Download - Arnoldshain Seminar XI Antwerp Rinaldo Antonio Colomé Darío Freitag Germán Fusta Federico Priotti Virginia Martinelli

Agricultural “Protection” Rates in Argentina. 1933-2011

Arnoldshain Seminar XI Antwerp

Rinaldo Antonio ColoméDarío Freitag

Germán FustaFederico Priotti

Virginia Martinelli

I. Introduction

One of the instruments, perhaps the most important one, to display the protection of a sector of an economy is the relative protection rate.


While highly developed countries strongly subsidize their agriculture, emerging countries could be qualify as "neutral", conversely Argentina strongly punishes its agriculture


Pioneering papers

Sturzenegger, Adolfo C. y B. Martínez Mosquera (1986), "Incidencia de las Políticas Comercial y Cambiaria sobre Precios Agrícolas: Argentina 1960-85", Anales de la XXI Reunión Anual de la Asociación Argentina de Economía Política, Salta. 1986.

Sturzenegger, Adolfo C (2007). ”Discriminación al agro en Argentina 1960-2005”, Anales (CD) de la XLII Reunión Anual de la Asociación Argentina de Economía Política, Bahía Blanca. 2007.

Colomé, Rinaldo A. (2008), “Sobre política agraria argentina en el período 1933-2007”, Revista de Economía y Estadística, Vol. XLVI – Número 1, Córdoba.

Colomé, Rinaldo A., Darío Freitag y Germán Fusta (2010) “Tipos de cambio real y tasas de “protección” a la agricultura argentina en el período 1930-1959”

The purposes of this paper are:

1. Estimate Relative Protection Rates for livestock in the 1933-1959 period.

2. To extend the estimated direct protection rates on cattle and for the two previous crops -wheat and maize to which are added those of soybean and sunflower for the years 2006 to 2011.

3. To splice the estimates obtained in Colomé, Freitag, and Fusta (2011) with those of Sturzenegger (2007) and with the ones estimated in this paper, but fundamentally to analyze the development of these rates and farmers response to economic incentives or disincentives for 1933-2011 period.


II. Agricultural Policy in Argentina, its Generation through Periods and Sub -periods

Agricultural policy began in Argentina in November 1933 with the National Economic Action Plan.

Five periods can be set from 1933 to 2011 based on: the generation of policies, prevailing economic ideas, and the circumstances that inspired policies.


First period (1933-1945)

Two key policies:

Direct: price policy: "basic prices" for wheat, corn and flax.

Indirect: the Exchange Rate Policy: "Exchange Control” starts in Argentina. After the devaluation of the peso by 20%.

A Exchange Control Office was created and two markets were established: an official market and a free market. Foreign exchange from exports were sold at the official market, at the official exchange rate. This Office offered the foreign exchange at a free rate through a bidding system at a price, obviously, higher than the official one. There was a difference in favor of the government, thus constituting an Exchange Fund.

The Fund should be invested for the benefit of producers, after the government compensates the higher cost of public debt service, caused by the devaluation.

This is the beginning of the use of the exchange rate as one of the two fundamental instruments of economic policies that were used for the deprotection of the sector.


Second Period (1.946-1.955). Characterized by: Economic dirigisme, and the nationalization of utilities.

Foreign Trade Policy starts on 28 May 1946 through the creation of the Argentine Institute for the Promotion of Trade (IAPI), which monopolized the purchase and export of principal agricultural products.

There were so defined the two key Argentinean agricultural policy: The exchange rate policy (1933). Foreign trade policy (1946).


The interaction of both determined pricing policy

Third period (1.956-1.990). Started in November of 1955.

Characterized by:Reversal of domestic and foreign trade policy based on

"Prebisch Plan“, and IAPI dissolution.

A high devaluation was decreed

External trade policy: to counteract the effect of the devaluation a new instrument was created: a tariff on major agriculture export products (in the jargon: “Retentions”). These “Retentions” were to be "mobile" (the percentage would decrease as costs increasing).

With the income obtained from retentions, a Fund was created: National Economic Recovery Fund. The Fund should be used exclusively to technological and economic advancement of agricultural production and to pay transitional subsidies eventually established to mitigate the impact of the devaluation on cost of living.

The policy generation period is closed.


Fourth period (1991-2001). "Convertibility Plan“.

Established rules of the economy very similar to those in place for the longest period of economic growth in Argentina (1880-1930).

With regard to agriculture, absence of institutions to regulate commerce (the "Boards" were dissolved) and lack of specific policies, either supporting or discriminatory.

Fifth period (2002 to the present). Retentions are restored.

Market intervention : ("agreements" with producers and / or chambers).

Subsidies to a few branches of production, trying to counteract the effects of price controls (these subsidies have virtually disappeared).

Export trade control.


III. Methodology

Direct Nominal Relative Protection RateDNRPRi= (((Pi/Pna)/ (P’i/Pna)) – 1)*100

It is the ratio between producer prices at gate (Pi) relative to non agricultural sector prices with respect to producer price without direct intervention (P'i), also in terms of non-agricultural sector prices.

Indirect Nominal Relative Protection RateINRPRi = ((P’i/Pna)/ (P*i/P*na) – 1)* 100

Simplifying: it is the ratio between the price without direct policy and the price without any intervention, both relating to non-agricultural price.

Total Nominal Relative Protection RateTNPRi = ((Pi/Pna)/ (P*i/P*na) – 1). 100


IV. Livestock Protection Rates in the Period 1933-1959

Consideration: The livestock is a product with strong domestic market.

Grains have a greater variability in prices contrary to cattle.


1933-1959 period DNPRs are positive, except to 1956, 1957 and 1959.

On average they are higher than agricultural

For livestock is of 16.07% against an unweighted average for the three crops of 11% in the first sub-period (1933-1940),1

14.41% for cattle against a -20% (negative) for the second sub-period (1941-1945).

Between the years 1940-1963 the relative prices of agriculture and livestock farming were significantly favorable to livestock.

1940

1942

1944

1946

1948

1950

1952

1954

1956

1958

1960

1962

1964

0.0020.0040.0060.0080.00

100.00120.00140.00160.00

Relative prices between agricultural and livestock products

Agriculture prices Index/ Livestock prices IndexCereals and flax prices Index / Livestock prices Index

Inde

x


Indirect Relative Nominal Protection Rates (INPRs) for the period 1933 to 1959, they were negative (except for years 1934, 1957 and 1959).Dual exchange rateCattle INPRs are higher than grains.– sub period 1933-1940 was on average approximately -

17.9%.– two following sub-periods (1941-1945; 1946-1952)

indirect deprotection -41 % (appreciation of the real exchange rate)

positive DNPRs they were not enough to offset the indirect deprotection.

– Period 1952-1955 INRPRi -49.35% on average. change of pricing policies towards the agricultural sector strong direct protection rates positive TPNTs for the period. livestock production however, unlike agricultural protection

rates, averaged total protection rates slightly positive.


Period 1956-1959 total protection rates average 5,86%. can be explained due to the sharp devaluation of 1958. application of retentions virtually offset the direct

protection of livestock sector in the preceding periods.


Protection Rates for Cattle (periods)

Periods DNPR INPR TNPR

1933-1940 16,07 -17,9 -3,93

1941-1945 14,41 -41,1 -32,37

1946-1952 30,79 -41,94 -24,61

1953-1955 105,61 -49,35 3,74

1956-1959 1,59 7,55 5,86Source: Own

V. “Protection” Rates in 1933-2011 Period and Argentine Agricultural Sector Response


Nominal Direct Protection Rate. Averages by Sub-periods

Period Sub- period Wheat Corn Soybean Sunflower Cattle Flax

First

1933-1940 0,12 0,08 NA NA 0,16 0,13

1941-1945 -0,01 -0,26 NA NA 0,14 -0,35

Second

1946-1952 -0,39 -0,33 NA NA 0,36 NA

1953-1955 0,51 0,79 NA NA 1,06 NA

Third

1956-1976 -0,27 -0,19 NA NA -0,27 NA

1977-1985 -0,17 -0,16 -0,18 -0,25 -0,22 NA

1986-1990 -0,17 -0,23 -0,29 -0,29 -0,13 NA

Fourth 1991-2001 -0,02 -0,02 -0,03 -0,09 0,02 NA

Fifth

2002-2005 -0,2 -0,25 -0,29 -0,32 -0,05 NA

2006-2011 -0,35 -0,29 -0,33 NA 0,03 NA

Source: Colomé, R. A., Dario Freitag and German Fusta (2010), op. cit. 1933-1959 period, Sturzenegger, A. and B. Martinez Mosquera (1986), op. cit., period 1960-1985; Sturzenegger, A. (2006), op. cit., 1985-2005 period, sub-period 2006-2011, estimated in this paper.


Nominal Indirect Protection Rate. Averages by Sub-periods

Period Sub period Wheat Corn Soybean Sunflower Cattle Flax

First

1933-1940 -0,2 -0,18 NA NA -0,18 -0,18

1941-1945 -0,43 -0,43 NA NA -0,41 -0,41

Second

1946-1952 -0,43 -0,44 NA NA -0,43 NA

1953-1955 -0,55 -0,57 NA NA -0,49 NA

Third

1956-1976 -0,18 -0,18 NA NA -0,24 NA

1977-1985 -0,32 -0,33 -0,31 -0,31 -0,29 NA

Source: Colomé, R. A., Dario Freitag and German Fusta (2010), op. cit. 1933-1959 period, Sturzenegger, A. and B. Martinez Mosquera (1986), op. cit., 1960-1985 period, sub-period 2006-2011, estimated in this work.

Nominal Total Protection Rate. Averages by Sub-periods


First

1933-1940 -0,1 -0,13 NA NA -0,04 -0,08

1941-1945 -0,43 -0,6 NA NA -0,32 -0,62

Second

1946-1952 -0,66 -0,62 NA NA -0,23 NA

1953-1955 -0,33 -0,24 NA NA -0,49 NA

Third

1956-1976 -0,42 -0,36 NA NA -0,43 NA

1977-1985 -0,44 -0,44 -0,44 -0,49 -0,41 NA

Source: Colomé, R. A., Dario Freitag and German Fusta (2010), op. cit. 1933-1959 period, Sturzenegger, A. and B. Martinez Mosquera (1986), op. cit., 1960-1985 period.

First period (1933-1945) there are two sub-periods:

– (1933-1940): the policy of "basic prices" achieved its goal : direct protection rates on average positive. indirect are negative - 20 %. TPNTs close to – 10% for the three grains, except for the

year 1934 which is positive at the order of 28%.

– (1941-1945) pricing policy : wheat, with average rates close to zero, but with strong

direct unprotected flax and corn, due to the closure of foreign markets caused by the Second World War.

Indirect protection rates increase their negativity, exceeding -40% on average for the three grains.

Total rates also exacerbated their negativity, reaching -43% on average for wheat, 60% for corn and 62% for flax.


Second period (1946-1955) can also be distinguish two sub-periods:

– (1946-1952) Is the most direct deprotection (prices). The Indirect

policy (the exchange rate policy) continues at the high level of sub-earlier period.

Total deprotection at -66% for wheat, at -62% for corn.

– (1953-55) Attenuation of the pricing policy. DNPRs highly positive. INPRs, close to -60%. TNPRs (-33% to -24% for wheat and corn) show a

significant improvement over the previous sub-period.


Third period (1956-1990), Characterized by: “Retentions”

First sub-period (1956-1976) Negative DNPRs except in 1966 to 1967 for corn and wheat.

INPRs Slightly positive in 1957. Highly positive in 1959. DNPRs for the two crops y, highly negative in the period

due to “La Tablita Cambiaria” (Martínez de Hoz).

– Second sub-period (1977-1985) 1977. Incorporating estimates of protection rates for soybean

and sunflower, always negatives. Direct rates are negatives, but lower than in previous years,

especially during the years 1977-1981 (Minister of Economy Martinez de Hoz),

Indirect rates increase every year due to the appreciation of the peso (period of "La Tablita Exchange Rate")

NTPR -44 % on average.

– sub-period (1986-90) Direct rates are always negatives, by an average of around -

24%.


Fourth period (1.990-2.001) Characterized by: “Convertibility Plan”. – Elimination of the retentions.

DNPRs : approach 0 (zero), (having no estimates for INPRs or for TNPRs).

Last period (from 2002 to the present). High level of export taxes (retentions).

– High deprotection rates:

– Negative DNPRs; increase as time goes by. Deprotection of the sector: on average about -30% Soya (-32,6%) Corn (-29,4%) Wheat (-35,4%)


Livestock sector average rates of protection shows slightly positive (3%). There is a clear divergence between the early and recent years. impediment to export generated an oversupply in the

domestic market decoupling of domestic prices from the international ones causing a long liquidation and reduction of cattle stock This situation resulted in a low stock of heads, which

caused a drop in supply with its consequent effect on market prices.



Retentions. Averages by Sub-periods


Third1956-1976 0,19 0,16 0,42 0,13 0,11 0,26

1977-1985 0,05 0,06 0,06 0,06 0,09 0,06

1986-1990 0,16 0,23 0,23 0,25 0,23 0,23

Fourth 1991-2001 0,00 0,00 0,03 0,04 0,01 NA

Fifth 2002-2005 0,19 0,19 0,23 NA 0,05 NA

2006-2011 0,23 0,21 0,33 NA 0,15 NASource: Author's calculations based on laws and decrees of the National Government

Yields in kilograms per hectare. Sub-periods Period Sub period Wheat Corn Sunflower Flax Soybean

First 1933-1940 933,5 1.745,50 802,4 647,5

1941-1945 1.138,30 1.759,60 984,7 670,7

Second 1946-1952 1.083,50 1.396,10 673,2 697,8

1953-1955 1.327,40 1.611,10 708,3 647,5

Third 1956-1976 1.381,80 2.061,40 712,4 690,7 1.282,10

1977-1985 1.736,60 3.240,60 1.035,30 817,7 2.063,90

1986-1990 1.800,40 3.416,00 1.388,60 782,2 2.022,30

Fourth 1991-2001 2.239,50 4.783,10 1.710,90 808,6 2.244,50

Fifth 2002-2006 2.393,50 6.441,80 1.770,80 949,1 2.609,60

2007-2011 2.739,50 6.509,20 1.681,80 1.207,70 2.541,70

Source: Own.


Cattle Stock and Land Evolution by products. Thousands of hectares

Period Sub period

Cattle stock.

Thousands of head Wheat Corn Sunflower Flax Soybean Total

Primero

1933-1940 32.037 7.668,00 6.464,30 206 2.981,60 0 17.319,90

1941-1945 32.889 6.860,30 4.733,20 1.012,70 2.463,70 0 15.069,80

Segundo

1946-1952 37.529 5.818,30 2.957,10 1.615,60 1.350,60 0 11.741,60

1953-1955 43.509 6.118,70 3.207,90 649,7 830,5 0 10.806,90

Tercero

1956-1976 48.042 5.506,20 3.764,50 1.316,60 978,2 77,4 11.642,90

1977-1985 55.635 6.154,90 3.436,60 1.887,80 845,1 2.021,90 14.346,20

1986-1990 50.588 5.160,00 3.010,00 2.452,10 670,5 4.244,60 15.537,20

Cuarto 1991-2001 50.816 5.665,30 3.207,70 2.940,80 194,9 6.802,00 18.810,60

Quinto

2002-2005 56.009 6.186,40 3.145,70 2.094,90 29,4 13.712,20 25.168,60

2006-2011 54.930 4.851,70 4.090,70 2.018,60 22,8 17.777,90 28.761,70

Source: Own.

VI. Main Conclusions and Suggestions on Agricultural Policy in Argentina

From 1933 to 2011, the rule is that "protection" rates are negatives, with exceptions, especially for DNRPRs.

As a result of these policies the sector was stagnant in the 1940s, and especially in the 1950s, with a pronounced decapitalization both on working capital and technology.

The sector has been able to overcome due to the following reasons:

1. Responsiveness of Argentine farmers in decision making due to economic incentives or disincentives .

2. The response to technological change.3. Favorable relative prices for agricultural commodities.


The spillover effects on the rest of the economy is evident and as a source of revenue for the government, especially through taxes on soybean.

But the fundamental is that retentions strongly discriminate against :small farmers;marginal farmers.

There is an obvious contradiction between the plans of the Ministry of Agriculture for small farmers and the government's objective to maintain retentions.


Download - Arnoldshain Seminar XI Antwerp Rinaldo Antonio Colomé Darío Freitag Germán Fusta Federico Priotti Virginia Martinelli

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