Capitalizing on opportunities of changing agricultural markets for inclusive rural development:...

8/9/2019 Capitalizing on opportunities of changing agricultural markets for inclusive rural development: lessons from case st

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Capitalizing on opportunities of changing agricultural markets for inclusive rural

development: lessons from case studies in China and Brazil

Octavio Damiani

Paper presented at the Conference onDynamics of Rural Transformation in Emerging Economies

April 14-16, 2010 New Delhi, India

Summary

Although non-traditional, high-value crops and animal products have been viewed as a

possibility for reducing rural poverty, several authors have argued that small farmers have faced

great difficulties to produce them and that their impacts on employment have not always been

positive, with a high proportion of seasonal employment, low wages, and poor working

conditions..

This paper focuses on the role of non-traditional, high-value agriculture in the reduction of

rural poverty, analyzing cases in Brazil and the Peoples Republic of China that have been

characterized by a high participation of small farmers, creation of permanent jobs, increasing

wages, and improvement in working conditions. The cases studied were: a) the southern portion

of the Yunnan province in China, where the rural transformation resulted mainly from the

development of cut flower and tobacco production among small farmers; and b) the Petrolina-

Juazeiro region in Northeast Brazil, where the rural transformation took place as a result of the

expansion of irrigated fruits (mainly mango and grapes), with relatively low participation of small

farmers but great generation of wage employment, increase in wages, and improvement in

working conditions.

In both cases, the development of high value crops was characterized by an active role of

government and for close relations between the public and private sectors. These relations

involved collaboration and partnership, as well as supervision and control. Some of the

government interventions involved creating conditions for the development of the high value

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crops and other economic activities, while others targeted specifically small farmers in order to

promote a more inclusive model of rural development.

Contract farming between processing and marketing firms and small farmers was a key

form of organization in some of the high value products, showing mixed results. In Yunnan, it

facilitated the marketing of small tobacco growers and gave them access to technical assistance

and credit. In contrast, contract farming in Petrolina-Juazeiro was associated with non-

compliance of agroprocessing firms and weakness of small farmers to negotiate and enforce

contracts.

Producer and exporter associations played an important role in the positive social effects

generated by the growth of high value crops. This role related to economies of scale in the

marketing of the products and to the implementation of monitoring systems to control pests and

ensure the compliance of their members with quality standards. This evidence suggests that the

development of small farmer organizations focused on solving these specific problems can play

an important role in generating a socially inclusive model of rural development based on high

value crops.

The evidence presented here suggests that global standards in the production of high

value crops may bring positive social impacts. In Petrolina-Juazeiro, global standards had an

influential role in the elimination of child labor, the high participation of women in the labor force,

and the improvement in working conditions. In addition, they played an important role in

promoting the organization of exporters and small farmers. In Yunnan, the expansion of flowers

and tobacco created a source of income among small farmers and increased the demand for

skilled labor, being instrumental in the reduction of rural poverty.

Finally, the experience of the cases analyzed here shows that high value crops may bring

great positive effects on wage labor, increasing the demand for wage labor, contributing to the

upskilling of labor, increasing the proportion of permanent workers and women in the workforce,

paying higher wages, and ensuring continuous improvements in working conditions. These

positive effects relate with the particular features of the crops and the presence of strong rural

workers unions that are able to negotiate improvements with employers.

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I. Introduction

Changes in domestic and global markets are creating opportunities for the transformation

of rural economies in developing countries based on a new agriculture characterized by non-

traditional, high value products. Rising incomes, urbanization, and a higher participation of

women in labor markets have increased the demand for a wide range of higher-value primary and

processed products.1 In industrialized countries, consumption patterns have increased the

demand for high-quality and healthy foods, generating markets for differentiated agricultural

products, such as premium quality coffees, organic, and Fair Trade products. 2 Consumers are

also demanding fresh fruits and vegetables all-year-round, and the demands for food safety have

increased significantly. Coincidently, marketing systems of food products have been changing

both in industrialized and developing countries, with an increasing relevance of supermarket

chains, food processing and food service industries.3

The rising demand for high value products have created opportunities in developing

countries. Exports of horticulture, livestock, fish, cut flowers, and organic products now make up

47 % of all developing-country exports, far more than the 21 % for traditional products such as

coffee, tea, and cotton (World Bank, 2007). More than 90 % of the output from aquaculture,

which has become the worlds fastest growing food-production sector, with an annual average

rate of 10 percent since the mid-1980s, is produced in developing countries.4 Brazil, Chile, China,

and Mexico dominate nontraditional agricultural export markets, but many other countries,

including some in Africa, are now gaining presence in these markets.5

Although high value products have been viewed as a possibility for generating

employment and reducing poverty in rural areas, several authors have argued that small farmers

1Consumption patterns are shifting away from cereals, roots, tubers, and pulses to livestock products, vegetable oils,

fruits, and vegetables. For example, the consumption of milk in India nearly doubled between the early 1980s and late

1990s. Processed foods account for about 80 % of world food sales, estimated at US$ 3.2 trillion in 2002 (World Bank2007).2

The market for organic produce has grown strongly in Europe (retail sales of US$ 10.5 billion in 2003), the United States

(US$ 12 billion), and Japan. See World Bank (2007).3

Reardon and Berdegu (2006) argue that retail food sales in supermarkets had exceeded 50 % of total retail food sales

in many Latin American countries and in major urban centers elsewhere by the early 2000s. Also see Dolan andHumphrey (2000), Dries et al (2004), Farina (2002), Reardon and Berdegue (2002), Reardon et al (2003 & 2006), andWeatherspoon, D.D. and T. Reardon, (2003).4 Aquaculture now represents more than 30 % of total food-fish production (World Bank 2007, p. 60).5

Some examples include the production of vegetables in Senegal, Guatemala, fruits in Chile, Costa Rica, and Peru, fish

in Uganda, and flowers in Kenya, Ecuador, and Colombia.

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have faced great difficulties to produce the non-traditional, high value crops and animal products,

and that these products have not had positive impacts on employment. .6 First, the new markets

demand meeting high quality standards and timely delivery, which frequently involve managerial

skills that small farmers do not have and the application of technologies that involve high

investments and production costs. Second, the access to markets of many non-traditional crops

require a large scale of production, so they benefit mainly larger producers and companies.

Third, technologies for producing high value products require specialized technical assistance

that is too expensive for small farmers. Fourth, high value agriculture has been criticized for not

demanding substantial amounts of labor or doing so during certain parts of the year, for paying

low wages, and not ensuring good working conditions.

While governments and international agencies have made efforts to help small farmers

improve their technologies and marketing of production, results have often disappointing. Projects

targeting small farmers have often been ineffective, suffering among others implementation

problems, mainly because they were too complex and difficult to coordinate. Larger farmers

frequently took the most advantage of projects, credit, and technical assistance.

This paper focuses on the role of non-traditional, high-value agriculture in rural poverty

reduction, analyzing cases of rural transformation based on high value crops in Brazil and the

Peoples Republic of China. The cases studied were: a) the southern portion of the Yunnan

province in China, where the economic transformation resulted mainly from the development of

cut flower and tobacco production among small farmers; and b) the Petrolina-Juazeiro region in

Northeast Brazil, where the economic transformation took place as a result of the expansion of

irrigated fruits (mainly mango and grapes), with relatively low participation of small farmers but

generation of wage employment, increase in wages, and improvement in working conditions.7

6 For example, Jaffee (2003) and Minot & Ngigi (2004) have shown evidence that horticulture exports in African countries

have been increasingly concentrated by large farms, excluding small farmers.7

The case of Petrolina-Juazeiro is based on Damiani (1999 & 2003). The author carried out three additional visits to the

region of one week each between September 2006 and December 2007, in order to update data and evaluate economicand social changes. The case of Yunnan is based partly on fieldwork carried out by the author as a part of a studyfocused on rural households strategies to exit out of poverty implemented by the Operations Evaluation Department ofthe Asian Development Bank during 2004 and 2005, and whose results are presented in Asian Development Bank (2006).Also see Damiani (2006 & 2008).

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While Petrolina-Juazeiro in Brazil and Yunnan in China are very different in their natural

resource base and their social and economic features, they have in common to have experienced

high levels of poverty. The rural transformation in both cases suggests that high value crops may

offer opportunities for an inclusive rural transformation, with high participation of small farmers

and the creation of wage employment. In both cases, small farmers did face many problems to

adopt the new high value crops. However, the global standards associated with the high value

products not always played against the possibility of achieving an inclusive rural transformation.

Just the opposite, they sometimes helped achieve positive social impacts, including the

strengthening of small farmers and wage workers organizations, the elimination of child labor,

increasing participation of women in the labor force, increasing wages, and improvement in labor

conditions. The two cases also show an active role of government, not only in creating conditions

for the development of the high value crops, but also in promoting a more inclusive model of rural

development.

II. Rural transformation in Yunnan: expansion of the cutflowers and tobacco with high

participation of small farmers

Yunnan is one of the five southern boarder provinces of China, neighboring Vietnam,

Laos, and Burma. With a GDP per capita of CNY 12,587 (US$ 1,842) in 2008, it is one of the

poorest and least industrialized provinces of China, with an average GDP and rural income per

capita that are two thirds of the national average. Yunnan is characterized by a great diversity of

topography and climate, going from alpine mountains in the north to hills in the south. By 2007,

the total population reached over 44.8 million, with ethnic minorities totaling about 17 million (38

% of the population) and dominating in rural areas.8 It was estimated that 2 million people were

poor, with the vast majority living in rural and remote areas.

Since the early 1990s, rural areas in Yunnan experienced an extraordinary

transformation, with tens of thousands of families that traditionally cultivated subsistence crops

getting out of poverty by shifting to high-value crops, notably floriculture (flowering and

8 Of the 56 ethnic groups living in China, 25 can be found in Yunnan.

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ornamental plants) and tobacco. Tobacco is the most important export of Yunnan and the main

source of revenue of Yunnans provincial government, whereas cut flower production has also

become a major agricultural export..9 Both crops have been cultivated mainly by small farmers.

Although flowers have been grown for a long time in Yunnan, commercial production

started in the late 1980s and developed rapidly to make Yunnan rank first in China in the

production of cut-flowers. By 2008, Yunnan accounted for 50 % of the total production of cut

flowers in China, producing annually an output of CNY 17.6 billion (US$ 8.8 billion) and exports of

US$ 100 million to 40 countries.

Meanwhile, tobacco cultivated in Yunnan was already well-known in the 1950s allover

China for its excellent quality. However, the industry only started to develop in the 1970s.

Nowadays, Yunnan is the most important producer of tobacco in China, producing 800,000 tons

of flue-cured tobacco and more than 380 million cigarettes annually, which represent 30 % of

Chinas output of flue-cured tobacco and 18 % of the countrys output of rolled cigarettes. About

70 % of the provincial tax revenues come from cigarette companies. More than 2.3 million small

farmers are involved in the cultivation of tobacco.

The cut-flower industry

The commercial production of cut flowers in Yunnan started in the late 1980s in a small

village called Dounan, located close to the city of Kunming (the provincial capital city). Most of the

households used to produce vegetables that were sold in Kunming. Iin 1988, the prices of

vegetables fell sharply, so most farmers suffered great losses. This led farmers to start

cultivating flowers, and other farmers in other parts of Yunnan soon followed the example. By the

early 2000s, Yunnan had become the most important producer of cut flowers (mainly carnations,

lilies, and roses), producing annually 5.3 billion stems, exporting USD 100 million, and accounting

for close to 50% of the sales in Chinas domestic market and 80% of the sales in the major

9 Floriculture or flower farming includes the cultivation of flowering and ornamental plants. Cut flowers are those cut fromthe plant and sold in bunches or as bouquets with cut foliage. In addition to cut flowers, floriculture crops include beddingand garden plants, flowering plants, foliage plants or houseplants, and cut cultivated greens.

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markets (NABSO, 2009). The main markets are Asian countries, especially, Japan, Singapore,

Thailand, Australia, Malaysia and South Korea.

It is estimated that cut flowers are cultivated by 21,000 small farmers in 7800 hectares.10

Cut flowers are produced mainly in Kunming and Yuxi in the central part of the province, with new

areas in the districts of Jinhong, Yuanjang, and Hekou in southern Yunnan. Production of flower

bulbs is located mainly in the districts of Lijiang and Zhongdian in the northwestern part of

Yunnan, while the districts of Jinhong, Yuanjiang, and Hekou also produce tropical orchids and

indoor foliage plants. The production of rose and of local varieties are expanding into new areas,

such as the prefectures of Chuxiong, Qujing, Dali, Baoshan, Honghe, and Xishuangbanna.

The marketing of flowers involves three different channels: direct sale of producers to

their buyers; sale to traders at the Dounan wholesale flower market located in the Chenggong

County; and auctions that take place at the Kunming International Flora Auction Trading Co. Ltd.

Impacts of cut flower cultivation on poor households

The development of cut flower production brought a dramatic increase in rural incomes.

Until the late 1980s, producers of cut flowers were small farmers who grew tobacco and

subsistence crops. The cultivation of tobacco generated about CNY 1000 per mu, which

represents CNY 15,000 (USD 2.196) per hectare annually. Cut flower production increased the

net revenue to CNY 15,000 per mu, which represents CNY 220,000 (USD 32,210) per hectare

yearly.11 Tobacco producers cultivate an average of 1.5 hectares of tobacco, while farmers

producing cut flowers cultivate in average 0.36 hectares. Thus, the average yearly income of a

tobacco producer can be estimated at CNY 22,500 (USD 3,294), while cut flower producers

receive in average CNY 79,200 (USD 11,596). Villages like Dounan have become the richest in

the Yunnan Province.

10The total area dedicated to floriculture (including cut flowers) is estimated at 34,000 hectares (NABSO, 2009). In

addition to cut flowers producers, the flowers value chain includes other 55,000 small farmers and more than 1000 flowerenterprises dedicated to planting, processing, marketing, sale of equipment, and of gardening facilities. These enterprisesinclude state-owned companies, private-owned companies, foreign companies, joint ventures, and stock-marketregistered companies. There are about 370 cooperatives of flower growers.

11 See NABSO (2009) and Conrad (2009)

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The tobacco industry

While there are records of ancient tobacco plantation (as old as 1,700 years ago),

modern tobacco production started at the times of World War II, using varieties imported from the

United States.12 In the early 1950s, Yunnan tobacco had become well-known for its excellent

quality, being considered as among the best in China. However, all tobacco was industrialized in

other provinces of China.

In the 1970s, new cigarette factories started to be constructed in the main tobacco

producing areas of Yunnan, and at the end of the decade, nine plants had been built with 10,000

workers. By the late 1990s, the Yunnan Province had become the most important producer of

tobacco and one of the main producers of cigarettes in China. By 2000, seven of the top 10

enterprises of the Chinese tobacco industry in terms of the quantity of cigarettes were Yunnan-

based enterprises. In 2009, the production of flue-cured tobacco reached 878,000 tons.

The tobacco industry is organized around government-owned tobacco processing

companies, among them the Yuxi Hongta Tobacco Group Ltd, which is part of a larger

conglomerate (the Hongta Group) and the most important tobacco processing firm in Yunnan.

The Yuxi Hongta Tobacco Group normally operates signing contracts with individual small

farmers, providing them with technical assistance and inputs and purchasing all their production

Until the mid-1990s, the suppliers of Yuxi Hongta Tobacco were small and medium-size

farmers in counties of the Yuxi Prefecture, where the company had its main processing facilities.

After carrying out some studies, the company identified that climate and soil conditions in

mountain areas in the south of Yunnan were exceptionally good for tobacco, so it decided to

expand the tobacco cultivation there based on similar contractual arrangements with small

farmers. This task was not easy, as farmers grew traditional crops (mainly rice) and had small

livestock (chicken, ducks, and pigs), all of them mainly for the households consumption. Some

families did have experience with tobacco cultivation, but they used outdated varieties and

obtained low yields.

12 See Maeda et al (2003).

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By 2006, these production patterns had changed dramatically. Most farmers had been

able to start growing tobacco, usually maintaining the production of paddy rice under irrigation

and growing tobacco in dryland areas. A low proportion had started to cultivate tobacco under a

rotation with wheata production system aimed at avoiding the negative effects of monoculture.

Impacts of tobacco on poor households

The cultivation of tobacco had substantial positive impacts on poverty reduction, as it

provided a new source of cash income to rural households that used to produce mainly for family

consumption. Interviews carried out to households in Yuanjiang, Mojiang, Simao, and Meng Lian,

poverty was higher than 30 %, but it had decreased substantially. The average income of poor

households ranged from CNY 625 to CNY 865 per year, which is low even if compared with the

official poverty line of USD 0.66 per day used in China. Applying the definition of poverty used by

the rural households themselves (based not only on enough food to eat but insufficient cash

income to cover other needs considered basic), the proportion of poor households varied greatly

between almost no poor in the better-off villages to close to all in the poorest ones. According to

official statistics, rural poverty in Yunnan reached approximately 23 % in 1997, falling from 41 %

in 1985. 13

Most households interviewed in the tobacco producing villages had been able to exit out

of poverty based both on their own definitions of poverty and on the official poverty line. Before

growing tobacco, most families did not to have a source of cash income, so tobacco made

possible to generate an average cash revenue of CNY 1,000 per Mu (1 Mu = 666 Square

meters). Most (including also those who were still poor) responded that their life was better than 5

or 10 years earlier.14 About half of the farmers had been able to accumulate some physical

capital, especially drying rooms for tobacco and one or two buffaloes to help working the land,

and a lower proportion had purchased motorbikes.

13Official estimates of poverty in China are based on the government's austere poverty line equivalent to USD 0.66 per

day. The World Bank has developed an international poverty standard of USD 1 per day (in 1985 purchasing power paritydollars) for cross-country comparisons. Estimates based on the international poverty standard of USD 1 per day indicatesubstantially greater numbers of absolute poor both in Yunnan and in China as a whole, but confirm the continuingremarkable decline in poverty.

14 See Asian Development Bank (2006).

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The role of tobacco cultivation in poverty reduction become even more important

because the vast majority of rural households did not consider migrating to urban areas as a

possible livelihood strategies, as it characteristic in many rural areas in China, mainly due to very

low education levels, language barriers, and lack of social connections in urban areas. .

III. Rural transformation in Petrolina-Juazeiro: expansion of irrigated fruits with job

creation, increase in wages, and improvement in working conditions

Petrolina-Juazeiro is a 53,000 km2 and 510,000 inhabitants area in the states of Bahia

and Pernambuco that is part of the So Francisco River Basin in Northeast Brazil.15 In contrast to

Northeast Brazil, a 1.5 million km2 region with a semiarid climate and periodic droughts that is the

poorest of the country, Petrolina-Juazeiro is characterized by a dynamic irrigated agriculture,

agro-processing industries that is well-known in Brazil as the main producer and exporter of high

quality fruits.

Until the 1960s, the land was concentrated in landowners who produced a low

productivity livestock, while landless tenants living in their land produced cotton and subsistence

crops (mainly corn and beans) under sharecropping relations. While sharecroppers cultivated

cotton usually interplanted with corn and beans, landowners grew cattle in natural pastures and in

the cotton leftovers from the harvest. Sharecroppers usually received land and inputs in

exchange for a share (usually 50 %) of the production. In addition, they were often dependent on

the landowners to cover essential needs, such as medicines and medical treatment. More than

70 % of the adult population in rural areas was illiterate.

By the mid-1990s, these products had been replaced by a dynamic irrigated agriculture

that produced high value crops, including mango and table grapes mainly for export and other

crops mainly for the domestic market (sugarcane, guava, banana, coconut, and others). The

area with irrigation in Petrolina-Juazeiro currently reaches 120,000 hectares, out of which 45,000

hectares include what is known in Brazil as public irrigation projects and 75,000 hectares were

15The region as defined here includes three municipalities in the state of Pernambuco (Petrolina, Santa Maria da BoaVista, and Lagoa Grande) and three in the state of Bahia (Juazeiro, Casa Nova, and Cura).

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located out of these projects.16 Petrolina-Juazeiro accounts for 98 % of Brazils exports of grapes

and 92 % of mango, with a total value of US$ 110 million annually that represent around 40 % of

the Brazils exports of fruits.

Impacts of irrigated crops on poor households

The development of irrigated agriculture in the Petrolina-Juazeiro region had significant

impacts on the reduction of poverty. Although public irrigation projects included not only

medium-size and large firms, but also small farmers, the main mechanism through which irrigated

agriculture contributed to poverty reduction was by creating wage employment. Irrigated fruits

have been far more labor intensive than the previously dominant products (beef cattle and

dryland production of subsistence crops). In addition, while traditional crops were cultivated only

during the rainy season, the irrigated crops have been grown during larger periods within a year

and sometimes all-year round, thus increasing the demand for labor during the dry season.

By 2007, irrigated agriculture in Petrolina-Juazeiro employed approximately 140,000

wage workers, being the most important economic activity in the region in terms of employment.

This number represented 50 times the number of small farmers in irrigated areas (2,800 in a total

area of 18,500 hectares).17 About two-thirds of the workers are skilled workers, trained in a

variety of skills including managing irrigation equipment, fruit packing, pruning trees, among other

tasks, receiving higher wages and often premiums for productivity. An unusually high proportion

of the wage workers (about 60 %) are women, more than 50% are employed in a permanent

basis, and most are registered in the social security system. The gross value of wages paid in

irrigated agriculture in Petrolina-Juazeiro can be estimated at about R$ 827 million annually, out

16

Public irrigation in Brazil is understood as the construction of irrigation projects by agencies of the federal or stategovernments. In these projects, the concerned agencies expropriate land appropriate for irrigated agriculture and buildwater reservoirs, pumping systems, and delivery canals. The land is divided into plots, where on-farm irrigationinfrastructure is built, including internal pumping, pipelines, sprinklers, and drainage systems. In addition, public irrigationprojects include social infrastructure (schools and health posts) and housing for small farmers. Once these works arefinished, the land is leased to producers and the operation and maintenance of the irrigation infrastructure is transferred towater user associations.17

Small irrigators are concentrated in the government-sponsored irrigation projects, in which CODEVASF (the agency in

charge of implementing public irrigation projects) provided part of the area in its irrigation projects to landless families thatreceived each an area of six hectares, on-farm irrigation infrastructure (pumps and canals internal to the farm anddrainage systems), and a house, as well as training in irrigation technologies and extension services.

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of which R$ 600 million are net wage payments to workers and R$ 270 million are social security

benefits.

Rural workers involved in irrigated agriculture in Petrolina-Juazeiro receive wages higher

than the legal minimum wage in Brazil and the average wage of most Northeast rural workers.

These wages have been regulated since the early 1990s by labor contracts agreed between the

rural workers unions and Valexport, the association of commercial growers that represented

employers in contract negotiations. The first contract signed in 1992 established a minimum

wage 10% higher than the legal minimum wage in Brazil. Annual contracts signed during the

1990s included further improvements (e.g., the contract signed in 1998 established a minimum

wage 21.7% higher than the legal minimum). By December 2007, the minimum monthly wage

paid to rural workers was R$ 390, i.e. R$10 higher than the legal minimum wage. Most workers

receive higher wages for overtime work, with a wage rate per hour of overtime work being higher

than the normal rate. Workers performing tasks during night hours received an additional 25 %

wage rate. In addition, approximately 75 % of the workers in irrigated agriculture are registered

and receive social security and medical insurance, which represent about 50 % on top of the

wage. Workers handling pesticides receive a wage rate 20 % higher than the normal wage rate.

Growers frequently pay their workers higher wages than the minimum agreed in the labor

contracts plus additional benefits, in order to keep their skilled their workers and reduce the

transaction costs involved in searching and training new workers. Improvements in wages and

labor conditions led growers to introduce some labor-saving technologies, but this was limited by

the difficulties of introducing mechanization in crops like table grapes and mango.

IV. Key governance arrangements for the production of high value crops

Relations between the public and private sectors

The development of high value crops in Yunnan and Petrolina-Juazeiro were

characterized by an active role of government and for close relations between the public and

private sectors. These relations sometimes involved collaboration and partnership, while other

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times were characterized by supervision and control. Some of the government interventions

involved creating conditions for the development of the high value crops and other economic

activities, while others targeted specifically small farmers.

In both cases, the public sector invested heavily in infrastructure, carried out agricultural

research, and provided credit in advantageous conditions for investments and working capital for

the high value crops. In Petrolina-Juazeiro, the Brazilian Agency of Agricultural Research

(EMBRAPA) carried out research about the feasibility of different crops under irrigation, and the

So Francisco Basin Development Agency (CODEVASF), an agency of the Federal Government

with responsibilities on the development of the So Francisco River Basin, constructed six public

irrigation projects with a total of 45,000 hectares, establishing a mix of firms and small farmers

(see table 1). CODEVASF also provided financial and technical support to the creation and

strengthening of exporter associations (Valexport and the Brazilian Grapes Marketing Board) and

small farmer cooperatives, even through grants to support the construction of packing and

storage facilities, and it financed training and extension for small irrigators. The Bank of

Northeast Brazil provided credit for investment and working capital.

In the case of Yunnan, the central and provincial government made important

investments in power generation and transmission and roads, railways, and water transport

projects linking Kunming with other parts of Yunnan and with neighboring countries. Having

borders with Myanmar, Laos, and Vietnam,18and being part of the Mekong River Valley, Yunnan

has been pointed out by the China government as a main part of Chinas participation in the

Greater Mekong Subregion Cooperation Program (GMS), a regional cooperation mechanism

created in 1992 by the Asian Development Bank to promote cooperation among the neighboring

countries in infrastructure and other development projects. This was coincident with a policy of

friendship and partnership of the central government with neighboring countries and its great

interest in promoting economic growth in the more underdeveloped provinces in the Southwest of

China.

Table 1. Government-sponsored irrigation projects in Petrolina-Juazeiro

18 27 of the 128 counties of Yunnan border Myanmar, Laos, and Vietnam.

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Irrigated area (Ha)Irrigation project Year of

start of

operation

Total

irrigated (ha)

Small

farmers (%)

Firms

(%)

Mandacaru 1971 419 87.8 12.2

Bebedouro 1968 2,091 59.0 41.0Touro 1979 10,710 1.8 98.2Manioba 1981 5,030 38.0 62.0Curaa 1982 4,350 45.1 54.9Senador Nilo

Coelho

1984 22,328 51.8 48.2

Total 44,928 38.4 61.6Source: CODEVASF

Some of the major projects under the GMS program include road improvement projects,

as inadequate road infrastructure particularly in rural areas has been identified as a major

obstacle to economic development and poverty reduction, with the provinces road network being

among the least developed in China. Some of the main projects include road improvement

between Kunming and Hanoi (Vietnam), Kunming and Lashio (Myanmar), and Kunming and

Chiang Rai (Thailand) via Myanmar, and railway projects linking Yunnan with Thailand, Myanmar,

and Vietnam.19 Completed projects include a highway between Cushiong-Dali-Baoshan, which

opened to traffic in 2006, the Chinas and Laos sections of the Kunming-Bangkok highways, and

the highway between Kunming and Hekou in the border with Vietnam.20

These investments in infrastructure played an important role in the development of cut

flowers, tobacco, and other economic activities in Yunnan. A better transportation infrastructure

facilitated the marketing of flowers, which are often sent by growers to large wholesale markets

using refrigerated vans and planes. Electric power helped flowers because they need to be

watered and controlled at a specific temperature before they are shipped.

In Yunnan, the provincial and local governments also supported the development of

tobacco and cut flowers. In the 1980s, when the economy in China began to be decentralized,

the provincial government aimed at concentrating resources and policy support in specific

19 Other projects within the GMS program include telecommunications, trade and investment, tourism, environmentalprotection, and development of human resources.20 See Zhenming (2009) for an analysis of the participation of Yunnan province in the Greater Mekong SubregionCooperation.

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economic activities. Tobacco came as a natural choice because it was already strong, and in

addition, it generated tax revenues to local governments. In recent years, the Chinese central

government pushed strongly local governments to attract foreign and national investments. As a

result, many county governments created Business Bureaus and provided benefits (like tax

benefits and concessions for the use of public lands) to attract investors. In the case of tobacco,

local governments focused on investments in upgrading or constructing roads connecting villages

with small and medium-size towns and cities, as the tobacco industry had told them that it was

too difficult if not impossible for them to work with farmers in villages located in remote places or

without good roads.

Agroprocessing firms and contract farming

Contract farming between small farmers and agroprocessing firms took place both in

Yunnan and Petrolina-Juazeiro, but with different results. In Yunnan, contract farming played a

key role in the organization of tobacco production. Contracts were signed between the Hongta

Tobacco Group and individual farmers, establishing the commitment of the farmer to use the

tobacco seeds provided by the firm, follow the technical directions provided by the firms

technicians during the tobacco cultivation, and sell all the harvested tobacco leaves to the firm.

Meanwhile, the firm committed to purchase the tobacco production at an agreed price and to

provide training, technical assistance, and credit in the form of inputs paid at the time of harvest

and, in the case of tobacco, the construction of drying houses.

Contract farming played a key role in the development of tobacco because, in contrast to

individual small farmers, the agroprocessing firm had better access to financial resources, know-

how in agricultural technology, and capacity to operate in changing product markets. In addition,

the Hongta Tobacco Group had great access to local government and was able to obtain their

support to construct and improve roads. The role of contract farming in the tobacco industry in

Yunnan relates mainly to the intensive use of labor characteristic of tobacco production and the

high costs of monitoring wage labor that the tobacco industry would face if they grew tobacco

themselves. Farmers compliance with the contracts (which is usually a concern for the industry

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because it may impose substantial costs) was high because of tobacco was a state monopoly

and farmers could only sell to the Hongta Tobacco Group. In addition, the strong relationship

between the state-owned tobacco firms, local governments, and community leaders in the

tobacco producing areas meant that tobacco growers who did not comply with the contracts could

see their access other government services and benefits limited, especially those provided by

local governments.

In Petrolina-Juazeiro, contract farming became popular in the early 1980s in tomato-

processing. Several industries established their processing facilities in the region and signed

contracts with small farmers in which they agreed on the technology to be used and the price that

they would pay for the product. Tomato became the main irrigated crop and the region produced

more than 40% of the tomato pulp consumed in Brazil. However, the conditions that gave rise to

the boom of tomato changed dramatically in the late 1980s. A new pest attacked the tomato

crops in 1988, leading to very low yields and great losses for farmers. While the extension

services promoted a new technological package to solve this problem as early as 1990, small

farmers faced higher costs. In addition, great interannual variations in the production of tomato

led the industries to occasionally not comply with the contracts. As a result, a large number of

small farmers were not able to repay their loans, which affected their access to credit. The areas

with tomato started to decline dramatically, falling from 15,000 hectares in 1987 to 4,500 hectares

in 1996 and becoming negligible in the 2000s.

Petrolina-Juazeiro had several other experiences with contract farming since then with

mixed results. One of the most recent ones involved contracts between a coconut processing

industry and small coconut producers, and ended in a similar way as what happened with tomato,

i.e. with the agroprocessing firms not complying with the contracts. These experiences, which

suggested weak mechanisms to enforce contracts and low capacity of small farmers to negotiate,

created a quite generalized distrust for the contract farming arrangements among small irrigators.

Several analysts have been highly critical of contract farming, arguing that it has

frequently been characterized by low prices received by small farmers mainly due to their limited

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access to information and capacity to negotiate with firms. 21 In contrast, other studies have

argued that contract farming and outgrower schemes have very often led to a significant rise in

living standards.22 In Yunnan, most of the tobacco producers that were visited responded that

they were better now that before cultivating them. Thus, the experience is more in line with the

more positive views of contract farming. In Petrolina-Juazeiro, however, results were more mixed

and were more in line with the arguments presented by the critics of contract farming.

The role of farmer associations

In Petrolina-Juazeiro, government agencies gave great importance to the support of

producer associations that served to deal with collective action problems and to represent their

interests before federal, state, and municipal government agencies, demanding good

performance from them and effectively signaling the type of support that they needed in

producing for export. The most important was Valexport, an association of exporters that

became key in the access to markets and meeting of quality standards.

The creation of Valexport originated in problems that exporters in Petrolina-Juazeiro

faced in the mid-1980s, when they started to sell melon in Europe and failed to jointly agree on

meeting quality standards. As a consequence, the prices of melon received by producers fell

sharply that year, leading to the collapse of the crop and to default among a high proportion of the

small farmers in government-sponsored irrigation projects. While this was a negative experience,

it convinced the main exporters that they needed to collaborate in order to agree and comply with

quality standards in the classification and packing of the product, which also required to use

varieties demanded by the export markets and resistant to local pests and diseases, the

application of treatments against pests, and solving the problem of a scarce skilled labor force.

Coincidently, CODEVASF decided to promote the creation of an exporters association,

organizing meetings with producers from the region to discuss the need for an association, its

21Several authors (e.g. Lappe and Collins, 1977) have considered contract farming in a dependency theory framework

as an exploitative extension of international capital. Watts (1990) considered contract farming as a system for self-exploitation of family labor and frequently characterized by company manipulation and abrogation of contracts. Little andWatts (1994) argue that the problems arising from unequal power relationships as well as market fluctuations, often makecontract farming unsustainable in the long term.22

For example, see Glover (1983 & 1987), Glover and Ghee (1992), and Glover and Kusterer (1990).

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objectives, and possible ways of collaboration. As a result, a small group of four firmsfollowed

by 43 additional members in a few monthsagreed to create an association in November 1987,

which later named as Valexport. Membership grew continuously in the next few years. In the

initial period of life of Valexport, CODEVASF supported its activities in many ways, including the

following: a) providing technical assistance for the design of its statutes; b) paying for the rent of

an office in the state government managed industrial district and lending furniture and equipment;

c) lending one of its technicians to perform the tasks of an executive manager and paying his

salary for one year; d) contracting out a thorough study of the possibilities of exporting different

fruits and vegetables to Europe; e) searching for fairs in Europe to promote the crops from

Petrolina-Juazeiro and partly financing the presentation of stands of Valexport. Although

CODEVASF promoted its creation, Valexport soon became an independent institution that not

only represented the interest of its members, but also demanded better performance from

agencies of the federal, state, and municipal governments.

In the case of flowers production in Yunnan, the provincial government promoted the

creation of the Yunnan Flower Association (YFA), an organization comprised of growers and

firms engaged in the production, processing, marketing, research, and transportation of flowers.

The expansion of flowers production that had taken place had brought the attention of the

provincial government, which decided in 1995 to support the industrys growth. A biological

resources development plan was established to further diversify agricultural production. The main

objective of the YFA is to promote the development of the flower industry in Yunnan, offering

services to flower growers and enterprises. The YFA was created in 1997, having the following

functions (as authorized by the Yunnan government): (i) to provide services to its members, such

as information and technical training, (ii) to establish and monitor the compliance of quality

standards of the flower products, (iii) to carry out studies of the flower market; (iii) to carry out

studies and medium and long term plans, based on the economic development planning of the

Yunnan Province, (iv) to provide suggestions to national industrial policies and investments, (v) to

coordinate and implement projects supported by the Yunnan government to support the flower

industry, and (vi) to promote international communication and cooperation.

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Contract negotiations between firms and rural labor unions

Changes in the labor market created by the growth of high value crops, along with the

presence of strong rural labor unions, were key to produce increases in wages and improvements

in working conditions among rural wage workers.

Brazilian laws establish negotiations between firm associations and unions as the main

mechanism to agree on wages. Gains in wages and working conditions have resulted from

negotiations between organizations representatives of the wage workers and firms at the regional

level. These negotiations have taken place every year since 1993, originating a contract in which

the two parties agree on wages and specific improvements in working conditions. The two key

players were the Rural Workers Unions at each municipality of the Petrolina-Juazeiro region, the

Pernambuco Rural Workers Federation (FETAPE), and Valexport (the association of exporters

described earlier).

The changes in the demand for labor brought by the growth of high value growth led to

great changes in the views and organizing strategies of rural labor unions. FETAPE had long

concentrated efforts on organizing wage workers in the sugarcane plantations, struggling for

higher wages, and better working conditions for sugarcane wage workers. In the late 1970s,

FETAPE had become one of the strongest rural unions in Brazil, having a large membership, a

capable leadership, and experience with organizing wage workers and negotiation. Irrigated

agriculture increased substantially the membership of the rural workers unions in Petrolina

Juazeiro since the mid-1980s, making FETAPE interested in working more actively in the region.

The first negotiation (which included strikes in the largest firms) was successful in obtaining a

minimum wage higher than the legal minimum in Brazil, as well as important improvements in

working conditions. Firms in the region have complied with the agreements. Local labor unions

monitored their compliance and presented complaints to the local offices of the Ministry of Labor

when firms did not comply.

V. The influence of global standards

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In both Petrolina-Juazeiro and Yunnan, global standards played a key role in both the

technologies of production used and in social aspects of production. In Petrolina-Juazeiro,

producers of the two main export crops (mango and grapes) had to meet strict quality and food

safety standards and to reach the markets in Europe and the US at specific times of the year.

While this created difficulties and costs for small farmers, it also helped to generate positive social

outcomes.

In Petrolina-Juazeiro, global standards had the following positive outcomes:

(i) They helped strengthen farmer organizations around the need for solving specific quality and

food safety problems. Valexport was able to implement and make mango growers in Petrolina-

Juazeiro comply with a program for monitoring the fruit fly, making possible for them to access

the US market since 1994. The Brazilian Grapes Marketing Board (BGMB) was also created to

ensure that grape exporters complied with quality standards the BGMB. Producers were able to

agree and enforce minimum quality standards, working out a program of when and how much

each grower would harvest, jointly contracting trucks and ships to bring the fruit to the market.

(ii) Increase in the participation of skilled labor and women in the labor force, which related partly

with manual skills needed to ensure the quality of grapes for export;

(iii) elimination of child labor, which can be explained by fears from growers of hurting the image

that their buyers had of them. During wage negotiations in the early 1990s, the wage workers

organizations warned to carry out campaigns targeted to potential buyers.

(iv) improvement in working conditions of wageworkers, which also related with the aim of

portraying a progressive image and that buyers not only purchased fruits of good quality, but also

that they benefitted poor people.

The production of cut flowers in Yunnan is also associated with high quality, which in turn

is directly related with a high demand for skilled labour for crop management, picking, grading,

bunching and packing. Most of these skills are learned on-the-job and not from formal training.

In the case of tobacco production in Yunnan, global standards also influenced greatly the

characteristics of production.23 Until the 1990s, cured tobacco production in Yunnan depended

23 See Damiani (2008)

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mainly on the potential of its natural environment and the traditional experience accumulated by

tobacco farmers. Productivity was low and quality problems persisted related with crop

management and the use of traditional tobacco varieties that were not the ones most accepted by

consumers. Tobacco institutes were set up in each of the seven tobacco-producing areas,

technical dissemination posts were established in each of the 50-odd tobacco-producing

counties, and farmer groups were organized in order to provide technical assistance.

Experienced tobacco farmers were recruited to create a technical assistance scheme composed

of both agricultural technicians and experienced tobacco farmers.24

As a result of these efforts, the agroprocessing industry developed a set of production

technologies appropriate to the conditions of Yunnan. All farmers use tobacco seeds provided by

the agroprocessing industry and plant the quota according to the cigarette formula. In addition,

the Yunnan Hongta Group provides technical assistance to farmers in all the phases of the

tobacco cultivation. This has resulted in a great increase in production, which doubled between

the early and late 1990s, as well as an increase in quality, with tobacco leaves of high quality

reaching 80 % of total production.

VI. Conclusions and policy implications

On the relationship between the public and private sectors. The development of

high value crops in Yunnan and Petrolina-Juazeiro was characterized by an active role of

government and for close relations between the public and private sectors. These relations

involved collaboration and partnership, as well as supervision and control. Some of the

government interventions involved creating conditions for the development of the high value

crops and other economic activities, while others targeted specifically small farmers in order to

promote a more inclusive model of rural development.

On contract-farming schemes. The experience with contract farming involving

processing and marketing firms and small farmers was mixed. In Yunnan, it facilitated the

marketing of the output of small tobacco producers and gave farmers access to extension

24 Maeda et al (2003).

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services and occasionally to credit. However, but they have also had disadvantages. In

Petrolina-Juazeiro, the experience shows that small farmers had a relatively weak position in

negotiations with firms because they had limited information and were poorly organized,

confirming in part the arguments of the critics of contract farming. Government programs or

projects may support the organization of small farmers, as well as provide legal and managerial

support to them in order to strengthen their capacity to negotiate contracts with agroprocessing

firms, as well as to enforce contracts.

On small farmer associations. The experience with producer and exporter

associations in Petrolina-Juazeiro and Yunnan shows that they played an important role in the

positive social effects generated by the growth of high value crops. This role relates to: a)

economies of scale in the collective marketing of the products of their members and in managing

volumes that attract foreign buyers to negotiate with them; b) implementation of controls that

ensured the compliance of their members with quality standards; c) implementation of pest

control programs. This evidence suggests that the development of small farmer organizations

focused on the marketing of production, the dissemination of technologies among their members,

and the monitoring of the compliance of members with the global standards of production, can

play an important role in generating a socially inclusive model of rural development based on high

value crops.

On wage labor and labor unions. The experience of the cases presented here shows

that high value agriculture may bring great positive effects on wage labor, including job creation,

increase in the proportion of skilled and permanent labor, higher participation of women in the

workforce, increase in wages, and improvement in working conditions. These positive effects

relate with the particular technological features of the crops and the presence of strong labor

unions that were able to negotiate improvements with employers.

On global standards and social upgrading. The evidence from the cases presented

here suggests that global standards in the production of high value crops may bring positive

social impacts. In Petrolina-Juazeiro, they had an influential role in the elimination of child labor,

the substantial generation of wage employment for women, and the improvement in working

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conditions. In addition, they played an important role in promoting the organization of exporters

and small farmers. In the case of Yunnan, the expansion of flowers and tobacco created a

source of income among small farmers and increased the demand for skilled labor, being

instrumental in the reduction of rural poverty.

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