Chapter 1. Assessment and policy recommendations
Argentina’s agriculture sector has gone through a notable innovation process in the last two decades. This transformation was mainly led by the private sector in a context of policies that significantly tax producers but support large public investments on general services such as research, extension and animal and plant health. The Review of Agricultural Policies in Argentina is a comprehensive analysis of the agricultural sector and its transformation, and of the role of public policies in facilitating innovation, risk management and the development of value chains, while contributing to resource sustainability. Based on the analysis in other chapters, this chapter assesses the main challenges for the sector and provides policy recommendations.
1.1. A history of successful innovation against the odds
Argentina is well-endowed with natural resources but has historically suffered from unstable policies that have hindered its economic performance
Argentina is an upper-middle income country well-endowed with natural resources and human capital, including for farming. The macroeconomic volatility that characterised Argentina’s history in the last century have negatively affected long term growth, population wellbeing and income distribution. Since December 2015, the current administration has committed to promoting the agro-industrial sector as an engine of sustainable growth. It has already taken important steps to ease trade restrictions, through the elimination of most agricultural export restrictions and a gradual reduction of the export tax for soybean. In response to the economic turmoil in September 2018, the government has introduced a tax on all exports until 31 December 2020. (Box 1.3)1.
Despite a difficult policy context, the agricultural sector has grown, driven originally by high commodity prices and then by innovation in oilseeds and grains
Argentina is a large net exporter of agricultural products such as soybean, wheat, corn, sunflower, sorghum, rice, beef and milk. Despite public policies hampering the sector for many years, agriculture is in general well developed, with high levels of productivity. Agricultural production has grown at an annual rate of 2.8% in the last two decades, driven originally by high world grain prices and by technological innovation as prices have fallen over the past years. Inputs used in the grain sector, including land, have grown rapidly together with Total Factor Productivity (TFP) of crops. Unfavourable public policies, particularly export taxes, are likely to have pushed the private sector to innovate in order to remain competitive and benefit from Argentina’s comparative advantage in international markets (Box 1.1).
Agro-food exports quadrupled in the decade 2002-11, mainly driven by growing soybean exports to Asian countries. Soybean and its derivatives (beans, oils and cake) represented almost 50% of agro-food exports in 2015-17. China was the main trade partner, accounting for 12% of all Argentinian agro-food exports. Bovine meat production has been one of the areas most damaged by policy, with the country losing its position of leader in the international meat market. Both the livestock sector and some crops other than soybean have struggled to be competitive due to low investment and low productivity growth.
New technological packages and organisational innovations have been massively adopted
The technological transformation of agriculture in the Pampas region has been outstanding in the last three decades, with a very rapid rate of adoption of new technologies. The most important technological development include: improved seeds (particularly herbicide resistant for genetically modified soybean), no-till farming, increased use of pesticides (mainly glyphosate) and crop rotations (soybean and cereals). Only four years after introduction in the late 1990s, the Soybean RR (Roundup Ready) variety was planted on 90% of the land used for soybean.
Innovation in the organisation of production has also been rapid and massive. New contract farming schemes have flourished, many farming activities have been outsourced to large service providers, and seeding pools bringing together assets from many farmers have been created. Private sector initiatives and organisations have played a leading role in innovation and increasing productivity.
The business climate is unfavourable, with distorting export taxes and access to finance is difficult
Macroeconomic and financial instability has compromised the competitiveness of the Argentinian economy, including the agro-food sector. Some economy-wide factors have significantly constrained the agricultural sector in recent times, in particular a penalising tax system, underdeveloped domestic financial markets and low investment in infrastructure such as roads. Credit from banks to non-financial institutions represents only 18% of the economy, well below the OECD levels and those of the neighbouring countries. Contract and pooling arrangements have been an alternative financial source for rolling working capital or investment in agriculture.
Furthermore, agriculture export taxes have been used recurrently to raise government revenue and reduce prices for first consumers. These taxes are established or changed directly by federal executive decrees and, unlike other taxes, their revenues are not shared with the provinces, hence their importance for the federal government.
Environmental pressures are on the rise
Argentinian soils had been deteriorating for decades in the second half of the previous century, affecting large areas of grain production in the Pampas region. The widespread adoption of no-till farming technologies in response to this trend made Argentina a world leader in the use of these soil conservation practices, with these technologies used in 95% of its grain and oilseed production (Box 1.2). However, no-till farming as a system, needs to be combined with crop rotation, adequate fertilization and other agronomic practices.
But Argentina faces growing environmental pressures associated with the expansion of the agricultural frontier into both pasture land and native forest. The use of agro-chemicals, in particular pesticides, has grown markedly and its impact on water, air quality and health needs to be monitored. The large increase in use of fertilisers has increased nutrient balances and phosphorous runoff could become problematic if the application of fertilisers is not well managed. Despite this deterioration, most agri-environmental indicators such as water and energy use and nutrient balances reveal that these pressures are lower in Argentina than in the OECD countries on average.
Climate change is expected to have only a mild impact on Argentina’s agriculture. However, evidence suggests that there has been an increase in the frequency of extreme weather events such as floods. The area of agricultural land flooded reached a historical high in 2016. A new water management infrastructure is being planned and built, including through the Belgrano Plan.
Outside the Pampas region, productivity is low and value chains are poorly developed
Total agriculture production in Argentina is dominated by extensive farming and the use of mechanisation and modern technologies in the Pampas prairies. This explains the low share of the agricultural sector in employment: at 2% in 2016, it is one of the lowest in the world, and much smaller than the sector’s share of the country’s GDP (8%). That said, the extended agro-food and agro-industrial sector is estimated to provide 18-35% of Argentina’s total employment (Regúnaga and Tejeda Rodriguez, 2015[3]).
Agricultural production in Argentina is integrated in domestic and global value chains. The links of agriculture value added with downstream domestic and foreign sectors (forward linkages) are high: 33% of all agricultural value added ends in foreign countries, as Argentinian agricultural primary exports are widely used as inputs in other countries, and 55% is incorporated into other domestic sectors. However, the links of the agricultural sector production with the value added of input providers from global value chains (backwards linkages) are weak, with only 11% coming from other countries.
Argentina’s agricultural sector has a dualistic structure where highly developed supply chains like grains coexist with less developed ones (e.g. horticulture, fruits, tobacco, wine). These products grow outside the main grain production area (Pampas), mostly in the north, south and west parts of the country, and comprise what are known as ‘regional economies’. These value chains have not organised themselves or benefited from the innovation associations that have emerged in the Pampas regions and the grains sector. Unlike production in the Pampas, the regional economies have not been taxed; on the contrary, some policy support has been given to specific farmers, such as tobacco producers. However, key economic and social problems in these regions have not been widely addressed by public policy, and public investment on agricultural infrastructure, R&D, extension services and technical assistance has been limited.
Source: FAOSTAT (FAO, 2018[4]).
Note: Agro-food trade includes fish and fish products.
Source: Comtrade Database: (UN, 2018[2]).
Note: 2015 and 1996 or closest available year.
Source: OECD estimates based on OECD (2018), “Research and Development Statistics” and “National Accounts”, OECD Statistics (databases), http://stats.oecd.org/; For Brazil: ASTI (2018), Agricultural Science and Technology Indicators (database), https://asti.cgiar.org/data.
Source: OECD Agri-environmental Indicators database (2018). USDA Economic Research Service Agricultural Productivity Database for Total Factor Productivity. Pesticide sales for Argentina were retrieved from (FAO, 2018[4]) as a proxy for pesticide use.
1.2. Policy assessment
The agricultural policy package in Argentina is biased against the sector and distorts domestic production decisions. In quantitative terms, by far its most significant components are export taxes and restrictions that have been imposed almost continuously throughout the last two decades on the most competitive parts of the sector. Agriculture has been hampered, with low producer prices reflected in very large negative support to producers (PSE). Ideally, in the context of a broad tax reform in Argentina, the sector would be subject to either economy-wide taxes on personal and corporate income, or taxes on rural assets, or taxes targeted to environmental impacts (negative externalities).
Border measures – mainly in in the form of export restrictions – distort the economy, disadvantage farmers and do not benefit final consumers
Export taxes and restrictions, Argentina’s main agricultural policies for many years, have hurt the sector. This has depressed domestic producer prices and has driven the producer support estimate (PSE) to negative values of -14% in 2015-17, and as low as -51% in 2008 (Figure 1.5). As a consequence, prices received by farmers have been lower than international prices, creating negative market price support for the main crop and livestock commodities (soybeans, corn, wheat, sunflower, milk and beef).
Source: (OECD, 2018), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database.
For some products such as pork, a degree of positive market price support exists through tariffs and (negative) excess feed costs; for fruit and vegetables, no significant border trade measures exist, and price support is estimated at zero. Import taxes, which are relatively high in international terms, have also increased the costs of some inputs and reduced their use.
The Consumer Support Estimate (CSE) calculations show that first consumers (i.e. first buyers of primary agricultural products) ended-up being supported through export restrictions. This means that wholesalers or processors are benefiting from lower prices of food inputs such as wheat and beef. However, the evidence suggests that the impact on final consumer prices have been marginal. Export taxes are neither an effective nor sustainable manner to control food inflation (Calvo, 2014[5]).
In the historical context of unstable macroeconomic policies, the lack of a framework agriculture law may have also contributed to sectoral policy uncertainty
One of the most damaging aspects of export restrictions are their ad hoc nature, making them unpredictable and volatile. For example, in the past, export licenses for wheat and beef created considerable uncertainty, adding costs for producers and investors on top of the nominal value of export taxes. This uncertain policy environment favours the production of goods which require less investment and working capital (such as soybeans) than more capital-intensive ones (such as livestock).
Policy instability and institutional risk are among the most prominent risks for Argentinian agriculture. Policies for the sector lack any periodically revised and approved framework legislation. A separate Ministry of Agriculture (now called of Agroindustry) only came into being in 2009, when it was separated from the Ministry of the Economy. In September 2018 the government reduced the number of Ministries from 23 to only 10 and the Ministry of Agroindustry became part of the Ministry of Production and Labour. This lack of institutional anchoring may have contributed in the past to the volatility of policies and to uncertainty in the sector.
Budgetary payments to farmers are relatively small
Argentina has provided little support to agriculture with budgetary payments. Few payments to farmers exist, whether based on output, input use or area. There is some support to preferential credit, mainly to small producers, through FINAGRO, and a number of infrastructure programmes such as PROSAP. But the total amounts involved are marginal, particularly in comparison to the negative support which has kept producer prices depressed.
The Secretariat of Agroindustry manages the Special Tobacco Fund (FET), which is separately financed with domestic taxes on the consumption of tobacco. It serves to provide a top-up price support to tobacco producers and to finance specific production, education and social programmes proposed by the provinces. The Fund is divided and distributed among the tobacco producing provinces, which are among the poorest in the country, according to their level of production. Most of the fund expenditure is not well targeted to improve the competitiveness of the sector, or to facilitate the economic and social development of poor tobacco producers, including their transition to other economic activities.
Agricultural policies in the General Services Support Estimate: Focus on innovation and animal and plant health
Around 80% of the public agricultural budget is spent on general services. Argentina’s agricultural research is well regarded internationally, particularly on biotechnological issues, as are its patents, for example on rice seeds. The main institution of the agricultural innovation system is the National Institute of Agricultural Technology (INTA), which also provides extension services. The other service entity which uses a large share of budgetary resources is the National Service for Agro-Food Health and Quality (SENASA), which is in charge of the animal and plant health.
Both INTA and SENASA have a good professional reputation in their respective areas. However, given their budgetary importance and their prominent role in innovation and competitiveness, their institutional organisation and their design and portfolio of activities require continuous monitoring and evaluation to maintain their focus on the provision of priority public goods.
The successful adoption of technological packages in the Pampas region was mainly driven by private initiatives
Important private innovation initiatives such as the Argentinean Association of Regional Consortia for Agricultural Experimentation (AACREA) and The Argentinean Association of No-till Agriculture (AAPRESID) have emerged over the past 30 years to meet farmers’ needs and facilitate the adoption of technology and innovation. These successful initiatives have complemented the public agricultural innovation system of INTA and private research by input suppliers. The young average age of farmers in the Pampas Region and their high level of education has facilitated the adoption of innovation.
In recent decades INTA has evolved from providing research and extension services to fulfilling additional functions in the implementation of social and rural development programmes, mainly in the regional economies. These different functions are not always well defined or reflected in the structure and management of the institution; this circumstance may contribute to the difference between the innovation and production performance of the crop sector in the Pampas and that in other sectors and regions.
Argentina has private insurance, futures and contracts to manage certain risks while ex post government disaster assistance is limited
Argentina’s production growth and innovation in the last decades has been very much focused on a single commodity, soybean. Driven by growing world demand, high prices and policies, this commodity has increased its share in Argentina’s production and export portfolio, displacing other crops and limiting cattle breeding and milk production activities. Recent evidence suggests that this trend has been partially reversed, in particular since policy changed at the end of 2015. The agricultural sector’s strong orientation towards this single crop has decreased the diversity of the national portfolio of crops and rural activities. This has increased the sector’s exposure to a variety of production and market risks.
The dynamism of the farming sector in Argentina has allowed private and market initiatives such as insurance, futures and marketing contracts to develop, covering at least certain risks. Insurance penetration reaches more than 50% of all agricultural land. The government has a limited role in managing agricultural risks in Argentina, favouring the development of private strategies. For example, the relatively small funding provided to the Agricultural Emergencies Law and the disaster declaration requirements prevent disaster assistance from crowding out market instruments. More recently, some provinces have experimented with providing some support to insurance on a pilot basis.
Increasing agricultural risks associated with climate change, particularly floods, are a policy concern for the federal and the provincial governments. Limited annual funds for disaster assistance exist, and they are focused on ex post assistance rather than on preparedness and prevention. Risk exposure needs to be assessed and analysed in a comprehensive manner to contribute to more holistic risk management strategies that would respond to the broader needs and opportunities of the agro-industrial sector.
Limited access to financial services like credit is a constraint for the sector and cannot be solved by sectoral policies alone
The underdevelopment of Argentinian financial markets is not unique to the agricultural and rural sectors, but it is a major limitation to efficiently developing investment strategies and managing agricultural risk. Basic tools which are widely used in other countries – such as secure and accessible saving accounts and access to credit – are limited. Underdeveloped financial markets are a barrier for long term investment, while some credit is provided by input suppliers. The existing programmes for preferential credit provided by the Secretariat of Agroindustry are small in size and are not designed to tackle the structural deficiencies of the whole financial system.
Argentinian agriculture has a dual structure, with high productivity value chains for grain and poorly developed value chains for regional economies
Agricultural policy only imposes negative support on production in the Pampas region. The regional economies have not been similarly burdened; on the contrary, some positive support has been given to specific products such as tobacco; however, structural deficiencies in regional economies have not been addressed, with limited public investment on agricultural infrastructure, R&D, extension services and technical assistance. Rural infrastructure, roads to distant provinces and railways have deteriorated in recent years of low investment. This situation has created some relatively lagging sub-sectors in the regional economies together with more dynamic ones driven by local and foreign investment like wine, and internationally competitive leader products such as the lemons of Tucuman.
The deterioration of statistical information is a burden for both the sector and policy design
Argentina’s statistics deteriorated in the period 2007-15 amid growing political pressure. In July 2011, the IMF found Argentina in breach of its minimum reporting requirements. This affects many statistics relevant for the analysis of the agro-food sector, which are currently missing or unreliable: national accounts, food inflation, rural poverty, value of production, agricultural censuses and household surveys. These information gaps affect private and public sectoral assessment, decision-making, and the capacity to implement evidence-based policy making. Since 2016, the National Institute of Statistics and Censuses (INDEC) has been working with the OECD Statistical department to improve its methodologies and information systems, which start to be visible in INDEC deliveries.
1.3. Policy challenges and recommendations
The overall policy approach to agriculture needs to rebalance the policy package towards policy stability and sustainability
The main challenge for Argentina is to re-balance its approach to agriculture. A stable policy, macroeconomic and fiscal environment is needed that avoids hampering a sector that can positively contribute to growth and development while ensuring that its development makes sustainable use of natural resources.
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Recommendation 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. Overall, budgetary support in Argentina is relatively well focused to provide general services to the sector such as on plant and animal health and inspection services, and on creating and transferring knowledge and innovation. Policies should strengthen their focus on the provision of these services while enhancing the sustainable use of natural resources.
Trade policies in the form of export restrictions have created negative price support, uncertainty and distortions
Market Price Support (MPS) policies – either negative or positive – are among the most distorting forms of support to agriculture. In the past, Argentina has used export restrictions and taxes heavily, motivated by objectives related to fiscal revenue or inflation control. During agricultural price spikes, export taxes accounted for up to 13% of all fiscal revenue in Argentina but were not effective in controlling food inflation. In this regard, the decisions taken in 2015 and 2016 to reduce export taxes for agricultural products were steps in the right direction, reducing distortions and the size of the negative market price support. However, in light of the emerging economic turmoil, in September 2018 the government introduced taxes to all exports including agricultural products, with the objective of reducing its fiscal deficit. Although, the introduction of export taxes will expire in 2020, this measure will have consequences for agriculture as a main exporting sector.
Export restrictions do not merely distort in a static sense, they also generate uncertainty because they are decided and implemented in an ad hoc discretionary manner through government decrees which have low predictability. This uncertainty creates additional distortions and disincentives for long-term investment. Furthermore, export restrictions and policy uncertainty have spill-over effects in exacerbating volatility in agricultural world markets, as during the 2008 episode of price spikes.
Decisions about export taxes have to be taken in light of the potential distortion from alternative sources of fiscal revenue, particularly when the country is under pressure to reduce its fiscal deficit. Such considerations may justify a temporary recourse to tax instruments that otherwise would not constitute an ideal or first best choice. Furthermore, tax reforms in a federal state like Argentina are politically difficult to implement due to their implications for the revenue collected by different levels of government (i.e. federal and provincial).
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Recommendation 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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The long-term phasing-out of export taxes should be part of a more ambitious tax reform package beyond agricultural policies. The soybean exporting sector could be appropriately taxed through economy-wide tax bases such as the corporate and personal income taxes. These and other taxes should be an integral part of a long-term structural reform to generate a stable tax and macroeconomic environment that provides policy certainty and prevents erratic discretionary policy changes.
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Given the limited capacity to collect fiscal revenues in a progressive and non-distorting manner, the political and institutional complexities of the federal system and the urgency of economic turmoil, temporary measures may be required. Uncertainty would be minimised by maintaining current policy plans as announced, using export taxes temporarily in the context of strong fiscal consolidation needs, while maintaining their announced expiration on December 2020.
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Tax reforms will affect production incentives with implications on environmental pressures and should be accompanied by policy measures to strengthen agri-environmental sustainability.
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Environmental pressures are growing, calling for strengthening the responsibility of producers in reducing negative externalities
Argentina’s agriculture sector has transformed in recent years at an accelerated pace, increasing environmental pressures. Water use, nutrient balances and energy use are still relatively low compared to OECD countries, but increased deforestation and relatively high rates of pesticide use in cropland are a concern. Other potential risks are associated with loss of organic matter and phosphorous (P) fertiliser applications that may not be sufficient to compensate the P uptake from crops. Deforestation rates are higher than regional and global figures. In the 25-year period from 1990 to 2015, Argentina lost 22% of its forest mainly due to agriculture. Moreover, in the last 15 years, deforestation rates increased, contrary to regional and global trends. Greenhouse gas emissions and loss of biodiversity and water-related ecosystem services have been on the rise due to the loss of forested land. Strengthening the responsibility of producers in reducing negative externalities (Polluter-Pays-Principle PPP) is imperative.
While no-till practices are widespread, have reduced erosion rates and helped to maintain the organic matter content in soils, such practices may not contribute to the improvement of soil quality if not accompanied by crop rotation. Additionally, pesticide use is considerably larger than in OECD countries, and there are risks associated with the use of the active substance Atrazine in particular due to its persistence and capacity to contaminate drinking-water sources. Strengthening of policies and legislation targeted towards monitoring and reducing negative environmental impacts is needed, particularly as the tax burden on export commodities is reduced in the long run.
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Recommendation 3: Undertake an in-depth evaluation of the impacts (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 limit harmful pesticide use. Apply best environmental and agricultural practices, in particular on pesticide use and crop rotation.
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It is essential to gather good information and knowledge to support efficient evidence-based policy design. The analysis should focus on identifying potential misalignments between legislation and good practices on pesticide use and its final environmental effects on water, biodiversity and health in specific locations. The results of this evaluation should be used to improve, target and update legislation and to improve environmental practices such as Integrated Pest Management.
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Incorporate new knowledge and research in a continuous update of the best agri-environmental practices, in response to the particular challenges of new technological packages. In this respect, Argentina is well positioned in institutional terms, and the government can work in partnership with both private associations of farmers such as AAPRESID or AACREA and with the extension services of INTA. Advisory and information programmes run in collaboration between farmers’ associations and government agencies can be crucial to fostering action and promoting pro-environmental practices, particularly on crop rotation and pesticide use.
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Recommendation 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. The main focus of the analysis and the resultant reforms should address weak enforcement capacity in different provincial jurisdictions, the environmental targeting methods and procedures to identify conservation priorities, and the strength of the economic incentives to deforest under the different agricultural technological packages. Furthermore, the evaluation should estimate the budgetary allocations needed for compensation and implementation.
The Innovation system needs to modernise its institutions, monitor its results, refocus on environmental sustainability and make the IPR of seeds enforceable
The Argentinian agriculture innovation system is mainly privately driven by domestic and international economic incentives. However, the public sector has provided very valuable strategic support on specific knowledge inputs and their transmission to human capital, mainly from INTA and the whole Science, Technology and Innovation (ST&I) system. The percentage of GDP going into ST&I activities is modest but growing. Organisational innovations have provided new roles for private actors in sharing experience and facilitating the adoption of innovation. However, R&D expenditure is mainly public and more needs to be done to make the system more responsive to demand and less supply-driven. Investment levels in agricultural innovation policies are high in comparison with all agricultural support measures, with a high share in the General Support Estimate (GSSE) dedicated to agriculture knowledge and innovation system (mainly through INTA). Nonetheless, the relative research intensity of the agri-food sector has fallen in the last two decades.
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Recommendation 5: Develop a systematic method and process to measure and monitor public Argentinian R&D and innovation, and to define and implement strategic priorities. No good measurement is in place for investment on Agricultural Innovation Systems (AIS) in Argentina. A system needs to develop and institutionalise ways of measuring the public innovation effort and monitoring the performance of different initiatives and projects, learning from the experience of other OECD countries. Strategic priorities for the agricultural innovation system should be more clearly defined and implemented based on evidence of results and involving stakeholders at an early stage. The priorities of the public actors of the innovation system such as INTA need to evolve towards the provision of public goods and long-term investments in sustainability. These are the areas typically overlooked by the private actors in the AIS, for example the sustainable use of natural resources, the protection of the environment (soils, water, forest, and biodiversity) and the mitigation and adaptation to climate change. The AIS needs also to rebalance its priorities towards regional economies in response to the poor productivity performance outside the Pampas region. A federal subsidiarity approach to innovation policy and capacities is needed, but the specific pathways go beyond agricultural innovation policies.
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Recommendation 6: Undertake an in-depth evaluation of INTA with the view to an eventual re-organisation of its different lines of action: research, extension and rural development. INTA is being displaced by other public and private actors in the development of main technologies, and its portfolio is being diversified outside R&D and innovation into rural and social development. The role of INTA as the most important actor in the AIS needs to be better defined, in particular to ensure its efficiency in facilitating adoption. The next innovation is likely to come from other actors such as universities and CONICET. Building on the current ongoing assessment of INTA, it is recommended to undertake an open external analysis to evaluate and discuss the available alternatives for INTA and other institutional frames to tackle more efficiently its different policy areas: innovation, R&D and extension activities, and broader social and community development objectives. The analysis should look beyond the allocation of the budget into the optimal management and operational structures for good priority setting and human resources management of different staff profiles and activities. INTA needs to be ready to respond to the increasing demand for innovation knowledge and public goods related with climate change and environmental sustainability, which should be the focus for public investments in R&D. As the central component of public policy, INTA plays a key role in linking research to adoption.
Additionally, the ongoing work to renew the legal framework and the operational capacities of the National Institute of Seeds (INASE) provides an opportunity to strengthen the enforcement and implementation of the Intellectual Property Rights (IPRs) for seed varieties. This requires a good assessment and evaluation of the current system and of the available alternative. It is also important that an acceptable equilibrium is found among a diversity of interests such as those of small farmers, medium and large agricultural producers, domestic breeding firms, multinational firms, and public institutions. They need to be involved in the redesign of INASE to make it enforceable. In this context, the adoption of the UPOV-91 agreement on the Protection of New Varieties of Plants should be considered.
Market-based risk management tools exist, policies could also focus on improving preparedness and prevention
The Argentinian agricultural risk management system has significant strengths, in particular regarding the institutions and the organisation of the sector. Most Argentinian farms are commercial entities with an entrepreneurial approach to farming, including the assessment and management of agricultural risks. Agricultural spot and future markets are dynamic in Argentina. There are also strong public institutions providing research (INTA) and managing plant and animal health (SENASA). Information about market and weather risks is available and accessible.
Argentina already has a well-developed private market for agricultural insurance, even if restricted to few risks and commodities. This circumstance has been facilitated by policies that have not expanded beyond the catastrophic risk layer. The insurance sector still has the potential to explore the potentialities of index insurance and digital technologies to expand agricultural insurance. Building on ongoing private initiatives, index insurance can reduce the administration cost of insurance and eradicate moral hazard and adverse selection. These indexes can use meteorological, sensor and satellite information and digital technologies. If appropriate research and knowledge is developed to reduce basis risk, index insurance could be an option to increase insurance coverage and availability for more commodities and locations.
The main weaknesses of the Argentinian agricultural risk management system lie beyond the agricultural sector. Policy and macroeconomic volatility has been a significant source of risk for the sector, while the financial markets are shallow and credit is scarce. The main policy actions that could improve the management of agricultural risks in Argentina are beyond the scope of agricultural policies: raising public policy predictability, achieving macroeconomic stability and developing of the financial sector. All of these are areas in which progress is being made, but further progress would have substantial pay-offs (OECD, 2019 forthcoming[6]). Efforts to develop deeper financial markets could also facilitate the emergence of more diverse insurance and derivatives products.
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Recommendation 7: Strengthening the holistic approach to risk management policy, investing in prevention and preparedness, and improving the predictability and monitoring of disaster assistance. Risk management policies in Argentina are rightly focused on catastrophic risks but are too centred on ex-post assistance. More policy efforts should be concentrated on ex-ante risk management and prevention through strategies and technologies that diminish risk exposure, training on holistic risk management approaches to preparedness, adaptation to climate change and diversification. Strong private and public entities in Argentina, such as INTA, CONICET, universities, AACREA, AAPRESID, CRA, SRA, CONINAGRO and FAA (see list of acronyms), can partner and play an important role in the adoption of risk management and sustainability strategies. Information systems are crucial to develop preparedness strategies and practices, and initiatives to improve statistics such as census or surveys should consider collecting the individual characteristics of farmers and their risks. The government should improve the monitoring of disaster assistance, creating a register of beneficiaries. Innovations such as indexes from meteorological stations or satellite images could be used to trigger emergency and disaster declarations of droughts and floods, to improve efficient delivery and predictability. Finally, the fund for disaster assistance, FONEDA, should be able to work with multiyear budgets, to accumulate emergency funds during the years in which there is no high impact, and to reserve them for years with high damage.
Facilitating innovation and adjustment in the value chains and regions outside the Pampas
In comparison with those in the Pampas region, value chains in regional economies have relatively low levels of productivity and dynamism. Even if some support is provided, the key problems in these regions have not been widely addressed by public policy, and public investment on agricultural infrastructure, R&D, extension services, and technical assistance has been limited.
The apples-and-pears value chain in Argentina is a dual sector. Farms fully integrated into value chains (usually large and medium size) coexist with less integrated farms (mostly small scale). Small-scale farms of apples and pears do not adopt technology innovations, inefficiently control pests, and own old orchards with very limited investments at the farm level.
Viticulture is more dynamic and has benefited from private investments since the 1990s but lacks a long-term strategy for its value chain. For instance, quality improvement and innovation in organisations would allow increases in quality and competitiveness to be achieved. Other organisational innovations required in this sector include: building networks of knowledge and experience; compliance with appropriate standards; export specialisation; and co-ordination of the value chain between primary producers, suppliers and industry (wineries); distribution and marketing systems; R&D, training in new technologies and extension services.
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Recommendation 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. Increased participation in export markets is a necessary condition for growth for the value chains of both the apple-and-pear and viticulture industries. In Argentina, domestic demand for food can be expected to increase primarily as a function of (relatively low) population growth, and only secondarily as a result of per-capita income growth. A search for new markets is crucial for expansion. Agricultural promotion offices in emerging international markets could facilitate this.
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Recommendation 9: Make and assessment and reform the Special Tobacco Fund (FET), eliminating output payments and targeting investment to human and physical capital. A legacy policy, the FET needs to be refocused on facilitating the economic transformation of the tobacco producing regions, which are among the poorest in Argentina, into other productions and sectors. The first step should be to eliminate the support to the price of tobacco – a contradictory policy that stimulates supply while taxing demand. The second step should be to invest the tobacco tax revenues into infrastructure and education in the tobacco regions. These steps should be supported by the development of social policies targeted to the poor and facilitating economic adjustment.
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Recommendation 10: Consider 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. This innovation effort should complement efforts on other lagging areas such as education and infrastructure that are tackled by other policies. New alternatives should be explored for organisational structures that improve the co-ordination among primary producer co-operatives, access to markets and interlinkages with the processing industry. Broad public investments in rural roads, agricultural infrastructure, storage and cold chains would help the regional economies to overcome high transaction costs. Because the future of small-scale farmers may not lie in primary agriculture, value chains and non-farm economic alternatives should be explored for a gradual re-allocation of resources.
After seven consecutive quarters of positive growth, the economy began to stall as the Argentinian peso came under pressure as of April 2018. Over a period of 4 months, the value of the currency vis-à-vis the US dollar was reduced to half, risk premiums and credit default swap (CDS) spreads spiked and inflation rose sharply. These events plunged the economy back into recession during 2018. The prospects of a significant deterioration in access to foreign financing led the government to seek financial support from the International Monetary Fund (IMF).
Following renewed market pressure on the Argentinian peso, the authorities front-loaded fiscal adjustment plans and committed to a balanced primary budget, which excludes interest payments, as early as 2019, with primary surpluses thereafter. This implied a substantial fiscal consolidation relative to previous plans, based on both revenue and expenditure measures.
Revenue measures include the establishment of a temporary (until December 31, 2020) export tax of up to 12% applied to all the goods and services exports, including products from agriculture (Decree 793/2018). The tax cannot exceed a maximum of ARS 4 per dollar of exports of primary agricultural goods, and ARS 3 per dollar for other products. This new tax on all exports is added on top of the previous tax applied to soybeans whose rate was reduced from 26% to 18%.
The authorities have been clear that they see export taxes as a temporary emergency revenue measure, with a clearly defined sunset clause. It is important to see them in the current context. The strong devaluation of 50% has increased competitiveness significantly and generated windfall gains to agricultural exporters. The temporary export taxes take back only a small part of the newly gained competitiveness. The new level of the exchange rate is the most competitive one that Argentina has had in years, even when deducting the effect of the temporary export taxes.
At the same time, public expenditures are being cut in several areas, including public investment, current expenditures and through an accelerated phase-out schedule for economic subsidies, mainly on energy and transport.
References
[5] Calvo, P. (2014), Welfare Impact of Wheat Export Restrictions in Argentina: Non-parametric Analysis on Urban Households, UNCTAD.
[4] FAO (2018), FAOSTAT.
[6] OECD (2019 forthcoming), Economic Survey of Argentina.
[3] Regúnaga, M. and A. Tejeda Rodriguez (2015), Argentina's agricultural policies, trade and sustainable development objectives, International Center for Trade and Sustainable Development (ICTSD).
[2] UN (2018), UN Comtrade database.
[1] WDI (2018), World Development Indicators, World Bank, Washington, DC.
Note
← 1. On the 3 September 2018, while this review was being written, the government announced several policy measures in response to an economic turmoil triggered by a large depreciation of the peso. These measures are summarised in Box 1.3 and include the introduction of taxes on all exports to reduce the fiscal deficit will directly affect the agricultural sector and the estimate of support.