46161 DISTORTIONS TO AGRICULTURAL INCENTIVES Public Disclosure Authorized IN Latin A mErICA Editors Kym Anderson • Alberto Valdés Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized DISTORTIONS TO AGRICULTURAL INCENTIVES IN LATIN AMERICA DISTORTIONS TO AGRICULTURAL INCENTIVES IN LATIN AMERICA Kym Anderson and Alberto Valdés, Editors Washington, D.C. © 2008 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved. 1 2 3 4 11 10 09 08 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. Cover design: Tomoko Hirata/World Bank. Cover photo: Curt Carnemark/World Bank Photo Library. ISBN: 978-0-8213-7513-6 eISBN: 978-0-8213-7514-3 DOI: 10.1596/978-0-8213-7513-6 Library of Congress Cataloging-in-Publication Data Distortions to agricultural incentives in Latin America / edited by Kym Anderson and Alberto Valdés. p. cm. Includes bibliographical references and index. ISBN 978-0-8213-7513-6 — ISBN 978-0-8213-7514-3 (electronic) 1. Agriculture and state—Latin America. 2. Agricultural subsidies—Latin America. 3. Agricultural industries— Latin America. I. Anderson, Kym. II. Valdés, Alberto, 1935– HD1790.5.Z8D57 2008 338.1'88—dc22 2008010766 Dedication To the authors of the country case studies and their assistants, especially for generating the time series of distortion estimates that underpin the chapters; and to our long- suffering wives, Bron and Isabel, for putting up with our long working hours and frequent absences from home while we completed this book. CONTENTS Acknowledgments xiii Contributors xv Abbreviations xix Map: The Focus Countries of Latin America xx 1 Introduction and Summary1 Kym Anderson and Alberto Valdés 2 Argentina 59 Adolfo C. Sturzenegger and Mariana Salazni 3 Brazil 87 Mauro de Rezende Lopes, Ignez Vidigal Lopes, Marilene Silva de Oliveira, Fábio Campos Barcelos, Esteban Jara, and Pedro Rangel Bogado 4 Chile 119 Alberto Valdés and Esteban Jara 5 Colombia 159 Lia Guterman 6 Dominican Republic 189 Jesús de los Santos and Pedro Pablo Peña 7 Ecuador 211 Ernesto Valenzuela, Sara Wong, and Damiano Sandri 8 Mexico 243 Isidro Soloaga and Gabriel Lara 9 Nicaragua 273 Matias Berthelon, Diana Kruger, and Diana Saavedra vii viii Contents Appendix A: Methodology for Measuring Distortions to Agricultural Incentives 301 Kym Anderson, Marianne Kurzweil, Will Martin, Damiano Sandri, and Ernesto Valenzuela Appendix B: Annual Estimates of Latin American Distortions to Agricultural Incentives 333 Ernesto Valenzuela, Marianne Kurzweil, Esteban Jara, Johanna Croser, and Kym Anderson Index 403 Figures 1.1 NRAs in Agriculture, Latin America, 1980–84 and 2000–04 23 1.2 NRAs, by Product, Latin America, 1980–84 and 2000–04 24 1.3 NRAs for Exportable, Import-Competing, and All Agricultural Products, Latin America, 1965–2004 26 1.4 NRAs of Total Covered Farm Products and NRAs from Input Price Distortions, Latin America, 1965–2004 31 1.5 Gross Subsidy Equivalents of Assistance to Farmers, Latin America, 1975–79 and 2000–04 36 1.6 Gross Subsidy Equivalents of Assistance to Farmers, by Product, Latin America, 1975–79 and 2000–04 39 1.7 NRAs for Agricultural and Nonagricultural Tradables and the RRA, Latin America, 1965–2004 40 1.8 RRAs in Agriculture, Latin America, 1980–84 and 2000–04 41 1.9 NRAs and RRAs, Asia, Africa, and Latin America, 1965–2004 44 1.10 Income Distribution, Latin America and the World, 2000 45 1.11 Real GDP Per Capita, Comparative Advantage, and NRAs and RRAs, Latin America, 1955–2005 47 2.1 Openness Indicators, Argentina and Selected High-Income Countries, 1870–2000 61 2.2 Real Per Capita GDP, Argentina and Selected High-Income Countries, 1870–2005 63 2.3 Shares of the Gross Value of Farm Production at Distorted Prices, Covered Products, Argentina, 1977–2005 67 2.4 Production of Wheat, Corn, Soybeans, Sunflowers, and Beef, Argentina, 1960–2005 67 2.5 NRAs for Covered Products, Argentina, 1960–2005 75 2.6 NRAs for Covered Products and the RER, Argentina, 1960–2005 76 2.7 NRAs for Agricultural and Nonagricultural Tradables and the RRA, Argentina, 1960–2004 80 Contents ix 3.1 Crop Area, Production, and Yield Growth, Brazil, 1991–2005 96 3.2 Growth in Meat Production, Brazil, 1994–2005 97 3.3 Share of the Gross Value of Farm Production at Distorted Prices, Selected Products, Brazil, 1980–2005 103 3.4 NRAs to Exportable, Import-Competing, and All Covered Farm Products, Brazil, 1966–2004 109 3.5 NRAs for Agricultural and Nonagricultural Tradables and the RRA, Brazil, 1966–2004 111 4.1 Applied Tariffs, Adjusted for Trade Preferences, Chile, 2000–05 134 4.2 Real and Equilibrium Exchange Rates, Chile, 1960–2003 136 4.3 NRAs for Exportable, Import-Competing, and All Covered Farm Products, Chile, 1960–2004 143 4.4 NRAs for All Covered Farm Products in Total and from Input Price Distortions, Chile, 1965–2005 144 4.5 NRAs for Agricultural and Nonagricultural Tradables and the RRA, Chile, 1960–2004 147 5.1 Real Exchange Rates, Colombia, 1960–2005 161 5.2 NRAs for Exportable, Import-Competing, and All Covered Farm Products, Colombia, 1960–2004 174 5.3 NRAs for All Agricultural and Nonagricultural Tradables and the RRA, Colombia, 1960–2004 177 6.1 GDP Shares by Economic Sector, Dominican Republic, 1960–2004 191 6.2 NRAs for Exportable, Import-Competing, and All Covered Farm Products, Dominican Republic, 1955–2004 205 6.3 NRAs for Agricultural and Nonagricultural Tradables and the RRA, Dominican Republic, 1955–2004 207 7.1 Shares of Agriculture, Industry, and Services in GDP, Ecuador, 1965–2004 216 7.2 Value Shares of Agricultural Production by Farm Product, Ecuador, 1966–2003 227 7.3 NRAs for Exportable, Importable, and All Covered Farm Products, Ecuador, 1966–2003 231 7.4 The Gap between Importer and Exporter Exchange Rates, Ecuador, 1955–98 232 7.5 NRAs by Product, Ecuador, 1966–2003 233 7.6 NRAs for Agricultural and Nonagricultural Tradables and the RRA, Ecuador, 1966–2003 237 8.1 Poverty Headcount Ratio, by Region, Mexico, 1984 and 2004 246 8.2 Four Main Farm Programs in the Secretariat of Agriculture’s Budget, Mexico, 1995–2005 258 8.3 Expenditure on the Main Farm Programs, Secretariat of Agriculture, Mexico, 1995–2005 259 x Contents 8.4 Product Shares in Household Food Consumption, Mexico, 1979–2004 263 8.5 NRAs for Exportable, Import-Competing, and All Covered Farm Products, Mexico, 1979–2004 265 8.6 NRAs for Agricultural and Nonagricultural Tradables and the RRA, Mexico, 1979–2004 267 8.7 NRAs for Agricultural Tradables and the Real Exchange Rate, Mexico, 1979–2004 267 9.1 Product Shares in Agricultural Production and Consumption, Nicaragua, 1991–2004 276 9.2 NRAs for Exportable, Importable, and All Covered Farm Products, Nicaragua, 1991–2004 285 9.3 NRAs for Agricultural and Nonagricultural Tradables and the RRA, Nicaragua, 1991–2004 285 A.1 A Distorted Domestic Market for Foreign Currency 305 A.2 Distorted Domestic Markets for Farm Products 324 Tables 1.1 Key Economic and Trade Indicators, Latin America, 2000–043 1.2 Growth of Real GDP, Latin America, 1980–20045 1.3 Sectoral Shares of GDP, Latin America, 1965–20046 1.4 Agriculture’s Share in Employment, Latin America, 1965–20047 1.5 Sectoral Shares in Merchandise Exports, Latin America, 1965–20048 1.6 Indexes of Comparative Advantage in Agriculture and Processed Food, Latin America, 1965–2004 10 1.7 Exports of Goods and Services as a Share of GDP, Latin America, 1975–2004 11 1.8 Export Orientation, Import Dependence, and Self-Sufficiency in Primary Agricultural Production, Latin America, 1965–2004 12 1.9 NRAs in Agriculture, Latin America, 1965–2004 22 1.10 Dispersion of NRAs across Covered Agricultural Products, Latin America, 1965–2004 25 1.11 NRAs for Exportable and Import-Competing Products, and the TBI, Latin America, 1965–2004 27 1.12 NRAs in Agriculture Relative to Nonagricultural Industries, Latin America, 1965–2004 30 1.13 NRAs for Covered Farm Products, by Policy Instrument, Latin America, 1965–2004 32 1.14 Gross Subsidy Equivalents of Assistance