarca 1960-63 to 1964-66 1960-63 to 1964-66 (percent) Change in average deflated loan value 54.8 98.7 Change in number of loans 64.4 247.5 Potatoes as proportion of loans 37.7 to 35.5 .19.4 to 29.3 Change in total production 6.33 16.8at 21.3lD 77.1b a Caja Agraria, Appendix II, Table II-2. b IDEMA, Appendix II, Table II-6. Source: Caja Agraria, Appendix V distribution and processing. No loans from.the subsidised credit programs have been granted to potato distributors and processors. Annual interest rates on the open market range from 20% to 30% while Caja Agraria usually charges about 12%. Caja Agraria and ' its funding sources are now planning a credit program for small -89 rural industry development to begin in 1970. This could include 89 .'Carta Agraria" op.cit., p. 32. 190 both farm supply industries and small processing firms. Loans to potato producers have assumed an increasing share of all loans to agricultural producers. Credit to crops that are substi- tutes in consumption (beans, corn, rice, pldtano, and yuca) expanded more rapidly than for potatoes but credit to crops that are substi- tutes in production (wheat and barley) expanded less rapidly (Table 30, p. 117). There may be reason to question this policy from.the potato subsector point of view. If the loans to substitutes for potatoes in consumption augment yields and lower prices, potato prices may also decline. Yet credit for potato producers to move into production of substitute crops has declined as a proportion of all loans. The Caja Agraria supervised credit program for potato pro- ducers has embasized use of some purchased inputs, particularly fertilizer and pesticides. The availability of credit to a particular producer has not been stringently tied to use of improved practices. Attempts have been made to reduce major cyclical price swings by adjusting aggregate loans granted to the potato producers. This important task is difficult because 1) total production is dictated by both economic and natural factors and 2) Caja Agraria can only suggest changes in producer practices while using credit as an influential factor but this does not necessarily force change in producer plantings. Little thought has been given to using credit policy to reduce seasonal production fluctuations. At present, credit policy provides one of the most important potential means of reducing price instability. 191 Price and Storage Policies' There are no price supports for the potato subsector. As a part of this study, potato producers were asked to specify a price that, if supported by IDEMA, would cover costs plus a "fair” return. Then they were asked if they would participate in the program and if so how many more hectares would they plant (Table 65). The ideal prices desired were very high, averaging about 60 pgggg per 33533 above average 1968 prices. But the average expected increase in hectares planted under Table 65 : Producer Desires to Participate in a Price Support Program \ Boyaca Cundinamarca Nariflo Desired price per carga (pesos) 112.75 109.83 86.92 Average price for 1968 per carga (pesos) 52.73“ 52.73at 27.353}D Desire to participate (percent) 67.7 87.3 76.9 Increase in fanegadas planted if price were supported (percent) 12.5 24.4 21.0 a b Bogota price Pasto price Source: ICA Potato Marketing Survey of Producers, 1968 a price support program probably represents a minimum estimate. This level of across-the-board increases in plantings, however, would result in lower prices and raise costs to the government. A government storage program.would.hot be so costly except where storage losses are 192 excessive. Contrary to stockpiling grains, potatoes have a short storage life so a price support program requiring long term storage would be impossible except for processed potatoes. Producers however, said they would participate even though they did not show enthusiasm for the present storage activities of the government. Some argue that more government potato storage will solve the price instability problem. Several feasibility studies call for large storage facilities without regard to alternative or complementary solutions.90 91 The present government storage facilities probably operate at less than 50% of capacity. They are relatively new and due to ventilation problems, maintenance of quality is difficult. Possible alternatives to storage such as processing and irrigation to reduce seasonality of production have not been thoroughly investigated. To accept the statement that ”because of the stability of consumer tastes, it seems unlikely that processed potatoes would ever represent more than a small fraction of total potatoeonsumption,‘92 seems premature. Often the feasibility studies calling for more large govern- mentally operated potato warehouses have not investigated other means 90 waits-Hattelsater, Marketing and Storage Facilities for Grain and Tubers Crops, Weitz-Hettelsater Engineers, A division of the Weitz Co. Inc., Kansas City, Missouri, August 1965, pp. 137-166, 91 The University of Southern California, A Systems Analysis of Farm-to—Market Food losses in the Area of mu, Colodaia, A Report of the Interdisciplinary Seminar for International Development, 92 Ibid. p. 80. 193 of storing potatoes. Possibly the more efficient method is to promote private storage among producers and wholesalers where private incentives may be brought to bear on reduction of in-storage losses. If longer ” term credit were extended to producers they might leave the potatoes in the ground up to two months longer before harvesting where climatic conditions would permit. Limited on-farm storage does not require elaborate facilities for up to one month after harvest except in warm climates. Information Responsibilities and Policies Improved systems of technical production information and assistance, price information, and grades and standards are potential means to improving performance in the potato P-D system. The price collection work now underway by IDEMA is a beginning for a market information program. ICA and IDEMA are cooperating in an evaluation of the present collection methods to formulate a program for improved collection and timely dissemination of price information. A major problem in this evaluation is one of determining effective product classifications and grades on which to base price information. Dissemination of technical information to the potato P-D system has been limited to a small group of producers. Caja Agraria is a major institutional source of information for producers (Table 23) but often its rural offices do not have good access to the available supply of technical knowledge. An ICA extension program is being developed to provide an information source for producers. Within manpower limitations, the National Potato Program at ICA has worked in extension. 194 Given the ICA extension structure and the well developed and widely distributed offices of Caja Agraria, the problems related to disseminating information may be solved.93 Still to be solved, however, are the problems related to content of information flows. Adaptability of ICA research to applied producer problems needs further attention. Those practices best suited to stimulating modernization and improved producer incomes probably differ between regions, areas within regions and sizes of farms. Maximum.producer returns will be achieved by different input combinations for different producers. Technical assistance for potato distributors is less developed than are programs for producers. Organized marketing by producers is uncommon. No formal attempts have been made to introduce improved storage practices in wholesaling. Use of sprout inhibitors, while available for over ten years, is not common and nearly 50% of the wholesalers were not aware of this method of reducing storage losses. Technical assistance for potato chip processors is also nearly non- existent. The lack of well organized extension programs for agricultural producers and the lack of comprehensive market research and extension programs for both producers and distributors of farms supplies and food contribute to two problems. First, higher yields, loss reductions and improved quality have not attained potentials within the food P-D system even when some research information has been available. The channels for disseminating knowledge either have not existed or have 93 See Chapter III for a review of activities of ICA and the Caja Agraria. 195 functioned poorly. Second, technical research scientists and govern- mental policy makers have not been able to understand management and marketing problems of firms and individuals. There have been no formal channels for relating consumer, distributor and producer desires to public research and action agencies. Informality in the feed-back of information has not been conducive to adoption of new varieties and improved planting practices because too often research and action programs have not considered socio-economic phenomena. A lengthy and interesting debate began in the late 1950's and early 1960's between Rural Sociologists and Agricultural Economists over the causes of hybrid seed corn and hybrid sorghum adoption in the United States. Both groups were discussing an interdependent problem, not an either-or issue.94 Adoption or discontinuance of improved varieties and practices in potato production in Colombia probably involves both congruence (a social interaction effect where adoption follows an opinion leader or successful farmer without economic considerations) and profitability of the adopted practice or variety. Purace potatoes will yield more cargas per hectare 94 See, Bruce Ryan and Neal C. Gross, ”The Diffusion of Hybrid Seed Corn in Two Iowa Communities", Rural Sociology. vol. 8, No. 1 March 1943: Lowell Brandner, and Morray A. Straus, "Congruence versus Profitability in the Diffusion of Hybrid; Sorgum", Rural Sociology, vol 25, No. 4 December 1959, Zvi Griliches, "Research Costs and Social Return: Hybrid Corn and Related Innovation", Journal of Political Economy, vol LXVI No. 5 October 1958 and :PHybrid Corn: An Exploration in the Economics of Technological Change", Econometrics Journal of the Econometric Socie_y. vol 25, No. 4 October 1957: and Eugene A. Havens andeverett M. Rogers, “Adoption of Hybrid Corn: Profitability,and the Interaction Effect”, Rural Sociology, vol 26 No. 4, Decemer 1961. 196 than other improved and unimproved varieties in Colombia. Prices for Purace, however, average 20% to 30% less than Parda Pastusa prices. Based upon the survey not all producers can attain sufficiently higher yields to offset the lower price. Thus, price and returns, along with tradition-oriented prac- tices, limit adoption of improved varieties. In potato production and distribution, where formal market information is unavailable, social interaction and interpersonal communication are major forms of information with price and profitability providing a basis for communication. These are the information feed back mechanisms needing attention by research and action agencies. Finally, a critical but misunderstood and unstudied area in the science of communication is that of inter-institutional come munication. Administrators of agriculturally related agencies and institutions have meetings and communicate their problems but the professionals with basic research, extension and development assignments do not communicate effectively. A.program.of credit includes adoption of only some improved practices and those super- vising loans may not know about the research results at the experiment stations. The institutions working with market problems also are not coordinated with the credit and research agencies. Any attempt to resolve problems for a commodity gropp such as potato»producers and distributors calls for coordination of efforts by public and private institutions. 197 Research and Development A research and development program to improve coordination and performance of the potato production-distribution system in Colombia must begin with an understanding of goals for the system, the agri- cultural economy and the country. The interpretation of goals will differ between commodity groups. In potato production, characterized by many small campesino producers, the impact of a policy seeking rapid commercialization will cause greater displacement than in a subsector such as barley where small producers are fewer in number. Hence, the allocation of technical assistance and credit among come modity groups, producers, distributors and processors requires further research. To maintain economic growth, achieve higher levels of employ- ment and less concentration in income distribution, Colombia must develop policies to deal with displacement by commercialized food production and distribution. These poeple must be incorporated into the economy to keep socio-economic stresses fromibecoming unmanagable. Research is needed to determine how’best to utilize the displaced labor force either in rural or urban areas. The migration process is not well understood. One study indicates that migration is Often a step-by—step process whereby cagpesinos move 95 to small towns before finally reaching large urban centers. 95 Willie-.Plinn, "The Process of Migration to a Shantytown in Bogota, Colombia", LTC No. 53, The Land Tenure Center, university of Wisconsin? Madison, July 1968. , v A (7 .I, I. . ~. q 198 Research and development programs should investigate alternatives for small rural producers at the farm level, in small rural towns and finally in Bogota. An improved small industry program in rural areas might absorb part of the migration flow before it reaches major cities where unemployment rates are at least 20%. The small industry credit program by Caja Agraria for rural areas is a step in this direction.96 Resettlement of campesinos has been one means of reducing displacement difficulties. Of all farms in Colombia in 1960, 3.8% were settlement farms and they occupied 12.1% of the total farm land.97 Some of the colonos or "squatters” are now receiving land titles and where resettlement is directed by INCORA, the settlers are receiving land titles. Most of the settlers have moved because they did not have enough land or were tenants and share croppers who did not own land. Some moved between 1948 and 1960 because of rural violence. The INCORA supervised resettlement program, which began in 1961, is one solution to the displacement problem. It must be incorporated with other programs for small producers because it cannot absorb all of the displaced producers. While comprehensive, the INCORA program cannot move rapidly because providing supervised credit, developing extension programs, granting land titles, cone structing roads and providing for general community development 96 "Carts Agraria", op.cit., p. 32. 97 See Karl Wierrer, Economics of Improving*Marketing_Or- ggnization and Facilities to Accelerate Agricultural Development in Land Settlement Prgjects, Instituto Lationamericano de Mercadeo Agricola, Bogota. 'Cdlombia ," September; ”1967; pp: 13 3’20. 199 needs, are resource and time exhausting processes. Research and development programs must adequately assess the potential displacement problem and consider numerous alternative or complementary policies to deal with the probleuu Possible means include programs to retain campesinos on their present farms, programs of resettlement to other farming areas, programs of off-farm rural employment, training programs to prepare potential migrants for urban employment, and programs to expand urban employment. CHAPTER VII SUMMARY, CONCLUSIONS AND RECOMMENDATIONS A major goal of this research has been to illustrate the way in which market coordination influences economic growth and development in the Colombian potato production-distribution (P-D) system. Identi- fying general performance criteria and evaluating performance of the P-D system for potatoes, provide a basis for conclusions and recom- mendations to improve the system. Operational objectives of the research included a description of the potato subsector, a diagnostic investigation of interdependent problems in modernizing production and inproving market coordination, and identification of methods for improving performance of the P-D system. The research methodology included studies of market partici- pants at all levels of activity between production and consumption. Personal interviews were taken from 1611 potato producer, distributors and consumers. The potato market participants included in the research were producers in Narifio, Cundinamarca and Boyaca, truckers entering and leaving Bogota and Cali, wholesalers in Bogota, potato chip processors in Bogota and Cali, retailers (supermarkets, tiendas and plaza stalls) in Bogota and consumers in Bogota. General Summary A food P—D system includes the physical production system, the physical distribution system.and the exchange system. By market coordination, the set of institutions forming the exchange system determine who produces, what products are produced, what resources are used, where products are produced and who consumesathe products. '2b0 '201 Market coordination thus includes the dynamic processes by which producers, distributors and consumers interact. The effectiveness of the food P-D system depends in part upon market coordination and the capacity of the exchange system to facilitate growth and development. The role of agricultural distribution systems for inputs and products in economic development was an.inportant concern throughout the research. The basis for the research program was that agricultural marketing systems are both facilitating and coordinating mechanisms and are necessary but not sufficient for agricultural development. The problem of development causality is one of interdependence. Numerous sets of inter- dependent growth mechanisms encompass agriculture and industry and the market system links those mechanisms and sectors. The Potato P-D §ystemz 1) Geographic conditions related to potato production and distribution have created regions of concentration in Colombian production and consumption. Transportation and communication systems have developed slowly because of extreme geographic diversities. 2) Farm production data from secondary sources to describe the P-D system vary substantially between sources. Probably Caja Agraria estimates include total production for rural consunption, urban consumption and seed supplies. The IDEMA data include primarily production for commercial sales. When Caja Agraria data are used and a reduction is made for seed requirements, average 202 annual per capita potato consumption for Colombia is about 56 kilograms. In Bogota, 121 kilograms of potatoes are consumed annually per capita. 3) Potato farms are usually small with over 70% having less than one hectare and producing only 25% of total output, most of which is consumed in rural areas. Only 1.1% of the farms having no more than 10 hectares, produce 20% of total output.’ 4) Boyaca, Cundinamarca and Narifio, the departments included in this research, account for 32.9%, 36.7% and 7.7% respectively (77.3% in total) of total potato production in Colombia. The Bogota market area including Boyaca and Cundinamarca, accounts for about 52% of national potato consumption. Of the potatoes entering the Bogota market 29% are exported to consumers in warm climates indicating that Boyaca and Cundinamarca are surplus areas for potato production. 5) The distribution of total potato production is as follows: 40.2% urban consumption, 20.8% rural consumption, 17.0% seed, 12.1% harvest losses, 7.9% market system losses and 2.0% potato chip processing. 6) Seasonal price fluctuations are common due to two major harvest periodsi the Aflo Grande (June through August) includes 60% of total production, and the Mitaca (January and February) includes 30% of total production and 10% of production is dispersed between these two harvests. Seasonal production is caused by dry season 1 and frost conditions interrelated with a short seed supply problem for the Mitaca. Due to favorable prices, producers often sell seed for consumption that would have been planted for the Mitaca harvest. 7) Interdepartmental potato price differentials have changed 203 since 1955. Cali prices were higher than Bogota prices but now are lower with Pasto prices always lowest. Since 1954 Bogota prices have fluctuated significantly but relatively constant real average prices indicate no measurable increasing or decreasing price trend. Average real prices in Pasto and Cali have declined due to significant production increases in Narifio. 8) Based upon the consumer survey work, as annual incomes rise to about 14,000 pesos per capita, annual per capita potato consumption will rise and then decline as incomes rise beyond 14,000 pesos. Price change responses by consumers are affected by numerous close substitutes for potatoes. A hypothesis resulting from the research is that the short run demand curve is an "S" curve. Consumption responses to high prices are relatively inelastic then elastic over a range of prices at a medium level where susbsti- tutes in consumption are common, and finally at low prices the response is again inelastic. Thus, above a normal or average price, con- sunption will fluctuate substantially as price changes but at some minimum consumption level, price has little effect. For price decreases below the normal price consunption of potatoes increases only slightly. 9) Potatoes are usually prepared by boiling without peeling. Medium sized potatoes (3 to 6 centimeters in diameter) are desired which presently limits“ demand for large potatoes. Consumers prefer red or dark skinned potatoes even when specific white skinned varieties may be of better quality. Consumption of commercial potato chips is not common because consumers fry chips at home and either dislike commercial chips or consider the price to be excessive. 204 10) Most all firms in the potato subsector are small and atomistic competition is common in production.and retailing. There are fewer wholesalers but large wholesalers are not common. 11) Several major institutions have responsibilities related to the potato P-D system: The Caja Agraria makes loans to producers and operates farm supply stores, the Instituto Colombiano Agropecua- rio performs production research and limited extension, the Instituto de Mercadeo Agricola works primarily with pricing and storage, and the Asociacidn Colombiana de Cultivadores de Papa is a producer association designed to stimulate improved yields. Problems in Modernizing Production: l) Yields per hectare have changed very little over the past fifteen years. Production increases have been accomplished primarily by planting more hectares except for a few large farms that have applied improved seed. Adoption of modern inputs, except for improved seed and proper spacing of plants, however, has been fairly common. Availability of improved varieties and information about their use is a limiting factor. Most producers prefer high yields to amount of seed planted instead of high yields per hectare evidenced by low seeding rates per hectare and pride in a high seed: yield ratio. Larger farms use more improved seed and farms with 20 or more hectares of potatoes had yields exceeding the farms with less than ' 20 hectares by about one to two tons (about 10 to 20%) per hectare. 2) Mechanization of potato production is uncommon. Harvest losses due to hand harvesting average about 12.1%. Probably mechanized harvesting on lands where it would be possible would out these losses 205 to about St for varieties that produce large tubers. 3) Lack of credit is not considered to be a major problem by producers. Loan numbers and average size of loans (based on real .gggg values ) have increased in Boyaca, Cundinamarca and Narino since 1960. Narifio's credit for potato producers has increased most rapidly which has helped to augment total potato production in Narifio. 4) Loans by Caja Agraria to producers of crops (platano, yuca, rice, corn and beans) that substitute for potatoes in consumption have grown more rapidly than loans to potato producers. But loans to producers of wheat and barley which substitute for potatoessin production have grown less rapidly than loans to potato producers. 5) Potato producers used new practices because they believed that these practices would improve their profits. Profitability and social interaction probably both contributed to adoption but few'producers adopted new practices without assurance of improved profits. Nearly all producers in the sanple used fertilizer and pesticides. Use of improved seed, however, was highest on large farms. 6) Seed supply difficulties contribute to twormajor problems in the potato P-D system: a) The seasonal price and production instability results partly from an inadequate seed supply for the small Mitaca harvest. b) Use of improved seed is reduced because of an insufficient supply. Storage problems for seed and the desire by producers of both improved and unimproved varieties to sell in the consumer market are major obstacles to reducing the seed shortage problems. 7) Potato producers emphasize returns to seed instead of per 206 hectare yields. The producers place more emphasis on seed use ef- ficiency {(a seed: yield ratio) requiring wider spacing of plants than ICA where high per hectare yields are sought. In general seed is a more costly input coupared to the remaining factors in the input packageefor producers than for ICA. The ICA recommendations possibly exceed the production potentials for some producers. ICA can allocate more resources to obtaining maximum.yields and is less concerned about costs than individual producers. 8) Many potato producers cannot benefit from tractor mechani- zation. If the subsector were mechanized with tractor power, 88% of the producers and 46% of the planted hectares probably would not be included except possibly on a cooperative use basis or by hiring custom operators. Many questions remain to be answered about costs and benefits of mechanization for the potato subsector and the agricultural sector. Problems in Coordinating Distribution: 1) Price instability was the major marketing problem for nearly all potato market participants. Seasonal price instability is due to wet and dry seasons, frosts and a seed supply shortage for the small Mitaca harvest. Besides seasonal fluctuatuations, cyclical price fluctuations have been pronounced since 1960. Potato price variations are greater in Narifio than in Cundinamarca and Boyaca. 2) Potato distributors and processors have not had access to the Caja Agraria subsidized credit program that is available to potato producers. Interest rates are high and the supply of 207 credit is limited for distributors and processors. Retailers and wholesalers indicated that lack of credit and liquid capital are limiting factors in augmenting their income earning capacities. 3) Of 100 pgggg spent on potatoes by consumers, the pro- ducer receives 59: wholesalers, truckers and buyers receive 17: retailers receive 24. The retail spread is high because retailers absorb most of the market system losses. These losses average 13.3t of retailer purchases. 4) Potato market system losses are of two types. Complete physical destruction, where consumption is impossible, is low but financial losses due to reduced quality occur on 15.1% of total production. 5) The potato transportation and assembly functions usually involve numerous handlers and product exchanges. Potato transporu tation includes the following methods: 1) pack animals, 2) manual—, horse-g and tractor - drawn carts and wagons, 3) taxis, 4) trucks, 5) boats and 6) aerial cable. Potatoes entering the Bogota market may have changed owners up to ten times before the final consumer purchase. Bogota acts as both a terminal and assembly market for potatoes and potatoes reexported (22.26 of total shipments through the Bogota market) to other markets may change owners more than ten times. The excessive handling is a major cause of quality deterio- ration before the hags are opened in the retail outlets. 6) The greatest amount of storage in the potato marketing system is at the wholesale level. Major problems or risks inhibiting storage are potato spoilage, lack of credit and liquid capital, price instability and the law against speculation. Use of sprout 208 inhibitors to increase storage life is uncommon. At present, govern- ment facilities (IDEMA) can store less than 2% of annual production and these facilities are not operated at capacity. 7) Vertical coordination by vertical integration and forward purchase and sale agreements centers upon the wholesaling function. Sixtyasix percent of the wholesalers were integrated into retailing, production or in both retailing and production. Agreements are uncommon except on a very informal and personal basis. 8) Credit sales and purchases of potatoes were common at all levels within the exchange system. Interest charges were not common but, for some retailers, price differentials allowed to wholesalers for the privilege of purchasing on credit were costly. 9) Potato prices are sometimes influenced by price discounts and price differentials for credit sales but usually market participants accept the market price without question. Some supermarkets and cooperatives lower prices slightly to attract customers but loss leadering with potatoes is uncommon. 10) Potato market information flows are primarily by inter- personal communication and not by mass communication methods. Whole- salers are an important price information source for the system. Lack of market information was considered to be a problem.by all potato market participants. 11) Explicit potato grades and standards are not in use. Sorting within the market system is uncommon except for a few modern wholesalers, supermarkets and cooperatives. Damage, size and variety are the most commonly used creteria in purchase and sale of potatoes while age, form and color are of less importance. 209 Conclusions About Performance of the Potato P-D System A comprehensive assessment of performance in the potato P-D system requires careful consideration of personal values, public and private goals, and beliefs about the status of goal attainment in the system. To Specify adequacy of or satisfaction with the changes realized toward achieving the major goals of economic develop- ment and goals for the potato P-D system depends upon the relative importance assigned to the goals. The weighting of development goals, however, goes beyond the scope of this research. Some conclusions about performance problems can be presented. Adoption of recommended seeding rates and improved varieties to augment per hectare potato yields have lagged significantly behind production research. Thus, yields per hectare have risen very slowly and production increases have resulted primarily from using more land except for a few large farms which have raised their per hectare yields. The goal of price stability has moved farther from reality since 1960. For producers, this goal is very important. Market coordination needs improvement particularly in the areas of market information, storage, rural assembly, grading and standardization. Losses throughout the P-D system are high due to excessive handling and unnecessary backhauls. To present, little has been accomplished toward iuproving income distribution problems and planning the role for peasant producers in the process of rural and urban development. Some specific programs for a limited number of people have been successful but the problem is massive. 210 Potato production must more than double the 1964-1966 level by 1980. This demand can be fulfilled by either doubling per hectare yields or land areas planted or, more probably, by a combination of both. It is technically possible to more than double yields with ICA improved varieties. Some unanswered questions are whether this pro- duction should be attained on large commercial farms or on small relatively uncommercial farms and what combinations of inputs are best suited to fulfilling the demand. Commercializing the potato P-D system to allow attainment of economic efficiencies probably will result in some displacement of small firms. If these displaced indiViduals can obtain either urban or rural employment at improved incomes, they will be a stimulus to the developing economy. If they cannot achieve this status, at best they will be an economic detriment and, at worst, a social concern that could become a revolutionary force. At present, the alternative enpioyment opportunities for displaced farmers are limited and improved work skills for this potential labor force are necessary. hAllocation of credit between alternative uses within the food P-D system calls for more research to specify priorities more exactly. Credit for distributors, processors and manufacturers of farm supplies and food is a limitation to expansion and modernization. Improved credit allocations will augment potato production and improve market coordination for the potato subsector. Caja Agraria has proven that .credit to potato producers along with some technical assistance can augment output, Credit for rural based assemblers and distributors could reduce distribution inefficiencies and inprove quality before 211 the potatoes reach retailers and consumers. Potato producers do not receive direct price supports from the government but would participate in a price support program that established prices at 87 pesos to 113 pgggg per £5525! about 60 pgggg above 1968 prices. This would be a costly program for the‘gcwernment. Not enough consideration has been given to alternatives to storage as a price stabilizer and to various alternativermeans of approaching the storage problem. Storage of seed and of potatoes for consumption are both important factors that need careful consideration as a means to price stability. Both market information systems and technical assistance programs are being developed for the agricultural sector. The content of these information flows should be carefully considered to provide useful and adaptable information to the P-D system. More technical assistance should be directed to the potato distributors. Three major communication problems needing further attention are: a) dissimdnation of reseach results, b) the feed-back of information from the potato subsector to research and action agencies, and c) inter-institutional coordination particularly at the professional level in providing technical assistance to the potato'subsector. Recommendations Solutions to the problems associated with inproving coordination and performance of the potato P—D system in Colombia are not simple. It has been recognized that some goals and means to goal achievement are conflicting. Probably if one factor is most needed, it would be 212 a better understanding by policy markers of the important role one agricultural subsector, such as the potato P-D system, can play in the agricultural development process and the economy. No group of producers can be forgotten if the development processes are to be continuous and successful. Another essential consideration for policy makers is the role that a well coordinated distribution system can play in the development process. Goals to improve pro- duction without regard to distribution systems for farm supplies and farm products are not likely to be successful. The following recommendations, while difficult to fulfill, are addressed to major issues and problem areas identified in the research program. 1) Considering Small Potato Farms - Campesinos on small potato farms should be included in the process of modernizing agriculture by: a) improving specific production practices and market conditions that can better allocate resources and improve incomes for each type of small farm where possible, b) commercial; . izing those that have a potential for growth and expansion, c) exploiting opportunities for production of alternative crops, d) providing rural employment (in constructing social overhead facilities such as feeder roads and schools as well as in small industry) for 'those lacking the requirements to remain in potato production, e) developing strong programs of rural primary education and vocational training to prepare rural youth for employment in the industrial or modern farm economies, and f) improving urban employment opportunities to absorb more of the displaced rural labor force. A.price support program to improve potato producer incomes is 213 not advisable because it will fail to improve equity of income dis- tribution. Training programs and other means of improving quality of the rural human resource base, however, should be given careful consideration. 2) EstablishingyProduction Priorities - Potato producers on the sabanas might be encouraged by credit to increase wheat and barley production which allows room for expansion by the smaller hill farmers. Although it may be costly to subsidize wheat pro- duction, it does reduce imports and can lessen pressures of com- mercial agriculture on small potato producers. This is a tran- sitional recommendation that can be altered as the small potato farmers are absorbed into the modern economy. The transition period could be at least 15 years in duration. Further research is needed to determine various types of technical assistance and credit programs best suited to the needs of specific types of potato producers. Possibly small producers that cannot be mechanized should be encouraged to produce 2525 Criolla, (the small variety) which cannot be mechanized, while large varieties in the class of Papa de Afio should be produced on larger farms capable of mechanization. To some extent, this allocation occurs now but it implies different technical assistance programs and may be only a short run measure dictated by future changes in consumption patterns. 3) Adapting and gpplying Production Technology - Potato production research and extension Specialists must give more emphasis to producer production conditions and problems. Pro- duction costs and risks need to be assessed adequately before 214 production recommendations are formulated. Extension activities must then be given full support by ICA in both direct educational endeavors for producers and in providing information to other extension-oriented institutions such as Caja Agraria and INCORA. Supply markets for purchased inputs should be more fully developed to complement the extension activity. This issue is particularly critical for improved varieties of potato seed. 4) Allocating Credit—- The subsidized credit program for potato producers should be carefully reviewed. Possibly large potato producers should not receive a credit subsidy. The com? mercialized portion of the potato subsector should be economically competitive for credit that has alternative uses within the food P-D system. A good supply of credit at competitive rates is necessary for large producers but it should be allocated in a way as to stimulate use of both modern inputs and improved production practices. Credit for small producers should be tied not only to improving production methods but also to improving the quality of the human resources involved. For example, the credit might be subsidized for a small producer who agrees to apply production efficiencies that will free his children from farm enployment to permit school attendance. Likewise credit availability could require that the producers attend adult education classes that both improve their farm management ability and provide skills that are needed for off-farm enployment. Further research is needed on allocation of credit among farm enterprizes that are substitutes in production and/or substitutes in consumption. The present policy of augmenting loans to products 215 that substitute for potatoes in consumption while reducing loans to products that substitute for potatoes in production should be reviewed. More credit should be allocated to improving coordination in potato distribution by: a) supporting private storage of potatoes which requires longer term loans at the farm level to cover the holding period, and b) providing loans to assemblers and wholesalers so that they can store potatoes for longer periods and improve their handling practices to reduce unnecessary distribution losses and quality deterioration. 5) StoringPotatoes and Reducing Production Instabilit_g- A potato storage program.must consider the seed supply problems for the small Mitaca harvest as well as for improved varieties for both harvests, and the price instability problem. Before launching an extensive government-supported storage program to reduce price instability, several alternatives need investigation: a) The costs and returns for irrigation where possible; b) The costs and returns of promoting increased plantings for the Mitaca; c) The costs and returns for public storage programs versus private storage programs for both seed potatoes and potatoes for consumption. Credit policy could stimulate these changes where the alter- natives are economically feasible. Irrigation, stimulated by credit, along with increased emphasis on the Mitaca harvest oculd reduce seasonality of production. The supply of production loans for the large Afio Grande harvest could be reduced while the supply of pro- duction loans for the small Mitaca harvest could be expanded. Loans 216 may also be necessary for producers who desire to store seed for both personal use and sale for the Mitaca harvest. 6) Storing Potatoes and Reducing Price Instability - Reducing seasonality in production alone will not eliminate price instability. An adequate assessment of the potato market supply and demand conditions following either of the two major harvest, calls for dependable market information for both public institutions and private market participants. Before they can periodically plan their storage activities, the amount of production and potato price conditions should be understood. Top priority must be given to a comprehensive market information system. Given this information, both public and private groups can estimate the amount of potatoes they will store and how long they should be held before sale. Given estimates of storage losses, storage costs and price projections, they should attempt to equate the marginal costuof the storage program with it's marginal return. If the public and private storage programs are successful, the optimum conditions would dictate that prices might only fluctuate on a seasonal basis by the amount of storage costs. IDEMA needs to assess the alternative costs of stimulating a storage program along with a production stability program that will come closest to achieving price stability. Private and/or public storage costs and returns must be considered. The law against speculation should be either rewritten or rescinded and attempts made to reduce the adverse attitude that it has created against speculation and storage as a means of encouraging distributors to develop longer term storage programs. Spoilage is a major problem for potatoes in storage calling for wider use of sprout inhibitors 217 which can be promoted by ICA and IDEMA. 7) Storing Potato Seed _ The final concern in storage is to improve seed supplies for producers. The government should either buy.and sell seed on a large scale and/or stimulate private producers and distributors to enter the seed business. Seed to be planted for the Mitaca harvest should be held from the consumer market as a means of augmenting the small harvest. Similarly, improved seed should be purchased and sold by public and/or private seed agencies that can withstand in-storage losses and do not need to sell immediately in the consumer market. 8) Assessing Consumer Desires - Inter-disciplinary activity (cooperative research and development among departments and national programs) within ICA is needed to evaluate consumer acceptance of new varieties and develop educational programs that will inform consumers about new varieties. Presently ICA is doing some research on processing characteristics of potatoes. Along with the Instituto de Investigacio— nes Tecnologicas (IIT) further research on desired characteristics for processing and storage should be stimulated by ICA as production research proceeds. Consumer acceptance research should accompany this program. Research is needed to determine consumer response to potato price changes and the effective demand for better quality and lower cost potato chips. More information is needed about income consumption responses for potatoes by consumers. 9) Informing Potato P-D System Participants - Continued emphasis should be given to a market information program with a timely dissemi- nation system that will be useful to producers and distributors in their market decision making processes. Where Caja Agraria.has offices 218 in areas of potato production, cooperation with ICA in formulating package programs including technical production and marketing as- sistance, credit, and farm supplies for potato producers would be desirable. This input package could then be adapted to specific regions and farm sizes where income maximization criteria may differ. Where resources for establishing on-going extension programs are limited, it appears to be desirable to combine the extension efforts of institutions such as ICA and Caja Agraria particularly on a commodity basis where trained commodity specialists could service the needs of several Caja Agraria offices. These commodity specialists could then refer to marketing and farm management specialists at ICA. 10) Exporting Potatoes — Given the national goal to export agricultural commodities and recent discussions in IDEMA about exporting potatoes, the potential for export should be conéidered including: price relationships, the type of product most suited to export, transport costs, and demand characteristics in potential import countries, particularly in Latin America. 11) Improving Vertical Coordination in the Potato P-D System - IDEMA, ASCOLPA, ICA, Caja Agraria and the Ministry of Agriculture can cooperate in research and development efforts to foment improved vertical coordination in the potato P-D system. Part of the stimulus for improved vertical coordination will result from activity in the private sector by modern retailers who desire improved product quality and purchase and sale agreements. But an organized distribution system, based upon sound market information and product standardization systems, should be stimulated by IDEMA and ASCOLPA. 219 Distribution system losses and unnecessary handling of potatoes can be reduced by developing a stronger rural aesembly system. Rural assemblers should be induced by credit, improved market information, and well instituted grades and standards to store and sort potatoes. They night then assess the various market alternatives to avoid unnecessary backhauling and excessive exchanges of potatoes. A rural based program of quality improvement should be emphasized both to reduce the need for transporting low quality potatoes to the point of consumption and to provide a quality of potatoes that can be stored for longer intervals at various points in the market channel. Use of forward purchase and sale agreements should be encouraged to reduce those risks associated with unstable market prices. The validity of contracts should be enforced to reduce skepticism that has developed because of bad experiences where ”contracts" or verbal agreements have not been fulfilled. Whole- salers, supermarkets, cooperatives and processors should be encouraged to seek more forward agreements with individual producers, groups of producers and rural assemblers as a stimulus to improved vertical coordination. It is very important to recognize that the functions of distributors or "intermediaries” are essential to the process of augmenting potato production. Distributors are the primary link in the food P-D systenlbetween producers and consumers. To down- grade or disregard the distribution process or any interdependent activity in the potato P-D system reduces the opportunity for improving performance of the entire system and particularly the production process. 220 This research program was intended to be a broad diagnostic study of the entire potato production-distribution system. It was not, however, designed to provide all of the answers or exhaust the opportunities for further research on potato production and distribution. Instead, this research can serve as a basis for further investigation. Finally, a continuing research and development program is needed to answer specific questions that have been introduced and to keep»pace with continued changes expected in the future. 221 LIST OF REFERENCES Andrew, Chris 0,, Bruce r.-Heath, Stephen F. Matthews, and Rafael , Samper A, Problemas de Produceién y Mercadeo del Campgsino Colombiano : Un Estudio Preliminar, Instituto Colombiano Agropecuario, Depto. Economia Agricola, September.1969. Arango Tamayo, Fabio., et. al.,"Comité de Estudio de la Papa“, (Unpuba’ lish.monograph), February 1967. Bernal Gonzales, Reynaldo and Oscar Bautista Gamboa, Cualidades Culina- ' rias de'laLEaga. Papa Frita, Tesis de Grado, Universidad Nacio- nal de Colombia, Facultad de Agronomia, 1968. Bonilla, Frank, "The Urban Worker", in Continuity and Change in Latin America, edited by John J. Johnson, Stanford University Press, Stanford, California, 1964. Caja Agraria, "Carta Agraria", Departamento de Relaciones delicas, Caja de Crédito Agrario, Bogota, No. 223, Enero-Febrero 1969. Collins, N.R. and Holton R.H., "Programming Changes in Marketing in Planned Economic Development", in Agriculture in Economic Develgp- ment, Edited by Carl Eicher and Lawrence Witt, McGraw-Hill Book Company, 1964. Brandner, Lowell and Morray A. Straus, "Congruence versus Profitability in the Diffusion of Hybrid Sorgum’, Rural Sociology, Vol. 25, No. 4, December 1959. Cook, Robert C. and Jane Lecht, People : An Introduction to the Study of Population, Population Reference Bureau, Columbia Books, Publisher Washington D.C., 1968. Currie, Lauchiln, Accelerating Develgpment, The Necessigy and the Means McGraw-Hill, Inc., 1966. DECRETO NUMERO 2420 de 1968 (Septiembre 24/68) por el cual se restaura e1 Sector Agropecuario, EL PRESIDENTE DE LA REPUBLICA DE COLOMBIA en uso de las facultades extraordinarias que 1e confiere la LeY’ 65 de 1967. Departamento Administrativo Necionalgde.Estadistica (DANE), “Colombia w Boletin Mensual defiEstadistica”, Bogota, D.E. (the entire' series):~p ' - ' DANE, XIII Censo Nacional de Poblacidn, Resumen General, Julio 15 de 1964. Estrada, Nelson, et.al., "El Cultivo de la Papa", ICA, Programa Nacional de Papa y Yuca, No. 10, Marzo, 1968. 222 ll- 2" ("In is Fals Borda, Mons. German_and Eduardo Umafia Luna, La Violencia en Colombia, Ediciones Tercer Mundo, Bogota, Colombia, 1962. Farace, R. Vincent, "Communication Behavior and the Latin American Food Marketing Process: Some Preliminary Findings", in the Role of Food Marketing in the Economic Development of Puerto Rico, Seminar Summary, Edited by Robert W. Nason, Published by the Latin American Studies Center, Michigan State University, East Lansing, Michigan 1966. Felstehausen, Herman, Local Government and Rural Service Barriers to Economic Development in Colombia, The Land Tenure Center, 68 ITC, June 10, 1968. ‘ Flinn, William,'The Process of Migration to a Shantytown in Bogota, Colomr bia", LTC, No. 55, The Land Tenure Center, University of Wisconssin, Madison, July 1968. Florencia, Cecilia A., The Efficiency of Food Expenditures Among Certain Working Class Families in Colombia, (unpublished Ph.D. dissertation Michigan State University, Department of Foods and Nutrition, 1967). Fletcher, Lehman B. and William C. Merrill, Latin American Agricultural Development and Policies, International Studies in Economics Monograph No. 8, Department of Economics, Iowa State University, Ames, Iowa, September, 1968. Franco Camacho, Guillermo, Mercado de la Papa Respecto a ngota D.E. Centro de Estudios sobre Desarrollo Econdmico (CEDE), Monografia # 2, Bogota, Colombia 1959. Gaitskell, Arthur, "Importance of Agriculture in Economic Development", in Economic Development of Tropical Agriculture By W.W. McPherson, of Florida Press, Gainesville 1968. Griliches, Evi, "Research Costs and Social Return: Hybrid Corn and Related Innovations", Journal of Political Economy, Vol. LXVI No. 5 Oct. 1958 and "Hybrid Corn: An Exploration in the Economics of Techno- ., logical Change”, Econometrica, Journal of the Econometric Society, ‘VOI 25 No. 4 October 1957. Grant, U.S. (Rockefeller Foundation) Seminar on the Colombian Agricultural Economy Bogota, Colombia, S.A. July 23, 1968. Harrison, Kelly Max, Agricultural Market Coordination in the Economic Development of Puerto Rico, (unpublished Ph.D. dissertation, Michigan State University, East LanSing, 1966). Hathaway, Dale E., Government and Agricultural, Public Policy in a Democratic Society, The MacMillan Co., New York, Collier-McMillan Ltd., London, 1963. 223 Hawkes, J.Gu,"Cinco Conferencias sobre el Mejoramiento de la Papa", Boletin Técnico No. l, Ministerio de Agricultura y Cria, Direccion de Agri- cultura, Instituto Nacional de Agricultura, Maracay, Venezuela Junio de 1951. Havens, Eugene A. and Everett M. Rogers, "Adoption of Hybrid Corn : Profit— ability and the Interaction Effect", Rural Sociology, Vol. 26,No. 4, December 1961. Hee, Olman, Demand and Price Analyois for Potatoes, EAS Tech Bul No. 1380 USDA, July 1967. Hobbs, Wesley, Jorge E. Quintero and James K. McDermott, "Plan para el Desarrollo de los Tractores de dos Ruedas y de una Industria de Maquinaria en Colombia", ICA Departamento de Ingenieria Agricola, 1969- Holton, Richard H. "Marketing Structures and Economic Development" Quarterly Journal of Economics, Vol 67, August 1953. Higgins, Benjamin, Economic Development, W.W. Norton & Co. Inc.,New York, 1959. ILMA, gopply Problems of Basic Agricultural Products in Colombia, Instituto Latinoamericano de Mercadeo Agricola, Bogota, Colombia, 1964. INCORA "Informe de Actividades en 1963“ Annex B., No. 8, 1963. James, Preston E., Latin America, Third Edition, Odyssey Press, Inc., 1969. Kriesberg, Martin, "Marketing, Middlemen, and Mirales", International Agricultural Development Service, A paper Prepared for presentation at the St. Joseph's Academy of Food Marketing, Philadelphia, May 27, 1968. Larson, Donald Walter, A Diagnosis of Product and Factor Market Coordination in the Bean Industry of Northeast Brazil, (unpublished Ph.D. disser- tation, Michigan State University, 1968). Leftwich, Richard H., The Price System and Resource Allocation, Holt Rinehart and Winston, New York, 1960. Lewis, Oscar, The Children of Sanchez, Vintage Books, 1961. Lopera Palacios, Jorge and Peter E. Hildebrand, The Agricultural Productivity Gap in Colombia, Instituto Colombiano Agropecuario, Bogota, Colombia, June 3, 1969, (review COPY). 224 Massed, Carlos, "Economic Research in Latin America", in Social Science Research in Latin America, Edited by Charles Wagley, Colombia University Press, New York and London,l964. Meier, Gerald M., Leading Issues in Development Economics, Oxfor Uni- versity Press,l964. Mellor, John W., The Economics of Agricultural Development, Cornell University Press, Ithica, New York, 1966. Ministerio de Agricultura, Restauracién del Sector Agropecuario, serie de planeamiento No. 3, Julio de 1967. "Plan Cuatrienal Agropecuario 1967-1970 para Ocho Productos de Consumo Popular," Serie de Planeamiento No. l Bogota, Colombia, February 3967. Rogers, Everett M., Diffusion of Innovations, New York, The Free Press cm'Glencoe; London: MacMillan New York, 1964. , Peasant Modernization: The Impact of Communication, New York; Holt, Rinehart and Winston, 1968. Rostow, Walter W., View from the Seventh Floor, New York: Harper and Row, 1964. Riley, Harold M., "The Changing System of Agricultural Production and Marketing", in the Role of Food Marketing in the Economic Develop: ment of Puerto RicoL Seminar Summary, Edited by Robert W. Nason, Published by the Latin American Studies Center, Michigan State University, East Lansing, Michigan,1966. Ryan, Bruce and Neal C. Gross, "The Diffusion of Hybrid Seed Corn in two Iowa Communities". Rural Sociology, Vol 8 No. 1,March 1943. Schultz, Theodore W., Transforming Traditional Agriculture, New Haven and London, Yale University Press, 1964. Shaffer, James D., "A Working Paper Concerning Publicly Supported Economic Research in Agricultural Marketing", Economic Research Service, U.S. Department of Agriculture, Washington D.C., March 1968. , ”Some Conceptual Problems in Research on Market Regu- lations", in Federal State and Local Laws and Regulations Affecting Marketing. (NCR-20) No. 5, Regional Res. Bul. No. 168, North Dakota State University, September 1965. Shepherd, Geoffrey S., Agricultural Price Analysis, Fifth Edition, Iowa State University Press, Ames, Iowa, 1966. Sierra, Jose Antonio, "ASCOLPA, Informativo de la Asociacion Colombiana de Papicultores," Ano II - No. 2, Enero de 1968. 225 Slater, C.S. and Harold M. Riley, et.al., Food Marketing in the Economic Development of Puerto Rico, Research Report No. 1, Latin American Studies Center, Michigan State University, 1969. , Market Processes in the Recife Area of Northeast Brazil, Research Report No. 2, Latin American Studies Center, Michigan State University, 1969. Stevens, Robert D., "Rates of Growth in Food Requirements During Economic Development", Journal of Farm.Economucs, Vol 47 No. 5, December 1965. Talbutt, William F. and Ora Smith, Potato Processing, West Part, Connecticut, The Avi Publishing Company Inc., 1967. 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APPENDIX I Aggregate Farm.Size Data and Potato Farm Size Data 226 227 Table 1-1 : Number and Percentage Distribution of Farms agd Hectares by Various Farm Size Classifications Farms Land in the farms Size of the farms (units in hectares) Number Percent Hectares Percent (1000's) 0 - 1.0 298,071 24.7 132 .5 1.0 - 2.9 308,352 25.5 546 2.0 3.0 - 4.9 150,182 12.4 561 2.0 5.0 - 9.9 169,145 14.0 1,165 4.3 10.0 - 49.9 201,020 16.6 4,211 15.4 50.0 - 99.9 39,990 3.3 2,680 9.8 100.0 - 499.9 36,010 3.0 6,990 25.6 500.0 - 999.9 4,141 .3 2,731 10.0 1000.0 or more 2,761 .2 8,322 30.4 Totals 1,209,672 100.0 727,333 100.0 a Does not include the Department of Choco nor the National territories. Source: DANE, Departamento Administrativo Nacional de Estadis- tica: Directorio‘Nacional de Explotaciones Agropecuarias (Censo Agrope- cuario) 1960 Resumen Nacional (Second part) Bogota, Febrero 1964, p. 39 Table I-2 : Number and Percentage Distribution of Potato Farms and Hectares in Potatoes by various Farm Size Classifications Size of Farm Number of Area Average Percent Percent Producers Har- Harvested of Pro— of Area vested per farm ducers Harvested 1 - 1.9 18,939 25,458 1.3 17.47 20.59 2-- 2.9 5,244 12,203 2.3 4.84 9.87 3 - 4.9 3,910 14,009 3.6 3.61 11.33 10 - 19.9 842 11,134 13.2 .78 9.00 20 - 49.9 303 8,549 28.2 .28 6.91 50 - 99.9 55 3,270 59.4 .05 2.64 100 or more 12 1,904 158.7 .01 1.54 Totals 108,404 123,652 1.1 100.00 100.00 Source: DANE, Directorio Nacional de Explotaciones Agropecuarias (Censo Agropecuario) 1960, Colombia, Bogota, D.E. 1960 228 .0000 ..man 000000 .000002 0:0 000050:00::U .000mom 00 mou:mfi0uu0mmn .0000 00000sommmumm 00:000 m00u0sommoumm 00:0000000mxm 00 00:00002 0000000000 .0200 0:0 .NIH a 010 000009 u 000500 wmo.o £009 mmmfl I 0 00000 0000 :0 0:00 00 0:0uumm I 00 0 mmMHO 30mm C0 WEHflH HO #Gmouwm I HQ 0 000 0.000 0.000 0.000 0.004 0.000 0.0 0.0 t 0.000 0.000 0.000 0.000 00009 0.0 0. 0.0 0. 0.00 0.0 o o 0.0 0* 0.00 0.0 _ 0002 no 0.000 0.0 0.0 0.0 0. 0.00 0.0 0. 0. 0.0 o. 0.0 0.0 0.00 I 0.00 0.00 0.00, 0.00 0.0 0.00 0.00 0. 0. 0.00 0.0 0.00 0.00 0.00 I 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0 0.0 0.00 0.0 0.0 0.00 0.0 u 0.0 0.00 0.00 0.00 0.00 0.0 0.00 0.0 0.0 0.00 0.0 0.0 0.00. 0.0 u 0.0 0.00 0.00 0.00 0.00 0.00 0.00 0.0 0.0 0.00 0.00 0.0 0.00 0.0 u 0.0 0.0 0.00 0.0 0.00 0.0 0.00 0.00 0.00 0.00 0.00 0. 10.00 0.0 u 0 00 0 00 1 0 00 + 0 _ 00 ,0 00 30....) _T' mm}! 00 . 000002 wommom 000050:0©::U lEH0m 00uoe mo . :0 :0 :0 0&00m oumuom 00080000 :0 00050000 0000000000 msu0m ou0uom mEHOm 0u0uom 0800M ou0uom :000E00OU w mfiu0m ou0uom :0 mfiu0h 00¢ 0800M mo 000m 000002 0:0 000mom .000080:00::U :0 0300M 000000 0:0 .00050000 :0 mEH0m 000000 004 .00080000 :0 mEH0h 000 no :00000000000 "mlH 0000B APPENDIX II Total Production, Hectares Planted, and Yields per Hectare of Potatoes in Colombia Based Upon Caja Agraria Data and IDEMA Data 229 230 The difference between the Caja Agrariaa statistics and those of IDEMA (Table II-l) can be explained in part by collection methods both planted areas and total production statistics for potatoes of Caja Agra- ria are consistently greater than those of IDEMA. Caja Agraria, a governmental loan agency for agriculture, bases its production statistics on loans granted to potato producers. It is likely, therefore, that a slight over estimation occurs due to producers not planting as many hectares as they planned at the time of borrowing or because of crop losses due to frosts, diseases or droughts. More importantly however, the Caja Agraria statistics represent total production including come mercial sales, home consumption,,and rural consumption not passing through major commercial channels. IDEMA gathers production data from each of it's regional repre- sentatives following harvest. This methods probably accounts for all production for commercial sales but does not include local, non com— mercial sales for rural consumption and home consumption particularly of small farmers. For the period from 1952 through 1968, the IDEMA total production statistics are 67% of the Caja Agraria statistics. If 24% of total production is consumed on the farm or in the immediate area (previously stated from secondary material and justified in the present study in Figure 13) without passing though major markets, 91% of the difference between the two sources is accounted for. Both the over estimation error and the greater amount of seed appearing in the Caja Agraria estimates probably account for the remaining 8%. a Caja de Crédito Agrario, ”Carta Agraria Anexos No. 165, Julio de 1965, No. 193, Octubre de 1966, and unpublished data for 1967 and 1968. b The IDEMA - Atkinson series includes : 1948-52 from "Serie Histdrica de Produceidn y Superficie” by Guillermo Palacio del valle, 1953-54 from “La Carta Agraria" No. 165; 1955-65 from ”Area y Pro- duccidn' by Francisco Morazan Escocia (IDEMA); and 1966-68 adjustments by the Economic Research Service, USDA and the Ministery of Agriculture, Colombia. 231 .0000 mDO0>00m :0 0 w 0 0000:0000 000» m 000500 000 0.00 000 00 0.0 0000 000 0000 000 0.00 000 00 0.0 000 000 0000 000 0.00 000 00 0.0 0000 000 0000 000 000 000 0.00 000 . 00 0.0 0000 000 0000 0000 000 000 0.00 000 00 0.0 0000 000 0000 000 000 000 0.0 000 00 0.0 0000 000 0000 000 000 000 0.00 000 00 0.0 0000 000 0000 000 000 000 0.00 000 00 0.0 0000 000 0000 000 000 000 0.00 000 00 0.0 000 000 0000 000 000 000 0.00 000 00 0.0 0000 000 0000 000 000 000 0.00 000 00 0.0 0000 000 0000 000 000 000 0.00 000 00 0.0 0000 000 0000 000 000 000 0.00 000 00 0.0 000 000 0000 000 000 000 0.00 000 00 0.0 000 000 0000 000 000 000 0.00 000 00 0.0 000 000 0000 000 000 000 0.00 000 00 0.0 000 000 0000 000 000 000 0.0 000 00 0.0 000 000 0000 000 0.0 000 00 nu un un 0000 000 0.0 000 00 nn nu: nn 0000 000 0.0 000 00 nu nn nn 0000 000 0.0 000 00 nu nu un 0000 000000 00:0000020 I00zv :00u 00000m 00 0000000000 noaeoua. _ 000000030 . w 0.0000 0.0000 0000000 0000 0:000 000000.0000 m:\0coe maoauumz 0.0000 00\0aoa 0000.00: 0.0000 00. 00 _ :0 0000> . 00000 .000 .00 00000 .000 .00 0000 0000> 0000 0000000 00000000 u 02000 0000000 0000 . 0 _ , 0 0 000E00oo How mo0um0u0um :000050000 ou0uom 000000000 ”0IHH 00009 232 . 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‘ln . nquIu’JI‘III III-III ull lll'lullllu 11‘ \II llfi'u IEI. u. ‘Inll‘lll Ill .mmofisocoom mmcoflommwummbcH mo oucmfimuummmc.mzmcH mousom 236 m.HH v.HH. m.HH m.m h.Hd m.cH o.NH m.NH H.mH N.HH m.HH m.cH mmmum>¢ @munmflm3 o.« u m m «.m o.« o.« o.« o.« o.« «.m «.5 «.m maam> m.5 H.o c.o o.o m.» c.m c.m c.m o.m c.m N.o N.5 Mawaoa H.« «.0 «.5 «.5 «.oH o.o« o.o« o.o« o.o« ,o.o« o.o« «.m «mocmwcmm 5.« «.o o.« «.5 o.« o.o« o.o« o.o« o.o« «.m «.m «.5 «mncmucmm .2 H.« H.« H.« o.« «.0 «.m o.«« o.«« od«a o.o« o.oH o.«a oa«umz v.¢a o.m o.mH ~.HH 5.5a m.va m.ma c.ma c.c~ c.mH o.mH c.~H mounfimcflocsu o.« «.m u u m m 5.« o.« o.« «.m o.« ¢.« «.m mosmu c.m c.h H.@ H.@ c.0H c.cH H.0H H.m c.m N.m cum c.0H mMOHMU m.ca w.m m.HH h.m o.cH m.MH m.NH m.NH m.HH c.0H c.cH c.cH womwom N.m N.o H.m m.o m.m o.HH c.cH c.ca c.0H 0.0H c.0H c.m MHSUOfiucm momH womH momH NomH HomH coma momH ommH hmmH ommH mmmd mmmum>< Hum» vcmauummmc Amumuomm umm mcou Ofluumzc mucmamuummmc :anEOHOU an moaww» oumuom u muHH manna APPENDIX III Potato Price Statistics in Bogota, Cali and Pasto 237 238 .mmowumwoaumm mo Hmcowucz Obwuuuuwwaduvm oucwsuudmonn «abandon «v 3 «v on «« 5m Hm 3 5e «« cc 3 «e 5c $9.83 5« «v «e co «m «m on we we «« «e «v «c ow «unampoz mm «a «c oq «« V«« on me «n «n «v «e «e 5« umnvuoo «« «n «v «n «e 5e «« «e «m «n «v on «c «m u¢g3mummm «« .Hv «v «n «v «v «« 5v «« «n «v v« «e «« unsmsa «v «e «m «v we cc 5« «m «m «« mu «m 5v «« «Han «c «m «o «e «« 5v «« «m «« ow «o «n v« H¢ «can «e «v «o «m «a «v ow «o 5« cc «v «m «m «e «a: me «v 5« «m «w «v «c «m «n «c ov «o «m «e «flags m¢ «v 5« «m «m 5« «m me «« oe «w we «« «e noun: 5v «v om «« om «« «m me «n «n «v «v 5e «« «unaunmu «e «v «m «m «o «n «v «q «n «a «v «v «c «« «unscau «o«« 5m«H oo«« mo«« nm«« «o«« «m«« «o«« oo«« «m«« «««H 5««« ma«« nm«« «Hum» «5:02 83 u «m«« «can 3 fi«fl «in sous Bane Eamon :« mumxuoz «on xmc:« mowum «masucoo «nu ma emanauma uaoaum «ouauomuawuomom " «uHHH manna @204unz abduwM+m«C«Eom szmBuIHMMQ. “ UQMfiGm M "1 4; n K H '7'? ('6 4 - I,‘ ,J OJ "Cu #4 ('u‘.In «m «m mm 5« 5« «w «« av «v «m «m «w «a «a «oaamowa « «m «m «m «m 05 «m «w «v «m «m «m c. «m Hogsupcz «« «m «m «m «« ow «m. «w «m «m «w Hm .« «« Homepoo «« «m «m m« «« 5« «m «v «m ow «« Hm . «a Huggupmnw «« «m «m «« «q «v. «m «v «m «« mu «m «w mm «msmga 5« «m «w Hm «« «w «m «« «v «v «v «« um «0 «Hum «« ow «v «m «5 «w 5« «m «« 5v «« 5« «m «5 «saw Om «v 5« cm 5 ««.. «m «m «m «« om «o 05 «5 «m: «m «m «w «« «o «v ow «m ov « «v «o «9 5w «figmm «m 5« «w «« «m 5« «m «w «m 5« «v «m m «« nouns «« «m «m «« «m «m «m «« «m 5« «w «m «v «m «Hmsugom 5« mm mm o« «m «m «v «v «m «m «w .. 5« «m «w «umscmw «««H 5o«« mn«H «o««w vo«« «««H «w«« Hm«« o««a «m«« mm«« 5««« mm«« mm«« Hmmw Sync: Aooa n m««« «ssh cu «««H ««s« "mmwmv «Hmu 2H mumxmoz «om xmme moflum «medmcoo vs» >9 ompMAMOQ mmkum Ovauom «HMO "NIHHH manme ¢N wm mm om mm cw ov 0m Gm om mN cv mm om ¢N oN hm hm HN bu m¢ mm mm um um c¢ om mm mm mm mm oN 5N mv no Hm om mm .Hv mv hm cv cm vN mm om mm ov mv mm om mm mm mm mm mm mH hm mm mm mm mm cv om om hm mm mm cw hm 5H Om mm mm Hw Hm mm mm om mm mm mm mfi hm HN mm mm 5N Ho mm mm mv mm oN Nm Hm mm mm cm om mv NN co mm hm mv vm om Hm mfi bv hm mm mm mo NN ov 0m Hfi oq Om om mm NV hfi mm mm mm cv mH cw om Hv mm mm mm mm mm mm om mm mm Hm NH om mm mm Nm om mm vm qm mm mm 5N oN oN mH mm mm Hm mm on mm 5m vm hm mm oomH homH oomH momH womH momH NomH HomH comH mmmH oomH hmmH ommH oomH HMGM 83 u 3.3 «can on $3 «in ownmm CH mnmxuo3 MOM xmoGH moflum Hmfidmcoo mnu an oquHmmc mmOHum Cumuom Cummm mmmmv uwnfimowc umnEm>oz HmnOuoo umnsmummm umsmsd deb m:5h an: 33¢ Scum: mumsunmm >HM5:Mh mnucoz mlHHH mHflmB APPENDIX IV Methods Used to Calculate Employment in Potato Production and Distribution 241 .i. ll- . Ill I]... I I“ ui ll .flu.|lllh.l|nllclll All] In I.llilu lulu. 'lu. 242 Based upon the 1960 census 108,000 farmers were potato producers. This number has not declined but serves as a conservative estimate. The producer interviews indicated that an average of 9.4 non—family employees worked on the”‘ farms, and an average of 1.4 family members worked on the farm” This averagecfi'non-family employees is high for all potato farms because the sample tended to include only commercial producers. If it is assumed that the family figure holds for all farms and Only 10% of the farms employ outside labor, then the number of family and non—family laborers on potato farms is 252,700. Potato transportation in an average year involves movement of 50 percent of annual production (or about 500,000 tons) to urban consumption centers. From the trucker interviews it was estimated that movement of 1.25 tons of potatoes required one man day. Thus, 400,000 man days or 1,538 man years (at 260 days per man year) were necessary for transporting potatoes. This estimate is conservative because it does not include back- hauling and does not completely account for underemployment. There are approximately 550 full-time potato wholesalers who employ managers and assistants (1.3 per wholesaler based on Bogota sample). Proba- bly wholesalers hire more part-time workers as carriers and truck loaders than either retailers or producers. A total estimate of this group employed by wholesalers and others assumes that potatoes are moved on 3 different trucks between production and consumption. It requires about two hours for two men to load or unload 60 bultos of potatoes so each ton requires 3.2 man hours or 0.4 man days of carrier labor. Thus, for 750,000 tons (both rural and urban consumption) about 300,000 man days or 1154 man years of carrier labor is required. Again, the estimate does not account for underemployment. Employment in potato retailing is even more difficult to estimate than employment at other levels in the potato production and marketing system. The analysis will be based upon the Bogota survey. Plaza retailers sell about 12 bultos per week (39 tons per year) and account for about 27.4 percent of commercial sales (assumed to be 500,000 tons) or 137,000 tons of potatoes per year. One full time employee is involved in plaza retailing and 43.7 percent of his sales are potatoes. Thus 3,513 plaza retailers are selling potatoes but on a full time basis the equivalent is 1,535. Tiendas sell 21.4 percent of commercial potato sales or 107,000 tons per year. They sell an average of 4.5 bultos per week (14.6 tons per year) involving 7,329 tiendas. An average of two people operate a tienda and average potato sales are 16.4 percent of total sales. Thus, the average employment in potato retailing by tiendas is the equivalent of 2,404 individuals full time. Supermarkets and cooperatives sell 13,500 tons of potatoes per year or 21 percent of commercial sales. Weekly potatoes sales average 80 bultos (260 tons per year) and average employment is about 20 persons per supermarket. Only 14.3 percent of supermarket and cooperative sales are for potatoes so ‘ the full-time employment figure is 148 employees. 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HICHIGRN STRTE UNIV. LIBRRRIES IllWIN“\IIWIWI‘IH|||l|||\||‘H‘IINIINIWNHI 31293108098785