Potential economic impact from the adoption of Brachiaria hybrids resistant to spittlebugs in livestock systems of Colombia, Mexico and Central America

Libardo Rivas and Federico Holmann*

Centro Internacional de Agricultura Tropical (CIAT). Cali, Colombia
L.Rivas@cgiar.org
* CIAT and International Livestock Research Institute (ILRI). Cali, Colombia
F.Holmann@cgiar.org

Abstract

Pasture research led by the International Center for Tropical Agriculture (CIAT) and national institutions during the 80's and 90's, contributed with new Brachiaria species with various characteristics and uses that were incorporated with success in livestock production systems in the lowlands of Latin America. Brachiaria brizantha, Brachiaria dictyoneura, Brachiaria humidicola and Brachiaria ruziziensis are some of the forage materials released by research institutions in the region. Despite its indisputable advantages, the Brachiaria genus presents limitations because of its low tolerance to prolonged droughts and its high susceptibility to spittlebug, a pest that causes considerable economic losses to the livestock industry. Thus, most recent research in CIAT's Brachiaria breeding program has focused on the development of a second generation of Brachiaria grasses: outstanding agronomic characteristics, establishment vigor, good sprout capacity, high biomass production and nutritional quality, good seed production, resistant to Rhizotocnia and to multiple spittlebug species. The results of this effort have conveyed to the recent release of Mulato grass, the first hybrid of the Brachiaria genus obtained by CIAT's genetic improvement program. In the waiting list of the second generation of Brachiaria grasses is hybrid #4624 (CIAT 36087), to be released in 2005, having a similar forage quality as Mulato and with all the attributes defined for the second generation of Brachiaria grasses. Moreover, several other hybrids are in advanced stages of evaluation and close to being released as commercial cultivars.

The potential economic impact of the adoption of new Brachiaria hybrids on livestock production systems was evaluated using the Economic Model MODEXC. Two regions were considered in Colombia: the Northern Coast and the Eastern Plains. In Mexico, the tropical region; and in Central America, its six constituent countries. The model estimates the economic benefits attributable to the utilization of the new materials, disaggregating per country, region, ecosystem, production system and large social groups (consumers and producers). It works with two types of parameters: the technical ones that characterize the new technology and its process of dissemination, and the economic ones representing the conditions of market supply and demand of both beef and milk affected by the technical change. The benefits of the new technology (from the year 2007) were calculated for a period of 20 years and the results were expressed in terms of the net present value (NPV) and annuities. The estimates were made using alternatively an economic framework of open and closed economy.

In a closed economy, without international trade, the NPV of the technological benefits was estimated at US$4,166 million, of which 54% would be generated by the marketing of beef and the rest by milk. Most of the benefits were concentrated in Mexico, US$2,831 (68%); followed by Colombia, US$960 million (23%), and Central America, US$363 million (9%). In order to have criteria on the extent of the estimated technological benefits, the value of beef and milk yield during 2003 was calculated in the reference countries. The NPV is equivalent to 44% of the value of that year, ranging between 16% in Honduras and 78% in Nicaragua. The results show the importance of the dual purpose livestock production system. In most countries, more than half of the technological benefits was generated in this system: Colombia 70%, Central America 62%, and Mexico 50%.

When a country is self-sufficient and the surplus resulting from the technical improvements is marketed domestically, the benefits are transferred to consumers who are favored with the reduction in prices, making possible for them to increase consumption. In the case of a closed economy, consumers would capture 83% of total benefits. Trade liberalization implies a re-distributive process favoring producers. Export purchases increase total demand and restrain the fall of domestic prices. In an open-market economy, the share of benefits to producers would rise to 46%.

Research investment is conceived as a primary mechanism to achieve two of the most basic social goals: 1) poverty reduction and improvement in equity, and 2) the promotion of economic growth. Having this premise, in order to establish to what extent this technical change contributes to the fulfillment of these goals, the acquired benefits were estimated for the most vulnerable population groups: a) The two quintiles of poor consumers, representing 40% of total population, and b) the small producers. In both schemes, open or closed economy, both groups receive more than one-fourth of the benefits from technical change, 27% and 31%, respectively. This is equivalent to a NPV ranging between US$1,137 to 1,303 millions.

Because the hybrids require better soils or fertilizer inputs to maintain forage biomass productivity and quality, the study was made with conservative hypotheses about changes in productivity and the size of the area to be planted. Despite the definition of the levels of critical variables, especially those associated with the productivity and the adoption of the new Brachiaria hybrids, conservative criteria were considered in order to avoid overestimating the benefits; it is important to evaluate the sensitivity of these, against undesirable changes of those variables. For this purpose, three alternative scenarios were established: 1) The reduction of 50% of the area cultivated with new Brachiaria hybrids, 2) the reduction of 10% in the yields of the new materials, and 3) the increase of 50% in the total time of adoption. The most critical variable in the determination of the amount of benefits is yield (productivity) of the new technology, in terms of beef and milk per hectare. The elasticity of the benefits regarding the yields was estimated at 2.2 for Colombia and 1.8 for Central America and Mexico. This suggests that if the yield declines by 1%, the reduction of the social benefits is more than proportional. The social benefits are less elastic with regard to the area planted with new Brachiaria hybrids or the time of adoption. For example, in Colombia, if the area with improved materials declines by one percentage point, the benefits will diminish at approximately six tenths of one point. In all the proposed alternative scenarios, the investment in the development of these new pastures are economically attractive, despite the adverse circumstances proposed in these scenarios. The technological benefits expressed as an annuity (a fixed annual payment received for a specific number of years) shows that the investment for the development of new forage options is very low, less than US$ 20 million, compared with the annual benefits resulting from the use of these new materials.

Key words: adoption, Brachiaria, economic benefit, hybrids, spittlebug

Introduction

Livestock production in Colombia, Mexico and Central America is an important economic activity, because (a) it involves a significant quantity of available land resources for productive uses; (b) of the value and volume of its production; (c) the contribution to the food supply; and (d) the generation of rural employment.

In Colombia, 91% of the total area available for agriculture is allocated to pasturelands. In Central America, that proportion is about 73%, ranging between 46% in El Salvador to 82% in Costa Rica. In Mexico, pastures represent nearly three fourths, 74.6%, of the total land use to agriculture (Table 1).

Colombia has areas proclaimed free of foot-and-mouth disease (Urabá), but most of its territory (Atlantic Coast and the Eastern Plains) is still exposed to this disease. In contrast, Central America and Mexico are disease-free and have direct access to the privileged market of the United States, the prominent leader of the non-foot-and-mouth disease market.

Colombia still has not been consolidated as a net exporter of beef, importing or exporting marginal quantities of this product. Central America traditionally has been a net exporter of beef to the United States, and for some time enjoyed preferential programs such as exports quotas. However, overtime, it has experienced a progressive decline in its share in foreign markets. During the period between 1992-1996, on average, about 16% of its production was exported annually. However, in recent years, its exporting capacity has decreased noticeably, consuming now what is produced (FAO 2004). Mexico is facing a chronic and growing deficit in the production of beef (Table 2).

In general, Tropical Latin America historically has been deficient in milk production, depending from increasingly larger imports in order to supply its domestic consumption. Despite the progress in recent years in milk productivity, Central America and Mexico purchase a significant proportion of its domestic consumption abroad: 15% and 14% respectively. Colombia is a marginal importer, only 1% of its annual consumption of milk (Table 2).

Livestock production in Tropical Latin America is distributed widely through a variety of ecosystems, geographical regions, and production systems, and production is in the hands of a heterogeneous group of producers ranging from small and medium livestock owners, located mainly in hillside areas, to those who control large extensions of land, usually located in savannas and forest margins.

One of the constraints to the expansion of the livestock sector which depends on grazing is its deficient forage base both in quantity and quality, a problem that increases during the dry season of the year. The most widespread improved grass in the Latin American tropics is Brachiaria decumbens; it is estimated that it is planted in approximately 40 million hectares. Among its more prominent attributes are the excellent adaptation to acid and arid soils, aggressiveness, and high yield of beef and milk, because of its outstanding forage quality. However, a disease known commonly as "mión" (spittlebug) frequently attacks this grass, thus reducing productivity. In a severe attack, all the aerial part of the plant seems to be dry and dead, reducing the production of dry matter significantly, as well as its digestibility, thereby reducing its carrying capacity and the reduction of milk and beef (Holmann and Peck 2002).

The estimates of the economic losses of this pest in the humid and dry tropics of Colombia show that the production cost per liter of milk can be increased between 19% and 29% in cases of severe infestation. The economic loss that the spittlebug can cause in both ecosystems, according to the level of infestation, ranges between US$ 161 -211 million dollars per year, depending on the percentage of the area of the region under permanent infestation during the rainy season (Holmann and Peck 2002).

From the perspective of a previously unrecognized commercial possibility in the regional area, and the pending entry into free trade agreements (NAFTA) by several countries of the area, it is imperative to improve the competitiveness of the current livestock production systems, since it is an activity that employs much of the domestic productive resources, which grants an indisputable economic importance and makes it a strategic sector in the Latin American economy.

The 27th FAO Regional Conference for Latin America and the Caribbean (FAO 2002) pointed out several strengths of the Central American and Mexican livestock systems, some of which also apply to Colombia: (a) there is a big group of small producers with possibilities of improving their economic and social status, based on livestock development and modernization; (b) this activity is more tolerant to disasters in comparison with agriculture; (c) there is a significant demand for red beef and milk products, which would make possible to substantially increase the consumption of these foods; (d) these countries are free from most of the diseases on the list A of the IOE and have achieved significant progress in the control of endemic diseases; (e) appropriate technology to intensify production without negative environmental impact; (f) the region has enough skilled human resources, in order to facilitate livestock development; and (g) there exists the appropriate infrastructure for certified slaughtering for export.

Several years of collaborative work in CIAT with national and international institutions has made it possible to take advantage of the conditions found in the regional livestock sector. Part of this effort has focused on the acquisition of improved materials of Brachiaria, offering higher productivity, a broad range of adaptation, and multiple resistance to spittlebug.

Objectives

The objective of this study was to estimate the potential economic impact of the new hybrids of the Brachiaria genus in different production systems and ecoregioins of Colombia, Mexico, and Central America. The economic benefits from adoption are disaggregated by country, production system, region, and social groups (both consumers and producers). The estimate is calculated in two alternative scenarios: with and without international trade (ie., open or closed economy).

Characteristics of the new Brachiaria hybrids

A constraint in tropical livestock production is the poor quality of forages which does not allow the existing potential of production of beef and milk to be expressed. Grasses from the Brachiaria genus has shown new prospects because of its broad range of adaptation, greater quantity of forage and superior nutritional quality. This allows farmers to select the grass best adapted to particular conditions, helping to achieve greater efficiency and profitability.

Brachiaria decumbens and Brachiaria brizantha have been widely disseminated because of their good agronomic adaptation to the diverse tropical Latin American ecosystems. These grasses coming from the African continent began to be used at a significant scale in the region in the 70's because of its great adaptation and productivity. Thus, they progressively replaced the natural and introduced pastures such as Guinea (Panicum maximum), Puntero (Hyparrhenia rufa), and Imperial (Axonopus scoparius), among others (Ramírez and Seré 1990).

In Colombia, the massive utilization of Brachiaria decumbens goes back to 1970 and it constituted a technological milestone in the domestic livestock industry, since its adoption made possible to intensify systems, such as the case of the dairy basin in the piedmont of Caquetá (Ramírez and Seré 1990; Michelsen 1990).

Further research on pastures in the region contributed new Brachiaria materials with different attributes. Thus, during the 80's and 90's, materials such as Brachiaria dictyoneura, Brachiaria Brizantha, Brachiaria humidicola, Brachiaria ruziziensis were released in several countries. These new grasses were incorporated in the production systems with diverse degrees of success in different countries. One of its principal shortcomings is its low tolerance to drought, hence the need to obtain forage species with better adaptation to drought and better forage quality (Guiot and Meléndez 2003).

The high susceptibility to the spittlebug of the available Brachiaria materials has been an important constraint to the expansion of livestock production. Research objectives of the Bracharia breeding program have been to obtain new grasses with multiple resistant to spittlebug and in addition, outstanding agronomic characteristics, vigor at establishment, good sprouting capacity, high yield, high nutritional quality, and good seed production. It is considered that the materials with the former attributes represent the second generation of the Brachiaria genus. Recently, the Mulato pasture was released; the first Brachiaria hybrid obtained through CIAT's forage breeding program.

The Mulato grass is a hybrid of Brachiaria from the crossbreeding # 625 (Brachiaria ruziziensis clone 44-6 X Brachiaria brizantha CIAT 6297) carried out in 1988 by CIAT. >From 1994, it was included in a series of regional agronomic tests in Colombia, Mexico and the countries of Central America, where the clone CIAT 36061 proved to be a pasture with high vigor and good potential for forage production (Miles 1999). Since the year 2000 Mulato seed is produced and marketed in Mexico through a strategic alliance with a private seed industry.

Mulato grows in humid and subhumid environments, its growth is decumbent, stoloniferous and cespitose. It is adapted to well-drained soils of medium fertility with pH >4.5, rainfall higher than 1,000 mm/year, up to 1,800 m.a.s.l. and flat to undulating topography. It is resistant to prolonged droughts. Its nourishing quality is very high, with a raw protein value fluctuating between 12 and 15% and a digestibility from 55 to 62%. It produces 25% more dry matter than other commercial Brachiaria grassess such as Brachiaria decumbens and Brachiaria brizantha, increasing animal productivity from 1 to 2 kg milk/cow/day additional to Brachiaria brizantha cv. Marandú or cv. Toledo (Peters et al 2003).

Among the second generation of Brachiaria grasses waiting to be released in 2005 is the hybrid #4624 (CIAT 36087), having (a) the same forage quality characteristics of Mulato, (b) resistant to multiple species of spittlebug; (c) better adaptation to ecosystems with prevalence of prolonged droughts; and (d) higher seed production, thus allowing seed to be marketed at lower prices than traditional options.

In addition, there are several new hybrids under final evaluation, close to being released to producers which present the following present attributes: (a) resistant to Rhizotocnia; (b) superior adaptation to acid and flooded soils (i.e., greater range of adaptation); (c) better seed production potential, (d) higher forage quality, and (e) multiple resistance to various species of spittlebug.

The Brachiaria hybrids demand similar management than some of the Brachiaria grasses of the first generation such as B. brizantha. However, they require better soils or fertilizer inputs to maintain the increased forage biomass and quality obtained.

Materials and Methods

The estimation of the economic impact of the new hybrids is based on the classical theory of economic surplus (Marshall 1963) which formulates that, when the supply function is shifted in a market in equilibrium (in this case, the adoption of improved pastures increase the supply of beef and milk), a surplus is generated (economic benefits) which is captured by consumers and/or producers participating in such market. Consumers capture economic benefits due to the increase in supply which reduces real prices and increases the availability of products in the market.

In Figure 1A, the new technology applied at the farm level increases the productivity and shifts the production function upwards, generating greater production (q₁) with the same volume of resources (x_i). The lower cost per unit of product becomes the source of economic revenues to producers adopting the new technology.

When the technology is adopted, the supply function of the market shifts from (Figure 1B) originating a new equilibrium resulting in a greater quantity of product marketed (goes up from at a lower price (goes down from ). In Figure 1B, the consumer benefits is the area and the producer benefits is the difference between mse (productivity revenues) and (income loss by price reduction). The total social benefits, formed by the revenues of both consumers and producers, correspond to the triangle mde.

These economic benefits constitute the compensation that society receives by allocating monetary resources to research and development of new technological alternatives. Once the annual flow of benefits from the new technology and the investment to develop it are known, the economic efficiency and social profitability indicators are estimated. The indicators usually used are the net present value (NPV), the internal rate of return (IRR) and the cost/benefit (B/C) ratio (Gittinger 1972 ).

The Evaluation Model

The benefit estimates caused by technical change were made through the application of the MODEXC simulation model (Model of Economic Surplus), developed by CIAT (Rivas et al 1999), which calculates the annual flow of benefits due to technological change, simulating the market changes as the process of dissemination and adoption of technology advances.

MODEXC works with a simultaneous system of supply and demand functions from the Cobb-Douglas type of constant elasticity. To simulate the adoption process, it incorporates a logistic or sigmoid function that regulates the annual shift of the supply curve as the new technology is being adopted. In addition to the technical change, MODEXC can include and evaluate autonomous supply and demand changes, independent of the new technologies under analysis. Such changes correspond to shifts in demand facilitated by population increases, income variations and relative prices. On the supply side, it considers variations caused by the adoption of other technologies and also those related to the expansion of the productive capacity due to market trends.

The model works with two types of parameters: technical and economic. The technical ones characterize the technology and its dissemination and they are related to: (a) changes at the productivity level, (b) the amount of area to be planted with the new technology; and (c) the speed and intensity of the adoption process. The economic parameters define the markets under analyses in terms of: (a) quantities and initial prices at equilibrium; (b) the supply and demand price elasticity; (c) the supply and demand autonomous growth rates; (d) international market prices; and (e) the minimum supply price.

Technical and economic parameters

Table 3 shows the reference frame of the evaluation procedure, in terms of geographical areas (countries and regions), production systems (beef fattening or dual purpose), ecosystems (savannas or hillsides), and milk and beef markets affected by technical change.