As new opportunities opened in the 1990s, many children of coffee and cocoa producers found alternative employment in other agricultural activities or non-agricultural activities, and many have migrated. Out-migration of labor has not raised wages for coffee and cocoa laborers, mainly because of inexpensive Haitian migrant labor in the coffee sector. While some medium and larger sized coffee and cocoa producers have been adopting new higher yielding production technologies that require more hired labor, the pool of Haitian labor has served as a disincentive to introduce more labor-efficient production and post-harvest practices. The high cost of credit has also been as a disincentive to invest in labor-saving technologies. Dependence on low-cost labor could be a constraint on future competitiveness, especially if reports of a tightening rural labor markets are true. In any case, considering all the household labor used by small producers, and the hired Haitian labor used by other producers, it is difficult to get a grasp on the costs of coffee and cocoa production and harvesting because of the high labor share in such costs.

Better understanding of the structure and problems in rural labor markets is needed to formulate effective policy. Data on rural labor are virtually non-existent, so that even basic information is impossible to find. Efforts to collect data and support rural labor market research should be a major priority. With such information, government would be better positioned to have a coherent labor market strategy. Government might consider labor-contracting mechanisms as a means of ensuring a more reliable supply of guest workers, especially for small-scale producers. With more transparent contracting that guarantees rights of employees and obligations of employers, efficient supplies of higher-quality labor would benefit quality improvement efforts in both sectors.

Markets for agricultural inputs in the Dominican Republic often exhibit imperfections that inhibit efficient allocation of resources (which are exacerbated by policy biases favoring other agricultural and non-agricultural sectors). Credit, land and labor markets are characterized by high transactions costs, imperfect information, and imperfect enforcement of property rights. Institutional reform to benefit these markets might include government provision of information, support for pilot programs (such as micro finance), provision of technical support and agricultural research, and transparent enforcement of property rights. In addition, as noted throughout the report, financial sector reform is necessary for all agricultural sectors and especially the creditconstrained coffee and cocoa sectors.

# **C.  Commodity Price and Weather Related Risks**

International prices of coffee and cocoa have been volatile during the 1990s, and major hurricanes struck Dominican Republic in 1979, 1987, and 1998. These risks are transmitted through the entire production-finance-marketing chain, and have broader economy-wide effects. Pervasive risk constrains adjustment in the sectors and requires attention to risk management instruments.

A recent study by the World Bank’s Commodity Risk Management Group (CRMG) highlights commodity price risks in the Dominican coffee and cocoa sectors, and proposes the introduction of risk management instruments based on international commodity exchanges (World Bank, 2002a). Significant discussion ensued with representatives of the coffee and cocoa sectors in the Dominican Republic about the possibility of piloting such commodity price insurance. CONOCADO expressed interest in a pilot project for cocoa, as a means of securing more 77