Trade, Exchange Rate, and Agricultural Pricing Policies in Argentina

328 Pages·2000·10.94 MB·English

by  World Bank Group

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The Political Economy of Agricultural Pricing Policy
Trade,E xchange Rate,
and Agricultural Pricing Policies
in Argentina
Adolfo Sturzenegger
with the collaboration of
Wylian Otrera
and the assistance of
Beatriz Mosquera
WORLD BANK
COMPARATIVES TUDIES
The World Bank
Washington, D.C.
Copyright © 1990
The International Bank for Reconstruction
and Development/THEW ORLD BANK
1818 H Street, N.W.
Washington, D.C. 20433
All rights reserved
Manufactured in the United States of America
First printing May 1990
World Bank Comparative Studies are undertaken to increase the Bank's capacity to offer sound
and relevant policy recommendations to its member countries. Each series of studies, of which The
Political Economy of Agricultural Pricing Policy is one, comprises several empirical, multicountry
reviews of key economic policies and their effects on the development of the countries in which they
were implemented. A synthesis report on each series will compare the findings of the studies of
individual countries to identify common patterns in the relation between policy and outcome-thus
to increase understanding of development and economic policy
The series The Political Economy of Agricultural Pricing Policy,u nder the direction of Anne
0. Krueger, Maurice Schiff, and Alberto Valdes, was undertaken to examine the reasons underlying
pricing policy, to quantify the systematic and extensive intervention of developing countries in the
pricing of agricultural commodities during 1960-85,a nd to understand the effects of such
intervention over time. Each of the eighteen country studies uses a common methodology to
measure the effect of sectoral and economywide price intervention on agricultural incentives and
food prices, as well as their effects on output, consumption, trade, intersectoral transfers,
government budgets, and income distribution. The political and economic forces behind price
intervention are analyzed, as are the effortsa t reform of pricing policy and their consequences.
The findings, interpretations, and conclusions in this series are entirely those of the authors and
should not be attributed in any manner to the World Bank, to its affiliated organizations, or to
members of its Board of Executive Directors or the countries they represent.
The material in this publication is copyrighted. Requests for permission to reproduce portions of it
should be sent to Director, Publications Department, at the address shown in the copyright notice
above. The World Bank encourages dissemination of its work and will normally give permission
promptly and, when the reproduction is for noncommercial purposes, without asking a fee.
Permission to photocopy portions for classroom use is not required, though notification of such use
having been made will be appreciated.
The complete backlist of World Bank publications is shown in the annual Index of Publications,
which contains an alphabetical title list and indexes of subjects, authors, and countries and regions;
it is of value principally to libraries and institutional purchasers. The latest edition is available free
of charge from Publications Sales Unit, Department F,T he World Bank, 1818 H Street, N.W.,
Washington, D.C. 20433,U .S.A., or from Publications, The World Bank, 66, avenue d'I6na, 75116
Paris, France.
Adolfo Sturzenegger is an economist with the consulting firm Econometricai n Buenos Aires; Wylian
R. Otrera is an economist with the Fundaci6n Mediterranea, also in Buenos Aires; both are
consultants to the World Bank.
Library of Congress Cataloging-in-PublicationD ata
Sturzenegger,A dolfo, 1935-
Trade, exchange rate, and agriculturalp ricing policies in
Argentina / Adolfo Sturzenegger,w ith the collaborationo f Wyl1an
Otrera and the assistance of Beatriz Mosquera.
p. cm. -- (The Political economy of agriculturalp ricing
policy)
Includes bibliographicalr eferences.
ISBN 0-8213-1588-4
1. Agriculturalp rices--Argentina. 2. Export duties--Argentina.
3. Tariff--Argentina. 4. Foreign exchange administration-
-Argentina. 5. Argentina--Commercialp olicy. I. Otrera, Wyllan,
1935- . II. Title. III. Series.
HD1883.S78 1990
338.1'3'0982--dc2O 90-36771
CIP
iii
Abstract
From the beginning of the twentieth century until the start of
World War II, Argentina was one of the world's leading exporters of
agricultural goods. During the 1930s, for example, there were years when
Argentina supplied more than 50 percent of all the world's exports of beef,
just slightly less than 50 percent of all the world's exports of corn, and
almost 20 percent of all exported wheat.
By the early 1980s, Argentina was a country where agriculture
still played a dominant economic role. Between 1981 and 1985, for example,
agriculture accounted for roughly 57 percent of the country's total
exports. In world terms, however, Argentina had lost much of its
importance as a producer of raw foodstuffs. Its beef exports were
negligible, and its exports of corn and wheat accounted for substantially
less than 10 percent of world trade in those commodities. The country's
significance as an agricultural producer for other countries rested mainly
on its substantial trade in soybeans and soybean products.
During the period covered by this study (1961 to 1985),
Argentina's trade policy was designed to discriminate against most exports
vis-&-vis imports. This policy was carried out through export taxes on the
main agricultural and agroindustrial products and through industrial
protection. In combination with other policies that produced real
appreciation of the currency, the net effect was a serious weakening of the
agricultural sector.
This study examines the impact of trade and exchange rate policies
on the production of wheat, corn, sorghum, soybeans, sunflower seeds, and
beef. One of its principal findings is that direct price intervention
substantially reduced producer prices for all six of these commodities
throughout the study period, and that industrial protection policies and
overvaluation of the real exchange rate taxed agriculture even more than
direct interventions. In the meantime, moderate economic growth between
1950 and 1974 turned to stagnation in the period 1975-85. Total GDP during
this last period remained stationary, and GDP per capita fell. As is well
known, these were also years in which Argentina's annual rate of inflation
often grew at an alarming pace.
Among other things, this study also reports that Argentina's
agricultural output and the related earnings of foreign exchange were
strongly and adversely affected by price intervention. It is estimated,
for example, that the cumulative impact of such intervention reduced the
country's foreign exchange earnings during the 1982-85 period by more than
US$6 billion a year, on average.
The study concludes with an exploration of the political factors
underlying the establishment of policies that had these negative effects on
the agricultural sector. The main conclusion here is that external events
such as the Great Depression and World War II had led to a fall in export
prices and to higher import prices, and that due to the change in the
relativep ower of industrialistcso mparedt o landownersd ue to the external
eventso ver that period (1930-1945),p oliciesw ere establishedin the post
war period to maintain the protection to import-substituteasn d the
taxationo f agriculturew hich had been provided in the part by external
events. Export taxes on the main agriculturaplr oductsw ere seen as a way
of keepingd omesticf ood prices lower than they would have been otherwise,
and of improvingf iscale quilibriumb y producingl argert ax revenues.
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Table of Contents
Page
Chapter 1 An Overview of Argentina's Economy and
Agricultural Sector 1
The Relative Importance of Agriculture
in the Economy 11
Pattern of Land Use 12
Production Trends 14
Soil and Climatic Conditions by Region 17
Agrarian Structure and the Use of
Productive Resources by Regions 19
Chapter 2 A Descriptive History of Intervention 21
Basic Types of Government Intervention 21
Industrial Policy Incentives 26
The Capital Market 26
The Labor Markets 27
Basic Agricultural Policies 28
Objectives of Intervention 33
Groups Supporting and Opposing Intervention 37
Types of Intervention 38
Phases of Intervention 39
Experience with Policy Reform Efforts 39
The Administrative Impact of Intervention 40
Effects of Other Economic Policies 41
Tax Policy 42
vi
Chapter 3 Measures of Intervention 43
Net Effect of Direct Price Intervention
on Relative Prices 43
The Effect of Indirect Price Intervention
on Relative Prices 47
The Effect of Total Intervention on
Relative Prices 50
Additional Effects of Intervention on
Relative Values Added 51
The "Equilibrium" Real Rate of Exchange 54
Estimation of Trade Policy Variables 59
Estimation of the "Equilibrium" Real
Exchange Rate 64
Chapter 4 Output, Consumption, and Foreign Exchange Effects 70
Effects on Output 70
General Approach 71
Estimation of the Elasticities and
Coefficients of Adjustment 73
Some Empirical Evidence 77
The Procedure Used to Estimate Effects
on Output 81
Comments on Cross-Supply Price Elasticities 86
Comments on the Results 89
Comments on the Reasonableness of the Results 92
Effects on Consumption 94
Effect on Foreign Exchange Earnings 95
Chapter 5 Budget and Transfer Effects 97
Government Investment and Total
Expenditure Policy 97
The Transfer of Resources between Pampean
Agriculture and the Rest of the Economy 101
vii
Chapter 6 Income Distribution Effects 107
Social Groups 107
Methodology and Assumptions Used 107
Analysis of Results 114
Chapter 7 Political Economy of Pampean Price Discrimination 115
Quantitative Analysis 117
Total Nominal Protection 123
Testing Other Explanatory Variables 124
Three Actors in the Political Economy
Mechanism 124
The Export Tax as an Equilibrium Solution 133
A Brief Historical Review 135
Two Conflicts with Pampean Growth 138
Tables and Appendices 139
Text Tables 1 to 47 141
Figure 1 The Political Economy "Market" for Pampean
Export Taxes 186
Appendix A.l 187
Appendix A.2 193
Appendix B 213
References 309
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