Abstract
After over a decade of macroeconomic adjustment it is appropriate to assess the impact of policy changes on agriculture in Latin America. While there have been many reviews of the changes in macroeconomic policy in the region (eg., Bulmer-Thomas, 1992; Fanelli, Frenkel and Rozenwurcel, 1990) and of sectoral polices for agriculture (eg., FAO, 1992d), there have been relatively few overall reviews of agricultural performance such as one finds in such profusion for sub-Saharan Africa (perhaps because aggregate economic performance is so dominated by agriculture in that region). An up-to-date review is all the more timely at the moment when for Africa a consensus is developing that multilateral adjustment programmes have had quite a mixed impact on agriculture.1 A balanced assessment is also in order in light of a recent World Bank multi-volume study that includes several Latin American countries and reaches quite strong conclusions on the basis of a controversial methodology.2
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Notes
From the World Bank itself, see Elbadawi, Ghura and Uwujaren (1992), and Elbadawi (1992); for a review of structural adjustment in Africa, see Mosley and Weeks (1993).
On the basis of eighteen case studies the authors assert quite definite conclusions (Krueger, 1992; and Schiff and Valdés, 1992a), the polemical nature of which is suggested in the title of the semi-journalistic summary of the studies (‘The Plundering of Agriculture…’).
‘…Discriminatory protection has generally worked against tradeable agricultural goods …[It] makes for overvaluation of domestic currency compared to a more liberal trade regime’ (Valdés and Siamwalla, 1988).
See Dornbusch (1980), who classifies goods as traded or non-traded on the basis of the relationship between transport costs and world market prices.
For estimates of on-farm consumption by size of holding for three Central American countries, see Weeks (1991). The data show that on-farm consumption declines sharply as farm size rises.
An attempt to measure distributional effects is found in Weeks (1992), where a simple simulation exercise suggests that devaluation would worsen the distribution of income among agricultural households in Sierra Leone. More generally, Kyle concludes: ‘… Differential responses to macro policies may divide along lines of income, class, or region, since these differences will hinge upon demand propensities … and the structure of production for particular groups of producers’ (Kyle, 1992, p. 1010).
Obvious as this point may be, it has been ignored in reaching quite strong conclusions. Kyle illustrates this through the following quotation from Schiff and Valdés: ‘… by definition, those policies which indirectly affect agriculture have the same net impact on import competing and on exportable commodities, and the listing of indirect protection… is therefore identical’ (Schiff and Valdés, 1992b). This would be true ‘by definition’ only in an economy in which outputs had no inputs. Kyle notes, ‘… Even if agricultural products are traded, aggregate measures of the effects of indirect policies affecting the real exchange rate can be misleading because of the effects of differing input structure’ (Kyle, 1992, p. 1012). See also Conway and Bale (1988), who develop in detail the proposition that nominal protection rates cannot be treated as indicative of incentives to producers.
Kyle gives the following hypothetical example, which would seem to apply to certain categories of labour-intensive non-traditional export crops in Latin America: ‘Suppose, for example, that traded agricultural products … are produced with relatively more labor and traded inputs than are other crops…Further…assume that fertilizer is a relatively good substitute for land but a relatively poor substitute for labor and that the reform program includes a removal of a large subsidy on its use. This sort of situation can result in dampened (or in the extreme cases, negative) output response’ (Kyle, 1992, p. 1015).
Díaz-Alejandro (1963) was an early proponent of this argument.
Van Wijnbergen (1986, p. 244): ‘The new point in this analysis is our demonstration that the existence of a substantial foreign debt…may lead to such an expansionary effect on aggregate demand [while depressing aggregate supply] that inflation actually accelerates in the early phases of the [stabilisation] program. This is more than a theoretical curiosum, since it is exactly what happened in the first few months of the Argentine experiment with a slowdown of the rate of devaluation’.
For elaboration, see Fanelli, Frenkel and Rozenwurcel, 1990, especially the section on ‘Financial Fragility and Monetary Hypothesis’. The possible negative effects of financial liberalisation on aggregate supply have also been treated in Bruno (1979), Buffie (1984) and Van Wijnbergen (1983).
For example, with reference to the stabilisation phase of adjustment, Dornbusch (1991) writes: ‘Although some discussions of stabilization see growth as more or less an assured product of appropriate stabilization policies, this paper argues that there is no guarantee that stabilization will lead to growth; it may result in stagnation’ (p. 19). For a more general discussion see Condos (1986).
For an excellent survey of trade and growth models, see Evans (1989).
It is perhaps worth recalling the observation of the US journalist Stuart Chase that ‘commonsense is that sense which tells us the earth is flat’.
Streeten (1989), for example, asserts that the best way for governments to minimise the domestic effects of external ‘shocks’ is through greater opening of the economy.
Sarkar (1992) shows a decline in the net barter terms of trade for the major primary products. This is also affirmed in a study by Grilli and Yang (1988), though their empirical work indicates that this has been compensated by improvements in the income terms of trade. With regard to price incentives and resource allocation, it is the net barter terms of trade which is relevant. the better known reverse transfer of capital represented by the debt payments themselves. To the extent that the growth in export volume was bought at the expense of deteriorating terms of trade, it represented a case of “immiserizing growth”’ (Singer, 1989, pp. 8, 11).
To quote Singer, ‘the aggregate pattern of expansion of export volume partially wiped out by deterioration of terms of trade can be seen to apply clearly only to Costa Rica and to Uruguay. In a number of countries the deterioration in terms of trade either comes on top of a reduction in export volume (Bolivia, Jamaica, Nicaragua, Peru and Venezuela) or else wipes out the whole rather than only part of the increase in export volume (Argentina, Chile, Ecuador, Mexico). The best-looking cases are those of Brazil and Colombia where improved terms of trade went hand in hand with increased export volume…These two countries are the only ones out of 13 Latin American countries where the terms of trade actually improved’ (Singer, 1989, p. 17).
It should be noted that in two 1988 World Bank studies (Balassa, 1988; World Bank, 1988) Brazil is defined as more advanced in structural reforms than most other Latin American countries. This characterisation, based on the country having received three structural adjustment loans before 1985, was probably not accurate at the time and certainly not in the late 1980s.
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© 1995 Institute of Latin American Studies
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Weeks, J. (1995). Macroeconomic Adjustment and Latin American Agriculture Since 1980. In: Weeks, J. (eds) Structural Adjustment and the Agricultural Sector in Latin America and the Caribbean. Institute of Latin American Studies Series. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-24025-8_4
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