the Symposium on Wheats for More Tropical Environments - cimmyt

312export crops which will generateforeign exchange for importing foodand 2) promoting <strong>the</strong> production ofo<strong>the</strong>r food staples to substitute forwheat imports.The comparative advantage frameworkis a useful way of assessing <strong>the</strong>economics of each of <strong>the</strong>se alternatives.As an example. it can be assumed thatone hectare of wheat yields 2 tons ofgrain. If imported wheat costs $200/t in<strong>the</strong> capital city. and it costs $20/t totransport domestically produced wheatto <strong>the</strong> capital. <strong>the</strong>n <strong>the</strong> value of onehectare of domestic wheat would beequal to 2 x (200-20) = $360/ha. Localwheat production will require importedfertilizer and o<strong>the</strong>r inputs; if <strong>the</strong>se cost$100/ha. <strong>the</strong> net gain would be$260/ha. However. <strong>the</strong>se same domesticresources of labor and land might beinvested in export crops such as cotton.If one hectare of cotton yields 0.8 tonsof lint per hectare at an export price of$1.000/t. and requires $200/ha ofimported inputs. net gains would be$600/ha. sufficient to import over 3tons of wheat. In this case. cottonwould have <strong>the</strong> comparative advantage.However. if wheat yields 4 Uha (for <strong>the</strong>same inputs). wheat would have <strong>the</strong>comparative advantage. All of <strong>the</strong>secalculations employ <strong>the</strong> world priceeqUivalent of <strong>the</strong> commodity ra<strong>the</strong>rthan <strong>the</strong> domestic price. since <strong>the</strong> worldprice reflects <strong>the</strong> real cost to <strong>the</strong>country.The value of <strong>the</strong> comparative advantageanalysis is that it demands a look at <strong>the</strong>alternatives. The above example showsthat. in focusing on wheat alone. itmight be concluded that <strong>the</strong>re is a netgain from wheat production. However.with <strong>the</strong> country's welfare ra<strong>the</strong>r thanwheat production as <strong>the</strong> objective. <strong>the</strong>alternative uses of <strong>the</strong> scarce domesticresources available and <strong>the</strong>ircontribution to national income mustbe taken into account.EcononUcIssuesinEstablishing a DomesticWheat IndustryThe economics of domestic wheatproduction must be examined at twolevels. <strong>the</strong> comparative advantage orprofitability to <strong>the</strong> country. and <strong>the</strong>profitability to <strong>the</strong> farmer. At <strong>the</strong> sametime. <strong>the</strong>re will be a number ofmarketing and milling issues to beresolved in establishing a new industry.Some of <strong>the</strong>se issues will be mentionedonly briefly. since <strong>the</strong>y will bediscussed in more detail in <strong>the</strong> papersthat follow.Economic profitabilityFour issues will be dealt with thatdetermine economic profitability to <strong>the</strong>country. First. <strong>the</strong> foreign exchangesaVings generated by domestic wheatproduction will be critically dependenton <strong>the</strong> technology employed. Highlymechanized wheat production schemeswhich have been tried in severalAfrican countries. with even harvestingbeing mechanized. are expensive froma foreign-exchange point of view andare unlikely to be effiCient in a lowwageeconomy (6.13.17). One-third ormore of <strong>the</strong> foreign exchange saved isspent on imported inputs andmachinery. Investment in large-scaleirrigation schemes is also extremelycostly (over US$ 10.000/ha) andforeign-exchange intensive. It isunlikely that it will pay to developlarge-scale irrigation schemes in <strong>the</strong>tropiCS. specifically for wheatproduction (1.2.20). Even small-scaleirrigation schemes for wheat have failedto generate satisfactory returns (8).Second. areas with high yield potentialand irrigation or adequate moisture willalso usually have high-value alternativecrops such as rice. cotton or o<strong>the</strong>r cashcrops that are adapted to tropical areas.While it seems logical to emphasizeareas where wheat gives <strong>the</strong> highestyields. it may well be that wheat'sgreatest comparative advantage will be