Agricultural Policies in Argentina

agriculture policy brief

Agricultural Policies in Argentina

March 2019

rgentinian agro-food production and exports have grown remarkably in recent decades, A driven by technology and innovation led by a dynamic private sector in the Pampas region. gricultural policies have been taxing producers but supporting general services that enhance A innovation and productivity, such as research, extension and animal and plant health. ackling macroeconomic imbalances is the main priority; in the long term, export taxes should T be phased out and policy should focus more on environmental sustainability and agricultural innovation across regions.

What’s the issue?

Well-endowed with natural resources and human capital, Argentina is a major player in many agricultural world markets, with large net exports of soybeans, wheat, corn, sunflower, sorghum, rice, beef and milk. In the Pampas region, the sector has experienced a major structural transformation, largely driven by the adoption of new technologies such as no-tillage and genetically modified varieties, and the expansion of the production and export of soybeans. However, innovations have not been even across regions; outside the Pampas, “regional economies”

have experienced low dynamism and limited public investment on agricultural infrastructure, R&D, extension services, and technical assistance. While innovation process and the expansion of the agricultural frontier has opened up new opportunities for the sector, it has also increased pressures on the environment, in particular high deforestation rates and the increase in the use of pesticides.

Level and composition of agricultural support in Argentina, 1997-2017 Market price support (left scale)

Budgetary transfers (left scale)

% Producer Support Estimate (right scale)

MPS and budgetary support, billion USD

% PSE

2

5

4

0

0

0

-2 - 1

-9

-4

-10

-6

-15 - 20

-8

-20

-10

- 26

-12

- 30

-14

-25

- 26

-30

- 27

-35 - 39

-16

-20

-40

- 42

-18

-22

-5

-45 -50

- 51 1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: (OECD, 2018), “Producer and Consumer Estimates”, OECD Agriculture Statistics Database

www.oecd.org/agriculture

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@OECDagriculture

2013

2014

2015

2016

2017

-55

Agricultural Policies in Argentina Argentina has enjoyed high levels of agricultural productivity, despite public policies hampering the sector for many years. Export restrictions and export taxes on agricultural products have been Argentina’s main agricultural policies, increasing fiscal revenues but depressing domestic producer prices of main crops and livestock commodities. One of the most damaging aspects of export restrictions is the ad hoc nature, making them unpredictable and volatile. Alongside the macroeconomic volatility and policy instability that has contributed to overall poor economic performance. The uncertain policy environment in Argentina has favoured the production of agricultural goods that require less long-term investment and working capital.

A new study at the OECD on Argentina’s agriculture policies has measured its support to farmers with a comparable methodology that allows comparing with other countries.

Argentina provides an overall negative price support (or taxation) to the sector. It also provides a relatively small budgetary support to farmers, with few programmes such as payments on tobacco production (FET programme) or preferential interest rates for agricultural credit (Figure).

These payments are too small to compensate for the negative transfers due to low producer prices (Market Price Support).

Since 2015, Argentina has reduced export restrictions and taxes in the agriculture sector, and the average level of (negative) support to producers as a percentage of farmer’s gross receipts has significantly evolved from 42% in 2014 to -9% in 2017. Still, a negative level of support resulting from taxes is rare among the OECD countries and emerging economies monitored by OECD (2018), which most often support their farmers. Export restrictions and taxes reduced Argentinian farmers’ gross receipts by 14% on average in 2015-17. Only Ukraine, India and Viet Nam share such a negative level of support, while the OECD average was a positive 18%.

Almost 60% of the total Argentina’s government expenditures on agriculture are provided to the sector in the form of general services and public goods; mostly on the research and development institute (INTA) and on animal and plant health institution (SENASA). Argentina is one of the few countries evaluated by the OECD where most of the budgetary transfers are allocated to general support to make the whole sector more competitive, joining Australia, Costa Rica, New Zealand and Chile.

What should policy makers do?

Agricultural policy in Argentina could be better anchored in broad legislation, such as a specific framework law and an economy-wide reform of the tax system. In the current macroeconomic environment, it will be crucial to find the right balance between the already stated long-term objective of phasing out export taxes and the short-term need to raise fiscal revenues.

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PSE in Argentina and selected countries, 2015-17 % of gross farm receipts 60 55 50 45 40 35 30 25 20 15 10 5 0 -5 -10 -15

Notes: The OECD total does not include the non-OECD EU member states. 2014-16 instead of 2015-17 for India.

Source: (OECD, 2018), “Producer and Consumer Estimates”

Strengthen environmental sustainability: •

•

Evaluate the negative externalities associated with different types of pesticides and apply best practices on pesticide use and crop rotation.

Evaluate the Native Forest Law to analyse its effectiveness in stemming deforestation.

Modernise the agricultural innovation system: •

•

Develop a systematic method and process to measure and monitor R&D and innovation, and to define and implement strategic priorities.

Evaluate INTA with a view to an eventual reorganization of its different lines of action: research, extension and rural development.

Facilitate innovation and adjustment outside the Pampas region: •

•

Reform the Special Tobacco Fund (FET), eliminating output payments and targeting investment in human and physical capital.

Consider creating a system of technical assistance in specific regional economies’ value chains and smallscale producers.

Further reading • OECD (2019), Agricultural Policies in Argentina, OECD Food and Agricultural Reviews, OECD Publishing, Paris, https://doi. org/10.1787/9789264311695-en.

• OECD (2018), Agricultural Policy Monitoring and Evaluation 2018, OECD Publishing, Paris, https:// doi.org/10.1787/agr_pol-2018-en.

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