Executive summary
The Argentinian agro-food sector has grown and innovated remarkably in the last three decades, driven by technological change and, over much of the period, by high international agricultural prices. An upper-middle income country, well-endowed with natural resources and human capital, Argentina has a history of macroeconomic volatility and policy instability that has contributed to its long term overall poor economic performance. Despite challenges, agriculture is the country’s main exporting sector and an exception in terms of performance. Agriculture in the extended Pampas region has experienced a major structural transformation involving crops, manly cereals and soybeans, productivity growth and new on-farm practices, technologies, institutions and contractual arrangements. Land use and production have significantly changed in favour of soybeans, and exports have shifted towards China and other Asian economies. Meanwhile, other products in other regions have under-performed: agricultural goods produced outside the Pampas region such as vegetables, fruits, cotton and tobacco have experienced lower productivity growth rates.
Argentinian agricultural policies have been subject to cyclical variations in trade policies: an open economy approach in the 1990s, including the signature of WTO and MERCOSUR agreements; economic isolationism and import substitution policies, with tariffs and export taxes in 2001-15; and a renewed open economy approach following the change of government in 2015. Despite these shifts in policy, several decentralised institutions responsible for implementing agricultural policies and services have a long tradition of competence and stability. Among these, the National Institute of Agricultural Technology (INTA) provides important general services in research and extension, and the National Service for Agro-Food Health and Quality (SENASA) does so in animal and plant health. There are almost no input or output subsidies paid to producers in Argentina, nor direct payments based on area or animal numbers. Exceptions are the programmes under the Special Tobacco Fund (FET), preferential credit mainly to small producers through FINAGRO, and infrastructure programmes such as the Agricultural Provincial Services Programme (PROSAP).
Conversely, Argentina’s policies have burdened the agro-food exporting sector over most of the last two decades, mainly through the use of export taxes. The producer support estimate (PSE) was negative at -14% in 2015-17 and as low as -51% in 2008. This negative value is an outlier compared to OECD countries, which usually have positive support values. Beginning in 2015, the current administration reduced export taxes for soybean and eliminated them for all other farm products, reducing the absolute value of the negative PSE. However, a new tax on all exports, agricultural and non-agricultural, was introduced in 2018.1 Argentina’s PSE is therefore likely to remain negative over the next few years. Most of Argentina’s budgetary support to the sector finances general services such as the Knowledge and Innovation system and inspection services that are part of the General Services Support Estimate (GSSE). The Total Support Estimate (TSE) remains negative as spending is much smaller than the negative support created by taxing agricultural exports.
Export restrictions and taxes on soybean, sunflower, wheat, corn, beef, milk and poultry have reduced producer prices for these commodities, while export taxes have typically been lower for processed products. Although their stated intention, quantitative restriction and export licences on food products such as wheat and beef have had only a small impact in reducing food inflation. However, agricultural export taxes were effective in generating revenue for the federal government. Those revenues reached their peak during years of high food commodity prices – up to 3% of GDP in 2008. Pervasive use of export taxes is at least partly explained by the fact that they are the only federal tax whose revenue is not shared with the provincial governments.
Argentinian agriculture has gone through notable innovation in recent decades although progress was uneven across regions. While regions outside the Pampas showed low dynamism, the Pampas region has experienced a remarkable increase in the amount of arable land cultivated and in crop total factor productivity (TFP) with the adoption of new technologies such as no-tillage and genetically modified varieties, and the expansion of the production of soybeans. Innovations have also affected organisational structures with new actors such as large service contractors, sowing pools and farmers’ innovation associations. Innovation was mainly led by the private sector responding to economic incentives, with general support on research and extension from INTA. However, Argentina benefited from exploiting genetic innovations under very advantageous conditions – such as no royalties on key varieties – that are unlikely to recur.
The innovative process and the expansion of the agricultural frontier has opened up new opportunities for the sector but has also increased environmental pressures. For most agri-environmental indicators these pressures are still lower than in OECD countries. However, deforestation rates are still high and a matter of concern and the use of pesticides has risen. In the context of strong export demand and reducing export taxes on the principal export commodities, legislation like the Native Forest Law (Law 26.331) has not been able to contain deforestation, and better environmental practices are needed.
Volatile macroeconomic conditions, policy instability and an underdeveloped financial sector create a difficult environment for the management of risks in Argentina. Currently, ex post disaster support under the Agricultural Emergencies Law and the plant and animal health services provided by SENASA are the only public risk management policies available. This has actually favored the development of private institutions and market initiatives such as insurance, futures and contracts. More recently, some provinces have piloted limited support to insurance.
Public policy has not addressed key production problems outside the Pampas region (‘regional economies’), and public investment in agricultural infrastructure, R&D, extension and technical assistance in these areas has been limited. In particular, the apple-and-pear value chain in Argentina contains a dual structure, where fully integrated farms (usually large and medium-size) coexist with less integrated ones (mostly small-scale). Small-scale apple and pear farms suffer from low technology levels, deficient pest control, old orchards, and, in general, very limited investments at farm level. By contrast, the viticulture value chain has seen significant investment and dynamism since the 1990s. Both foreign and local investors have been attracted by deregulation in agroindustry and by the relatively low land prices and good soil quality; nonetheless, the wine sector still experiences constraints arising from limited research and development, training and extension services.
Looking ahead, Argentinian agriculture confronts several policy challenges, many of which are economy-wide: the scarcity of financial services, deficiencies in public investment in infrastructure, and the deterioration of statistical information in the period 2007-15. The overall policy approach to agriculture needs to be rebalanced towards stability and sustainability. Trade policies in the form of export restrictions have created negative price support, uncertainty and distortions that negatively affect production and investment. The agricultural innovation system needs to modernise its institutions, better monitor its results, refocus on environmental sustainability and “regional economies” and make Intellectual Property Rights (IPR) enforceable. With environmental pressures growing, producers need to take more responsibility for reducing negative externalities (Polluter-Pays-Principle PPP). Market-based risk management tools exist, but policies should focus more holistically on preparedness and prevention. Finally, public policies should facilitate innovation and adjustment in the less developed value chains and regions outside the Pampas.
The report suggests the following recommendations to improve agricultural policies in Argentina:
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1. Agricultural policy could be better anchored in broad legislation, such as a specific framework law and an economy-wide reform of the tax system, gradually reversing the policy bias against the agricultural sector (negative PSE) and moving towards a more neutral, stable, predictable and targeted policy package.
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2. As part of an ongoing, long-term, comprehensive tax reform, phase out export taxes on agriculture, integrate the sector into a reformed economy wide tax system, and enhance policy certainty. In the current environment it will be crucial to find the right balance between the long-term objective of phasing out export taxes and the current short term needs to raise fiscal revenues.
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3. Undertake an in-depth evaluation of the negative externalities associated with different types of pesticides, their level of application and impact at specific locations and hotspots, with a view to implementing targeted measures to better manage the use of pesticides. Apply best environmental and agricultural practices, in particular on pesticide use and crop rotation.
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4. Undertake an in-depth independent evaluation of the Native Forest Law to analyse its effectiveness in stemming deforestation and take the appropriate legal and budgetary decisions to strengthen its enforcement.
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5. Develop a systematic method and process to measure and monitor Argentinian R&D and innovation, and to define and implement strategic priorities.
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6. Undertake an in-depth evaluation of INTA with a view to an eventual re-organisation of its different lines of action: research, extension and rural development.
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7. Strengthen the holistic policy approach to risk management, investing in prevention and preparedness and improving the predictability and monitoring of disaster assistance.
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8. Budget permitting, support the search for new markets for wine and pears and apples and other viable products produced in the regional economies, through active policies such as agricultural promotion agencies and trade agreements beyond MERCOSUR.
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9. Reform the Special Tobacco Fund (FET), eliminating output payments and targeting investment to human and physical capital.
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10. Considering creating a system of technical assistance for innovation in specific regional economies’ value chains and small-scale producers, building on INTA’s capacities in agricultural R&D and extension services.
Note
← 1. In early September 2018, while this review was being written, the government decided several policy measures in response to economic turmoil triggered by a large depreciation of the peso. Among these measures, the introduction of temporary taxes on all exports will directly affect the agricultural sector and the estimate of support (Box 1.3).