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Livestock: The Recognition of a Stepchild

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1970
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Donald J. Pryor

UNTIL RECENTLY, the ranch has been a forgotten stepchild of agriculture in most developing countries, and its potential has been even more neglected than that of the field and paddy. Now it is gaining recognition, and this may have wide implications for the food supply, nutrition, and general progress of less developed countries.

The extraordinary possibilities for growth of this agricultural subsector have already been demonstrated in a number of Latin American countries, and successful methods employed there are spreading gradually to other nations and continents. It has been learned, for example, that output can be at least doubled through investment in relatively simple improvements, provided that government policies favor expansion and that credit and competent technical services go hand-in-hand. It has also been shown that the necessary services can be provided in most cases by domestic financial intermediaries when appropriate institutional arrangements can be agreed upon.

Chile, Colombia, Mexico, Paraguay, and Uruguay have laid the foundation for an upsurge in output that can give a significant lift to their levels of nutrition, export earnings, and total economic activity within the next few years. This has been achieved through the directed financing of such elementary things as fencing, corrals, water points, a minimum of pasture and herd improvement and, above all, through better management. Ample room remains for the adoption of more advanced technology through further investments that promise high rates of return, both to the economy and to participating ranchers.

Meanwhile, some 15 additional countries in Latin America, the Caribbean, Africa, the Mediterranean region, and the Middle East have initiated programs capable of similar results within the decade. And by the time this article appears in print, one or more countries of Asia may have started on the same road, thus involving all major developing regions in this badly retarded but promising field of growth.

Long Neglect

The long neglect of livestock can be explained in part on simple economic grounds: compared with other opportunities, it has not been a very attractive investment. But psychological and political reasons may have been more important.

General agricultural expansion in less developed countries suffered until almost the mid-1960’s from a popular tendency to equate development with industrialization, and the farm, per se, with backwardness. Thus, a disproportionate share of governmental concern and of investment went to industry, and relative backwardness in agriculture was perpetuated. In most developing countries, however, the crucial role of agriculture is now well recognized and priorities have been realigned.

But within the agricultural sector, further disabilities have affected the production of livestock. In much of India, religious taboos have seemed to raise insurmountable obstacles. In large areas of Africa, constraints are imposed by tribal customs and traditional attitudes, as well as by particularly intractable problems of disease control. And almost everywhere else action to improve and expand production has been impeded by the widespread popular image of ranchers and ranching: of the rancher as a rich man, well able to take care of himself; of ranching as a highly capital-intensive enterprise occupying vast expanses and offering little promise as a mechanism for the more equitable distribution of land and income.

A Truer Picture

As with so many popular images that affect public policy, the picture is incomplete. For many political leaders, and even some economists, the image obscured certain relevant considerations:

  • • While some ranchers in developing countries are rich, and all, by definition, are relatively large holders of property, few if any have been producing as much as they could. Livestock productivity is extremely low in almost all developing countries, at a time when much of the world is said to suffer from a deficiency of high-quality protein.

  • • While it is true that investment in ranching creates relatively few jobs and is hardly a suitable vehicle for “land reform,” it can employ land for which there is little alternative use, increase and improve the food supply, augment export earnings, and give important impetus to the total development effort. In most areas, beef production on existing ranches can be increased significantly in two or three years and doubled in seven or eight. Over a longer period, using more sophisticated techniques that are already common in Australia, New Zealand, North America, and Western Europe, it can probably be increased by a much larger factor. At the same time, quality can be sharply improved. Less extensive experience indicates a similar potential for milk production, and in some areas for pigs and sheep.

  • • With a proper combination of finance, technical services and government policies, ranching can be made to pay a rate of return sufficient to reverse the tendency of both capital and talent in some countries to abandon livestock for more lucrative fields. The unimproved ranch today often pays less than a good bond, and is far more risky and demanding. It becomes much more attractive with better management and relatively simple improvements.

  • • According to most accounts, the world market for meat, especially beef and veal, is rising and likely to continue upward.

  • • As Dr. McMeekan has pointed out in his recent articles in Finance and Development, the supply of unused land that is readily suited to cattle and sheep production exceeds any foreseeable demand.

Increased Lending

Today, these factors are better recognized in a growing number of developing countries, thanks to the pioneering work of other institutions as well as to efforts of the World Bank Group. By now, the volume of both domestic and international lending for livestock development has reached very large proportions and is growing. By May 30, 1970, the World Bank and the International Development Association (IDA) had lent about $230 million for this purpose, and this had been more than matched by borrowing governments, private banks, and the ranchers themselves. Large additional sums have been committed by other institutions, notably the U.S. Agency for International Development and the Inter-American Development Bank.

The great bulk of World Bank and IDA funds for livestock has been committed only in the last three and a half years, and only the programs in Chile, Paraguay, and Uruguay have been in operation five years or more. But enough experience has been acquired to demonstrate the potential and to evolve a pattern of loan administration that seems well adapted to the livestock industry, and perhaps to others.

The Bank’s first loan for the improvement of livestock production was made in Uruguay more than 10 years ago. This early experience has been invaluable.1

In Uruguay, where ranching had long been a way of life and excellent grazing land was so clearly an important national resource, a more receptive attitude toward livestock development prevailed than in most other countries. Thus it was possible for the World Bank, beginning in 1959 in cooperation with the Government and the Banco de la República (which then was the Central Bank as well), to develop a practical and effective technique for lending in this field. It has since been extended, improved, and adapted to the needs of other countries.

There are many variations of detail from country to country. The precise form of administration depends on the structure and technical capabilities of local financial and agricultural institutions, the level of training in economics, finance, and livestock-related sciences, and the physical and technical characteristics of the industry. In this account, specific illustrations will be drawn chiefly from the World Bank’s experience in a few countries where the mechanism has been inspected personally by the author, but it should be borne in mind that each country is unique and that the pattern in every instance must be cut to fit the cloth.

Finance and Technical Services

While the approach is highly flexible, it has one invariable characteristic: finance is tied inseparably to the acceptance and effective use of technical services. This tie is maintained at every stage and every level, although the Bank’s direct involvement in providing the technical service component is normally confined to assistance in assuring sound project management, plus aid when necessary in recruiting outside consultants or specialist staff.

The central administrative feature of the Bank’s approach has been the establishment of a system of directed credit that could be operated effectively by domestic financial institutions themselves. This has been accomplished, building on the experience of other institutions, both national and international, with many innovations agreed to between the Bank Group and its borrowers. It may constitute one of the more important advances in the field of agricultural financing.

The object of the entire program, of course, is to get adequate credit to the individual rancher in a way that will assure a permanent increase in productivity commensurate with the credit, rather than a short-term windfall to the producer. This requires use of the credit for relatively long-term investments that will permit the adoption of more productive techniques of livestock management. Yet to most ranchers, this may not seem the most desirable use of funds; there are so many ways to employ capital more quickly and, in the short run, more profitably. Furthermore, only a minority of ranchers in developing countries are acquainted with modern management methods or prepared to adopt them without persuasion and advice. The availability of credit on reasonable terms provides persuasive leverage. But what of the fulcrum—a method for providing the necessary advice in a way that assures its acceptance?

Theoretically, such advice could be given by ministries of agriculture through their extension programs, but this approach has certain flaws. Few ministries of agriculture in developing countries have adequate technical field staffs, especially in livestock production, nor do they have good prospects of obtaining budgetary support to build and maintain them. Their technicians are seldom adequately trained in the financial and management aspects of agricultural production. Perhaps even more important, inherent institutional problems make it difficult, if not impossible, to devise such an arrangement that would not break or seriously weaken the essential link between finance and technical advice.

The technical services fulcrum, therefore, is built directly into the financing program itself. On the advice of the Bank, and as a condition of its lending, the técnicos, as they are known in Spanish-speaking countries, are usually employed by the public financial institution that administers the program. In a few cases, however, as in Ecuador, Honduras, and to some extent in Mexico, they are employed by participating private banks.

In every instance, the program’s success hinges on the relationship between the rancher and the técnico who helps him work out a detailed investment plan that becomes the justification for his loan, advises him on technical and management questions, and visits him regularly to assure the timely and effective execution of the plan.

Thus, together with appropriate policy commitments by the government, which will give the rancher a credible inducement to invest, and administrative arrangements to insulate lending decisions from political or other nontechnical influences, the recruitment, training, and supervision of technicians to provide these services constitute the most critical factor in the program.

Institutions in a few countries, such as Mexico, are well able to perform these functions with locally recruited personnel. There, it is only necessary for the Bank, in its loan negotiations, to reach agreement with the government on the principles, standards, and administrative methods to be employed. But these occasions are rare. In the more usual situation, it is necessary to require the employment of internationally recruited specialists to supervise this aspect of the operation until an adequate domestic staff has been trained.

Thus in Bolivia and Paraguay the technical staffs are headed by specialists recruited in Argentina and New Zealand, respectively, on the advice of the Bank and with its assistance. In Colombia, which has a larger and more complex program, the Technical Director and two regional Chief Technicians are recruited from abroad; here, the Technical Director is an Australian. In all three countries, the director is not only responsible for the recruitment, training, and supervision of técnicos but also must give his approval of the ranch development plan before the consideration of each loan proposal; no plan he recommends may be rejected except on the basis of the borrower’s creditworthiness. He also sits on the committee that makes the final loan decision, the composition of which is agreed to between the Bank and the government.

Success of the System

In practice, this system has produced more impressive results, and in a shorter time, than staff members of the World Bank’s Agriculture Projects Department considered likely when they appraised the projects for consideration by the Bank and IDA. Paraguay offers a good example. By last fall, loans had been made under the first of three IDA credits to Paraguay for the improvement of nearly 700 ranches with 2,000,000 head of cattle, or one third of the country’s national herd. Both commitments and disbursements to ranchers were at least a year ahead of the appraisal mission’s forecasts, and less than 310 of 1 per cent of interest and amortization payments due to the National Development Bank were behind schedule.2

In terms of production, sample data gathered a year ago from 50 ranchers who had completed a full two-year investment program showed that numbers of cattle had increased by an average of 30 per cent. The liveweight of animals sold for slaughter had risen by 55 pounds or more, an average increase in weight of more than 7 per cent.

These, of course, are rough averages taken from a sample that may not be representative. Specific examples may be more revealing. Two involve small Paraguayan ranchers who were involved in a struggle for existence when the IDA program began; the other illustrates the short-term potential of a well-managed, medium-sized ranch when adequate finance and sound technical guidance are available simultaneously.

Examples in Paraguay

Fifty-five kilometers southeast of Asunción Francisco Talavera, 32, has a spread of-1,300 acres—a very small ranch by Paraguayan standards. He borrowed about $5,000 under the IDA program three and a half years ago, with which he carried out an extremely modest program of improvements on the advice of Royden M. Gallagher, the New Zealander who serves as Technical Director.

At that time, he had 300 head of cattle and 5 sheep, and was branding only about 25 calves a year. He relied exclusively on natural, virtually unmanaged pasture. Each winter his animals lost much of the weight they had gained in the summer and fall, partly owing to deficiency in the natural pasture, and those with the least resistance died. Three years later, Mr. Talavera had more than 600 cattle, including about 100 breeding cows. He claimed an effective calving rate of more than 95 per cent, which is extremely high. Last winter, using one artificial pasture of 15 acres and feeding bone meal as a dietary supplement, he had no deaths and little loss of weight.

During the same period, Mr. Talavera’s brother-in-law and neighbor, Oscar Acuña, also began to prosper. He borrowed about the same amount, with which he built a corral and essential fencing and purchased 43 breeding heifers. Starting with 143 head of cattle, 14 sheep, 6 goats, and 5 milk cows, he now has 250 adult cattle, 97 sheep, and 77 goats. In 1966 he branded 25 calves; in 1969, 100. He milks 35 cows, and sells both milk and cottage cheese. And last fall he opened a small meat market in Asunción, “El Mercado Moderno,” which he supplies in part from his own herd.

Economically, Mr. Talavera now says things are improving “poco a poco.” “It’s just as Mr. Gallagher told me: If you work hard, you can float. But you have to work hard.” Both he and his brother-in-law are floating now. And if all other ranchers in Paraguay had done as well, the country’s production of livestock would have more than doubled.

Farther east, in the midst of what looks from a low-flying plane like an endless swamp alive with birds of every color, Jorge Luis Saccarello has created “Belén,” one of the most progressive ranches in Paraguay. Starting in 1954 with virtually nothing but 17,300 acres of swamp and a few broken-down fences, he had built it up by 1966 to the point where it could carry 2,000 head of poor cattle averaging 780 pounds at four years

In 1966, Mr. Saccarello borrowed nearly $48,000 under the IDA program, with which he carried out an investment plan agreed to in consultation with Mr. Gallagher and his chief Paraguayan técnico, Dr. Miguel Angelo Cano, a veterinarian. He now has 5,000 head of cattle averaging 1,000 pounds at three years of age. His usable land carries one animal on 2.5 acres, as against 9 acres when he began, and he expects this to drop to 1.25 acres within the next two or three years. Each year he is able to sell between 900 and 1,000 head, a figure he could double if he had enough cattle to feed.

And Elsewhere

On an inspection tour through the heart of Latin America, I found many similar examples in Bolivia, along the humid northern coast of Colombia, and in the tropical expanse of southeastern Mexico, where an intensive new Bank-financed program is now gather mg momentum.

In the hot lowlands of Bolivia’s Beni River region, ranchers using funds under a small IDA credit program beginning late in 1967 have shown remarkable determination and skill in overcoming natural obstacle« of jungle and swamp and in adopting the technical improvements on which their loans are predicated.

In Bolivia, as in Paraguay, IDA’s first credit was exhausted much sooner than expected. A second was approved late last year, to maintain the program’s momentum while IDA considered a more comprehensive project in the Beni Department and for the expansion of sheep and wool production on the high plateau, the Altiplano. Side by side with this program, the Inter-American Development Bank (IDB) approved a loan to finance improvements on beef cattle ranches m the Departments of Santa Cruz, Chuquisaca, and Tarija. At the same time, steps to improve the country’s inadequate, poorly organized transport, processing, and marketing systems for livestock and livestock products were under consideration.

Colombia is also about a year ahead of schedule in carrying out its program to raise production of beef, milk, sheep, and wool. Since 1967, some 700 ranch development plans have been approved, involving investments of about $25 million. Complete statistics are not yet available, but information on 65 ranches in eight Departments of the north central and Caribbean coastal area give a rough indication of results so far achieved.

Taken together, their carrying capacity had been nearly doubled by the end of 1969, and the actual number of animals had risen by 60 per cent. Dairy farmers in the program had increased their average daily output of milk per cow from three or four liters a day to seven or more. In fact, Oscar Rodriguez, whose place fronts the road to Cartagena southwest of Barranquilla, is getting 11 liters a day, not counting milk taken by the calves during the 40 days before weaning. The calf gets one teat, while the other three supply the market.

Progress in Mexico

Similar stories can be told of achievements in Mexico, where the largest loan the Bank has ever made for agricultural credit was approved last December—$65 million toward a nation-wide investment program totaling $200 million, predominantly for livestock development. It provides for the vast extension, over a five-year period, of a program that began late in 1965 with a loan of $25 million.

The Bolivian livestock program, in which the activities of many agencies interlock in mutually supporting ways, illustrates the importance of international cooperation in development.

For example, the effectiveness of IDA’s program is enhanced because of previous support and technical assistance provided by the U.S. Agency for International Development in reorganizing the Agricultural Bank along more efficient lines. Proposals for new lending include agreement by IDA, IDB, and the Agricultural Bank that the project director in charge of the IDA program will also administer the IDB project. The IDA project itself was originally prepared and appraised with the aid of specialists of the Food and Agriculture Organization (FAO) of the United Nations, under FAO’s regular cooperative program with the World Bank Group. FAO is also carrying out a project, financed by the United Nations Development Program, to conduct an agricultural census in Bolivia and to develop some sorely needed basic statistics. And a British mission on tropical agriculture has been conducting a study of special Bolivian problems, some of which may have an important bearing on the future growth of cattle and sheep production.

The main story in Mexico, however, is not so much of impressive production results achieved in the last four and a half years as of that country’s remarkable recent progress in gearing its financial institutions to deal effectively with the problems of agricultural development. While this is properly the subject of a full article, perhaps certain aspects of the story will fit into the space available here. It begins and ends with the private banks.

Private bankers—and many public financial institutions, for that matter—have not been immune to the infectious belief that agriculture is a poor risk, compared with industry. This has been especially true in Mexico, where land reform policies are fixed in principle but have sometimes been uncertain in practice; and these uncertainties have tended to cloud the future of holdings large enough to lend to on an economic basis.

On the other hand, the Mexican Government and the Central Bank have pursued a policy of encouragement to the private banking system in financing developmental enterprise. Not surprisingly under the circumstances, this policy has borne less fruit in agriculture than in industry, and least of all in livestock.

While the future of large ranches suited to arable agriculture is still not entirely clear, much of the former uncertainty has been dispelled. Moreover, the Government is fully aware of the cost entailed in failure to develop the potential of its grazing lands.

In the normal situation, growing population and incomes result in rising demand for meat, which is met by increased production or imports. In Mexico, as in many other countries, population has been growing faster than livestock production, and per capita income has also been rising. The country needs the foreign exchange it earns through cattle exports and can hardly afford to import meat that it can readily produce. Yet per capita consumption of meat is extremely low and demand is rising, despite high prices that defy efforts to control them. Pressure on supply is growing. If these trends were to continue, further sacrifice of export earnings would be necessary to meet domestic demand.

The Mexican response has been an aggressive combination of incentive, demonstration, and technical assistance, which is beginning to show impressive results. In part, it has grown out of consultations with the World Bank in connection with its livestock loans in 1965 and 1969, as well as from a long history of pragmatic experimentation with financial mechanisms to speed development.

The main incentive, aimed at involving private banks in livestock development lending, is provided through the rediscounting facilities of the Guarantee and Development Fund (the Fondo). The demonstration is provided by the National Agricultural and Livestock Bank, also a government institution, and its seven regional banks, which make direct loans to ranchers. These operate in much the same way as private banks, although they specialize in lending for livestock and agriculture and their loans are tied to technical services. Approved loans qualify for rediscounting by the Fondo, a facility which is also open to private banks.

The main technical assistance component, which also has an important demonstration effect, is provided by the technical staff of the Fondo—a young, competent staff of some 300 agricultural and other specialists, many of whom are also trained in financial, accounting, and management problems of ranching. The Agricultural and Livestock Bank, however, also has its own staff of technicians, at least half of whom have taken additional training given by the Fondo to qualify them for preparing and supervising ranch investment plans to be financed under the World Bank program.

While relatively sophisticated, all of this is in the general Bank and IDA pattern of technical assistance as an integral part of financing, except that here the total function at the operating level is performed by domestic personnel. The important new departures are in the growing participation of private credit institutions—well over 100 are involved—and in the realization by progressive bankers that agricultural development is good business when finance and technical services go together. Today the more progressive banks, such as Banco Nacional de Mexico and Banco de Comercio, have organized their own technical staffs to analyze and evaluate agricultural credit proposals.

This trend is worth watching. If such practices continue to spread and be fruitful, they may prove to have opened another avenue to more dynamic growth. In part, this will have been accomplished through the belated recognition of a long-neglected stepchild.

Unfortunately, the Uruguayan program’s demonstration effect for other countries has been limited by economic stagnation through much of the 1960’s and by policies that inhibited investment to improve livestock productivity. It is hoped that Uruguay’s economic stagnation may be ended by recently adopted policies and by a substantial increase in beef exports that began in 1968.

While the government benefits from the “soft” terms of IDA’s credits, the rancher repays his loan on conventional terms: in this instance at 9 per cent over 12 years.

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