TED Case Studies

Costa Rica Beef Exports

          CASE NUMBER:          82 
          CASE MNEMONIC:      COSTBEEF
          CASE NAME:          Beef Exports/Costa Rica

A.        IDENTIFICATION

1.        The Issue

     Tropical rain forests contain approximately 25 percent of
the earth's insect, plant and animal known species.  These rain
forests represent extremely sensitive ecosystems that are
primary suppliers for much of the world's oxygen.  The
destructive process of deforestation is being principally
motivated by unfavorable economic conditions and short-sighted
government policies.  The liquidity, or rather, debt crisis
that emerged from the 1970's and 1980's has provoked many in
the developing world to cattle ranching, specifically the
exportation of beef.  This exportation has been directed
towards the developed world but in particular to the United
States.  The dilemma of deforestation due expressly to cattle
ranching expansion will be discussed in this case, with special
attention paid to Costa Rica.  However, while the focus will be
Costa Rica, other Latin American nations will be examined.

2.        Description

     The debt crisis that brought the vast majority of
developing nations and Western banks to verge of total collapse
left many in the developing world economically devastated,
including Costa Rica.  This Central American nation had
borrowed heavily from the commercial bank sector that
specialized in short term maturities and market determined
variable interest rates.  Costa Rica, essentially a primary
product exporter, had attempted through capital borrowing, to
industrialize rapidly but was abruptly impeded by three
international events: the OPEC oil price increases in 1973 and
1979 and the recession of the early 1980s.  Additionally, Costa
Rica suffers from a condition which many primary product,
agriculturally based economies share, that is a continually
decreasing terms of trade.

     The 1980s recession was critical for two fundamental
reasons.  The first reason was that this recession translated
into the decreased demand for primary products from Costa Rica,
thus reducing aggregate export earnings.  Second, the United 
States, in an attempt to curtail double digit inflation,
practiced an aggressive monetary policy which essentially
raised dollar interest rates.  These dollar interest rates are
utilized by commercial banks as reference points, or rather, as
market variable rate lending determinants.  In short, the
interest on Costa Rica's external debt rose approximately 15
percent in a relatively short period of time.


     This massive external debt coupled with the recession
produced the debt crisis which erupted fully by 1982.  The
economic ramifications on the Costa Rican economy were
widespread and extensive.  The Costa Rican government then
employed macroeconomic policies that resulted in immense
amounts of unemployment, inflation, and exchange rate
fluctuations.  These set of events therefore put Costa Rica in
a state of depression, impoverishment, economic disarray, and
in crucial need of foreign exchange.

     In this period of crisis, many Latin American nations
including Costa Rica began or expanded cattle ranching as an
economic method for the obtaining of crucially needed foreign
exchange.  The demand for beef in the United States was
extraordinarily high and these dollar strapped nations chose
clear-cutting and deforestation as the central formula to earn
dollars.  In particular, Costa Rica deforested much of its
tropical rain forests and Latin America in general lost 11
percent of its rain forests to cattle ranching alone.  The
Costa Rican government established specialized exchange rates
and credit instruments in order to help cattle ranchers expand
beef exports or attract new investors.

     In sum, beef exports from this nation increased nearly 500
percent from the 1960's to the late early 1980's. Additionally,
cattle pasture land increased from 27 percent of land mass to
54 percent of total land mass.   Deforestation and
pasturization of land in Costa Rica marks one the most
expansive and damaging environmental disasters recorded in
modern history, in terms of percentages.  

     The persuasiveness of deforestation within Central and
South American nations is illustrated in Table 82-1 along with
other nations from Africa and Asia for comparison.  Remembering
that one hectare is equal to 2.5 acres, Costa Rica lost over
310,000 acres in just one decade.

                          Table 82-1
             Tropical Deforestation in the 1980's

                  Deforestation in Hectares       Percent

Brazil              9,050,000                     1.8
Colombia            890,000                       1.7
Costa Rica          124,000                       6.9
Ecuador             340,000                       2.3
India               1,500,000                     2.3
Indonesia           920,000                       0.8
Ivory Coast         510,000                       5.2

     The destructive process of deforestation due to cattle
ranching also has created another repercussion -- soil erosion. 
Tropical rain forests have delicate ecosystems that also serve
to protect soils from substantial amounts of erosion.  However
with the lost of forests, Costa Rica has reported considerable
amounts of top soil erosion consequently depleting the land of
its nutrients.  The long-term effects of this depletion have
been the overall reduction of the land's productive life.  

     Approximately 2.2 billion metric tons of top soil have in
the aggregate been eroded in this Central American nation due
in so small part to the role of beef exports to the United
States.  Ironically, Costa Rica today receives greater
earnings from the preservation of its rain forests than it did
from its exploitation and destruction.

     Costa Rica is a small country in Central America, barely
seventy-five miles wide at its narrowest point.  Yet, within
its narrow confines, Costa Rica possesses a remarkable
diversity of physical features and biological habitats.  It has
sea coasts on both the Atlantic and the Pacific; four mountain
ranges; volcanoes, swamps, marshes, and arid deserts.  It
possesses three times as many species of birds as all of North
America.  

     Costa Rica denudes nearly 57,000 hectares of rain forest
each year.  This is the highest total in the Western
Hemisphere.  The Costa Ricans' rain forests are among the
worldþs richest ecosystems.  In 1969, the government
established thirty-two national parks and reserves.  This
amounts to approximately 10% of Costa Rica's national
territory.  One of these parks, Corcovado, contains 161 square
miles of rain forest.  Within this small area, about the size
of Washington, D.C. metropolitan area, there are 285 species of
birds, 139 species of mammals, 116 species of amphibians and
5,000-10,000 species of insects.  If the logging of rain
forests continues at its present rate, the rain forests in
Costa Rica will disappear before the end of this century.

3.        Related Cases

     BANANA case
     COSTPEST case
     BOTSWANA case
     BRAZIL case
     COFFEE case

     Keyword Clusters         

     (1): Trade Product            = WOOD
     (2): Bio-geography            = TROPical
     (3): Environmental Problem    = DEFORestation

4.        Draft Author: Antonio Santiago and Jay Allen Schmidt

B.        LEGAL Cluster

5.        Discourse and Status: DISagreement and INPROGress

6.        Forum and Scope: LAW and UNILATeral

     The issue is presently being considered for legislation in
the United States.  Measures that are being considered include
labeling a package of beef as to its country of origin.  This
would enable consumers to exercise an option concerning their
purchases of beef.  In a similar case, Conservation
International bought a portion of Bolivia's debt at a discount
they agreed not to log 3.7 million hectares of its natural
forests.  

7.        Decision Breadth:  2 (United States, Costa Rica)

8.        Legal Standing: LAW

C.        GEOGRAPHIC Clusters

9.        Geographic Locations

     a.   Geographic Domain : North America [NAMER]
     b.   Geographic Site   : Southern North America [SNAMER]
     c.   Geographic Impact : Costa Rica [COSTA]

10.       Sub-national Factors: NO

11.       Type of Habitat: TROPical

D.        TRADE Clusters

12.       Type of Measure:  Import Standard [IMSTD]

     The Costa Rican government also has removed the credit  
instruments and subsidies for the expansion of cattle ranching. 
In this way, the government is shifting its direction away from
this export, to other more sustainable forms of earning foreign
exchange.

13.       Direct vs. Indirect Impacts: DIRect

14.       Relation of Measure to Environmental Impact

     a.  Directly Related     : YES  WOOD
     b.  Indirectly Related   : YES  TOURism
     c.  Not Related:         : NO
     d.  Process Related      : YES  DEFORestation

15.       Trade Product Identification: BEEF

16.       Economic Data

     On the assumption that a pasture has a life of eight years
the following data applied to its usage (see Table 82-2).

                          Table 82-2
                   The Economics of Land Use
     1 acre of forest = 800,000 lbs. of plants and animals
     1 acre = 43,560 square feet
     1 bovine = 200 lbs. of actual beef
     200 lbs. beef = 800 4 oz. hamburgers
     1 hamburger = 1/2 ton of forest products or 1000 lbs.
     1 hamburger = 55 feet of forest

     The data shows the damage one hamburger wreaks on the rain
forest.  To counter these trends Costa Rica is has reduced its
foreign debt through debt-for-nature-swaps.  Although the idea
was first put into practice in Bolivia, they have applied it to
Costa Rica as well.  In these deals, conservationist groups
such as the World Wildlife Fund purchase part of a developing
country's commercial debt at a discount.  The central bank of
the debtor nation redeems the debt and issues local currency
bonds equal to face value of the original debts.  Since 1976,
this has resulted in $75 million worth of swaps.  A negative
consequence of this measure is that it exacerbates domestic
spending and leads to higher inflation.  

17.       Impact of Measure on Trade Competitiveness: MEDium

     A trade restriction would have more impact on Costa Rica
than it would on the United States.  The United States would
not purchase beef that they produced at the expense of the rain
forests.  Also, the United States could easily find a
substitute for the beef.  The United States could aid Costa
Rica by giving it technology that would make its farming
efforts more efficient.

18.       Industry Sector: FOOD

19.       Exporters and Importers:  Costa Rica [COSTA] and USA

E.        ENVIRONMENTAL Cluster

20.       Environmental Problem Type:  DEFORestation

21.       Name, Type, and Diversity of Species 

     Name:          Trees
     Type:          Many
     Diversity:     12,119 higher plants
                    per 10,000 km/sq (Costa
                    Rica)

22.       Resource Impact and Effect: MEDIUM

     The impact of the pasteurization of forests can be
reversed if the government of Costa Rica acts soon.  However,
it will take several centuries for the forests to return to the
their pre-harvest state.  It takes hundreds of years to develop
the kind of old-growth timber they are harvesting.  

23.       Urgency and Lifetime:  MEDium and 100s of years

     If the present rate of consumption continues, within fifty
years the rain forests will be completely wiped out.

24.       Substitutes:  LIKE

     There are many substitutes for beef.  Since much of the
beef is utilized for pet food and other products besides
hamburgers, substitutes like soy bean, horse meat, pork or fish
are available.  The United States produces more than enough
beef to satisfy its domestic demand.  The issue is price.  The
United States is purchasing much of the beef simply because of
its cost.

F.        OTHER Factors

25.       Culture: YES

     The beef industry and demand in the United States
represents a culture identification with institutions such as
the McDonald's hamburger.  This has become an American symbol
of idealism -- the Earth simply is unable to sustain the meat
eating habits of billions and billions served (see BOTSWANA and
BRAZIL cases).

26.       Trans-boundary Issues: NO

27.       Human Rights:  YES

     Human rights are an issue because not only do indigenous
people groups rely on the rain forests for their subsistence,
these people are being displaced because they can only survive
where there is an abundance of rain forests.

28.       Relevant Literature

Caufield, Catherine.  "Paradise Lost."  The San Francisco
     Chronicle, Sunday Edition (October 1, 1989), 7:Z.
Christian, Shirley. "There's a Bonanza in Nature for Costa
     Rica, but Its Forests Too Are Besieged."  The New
     York Times May 29, 1992, A6.
Dobb, Edwin; Lerner, Steve; and Pearce, Steve. "Summit on the
     Future: Will 140 Nations Agree on Anything?"  United
     Nations Conference on Environment and Development
     1992 94/3 (May, 1992), 84.
Economist Intelligence Unit.  Annual Yearly Reports. 1973-1994.
     The Economist Building. 111 West 57th Street; NY, NY
     10019.
Gillis, Malcolm; Perkins, Dwight H; Roemer, Michael;
     and Snodgrass, Donald R.  Economics of Development,
     Third Edition.  Norton & Company, Inc. 1992.
Hall, Matthew. "Sprouting Business: Modern-Day Appleseeds Grow 
     Trees in Costa Rica."  Business First Columbus 8/45 (July
     6, 1992), 1:13.
"Hamburgers Are Killing Trees."  Newsweek, 110
     (September 14, 1987): 74. 
Jukofsky, Diane. "Problems & progress in tropical forests." 
     American Forests; Vol.   97, No. 7-8, pg. 48; July 1991. 
Knoll, Erwin.  "Not Strictly for the Birds."  The Progressive,
     49 (March, 1985): 4.
Meyer, Carrie. "Deforestation and the Frontier Lands: Costa
     Rica Illustrates how Economic Problems can Lead to
     Environmental Crisis."  EPA Journal (April-June,
     1993), 20.
Monastersky, Richard. "The Fall of the Forest: Tropical Tree 
     Losses Go from Bad to Worse."  Science News 138/3 (July
     21, 1990).
"Our Steak in the Jungle."  BioScience, 36 (November, 1936):
     42.
Raloff, Janet.  "Pressures on Central American Forests."
     Science News, 129 (4 Jan., 1986): 14.
Sandler, Todd. "Tropical Deforestation: Markets and Market
     Failures." Land Economics; Vol. 69, No. 3; pg. 225.
Sass, Lorna J.  "A Slice of South Brazilian Cuisine."
     Americas, 36 (November/December, 1984): 51-4.
Skinner, Joseph K. "Big Mac and the Tropical Forests; Natural 
     Resources being Plundered for Cattle Pasturage."  Monthly
     Review 37 (December, 1985), 25.
South America, Central America and the Caribbean 1993.  Fourth 
     Edition.  Europa Publications, 1993, 215-223.
Stammer, Larry B. "Tourism -- Nature's New Ally?"  Los Angeles 
     Times Home Edition (April 29, 1992), A1.
Steif, William.  "Tourism Passes Bananas as Costa Rica's Chief 
     Dollar Earner."  Hotel and Motel Management 209/19 (July
     5, 1994), 12. 
Sun, Marjorie.  "Costa Rica's Campaign for Conservation."
     Science 239/4846 (March 18, 1988).
"The Way of the Dinosaur."  UN Chronicle, 25 (June, 1988): 49.
"The Beef Against...Beef: Do Cows Cause Global Warming and
     Human Hunger?" Time (April 20, 1992), 76.
"Tropical Deforestation: Its Impact on Indigenous Peoples."
     The Futurist 19 (February, 1985): 66-7.
Tye, Larry. "Eco-tourism Offers Visitor Lush Scenery, and
     Spells Out Need for Preservation." The Boston Globe
     (April 9, 1989), B:1.
World Tables 1993.  The World Bank, John Hopkins
     University Press 1993.

                          References