Shady business: Why do Puerto Rican coffee farmers use conservation agriculture practices?

What’s in conservation agriculture for coffee farmers in Puerto Rico?

As the title indicates, the answer to this question is not clear. In fact, I’d dare to say that the answers evidence provides so far, are not answers at all, but rather series of new questions.

With this post I want to share some of the recent research I have conducted in the area. I will tell you why this is important for those who care about development, agriculture and environmental issues; I’ll also provide some background of what’s going on in Puerto Rico; give you a brief description of the methods I used to approach the problem quantitatively; tell you about the data I had to work with; and show you the results from my analysis. I’ll give you my interpretation of the results and conclude with some recommendations for improving current agricultural and environmental policy in PR.

If your thing is solving world poverty, coffee should be in your radar. It is an important commodity traded internationally–second only to oil(!). Also, it employs over 25 million families, mostly small scale farmers living in poverty.

If your cause is for the environment, this post is important because over 70% of the world’s coffee is produced in the most biologically diverse regions of the planet. And sometimes, coffee farming can cause significant environmental damage.

There are roughly two methods for growing coffee. Farmers can have shade plantations, where the coffee trees grow surrounded by a dense canopy of other trees that provide shade along other benefits. Alternatively, farmers can have a sun plantation, where the coffee trees grow without the shade cover. Sun plantations are what you would probably what you imagine when you think of coffee farming. Clear rows of coffee tress, in a farm that looks like the standard intensive monoculture type of farm.

When done correctly, a shade plantation can function as a natural forest and provide a wide range of ecosystem services that are good for sustaining biodiversity within the farm. In addition, the shade cover can benefit farmers economically: The ecology of a shade plantation is such, that the shade trees nourish the soil and allow it to sustain productivity for longer. Also, coffee grown under shade is said to taste better, allowing farmers to charge higher prices for a better quality bean.

Of course, there is no such a thing as a free lunch. Growing shade coffee comes at a cost: forgone short-term productivity. In fact, sun plantations are significantly more productive than shade plantations in the short run and cheaper to manage since there is no need to prune and maintain the shade trees.

In Puerto Rico, the department of natural resources and the environment (DRNA) is very interested in sun plantations. Since 2013, the DRNA has been buying and leasing land near the major coffee producing region of the island in an effort to expand the protected areas covered by forest.

The DRNA recognizes that it would be much cheaper to nudge farmers to grow shade coffee than acquiring their lands and rehabilitating their plantations. To nudge farmers, the DRNA is considering improving existing assistance programs that encourage farmers to grow shade coffee.

Before the DRNA is ready to propose new policies, it must understand the microeconomics of coffee farming in PR. As you now know, deciding whether or not to grow shade coffee is not a simple decision: farmers need to consider different time horizons (which will in turn trigger considerations over how much risk they are willing to take), possibly different production functions and technologies (it is difficult to use tractors in shade plantations), dynamics in different markets: a market for specialty coffee and the market for average-quality coffee that will likely go in beverages and instant coffees, and in PR, the availability of multiple incentive programs, some favoring sun plantations and some favoring shade plantations.

In my research, I set up to understand the economics behind farmers’ behavior in Puerto Rico. I set up the problem analytically as a system of simultaneous equations where growing shade coffee is impacted by whether or not a farmer participates in programs favoring, shade or sun coffee. In turn, recognizing that the decision to participate in these programs is no independent from current practices (or as we say in economics lingo, endogenous), participating in any of these programs is impacted by whether or not the farmer already grows shade coffee.

Both decisions are affected by a wide range of other factors that are farmer-related and farm-related such as age, gender, educational attainment, years of experience, farm size, farm income, price of coffee received by farmers, access to specialty markets, current management practices that include inter-cropping, multi-cropping, leaving unused land in the farm, etc.

In particular, I was interested in learning whether receiving assistance for growing sun or shade coffee was a significant factor determining behavior, and whether the price of coffee and access to specialty markets ere important factors. In other words, I wanted to know if assistance programs work and if markets are working for the farmers.

The data I used for the empirical analysis comes from a survey of 89 randomly selected farmers in the regions targeted by the DNRA (and area with easily 1,000 private properties, in an island with approximately 4,500 coffee farms–according to the latest USDA census).

The survey was conducted by ecologists at North Carolina State University and it was designed to answer ecology questions. The survey provided a much less than ideal dataset for answering questions of economics. But it is a start and it became clear form the beginning that the ultimate goal of this research was exploratory in nature. That instead of putting much faith in finding precise quantitative measures, this study should serve to shed light on the areas that need more research and finding what kind of questions should be asked in a future survey.

Given that disclaimer, I’ll tell you a about the sample of 89 farmers. Of the 89 farmers, 73 receive some kind of assistance for growing coffee: shade or sun. Almost all of those (72) receive assistance for growing sun coffee. In total, 30 receive benefits for growing shade coffee. Of those, almost all (29) were receiving both kinds of assistance.

The average farmer is old, male, and has been working on the farm over 20 years. Surprisingly, it was a very well educated sample of farmers: 39% of them had college degrees or higher. I suspect this education variable to be related with access to non-farm income. Unfortunately, I had no way to verify this as this question was not in the survey.

Average annual farm income was pretty low. The average farm generated just over $16,000 in revenues per year. The majority of the farmers are just growers, although some do part of the processing. Almost none roast their coffee.

Prices per pound showed variance within the sample, and 12% of farmers have access to specialty markets. These characteristics came as a surprise. I was expecting prices to be constant because in PR prices are heavily regulated by the Department of Consumer Affairs, and because 85% of the coffee is bought by a single company: coca-cola.

Lastly, 55% of farmers reported leaving part of their farm uncultivated and unused. In these areas farms left wild forests grow. I highlight this characteristic because I think it is an important part of the story as I am about the tell it.

A simple look at the data showed something very funky was going on with coffee farmers. When examined subsamples of farmers by type of program they benefited from, I found that 23% of farmers receiving assistance for growing shade coffee ONLY planted sun coffee, while 14% of farmers receiving assistance for growing sun ONLY planted shade coffee.

This contradiction was an indication that if programs were doing anything at all, they may be having unintended effects.

And that is exactly what I found with the econometrics analysis. I examined 3 cases: one looking at participation in sun programs, another at participation in shade programs, and one looking a participation in any program.

The most interesting finding of this study is that receiving support for growing sun coffee was the most important determinant of whether farmers decide to grow shade coffee or not. Receiving sun assistance increases the likelihood of growing shade by up to 88%!

The second most important determinant is having a graduate degree.

A second bunch of interesting findings were the determinants of participation in shade programs. The likelihood of participation in these programs increases for farmers already growing shade (unsurprisingly, a selection bias problem), for farmers with access to specialty markets (which is relieving for us economists advocates of markets), and for farmers who leave wild forested areas in their farms.

Having natural forests were also found to be a substitute for having shade in the farm. And I think that this is the key for answering why farmers are sing conservation agriculture in PR.

Let me now interpret the results: Why are farmers growing shade coffee in PR?

I think that they do so to keep the definitions of their management practices flexible, so that if today an agent form the Fish & Wildlife Service comes and asks them what they grow, they say “shade, of course”. And tomorrow when Department of Agriculture agent comes and asks them what they grow they say “sun, of course”. The DA agent will ask “how can it be sun if there is all that shade?” To which the farmers answer: “this are not shade trees, they are natural forests I haven’t dealt with.”

Although the results do not necessarily imply this answer, it is supported by the inconsistency between the programs farmers benefit from and the practices they choose, and with the popularity of leaving wild forest areas in their farms.

So, mystery solved?

Not at all. The fundamental reasons for why farmers want to leave the definition of their management practices flexible remains unanswered. At this point, All I can do is speculate and offer 3 answers that are consistent with the data:

  1. Rent-seeking: This was a well-educated sample of farmers. Maybe they are savvy farmers taking advantage from the dis-coordination between agencies offering support.
  2. Preventive reasons: The average farm does not generate a lot of revenue. Maybe these are cash-strapped farmers that sustain both types of management practices to guarantee some level of support.
  3. Other: Maybe there are other forces driving farmer behavior that are unrelated to program participation, such as access to crop insurance. Or maybe, there’s so much confusion over the requirements and benefits of the multiple available programs (there are over 30 programs administered by at least 4 agencies), that farmers just behave erratically and do whatever.

There are some clear implications for policy design from this study.

It is evident that there are loopholes and inefficiencies with the current system. Instead of tweaking it, the DNRA may want to consider other mechanisms to nudge farmers to grow shade.

If the story is of cash-strapped farmers, maybe they want to implement some income-support program.

If the story is of difficulties accessing specialty markets, the DNRA may want improve farmers’ access to these markets. For example by having conversations with the department of consumers affairs and allowing shops to charge higher for better quality coffee, or by supporting the formation of cooperatives so that farmers can guarantee a minimum volume of good quality beans to the retailers, or maybe supporting the establishment of a shade-coffee certification program–which does not exist in PR.

If you like this story and want to learn more, you can take a look at the paper I presented this summer at the Annual meetings of the American Agricultural Economics Association in Chicago.