What is the impact of PRONAF on beneficiaries’ income?

Responsible researcher: Viviane Pires Ribeiro

Article title: THE RECENT PRONAF EXPERIENCE IN PERNAMBUCO: AN ANALYSIS USING PROPENSITY SCORE

Authors of the article: André Matos Magalhães, Raul Silveira Neto, Fernando de Mendonça Dias and Alexandre Rands Barros

Location of intervention: Pernambuco, Brazil

Sample size: 4,500 family farmers

Major theme: Economic Policy and Governance

Type of Intervention: Impact of PRONAF on income

Variable of main interest: Income

Assessment method: Propensity Score Method

Assessment Context

The National Program for Strengthening Family Agriculture (PRONAF) was created in 1996 by the federal government and since then it has been one of the main Brazilian policies in the social area and agriculture. The program has as one of its main objectives the reduction of poverty that affects family farmers in the country, thus seeking to ensure access to cheap credit for small farmers and integrate them with other rural development policies, such as support for development infrastructure and technical assistance. In the period from 1998 to 2001 alone, the program signed 2.543 million contracts throughout Brazil, spending more than 6.9 billion reais.

PRONAF divides farmers benefiting from credits into four groups (A, B, C and D), classified according to their gross annual income and the amount financed. Group A is made up exclusively of settlers from the National Agrarian Reform Program, regardless of their income bracket. In the period between 1998 and 2000, the other groups were classified according to the following gross annual income ranges: 5 to R$1,500.00 for farmers in group B; from R$1,500.00 to R$8,000.00 for farmers in group C; and from R$8,000.00 to R$27,500.00 for farmers in group D.

Intervention Details

Magalhães et al. (2006) evaluate the PRONAF experience in the Brazilian state of Pernambuco. The research is conducted with data from a field survey carried out by FADE-UFPE, with family farmers from Pernambuco, during the months of August to November 2001. The interviews were carried out in more than 60 municipalities located in the State, totaling approximately 4,500 small farmers. Two thirds of the sample were made up of PRONAF beneficiaries and one third were made up of non-beneficiaries, but with a similar socioeconomic profile to the former and residing in the same region as the beneficiaries. This second group was used as a control group and served as a basis for comparisons with beneficiaries.

The impact of PRONAF is assessed through three specific variables: the value of production, the value of production per hectare and the value of production per person engaged in production. These variables were chosen by the authors because they are representative of two of the main objectives pursued in the study: i) income growth, denoted by the growth in production value; ii) growth in the training of family farmers, represented by the growth in the value of production per hectare and per person engaged in production.

Methodology Details

The effectiveness analysis, according to Magalhães et al. (2006), seeks to verify whether public policy was capable of generating the expected results. In this sense, the authors analyze the effectiveness of PRONAF through its impacts on the selected production variables. The impacts are considered separately by PRONAF groups (B, C and D) and for the total sample. Therefore, estimates of the impact of the program on the value of production, the value of production per hectare and on the value of production per person on the rural property are obtained for the total and for the three groups considered in PRONAF from the three estimators: a difference of means without control, the difference of means from Least Squares regressions and the Propensity Score .

Results

The results found by Magalhães et al. (2006) indicate that PRONAF was not very effective in Pernambuco until 2001. When the authors consider the differences in characteristics and probabilities of participation in the program, the results indicate that the program has not generated a significant impact on the target audience in Pernambuco.

The estimates obtained from the comparison without any control for the “production value” variable indicate a positive result of the program, but this result, for all groups and for the universe, is fully explained by the different characteristics of the agents and the different probabilities of participation: the differences decrease when the Least Squares estimator is considered and disappear when the Propensity Score estimator is considered. Therefore, the evidence indicates that the program was not effective in terms of its effects on the value of production, neither for the entire universe, nor for any of the groups considered for the period investigated.

For the variable “production value per hectare”, the estimates indicate that when the entire universe is considered, a negative effect of the program appears, present in the evidence generated by all three estimators. However, when considering the evidence by groups, only the rural properties in the group, in their estimates with controls, do not present the negative result obtained in the aggregation. This result suggests that the program has encouraged more extensive occupation of the property without, however, there having been increases at the same rate in production, thus showing a loss in productivity.

The estimates of the variable “value of production per person” follow the same pattern obtained for those of the “value of production”. Although positive, they decrease in value as more controls are introduced into the estimates.

Public Policy Lessons

What is the impact of PRONAF on the income of beneficiaries residing in Pernambuco? The study carried out by Magalhães et al. (2006) suggests that the impact of PRONAF on the income and productivity of its beneficiaries was quite reduced and even negative in some cases. According to the authors, this result is consistent with those found in other studies on the program, with the exception of those carried out in the South of Brazil. Thus, such contradictory results suggest that there may be a conflict faced by a program aimed at family farmers who have or may have participation in markets, but which also targets social policies on the entire group of family farmers. Therefore, selection bias, effectiveness problems and reduced effects on income/productivity in states where family farming is not integrated with agroindustry, seen in light of other evaluations, suggest that the program may be successful only in locations where this integration is already established, with timid results in the others.

References

MAGALHÃES, André Matos et al. The recent PRONAF experience in Pernambuco: an analysis using propensity scores. Applied economics, vol. 10, no. 1, p. 57-74, 2006.