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Agricultural “Protection” Rates in Argentina. 1933-2011

Agricultural “Protection” Rates in Argentina. 1933-2011. Rinaldo Antonio Colomé Darío Freitag Germán Fusta Federico Priotti Virginia Martinelli. I. Introduction.

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Agricultural “Protection” Rates in Argentina. 1933-2011

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  1. Agricultural “Protection” Rates in Argentina. 1933-2011 RinaldoAntonio Colomé Darío Freitag Germán Fusta Federico Priotti Virginia Martinelli Antwerp

  2. I. Introduction While highly developed countries strongly subsidize their agriculture, emerging countries could be qualify as "neutral", conversely Argentina strongly punishes its agriculture • One of the instruments, perhaps the most important one, to display the protection of a sector of an economy is the relative protection rate. Antwerp

  3. Pioneeringpapers • 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” Antwerp

  4. The purposes of this paper are: • Estimate Relative Protection Rates for livestock in the 1933-1959 period. • 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. • 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. Antwerp

  5. 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. Antwerp

  6. Firstperiod (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 wascreated 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. Antwerp

  7. Second Period(1.946-1.955). Characterizedby: Economic dirigisme, and the nationalization of utilities. • ForeignTradePolicystartson 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 exchangeratepolicy(1933). • Foreigntradepolicy(1946). • The interaction of both determined pricing policy Antwerp

  8. Third period (1.956-1.990). Started in November of 1955. Characterizedby: • Reversal of domestic and foreign trade policybased 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. Antwerp

  9. Fourthperiod(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. Fifthperiod(2002 to the present).Retentions are restored. • Market intervention : ("agreements" with producers and / or chambers). • Subsidiesto a few branches of production, trying to counteract the effects of price controls (these subsidies have virtually disappeared). • Export trade control. Antwerp

  10. III. Methodology • Direct Nominal Relative Protection Rate DNRPRi= (((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 Rate INRPRi= ((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 Rate TNPRi= ((Pi/Pna)/ (P*i/P*na) – 1). 100 Antwerp

  11. 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. Antwerp

  12. 1933-1959 periodDNPRs 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. Antwerp

  13. Indirect Relative Nominal Protection Rates (INPRs) for the period 1933 to 1959, they were negative (except for years 1934, 1957 and 1959). • Dual exchangerate • Cattle 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. Antwerp

  14. Period 1956-1959 • total protection rates average5,86%. • 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. Antwerp

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

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  17. 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. Antwerp

  18. 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. Antwerp

  19. Third period (1956-1990), Characterizedby: “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%. Antwerp

  20. Fourthperiod(1.990-2.001)Characterized by: “Convertibility Plan”. • Elimination of the retentions. • DNPRs : approach 0 (zero), (having no estimates for INPRs or for TNPRs). • Lastperiod(from2002 to thepresent). • High level of export taxes (retentions). • High deprotectionrates: • Negative DNPRs; increaseas time goesby. • Deprotection of the sector: on average about -30% • Soya (-32,6%) • Corn(-29,4%) • Wheat(-35,4%) Antwerp

  21. Livestock sectoraverage 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. Antwerp

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  24. VI. Main Conclusions and Suggestions on Agricultural Policy in Argentina • From 1933 to 2011, the rule is that "protection" rates are negatives, withexceptions, 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: • Responsiveness of Argentine farmers in decision making due to economic incentives or disincentives . • The response to technological change. • Favorable relative prices for agricultural commodities. Antwerp

  25. 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. Antwerp

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