GIANNINI. FOUNDATION OF AGRICULTURAL l!""::_J--1 UN IVERSIN OF ECONOMICS L...-'~ --'------'----" CALIFORNIA ••~•--·--•·- ••~' ·•--••••=• "'j•'='•••=•'•-·•--··~·"'•-m-~~·-~• '" i ) · L!;[;?{~~~:0~~ j ; :-,~1:~*1Ptf! !f eSJ!_~~~---,---- , lfl, rie ) i i i Cattfe Indfistry:j ! ...... TheA.r~entine ....... ~.J. Case tt , , Lovell s, Jarvis l),ivision of Agriculture and Natu~al Resources PRINTE;D AUGUST 1986 Supply Response in the Cattle Industry: The Argentine Case the author is: Lovell S. Jarvis, Associate Professor Department of Agricultural Economics University of California, Davis PREFACE This research was accomplished as Jarvis' dissertation in 1969. Part of the theoretical and empirical results was I published in the Journal of Political Economy in May/June 1974. These findings have strongly influenced subsequent research on the livestock sector. The Gianinni Foundation is now publishing a revised version of the work as a special report because the dissertation, which has been difficult to access, contains additional methodologies and results which are still of interest: the links between the micromodels treating cattle as capital goods and the specification of the econometric model, the construction and validation of the disaggregated herd series needed to estimate the model, and the detailed interpretation of the empirical findings. The report also discusses technical change in the livestock sector, crop the livestock interrelationships, agricultural labor market developments, and the role of cattle cycles in Argentine macroeconomic fluctuations, all of which are of special interest to students of the Peron era. ·. i' The Giannini Foundation occasionally publishes research as a Special Report. This is in addition to its regular publications series, the Monograph, the Research Report, and the Information Series. Single copies of this special report may be requested from Publications, Division of Agriculture and Natural Resources, 6701 San Pablo Ave., Oakland, CA 94608. TABLE OF CONTENTS I. Introduction . 1 II. Cattle as Capital Goods and Producers as Portfolio Managers . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 6 m. An Econometric Model of the Argentine Cattle Sector . 17 IV. The Estimation of Disaggregated Cattle Herd Stocks for Argentina: An Example of the Use of Economic Models to Construct Unavailable Data Series . 23 V. The Specification and Estimation of the Slaughter and Average-Slaughter-Weight Equations ..................................................... 45 VI. Estimation of the Slaughter and Average-Slaughter-Weight Equations by Instrumental Variables . .. 64 VII. The Estimation of Domestic Consumption and Export Equations . 74 VIII. Summary and Conclusions . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 81 Appendix I. The Burden of Discriminatory Agricultural Policies . 88 Appendix II. A Simulation of Productivity Change in the Feed/Beef Conversion Process .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 90 Appendix III. Construction of the Climatic (Weather) Indexes . 98 Appendix IV. "Production" Versus Slaughter as an Indicator of Output ............................... 103 Appendix V. Estimated Calving Rates in Argentina, 1937 /38-1966/67 . • . 104 References ................................................................................. 105 I. Introduction The Argentine Pampas is an extraordi­ agricultural prices are largely determined by narily rich crescent-shaped agricultural area world prices and the exchange rate--except · encompassing roughly 50 million hectares, 1 when the government directly interferes. with a radius of roughly 400 miles to the Argentina's share of world trade in most north, west, and south of Buenos Aires. The traditionally exported commodities decreased soils of the region are broadly homogeneous, steadily from 1940 to 1970; it is stretching composed of sand and clay, extremely fertile the point to assume that Argentine agricul­ and deep; rock and gravel are quite rare tural exporters faced a perfectly elastic exter­ except in the southeast. The surface is nal demand for their products during the largely composed of vast swells and gentle period of study. slopes. Drainage is often a problem and Argentina suffered an increasingly remains so in some areas even though a net­ severe foreign exchange constraint caused work of drainage canals has been constructed. largely by the stagnation of total agricultural Annual rainfall varies from 40 inches in the production and declining exports during the east to 20 in the west, and the climate is tem­ period 1945-1965. Although there have been perate with frost occurring only on the south­ large shifts among various crops and between ern edges. Temperature, winds, and rainfall, crops and cattle during this period, total agri­ along with drainage conditions, are the major cultural production in the Pampas has determinants of cropping practices. increased only slowly. The land frontier in The two main agricultural activities are the Pampas has been closed since 1930. field crop and livestock production. The Most of this study represents an major crops are wheat, com, grain sorghum, attempt to explain the economic behavior of flax (linseed), sunflower seeds, barley, rye, Argentine cattle producers from the mid­ and oats; livestock production includes cattle, 1930s through the mid-1960s--in particular, sheep, hogs, poultry, and dairy products. to show whether they reacted significantly Growing grain or oilseed and raising cattle and in the expected manner to changes in are dominant and usually rival activities in economic incentives. If they did, there is no production. Cattle are raised chiefly on reason that the cattle sector cannot grow natural or seeded pasture, forage crops, and more dynamically in the future--provided that some byproducts of grain production. Cattle redirected government policies change the are rarely fattened on harvested grains. incentive structure facing producers. Because 80 percent of Argentina's cattle pro­ duction and 90 percent of the traditional field crop production takes place in the Pampas, Agriculture in the Argentine Pampas conditions there can be taken as representa­ Landholdings and farm operations show tive of those faced by cattle producers in the the influence of methods originally used to natioll as a whole. 2 open and develop the Pampas. Although there The Argentine agricultural sector in are sizable regions in which large family 1965 contributed about 17 percent of the farms are engaged in mixed agricultural gross national product, employs about 20 per­ activities, larger cattle ranches dominate the cent of the labor force, and provides about 90 Argentine rural area, and both cropping and percent of Argentina's exports. Cattle pro­ cattle-raising are characterized by land­ duction alone contributes about one-third the extensive technology. value of both total agricultural output and Producers have planted an increasing total exports, although it employs a smaller acreage of forage and dual purpose crops, share of the labor force, being relatively land which can be grazed or harvested depending extensive and, considering the cattle value, on the pasture requirements of the herd. capital intensive. Within the Pampas, the percentage composi­ Nearly all major products of the Pampas tion of agricultural land use during the study are exported in large amounts, and domestic period has varied roughly as shown in Table 1 Percentage Distribution of Crop and Pasture Land in the Argentine Pampas, 1935/39-1960/63 Crop Pasture Land Land Total Seeded Natural percent 1935-39 37 63 12 51 1940-44 36 64 14 50 1945-49 33 67 16 51 1950-54 25 75 21 54 1955-59 26 74 24 50 1960-63 25 75 23 52 Source: CONADE, undated Table L It appears that much of the decline Primary education is free and compul­ in crop land is offset by an increase in seeded sory for seven years; many secondary schools pastures, including forage crops. The amount and universities also are tuition-free. of land in natural pastures has been much Literacy in Argentina in 1960 was 90 percent more constant, indicating that the technology for those over 14 years old, and probably it is I necessary to convert these to seeded pastures at least as high for cattle producers as a has been slow to develop or that the need to class. Cattle producers' wealth is usually I do so has been slow to make itself felt. above the national average, due in part to the Labor and nonagricultural capital relatively large Rize of most of their opera­ i inputs are minimal in cattle raising. The cli­ tions: Cattle producers have long been both mate is mild and few structures are neces­ politically and socially well organized. Many I sary. Although Argentine agriculture has live in or frequently travel to Buenos Aires I' been well mechanized for many years, the use and other large cities. of other nonagricultural inputs such as fertil­ The quality of the Argentine cattle herd i izers, insecticides, better seeds, and improved is superb: Purebred cattle of several types cropping practices has been much lower than constitute a very high percentage of total expected given the natural productivity of the herds and are the equal of cattle anywhere in land and the sophistication of producers. the world. Nevertheless, compared to the I This is principally the result of: a tradition­ United States, the calving rate is lower, ally weak Argentine agricultural research animal disease and mortality rates are ! and extension program (although through