A Case Study Questions the Value of Reagan's "Caribbean Basin Initiative"

The magic of the marketplace" and "the spirit of enterprise" will bring "economic progress and social justice" to the countries of the Caribbean region, proclaimed Ronald Reagan in his speech to the Organization of American States on February 25 outlining his Caribbean Basin Initiative. To make the magic work, the bulk of the $350 million in aid he was proposing would "be concentrated in the private sector," Reagan said.

This private sector aid strategy, however, may prove counterproductive, as one U.S.-funded project in Guatemala illustrates. Rather than boosting the economy and spreading wealth, the project destroyed essential activities and increased tensions between rich and poor.

These are the conclusions not of a U.S. critic, but of a study funded and published by the United States government's own Agency for International Development (AID) which dispensed U.S. taxpayers' money on the project.

AID is the primary conduit for U.S. bilateral economic assistance abroad. Sometimes the agency provides loans directly to the third world governments; other times it funnels the money through private organizations, such as the Latin American Agribusiness Development Corporation (LAAD), which has received over $20 million from AID in the last ' decade.

LAAD, a Miami-based finance company jointly owned by 15 U.S. corporate giants including Borden, Cargill, Bank of America, John Deere and Castle and Cooke, provides start-up capital to local companies producing "non-traditional" agricultural exports (not sugar, coffee, or cotton) for the lucrative markets of North America. One such operation LAAD funds is called ALCOSA, "a Guatemalan frozen food company" that supplies U.S. , supermarkets with broccoli, cauliflower and okra "grown by Indian communities," claims LAAD's 1977 annual report.

When AID decided to look into how its LAAD funds were being spent, it focused on the ALCOSA project. Hiring the Washington consulting firm of Checchi & Co. to conduct the 1977 study, AID was soon apprised of some startling facts.

The Checchi evaluation revealed, first off, that though ALCOSA might appear Guatemalan, it was actually an affiliate of the U.S. food multinational, Hanover Brands, Inc. Just as importantly, the report disclosed that the "Indian communities" were partly made. up of economically and socially better-off ladinos - people of mixed Indian and Hispanic blood.

Focusing on the village of Patzicia, the Checchi investigation also found that ALCOSA granted production contracts to small farmers who were already advantaged - those having capital to begin with and who were "opportunistically entrepreneurial." The increased income these farmers earned from their ALCOSA contracts was used in speculative land purchases which meant that the smallest landholders, mainly Indians, lost their land and became seasonal laborers on farms growing cauliflower for ALCOSA. The net result, the evaluation concluded, was "an increase in economic inequality."

In 1981, AID hired Kenneth Kusterer, the sociologist who had participated in the Checchi evaluation, to return to Guatemala and examine in greater depth the social impact of the project. The study, conducted amid "the escalating wave of political unrest and rural violence in Guatemala" and publicly released by AID in 1981, documents that ALCOSA has become an unmitigated economic disaster for many, if not most, of the small highlands farmers producing it.

Tracing the evolution of ALCOSA's operations, the AID study explains that while the company had initially relied on the supply of production from its own farms and those of "urban based and highly - sophisticated medium size farmers," ALCOSA in the mid-1970s began to deal more with smaller producers in the highlands - contract farmers who would settle for lower profits than the larger farmers. ALCOSA sometimes enticed new farmers into the scheme by offering company credit.

Soon these new, smaller farmers were abandoning crops they used to grow for their own consumption or the local market. As the study reveals, "more than 1,300 farmers, most of them new to ALCOSA, were convinced to commit significant portions of their available land and labor resources to produce a crop which few of them had ever seen before and which (as several of them said in interviews) `we can't even pronounce'."

The AID study presents detailed evaluations of the local-level impact of ALCOSA's "outgrower" operations in four highland communities in Guatemala. In the village of Chimachoy, which is almost entirely populated by Cakchiquel Indians, ALCOSA promoted cauliflower production by allying itself with the largest landowner of the community - Senor Don Mateo Quejay, the former overseer of the village's largest estate prior to the 1954 land reform. "Partly because of his outstanding wealth," the study reports, "and partly because of his former occupation, Senor Quejay was not well liked in the village." Despite his elite status, or perhaps because of it, ALCOSA chose to build its buying station on Senor Quejay's Property.

The "bitter resentment" that developed among village farmers toward Senor Quejay and ALCOSA was hardly rooted in simple jealousy, but was "based on the farmer's perceptions of their mistreatment at the hands of ALCOSA field employees who have worked the village in recent years." According to the 1980 study, "Observations this year revealed a pattern of interaction that is an extreme variant, almost a caricature, of the inter-ethnic interactions within ladino-Indian relationships in Guatemala. The relationship has an exploitative core in the employees' defrauding the farmers. Their relation is expressed in traditional patron-client format in which the ALCOSA employee patron talks down to the farmers as if they were an, especially stupid elementary school class."

Even before the economic disaster brought on by a suspension of ALCOSA's local purchases during 1980 [see below], most farmers in Chimachoy knew they were being cheated through the `quality standards', buying procedures and other machinations employed by the company's field agents. According to the study, 'farmers complain that ALCOSA's massive purchases of native cauliflower seed from their own traditional suppliers have driven up these prices 500%, that they are required to -purchase vastly inflated quantities of insecticide and that fertilizer prices are higher... They don't like the new payment procedures. . . payments were made irregularly, with the paymaster not showing up in the village on announced paydays." According to the AID investigators, at least two separate schemes were developed by ALCOSA officials to defraud the growers; including one involving "kickback arrangements between the company's chief agronomist and merchants who supplied the inputs that ALCOSA distributed in its credit sales to farmers."

While all these manipulations by ALCOSA served to exploit them economically, the "worst blows" to highland farmers were caused by the surprise suspension of ALCOSA purchases throughout the peak of the 1980 harvest season. The resulting losses among two-thirds of the farmers surveyed by AID evaluators were substantial. Placing the average loss for Chimachoy outgrowers at $177, the AID report warned that "many farmers who had these losses will be unable to recover them this year." Most likely, however, there wasn't a next year for these farmers' recovery. "It appears to be the case that ALCOSA has enough cauliflower producers so that it no longer must continue in Chimachoy... this winter's scheduled re-evaluation of the Chimachoy buying program by ALCOSA will probably result in the closing of the Chimachoy buying station next spring."

In spite of its scheduled departure, ALCOSA will have left the village of Chimachoy with two of the most prominent manifestations of AID-style rural `modernization': a tremendously burdensome level of farm debt and a greater division between the rich and the poor in the community. In village discussion on how to contend with the impending crises, "larger farmers invariably proposed conciliation and negotiation, taking the view that the village's long-term interest required ALCOSA's continued presence. Poorer farmers, on the other ha P d, urged tactics of confrontation, such as a collective refusal to pay debts... poorer farmers repeatedly made the point that the larger farmers could afford to be conciliatory, since they had only suffered a temporary loss of income while the situation of their own families was more desperate. ALCOSA had urged them to grow cauliflower, they said, and now there is nothing to eat: Their children had been forced to leave home and seek work as farm labor or domestic servants..."

Even in the view of the AID evaluators, the options open to these poor farmers were next to nil: "Torn between energizing anger and enervating despair, few of the farmers were able to agree on a consistent course of action towards the company. Aggravating the situation was their fear that the most logical response, collective action to convince the company to resume buying (either through direct negotiations or legal proceedings) would be dangerous in Guatemala's . violent political climate. Informal leaders of peasant groups were being gunned down daily in other parts of the country and incidences of such terrorist violence were once again on the increase in the relatively quiet Chimaltenango area."

The social and economic hardships the ALCOSA company brought on - with help from LAAD and AID - have not diminished the U.S. government's support for ALCOSA. In 1981, the company was again buoyed by U.S. taxpayers' money, this time with a loan from the U.S. Overseas Private Investment Corporation, which went for ALCOSA's Guatemala City plant.

Nor has the LAAD-ALCOSA example dampened the enthusiasm of U.S. officials for the private sector, export-oriented growth strategy that ALCOSA represents. "We see considerable opportunity for expanding the type of agribusiness ventures funded by the Latin American Agribusiness Development Corporation," said John R. Bolton, AID's general counsel, in Congressional testimony last July. "The LAAD effort has provided significant benefits to small farmers and created productive off-farm jobs."

In spite of what U.S. officials may say, the ALCOSA case strongly suggests that if the "model" pioneered by LAAD is to be replicated under the administration's $350 million "Caribbean Basin Initiative," we can expect to witness a widening of rural poverty and hunger and a concomitant acceleration of civil strife throughout the region.

David Kinley is a freelance writer based in San Francisco and the coauthor of Aid as Obstacle (The Institute for Food and Development Policy, 1980) and the forthcoming Development Debacle: The World Bank in the Philippines (The Institute for Food and Development Policy, 1982).