Technology adoption and competitiveness in small milk producing farms in Costa Rica: a case study (part one)

Technology adoption and competitiveness in small milk producing farms in Costa Rica: a case study (part one)

Tropical Livestock Area, Centro Agronómico Tropical de Investigación y Enseñanza,
P.O. Box 19, Turrialba 7170, Costa Rica
* International Development Research Centre.
P.O. Box 53016, Bogotá, Colombia.
** Ministry of Agriculture and Livestock.
El Barreal, Heredia, Costa Rica.

Objectives were to understand the rationality of technology adoption and competitiveness of dairy production systems in open markets, taking as a case study the replications of an intensive milk production prototype which were established in the tropical humid lowlands from 1979 to 1984 as part of an agrarian reform plan. Data were (1) a survey to 44 replications in April and June of 1991 to understand their biological and economical evolution, and (2) preliminary evaluations and macro-economic data of the last 20 years to understand tendencies in policies and prices.

Improved pastures have degraded due to losses in soil fertility, causing a reduction in milk yield per hectare even when the amount of concentrate feeds offered have increased. Net incomes have deteriorated with time, covering only labour costs valued as minimum wage. These systems have based their production on the use of family labour (62% to 76% of production costs), under-utilized 24% to 37%. Additionally, labour cost has systematically increased 4% a year in real terms for the last 20 years.

Costa Rica has provided incentives for milk production through subsidized credits, high prices, and import restrictions. These effects have generated a small surplus with few possibilities to compete because milk price at the farmgate is $0.29/kg and in the international market $0.20/kg. Assuming a price reduction at international levels in an open market economy, these systems would survive less than four years if they received minimum wage for their labour. Intensifying production is not viable due to soil degradation, thus the only alternative is to increase farm size. Research is needed to facilitate the transition of these farms to other alternative uses and to develop mechanisms to promote dairy expansion in other ecozones offering comparative advantage in open markets.

KEY WORDS: Competitiveness, subsidies, small-scale producer, tropical dairying, pastures, brachiaria, erosion, soil fertility, humid tropics, labour costs, economics

Costa Rica historically has consumed high quantities of dairy products by Latin American standards based on domestic production. During the 70s, annual per capita consumption of dairy products was 141 kg (8.8% imported). During the same period, domestic milk production increased 4.1% annually while human population grew 3.2% per year. In the 80s, annual per capita consumption increased to 149 kg (3.9% imported) with similar tendencies found in domestic milk production (3.5%) and human population (2.6%; BCCR, 1991).

During the last three years, Costa Rica has generated a small milk surplus currently exported to the Central American region as ultra high temperature (UHT) milk at US$0.65/kg which does not require refrigeration (Cámara de Productores de Leche, 1991). If this tendency continues, Costa Rica may have, in this decade, a significant surplus which it cannot dispose of in this form due to a limited market. Exporting milk in the traditional powder form is not feasible because price at the farmgate is US$0.29/kg and in the international market about $0.20/kg.

Even with domestic production and the existence of adequate farm infrastructure and road network to support it, internal discussion exists about the country's potential to compete at the regional level in an economy without subsidies.

In the same way, concern about competitiveness prevails in other countries within the region because the comparative advantages of different technologies have not been identified and it is uncertain whether these technologies can compete in open markets.

Objectives of this study were to understand
(1) the reasons why producers adopt or do not adopt certain technologies;
(2) the competitiveness of milk-production systems in open markets; and
(3) changes that need to be proposed in this decade to make better decisions when allocating research and production resources are discussed to achieve international competitiveness.

To meet the objectives, replications of the intensive milk- production prototype of CATIE (Centro Agronómico Tropical de Investigación y Enseñanza) were selected (Duarte, 1991). These replications were established in the settlements of Sonafluca and Río Frío from 1979 to 1981 as part of an agrarian reform plan. Also included were replications established from 1982 to 1984 by initiative of other producers.

In 1976 CATIE established the prototype as a specialized dairy unit for farmers with limited resources. Research results generated by a multi-disciplinary group were integrated in this unit, which were (Pezo et.al, 1990):

INTENSIVE MANAGEMENT OF FERTILIZED PASTURE: The specie used is African Star (Cynodon nlemfuensis), fertilized with 250 kg N/ha/yr. Rest period is 21 days and stocking rate 6.5 cows/ha.

ADAPTED ANIMAL GENOTYPE: Initially, dairy cows based on their production levels regardless of their genotype were introduced. However, later efforts were made that such animals be only crossbreeds between Criollo and Jersey genes.

SPECIALIZED DAIRYING: Machine milking is practised 2X per day without calf at foot. Only female calves are artificially reared with minimum milk (180 kg during first 60 days) and with concentrate feed (maximum 1 kg/an/day until five months old).

MINIMUM USE OF CONCENTRATE FEEDS: Milking cows are offered 2 kg molasses/cow/day. Additionally, all animals have free access to a mineral supplement.

MINIMUM INVESTMENT IN FACILITIES AND EQUIPMENT: The total unit area is 4.5 ha (4.2 ha of pastures). The milking shed is 180 m5.

INTENSIVE LABOUR USE: The prototype is managed by one operator who does all labour chores of the unit.

During 1977, the Instituto de Desarrollo Agrario (IDA), an autonomous institution involved in agrarian reform programs, signed an agreement with CATIE for the development of a dairy project. As institutional policy, IDA allocates land to settlers to be paid in a 15-yr period. However, in practice, settlers end up acquiring it free.

The initial objective was to demonstrate the feasibility of producing milk in family units located in the humid lowland tropics of Costa Rica. Later, the project was modified toward stimulating milk production (Villegas, 1982).

Therefore, this project was designed as a dairy development effort and not as validation of alternative technologies at the farm level. The approach used was to introduce an improved alternative (an adaptation of the prototype of CATIE). After three years (i.e., 1982), it was left to the discretion of producers to continue the technological elements they considered convenient, without intervention of researchers and with a limited participation of technicians providing technical assistance (Pezo et.al, 1990).

The project was developed in Río Frío (100 to 150 meters above sea level) and Sonafluca (200 to 250 meters above sea level). Average farm size was 10 ha (Murillo and Navarro, 1986).

Climatic characteristics in both ecozones are similar. In Río Frío annual rainfall precipitation is higher than Sonafluca (4120 mm vs. 3710 mm), but distribution is uniform throughout the year. Mean annual temperature is 25 °C and 26 °C for Río Frío and Sonafluca, respectively. Predominant landscape in both ecozones is flat or flat-convex with concave depressions that produce floods in some areas (Murillo and Navarro, 1986).

Several changes were proposed at the beginning of the project relative to CATIE's prototype (Villegas, 1982):

(a) PASTURE SPECIE: Brachiaria ruziziensis was established instead of Cynodon nlemfuensis since the first one was already established in both ecozones with a high degree of adaptation and availability of vegetative material.

(b) AREA: Due to marketing and disease problems of agricultural crops, it was decided to allocate available area (10 ha) to the dairy enterprise.

(c) FERTILIZATION LEVEL: Available credit for acquisition of animals was for a herd size smaller than CATIE's prototype (i.e., 15 vs 23 cows) but pasture area was twice as large. This factor reduced the need for N fertilization. Also, soils had been in forest use and their organic matter was high. Thus, it was decided to recommend a fertilization level of 50 kg of N/ha/yr after the fourth year of operation.

(d) OTHER CHANGES: Due to available family labour, machine milking was replaced by hand milking. Also, restricted suckling of calves was implemented instead of artificial rearing to reduce the risk of mastitis.

Data were obtained through (1) the reviewing of biological and economic behaviour of the prototype of CATIE during the last 13 years (Duarte, 1991); (2) reviewing of past evaluations on the dissemination and behaviour of the replications during the first five years (CATIE, 1981; Murillo y Navarro, 1986); (3) macro- economic information on Costa Rica during the last 20 years to understand the evolution of prices and policies in the livestock sector; and (4) a survey to 44 producer-owners of disseminated replications in both ecozones conducted in April and May of 1991 to understand the evolution and behaviour of these units in the last six years.

The survey was classified by ecozone (Sonafluca and Río Frío) and by beginning period in dairy business [1979-1981 (first); 1982-1984 (last)]. This classification was considered desirable because, as will be explained later, it was important in understanding the evolution of these units. Sample size included 20 farmers in Sonafluca (7 who initiated activities first and 13 last) and 24 producers in Río Frío (12 fist and 12 last).

Farm owners were personally interviewed by five technicians trained to execute the survey. Two technicians from IDA interviewed Sonafluca and three from CATIE interviewed Río Frío. A second interview was conducted to collect additional information to complement the study.

The survey was designed to determine the evolution of replications (milk and beef yield, input use) in three time periods (beginning, 1985, and 1990) which were used subsequently to calculate costs of (1) feeding (concentrates, molasses, salt, and minerals); (2) fertilization; and (3) permanent (family and outside) and occasional labour; and income from the sale of milk and beef. Other costs (i.e., health) were not included because the farm survey was time-exhaustive. Thus, the survey concentrated in obtaining only the evolution of the major costs of production. Therefore, production costs may be higher than estimated in this study.

All economic data (i.e., input and output prices, credit) were adjusted to 1990 US dollars ($) using the consumer price index and exchange rates (BCCR, 1991a).

OPERATION SIZE: Table 1 contains the evolution of operation size in surveyed farms. Note that it shows greatest increase in total area in Río Frío with respect to Sonafluca mainly due to an increase in area by those who entered dairying earlier (1979- 1981).

STOCKING RATE: Stocking rate has been stable. Even after a growth in herd inventory, this has been compensated for by an increase in area (Table 1). In Río Frío this process has been more dynamic and the behaviour of producers has been different depending on the period of time they began dairying. The first ones did it through buying of land and the later ones based on rented land.

PASTURE SPECIES: Initially, milk production in the replications was based on areas of Brachiaria ruziziensis although small areas of other improved pastures existed, especially Cynodon nlemfuensis (Table 2). After 7-10 years of use, farms have been invaded about 70% by ratana pasture (Ischaemum indicum). This invasion process has been specially serious in the first farms in Río Frío where the area in ratana went from 10% to 94%. In Sonafluca and the last farms in Río Frío the degree of invasion is about 50%.

Table 1. Land use, stocking rate, and herd inventory of milk producers in the ecozones of Río Frío and Sonafluca who began dairying between 1979 and 1981 (First) versus those who began after 1981 (Last).

	First			Last
Variable	INITIAL	1985	1990	INITIAL	1985	1990

RIO FRIO:
Land Use (ha)
Pasture	9.5	12.5	14.8	7.1	8.5	11.5
Agriculture	0.6	0.3	1.5	0.6	0.5	0.3
Forest	0.5	0.2	0	2.3	1.1	0
Total	10.6	13.0	16.3	10.0	10.1	11.8
Rented pastures	0	0	1.3	0	0	5.6

Stocking Rate (AU/ha)	1.9	2.0	1.9	2.6	2.3	1.8

Herd Inventory (#)
Milking cows	12.2	15.8	15.4	10.5	11.4	17.3
Dry cows	3.4	5.3	6.2	5.0	5.1	6.4
Heifers	0.3	1.4	4.1	2.2	1.5	3.8
Calves	2.4	4.7	9.9	0.6	1.8	4.8
Bulls	1.0	0.8	1.1	0.9	0.6	0.9
Total Animal Units*	18.3	25.6	31.3	18.7	19.4	30.3

SONAFLUCA:
Land Use (ha)
Pasture	10.0	10.0	9.6	9.2	9.6	10.0
Agriculture	0.1	1.7	2.2	0.9	2.3	2.3
Forest	0	0	0	0.1	0	0
Total	10.1	11.7	11.8	10.2	11.9	12.3
Rented pastures	0	0	1.0	0	0	1.2

Stocking Rate (AU/ha)	2.3	2.8	2.9	2.5	2.7	2.6

Herd Inventory (#)
Milking cows	15.0	16.4	15.3	15.0	16.5	16.3
Dry cows	4.6	4.7	4.4	3.6	4.3	5.5
Heifers	0.9	2.9	3.6	1.5	1.8	4.2
Calves	3.7	7.3	14.4	2.1	3.5	6.6
Bulls	1.0	1.0	1.1	1.0	0.8	0.8
Total Animal Units*	23.4	28.4	31.2	22.2	25.0	29.5

Table 2. Area, species, pasture fertilization, and supplementation utilized by milk producers in the ecozones of Río Frío and Sonafluca who began dairying between 1979 and 1981 (First) versus those who began after 1981 (Last).

	First			Last
Variable	INITIAL	1985	1990	INITIAL	1985	1990

RIO FRIO:
Pasture Area (ha)
Ratana	1.0	9.2	14.1	1.7	3.9	7.4
Cut-and-carry	0.1	0.2	0.1	0.1	0.2	0.4
Brachiaria	6.8	2.5	0.4	4.0	4.1	3.6
Other improved	1.7	0.8	0.3	1.5	0.8	0.7

Area in Ratana (%)	10.4	72.4	94.6	23.3	43.3	61.2

Nitrogen Fertilization
Area (ha)	2.0	1.4	1.0	1.1	1.0	3.1
Quantity (kg/ha/year)	15.3	21.7	15.3	37.3	15.9	82.2

Supplementation (kg/cow/day)
Concentrate	1.2	0.9	1.3	0.8	1.1	1.5
Molasses	0.8	0.7	0.3	0.3	0.5	0.8


SONAFLUCA:
Pasture Area (ha)
Ratana	0	3.9	4.5	0.2	1.8	5.4
Cut-and-carry	0	0.6	0.7	0.2	0.7	1.2
Brachiaria	9.3	5.2	0.9	5.6	4.3	1.1
Other improved	0.7	0	3.6	3.0	2.7	2.1

Area in Ratana (%)	0	40.2	46.4	2.2	18.9	55.1

Nitrogen Fertilization
Area (ha)	6.5	4.5	1.9	4.8	4.8	2.2
Quantity (kg/ha/year)	59.7	77.0	85.0	67.3	64.3	125.7

Supplementation (kg/cow/day)
Concentrate	0.2	0.8	1.1	0.8	0.9	1.6
Molasses	0.6	0.8	0.6	0.9	0.9	0.7

FERTILIZATION LEVEL: The strategy for using fertilizers has differed in both ecozones. In Sonafluca the quantity applied has been more than the 50 kg of N/ha/yr recommended by CATIE but fertilized area has been limited to those free of ratana. Therefore, fertilized area has been decreasing with time especially in the last five years (Table 2). In Río Frío, fertilization levels have been lower.

FEED SUPPLEMENTATION: The proposed prototype only considered the use of 2 kg of molasses per cow/day. The replications, however, have used concentrate feeds since the beginning and their use has increased with time, reaching levels of 1.4 kg/cow/day. The amount of molasses offered to animals has been constant at levels of about 0.7 kg/cow/day (Table 2).

LABOUR USE: Outside labour represents less than 5% of total use. Family labour assigned to dairy chores has increased with time in farms where ratana represents less than 60% of pasture area. In the first replications of Río Frío, family labour has been reduced in 1990 by 15% with respect to the beginning (Table 3).

Table 3. Labour utilization by milk producers in the ecozones of Río Frío and Sonafluca who began dairying between 1979 and 1981 (First) versus those who began after 1981 (Last). Standard deviations are in parenthesis.

		First			Last
Variable	INITIAL	1985	1990	INITIAL	1985	1990

RIO FRIO:
Labour use (days/year)
Family	745	654	593	803	796	928
	(456)	(325)	(208)	(376)	(358)	(361)

Outside	34	76	67	98	89	97
	(44)	(74)	(72)	(83)	(93)	(116)

Total	779	730	660	901	885	1025

SONAFLUCA:
Labour Use (days/year)
Family	808	913	1069	899	983	1123
	(467)	(434)	(391)	(562)	(558)	(478)

Outside	52	52	66	74	74	83
	(68)	(39)	(69)	(81)	(72)	(89)

Total	860	965	1135	973	1057	1206

MILK YIELD: Total milk yield for all groups has been relatively constant throughout time. However, milk yield per hectare and per milking cow has decreased (Table 4). With the exception of those who began first in Río Frío (where % of milking cows has decreased from 78% to 71%), this proportion has been constant and at high levels (i.e., 75%).

Table 4: Daily milk production per farm, per hectare, and per milking cow, and percentage of milking cows of producers in the ecozones of Río Frío and Sonafluca who began dairying between 1979 and 1981 (First) versus those who began after 1981 (Last). Standard deviations are in parenthesis.

		First			Last
Variable	INITIAL	1985	1990	INITIAL	1985	1990

RIO FRIO:

Daily Milk
Production
(kg)
Total	89.6	107.1	97.9	64.9	90.0	121.7
	(56.3)	(41.8)	(55.7)	(27.8)	(42.9)	(67.7)

Milking Cow	7.3	6.8	6.4	6.2	7.9	7.0
	(4.6)	(2.7)	(3.6)	(2.7)	(3.8)	(3.9)

Hectare	9.4	8.6	6.6	9.1	10.6	10.6
	(5.9)	(3.4)	(3.8)	(3.9)	(5.1)	(5.9)


Milking Cows (%)	78.2	74.9	71.3	67.8	69.1	73.0


SONAFLUCA:

Daily Milk
Production
(kg)
Total	128.6	118.6	115.7	135.4	142.3	120.0
	(41.4)	(61.8)	(33.6)	(66.4)	(56.6)	(40.6)

Milking Cow	8.6	7.2	7.6	9.0	8.6	7.4
	(2.8)	(3.8)	(2.2)	(4.4)	(3.4)	(2.5)

Hectare	12.9	11.9	12.0	14.7	14.8	12.0
	(4.2)	(6.2)	(3.5)	(7.2)	(5.9)	(4.8)


Milking Cows (%)	76.5	77.7	77.7	80.6	79.3	74.8

INCOME LEVEL: Table 5 shows the net income with and without considering family labour cost. In general, net incomes in real terms, specially per hectare, have deteriorated with time, covering only labour costs valued as minimum wage and capital interest.

** Includes all available labour valued as minimum wage (in 1990, $5.41/day plus 44% of social benefits equivalent to a total of $7.79/day)

Table 5. Annual net income in 1990 dollars including and excluding family labour valued as minimum wage of producers in the ecozones of Río Frío and Sonafluca who began dairying between 1979 and 1981 (First) versus those who began after 1981 (Last). Standard deviations are in parenthesis.

		First			Last
Variable	INITIAL	1985	1990	INITIAL	1985	1990

RIO FRIO:
Annual Net Income*
$/farm	8712	9607	7078	6191	7667	9027
	(7213)	(4719)	(6343)	(3079)	(4312)	(8050)

$/hectare	1044	814	440	872	902	528
	(990)	(420)	(561)	(395)	(768)	(376)

Annual Net Income**
$/farm	3950	4793	2454	1115	1806	1800
	(5865)	(4080)	(3397)	(4408)	(4825)	(5161)

$/hectare	481	438	152	157	212	105
	(657)	(335)	(205)	(832)	(591)	(291)



SONAFLUCA:
Annual Net Income*
$/farm	14721	10668	9952	14051	12923	9182
	(5281)	(7062)	(6173)	(7651)	(6172)	(7983)

$/hectare	1472	1067	939	1527	1346	820
	(481)	(620)	(457)	(862)	(749)	(989)

Annual Net Income**
$/farm	9993	3952	1622	8415	5690	433
	(4922)	(8521)	(4278)	(8222)	(6606)	(4540)

$/hectare	999	395	153	915	593	39
	(447)	(792)	(429)	(989)	(801)	(502)