Employment Impacts of Agricultural Biotechnologies in Latin America

Coffee and Cocoa in Costa Rica

Regina M.A.A. Galhardi

Employment Strategies and Policies Branch, ILO, Geneva, Switzerland

Introduction

Attempts to assess the employment effects of biotechnology applications in developing countries have not been extensive. Even less effort has been devoted to the study of the socioeconomic implications of the (potential) substitution of Third World exports by others produced by new biotechnology applications in advanced industrialized countries.

A first and rather optimistic contribution came from Watanabe (1985). According to him, biotechnologies should be able to make a significant contribution not only to the growth of national wealth but also to individual incomes and employment, especially in Third World countries. Increased agricultural self-sufficiency of developing countries would have a negative effect upon industrialized country food exporters.

A more recent evaluation by Junne (1991) is somewhat more pessimistic. He says that biotechnologies ''will make many importing countries more self-sufficient and increase trade conflicts among overproducing countries." According to his analysis, biotechnologies will help to substitute products from industrialized countries for commodities from developing countries with uneven effects on the trading position of different exporting countries.

Very few studies, however, have been published up to now on the trade implications of biotechnological advances in developing countries, particularly in terms of potential employment generation or labour displacement. This paper attempts to fill this gap by assessing the employment consequences of biotechnology developments for small-scale agricultural production in developing countries with special reference to Latin American countries. It is based on the assumption that employment reduction or labour displacement may occur as a result of declining demand from industrialized countries for Third World food products. Although many of these impacts remain highly uncertain and difficult to quantify, their identification is required as far as this can influence policies and technological developments that may mitigate any plausible negative results.

The second section deals with the possible direct employment effects resulting from the declining demand from industrialized countries for Third World export crops. An attempt is made to quantify these possible effects by studying the production of coffee and cocoa in Costa Rica, was based on assumptions regarding production, consumption, and export for the next 10 years. This country case study was chosen because of the availability of data and labour coefficients for the production of these two export crops. The last section summarizes the main findings and qualifies the results.

Quantitative Employment Estimates

This section intends to provide information on the magnitude of possible direct employment effects resulting from declining demand from industrialized countries for some Third World export crops. An attempt to quantify such potential threats is desirable to warn policymakers, trade unions, farmers, and workers in developing countries and, possibly, mitigate the problems.

This quantification is, however, a speculative exercise based on the availability of labour coefficients for some Latin American crop production. This is especially important because no previous effort of this type has been made. This ex-ante analysis is beset with difficulties and shortcomings.

First, data on employment by crops for these countries are not systematically collected. Second, when they are available, they differ according to the source consulted. Third, labour intensity by crop varies according to size of the plot, cultivation techniques, and regions within each country. Fourth, cross-country comparison is very difficult because of the scattered information available on variables such as production, export, consumption, and employment by crop.

Nevertheless, with the purpose of providing an idea of the order of magnitude of such effects, this section will try to estimate the employment losses that may occur in the production of cocoa and coffee in Costa Rica. This case study was chosen because of the availability of information on the variables production, consumption, and export for the last two decades, and on technical and labour coefficients that permitted the calculation of the labour force involved.

The estimation procedure is centred on some assumptions concerning the expansion of the world agriculture toward 2000 (Alexandratos 1988). The underlying assumptions that will guide this analysis are:

· A slow down of industrialized country market demand/imports, and

· Latin America's agricultural production growth rate for the period 1985–2000 is expected to be lower than in the past 15 years.

It is also assumed that coffee will not be imported in significant quantities by developing countries and, therefore, nearly all coffee demand translates into import requirements from industrialized countries.

Another general assumption that underlies this estimation procedure is related to the availability of biotechnology as applied for coffee and cocoa. It is assumed that the biotechnological advances that may contribute to reducing the demand for cocoa and coffee beans from importing countries are already available and affecting trade patterns. This is a simplifying assumption because advanced biotechnological developments for improving cocoa and coffee production are far from being commercialized during the period covered here.

According to some experts, routine application of advanced biotechnology for cocoa and coffee improvement may be more than 10 years away. Although progress has been achieved in plant transformation methods and expression systems, the identification and isolation of genes of agronomic importance have lagged behind. The anticipation of the possible biotechnological achievements for both crops, however, is a necessary condition embodied in this analysis.

Coffee Employment Estimates

Methodology: Apart from data provided by (different) official institutions on production, area harvested and export of coffee. the employment data were estimated from the figures provided by PREALC (Programa Regional del Empleo para América Latina y el Caribe), Panama, for the years 1985 and 1989. These were calculated from existing technical coefficients for coffee production and the variation of area harvested for these years and extrapolated for the others. Data on consumption of coffee were provided by official sources for the period 1977–1985. The estimated values for the years 1987 to 1990 were based on the assumption of an annual growth of 3.0% for the domestic demand for coffee in Latin America for the period 1985–2000 as stated by the Food and Agriculture Organization of the United Nations (FAO, Annex V, 1988).

From these data, two different scenarios were built according to different assumptions regarding the decline of coffee demand from importing developed countries.

Scenario A: The variables consumption, production, employment, and export were calculated according to the following assumptions:

· Production It is considered that developing countries' agricultural production rate for 1985–2000 will be lower than in the past 15 years when it was 3.2% a year. Latin American production is expected to grow 2.7% per year from 1985 to 2000 (Alexandratos 1988). The slow-down in population growth expected for this period as well as the continued slow growth of the region's agricultural exports, will restrain the growth of total demand and, hence production. In terms of nonfood crops, it is estimated that Latin American output will rise by 1.6% per year from 1985 to 2000 mainly reflecting the unfavourable export prospects for coffee, which accounts for about 45% of all crop exports from Central America. It is expected that production will increase but at very low rates.

In the case of coffee production in Costa Rica, it is assumed that the production will grow 1.5% during the period 1990–95, 1.0% during 1995–2000, and 0.5% in the next 5 years. This will be the result of the declining demand from developed countries for coffee because of changes in the consumer requirements, flavour, and other substitutes, i.e., those induced directly or indirectly by the biotechnological advances discussed in the previous section.

· Export The net export of the developing countries is projected to grow 0.6% per year from 1985 to 2000 (FAO, Annex V, 1988). It is assumed that the slow down of consumption and imports of the developed market economies will intensify in the next decade because of the availability of biotechnological advances that will allow temperate countries to produce coffee or some substitute.

This will contribute to a reduced demand from developed countries for imports of coffee from tropical countries and, in particular, from Costa Rica. It is assumed, for illustrative purposes, that the gradual replacement of coffee grains by other substitutes would result in a reduction of 20% in the demand of importing countries for the period 1990–95, 25% for 1995–2000, and 40% for 2000–2005.

· Consumption The internal demand for coffee is assumed to increase at the rate of about 3.0% per year as estimated by FAO's "agriculture toward 2000" scenario (FAO, Annex V, 1988). In the estimate, an increase of 15% each quinquennia from 1990 to 2000 was considered.

· Employment The estimated employment figures were based on the assumption that the coefficient person-year/tonne will decrease by 4% each quinquennia in relation to the average ratio for the period 1985–1990, i.e. 0.41 person-years/tonne. According to this scenario, a decrease in employment will result even if production and internal consumption increases at rates expected for the period considered. About 6% of person-year jobs will be lost from 1990 to 2005.

Sources: Banco Central do Costa Rica, Difras sobre producción agropecuaría: 1977–1986, San José, 1988. Production, export, and consumption for 1980–85; Statistical Abstract of Latin America: Production and area harvested; Consejo Monetário Centroamericano, Boletin Estadistico 1991, San José, Costa Rica: Exports 1987–90. My own calculations: Employment and consumption and data for 1990–2005 (see methodology).

Scenario B: In this scenario, production is assumed to depend on exports. It is considered that the relationship between consumption plus exports/total production will be held at 95%. Apart from production and related employment figures, the other variables vary as in the previous scenario.

Sources: Banco Central do Costa Rica, Difras sobre producción agropecuaría: 1977–1986, San José, 1988. Production, export, and consumption for 1980–85; Statistical Abstract of Latin America: Production and area harvested; Consejo Monetário Centroamericano, Boletin Estadistico 1991, San José, Costa Rica: Exports 1987–90. My own calculations: Employment and consumption and data for 1990–2005 (see methodology).

Based on the foregoing considerations, 28,522 workers may lose their positions, i.e., a decrease of 48% in employment could be perceived at the end of the period 1990–2005 if we consider that the export of coffee is reduced as estimated before. Even if we consider that the demand for labour is not supposed to diminish, i.e., the ratio person-year/tonne is maintained at 0.39 up to the end of the simulation period, a reduction of 45% in the labour requirements will be perceived.

Because of the lack and unreliability of existing data, it was only possible to analyze the case of Costa Rica. In spite of the limited evidence, it is possible to see that displacements and redundancies may occur as a result of biotechnology advances. If these results have a significant effect on the employment level of Costa Rica, the most productive Latin American coffee producer, it may be worse for other countries where productivity is lower and production is more labour intensive, as in the case of Honduras and Guatemala. Coffee is the most important commercial crop in terms of foreign exchange and employment generation for both countries. In 1988, around 273,503 employees were reported as being involved in the production of coffee in Guatemala. In 1987, 62,720 rural workers were involved in the production of coffee in Honduras, i.e., 8.5% of the rural labour force.

Cocoa Employment Estimates

Methodology: The same assumptions that underlined the estimation procedure for coffee employment changes (i.e., a decreasing export tendency) are considered here. The methodology is similar to that used in the previous case studied. Employment figures were, however, calculated in a different way. Employment coefficients per unit of production and hectare harvested were defined from data provided by PREALC, Panama, for the year 1989.

The employment figures for the other years of the period 1980–1990 were estimated according to data provided by official local institutions and international or regional organizations and the employment coefficients calculated. Data on the consumption of cocoa were provided by the Central Bank of Costa Rica for the period 1977–1986. The figures for 1987–1990 were calculated from the information provided by FAO (1988) that an annual growth of 3.1% for the domestic demand of cocoa in the Latin American countries is expected from 1985 to 2000.

To illustrate the magnitude of possible employment changes because of the slowdown of export and production of cocoa beans in Costa Rica, some assumptions about production, export, and consumption were made. These are discussed in the following according to the scenarios proposed.

Scenario A: In this alternative scenario, employment consequences of a reduced demand of cocoa from importing developed countries are based on estimated shifts of production volume throughout the period 1990–2005.

· Production According to the prospects for the world agriculture development toward 2000, Latin American production of crops would increase at a rate of about 2.7% a year from 1985 to 2000, i.e., below the 2.9% figure recorded from 1969 to 1984. This lower growth is attributed in large part to the prospect of slower growth of output in Argentina, Brazil, Costa Rica, and Paraguay. Moreover, gross exports of crops from Central America would expand by only 0.5/year. The slow growth in the demand of importing industrialized countries for major export commodities of the developing countries is a key constraint for the growth of their production.

In view of this panorama of depressed demand for crops in general and for export crops in particular, it is assumed that production of cocoa will expand but at very low rates An average growth of 2.0%, 1.5%, and 1.0% is, therefore, attributed to each quinquennium from 1990 to 2005, respectively. These estimates are based on the accentuated export-oriented character of cocoa production and also supported by the long-term effect of the possible biotechnological breakthroughs for this crop improvement. Any potential substitution for cocoa will be accomplished more slowly than in the case of coffee considering that "traditional breeding in cocoa has not been as extensive as in coffee" and "tissue culture techniques have not been so advanced in cocoa" (Sondahl 1991) .

· Export With respect to exports, a decrease in imports by the industrialized market economies is expected to dominate the growth prospects for exports. Exports will shrink by 20% during the period 1990–95, 25% during 1995–2000, and 30% to 2005. Saturation of consumption levels in the importing countries associated with the biotechnological prospects of displacing tropical beverage raw materials will influence the reduction in the export demand for cocoa. This reduction, however, is estimated to occur at a less sharp rate than in the case of coffee, for the reasons related to "availability of the technology" commented on before.

· Consumption The internal demand for cocoa in Latin America is supposed to continue to grow at 3.1% per year up to 2005 based on the estimate provided by FAO (1988) for the period 1985–2000. In the analysis, an increase of 10% for each quinquennium from 1990–2005 is considered.

· Employment The employment figures for the period 1990–2005 were calculated considering that the coefficient person-year/tonne will decrease by 5.0% in each quinquennium. This assumption is based on the mid-1980s tendency and on possible technological advances and improvements that may be available to more cocoa producers during the next years and alter, therefore, the demand for labour. A reduction in the labour requirements of 15% may result if similar situations are faced by cocoa producers in Costa Rica.

Scenario B: In this scenario, the production of cocoa is subordinated to the export tendency This possible situation is based on the assumption that internal consumption of cocoa will not increase as expected in the previous scenario. It is assumed now that it will continue to grow as in the previous decades up to 1995 and, after that, will stagnate because of a slow down in population growth and unfavourable economic conditions constraining growth of demand. The other coefficients and variables remain constant, i.e., they were calculated as already described.

The production will adjust to face the declining external and internal demand for cocoa. The ratio between consumption plus export production and total production is fixed at 100% as in the previous scenario. A substantial reduction in employment of about 27% may be the result of such a situation.

Sources: Banco Central do Costa Rica, Cifras sobre producción agropecuaría: 1977–1986, San José, 1988; Banco Nacional de Costa Rica, Boletin Estadistico, San José; FAO Production Yearbooks; and my own calculations (see methodology).

This scenario took into consideration the fact that more than 50% of the cocoa production in Costa Rica is directed to the internal market and only about 30% to the external market. More dramatic employment displacements would be felt by a country where cocoa is an important export crop.

Conclusions

The introduction of new plant characteristics, either by changes in food processing, such as improvements in the fermentation and enzymatic processes or by the industrial production of synthetic substitutes of plants or their components, can also lead to changes in international trade patterns by enhancing the possibilities for crop substitution.

The development of tropical plants tailored to meet the specific needs of processing countries' industry and consumers is likely to lead to overproduction, declining prices, and economic and social instability in Third World exporting countries.

Assessment of many of these effects for rural producers in developing countries is beset with difficulties considering that many of the developments are still at the stage of laboratory-based research and, therefore, information on which to base the analysis of potential effects is limited.

Estimates of the magnitude of the possible direct employment effects resulting from declining demand from industrialized countries for Third World export crops is based on the availability of labour coefficients for the selected crop productions and on the availability of information on variables such as production, export, consumption, and employment by crop for the sample countries. This quantification is, therefore, a speculative exercise beset with difficulties and shortcomings.

Besides the long generation term of the biotechnological advances that may contribute to reducing the demand of tropical exports, there is a lack of reliable data. Data on employment by crops for developing countries are not systematically collected and, when they are available, they differ from source to source. The labour intensity by crop varies also according to size of plot, cultivation techniques, and regions in the country.

Even considering these constraints, employment losses resulting from shrinkage of exports were estimated for the case of coffee and cocoa production in Costa Rica. Scenarios were built according to different assumptions on the decline of coffee and cocoa demand from importing industrialized countries and its related implications on the variables production, export and, then, employment.

The results achieved from this simulation procedure point to a very significant employment reduction for exporting countries. A decrease in the labour force requirements may accrue even if the internal consumption and production increase at the expected rates.

The net employment effect of such substitutions, however, may be positive. It will depend on the quantitative significance of these displacements, the alternative production activities adopted by the affected producers to overcome the negative effects, and the labour coefficient of the crops involved, which varies across countries and within the country. The net employment effects induced by changes in the international trade pattern of tropical export crops need to be considered on a country-based analysis to be truly valid.

The estimations and scenarios analyzed here are not predictions but rather reasoned evaluations of possible situations. A more concrete estimation procedure should include the possibility of offsetting price movements, which would alter the production and employment for certain export crops; the analysis of the country's possibility to increase production; an assessment of the import demand from developed and developing countries, which are in deficit in that commodity; and an assessment of the country's share in total world import demand based on an analysis of trends and other relevant factors that are beyond the scope of this paper.

References

· Alexandratos, N., ed. 1988. World agriculture: Toward 2000. An FAO study. Belhaven Press, a division of Pinter Publishers, London, UK.

· FAO (Food and Agriculture Organization of the United Nations). 1988. Potential for agricultural and rural development in Latin America and the Caribbean, Annex I, Economic and Social Development; II Rural Poverty, and V Crops, Livestock, Fisheries and Forestry. FAO, Rome, Italy.

· Galhardi, R.M.A.A. 1993. Employment and income effects of biotechnology in Latin America. A speculative assessment. International Labour Office, Geneva, Switzerland.

· Junne, G. 1991. The impact of biotechnology on international trade. In Sasson, A.; Coslgreni, V., ed., Biotechnologies and prospective socio-economic implications for developing countries. United Nations Educational, Scientific and Cultural Organization (Unesco), Paris, France.

· PREALC (Programa Regional del Empleo para América Latina y el Caribe). 1991. Labour market adjustment in Latin America: An appraisal of the social effects in the 1980s. PREALC, Santiago, CL. Doc. WEP Working Paper no. 357.

· Sondahl, P.J. 1991. Coffee and cocoa. In Gabrielle, J. Persley, ed., Agricultural biotechologies: Opportunities for international development. CAB International, Wallingford, UK.

· Watanabe, S. 1985. Employment and income implications of the "bio-revolution": A speculative note. International Labour Review, 124(3), May–June.